<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, 1995 or
[ ] Transition report pursuant to section 13 or 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 25, 1996 was $420,937,877.
The number of shares of common stock outstanding as of March 25, 1996 was
18,582,205.
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 1996 Annual
Meeting of Shareholders.
<PAGE>
AIR EXPRESS INTERNATIONAL CORPORATION
1995 Form 10-K Annual Report
Table of Contents
Part I
Page
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . 7
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 7
Item 4. Submission of Matters to a Vote of Security Holders
and Executive Officers of the Registrant . . . . . . . 8
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . 10
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 12
Item 8. Financial Statements and Supplementary Data. . . . . . . 19
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures. . . . . . . . . . 19
Part III
Item 10. Directors and Executive Officers of the Registrant . . . 19
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . 19
Item 12. Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . . . . . 19
Item 13. Certain Relationships and Related Transactions . . . . . 19
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 20
<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 1995, the Company handled
more than 1,774,000 individual airfreight shipments, with an average weight of
519 pounds, to more than 2,860 cities in more than 182 countries. The Company
generated revenues in excess of $1.2 billion in 1995, of which approximately 57%
were attributable to shipments from locations outside the United States.
Although the Company's headquarters is located in the United States, its network
is global, with offices located in over 837 cities, including 235 cities in the
United States, 185 cities in Europe and 417 cities in Asia, the South Pacific,
the Middle East, Africa and Latin America. As of December 31, 1995, this network
consisted of 194 Company-operated facilities, including 55 in the United States
and 139 abroad, supplemented at 643 additional locations, a substantial number
of which are served by agents, many 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 75% of the
Company's 32 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 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. During 1995, the Company acquired all of the
outstanding common stock of Radix Ventures, Inc., a leading provider of customs
brokerage in the United States, Jagro International, Inc., an ocean freight
forwarder and customs broker located in Canada, Brantford International, Inc.,
an air and ocean freight forwarder located in the United Kingdom, and 40%
ownership of the outstanding common stock of Air Express International
(Emirates), the Company's exclusive air and ocean freight agent in the United
Arab Emirates. 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 and distribution
related services.
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(b) Financial Information About Industry Segments
The Company currently is engaged in the business of freight forwarding. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Item 7), and the Company's Consolidated Financial Statements,
including the Notes thereto, for data related to the Company's revenues,
operating profit 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.
Customs Brokerage Services
The Company provides customs brokerage clearance services in the United States
and 18 foreign countries. These services entail the preparation and assembly of
required documentation, in many instances, the advancement of customs duties on
behalf of importers, and the arrangement for the delivery of goods after the
customs clearance process is completed. Additionally, other services may be
provided such as the procurement and placement of surety bonds on behalf of
importers, duty drawback (recovery of previously paid duties when goods are
re-exported), and the arrangement of bonded warehouse services which allows
importers to store goods while deferring payment of customs duties until the
goods are required for delivery.
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In June of 1995, the Company acquired Radix Ventures, Inc. ("Radix") which,
through its subsidiary, Radix Group International, Inc., is a leading U.S.
customs broker, with offices in 23 U.S. cities and approximately 520 employees.
Radix's customs brokerage services were largely performed for importers who used
other freight forwarders for the transportation of goods to the United States.
Since the acquisition of Radix, the Company has continued to maintain and expand
its U.S. customs brokerage activities to existing and new clients without regard
to whether the Company provides transportation services to these importers. It
is the Company's strategy to ultimately expand its relationship with customs
brokerage customers by providing other services, including transportation, and
warehousing and distribution.
In 1995, the Company processed approximately 905,000 customs entries of which
173,000 were in the United States; in 1994, it processed 729,000 entries of
which 63,000 were in the United States and in 1993, 641,000 entries were
processed, of which 55,000 were in the United States.
Operations
The Company has a global network of Company-operated facilities and supporting
agents with offices located in over 837 cities, including 235 in the United
States, 185 in Europe, 120 in Asia and the South Pacific and 297 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 between,
locations outside the United States. For the year ended December 31, 1995,
approximately 62% of its gross revenues and net revenues were recorded in
locations outside the United States.
The Company neither owns nor operates any ships or aircraft. It arranges for
transportation of its customers' shipments via steamship lines, commercial
airlines and air cargo carriers. 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 1995, shipments for which the Company
acted as a cargo agent accounted for less than 2% of its revenues.
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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 and customs broker, the
Company provides ancillary services, such as door-to-door pick-up and delivery
of freight, purchase order management, warehousing and distribution, inventory
management, cargo assembly, protective packing, consolidation and
deconsolidation services.
The LOGIS System
The Company introduced its proprietary logistics information system ("LOGIS")
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 304 of its Company-operated facilities and with its agents in
substantially all major markets, permitting real-time inputting, processing and
retrieval of shipments, pricing, scheduling, space availability, booking and
tracking data, as well as automated preparation of shipping, customs and billing
documents. LOGIS has been developed to include worldwide ocean shipment tracing
and tracking and to provide information for logistics facilities offered by the
Company, including assembly and distribution activities for clients.
As of December 31, 1995, the LOGIS system permitted electronic interfacing with
more than 590 of the Company's major customers in 35 countries, 41 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.
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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 plans to continually improve and enhance the LOGIS
system. 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 ("DOT") approval. In addition, several states in which the
Company operates regulate intrastate trucking. In these states, the Company has
obtained the necessary operating authority. In the United States, the Company,
operating as a customs broker, is licensed by the United States Department of
the Treasury and regulated by the United States Customs Service. Customs
brokerage fees are not subject to regulation. 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 1995, 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 502 full-time salespersons (as of
December 31, 1995), 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 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.
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<PAGE>
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 U.S.
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 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, 1995, the Company employed 5,522 people, of whom 3,678 were
based at locations outside the United States, including 1,669 in the United
Kingdom and Europe, 895 in Asia and 1,114 in the South Pacific, South America,
Africa and Canada. Of the Company's 1,844 U.S.-based employees at that date,
approximately 516 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 25% 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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<PAGE>
(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 identifiable
assets.
Item 2. Properties
The Company owns its worldwide headquarters building (approximately 40,000
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 $3.1 million mortgage, a warehouse and distribution facility
(approximately 59,000 square feet in area) in Venlo, Holland, which is subject
to a $1.7 million mortgage, and a warehouse and distribution facility
(approximately 150,000 square feet in area) in Singapore, which is subject to a
$6.4 million mortgage.
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 98,000 sq. ft. of warehouse and office 1996
New York, New York 80,000 sq. ft. of warehouse and office 1996
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 25, 1996 by each
executive officer of the Company. There are no family relationships between any
Director or officer of the Company.
Positions with the Company an
Business Experience for the
Name Age Past Five Years
Hendrik J. Hartong, Jr. 56 Chairman of the Company since 1985;
(Chief Executive Officer of the
Company from 1985 through 1989);
General Partner since 1985 of
Brynwood Management and since 1988
of Brynwood Management II L.P., which
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 56 President and Chief Executive Officer
of the Company since 1989 (President
and Chief Operating Officer from 1985
to 1989).
Dennis M. Dolan 38 Vice President and Chief Financial
Officer of the Company since 1989;
U.S. Controller from 1985 to 1989.
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Giorgio Laccona 37 Vice President - General Manager -
North America since 1996; Vice
President-Operations from 1994 to
1996, Vice President - Export Sales
and Operations from 1989 to 1994.
Daniel J. McCauley 61 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 50 Vice President - Treasurer of the
Company since 1993; Vice President-
International Controller from 1989 to
1993.
Walter L. McMaster 63 Vice President and Controller of the
Company for more than the past five
years.
Robert J. O'Connell 59 Senior Vice President since 1996;
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, $.01 par value (the "Common
Stock"), trades on The Nasdaq Stock Market under the symbol: AEIC. Previously
the Common Stock traded on the American Stock Exchange.
The table below indicates the quarterly high and low prices of the Common Stock
and the dividends declared per share for the years ended December 31, 1995 and
1994. The 1994 per share information has been restated to reflect the
three-for-two stock split on December 21, 1994 (See Note 2 to the Consolidated
Financial Statements).
<TABLE>
<CAPTION>
Quarter
1st 2nd 3rd 4th
Year Ended December 31, 1995:
<S> <C> <C> <C> <C>
High ........................ $ 25 1/2 $ 26 1/2 $ 25 1/2 $ 25 1/4
Low ......................... $ 18 1/2 $ 20 3/4 $ 22 1/4 $ 20 1/4
Dividends ................... $ .04 $ .05 $ .05 $ .05
Year Ended December 31, 1994:
High ........................ $ 15 3/4 $ 16 5/8 $ 18 7/8 $ 20
Low ......................... $ 12 1/4 $ 13 7/8 $ 14 5/8 $ 15 1/8
Dividends ................... $ .033 $ .04 $ .04 $ .04
</TABLE>
At March 25, 1996, there were 926 holders of record of the Company's Common
Stock. The closing price of the Common Stock on that date was $25.75 per share.
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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,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Revenues ......................$1,222,217 $997,379 $725,719 $672,287 $601,939
Net income ....................$ 29,027 $ 22,619 $ 17,340 $ 18,633 $ 13,936
Net income per common share:(1)
Primary ....................$ 1.58 $ 1.28 $ .99 $ 1.08 $ .81
Fully diluted ..............$ 1.48 $ 1.21 $ .97 $ 1.08 $ .75
Cash dividends declared per
common share ................$ .19 $ .153 $ .125 $ .085 $ .05
Total assets ..................$ 486,843 $383,626 $298,816 $211,721 $211,434
Long-term debt (excluding
currentportion) ...........$ 82,762 $ 83,992 $ 78,464 $ 7,120 $ 24,928
Stockholders' investment ......$ 147,566 $ 99,350 $ 78,119 $65,376 $ 65,270
<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 and cash equivalents at December 31, 1995 totaled $54.5 million compared to
$44.2 million at December 31, 1994. The increase was largely attributable to the
sale of the Company's holdings of U.S. Government securities and the subsequent
reclassification of the sale proceeds into cash and cash equivalents (See Note 1
to the Consolidated Financial Statements). Such cash proceeds, together with an
increase in the excess of trade receivables over trade payables, resulted in a
working capital increase of approximately $18.0 million (30.6%) to $76.9 million
at December 31, 1995 from $58.9 million at December 31, 1994.
Capital expenditures for 1995 were $20.4 million compared to $12.1 million for
1994 and were made primarily for expansion and improvement of buildings,
facilities and management information systems. Of the $8.3 million (68.6%)
increase, approximately $6.0 million was attributable to construction and
related costs for the Company's new warehouse and distribution facility in
Singapore. Depreciation and amortization expense (including goodwill
amortization) totaled $9.8 million in 1995 and $7.6 million in 1994. Capital
expenditures for 1996 are estimated to be approximately $15.0 million and will
be primarily for improvement and expansion of facilities and management
information systems.
In June 1995, the Company acquired all the outstanding shares of Radix in
exchange for 954,608 shares of Common Stock and $.5 million in cash. The
acquisition was valued at approximately $23.8 million (See Note 4 to the
Consolidated Financial Statements).
At December 31, 1995, various of the Company's foreign subsidiaries maintained
overdraft facilities with foreign banks, aggregating approximately $14.3
million, of which approximately $.6 million was outstanding. During the third
quarter of 1995, the Company allowed its $20.0 million revolving credit facility
to expire. The Company anticipates that a syndicated unsecured revolving credit
facility for approximately $75.0 million will be finalized during the first half
of 1996 (See Note 7 to the Consolidated Financial Statements).
During the second quarter of 1995, the Company's Board of Directors authorized a
25% increase in the quarterly cash dividend from four cents ($.04) to five cents
($.05) per share. Additionally, during the third quarter of 1995, the Board of
Directors authorized the purchase, from time to time in the open market, of up
to one million shares of the Company's Common Stock. As of December 31, 1995, no
shares had been purchased under this authorization.
The Company purchases foreign currency forward exchange contracts principally to
hedge foreign currency exposure associated with net investments in certain
foreign operations and certain intercompany transactions. The Company does not
speculate in the financial markets and therefore does not hold these contracts
for trading purposes (See Note 13 to the Consolidated Financial Statements).
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Management believes that the Company's available cash and sources of credit,
together with expected future sources of credit and cash generated from
operations, will be sufficient to satisfy its anticipated needs for working
capital and capital expenditures.
Results of Operations
1995 Compared to 1994
The Company considers its total business to represent a single segment comprised
of three major services: airfreight forwarding, ocean freight forwarding and
customs brokerage and other services, all of which are fully integrated. The
following table sets forth the gross revenues and net revenues (gross revenues
minus transportation expenses) for each of these three service categories, as
well as the Company's internal operating expenses (terminal and selling, general
and administrative expenses) and operating profit:
<TABLE>
<CAPTION>
1995 1994
($ in millions)
<S> <C> <C>
Gross Revenues:
Airfreight ............................ $ 972.6 $ 810.6
Ocean freight ......................... 166.2 112.3
Customs brokerage
and other ........................... 83.4 74.4
Total Gross Revenues .................... $ 1,222.2 $ 997.3
Net Revenues:
Airfreight ............................ $ 245.8 $ 204.5
Ocean freight ......................... 38.8 28.2
Customs brokerage
and other ........................... 82.1 57.3
Total Net Revenues ...................... 366.7 290.0
Internal Operating Expenses:
Terminal .............................. 196.6 151.7
Selling, general and administrative ... 120.5 100.1
Total Internal Operating Expenses ....... 317.1 251.8
Operating Profit ........................ $ 49.6 $ 38.2
</TABLE>
Gross revenues increased $224.9 million (22.6%) in 1995 over those for 1994,
reflecting increases of $162.0 million (20.0%) in airfreight revenues, $53.9
million (48.0%) in ocean freight revenues and $9.0 million (12.1%) in customs
brokerage and other revenues. Additionally, approximately $34.3 million of the
increase in gross revenues was attributable to the effect of a weaker U.S.
dollar when converting foreign currency revenues into U.S. dollars for financial
reporting purposes. Gross revenues from customs brokerage in 1994 included $16.0
million of handling and related revenues. In 1995, $21.4 million of what were
formerly classified as handling and related revenues were reclassified as a
reduction to related transportation expense. Net revenues (gross revenues minus
transportation expenses) increased $76.7 million (26.4%) to $366.7 million in
1995 and was attributable to increases of $41.3 million (20.2%) in airfreight
net revenues, $10.6 million (37.6%) in ocean freight net revenues and $24.8
million (43.3%) in customs brokerage and other net revenues. The increases in
both gross and net revenues from airfreight services were attributable to
increased airfreight shipping volumes, as the number of shipments increased 8.7%
and the total weight of cargo shipped increased 16.8% over 1994, and to higher
prices initiated by the Company in response to rate increases from the airlines.
The increases in gross and net revenues from ocean freight services were
attributable to greater shipping volumes from existing customers, the Company's
continuing penetration into the ocean freight market since its acquisition of
Votainer in 1993 and the inclusion of ocean freight business of acquired
companies. The increases in gross and net revenues from customs brokerage and
other services were largely due to the acquisition of Radix.
-13-
<PAGE>
The Company's internal operating expenses (terminal and selling, general and
administrative expenses) increased $65.3 million (25.9%) in 1995 over 1994. The
increase was attributable to the inclusion of operating expenses from acquired
companies and the greater volume of shipments handled. Additionally, 1994
internal operating expenses included a one-time pre-tax charge of $1.0 million
for the Company's estimated proportionate withdrawal liability from a
multi-employer pension plan covering certain of its employees (See Note 11 to
the Consolidated Financial Statements). As a percentage of gross revenues,
internal operating expenses increased to 25.9% from 25.2% in 1994, due largely
to the inclusion of operating expenses related to Radix's customs brokerage
operations.
Consolidated operating profit increased $11.4 million (29.8%) over 1994, due
primarily to significant improvement in operating profits in the Company's
United States region and its Asia and Others region (See Note 5 to the
Consolidated Financial Statements). The Company's European operations were
negatively effected by economic weakness in Europe, particularly during the
second half of 1995 when the Company experienced only minimal growth in the
weight of airfreight cargo shipped.
Net interest expense increased $.1 million to $3.3 million in 1995, and other
income declined $.3 million to $1.4 million in 1995 due to a decline in foreign
exchange gains, net when compared to 1994.
The Company's effective tax rate for 1995 was 39.0% compared to 38.5% in 1994.
The increase in the effective tax rate was largely due to losses in countries
where no tax credit was available and an increase in the amount of nondeductible
expenses. 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 those countries.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of". This statement establishes the
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable intangibles to be
disposed of. The Company believes that this statement, when adopted during the
first quarter of 1996, will not have a material impact on either its results of
operations or financial position.
-14-
<PAGE>
Additionally, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation". This statement establishes a fair-value-based method of
accounting for stock options and other equity instruments. The statement permits
entities to continue to use the intrinsic value method included in APB-25
(Accounting for Stock Issued to Employees), but regardless of the method used to
account for the compensation cost associated with stock options and similar
plans, the statement requires entities to provide additional disclosure
information. In 1996, the Company will adopt the disclosure provisions of this
statement, but will continue to account for its employee stock-based
compensation under APB-25.
United States Operations
United States revenues increased $92.0 million (25.0%) to $459.3 million in 1995
compared to 1994, reflecting increases of $70.7 million (22.6%) in airfreight
revenues, $15.3 million (47.2%) in ocean freight revenues and $6.0 million
(27.5%) in customs brokerage revenues. The increase in airfreight revenues was
due to an 18.7% increase in the weight of cargo shipped, as well as price
increases initiated in response to airline rate increases. The increase in ocean
freight revenues was attributable to the Company's ongoing efforts to market its
ocean freight services to both existing and new customers. The increase in
customs brokerage revenues was largely attributable to the inclusion of business
from Radix, which was acquired in June of 1995.
United States operating profit in 1995 increased $10.6 million (154.0%) over
1994, due to increased airfreight revenues, the inclusion of Radix customs
brokerage and freight forwarding business, and the achievement of operating
profitability in ocean freight services in 1995 compared to a loss of $2.0
million from these services in 1994.
Foreign Operations
Foreign revenues increased $132.8 million (21.1%) in 1995 over 1994.
Approximately $34.3 million of the increase was attributable to the effect of a
weaker U.S. dollar when converting foreign currency revenues into U.S. dollars
for financial reporting purposes. European revenues increased $63.1 million
(19.5%) over 1994, due to increases of $57.1 million (22%) in airfreight
revenues, $5.6 million (14.0%) in ocean freight revenues and $.4 million in
customs brokerage revenues. The rate of increase in European airfreight revenues
declined throughout the year, as the percentage increase in the weight of
airfreight cargo shipped declined from approximately 27.0% in the first quarter
to 1.0% in the fourth quarter of 1995, due largely to a slowdown in economic
activity in the region. Revenues in the Asia and Others region increased $69.7
million (22.8%) in 1995 over 1994, reflecting increases of $34.3 million (14.4%)
in airfreight revenues, $33.0 million (82.5%) in ocean freight revenues and $2.4
million in customs brokerage revenues. The increases in both airfreight and
ocean freight revenues were attributable to greater shipping volumes from
existing and new customers and the inclusion of business from acquired
companies. Customs brokerage revenues increased primarily due to the increase in
the number of import clearances.
-15-
<PAGE>
Foreign operating profit was $32.1 million compared to $31.4 million in 1994.
The increase was attributable entirely to the Asia and Others region, where
operating profit increased $3.8 million (20.7%) over 1994, offsetting a decline
of $3.1 million in the Company's European region. The lower operating profit in
Europe was primarily due to losses in the Company's German operations, which
negatively impacted European operating profit by $2.5 million. In the second
half of 1995, the Company initiated actions in Germany to lower costs through
reductions in personnel and reductions in other operating expenses.
As a result of the weaker shipping volumes handled in Europe, and the losses in
Germany, the Company's European operating profit for the third and fourth
quarters of 1995 were lower than for the comparable quarters of 1994. In
addition to the losses in Germany, a decline in operating profit was realized in
the United Kingdom, which contributed 39.6% and 49.2% of European revenue and
operating profit, respectively. The slowdown in economic activity in Europe has
continued in 1996 and may negatively impact the Company's European operations in
1996. In addition to the actions taken in Germany, management is implementing
operating cost reductions in other European countries in an effort to minimize
the impact of weaker shipping volumes in 1996.
1994 Compared to 1993
The following table shows the consolidated results of airfreight and ocean
freight activities for 1994 compared to 1993. Revenues from customs brokerage
and other services are included in airfreight revenues:
<TABLE>
<CAPTION>
1994 1993
Ocean Ocean
Airfreight Freight Total Airfreight Freight Total
($ in millions)
<S> <C> <C> <C> <C> <C> <C>
Gross 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 profit (loss) .. $ 38.1 $ .1 $ 38.2 $ 32.3 $ (.9) $ 31.4
</TABLE>
Gross 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.
-16-
<PAGE>
Gross profit (revenue minus 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 expenses was a
one-time pre-tax charge of $1.0 million for the Company's estimated
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 profit 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 $46.1 million (16.9%) increase in airfreight
revenues, and $12.7 million (64.4%) increase in ocean freight revenues. The
increase in airfreight revenues was attributable to a 5.9% increase in the
number of shipments and a 18.1% increase in the total weight of cargo shipped.
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.
-17-
<PAGE>
United States operating profit for 1994 decreased marginally from 1993 to $6.9
million. The decrease was mainly attributable to an $.8 million ocean freight
operating loss combined with the previously-discussed $1.0 million one-time
charge included in the airfreight operating profit. Excluding this charge,
United States operating profit increased $1.0 million (13.9%) in 1994 compared
to 1993.
Foreign Operations
Foreign revenues increased $212.9 million (51.0%) to $630.1 million in 1994
compared with 1993, reflecting a $164.6 million (42.7%) increase in airfreight
revenues and a $48.3 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 attributable to the inclusion of twelve months of
ocean freight revenues in 1994 compared to only six months in 1993.
The number of airfreight shipments and total weight of cargo shipped in the
Company's European region increased 8.5% and 27.6%, respectively. In the
Company's Asia and Others region, the number of airfreight shipments and total
weight of cargo shipped increased 23.6% and 65.6%, respectively.
Operating profit from foreign operations increased $6.9 million (28.3%) to $31.4
million for 1994 largely due to increased airfreight shipping volumes. Operating
profit in the European region increased $3.3 million, while operating profit in
the Asia and Others region increased $3.6 million.
-18-
<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 in 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
1996 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
1996 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
1996 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
1996 Annual Meeting of Shareholders is incorporated herein by reference.
-19-
<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, 1995 and 1994. F-2
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993. F-3
Consolidated Statements of Stockholders' Investment for the
years ended December 31, 1995, 1994 and 1993. F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993. F-5
Notes to Consolidated Financial Statements. F-6
(2) Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts. F-22
All other financial statement schedules are omitted because they are not
applicable, not required, or because the required information is included in
theCompany'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.
-20-
<PAGE>
(3) Exhibits required to be filed by Item 601 of Regulation S-K.
3 a. Certificate of Incorporation, as amended through July 24, 1993.
b. The Bylaws, as amended through March 22, 1992 (Incorporated herein by
reference to Exhibit 3 to the Company's Current Report on Form 8-K,
filed March 22, 1992).
4 a. 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 herein 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. 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).
d. 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).
e. 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 on Form 8-K filed March 19, 1987).
-21-
<PAGE>
f. 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).
21. List of Subsidiaries of the Registrant. Exhibit 21.
23. Consent of Independent Public Accountants. Exhibit 23.
27. Financial Data Schedule. Exhibit 27.
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.
-22-
<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 29, 1996
-23-
<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 29, 1996
(John M. Fowler)
/s/ Hendrik J. Hartong, Jr. Chairman of the Board
(Hendrik J. Hartong, Jr.) of Directors March 29, 1996
/s/ Donald J. Keller Director March 29, 1996
(Donald J. Keller)
/s/ Andrew L. Lewis IV Director March 29, 1996
(Andrew L. Lewis IV)
/s/ Richard T. Niner Director March 29, 1996
(Richard T. Niner)
/s/ John Radziwill Director March 29, 1996
(John Radziwill)
/s/ Guenter Rohrmann President, Chief Executive
(Guenter Rohrmann) Officer, and Director
(Principal Executive Officer) March 29, 1996
-24-
<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, 1995 and 1994, and the related consolidated statements of
operations, stockholders' investment and cash flows for each of the three years
in the period ended December 31, 1995. These 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 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, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995 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 25, 1996
F-1
<PAGE>
<TABLE>
<CAPTION>
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(Dollars in thousands)
1995 1994
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents ...............................$ 54,463 $ 44,168
Accounts receivable (less allowance for
doubtful accounts of $4,695 and $3,290) ................ 268,289 208,704
Other current assets .................................... 4,754 2,938
Total current assets ................................ 327,506 255,810
Investment in unconsolidated affiliates .................. 13,228 9,370
Marketable securities .................................... -- 19,961
Property, plant and equipment (less accumulated
depreciation and amortization of $43,242
and $37,057) ........................................... 54,149 39,599
Deposits and other assets ................................ 12,999 6,957
Goodwill (less accumulated amortization
of $8,269 and $6,403) .................................. 78,961 51,929
Total assets ........................................$ 486,843 $ 383,626
Liabilities and stockholders' investment
Current liabilities:
Current portion of long-term debt .......................$ 2,690 $ 2,029
Bank overdrafts payable ................................. 620 1,399
Transportation payables ................................. 149,536 101,657
Accounts payable ........................................ 41,625 36,779
Accrued liabilities ..................................... 45,556 43,988
Income taxes payable .................................... 10,581 10,991
Total current liabilities ........................... 250,608 196,843
Long-term debt .......................................... 82,762 83,992
Other liabilities ....................................... 5,907 3,441
Total liabilities ................................... 339,277 284,276
Commitments and contingencies (Note 12) .................. -- --
Stockholders' investment:
Capital stock -
Preferred (authorized 1,000,000 shares,
none outstanding) ..................................... -- --
Common, $.01 par value (authorized 40,000,000
shares, issued 18,577,880 and 19,620,526 shares) ...... 186 196
Capital surplus ......................................... 60,164 41,998
Cumulative translation adjustments ...................... (12,539) (11,442)
Retained earnings ....................................... 100,372 108,600
148,183 139,352
Less: 25,279 and 2,184,208 shares of treasury
stock, at cost ...................................... (617) (40,002)
Total stockholders' investment ...................... 147,566 99,350
Total liabilities and stockholders' investment ......$ 486,843 $ 383,626
See Notes to Consolidated Financial Statements.
F-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in thousands, except per share data)
1995 1994 1993
<S> <C> <C> <C>
Revenues .....................................$1,222,217 $ 997,379 $ 725,719
Operating expenses:
Transportation .............................. 855,568 707,338 496,459
Terminal .................................... 196,639 151,769 19,814
Selling, general and administrative ......... 120,455 100,027 78,075
1,172,662 959,134 694,348
Operating profit ............................. 49,555 38,245 31,371
Other income (expense):
Interest expense, net ....................... (3,344) (3,201) (3,698)
Other, net .................................. 1,374 1,735 308
(1,970) (1,466) (3,390)
Income before provision for income taxes ..... 47,585 36,779 27,981
Provision for income taxes ................... 18,558 14,160 10,641
Net income ...................................$ 29,027 $ 22,619 $ 17,340
Net income per common share:
Primary ....................................$ 1.58 $ 1.28 $ .99
Fully diluted ..............................$ 1.48 $ 1.21 $ .97
</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, 1995, 1994 AND 1993
Cumulative
Common Stock Capital Translation Retained Treasury
Shares Amount Surplus Adjustment Earnings Stock Total
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 .................... 19,389,673 $ 194 $ 40,777 $(10,759) $ 73,453 $ (38,289) $ 65,376
Exercise of common stock options ............. 81,627 1 378 -- -- -- 379
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 ($.125 per share) ......... -- -- -- -- (2,136) -- (2,136)
Net income for the year ...................... -- -- -- -- 17,340 -- 17,340
Balance, December 31, 1993 .................... 19,474,620 195 41,193 (12,282) 88,657 (39,644) 78,119
Exercise of common stock options ............. 145,906 1 805 -- -- -- 806
Purchase of treasury stock ................... -- -- -- -- -- (358) (358)
Translation of foreign currency
financial statements ........................ -- -- -- 840 -- -- 840
Dividends declared ($.153 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
Exercise of common stock options ............. 202,644 2 1,451 -- -- -- 1,453
Purchase of treasury stock ................... -- -- -- -- -- (990) (990)
Translation of foreign currency
financial statements ........................ -- -- -- (1,097) -- -- (1,097)
Dividends declared ($.19 per share) .......... -- -- -- -- (3,481) -- (3,481)
Net income for the year ...................... -- -- -- -- 29,027 -- 29,027
Stock issued for Radix acquisition, net ...... 979,887 10 23,911 -- -- (617) 23,304
Retirement of treasury stock ................. (2,225,177) (22) (7,196) -- (33,774) 40,992 --
Balance, December 31, 1995 .................... 18,577,880 $ 186 $ 60,164 $(12,539) $ 100,372 $ (617) $147,566
</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, 1995, 1994 AND 1993
(Dollars in thousands)
<S> <C> <C> <C>
1995 1994 1993
Cash flows from operating activities:
Net Income ...................................... $ 29,027 $ 22,619 $ 17,340
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ................. 7,794 6,224 5,333
Amortization of goodwill ...................... 1,983 1,414 973
Amortization of bond discount ................. 230 230 215
Deferred income taxes ......................... (788) (1,577) (18)
Undistributed earnings of affiliates .......... (1,449) (1,039) (140)
(Gains) losses on sales of assets, net ......... (208) 41 (116)
Changes in assets and liabilities, net
of business acquisitions:
(Increase) in accounts receivable, net ......... (26,411) (38,851) (6,439)
(Increase) decrease in other current assets .... (1,137) 850 1,415
(Increase) decrease in other assets ............ (2,081) 177 (1,807)
Increase in transportation payables ........... 19,228 25,291 2,005
(Decrease) in accounts payable ................. (5,062) (1,729) (7,788)
(Decrease) increase in accrued liabilities ..... (2,600) 10,957 719
Increase (decrease) in income taxes payable ... 216 (415) 873
Increase in other liabilities ................. 1,117 1,567 --
Total adjustments ........................... (9,168) 3,140 (4,775)
Net cash provided by operating activities ..... 19,859 25,759 12,565
Cash flows from investing activities:
Business acquisitions, net of cash acquired ..... (1,292) (14,992) (12,825)
Sales (purchases) of short-term investments ..... -- 10,109 (10,109)
(Losses) gains from hedging activities ........... (1,934) (1,110) 668
Proceeds from sales of assets ................... 606 588 353
Capital expenditures ............................ (20,389) (12,076) (4,924)
Investment in unconsolidated affiliates ......... (1,746) -- (63)
Sales (purchases) of marketable securities ...... 19,981 (19,961) --
Net cash used in investing activities ........... (4,774) (37,442) (26,900)
Cash flows from financing activities:
Net repayments under revolving credit
agreement ..................................... -- -- (5,000)
Net repayments in bank overdrafts payable ....... (841) (1,068) (1,256)
Additions to long-term debt ..................... 1,327 4,575 72,414
Payment of long-term debt ....................... (2,556) (1,776) (7,468)
Issuance of common stock ........................ 1,453 806 417
Payment of cash dividends ....................... (3,250) (2,555) (1,963)
Purchase of treasury stock ...................... (990) (358) (1,355)
Net cash (used) provided by financing
activities .................................... (4,857) (376) 55,789
Effect of foreign currency exchange
rates on cash ................................. 67 1,164 (504)
Net increase (decrease) in cash and
cash equivalents .............................. 10,295 (10,895) 40,950
Cash and cash equivalents at beginning
of year ....................................... 44,168 55,063 14,113
Cash and cash equivalents at end of year ......... $ 54,463 $ 44,168 $ 55,063
</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 (expense).
Accounting Estimates -
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Management believes these estimates do not materially affect either the
Company's results of operations or financial position.
Method of Revenue Recognition -
International revenues from 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 from 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. For both international and
domestic revenues, the above methods of revenue recognition approximate
recognizing revenues and expenses when a shipment is completed.
F-6
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
Property, Plant and Equipment -
The Company provides depreciation and amortization using 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
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 periods
not exceeding 40 years. The Company periodically evaluates the existence of
goodwill impairment on the basis of whether the goodwill is fully recoverable
based upon the projected, undiscounted, net cash flows of the related business
unit. Impairment would be recognized in operating results if permanent
diminution in value were to occur.
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.
Transportation Payables -
Transportation payables represents the Company's largest trade payables which
are mainly due to airlines, steamship and trucking companies.
Marketable Securities -
During 1995, the Company sold, for a marginal gain, all of its marketable
securities for approximately $19.8 million. The proceeds from the sale were
reinvested in financial instruments with original maturities of three months or
less and were classified as cash and cash equivalents. The marketable securities
were sold in order to take advantage of the favorable decline in long term
interest rates during the year.
In 1994, the Company adopted Statement of Financial Accounting Standard No. 115
"Accounting for Certain Investments in Debt and Equity Securities". As a result,
the Company had investments of approximately $20.0 million in U.S. Government
securities, maturing at various dates in 1996, classified as held-to-maturity
and carried at amortized cost. As of December 31, 1994, the total amortized
F-7
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
cost, gross unrealized holding losses and aggregate fair values were $19.9
million, $.4 million, and $19.5 million, respectively. There was no impact from
the adoption of this standard either on stockholders' 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.
(3) Earnings Per Share:
Primary earnings per share is computed by dividing net income by the weighted
average of the common and common share equivalents outstanding during the year.
For the years 1995, 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 for 1995 and 1994 and $2.7
million for 1993.
The primary and fully diluted earnings per share and number of common and common
share equivalents were as follows:
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Earnings per share:
Primary ................................... $ 1.58 $ 1.28 $ .99
Fully diluted ............................. $ 1.48 $ 1.21 $ .97
Common and common share
equivalents (in thousands)
Weighted average shares outstanding ....... 18,043 17,403 17,330
Common share equivalents .................. 289 227 208
Primary equivalent shares ................. 18,332 17,630 17,538
Shares issuable with respect to
subordinated convertible securities
and additional common share
equivalents ............................. 3,295 3,406 3,018
Fully diluted equivalent shares ........... 21,627 21,036 20,556
</TABLE>
F-8
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(4) Business Acquisitions:
On June 8, 1995, the Company acquired Radix Ventures, Inc. ("Radix") for 954,608
shares of Common Stock valued at approximately $23.3 million and $.5 million in
cash. Radix, through its 23 U.S. offices, was a leading provider of customs
brokerage services in the United States. Additionally, Radix provided both
airfreight and ocean freight forwarding services. For its fiscal year ended July
31, 1994, Radix generated approximately $65 million in revenues. The acquisition
has been accounted for as a purchase. Accordingly, the purchase price has been
allocated on the basis of the estimated fair market value of the assets acquired
and the liabilities assumed. This allocation has resulted in goodwill of
approximately $25.6 million. Radix's results of operations are included in the
consolidated statement of income from the acquisition date forward.
The following unaudited pro forma summary combines the results of the Company
and Radix's results of operations as if the acquisition occurred as of January
1, 1994. The pro forma information is provided for informational purposes only.
It is based upon historical information and does not necessarily reflect the
actual results that would have occurred nor is it necessarily indicative of the
future results of operations.
<TABLE>
<CAPTION>
Twelve Months Ended
December 31,
1995 1994
<S> <C> <C>
Revenues ......................... $ 1,251,919 $ 1,073,245
Net income ....................... $ 29,385 $ 23,178
Income per share:
Primary ......................... $ 1.56 $ 1.25
Fully diluted ................... $ 1.46 $ 1.19
</TABLE>
F-9
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(5) Regional Operations:
Revenues, operating profit and identifiable assets are set forth below by
geographic area. Beginning in 1995, net revenues for international shipments are
shared among the participating countries. For 1994 and 1993, amounts have been
adjusted to reflect the current allocation methodology.
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Revenues:
U.S.A ...................... $ 459,265 $ 367,249 $ 308,465
Europe ..................... 387,164 324,025 237,242
Asia and Others ............ 375,788 306,105 180,012
Total foreign ............ 762,952 630,130 417,254
Total revenues ............. $1,222,217 $ 997,379 $ 725,719
Operating profit:
U.S.A ...................... $ 17,494 $ 6,890 $ 6,927
Europe ..................... 10,301 13,338 10,028
Asia and Others ............ 21,760 18,017 14,416
Total foreign ............ 32,061 31,355 24,444
Total operating profit ..... $ 49,555 $ 38,245 $ 31,371
</TABLE>
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
<S> <C> <C> <C>
Identifiable assets:
U.S.A ...................... $ 181,464 $ 128,554 $ 117,946
Europe ..................... 142,121 121,946 96,706
Asia and Others ............ 150,030 123,756 76,569
Total foreign .............. 292,151 245,702 173,275
Investment in unconsolidated
affiliates ................. 13,228 9,370 7,595
Total identifiable assets .. $ 486,843 $ 383,626 $ 298,816
</TABLE>
At December 31, 1995, net assets of foreign subsidiaries including intercompany
accounts deemed to be long-term investments amounted to approximately $116.3
million.
F-10
<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,
1995 1994
<S> <C> <C>
Buildings and improvements ........................... $ 29,376 $ 20,659
Leasehold improvements ............................... 8,313 7,443
Automotive equipment ................................. 4,831 4,925
Furniture and fixtures ............................... 17,400 11,636
Terminal and data processing equipment ............... 31,698 26,120
91,618 70,783
Less: accumulated depreciation and amortization ...... (43,242) (37,057)
48,376 33,726
Land ................................................. 5,773 5,873
Property, plant and equipment, net ................... $ 54,149 $ 39,599
</TABLE>
(7) Revolving Credit Loan Agreement and Other Short-term
Borrowing Facilities:
In the third quarter of 1995, the Company allowed its $20.0 million revolving
credit facility agreement to expire. The Company anticipates that a syndicated
unsecured revolving credit facility for approximately $75.0 million will be
finalized during the first half of 1996.
A number of the Company's foreign subsidiaries have unsecured short-term
overdraft facilities with foreign banks which approximated $14.3 million at
December 31, 1995. The largest single facility, extended to the Company's German
subsidiary, was approximately $3.7 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, 1995, outstanding borrowings from these facilities
were approximately $.6 million.
F-11
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(8) Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Mortgage Singapore - principal paid
semi-annually through 2000, bearing
interest at 5.55% ................................. $ 6,370 $ 4,924
Convertible Subordinated Debentures
due 2003, bearing interest at 6%, net of
unamortized discount of $1,661 and $1,891 ......... 73,089 72,859
Mortgage Australia - principal of $121 paid
quarterly through 2002, bearing interest
at 10.2 % payable monthly ......................... 3,141 3,781
Mortgage Holland - principal of $59 paid
quarterly through 2002, bearing interest
at 8.51% .......................................... 1,713 1,751
Other long-term debt ............................... 1,139 2,706
85,452 86,021
Less: current portion .............................. (2,690) (2,029)
$ 82,762 $ 83,992
</TABLE>
The maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending Principal
December 31, Amount
<S> <C>
1996 $ 2,690
1997 2,397
1998 2,284
1999 2,231
2000 and beyond 75,850
$ 85,452
</TABLE>
The Singapore mortgage, payable in local currency, is secured by a warehouse
facility with a net book value of $10.3 million at December 31, 1995.
The Australia mortgage, payable in local currency, is secured by land and
building with a net book value of $6.8 million at December 31, 1995.
The Holland mortgage, payable in local currency, is secured by land and building
with a net book value of $2.7 million at December 31, 1995.
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 expense) receipts from the
F-12
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(8) Long-Term Debt - continued:
sale of the Debentures of $72.5 million. 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.
At December 31, 1995, the fair value of the Company's long-term debt amounted to
$93.1 million compared to the carrying amount of $85.5 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, 1995, 1994
and 1993 was $5.5 million, $5.2 million and $5.7 million, respectively.
(9) Common Stock Option Plans:
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 333,450 options outstanding, of which 110,000 were
exercisable at December 31, 1995. There are no options available for future
grant under this plan.
F-13
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
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 1,048,228 options outstanding, of which 182,070 were
exercisable at December 31, 1995. Options for 48,187 shares were available for
future grant at December 31, 1995 under this plan. To date no SAR'S have been
granted.
At December 31, 1995, 1,429,865 shares of common stock were reserved for
issuance pursuant to the Company's option plans.
Option activity is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Options outstanding,
beginning of year ............. 971,947 961,860
Options granted ............... 620,250 216,000
Options exercised ............. (202,644) (145,906)
Options canceled or expired ... (7,875) (60,007)
Options outstanding,
end of year ................... 1,381,678 971,947
Exercise price of
options exercised ............. $ 4.29 - $ 18.50 $ 4.26 - $ 12.92
Exercise price of options
outstanding, end of year ...... $ 7.22 - $ 23.75 $ 4.29 - $ 18.50
</TABLE>
F-14
<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,
1995 1994 1993
<S> <C> <C> <C>
Income before provision
for income taxes:
U.S .................. $ 17,538 $ 11,286 $ 7,702
Foreign .............. 30,047 25,493 20,279
$ 47,585 $ 36,779 $ 27,981
Current provision:
U.S. Federal ......... $ 6,056 $ 5,383 $ 3,227
Foreign .............. 11,803 9,215 7,041
State ................ 1,484 1,073 688
19,343 15,671 10,956
Deferred provision:
U.S. Federal ......... 334 (1,190) (337)
Foreign .............. (1,139) (158) 80
State ................ 20 (163) (58)
(785) (1,511) (315)
Total provision for
income taxes ......... $ 18,558 $ 14,160 $ 10,641
</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,
1995 1994 1993
<S> <C> <C> <C>
Net operating losses .................. $ (960) $ - $ -
Net change in allowance
for doubtfulaccounts and
other reserves ........................ (817) (2,378) (574)
Undistributed earnings of
unconsolidated affiliates ............. 453 343 (34)
Accelerated depreciation .............. 186 7 681
Net unrealized foreign
exchange gains ........................ 353 517 (388)
$ (785) $(1,511) $(315)
</TABLE>
F-15
<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 35.0% for 1995, 34.3% for 1994 and
35.0% for 1993 is attributable to the following:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Income before provision for
income taxes .................... $ 47,585 $ 36,779 $ 27,981
Tax provision computed at
statutory rate .................. $ 16,655 $ 12,615 $ 9,793
Increases (reductions) in tax
provision due to:
Net operating losses for which
no tax benefit has been
recognized ..................... 931 961 589
Goodwill amortization ........... 625 375 271
Other nondeductible expenses .... 777 645 359
Foreign income taxed at
different rates ................. (1,083) (776) (781)
State income tax, net of
Federal tax benefit ............. 1,249 910 630
Other ........................... (596) (570) (220)
Total provision for
income taxes .................... $ 18,558 $ 14,160 $ 10,641
</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, 1995:
<TABLE>
<CAPTION>
Expiring In Net Operating Losses Foreign Tax Credit
<S> <C> <C>
1998 $ 903 $ 480
1999 778 -
2000 45 -
2001 52 -
2002 73 -
2008 232 -
No Expiration 13,072 -
$ 15,155 $ 480
</TABLE>
The net operating losses consist of $3,166 incurred by the Pandair companies
prior to the December 23, 1987 acquisition and $1,852 incurred by the 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 through 1993 are currently
under review by the Internal Revenue Services (IRS). While the IRS has raised
several issues for the years 1988 through 1990 involving significant amounts of
F-16
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(10) Income Taxes - continued:
additional tax, the management 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 $104.7 million at
December 31, 1995.
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,
1995 1994
<S> <C> <C>
Deferred tax assets:
Reserve for doubtful accounts and
other operating reserves.......................... $ 5,054 $ 2,342
Net operating losses .............................. 5,687 4,139
Foreign tax credits ............................... 480 783
Depreciation ...................................... 318 382
Total deferred tax assets ......................... 11,539 7,646
Valuation allowance for deferred tax assets ....... (4,727) (4,442)
Net deferred tax asset (included in
"Deposits and Other Assets") ...................... $ 6,812 $ 3,204
Deferred tax liabilities:
Realized foreign exchange gain or loss ............ $ 750 $ 398
Depreciation ...................................... 298 91
Operating reserves ................................ 185 103
Undistributed earnings of affiliates .............. 789 336
Amortization of deductible goodwill ............... 528 525
Other ............................................. -- 19
Total deferred tax liabilities
(included in "Other Liabilities") ................. 2,550 1,472
Net deferred tax (asset) .......................... $ (4,262) $(1,732)
</TABLE>
F-17
<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 $1.6 million in 1995, $1.5 million in
1994, and $1.3 million in 1993.
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 $1.2 million in
1995, and $1.3 million for the years ended December 31, 1994 and 1993. 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 was advised by the
trustees of one multi-employer pension plan ("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 Plan and incurred a
pre-tax charge of $1.0 million for its estimated portion of the unfunded vested
liability. 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. The
trustees of this Plan have terminated the Plan effective January 31, 1996. The
Company's actual withdrawal liability, payment schedule for funding the
withdrawal liability and the assessment of the Company's proportionate minimum
funding deficiencies, if any, will be determined in 1996 or 1997.
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 pension cost for the years ended December 31, 1995, 1994 and
1993 for the Plan are as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
<S> <C> <C> <C>
Service cost .......................... $ 648 $ 543 $ 495
Interest cost ......................... 1,176 1,014 858
Actual return on assets -
(gains) losses ........................ (2,040) 2,399 (3,820)
Net amortization and deferral
of actuarial gains (losses) .......... 309 (3,840) 2,512
Net periodic pension cost ............. $ 93 $ 116 $ 45
</TABLE>
F-18
<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 1995, 1994 or 1993. The funded status of the Plan at
December 31, 1995 and 1994 is summarized below:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Actuarial present value of
benefit obligation:
Vested and non-vested benefits ............. $ 7,135 $ 6,588
Accumulated benefit obligation ............. $ 7,135 $ 6,588
Effect of anticipated salary increases ..... 7,429 6,316
Projected benefit obligation ............... 14,564 12,904
Plan assets at fair market value ............. 17,943 15,831
Unrecognized net gain ........................ $ 3,379 $ 2,927
</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
pension cost. These assumptions approximate the rates prevailing in the
applicable foreign country.
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
<S> <C> <C> <C>
Discount rate ....................................... 9 % 9 % 9 %
Rate of increase in future compensation ............. 6 % 6 % 6 %
Long-term investment return ......................... 9 % 9 % 9 %
</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, 1995, 1994 and 1993, pension expense for these plans approximated
$4.0 million, $3.1 million and $2.3 million, respectively.
The Company does not sponsor any material retirement benefits, other than
pensions. Post-employment benefits other than pensions are insignificant.
F-19
<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, 1995,
the minimum annual rentals under these long-term leases were as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
<S> <C>
1996 $ 19,739
1997 17,198
1998 11,343
1999 8,177
2000 5,573
2001 and thereafter 21,504
</TABLE>
For the years ended December 31, 1995, 1994 and 1993, rental expense for assets
leased under long-term operating lease agreements approximated $17.2 million,
$15.3 million and $12.9 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, 1995, the carrying value of
these contracts was $.4 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 1996, was $51.8
million at December 31, 1995.
Gains or losses resulting from forward exchange contracts purchased to hedge
investments in certain foreign subsidiaries are excluded from the statement of
operations and are recorded, net of tax, directly to stockholders' investment.
As a result, in 1995 the Company recognized a $.5 million loss on these
contracts compared with a $1.6 million loss in 1994.
The Company recognizes, in foreign exchange gains, net, gains and losses on
forward exchange contracts purchased to hedge certain intercompany transactions.
In 1995, the Company recognized a $.6 million pre-tax gain 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-20
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(14) Other Income (Expense):
Other income (expense) consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Gain (loss) on sales of assets, net ......... $ 208 $ (41) $ 116
Foreign exchange gains, net ................. 1,144 1,876 192
Other, net .................................. 22 (100) -
$ 1,374 $ 1,735 $ 308
</TABLE>
(15) Supplemental Disclosures of Cash Flow Information:
Interest and income taxes paid were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Interest ............... $ 5,493 $ 5,314 $ 3,389
Income Taxes ........... $ 17,647 $ 15,170 $ 10,716
</TABLE>
Non cash investing and financing activities:
In 1995, as part of the Radix acquisition, the Company issued 954,608 shares of
Common Stock valued at approximately $23.3 million (See Note 4).
(16) Quarterly Revenues and Earnings (Unaudited):
<TABLE>
<CAPTION>
Quarter
1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
Year Ended December 31, 1995
Revenues ................... $ 279,962 $ 299,387 $ 314,269 $ 328,599
Operating profit ........... $ 8,585 $ 13,048 $ 12,577 $ 15,345
Net income ................. $ 5,113 $ 7,557 $ 7,274 $ 9,083
Income per common share:
Primary .................... $ .29 $ .42 $ .39 $ .48
Fully diluted .............. $ .28 $ .39 $ .36 $ .44
Year Ended December 31, 1994
Revenues ................... $ 204,810 $ 237,999 $ 258,175 $ 296,395
Operating profit ........... $ 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
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In thousands)
Net
Balance at Write-offs Balance at
Beginning Charges Charged to End
of Period to Income Other(1) Reserves of Period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Allowance for doubtful accounts $3,290 $2,254 $ 545 $1,394 $4,695
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
<FN>
(1) Addition to the allowance for doubtful accounts is attributable to business
acquisitions which the Company made during the year.
</FN>
</TABLE>
F-22
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
No. Description Page No.
21 Subsidiaries of the Registrant 49
23 Consent of Independent Public
Accountants 50
27 Financial Data Schedule 51
<PAGE>
EXHIBIT 21
AIR EXPRESS INTERNATIONAL CORPORATION
SUBSIDIARIES OF THE REGISTRANT AT DECEMBER 31, 1995
Percent
Jurisdiction of Shares
of Owned by
Name Incorporation Direct Parent
AEI Ocean Services Corp. Delaware 100%
Air Express International USA, Inc. Delaware 100%
Radix Ventures Inc. Delaware 100%
Surface Freight Corporation Florida 100%
Votainer USA Inc. Delaware 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 (Fiji) Limited Fiji 100%
Air Express International France S.A France 100%
Air Express International GmbH Germany 100%
Air Express International (H.K.) Limited Hong Kong 100%
Air Express International (Ireland) Limited Ireland 100%
Air Express International Luxembourg Luxembourg 100%
Air Express International Holding B.V The Netherlands 100%
Air Express International Limited New Zealand 100%
Universal Airfreight AS Norway 75%
Air Express International (Panama) S.A Panama 100%
Air Express International (PNG) Pty. Limited Papua New Guinea 100%
Air Express International Corporation Del Peru S.A Peru 100%
Air Express International Singapore (Pte.) Limited Singapore 100%
Air Express International (S.A.) Pty. Limited South Africa 100%
Air Express International Limited Switzerland 100%
AEIC Air Cargo, Inc. Taiwan 100%
Air Express International (U.K.) Ltd United Kingdom 100%
Air Express International (PVT) Limited Zimbabwe 100%
<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 25, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 54,463
<SECURITIES> 0
<RECEIVABLES> 272,984
<ALLOWANCES> 4,695
<INVENTORY> 0
<CURRENT-ASSETS> 327,506
<PP&E> 97,391
<DEPRECIATION> 43,242
<TOTAL-ASSETS> 486,843
<CURRENT-LIABILITIES> 250,608
<BONDS> 82,762
<COMMON> 186
0
0
<OTHER-SE> 160,536
<TOTAL-LIABILITY-AND-EQUITY> 486,843
<SALES> 0
<TOTAL-REVENUES> 1,222,217
<CGS> 0
<TOTAL-COSTS> 855,568
<OTHER-EXPENSES> 196,639
<LOSS-PROVISION> 2,254
<INTEREST-EXPENSE> 5,999
<INCOME-PRETAX> 47,585
<INCOME-TAX> 18,558
<INCOME-CONTINUING> 29,027
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,027
<EPS-PRIMARY> 1.58
<EPS-DILUTED> 1.48
</TABLE>
