UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------
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, 1996 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
Participating Cumulative Pacific Stock Exchange
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 24, 1997, 21,308,812 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 $600,367,932.(1)
Documents Incorporated by Reference
Portions of the 1996 Annual Report to Shareholders are incorporated by
reference into Part I and Part II.
Portions of the Proxy Statement for the 1997 Annual Meeting of
Shareholders to be held April 22, 1997 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 24, 1997.
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
1996 FORM 10-K ANNUAL REPORT
Table of Contents
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Page
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Part I
Item 1. Business 1
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 4a. Executive Officers of the Registrant 9
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 11
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 11
Part III
Item 10. Directors and Executive Officers of the Registrant 12
Item 11. Executive Compensation 12
Item 12. Security Ownership of Certain Beneficial Owners
and Management 12
Item 13. Certain Relationships and Related Transactions 12
Part IV
Item 14. Exhibits, Financial Statement Schedules, and 13
Reports on Form 8-K
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PART I
ITEM 1. BUSINESS
- - ------------------
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.
In 1996, the Company commemorated its first 50 years of service.
Founded in 1946 in San Francisco, Airborne Flower Association of California
began as a transporter of fresh flowers from Hawaii and California to East
Coast markets. As Airborne Flower grew and offered other expanded service
options and capabilities, it changed its name in 1956 to Airborne Freight
Corporation. In 1968, the Company was formed when its predecessor
consolidated with Pacific Air Freight, a freight forwarder founded in
Seattle in 1949, to transport perishables to Alaska. The Company retained
the name Airborne Freight Corporation. The Company is proud of its 50
years of successes and looks forward to the future.
b) Financial Information about Industry Segments
---------------------------------------------
None
c) Narrative Description of Business
---------------------------------
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
- - -------------------
The Company's domestic operations, supported by approximately 280
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 1996, 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.
-1-
Beginning in 1995 and continuing into 1996, the Company redefined its
deferred service product through the creation of two distinct levels of
service. The services, Next Afternoon Service (NAS) and Second Day Service
(SDS) replaced Select Delivery Service, which had been the Company's
deferred service product since 1990. NAS is available for shipments
weighing five pounds or less and SDS is offered for shipments of all
weights. Select Delivery Service provided next afternoon service for
shipments weighing five pounds or less, with shipments weighing more than
five pounds delivered on a second day basis. Deferred service shipments,
which comprised approximately 42% of domestic shipments during 1996, are
lower priced than the overnight express product reflecting the less time
sensitive nature of the shipments. NAS rates are generally higher than SDS
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
- - ---------------------
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 allows for direct customer access to shipment
information through the use of their own computer systems.
FOCUS 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 and provided by FOCUS.
Pickup and Delivery
- - -------------------
The Company accomplishes its door-to-door pickup and delivery service
using approximately 13,300 radio-dispatched delivery vans and trucks, of
which approximately 5,100 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 11,100 boxes
in service.
Sort Facilities
- - ---------------
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
1996.
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.
The Company also conducts a day sort operation at Wilmington which
services SDS shipments. The day sort receives shipments weighing five
pounds or less from flights
-2-
arriving during the previous night sort operation. Shipments weighing more
than five pounds are either trucked or flown to the day sort from the
regional hub facilities.
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, in part, temporary inaccessibility of the
Wilmington airport.
In the fourth quarter of 1996, approximately 54% and 19% of total
shipment weight was handled through the night sort and day sort operations
at Wilmington, respectively, with the remaining 27% being handled
exclusively by the regional hubs.
Shipment Routing
- - ----------------
The logistics of moving a shipment from its origin to destination is
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, NAS shipments and SDS 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 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, handling SDS shipments weighing over five
pounds, generally 12 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 2:00 p.m., at
which time shipments are sorted and reloaded on the aircraft or trucks by
3:30 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 14
Company aircraft and by trucks.
Aircraft
- - --------
The Company currently utilizes used aircraft manufactured in the late
1960s and early 1970s. Upon acquisition, the aircraft are modified by the
Company. At the end of 1996, the Company's in-service fleet consisted of a
total of 110 aircraft, including 35 McDonnell Douglas DC-8s (consisting of
13 series 61, 6 series 62 and 16 series 63), 66 DC-9s (consisting of 2
series 10, 43 series 30 and 21 series 40), and 9 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 65 smaller aircraft are chartered
nightly to connect small cities with Company aircraft that then operate to
and from Wilmington.
-3-
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 these acquisitions, although retirement is an option if shipment
growth does not require the added capacity.
At year end 1996, the nightly lift capacity of the system was about
3.8 million pounds versus approximately 3.5 million pounds and 3.1 million
pounds at the end of 1995 and 1994, respectively. During 1996, the
Company's utilization of available lift capacity approximated 74%.
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 recent years, the Company
has completed, and continues to perform, a number of inspection and
maintenance programs pertaining to various Airworthiness Directives 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.
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
required 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, 1996, the Company has complied with interim compliance
deadline and expects to meet or exceed the December 31, 1998 interim
compliance deadline. As of December 31, 1996, 61% of the Company's
turbojet aircraft (25 DC-8 and 37 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.
The capital cost for Stage 3 hush kits is approximately $1.4 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 three of its DC-8-61 series aircraft. The capital cost
to modify the Company's remaining DC-8-61 aircraft to meet Stage 3 noise
standards is approximately $5.7 million per aircraft.
International Operations
- - ------------------------
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
-4-
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
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 which combine the Company's management expertise,
domestic express system and information systems with local business
knowledge and market reputation of suitable partners. Joint ventures have
been formed in Japan, Thailand, Malaysia, the Netherlands, and South
Africa.
Customers and Marketing
- - -----------------------
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, 1996, the Company
serviced approximately 460,000 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 80 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.
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.
-5-
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 1996, the system was in use at
approximately 9,300 domestic customer locations and 900 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 was the first in a series of 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.
In 1997, the Company will provide customers with additional
flexibility and productivity opportunities through the introduction of its
PC-based software program, "LIGHTSHIP SHIPPER". Through personal or office
computers via modem connection to the Airborne FOCUS system, customers will
be able to obtain estimated shipping rates and delivery times, fill out and
print shipping labels, schedule pickups, as well as track the status of
their shipments.
The Company offers a number of special logistics programs to customers
through Airborne Logistics Services ("ALS"), a division of ABX Air, Inc.
ALS 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.
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 over 90 countries. The certification is an asset
in doing business worldwide and provides evidence of the Company's
commitment to excellence and quality.
-6-
Competition
- - -----------
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
- - ---------
As of December 31, 1996, the Company and its subsidiaries had
approximately 12,700 full-time employees and 8,000 part-time and casual
employees. Approximately 6,000 full-time employees (including the
Company's 715 pilots) and 3,200 part-time and casual employees are employed
under union contracts, primarily with locals of the International
Brotherhood of Teamsters and Warehousemen.
Labor Agreements
- - ----------------
Most labor agreements covering the Company's ground personnel are for
a four-year term expiring in 1998. The Company's pilots are covered by a
contract which became amendable on July 31, 1995. The Company has not
experienced any significant disruption from labor disputes in the past.
However, negotiations with the pilots are in mediation, and the Company
cannot predict whether the contract with the pilots will be amended without
experiencing any work disruption.
Subsidiaries
- - ------------
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.
-7-
d) Advanced Logistics Services Corp., an Ohio corporation,
provided customized warehousing, inventory management and
shipping services, through late 1996. Logistics services
are currently provided by Airborne Logistic Services, a
division of ABX Air, Inc.
e) Sound Suppression, Inc., an Ohio corporation with no
current 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
- - ----------
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, security procedures,
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 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.
-8-
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. 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 42 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, 1996 is presented
in Note J (Segment Information) of the Notes to Consolidated Financial
Statements appearing in the 1996 Annual Report to Shareholders and is
incorporated herein by reference.
ITEM 2. PROPERTIES
- - --------------------
The Company leases general and administrative office facilities
located in Seattle, Washington.
At year end the Company maintained approximately 280 domestic and 40
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, sort
facilities, storage facilities, a training center, and operations and
administrative offices.
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 1996 Annual Report to
Shareholders and is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
- - ---------------------------
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - -------------------------------------------------------------
None
-9-
ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT
- - ----------------------------------------------
<TABLE>
<CAPTION>
Positions and Offices Presently
Name Age Held and Business Experience
- - ---- --- ----------------------------
<S> <C> <C>
Robert S. Cline 59 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)
Robert G. Brazier 59 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 59 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 56 Executive Vice President, Marketing
Division (1980 to date); Senior Vice
President (1978 to 1980); Vice President
(1973 to 1978)
Raymond T. Van Bruwaene 58 Executive Vice President, Field Services
Division (1980 to date); Senior Vice
President (1978 to 1980); Vice President
(1973 to 1978)
John J. Cella 56 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 45 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>
-10-
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
- - ---------------------------------------------------------------
STOCKHOLDERS MATTERS
- - --------------------
The response to this Item is contained in the 1996 Annual Report to
Shareholders and the information contained therein is incorporated by
reference.
On February 24, 1997 there were 1,298 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 1996 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 1996 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 1996 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
-11-
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 1997 Annual Meeting of Shareholders under the captions "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting 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
1997 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
1997 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
1997 Annual Meeting of Shareholders under the caption "Executive
Compensation" and the information contained therein is incorporated herein
by reference.
-12-
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 1996 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>
(a)2. Financial Statement Schedules
-----------------------------
Schedule II - Valuation and Qualifying Accounts
</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 February 4,
1997.
EXHIBIT NO. 4 Instruments Defining the Rights of Security Holders
- - ------------------------------------------------------------------
Including Indentures
- - --------------------
4(a) 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(b) 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
(incorporated by reference from Exhibit 4(d) to the Company's
Form 10-K for the year ended December 31, 1996).
-13-
4(c) Indenture dated as of December 3, 1992, between the
Company and The 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(d) First Supplemental Indenture dated as of September 15,
1995, between the Company and The 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(e) Second Supplemental Indenture dated as of February 12,
1997 between the Company and The Bank of New York, as trustee,
relating to the Company's 8-7/8% Notes due 2002.
4(f) Rights Agreement, dated as of February 14, 1997 between
the Company and The Bank of New York, as Rights Agent
(incorporated by reference from Exhibit 1 to the Company's
Registration Statement on Form 8-A, filed with the Securities
and Exchange Commission on February 12, 1997).
4(g) Certificate of the Voting Powers, Designations,
Preferences and Relative Participating, Optional and Other
Special Rights and Qualifications, Limitations or Restrictions
of Series A Participating Cumulative Preferred Stock of
Airborne Freight Corporation (incorporated by reference from
Exhibits 1 and 2 to the Company's Registration Statement on
Form 8-A, filed with the Securities and Exchange Commission on
February 12, 1997.)
4(h) Form of Right Certificate relating to the Rights
Agreement (see 4(f) above, incorporated by reference from
Exhibits 2 and 3 to the Company's Registration Statement on
Form 8-A, filed with the Securities and Exchange Commission on
February 12, 1997.)
EXHIBIT NO. 10 Material Contracts
- - ---------------------------------
Executive Compensation Plans and Agreements
- - -------------------------------------------
10(a) 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(b) 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(c) 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(d) 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(e) Airborne Freight Corporation Director Stock Bonus
Plan dated April 23, 1996 (incorporated by reference from
Exhibit 10(a) to the Company's Form 10-Q for the quarter ended
June 30, 1996).
-14-
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, amended as of January 1, 1997.
10(i) Airborne Express 1997-1999 Executive Group Incentive
Compensation Plan as of January 1, 1997.
10(j) 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(k) 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(l) $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, 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(m) 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(a) to the
Company's Form 10-Q for the quarter ended March 31, 1995).
10(n) Second Amendment to Credit Agreement dated May 1,
1996 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,
Bank of America NW, N.A., CIBC, Inc., National City Bank,
Columbus, as assignee of Continental Bank N.A., 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(b) to the Company's Form 10-Q for
the quarter ended June 30, 1996).
-15-
10(o) 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
granted for confidential commercial and financial information,
pursuant to Rule 24b-2 under the Securities Exchange Act of
1934 (incorporated herein by reference from Exhibit 10(n) to
the Company's From 10-K for the year ended December 31,
1996.).
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 1996 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, 1996.
EXHIBIT NO. 23 Consents of Experts and Counsel
- - ----------------------------------------------
23 Independent Auditors' Consent and Report on Schedule
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
-------------------
A Form 8-K was filed February 12, 1997 which disclosed the following
information:
(1) Approval, by the Board of Directors, of a shareholder rights
plan effective February 14, 1997.
(2) Summary description of the shareholder rights plan.
-16-
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 27, 1997
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/ Andrew V. Smith
- - ----------------------------- -----------------------------
Robert G. Brazier (Director) Andrew V. Smith (Director)
/s/ Robert S. Cline /s/ Mary Agnes Wilderotter
- - ----------------------------- -----------------------------
Robert S. Cline (Director) Mary Agnes Wilderotter (Director)
/s/ Harold M. Messmer, Jr. /s/ James H. Carey
- - ----------------------------- -----------------------------
Harold M. Messmer, Jr.(Director) James H. Carey (Director)
-17-
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, 1996 $7,750 $16,157 $15,562 $8,345
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
</TABLE>
-18-
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 --
February 4, 1997.
</TABLE>
EXHIBIT NO. 4 Instruments Defining the Rights of Security Holders
- - ------------------------------------------------------------------
Including Indentures
- - --------------------
<TABLE>
<S> <C> <C>
4(a) 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(b) 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
(incorporated by reference from Exhibit 4(d) to
the Company's Form 10-K for the year ended
December 31, 1996).
4(c) Indenture dated as of December 3, 1992, between --
the Company and The 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(d) First Supplemental Indenture dated as of --
September 15, 1995, between the Company and The
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(e) Second Supplemental Indenture dated as of --
February 12, 1997 between the Company and The
Bank of New York, as trustee, relating to the
Company's 8-7/8% Notes due 2002.
4(f) Rights Agreement, dated as of February 14, 1997 --
between the Company and The Bank of New York, as
Rights Agent (incorporated by reference from
Exhibit 1 to the Company's Registration
Statement on Form 8-A, filed with the Securities
and Exchange Commission on February 12, 1997).
4(g) Certificate of the Voting Powers, Designations, --
Preferences and Relative Participating, Optional
and Other Special Rights and Qualifications,
Limitations or Restrictions of Series A
Participating Cumulative Preferred Stock of
Airborne Freight Corporation (incorporated by
reference from Exhibits 1 and 2 to the Company's
Registration Statement on Form 8-A, filed with
the Securities and Exchange Commission on
February 12, 1997.)
4(h) Form of Right Certificate relating to the Rights --
Agreement (see 4(f) above, incorporated by
reference from Exhibits 2 and 3 to the Company's
Registration Statement on Form 8-A, filed with
the Securities and Exchange Commission on
February 12, 1997.)
</TABLE>
EXHIBIT NO. 10 Material Contracts
- - ----------------------------------
Executive Compensation Plans and Agreements
- - -------------------------------------------
<TABLE>
<S> <C> <C>
10(a) 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(b) 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(c) 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(d) 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(e) Airborne Freight Corporation Director Stock --
Bonus Plan dated April 23, 1996 (incorporated by
reference from Exhibit 10(a) to the Company's
Form 10-Q for the quarter ended June 30, 1996).
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, amended as of January 1,
1997.
10(I) Airborne Express 1997-1999 Executive Group --
Incentive Compensation Plan as of January 1,
1997.
10(j) 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(k) 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(l) $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, 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(m) 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(a) to
the Company's Form 10-Q for the quarter ended
March 31, 1995).
10(n) Second Amendment to Credit Agreement dated May --
1, 1996 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,
Bank of America NW, N.A., CIBC, Inc., National
City Bank, Columbus, as assignee of Continental
Bank N.A., 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(b) to the Company's
Form 10-Q for the quarter ended June 30, 1996).
10(o) 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 granted for
confidential commercial and financial
information, pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934 (incorporated
herein by reference from Exhibit 10(n) to the
Company's From 10-K for the year ended December
31, 1996.).
</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 1996 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, 1996.
</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
-------------------
A form 8-K was filed February 12, 1997 which disclosed
the following information:
(1) Approval, by the Board of Directors, of a --
shareholder rights plan effective February 14,
1997.
(2) Summary description of the shareholder rights --
plan.
</TABLE>
EXHIBIT 3(b)
BY-LAWS
OF
AIRBORNE FREIGHT CORPORATION
(A Delaware Corporation)
(As Amended to 2/04/97)
ARTICLE I
---------
Offices
-------
1. Registered Office. The registered office of the corporation
shall be located at such address as shall be designated by the Board of
Directors within the City of Wilmington, Delaware.
2. Other Offices. The corporation may have other offices, within or
outside the State of Delaware and within or outside the United States, at
such place or places as the Board of Directors may appoint from time to
time or the business of the corporation may require.
ARTICLE II
----------
Shareholders' Meetings
----------------------
1. All meetings of the shareholders shall be held at the principal
office of the corporation or at such other place as shall be determined
from time to time by the Board of Directors, and the place at which such
meeting shall be held shall be stated in the notice and call of the
meeting.
2. The annual meeting of the shareholders for the election of
directors and for the transaction of such other business as may properly
come before the meeting shall be held each year on the fourth Tuesday in
April, at the hour of 10 a.m., if not a legal holiday, or, if a legal
holiday, then on the day following, at the same hour. If the annual
meeting of the shareholders be not held as herein prescribed, the election
of directors may be held at any meeting called pursuant to these By-laws
and the laws of the State of Delaware.
3. At an annual meeting of shareholders, an item of business may be
conducted, and a proposal may be considered and acted upon, only if such
item or proposal is brought before the annual meeting (a) by, or at the
direction of, the Board of Directors, or (b) by any shareholder of the
corporation who is entitled to vote at the meeting and who complies with
the procedures set forth in the remainder of this Section 3. This
Section 3 shall not apply to matters of
-1-
procedure, which shall instead be subject to the authority of the presiding
officer at the meeting.
For an item of business or proposal to be brought before an annual
meeting by a shareholder, the shareholder must have given timely notice
thereof in writing to the Secretary of the corporation. To be timely, a
shareholder's notice must be delivered to, or mailed and received at, the
principal office of the corporation not less than ninety (90) days prior to
the date scheduled for the annual meeting (regardless of any postponements,
deferrals or adjournments of that meeting to a later date), or, if notice
or public disclosure of the date scheduled for the annual meeting is not
given or made at least one hundred (100) days prior thereto, not more than
ten (10) days following the day on which notice of the date scheduled for
the annual meeting is mailed or the day on which disclosure of that date is
made, whichever is earlier.
A shareholder's notice to the Secretary under this Section 3 shall set
forth, as to each item of business or proposal the shareholder intends to
bring before the annual meeting (i) a brief description of the item of
business or proposal and the reasons for bringing it before the annual
meeting, (ii) the name and address, as they appear on the corporation's
books, of the shareholder and of any other shareholders that the
shareholder knows or anticipates will support the item of business or
proposal, (iii) the number and class of shares of stock of the corporation
that are beneficially owned on the date of such notice by the shareholder
and by any such other shareholders, (iv) any financial interest of the
shareholder or any such other shareholders in such item of business or
proposal, (v) a statement as to whether such shareholder and any such other
shareholders intend to solicit proxies in support of such proposals and
(vi) in the case of nominations of directors, the existence and nature of
any financial or other arrangements or understandings between such
directors and such shareholder or such other shareholders pursuant to which
such nominations are being made.
The Board of Directors, or a designated committee thereof, may reject
a shareholder's notice that is not timely given in accordance with the
terms of this Section 3. If the Board of Directors, or a designated
committee thereof, determines that the information provided in
a shareholder's notice does not satisfy the requirements of this Section 3
in any material respect, the Secretary of the corporation shall notify the
shareholder of the deficiency in the notice. The shareholder shall have an
opportunity to cure the deficiency by providing additional information to
the Secretary within such period of time, not to exceed five (5) days from
the date such deficiency notice is given to the shareholder, as the Board
of Directors or such committee shall reasonably determine. If the
deficiency is not cured within such period, or if the Board of Directors or
such committee determines that the additional information provided by the
shareholder, together with information
-2-
previously provided, does not satisfy the requirements of this Section 3 in
any material respect, then the Board of Directors or such committee may
reject the shareholder's notice.
Notwithstanding the procedures set forth above in this Section 3, if a
shareholder desires to bring an item of business or proposal before an
annual meeting (it being understood that, except as may be required by law,
a shareholder shall not have the right to bring an item of business or
proposal before a special meeting), and neither the Board of Directors nor
any committee thereof has made a prior determination of whether the
shareholder has complied with the procedures set forth in this Section 3 in
connection with such item of business or proposal, then the chairman of the
annual meeting shall determine and declare at the annual meeting whether
the shareholder has so complied. If the chairman determines that the
shareholder has so complied, then the chairman shall so state and ballots
shall be provided for use at the meeting with respect to such item of
business or proposal. If the chairman determines that the shareholder has
not so complied, then, unless the chairman, in his sole and absolute
discretion, determines to waive such compliance, the chairman shall state
that the shareholder has not so complied and the item of business or
proposal shall not be brought before the annual meeting.
This Section 3 shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, directors and
committees of the Board of Directors, but, in connection with such reports,
no item of business may be conducted, and no proposal may be considered and
acted upon, unless there has been compliance with the procedures set forth
in this Section 3 in connection therewith.
4. At the annual meeting of shareholders, the order of business
shall be as follows unless otherwise determined by the presiding officer:
(a) Calling the meeting to order;
(b) Proof of notice of meeting and proxy report;
(c) Reading of minutes of last annual meeting;
(d) Reports of officers;
(e) Reports of committees;
(f) Confirmation of selection of independent
accountants;
-3-
(g) Election of directors; and
(h) Miscellaneous business.
5. Special meetings of the shareholders for any purpose other than
those regulated by statute may be called at any time by the Board of
Directors and shall be called by the Secretary at any time, upon written
request of the Chief Executive Officer or of any two directors.
6. Notice of the time and place of the annual meeting or of any
special meeting of shareholders shall be given by delivering or by mailing
a written or printed notice of the same at least ten days, and not more
than sixty days, prior to the meeting, with postage prepaid, to each
shareholder of record entitled to vote at such meeting and addressed to the
shareholder's last known post office address appearing on the books of the
corporation.
Notice of any shareholders' meeting may be waived in writing by any
shareholder at any time.
7. Except as otherwise required by the Certificate of Incorporation
or by law:
(a) A quorum at any annual or special meeting of shareholders
shall consist of shareholders representing, either in person or by
proxy, a majority of the outstanding shares of the corporation
entitled to vote at such meeting;
(b) If a quorum be not present at a properly called
shareholders' meeting, the meeting may be adjourned by those present,
without new notice being given; provided, however, that any meeting at
which directors are to be elected shall be adjourned only from day to
day until such directors have been elected, and a quorum established
at any time during such meeting, including adjournments thereof, shall
constitute a quorum for the purpose of electing directors;
(c) At any properly called meeting or adjourned meeting of
shareholders at which a quorum as in this paragraph 7 is defined is
present (i) in all matters, other than the election of directors, the
affirmative vote of the majority of shares present in person or
represented by proxy and entitled to vote on the subject matter shall
be the act of the shareholders, and (ii) directors shall be elected by
a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the
election of directors; and
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(d) Every shareholder entitled to vote shall have the right to
vote either in person or by proxy.
ARTICLE III
-----------
Stock
-----
1. Certificates representing shares of stock shall be issued in
numerical order, and each shareholder shall be entitled to a certificate
bearing signature or facsimile signature of the Chief Executive Officer,
President or Vice President, and the Treasurer or an Assistant Treasurer,
or the Secretary or an Assistant Secretary, certifying to the number of
shares owned. Certificates bearing facsimile signatures of any of the
foregoing may be issued during a reasonable period following such person
leaving office.
2. Transfers of shares shall be made only upon the transfer books of
the corporation, kept at the office of the corporation or Registrar duly
authorized by the Board of Directors; and before a new certificate is
issued, the old certificates shall be surrendered for cancellation.
3. Registered shareholders only shall be entitled to be treated by
the corporation as the holders in fact of the shares standing in their
respective names, and the corporation shall not be bound to recognize any
equitable or other claim to or interest in any share on the part of any
other person, whether or not it shall have express or other notice thereof,
except as expressly provided by the laws of the State of Delaware.
4. In case of loss or destruction of any certificate representing
shares of stock, another may be issued in its place upon proof of such loss
or destruction and upon the giving of a satisfactory bond or indemnity to
the corporation in such sum or in such manner as the Board of Directors may
provide.
5. In order that the corporation may determine the shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion, or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date which shall not be more than sixty nor less than ten
days before the date of such meeting nor more than sixty days prior to any
other action.
-5-
ARTICLE IV
----------
Board of Directors
------------------
1. The management of the affairs, property and interests of the
corporation shall be vested in the Board of Directors, consisting of no
less than eight and no more than twelve persons, as determined from time to
time by resolution of the Board of Directors. The directors shall be
classified with respect to the time for which they shall severally hold
office, by dividing them into three classes, to be known as classes "A",
"B", and "C". The number of directors in each of the three classes shall
be as determined from time to time by resolution of the Board of Directors.
At each annual election, the successors to the class of directors
whose terms shall expire in that year shall be elected to hold office for
the term of three years so that the terms of office of one class of
directors shall expire in each year. The terms of office of directors in
Class A shall expire in 1989 and every three years thereafter; the terms of
office of directors in Class B shall expire in 1990 and every three years
thereafter; and the terms of office of directors in Class C shall expire in
1988, and every three years thereafter.
Upon any increase in the size of the Board of Directors, the
additional position(s) shall be filled by a vote of a majority of the
directors then in office, who shall designate, in conformity with the terms
of this Section 1, the class to which each additional director shall be
assigned. Notwithstanding any other provision of these By-laws or of law,
no amendment of these By-laws that would have the effect of increasing the
number of directors of the corporation to a number larger than 12 shall be
valid unless approved by vote of the shareholders of the corporation.
2. Nominations of candidates for election as directors at an annual
meeting of shareholders may only be made (a) by, or at the direction of,
the Board of Directors, or (b) by any shareholder of the corporation who is
entitled to vote at the meeting and who complies with the procedures set
forth in the remainder of this Section 2.
If a shareholder proposes to nominate one or more candidates for
election as directors at an annual meeting, the shareholder must have given
timely notice thereof in writing to the Secretary of the corporation. To
be timely, a shareholder's notice must be delivered to, or mailed and
received at, the principal office of the corporation not less than seventy
(70) days prior to the date scheduled for the annual meeting (regardless of
any postponements, deferrals or adjournments of that meeting to a later
date), or, if notice or public disclosure of the date scheduled for the
annual meeting is not given or made at least eighty (80) days prior
thereto,
-6-
not more than ten (10) days following the day on which notice of the date
scheduled for the annual meeting is mailed or the day on which disclosure
of that date is made, whichever is earlier.
A shareholder's notice to the Secretary under this Section 2 shall set
forth, as to each person whom the shareholder proposes to nominate for
election as a director (a) the name, age, business address and residence
address of such person, (b) the principal occupation or employment of such
person, (c) the number and class of shares of stock of the corporation that
are beneficially owned on the date of such notice by such person, and (d)
any other information relating to such person required to be disclosed in
solicitations of proxies with respect to nominees for election as directors
pursuant to Regulation 14A under the Securities Exchange Act of 1934,
including but not limited to information required to be disclosed by
Schedule 14A of Regulation 14A, and any other information that the
shareholder would be required to file with the Securities and Exchange
Commission in connection with the shareholder's nomination of such person
as a candidate for director or the shareholder's opposition to any
candidate for director nominated by, or at the direction of, the Board of
Directors. In addition to the above information, a shareholder's notice to
the Secretary under this Section 2 shall (i) set forth (A) the name and
address, as they appear on the corporation's books, of the shareholder and
of any other shareholders that the shareholder knows or anticipates will
support any candidate or candidates nominated by the shareholder, and (B)
the number and class of shares of stock of the corporation that are
beneficially owned on the date of such notice by the shareholder and by any
such other shareholders, and (ii) be accompanied by a written statement,
signed and acknowledged by each candidate nominated by the shareholder,
that the candidate agrees to be so nominated and to serve as a director of
the corporation if elected at the annual meeting.
The Board of Directors, or a designated committee thereof, may reject
any shareholder's nomination of one or more candidates for election as
directors if the nomination is not made pursuant to a shareholder's notice
timely given in accordance with the terms of this Section 2. If the Board
of Directors, or a designated committee thereof, determines that the
information provided in a shareholder's notice does not satisfy the
requirements of this Section 2 in any material respect, the Secretary of
the corporation shall notify the shareholder of the deficiency in the
notice. The shareholder shall have an opportunity to cure the deficiency
by providing additional information to the Secretary within such period of
time, not to exceed five (5) days from the date such deficiency notice is
given to the shareholder, as the Board of Directors or such committee shall
reasonably determine. If the deficiency is not cured within such period,
or if the Board of Directors or such committee determines that the
additional information provided by the shareholder, together with
information previously provided, does not satisfy the
-7-
requirements of this Section 2 in any material respect, then the Board of
Directors or such committee may reject the shareholder's notice.
Notwithstanding the procedures set forth above in this Section 2, if a
shareholder proposes to nominate one or more candidates for election as
directors at an annual meeting, and neither the Board of Directors nor any
committee thereof has made a prior determination of whether the shareholder
has complied with the procedures set forth in this Section 2 in connection
with such nomination, then the chairman of the annual meeting shall
determine and declare at the annual meeting whether the shareholder has so
complied. If the chairman determines that the shareholder has so complied,
then the chairman shall so state and ballots shall be provided for use at
the meeting with respect to such nomination. If the chairman determines
that the shareholder has not so complied, then, unless the chairman, in his
sole and absolute discretion, determines to waive such compliance, the
chairman shall state that the shareholder has not so complied and the
defective nomination shall be disregard.
3. Notwithstanding the power and authority of the Board of Directors
to amend these By-laws, including, without limitation, provisions relating
to the number of directors, the number of directors may at any time be
increased or decreased by a vote of the majority of the voting stock issued
and outstanding, at any regular or special meeting of shareholders, if the
notice of such meeting contains a statement of the proposed increase or
decrease; and in case of any such increase, the Board of Directors or the
shareholders, at any general or special meeting held before the Board of
Directors takes action, shall have power to elect such additional
directors, to hold office until the next annual meeting of the shareholders
and until their successors are elected and qualified.
4. All vacancies in the Board of Directors, whether caused by
resignation, death, or otherwise, may, except as otherwise provided in the
Certificate of Incorporation, be filled by a majority of the remaining
directors attending a stated or special meeting called for that purpose,
even though less than a quorum be present, or by the shareholders at any
regular or special meeting held prior to the filling of such vacancies by
the Board of Directors as above provided. A director thus elected to fill
any vacancy shall hold office for the unexpired term of the newly created
position and until a successor is elected and qualified.
5. Regular meetings of the Board of Directors may be held without
notice at the principal office of the corporation or at such other place or
places as the Board of Directors may designate from time to time. The
annual meeting of the Board shall be held without notice immediately
following the adjournment of the annual meeting of shareholders.
-8-
6. Special meetings of the Board of Directors may be called at any
time by the Chairman or by any two directors, to be held at the principal
office of the corporation or at such other place or places as the Board of
Directors may designate from time to time.
7. The notice of all special meetings of the Board of Directors
shall be given to each director by delivering, telegraphing, or mailing a
written or printed notice of the same at least three days prior to the
meeting and, if by mail, with postage prepaid, Sundays and holidays
excluded; provided that if a meeting by telephone is to be held as
permitted by statute, verbal or written notice thereof shall be given at
least three hours prior to the scheduled time for such meeting.
8. The presence of one-half or more of the members of the whole
Board of Directors shall be necessary at all meetings to constitute a
quorum for the transaction of business, but less than a quorum may adjourn
any meeting which may be held on a subsequent date without further notice,
provided a quorum be present at such deferred meeting.
9. There may be an Executive Committee of the Board of Directors,
which, if constituted, shall meet on call of the Chief Executive Officer or
any two Committee members and shall be comprised of two salaried officer-
members and two outside members, or as otherwise determined by the Board of
Directors. The Executive Committee may act for the full Board between
meetings and shall have such specific powers as delegated by the Board.
Other standing or temporary committees may be appointed from its own
number by the Board of Directors from time to time, and the Board of
Directors may invest from time to time such Committee with powers as it may
see fit, subject to such other conditions as may be prescribed by the
Board.
Each committee of the Board shall keep regular minutes of the
transaction of its meetings and shall cause them to be recorded in books
kept for that purpose in the office of the corporation and shall report the
same to the Board of Directors at its next meeting.
10. By resolution of the Board of Directors, a fixed annual sum and
attendance fee, together with expenses of attendance, if any, may be
allowed the directors who are not salaried by the corporation for their
services and for attendance at each regular or special meeting of such
Board; provided, that nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity
and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee
meetings.
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ARTICLE V
---------
Officers
--------
1. The officers of the corporation may include a Chairman of the
Board and Chief Executive Officer, a Vice Chairman of the Board, a
President, one or more Vice Presidents, a Secretary, and a Treasurer and
may include one or more Executive Vice Presidents, one or more Senior Vice
Presidents, one or more Assistant Vice Presidents, one or more Assistant
Secretaries, one or more Assistant Treasurers, a Comptroller, and one or
more Assistant Comptrollers, all of whom shall hold office in the
discretion of the Board of Directors. The Chairman of the Board and Chief
Executive Officer shall be a director, and any of the other officers may be
directors of the corporation. Any person may hold more than one office, if
permitted by law. The officers of the corporation shall have the following
duties, subject at all times to action of the Board of Directors:
2. Chairman of the Board: The Chairman of the Board shall be
chairman of and preside at all meetings of the Board of Directors and all
meetings of the shareholders of the corporation; shall determine the agenda
for all such meetings; and may call special meetings of the Board of
Directors at such times, at such places, and for such purposes as the
Chairman shall determine. The Chairman of the Board shall also be the
Chief Executive Officer and shall have general management and direction of
the business and of other officers of the corporation, including all powers
ordinarily incident thereto. Except where by law the signature of the
President is required, the Chief Executive Officer shall possess the same
power to sign all certificates, contracts, and other instruments of the
corporation which may be authorized by the Board of Directors. The Board
of Directors shall from time to time determine who shall exercise the
functions of the Chief Executive Officer during the absence or disability
of such officer.
3. Vice Chairman of the Board: The Vice Chairman of the Board, if
one is appointed, shall exercise the functions of the Chairman during the
absence or disability of the Chairman.
4. President: The President shall be the principal operating
officer of the corporation and shall exercise the functions of the Chairman
in the absence or disability of the Chairman and the Vice Chairman.
5. Vice Presidents: The Executive Vice Presidents, Senior Vice
Presidents, Vice Presidents, and Assistant Vice Presidents shall have such
powers and discharge such duties as may be assigned from time to time by
the Chief Executive Officer or the Board of Directors.
-10-
6. The Secretary and/or Assistant Secretary shall issue notices for
all meetings, except that notice for special meetings of directors called
at the request of two directors as provided in Section 6 of Article IV of
the By-laws may be issued by such directors; shall keep minutes of all
meetings; shall have charge of the seal and the corporate books; and shall
make such reports and perform such other duties as are incident to the
office or are properly required by the Board of Directors.
7. The Treasurer and/or Assistant Treasurer shall have the custody
of all moneys and securities of the corporation and shall keep regular
books of account; shall disburse the funds of the corporation in payment of
the just demands against the corporation or as may be ordered by the Board
of Directors, taking proper vouchers for such disbursements; shall render
to the Board of Directors from time to time as may be required an account
of all transactions as may be assigned from time to time by Chief Executive
Officer or the Board of Directors.
8. In the case of absence or inability to act of any officer of the
corporation and of any person herein authorized to act in place thereof,
the Board of Directors may from time to time delegate the powers or duties
of such officer to any other officer or any director or other person whom
it may select.
9. Vacancies in any office arising from any cause may be filled by
the directors at any regular or special meeting.
10. The Board of Directors may appoint such other officers and agents
as it shall deem necessary or expedient, who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall
be determined from time to time by the Board of Directors.
11. The salaries of all officers and agents of the corporation shall
be fixed by the Board of Directors.
12. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the
Board of Directors may be removed at any time, with or without cause, by
the affirmative vote of a majority of the whole Board of Directors.
13. The Board of Directors may, by resolution, require any and all of
the officers to give bonds to the corporation, with sufficient surety or
sureties, conditioned for the faithful performance of the duties of their
respective offices and to comply with such other conditions as may from
time to time be required by the Board of Directors.
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ARTICLE VI
----------
Dividends and Finance
---------------------
1. Dividends may be declared by the Board of Directors and paid out
of the annual net profits of the corporation or out of its net assets in
excess of its capital, subject to the conditions and limitations imposed by
the Certificate of Incorporation of the corporation and the laws of the
State of Delaware.
2. Before making any distribution of profits, there may be set aside
out of the net profits of the corporation such sums as the directors from
time to time in their absolute discretion deem expedient as a reserve fund
to meet contingencies, or for equalizing dividends, or for maintaining any
property of the corporation, or for any other purposes, and any profits of
any year not distributed as dividends shall be deemed to have been thus set
apart until otherwise disposed of by the Board of Directors.
3. The moneys of the corporation shall be deposited in the name of
the corporation in such bank or banks or trust company or trust companies
as the Board of Directors shall designate, and shall be drawn out only by
instrument signed by persons designated by resolution by the Board of
Directors.
ARTICLE VII
-----------
Notices
-------
1. Whenever the provisions of the statute or these By-laws require
notice to be given to any director, officer, or shareholder, they shall not
be construed to mean personal notice; such notice may be given in writing
by depositing the same in a post office or letter box, in a postpaid,
sealed wrapper, addressed to such director, officer, or shareholder at his
or her address as the same appears on the books of the corporation, and the
time when the same shall be mailed shall be deemed to be the time of the
giving of such notice. Notice may also be given by telegraph, in which
event proof of delivery shall be required.
2. A waiver of any notice in writing, signed by a shareholder,
director, or officer, whether before or after the time stated in said
waiver for holding a meeting, shall be deemed equivalent to a notice
required to be given to any director, officer, or shareholder.
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ARTICLE VIII
------------
Seal
----
The corporate seal of the corporation shall be in the form prescribed
by the Board of Directors.
ARTICLE IX
----------
Amendments
----------
These By-laws may be altered, amended, or repealed by the Board of
Directors.
The foregoing By-laws were duly adopted as the By-laws of Airborne
Freight Corporation, a Delaware corporation, on the 10th day of July, 1968,
by B.J. Consono, F.J. Obara, Jr., and A.D. Grier, being all of the
incorporators, and subsequently amended from time to time, most recently on
February 4, 1997.
-13-
EXHIBIT 4(e)
SECOND SUPPLEMENTAL INDENTURE
RELATING TO THE COMPANY'S
8-7/8% NOTES DUE 2002
SECOND SUPPLEMENTAL INDENTURE, dated as of February 12,
1997, among AIRBORNE FREIGHT CORPORATION, a corporation duly orga
nized and existing under the laws of the State of Delaware
(herein called the "Company"), having its principal office at
3101 Western Avenue, Seattle, Washington 98111, ABX AIR, INC., a
corporation duly organized and existing under the laws of the
State of Delaware (herein called "ABX"), having its principal
office at 145 Hunter Drive, Wilmington, Ohio 45177, AIRBORNE
FORWARDING CORPORATION, a corporation duly organized under the
laws of the State of Delaware (herein called "Airborne
Forwarding"), having its principal office at 1851 Alexander Bell
Dr., Reston, Virginia 22091, WILMINGTON AIR PARK, INC., a
corporation duly organized and existing under the laws of the
State of Ohio (herein called "Wilmington Air Park"), having its
principal office at 145 Hunter Drive, Wilmington, Ohio 45177,
AIRBORNE FTZ, INC., a corporation duly organized under the laws
of the State of Ohio (herein called "Airborne FTZ"), having its
principal office at 145 Hunter Drive, Wilmington, Ohio 45177,
(ABX, Airborne Forwarding, Wilmington Air Park and Airborne FTZ,
being herein collectively referred to as the "Guarantors" and
each being individually referred to as a "Guarantor") and THE
BANK OF NEW YORK, a New York banking corporation, as Trustee
(herein called the "Trustee"), supplementing that certain
Indenture, dated as of December 15, 1992 (the "Indenture"), among
the Company, ABX, Airborne Forwarding and the Trustee.
RECITALS OF THE COMPANY AND THE GUARANTORS
The Company, ABX and Airborne Forwarding have heretofore
executed and delivered to the Trustee the Indenture providing for
the issuance from time to time of its unsecured debentures, notes
or other evidences of indebtedness (herein and therein called the
"Securities"), to be issued in one or more series as in the
Indenture provided.
Section 901 of the Indenture provides, among other things,
that, without the consent of any Holders, the Company, when
authorized by a Board Resolution of the Company, the Guarantors,
when authorized by respective Board Resolutions of the
Guarantors, and the Trustee, at any time and from time to time,
may enter into one or more indentures supplemental thereto, in
form satisfactory to the Trustee, to cure any ambiguity, to
correct or supplement any provision herein which may be
inconsistent with any other provision herein, or to make any
other provisions with respect to matters or questions arising
under the Indenture, provided that such action shall not
adversely affect the interests of the Holders of Securities of
any series in any material respect.
The Company and the Guarantors, pursuant to the foregoing
authority, propose in and by this Second Supplemental Indenture
to supplement the Indenture in certain respects with respect to
the Securities denominated its "8-7/8% Notes Due December 15,
2002," the terms of which are described in the Pricing Agreement
dated December 14, 1992 between the Company, ABX, Airborne
Forwarding and Goldman Sachs & Co. (the "2002 Securities"),
including the addition of Wilmington Air Park and Airborne FTZ as
Guarantors.
All things necessary to make this Second Supplemental
Indenture a valid agreement of the Company and the Guarantors,
and a valid supplement to the Indenture, in accordance with its
terms, have been done.
NOW, THEREFORE, THIS SECOND SUPPLEMENTAL INDENTURE
WITNESSETH:
In consideration of the above matters and of the covenants
contained herein, it is mutually agreed, for the equal and
proportionate benefit of all Holders of the 2002 Securities, as
follows:
ARTICLE ONE
Definitions and Other Provisions
of General Application
Section 101. Definitions.
-----------
(a) For all purposes of this Second Supplemental Indenture,
except as otherwise expressly provided or unless the context
otherwise requires:
(1) the terms defined in this Article have the
meanings assigned to them in this Article and include the
plural as well as the singular;
(2) capitalized terms used herein without definition
shall have the meanings specified in the Indenture;
(3) unless the context otherwise requires, any
reference to an "Article" or a "Section" refers to an
Article or a Section, as the case may be, of this Second
Supplemental Indenture; and
(4) the words "herein," "hereof" and "hereunder" and
other words of similar import refer to this Second
Supplemental Indenture as a whole and not to any particular
Article, Section or other subdivision.
-2-
(b) The Indenture is hereby amended with respect to the
2002 Securities by amending and restating in its entirety the
definition of "Guarantors" set forth in Section 101 of the
Indenture to read as follows:
"Guarantors" means ABX Air, Inc., a corporation duly
organized and existing under the laws of the State of
Delaware, Airborne Forwarding Corporation, a corporation
duly organized under the laws of the State of Delaware,
Wilmington Air Park, Inc., a corporation duly organized and
existing under the laws of the State of Ohio, and Airborne
FTZ, Inc., a corporation duly organized under the laws of
the State of Ohio, except in the case any of such Persons
has been released from its Guarantees hereunder in
accordance with Section 1404 hereof.
ARTICLE TWO
Obligation of Guarantors
Section 201. Guarantee by Wilmington Air Park and
Airborne FTZ.
------------------------------------
By execution and delivery hereof, Wilmington Air Park and
Airborne FTZ each expressly agrees, with respect to the 2002
Securities, to become a Guarantor under the Indenture and to be
bound by all terms and provisions therein made applicable thereby
to Wilmington Air Park and Airborne FTZ, including without
limitation those set forth in Article Fourteen of the Indenture
providing for the joint and several and unconditional guarantees
of the 2002 Securities by the Guarantors.
ARTICLE THREE
Miscellaneous
Section 301. Miscellaneous
-------------
(a) The Trustee accepts the trusts created by the Indenture
as supplemented by this Second Supplemental Indenture, and agrees
to perform the same upon the terms and conditions of the
Indenture, as supplemented hereby.
(b) The recitals contained herein shall be taken as
statements of the Company or the Guarantors, as applicable, and
the Trustee assumes no responsibility for their correctness.
-3-
(c) Each of the Company, the Guarantors and the Trustee
acknowledges that all of its respective covenants and agreements
set forth in the Indenture are in no way amended or modified
except as provided in this Second Supplemental Indenture.
(d) Each of Wilmington Air Park and Airborne FTZ makes, as
of the date of execution of this Second Supplemental Indenture,
all of the respective covenants and agreements set forth by the
Guarantors in the Indenture as supplemented hereby.
(e) All covenants and agreements in this Second
Supplemental Indenture by the Company, the Guarantors or the
Trustee shall bind its respective successors and assigns, whether
so expressed or not.
(f) Except as otherwise provided herein, the Indenture
shall remain in full force and effect in accordance with its
terms.
(g) This Second Supplemental Indenture shall have effect
only with respect to the 2002 Securities.
(h) This Second Supplemental Indenture shall be deemed to
be incorporated in, and made a part of, the Indenture; and the
Indenture, as supplemented hereby, shall be read, taken and
construed as one and the same instrument.
This instrument may be executed in any number of
counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but
one and the same instrument.
-4-
IN WITNESS WHEREOF, the parties hereto have caused this
Second Supplemental Indenture to be duly executed, and their
respective corporate seals to be hereunto affixed, all as of the
day and year first above written.
[SEAL] AIRBORNE FREIGHT CORPORATION
By/s/Roy C. Liljebeck
------------------------------
Executive Vice President, CFO
Attest:
/s/David C. Anderson
- - ------------------------------
Secretary
[SEAL] ABX AIR, INC.
By/s/Stephen E. DeForest
------------------------------
Secretary
Attest:
/s/Joseph C. Hete
- - ------------------------------
Sr. Vice President, Chief Operating Officer
[SEAL] AIRBORNE FORWARDING CORPORATION
By/s/Roy C. Liljebeck
------------------------------
Secretary
Attest:
David C. Anderson
- - ------------------------------
Secretary
-5-
[SEAL] WILMINGTON AIR PARK, INC.
By/s/Stephen E. DeForest
------------------------------
Secretary/Treasurer
Attest:
/s/Joseph C. Hete
- - ------------------------------
Vice President
[SEAL] AIRBORNE FTZ, INC.
By/s/Stephen E. DeForest
------------------------------
Secretary/Treasurer
Attest:
/s/Joseph C. Hete
- - ------------------------------
Vice President
[SEAL] THE BANK OF NEW YORK
By/s/Vivian George's
------------------------------
Assistant Vice President
Attest:
/s/Paul Schmalzel
- - ------------------------------
Assistant Treasurer
-6-
State of Washington )
) ss.:
King County )
On the 12th day of February, 1997, before me personally
came Roy C. Liljebeck, to me known, who, being by me duly sworn,
did depose and say that he is Executive Vice President, CFO of
Airborne Freight Corporation, one of the corporations described
in and which executed the foregoing instrument; that he knows the
seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by
authority of the Board of Directors of said corporation; and that
he signed his name thereto by like authority.
/s/Janell Cote
------------------------------
Notary Public
State of Washington )
) ss.:
King County )
On the 13th day of February, 1997, before me personally
came Stephen E. DeForest to me known, who, being by me duly
sworn, did depose and say that he is Secretary of ABX Air, Inc.,
one of the corporations described in and which executed the
foregoing instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of
said corporation; and that he signed his name thereto by like
authority.
/s/Diane C. Kristine
------------------------------
Notary Public
-7-
State of Washington )
) ss.:
King County )
On the 12th day of February, 1997, before me personally
came Roy C. Liljebeck, to me known, who, being by me duly sworn,
did depose and say that he is Secretary of Airborne Forwarding
Corporation, one of the corporations described in and which
executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by authority of the Board
of Directors of said corporation; and that he signed his name
thereto by like authority.
/s/Janell Cote
------------------------------
Notary Public
State of Washington )
) ss.:
County of King )
On the 13th day of February, 1997, before me personally
came Stephen E. DeForest, to me known, who, being by me duly
sworn, did depose and say that he is Secretary of Wilmington Air
Park, Inc., one of the corporations described in and which
executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by authority of the Board
of Directors of said corporation; and that he signed his name
thereto by like authority.
/s/Diane C. Kristine
------------------------------
Notary Public
-8-
State of Washington )
) ss.:
County of King )
On the 13th day of February, 1997, before me personally
came Stephen E. DeForest, to me known, who, being by me duly
sworn, did depose and say that he is Secretary of Airborne FTZ,
Inc., one of the corporations described in and which executed the
foregoing instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of
said corporation; and that he signed his name thereto by like
authority.
/s/Diane C. Kristine
------------------------------
Notary Public
State of New York )
) ss.:
City of New York )
On the 18th day of February, 1997, before me personally
came Vivian George's, to me known, who, being by me duly sworn,
did depose and say that he is Assistant Vice President of The
Bank of New York, one of the corporations described in and which
executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by authority of the Board
of Directors of said corporation; and that he signed his name
thereto by like authority.
/s/William J. Cassels
------------------------------
Notary Public
-9-
EXHIBIT 10(h)
Airborne Express
1995-1999
Executive Incentive Compensation Plan
(First Amendment, January 1, 1997)
Airborne Freight Corporation D/B/A
"Airborne Express"
EXECUTIVE INCENTIVE COMPENSATION PLAN
-------------------------------------
Effective January 1, 1995 - December 31, 1999
(First Amendment, January 1, 1997)
1. Purpose
-------
The purpose of this Plan is to achieve Corporate goals by providing
incentive compensation to eligible key executives who through
industry, ability and exceptional service, contribute materially to
the success of Airborne Express.
2. Definitions
-----------
When used in the Plan, the following words and phrases shall have the
following meanings:
(a) Attainment - The actual results of effort to reach the
Target for a Performance Measure, usually stated as a percentage
of Target.
(b) Beneficiary - The beneficiary or beneficiaries designated
to receive the amount, if any, payable under the Plan upon the
death of a Participant.
(c) Board - The Board of Directors of Airborne Freight
Corporation.
(d) Compensation Committee - The Compensation Committee of the
Board.
(e) Maximum - The point above Target that represents the
maximum payout level for a particular Performance Measure.
(f) Net Profit - Pre-tax, pre-profit sharing net profit.
(g) Participant - Any employee eligible to receive awards under
section 4.
(h) Performance Measure - A specific objective measure to
assess success in achieving established goals. Permitted
Performance Measures are listed in section 5.
(i) Plan - The 1995-1999 Executive Incentive Compensation Plan,
as amended.
(j) Plan Year - Each calendar year for which Performance
Measures and Targets are established for the Company.
(k) Retirement - When an employee leaves active service and
qualifies under the Company's regular or early retirement
programs.
(l) Revenue Growth - Percentage growth in sales revenue over
the prior year.
(m) Target - The point at which performance equals 100% of the
stated objective.
(n) Threshold - The point below Target at which incentive
payout for each Performance Measure begins.
-2-
3. Administration
--------------
(a) The Compensation Committee will have the power to interpret
the Plan and to make all determinations necessary or desirable
for its administration.
(b) The decision of the Compensation Committee on any question
concerning the interpretation or administration of the Plan will
be final and conclusive. Nothing in the Plan will be deemed to
give any officer or employee, or legal representatives or
assigns, any right to participate in the Plan except to such
extent as the Compensation Committee may determine pursuant to
the provisions of the Plan.
4. Eligibility
-----------
(a) Positions eligible for the EICP are:
------------------------------------
Chairman of the Board
Chief Executive Officer
President
Chief Operating Officer
Executive Vice Presidents
Chief Financial Officer
President, ABX Air, Inc.
Division Heads
Except as otherwise provided below, Participants for a Plan
Year must be employed for the entire Plan Year.
(b) With approval of the Compensation Committee, prior to June
30 of each Plan Year, additional employees may be included in
the Plan, with any award pro-rated as shall be determined by the
Compensation Committee.
(c) Participants who retire in good standing during the year
will be eligible for a pro-rated award for the year in which
they retire provided they are on the active payroll on June 30th
or later of the Plan Year.
(d) Participants who take a leave of absence will have their
awards calculated based on actual Airborne salary earnings for
the calendar year. Any disability insurance payments will not
be included as earnings in calculating awards. Participants who
are on a leave of absence for more than 90 days and who continue
to receive full or partial salary continuance will have their
awards adjusted. Any salary paid while on a leave of absence
period over 90 days will not be included in the base used to
calculate awards.
5. Performance Measures
--------------------
Unless otherwise determined by the Committee, bonuses will be based
on two Performance Measures -- Net Profit and Revenue Growth. In
addition to or in lieu of one or both of the preceding Performance
Measures, the Committee may select one or more of the following
Performance Measures: earnings per share, shipment growth, increase
in stock price, return on assets or return on equity. The
Compensation Committee will set annual Targets for each Performance
Measure within 90 days after the beginning of each Plan Year and
such Targets may not be changed thereafter. The Targets may be
ratified by the Board. Unless within 90 days after the beginning
of each Plan Year the Committee selects Performance Measures in
addition to or in lieu of one or both of Net Profit and Revenue
Growth, bonuses will be allocated based on Attainment of Targets as
follows:
(a) Net Profit earnings is the major corporate Performance Measure
and shall be the basis of 75% of the bonus allocation.
(b) An 80% Threshold is set on targeted Net Profit.
(c) A 150% Maximum is set on targeted Net Profit.
-3-
(d) Revenue Growth is the second major corporate Performance
Measure and shall be the basis of 25% of the bonus allocation.
(e) An 80% Threshold is set on targeted Revenue Growth.
(f) A 150% Maximum is set on targeted Revenue Growth.
6. Qualifiers on Performance Measures
----------------------------------
(a) The bonus percentage is applied to the Participant's salary paid
in the Plan (calendar) Year.
(b) No bonus will be paid for Revenue Growth unless the
Threshold Net Profit is achieved.
(c) To receive any award under EICP, a Participant's individual
performance must be evaluated as at least competent by the
Compensation Committee.
(d) The Committee has the discretion to reduce or eliminate any
award.
7. Bonus Amounts
-------------
Actual bonuses will be determined by multiplying the following
percentages, or a pro-rated portion thereof, by the Participant's
annual salary.
<TABLE>
<CAPTION>
Threshold Maximum
Position (80% of Target) Target (150% of Target)
--------- -------------- ------- ---------------
<S> <C> <C> <C>
CEO 30% 80% 160%
COO 30% 70% 140%
EVP's 25% 60% 120%
</TABLE>
8. Allocations
-----------
Unless otherwise determined under section 5, the EICP incentive
payment percentages for Attainment of Performance Measures are:
CEO
---
(100% Corporate)
<TABLE>
<CAPTION>
Percent of
Attainment Profit(75%) Revenue(25%) Total
---------- ---------- ----------- -----
<S> <C> <C> <C>
80% 22.5% 7.5% 30.0%
100% 60.0% 20.0% 80.0%
150% 120.0% 40.0% 160.0%
</TABLE>
COO
---
(100% Corporate)
<TABLE>
<CAPTION>
Percent of
Attainment Profit(75%) Revenue(25%) Total
---------- ---------- ----------- -----
<S> <C> <C> <C>
80% 22.5% 7.5% 30.0%
100% 52.5% 17.5% 70.0%
150% 105.0% 35.0% 140.0%
</TABLE>
-4-
EVP'S
-----
(100% Corporate)
<TABLE>
<CAPTION>
Percent of
Attainment Profit(75%) Revenue(25%) Total
---------- ---------- ----------- -----
<S> <C> <C> <C>
80% 18.75% 6.25% 25.0%
100% 45.0% 15.0% 60.0%
150% 90.0% 30.0% 120.0%
</TABLE>
9. Example
-------
An example incentive calculation for the CEO level is shown on page
7.
10. Form of Payment
---------------
Awards shall be paid entirely in cash. Payments will be made as soon
as practicable after audited performance results are known and
approved by the Compensation Committee, which should be on or about
March 1. Award checks are prepared by the Payroll Department and the
amounts are subject to tax withholding and Capital Accumulation Plan
(CAP) deductions.
If a Participant dies before the end of the Plan Year an amount equal
to a pro-rated portion thereof as of the date of death shall be paid
in one lump cash sum to the Participant's Beneficiary.
11. Limitation on Allocation
------------------------
Notwithstanding any other provision of the Plan, in no circumstances
will the total amount allocated as an award to a Participant for any
Plan Year exceed $975,000.
12. Designation of Beneficiaries
----------------------------
Each Participant shall file with the Company a written designation of
one or more persons as the Beneficiary who shall be entitled to
receive the amount, if any, payable under the Plan upon the
Participant's death. A Participant may, from time to time, revoke or
change his Beneficiary designation without the consent of any prior
Beneficiary by filing a new designation. The last such designation
received shall be controlling, provided, however, that no
designation, or change or revocation thereof, shall be effective
unless received by the Company prior to the Participant's death, and
in no event shall it be effective as of a date prior to such receipt.
13. Absence of Valid Designation
----------------------------
If no such Beneficiary designation is in effect at the time of a
Participant's death, or if no designated Beneficiary survives the
Participant, or if such designation conflicts with the law, the
Participant shall be deemed to have designated the Participant's
estate as the Participant's Beneficiary and the Participant's estate
shall receive the payment of the amount, if any, under the Plan upon
the Participant's death. If the Compensation Committee is in doubt
as to the right of any person to receive such amount, the
Compensation Committee may direct retention of such amount, without
liability for any interest thereon, until the rights thereto are
determined or the Compensation Committee may pay such amount to any
court of appropriate jurisdiction and such payment shall be a
complete discharge of the liability of the Plan and of Airborne
Express therefore.
14. No Liability of Compensation Committee, Board Members or Officers
-----------------------------------------------------------------
No members of the Compensation Committee, Board or Corporate officers
shall be personally liable by reason of any contract or other
instrument executed by them or on their behalf nor for any mistake or
judgment made in good faith, and Airborne shall indemnify and hold
harmless each member of the Board and each other officer, employee or
director of Airborne Express to whom any duty or power relating to
the administration or
-5-
interpretation of the Plan may be allocated or delegated, against any
cost or expense (including counsel fees) or liability (including any
sum paid in settlement of a claim with the approval of the
Compensation Committee) arising out of any act or omission to act in
connection with the Plan unless arising out of such person's own
fraud or bad faith.
15. Right to Amend, Suspend or Terminate Plan
-----------------------------------------
The Board reserves the right at any time to amend, suspend or
terminate the Plan in whole or in part and for any reasons and
without the consent of any Participant or Beneficiary; provided that
no such amendment shall adversely affect rights to receive any amount
to which Participants or Beneficiaries have become entitled prior to
such amendment. Unless otherwise provided herein, any amendment,
modification, suspension or termination of any provisions of the Plan
may be made retroactively.
16. No Rights to Continued Employment or Bonus
------------------------------------------
Nothing contained in the Plan shall give any employee the right to be
retained in the employment of Airborne Express or affect the right of
Airborne Express to dismiss any employee. The adoption of the Plan
shall not constitute a contract between Airborne Express and any
employee. No Participant shall receive any right to be granted an
award hereunder nor shall any such award be considered as
compensation under any employee benefit plan of Airborne Express
except as otherwise determined by Airborne Express.
17. No Right, Title, or Interest in Assets
--------------------------------------
The Participant shall have no right, title, or interest whatsoever in
or to any investments which Airborne Express may make to aid in
meeting its obligations under the Plan. Nothing contained in the
Plan, and no action taken pursuant to its provisions, shall create or
be construed to create a fiduciary relationship between Airborne
Express and any Participant or any other person. To the extent that
any person acquires a right to receive payments from Airborne Express
under this Plan, such right shall be no greater than the right of an
unsecured general creditor of Airborne Express.
18. Unfunded Plan: Governing Law
----------------------------
The Plan is intended to constitute an incentive compensation
arrangement for a select group of management or highly compensated
personnel and all rights thereunder shall be governed by and
construed in accordance with the laws of the State of Washington.
-6-
EXHIBIT 10(i)
Airborne Express
1997-1999
Executive Group Incentive Compensation Plan
Airborne Freight Corporation D/B/A
"Airborne Express"
EXECUTIVE GROUP INCENTIVE COMPENSATION PLAN
-------------------------------------------
Effective January 1, 1997 - December 31, 1999
1. Purpose
-------
The purpose of this Plan is to achieve Corporate goals by providing
incentive compensation to eligible key executives who through
industry, ability and exceptional service, contribute materially to
the success of Airborne Express.
2. Definitions
-----------
When used in the Plan, the following words and phrases shall have the
following meanings:
(a) Attainment - The actual results of effort to reach the
Target for a Performance Measure, usually stated as a percentage
of Target.
(b) Beneficiary - The beneficiary or beneficiaries designated
to receive the amount, if any, payable under the Plan upon the
death of a Participant.
(c) Board - The Board of Directors of Airborne Freight
Corporation.
(d) Compensation Committee - The Compensation Committee of the
Board.
(e) Maximum - The point above Target that represents the
maximum payout level for a particular Performance Measure.
(f) Net Profit - Pre-tax, pre-profit sharing net profit.
(g) Participant - Any employee eligible to receive awards under
section 4.
(h) Performance Measure - A specific objective measure to
assess success in achieving established goals. Permitted
Performance Measures are listed in section 5.
(i) Plan - The 1997-1999 Executive Group Incentive Compensation
Plan.
(j) Plan Year - Each calendar year for which Performance
Measures and Targets are established for the Company.
(k) Retirement - When an employee leaves active service and
qualifies under the Company's regular or early retirement
programs.
(l) Revenue Growth - Percentage growth in sales revenue over
the prior year.
(m) Target - The point at which performance equals 100% of the
stated objective.
(n) Threshold - The point below Target at which incentive payout
for each Performance Measure begins.
-2-
3. Administration
--------------
(a) The Compensation Committee will have the power to interpret
the Plan and to make all determinations necessary or desirable
for its administration.
(b) The decision of the Compensation Committee on any question
concerning the interpretation or administration of the Plan will
be final and conclusive. Nothing in the Plan will be deemed to
give any officer or employee, or legal representatives or
assigns, any right to participate in the Plan except to such
extent as the Compensation Committee may determine pursuant to
the provisions of the Plan.
4. Eligibility
-----------
(a) Positions eligible for the Executive Group Incentive
Compensation Plan (EGICP) are:
Executive Vice Presidents (EVPs)
Chief Financial Officer (CFO)
President, ABX Air, Inc.
Except as otherwise provided below, participants for a Plan
Year must be employed for the entire Plan Year.
(b) With approval of the Compensation Committee, prior to June
30 of each Plan Year, additional employees may be included in
the Plan, with any award pro-rated as shall be determined by the
Compensation Committee.
(c) Participants who retire in good standing during the year
will be eligible for a pro-rated award for the year in which
they retire provided they are on the active payroll on June 30th
or later of the Plan Year.
(d) Participants who take a leave of absence will have their
awards calculated based on actual Airborne salary earnings for
the calendar year. Any disability insurance payments will not
be included as earnings in calculating awards. Participants who
are on a leave of absence for more than 90 days and who continue
to receive full or partial salary continuance will have their
awards adjusted. Any salary paid while on a leave of absence
period over 90 days will not be included in the base used to
calculate awards.
5. Performance Measures
--------------------
Unless otherwise determined by the Committee, bonuses for the
Executive Group will be based on the following Performance Measures
-- Net Profit, Revenue Growth, and additionally assigned management
by objectives (MBOs) that specifically relate to the individual
executive and his/her responsibilities. The Committee may select
one or more of the following Performance Measures in lieu of one or
both of the Net Profit and Revenue Growth Performance Measures:
earnings per share growth, shipment growth, increase in stock price,
return on assets or return on equity. The Compensation Committee
will set annual Targets for each Performance Measure within 90 days
after the beginning of each Plan Year and such Targets will not be
changed thereafter. The Targets may be ratified by the Board.
Unless within 90 days after the beginning of each Plan Year the
Committee selects Performance Measures in addition to or in lieu of
one or all three of Net Profit, Revenue Growth and MBOs, bonuses
will be allocated based on Attainment of Targets as follows:
A. Executive Vice Presidents and President, ABX Air, Inc.
- Net Profit is the first major corporate Performance Measure and
is the basis of 52.5% of the bonus allocation.
1) An 80% Threshold is set on targeted Net Profit.
2) A 150% Maximum is set on targeted Net Profit.
-3-
- Revenue Growth is the second major corporate Performance Measure
and is the basis of 17.5% of the bonus allocation.
1) An 80% Threshold is set on targeted Revenue Growth.
2) A 150% Maximum is set on targeted Revenue Growth.
- MBO is the third major performance measure and is the basis of
30% of the bonus allocation.
1) Quantitatively based, but judgmentally applied.
2) Meaningful - represents impact of position.
3) Reporting System - uses existing reporting systems.
4) Quantifiable results are subject to override by the
Committee/CEO/COO.
B. Chief Financial Officer
The CFO position, though part of the Executive Group, will not have
the 70% Corporate Results and 30% MBO ratio. The ratio will be 85%
Corporate Results and 15% MBO. Consequently, bonuses for the CFO
will be allocated on Attainment of Targets as follows:
- Net profit is the first major corporate Performance Measure and
is the basis of 63.75% of the bonus allocation.
1) An 80% Threshold is set on targeted Net Profit.
2) A 150% Maximum is set on targeted Net Profit.
- Revenue Growth is the second major corporate Performance Measure
and is the basis of 21.25% of the bonus allocation.
1) An 80% Threshold is set on targeted Revenue Growth.
2) A 150% Maximum is set on targeted Revenue Growth.
- MBO is the third major Performance Measure and is the basis of
15% of the bonus allocation.
1) Quantitatively based, but judgmentally applied.
2) Meaningful - represents impact of position.
3) Reporting System - uses existing reporting systems.
4) Quantifiable results are subject to override by the
Committee/CEO/COO.
6. Qualifiers on Performance Measures
----------------------------------
- The amount of bonus paid on MBO achievements will be at the
discretion of the Committee/CEO/COO.
- The bonus percentage is applied to the Participant's salary paid
in the Plan (calendar) Year.
- No bonus will be paid for Revenue Growth unless the Threshold
for Net Profit is achieved.
-4-
- The bonus earned for corporate net profit and revenue may be
withheld if MBO performance is unsatisfactory.
- To receive any award under EGICP, a Participant's individual
performance must be evaluated as at least competent by the
Compensation Committee.
- The Committee has the discretion to reduce or increase or
eliminate any award earned under the MBO provision of the EGICP
plan.
7. Bonus Amounts
-------------
Actual bonuses will be determined by multiplying the following
percentages, or a pro-rated portion thereof, by the Participant's
annual salary.
<TABLE>
<CAPTION>
Threshold Maximum
Position (80% of Target) Target (150% of Target)
-------- -------------- ------ ---------------
<S> <C> <C> <C>
EVPs, CFO and (1) 25% 60% 120%
Pres, ABX Air, Inc.
</TABLE>
(1) The Committee/CEO/COO have the authority to increase or decrease the
quantifiable MBO attainment percents based on their judgment of MBO
accomplishments.
8. Allocations
-----------
Unless otherwise determined under section 5, the EGICP incentive
payment percentages for Attainment of Performance Measures are:
EVPs and President, ABX Air, Inc. (excl CFO)
--------------------------------------------
(70% Corporate/30% MBO)
<TABLE>
<CAPTION>
|----------- --Corporate-- ----------|
Percent of Net Revenue Corp (1)
Attainment Profit(52.5%) Growth(17.5%) Total(70%) MBO(30%) Total
---------- ------------ ------------ --------- ------- -----
<S> <C> <C> <C> <C> <C>
80% 13.125% 4.375% 17.5% - -
100% 31.5% 10.5% 42.0% 18.0% 60.0%
150% 63.0% 21.0% 84.0% - -
</TABLE>
CFO
---
(85% Corporate/15% MBO)
<TABLE>
<CAPTION>
|------------ --Corporate-- ---------|
Percent of Net Revenue Corp (1)
Attainment Profit(63.75%) Growth(21.25%) Total(85%) MBO(15%) Total
---------- ------------ ------------ --------- ------- -----
<S> <C> <C> <C> <C> <C>
80% 15.94% 5.31% 21.25% - -
100% 38.25% 12.75% 51.0% 9.0% 60.0%
150% 76.5% 25.5% 102.0% - -
</TABLE>
(1) The Committee/CEO/COO have the authority to increase or decrease
the quantifiable MBO attainment percents based on their judgment of MBO
accomplishments.
-5-
9. Example
-------
An example incentive calculation for the EVP level is shown on Pages
8-9.
10. Form of Payment
---------------
Awards shall be paid entirely in cash. Payments will be made as soon
as practicable after audited performance results are known and
approved by the Compensation Committee, which should be on or about
March 1. Award checks are prepared by the Payroll Department and the
amounts are subject to tax withholding and Capital Accumulation Plan
(CAP) deductions.
If a Participant dies before the end of the Plan Year an amount equal
to a pro-rated portion thereof as of the date of death shall be paid
in one lump cash sum to the Participant's Beneficiary.
11. Limitation on Allocation
------------------------
Notwithstanding any other provision of the Plan, in no circumstances
will the total amount allocated as an award to a Participant for any
Plan Year exceed $975,000.
12. Designation of Beneficiaries
----------------------------
Each Participant shall file with the Company a written designation of
one or more persons as the Beneficiary who shall be entitled to
receive the amount, if any, payable under the Plan upon the
Participant's death. A Participant may, from time to time, revoke or
change his Beneficiary designation without the consent of any prior
Beneficiary by filing a new designation. The last such designation
received shall be controlling, provided, however, that no
designation, or change or revocation thereof, shall be effective
unless received by the Company prior to the Participant's death, and
in no event shall it be effective as of a date prior to such receipt.
13. Absence of Valid Designation
----------------------------
If no such Beneficiary designation is in effect at the time of a
Participant's death, or if no designated Beneficiary survives the
Participant, or if such designation conflicts with the law, the
Participant shall be deemed to have designated the Participant's
estate as the Participant's Beneficiary and the Participant's estate
shall receive the payment of the amount, if any, under the Plan upon
the Participant's death. If the Compensation Committee is in doubt
as to the right of any person to receive such amount, the
Compensation Committee may direct retention of such amount, without
liability for any interest thereon, until the rights thereto are
determined or the Compensation Committee may pay such amount to any
court of appropriate jurisdiction and such payment shall be a
complete discharge of the liability of the Plan and of Airborne
Express therefore.
14. No Liability of Compensation Committee, Board Members or Officers
-----------------------------------------------------------------
No members of the Compensation Committee, Board or Corporate officers
shall be personally liable by reason of any contract or other
instrument executed by them or on their behalf nor for any mistake or
judgment made in good faith, and Airborne shall indemnify and hold
harmless each member of the Board and each other officer, employee or
director of Airborne Express to whom any duty or power relating to
the administration or interpretation of the Plan may be allocated or
delegated, against any cost or expense (including counsel fees) or
liability (including any sum paid in settlement of a claim with the
approval of the Compensation Committee) arising out of any act or
omission to act in connection with the Plan unless arising out of
such person's own fraud or bad faith.
15. Right to Amend, Suspend or Terminate Plan
-----------------------------------------
The Board reserves the right at any time to amend, suspend or
terminate the Plan in whole or in part and for any reasons and
without the consent of any Participant or Beneficiary; provided that
no such amendment shall adversely affect rights to receive any amount
to which Participants or Beneficiaries have become entitled prior to
such amendment. Unless otherwise provided herein, any amendment,
modification, suspension or termination of any provisions of the Plan
may be made retroactively.
-6-
16. No Rights to Continued Employment or Bonus
------------------------------------------
Nothing contained in the Plan shall give any employee the right to be
retained in the employment of Airborne Express or affect the right of
Airborne Express to dismiss any employee. The adoption of the Plan
shall not constitute a contract between Airborne Express and any
employee. No Participant shall receive any right to be granted an
award hereunder nor shall any such award be considered as
compensation under any employee benefit plan of Airborne Express
except as otherwise determined by Airborne Express.
17. No Right, Title, or Interest in Assets
--------------------------------------
The Participant shall have no right, title, or interest whatsoever in
or to any investments which Airborne Express may make to aid in
meeting its obligations under the Plan. Nothing contained in the
Plan, and no action taken pursuant to its provisions, shall create or
be construed to create a fiduciary relationship between Airborne
Express and any Participant or any other person. To the extent that
any person acquires a right to receive payments from Airborne Express
under this Plan, such right shall be no greater than the right of an
unsecured general creditor of Airborne Express.
18. Unfunded Plan: Governing Law
----------------------------
The Plan is intended to constitute an incentive compensation
arrangement for a select group of management or highly compensated
personnel and all rights thereunder shall be governed by and
construed in accordance with the laws of the State of Washington.
-7-
EXHIBIT 11
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1996 1995 1994
---- ---- ----
(In thousands except per share data)
<S> <C> <C> <C>
PRIMARY:
Net Earnings Available $27,174 $23,544 $37,941
to Common Shareholders ======= ======= =======
Average Common Shares Outstanding 21,133 21,050 20,645
Effect of Dilutive Stock Options 149 154 356
------- ------- -------
Total Average Shares Outstanding 21,282 21,204 21,001
======= ======= =======
Primary Earnings Per Share $ 1.28 $ 1.11 $ 1.81
======= ======= =======
FULLY DILUTED:
Net Earnings Available $27,174 $23,544 $37,941
to Common Shareholders
Redeemable Preferred -- -- 894
Stock Dividends
Convertible Debentures -- -- 4,331
------- ------- -------
Adjusted Net Earnings $27,174 $23,544 $43,166
======= ======= =======
Average Common Shares Outstanding 21,133 21,050 20,645
Effect of Dilutive Stock Options 149 250 356
Effect of Conversion of -- -- 3,239
Subordinated Debentures
Effect of Conversion of Redeemable -- -- 559
Preferred Stock Dividends ------- ------- -------
Total Average Shares Outstanding 21,282 21,300 24,799
======= ======= =======
Fully Diluted Earnings Per Share $ 1.28 $ 1.11 $ 1.74
======= ======= =======
</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, 1996
-----------------
(Dollars in thousands)
<S> <C>
SENIOR LONG-TERM DEBT:
Revolving Credit Agreement $ 145,000
Money Market Lines of Credit 43,500
Senior Notes 200,000
Refunding Revenue Bonds 13,200
Other 8,093
--------
409,793
Less Current Portion 353
--------
Senior Long-Term Debt $ 409,440
========
TOTAL LONG-TERM DEBT:
Senior Long-Term Debt $ 409,440
Convertible Subordinated Debentures 115,000
--------
Total Long-Term Debt $ 524,440
========
TOTAL CAPITALIZATION:
Long-Term Debt $ 524,440
Deferred Income Taxes 40,816
Redeemable Preferred Stock --
Shareholders Equity, Net 431,830
--------
Total Capitalization $ 997,086
========
RATIO OF SENIOR LONG-TERM DEBT TO TOTAL CAPITALIZATION 41.1%
========
RATIO OF TOTAL LONG-TERM DEBT TO TOTAL CAPITALIZATION 52.6%
========
</TABLE>
<PAGE> 1
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 1996 and 1995:
<CAPTION>
Quarter High Low Dividend
- - ------- ---- --- --------
<S> <C> <C> <C>
1996:
Fourth $23.375 $19.500 $.075
Third 26.875 19.875 .075
Second 27.500 23.500 .075
First 28.375 25.000 .075
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
</TABLE>
<PAGE> 2
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands except per share data)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues
Domestic $2,108,670 $1,871,163 $1,660,003 $1,484,787 $1,259,792
International 375,636 368,188 310,756 235,194 224,524
---------- ---------- ---------- ---------- ----------
Total 2,484,306 2,239,351 1,970,759 1,719,981 1,484,316
Operating Expenses 2,405,125 2,170,370 1,881,821 1,636,861 1,456,450
---------- ---------- ---------- ---------- ----------
Earnings From Operations 79,181 68,981 88,938 83,120 27,866
Interest, Net 33,236 29,347 24,663 24,093 18,779
---------- ---------- ---------- ---------- ----------
Earnings Before Income Taxes 45,945 39,634 64,275 59,027 9,087
Income Taxes 18,500 15,814 25,440 23,738 3,930
---------- ---------- ---------- ---------- ----------
Net Earnings Before 27,445 23,820 38,835 35,289 5,157
Changes in Accounting
Cumulative Effect of -- -- -- 3,828 --
Changes in Accounting ---------- ---------- ---------- ---------- ----------
Net Earnings 27,445 23,820 38,835 39,117 5,157
Preferred Stock Dividends 271 276 894 2,760 2,760
---------- ---------- ---------- ---------- ----------
Net Earnings Available $ 27,174 $ 23,544 $ 37,941 $ 36,357 $ 2,397
to Common Shareholders ========== ========== ========== ========== ==========
Net Earnings Per Common Share
Primary $ 1.28 $ 1.11 $ 1.81 $ 1.66* $ 0.12
========== ========== ========== ========== ==========
Fully Diluted $ 1.28 $ 1.11 $ 1.74 $ 1.64* $ 0.12
========== ========== ========== ========== ==========
Dividends Per Common Share $ 0.30 $ 0.30 $ 0.30 $ 0.30 $ 0.30
========== ========== ========== ========== ==========
Average Primary 21,282 21,204 21,001 19,596 19,423
Shares Outstanding ========== ========== ========== ========== ==========
FINANCIAL STRUCTURE:
Working Capital $ 141,457 $ 91,599 $ 66,871 $ 56,521 $ 50,276
Property and Equipment 866,627 842,703 766,346 733,963 730,937
Total Assets 1,307,422 1,217,384 1,078,506 1,002,866 964,739
Long-Term Debt 409,440 364,621 279,422 269,250 303,335
Subordinated Debt 115,000 115,000 118,580 122,150 125,720
Redeemable Preferred Stock --- 3,948 5,000 40,000 40,000
Shareholders' Equity 431,830 406,315 387,398 318,824 285,639
NUMBER OF SHIPMENTS:
Domestic 254,234 225,553 187,460 160,568 130,186
International 5,036 4,592 3,954 3,545 3,302
---------- ---------- ---------- ---------- ----------
Total 259,270 230,145 191,414 164,113 133,488
========== ========== ========== ========== ==========
</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.
<PAGE> 3
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
The Company's operating results for 1996 showed good improvement over
1995. The Company made certain strategy moves that began to have a positive
impact in 1996, and that management believes will strengthen operating
returns in future periods. The Company re-evaluated its pricing structure
in relation to those offered by competitors and to the value being provided
and in many cases raised prices. Further, it took a hard look at the
customer base and eliminated certain business which could not be served in
a profitable manner. These strategies reinforce the Company's focus of
shifting towards margin improvement and away from volume growth.
Net earnings available to common shareholders in 1996 increased to
$27.2 million, or $1.28 per primary share, compared to $23.5 million, or
$1.11 per share in 1995. The 1996 results include a non-recurring charge
in the fourth quarter related to the loss of an aircraft of $3.7 million,
or $2.2 million on an after-tax basis and $0.10 on a per share basis.
Without this charge, earnings would have been $29.4 million, or $1.38 per
share, an increase of 24.9% over 1995 net earnings.
<TABLE>
The following table is an overview of the Company's shipments, revenue
and weight trends for the last three years:
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Number of Shipments
(in thousands):
Domestic
Overnight
Letters 38,523 36,574 34,042
0-2 lbs. 57,313 50,097 44,302
3-99 lbs. 50,622 44,366 39,711
-------- -------- --------
Total 146,458 131,037 118,055
Deferred
0-2 lbs. 70,174 59,713 43,212
3-99 lbs. 37,304 34,486 25,841
-------- -------- --------
Total 107,478 94,199 69,053
100 lbs. And over 298 317 352
-------- -------- --------
Total Domestic 254,234 225,553 187,460
-------- -------- --------
International
Express 4,500 4,035 3,473
Freight 536 557 481
-------- -------- --------
Total International 5,036 4,592 3,954
-------- -------- --------
Total Shipments 259,270 230,145 191,414
======== ======== ========
Average Pounds Per Shipment:
Domestic 4.5 4.6 4.8
International 54.6 62.9 64.1
Average Revenue Per Pound:
Domestic $ 1.83 $ 1.80 $ 1.85
International $ 1.34 $ 1.28 $ 1.22
Average Revenue Per Shipment:
Domestic $ 8.25 $ 8.24 $ 8.84
International $74.59 $80.18 $78.59
</TABLE>
<PAGE> 4
Total revenues increased 10.9% in 1996, 13.6% in 1995, and 14.6% in
1994. Shipment volume grew to 259 million units in 1996 increasing 12.7%,
compared to a 20.2% increase in 1995 and 16.6% in 1994.
Domestic revenue increased 12.7% in 1996 on shipment growth of 12.7%,
compared to revenue growth of 12.7% and 11.8%, and shipment growth of 20.3%
and 16.7% in 1995 and 1994, respectively. Domestic shipment growth in 1996
was impacted by the decision management made to shift its focus away from
volume growth to focus on margin improvement. Accordingly, the Company
experienced a milestone in 1996 relative to domestic revenue growth that
has not occurred in several years. The percentage growth in domestic
revenues was equal to the percentage growth in domestic shipments rather
than lagging shipment growth. Furthermore, the average revenue per
domestic shipment increased sequentially for each quarter of 1996 from
$8.08 in the first quarter to $8.39 in the fourth quarter of 1996, with the
average for the year of $8.25. Also, the average weight per domestic
shipment for 1996 was 4.5 pounds and was relatively stable for each quarter
of the year.
Domestic shipment growth of the two primary service products, priority
overnight service and deferred service, was more balanced in 1996 than
prior periods. Domestic shipment growth of higher yielding priority
overnight service was 11.8% in 1996 and 11.0% in 1995, while lower yielding
deferred service grew 14.1% in the current year compared to 36.4% in 1995.
These various factors all combined to produce a more stable domestic yield
environment in 1996 compared to 1995 and 1994. Although still very
competitive, the domestic pricing environment during 1996 has been
relatively stable.
International revenue increased 2.0% in 1996 on shipment growth of
9.7% compared to revenue growth of 18.5% and 32.1% and shipment growth of
16.1% and 11.5% in 1995 and 1994, respectively. International revenue per
shipment decreased compared to last year as a result of the decrease in
higher yielding freight shipments in 1996 compared to 1995. Consistent
with the Company's domestic focus, the focus on international business has
been more on margin improvement than on volumes. As a result, the
international contribution to earnings from operations increased to $7.3
million in 1996 from $1.2 million in 1995.
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 96.8% in
1996 compared to 96.9% in 1995 and 95.5% in 1994. Measuring cost
performance on a per shipment basis, total operating expenses per shipment
declined in 1996 to $9.28, compared to $9.43 in 1995 and $9.83 in 1994. A
strong focus on cost control, productivity improvements and quality
improvement programs are primarily responsible for this favorable trend.
The Company achieved a 1.9% improvement in productivity in 1996, as
measured by shipments handled per paid employee hour, compared to 7.3%
improvement in 1995 and 6.0% in 1994. With the Company's focus on
improving margins and slower volume growth, productivity gains achieved on
a per-shipment basis were not as strong as experienced in the prior two
years. Higher productivity gains are more difficult to achieve in periods
of slower shipment growth.
Transportation purchased decreased as a percentage of revenues to
33.3% in 1996 compared to 35.2% in 1995 and 34.0% in 1994. This expense
category consists primarily of commercial airline costs, contracted pick-up
and delivery and trucking costs. The decrease in 1996 is primarily due to
two factors. Commercial airline costs were lower as a percentage of total
revenues due to the decline in international freight shipments. Also, the
suspension of the Federal Aviation Excise Tax on January 1, 1996 resulted
in the avoidance of costs in the first eight months of 1996 of $14.7
million compared to the corresponding period of 1995 when approximately
$13.6 million of costs related to this tax were incurred. The Aviation
Excise Tax was re-implemented effective on August 27, 1996.
Station and ground expense as a percentage of revenues was 31.5% in
1996 compared to 31.0% in 1995 and 30.2% in 1994. 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. However, productivity gains in 1996 were less than that
achieved in the prior periods
Flight operations and maintenance expense as a percentage of revenues
was 15.6% in 1996 compared to 14.6% in 1995 and 14.2% in 1994. The average
aviation fuel price in 1996 was $0.752 per gallon, compared to $0.615 per
gallon in 1995, and $0.60 per gallon in 1994. The average price above
includes the effect of a 4.3 cent per gallon excise tax on jet fuel that
became effective October 1, 1995 which added approximately $1.7 million of
additional cost to fourth quarter 1995 operating costs. Aviation fuel
consumption increased 13.0% to 160.7 million gallons in 1996, a result of
additional Company operated aircraft placed in service during the past year
to accommodate the growth in business. The dramatic increase in per gallon
fuel costs in 1996 over 1995 applied to the current year's consumption
increased fuel related operating costs by $22.0 million in 1996, of which
$7.2 million applied to the fourth quarter of 1996 alone. As a result of
fuel hedging contracts, the Company was able to mitigate $3.0 million of
the increase in 1996, including $2.5 million mitigated in the fourth
quarter of 1996.
<PAGE> 5
General and administrative expense as a percentage of revenues
increased to 7.3% in 1996 compared to 7.0% in 1995 and 7.4% in 1994. Sales
and marketing decreased to 2.4% of revenues in 1996 compared to 2.7% in
1995 and 1994. Productivity gains and controls on discretionary spending
in these two expense categories have been instrumental in offsetting most
of 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 $3.5 million in
1996, compared to $3.0 million in 1995 and $4.8 million in 1994.
Depreciation and amortization expense as a percentage of revenues were
6.6% in 1996 compared to 6.4% in 1995 and 7.0% in 1994. 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.
Operating expense in 1996 includes a non-recurring charge of
$3.7 million related to the loss of a DC-8-63 aircraft. This aircraft was
destroyed in an accident which occurred during a routine maintenance check
flight in December 1996. There were no survivors among the six persons
aboard. The cause of the accident continues to be investigated by the
National Transportation Safety Board. Management is not aware of, nor at
this time expects, any significant actions to arise from those
investigations which would result in future operating restrictions on the
use of the Company's fleet of aircraft.
INTEREST EXPENSE increased in 1996 compared to 1995 as the result of
moderately higher level of average outstanding borrowings and a lower level
of capitalized interest. Interest capitalized in 1996 of $1.7 million,
primarily related to the acquisition and modification of aircraft and the
airport expansion, was approximately $2.0 million lower than the amount
capitalized in 1995.
INCOME TAXES for 1996 resulted in an effective tax rate of 40.3%
compared to 39.9% in 1995 and 39.6% in 1994. The Company anticipates that
the effective tax rate for 1997 will be comparable to 1996.
Looking ahead, the Company's focus will continue to be on margin
improvement rather than volume growth. As was the case this past year, the
challenge will be to continue to adjust the Company's operations to respond
to this changing mix of business and lower the cost per shipment to improve
margins. The strength of the U.S. and global economies will have an impact
on the results of operations in 1997 and beyond. Further, continuing high
fuel prices may have a negative impact on operations. The Company has
implemented a revenue fuel surcharge of 2.0% beginning February 17, 1997;
however, there is no assurance that this action will totally mitigate
increased fuel costs going forward.
The Company's pilots are covered by a collective bargaining agreement
which became amendable on July 31, 1995. Negotiations relating to an
amended contract are still ongoing. While the Company has not experienced
any significant disruptions from labor disputes in the past, it cannot
predict whether the contract with the pilots will be amended without
experiencing any work disruptions.
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 $172 million in 1996 compared to $214 million in 1995 and
$168 million in 1994. A significant portion of these expenditures has been
related to the acquisition and modification of aircraft and related flight
equipment. Additionally, there were capital expenditures in 1996 of
$21 million related to the DC-8-63 aircraft that was destroyed in an
accident in December 1996. The Company realized insurance proceeds of
$18 million in January 1997 for this property loss.
The Company acquired six DC-9 aircraft in 1996. A total of 7 aircraft
were placed into service during the year; made up of 5 DC-9's and 2 DC-8's,
while 2 YS-11's were retired from service. At the end of 1996, the Company
had 110 aircraft in service, consisting of 35 DC-8's, 66 DC-9's and 9
YS-11's. In addition, there was 1 aircraft in modification status and 2
aircraft that had not been modified. Other capital expenditures in 1996
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.
Capital expenditures will continue to be a significant factor
affecting financial condition in 1997. The Company anticipates 1997
capital expenditures of approximately $220 million. A significant portion
of the 1997 capital investment is for the acquisition of 5 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 5 aircraft are
expected to be placed in service in 1997.
In 1995, the Company announced a new aircraft program relative to a
commitment to purchase 12 used Boeing 767-200's, 2 of which will be
delivered in late 1997, with the remaining 10 aircraft delivered between
the years 1998 and 2000. These acquisitions are not expected to
significantly increase capital spending. Instead, this newer generation
aircraft should increase operating efficiency while keeping capital
requirements relatively unchanged.
<PAGE> 6
LIQUIDITY AND CAPITAL RESOURCES: Liquidity for financing capital
expenditures in 1996 came from two principal sources - internally generated
cash provided by operations and proceeds from bank borrowings. Internally
generated cash provided by operations approximated $207 million in 1996
compared to $170 million in 1995 and $183 million in 1994. Additional
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 May 1, 1996, extending the effective date
through May 31, 2001. Commitments are subject to a maximum level of
Company indebtedness permitted by certain convenants in the agreement and
other loan agreements. 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, 1996, a
total of $188.5 million was owing under the revolving bank credit and money
market agreements. This balance was $28 and $33 million higher than the
average balances for the preceding month and the subsequent month,
respectively, due to the slowdown in cash receipts availability experienced
during the holiday periods in late December. Comparatively, at January 31,
1997, a total of $142 million was owing under these facilities.
The Company's ratio of senior long-term debt to total capitalization
was 41.1% and the ratio of total long-term debt to total capitalization was
52.6% at December 31, 1996, compared to 39.3% and 51.7%, respectively, at
December 31, 1995. Anticipated cash flow from 1997 operations should
provide the majority of the liquidity for projected 1997 capital
expenditures. These debt-to-capitalization ratios are not expected to
change significantly during 1997 from the 1996 year end level.
In management's opinion, the available capacity under the bank credit
agreements coupled with anticipated internally generated cash flow from
1997 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.
<PAGE> 7
<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET EARNINGS
<CAPTION>
Year Ended December 31 1996 1995 1994
- - ---------------------- ---- ---- ----
(In thousands except per share data)
<S> <C> <C> <C>
REVENUES:
Domestic $2,108,670 $1,871,163 $1,660,003
International 375,636 368,188 310,756
---------- ---------- ----------
2,484,306 2,239,351 1,970,759
OPERATING EXPENSES:
Transportation purchased 827,997 788,040 669,648
Station and ground operations 781,867 693,371 595,845
Flight operations
and maintenance 386,961 327,838 279,457
General and administrative 181,353 156,501 145,698
Sales and marketing 59,565 60,258 53,473
Depreciation and amortization 163,645 144,362 137,700
Loss related to aircraft
accident 3,737 -- --
---------- ---------- ----------
2,405,125 2,170,370 1,881,821
---------- ---------- ----------
EARNINGS FROM OPERATIONS 79,181 68,981 88,938
INTEREST, NET 33,236 29,347 24,663
---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES 45,945 39,634 64,275
INCOME TAXES 18,500 15,814 25,440
---------- ---------- ----------
NET EARNINGS 27,445 23,820 38,835
PREFERRED STOCK DIVIDENDS 271 276 894
---------- ---------- ----------
NET EARNINGS AVAILABLE $ 27,174 $ 23,544 $ 37,941
TO COMMON SHAREHOLDERS ========== ========== ==========
NET EARNINGS PER COMMON SHARE:
Primary $ 1.28 $ 1.11 $ 1.81
========== ========== ==========
Fully diluted $ 1.28 $ 1.11 $ 1.74
========== ========== ==========
DIVIDENDS PER COMMON SHARE $ 0.30 $ 0.30 $ 0.30
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 8
<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31 1996 1995
- - ----------- ---- ----
(In thousands)
<S> <C> <C>
ASSETS
- - ------
CURRENT ASSETS:
Cash $ 35,816 $ 17,906
Trade accounts receivable, less
allowance of $8,345,000 and $7,750,000 287,515 259,408
Spare parts and fuel inventory 34,761 33,792
Deferred income tax assets 15,012 16,135
Prepaid expenses and other 42,118 24,887
---------- ----------
TOTAL CURRENT ASSETS 415,222 352,128
PROPERTY AND EQUIPMENT, NET 866,627 842,703
EQUIPMENT DEPOSITS and OTHER ASSETS 25,573 22,553
---------- ----------
TOTAL ASSETS $1,307,422 $1,217,384
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 139,036 $ 136,987
Salaries, wages and related taxes 63,835 49,106
Accrued expenses 68,759 66,679
Income taxes payable 1,782 1,967
Current portion of debt 353 5,790
---------- ----------
TOTAL CURRENT LIABILITIES 273,765 260,529
LONG-TERM DEBT 409,440 364,621
SUBORDINATED DEBT 115,000 115,000
DEFERRED INCOME TAX LIABILITIES 40,816 38,242
OTHER LIABILITIES 36,571 28,729
REDEEMABLE PREFERRED STOCK -- 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 21,621,596 and 21,397,865 21,622 21,398
Additional paid-in capital 190,405 185,947
Retained earnings 220,774 199,941
---------- ----------
432,801 407,286
Treasury stock, 315,150 shares, at cost (971) (971)
---------- ----------
431,830 406,315
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,307,422 $1,217,384
========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 9
<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31 1996 1995 1994
- - ---------------------- ---- ---- ----
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Earnings $ 27,445 $ 23,820 $ 38,835
Adjustments to reconcile net earnings
to net cash provided
by operating activities:
Depreciation and amortization 151,538 133,931 127,835
Provision for aircraft
engine overhauls 12,107 10,431 9,865
Deferred income taxes 3,697 4,163 4,888
Loss related to aircraft accident 3,737 -- --
Other 8,027 (2,351) 1,418
-------- -------- --------
CASH PROVIDED BY OPERATIONS 206,551 169,994 182,841
Change in:
Receivables (28,107) (37,620) (31,001)
Inventories and prepaid expenses (200) (9,907) (2,733)
Accounts payable 2,049 19,793 22,866
Accrued expenses, salaries
and taxes payable 16,118 14,499 6,185
NET CASH PROVIDED BY -------- -------- --------
OPERATING ACTIVITIES 196,411 156,759 178,158
INVESTING ACTIVITIES:
Additions to property and equipment (173,157) (215,958) (170,453)
Investment in aircraft destroyed in
accident (21,232) -- --
Disposition of property and equipment 694 2,079 2,196
Expenditures for engine overhauls (15,000) (10,039) (6,839)
Other (3,309) 378 (1,294)
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES (212,004) (223,540) (176,390)
FINANCING ACTIVITIES:
Proceeds (payments) on bank notes, net 45,200 (8,700) 47,000
Principal payments on debt (5,818) (18,434) (40,230)
Proceeds from common stock issuance 734 638 2,839
Dividends paid (6,613) (6,596) (7,193)
Proceeds from debt issuance -- 107,461 --
Redemption of redeemable
preferred stock -- -- (1,000)
-------- -------- --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 33,503 74,369 1,416
-------- -------- --------
NET INCREASE IN CASH 17,910 7,588 3,184
CASH AT BEGINNING OF YEAR 17,906 10,318 7,134
-------- -------- --------
CASH AT END OF YEAR $ 35,816 $ 17,906 $ 10,318
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CASH FLOW INFORMATION:
<S> <C> <C> <C>
Cash paid during the year -
Interest, net of amount capitalized $33,234 $28,085 $24,788
Income taxes 16,674 10,457 23,795
Noncash financing activities -
Conversion of redeemable
preferred stock 3,948 1,052 34,000
</TABLE>
See notes to consolidated financial statements.
<PAGE> 10
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended December 31, 1996
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, 1996, the Company had approximately 9,300 employees
(45% of total employees), including approximately 715 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 cannot predict whether 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 affect 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 $28,059,000 and $39,971,000 are
included in accounts payable at December 31, 1996 and 1995, respectively.
SPARE PARTS AND FUEL INVENTORY
Spare parts are stated at average cost and fuel inventory is stated at
cost on a 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 with 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.
<PAGE> 11
Major engine overhauls as well as ordinary engine maintenance and repairs
for DC-8 aircraft are performed by a third-party service provider under a
contract expiring in 2004. Service costs under the contract are based upon
an hourly rate for engine usage and are charged to expense in the period
utilization occurs. Major engine overhauls for YS-11 aircraft and
expenditures for ordinary maintenance and repairs are charged to expense as
incurred.
CAPITALIZED INTEREST
Interest incurred during the construction period of certain facilities
and on aircraft purchase and modification costs are capitalized as an
additional cost of the asset until the date the asset is placed in service.
Capitalized interest was $1,728,000, $3,741,000, and $2,127,000 for 1996,
1995 and 1994, 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
21,282,000, 21,204,000, and 21,001,000 for the years ended December 31,
1996, 1995 and 1994, 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 1996 1995
- - ----------- ---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Long-term debt $409,440 $419,050 $364,621 $380,071
Subordinated debt 115,000 115,288 115,000 115,575
Redeemable preferred stock 3,948 4,500
Off-balance sheet derivatives:
Fuel contracts -- 3,798 -- 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.
RECLASSIFICATIONS
Certain amounts for prior years have been reclassified in the
consolidated financial statements to conform to the classification used in
1996.
<PAGE> 12
NOTE B - PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment consist of the following (in thousands):
<CAPTION>
December 31 1996 1995
- - ----------- ---- ----
<S> <C> <C>
Flight equipment $1,125,019 $1,039,797
Land, buildings and leasehold improvements 215,795 198,606
Package handling and ground support equipment 124,689 128,911
Vehicles and other equipment 230,227 215,167
---------- ----------
1,695,730 1,582,481
Accumulated depreciation and amortization (829,103) (739,778)
---------- ----------
$ 866,627 $ 842,703
========== ==========
</TABLE>
NOTE C - ACCRUED EXPENSES
<TABLE>
Accrued expenses consist of the following (in thousands):
<CAPTION>
December 31 1996 1995
- - ----------- ---- ----
<S> <C> <C>
Insurance reserves $16,703 $16,239
Aircraft leases 12,576 14,003
Retirement plans 12,468 11,429
Unearned revenues 8,866 7,064
Property and other taxes 7,141 6,783
Interest 6,097 5,903
Other 4,908 5,258
------- -------
$68,759 $66,679
======= =======
</TABLE>
NOTE D - INCOME TAXES
<TABLE>
Deferred income tax assets and liabilities consist of the following (in
thousands):
<CAPTION>
December 31 1996 1995
- - ----------- ---- ----
<S> <C> <C>
Insurance reserves $ 5,753 $ 5,884
Employee benefits 3,317 3,968
Bad debts, sales reserves and other 5,942 6,283
-------- --------
Current deferred income tax assets 15,012 16,135
-------- --------
Depreciation and amortization 84,230 74,275
Alternative Minimum Tax credit (33,178) (28,348)
Insurance reserves (8,187) (5,245)
Aircraft engine overhaul accrual (7,112) (8,139)
Capitalized interest 5,982 5,640
Pension and other (919) 59
-------- --------
Noncurrent net deferred income tax liabilities 40,816 38,242
-------- --------
Net deferred income tax liabilities $ 25,804 $ 22,107
======== ========
</TABLE>
<PAGE> 13
<TABLE>
Income taxes consist of the following (in thousands):
<CAPTION>
Year Ended December 31 1996 1995 1994
- - ---------------------- ---- ---- ----
<S> <C> <C> <C>
Current:
Federal $12,361 $10,297 $17,384
State 1,900 1,250 3,080
Foreign 542 104 88
------- ------- -------
14,803 11,651 20,552
Deferred:
Depreciation and amortization 9,955 11,040 9,743
Alternative Minimum Tax credit (4,830) (5,571) (3,129)
Insurance reserves (2,811) (522) 175
Aircraft engine overhaul accrual 1,027 307 (1,276)
Employee benefits (867) (1,027) (1,001)
Other 1,223 (64) 376
------- ------- -------
3,697 4,163 4,888
------- ------- -------
$18,500 $15,814 $25,440
======= ======= =======
</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 1996 1995 1994
- - ---------------------- ---- ---- ----
<S> <C> <C> <C>
Taxes computed at statutory $16,081 $13,872 $22,496
rate of 35%
State and foreign income taxes, 1,288 855 2,073
net of Federal benefit
Tax effect of nondeductible expense 1,185 1,146 874
Tax credits and other (54) (59) (3)
------- ------- -------
$18,500 $15,814 $25,440
======= ======= =======
</TABLE>
NOTE E - LONG-TERM AND SUBORDINATED DEBT
<TABLE>
Long-term and subordinated debt consist of the following:
<CAPTION>
December 31 1996 1995
- - ----------- ---- ----
(In thousands)
<S> <C> <C>
LONG-TERM DEBT:
Revolving credit notes payable to banks, $145,000 $115,000
effective rate of 5.7% on December 31, 1996
Money market lines of credit, 43,500 28,300
effective rate of 7.4% on December 31, 1996
Senior notes, 7.35%, due September, 2005 100,000 100,000
Senior notes, 8.875%, due December, 2002 100,000 100,000
Refunding revenue bonds, effective rate 13,200 13,200
of 4.2% on December 31, 1996, due June 2011
Other 8,093 10,331
-------- --------
409,793 366,831
Less current portion 353 2,210
-------- --------
$409,440 $364,621
======== ========
SUBORDINATED DEBT:
Convertible subordinated debentures, $115,000 $115,000
6.75%, due August 2001
Senior subordinated notes, 10%, -- 3,580
repaid January, 1996 -------- --------
115,000 118,580
Less current portion -- 3,580
-------- --------
$115,000 $115,000
======== ========
</TABLE>
<PAGE> 14
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 was extended during 1996 for a
five-year period expiring May 31, 2001. The Company was in compliance with
covenants of the revolving credit agreement during 1996, 1995, and 1994,
including net worth restrictions which limit the payment of dividends
($126,101,300 of retained earnings was not restricted at December 31,
1996).
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. The average interest rate on
these borrowings was 5.8% for 1996. 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 3.5% during 1996.
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 $32,164,000 at December 31,
1996.
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 current redemption price of 103.5% 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 is $353,000, $381,000, $410,000, $442,000, and
$303,976,000 for 1997 through 2001, 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 2016. Rental
expense for 1996, 1995, and 1994 was $105,331,000, $97,461,000, and
$89,975,000, respectively.
<TABLE>
Rental commitments under long-term operating leases at December 31, 1996
total $445,695,000 and are payable as follows (in thousands):
<CAPTION>
Facilities Equipment
---------- ---------
<S> <C> <C>
1997 $ 57,491 $ 26,923
1998 56,510 24,010
1999 51,974 19,948
2000 45,077 6,383
2001 37,758 767
2002 and beyond 117,754 1,100
</TABLE>
COMMITMENTS
Under various agreements, the Company is committed to purchase 18
aircraft consisting of 12 Boeing 767, and 1 McDonnell Douglas DC-8, and
5 DC-9 aircraft to be acquired at various dates through 2000. The Company
also has commitments to purchase 16 Stage III hush kits for its DC-9
aircraft at various dates through 1998. At December 31, 1996, cash
deposits of $2,910,000 had been made toward these purchases. Additional
deposits and payments for these acquisitions will approximate $69,742,000,
$95,798,000, $75,700,000, and $34,700,000 for 1997 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, is lower than or exceeds certain prices
agreed to between the Company and the financial institutions. The Company
believes this index provides the best correlation to its jet fuel
transactions.
<PAGE> 15
The contracts have no cost basis and are accounted for as hedges of
anticipated transactions. Settlements are made in cash and are recorded as
either an increase or decrease to fuel expense. At December 31, 1996, the
Company had contracts, some extending through August 1997, covering a
monthly notional sum of between 4.8 million to 6.8 million gallons, which
represents between 35% and 50% of prospective average monthly consumption
of jet fuel. Settlement payments of $3,016,000 related to these contracts
were received during 1996 with no payments being received in 1995. No
settlement payments were made during 1996 or 1995. Based on current market
prices, the fair market value of these contracts was approximately
$3,798,000 and $488,000 at December 31, 1996 and 1995, respectively.
CONTINGENCIES
In the normal course of business, the Company has various legal claims
and other contingent matters outstanding. Management believes that any
ultimate liability arising from these actions would not have a material
adverse effect on the Company's financial condition or results of
operations as of and for the year ended December 31, 1996.
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's
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's matching contribution expense was
$4,987,000, $3,823,000, and $3,635,000 for 1996, 1995, and 1994,
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 $3,459,000, $2,984,000, and $4,838,000 for 1996, 1995, and
1994, respectively. The profit sharing plans hold 447,499 shares of the
Company's common stock at December 31, 1996, representing 2.1% of
outstanding shares.
The profit sharing plans are intended 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 1996 1995 1994
- - ---------------------- ---- ---- ----
<S> <C> <C> <C>
Service cost benefits earned during the period $ 6,929 $4,664 $4,185
Interest cost on projected benefit obligation 4,166 3,017 2,149
Actual return on plan assets (5,211) (4,751) 69
Net amortization and deferral 4,213 4,036 (240)
------- ------ ------
Net pension expense $10,097 $6,966 $6,163
======= ====== ======
</TABLE>
<TABLE>
The following is a summary of the minimum monthly plan funded status (in
thousands):
<CAPTION>
December 31 1996 1995
- - ----------- ---- ----
<S> <C> <C>
Projected benefit obligation for service rendered to date $64,780 $53,344
Plan assets at fair market value, 42,640 28,193
primarily marketable securities ------- -------
Projected benefit obligation in excess of plan assets 22,140 25,151
Unrecognized prior service cost (438) (724)
Unrecognized net losses from past experience (11,131) (14,477)
different from that assumed
Unrecognized net transition obligation (118) (148)
------- -------
Pension liability included in consolidated balance sheets $10,453 $ 9,802
======= =======
Actuarial present value of accumulated benefit
obligation, including vested benefits of $36,913 $28,880
$33,910,000 and $25,886,000, respectively ======= =======
</TABLE>
<PAGE> 16
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 $1,825,000, $1,405,000, and $1,042,000 in
1996, 1995, and 1994, respectively. The plan's projected benefit
obligation, accumulated benefit obligation and accrued pension liability
was $6,500,000, $3,455,000, and $5,428,000 at December 31, 1996 and
$4,962,000, $1,832,000 and $3,609,000 at December 31, 1995.
<TABLE>
Assumptions used in determining minimum monthly and supplemental retirement
pension obligations were as follows:
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate 7.5% 7.0% 8.0%
Rate of compensation increase (pilots) 6.5% 5.5% 5.5%
Rate of compensation increase (non pilots) 5.0% 5.0% 5.0%
Long-term rate of return on assets 8.0% 8.0% 8.0%
</TABLE>
The Company additionally contributes to multi-employer defined benefit
pension plans for substantially all employees covered under collective
bargaining agreements. Total expense of these plans was $28,773,000,
$24,278,000, and $19,056,000 for 1996, 1995, and 1994, 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 $5,039,000 and
$5,329,900 at December 31, 1996 and 1995, respectively, and $5,593,000 and
$4,648,000 has been accrued in Other Liabilities in the Consolidated
Balance Sheets. Postretirement benefit expense was $1,066,000, $861,000,
and $865,000 for 1996, 1995, and 1994, respectively.
The assumed health care cost trend rate used in measuring benefit
costs was 9% for 1996, decreasing each successive year to a 5% annual
growth rate in 2000, and thereafter. A 1% 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, 1996. The assumed discount rate used in
determining the accumulated postretirement benefit obligation was 7.5% and
7% at December 31, 1996 and 1995, respectively.
The Company also contributes to multi-employer defined benefit welfare
plans for substantially all employees covered 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 $34,474,000, $28,968,000, and $22,955,000
for 1996, 1995, and 1994, respectively.
NOTE H - PREFERRED STOCK
In 1990, the Company issued a series of 6.9% redeemable cumulative
convertible preferred stock with mandatory redemption of all outstanding
shares required by December 2004. The preferred shares were convertible
into the Company's common stock at a conversion price of $23.393 per share.
In December 1996, the holders provided notice of their intent to
convert the remaining 78,950 preferred shares with a par value of
$3,948,000 into 168,747 of the Company's common shares. The conversion has
been achieved, and is recorded in the consolidated financial statements as
of December 31, 1996.
The fair value information shown in Note A, as of December 31, 1995,
was computed assuming the stock was converted, at the option of the holder,
to the Company's common shares utilizing the closing market price of $26.63
per share.
<PAGE> 17
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, 1994 $19,689 $149,156 $150,950 $ (971)
Net earnings available
to common shareholders 37,941
Conversion of redeemable
preferred stock 1,453 32,513
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
to common shareholders 23,544
Conversion of redeemable
preferred stock 45 1,007
Common stock dividends paid (6,317)
Exercise of stock options 67 571
------- -------- -------- -------
BALANCE at DECEMBER 31, 1995 21,398 185,947 199,941 (971)
Net earnings available
to common shareholders 27,174
Conversion of redeemable
preferred stock 169 3,779
Common stock dividends paid (6,341)
Exercise of stock options 55 679
------- -------- -------- -------
BALANCE at DECEMBER 31, 1996 $21,622 $190,405 $220,774 $ (971)
======= ======== ======== =======
</TABLE>
NOTE J - 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. ($273,586,000 in 1996,
$279,164,000 in 1995, and $234,607,000 in 1994).
The determination of operating income of domestic and international
operations requires that certain costs incurred in the U.S. be allocated to
international operations.
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
- - ---------------------- ---- ---- ----
(In thousands)
<S> <C> <C>
Revenues:
Domestic $2,108,670 $1,871,163 $1,660,003
International 375,636 368,188 310,756
---------- ---------- ----------
$2,484,306 $2,239,351 $1,970,759
========== ========== ==========
Earnings from Operations:
Domestic $ 71,809 $ 67,765 $ 86,298
International 7,372 1,216 2,640
Interest, net (33,236) (29,347) (24,663)
---------- ---------- ----------
Earnings Before Income Taxes $ 45,945 $ 39,634 $ 64,275
========== ========== ==========
Identifiable Assets:
Domestic $1,229,011 $1,148,056 $1,027,115
International 78,411 69,328 51,391
---------- ---------- ----------
$1,307,422 $1,217,384 $1,078,506
========== ========== ==========
</TABLE>
<PAGE> 18
NOTE K - STOCK OPTIONS
The Company has three fixed option plans which reserve shares of the
Company's common stock for issuance to officers, directors and key
employees. Options granted under these shareholder approved plans are
issued at the fair market value of the Company's stock on the date of grant
and become exercisable over a period of six months to three years, expiring
ten years from the date of grant. A total of 3,050,000 shares may be
granted under these plans of which 1,675,439 is available for future grants
at December 31, 1996. A summary of the Company's stock option activity and
related information is as follows:
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
- - ---------------------- ---- ---- ----
<S> <C> <C> <C>
Outstanding at beginning of year 1,134,680 1,041,821 1,070,261
Granted 218,460 193,285 134,820
Exercised (63,659) (81,966) (150,000)
Canceled (11,888) (18,460) (13,260)
--------- --------- ---------
Outstanding at end of year 1,277,593 1,134,680 1,041,821
========= ========= =========
Exercisable at end of year 828,372 740,000 655,853
========= ========= =========
</TABLE>
<TABLE>
Weighted average option price information is as follows:
<CAPTION>
Year Ended December 31 1996 1995 1994
- - ---------------------- ---- ---- ----
<S> <C> <C> <C>
Outstanding at beginning of year $22.11 $21.09 $18.31
Granted 26.00 23.13 37.68
Exercised 12.62 10.51 15.69
Canceled 26.68 28.17 25.43
Outstanding at end of year 23.21 22.11 21.09
Exercisable at end of year 21.45 19.23 16.71
</TABLE>
<TABLE>
Information related to the number of options outstanding, weighted average
price per share and remaining life of significant option groups outstanding
at December 31, 1996 is as follows:
<CAPTION>
Outstanding Exercisable
---------------------------- ----------------------------
Life in Life in
Price Range Number Price Years Number Price Years
----------- ------ ----- -------- ------ ----- --------
<S> <C> <C> <C> <C> <C> <C>
$6.63-$18.50 293,812 $13.55 2.3 293,812 $13.55 2.3
$22.13-$28.50 856,901 24.37 6.8 468,099 24.12 5.3
$36.13-$37.75 126,880 37.67 7.1 66,461 37.60 7.1
</TABLE>
<TABLE>
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its stock option plans and accordingly no
compensation expense has been recognized in the Consolidated Statements of
Net Earnings. Had compensation expense been measured under the fair value
provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation", the Company's Net Earnings
Available to Common Shareholders and Earnings Per Share for 1996 and 1995
would have been reduced to the following pro forma amounts. In accordance
with SFAS No. 123, pro forma information does not include compensation
expense attributed to 1996 and 1995 from options granted prior to 1995.
<PAGE> 19
<CAPTION>
Year Ended December 31 1996 1995
- - ---------------------- ---- ----
<S> <C> <C>
Net Income Available to Common Shareholders
(in thousands):
As reported $27,174 $23,544
Pro forma 26,086 23,020
Net Earnings Per Common Share (Primary):
As reported $1.28 $1.11
Pro forma 1.23 1.09
</TABLE>
<TABLE>
The weighted average fair value for options granted in 1996 and 1995,
computed utilizing the Black-Scholes option-pricing model, was $9.34 and
$8.33, respectively. Significant assumptions used in the estimation of fair
value and compensation expense are as follows:
<CAPTION>
Year Ended December 31 1996 1995
- - ---------------------- ---- ----
<S> <C> <C>
Weighted expected life (years) 6.6 6.1
Weighted risk free interest rate 5.3% 7.4%
Weighted volatility 36.9% 38.4%
Dividend yield 1.2% 1.3%
</TABLE>
NOTE L - SUPPLEMENTAL GUARANTOR INFORMATION
In connection with the issuance of $200,000,000 of Senior Notes
(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, 1996 1995
- - ------------ ---- ----
<S> <C> <C>
Current assets $ 63,345 $ 46,157
Property and equipment, net 739,470 726,378
Other noncurrent assets 11,469 12,053
Current liabilities 97,071 82,439
Long-term debt 20,940 13,200
Other noncurrent liabilities 87,284 75,210
Intercompany payable 426,878 458,854
</TABLE>
<TABLE>
<CAPTION>
Earnings Statement Information:
Year Ended December 31, 1996 1995 1994
- - ----------------------- ---- ---- ----
<S> <C> <C> <C>
Revenues - intercompany $767,972 $668,592 $591,501
Revenues - third-party 72,702 55,674 32,872
Operating expenses 778,392 662,632 572,629
Earnings from operations 62,282 61,634 51,744
Net earnings 27,229 28,704 23,404
</TABLE>
<PAGE> 20
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 separate returns.
NOTE M - LOSS RELATED TO AIRCRAFT ACCIDENT
On December 22, 1996, the Company suffered the loss of a DC-8-63
aircraft during a routine maintenance check flight. There were no
survivors among the six persons aboard. Costs associated with the accident
are estimated at $3,737,000 and include certain amounts for self insured
retention of workers' compensation, loss on the retirement of the aircraft
(net of insurance recoveries), and other costs specific to the accident.
Aircraft property insurance recoveries of $18,000,000 were received in
January 1997 and have been classified with Prepaid Expenses and Other in
the Consolidated Balance Sheet at December 31, 1996.
The cause of the accident continues to be investigated by the National
Transportation Safety Board. Management is not aware of, nor at this time
expecting, any significant actions from these investigations which would
result in future operating restrictions on its aircraft fleet.
Additionally, management is not aware of any threatened litigation, claims,
or other actions specific to the accident which could have a material
adverse effect on the Company's financial condition or results of
operations as of and for the year ended December 31, 1996.
NOTE N - QUARTERLY RESULTS (Unaudited)
<TABLE>
The following is a summary of quarterly results of operations (in thousands
except per share data):
<CAPTION>
1st 2nd 3rd 4th
1996 Quarter Quarter Quarter Quarter
- - ---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $597,909 $622,398 $612,027 $651,972
Earnings from Operations 10,720 25,815 16,424 26,222
Net Earnings Available
to Common Shareholders 1,246 10,621 4,642 10,665
Net Earnings per Common Share
Primary $ .06 $ .50 $ .22 $ .50
Fully Diluted .06 .48 .22 .48
1995
- - ----
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
</TABLE>
<PAGE> 21
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, 1996 and 1995, and the
related consolidated statements of net earnings and cash flows for each of the
three years in the period ended December 31, 1996. 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,
1996 and 1995, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
- - -------------------------
DELOITTE & TOUCHE LLP
February 14, 1997
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 14, 1997, on the consolidated financial statements
of Airborne Freight Corporation and subsidiaries appearing in the Company's
1996 Annual Report to Shareholders and incorporated by reference in this
Annual Report on Form 10-K for the year ended December 31, 1996.
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 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<CASH> 35,816
<SECURITIES> 0
<RECEIVABLES> 295,860
<ALLOWANCES> 8,345
<INVENTORY> 34,761
<CURRENT-ASSETS> 415,222
<PP&E> 1,695,730
<DEPRECIATION> 829,103
<TOTAL-ASSETS> 1,307,422
<CURRENT-LIABILITIES> 273,765
<BONDS> 524,440
0
0
<COMMON> 21,622
<OTHER-SE> 410,208
<TOTAL-LIABILITY-AND-EQUITY> 1,307,422
<SALES> 0
<TOTAL-REVENUES> 2,484,306
<CGS> 0
<TOTAL-COSTS> 2,405,125
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,236
<INCOME-PRETAX> 45,945
<INCOME-TAX> 18,500
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,445
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.28
</TABLE>
