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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission File Number 1-6512
AIRBORNE FREIGHT CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) |
91-0837469 (I.R.S. Employer Identification No.) |
3101 Western Avenue
P.O. Box 662
Seattle, Washington 98111-0662
(Address of principal executive offices)
Registrant's telephone number, including area code: (206) 285-4600
Indicate by check mark whether the Registrant (1) has filed all reports required 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report.
| Class | Outstanding | |
| Common Stock, $1.00 par value | 48,641,606 | |
| |
|
(net of 2,491,078 treasury
shares) as of September 30, 1999 |
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES Consolidated Statements of Net Earnings (Dollars in thousands except per share amounts) (Unaudited) |
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Three Months Ended September 30 |
Nine Months Ended September 30 |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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1999 |
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1998 |
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1999 |
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1998 |
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| REVENUES: | |||||||||||||
| Domestic | $ | 696,116 | $ | 678,650 | $ | 2,063,772 | $ | 2,013,546 | |||||
| International | 89,482 | 90,432 | 270,565 | 269,866 | |||||||||
| 785,598 | 769,082 | 2,334,337 | 2,283,412 | ||||||||||
| OPERATING EXPENSES: | |||||||||||||
| Transportation purchased | 240,738 | 237,503 | 712,910 | 702,623 | |||||||||
| Station and ground operations | 242,083 | 228,339 | 721,917 | 679,315 | |||||||||
| Flight operations and maintenance | 129,565 | 121,102 | 375,368 | 355,985 | |||||||||
| General and administrative | 59,673 | 62,811 | 179,864 | 184,701 | |||||||||
| Sales and marketing | 20,504 | 18,288 | 57,455 | 53,256 | |||||||||
| Depreciation and amortization | 53,852 | 45,954 | 154,445 | 136,024 | |||||||||
| 746,415 | 713,997 | 2,201,959 | 2,111,904 | ||||||||||
| EARNINGS FROM OPERATIONS | 39,183 | 55,085 | 132,378 | 171,508 | |||||||||
| INTEREST, NET | 4,709 | 3,005 | 12,388 | 9,881 | |||||||||
| EARNINGS BEFORE INCOME TAXES | 34,474 | 52,080 | 119,990 | 161,627 | |||||||||
| INCOME TAXES | 12,870 | 19,267 | 46,120 | 62,627 | |||||||||
| NET EARNINGS | $ | 21,604 | $ | 32,813 | $ | 73,870 | $ | 99,000 | |||||
| NET EARNINGS PER SHARE: Basic |
$ | .44 | $ | .66 | $ | 1.52 | $ | 1.98 | |||||
| Diluted | $ | .44 | $ | .65 | $ | 1.50 | $ | 1.94 | |||||
| DIVIDENDS PER SHARE | $ | .040 | $ | .040 | $ | .120 | $ | .118 | |||||
See notes to consolidated financial statements.
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (Dollars in thousands) |
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September 30, 1999 |
December 31, 1998 |
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|---|---|---|---|---|---|---|---|
| (unaudited) | |||||||
| ASSETS | |||||||
| CURRENT ASSETS: | |||||||
| Cash | $ | 20,650 | $ | 18,679 | |||
| Trade accounts
receivable, less allowance of $9,840 and $10,140 |
325,302 | 323,178 | |||||
| Spare parts and fuel inventory | 46,089 | 39,726 | |||||
| Deferred income tax assets | 31,715 | 28,508 | |||||
| Prepaid expenses and other | 27,743 | 25,697 | |||||
| TOTAL CURRENT ASSETS | 451,499 | 435,788 | |||||
| PROPERTY AND EQUIPMENT, NET |
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1,106,106 |
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1,021,885 |
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| EQUIPMENT DEPOSITS and OTHER ASSETS | 45,741 | 43,904 | |||||
| TOTAL ASSETS | $ | 1,603,346 | $ | 1,501,577 | |||
| LIABILITIES AND SHAREHOLDERS' EQUITY |
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| CURRENT LIABILITIES: |
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| Accounts payable | $ | 134,088 | $ | 153,000 | |||
| Salaries, wages and related taxes | 69,119 | 77,030 | |||||
| Accrued expenses | 88,860 | 93,997 | |||||
| Income taxes payable | 2,287 | 8,820 | |||||
| Current portion of debt | 431 | 410 | |||||
| TOTAL CURRENT LIABILITIES | 294,785 | 333,257 | |||||
| LONG-TERM DEBT | 298,858 | 249,149 | |||||
| DEFERRED INCOME TAX LIABILITIES | 97,997 | 88,838 | |||||
| OTHER LIABILITIES | 69,568 | 61,181 | |||||
SHAREHOLDERS' EQUITY: |
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| Preferred Stock,
without par value - Authorized 5,200,000 shares, no shares issued |
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| Common Stock, par value $1 per share - Authorized shares 120,000,000 Issued 51,132,684 and 50,818,493 shares |
51,133 | 50,819 | |||||
| Additional paid-in capital | 298,535 | 293,629 | |||||
| Retained earnings | 531,577 | 463,539 | |||||
| Accumulated other comprehensive income | 484 | 766 | |||||
| 881,729 | 808,753 | ||||||
| Treasury stock, 2,491,078 and 2,497,078 shares, at cost | (39,591 | ) | (39,601 | ) | |||
| 842,138 | 769,152 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 1,603,346 | $ | 1,501,577 | |||
See notes to consolidated financial statements.
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited, in thousands) |
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Nine Months Ended September 30 |
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|---|---|---|---|---|---|---|---|
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1999 |
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1998 |
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| OPERATING ACTIVITIES: | |||||||
| Net Earnings | $ | 73,870 | $ | 99,000 | |||
| Adjustments to reconcile net
earnings to net cash provided by operating activities: |
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| Depreciation and amortization | 139,300 | 124,002 | |||||
| Provision for aircraft engine overhauls | 15,145 | 12,022 | |||||
| Deferred income taxes | 5,952 | 14,184 | |||||
| Other | 8,526 | 8,535 | |||||
| CASH PROVIDED BY OPERATIONS | 242,793 | 257,743 | |||||
| Change in: | |||||||
| Receivables | (2,124 | ) | 5,960 | ||||
| Inventories and prepaid expenses | (8,409 | ) | (1,341 | ) | |||
| Accounts payable | (18,912 | ) | (1,600 | ) | |||
| Accrued expenses salaries and taxes payable | (19,581 | ) | (24,176 | ) | |||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | 193,767 | 236,586 | |||||
| INVESTING ACTIVITIES: |
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| Additions to property and equipment | (226,429 | ) | (193,497 | ) | |||
| Dispositions of property and equipment | 1,855 | 951 | |||||
| Expenditures for engine overhauls | (13,054 | ) | (15,521 | ) | |||
| Other | (3,296 | ) | (1,367 | ) | |||
| NET CASH USED BY INVESTING ACTIVITIES | (240,924 | ) | (209,434 | ) | |||
| FINANCING ACTIVITIES: |
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| Proceeds (payments) on bank notes, net | 50,000 | — | |||||
| Principal payments on debt | (270 | ) | (251 | ) | |||
| Proceeds from Common Stock issuance | 5,230 | 6,394 | |||||
| Dividends paid | (5,832 | ) | (5,897 | ) | |||
| Repurchase of common stock | — | (38,835 | ) | ||||
| NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES | 49,128 | (38,589 | ) | ||||
| NET INCREASE (DECREASE) IN CASH | 1,971 | (11,437 | ) | ||||
| CASH AT JANUARY 1 | 18,679 | 25,525 | |||||
| CASH AT SEPTEMBER 30 | $ | 20,650 | $ | 14,088 | |||
See notes to consolidated financial statements.
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999
(unaudited)
The consolidated financial statements included herein are unaudited but include all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations and cash flows for the interim periods reported.
Certain amounts for prior periods have been reclassified to conform to the 1999 presentation.
NOTE B - LONG-TERM DEBT:
Long-term debt consists of the following:
September 30 December 31
------------ -----------
1999 1998
---- ----
(In thousands)
Senior debt:
Revolving bank credit $65,000 $ -
Notes payable 14,000 29,000
Senior notes 200,000 200,000
Revenue bonds 13,200 13,200
Other debt 7,089 7,359
-------- --------
299,289 249,559
Less current portion 431 410
-------- --------
$298,858 $249,149
======== ========
NOTE C - EARNINGS PER SHARE:
Basic earnings per share are based upon the weighted average number of common shares outstanding during the interim period. Diluted earnings per share are based upon the weighted average number of common shares outstanding during the interim period plus dilutive common equivalent shares applicable to the assumed exercise of outstanding stock options.
Weighted average shares outstanding used in earnings per share computations
were as follows:
Three Months Ended Nine Months Ended
------------------ ----------------
September 30 September 30
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
WEIGHTED AVERAGE
SHARES OUTSTANDING:
Basic 48,642 49,921 48,579 50,056
Diluted 49,222 50,682 49,303 51,051
NOTE D-SEGMENT INFORMATION:
The Company has organized its business into two reportable operating segments. The domestic segment derives its revenues from the door-to-door delivery of small packages and documents throughout the United States, Canada, and Puerto Rico. Domestic operations are supported principally by Company operated aircraft and facilities. The international segment derives its revenues from express door-to-door delivery and a variety of freight services. International revenues are recognized on shipments where the origin and/or destination is outside of locations supported by the domestic segment. The Company uses a variable cost approach to delivering international services through use of existing commercial airline capacity in connection with its domestic network and independent express and freight agents in locations not currently served by Company-owned foreign operations.
The following is a summary of key segment information (in thousands):
Three Months Ended Nine Months Ended
------------------ ----------------
September 30 September 30
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
SEGMENT
REVENUES:
Domestic $696,116 $678,650 $2,063,772 $2,013,546
International 89,482 90,432 270,565 269,866
--------- --------- ---------- ----------
$785,598 $769,082 $2,334,337 $2,283,412
========= ========= ========== ==========
SEGMENT EARNINGS
FROM OPERATIONS:
Domestic $39,850 $54,481 $134,097 $172,992
International (667) 604 (1,719) (1,484)
--------- --------- --------- ---------
$39,183 $55,085 $132,378 $171,508
========= ========= ========== ==========
NOTE E-OTHER COMPREHENSIVE INCOME:
Other comprehensive income includes the following transactions and tax effects
for the three and nine month period ended September 30, 1999 (in thousands):
Three Months Ended Nine Months Ended
September 30, 1999 September 30, 1999
------------------------------- ------------------------------
Income Income
Tax Tax
(Expense) (Expense)
Before or Net of Before or Net of
Tax Benefit Tax Tax Benefit Tax
------ --------- ------ ------ --------- ------
Unrealized securities gains
(losses) arising during the
period $(303) $117 $(186) $(452) $174 $(278)
Less: Reclassification adjustment
for gains realized in net income (81) 31 (50) (223) 86 (137)
---- ---- ---- ---- ---- ----
Net unrealized securities gains
(losses) (384) 148 (236) (675) 260 (415)
Foreign currency translation
adjustments 202 (64) 138 216 (83) 133
----- ----- ----- ----- ----- -----
Other comprehensive income $(182) $ 84 $ (98) $(459) $177 $(282)
===== ===== ===== ===== ===== =====
NOTE F-NEW ACCOUNTING PRONOUNCEMENTS:
ACCOUNTING FOR DERIVATIVE INSTRUMENTS:
In 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities". As amended by SFAS No. 137, this statement will be effective for fiscal year 2001. SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value.
The Company has entered into certain derivative 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 monthly NYMEX Heating Oil futures contracts, is lower or exceeds certain prices agreed to between the Company and the financial institutions. The contracts, which have no cost basis, are accounted for as hedges since there has historically existed a high correlation between the changes in the NYMEX index and the price of jet fuel. Settlements are made in cash and are recorded in the earnings statement in the period of settlement as either an increase or decrease to fuel expense.
Under the cash flow hedge provisions of SFAS No. 133, the Company will be required to record the contracts at fair value, with corresponding changes in fair value recorded as a component of other comprehensive income. The Company has not adopted the provisions of SFAS No. 133 as of September 30, 1999. However, if the provisions of the statement had been adopted, a cumulative charge of $405,000, net of tax, would have been recorded to shareholders' equity and a credit to comprehensive income of approximately $269,000 and $2,969,000 would have been reported for the three and nine month periods ended September 30, 1999, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
The Company's operating performance in the third quarter and the first nine months of 1999 resulted in operating income and net earnings below that of the comparable periods of 1998. The lack of growth in domestic shipments experienced in the first half of 1999 continued through the third quarter. Without domestic shipment growth the Company did not experience any productivity gains to offset cost increases. While the yield on domestic shipments continued to improve, the average operating cost per shipment increased at a faster rate than the average revenue per shipment, in part because the cost of jet fuel has increased significantly compared to both the second quarter of 1999 and the third quarter of 1998. These combined factors had a negative impact on operating performance in the third quarter and in the first nine months of 1999.
Net earnings for the third quarter of 1999 were $21.6 million, or $.44 per share on a diluted basis, on revenues of $786 million, compared to $32.8 million, or $.65 per share on revenues of $769 million, for the third quarter of 1998. Net earnings for the first nine months of 1999 were $73.9 million, or $1.50 per share on revenues of $2.33 billion, compared to $99.0 million, or $1.94 per share on revenues of $2.28 billion for the corresponding period in 1998.
The following table sets forth selected shipment and revenue data for the
periods indicated:
Three Months Ended Nine Months Ended
------------------ ----------------
September 30 September 30
------------ % ------------ %
1999 1998 Change 1999 1998 Change
---- ---- ------ ---- ---- ------
Shipments (in thousands):
Domestic
Overnight 46,496 46,792 (0.6%) 139,239 139,183 0.0%
Next Afternoon Service 13,722 14,640 (6.3%) 42,538 43,741 (2.8%)
Second Day Service 18,733 17,497 7.1% 54,444 53,181 2.4%
100 Lbs. and Over 69 91 (24.2%) 217 269 (19.3%)
------- ------- ----- ------- ------- -----
Total Domestic 79,020 79,020 0.0% 236,438 236,374 0.0%
International
Express 1,699 1,522 11.6% 4,912 4,418 11.2%
Freight 96 105 (8.6%) 296 328 (9.8%)
------- ------- ----- ------- ------- -----
Total International 1,795 1,627 10.3% 5,208 4,746 9.7%
------- ------- ----- ------- ------- -----
Total Shipments 80,815 80,647 0.2% 241,646 241,120 0.2%
====== ====== ======= =======
Average Pounds per Shipment:
Domestic 4.24 4.26 (0.5%) 4.21 4.28 (1.6%)
International 43.44 41.06 5.8% 43.75 42.23 3.6%
Average Revenue per Pound:
Domestic $2.04 $1.98 3.0% $2.04 $1.96 4.1%
International $1.14 $1.34 (14.9%) $1.17 $1.33 (12.0%)
Average Revenue per Shipment:
Domestic $8.81 $8.59 2.6% $8.73 $8.51 2.6%
International $49.85 $55.58 (10.3%) $51.95 $56.86 (8.6%)
Total revenues increased 2.1% and 2.2% in the third quarter and first nine
months of 1999, respectively. This compares to a decrease of 2.5% in the
third quarter of 1998 and an increase of 5.9% for the first nine months of
1998 compared to the same periods of 1997. Total shipment growth was .2%
for the third quarter of 1999 compared to the third quarter of 1998 and
also for the first nine months of 1999 over the first nine months of 1998.
This compares to total shipment growth of 7.7% for the first nine months of
1998 over 1997, and a decrease of .1% for the third quarter of 1998
compared to the third quarter of 1997. Domestic shipment and revenue
comparisons for 1998 over 1997 are less meaningful due to a UPS strike in
the third quarter of 1997 which increased the Company's business during
that period.
Domestic revenue growth for the third quarter and the first nine months of 1999 was impacted by the flat growth in total domestic shipments. Domestic revenues increased 2.6% and 2.5% in the third quarter and first nine months of 1999, respectively, compared to a decrease of 1.3% in the third quarter of 1998 and to an increase of 8.2% for the first nine months of 1998. The fact that the growth rate in domestic revenue exceeded the growth rate in shipments for the first nine months of 1999the year continues to be a positive trend. The average revenue per domestic shipment increased 2.6% to $8.81 in the third quarter of 1999 compared to the third quarter of 1998.
Overnight shipments accounted for 58.8% of total domestic shipments in the third quarter of 1999, compared to 59.2% in the third quarter of 1998. The higher yielding overnight shipments decreased 0.6% in the third quarter of 1999, compared to a 2.4% increase in the corresponding 1998 period. The Company's Next Afternoon Service shipments decreased 6.3% and the Second Day Service shipments increased 7.1% in the third quarter of 1999 compared to an increase of 4.3% and a decrease of 10.2%, respectively, in the third quarter of 1998.
The Company began a pilot program in mid-July, 1999 to test a new service for business to residential delivery. This service, referred to as Airborne@Home, will target shipments from internet, catalog, and mail order businesses which are primarily destined for residential addresses. Delivery of this product will be accomplished through an arrangement with the U.S. Postal Service. The pilot program for Airborne@Home will continue to be evaluated on an ongoing basis to determine longer-term application.
International revenues decreased 1.1% in the third quarter, and increased .3% in the first nine months of 1999, respectively, compared to a decrease of 10.5% and 8.6% in the comparable periods of 1998. The Company experienced strong growth in its international express segment, with shipments increasing 11.6% in the third quarter and 11.2% for the first nine months of 1999. The Company continued to experience a decline in shipments in the heavier weight, higher revenue per shipment freight segment, which decreased 8.6% in the third quarter and 9.8% in the first nine months of 1999.
Operating expenses as a percentage of revenues were 95.0% and 94.3% for the third quarter and first nine months of 1999, respectively, compared to 92.8% in the third quarter and 92.5% in the first nine months of 1998, and 92.5% for all of 1998. Operating cost per shipment handled increased 4.0% to $9.11 for the first nine months of 1999 compared to the first nine months of 1998. The operating cost per shipment for the third quarter of 1999 increased 4.3% to $9.24, compared to the third quarter of 1998. Flat shipment growth had a negative impact on productivity. The Company experienced a decline of 2.2% and 2.6% in productivity for the third quarter and first nine months of 1999, respectively, compared to the same periods of 1998, as measured by shipments handled per paid employee hour. The decline in year to date productivity, additional first quarter 1999 weather related costs, and higher jet fuel costs, particularly in the third quarter, were significant factors having a negative impact on year to date 1999 operating results. Comparisons of certain operating expense components are discussed below.
Transportation purchased decreased as a percentage of revenues to 30.5% in the first nine months of 1999 compared to 30.8% in the comparable period of 1998. This decrease was primarily due to commercial airline costs which were lower in total and as a percentage of total revenues in the first nine months of 1999 due to the decline in international freight shipments.
Station and ground expense increased to 30.9% of revenues in the first nine months of 1999 compared to 29.8% in the first nine months of 1998. The decline in productivity and the weather related costs incurred in the first quarter had a negative impact on this category of expense.
Flight operations and maintenance expense as a percentage of revenues during the first nine months of 1999 was 16.1%, compared to 15.6% in the first nine months of 1998. Aviation fuel consumption decreased to 45.2 million gallons in the third quarter of 1999, a 2.3% decrease over the third quarter of 1998. For the first nine months of 1999, aviation fuel consumption of 134.2 million gallons decreased 1.3% from the first nine months of 1998. The average aviation fuel price for the third quarter of 1999 was $.68 per gallon compared to $.58 per gallon in the second quarter of 1999 and $.55 per gallon in the third quarter of 1998. As a result of fuel hedging contracts, the Company incurred $2.4 million of expense in the first nine months of 1999 compared to $5.9 million in the first nine months of 1998.
General and administrative expense was 7.7% of revenues in the first nine months of 1999 compared to 8.1% in the comparable period of 1998. This category of cost decreased in total and as a percentage of revenues primarily due to lower profit sharing and management incentive compensation costs. These lower costs are a result of reduced levels of operating earnings in comparison to the first nine months of 1998.
Sales and Marketing expense was 2.5% of revenues in the first nine months of 1999 compared to 2.3% for the first nine months of 1998. This increase is due in part to higher sales incentive compensation.
The increase in depreciation and amortization expense in the first nine months of 1999 is due in large part to the increased number of Boeing 767 aircraft in service during the first nine months of 1999 versus the comparable period of 1998.
Interest expense in the first nine months of 1999 was higher than the first nine months of 1998, primarily as the result of higher levels of average outstanding borrowings which offset the benefit of lower average effective interest rates realized.
The Company's effective tax rate was 38.4% in the first nine months of 1999 compared to 38.7% in the first nine months of 1998 and 38.0% for all of 1998. The effective tax rate for the third quarter of 1999 was 37.3%, which was impacted by lower state tax accruals than in the previous year. The Company anticipates the effective tax rate for all of 1999 will be in a range comparable to the first nine months of 1999.
YEAR 2000 ISSUE:
The Company has implemented a compliance program to address the challenges Year 2000 issues may present to its business. This program includes computer systems and applications operated by the Company, computer systems of third parties upon whose data or functionality the Company relies, and certain other fixed assets, including aircraft, which contain date sensitive technology critical to their operation.
Modifications to the Company's critical operational and financial systems and conversions to new software were substantially complete at the end of 1998. Testing of these critical systems and software as well as remediation efforts and related testing on less critical applications has also been substantially completed.
As part of the compliance program, the Company has also had communications with third parties - primarily customers, vendors, airport authorities, and other governmental agencies (domestic and foreign), including the Federal Aviation Administration - whose failure to have Year 2000 compliant systems could have an adverse impact on the Company's operations. The Company has tested interfaces of shipment information with curtain customers as this data is critical to providing timely services and billing.
Although the Company does not believe the Year 2000 issue will have a material impact on its operations, there can be no guarantee that the Company's or any third party's Year 2000 remediation efforts will be fully compliant. If noncompliance is extensive and, in the worse case, involves some form of temporary suspension of operations, this could have a material adverse effect on the Company's business, financial condition and results of operations. The Company believes however, the most likely worst case scenario would include pickup or delivery delays in a particular geographic location or locations.
To assist in mitigating the risk of noncompliance, the Company has developed contingency plans, and continues to refine these plans, regarding critical systems should they fail to become Year 2000 compliant. These plans focus on the Company's own critical operational and financial systems as well as customer interfaces of shipment information. The contingency plans include, among other things, the development of systems rollover check plans and manual procedures to be performed by field and headquarters personnel in the event of communications systems failures.
Management estimates the total cost of the Year 2000 compliance program to be approximately $3.8 million, of which $3.6 million has been incurred through September 30, 1999. Total information technology costs are not expected to differ from the normal recurring costs that are incurred for systems development, in part due to the reallocation of internal resources and the deferral of other projects. Funding of the compliance program is from internal cash flows.
LIQUIDITY AND CAPITAL RESOURCES:
Cash provided by operations net of change in working capital for the first nine months of 1999 was $194 million, compared to $237 million in the first nine months of 1998.
Capital expenditures continue to be a primary factor affecting the financial condition of the Company. The Company anticipates total capital expenditures to approximate $350 million in 1999. During the first nine months of 1999, total capital expenditures net of dispositions were $225 million. Cash provided by operations and bank borrowings were the primary sources for funding capital expenditures in the first three quarters of 1999.
The Company's strong operating cash flow is a major source of liquidity. Also, the Company's $250 million unsecured revolving bank credit agreement has traditionally been used as a major source of liquidity for periods between other financing transactions. The Company also has available $65 million under unsecured uncommitted money market lines of credit with several banks used in conjunction with the revolving credit agreement to facilitate settlement and accommodate short-term borrowing fluctuations. With the higher level of capital expenditures in 1999 compared to 1998, reliance on the bank facilities has increased, with a total of $79.0 million outstanding at September 30, 1999 under the revolving bank credit and money market credit lines, compared to $29.0 million outstanding at December 31, 1998 and $30.0 million outstanding at September 30, 1998.
In management's opinion, the available capacity under the bank credit agreements coupled with internally generated cash flow from remaining 1999 operations should provide adequate flexibility to finance anticipated capital expenditures for the balance of 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
There have been no material changes in the Company's market risk sensitive instruments and positions since its disclosure in its Annual Report on Form 10-K for the year ended December 31, 1998. See Note F of the Notes to Consolidated Financial Statements to this Form 10-Q for further discussion regarding the Company's fuel hedging activities.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports or Form 8-K.
(a) Exhibits -
Exhibit No. 27 - Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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AIRBORNE FREIGHT CORPORATION |
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| Dated: November 12, 1999 | By: /s/ Roy C. Liljebeck Roy C. Liljebeck Executive Vice President, (Chief Financial Officer) |
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| Dated: November 12, 1999 | /s/ Lanny H. Michael Lanny H. Michael Senior Vice President, (Treasurer and Controller) |
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