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Previous: AEROFLEX INC, 10-Q, EX-27, 2000-11-14 |
Next: AIRBORNE FREIGHT CORP /DE/, 10-Q, EX-27, 2000-11-14 |
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, 2000
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, par value $1 per share | 48,035,125 | |
| |
|
(net of 3,244,526 treasury
shares) as of September 30, 2000 |
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET EARNINGS
(Dollars in thousands except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
2000 1999 2000 1999
---- ---- ---- ----
REVENUES:
Domestic $705,977 $696,116 $2,147,530 $2,063,772
International 98,552 89,192 280,490 269,884
-------- -------- ---------- ----------
804,529 785,308 2,428,020 2,333,656
OPERATING EXPENSES:
Transportation purchased 262,718 240,738 765,345 712,910
Station and ground operations 263,768 242,083 776,387 721,917
Flight operations and
maintenance 143,665 129,565 425,729 375,368
General and administrative 64,312 59,755 191,309 180,089
Sales and marketing 20,200 20,504 60,740 57,455
Depreciation and amortization 52,892 53,852 152,768 154,445
-------- -------- ---------- ----------
807,555 746,497 2,372,278 2,202,184
EARNINGS (LOSS) FROM OPERATIONS (3,026) 38,811 55,742 131,472
OTHER INCOME (EXPENSE):
Interest, net (6,544) (4,709) (16,635) (12,388)
Other 406 372 3,111 906
-------- -------- ---------- ----------
EARNINGS (LOSS) BEFORE INCOME
TAXES (9,164) 34,474 42,218 119,990
INCOME TAX EXPENSE (BENEFIT) (3,655) 12,870 16,070 46,120
-------- -------- ---------- ----------
NET EARNINGS (LOSS) BEFORE
CHANGE IN ACCOUNTING (5,509) 21,604 26,148 73,870
-------- -------- ---------- ----------
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING - - 14,206 -
-------- -------- ---------- ----------
NET EARNINGS (LOSS) $ (5,509) $ 21,604 $ 40,354 $ 73,870
======== ======== ========== ==========
NET EARNINGS (LOSS) PER SHARE:
BASIC
Before change in
accounting $ (0.11) $ 0.44 $ 0.54 $ 1.52
Cumulative effect of
change - - 0.29 -
-------- -------- ---------- ----------
Net earnings (loss) $ (0.11) $ 0.44 $ 0.83 $ 1.52
======== ======== ========== ==========
DILUTED
Before change in
accounting $ (0.11) $ 0.44 $ 0.54 $ 1.50
Cumulative effect of
change - - 0.29 -
-------- -------- ---------- ----------
Net earnings (loss) $ (0.11) $ 0.44 $ 0.83 $ 1.50
======== ======== ========== ==========
DIVIDENDS PER SHARE $ 0.04 $ 0.04 $ 0.12 $ 0.12
======== ======== ========== ==========
See notes to consolidated financial statements.
2
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30 December 31
2000 1999
---- ----
(Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash $ 26,567 $ 28,678
Trade accounts receivable,
less allowance of $9,510 and $9,640 353,381 339,044
Spare parts and fuel inventory 46,032 44,263
Refundable income taxes 10,763 1,679
Deferred income tax assets 26,640 31,950
Prepaid expenses and other 20,228 24,456
---------- ----------
TOTAL CURRENT ASSETS 483,611 470,070
PROPERTY AND EQUIPMENT, NET 1,295,004 1,115,712
EQUIPMENT DEPOSITS and OTHER ASSETS 52,993 57,468
TOTAL ASSETS $1,831,608 $1,643,250
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 155,296 $ 142,087
Salaries, wages and related taxes 76,721 65,276
Accrued expenses 80,666 78,755
Income taxes payable - 3,282
Current portion of debt 459 442
---------- ----------
TOTAL CURRENT LIABILITIES 313,142 289,842
LONG-TERM DEBT 429,361 314,707
DEFERRED INCOME TAX LIABILITIES 119,701 99,169
OTHER LIABILITIES 91,570 81,325
SHAREHOLDERS' EQUITY:
Preferred Stock, without par value -
Authorized 5,200,000 shares, no shares
issued
Common stock, par value $1 per share -
Authorized 120,000,000 shares
Issued 51,279,651 and 51,176,018 shares 51,280 51,176
Additional paid-in capital 303,885 298,742
Retained earnings 581,484 546,962
Accumulated other comprehensive income 1,059 918
---------- ----------
937,708 897,798
Treasury stock, 3,244,526 and 2,491,078
shares, at cost (59,874) (39,591)
---------- ----------
877,834 858,207
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,831,608 $1,643,250
========== ==========
See notes to consolidated financial statements.
3
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended
September 30
------------
2000 1999
---- ----
OPERATING ACTIVITIES:
Net Earnings $ 40,354 $ 73,870
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Cumulative effect of change in accounting (14,206) -
Depreciation and amortization 152,768 139,300
Deferred income taxes 17,135 5,952
Provision for aircraft engine overhauls - 15,145
Other 15,485 8,526
-------- --------
CASH PROVIDED BY OPERATIONS 211,536 242,793
Change in:
Receivables (14,337) (2,124)
Inventories and prepaid expenses (6,625) (8,409)
Accounts payable 13,209 (18,912)
Accrued expenses, salaries & taxes payable 10,074 (19,581)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 213,857 193,767
INVESTING ACTIVITIES:
Additions to property and equipment (302,390) (226,429)
Dispositions of property and equipment 4,037 1,855
Expenditures for engine overhauls - (13,054)
Other (7,051) (3,296)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (305,404) (240,924)
FINANCING ACTIVITIES:
Proceeds from bank notes, net 115,000 50,000
Principal payments on debt (329) (270)
Repurchase of common stock (20,662) -
Proceeds from common stock issuance 1,259 5,230
Dividends paid (5,832) (5,832)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 89,436 49,128
-------- --------
NET (DECREASE) INCREASE IN CASH (2,111) 1,971
CASH AT JANUARY 1 28,678 18,679
-------- --------
CASH AT SEPTEMBER 30 $ 26,567 $ 20,650
======== ========
See notes to consolidated financial statements.
4
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 (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 2000 presentation.
NOTE B-LONG-TERM DEBT:
Long-term debt consists of the following:
September 30 December 31
2000 1999
---- ----
(In thousands)
Senior debt:
Revolving bank credit $ 190,000 $ 95,000
Notes payable 20,000 -
Senior notes 200,000 200,000
Revenue bonds 13,200 13,200
Other debt 6,620 6,949
--------- ---------
429,820 315,149
Less current portion 459 442
--------- ---------
$ 429,361 $ 314,707
========= =========
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
------------ ------------
2000 1999 2000 1999
---- ---- ---- ----
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic 48,034,899 48,642,297 48,516,263 48,579,333
Diluted 48,185,156 49,222,452 48,850,931 49,303,004
5
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
------------ ------------
2000 1999 2000 1999
---- ---- ---- ----
SEGMENT REVENUES:
Domestic $705,977 $696,116 $2,147,530 $2,063,772
International 98,552 89,192 280,490 269,884
-------- -------- ---------- ----------
$804,529 $785,308 $2,428,020 $2,333,656
======== ======== ========== ==========
SEGMENT EARNINGS
(LOSS) FROM
OPERATIONS:
Domestic $ 55 $39,488 $61,786 $129,779
International (3,081) (677) (6,044) 1,693
------- ------- ------- --------
$(3,026) $38,811 $55,742 $131,472
======= ======= ======= ========
NOTE E-OTHER COMPREHENSIVE INCOME:
Other comprehensive income includes the following transactions and tax effects for the three and nine month periods ended September 30, 2000 (in thousands):
Three Months Ended Nine Months Ended
September 30, 2000 September 30, 2000
Income Income
Before Tax Net of Before Tax Net of
Tax (Expense) Tax Tax (Expense) Tax
or or
Benefit Benefit
------ ------- ------ ------ ------- ------
Unrealized securities
gains
arising during the
period $ 593 $ (228) $ 365 $1,043 $ (401) $ 642
Less: Reclassification
adjustment for gains
realized in net income (67) 26 (41) (588) 227 (361)
------ ------ ------ ------ ------ ------
Net unrealized
securities gains 526 (202) 324 455 (174) 281
Foreign currency
translation adjustments (16) 6 (10) (227) 87 (140)
------ ------ ------ ------ ------ ------
Other comprehensive
income $ 510 $ (196) $ 314 $ 228 $ (87) $ 141
====== ====== ====== ====== ====== ======
6
NOTE F-CHANGE IN ACCOUNTING:
Effective January 1, 2000, the Company changed its method of accounting for major engine overhaul costs on DC-9 aircraft from the accrual method to the direct expense method where costs are expensed as incurred. Previously, these costs were accrued in advance of the next scheduled overhaul based upon engine usage and estimates of overhaul costs. The Company believes that this new method is preferable because it is more consistent with industry practice and appropriate given the relatively large size of its DC- 9 fleet.
The cumulative effect of this change in accounting resulted in a non-cash credit of $14,206,000, net of taxes, or $.29 per share on a diluted basis being recognized in the first nine months of 2000. Excluding the cumulative effect, this change increased net earnings for the third quarter and first nine months of 2000 by approximately $1.4 million, net of tax or $.03 per share, and $4.2 million, net of tax or $.09 per share, respectively. If the accounting change for engine overhaul costs had been retroactively applied, earnings from continuing operations for the three and nine month periods ended September 30, 1999 would have been as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1999
---- ----
As Reported:
Earnings from continuing operations $38,811 $131,472
Diluted earnings per share $ 0.44 $ 1.50
Proforma continuing operations:
Earnings from continuing operations $40,109 $134,311
Diluted earnings per share $ 0.47 $ 1.56
NOTE G-NEW ACCOUNTING PRONOUNCEMENTS:
ACCOUNTING FOR DERIVATIVE INSTRUMENTS:
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". In June 2000, the FASB issued SFAS No. 138, which amended certain provisions of SFAS 133 to clarify areas causing difficulties in implementation.
The Company has appointed a team to implement SFAS 133. This team is responsible for developing appropriate management reports, educating both financial and non-financial personnel, completing an inventory of embedded derivatives and addressing various other SFAS 133 related issues. The Company will adopt SFAS 133 and the corresponding amendments under SFAS 138 on January 1, 2001. SFAS 133, as amended by SFAS 138, is not expected to have a material impact on the Company's consolidated results of operations, financial position or cash flows.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
The Company reported net earnings for the first nine months of 2000 below that of the comparable period in 1999, and experienced a net loss for the third quarter of this year. The weaker operating results are primarily caused by the lack of growth in domestic shipment volumes. While the revenue yield on domestic shipments has continued to improve, the lack of shipment growth precludes realizing productivity gains necessary to offset cost increases. As a result, average operating cost per shipment increased at a faster rate than average revenue per shipment.
The net loss for the third quarter of 2000 was $5.5 million, or $.11 per diluted share. This compares to net earnings of $21.6 million, or $.44 per share reported in the third quarter of 1999.
Net earnings for the first nine months of 2000 were $40.4 million, or $.83 per share, compared to $73.9 million, or $1.50 per share for the corresponding period in 1999. Earnings for 2000 include a non-recurring gain from the sale of securities of $1.9 million, or $.02 per share recorded in the second quarter. Effective at the beginning of 2000, the Company changed from the accrual method of accounting for DC-9 engine overhaul costs to the direct expense method where costs are expensed as incurred. The cumulative effect of this change resulted in a non-cash credit of $14.2 million, net of taxes, or $.29 per share, being recorded in the first quarter and included in net earnings for the first nine months of 2000.
Operating costs for the first nine months of 2000 have continued to be impacted by the high cost of jet fuel, which began to escalate in the third quarter of 1999. To help address this cost increase the Company implemented a 3% fuel surcharge on domestic revenue effective in early February 2000, under which $19.5 million and $51.9 million of surcharge revenues were recorded during the third quarter and first nine months of 2000, respectively. Jet fuel costs increased approximately $15.5 million, or $.35 per gallon in the third quarter of 2000 and $48.5 million, or $.36 per gallon for the first nine months of 2000 versus comparable periods in 1999. Higher fuel costs have also impacted ground related linehaul and cartage operations. While the fuel surcharge has been adequate to offset these higher fuel related costs during the third quarter of 2000, it has not fully offset the impact of all fuel-related increases incurred in the first nine months of 2000. Also, fuel prices continue to be at historically high levels, which is not an encouraging trend. To assist in mitigating these continued high prices, effective October 16, 2000, the fuel surcharge was increased from 3 percent to 4 percent of domestic revenue.
The following table sets forth selected shipment and revenue data for the periods indicated:
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
2000 1999 Change 2000 1999 Change
---- ---- ------ ---- ---- ------
Shipments (in thousands):
Domestic
Overnight 45,540 46,496 (2.1%) 139,694 139,239 0.3%
Next Afternoon
Service 13,430 13,722 (2.1%) 41,044 42,538 (3.5%)
Second Day Service 19,466 18,733 3.9% 58,398 54,444 7.3%
100 Lbs. and Over 72 69 4.3% 214 217 (1.4%)
------ ------ ------- -------
Total Domestic 78,508 79,020 (0.6%) 239,350 236,438 1.2%
International
Express 1,506 1,699 (11.4%) 4,584 4,912 (6.7%)
Freight 102 96 6.3% 297 296 0.3%
------ ------ ------- -------
Total International 1,608 1,795 (10.4%) 4,881 5,208 (6.3%)
8
Total Shipments 80,116 80,815 (0.9%) 244,231 241,646 1.1%
====== ====== ======= =======
Average Pounds per
Shipment:
Domestic 4.27 4.24 0.7% 4.27 4.21 1.4%
International 55.69 43.44 28.2% 51.01 43.75 16.6%
Average Revenue per
Pound:
Domestic $2.07 $2.04 1.5% $2.07 $2.04 1.5%
International $1.09 $1.14 (4.4%) $1.11 $1.17 (5.1%)
Average Revenue per
Shipment:
Domestic $8.91 $8.81 1.1% $8.93 $8.73 2.3%
International $61.29 $49.69 23.3% $57.47 $51.82 10.9%
Total revenues increased 2.4% and 4.0% in the third quarter and first nine months of 2000, respectively, compared to the same periods in 1999. Domestic revenues increased 1.5% in the third quarter, and 4.1% for the first nine months of 2000. The fuel surcharge accounted for 2.5% of the year to date growth in domestic revenue. The average revenue per domestic shipment increased 1.1% in the third quarter of 2000 and 2.3% for the first nine months of 2000 compared to the comparable periods of 1999. The Company remains encouraged by the stability in domestic revenue per shipment yields.
Domestic shipments decreased .6% in the third quarter and increased 1.2% in the first nine months of 2000 in comparison to the same periods in 1999. The third quarter of 2000 had one less operating day than the comparable period in 1999. On a per day basis, domestic shipments increased .9% to 1,246,000 shipments per day. The first nine months of 2000 had one additional operating day than in 1999. Overnight shipments accounted for 58.0% of total domestic shipments in the third quarter compared to 58.8% in the third quarter of 1999. The higher yielding overnight shipments decreased 2.1% in the third quarter, compared to a decline of .6% experienced in the same period of 1999. The Company's Next Afternoon Service shipments decreased 2.1% compared to a decrease of 6.3% in the third quarter of 1999. Second Day Service shipments increased 3.9% in the third quarter compared to a 7.1% growth rate experienced in the same period of 1999. The Second Day Service category includes shipments associated with the Company's new product, airborne@home, which was introduced in late 1999 to service expanding e-commerce and business to residential delivery markets. airborne@home shipment volumes were 1,758,000 in the third quarter and 3,500,000 for the first nine months of 2000. The Company continues to be encouraged by the business opportunities of this new product which offers shippers a competitive combination of service and pricing, while providing the Company an efficient way to accomplish residential deliveries through an arrangement with the U.S. Postal Service.
International revenues increased 10.5% and 3.9% in the third quarter and first nine months of 2000, respectively, compared to a decrease of 1.1% in the third quarter of 1999 and an increase of .3% in the first nine months of 1999. Total international shipments decreased 10.4% in the third quarter and 6.3% in the first nine months of 2000 compared to the same periods in 1999. International express shipments decreased 11.4% in the third quarter and 6.7% for the first nine months of 2000 due primarily to the loss of a major customer early in 2000. International freight shipments increased 6.3% and .3% in the third quarter and first nine months of 2000, respectively, compared to the corresponding periods in 1999. The Company is encouraged by the recent strength in freight shipments in the second and third quarters of 2000. Although international revenues showed strength in the third quarter, the shift in the mix toward import business, and the overall cost increases from airlines on international segments created significant cost pressures, and resulted in a deterioration in margins and international segment profitability. Typically, our U.S. export business has a higher margin than imports. The international segment contribution to earnings from operations was a loss of $3.0 million
9
and $6.0 million for the third quarter and first nine months of 2000, respectively, compared to a loss of $.7 million for the third quarter of 1999 and operating earnings of $1.7 million in the first nine months of 1999.
Operating expenses exceeded revenues in the third quarter and were 97.7% of revenues for the first nine months of 2000. This compares to 95.1% and 94.4% for the corresponding three and nine month periods in 1999 and 94.9% for all of 1999. Operating cost per shipment increased 9.1% in the third quarter of 2000 to $10.08 compared to $9.24 in the third quarter of 1999. The operating cost per shipment for the first nine months of 2000 increased 6.6% to $9.71 compared to the same period in 1999. The significantly higher cost of jet fuel is a major factor impacting operating costs in the first nine months of 2000. Excluding the cost of jet fuel, operating cost per shipment increased 7.4% for the third quarter and 4.6% for the first nine months of 2000. Additionally, productivity, as measured by shipments handled per paid employee hour, experienced a decline of 2.6% and 1.2% for the third quarter and first nine months of 2000, respectively. The Company continues to manage productivity at levels sufficient to maintain a high level of overall service integrity with its customers. At this time, maintaining service is a priority and no plans exist to reduce service to cut costs in the short term. Comparisons of certain operating expense components are discussed below.
Transportation purchased increased as a percentage of revenues to 31.5% in the first nine months of 2000 compared to 30.5% in the comparable period of 1999. This increase was primarily due to increases in farmed out pickup and delivery, international airline and surface linehaul rates as well as fuel surcharges on these services.
Station and ground expense increased to 32.0% of revenues in the first nine months of 2000 compared to 30.9% in the first nine months of 1999. The decline in productivity combined with wage related cost increases had a negative effect on this category of expense.
Flight operations and maintenance expense as a percentage of revenues during the first nine months of 2000 was 17.5% compared to 16.1% in the first nine months of 1999. Aviation fuel consumption decreased to 44.6 million gallons in the third quarter, a 1.3% decrease over the third quarter of 1999. For the first nine months of 2000, aviation fuel consumption of 135.8 million gallons increased 1.2% from the first nine months of 1999. The average aviation fuel price for the third quarter and first nine months of 2000 was $1.03 and $.96 per gallon, respectively, compared to $.68 and $.58 per gallon, respectively, in the comparable periods of 1999. As a result of fuel hedging contracts, the Company incurred $2.4 million of expense, equal to approximately $.02 per gallon, in the first nine months of 1999, with no hedging settlements occurring in the first nine months of 2000.
Effective January 1, 2000, the Company began to expense DC-9 engine overhaul costs directly to maintenance expense as costs are incurred. Engine overhaul costs currently charged to expense as incurred and included in the flight operations and maintenance category were previously accrued in advance of the next scheduled overhaul and charged to the depreciation and amortization category.
General and administrative expense was 7.9% of revenues in the first nine months of 2000, compared to 7.7% in 1999. This category of cost has increased as a percentage of revenues primarily due to wage and compensation cost pressures.
Depreciation and amortization expense decreased to 6.3% of revenues for the first nine months of 2000 compared to 6.6% in 1999. Depreciation expense in the first nine months of 2000 increased compared to the comparable period in 1999 due to the increased number of 767 aircraft placed in service since the third quarter of 1999. This increase was offset by the effect of the change in accounting for engine overhaul costs discussed above.
10
Interest expense in the first nine months of 2000 was higher than in the first nine months of 1999 due to higher levels of average outstanding borrowings. Effective interest rates for the first nine months of 2000 was comparable to the same period in 1999. Capitalized interest was $5.0 million for the first nine months of 2000 compared to $3.1 million in the first nine months of 1999.
Other income includes a nonrecurring gain of $1.9 million recorded in the second quarter on the sale of securities received in connection with the demutualization of Metropolitan Life.
The Company's effective tax rate was 38.1% in the first nine months of 2000 compared to 38.4% in the first nine months of 1999 and 38.1% for all of 1999.
The Company announced a number of new initiatives to improve volume growth and profitability. These initiatives include marketing targeted toward enhancing the suite of products offered, pursuing the small market business market, improving sales effectiveness, expanding third party logistics capabilities and increasing online offerings. Among these initiatives is also the introduction of a ground delivery service, which allows customers to consolidate their distribution process with the Company. The new service, which is scheduled to begin in April 2001, will leverage our existing infrastructure and excess capacity and is expected to provide a sound competitive offering in the marketplace.
LIQUIDITY AND CAPITAL RESOURCES:
Cash provided by operations net of the change in working capital for the first nine months of 2000 was $211.5 million, compared to $227.6 million in the first nine months of 1999.
Capital expenditures continue to be a primary factor affecting the financial condition of the Company. The Company anticipates total capital expenditures to approximate $370 million in 2000. During the first nine months of 2000, total capital expenditures net of dispositions were $298.3 million compared to $224.6 million during the first nine months of 1999. Cash provided by operations and bank borrowings were the primary sources for funding capital expenditures in the first nine months of 2000.
The Company completed a share repurchase of 1 million shares of common stock in June 2000 for approximately $20.7 million, which were added to the Company's treasury stock. The shares were repurchased pursuant to a 4 million stock repurchase program authorized by the Board of Directors in 1998. The Company has no current plans to purchase additional shares under the remaining repurchase authorization.
The Company's operating cash flow is a major source of liquidity. Also, the Company's unsecured revolving bank credit agreement has traditionally been used as a major source of liquidity. In July 2000, the Company replaced its revolving bank credit facility under a new agreement that resulted in an increase in borrowing capacity from $250 million to $275 million for a five-year term expiring June 30, 2005. The Company also has available $25 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 the first nine months of 2000, compared to 1999 and prior levels, and the decreased operating cash flows, reliance on the bank facilities has increased. A total of $210 million was outstanding at September 30, 2000 under the revolving bank credit and money market credit lines, compared to $95 million outstanding at December 31, 1999 and $79 million outstanding at September 30, 1999.
11
The Company's ratio of long-term debt to total capitalization was 30.1% at September 30, 2000, compared to 24.1% at September 30, 1999 and 24.7% at December 31, 1999.
In management's opinion, the available capacity under the bank credit agreements coupled with internally generated cash flow from remaining 2000 operations should provide adequate flexibility to finance anticipated capital expenditures for the balance of 2000.
FORWARD-LOOKING STATEMENTS:
Certain statements contained in this report are considered "forward-looking statements" as the term is defined in the Private Securities Litigation Reform Act of 1995. Such statements relate to views of future events and operating performance based upon information currently available to management. Forward-looking statements that are not historical facts are generally identified by the use of terminology which includes "believes", "expects", "anticipates", "intends", "plans" or other words with similar intent. Forward-looking statements involve risks, which are inherently difficult to predict. Actual results could materially differ from those expressed in the forward-looking statements.
Many factors could cause actual results to differ materially from the views expressed by the forward-looking statements. Those factors include, but are not limited to the following:
- Economic conditions in the U.S. and international markets in
which the Company operates.
- Competition from other providers of transportation and related
services.
- The ability to adapt to changing customer demand patterns,
including the effect on demand resulting from technology
developments.
- The ability of management to successfully implement sales growth
initiatives and other business strategies in a cost-effective
manner.
- Customer acceptance of new business initiatives and pricing
programs.
- Retention and maintenance of key customer relationships.
- Disruption of service due to labor disputes.
- Changes in government regulation, including federal and local
regulation governing the operation of the Company's aircraft.
- Increase in fuel prices.
- The ability to obtain financing on reasonable terms.
- Weather related disruptions of service, and customer demand and
related impacts.
The Company does not intend to publicly revise or update any of its forward-looking statements.
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, 1999.
12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -
EXHIBIT NO. 27 Financial Data Schedule
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized:
AIRBORNE FREIGHT CORPORATION
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(Registrant)
Date: 11/14/00 /s/Lanny H. Michael
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Lanny H. Michael
Senior Vice President,
Chief Financial Officer
/s/Robert T. Christensen
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Robert T. Christensen
Vice President,
Corporate Controller
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