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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
For the fiscal year ended December 31, 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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Name of each exchange on which registered |
|
| Common Stock, Par value $1.00 per share |
New York Stock Exchange Pacific Stock Exchange |
|
| Rights to Purchase Series A Participating Cumulative Preferred Stock |
New York Stock Exchange Pacific Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
NONE
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 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 21, 2000, 48,763,175 shares (net of 2,490,526 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 $898,230,000.(1)
Documents Incorporated by Reference
Portions of the 1999 Annual Report to Shareholders are incorporated by
reference into Part I and Part II.
Portions of the Proxy Statement for the 2000 Annual Meeting of
Shareholders to be held April 25, 2000 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 21, 2000.
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
1999 FORM 10-K ANNUAL REPORT
Table of Contents
Page
Part I
Item 1. Business 1
Item 2. Properties 14
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 4a. Executive Officers of the Registrant 15
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 16
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 7a. Quantitative and Qualitative Disclosures about
Market Risk 16
Item 8. Financial Statements and Supplementary Data 18
Item 9. Changes in and disagreements with Accountants on
Accounting and Financial Disclosure 18
Part III
Item 10. Directors and Executive Officers of the Registrant 18
Item 11. Executive Compensation 19
Item 12. Security Ownership of Certain Beneficial Owners and
Management 19
Item 13. Certain Relationships and Related Transactions 19
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 19
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
was formed in 1968 through the merger of two established freight
forwarders, Airborne Freight Corporation and Pacific Air Freight.
The Company holds a certificate of registration issued by the
United States Patent and Trademark Office for the service mark
AIRBORNE EXPRESS. Most public presentation of the Company carries
this name. The purpose of using this trade name is to more clearly
communicate to the market place the primary nature of the business of
the Company.
ABX Air, Inc., the Company's principal wholly-owned subsidiary
(herein referred to as "ABX"), was incorporated in Delaware on
January 22, 1980. ABX provides domestic express cargo service and
cargo service to Canada. The Company is the sole customer of ABX for
this service. ABX also offers limited charter service.
b) Financial Information about Industry Segments
---------------------------------------------
Response to this Item is contained in Note K of the Notes to
Consolidated Financial Statements (contained in the 1999 Annual
Report to Shareholders and incorporated by reference herein).
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
290 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, computer hardware and
parts, software, electronic and 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 59% of the Company's
domestic shipments during 1999, generally provides 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.
The Company also offers two deferred service products, Next
Afternoon Service (NAS) and Second Day Service (SDS). NAS is
available for shipments weighing five pounds or less and SDS is
offered for shipments of all weights. Deferred service shipments,
which comprised approximately 41% of domestic shipments during 1999,
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 for comparably sized shipments.
The Company began a pilot program in July 1999 to test a new
product to service the residential delivery market. This new
service, referred to as airborne@home, offers shippers a competitive
combination of delivery service and pricing, while providing the
Company an efficient way to accomplish residential deliveries. This
product is intended to capture business from some of the fastest
growing segments of e-commerce by targeting new business from
Internet retailers and catalog fulfillment providers. The Company
picks up, sorts and delivers shipments to any one of 21,000 U.S.
Postal Service Destination Delivery units for expedited delivery to
residences via USPS Parcel Select service. This final delivery
service became available as a result of recent changes in USPS
regulations. The airborne@home product underwent testing in the last
half of 1999 and will be fully implemented in 2000.
While the Company's domestic system is designed primarily to
handle small packages, any available capacity is also utilized to
carry heavier weight 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 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 information on
the status and location of customer shipments 24 hours a day. Some
information is provided to FOCUS through the use of hand-held
scanners which read bar-codes on the shipping documents. FOCUS
allows customers access to shipment information through either direct
dial-in capabilities or through the Company's website on the
Internet.
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 15,000 radio-dispatched delivery vans and
trucks, of which approximately 6,000 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. Drop boxes
allow customers the flexibility to tender shipments to Airborne
without scheduling a pickup. The Company has approximately 15,900
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. The sort center currently has the capacity to handle
approximately 1.2 million pieces during the primary 3-1/4 hour
nightly sort operation. On average, approximately 1.0 million pieces
were sorted each weekday night at the sort center during the fourth
quarter of 1999.
In addition to the main sort facility at Wilmington, nine
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 generally receives SDS
shipments through a combination of flights and trucks originating
from regional hubs, station facilities or customer sites.
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. The Company has invested in
sophisticated instrument landing and radar systems and other
equipment which is intended to limit the effect bad weather may have
on the Wilmington airport.
In the fourth quarter of 1999, the night sort and day sort
operations at Wilmington handled approximately 50% and 25% of total
shipment weight, respectively, with the regional hubs handling the
remaining 25%.
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 and NAS shipments 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.
The day sort operation for SDS shipments is supported by 16
aircraft that return to Wilmington from overnight service
destinations on Tuesday through Thursday. These aircraft, and trucks
from five regional hubs, arrive at Wilmington between 10:00 a.m. and
1:30 pm, 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 19 Company aircraft and by trucks.
Aircraft
--------
The Company currently utilizes pre-owned Boeing 767 aircraft and
McDonnell Douglas DC-8 and DC-9 aircraft. Upon acquisition, the
aircraft are modified by the Company. During the fourth quarter of
1999, the Company's in-service fleet consisted of a total of 117
aircraft, including eight Boeing 767-200s, 36 McDonnell Douglas DC-8s
(consisting of 13 series 61, six series 62 and 17 series 63) and 73
DC-9s (consisting of two series 10, 43 series 30 and 28 series 40).
The Company owns the majority of the aircraft it operates, but leases
three DC-8 and three DC-9 aircraft. In addition, approximately 70
smaller aircraft are chartered nightly to connect small cities with
Company aircraft that then operate to and from Wilmington.
In 1998, the Company introduced the Boeing 767-200 aircraft to
its operating fleet. During 1999, five additional used 767s were
placed into service bringing the total 767 aircraft in service to
eight. The Company has commitments to acquire a total of 30 767s
(inclusive of 10 767s owned at December 31, 1999) by the end of 2003.
This newer, more efficient generation of aircraft has allowed the
Company to meet demand for additional lift capacity and remove from
service the less economical DC-8 aircraft. The Company anticipates
placing a total of nine additional 767 aircraft into service in 2000
including two 767s which were undergoing modification at the end of
1999. With these additions, the Company anticipates removing nine DC-
8s from service by the end of 2000 inclusive of four DC-8s which were
removed from service at the end of December 1999. Additional
aircraft retirements will be determined based upon shipment growth,
capacity requirements and the timing of placing 767s into service.
During 1999, the nightly lift capacity of the system was
increased by approximately 231,000 pounds, reaching 4.1 million
pounds at December 31, 1999. During 1999, the Company's average
utilization of available lift capacity approximated 71%.
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 1990, Congress passed the Airport Noise and Capacity Act of
1990 (the "Noise Act"). Among other things, the Noise Act generally
required turbojet aircraft weighing in excess of 75,000 pounds and
operating in the United States (the type of 767, 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
completed its compliance program during 1999 and believes its fleet
of in service operating aircraft is in full compliance with
provisions of the Noise Act. In addition to FAA regulation, certain
local airports also regulate noise compliance. See "Business -
Regulation".
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 Taipei, Hong Kong, Singapore, Australia,
New Zealand, Netherlands, and the United Kingdom. The Company's
freight and express agents worldwide are connected to FOCUS,
Airborne's on-line communication network, through which the Company
can provide its customers with immediate access to the status of
shipments almost anywhere in the world.
The Company's international air express service is intended for
the movement of non dutiable and certain dutiable shipments weighing
less than 99 pounds. The Company's international air freight service
handles heavier 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 venture operations
currently exist in Japan, Thailand, Malaysia, 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, 1999, the Company serviced approximately 581,000 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 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
395 domestic representatives and approximately 90 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.
For many of its high volume customers, the Company offers a
metering device, called LIBRA (SM), 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, provides custom shipping reports, and enables
the customer to track the exact status of shipments in Airborne's
FOCUS shipping and tracking system. At year end 1999, the system was
in use at approximately 10,000 customer locations. Use of LIBRA not
only benefits the customer, but also lowers the Company's operating
costs, since LIBRA shipment data is transferred into the Airborne
FOCUS 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.
The Company offers customers PC-based software designed to
improve their productivity and provide convenient access to the
Company's various services. LIGHTSHIPr Shipping Software for
Windowsr allows customers, working from their PCs, to obtain
estimated shipping rates and delivery times, prepare and print
shipping labels, schedule pickups, and track the status of their
shipments. The Company's WORLD DIRECTORY software provides a
comprehensive catalog of worldwide shipping information including
customs requirements and delivery times among other useful features.
The Company maintains an Internet website, www.airborne.com,
which provides customers a global connection to Airborne's services.
The website allows customers to track the status of their shipments,
contact customer service representatives, locate drop boxes, obtain
information regarding the Company's service offerings and
documentation requirements in addition to providing other useful
information about the Company. In 1999, the Company tested an
Internet-based shipping system with some of its largest customers.
The system will provide for online shipment labeling and pickup
requests and is scheduled to be available to all customers in 2000.
The Company offers a number of special logistics programs to
customers through Airborne Logistics Services ("ALS"), a division of
ABX. ALS operates the Company's Stock Exchange and Hub Warehousing
and other logistics programs. These programs provide customers the
ability to maintain centralized 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 operation provides
expedited next-flight-out domestic and international services at
premium prices. Sky Courier also offers local intercity courier
services as well as a Field Stock Exchange program where customer
inventories are managed at over 100 locations around the United
States and Canada.
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 air express business, followed by United Parcel Service.
Airborne Express ranks third in shipment volume behind these two
companies in the domestic air express business. Other domestic air
express competitors include the U.S. Postal Service's Express and
Priority Mail Services 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 air
freight forwarders and carriers, and most commercial airlines.
Employees
---------
As of December 31, 1999, the Company and its subsidiaries had
approximately 15,200 full-time employees and 8,300 part-time and
casual employees. Approximately 7,300 full-time employees (including
the Company's 800 pilots) and 3,400 part-time and casual employees
are employed under union contracts, primarily with locals of the
International Brotherhood of Teamsters and Warehousemen.
Labor Agreements
----------------
Labor agreements covering most of the Company's union ground
personnel were renegotiated in 1998 or 1999 and expire in either 2003
or 2004, subject to limited earlier reopening of non-economic
provisions. The Company's pilots are covered by a contract which
becomes amendable on July 31, 2001. Although the Company has not
experienced any significant disruption from labor disputes in the
past, there can be no assurance that disputes will not arise in the
future which could disrupt service to customers.
Subsidiaries
------------
The Company has the following wholly-owned subsidiaries:
1. ABX Air, Inc., a Delaware corporation, owns and operates the
Company's certificated air carrier and related assets. Its wholly-
owned subsidiaries with operating activities 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.
2. Airborne Forwarding Corporation, a Delaware corporation doing
business as Sky Courier, provides expedited courier service.
3. 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,
flight dispatch, security procedures, training, communications, and
other matters affecting air safety. The FAA issues operating
certificates and operations specifications 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 and
operation of its aircraft, although the FAA has the power to suspend
or revoke such certificates for cause, including failure to comply
with federal law.
The FAA has authority to issue maintenance directives and other
mandatory orders relating to, among other things, inspection of
aircraft and replacement of parts that have failed or may fail in the
future. For example, the FAA has commenced an inspection of DC-8
aircraft of the type operated by the Company to determine if certain
of the aircraft structures and components meet all aircraft
certification requirements. The DC-9 may in the future also be
subject to a similar FAA inspection. If the FAA were to determine
that the aircraft structures or components are not adequate, it could
order operators to either reduce cargo loads, strengthen any
structure or component shown to be inadequate, or make other
modifications to the aircraft.
In addition to the issuance of mandatory directives, the FAA
from time to time may amend its regulations thereby increasing
regulatory burdens on air carriers. For example, the FAA can order
the installation or enhancement of safety related aircraft equipment.
Recent legislation requires the FAA to mandate the installation of
collision avoidance systems in all cargo aircraft by the end of 2002.
Depending on the scope of the FAA's orders or amended regulations,
these requirements may cause the Company to incur substantial
anticipated and unanticipated expenses.
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 3
aircraft, an airport operator must obtain the carriers' or the
government's 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 reduction in emissions for one or more
localities based on the measured air quality at such localities.
Such regulations may seek to limit or restrict emissions 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. In addition, the
United States, working through the International Civil Aviation
Organization, is considering the adoption of more stringent aircraft
noise regulation which, if adopted, could impose additional
requirements on the Company to mitigate aircraft noise.
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 47 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, 1999 is presented in Note K (Segment Information) of the Notes to
Consolidated Financial Statements appearing in the 1999 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 290 domestic
and 45 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 F and G of the
Notes to Consolidated Financial Statements appearing in the 1999
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
ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT
----------------------------------------------
Positions and Offices Presently
Name Age Held and Business Experience
---- --- ----------------------------
Robert S. Cline 62 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 62 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)
Carl D. Donaway 48 Senior Executive Vice President (December
1999 to date); 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)
Roy C. Liljebeck 62 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 59 Executive Vice President, Marketing
Division (1980 to date); Senior Vice
President (1978 to 1980); Vice President
(1973 to 1978)
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
---------------------------------------------------------------
STOCKHOLDERS MATTERS
--------------------
The response to this Item is contained in the 1999 Annual Report
to Shareholders and the information contained therein is incorporated
herein by reference.
On February 21, 2000 there were 1,273 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 1999 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 1999 Annual Report
to Shareholders and the information contained therein is incorporated
herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-----------------------------------------------------------------
The Company is exposed to market risks in the ordinary course of
its business. These risks include interest rate risk, fuel price risk
and foreign exchange risk. The following is a description of these
risks and a discussion of the Company's exposure to changes in market
rates and prices and related effects on fair values, earnings and
cashflows.
Interest Rate Risk
------------------
Indebtedness of the Company under its various borrowing
arrangements creates interest rate risk. The Company had outstanding
long-term debt of $315 million as of December 31, 1999. The Company
does not have significant exposure to changes in interest rates as
the majority of its long-term debt ($207 million) carries interest
rates which are fixed. Remaining long-term debt ($108 million)
carries variable interest rates which reprice frequently. Management
does not consider this repricing risk to be significant. The Company
does not currently use derivative financial instruments to manage its
interest rate risk.
The Company's sensitivity to interest rate risk can be
quantified by estimating the decrease in fair value of its long-term
debt through a hypothetical 10% increase in interest rates. As of
December 31, 1999, a 10% increase in interest rates would have
decreased fair value of the Company's long-term debt by approximately
$5 million. The underlying fair value before performing the
hypothetical calculation was estimated principally from quoted market
prices for the same securities.
Foreign Currency Risk
---------------------
The Company's earnings are exposed to changes in the value of
the U.S. dollar relative to other foreign currencies due to the fact
that the Company's services are provided in a number of foreign
markets. Currency exposure may arise through the collection of
revenues and payment of expenses in these foreign markets. The
Company currently does not use derivative financial instruments to
manage foreign currency risks.
Foreign currency rate sensitivity can be quantified by
estimating the decrease in earnings as a result of a hypothetical,
uniform, 10% strengthening in the value of the U.S. dollar relative
to the currencies in which the revenues and expenses are denominated.
This calculation, while ignoring the potential effect on revenue and
expense levels resulting from a significant change in foreign
currency exchange rates, would result in an approximately $6 million
dollar increase in pretax earnings from operations for the year ended
December 31, 1999.
Jet Fuel Price Risk
-------------------
The Company is inherently dependent on jet fuel to operate its
fleet of aircraft and accordingly earnings are impacted by changes in
jet fuel prices. For the year ended December 31, 1999 the Company
consumed 180.8 million gallons of jet fuel at an average price of
$.64 per gallon. Notes A, B and G of the Notes to Consolidated
Financial Statements (contained in the 1999 Annual Report to
Shareholders and incorporated by reference herein) describe the
accounting policy, fair value and additional information regarding
the Company's use of financial instruments to manage jet fuel price
risk.
Jet fuel price sensitivity can be quantified by estimating the
decrease in earnings as a result of a uniform increase in average jet
fuel prices applied against consumption. If jet fuel prices were to
increase 10%, earnings for the year ended December 31, 1999 would
have decreased approximately $9.3 million, net of hedging
settlements. In the past, the Company has implemented a temporary
fuel surcharge on revenue to mitigate the earnings effect of
unusually high fuel prices.
The Company does not use derivative financial instruments for
trading purposes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-----------------------------------------------------
The response to this Item is contained in the 1999 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
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 2000 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 2000 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 2000 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
--------------------------------------------------------
None
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 1999
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
Consolidated Statements of Shareholders' Equity
Notes to Consolidated Financial Statements
Independent Auditors' Report
All 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
---------------
The following exhibits are filed with this report:
EXHIBIT NO. 3 Articles of Incorporation and Bylaws
---------------------------------------------------
3(a) The Restated Certificate of Incorporation of the
Company, dated as of April 28, 1998 (incorporated by
reference from Exhibit 3 to the Company's Form 10-Q for
the quarter ended March 31, 1998).
3(b) The Bylaws of the Company as amended to February 4,
1997 (incorporated by reference from Exhibit 3(b) to the
Company's Form 10-K for the year ended December 31,
1996).
EXHIBIT NO. 4 Instruments Defining the Rights of Security Holders
Including Indentures
-----------------------------------------------------------------
4(a) 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(b) 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(c) 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 (incorporated by reference from Exhibit 4(e) to the
Company's Form 10-K for the year ended December 31,
1996).
4(d) 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(e) 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(f) Certificate of Adjustment relating to the Rights
Agreement (see 4(d) above, incorporated by reference to
Exhibit 4 to Amendment 1 to the Company's Registration
Statement on Form 8-A, filed with the Securities and
Exchange Commission on June 1, 1998).
4(g) Form of Right Certificate relating to the Rights
Agreement (see 4(d) 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 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 by reference from the Addendum to the
Company's Proxy Statement for the 1994 Annual Meeting of
Shareholders).
10(d) Airborne Freight Corporation 1998 Key Employee
Stock Option Plan (incorporated by reference from the
Addendum to the Company's Proxy Statement for the 1998
Annual Meeting of Shareholders).
10(e) Airborne Freight Corporation Directors Stock
Option Plan (incorporated by reference from the Addendum
to the Company's Proxy Statement for the 1991 Annual
Meeting of Shareholders).
10(f) 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(g) First Amendment to Airborne Freight
Corporation Director Stock Bonus Plan dated as of
February 3, 1998 (incorporated by reference from Exhibit
10(g) to the Company's Form 10-K for the year ended
December 31, 1998).
10(h) Second Amendment to Airborne Freight
Corporation Director Stock Bonus Plan dated as of
February 3, 1998 (incorporated by reference from Exhibit
10(h) to the Company's Form 10-K for the year ended
December 31, 1998).
10(i) Airborne Express Executive Deferral Plan
restated January 1, 2000.
10(j) Airborne Express Supplemental Executive
Retirement Plan restated January 1, 2000.
10(k) Airborne Express 1995-1999 Executive Incentive
Compensation Plan, amended as of January 1, 1997
(incorporated by reference from Exhibit 10(h) to the
Company's Form 10-K for the year ended December 31,
1996).
10(l) Airborne Express 1997-1999 Executive Group
Incentive Compensation Plan as of January 1, 1997
(incorporated by reference from Exhibit 10(i) to the
Company's Form 10-K for the year ended December 31,
1996).
10(m) 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). Substantially identical agreements exist between
the Company and the other four executive officers.
10(n) 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(o) $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 and NBD Bank, N.A., as banks (incorporated by
reference from Exhibit 10(k) to the Company's Form 10-K
for the year ended December 31, 1993).
10(p) 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(q) 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(r) 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. (incorporated by
reference from Exhibit 10(n) to the Company's Form 10-K
for the year ended December 31, 1996). Confidential
treatment has been granted for confidential commercial
and financial information, pursuant to Rule 24b-2 under
the Securities Exchange Act of 1934.
EXHIBIT NO. 12 Statements Re Computation of Ratios
--------------------------------------------------
12 Statement re computation of ratio of total long-
term debt to total capitalization
EXHIBIT NO. 13 Annual Report to Security Holders
------------------------------------------------
13 Portions of the 1999 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, 1999.
EXHIBIT NO. 23 Consents of Experts and Counsel
----------------------------------------------
23 Independent Auditors' Consent
EXHIBIT NO. 27 Financial Data Schedule
--------------------------------------
27 Financial Data Schedule
All other exhibits are omitted because they are not
applicable, or not required, or because the required
information is included in the consolidated financial
statements or notes thereto.
(b) Reports on Form 8-K
-------------------
None
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 28, 2000
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the date
indicated:
/s/ Robert G. Brazier /s/ Richard M. Rosenberg
----------------------------- -----------------------------
Robert G. Brazier (Director) Richard M. Rosenberg (Director)
/s/ Robert S. Cline /s/ William Swindells
----------------------------- -----------------------------
Robert S. Cline (Director) William Swindells (Director)
/s/ Mary A. Wilderotter
-----------------------------
Mary A. Wilderotter (Director)
EXHIBIT INDEX
Exhibit
Number Description
------- ------------
EXHIBIT NO. 10 Material Contracts
----------------------------------
10(i) Airborne Express Executive Deferral Plan restated January
1, 2000.
10(j) Airborne Express Supplemental Executive Retirement Plan
restated January 1, 2000.
EXHIBIT NO. 12 Statements Re Computation of Ratios
---------------------------------------------------
12 Statement re computation of ratio of total long-term debt
to total capitalization
EXHIBIT NO. 13 Annual Report to Security Holders
-------------------------------------------------
13 Portions of the 1999 Annual Report to Shareholders of
Airborne Freight Corporation
EXHIBIT NO. 23 Consents of Experts and Counsel
-----------------------------------------------
23 Independent Auditors' Consent
EXHIBIT NO. 27 Financial Data Schedule
---------------------------------------
27 Financial Data Schedule
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