<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act
of 1934 (Fee Required) for the fiscal year ended December 31, 1994 or
[ ] Transition report pursuant to section 13 of 15(d) of the Securities Exchange
Act of 1934 (No Fee Required) for the transition period from______to______.
Commission file number: 1-8306
AIR EXPRESS INTERNATIONAL CORPORATION
(Exact name of Registrant as Specified in its Charter)
Delaware 36-2074327
(State or Other of Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
120 Tokeneke Road, Darien, Connecticut 06820
(203) 655-7900
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of Each Exchange on Which Registered
6% Convertible Subordinated Debentures American Stock Exchange
Due 2003
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Common Stock, $.01 par value
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. [_]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 27, 1995 was $357,868,761.
The number of shares of common stock outstanding as of March 27, 1995 was
17,481,694.
DOCUMENTS INCORPORATED BY REFERENCE:
To the extent specified, part III of this Form 10-K incorporates information by
reference to the Registrant's definitive proxy statement for the 1994 Annual
Meeting of Shareholders.
<PAGE>
AIR EXPRESS INTERNATIONAL CORPORATION
1994 Form 10-K Annual Report
Table of Contents
Part I
Page
Item 1. Business................................................... 1
Item 2. Properties................................................. 6
Item 3. Legal Proceedings.......................................... 6
Item 4. Submission of Matters to a Vote of Security Holders and
Executive Officers of the Registrant...................... 7
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 9
Item 6. Selected Financial Data.................................... 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 11
Item 8. Financial Statements and Supplementary Data................ 17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures...................... 17
Part III
Item 10. Directors and Executive Officers of the Registrant......... 17
Item 11. Executive Compensation..................................... 17
Item 12. Security Ownership of Certain Beneficial Owners
and Management............................................ 17
Item 13. Certain Relationships and Related Transactions............. 17
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K............................................... 18
<PAGE>
Part I
Item 1. Business
(a) General Development of Business
Air Express International Corporation (the "Company" or the "Registrant") is the
oldest and largest international airfreight forwarder based in the United
States. Through its global network of Company-operated facilities and agents, it
consolidates, documents and arranges for transportation of its customers'
shipments of heavy cargo throughout the world. During 1994, the Company handled
more than 1,630,000 individual airfreight shipments, with an average weight of
483 pounds, to nearly 2,860 cities in more than 182 countries. The Company
generated revenues of approximately $997 million in 1994, of which approximately
63% were attributable to shipments from locations outside the United States.
Although the Company's headquarters are located in the United States, its
network is global, serving over 552 cities, including 230 cities in the United
States, 122 cities in Europe and 200 cities in Asia, the South Pacific, the
Middle East, Africa and Latin America. As of December 31, 1994, this network
consisted of 188 Company-operated facilities, including 50 in the United States
and 138 abroad, supplemented at 364 additional locations by agents, a
substantial number of whom serve the Company on an exclusive basis. The network
is managed by experienced professionals, most of whom are nationals of the
countries in which they serve. Approximately 80% of the Company's 28 regional
and country managers have been employed by the Company for more than ten years.
Since 1985, when its current management assumed control, the Company has focused
on the international transportation of heavy cargo and devoted its resources to
expanding and enhancing its global network and the information systems necessary
to more effectively service its customers' transportation logistics needs. In
December 1987, the Company acquired the Pandair Group, a European-based
international airfreight forwarder with facilities in 14 countries. The Pandair
acquisition significantly strengthened the Company's presence in key foreign
markets, particularly the United Kingdom and Holland. In July 1993, the Company
acquired the Votainer group of companies ("Votainer"), a Netherlands-based
Non-Vessel Operating Common Carrier ("NVOCC") which provides ocean freight
consolidation services, with a network of 34 company-operated facilities in 12
countries. During 1994, the Company acquired all of the outstanding common stock
of Unimodal Australia Pty. Ltd., an ocean freight forwarder located in
Australia, Banner International Ltd., an airfreight forwarder located in New
Zealand and Pace Express Pty. Ltd., an airfreight forwarder located in
Australia, and 75% of the outstanding common stock of Universal Airfreight AS,
the Company's exclusive airfreight agent in Norway. The acquisitions were
consistent with the Company's strategy of strengthening its market position,
further enhancing its operating efficiencies and providing its customers a
broader range of transportation-related services.
(b) Financial Information About Industry Segments
The Company currently is engaged in the business of freight forwarding,
primarily via air. See Management's Discussion and Analysis of Financial
Condition and Results of Operations (Item 7), and the Company's Consolidated
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Financial Statements, including the Notes thereto, for data related to the
Company's revenues, operating profit or loss and identifiable assets.
(c) Narrative Description of Business
Airfreight Forwarding and Related Services
An airfreight forwarder procures shipments from a large number of customers,
consolidates shipments bound for a particular destination from a common place of
origin, determines the routing over which the consolidated shipment will move,
selects an airline serving that route on the basis of departure time, available
cargo capacity and rate, and books the consolidated shipment for transportation
on that airline. In addition, the forwarder prepares all required shipping
documents, delivers the shipment to the transporting airline and, in many cases,
arranges for clearance of the various components of the shipment through customs
at the final destination. If so requested by its customers, the forwarder also
will arrange for delivery of the individual components of the consolidated
shipment from the arrival airport to their intended consignees.
As a result of its consolidation of customers' shipments, the forwarder is
usually able to obtain lower rates from airlines than its customers could obtain
directly from those airlines. In addition, in certain tradelanes and with
certain airlines, where the forwarder generates a continuing high volume of
freight, that forwarder is often able to obtain even lower rates. Accordingly,
the forwarder is generally able to offer its customers a lower rate than would
otherwise be available to the customer from the airline. However, the rate
charged by the forwarder to its customers is greater than that obtained by the
forwarder from the airline, and the difference represents the forwarder's gross
profit.
Ocean Freight Services
The Company's revenue from international ocean freight forwarding is derived
from service both as an indirect ocean carrier (NVOCC) and as an authorized
agent for shippers and importers. The Company contracts with ocean shipping
lines to obtain transportation for a fixed number of containers between various
points during a specified time period at an agreed rate. The Company solicits
freight from its customers to fill the containers, charging rates lower than the
rates offered directly to customers by shipping lines for similar type
shipments.
Operations
The Company has a global network of Company-operated facilities and supporting
agents serving over 552 cities, including 230 in the United States, 122 in
Europe, 73 in Asia and the South Pacific and 127 in the Middle East, Africa and
Latin America. As a consequence, a substantial portion of its revenues and
profits is derived from the shipment of goods from, or entirely between,
locations outside the United States. For the year ended December 31, 1994,
approximately 63% of its revenues were attributable to shipment activity from
locations outside the United States.
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The Company neither owns nor operates any aircraft or ships. It arranges for
transportation of its customers' shipments via commercial airlines, air cargo
carriers and steamship lines. On limited occasions, when the size of a
particular shipment so warrants, the Company will charter a cargo aircraft. The
Company acts solely as a forwarder in respect of approximately 91% of the
shipments it handles. When acting as an airfreight forwarder, the Company
becomes legally responsible to its customer for the safe delivery of the
customer's cargo to its ultimate destination, subject to a limitation on
liability of $20.00 per kilo ($9.07 per pound). When acting as an ocean freight
consolidator, the Company assumes cargo liability to its customers for lost or
damaged shipments. This liability is typically limited by contract to a maximum
of $500 per package or customary freight unit. However, because a freight
forwarder's relationship to an airline or steamship line (the "Carrier") is that
of a shipper to a carrier, the Carrier generally assumes the same responsibility
to the Company as the Company assumes to its customers. On occasion, the Company
acts in the capacity of a cargo agent for a designated Carrier. In this
capacity, the Company contracts for freight carriage, for which it receives a
commission from the Carrier, but it does not have legal responsibility for the
safe delivery of the shipment. During 1994, shipments for which the Company
acted as a cargo agent accounted for less than 2% of its revenues.
The Company also offers door-to-door express delivery among 20 European
countries through its Pandalink service, which operates from a central hub in
Brussels. Pandalink operates predominately as an overnight service to major
European cities, with alternative delivery services to outlying areas within 48
to 72 hours.
Ancillary Services
In connection with its services as a freight forwarder, the Company provides
ancillary services, such as door-to-door pick-up and delivery of freight,
warehousing and distribution, cargo assembly, protective packing, consolidation
and customs clearance. In addition, the Company provides other
transportation-related services, including acting as a domestic surface freight
forwarder, a customs broker and a warehouse operator.
The LOGIS System
The Company introduced its proprietary LOGIS logistics information system for
airfreight operations in 1986 and since that time has allocated substantial
resources to expand the system's geographic reach and enhance its capabilities.
Mainframe computers located at the Company's headquarters in Darien,
Connecticut, and a facility near London, England, are linked to, and accessible
from, terminals at 252 of its Company-operated facilities and with its agents in
substantially all major markets, permitting real-time inputting, processing and
retrieval of shipment, pricing, scheduling, space availability, booking and
tracking data, as well as automated preparation of shipping, customs and billing
documents.
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As of December 31, 1994, the LOGIS system permitted electronic interfacing with
more than 400 of the Company's major customers in 32 countries, 40 international
airlines and customs authorities in the United States, the United Kingdom,
Australia, New Zealand, Belgium and France. Electronic data interchange ("EDI")
connections to the airlines permit instant retrieval by the Company, and by
those of its customers interfacing with the LOGIS system, of information on the
status of shipments in the custody of the airlines. With its EDI capabilities,
LOGIS can receive a customer's shipping instructions and information with
respect to the cargo being shipped and convert these data automatically into
shipping documents. Where customs authorities in the country of destination are
linked to the system, it can prepare customs declarations, calculate the
appropriate customs duties and provide for automatic customs invoicing and
clearance.
The LOGIS system has enabled the Company to improve the productivity of its
personnel and the quality of its customer service and has enabled many of its
customers to manage their freight transportation logistics needs more
effectively. The system has resulted in substantial reductions in paperwork and
expedited the entry, processing, retrieval and dissemination of critical
information. The Company is continually striving to improve and enhance the
LOGIS system, including pursuing efforts to extend its capabilities to support
its ocean freight functions. Management believes that the LOGIS system has
positioned the Company to better capitalize on the continuing trend toward
outsourcing by large corporations of logistics management functions and reliance
by many of these corporations on single-source providers.
Regulation
The Company's activities as an International Air Transport Association ("IATA")
cargo agent are subject to the rules and regulations of that organization to the
extent the Company acts as an agent for an airline which is an IATA member.
Certain IATA rules and regulations are subject to the Department of
Transportation approval. In addition, several states in which the Company
operates regulate intrastate trucking. In these states, the Company has obtained
the necessary operating authority. The Company is licensed as an ocean freight
forwarder by the United States Federal Maritime Commission ("FMC") which
prescribes qualifications for acting as a shipping agent, including surety
bonding requirements. The FMC does not regulate the Company's fees in any
material respect. The Company's ocean freight NVOCC business is subject to
regulation, as an indirect ocean cargo carrier, under the FMC tariff filing and
surety bond requirements, which require the Company to abide by tariffs filed
with the FMC specifying the rates which may be charged to customers.
Customers and Marketing
The Company's principal customers are large manufacturers and distributors of
computers and electronics equipment, pharmaceuticals, heavy industrial and
construction equipment, motion pictures and printed materials. During 1994, the
Company shipped goods for more than 60,000 customer accounts, none of which
accounted for more than 5% of the Company's revenues. The Company markets its
services worldwide through an international sales organization consisting of
approximately 510 full-time salespersons (as of December 31, 1994), supported by
the sales efforts of senior management and the Company's country, regional,
branch and district managers. In markets where the Company does not operate its
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own facilities, its direct sales efforts are supplemented by those of the
Company's agents. The Company's marketing is directed primarily to large,
multinational corporations with substantial requirements for the international
transportation of heavy cargo.
Competition
Competition within the freight forwarding industry is intense. Although the
industry is highly fragmented, with a large number of participants, the Company
competes primarily with a relatively small number of international firms with
worldwide networks and the capability to provide the breadth of services offered
by the Company. The Company also encounters competition from regional and local
freight forwarders, integrated transportation companies that operate their own
aircraft, cargo sales agents and brokers, surface freight forwarders and
carriers, certain airlines, and associations of shippers organized for the
purpose of consolidating their members' shipments to obtain lower freight rates
from carriers.
Currency and Other Risk Factors
The Company operates in many countries throughout the world, resulting in
significant funds to be collected in various local currencies. There are risks
from fluctuations in the value of these currencies, devaluations, or other
actions and events which may result in the Company carrying assets in foreign
currencies that are not easily convertible, or convertible at all, into US
dollars. These foreign currency assets are included in the Company's net
investment in its foreign operations. From time to time, and when feasible and
cost effective, the Company seeks to minimize the effect of fluctuations in the
values of foreign currencies on its financial position through the purchase of
foreign currency forward exchange contracts. See Note 13 to the Consolidated
Financial Statements.
In addition, the Company's business requires good working relationships with the
airlines, which are its largest trade creditor as a group. To the extent that
the airlines decrease cargo space available to forwarders, cut back cargo or
passenger flights or enter the forwarding business themselves, the airfreight
forwarding business could be adversely affected. The Company considers its
working relationship with the airlines to be good.
Employees
As of December 31, 1994, the Company employed 4,783 people, of whom 3,391 were
based at locations outside the United States, including 1,483 in the United
Kingdom and Europe, 835 in Asia and 1,073 in the South Pacific, South America,
Africa and Canada. Of the Company's 1,392 U.S.-based employees at that date,
approximately 568 were covered by agreements with various locals of the
International Brotherhood of Teamsters, the United Auto Workers and the
International Association of Machinists and Aerospace Workers. In addition,
approximately 21.0% of the Company's foreign-based personnel are represented by
various types of collective bargaining organizations. The Company considers its
relationship with its employees to be satisfactory.
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d) Financial Information About Foreign and Domestic Operations
See the Company's Consolidated Financial Statements including the Notes thereto,
for data related to the Company's revenues, operating profit and loss and
identifiable assets.
Item 2. Properties
The Company owns its worldwide headquarters building (approximately 38,000
square feet in area) in Darien, Connecticut, a warehouse and office facility
(approximately 78,000 square feet in area) in Sydney, Australia, which is
subject to a $3.8 million mortgage, and a warehouse and distribution facility
(approximately 59,000 square feet in area) in Venlo, Holland, which is subject
to a $1.8 million mortgage. On January 24, 1994 the Company began construction
of its new 160,000 square foot warehouse and distribution center in Singapore,
which is scheduled to be completed in the second quarter of 1995.
The Company leases facilities at or near airports at 50 locations in the United
States, and 132 offices in 27 other countries. Most facilities have office,
loading dock and warehouse space. The principal facilities are set forth in the
following table:
<TABLE>
<CAPTION>
Approximate Sq. Feet of Lease
Location Floor Space Expiration
<S> <C> <C>
Amsterdam, The Netherlands 68,000 sq. ft. of warehouse and office 1998
Chicago, Illinois 116,000 sq. ft. of warehouse and office 1998
Frankfurt, Germany 37,000 sq. ft. of warehouse and office 1996
London, England 93,000 sq. ft. of warehouse and office 2002
Los Angeles, California 93,000 sq. ft. of warehouse and office 2001
Miami, Florida 87,000 sq. ft. of warehouse and office 1995
New York, New York 80,000 sq. ft. of warehouse and office 1996
Singapore 26,605 sq. ft. of warehouse and office 1995
San Francisco, California 52,000 sq. ft. of warehouse and office 2000
</TABLE>
The Company believes that its facilities are adequate for its needs now and in
the foreseeable future.
Item 3. Legal Proceedings
None.
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Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
Following is a listing of the executive officers of the Company.
The information listed below with respect to age and business experience for the
past five years has been furnished to the Company as of March 24, 1995 by each
executive officer of the Company. There are no family relationships between any
Director or officer of the Company.
Positions with the Company and
Business Experience for the
Name Age Past Five Years
Hendrik J. Hartong, Jr. 55 Chairman of the Company since 1985
(Chief Executive Officer from 1985 to
1989); General Partner since 1985 of
Brynwood Management and since 1988
of Brynwood Management II L.P.,
entities that serve, respectively, as
managing general partners of
Brynwood Partners Limited
Partnership and Brynwood Partners II
L.P.,private investment partnerships;
Director of Hurco Companies, Inc.
Guenter Rohrmann 55 President and Chief Executive Officer
of the Company since 1989 (President
and Chief Operating Officer from 1985
to 1989).
Dennis M. Dolan 37 Vice President and Chief Financial
Officer of the Company since 1989;
U.S. Controller of the Company from
1985 to 1989.
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Daniel J. McCauley 60 Vice President, General Counsel and
Secretary of the Company since 1991;
Executive Vice President, Secretary
and General Counsel, for more than
five years prior to 1990, and
consultant from 1990 to 1991, Emery
Airfreight Corporation, Wilton, CT, a
transportation company.
Paul J. Gallagher 49 Vice President - Treasurer of the
Company since 1993; Vice President-
International Controller from 1989 to
1993.
Walter L. McMaster 62 Vice President and Controller of the
Company for more than the past five
years.
Robert J. O'Connell 58 Vice President-General Manager-North
America of the Company since 1989;
Vice President-North America Sales of
the Company from 1985 to 1989.
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Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Since April 5, 1994, the Company's Common Stock has been traded in The Nasdaq
Stock Market under the symbol: AEIC. Prior thereto the Common Stock was traded
on the American Stock Exchange.
The table below indicates the quarterly high and low prices of the Common Stock
for the years ended December 31, 1994 and 1993. All prices have been restated to
reflect the three-for-two stock split that became effective on December 21,
1994. See Note 2 to the Consolidated Financial Statements.
<TABLE>
<CAPTION>
Quarter
1st 2nd 3rd 4th
Year Ended December 31, 1994:
<S> <C> <C> <C> <C>
High ....................... $ 15 3/4 $ 16 5/8 $ 18 7/8 $ 20
Low ........................ 12 1/4 13 7/8 14 5/8 15 1/8
Year Ended December 31, 1993:
High ....................... $ 19 5/8 $ 15 1/8 $ 14 7/8 $ 14 5/8
Low ........................ 12 12 1/8 12 5/8 12 1/8
</TABLE>
At March 27, 1995, there were 969 holders of record of the Company's Common
Stock. The closing price of the Common Stock on that date was $22.75 per share.
On November 17, 1994, the Company's Board of Directors declared a three-for-two
split of the Common Stock in the form of a 50% stock dividend. The additional
shares were distributed on December 21, 1994 to shareholders of record on
December 5, 1994. See Note 2 to the Consolidated Financial Statements.
During 1994, the Company declared four quarterly cash dividends on the Common
Stock.
Shares
Date Declared Record Date Payment Date Per Share Outstanding
Apr 06, 1994 Apr 14, 1994 Apr 29, 1994 $.033 17,385,566
Jun 23, 1994 Jul 08, 1994 Jul 29, 1994 .040 17,414,597
Sep 09, 1994 Oct 07, 1994 Oct 28, 1994 .040 17,426,143
Nov 17, 1994 Jan 06, 1995 Jan 27, 1995 .040 17,449,568
The Company's agreements with its principal lenders limit the amounts available
for payment of cash dividends and share repurchases. See Note 7 to the
Consolidated Financial Statements.
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Item 6. Selected Financial Data
<TABLE>
<CAPTION>
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
(In thousands, except per share data)
Years Ended December 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Revenues ...................... $997,379 $725,719 $672,287 $601,939 $567,807
Net income .................... $ 22,619 $ 17,340 $ 18,633 $ 13,936 $ 11,178
Net income per common share: (1)
Primary .................... $ 1.28 $ .99 $ 1.08 $ .81 $ .67
Fully diluted .............. $ 1.21 $ .97 $ 1.08 $ .75 $ .65
Cash dividends declared per
common share ................ $ .155 $ .125 $ .085 $ .050 --
Total assets .................. $380,934 $296,218 $209,736 $208,079 $192,635
Long-term debt ................ $ 83,992 $ 78,464 $ 7,120 $ 24,928 $ 28,441
Stockholders' investment ...... $ 99,350 $ 78,119 $ 65,377 $ 65,270 $ 52,425
<FN>
(1) Income per share amounts for all periods presented give effect to a
three-for-two stock split in the nature of a 50.0% stock dividend in each of
August 1991, July 1992 and December 1994 and are based upon the weighted average
number of shares of Common Stock outstanding during each period.
</FN>
</TABLE>
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Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments at December 31, 1994 totaled
$44.2 million compared to $65.2 million at December 31, 1993. The decrease was
largely attributable to the Company's adoption of Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities". As a result, the Company reclassified approximately $20.0
million of excess cash invested in U.S. Government securities maturing at
various dates in 1996, from short-term investments to marketable securities. See
Note 1 to the Consolidated Financial Statements.
As of December 31, 1994, the Company's working capital decreased approximately
$21.9 million to $58.9 million from $80.8 million at December 31, 1993. The
decrease is mainly attributable to the reclassification of excess cash from
short-term investments to marketable securities.
During 1994 the Company acquired, for an aggregate cash cost of $15.6 million,
all the common stock of Unimodal Australia Pty. Ltd., an ocean freight forwarder
located in Australia, Banner International Ltd., an airfreight forwarder located
in New Zealand, Pace Express Pty. Ltd., an airfreight forwarder located in
Australia, and 75% of the outstanding common stock of Universal Airfreight AS,
the Company's exclusive airfreight agent in Norway. Capital expenditures in
1994, which totaled $12.1 million, were for the acquisition of data processing
equipment, facility improvements and the construction of a warehouse and
distribution facility in Singapore. Capital expenditures for 1993 totaled $4.9
million. Depreciation and amortization expense (including goodwill amortization)
totaled $7.6 million in 1994 and $6.3 million in 1993. Capital expenditures for
1995 are anticipated to be approximately $15.0 million.
The Company maintains a revolving credit facility which permits borrowing
amounts up to a maximum of $20.0 million at any time until maturity in
September, 1995. Interest on outstanding borrowings is payable at a variable
rate equal, at the Company's election, to (i) the prime commercial rate in
effect from time-to-time or (ii) LIBOR in effect from time-to-time plus .75%. At
December 31, 1994, the Company was utilizing approximately $.5 million under
this facility for letters of credit issued in connection with the Company's
insurance programs. Additionally, the Company's foreign subsidiaries maintain
various overdraft facilities with foreign banks which total approximately $13.5
million of which $1.4 million was utilized at December 31, 1994.
In order to manage the risk associated with foreign currency exposures, the
Company purchases foreign currency forward exchange contracts. The Company does
not speculate in the financial markets and therefore does not hold these
contracts for trading purposes. These contracts are used principally to hedge
foreign currency exposures associated with net investments in certain foreign
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operations and certain intercompany transactions. The hedging minimizes the
impact of foreign exchange rate movements on the Company's financial position.
See Note 13 to the Consolidated Financial Statements.
Management believes that the Company's available cash and sources of credit,
together with expected future cash generated from operations, will be sufficient
to satisfy its anticipated needs for working capital, capital expenditures and
future business acquisitions.
<TABLE>
<CAPTION>
Results of Operations
1994 Compared to 1993
The consolidated results of airfreight and ocean freight activities for 1994
compared to 1993 are as follows:
1994 1993
Ocean Ocean
Airfreight Freight Total Airfreight Freight Total
($ millions)
<S> <C> <C> <C> <C> <C> <C>
Revenues .............. $885.0 $112.3 $997.3 $674.3 $ 51.4 $725.7
Expenses:
Transportation ....... 623.2 84.1 707.3 457.2 39.2 496.4
Terminal ............. 134.4 17.3 151.7 112.8 7.0 119.8
Selling, general
and administrative .. 89.3 10.8 100.1 72.0 6.1 78.1
Operating income (loss) $ 38.1 $ .1 $ 38.2 $ 32.3 $ (.9) $ 31.4
</TABLE>
Consolidated revenues in 1994 were $271.6 million (37.4%) greater than in 1993.
Airfreight revenues in 1994 increased $210.7 million (31.2%) over 1993.
Airfreight shipping volumes were very strong in 1994, as the number of
airfreight shipments increased 9.8% and the total weight of cargo shipped
increased 30.1% over 1993. The higher shipping volumes were attributable to
increased economic activity in countries where the Company operates,
particularly European countries which emerged from recession in 1994, as well as
the inclusion of revenues of acquired companies. Ocean freight revenues in 1994
were $60.9 million greater than in 1993; however, since the Company initiated
its ocean freight activities with the acquisition of Votainer in July of 1993,
only six months of ocean freight revenues were recorded in 1993.
Gross profit (revenue less transportation expense) increased $60.7 million
(26.5%) to $290.0 million in 1994 compared with 1993. Gross margin (gross profit
as a percentage of revenues) decreased 2.5% to 29.0% in 1994 compared to 31.5%
in 1993. The decrease in gross margin was largely due to the impact of greater
weight per shipment which resulted in lower selling prices per unit of weight,
and competitive pricing pressures. Internal operating expenses (terminal and
selling, general and administrative) increased $53.9 million (27.2%) over 1993
due largely to the inclusion of expenses of companies acquired in 1994 and
additional expenses incurred in connection with the substantially greater
shipping volumes. Also, included in 1994 internal operating expense was a
one - time pre - tax charge of $1.0 million for the Company's estimated
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proportionate withdrawal liability with respect to a multi-employer pension plan
covering certain of its employees (See Note 11 to the Consolidated Financial
Statements). As a percentage of revenues, internal operating expenses declined
to 25.2% of revenues in 1994 from 27.2% of revenues in 1993. Consolidated
operating income in 1994 was $6.8 million (21.7%) greater than in 1993 after
giving effect to the one-time charge discussed above. However, excluding the
one-time charge, operating profit increased 24.8%.
Net interest expense decreased $.5 million (13.4%) to $3.2 million in 1994
compared with 1993. The decrease was attributable to higher interest earned on
invested funds.
The Company's effective tax rate for 1994 was 38.5% compared to 38.0% for 1993.
The Company's effective tax rates fluctuate due to changes in tax rates and
regulations in the countries in which it operates and the level of pre-tax
profit earned in each of those countries.
United States Operations
United States revenues increased $58.8 million (19.1%) to $367.3 million in 1994
compared to 1993, reflecting a $1.9 million (5.4%) increase in domestic
airfreight revenues, a $44.2 million (17.4%) increase in international
airfreight revenues, and a $12.7 million (64.4%) increase in ocean freight
revenues. The increases in domestic and international airfreight revenues were
attributable to a 5.9% increase in the number of shipments (12.9% increase in
domestic shipments and 3.2% increase in international shipments) and a 18.1%
increase in the total weight of cargo shipped (14.3% increase in domestic cargo
and 19.5% increase in international cargo). The increase in ocean freight
revenues was attributable to the inclusion of twelve months of ocean freight
revenues in 1994 compared to only six months in 1993. However, ocean freight
revenues for the last six months of 1994 were $3.8 million (19.3%) below those
for the comparable period in 1993. The decrease in ocean freight revenues was
attributable to significant reduction in shipments received from some of the
Company's competitors in freight forwarding who made up a substantial portion of
the Votainer, USA customer base prior to the Company's acquisition of Votainer
in July 1993. The Company has initiated sales programs in the United States to
market the Company's ocean freight capabilities directly to its existing
airfreight customers and other non-freight forwarding companies, thereby
reducing Votainer's reliance on business received from other freight forwarders.
The increased domestic and international airfreight revenues resulted in an
increase in airfreight operating income of $1.3 million (12.4%), which was
partially offset by an increased ocean freight operating loss of $.8 million,
resulting in a net increase of $.5 million (5.7%) in United States operating
income to $10.1 million in 1994. The airfreight operating income was net of the
previously-discussed $1.0 million one-time charge. Excluding this charge, United
States operating income increased $1.5 million (16.1%) in 1994 compared to 1993.
-13-
<PAGE>
Foreign Operations
Foreign revenues increased $212.8 million (51.0%) to $630.0 million in 1994
compared with 1993, reflecting a $164.6 million (42.7%) increase in airfreight
revenues and a $48.2 million (152.0%) increase in ocean freight revenues. The
increase in airfreight revenues was attributable to a 13.2% increase in the
number of shipments and a 41.7% increase in the total weight of cargo shipped.
Additionally, when converting foreign currency revenues into U.S. dollars for
financial reporting purposes, the effect of a weaker U.S. dollar accounted for
approximately $10.4 million of the increase in airfreight revenues. The increase
in ocean freight revenues was primarily attributable to the inclusion of twelve
months of ocean freight revenues in 1994 as compared to only six months in 1993.
The number of airfreight shipments and total weight of cargo shipped in the
Company's Europe segment increased 8.5% and 27.6%, respectively. In the
Company's Asia and Others segment, the number of airfreight shipments and total
weight of cargo shipped increased 23.6% and 65.6%, respectively.
Operating income from foreign operations increased $6.3 million (29.0%) to $28.1
million for 1994 largely due to increased airfreight shipping volumes. Operating
income in the Europe segment increased $3.7 million, while operating income in
the Asia and Others segment increased $2.6 million.
1993 Compared to 1992
Included in the consolidated results of operations for 1993 are the ocean
freight activities of Votainer for the last six months of 1993. Votainer was
acquired by the Company on July 1, 1993. The consolidated results of airfreight
and ocean freight activities for 1993 compared to 1992 (airfreight only) are as
follows:
<TABLE>
<CAPTION>
1993
Ocean 1992
Airfreight Freight Total Total
($ millions)
<S> <C> <C> <C> <C>
Revenues ............... $ 674.3 $ 51.4 $725.7 $672.3
Expenses:
Transportation ........ 457.2 39.2 496.4 450.0
Terminal .............. 112.8 7.0 119.8 113.2
Selling, general
and administrative ... 72.0 6.1 78.1 77.8
Operating income(loss).. $ 32.3 $ (.9) $ 31.4 $31.3
</TABLE>
Consolidated revenues increased $53.4 million (7.9%) to $725.7 million in 1993
compared with 1992. The increase in revenues was attributable to the inclusion
of $51.4 million of revenues from the ocean freight operations for the last six
months of 1993. Revenues from airfreight operations for 1993 were $674.3
million, largely unchanged from 1992 revenues. Airfreight revenues for 1993 were
impacted by the positive effects of a 4.4% increase in the number of shipments
-14-
<PAGE>
and a 11.2% increase in the total weight of cargo shipped, which was offset by
the negative effects of lower customer selling rates and the effect of weaker
foreign currencies when converting foreign currency revenues into United States
dollars for financial reporting purposes.
Gross profit (revenue less transportation expense) increased $7.0 million (3.1%)
to $229.3 million in 1993 compared with 1992. The increase in gross profit is
attributable to the inclusion of $12.2 million of gross profit from the ocean
freight operations for the last six months of 1993, which was partially offset
by a $5.2 million (2.3%) decrease in airfreight gross profit to $217.1 million.
The decrease in airfreight gross profit was due to lower gross profit in
European airfreight operations and competitive pricing pressures, which reduced
gross margin (gross profit as a percentage of revenues) from 33.1% in 1992 to
32.1% in 1993.
The Company's internal operating expenses (terminal and selling, general and
administrative) increased $6.9 million (3.6%) to $197.9 million in 1993 compared
to 1992. The increase was due entirely to the inclusion of $13.0 million of
internal operating expenses from the ocean freight operations for the last six
months of 1993, which more than offset a $6.1 million (2.3%) reduction in
internal operating expenses attributable to the Company's airfreight operations.
The latter category of expenses benefitted from the effects of weaker foreign
currencies when converting foreign currency expenses into United States dollars
for financial reporting purposes as well as lower employee incentive
compensation expense. Operating income for 1993 was $31.4 million, unchanged
from 1992 operating income, with the $.9 million loss from ocean freight
operations being offset by a $1.0 million improvement in airfreight operating
income.
Net interest expense increased $1.5 million (45%) to $3.7 million in 1993
compared with 1992. The increase was attributable to the interest cost
associated with the Company's 6% Convertible Subordinated Debentures issued in
January 1993.
The effective tax rate for 1993 was 38.0% compared to 37.6% for 1992. The
Company's effective tax rates fluctuate due to changes in tax rates and
regulations in the countries in which it operates and the level of pre-tax
profit earned in each of those countries.
United States Operations
United States revenues increased $37.8 million (14%) to $308.5 million in 1993
compared to 1992. The increase in United States revenues was comprised of a $6.2
million (21.6%) increase in domestic airfreight revenues, an $11.9 million
(4.9%) increase in international airfreight revenues, and the inclusion of $19.7
million of ocean freight revenues for the last six months of 1993. The increase
in United States airfreight revenues was attributable to a 5.5% increase in the
number of shipments (18.1% increase in domestic shipments and 1.0% increase in
international shipments) and a 14.0% increase in the total weight of cargo
shipped (30.0% increase in domestic cargo and 9.0% increase in international
cargo).
-15-
<PAGE>
The increased domestic and international airfreight shipping volumes resulted in
an increase in airfreight income of $1.8 million (19.4%), which was partially
offset by a $1.2 million ocean freight operating loss, resulting in an overall
increase in United States operating income of $.6 million (6.0%) to $9.6 million
in 1993.
Foreign Operations
Foreign revenues increased $15.6 million (3.9%) to $417.3 million in 1993
compared with 1992. The increase in revenues was attributable to the inclusion
of $31.7 million of ocean freight revenues for the last six months of 1993,
which was offset by a $16.1 million (4.0%) decrease in foreign airfreight
revenues. The decrease in foreign airfreight revenues was attributable to the
Company's European operations, where weaker foreign currencies, particularly the
British Pound, accounted for a reduction of $20.7 million (8.6%) in European
airfreight revenues when European revenues were converted to United States
dollars for financial reporting purposes. The number of shipments and total
weight of cargo shipped by the Company's European airfreight operations
increased 3.2% and 15.4%, respectively. In the Company's Asia and Others
segment, revenues increased $19.4 million (12.1%) to $180.0 million in 1993
compared to 1992. This increase was attributable to the inclusion of $14.8
million of ocean freight revenues for the last six months of 1993 and a $4.6
million increase in airfreight revenues. The number of airfreight shipments
handled by the Company's Asia and Others operation increased 3.0%, while the
total weight of cargo shipped by these operations was unchanged from 1992.
Operating income from foreign operations decreased $.4 million (2.1%) to $21.8
million for 1993 compared with 1992. The decline in foreign operating income was
due entirely to a $1.7 million decrease in European airfreight operating income,
which was partially offset by a $.9 million increase in Asia and Others
airfreight operating income and $.4 million operating income in foreign ocean
freight operations.
In Europe, five of the Company's seven wholly-owned European subsidiaries
reported lower operating results in 1993 when compared with 1992, including an
operating loss incurred by the Company's German subsidiary. These declines were
directly attributable to the continuing economic recession in most European
countries, particularly Germany, and resulting competitive pricing pressures.
The operating results in the Company's United Kingdom and Holland airfreight
operations, which comprised 53.7% of 1993 European revenues and 89.8% of 1993
European operating profit, were largely unchanged from 1992.
-16-
<PAGE>
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this Item 8 are
included in the Company's Consolidated Financial Statements and set forth at the
pages indicated in Item 14(a) of this Annual Report.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
The Company's definitive Proxy Statement to be issued in conjunction with the
1995 Annual Meeting of Shareholders is incorporated herein by reference.
Item 11. Executive Compensation
The Company's definitive Proxy Statement to be issued in conjunction with the
1995 Annual Meeting of Shareholders is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The Company's definitive Proxy Statement to be issued in conjunction with the
1995 Annual Meeting of Shareholders is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The Company's definitive Proxy Statement to be issued in conjunction with the
1995 Annual Meeting of Shareholders is incorporated herein by reference.
-17-
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
(a) The following documents are filed as a part of this report on Form 10-K.
(1) Financial Statements: Page
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of December 31, 1994 and 1993. F-2
Consolidated Statements of Operations for the years ended
December 31, 1994, 1993 and 1992. F-3
Consolidated Statements of Stockholders' Investment for the
years ended December 31, 1994, 1993 and 1992. F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992. F-5
Notes to Consolidated Financial Statements F-6
(2) Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts. F-21
All other financial statement schedules are omitted because they are not
applicable, not required, or because the required information is included in the
Company's Consolidated Financial Statements or Notes thereto.
Separate financial statements of the Company have been omitted since less than
25% of the net assets of its subsidiaries and equity investments are formally
restricted from being loaned, advanced or distributed to the holding company.
-18-
<PAGE>
(3) Exhibits required to be filed by Item 601 of Regulation S-K.
3a. Certificate of Incorporation, as amended through July 24, 1993.
b. The Bylaws, as amended through March 22, 1992. (Incorporated herein
reference to Exhibit 3 to the Company's Current Report on Form 8-K,
filed March 22, 1992)
4a. Indenture, dated as of January 15, 1993, between the Company and The
Bank of New York, as Trustee. (Incorporated herein by reference to
Exhibit 1 to the Company's Current Report on Form 8-K, dated
February 2, 1993)
b. Specimen Convertible Subordinated Debenture. (Incorporated by reference
to Exhibit 4(b) to the Company's Registration Statement on Form S-3,
dated December 22, 1992)
c. Specimen certificate representing the Common Stock. (Incorporated
herein by reference to Exhibit 4(c) to the Company's Registration
Statement on Form S-3, dated December 22, 1992)
10. Material Contracts:
a. Employment Agreement, effective January 1, 1986, between the Company
and Hendrik J. Hartong, Jr. (Incorporated herein by reference to
Exhibit 10 (iii) to the Company's Current Report on Form 8-K, filed
March 22, 1992)
b. Employment Agreement, effective January 1, 1986, between the Company
and Guenter Rohrmann. (Incorporated herein by reference to Exhibit 10
(iv) to the Company's Current Report on Form 8-K filed March 22, 1991)
c. Non-Qualified Stock Option Agreement, dated January 14, 1988, between
the Company and Mr. Hartong. (Incorporated herein by reference to
Exhibit 10 (vi) to the Company's Current Report on Form 8-K filed
March 2, 1990)
d. Non-Qualified Stock Option Agreement, dated June 20, 1984, between the
Company and Mr. Rohrmann. (Incorporated herein by reference to Exhibit
10(ii) to the Company's Report on Form 8-K filed March 22, 1991)
e. Non-Qualified Stock Option Agreement, dated January 19, 1988, between
the Company and Mr. Rohrmann. (Incorporated herein by reference to
Exhibit 10(vii) the Company's Report on Form 8-K filed March 2, 1990)
f. Air Express International Corporation Employees' 1981 Incentive Stock
Option Plan. (Incorporated herein by reference to Exhibit 10(i) to the
Company's Report on Form 10-K, dated April 12, 1985)
-19-
<PAGE>
g. Air Express International Corporation 1984 International Employees'
Stock Option Plan. (Incorporated herein by reference to the Company's
Proxy Statement, dated July 18, 1984, furnished to stockholders in
connection with the Annual Meeting of Stockholders held on August 9,
1984)
h. Loan Agreement, dated as of December 31, 1981, between the Company and
the Connecticut Development Authority, as amended. (Incorporated herein
by reference herein to Exhibit 10(i) to the Company's Report on Form
8-K filed March 22, 1991)
i. Lease Agreement, entered into in June 1986, between the Company and The
Port Authority of New York and New Jersey for Hangar 5, John F. Kennedy
Airport.(Incorporated herein by reference to Exhibit A to the Company's
Report Form 8-K filed March 19, 1987)
j. Air Express International Corporation Employees' 1991 Incentive Stock
Option Plan, approved by the Shareholders of the Company on June 20,
1991. (Incorporated herein by reference to the Company's Proxy
Statement, dated May 17, 1991, furnished to stockholders in connection
with the Annual Meeting of Stockholders held on June 20, 1991).
k. Credit Agreement, dated as of September 17, 1992, among the Company,
the Guarantors named therein and Pittsburgh National Bank.(Incorporated
herein by reference to Exhibit 4(e) of the Company's Registration
Statement on Form S-3, dated December 22, 1992)
21. List of Subsidiaries of the Registrant. Exhibit 21.
23. Consent of Independent Public Accountants. Exhibit 23.
All other exhibits are omitted because they are not applicable, not required or
because the required information is included in the Consolidated Financial
Statements or Notes thereto.
(b) Reports on Form 8-K: None.
-20-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AIR EXPRESS INTERNATIONAL CORPORATION
Registrant
By: /s/ Dennis M. Dolan
Dennis M. Dolan
Vice President and
Chief Financial Officer
(Principal Financial Officer)
By: /s/ Walter L. McMaster
Walter L. McMaster
Vice President and Controller
(Principal Accounting Officer)
Date: March 30, 1995
-21-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ John M. Fowler Director March 30, 1995
(John M. Fowler)
/s/ Hendrik J. Hartong, Jr. Chairman of the Board
(Hendrik J. Hartong, Jr.) of Directors March 30, 1995
/s/ Donald J. Keller Director March 30, 1995
(Donald J. Keller)
/s/ Andrew L. Lewis IV Director March 30, 1995
(Andrew L. Lewis IV)
/s/ Richard T. Niner Director March 30, 1995
(Richard T. Niner)
/s/ Guenter Rohrmann President, Chief Executive
(Guenter Rohrmann) Officer, and Director
(Principal Executive Officer) March 30, 1995
-22-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Air Express International Corporation:
We have audited the accompanying consolidated balance sheets of Air Express
International Corporation (a Delaware corporation) and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements of
operations, stockholders' investment and cash flows for each of the three years
in the period ended December 31, 1994. These consolidated financial statements
and the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedule 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Air Express International
Corporation and subsidiaries as of December 31, 1994 and 1993, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1994 in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
March 23, 1995
F-1
<PAGE>
<TABLE>
<CAPTION>
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(Dollars in thousands)
1994 1993
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents ........................ $ 44,168 $ 55,063
Short-term investments ........................... -- 10,109
Accounts receivable (less allowance for
doubtful accounts of $3,290 and $2,846) ......... 206,012 150,969
Other current assets ............................. 2,938 3,224
Total current assets ......................... 253,118 219,365
Investment in unconsolidated affiliates ........... 9,370 7,595
Marketable securities ............................. 19,961 --
Property, plant and equipment (less accumulated
depreciation and amortization of $37,057
and $34,096) .................................... 39,599 27,323
Deposits and other assets ......................... 6,957 4,604
Goodwill (less accumulated amortization
of $6,403 and $4,674) ........................... 51,929 37,331
Total assets ................................. $ 380,934 $ 296,218
Liabilities and stockholders' investment
Current liabilities:
Current portion of long-term debt ................ $ 2,029 $ 1,509
Bank overdrafts payable .......................... 1,399 594
Transportation payables .......................... 101,657 69,640
Accounts payable ................................. 34,087 27,967
Accrued liabilities .............................. 43,988 28,250
Income taxes payable ............................. 10,991 10,587
Total current liabilities .................... 194,151 138,547
Long-term debt ................................... 83,992 78,464
Other liabilities ................................ 3,441 1,088
Total liabilities ............................ 281,584 218,099
Stockholders' investment:
Capital stock -
Preferred (authorized 1,000,000 shares,
none outstanding) .............................. -- --
Common, $.01 par value (authorized 40,000,000
shares, issued 19,620,526 and 19,474,620 shares) 196 195
Capital surplus .................................. 41,998 41,193
Cumulative translation adjustments ............... (11,442) (12,282)
Retained earnings ................................ 108,600 88,657
139,352 117,763
Less: 2,184,208 and 2,167,773 shares of treasury
stock, at cost ............................... (40,002) (39,644)
Total stockholders' investment ............... 99,350 78,119
Total liabilities and stockholders' investment $ 380,934 $ 296,218
See Notes to Consolidated Financial Statements.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in thousands, except per share data)
1994 1993 1992
<S> <C> <C> <C>
Revenues ............................... $ 997,379 $ 725,719 $ 672,287
Operating expenses:
Transportation ........................ 707,338 496,459 450,004
Terminal .............................. 151,769 119,814 113,203
Selling, general and administrative ... 100,027 78,075 77,801
959,134 694,348 641,008
Operating income ...................... 38,245 31,371 31,279
Other income (expense)
Interest expense, net ................. (3,201) (3,698) (2,179)
Other, net ........................... 1,735 308 783
(1,466) (3,390) (1,396)
Income before provision for income taxes 36,779 27,981 29,883
Provision for income taxes ............. 14,160 10,641 11,250
Net income ............................. $ 22,619 $ 17,340 $ 18,633
Net income per common share:
Primary .............................. $ 1.28 $ .99 $ 1.08
Fully diluted ........................ $ 1.21 $ .97 $ 1.08
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
Cumulative
Common Stock Capital Translation Retained Treasury
Shares Amount Surplus Adjustments Earnings Stock Total
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991 ............ 15,807,685 $ 158 $ 17,127 $ (8,335) $ 56,320 $ -- $ 65,270
Exercise of common stock options .... 513,877 6 3,681 -- -- (704) 2,983
Additional issue .................... 3,068,111 31 19,969 -- -- -- 20,000
Translation of foreign currency
financial statements ............. -- -- -- (2,424) -- -- (2,424)
Purchase of treasury shares ......... -- -- -- -- -- (37,585) (37,585)
Dividends declared ($.085 per share) -- -- -- -- (1,500) -- (1,500)
Net income for the year ............. -- -- -- -- 18,633 -- 18,633
Balance, December 31, 1992 ............ 19,389,673 195 40,777 (10,759) 73,453 (38,289) 65,377
Exercise of common stock options .... 81,627 -- 378 -- -- -- 378
Purchase of treasury stock .......... -- -- -- -- -- (1,355) (1,355)
Translation of foreign currency
financial statements ............. -- -- -- (1,523) -- -- (1,523)
Issuance of common stock for previous
year's stock bonus plan ........... 3,320 -- 38 -- -- -- 38
Dividends declared ($.125 per share) -- -- -- -- (2,136) -- (2,136)
Net income for the year ............. -- -- -- -- 17,340 -- 17,340
Balance, December 31, 1993 ............ 19,474,620 195 41,193 (12,282) 88,657 (39,644) 78,119
Exercise of common stock options .... 145,906 1 805 -- -- -- 806
Purchase of treasury stock .......... -- -- -- -- -- (358) (358)
Translation of foreign currency
financial statements ............. -- -- -- 840 -- -- 840
Dividends declared ($.155 per share) -- -- -- -- (2,676) -- (2,676)
Net income for the year ............. -- -- -- -- 22,619 -- 22,619
Balance, December 31, 1994 ............ 19,620,526 $ 196 $ 41,998 $ (11,442) $ 108,600 $ (40,002) $ 99,350
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in thousands)
1994 1993 1992
Cash flows from operating activities:
<S> <C> <C> <C>
Net income ........................................ $ 22,619 $ 17,340 $ 18,633
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .................. 6,224 5,333 6,256
Amortization of goodwill ....................... 1,414 973 798
Deferred income taxes .......................... (1,577) (18) (611)
Undistributed (earnings) losses of affiliates .. (1,039) (140) 196
(Gains) losses on sales of assets, net ......... 41 (116) (46)
Other, net ..................................... 407 (1,592) 808
Changes in assets and liabilities:
Decrease (increase) in accounts receivable, net (38,851) (6,439) (8,649)
Decrease (increase) in other current assets .... 850 1,415 (1,588)
Increase (decrease) in transportation payables . 25,291 2,005 6,947
Increase (decrease) in accounts payable ........ (1,729) (7,788) 3,806
Increase (decrease) in accrued liabilities ..... 10,957 719 1,131
Increase (decrease) in income taxes payable .... (415) 873 (280)
Increase (decrease) in other liabilities ....... 1,567 -- --
Total adjustments ............................ 3,140 (4,775) 8,768
Net cash provided by operating activities ...... 25,759 12,565 27,401
Cash flows from investing activities:
Business acquisitions, net of cash acquired ....... (14,992) (12,825) --
Sale (purchases) of short-term investments ........ 10,109 (10,109) --
Gains (losses) from hedging activities ............ (1,110) 668 142
Proceeds from sales of assets ..................... 588 353 1,053
Capital expenditures .............................. (12,076) (4,924) (15,189)
Investment in affiliates .......................... -- (63) (424)
Purchase of marketable securities ................. (19,961) -- --
Net cash used in investing activities .......... (37,442) (26,900) (14,418)
Cash flows from financing activities:
Net borrowings (repayments) under revolving
credit agreement ................................. -- (5,000) 5,000
Net borrowings (repayments) in bank overdrafts
payable .......................................... (1,068) (1,256) 1,888
Additions to long-term debt ....................... 4,575 72,414 6,856
Payment of long-term debt ......................... (1,776) (7,467) (23,420)
Issuance of common stock .......................... 806 416 23,687
Payment of cash dividends ......................... (2,555) (1,963) (1,395)
Purchase of treasury stock ........................ (358) (1,355) (38,289)
Net cash (used) provided in financing activities (376) 55,789 (25,673)
Effect of foreign currency exchange rates on cash ... 1,164 (504) (685)
Net increase (decrease) in cash and cash equivalents (10,895) 40,950 (13,772)
Cash and cash equivalents at beginning of year ...... 55,063 14,113 27,885
Cash and cash equivalents at end of year ............ $ 44,168 $ 55,063 $ 14,113
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands,
except per share data)
(1) Summary of Significant Accounting Policies:
Principles of Consolidation -
The consolidated financial statements include the accounts of Air Express
International Corporation and its majority-owned subsidiaries (the "Company"),
all of which conduct operations in a single line of business, freight
forwarding. All significant intercompany accounts and transactions have been
eliminated. Investments in 20.0% to 50.0% owned affiliates are accounted for
using the equity method.
With the exception of entities operating in highly inflationary economies,
assets and liabilities of foreign subsidiaries are translated at rates of
exchange in effect at the close of the period. Revenues and expenses are
translated at average exchange rates in effect during the year. The resulting
translation adjustments are recorded in a separate component of stockholders'
investment, "Cumulative Translation Adjustments." Translation gains or losses of
the Company's entities which operate in highly inflationary economies are
included as a component of other income.
Method of Revenue Recognition -
International revenues for the transportation of international freight are
recognized at the time the freight has been exported from the country of origin
via commercial carrier. The corresponding transportation costs charged by the
commercial carriers are recognized concurrently with the freight revenues.
Destination delivery costs are recognized as incurred and subsequently billed to
consignees, except door-to-door cargo movements which are accrued concurrently
with freight revenue recognition.
Domestic revenues for the transportation of freight within the U.S. are
recognized on the day freight departs the Company's terminal of origin.
Transportation costs and destination delivery costs are recognized concurrently
with freight revenues.
Property and Equipment -
The Company provides depreciation and amortization on the straight-line method
over the estimated useful lives of the related assets. Maintenance and repairs
are charged to expense as incurred.
Estimated Useful Life
Buildings and improvements 25-40 years
Furniture and fixtures 3-10 years
Automotive equipment 3-5 years
Terminal and data processing equipment 3-5 years
Leasehold improvements Life of lease or estimated
useful life, if shorter
F-6
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
Goodwill -
Goodwill, which represents the excess of purchase price over the fair value of
net assets acquired, is being amortized on a straight-line basis over a period
of 40 years.
Cash and Cash Equivalents -
Cash and cash equivalents include cash on hand, demand deposits, and short-term
investments with original maturities of three months or less.
Short-Term Investments -
Short-term investments consist of highly liquid U.S. Government instruments with
original maturities in excess of three months and are carried at cost, which
approximates market.
Marketable Securities -
The Company has adopted Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities". As a result,
the Company has investments of approximately $20,000,000 in U.S. Government
securities, maturing at various dates in 1996, classified as "Held-to-Maturity"
and carried at amortized cost. The total amortized cost, gross unrealized
holding losses and aggregate fair values are (in millions) $19.9, $.4, and
$19.5, respectively. There was no impact from the adoption of this standard
either on shareholder's investment or net income.
Reclassification and Restatement -
Certain prior year amounts have been reclassified to conform with the current
year presentation. Additionally, all share and per share information has been
restated to reflect a three-for-two split of the Company's common stock (See
Note 2).
(2) Common Stock Split:
On November 17, 1994, the Company's Board of Directors declared a three-for-two
split of the Company's common stock, payable in the form of a stock dividend.
The additional shares were distributed on December 21, 1994 to shareholders of
record on December 5, 1994. Accordingly, all share and per share information
throughout the consolidated financial statements have been restated to reflect
this split.
F-7
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(3) Earnings Per Share:
Primary earnings per share are computed by dividing net income by the weighted
average common and common equivalent shares outstanding during the year. In 1994
and 1993, fully diluted earnings per share have been calculated assuming the
conversion of the convertible subordinated debentures outstanding in those
years, and the elimination of the related interest expense, net after tax, which
approximates $2.9 million and $2.7 million, respectively.
The primary and fully diluted earnings per share and number of common and common
equivalent shares were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
Earnings per share:
<S> <C> <C> <C>
Primary ............................... $ 1.28 $ .99 $ 1.08
Fully diluted ......................... $ 1.21 $ .97 $ 1.08
Common and common share
equivalents (in thousands)
Weighted average shares outstanding ... 17,403 17,330 17,019
Common share equivalents ............. 227 208 251
Primary .............................. 17,630 17,538 17,270
Shares issuable with respect to
subordinated convertible securities
and additional common share
equivalents ......................... 3,406 3,018 --
Fully diluted ......................... 21,036 20,556 17,270
</TABLE>
(4) Business Acquisitions:
During 1994 the Company acquired, for a total of approximately $15.6 million in
cash, a 100.0% ownership in Unimodal Australia Pty. Ltd., an ocean freight
forwarder located in Australia, Banner International Ltd., an airfreight
forwarder located in New Zealand, Pace Express Pty. Ltd., an airfreight
forwarder located in Australia, and a 75.0% ownership in Universal Airfreight
AS, the Company's exclusive airfreight agent in Norway. The acquisitions have
been accounted for as purchases; the cost of which has been allocated on the
basis of the estimated fair market value of the assets acquired and the
liabilities assumed. This allocation resulted in goodwill of approximately $12.4
million. The results of operations for these companies are included in the
consolidated statement of income from the acquisition dates forward.
F-8
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(5) Regional Operations:
Revenues, operating income and identifiable assets are set forth below by
geographic area. Revenues for international shipments are recorded in the
country of origin. Certain prior year amounts have been reclassified to conform
with the current year presentation. Domestic U.S.A. revenues represent
airfreight forwarding only. All revenues for 1992 represent airfreight
forwarding only.
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Revenues:
U.S.A.
Domestic ........................ $ 36,946 $ 35,051 $ 28,835
International Exports ........... 330,303 273,414 241,781
Total U.S.A. .................... 367,249 308,465 270,616
Europe ............................ 324,025 237,242 241,035
Asia and others ................... 306,105 180,012 160,636
Total foreign ................... 630,130 417,254 401,671
Total revenues .................... $ 997,379 $ 725,719 $ 672,287
Operating income:
U.S.A. ............................ $ 10,133 $ 9,588 $ 9,040
Europe............................. 15,735 12,014 13,573
Asia and others ................... 12,377 9,769 8,666
Total foreign .................... 28,112 21,783 22,239
Total operating income ............ $ 38,245 $ 31,371 $ 31,279
</TABLE>
<TABLE>
<CAPTION>
December 31,
1994 1993 1992
<S> <C> <C> <C>
Identifiable assets:
U.S.A. ............................ $ 125,862 $ 115,348 $ 60,254
Europe ............................ 121,946 96,706 84,193
Asia and others ................... 123,756 76,569 57,858
Total foreign ................... 245,702 173,275 142,051
Investment in unconsolidated
affiliates ...................... 9,370 7,595 7,431
Total assets ...................... $ 380,934 $ 296,218 $ 209,736
</TABLE>
At December 31, 1994, net assets of foreign subsidiaries including intercompany
accounts deemed to be long-term investments amounted to approximately $69.9
million.
F-9
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(6) Property, Plant and Equipment:
A summary of property, plant and equipment, at cost, is as follows:
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Buildings and improvements ...................... $20,659 $13,543
Leasehold improvements .......................... 7,443 6,144
Automotive equipment ............................ 4,925 4,328
Furniture and fixtures .......................... 11,636 10,121
Terminal and data processing equipment .......... 26,120 22,252
70,783 56,388
Less accumulated depreciation and amortization .. 37,057 34,096
33,726 22,292
Land ............................................ 5,873 5,031
Property, plant and equipment, net .............. $39,599 $27,323
</TABLE>
(7) Revolving Credit Loan Agreement and Other Short-term
Borrowing Facilities:
The Company maintains a Revolving Credit Loan Agreement having an expiration
date of September 1995 (the "Agreement") with a U.S. bank which provides for
maximum borrowings of $20.0 million. The interest charged on borrowings is the
bank's prime rate, or London Interbank Offered Rate (LIBOR) plus .75%. The
commitment fee for the unused portion of the credit facility is .25% per annum.
The Agreement contains restrictions and limitations relating to working capital,
dividends, investments, capital expenditures, and other borrowings. The
Agreement also contains affirmative covenants relating to adjusted tangible net
worth, ratio of non-subordinated debt to adjusted tangible net worth, and a
minimum required current ratio of 1:1. The Company is in compliance with all the
conditions of the Agreement. Payments of cash dividends and the purchase of
treasury stock are limited to 50.0% of consolidated net income earned after
September 30, 1992. Accordingly, $15.2 million was available at December 31,
1994 for payments of cash dividends, and purchase of treasury stock. At December
31, 1994, the Company was utilizing approximately $.5 million under this
facility for letters of credit issued in connection with the Company's insurance
programs.
In addition to the above, a number of the Company's foreign subsidiaries have
unsecured short- term overdraft facilities with foreign banks which total $13.5
million at December 31, 1994. The largest single facility, extended to the
Company's German subsidiary, was $4.2 million. Borrowings under these facilities
generally bear interest at .5% to 2.0% over the foreign banks' equivalent of the
prime rate. At December 31, 1994, outstanding borrowings from these facilities
were $1.4 million.
F-10
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(8) Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Term loan Singapore - principal paid
semi-annually through 2000, bearing
interest at 5.55% .............................. $ 4,924 $ 239
Convertible Subordinated Debentures
due 2003, bearing interest at 6%, net of
unamortized discount of $1,891 and $2,121 ...... 72,859 72,629
Mortgage Australia - principal of $126 paid
quarterly through 2002, bearing interest
at 10.2 % payable monthly ...................... 3,781 3,752
Mortgage Holland - principal of $55 paid
quarterly through 2002, bearing interest
at 8.51% ....................................... 1,751 1,761
Other long-term debt ............................. 2,706 1,592
86,021 79,973
Less current portion ............................. (2,029) (1,509)
$83,992 $78,464
</TABLE>
The maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending Principal
December 31, Amount
<S> <C>
1995 $ 2,029
1996 2,624
1997 2,420
1998 2,299
1999 and beyond 76,649
$ 86,021
</TABLE>
The Singapore term loan is secured by a warehouse and distribution facility
being constructed and due for completion in the second quarter of 1995 at an
estimated cost of $6.5 million.
The Australia mortgage is secured by land and building with a net book value of
$6.9 million at December 31, 1994, used in the operations of the Company's
Australia subsidiary.
The Holland mortgage is secured by land and building in Venlo, Holland, with a
net book value of $2.7 million at December 31, 1994.
On January 28, 1993, the Company issued and sold $74.8 million aggregate
principal amount of its 6.0% Convertible Subordinated Debentures due 2003 (the
"Debentures") and received net (after commissions and expenses) receipts from
F-11
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(8) Long-Term Debt - continued:
from the sale of the Debentures of $72.5 million (before deduction of expenses).
The Debentures are convertible into Common Stock of the Company through
maturity, unless previously redeemed, at $22.7083 per share, subject to
adjustment. Interest on the Debentures is payable on January 15 and July 15,
commencing July 15, 1993.
The Debentures are not redeemable prior to January 15, 1996. Thereafter, the
Debentures will be redeemable on at least 30 days' notice at the option of the
Company, in whole or in part at any time, initially at 104.2% and at decreasing
prices thereafter to 100.0% at maturity, in each case together with accrued
interest. The Debentures also may be redeemed at the option of the holder if
there is a Fundamental Change (as defined) at declining redemption prices,
subject to adjustment, together with accrued interest.
The net proceeds were used, in part, to repay outstanding revolving credit
balances, and for general corporate purposes, which may include additions to
working capital, enhancement of facilities and operations, and possible
acquisitions of other companies in the same or related businesses.
At December 31, 1994, the fair value of the Company's long-term debt amounted to
$88.2 million compared to the carrying amount of $86 million. The difference was
attributable to the quoted market price of the Debentures.
Interest expense on long-term debt for the years ended December 31, 1994, 1993
and 1992 was $5.2 million, $5.7 million and $2.4 million, respectively.
(9) Common Stock Option Plans:
The 1981 Employees' Incentive Stock Option Plan authorized the granting of stock
options to officers and employees at prices equal to or greater than the fair
market value of the common stock on the date of the grant. There were 126,416
options outstanding, all of which were exercisable at December 31, 1994. There
are no options available for future grant under this plan.
The 1984 International Employees' Stock Option Plan ("International Plan")
authorizes the granting of stock options to officers and employees at prices
equal to or greater than the fair market value of the common stock on the date
of grant. There were 399,374 options outstanding, of which 83,068 were
exercisable at December 31, 1994. There are no options available for future
grant under this plan.
F-12
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(9) Common Stock Option Plans - continued:
The 1991 Employees' Incentive Stock Option Plan, authorizes the granting of
stock options and or stock appreciation rights ("SAR'S") to employees at prices
equal to or greater than the fair market value of the common stock on the date
of the grant. There were 446,157 options outstanding, of which 82,642 were
exercisable at December 31, 1994. Options for 660,562 shares were available for
future grant at December 31, 1994, under this plan. To date no SAR'S have been
granted.
At December 31, 1994, 1,632,509 shares of common stock were reserved for
issuance pursuant to the Company's option plans.
Option activity is summarized as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Options outstanding, beginning of year ......... 961,860 395,957
Options granted ................................ 216,000 672,000
Options exercised .............................. (145,906) (81,627)
Options canceled or expired .................... (60,007) (24,470)
Options outstanding, end of year ............... 971,947 961,860
Exercise price of options exercised ............ $4.26 -$12.92 $3.93 - $ 7.22
Exercise price of options outstanding,
end of year ................................... $4.29 -$18.50 $4.26 - $18.50
</TABLE>
F-13
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(10) Income Taxes:
The Company and its domestic subsidiaries file a consolidated U.S. Federal
income tax return. Foreign subsidiaries file separate corporate income tax
returns in their respective countries.
The components of income before provision for income taxes and the current and
deferred components of the provision for income taxes were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992
Income before provision for income
taxes:
<S> <C> <C> <C>
U.S. ............................... $ 11,286 $ 7,702 $ 4,687
Foreign ............................ 25,493 20,279 25,196
$ 36,779 $ 27,981 $ 29,883
Current provision:
U.S. Federal ....................... $ 5,383 $ 3,227 $ 1,477
Foreign ............................ 9,215 7,041 8,900
State .............................. 1,073 688 529
$ 15,671 $ 10,956 $ 10,906
Deferred provision:
U.S. Federal ....................... $ (1,190) $ (337) $ 339
Foreign ............................ (158) 80 5
State .............................. (163) (58) -
$ (1,511) $ (315) $ 344
Total provision for income taxes......... $ 14,160 $ 10,641 $ 11,250
</TABLE>
The provision for income taxes includes deferred taxes resulting from the
recognition of certain revenues and expenses in different periods for financial
reporting purposes than for tax reporting purposes. The components of the
provision for deferred taxes were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Net change in allowance for doubtful
accounts and other reserves ................ $(2,378) $ (574) $ (725)
Undistributed earnings of unconsolidated
affiliates ................................. 343 (34) 64
Accelerated depreciation ..................... 7 681 756
Net unrealized foreign exchange gains ........ 517 (388) 249
$(1,511) $ (315) $ 344
</TABLE>
F-14
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(10) Income Taxes - continued:
The difference between the actual provision and the amount computed at the
statutory U.S. Federal income tax rate of 34.3% for 1994, 35.0% for 1993 and
34.0% for 1992 is attributable to the following:
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Income before provision for income taxes ... $ 36,779 $ 27,981 $ 29,883
Tax provision computed at statutory rate ... $ 12,615 $ 9,793 $ 10,161
Increases (reductions) in tax provision
due to:
Net operating losses for which no tax
benefit has been recognized ......... 961 589 207
Goodwill amortization ................... 375 271 288
Other nondeductible expenses ............ 645 359 369
Foreign income taxed at different rates . (776) (781) (426)
State income tax, net of Federal tax
benefit ............................. 910 630 529
Other ................................... (570) (220) 122
Total provision for income taxes ........... $ 14,160 $ 10,641 $ 11,250
</TABLE>
For tax reporting purposes, the Company and its subsidiaries had available,
dependent upon future taxable income, the following net operating loss
carryforwards and foreign tax credits as of December 31, 1994:
<TABLE>
<CAPTION>
Expiring In Net Operating Losses Foreign Tax Credit
<S> <C> <C>
1995 $ - $ 303
1997 266 -
1998 1,085 480
1999 146 -
2000 65 -
2001 106 -
2007 233 -
2008 935 -
No Expiration 9,033 -
$ 11,869 $ 783
</TABLE>
The net operating losses consist of $3,265 incurred by the Pandair companies
prior to the December 23, 1987 acquisition and $2,922 incurred by Votainer
companies prior to the July 1, 1993 acquisition. Future utilization of Pandair
and Votainer losses will be treated as a reduction of goodwill. The use of any
loss carryforwards or foreign tax credits is dependent upon future taxable
income in the applicable taxing jurisdiction.
The Company's Federal income tax returns for 1988, 1989 and 1990 are currently
under review by the Internal Revenue Services (IRS). While the IRS has raised
several issues involving significant amounts of additional tax, the management
F-15
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(10) Income Taxes - continued:
of the Company is of the opinion that the ultimate outcome of this review will
not result in any material additional charge to reported earnings.
Accumulated unremitted earnings of foreign subsidiaries, which are intended to
be permanently reinvested for continued use in their operations and for which no
U.S. income taxes have been provided, aggregated approximately $83.6 million at
December 31, 1994.
During the first quarter of 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", by
restating financial statements of prior periods. The new standard requires that
an asset and liability approach be applied in accounting for income taxes.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the company's deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Deferred tax assets:
Reserve for doubtful accounts and
other operating reserves ........................ $ 2,339 $ 566
Realized foreign exchange gain or loss ........... 3 298
Net operating losses ............................. 4,139 4,138
Foreign tax credits .............................. 783 303
Depreciation ..................................... 382 432
Undistributed earnings of affiliates ............. - 13
Total deferred tax assets ................... 7,646 5,750
Valuation allowance for deferred tax assets ...... (4,442) (4,441)
Net deferred tax asset (included in
"Deposits and Other Assets") ............... $ 3,204 $ 1,309
Deferred tax liabilities:
Realized foreign exchange gain or loss ........... $ 398 $ --
Depreciation ..................................... 91 17
Operating reserves ............................... 103 582
Undistributed earnings of affiliates ............. 336 --
Amortization of post-acquisition purchase costs .. 525 470
Other ............................................ 19 19
Total deferred tax liabilities
(included in "Other Liabilities") ......... 1,472 1,088
Net deferred tax (asset) ......................... $(1,732) $ (221)
</TABLE>
F-16
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(11) Retirement Plans:
The Company maintains a 401 (k) Retirement Plan, covering substantially all U.S.
employees not participating in collective bargaining agreements. The Company
contributes 3.0% of salary for all eligible participants. In addition, the
Company matches, dollar for dollar, employee contributions up to 3.0% of salary,
subject to certain limitations imposed by the Internal Revenue Code. The total
expense for Company contributions was $1.3 million in 1994, $1.3 million in
1993, and $1.2 million in 1992.
Pursuant to collective bargaining agreements with its labor unions, the Company
made payments to union sponsored, multi-employer pension plans, based upon the
hours worked by covered employees. Such payments approximated $1.3 million for
each of the years ended December 31, 1994, 1993 and 1992. These amounts were
determined by the union contracts, and the Company does not administer or
control the funds in any way. In the event of plan terminations or Company
withdrawal from the plans, the Company may be liable for a portion of the plans'
unfunded vested benefits, if any. The Company has been advised by the trustees
of one multi- employer pension plan to which the Company contributes, that the
present value of the Plan's liabilities for vested benefits is significantly in
excess of the Plan's assets. In the fourth quarter of 1994, the Company
initiated a withdrawal from this pension plan and incurred a pre-tax charge of
$1.0 million for its estimated portion of the unfunded vested liability. The
actual withdrawal liability to be assessed to the Company is not expected to be
determined until the second half of 1995. The Company's pre-tax charge of $1.0
million represents the present value of the estimated payment of $.1 million per
year for 20 years.
One foreign subsidiary maintains a defined benefit pension plan (the "Plan")
which covers substantially all of its employees. The Plan provides benefits
based upon years of service and compensation which are in addition to certain
retirement benefits accruing to the employees under government regulations.
Participating employees contribute 5.0% of their annual compensation to the
Plan.
The net periodic cost for the years ended December 31, 1994, 1993 and 1992 for
the Plan are as follows:
<TABLE>
<CAPTION>
December 31,
1994 1993 1992
<S> <C> <C> <C>
Service cost ................................ $ 543 $ 495 $ 713
Interest cost ............................... 1,014 858 941
Actual return on assets - losses (gains) .... 2,399 (3,820) (1,597)
Net amortization and deferral of actuarial
gains (losses) ............................. (3,840) 2,512 (57)
Net periodic pension cost ................... $ 116 $ 45 $ -0-
</TABLE>
F-17
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(11) Retirement Plans - continued:
The funding of the Plan is actuarially determined. The Plan's assets are
invested primarily in equity securities, and no contributions were made by the
Company to the Plan in 1994, 1993 or 1992. The funded status of the Plan at
December 31, 1994 and 1993 is summarized below:
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested and non vested benefits .................. $ 6,588 $ 5,732
Accumulated benefit obligation .................. $ 6,588 $ 5,732
Effect of anticipated salary increases .......... 6,316 5,025
Projected benefit obligation .................... 12,904 10,757
Plan assets at fair market value .................. 15,831 15,241
Unrecognized net gain ............................. $ 2,927 $ 4,484
</TABLE>
The major assumptions used in determining the funded status of the Plan are set
forth below. The first two assumptions are used in determining the Plan's funded
status, whereas all three assumptions are used in determining the net periodic
cost. These assumptions approximate the rates prevailing in the applicable
foreign country.
<TABLE>
<CAPTION>
December 31,
1994 1993 1992
<S> <C> <C> <C>
Discount rate .............................. 9 % 9 % 10 %
Rate of increase in future compensation .... 6 % 6 % 10 %
Long-term investment return ................ 9 % 9 % 11 %
</TABLE>
Many of the Company's other foreign subsidiaries maintain either defined benefit
or defined contribution plans covering substantially all of their employees. The
plan benefits are funded essentially through insurance companies using deferred
annuity contracts. The cost is funded on an annual basis by the foreign
subsidiary, and the employee if the plan is contributory. For the years ended
December 31, 1994, 1993 and 1992, pension expense for these plans approximated
$3.1 million, $2.3 million and $1.8 million, respectively.
The Company does not sponsor any material post-retirement benefits other than
pensions. Post- employment benefits are insignificant.
F-18
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(12) Commitments and Contingencies:
The Company is obligated under long-term operating lease agreements for computer
equipment, terminal facilities and automotive equipment. At December 31, 1994,
the minimum annual rentals under these long-term leases were as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
<S> <C>
1995 $17,125
1996 14,415
1997 11,098
1998 7,377
1999 5,339
2000 and thereafter 14,269
</TABLE>
For the years ended December 31, 1994, 1993 and 1992, rental expense for assets
leased under long-term operating lease agreements approximated $15.3 million,
$12.9 million and $12.5 million, respectively.
The Company is involved in various legal proceedings generally incidental to its
business. While the result of any litigation contains an element of uncertainty,
the Company presently believes that the outcome of any known pending or
threatened legal proceeding or claim, or all of them combined, will not have a
material adverse effect on its results of operations or consolidated financial
position.
(13) Foreign Currency Translation:
The Company purchases foreign currency forward exchange contracts to hedge its
foreign currency exposures associated with investments in certain foreign
operations and certain intercompany transactions. The Company does not use these
contracts for trading purposes. At December 31, 1994, the carrying value of
these contracts was $2.1 million, which approximates fair value, and is included
in accrued liabilities in the accompanying balance sheet. The aggregate notional
amount of these contracts, which will mature at various dates in 1995, was $48.4
million at December 31, 1994.
Gains or losses resulting from forward exchange contracts purchased to hedge
investments in certain foreign subsidiaries are excluded from the statement of
net income and are recorded, net of tax, directly to shareholders' investment.
As a result, in 1994 the Company recognized a $1.6 million loss on these
contracts compared with a $.1 million gain in 1993.
The Company recognizes, in foreign exchange gains, net, gains and losses on
forward exchange contracts purchased to hedge certain intercompany transactions.
In 1994, the Company recognized a $1.5 million pre-tax loss on these contracts.
Additionally, both gains and losses from other foreign currency transactions and
translation gains and losses of subsidiaries operating in highly inflationary
economies are recognized in foreign exchange gains, net (See Note 14).
F-19
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(14) Other Income (Expense):
Other income (expense) consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Gain (loss) on sales of assets, net ...... $ (41) $ 116 $ 46
Foreign exchange gains, net .............. 1,876 192 660
Other, net ............................... (100) - 77
$ 1,735 $ 308 $ 783
</TABLE>
(15) Statement of Cash Flows:
Interest and income taxes paid were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Interest ................................. $ 5,314 $ 3,389 $ 3,142
Income Taxes ............................. $15,170 $ 10,716 $ 9,356
</TABLE>
(16) Quarterly Revenues and Earnings (Unaudited):
<TABLE>
<CAPTION>
Quarter
1st 2nd 3rd 4th
Year Ended December 31, 1994
<S> <C> <C> <C> <C>
Revenues ................... $ 204,810 $ 237,999 $ 258,175 $296,395
Operating income ........... $ 6,056 $ 10,217 $ 10,736 $ 11,236
Net income ................. $ 3,482 $ 6,149 $ 6,310 $ 6,678
Income per common share:
Primary .................. $ .20 $ .35 $ .36 $ .38
Fully diluted ............ $ .20 $ .33 $ .33 $ .35
Year Ended December 31, 1993
Revenues ................... $ 153,344 $ 168,516 $ 192,071 $211,788
Operating income ........... $ 5,877 $ 9,496 $ 7,427 $ 8,571
Net income ................. $ 3,452 $ 5,351 $ 3,745 $ 4,792
Income per common share:
Primary .................. $ .19 $ .31 $ .21 $ .27
Fully diluted ............ $ .19 $ .29 $ .21 $ .27
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(In thousands)
Net
Balance at Write-offs Balance at
Beginnig Charges Charged to End
of Perio to Income Other(1) Reserves of Period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994:
Allowance for doubtful accounts .. $ 2,846 $1,111 $ 239 $ 906 $3,290
Year ended December 31, 1993:
Allowance for doubtful accounts .. $ 1,759 $1,180 $ 1,083 $ 1,176 $2,846
Year ended December 31, 1992:
Allowance for doubtful accounts .. $ 1,966 $1,577 $ - $ 1,784 $1,759
<FN>
(1) Addition to the allowance for doubtful accounts is attributable to business
acquisitions which the Company made during the year.
</FN>
</TABLE>
F-21
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
No. Description Page No.
21 List of Subsidiaries of the Registrant 46
23 Consent of Independent Public
Accountants 47
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 21
AIR EXPRESS INTERNATIONAL CORPORATION
SUBSIDIARIES OF REGISTRANT AT DECEMBER 31, 1994
Percent
Jurisdiction of Shares
of Owned by
Name Incorporation Direct Parent
<S> <C> <C>
Air Express International USA, Inc. Delaware 100%
Surface Freight Corporation Florida 100%
Air Express International (Australia) Australia 100%
Air Express International (Belgium) N.V. Belgium 100%
Air Express International do Brazil Ltda. S.C. Brazil 100%
Air Express International (Canada) Limited Canada 100%
Air Express International France S.A. France 100%
Air Express International GmbH Germany 100%
Air Express International (Ireland) Limited Ireland 100%
Air Express International Holding B.V. The Netherlands 100%
Air Express International Limited New Zealand 100%
Air Express International (PNG) Pty. Limited Papua New Guinea 100%
Air Express International Corporation Del Peru S.Peru 100%
Air Express International Singapore (Pte.) LimiteSingapore 100%
Air Express International (S.A.) Pty. Limited South Africa 100%
Air Express International (H.K.) Limited Hong Kong 100%
AEIC Air Cargo, Inc. Taiwan 100%
Air Express International (U.K.) Ltd. United Kingdom 100%
Air Express International Limited Switzerland 100%
Air Express International (Panama) S.A. Panama 100%
Air Express International (Fiji) Limited Fiji 100%
Votainer Japan Japan 60%
Universal Airfreight AS Norway 75%
AEI Ocean Services Corp. Delaware 100%
Air Express International Luxembourg Luxembourg 100%
Air Express International (PVT) Limited Zimbabwe 100%
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statement File Nos. 33- 10674, 33-10799 and 33-56114.
ARTHUR ANDERSEN LLP
New York, New York
March 23, 1995
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 44,168
<SECURITIES> 0
<RECEIVABLES> 209,302
<ALLOWANCES> 3,290
<INVENTORY> 0
<CURRENT-ASSETS> 253,118
<PP&E> 76,656
<DEPRECIATION> 37,057
<TOTAL-ASSETS> 380,934
<CURRENT-LIABILITIES> 194,151
<BONDS> 83,992
<COMMON> 196
0
0
<OTHER-SE> 150,598
<TOTAL-LIABILITY-AND-EQUITY> 380,934
<SALES> 0
<TOTAL-REVENUES> 997,379
<CGS> 0
<TOTAL-COSTS> 707,338
<OTHER-EXPENSES> 151,769
<LOSS-PROVISION> 1,111
<INTEREST-EXPENSE> 5,748
<INCOME-PRETAX> 36,779
<INCOME-TAX> 14,160
<INCOME-CONTINUING> 22,619
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,619
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.21
</TABLE>
