10-K 1 FORM 10 K FILING 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 Commission file number December 31, 1994 1-6512
---------------------------------- AIRBORNE FREIGHT CORPORATION (Exact name of registrant as specified in its charter) Delaware 91-0837469 (State of Incorporation) (I.R.S. Employer Identification No.)
Airborne Freight Corporation 3101 Western Avenue P.O. Box 662 Seattle, WA 98111 (Address of principal executive offices) Registrant's telephone number including area code: 206-285-4600 Securities registered pursuant to Section 12(b) of the Act: Name of each Exchange Title of each class on which Registered ------------------- ------------------- Common Stock, Par Value New York Stock Exchange $1.00 per share Pacific Stock Exchange 6 3/4% Convertible Subordinated New York Stock Exchange Debentures Due August 15, 2001 Rights to Purchase Series A New York Stock Exchange Cumulative Preferred Stock
Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.( ) As of February 27, 1995, 21,048,726 shares (net of 315,150 treasury shares) of the registrant's Common Stock were outstanding and the aggregate market value of the voting stock held by non-affiliates of the registrant (based on the closing price on that date on the New York Stock Exchange) was approximately $488,096,985.(1) Documents Incorporated by Reference Portions of the 1994 Annual Report to Shareholders are incorporated by reference into Part I and Part II. Portions of the Proxy Statement for the 1995 Annual Meeting of Shareholders to be held April 25, 1995 are incorporated by reference into Part III. (1) Excludes value of shares of Common Stock held of record by directors and executive officers at February 27, 1995. 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 1994 FORM 10-K ANNUAL REPORT Table of Contents
Part I Item 1. Business Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders Item 4a. Executive Officers of the Registrant Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Item 6. Selected Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Part III Item 10. Directors and Executive Officers of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management Item 13. Certain Relationships and Related Transactions Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
PART I ITEM 1. BUSINESS ------------------ a) General Development of Business ------------------------------- Airborne Freight Corporation (herein referred to as "Airborne Express" or the "Company", which reference shall include its subsidiaries and their assets and operations, unless the context clearly indicates otherwise) was incorporated in Delaware on May 10, 1968. The Company is an air express company and air freight forwarder that expedites shipments of all sizes to destinations throughout the United States and most foreign countries. The Company holds a certificate of registration issued by the United States Patent and Trademark Office for the service mark AIRBORNE EXPRESS. Most public presentation of the Company carries this name. The purpose of using this trade name is to more clearly communicate to the market place the primary nature of the business of the Company. ABX Air, Inc., the Company's principal wholly-owned subsidiary (herein referred to as "ABX"), was incorporated in Delaware on January 22, 1980. ABX provides domestic express cargo service and cargo service to Canada. The Company is the sole customer of ABX for this service. ABX also offers limited charter service. b) Financial Information about Industry Segments --------------------------------------------- None c) Narrative Description of Business --------------------------------- Airborne Express provides door-to-door express delivery of small packages and documents throughout the United States and to and from most foreign countries. The Company also acts as an international and domestic freight forwarder for shipments of any size. The Company's strategy is to be the low cost provider of express services for high volume corporate customers. Domestic Operations ------------------- The Company's domestic operations, supported by over 250 facilities, primarily involve express door-to-door delivery of small packages and documents weighing less than 100 pounds. Shipments consist primarily of business documents and other printed matter, electronic and computer parts, software, machine parts, health care items, films and videotapes, and other items for which speed and reliability of delivery are important. The Company's primary service is its overnight express product. This product, which comprised approximately 63% of the Company's domestic shipments during 1994, generally provides for before noon delivery on the next business day to most metropolitan cities in the United States. The Company also provides Saturday and holiday pickup and delivery service for most cities. The Company offers a deferred service product, Select Delivery Service ("SDS"), which provides for next afternoon or second day delivery. The SDS product expands the Company's product offering and introduces new customers to air express services. SDS service generally provides for shipments weighing five pounds or less to be delivered on a next afternoon basis with shipments weighing more than five pounds being delivered on a second day basis. SDS shipments, which comprised approximately 37% of total domestic shipments during 1994, are generally lower priced than the overnight express product reflecting the less time sensitive nature of the shipments. While the Company's domestic airline system is designed primarily to handle express shipments, any available capacity is also utilized to carry shipments which the Company would normally move on other carriers in its role as an air freight forwarder. Pickup and Delivery ------------------- The Company accomplishes its door-to-door pickup and delivery service using approximately 11,300 radio-dispatched delivery vans and trucks, of which approximately 4,100 are owned by the Company. Independent contractors under contract with the Company provide the balance of the pickup and delivery services. The Company's facilities are linked to FOCUS, a proprietary freight tracking and message computer system which permits monitoring of overall system performance and allows the Company to ascertain the status of a specific shipment. FOCUS receives information in several ways including drivers' use of hand-held scanners which read bar-coded information on shipping documents. FOCUS provides many major customers direct access to the status of their shipments 24 hours a day through the use of their own computer systems. Because convenience is an important factor in attracting business from less frequent shippers, the Company has an ongoing program to place drop boxes in convenient locations. The Company has approximately 8,500 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 830,000 pieces during the primary 2-1/2 hour nightly sort operation. In 1995, the Company plans to expand the nightly sort capacity to handle 865,000 pieces. On average, approximately 689,000 pieces were sorted each weekday night at the sort center during the fourth quarter of 1994. In addition to the sort facilities, the Wilmington location consists of a Company-owned airport which includes maintenance, storage, training and refueling facilities; and operations and administrative offices. The Company also conducts a daylight sort operation at Wilmington. The day sort services SDS shipments weighing in excess of five pounds that are consolidated at certain regional hub facilities and either flown or trucked into or out of Wilmington. The operation of the Wilmington facility is critical to the Company's business. The inability to use the Wilmington airport, because of bad weather or other factors, would have a serious adverse effect on the Company's service. However, contingency plans, including landing at nearby airports and transporting packages to and from the sort center by truck, can be implemented to address temporary inaccessibility of the Wilmington airport. In addition to the main sort facility at Wilmington, ten regional hub facilities have been established primarily to sort shipments originating and having a destination within approximately a 300 mile radius of a regional hub. In the fourth quarter of 1994, approximately 61% and 16% of total shipment weight was handled through the night sort and day sort operations at Wilmington, respectively, with the remaining 23% being handled exclusively by the regional hubs. Shipment Routing ---------------- The logistical means of moving a shipment from its origin to destination are 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. Certain shipments are transported airport-to-airport on commercial air carriers. Overnight express shipments and SDS shipments weighing five pounds or less are picked up by local stations and generally consolidated with other stations' shipments at Company airport facilities. Shipments that are not serviced through regional hubs are loaded on Company aircraft departing each weekday evening from various points within the United States and Canada. These aircraft may stop at other airports to permit additional locations and feeder aircraft to consolidate their cargo onto the larger aircraft before completing the flight to the Wilmington hub. The aircraft are scheduled to arrive at Wilmington between approximately 11:30 p.m. and 3:00 a.m. at which time the shipments are sorted and reloaded. The aircraft are scheduled to depart before 6:00 a.m. and return to their applicable destinations in time to complete scheduled next business morning or next afternoon service commitments. The Wilmington hub also receives shipments via truck from selected stations in the vicinity of the Wilmington hub for integration with the nightly sort process. For the daylight sort operation, generally 5 aircraft return to Wilmington from overnight service destinations on Tuesday through Thursday. These aircraft, and trucks from six regional hubs, arrive at Wilmington between 10:00 a.m. and noon, at which time shipments are sorted and reloaded on the aircraft or trucks by 3:00 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 SDS shipments. This sort is supported by 11 Company aircraft and by trucks. Aircraft -------- The Company acquires and utilizes used aircraft manufactured in the late 1960s and early 1970s. Upon acquisition, the aircraft are substantially modified by the Company. At the end of 1994, the Company's in-service fleet consisted of a total of 97 aircraft, including 29 DC-8s (consisting of 10 series 61, 6 series 62 and 13 series 63), 57 DC-9s (consisting of 2 series 10, 39 series 30 and 16 series 40), and 11 YS-11 turboprop aircraft. The Company owns the majority of the aircraft it operates, but has completed sale-leaseback transactions with respect to six DC-8 and six DC-9 aircraft. In addition, approximately 70 smaller aircraft are chartered nightly to connect small cities with Company aircraft that then operate to and from Wilmington. At year end 1994, the nightly lift capacity of the system was about 3.1 million pounds versus approximately 2.8 million pounds and 2.4 million pounds at the end of 1993 and 1992, respectively. Over the past several years the Company's utilization of available lift capacity has exceeded 80%. 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. Currently, the Company's DC-8 and DC-9 series aircraft are undergoing structural inspections for corrosion as required by an Airworthiness Directive ("AD") issued by the FAA. The inspections are required to be completed by July 1995 for DC-9 series aircraft, and September 1995 for DC-8 series aircraft. Inspections and necessary repairs required by the AD have been completed on 42 DC-9 series aircraft and 25 DC-8 series aircraft as of December 31, 1994. The Company anticipates completing the remaining inspections by the required compliance dates without materially impacting operations or the financial position of the Company. However, the FAA may, in the future, impose additional requirements with respect to maintenance procedures and practices for aircraft and engines of the type operated by the Company or interpret existing rules in a manner which could have a material adverse effect on the Company's operations and financial position. In accordance with federal law and FAA regulations, only subsonic turbojet aircraft classified as Stage 2 or 3 by the FAA may be operated in the United States. Generally, Stage 3 aircraft produce less noise than a comparable Stage 2 aircraft. As of December 31, 1994, 38 of the Company's turbojet aircraft (20 DC-8 and 18 DC-9 aircraft) were Stage 3 aircraft, the balance being Stage 2 aircraft. In 1990, Congress passed the Airport Noise and Capacity Act of 1990 (the "Noise Act"). Among other things, the Noise Act generally requires turbojet aircraft weighing in excess of 75,000 pounds and operating in the United States (the type of DC-8 and DC-9 aircraft operated by the Company) to comply with Stage 3 noise emission standards on or before December 31, 1999. The Company's YS-11 turboprop aircraft are not subject to these requirements. In accordance with the Noise Act, the FAA has issued regulations establishing interim compliance deadlines. These rules require air carriers to reduce the base level of Stage 2 aircraft they operate 25% by December 31, 1994; 50% by December 31, 1996; and 75% by December 31, 1998. As of December 31, 1994 the Company had reduced the base level of its Stage 2 aircraft by approximately 35% and expects to meet or exceed the compliance percentage at the second interim compliance deadline of December 31, 1996. In addition to FAA regulation, certain local airports also regulate noise compliance. See "Business - Regulation". The Company, in conjunction with several other companies, has developed noise suppression technology known as hush kits for its DC-9 series aircraft which have been certified to meet FAA Stage 3 requirements. Stage 3 requirements have been met on 18 DC-9 series aircraft. The capital cost for Stage 3 hush kits is approximately $1.2 million for each DC-9 series aircraft. The Company has installed hush kits which satisfy Stage 3 compliance requirements on all of its DC-8-62 and DC-8-63 series aircraft and one of its DC-8-61 series aircraft. The capital cost for these hush kits and related hardware on the DC-8-62 and 63 series aircraft varied between $750,000 and $1.4 million per aircraft. The capital cost to modify the DC-8-61 aircraft to meet Stage 3 noise standards is approximately $4.0 million per aircraft. International Operations ------------------------ The Company provides international express door-to-door delivery and a variety of freight services. These services are provided in most foreign countries on an inbound and outbound basis through a network of Airborne offices and independent agents. Most international deliveries are accomplished within 24 to 96 hours of pickup. The Company's domestic stations are staffed and equipped to handle international shipments to or from almost anywhere in the world. In addition to its extensive domestic network, the Company operates its own offices in the Far East, Australia, New Zealand, and the United Kingdom. The Company's freight and express agents worldwide are connected to FOCUS, Airborne's on-line communication network. The Company is capable of providing its customers with immediate access to the status of shipments via FOCUS 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. In 1994, the Company began offering 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, exclusive 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, similar to its arrangement with Mitsui & Co., Ltd. in Japan, which combine the Company's management expertise, domestic express system and information systems with local business knowledge and market reputation of suitable partners. 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, 1994, the Company serviced approximately 400,000 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. The Company has historically marketed the overnight express service as its primary domestic product. However, the Company believes its SDS product represents an attractive opportunity to expand its customer product offering and generate incremental revenues utilizing its existing network. SDS is a lower yielding product than the Company's overnight product and could result in conversion of certain shipments which may have otherwise been handled on an overnight basis. Internationally, the Company's marketing strategy is to target the outbound express and freight shipments of U.S. corporate customers, and to sell the inbound service of the Company's distribution capabilities in the United States. Both in the international and domestic markets, the Company believes that its customers are most effectively reached by a direct sales force, and accordingly, does not currently engage in mass media advertising. Domestic sales representatives are responsible for selling both domestic and international express shipments. In addition, the International Division has its own dedicated direct sales organization for selling international freight service. The Company's sales force currently consists of approximately 300 domestic representatives and approximately 75 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 II, which is installed at the customer's place of business. With minimum data entry, the metering device weighs the package, calculates the shipping charges, generates the shipping labels and provides a daily shipping report. At year end 1994, the system was in use at approximately 6,800 domestic customer locations and 500 international customer locations. Use of LIBRA II not only benefits the customer directly, but also lowers the Company's operating costs, since LIBRA II shipment data is transferred into the Airborne FOCUS shipment tracking system automatically, thus avoiding duplicate data entry. "Customer Linkage", an electronic data interchange ("EDI") program developed for Airborne's highest volume shippers, allows customers, with their computers, to create shipping documentation at the same time they are entering orders for their goods. At the end of each day, shipping activities are transmitted electronically to the Airborne FOCUS system where information is captured for shipment tracking and billing purposes. Customer Linkage benefits the customer by eliminating repetitive data entry and paperwork and also lowers the Company's operating costs by eliminating manual data entry. EDI also includes electronic invoicing and payment remittance processing. The Company also has available a software program known as Quicklink, which significantly reduces programming time required by customers to take advantage of linkage benefits. In 1995, the Company plans to unveil "LIGHTSHIP-TRACKER", a PC-based tracking software, which is the Company's first in a series of new software products designed to improve customer productivity and provide convenient access to the Company's various services. LIGHTSHIP-TRACKER allows customers, working from their PCs, to view the status of and receive information regarding their shipments through access to the Airborne FOCUS system. The Company offers a number of special logistics programs to customers through its Advanced Logistics Services Corp. ("ALS") subsidiary. This subsidiary, established in 1993, operates the Company's Stock Exchange and Hub Warehousing and other logistics programs. These programs provide customers the ability to maintain inventories which can be managed either by Company or customer personnel. Items inventoried at Wilmington can be delivered utilizing either the Company's airline system or, if required, commercial airlines on a next-flight-out basis. ALS' Central Print program allows information to be sent electronically to customer computers located at Wilmington where Company personnel monitor printed output and ship the material according to customer instructions. In addition, the Company's Sky Courier business provides expedited next-plane-out, service at premium prices. Sky Courier also offers a Regional Warehousing program where customer inventories are managed at any of over 60 locations around the United States and Canada. The Company has obtained ISO 9000 certification for its Chicago, Philadelphia and London stations and its Seattle Headquarters. The ISO 9000 is a quality program developed by the International Standards Organization ("ISO"), based in Geneva, Switzerland. This organization provides a set of international standards on quality management and quality assurance presently recognized in 92 countries. The certification is an asset in doing business worldwide and provides evidence of the Company's commitment to excellence and quality. Competition ----------- The market for the Company's services has been and is expected to remain highly competitive. The principal competitive factors in both domestic and international markets are price, the ability to provide reliable pickup and delivery, and value-added services. Federal Express continues to be the dominant competitor in the domestic express business, followed by United Parcel Service. Airborne Express currently ranks third in shipment volume behind these two companies in the domestic express business. Other domestic express competitors include the U.S. Postal Service's Express Mail Service and several other transportation companies offering next morning or next-plane-out delivery service. The Company also competes to some extent with companies offering ground transportation services and with facsimile and other forms of electronic transmission. The Company believes it is important to maintain an active capital expansion program to increase capacity, improve service and increase productivity as its volume of shipments increases. However, the Company has significantly less capital resources than its two primary competitors. In the international markets, in addition to Federal Express and United Parcel Service, the Company competes with DHL, TNT and other air freight forwarders or carriers and most commercial airlines. Employees --------- As of December 31, 1994, the Company and its subsidiaries had approximately 10,400 full-time employees and 7,000 part-time and casual employees. Approximately 4,600 full-time employees (including the Company's 560 pilots) and 3,100 part-time and casual employees are employed under union contracts, primarily with locals of the International Brotherhood of Teamsters and Warehousemen. Labor Agreements ---------------- Most labor agreements covering the Company's ground personnel were renegotiated in 1994 for a four-year term expiring in 1998. Several contracts, which expired in 1994, remain unsettled although the Company believes these contracts will be settled without experiencing any significant disruption or work stoppage. The Company's pilots are covered by a contract which becomes amendable on July 31, 1995. Subsidiaries ------------ The Company has the following wholly-owned subsidiaries: 1. ABX Air, Inc., a Delaware corporation, is a certificated air carrier which owns and operates the Company's domestic express cargo service. Its wholly-owned subsidiaries are as follows: a) Wilmington Air Park, Inc., a Ohio corporation, is the owner of the Wilmington airport property (Airborne Air Park). b) Airborne FTZ, Inc., a Ohio corporation, is the holder of a foreign trade zone certificate at the Wilmington airport property. c) Aviation Fuel, Inc., a Ohio corporation, purchases and sells aviation and other fuels. d) Advanced Logistics Services Corp., a Ohio corporation, provides customized warehousing, inventory management and shipping services. e) Sound Suppression, Inc., a Ohio corporation with no current operating activities. 2. Awawego Delivery, Inc., a New York corporation, holds trucking rights in New York and Connecticut. 3. Airborne Forwarding Corporation, a Delaware corporation doing business as Sky Courier, provides expedited courier service. 4. Airborne Freight Limited, a New Zealand corporation, provides air express and air freight services. Regulation ---------- The Company's operations are subject to various regulations including regulation by the United States Department of Transportation ("DOT"), the FAA, the Interstate Commerce Commission, 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 and communications. The FAA issues operating certificates to carriers who possess the technical competence to conduct air carrier operations. In addition, the FAA issues certificates of airworthiness to each aircraft which meets the requirements for aircraft design and maintenance. The Company believes it holds all airworthiness and other FAA certificates required for the conduct of its business, although the FAA has the power to suspend or revoke such certificates for cause, including failure to comply with federal law. The federal government generally regulates aircraft engine noise at its source. However, local airport operators may, under certain circumstances, regulate airport operations based on aircraft noise considerations. The Noise Act provides that in the case of Stage 2 aircraft restrictions, the airport operator must notify air carriers of its intention to propose rules and satisfy the requirements of federal statutes before implementation of the rules or in the case of Stage 3 aircraft, the airport operator must obtain the carriers' or the governments' approval of the rule prior to its adoption. The Company believes the operation of its aircraft either complies with or is exempt from compliance with currently applicable local airport rules. However, if more stringent aircraft operating regulations were adopted on a widespread basis, the Company might be required to expend substantial sums, make schedule changes or take other actions. The Company's aircraft currently meet all known requirements for emission levels. However, under the Clean Air Act, individual states or the Federal Environmental Protection Agency (the "EPA") may adopt regulations requiring the reduction in emissions for one or more localities based on the measured air quality at such localities. The EPA has proposed regulations for portions of California calling for emission reductions through restricting the use of emission producing ground service equipment or aircraft auxilary 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. 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. The Company has entered into a Rights Agreement designed, in part, to discourage a single foreign person from acquiring 20% or more, and foreign persons in the aggregate from acquiring 25% or more, of the Company's outstanding voting stock without the approval of the Board of Directors. 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 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, 1994 is presented in Note K (Segment Information) of the Notes to Consolidated Financial Statements appearing in the 1994 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 254 domestic and 7 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 a runway, taxi-ways, aprons, buildings serving as aircraft and equipment maintenance facilities, a sort facility, storage facilities, a training center, and operations and administrative offices. The Company has in progress a significant expansion of the airpark which includes construction of a second runway, taxiways and several other facilities. This expansion should be substantially completed during 1995. Information regarding collateralization of certain property and lease commitments of the Company is set forth in Notes E and F of the Notes to Consolidated Financial Statements appearing in the 1994 Annual Report to Shareholders and is incorporated herein by reference. The Company believes its existing facilities are adequate to meet current needs. 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 57 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 57 President and Chief Operating Officer (1978 to date); Executive Vice President and Chief Operating Officer (1973 to 1978); Senior Vice President, Operations (1970 to 1973); Vice President, Operations (1968 to 1970); Vice President, Sales and Operations, Pacific Air Freight, Inc. (1964 to 1968) Roy C. Liljebeck 57 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 54 Executive Vice President, Marketing Division (1980 to date); Senior Vice President (1978 to 1980); Vice President (1973 to 1978) Raymond T. Van Bruwaene 56 Executive Vice President, Field Services Division (1980 to date); Senior Vice President (1978 to 1980); Vice President (1973 to 1978) John J. Cella 54 Executive Vice President, International Division (1985 to date); Senior Vice President, International Division (1982 to 1985); Vice President, International Division (1981 to 1982); Vice President, Far East (1971 to 1981) Carl D. Donaway 43 President and Chief Executive Officer, ABX Air, Inc. (1992 to date); offices held in the Company: Vice President, Business Analysis (1992); Vice President, Customer Support (1990 to 1992); Director, Customer Support (1988 to 1990)
PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED --------------------------------------------------------------- STOCKHOLDERS MATTERS -------------------- The response to this Item is contained in the 1994 Annual Report to Shareholders and the information contained therein is incorporated by reference. On February 27, 1995 there were 1,626 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 1994 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 1994 Annual Report to Shareholders and the information contained therein is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ----------------------------------------------------- The response to this Item is contained in the 1994 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 1995 Annual Meeting of Shareholders under the captions "Election of Directors" and "Exchange Act 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 1995 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 1995 Annual Meeting of Shareholders under the captions "Voting at the Meeting" and "Stock Ownership of Management" and the information contained therein is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -------------------------------------------------------- The response to this Item is contained in the Proxy Statement for the 1995 Annual Meeting of Shareholders under the caption "Executive Compensation" and the information contained therein is incorporated herein by reference. 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 1994 Annual Report to Shareholders are incorporated by reference in Part II, Item 8: Consolidated Statements of Net Earnings Consolidated Balance Sheets Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Independent Auditors' Report (a)2. Financial Statement Schedules ----------------------------------- Schedule II - Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable or are not required, or because the required information is included in the consolidated financial statements or notes thereto. (a)3. Exhibits -------------- A) The following exhibits are filed with this report: EXHIBIT NO. 3 Articles of Incorporation and By-laws ---------------------------------------------------- 3(a) The Restated Certificate of Incorporation of the Company, dated as of August 4, 1987 (incorporated herein by reference from Exhibit 3(a) to the Company's Form 10-K for the year ended December 31, 1987). 3(b) The By-laws of the Company as amended to April 26, 1994 (incorporated herein by reference from Exhibit 3(b) to the Company's Form 8- K dated April 26, 1994). EXHIBIT NO. 4 Instruments Defining the Rights of Security Holders ------------------------------------------------------------------ Including Indentures -------------------- 4(a) Indenture dated as of September 4, 1986, between the Company and Peoples National Bank of Washington (now U.S. Bank of Washington), as trustee (and succeeded by First Trust Washington), relating to $25 million of the Company's 10% Senior Subordinated Notes due 1996 (incorporated by reference from Exhibit 4(c) to Amendment No. 1 to the Company's Registration Statement on Form S-3, No. 33-6043, filed with the Securities and Exchange Commission on September 3, 1986). 4(b) Note Purchase Agreement dated September 3, 1986 among the Company and the original purchasers of the Company's 10% Senior Subordinated Notes due 1996 (incorporated by reference from Exhibit 4(d) to Amendment No. 1 to the Company's Registration Statement on Form S-3, No. 33- 6043, filed with the Securities and Exchange Commission on September 3, 1986). 4(c) Indenture dated as of August 15, 1991, between the Company and Bank of America National Trust and Savings Association, as Trustee, with respect to the Company's 6-3/4% Convertible Subordinated Debentures due August 15, 2001 (incorporated herein by reference from Exhibit 4(i) to Amendment No. 1 to the Company's Registration Statement on Form S-3 No. 33-42044 filed with the Securities and Exchange Commission on August 15, 1991). 4(d) First Supplemental Trust Indenture dated as of June 30, 1994 between the Company and LaSalle National Bank, as Successor Trustee, with respect to the Company's 6-3/4% Convertible Subordinated Debentures due August 15, 2001. 4(e) Indenture dated as of December 3, 1992, between the Company and Bank of New York, as trustee, relating to the Company's 8-7/8% Notes due 2002 (incorporated herein 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(f) Rights Agreement, dated as of November 20, 1986 between the Company and First Jersey National Bank (predecessor to First Interstate Bank, Ltd.), as Rights Agent (incorporated by reference from Exhibit 1 to the Company's Registration Statement on Form 8-A, dated November 28, 1986). 4(g) Certificate of Designation of Series A Participating Cumulative Preferred Stock Setting Forth the Powers, Preferences, Rights, Qualification, Limitations and Restrictions of Such Series of Preferred Stock of the Company (incorporated by reference from Exhibit 2 to the Company's Registration Statement on Form 8-A, dated November 28, 1986). 4(h) Form of Right Certificate relating to the Rights Agreement (see 4(f) above, incorporated by reference from Exhibit 3 to the Company's Registration Statement on Form 8-A, dated November 28, 1986). 4(i) Letter dated January 5, 1990, from the Company to First Interstate Bank, Ltd. ("FIB"), appointing FIB as successor Rights Agent under the Rights Agreement dated as of November 20, 1986, between the Company and The First Jersey National Bank (incorporated by reference from Exhibit 4(c) to the Company's Form 10-K for the year ended December 31, 1989). 4(j) Amendment to Rights Agreement entered into as of January 24, 1990, between the Company and First Interstate Bank, Ltd. (incorporated herein by reference from Exhibit 4(d) to the Company's Form 10-K for the year ended December 31, 1989). 4(k) Third Amendment to Rights Agreement entered into as of November 6, 1991 between the Company and First Interstate Bank, Ltd. (incorporated herein by reference from Exhibit 4(a) to the Company's Form 10-K for the year ended December 31, 1991). 4(l) 6.9% Cumulative Convertible Preferred Stock Purchase Agreement dated as of December 5, 1989, among the Company, Mitsui & Co., Ltd., Mitsui & Co. (U.S.A.), Inc., and Tonami Transportation Co., Ltd. (incor porated herein by reference from Exhibit 4(b) to the Company's Form 10-K for the year ended December 31, 1989). 4(m) Amendments to the above Stock Purchase Agreement irrevocably waiving all demand registration rights and relinquishing the right of Mitsui & Co., Ltd. to designate a representative to Airborne's Board of Directors, and resignation of T. Kokai from said Board (incorporated herein by reference from Amendment No. 1 to Schedule 13D of Mitsui & Co., Ltd., Intermodal Terminal, Inc. (assignee of Mitsui & Co. (USA) Inc.) and Tonami Transportation Co., Ltd., filed with the Securities & Exchange Commission on December 21, 1993). 4(n) Certificate of Designation of Preferences of Preferred Shares of Airborne Freight Corporation, as filed on January 26, 1990, in the Office of the Secretary of the State of Delaware (incorporated herein by reference from Exhibit 4(a) to the Company's Form 10-K for the year ended December 31, 1989). EXHIBIT NO. 10 Material Contracts --------------------------------- Executive Compensation Plans and Agreements ------------------------------------------- 10(a) 1979 Airborne Freight Corporation Key Employee Stock Option and Stock Appreciation Rights Plan, as amended through February 2, 1987 (incorporated by reference from Exhibit 10(d) to the Company's Form 10-K for the year ended December 31, 1986). 10(b) 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(c) 1989 Airborne Freight Corporation Key Employee Stock Option and Stock Appreciation Rights Plan (incorporated herein by reference from Exhibit 10(d) to the Company's Form 10-K for the year ended December 31, 1989). 10(d) 1994 Airborne Freight Corporation Key Employee Stock Option and Stock Appreciation Rights Plan (incorporated herein by reference from the Addendum to the Company's Proxy Statement for the 1994 Annual Meeting of Shareholders). 10(e) Airborne Freight Corporations Directors Stock Option Plan (incorporated herein by reference from the Addendum to the Company's Proxy Statement for the 1991 Annual Meeting of Shareholders). 10(f) Airborne Express Executive Deferral Plan dated January 1, 1992 (incorporated by reference from Exhibit 10(b) to the Company's Form 10-K for the year ended December 31, 1991). 10(g) Airborne Express Supplemental Executive Retirement Plan dated January 1, 1992 (incorporated by reference from Exhibit 10(c) to the Company's Form 10-K for the year ended December 31, 1991). 10(h) Airborne Express 1994 Executive Management Incentive Compensation Plan. 10(i) Airborne Express 1995-1999 Executive Incentive Compensation Plan. 10(j) Employment Agreement dated December 15, 1983, as amended November 20, 1986, between the Company and Mr. Robert G. Brazier, President and Chief Operating Officer (incorporated by reference from Exhibit 10(a) to the Company's Form 10-K for the year ended December 31, 1986). Identical agreements exist between the Company and the other six executive officers. 10(k) Employment Agreement dated November 20, 1986 between the Company and Mr. Lanny H. Michael, then Vice President, Treasurer and Controller (incorporated by reference from Exhibit 10(b) to the Company's Form 10-K for the year ended December 31, 1986). Identical agreements exist between the Company and 25 other officers of the Company. In addition, the Company's principal subsidiary, ABX Air, Inc., has entered into substantially identical agreements with seven of its officers. Other Material Contracts ------------------------ 10(l) $240,000,000 Revolving Loan Facility dated as of November 19, 1993 among the Company, as borrower, and Wachovia Bank of Georgia, N.A., ABN AMRO Bank N.V., United States National Bank of Oregon, Seattle-First National Bank, CIBC Inc., Continental Bank N.A., Bank of America National Trust and Savings Association, The Bank of New York, NBD Bank, N.A., as banks and Wachovia Bank of Georgia, N.A., as agent (incorporated herein by reference from Exhibit 10(k) to the Company's Form 10-K for the year ended December 31, 1993). 10(m) Letter dated December 5, 1989, to the Company from Mitsui & Co., Ltd. ("Mitsui"), relating to Mitsui's commitment to provide the Company and ABX Air, Inc., a $100 million aircraft financing facility, as modified by that certain Supplement thereto entered into as of March 15, 1990 (incorporated herein by reference from Exhibit 10(b) to the Company's Form 10-K for the year ended December 31, 1989). 10(n) Shareholders Agreement entered into as of February 7, 1990, among the Company, Mitsui & Co., Ltd., and Tonami Transportation Co., Ltd., relating to joint ownership of Airborne Express Japan, Inc. (incorporated herein by reference from Exhibit 10(c) to the Company's Form 10-K for the year ended December 31, 1989). EXHIBIT NO. 11 Statement Re Computation of Per Share Earnings ------------------------------------------------------------- 11 Statement re computation of earnings per share EXHIBIT NO. 12 Statements Re Computation of Ratios -------------------------------------------------- 12 Statement re computation of ratio of senior long-term debt and total long-term debt to total capitalization EXHIBIT NO. 13 Annual Report to Security Holders ------------------------------------------------ 13 Portions of the 1994 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, 1994. EXHIBIT NO. 23 Consents of Experts and Counsel ---------------------------------------------- 23 Independent Auditors' Consent and Report on Schedules 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 29, 1995 SIGNATURES 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 Company and in the capacities and on the date indicated: /S/ WILLIAM SWINDELLS /S/ HAROLD M. MESSMER, JR. ------------------------ ------------------------ William Swindells (Director) Harold M. Messmer, Jr. (Director) /S/ ROBERT G. BRAZIER /S/ RICHARD M. ROSENBERG ------------------------ ------------------------ Robert G. Brazier (Director) Richard M. Rosenberg (Director) /S/ ROBERT S. CLINE ------------------------ Robert S. Cline (Director) Date: March 29, 1995 AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (In thousands)
Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Additions Balance at Charged to Balance at Beginning Costs and End Description of Period Expenses Deductions of Period ----------- -------- -------- ---------- -------- DEDUCTED FROM ASSETS TO WHICH THEY APPLY: 1. Allowance for doubtful accounts - Year Ended December 31, 1994 $6,925 $12,631 $12,056 $7,500 Year Ended December 31, 1993 $6,801 $11,660 $11,536 $6,925 Year Ended December 31, 1992 $6,854 $ 9,574 $ 9,627 $6,801
EXHIBIT INDEX
Exhibit Page Number Description Number ------- ------------ ------- (a)3. Exhibits --------------- A) The following exhibits are filed with this report: ---
EXHIBIT NO. 3 Articles of Incorporation and By-laws ---------------------------------------------------- 3(a) The Restated Certificate of Incorporation of --- the Company, dated as of August 4, 1987 (incorporated herein by reference from Exhibit 3(a) to the Company's Form 10-K for the year ended December 31, 1987). 3(b) The By-laws of the Company as amended to --- April 26, 1994 (incorporated herein by reference from Exhibit 3(b) to the Company's Form 8-K dated April 26, 1994).
EXHIBIT NO. 4 Instruments Defining the Rights of Security Holders ------------------------------------------------------------------ Including Indentures -------------------- 4(a) Indenture dated as of September 4, 1986, between --- the Company and Peoples National Bank of Washington (now U.S. Bank of Washington), as trustee (and succeeded by First Trust Washington), relating to $25 million of the Company's 10% Senior Subordinated Notes due 1996 (incorporated by reference from Exhibit 4(c) to Amendment No. 1 to the Company's Registration Statement on Form S-3, No. 33-6043, filed with the Securities and Exchange Commission on September 3, 1986). 4(b) Note Purchase Agreement dated September 3, 1986 --- among the Company and the original purchasers of the Company's 10% Senior Subordinated Notes due 1996 (incorporated by reference from Exhibit 4(d) to Amendment No. 1 to the Company's Registration Statement on Form S-3, No. 33-6043, filed with the Securities and Exchange Commission on September 3, 1986). 4(c) Indenture dated as of August 15, 1991, between --- the Company and Bank of America National Trust and Savings Association, as Trustee, with respect to the Company's 6-3/4% Convertible Subordinated Debentures due August 15, 2001 (incorporated herein by reference from Exhibit 4 (i) to Amendment No. 1 to the Company's Registration Statement on Form S-3 No. 33-42044 filed with the Securities and Exchange Commission on August 15, 1991). 4(d) First Supplemental Trust Indenture dated as of --- June 30, 1994 between the Company and LaSalle National Bank, as Successor Trustee, with respect to the Company's 6-3/4% Convertible Subordinated Debentures due August 15, 2001. 4(e) Indenture dated as of December 3, 1992, between --- the Company and Bank of New York, as trustee, relating to the Company's 8-7/8% Notes due 2002 (incorporated herein 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(f) Rights Agreement, dated as of November 20, 1986 --- between the Company and First Jersey National Bank (predecessor to First Interstate Bank, Ltd.), as Rights Agent (incorporated by reference from Exhibit 1 to the Company's Registration Statement on Form 8-A, dated November 28, 1986). 4(g) Certificate of Designation of Series A --- Participating Cumulative Preferred Stock Setting Forth the Powers, Preferences, Rights, Qualification, Limitations and Restrictions of Such Series of Preferred Stock of the Company (incorporated by reference from Exhibit 2 to the Company's Registration Statement on Form 8-A, dated November 28, 1986). 4(h) Form of Right certificate relating to the Rights --- Agreement (see 4(f) above, incorporated by reference from Exhibit 3 to the Company's Registration Statement on From 8-A, dated November 28, 1986). 4(i) Letter dated January 5, 1990, from the Company --- to First Interstate Bank, Ltd. ("FIB"), appointing FIB as successor Rights Agent under the Rights Agreement dated as of November 20, 1986, between the Company and The First Jersey National Bank (incorporated by reference from Exhibit 4(c) to the Company's Form 10-K for the year ended December 31, 1989). 4(j) Amendment to Rights Agreement entered into as of --- January 24, 1990, between the Company and First Interstate Bank, Ltd. (incorporated herein by reference from Exhibit 4(d) to the Company's Form 10-K for the year ended December 31, 1989). 4(k) Third Amendment to Rights Agreement entered into --- as of November 6, 1991 between the Company and First Interstate Bank, Ltd. (incorporated herein by reference from Exhibit 4(a) to the Company's Form 10-K for the year ended December 31, 1991). 4(l) 6.9% Cumulative Convertible Preferred Stock --- Purchase Agreement dated as of December 5, 1989, among the Company, Mitsui & Co., Ltd., Mitsui & Co. (U.S.A.), Inc., and Tonami Transportation Co., Ltd. (incorporated herein by reference from Exhibit 4(b) to the Company's Form 10-K for the year ended December 31, 1989). 4(l)(i) Amendments to the above Stock Purchase Agreement --- irrevocably waiving all demand registration rights, relinquishing the right of Mitsui & Co., Ltd. to designate a representative to Airborne's Board of Directors, and resignation of T. Kokai from said Board (incorporated herein by reference from Amendment No. 1 to Schedule 13D of Mitsui & Co., Ltd., Intermodal Terminal, Inc. (assignee of Mitsui & Co. (U.S.A.), Inc.) and Tonami Transportation Co., Ltd., filed with the Securities & Exchange Commission on December 21, 1993). 4(m) Certificate of Designation of Preferences of --- Preferred Shares of Airborne Freight Corporation, as filed on January 26, 1990, in the Office of the Secretary of the State of Delaware (incorporated herein by reference from Exhibit 4(a) to the Company's Form 10-K for the year ended December 31, 1989).
EXHIBIT NO. 10 Material Contracts ---------------------------------- Executive Compensation Plans and Agreements ------------------------------------------- 10(a) 1979 Airborne Freight Corporation Key Employee Stock --- Option and Stock Appreciation Rights Plan, as amended through February 2, 1987 (incorporated by reference from Exhibit 10(d) to the Company's Form 10-K for the year ended December 31, 1986). 10(b) 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(c) 1989 Airborne Freight Corporation Key Employee --- Stock Option and Stock Appreciation Rights Plan (incorporated herein by reference from Exhibit 10(d) to the Company's Form 10-K for the year ended December 31, 1989). 10(d) 1994 Airborne Freight Corporation Key Employee --- Stock Option and Stock Appreciation Rights Plan (incorporated herein by reference from the Addendum to the Company's Proxy Statement for the 1994 Annual Meeting of Shareholders). 10(e) Airborne Freight Corporation Directors Stock --- Option Plan (incorporated herein by reference from the Addendum to the Company's Proxy Statement for the 1991 Annual Meeting of Shareholders). 10(f) Airborne Express Executive Deferral Plan dated --- January 1, 1992 (incorporated by reference from Exhibit 10(b) to the Company's Form 10-K for the year ended December 31, 1991). 10(g) Airborne Express Supplemental Executive Retirement --- Plan dated January 1, 1992 (incorporated by reference from Exhibit 10(c) to the Company's Form 10-K for the year ended December 31, 1991). 10(h) Airborne Express 1994 Executive Management --- Incentive Compensation Plan. 10(i) Airborne Express 1995-1999 Executive Incentive --- Compensation Plan. 10(j) Employment Agreement dated December 15, 1983, as --- amended November 20, 1986, between the Company and Mr. Robert G. Brazier, President and Chief Operating Officer (incorporated by reference from Exhibit 10(a) to the Company's Form 10-K for the year ended December 31, 1986). Identical agreements exist between the Company and the other six executive officers. 10(k) Employment Agreement dated November 20, 1986 --- between the Company and Mr. Lanny H. Michael, then Vice President, Treasurer and Controller (incorporated by reference from Exhibit 10(b) to the Company's Form 10-K for the year ended December 31, 1986). Identical agreements exist between the Company and 25 other officers of the Company. In addition, the Company's principal subsidiary, ABX Air, Inc., has entered into substantially identical agreements with seven of its officers. Other Material Contracts ------------------------ 10(l) $240,000,000 Revolving Loan Facility dated as of --- November 19, 1993 among the Company, as borrower, and Wachovia Bank of Georgia, N.A., ABN AMRO Bank N.V., United States National Bank of Oregon, Seattle-First National Bank, CIBC Inc., Continental Bank N.A., Bank of America National Trust and Savings Association, The Bank of New York, NBD Bank, N.A., as banks and Wachovia Bank of Georgia, N.A., as agent (incorporated herein by reference from Exhibit 10(k) to the Company's Form 10-K for the year ended December 31, 1993). 10(m) Letter dated December 5, 1989, to the Company from --- Mitsui & Co., Ltd. ("Mitsui"), relating to Mitsui's commitment to provide the Company and ABX Air, Inc., a $100 million aircraft financing facility, as modified by that certain Supplement thereto entered into as of March 15, 1990 (incorporated herein by reference from Exhibit 10(b) to the Company's Form 10-K for the year ended December 31, 1989). 10(n) Shareholders Agreement entered into as of --- February 7, 1990, among the Company, Mitsui & Co., Ltd., and Tonami Transportation Co., Ltd., relating to joint ownership of Airborne Express Japan, Inc. (incorporated herein by reference from Exhibit 10(c) to the Company's Form 10-K for the year ended December 31, 1989).
EXHIBIT NO. 11 Statement Re Computation of Per Share Earnings -------------------------------------------------------------- 11 Statement re computation of earnings per share ---
EXHIBIT NO. 12 Statements Re Computation of Ratios -------------------------------------------------- 12 Statement re computation of ratio of senior --- long-term debt and total long-term debt to total capitalization
EXHIBIT NO. 13 Annual Report to Security Holders ------------------------------------------------ 13 Portions of the 1994 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, 1994.
EXHIBIT NO. 23 Consents of Experts and Counsel ----------------------------------------------- 23 Independent Auditors' Consent and Report on --- Schedules
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 ---
EX-4.D 2 EXHIBIT 4(D) SUB DEBT EXHIBIT 4 (d) FIRST SUPPLEMENTAL TRUST INDENTURE BETWEEN AIRBORNE FREIGHT CORPORATION AND LASALLE NATIONAL BANK as Trustee DATED AS OF June 30, 1993 RELATING TO $115,000,000 CONVERTIBLE SUBORDINATED DEBENTURES DUE AUGUST 15, 2001 ----------------------------------------------------------------- This document was prepared by Foster Pepper & Shefelman 1111 Third Avenue, Suite 3400 Seattle, Washington 98101 TABLE OF CONTENTS ARTICLE I RESCISSION AND DESIGNATION OF COMPANY OFFICES 1.1 Rescission of Designation of Los Angeles and San Francisco 2 Offices 1.2 Designation of Additional Offices 3 1.3 Maintenance of New York Office 3
ARTICLE II AMENDMENT OF DEFINITIONS AND OTHER PROVISIONS 2.1 Definitions Amended 3 2.2 Other Provisions Amended 3
ARTICLE III MISCELLANEOUS 3.1 All Other Provisions of Indenture Apply 4 3.2 Execution in Several Counterparts 4
FIRST SUPPLEMENTAL TRUST INDENTURE THIS FIRST SUPPLEMENTAL TRUST INDENTURE (this "Supplemental Indenture"), made and dated as of June 30, 1993, by and between Airborne Freight Corporation (the "Company), a corporation duly organized and existing under the laws of the State of Delaware, having its principal office in Seattle, Washington, and LaSalle National Bank (the "Successor Trustee"), a national banking association organized and existing under the laws of the United States of America and having its principal place of business in Chicago, Illinois, as successor trustee to Bank of America National Trust and Savings Association (the "Resigning Trustee"), W I T N E S S E T H: WHEREAS, the Company and the Resigning Trustee entered into a Trust Indenture (the "Indenture") dated as of August 15, 1991, pursuant to which the Company issued its $115,000,000 aggregate principal amount 6 3/4% Convertible Subordinated Debentures due August 15, 2001 (the "Securities"), under which the Resigning Trustee serviced as trustee for the Securities; and WHEREAS, in accordance with Section 601(b) of the Indenture, the Resigning Trustee provided notice to the Company of its resignation as trustee for the Securities to become effective upon the acceptance of appointment by a successor trustee; and WHEREAS, the Company, the Resigning Trustee and the Successor Trustee entered into an agreement dated June 16, 1993, and effective June 30, 1`993 (the "Tri-Party Agreement") whereby the Company accepted the resignation of the Resigning Trustee and appointed the Successor Trustee, and the Successor Trustee accepted its appointment as Trustee under the Indenture and represented that it is qualified and eligible to serve as Trustee under the Indenture; and WHEREAS, Section 901 of the Indenture provides that the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental to the Indenture, in form satisfactory to the Trustee, to cure any ambiguity, correct inconsistencies or to make any other provisions with respect to matters or questions arising under the Indenture which are not inconsistent with the provisions of the Indenture, so long as the supplemental indentures do no adversely affect the interests of the holders of the Securities in any material respect; and WHEREAS, Section 1002 of the Indenture provides that the Company will maintain an office or agency in the Borough of Manhattan, the City of New York, where the Securities may be presented or surrendered for payment or for registration of transfer or exchange and where notices and demands to or upon the Company with respect to the Securities and the Indenture may be served; and WHEREAS, Section 1002 of the Indenture further provides that the Company may from time to time designate on or more other offices where the Securities may be presented and notices and demands may be delivered, and that the Company may from time to time rescind such designations; and WHEREAS, the principal corporate trust offices in the Resigning Trustee are located in Los Angeles and San Francisco, California, which offices are designated in the Indenture as an additional offices of the Company for various purposes described in the Indenture; and WHEREAS, the Successor Trustee and the Company desire to rescind the designation of the Resigning Trustee's offices in San Francisco and Los Angeles, and to designate the principal corporate trust office of the Successor Trustee as an additional office of the Company for certain purposes described in the Indenture; and WHEREAS, to make certain changes to the Indenture necessary to implement the appointment of the Successor Trustee, the Company has authorized the execution and delivery of this Supplemental Indenture by a Board Resolution; and WHEREAS, the Successor Trustee has determined that the amendments contained in this Supplemental Indenture are consistent with the Indenture and not adverse to the holders of the Securities; and WHEREAS, all acts and proceedings required by law necessary to constitute this Supplemental Indenture a valid and binding agreement for the uses and purposes set forth herein in accordance with its terms, have been done and taken, and the execution and delivery of this Supplemental Indenture have been in all respects duly authorized; NOW THEREFORE, the Successor Trustee and the Company agree as follows: ARTICLE I RESCISSION AND DESIGNATION OF COMPANY OFFICES 1.1 Recission of Designation of Los Angeles and San Francisco Offices. In accordance with Section 1002 of the Indenture the Company rescinds its designation of the principal corporate trust offices of the Resigning Trustee in San Francisco and Los Angeles, California for all purposes for which those offices are designated in the Indenture. 1.2 Designation of Additional Office. In accordance with Section 1002 of the Indenture the Company designates the Corporate Trust Office as an additional office of the Company for all purposes for which the San Francisco and Los Angeles offices are designated in the Indenture, including surrender of Securities for payment. 1.3 Maintenance of New York Office. In accordance with Section 1002 of the Indenture the Company will maintain an office in the Borough of Manhattan, The City of New York, where Securities may be surrendered for transfer, exchange or conversion, and where notices and demands to or upon the Company under the Indenture may be served. ARTICLE II AMENDMENT OF DEFINITIONS AND OTHER PROVISIONS 2.1 Definitions Amended. The following terms defined in Section 101 of the Indenture are amended to read as follows for all purposes of the Indenture: "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in the City of New York or the city in which the Corporate Trust Office is located are authorized or obligated by law or executive order to close. "Corporate Trust Office" means the principal office of the Trustee. All other capitalized terms used but no defined in this Supplemental Indenture shall have the meanings assigned to them in the Indenture. 2.2 Other Provisions Amended. All references in the Indenture to the offices or agencies of the Trustee or the Company located in Los Angeles or San Francisco, California, shall be amended to refer to the Corporate Trust Office of the Successor Trustee for all purposes of the Indenture, including the reference to the office or agency of the Company in Section 203 of the Indenture specifying the Form of Reverse of the Security. ARTICLE III MISCELLANEOUS 3.1 All Other Provisions of Indenture Apply. Except as an to the extent modified by this Supplemental Indenture, all provisions of the Indenture shall remain in full force and effect with respect to all Securities. 3.2 Execution in Several Counterparts. This Supplemental Indenture may be executed in counterparts and each such counterpart shall for all purposes be deemed to be an original, and all such counterparts, or as many of them as the Company and the Successor Trustee shall preserve undestroyed, shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be executed, and their respective seals to be affixed hereto and attested, all as of the day and year first written above. COMPANY: AIRBORNE FREIGHT CORPORATION By /s/Lanny H. Michael ------------------------ Title: Sr. V.P. and Treasurer TRUSTEE: LASALLE NATIONAL BANK By /s/Georgia E. Tsirdas ------------------------ Title: Assistant Vice President EX-10.H 3 EXHIBIT 10(H) 1994 EICP EXHIBIT 10 (h) Airborne Express 1994 Executive Incentive Compensation Plan Airborne Freight Corporation D/B/A "Airborne Express" EXECUTIVE INCENTIVE COMPENSATION PLAN Effective as revised January 1, 1994 and annually thereafter. SUMMARY PLAN DESCRIPTION 1. Purpose The purpose of this Plan is to achieve Corporate goals by providing incentive compensation to eligible key executives who through industry, ability and exceptional service, contribute materially to the success of Airborne Express. 2. Definitions When used in the Plan, the following words and phrases shall have the following meanings: (a) Beneficiary - The beneficiary or beneficiaries designated to receive the amount, if any, payable under the Plan upon the death of a participant. (b) Board - The Board of Directors of Airborne Freight Corporation. (c) Compensation Committee - Members of the Board who are charged with the responsibility of review and recommendations to the full Board on matters relating to salaries of officers and all other forms of executive and key management compensation and benefits. (d) Plan - The Executive Incentive Compensation Plan. (e) Plan Year - Each calendar year for which specific performance targets are established for the Company. (f) Eligible Employee or Participant - Any executive employee who is in service at the end of the Plan year and who has been designated by the Board as eligible to receive awards hereunder. (g) Performance Measure - A specific objective measure to assess individual or group success in achieving established goals. The plan consists of two corporate performance measures and individual MBO sections may consist of up to four additional performance measures. (h) Target - The point at which performance equals 100% of the stated objective and earns the bonus percentage established for a given position. (i) Attainment - The actual results of individual or group effort to reach a performance goal, usually stated as a percentage of target. (j) Threshold - The point below target at which incentive payout for each performance measure begins. Some performance measures only pay incentive if target is achieved. (k) Maximum - The point above target that represents the maximum payout level for a particular performance measure. (l) Total Disability - Complete and permanent inability by reason of illness or accident to perform the duties of the occupation at which a Participant was employed by Airborne Express when such disability commenced. (m) Retirement - When an employee leaves active service and qualifies under the company's regular or early retirement programs. 3. Allocation of Bonus Awards Each Plan year bonus awards, if any, shall be allocated among eligible employees, on the basis of their contributions to the successful management of the total organization or of a subsidiary and in accordance with such rules as the Board may prescribe. Upon recommendations of the Compensation Committee, the Board shall determine the award maximums, the allocation of the award between individuals and the total organization and individual executive awards. In determining the allocation of bonus awards among individual executives, the Chairman and the President will consider Company performance and individual performance goals. The Compensation Committee shall have the right to approve different performance objectives for each performance period. However, performance objectives will not be changed during any performance period except as and to the extent determined by the Board in the event of changes in accounting practices or extraordinary or unanticipated circumstances which could have a material effect on the achievement of the performance objectives. 4. Limitation on Allocation The total amount allocated as a Bonus Award to an eligible employee shall not exceed a fixed percentage of the employee's targeted award. 5. Form of Payment of Incentive Compensation Incentive compensation awards shall be paid entirely in cash except when otherwise authorized by the Board. Payments will be made as soon as practicable after audited performance results are known, which should be on or about March 1. Bonus award checks are prepared by Payroll and the amounts are subject to tax withholding and Capital Accumulation Plan (CAP) deductions. If a participant dies before the end of the Plan year an amount equal to a pro-rated portion thereof as of the date of death shall be paid in one lump cash sum to the employee's beneficiary. 6. Designation of Beneficiaries Each participant shall file with the Company a written designation of one or more persons as the Beneficiary who shall be entitled to receive the amount, if any, payable under the Plan upon the employee's death. A participant may, from time to time, revoke or change his Beneficiary designation without the consent of any prior Beneficiary by filing a new designation. The last such designation received shall be controlling, provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Company prior to the Participant's death, and in no event shall it be effective as of a date prior to such receipt. 7. Absence of Valid Designation If no such Beneficiary designation is in effect at the time of a Participant's death, or if no designated beneficiary survives the participant, or if such designation conflicts with the law, the Participant's estate shall be deemed to have been designated a beneficiary and shall receive the payment of the amount, if any, under the Plan upon the participant's death. If the Compensation Committee is in doubt as to the right of any person to receive such amount, the Compensation Committee may direct retention of such amount, without liability for any interest thereon, until the rights thereto are determined or the Compensation Committee may pay such amount to any court of appropriate jurisdiction and such payment shall be a complete discharge of the liability of the Plan and of Airborne therefore. ADMINISTRATION OF THE PLAN 8. Power and Authority The Compensation Committee shall have full power and authority to construe, interpret and administer the Plan. All decisions, actions or interpretations of the Compensation Committee shall be final, conclusive and binding upon all parties. 9. No Liability of Compensation Committee, Board Members or Officers No members of the Compensation Committee, Board or Corporate officers shall be personally liable by reason of any contract or other instrument executed by them or on their behalf nor for any mistake or judgment made in good faith, and Airborne shall indemnify and hold harmless each member of the Board and each other officer, employee or director of Airborne to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Compensation Committee) arising out of any act or omission to act in connection with the Plan unless arising out of such person's own fraud or bad faith. 10. Right to Amend, Suspend or Terminate Plan The Board reserves the right at any time to amend, suspend or terminate the Plan in whole or in part and for any reasons and without the consent of any Participant or Beneficiary; provided that no such amendment shall adversely affect rights to receive any amount to which Participants or Beneficiaries have become entitled prior to such amendment. Any amendment, modification, suspension or termination of any provisions of the Plan may be made retroactively. GENERAL LIMITATIONS AND PROVISIONS 11. No Rights to Continued Employment or Bonus Nothing contained in the Plan shall give any employee the right to be retained in the employment of Airborne or affect the right of Airborne to dismiss any employee. The adoption of the Plan shall not constitute a contract between Airborne and any employee. No eligible employee shall receive any right to be granted an award hereunder nor shall any such award be considered as compensation under any employee benefit plan of Airborne except as otherwise determined by Airborne. 12. No Right, Title, or Interest in Airborne Assets The Participant shall have no right, title, or interest whatsoever in or to any investments which Airborne may make to aid in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a fiduciary relationship between Airborne and any eligible employee or any other person. To the extent that any person acquires a right to receive payments from Airborne under this Plan, such right shall be no greater than the right of an unsecured general creditor of Airborne. 13. Unfunded Plan: Governing Law The Plan is intended to constitute an incentive compensation arrangement for a select group of management or highly compensated personnel and all rights thereunder shall be governed by and construed in accordance with the laws of the State of Washington. 14. Executive Incentive Compensation Plan The specific Executive Incentive Compensation Plan (EICP) for the current Plan year is described in the next section (pages 6 -12). Airborne Freight Corporation D/B/A "Airborne Express" EXECUTIVE INCENTIVE COMPENSATION PLAN (EICP) Effective as revised January 1, 1994 and annually thereafter. Airborne Express has adopted an executive incentive compensation program which provides opportunities to top corporate executives to receive additional compensation for their contribution toward achieving the Company's performance goals as established by the Board. 1. PURPOSE The purpose of this Plan is to increase the rate of growth of the Company - in earnings, revenues, human resources, and strategic position - by stimulating key executives to superior performance, and by attracting and keeping in the employ of the Company people of outstanding experience and ability. 2. ADMINISTRATION (a) The Compensation Committee will have the power to interpret the Plan and to make all determinations necessary or desirable for its administration. (b) The decision of the Compensation Committee on any question concerning the interpretation or administration of the Plan will be final and conclusive. Nothing in the Plan will be deemed to give any officer or employee, or legal representatives or assigns, any right to participate in the Plan except to such extent, as the Board may determine pursuant to the provisions of the Plan. 3. ELIGIBILITY OF EMPLOYEES (a) Eligibility of employees to participate in the Plan in any Plan Year will be recommended through organizational channels and approved by the Board. (b) Eligible employees will be the Chief Executive Officer and those executives of the Company who have a major impact on profits, growth, contribute importantly to determining the Company's strategic position, or who directs a major administrative division of the Company. Positions eligible for the EICP include: Chief Executive Officer (CEO) President and Chief Operating Officer (COO) Executive Vice Presidents President, ABX Air, Inc. (c) With approval of the Board, prior to June 30 of each Plan Year, additional employees may be included in the Plan, with any award bonus pro- rated as shall be determined by the Compensation Committee. (d) Employees who retire in good standing during the year will be eligible for a pro-rated bonus for the year in which they retire provided they are on the active payroll on June 30th or later of the plan year. (e) Employees who take a leave of absence will have their awards calculated based on actual Airborne salary earnings for the calendar year. Any disability insurance payments will not be included as earnings in calculating bonus awards. Employees who are on a leave of absence for more than 90 days and who continue to receive full or partial salary continuance will have their awards adjusted. Any salary paid while on a leave of absence period over 90 days will not be included in the base used to calculate annual bonus awards. (f) Bonus payments shall be made on or about March 1st following the Plan year and after audited performance results. (g) Bonus checks are prepared by Payroll and the amounts are subject to tax withholding and Capital Accumulation Plan (CAP) withholding. 4. COMPANY PERFORMANCE TARGETS The Company's performance used to determine the payout of bonuses will be based on two factors -- pre-tax, pre-profit sharing net profit and percent of sales revenue growth. Performance goals will be set as follows: (a) Pre-tax net profit earnings is the major corporate target and shall be the basis of 75% of the bonus allocation. (b) An 80% threshold is set on targeted pre-tax earnings. (c) A 150% maximum is set on targeted pre-tax earnings. (d) Percent growth in sales revenues is the second major corporate target and shall be the basis of 25% of the bonus allocation. (e) An 80% threshold is set on targeted growth in sales revenue. (f) The maximum is 150% of targeted growth in sales revenue. 5. QUALIFIERS AND DEFINITIONS ON PERFORMANCE TARGETS (a) The bonus percentage is applied to the participant's salary paid in the Plan (calendar) Year. (b) No bonus will be paid for growth in sales revenue unless the threshold net profit is achieved. (c) To receive any award under EICP, an executive's individual performance must be evaluated as at least competent by the Compensation Committee. 6. BONUS AMOUNTS Actual bonuses will be determined by applying the following percentages, or a pro-rated portion thereof, times the participant's annual salary.
Threshold Maximum Position (80% of Target) Target (150% of Target) -------- -------------- ------ --------------- CEO 10% 60% 133% COO 10% 50% 111% EVP'S 10% 35% 75%
7. ALLOCATIONS 100% of the bonus award is allocated to corporate performance (as opposed to individual MBO achievement) for all Executive Incentive Compensation Plan (EICP) eligible positions. The EICP incentive payment percentages for goal attainment are: CEO (100% Corporate)
Percent of Attainment Profit (75%) Revenue (25%) Total ---------- ------------ ------------- ----- 80% 7.5% 2.5% 10.0% 100% 45.0% 15.0% 60.0% 150% 99.75% 33.25% 133.0%
COO (100% Corporate)
Percent of Attainment Profit (75%) Revenue (25%) Total ---------- ------------ ------------- ----- 80% 7.5% 2.5% 10.0% 100% 37.5% 12.5% 50.0% 150% 83.25% 27.75% 111.0%
EVP'S (100% Corporate)
Percent of Attainment Profit (75%) Revenue (25%) Total ---------- ------------ ------------- ----- 80% 7.5% 2.5% 10.0% 100% 26.25% 8.75% 35.0% 150% 56.25% 18.75% 75.0%
8. There is an example incentive calculation for the EVP level on the following page. EICP EXAMPLE 1. Title: Executive Vice President 2. 100% Corporate Allocation 3. Salary: $200,000 4. Bonus opportunity as percent of salary:
Threshold Target Maximum --------- ------ -------- 10% 35% 75%
5. Allocation:
Threshold Target Maximum --------- ------ -------- 75% - Pre-Tax Net Profit 7.5% 26.25% 56.25% 25% - Growth in Revenue 2.5% 8.75% 18.75% ------------------------ ------ ------ ------ Total Bonus Opportunity 10.0% 35.00% 75.00%
6. Assumed Facts: * Profit Performance: 87% * Revenue Performance: 104% 7. Calculations A. Profit Bonus @ 87% Actual Performance Performance = Bonus Percentage (from table) 87% = 14.06% Bonus % X Annual Salary = Profit Bonus 14.06% X $200,000 = $28,120 B. Revenue Growth @ 104% Actual Performance Performance = Bonus Percentage (from table) 104% = 9.55% Bonus % X Annual Salary = Profit Bonus 9.55%X $200,000 = $19,100 C. Total Bonus Earned Profit Bonus $28,120 Revenue Bonus $19,100 ------- $47,220 Executive Incentive Compensation Plan Bonus Percentages Corporate Attainment Plan CEO
Net Profit Factor Revenue Growth Factor (75% weight) (25% weight) % Attnmt Percent % Attnmt Percent (of Goal) of Salary (of Goal) of Salary --------- --------- --------- --------- below 80% 0 below 80% 0 Threshold 80% 7.50% 80% 2.50% 81% 9.38% 81% 3.13% 82% 11.25% 82% 3.75% 83% 13.13% 83% 4.38% 84% 15.00% 84% 5.00% 85% 16.88% 85% 5.63% 86% 18.75% 86% 6.25% 87% 20.63% 87% 6.88% 88% 22.50% 88% 7.50% 89% 24.38% 89% 8.13% 90% 26.25% 90% 8.75% 91% 28.13% 91% 9.38% 92% 30.00% 92% 10.00% 93% 31.88% 93% 10.63% 94% 33.75% 94% 11.25% 95% 35.63% 95% 11.88% 96% 37.50% 96% 12.50% 97% 39.38% 97% 13.13% 98% 41.25% 98% 13.75% 99% 43.13% 99% 14.38% Target 100% 45.00% 100% 15.00% 102% 47.19% 102% 15.73% 104% 49.38% 104% 16.46% 106% 51.57% 106% 17.19% 108% 53.76% 108% 17.92% 110% 55.95% 110% 18.65% 112% 58.14% 112% 19.38% 114% 60.33% 114% 20.11% 116% 62.52% 116% 20.84% 118% 64.71% 118% 21.57% 120% 66.90% 120% 22.30% 122% 69.09% 122% 23.03% 124% 71.28% 124% 23.76% 126% 73.47% 126% 24.49% 128% 75.66% 128% 25.22% 130% 77.85% 130% 25.95% 132% 80.04% 132% 26.68% 134% 82.23% 134% 27.41% 136% 84.42% 136% 28.14% 138% 86.61% 138% 28.87% 140% 88.80% 140% 29.60% 142% 90.99% 142% 30.33% 144% 93.18% 144% 31.06% 146% 95.37% 146% 31.79% 148% 97.56% 148% 32.52% Maximum 150% 99.75% 150% 33.25%
Note: Actual payouts will be calculated using formulas where % of attainment is rounded to the nearest 1% and % of salary is rounded to the nearest .01%. Executive Incentive Compensation Plan Bonus Percentages Corporate Attainment Plan COO
Net Profit Factor Revenue Growth Factor (75% weight) (25% weight) % Attnmt Percent % Attnmt Percent (of Goal) of Salary (of Goal) of Salary -------- -------- -------- -------- below 80% 0 below 80% 0 Threshold 80% 7.50% 80% 2.50% 81% 9.00% 81% 3.00% 82% 10.50% 82% 3.50% 83% 12.00% 83% 4.00% 84% 13.50% 84% 4.50% 85% 15.00% 85% 5.00% 86% 16.50% 86% 5.50% 87% 18.00% 87% 6.00% 88% 19.50% 88% 6.50% 89% 21.00% 89% 7.00% 90% 22.50% 90% 7.50% 91% 24.00% 91% 8.00% 92% 25.50% 92% 8.50% 93% 27.00% 93% 9.00% 94% 28.50% 94% 9.50% 95% 30.00% 95% 10.00% 96% 31.50% 96% 10.50% 97% 33.00% 97% 11.00% 98% 34.50% 98% 11.50% 99% 36.00% 99% 12.00% Target 100% 37.50% 100% 12.50% 102% 39.33% 102% 13.11% 104% 41.16% 104% 13.72% 106% 42.99% 106% 14.33% 108% 44.82% 108% 14.94% 110% 46.65% 110% 15.55% 112% 48.48% 112% 16.16% 114% 50.31% 114% 16.77% 116% 52.14% 116% 17.38% 118% 53.97% 118% 17.99% 120% 55.80% 120% 18.60% 122% 57.63% 122% 19.21% 124% 59.46% 124% 19.82% 126% 61.29% 126% 20.43% 128% 63.12% 128% 21.04% 130% 64.95% 130% 21.65% 132% 66.78% 132% 22.26% 134% 68.61% 134% 22.87% 136% 70.44% 136% 23.48% 138% 72.27% 138% 24.09% 140% 74.10% 140% 24.70% 142% 75.93% 142% 25.31% 144% 77.76% 144% 25.92% 146% 79.59% 146% 26.53% 148% 81.42% 148% 27.14% Maximum 150% 83.25% 150% 27.75%
Note: Actual payouts will be calculated using formulas where % of attainment is rounded to the nearest 1% and % of salary is rounded to the nearest .01%. Executive Incentive Compensation Plan Bonus Percent Lookup Table Corporate Attainment (Only) Plan Executive VP's
Net Profit Factor Revenue Growth Factor (75% weight) (25% weight) % Attnmt Percent % Attnmt Percent (of Goal) of Salary (of Goal) of Salary -------- -------- -------- -------- below 80% 0 below 80% 0 Threshold 80% 7.50% 80% 2.50% 81% 8.44% 81% 2.81% 82% 9.37% 82% 3.13% 83% 10.31% 83% 3.44% 84% 11.25% 84% 3.75% 85% 12.19% 85% 4.06% 86% 13.13% 86% 4.38% 87% 14.06% 87% 4.69% 88% 15.00% 88% 5.00% 89% 15.94% 89% 5.31% 90% 16.88% 90% 5.63% 91% 17.81% 91% 5.94% 92% 18.75% 92% 6.25% 93% 19.69% 93% 6.56% 94% 20.63% 94% 6.88% 95% 21.56% 95% 7.19% 96% 22.50% 96% 7.50% 97% 23.44% 97% 7.81% 98% 24.38% 98% 8.13% 99% 25.31% 99% 8.44% Target 100% 26.25% 100% 8.75% 102% 27.45% 102% 9.15% 104% 28.65% 104% 9.55% 106% 29.85% 106% 9.95% 108% 31.05% 108% 10.35% 110% 32.25% 110% 10.75% 112% 33.45% 112% 11.15% 114% 34.65% 114% 11.55% 116% 35.85% 116% 11.95% 118% 37.05% 118% 12.35% 120% 38.25% 120% 12.75% 122% 39.45% 122% 13.15% 124% 40.65% 124% 13.55% 126% 41.85% 126% 13.95% 128% 43.05% 128% 14.35% 130% 44.25% 130% 14.75% 132% 45.45% 132% 15.15% 134% 46.65% 134% 15.55% 136% 47.85% 136% 15.95% 138% 49.05% 138% 16.35% 140% 50.25% 140% 16.75% 142% 51.45% 142% 17.15% 144% 52.65% 144% 17.55% 146% 53.85% 146% 17.95% 148% 55.05% 148% 18.35% Maximum 150% 56.25% 150% 18.75%
Note: Actual Payouts will be calculated using Formulas where % of attainment is rounded to nearest 1% and % of salary is rounded to the nearest .01%. EX-10.I 4 EXHIBIT 10(I) 95-99 EICP EXHIBIT 10 (i) Airborne Express 1995-1999 Executive Incentive Compensation Plan Airborne Freight Corporation D/B/A "Airborne Express" EXECUTIVE INCENTIVE COMPENSATION PLAN ------------------------------------- Effective January 1, 1995 - December 31, 1999 1. Purpose The purpose of this Plan is to achieve Corporate goals by providing incentive compensation to eligible key executives who through industry, ability and exceptional service, contribute materially to the success of Airborne Express. 2. Definitions When used in the Plan, the following words and phrases shall have the following meanings: (a) Attainment - The actual results of effort to reach the Target for a Performance Measure, usually stated as a percentage of Target. (b) Beneficiary - The beneficiary or beneficiaries designated to receive the amount, if any, payable under the Plan upon the death of a Participant. (c) Board - The Board of Directors of Airborne Freight Corporation. (d) Compensation Committee - The Compensation Committee of the Board. (e) Maximum - The point above Target that represents the maximum payout level for a particular Performance Measure. (f) Net Profit - Pre-tax, pre-profit sharing net profit. (g) Participant - Any employee eligible to receive awards under section 4. (h) Performance Measure - A specific objective measure to assess success in achieving established goals. Permitted Performance Measures are listed in section 5. (i) Plan - The 1995-1999 Executive Incentive Compensation Plan. (j) Plan Year - Each calendar year for which Performance Measures and Targets are established for the Company. (k) Retirement - When an employee leaves active service and qualifies under the Company's regular or early retirement programs. (l) Revenue Growth - Percentage growth in sales revenue over the prior year. (m) Target - The point at which performance equals 100% of the stated objective. (n) Threshold - The point below Target at which incentive payout for each Performance Measure begins. 3. Administration (a) The Compensation Committee will have the power to interpret the Plan and to make all determinations necessary or desirable for its administration. (b) The decision of the Compensation Committee on any question concerning the interpretation or administration of the Plan will be final and conclusive. Nothing in the Plan will be deemed to give any officer or employee, or legal representatives or assigns, any right to participate in the Plan except to such extent as the Compensation Committee may determine pursuant to the provisions of the Plan. 4. Eligibility (a) Positions eligible for the EICP are: Chairman of the Board Chief Executive Officer President Chief Operating Officer Executive Vice Presidents Chief Financial Officer President, ABX Air, Inc. Division Heads Except as otherwise provided below, Participants for a Plan Year must be employed for the entire Plan Year. (b) With approval of the Compensation Committee, prior to June 30 of each Plan Year, additional employees may be included in the Plan, with any award pro-rated as shall be determined by the Compensation Committee. (c) Participants who retire in good standing during the year will be eligible for a pro-rated award for the year in which they retire provided they are on the active payroll on June 30th or later of the Plan Year. (d) Participants who take a leave of absence will have their awards calculated based on actual Airborne salary earnings for the calendar year. Any disability insurance payments will not be included as earnings in calculating awards. Participants who are on a leave of absence for more than 90 days and who continue to receive full or partial salary continuance will have their awards adjusted. Any salary paid while on a leave of absence period over 90 days will not be included in the base used to calculate awards. 5. Performance Measures Unless otherwise determined by the Committee, bonuses will be based on two Performance Measures -- Net Profit and Revenue Growth. In addition to or in lieu of one or both of the preceding Performance Measures, the Committee may select one or more of the following Performance Measures: earnings per share, shipment growth, increase in stock price, return on assets or return on equity. The Compensation Committee will set annual Targets for each Performance Measure within 90 days after the beginning of each Plan Year and such Targets may not be changed thereafter. The Targets may be ratified by the Board. Unless within 90 days after the beginning of each Plan Year the Committee selects Performance Measures in addition to or in lieu of one or both of Net Profit and Revenue Growth, bonuses will be allocated based on Attainment of Targets as follows: (a) Net Profit earnings is the major corporate Performance Measure and shall be the basis of 75% of the bonus allocation. (b) An 80% Threshold is set on targeted Net Profit. (c) A 150% Maximum is set on targeted Net Profit. (d) Revenue Growth is the second major corporate Performance Measure and shall be the basis of 25% of the bonus allocation. (e) An 80% Threshold is set on targeted Revenue Growth. (f) A 150% Maximum is set on targeted Revenue Growth. 6. Qualifiers on Performance Measures (a) The bonus percentage is applied to the Participant's salary paid in the Plan (calendar) Year. (b) No bonus will be paid for Revenue Growth unless the Threshold Net Profit is achieved. (c) To receive any award under EICP, a Participant's individual performance must be evaluated as at least competent by the Compensation Committee. (d) The Committee has the discretion to reduce or eliminate any award. 7. Bonus Amounts Actual bonuses will be determined by multiplying the following percentages, or a pro-rated portion thereof, by the Participant's annual salary.
Threshold Maximum Position (80% of Target) Target (150% of Target) -------- -------------- ------ --------------- CEO 10% 60% 133% COO 10% 50% 111% EVP'S 10% 35% 75%
8. Allocations Unless otherwise determined under section 5, the EICP incentive payment percentages for Attainment of Performance Measures are: CEO (100% Corporate)
Percent of Attainment Profit (75%) Revenue (25%) Total ---------- ------------ ------------- ----- 80% 7.5% 2.5% 10.0% 100% 45.0% 15.0% 60.0% 150% 99.75% 33.25% 133.0%
COO (100% Corporate)
Percent of Attainment Profit (75%) Revenue (25%) Total ---------- ------------ ------------- ----- 80% 7.5% 2.5% 10.0% 100% 37.5% 12.5% 50.0% 150% 83.25% 27.75% 111.0%
EVP'S (100% Corporate)
Percent of Attainment Profit (75%) Revenue (25%) Total ---------- ------------ ------------- ----- 80% 7.5% 2.5% 10.0% 100% 26.25% 8.75% 35.0% 150% 56.25% 18.75% 75.0%
9. Example An example incentive calculation for the EVP level is shown on page 7. 10. Form of Payment Awards shall be paid entirely in cash. Payments will be made as soon as practicable after audited performance results are known and approved by the Compensation Committee, which should be on or about March 1. Award checks are prepared by the Payroll Department and the amounts are subject to tax withholding and Capital Accumulation Plan (CAP) deductions. If a Participant dies before the end of the Plan Year an amount equal to a pro-rated portion thereof as of the date of death shall be paid in one lump cash sum to the Participant's Beneficiary. 11. Limitation on Allocation Notwithstanding any other provision of the Plan, in no circumstances will the total amount allocated as an award to a Participant for any Plan Year exceed $975,000. 12. Designation of Beneficiaries Each Participant shall file with the Company a written designation of one or more persons as the Beneficiary who shall be entitled to receive the amount, if any, payable under the Plan upon the Participant's death. A Participant may, from time to time, revoke or change his Beneficiary designation without the consent of any prior Beneficiary by filing a new designation. The last such designation received shall be controlling, provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Company prior to the Participant's death, and in no event shall it be effective as of a date prior to such receipt. 13. Absence of Valid Designation If no such Beneficiary designation is in effect at the time of a Participant's death, or if no designated Beneficiary survives the Participant, or if such designation conflicts with the law, the Participant shall be deemed to have designated the Participant's estate as the Participant's Beneficiary and the Participant's estate shall receive the payment of the amount, if any, under the Plan upon the Participant's death. If the Compensation Committee is in doubt as to the right of any person to receive such amount, the Compensation Committee may direct retention of such amount, without liability for any interest thereon, until the rights thereto are determined or the Compensation Committee may pay such amount to any court of appropriate jurisdiction and such payment shall be a complete discharge of the liability of the Plan and of Airborne Express therefore. 14. No Liability of Compensation Committee, Board Members or Officers No members of the Compensation Committee, Board or Corporate officers shall be personally liable by reason of any contract or other instrument executed by them or on their behalf nor for any mistake or judgment made in good faith, and Airborne shall indemnify and hold harmless each member of the Board and each other officer, employee or director of Airborne Express to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Compensation Committee) arising out of any act or omission to act in connection with the Plan unless arising out of such person's own fraud or bad faith. 15. Right to Amend, Suspend or Terminate Plan The Board reserves the right at any time to amend, suspend or terminate the Plan in whole or in part and for any reasons and without the consent of any Participant or Beneficiary; provided that no such amendment shall adversely affect rights to receive any amount to which Participants or Beneficiaries have become entitled prior to such amendment. Unless otherwise provided herein, any amendment, modification, suspension or termination of any provisions of the Plan may be made retroactively. 16. No Rights to Continued Employment or Bonus Nothing contained in the Plan shall give any employee the right to be retained in the employment of Airborne Express or affect the right of Airborne Express to dismiss any employee. The adoption of the Plan shall not constitute a contract between Airborne Express and any employee. No Participant shall receive any right to be granted an award hereunder nor shall any such award be considered as compensation under any employee benefit plan of Airborne Express except as otherwise determined by Airborne Express. 17. No Right, Title, or Interest in Assets The Participant shall have no right, title, or interest whatsoever in or to any investments which Airborne Express may make to aid in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a fiduciary relationship between Airborne Express and any Participant or any other person. To the extent that any person acquires a right to receive payments from Airborne Express under this Plan, such right shall be no greater than the right of an unsecured general creditor of Airborne Express. 18. Unfunded Plan: Governing Law The Plan is intended to constitute an incentive compensation arrangement for a select group of management or highly compensated personnel and all rights thereunder shall be governed by and construed in accordance with the laws of the State of Washington. EICP EXAMPLE ------------ 1. Title: Executive Vice President 2. 100% Corporate Allocation 3. Salary: $200,000 4. Bonus opportunity as percent of salary:
Threshold Target Maximum --------- ------ ------- 10% 35% 75%
5. Allocation:
Threshold Target Maximum --------- ------ ------- 75% - Net Profit 7.5% 26.25% 56.25% 25% - Revenue Growth 2.5% 8.75% 18.75% ------ ------ ------ Total Bonus Opportunity 10.0% 35.00% 75.00%
6. Assumed Facts: * Net Profit Performance: 87% * Revenue Growth Performance: 104% 7. Calculations A. Net Profit Bonus @ 87% Actual Performance Performance = Bonus Percentage (from table) 87% = 14.06% Bonus % X Annual Salary = Profit Bonus 14.06% X $200,000 = $28,120 B. Revenue Growth @ 104% Actual Performance Performance = Bonus Percentage (from table) 104% = 9.55% Bonus % X Annual Salary = Profit Bonus 9.55% X $200,000 = $19,100 C. Total Bonus Earned Net Profit Bonus $28,120 Revenue Growth Bonus 19,100 ------- $47,220 Executive Incentive Compensation Plan Bonus Percentages Corporate Attainment Plan CEO
Net Profit Factor Revenue Growth Factor (75% weight) (25% weight) % Attnmt Percent % Attnmt Percent (of Goal) of Salary (of Goal) of Salary --------- --------- --------- --------- below 80% 0 below 80% 0 Threshold 80% 7.50% 80% 2.50% 81% 9.38% 81% 3.13% 82% 11.25% 82% 3.75% 83% 13.13% 83% 4.38% 84% 15.00% 84% 5.00% 85% 16.88% 85% 5.63% 86% 18.75% 86% 6.25% 87% 20.63% 87% 6.88% 88% 22.50% 88% 7.50% 89% 24.38% 89% 8.13% 90% 26.25% 90% 8.75% 91% 28.13% 91% 9.38% 92% 30.00% 92% 10.00% 93% 31.88% 93% 10.63% 94% 33.75% 94% 11.25% 95% 35.63% 95% 11.88% 96% 37.50% 96% 12.50% 97% 39.38% 97% 13.13% 98% 41.25% 98% 13.75% 99% 43.13% 99% 14.38% Target 100% 45.00% 100% 15.00% 102% 47.19% 102% 15.73% 104% 49.38% 104% 16.46% 106% 51.57% 106% 17.19% 108% 53.76% 108% 17.92% 110% 55.95% 110% 18.65% 112% 58.14% 112% 19.38% 114% 60.33% 114% 20.11% 116% 62.52% 116% 20.84% 118% 64.71% 118% 21.57% 120% 66.90% 120% 22.30% 122% 69.09% 122% 23.03% 124% 71.28% 124% 23.76% 126% 73.47% 126% 24.49% 128% 75.66% 128% 25.22% 130% 77.85% 130% 25.95% 132% 80.04% 132% 26.68% 134% 82.23% 134% 27.41% 136% 84.42% 136% 28.14% 138% 86.61% 138% 28.87% 140% 88.80% 140% 29.60% 142% 90.99% 142% 30.33% 144% 93.18% 144% 31.06% 146% 95.37% 146% 31.79% 148% 97.56% 148% 32.52% Maximum 150% 99.75% 150% 33.25%
Note: Actual payouts will be calculated using formulas where % of attainment is rounded to the nearest 1% and % of salary is rounded to the nearest .01%. Executive Incentive Compensation Plan Bonus Percentages Corporate Attainment Plan COO
Net Profit Factor Revenue Growth Factor (75% weight) (25% weight) % Attnmt Percent % Attnmt Percent (of Goal) of Salary (of Goal) of Salary -------- -------- -------- -------- below 80% 0 below 80% 0 Threshold 80% 7.50% 80% 2.50% 81% 9.00% 81% 3.00% 82% 10.50% 82% 3.50% 83% 12.00% 83% 4.00% 84% 13.50% 84% 4.50% 85% 15.00% 85% 5.00% 86% 16.50% 86% 5.50% 87% 18.00% 87% 6.00% 88% 19.50% 88% 6.50% 89% 21.00% 89% 7.00% 90% 22.50% 90% 7.50% 91% 24.00% 91% 8.00% 92% 25.50% 92% 8.50% 93% 27.00% 93% 9.00% 94% 28.50% 94% 9.50% 95% 30.00% 95% 10.00% 96% 31.50% 96% 10.50% 97% 33.00% 97% 11.00% 98% 34.50% 98% 11.50% 99% 36.00% 99% 12.00% Target 100% 37.50% 100% 12.50% 102% 39.33% 102% 13.11% 104% 41.16% 104% 13.72% 106% 42.99% 106% 14.33% 108% 44.82% 108% 14.94% 110% 46.65% 110% 15.55% 112% 48.48% 112% 16.16% 114% 50.31% 114% 16.77% 116% 52.14% 116% 17.38% 118% 53.97% 118% 17.99% 120% 55.80% 120% 18.60% 122% 57.63% 122% 19.21% 124% 59.46% 124% 19.82% 126% 61.29% 126% 20.43% 128% 63.12% 128% 21.04% 130% 64.95% 130% 21.65% 132% 66.78% 132% 22.26% 134% 68.61% 134% 22.87% 136% 70.44% 136% 23.48% 138% 72.27% 138% 24.09% 140% 74.10% 140% 24.70% 142% 75.93% 142% 25.31% 144% 77.76% 144% 25.92% 146% 79.59% 146% 26.53% 148% 81.42% 148% 27.14% Maximum 150% 83.25% 150% 27.75%
Note: Actual payouts will be calculated using formulas where % of attainment is rounded to the nearest 1% and % of salary is rounded to the nearest .01%. Executive Incentive Compensation Plan Bonus Percent Lookup Table Corporate Attainment (Only) Plan Executive VPs
Net Profit Factor Revenue Growth Factor (75% weight) (25% weight) % Attnmt Percent % Attnmt Percent (of Goal) of Salary (of Goal) of Salary -------- -------- -------- -------- below 80% 0 below 80% 0 Threshold 80% 7.50% 80% 2.50% 81% 8.44% 81% 2.81% 82% 9.37% 82% 3.13% 83% 10.31% 83% 3.44% 84% 11.25% 84% 3.75% 85% 12.19% 85% 4.06% 86% 13.13% 86% 4.38% 87% 14.06% 87% 4.69% 88% 15.00% 88% 5.00% 89% 15.94% 89% 5.31% 90% 16.88% 90% 5.63% 91% 17.81% 91% 5.94% 92% 18.75% 92% 6.25% 93% 19.69% 93% 6.56% 94% 20.63% 94% 6.88% 95% 21.56% 95% 7.19% 96% 22.50% 96% 7.50% 97% 23.44% 97% 7.81% 98% 24.38% 98% 8.13% 99% 25.31% 99% 8.44% Target 100% 26.25% 100% 8.75% 102% 27.45% 102% 9.15% 104% 28.65% 104% 9.55% 106% 29.85% 106% 9.95% 108% 31.05% 108% 10.35% 110% 32.25% 110% 10.75% 112% 33.45% 112% 11.15% 114% 34.65% 114% 11.55% 116% 35.85% 116% 11.95% 118% 37.05% 118% 12.35% 120% 38.25% 120% 12.75% 122% 39.45% 122% 13.15% 124% 40.65% 124% 13.55% 126% 41.85% 126% 13.95% 128% 43.05% 128% 14.35% 130% 44.25% 130% 14.75% 132% 45.45% 132% 15.15% 134% 46.65% 134% 15.55% 136% 47.85% 136% 15.95% 138% 49.05% 138% 16.35% 140% 50.25% 140% 16.75% 142% 51.45% 142% 17.15% 144% 52.65% 144% 17.55% 146% 53.85% 146% 17.95% 148% 55.05% 148% 18.35% Maximum 150% 56.25% 150% 18.75%
Note: Actual payouts will be calculated using formulas where % of attainment is rounded to nearest 1% and % of salary is rounded to the nearest .01%. EX-11 5 EXHIBIT 11-EPS EXHIBIT 11 AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE
YEAR ENDED DECEMBER 31, ---------------------- 1994 1993 1992 ---- ---- ---- (In thousands except per share data) PRIMARY: Net Earnings $37,941 $36,357 $ 2,397 ======= ======= ======= Average Common Shares Outstanding 20,645 19,255 19,139 Effect of Dilutive Stock Options 356 341 284 ------- ------- ------- Total Average Shares Outstanding 21,001 19,596 19,423 ======= ======= ======= Primary Earnings Per Share $ 1.81 $ 1.86 $ .12 ======= ======= ======= FULLY DILUTED: Net Earnings $37,941 $36,357 $ 2,397 Redeemable Preferred Stock 894 2,760 -- Dividends Convertible Debentures 4,331 -- -- ------- ------- ------- Adjusted Net Earnings $43,166 $39,117 $ 2,397 ======= ======= ======= Average Common Shares Outstanding 20,645 19,255 19,139 Effect of Dilutive Stock Options 356 552 304 Effect of Conversion of 3,239 -- -- Subordinated Debentures Effect of Conversion of 559 1,710 -- Redeemable Preferred Stock Dividends ------- ------- ------- Total Average Shares Outstanding 24,799 21,517 19,443 ======= ======= ======= Fully Diluted Earnings Per Share $ 1.74 $ 1.82 $ .12 ======= ======= =======
EX-12 6 EXHIBIT 12-DEBT EXHIBIT 12 AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES RATIO OF SENIOR LONG-TERM DEBT AND TOTAL LONG-TERM DEBT TO TOTAL CAPITALIZATION
December 31, 1994 (Dollars in thousands) SENIOR LONG-TERM DEBT: Revolving Credit Agreement $135,000 Money Market Lines of Credit 17,000 Senior Notes 100,000 Refunding Revenue Bonds 13,200 Note Payable to Vendor 12,300 Capital Lease Obligations and Other 4,370 -------- 281,870 Less Current Portion 2,448 -------- Senior Long-Term Debt $279,422 ======== TOTAL LONG-TERM DEBT: Senior Long-Term Debt $279,422 Senior Subordinated Notes, net of current 3,580 portion Convertible Subordinated Debentures 115,000 -------- Total Long-Term Debt $398,002 ======== TOTAL CAPITALIZATION: Long-Term Debt $398,002 Deferred Income Taxes 30,402 Redeemable Preferred Stock 5,000 Shareholders Equity, Net 387,398 -------- Total Capitalization $820,802 ======== RATIO OF SENIOR LONG-TERM DEBT TO TOTAL 34.0% CAPITALIZATION ======== RATIO OF TOTAL LONG-TERM DEBT TO TOTAL 48.5% CAPITALIZATION ========
EX-13 7 EXHIBIT 13-FINANCIALS EXHIBIT 13 AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES COMMON STOCK & DIVIDEND INFORMATION The Company's common stock is traded on the New York Stock Exchange and the Pacific Stock Exchange under the symbol ABF. The following is a summary of the cash dividends paid and the quarterly trading price ranges of Airborne common stock on the New York Stock Exchange for 1994 and 1993:
Quarter High Low Dividend ------- ---- --- -------- 1994: Fourth $26.000 $18.000 $.075 Third 35.625 24.000 .075 Second 38.375 31.500 .075 First 39.875 33.125 .075 1993: Fourth $35.250 $24.125 $.075 Third 25.625 19.125 .075 Second 26.500 20.875 .075 First 23.875 18.125 .075
AIRBORNE EXPRESS SELECTED CONSOLIDATED FINANCIAL DATA
1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- (In thousands except per share data) OPERATING RESULTS: Revenues Domestic $1,660,003 $1,484,787 $1,259,792 $1,144,791 $ 982,268 International 310,756 235,194 224,524 222,256 199,622 ---------- ---------- ---------- ---------- ---------- Total 1,970,759 1,719,981 1,484,316 1,367,047 1,181,890 Operating Expenses 1,881,821 1,636,861 1,456,450 1,307,790 1,117,594 ---------- ---------- ---------- ---------- ---------- Earnings From Operations 88,938 83,120 27,866 59,257 64,296 Interest, Net 24,663 24,093 18,779 10,842 8,857 ---------- ---------- ---------- ---------- ---------- Earnings Before Income Taxes64,275 59,027 9,087 48,415 55,439 Income Taxes 25,440 23,738 3,930 18,416 21,862 Net Earnings Before ---------- ---------- ---------- ---------- ---------- Changes in Accounting 38,835 35,289 5,157 29,999 33,577 Cumulative Effect of Changes in Accounting -- 3,828 -- -- -- ---------- ---------- ---------- ---------- ---------- Net Earnings 38,835 39,117 5,157 29,999 33,577 Preferred Stock Dividends 894 2,760 2,760 2,760 2,548 ---------- ---------- ---------- ----------- ---------- Net Earnings Available to Common Shareholders $ 37,941 $ 36,357 $ 2,397 $ 27,239 $ 31,029 ========== ========== ========== ========== ========== Net Earnings Per Common Share Primary $ 1.81 $ 1.66* $ .12 $ 1.40 $ 1.76 ========== ========== ========== ========== ========== Fully Diluted $ 1.74 $ 1.64* $ .12 $ 1.40 $ 1.76 ========== ========== ========== ========== ========== Dividends Per Common Share$ .30 $ .30 $ .30 $ .30 $ .30 ========== ========== ========== ========== ========== Average Primary Shares Outstanding 21,001 19,596 19,423 19,471 17,626 ========== ========== ========== ========== ========== FINANCIAL STRUCTURE: Working Capital $ 66,871 $ 56,521 $ 50,276 $ 26,618 $ 31,215 Property and Equipment 766,346 733,963 730,937 613,149 419,873 Total Assets 1,078,506 1,002,866 964,739 823,647 613,534 Long-Term Debt 279,422 269,250 303,335 153,279 106,303 Subordinated Debt 118,580 122,150 125,720 129,290 17,860 Redeemable Preferred Stock 5,000 40,000 40,000 40,000 40,000 Shareholders' Equity 387,398 318,824 285,639 287,344 263,417 NUMBER OF SHIPMENTS: Domestic 187,460 160,568 130,186 106,219 85,910 International 3,954 3,545 3,302 2,777 2,310 ---------- ---------- ---------- ---------- ---------- Total 191,414 164,113 133,488 108,996 88,220 ========== ========== ========== ========== ==========
* Exclusive of the cumulative effect of adopting accounting standards for income taxes and postretirement benefits. Primary and fully diluted earnings per share inclusive of the changes were $1.86 and $1.82, respectively. AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS: The Company's operating performance in 1994 resulted in higher operating income compared to 1993 and record net earnings. This improvement was the result of strong overall shipment growth, robust international revenue growth, lower per shipment operating costs, and a relatively stable pricing environment. These record earnings, however, were below expectations due to several factors. The most significant of these factors was the shift in product mix towards the lower yielding deferred service product, Select Delivery Service (SDS), versus the higher yielding priority Overnight service product. Other factors affecting performance were higher aircraft maintenance costs related to compliance with aging aircraft requirements and during the first quarter of the year, costs associated with meeting service requirements during extreme winter weather in the northeast and midwest U.S. and the earthquake in California. Net earnings available to common shareholders in 1994 increased 17% to $37.9 million, or $1.81 per primary share, compared to $32.5 million, or $1.66 per share in 1993. Reflecting a net credit from certain changes in accounting in 1993, net earnings available to common shareholders were $36.4 million or $1.86 per share. The following table is an overview of the Company's shipments, revenue and weight trends for the last three years:
1994 1993 1992 ---- ---- ---- Number of Shipments (in thousands): Domestic Overnight Letters 34,042 32,620 29,653 0-2 lbs. 44,302 41,390 37,103 3-99 lbs. 39,711 35,853 29,959 ------- ------- ------- Total 118,055 109,863 96,715 Select Delivery Service 0-2 lbs. 43,212 31,640 21,552 3-99 lbs. 25,841 18,715 11,584 ------- ------- ------- Total 69,053 50,355 33,136 100 lbs. and over 352 350 335 ------- ------- ------- Total Domestic 187,460 160,568 130,186 ------- ------- ------- International Express 3,473 3,139 2,886 All Other 481 406 416 ------- ------- ------- Total International 3,954 3,545 3,302 ------- ------- ------- Total Shipments 191,414 164,113 133,488 ======= ======= ======= Average Pounds Per Shipment: Domestic 4.8 4.8 4.8 International 64.1 47.1 46.7 Average Revenue Per Pound: Domestic $ 1.85 $ 1.94 $ 2.04 International $ 1.22 $ 1.41 $ 1.46 Average Revenue Per Shipment: Domestic $ 8.84 $ 9.23 $ 9.68 International $78.59 $66.35 $68.00
Total revenues increased 15% in 1994, 16% in 1993, and 9% in 1992. Shipment volume grew to 191 million units in 1994 increasing 17%, compared to a 23% increase in 1993 and 22.5% in 1992. Domestic revenue increased 12% in 1994 on shipment growth of 17%. This compares to revenue growth of 18% and 10% in 1993 and 1992, respectively, and shipment growth of 23% in both years. Domestic shipment growth in 1994 was impacted by a 37% growth rate of the Company's lower yielding deferred service product, versus the more modest 7.5% growth rate of the higher yielding priority overnight service product. As a result, the overall domestic revenue growth rate was considerably lower than the shipment growth rate. Although still very competitive, the domestic pricing environment during 1994 has been relatively stable. The decline in revenue per shipment was 4% in 1994 and 1993, compared to a 10% decline in 1992. International revenue increased 32% in 1994 on shipment growth of 11.5% compared to revenue growth of 5% and 1% and shipment growth of 7% and 19% in 1993 and 1992, respectively. The international revenue growth rate was significantly higher than shipment growth due to the growth rate of higher yielding heavy weight international shipments. International revenue per shipment and the average weight per shipment increased significantly also as a result of the growth in higher yielding freight shipments. The growth in international margins, however, was impacted somewhat by higher transportation costs as the international carriers raised rates on traffic moving out of the Far East to the U.S. primarily during the latter part of the year. OPERATING EXPENSES are affected by shipment volume, productivity improvements, costs incurred to increase capacity and expand service, fuel price volatility and discretionary items such as the level of marketing expenditures. Operating expenses as a percentage of revenues were 95.5% in 1994 compared to 95.2% in 1993 and 98.1% in 1992. Measuring cost performance on a per shipment basis, total operating expenses per shipment declined to $9.83 in 1994 compared to $9.97 in 1993 and $10.91 in 1992. A strong focus on cost control, productivity improvements and quality improvement programs are primarily responsible for this favorable trend. The Company achieved a 6.0% improvement in productivity in 1994, as measured by shipments handled per paid employee hour, compared to 12.1% improvement in 1993 and 9.7% in 1992. Transportation purchased increased as a percentage of revenues to 34.0% in 1994 compared to 31.6% in 1993 and 32.7% in 1992. This expense category consists primarily of commercial airline costs, farmed-out pick-up and delivery and trucking costs. The increase in 1994 is primarily due to higher international airline costs, for lift purchased directly from other carriers, which rose significantly as a result of the increase in international freight shipments and the increased carrier rates discussed above. Station and ground expense as a percentage of revenues was 30.2% in 1994 compared to 30.6% in 1993 and 31.1% in 1992. Productivity gains in pick-up and delivery, customer service and hub operations have been instrumental in partially offsetting the effect of increased costs incurred to accommodate the growth in shipments and expand service while maintaining service integrity. Shipment volume handled through ten regional sort facilities currently approximates 39% of total domestic shipment weight handled and has resulted in incrementally lower transportation and handling costs. Flight operations and maintenance expense as a percentage of revenues was 14.2% in 1994 compared to 14.1% in 1993 and 14.9% in 1992. The effect of comparatively lower average fuel costs in 1994 was offset by higher aircraft maintenance costs, particularly in the third quarter of 1994 when a higher than normal number of periodic maintenance checks were performed at higher than standard cost. Aviation fuel consumption increased 15% to 123.8 million gallons in 1994. The increase in fuel consumption is a result of additional Company operated aircraft placed in service during the past year and to the disruption to air operations as a result of severe winter weather and the California earthquake during the first quarter. Average aviation fuel prices for 1994 approximated $.60 per gallon, $.05 per gallon lower than 1993, and $.09 per gallon lower than 1992. General and administrative expense as a percentage of revenues was 7.4% in 1994 compared to 8.1% in 1993 and 1992. Sales and marketing decreased to 2.7% of revenues in 1994 compared to 2.9% in 1993 and 3.2% in 1992. Productivity gains and controls on discretionary spending in these two expense categories have been instrumental in offsetting the effect of increased costs incurred to accommodate shipment growth and expand service as well as inflationary cost increases. General and administrative expense includes profit sharing expense of $4.8 million in 1994, compared to $5.7 million in 1993 and $.7 million in 1992. Depreciation and amortization expense declined as a percentage of revenues to 7.0% in 1994 compared to 7.8% in 1993 and 8.1% in 1992. The total dollar amount of depreciation and amortization has continued to increase over the last three years as a result of capital expenditures incurred primarily to expand the airline operations. INTEREST EXPENSE increased slightly in 1994 compared to 1993 as the effect of a lower level of average outstanding borrowings was offset by higher average interest rates for 1994. Interest capitalized in 1994 of $2.1 million, was primarily related to the acquisition and modification of aircraft and the airport expansion, and was comparable to the amount capitalized in 1993 but lower than 1992. INCOME TAXES for 1994 resulted in an effective tax rate of 39.6% compared to 40.2% in 1993 and 43.2% in 1992. The effective tax rate for 1992 was high primarily due to the increase in the effective tax rate for state and local taxes when applied to the lower level of earnings in 1992. The Company anticipates that the effective tax rate for 1995 will be comparable to 1994. During 1994 it became apparent that the domestic market for priority overnight service was maturing. Looking ahead, this segment of the business is likely to grow at a slower rate than it did prior to 1994, while the demand for deferred delivery service will result in a continued high growth rate for that business. The Company sees this as a trend that impacts the entire industry for the foreseeable future. The challenge will be to continue to adjust the Company's operations to respond to this changing mix of business, lowering the cost per shipment to improve margins accordingly. Further, the strength of the U.S. and global economies will have a major impact on the results of operations in 1995 and beyond. FINANCIAL CONDITION: CAPITAL EXPENDITURES and financing associated with those expenditures have been the primary factors affecting the financial condition of the Company over the last three years. Total capital expenditures net of dispositions were $168 million in 1994 compared to $139 million in 1993 and $252 million in 1992. A significant portion of these expenditures has been related to the acquisition and modification of aircraft and related flight equipment. The Company acquired 4 DC-8 aircraft in 1994 and 7 aircraft were placed into service during the year. At the end of 1994 the Company had 97 aircraft in service, consisting of 29 DC-8's, 57 DC-9's and 11 YS-11's. In addition, there were 2 aircraft in modification status and 3 aircraft that had not been modified. Other capital expenditures in 1994 included vehicles for expansion and replacement, facilities and package handling equipment related to servicing the increased shipment volume, airport runway expansion, leasehold improvements for new or expanded facilities and for computer equipment. Capital expenditures will continue to be a significant factor affecting financial condition in 1995. The Company anticipates 1995 capital expenditures of approximately $235 million. A significant portion of the 1995 capital investment is for the acquisition of 8 additional aircraft, the modification of aircraft to be placed in service, the retrofitting of aircraft with Stage III hush kits, and the continued expansion of the airport facility. A total of 8 aircraft are expected to be placed in service in 1995. Not all of these aircraft will be added to the scheduled fleet during the year. Some of these aircraft will be assigned as fleet backup, and as replacement aircraft for those rotated out of service for normal maintenance, for Stage III hush kit retrofitting, and to perform FAA service bulletin maintenance. LIQUIDITY AND CAPITAL RESOURCES: Liquidity for financing capital expenditures in 1994 came primarily from internally generated cash provided from operations which approximated $183 million in 1994 compared to $174 million in 1993 and $122 million in 1992. In addition, any need for liquidity during the year was provided by the revolving bank credit agreement. The revolving bank credit agreement has traditionally been used as a major source of liquidity for periods of time between other financing transactions that provide liquidity. The revolving bank credit is for a total commitment of $240 million, subject to a maximum level of Company indebtedness permitted by certain convenants in the agreement and other loan agreements. The agreement is effective through May 31, 1997, with the option to extend to May 31, 1999. The Company also has available $30 million under uncommitted money market lines of credit with several banks, used in conjunction with the revolving credit agreement to facilitate settlement and accommodate short-term borrowing fluctuations. At December 31, 1994, a total of $152 million was owing under the revolving bank credit and money market agreements. The Company has an aircraft financing facility with Mitsui & Co., providing for a total commitment of $100 million to be used for the financing of up to 80% of the value of aircraft acquired and modified by the Company. The commitment is for a five-year period expiring in March 1995. No utilization of this facility has occurred and the Company intends to let the commitment expire without being used. In February 1994, the Company canceled a shelf registration for $100 million of debt securities which was due to expire in December 1994. This represented the remaining unused portion of $200 million of debt securities registered with the Securities and Exchange Commission in December of 1992. The Company's ratio of senior long-term debt to total capitalization was 34.0% and the ratio of total long-term debt to total capitalization was 48.5% at December 31, 1994, compared to 34.8% and 50.5%, respectively, at December 31, 1993. Anticipated cash flow from 1995 operations should provide the majority of the liquidity for projected 1995 capital expenditures of $235 million. Although some additional financing will be required in 1995, these ratios are not expected to change significantly during 1995 from the 1994 year end level. In management's opinion, the available capacity under the bank credit agreements coupled with anticipated internally generated cash flow from 1995 operations should provide adequate flexibility for financing future growth. INFLATION: Except for fuel costs, the rate of inflation has been relatively constant over the past several years, and so has the impact of inflation on the Company's results of operations and financial condition. The effects of inflation have been considered in management's discussion where considered pertinent. AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF NET EARNINGS
Year Ended December 31 1994 1993 1992 ---------------------- ---- ---- ---- (In thousands except per share data) REVENUES: Domestic $1,660,003 $1,484,787 $1,259,792 International 310,756 235,194 224,524 ---------- ---------- ---------- 1,970,759 1,719,981 1,484,316 OPERATING EXPENSES: Transportation purchased 669,648 543,594 485,484 Station and ground operations 595,845 526,661 461,813 Flight operations and maintenance 279,457 242,120 221,197 General and administrative 145,698 139,955 119,989 Sales and marketing 53,473 50,591 47,335 Depreciation and amortization 137,700 133,940 120,632 ---------- ---------- ---------- 1,881,821 1,636,861 1,456,450 ---------- ---------- ---------- EARNINGS FROM OPERATIONS 88,938 83,120 27,866 INTEREST, NET 24,663 24,093 18,779 ---------- ---------- ---------- EARNINGS BEFORE INCOME TAXES 64,275 59,027 9,087 INCOME TAXES 25,440 23,738 3,930 ---------- ---------- ---------- NET EARNINGS BEFORE CHANGES IN ACCOUNTING 38,835 35,289 5,157 CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING -- 3,828 -- ---------- ---------- ---------- NET EARNINGS 38,835 39,117 5,157 PREFERRED STOCK DIVIDENDS 894 2,760 2,760 ---------- ---------- ---------- NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS $ 37,941 $ 36,357 $ 2,397 ========== ========== ========== NET EARNINGS PER COMMON SHARE: Primary - Before changes in accounting $ 1.81 $ 1.66 $ .12 Cumulative effect of changes in accounting -- .20 -- ---------- ---------- ---------- Primary earnings per common share $ 1.81 $ 1.86 $ .12 ========== ========== ========== Fully Diluted - Before changes in accounting $ 1.74 $ 1.64 $ .12 Cumulative effect of changes in accounting -- .18 -- ---------- ---------- ---------- Fully diluted earnings per common share $ 1.74 $ 1.82 $ .12 ========== ========== ========== DIVIDENDS PER COMMON SHARE $ .30 $ .30 $ .30 ========== ========== ==========
See notes to consolidated financial statements. AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31 1994 1993 ----------- ---- ---- (In thousands) ASSETS ------ CURRENT ASSETS: Cash $ 10,318 $ 7,134 Trade accounts receivable, less allowance of $7,500,000 and $6,925,000 221,788 190,787 Spare parts and fuel inventory 28,071 27,224 Deferred income tax assets 12,458 11,163 Prepaid expenses 20,701 18,815 ---------- ---------- TOTAL CURRENT ASSETS 293,336 255,123 PROPERTY AND EQUIPMENT, NET 766,346 733,963 EQUIPMENT DEPOSITS and OTHER ASSETS 18,824 13,780 ---------- ---------- TOTAL ASSETS $1,078,506 $1,002,866 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable $ 117,194 $ 95,684 Salaries, wages and related taxes 43,858 37,885 Accrued expenses 59,053 55,545 Income taxes payable 342 3,638 Current portion of debt 6,018 5,850 ---------- ---------- TOTAL CURRENT LIABILITIES 226,465 198,602 LONG-TERM DEBT 279,422 269,250 SUBORDINATED DEBT 118,580 122,150 DEFERRED INCOME TAX LIABILITIES 30,402 24,219 OTHER LIABILITIES 31,239 29,821 REDEEMABLE PREFERRED STOCK 5,000 40,000 SHAREHOLDERS' EQUITY: Preferred Stock, without par value - Authorized 5,200,000 shares, no shares issued Common stock, par value $1 per share - Authorized 60,000,000 shares Issued 21,285,924 and 19,688,731 21,286 19,689 Additional paid-in capital 184,369 149,156 Retained earnings 182,714 150,950 ---------- ---------- 388,369 319,795 Treasury stock, 315,150 shares, at cost (971) (971) ---------- ---------- 387,398 318,824 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,078,506 $1,002,866 ========== ==========
See notes to consolidated financial statements. AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 1994 1993 1992 ---------------------- ---- ---- ---- (In thousands) OPERATING ACTIVITIES: Net Earnings $ 38,835 $ 39,117 $ 5,157 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 127,835 122,533 110,206 Provision for aircraft engine overhauls 9,865 11,407 10,426 Deferred income taxes 4,888 1,513 (9,930) Cumulative effect of changes in accounting -- (3,828) -- Other 1,418 3,461 5,949 -------- -------- -------- CASH PROVIDED BY OPERATIONS 182,841 174,203 121,808 Change in: Receivables (31,001) (27,335) (16,158) Inventories and prepaid expenses (2,733) (1,080) (5,635) Accounts payable 22,866 15,266 16 Accrued expenses, salaries and taxes payable 6,185 18,614 5,167 -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 178,158 179,668 105,198 INVESTING ACTIVITIES: Additions to property and equipment (170,453)(139,319)(252,733) Disposition of property and equipment 2,196 231 1,068 Expenditures for engine overhauls (6,839) (3,665) (1,933) Other (1,294) (2,261) 206 -------- -------- -------- NET CASH USED IN INVESTING ACTIVITIES (176,390)(145,014)(253,392) FINANCING ACTIVITIES: Proceeds (payments) on bank notes, net 47,000 (26,100) 30,700 Principal payments on debt (40,230) (5,667) (6,273) Redemption of redeemable preferred stock (1,000) -- -- Proceeds from common stock issuance 2,839 2,608 1,641 Dividends paid (7,193) (8,540) (8,503) Proceeds from debt issuance -- -- 132,786 -------- -------- -------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 1,416 (37,699) 150,351 -------- -------- -------- NET INCREASE (DECREASE) IN CASH 3,184 (3,045) 2,157 CASH AT BEGINNING OF YEAR 7,134 10,179 8,022 -------- -------- -------- CASH AT END OF YEAR $ 10,318 $ 7,134 $ 10,179 ======== ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the year - Interest, net of capitalized $ 24,788 $ 25,027 $ 18,620 Income taxes 23,795 21,781 13,910 Noncash investing and financing activities - Conversion of redeemable preferred stock 34,000 -- -- Notes payable and other vendor obligations -- 13,846 23,402
See notes to consolidated financial statements. AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Three Years Ended December 31, 1994 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNT POLICIES: PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly own subsidiaries. Intercompany balances and transactions are eliminated in consolidation. CASH The Company has a cash management system under which a cash overdraft exists for uncleared checks in the Company's primary disbursement accounts. The cash amount in the accompanying financial statements represents balances in other accounts prior to being transferred to the primary disbursement accounts. Uncleared checks of $36,085,000 and $24,728,000 are included in accounts payable at December 31, 1994 and 1993, respectively. SPARE PARTS AND FUEL INVENTORY Spare parts are stated at average cost and fuel inventory is stated at cost on first-in, first-out basis. PROPERTY AND EQUIPMENT Property and equipment, including rotable aircraft parts, are stated at cost. The cost and accumulated depreciation of property and equipment disposed of are removed from the accounts and any gain or loss reflected in earnings from operations. For financial reporting purposes, depreciation of property and equipment is provided on a straight-line basis over the asset's useful life or lease term as follows:
Flight equipment 7 to 10 years Buildings and leasehold improvements 5 to 25 years Package handling and ground support equipment 3 to 8 year Vehicles and other equipment 3 to 8 year
Flight equipment carry residual values ranging from 10% to 15% of asset cost. All other property and equipment have no assigned residual values. Major engine overhauls for DC-9 aircraft are accrued in advance of the next scheduled overhaul based upon engine usage. Provision for engine overhauls is included in depreciation and amortization expense. Major engine overhauls as well as ordinary engine maintenance and repairs for DC-8 aircraft are performed by a third-party service provider under a contract expiring in 2004. Service costs under the contract are based upon an hourly rate for engine usage and are charged to expense in the period utilization occurs. Major engine overhauls for YS-11 aircraft and expenditures for ordinary maintenance and repairs are charged to expense as incurred. CAPITALIZED INTEREST Interest incurred during the construction period of certain facilities and on aircraft purchase and modification costs are capitalized as an additional cost of the asset until the date the asset is placed in service. Capitalized interest was $2,127,000, $2,094,000 and $2,466,000 for 1994, 1993 and 1992, respectively. INCOME TAXES The Company uses the asset and liability method of accounting for income taxes. Deferred income taxes are provided for temporary differences between the timing of reporting certain revenues and expenses for financial versus tax purposes. Deferred taxes are measured using provisions of currently enacted tax laws. Tax credits are accounted for as a reduction of income taxes in the year in which the credit originates. EARNINGS PER SHARE Primary earnings per common share are based upon the weighted average number of common shares outstanding during the period plus dilutive common equivalent shares applicable to the assumed exercise of outstanding stock options. The weighted average number of shares outstanding were 21,001,000, 19,596,000 and 19,423,000 for the years ended December 31, 1994, 1993 and 1992, respectively. Fully diluted earnings per share includes the potential dilution for stock options and, when material, conversion of the 6.9% redeemable cumulative convertible preferred stock and conversion of the 6.75% convertible subordinated debentures. Net earnings are adjusted for the assumed elimination of preferred stock dividends and interest expense, net of income tax, on the debentures, as applicable. REVENUE RECOGNITION Domestic revenues and most domestic operating expenses are recognized when shipments are picked up from the customer. International revenues and direct air carrier expenses are recognized in the period when shipments are tendered to a carrier for transport to a foreign destination. Domestic and international delivery costs are recognized in the period incurred. The net revenue resulting from existing recognition policies does not materially differ from that which would be recognized on a delivery date basis. ACCOUNTING CHANGES The Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes" and SFAS No. 106 "Employers Accounting for Postretirement Benefits Other than Pensions" effective January 1, 1993. SFAS No. 109 required the change from the deferral method of accounting for income taxes to the asset and liability method which recognizes taxes at currently enacted rates. The result of this change, recorded cumulatively, was an increase to 1993 net earnings of $5,506,000 or $.28 per primary common share. The provisions of SFAS No. 106 require expected postretirement healthcare benefit costs be accrued over the applicable employee service period instead of as claims are incurred. The effect of immediate recognition of the postretirement transition obligation of $2,543,000 was a decrease in 1993's net earnings of $1,678,000 or $.08 per primary share, net of a deferred tax benefit of $865,000. RECLASSIFICATIONS Certain amounts for prior years have been reclassified in the consolidated financial statements to conform to the classification used in 1994. NOTE B - PROPERTY AND EQUIPMENT: Property and equipment consist of the following (in thousands):
December 31 1994 1993 ----------- ---- ---- Flight equipment $ 931,368 $ 849,174 Land, buildings and leasehold improvements 158,515 127,857 Package handling and ground support equipment 114,399 109,288 Vehicles and other equipment 176,184 152,686 --------- --------- 1,380,466 1,239,005 Accumulated depreciation and amortization (614,120) (505,042) --------- --------- $ 766,346 $ 733,963 ========= =========
NOTE C - ACCRUED EXPENSES: Accrued expenses consist of the following (in thousands):
December 31 1994 1993 ----------- ---- ---- Aircraft leases $13,994 $13,258 Insurance 13,263 14,684 Retirement plans 10,846 10,716 Property and other taxes 8,465 8,059 Interest 4,381 4,032 Other 8,104 4,796 ------- ------- $59,053 $55,545 ======= =======
NOTE D - INCOME TAXES: Deferred income tax assets and liabilities consist of the following (in thousands):
December 31 1994 1993 ----------- ---- ---- Insurance $ 4,548 $ 5,648 Employee benefits 2,752 1,293 Bad debts, sales reserves and other 5,158 4,222 -------- -------- Current deferred income tax assets 12,458 11,163 -------- -------- Depreciation and amortization 63,235 53,492 Alternative Minimum Tax credit (22,777) (19,647) Aircraft engine overhaul accrual (8,446) (7,169) Capitalized interest 5,126 4,784 Insurance (6,059) (5,135) Pension and other (677) (2,106) -------- -------- Noncurrent net deferred income tax liabilities 30,402 24,219 -------- -------- Net deferred income tax liabilities $ 17,944 $ 13,056 ======== ========
Income taxes consist of the following(in thousands):
Year Ended December 31 1994 1993 1992 ---------------------- ---- ---- ---- Current: Federal $17,384 $19,671 $12,602 State 3,080 2,500 1,103 Foreign 88 54 155 ------- ------- ------- 20,552 22,225 13,860 Deferred: Alternative Minimum Tax credit (3,129) (4,846) (10,246) Aircraft engine overhaul accrual (1,276) (2,760) (3,070) Employee benefits (1,001) (407) (797) Depreciation and amortization 9,743 8,165 8,196 Federal tax increase -- 738 -- Other 551 623 (4,013) ------- ------- ------- 4,888 1,513 (9,930) ------- ------- ------- $25,440 $23,738 $ 3,930 ======= ======= =======
The following table summarizes the major differences between the actual income tax provision and taxes computed at the Federal statutory rate (in thousands):
Year Ended December 31 1994 1993 1992 ---------------------- ---- ---- ---- Taxes computed at statutory rate of 35%, (34% for 1992) $22,496 $20,659 $3,090 State and foreign income taxes, net of Federal benefit 2,073 1,703 777 Tax effect of nondeductible expense 874 502 461 Effect of Federal tax increase -- 738 -- Tax credits and other (3) 136 (398) ------- ------- ------ $25,440 $23,738 $3,930 ======= ======= ======
NOTE E - LONG-TERM AND SUBORDINATED DEBT: Long-term debt and subordinated debt consist of the following:
December 31 1994 1993 ----------- ---- ---- (In thousands) LONG-TERM DEBT: Revolving credit notes payable to banks, effective rate of 6.2% on December 31, 1994 $135,000 $105,000 Money market lines of credit, effective rate of 6.7% on December 31, 1994 17,000 -- Notes payable, variable rate, paid April 1994, secured by flight equipment -- 34,000 Senior notes, 8.875%, due December 2002 100,000 100,000 Refunding revenue bonds, effective rate of 5.7% on December 31, 1994, due June 2011 13,200 13,200 Note payable to vendor due January 1995 12,300 12,468 Capital lease obligations and other 4,370 6,862 -------- -------- 281,870 271,530 Less current portion 2,448 2,280 -------- -------- $279,422 $269,250 ======== ======== SUBORDINATED DEBT: Convertible subordinated debentures, 6.75%, due August 2001 $115,000 $115,000 Senior subordinated notes, 10%, sinking fund payments of $3,570,000 due June 1995, and $3,580,000 due June 1996 7,150 10,720 -------- -------- 122,150 125,720 Less current portion 3,570 3,570 -------- -------- $118,580 $122,150 ======== ========
The Company has a revolving bank credit agreement providing for a total commitment of $240,000,000. Interest rates for borrowings are generally determined by maturities selected and prevailing market conditions. The revolving credit agreement is for an initial period expiring May 31, 1997, with options to extend the maturity to May 31, 1999. The Company was in compliance with covenants of the current and previous revolving credit agreements during 1994, 1993 and 1992, including net worth restrictions which limit the payment of dividends ($99,986,000 of retained earnings was not restricted at December 31, 1994). The Company has available $30,000,000 of financing under uncommitted money market lines of credit with several banks. These facilities bear interest at rates that vary with the banks' cost of funds and are typically less than the prevailing bank prime rate. These credit lines are used in conjunction with the revolving credit agreement to facilitate settlement and accommodate short-term borrowing fluctuations. Note payable to vendor consists of a non-interest bearing financing provided through a purchase agreement with a vendor for the acquisition of an aircraft. The Company has classified the borrowings outstanding under the money market lines of credit and note payable to vendor as long-term. These amounts will be refinanced under the revolving credit agreement. The Company's tax-exempt airport facilities refunding bonds carry no sinking fund requirements and bear interest at weekly adjustable rates. The average interest rate on these borrowings was 2.88% during 1994. Payment of principal and interest is secured by an irrevocable bank letter of credit that is collateralized by a mortgage on certain airport properties which have a net carrying value of $38,156,000 at December 31, 1994. The Company's 6.75% convertible subordinated debentures require no sinking fund payments prior to maturity. The debentures may be redeemed at the option of the Company at a redemption price of 104.9% declining ratably on an annual basis each August to par at maturity. The debentures are convertible into the Company's common stock at a conversion price of $35.50 per share, subject to adjustment in certain events. The Company has reserved 3,239,437 shares of common stock for such conversion. The Company has an aircraft financing facility with Mitsui & Co., Ltd., providing for a total commitment of $100,000,000. The commitment expires in March 1995 and no portion of the commitment had been utilized at December 31, 1994. The Company intends to let the commitment expire without being used. At December 31, 1994, the present value of future minimum lease payments for capital lease obligations was $2,496,000 net of $234,000 representing interest payable. Property and equipment includes capital leases of $8,034,000 and related accumulated depreciation and amortization includes $5,981,000. The scheduled annual principal payments on long-term senior and subordinated debt and capital lease obligations for the next five years, assuming no extension of the revolving credit notes, is $6,018,000, $5,502,000 and $164,300,000 for 1995 through 1997, respectively. No payments are scheduled for 1998 and 1999. The following table summarizes the fair value information regarding the Company's principal long-term debt arrangements (in thousands):
December 31 1994 1993 ----------- ---- ---- Carrying Fair Carrying Fair Amount Value Amount Value ------ ----- ------ ----- Senior notes $100,000 $ 99,940 $100,000 $107,690 Convertible subordinated debentures 115,000 105,225 115,000 128,168
Fair value for the senior notes and convertible subordinated debentures is based on quoted market prices for the same issues. The carrying value of the Company's remaining long-term financial debt instruments approximate fair value primarily because of the frequency of the repricing of the instrument. NOTE F - COMMITMENTS AND CONTINGENCIES: OPERATING LEASES The Company is obligated under various long-term operating lease agreements for certain equipment and for a substantial portion of its facilities. These leases expire at various dates through 2016. Rental expense for 1994, 1993 and 1992 was $89,975,000, $81,138,000 and $76,414,000, respectively. Rental commitments under long-term operating leases at December 31, 1994 total $430,660,000 and are payable as follows (in thousands):
Facilities Equipment ---------- --------- 1995 $ 44,981 $ 24,831 1996 43,563 25,289 1997 39,644 21,387 1998 36,956 17,340 1999 33,038 15,171 2000 and beyond 123,264 5,196
PURCHASE COMMITMENTS Under various agreements the Company is committed to purchase 20 aircraft consisting of 7 DC-8, and 13 DC-9 aircraft to be acquired at various dates through 1997. The Company also has commitments to purchase 37 Stage III hush kits for its DC-9 aircraft at various dates through 1998. At December 31, 1994, deposits of $3,500,000 had been made toward these purchases. Additional deposits and payments for these acquisitions will approximate $44,100,000, $60,900,000, $23,500,000 and $7,200,000, for 1995 through 1998, respectively. CONTINGENCIES In the normal course of business, the Company has various legal claims and other contingent matters outstanding. Management believes that any ultimate liability arising from these actions would not have a material adverse effect on the Company's financial condition or results of operations as of and for the year ended December 31, 1994. NOTE G - POSTRETIREMENT PLANS: PENSIONS The Company has trusteed retirement plans for all employees not covered by multi-employer plans to which the Company contributes under terms of various collective bargaining agreements. The Company retirement plans consist of defined contribution profit sharing and capital accumulation plans and defined benefit minimum monthly retirement income plans. The capital accumulation plans are funded by both voluntary employee salary deferrals of up to 16% of annual compensation and by employer matching contributions of 35% of employee salary deferrals up to 6% of annual compensation. The Company matching contribution expense was $3,635,000, $2,926,000 and $2,242,000 for 1994, 1993 and 1992, respectively. Contributions to the profit sharing plans are made at the discretion of the Board of Directors. However, a basic formula has been followed for contributions of 7% of earnings before taxes up to a specific profit level plus 14% of earnings in excess of that level. The Company's profit sharing expense was $4,838,000, $5,672,000 and $684,000 for 1994, 1993 and 1992, respectively. The profit sharing plans hold 450,831 of the Company's common stock at December 31, 1994, representing 2.1% of outstanding shares. The profit sharing plans are expected to be the primary retirement benefit. However, the minimum monthly retirement income plans guarantee a minimum level of monthly pension income for those not accruing sufficient balances in the profit sharing plans. The Company's funding of the plans is equal to the amounts required by ERISA. Net minimum monthly plan pension expense included the following components (in thousands):
Year Ended December 31 1994 1993 1992 ---------------------- ---- ---- ---- Service cost benefits earned during the period $4,185 $2,934 $2,203 Interest cost on projected benefit obligation 2,149 1,525 1,395 Actual return on plan assets 69 (865) (559) Net amortization and deferral (240) 595 464 ------ ------ ------ Net pension expense $6,163 $4,189 $3,503 ====== ====== ======
The following is a summary of the minimum monthly plan funded status (in thousands):
December 31 1994 1993 ----------- ---- ---- Projected benefit obligation for service rendered to date $31,126 $27,612 Plan assets at fair market value, primarily marketable securities 16,396 8,930 ------- ------- Projected benefit obligation in excess of plan assets 14,730 18,682 Unrecognized prior service cost (1,009) (1,788) Unrecognized net losses from past experience different from that assumed (3,259) (4,520) Unrecognized net transition obligation (177) (207) ------- ------- Pension liability included in consolidated balance sheets $10,285 $12,167 ======= ======= Actuarial present value of accumulated benefit obligation, including vested benefits of $13,287,000 and $9,421,000, respectively $15,623 $ 9,838 ======= =======
Assumptions used in determining pension obligations were as follows:
1994 1993 1992 ---- ---- ---- Discount rate 8% 7% 8% Rate of compensation increase 5% 6% 6% Long-term rate of return on assets 8% 8% 8%
The Company also has a non-qualified, unfunded supplemental retirement plan for certain key executives which provides defined retirement benefits that supplement those provided by the Company's other retirement plans. Pension expense for this plan was $1,042,000, $550,000 and $638,000 in 1994, 1993 and 1992, respectively. The plan's projected benefit obligation and accumulated benefit obligation were $2,373,000 and $367,000 as of December 31, 1994, of which $2,212,000 was accrued in Other Liabilities on the Consolidated Balance Sheet. The Company additionally contributes to several multi-employer defined benefit pension plans covering substantially all employees under collective bargaining agreements. Total expense of these plans was $19,056,000, $16,676,000 and $14,358,000 for 1994, 1993 and 1992, respectively. HEALTH CARE BENEFITS The Company provides postretirement health care benefits for employees and qualifying dependents who have met certain eligibility requirements and who are not covered by other plans to which the Company contributes, such as collectively bargained plans. The Company's plan is currently unfunded. The accumulated postretirement benefit obligation was $3,919,000 and $3,654,000 at December 31, 1994 and 1993, respectively, of which $4,057,000 and $3,192,000 has been accrued in Other Liabilities on the Consolidated Balance Sheet. Postretirement benefit expense was $865,000 and $649,000 for 1994 and 1993, respectively. The assumed health care cost trend rate used in measuring benefit costs was 12% for 1994, decreasing each successive year to a 6% annual growth rate in 1999, and thereafter. A one-percentage-point increase or decrease in the assumed health care cost trend rate for each year would not have a material effect on the accumulated postretirement benefit obligation or cost as of or for the year ended December 31, 1994. The assumed discount rate used in determining the accumulated postretirement benefit obligation was 8% and 7% at December 31, 1994 and 1993, respectively. The Company also contributes to multi-employer defined benefit welfare plans covering substantially all employees under collective bargaining agreements. Portions of the these contributions, which cannot be disaggregated, relate to postretirement benefits for plan participants. Total expense of these plans was $22,955,000 and $19,741,000 for 1994 and 1993. NOTE H - PREFERRED STOCK: The Company has outstanding 100,000 shares of 6.9% redeemable cumulative convertible preferred stock, at par value of $50 per share at December 31, 1994. The shares are convertible into the Company's common stock at a conversion price of $23.393 per share, subject to certain antidilutive provisions. The Company has reserved 213,739 shares of common stock for such conversion. Shares which are not converted to common stock may be redeemed, in whole or in part, at the option of the Company, at a redemption price of 103.45% and declining ratably on an annual basis to par on December 1999. In December 1994, at the request of the holders, the Company redeemed 20,000 shares at a par value of $1,000,000. The holders have the option of requiring the Company to redeem, at par value, 6,000 shares annually and 40,000 shares cumulatively through December 2004. In December 2004, the Company is required to redeem all outstanding shares at par value plus accrued dividends. In March 1994, the holders exercised the right to convert 680,000 preferred shares with a par value of $34,000,000, into the Company's common stock. The transaction resulted in the issuance of 1,453,427 common shares. The nonvoting preferred shares are senior to common shares both as to accumulated dividends and liquidation preferences. Dividends are payable quarterly. Fair value of the preferred shares is estimated at $4,400,000 and $60,000,000 as of December 31, 1994 and 1993, respectively. Estimated fair value is computed assuming the stock was converted, at the option of the holder, to the Company's common shares utilizing the December 31, 1994 and 1993 closing market prices of the Company's common stock of $20.50 and $35.125 per share. NOTE I - SHAREHOLDERS' EQUITY: Changes in shareholders' equity consist of the following (in thousands):
Additional Common Paid-In Retained Treasury Stock Capital Earnings Stock ------ ------- -------- ------- BALANCE at JANUARY 1, 1992 $19,341 $145,264 $123,719 $ (980) Net earnings available to common shareholders 2,397 Common stock dividends paid (5,743) Exercise of stock options 174 1,467 -------- -------- -------- -------- BALANCE at DECEMBER 31, 1992 19,515 146,731 120,373 (980) Net earnings available to common shareholders 36,357 Common stock dividends paid (5,780) Exercise of stock options 174 2,425 9 -------- -------- -------- ------- BALANCE at DECEMBER 31, 1993 19,689 149,156 150,950 (971) Net earnings available to common shareholders 37,941 Conversion of redeemable preferred stock 1,453 32,513 Common stock dividends paid (6,177) Exercise of stock options 144 2,700 -------- -------- -------- ------- BALANCE at DECEMBER 31, 1994 $21,286 $184,369 $182,714 $ (971) ======== ======== ======== =======
NOTE J - STOCK OPTIONS: Under shareholder approved option plans, officers, directors and key employees may be granted options to purchase the Company's common stock at the fair market value on the date of grant. Options granted become exercisable over a period of six months to three years following the date of grant and expire ten years from the date of grant. A summary of the Company's employee stock option plans is as follows:
Shares Option Price Granted Per Share ------- --------- Outstanding at December 31, 1991 1,154,041 $ 4.56-$22.13 Granted 162,295 $28.50 Exercised (214,890) $ 4.56-$18.50 Canceled (16,090) $12.75-$28.50 --------- ------------- Outstanding at December 31, 1992 1,085,356 $ 4.56-$28.50 Granted 202,955 $22.50 Exercised (189,725) $ 6.63-$28.50 Canceled (28,325) $ 6.63-$28.50 --------- ------------- Outstanding at December 31, 1993 1,070,261 $ 6.63-$28.50 Granted 134,820 $36.13-$37.75 Exercised (150,000) $ 6.63-$28.50 Canceled (13,260) $18.50-$37.75 --------- ------------- Outstanding at December 31, 1994 1,041,821 $ 6.63-$37.75 ========= ============= Exercisable at December 31, 1994 655,853 $ 6.63-$36.13 ========= ============= Available for grants in future periods 1,992,503 =========
NOTE K - SEGMENT INFORMATION: Substantially all of the Company's revenues are derived from domestic and international transportation and/or forwarding of air freight and express shipments. Domestic is defined as any shipment with an origin and destination within the U.S., Puerto Rico or Canada. A substantial portion of international revenue originates in the U.S. ($234,607,000 in 1994, $181,491,000 in 1993, and $179,135,000 in 1992). The determination of operating income of domestic and international operations requires that certain costs incurred in the U.S. be allocated to international operations.
Year Ended December 31 1994 1993 1992 ---------------------- ---- ---- ---- (In thousands) Revenues: Domestic $1,660,003 $1,484,787 $1,259,792 International 310,756 235,194 224,524 ---------- ---------- ---------- $1,970,759 $1,719,981 $1,484,316 ========== ========== ========== Earnings from Operations: Domestic $ 83,787 $ 76,441 $ 21,156 International 5,151 6,679 6,710 Interest, net (24,663) (24,093) (18,779) ---------- ---------- ---------- Earnings Before Income Taxes $ 64,275 $ 59,027 $ 9,087 ========== ========== ========== Identifiable Assets: Domestic $1,027,115 $ 965,721 $ 928,592 International 51,391 37,145 36,147 ---------- ---------- ---------- $1,078,506 $1,002,866 $ 964,739 ========== ========== ==========
NOTE L - QUARTERLY RESULTS (Unaudited): The following is a summary of unaudited quarterly results of operations (in thousands except per share data):
1st 2nd 3rd 4th 1994 Quarter Quarter Quarter Quarter ---- ------- ------- ------- ------- Revenues $466,552 $484,542 $489,744 $529,921 Earnings from Operations 17,786 27,725 19,698 23,729 Net Earnings Available to Common Shareholders 6,416 12,960 8,040 10,525 Net Earnings per Common Share Primary $.32 $.61 $.38 $.50 Fully Diluted .32 .57 .38 .48 1993 ---- Revenues $398,766 $419,881 $434,223 $467,111 Earnings from Operations 11,936 16,294 26,142 28,748 Net Earnings Before Changes in Accounting 3,626 6,282 11,066 14,315 Net Earnings Available to Common Shareholders 6,773 5,594 10,371 13,619 Net Earnings per Common Share Before Changes in Accounting Primary $.15 $.29 $.53 $.69 Fully Diluted .15 .29 .52 .66
INDEPENDENT AUDITORS' REPORT Board of Directors Airborne Freight Corporation Seattle, Washington We have audited the accompanying consolidated balance sheets of Airborne Freight Corporation and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of net earnings and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note A to the financial statements, as of January 1, 1993 the Company adopted Statement of Financial Accounting Standards NO. 109, "Accounting for Income Taxes" and No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." DELOITTE & TOUCHE LLP February 10, 1995 Seattle, Washington EX-23 8 EXHIBIT 23-CONSENT LETTER INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE Board of Directors Airborne Freight Corporation Seattle, Washington We consent to the incorporation by reference in Registration Statement Nos. 33-3713, 2-67161, 33-39720, and 33-51651 on Form S-8 of our report dated February 10, 1995, on the consolidated financial statements of Airborne Freight Corporation and subsidiaries appearing on page 16 of the Company's 1994 Annual Report to Shareholders and incorporated by reference in this Annual Report on Form 10-K for the year ended December 31, 1994. We also consent to the incorporation of the following report on schedule in such Registration Statements. In the course of our audit of the consolidated financial statements referred to in our report, we also audited the schedule listed in the accompanying Index at Item 14(a)2. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. In our opinion, such schedule presents fairly, in all material respects, when read in conjunction with the related consolidated financial statements, the information therein set forth. DELOITTE & TOUCHE LLP Seattle, Washington March 27, 1995 EX-27 9 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1994 JAN-1-1994 DEC-31-1994 10,318 0 229,288 7,500 28,071 293,336 1,380,466 614,120 1,078,506 226,465 398,002 21,286 5,000 0 366,112 1,078,506 0 1,970,759 0 1,881,821 0 0 24,663 64,275 25,440 0 0 0 0 38,835 1.81 1.74