<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, 1996 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 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:
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 24, 1997 was $636,705,502.
The number of shares of common stock outstanding as of March 24, 1997 was
22,814,072.
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 1997 Annual
Meeting of Shareholders.
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AIR EXPRESS INTERNATIONAL CORPORATION
1996 Form 10-K Annual Report
Table of Contents
Part I
Page
Item 1. Business...................................................... 1
Item 2. Properties.................................................... 8
Item 3. Legal Proceedings............................................. 8
Item 4. Submission of Matters to a Vote of Security Holders and
Executive Officers of the Registrant......................... 9
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.......................................... 11
Item 6. Selected Financial Data....................................... 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 13
Item 8. Financial Statements and Supplementary Data................... 20
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures......................... 20
Part III
Item 10. Directors and Executive Officers of the Registrant............ 20
Item 11. Executive Compensation........................................ 20
Item 12. Security Ownership of Certain Beneficial Owners
and Management............................................... 20
Item 13. Certain Relationships and Related Transactions................ 20
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.................................................. 21
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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 and a leading provider of global logistics services for importers and
exporters worldwide. The Company is primarily engaged in providing cargo
transportation logistics management, including international air and ocean
freight forwarding, customs brokerage and warehousing and distribution services.
Beyond its traditional freight forwarding and customs brokerage services, the
Company's value-added logistics services and information systems help its
customers to streamline operations, reduce inventories, increase speed and
reliability of worldwide deliveries and, ultimately, improve management of the
customers' supply chain.
Through its global network of Company-operated facilities and agents, the
Company provides total integrated transportation logistics solutions centered
around the consolidation, documentation and arrangements for the transportation
of its customers' shipments of cargo throughout the world. During 1996, the
Company handled more than 1,839,000 individual airfreight shipments, with an
average weight of 535 pounds, to more than 3,000 cities in more than 200
countries. Approximately 58% of the total airfreight shipments for 1996 were
attributable to locations outside the United States. The Company generated gross
revenues in excess of $1.3 billion in 1996, of which approximately 62% was
attributable to locations outside the United States.
Headquartered in the United States, the Company has a global network with
offices located in over 876 cities, including 273 cities in the United States,
186 cities in Europe and 417 cities in Asia, the South Pacific, the Middle East,
Africa and Latin America. As of December 31, 1996, this network consisted of 250
Company-operated facilities, including 99 in the United States and 151 abroad,
supplemented at 626 additional locations, 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 74% of the Company's 53 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' cargo transportation and integrated
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 The
Netherlands. In July 1993, the Company acquired the Votainer group of companies
("Votainer"), a Non-Vessel Operating Common Carrier ("NVOCC") based in The
Netherlands, 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
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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. In March
1996, the Company acquired all of the outstanding stock of the Profreight group
of companies, a customs broker and air and ocean freight forwarder in South
Africa. In April 1996, the Company acquired Lusk Shipping Company, Inc., a New
Orleans, Louisiana-based ocean freight forwarder and customs broker. In May
1996, the Company purchased the business and certain assets of John V. Carr &
Son, Inc. ("J.V. Carr"), a United States and Canadian customs broker. In May
1996, the Company acquired an additional 50% of the outstanding stock of AEI
Finland Oy, bringing its ownership of this Finland-based air and ocean freight
forwarder to approximately 90%. In November 1996, the Company acquired Muller
Airfreight B.V., an air and ocean freight forwarder based in The Netherlands.
The acquisitions were consistent with the Company's strategy of strengthening
its market position, further enhancing its operating efficiencies and providing
its customers with a global logistics solution encompassing a broad range of
transportation and distribution-related services.
(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
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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. In 1996 the Company handled more than 95,000 containers.
Customs Brokerage Services
The Company provides customs brokerage clearance services in the United States
and 21 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.
In June 1995, the Company acquired Radix Ventures, Inc. ("Radix") which, through
its subsidiary, Radix Group International, Inc., is a leading United States
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.
In May 1996, the Company purchased the business and certain assets of John V.
Carr & Son, Inc, a U.S. and Canadian customs broker which primarily serves the
U.S. - Canada border with 32 offices in 25 U.S. and two Canadian cities. Since
the acquisition of Radix, the Company has continued to maintain and expand its
United States 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 1996, the Company processed approximately 1,579,000 customs entries of which
806,566 were in the United States; in 1995, it processed 905,000 entries of
which 173,000 were in the United States; and in 1994, 729,000 entries were
processed of which 63,000 were in the United States. The primary reason for the
increase in 1996 was attributable to the acquisition of J.V. Carr and the
inclusion of a full year of Radix business.
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Integrated Global Logistics Services
In addition to providing air and ocean freight forwarding and customs brokerage
services, the Company provides its import and export customers with an array of
fully integrated global logistics services, including, most notably, warehousing
and distribution services and its proprietary logistics information system for
global freight tracking and tracing. Other total logistics services offered by
the Company include extensive ground transportation capabilities enabling
door-to-door pickup and freight delivery; duty drawback; Free Trade Zone
management and associated services; information management services such as
electronic data interchange (EDI), electronic invoicing and purchase order
management; inventory management; cargo consolidation, deconsolidation, assembly
and protective packing; bonded warehousing; project cargo management; and cargo
insurance coverage.
Warehousing and Distribution
The Company owns and leases warehouse space with major facilities in the U.S.,
The Netherlands, U.K., Germany, United Arab Emirates, New Zealand, Australia,
Singapore, Malaysia and South Africa. The Company's warehousing services include
receiving, deconsolidation and decontainerization, cargo loading and unloading,
assembly of freight, customer inventory management and protective packing and
storage. The Company receives storage charges for use of its warehouses and fees
for other services. In 1996, warehouse and distribution services contributed
approximately 2% of gross revenues and net revenues.
Logistics Information System (LOGIS)
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 337 of its Company-operated and agent facilities 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, 1996, the LOGIS system permitted electronic interfacing with more
than 1,300 of the Company's major customers' locations in 39 countries, 50
international airlines and customs authorities in the United States, United
Kingdom, Australia, New Zealand, Belgium, Germany 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 converts the data
automatically into shipping documents. Where LOGIS is linked
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to customs in the country of destination, it can prepare customs declarations,
calculate the appropriate customs duties and provide for automatic customs
invoicing and clearance.
The LOGIS system has enabled the Company to improve the productivity of its
personnel and the quality of its customer service and has enabled many of its
customers to manage their freight transportation logistics needs more
effectively. The system has resulted in substantial reductions in paperwork and
expedited the entry, processing, retrieval and dissemination of critical
information. The Company 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.
Operations
The Company has a global network of Company-operated facilities and supporting
agents with offices located in over 876 cities, including 273 in the United
States, 186 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, 1996,
approximately 62% of its gross revenues and 57% of its 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 for 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 1996, shipments for which the Company acted as a cargo agent
accounted for less than 2% of its revenues.
The Company also offers door-to-door express delivery among 20 European
countries through its Pandalink service which operates from a central hub in
Brussels. Pandalink operates predominately as an overnight service to major
European cities, with alternative delivery services to outlying areas within 48
to 72 hours.
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Quality Initiatives
The Company maintains a department focused on implementing quality initiatives
to better serve its customers' needs. In 1996, more than 90% of the Company's
revenues were handled by International Organization for Standardization ("ISO")
9002 certified offices. ISO is a stringent set of internationally recognized
quality assurance guidelines. The Company is committed to a broad program to
maintain and to increase its ISO 9002 certifications. The Company also sponsors
a Shippers' Council to stimulate discussion among customers aimed at
identifying, upgrading and standardizing the Company's and the industry's best
practices.
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 1996, the
Company shipped goods and provided logistics services for more than 200,000
customer accounts, none of which accounted for more than 5% of the Company's
revenues.
The Company markets its global cargo transportation and integrated logistics
services worldwide through an international sales organization consisting of
approximately 520 full-time salespersons (as of December 31, 1996), supported by
the sales efforts of senior management and the Company's country, regional, 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 cargo.
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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, 1996, the Company employed 6,747 people, of whom 4,188 were
based at locations outside the United States, including 1,878 in the United
Kingdom and Europe, 1,084 in Asia and 1,226 in the South Pacific, South America,
Africa and Canada. Approximately 664 of the Company's 2,559 employees based in
the United States 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 22% of the Company's foreign-based personnel are represented by
various types of collective bargaining organizations. The Company maintains a
good working relationship with its employees.
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(d) Financial Information About Foreign and Domestic Operations
See the Company's Consolidated Financial Statements including the Notes thereto
for data related to the Company's revenues, operating profit and 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 $2.8 million mortgage, a warehouse and distribution facility
(approximately 59,000 square feet in area) in Venlo, Holland, which is subject
to a $1.3 million mortgage, a warehouse and distribution facility (approximately
150,000 square feet in area) in Singapore, which is subject to a $5.0 million
mortgage, and a warehouse and office facility (approximately 43,000 square feet
in area) in Johannesburg, South Africa.
The Company leases facilities at or near airports, ocean terminals and
international borders at 71 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 164,000 sq. ft. of warehouse and office 1998/1999
Frankfurt, Germany 37,000 sq. ft. of warehouse and office 2007
London, England 93,000 sq. ft. of warehouse and office 2002
Los Angeles, California 127,000 sq. ft. of warehouse and office 2001
Miami, Florida 255,000 sq. ft. of warehouse and office 1999/2006
New York, New York 90,000 sq. ft. of warehouse and office 1999
San Francisco, California 78,000 sq. ft. of warehouse and office 1998/2000
Johannesburg, South Africa 55,000 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 27, 1997 by each
executive officer of the Company. There are no family relationships between any
Director or officer of the Company.
Positions with the Company and
Business Experience for the
Name Age Past Five Years
Hendrik J. Hartong, Jr. 57 Chairman of the Company since 1985;
(Chief Executive Officer of the
Company from 1985 through 1989);
General Partner since 1985 of The
Brynwood Management Limited
Partnerships, which serve, as
managing general partners of The
Brynwood Partners Limited
Partnerships, private investment
partnerships; Director of Hurco
Companies, Inc.
Guenter Rohrmann 57 President and Chief Executive Officer
of the Company since 1989 (President
and Chief Operating Officer from 1985
to 1989).
Dennis M. Dolan 39 Vice President and Chief Financial
Officer of the Company since 1989;
U.S. Controller from 1985 to 1989.
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Giorgio Laccona 38 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 62 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 51 Vice President - Treasurer of the
Company since 1993; Vice President-
International Controller from 1989
to 1993.
Walter L. McMaster 64 Vice President and Controller of the
Company since 1983; U.S. Controller
from 1974 to 1983.
Robert J. O'Connell 60 Senior Vice President since 1996;
Vice President - General Manager -
North America of the Company from
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
The Company's common stock, $.01 par value (the "Common Stock"), trades on The
Nasdaq Stock Market under the symbol: AEIC.
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, 1996 and
1995.
<TABLE>
<CAPTION>
Quarter
1st 2nd 3rd 4th
Year Ended December 31, 1996:
<S> <C> <C> <C> <C>
High .............................. $ 26 1/4 $ 29 1/4 $ 29 $ 34 1/2
Low ............................... $ 20 $ 25 1/2 $ 23 1/2 $ 28
Dividends ......................... $ .05 $ .06 $ .06 $ .06
Year Ended December 31, 1995:
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
</TABLE>
At March 24, 1997, there were 948 holders of record of the Company's Common
Stock. The closing price of the Common Stock on that date was $30.375 per share.
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Item 6. Selected Financial Data
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Revenues ...................... $1,335,447 $1,222,217 $997,379 $725,719 $672,287
Net income .................... $ 38,500 $ 29,027 $ 22,619 $ 17,340 $ 18,633
Net income per common share: (1)
Primary .................... $ 1.81 $ 1.58 $ 1.28 $ .99 $ 1.08
Fully diluted .............. $ 1.72 $ 1.48 $ 1.21 $ .97 $ 1.08
Cash dividends declared per
common share ................ $ .23 $ .19 $ .153 $ .125 $ .085
Total assets .................. $ 581,329 $ 486,843 $383,626 $298,816 $211,721
Long-term debt
(excluding current portion) ... $ 16,616 $ 82,762 $ 83,992 $ 78,464 $ 7,120
Stockholders' investment ...... $ 259,086 $ 147,566 $ 99,350 $ 78,119 $ 65,376
</TABLE>
(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 July 1992 and December 1994 and are based upon the weighted average
number of shares of Common Stock outstanding during each period.
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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, 1996 decreased to $46.5 million
compared to $54.5 million at December 31, 1995. The Company's primary sources of
cash in 1996 consisted of $16.8 million provided by operating activities and
$11.3 million from short and long-term borrowings. The Company's primary uses of
cash in 1996 were for business acquisitions of $15.4 million, capital
expenditures of $13.8 million and dividend payments of $4.6 million. Working
capital increased approximately $23.3 million (30.3%) to $100.2 million at
December 31, 1996 from $76.9 million at December 31, 1995 primarily due to the
increase in the excess of trade receivables over trade payables. The Company
makes significant disbursements on behalf of its customers, such as customs
duties, which are billed directly to the Company's customers. The billings for
these disbursements, which may be several times the amount of revenue and fees
derived from these transactions, are not recorded as revenue and expense in the
Company's income statement.
Capital expenditures decreased approximately $6.6 million from $20.4 million for
1995 to $13.8 million for 1996. The decrease was primarily due to expenditures
incurred during the first nine months of 1995 for the Company's new warehouse
and distribution facility in Singapore which was completed during the third
quarter of 1995. The $13.8 million of capital expenditures were primarily for
facility improvements and management information systems. Depreciation and
amortization expense (including goodwill amortization) totaled $12.7 million in
1996 and $9.8 million in 1995. Capital expenditures for 1997 are estimated to be
approximately $21.0 million and will be primarily for improvement and expansion
of facilities and management information systems.
During 1996, the Company acquired five companies in separate transactions. Four
of the acquisitions were accounted for as purchases and one as a pooling of
interest (See Note 4 to the Consolidated Financial Statements).
In June 1996, the Company secured a $75 million revolving credit facility (See
Note 7 to the Consolidated Financial Statements). At December 31, 1996, the
Company was utilizing approximately $2.6 million under this facility primarily
for letters of credit issued in connection with the Company's insurance
programs. Additionally, at December 31, 1996, various of the Company's foreign
subsidiaries maintained overdraft facilities with foreign banks, aggregating
approximately $15.6 million, of which approximately $2.1 million was
outstanding.
On July 8, 1996, the Company completed the redemption for all of its 6.0%
Convertible Subordinated Debentures (See Note 8 to the Consolidated Financial
-13-
<PAGE>
Statements). As a result, the Company's Stockholders' Investment increased
approximately $74.3 million and, correspondingly, its debt to equity ratio
(total long-term debt as a percentage of stockholders' investment) decreased
from 57.9% at December 31, 1995 to 7.9% at December 31, 1996. During the second
quarter of 1996, the Company's Board of Directors authorized an increase in the
quarterly cash dividend from five cents ($.05) to six cents ($.06) per share.
The Company purchases foreign currency forward exchange contracts principally to
hedge foreign currency exposure associated with net investments in certain
foreign operations and certain intercompany transactions. The Company does not
speculate in the financial markets and therefore does not hold these contracts
for trading purposes (See Note 13 to the Consolidated Financial Statements).
Management believes that the Company's available cash and sources of credit,
together with expected future sources of credit and cash generated from
operations, will be sufficient to satisfy its anticipated needs for working
capital, capital expenditures and dividends.
Results of Operations
1996 Compared to 1995
The Company considers its total business to represent a single segment comprised
of three major services: airfreight forwarding, ocean freight forwarding, and
customs brokerage and other services, all of which are fully integrated. The
following table sets forth the gross revenues and net revenues (gross revenues
minus transportation expenses) for each of these three service categories, as
well as the Company's internal operating expenses (terminal and selling, general
and administrative expenses) and operating profit:
<TABLE>
<CAPTION>
1996 1995
($ in millions)
Gross Revenues:
<S> <C> <C>
Airfreight ..................................... $1,026.5 $ 972.6
Ocean freight .................................. 190.1 166.2
Customs brokerage
and other .................................... 118.9 83.4
Total Gross Revenues ............................. $1,335.5 $1,222.2
Net Revenues:
Airfreight ..................................... $ 274.5 $ 245.7
Ocean freight .................................. 51.9 38.8
Customs brokerage
and other .................................... 106.0 82.1
Total Net Revenues ............................... 432.4 366.6
Internal Operating Expenses:
Terminal ....................................... 234.6 196.6
Selling, general and administrative ............ 139.0 122.6
Total Internal Operating Expenses ................ 373.6 319.2
Operating Profit ................................. $ 58.8 $ 47.4
</TABLE>
-14-
<PAGE>
Gross revenues increased $113.3 million (9.3%) in 1996 over 1995, reflecting
increases of $53.9 million (5.5%) in airfreight revenues, $23.9 million (14.4%)
in ocean freight revenues and $35.5 million (42.6%) in customs brokerage and
other revenues. Net revenues increased $65.7 million (17.9%) to $432.4 million
in 1996 and was comprised of increases of $28.7 million (11.7%) in airfreight
net revenues, $13.1 million (33.8%) in ocean freight net revenues and $23.9
million (29.1%) 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
(3.7%) and the total weight of cargo shipped increased (7.0%) over 1995, 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 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
acquisitions of Radix in June 1995 and J.V. Carr in May 1996.
The Company's internal operating expenses increased $54.3 million (17.0%) in
1996 over 1995. The increase was attributable to the inclusion of operating
expenses from acquired companies and the greater volume of shipments handled. As
a percentage of gross revenues, internal operating expenses increased to 28.0%
from 26.1% in 1995, due largely to the inclusion of the operating expenses
related to the customs brokerage operations of Radix and J.V. Carr. However, due
to the higher level of customs brokerage revenues, for which gross and net
revenues are the same, internal operating expenses, as a percentage of net
revenues, decreased to 86.4% in 1996 from 87.1% in 1995.
Consolidated operating profit increased $11.4 million (24.1%) over 1995, due
primarily to significant improvement in operating profits in the Company's
European region and its Asia and Others region (See Note 5 to the Consolidated
Financial Statements).
Interest expense, net decreased $2.1 million to $1.3 million in 1996 due
primarily to the conversion of the Company's 6.0% Convertible Subordinated
Debentures (See Note 8 to the Consolidated Financial Statements). Other, net
increased $1.1 million to $4.6 million in 1996, due primarily to increased
earnings from unconsolidated affiliates and foreign exchange gains (See Note 14
to the Consolidated Financial Statements).
The Company's effective income tax rate for 1996 decreased to 38.0% compared to
39.0% in 1995. The decrease in the effective income tax rate was largely the
result of reduced losses incurred by certain foreign subsidiaries for which
there were no tax benefits available, and the utilization of net operating loss
carryforwards by other foreign subsidiaries. The Company's effective income tax
rate fluctuates 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.
-15-
<PAGE>
United States Operations
United States revenues increased $52.5 million (11.4%) to $511.8 million in 1996
compared to 1995, reflecting increases of $19.2 million (5.0%) in airfreight
revenues, $12.1 million (25.3%) in ocean freight revenues and $21.2 million
(76.1%) in customs brokerage and other revenues. The increase in airfreight
revenues was due to an 11.0% 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 and other revenues was largely attributable to the
inclusion of business from Radix, which was acquired in June of 1995 and J.V.
Carr in May of 1996.
United States internal operating expenses increased $47.7 million (39.9%) over
1995. The increase was primarily the result of the inclusion of expenses from
acquired companies, particularly J.V. Carr, increased volume of transactions
handled, and the on-going integration and expansion of management information
systems and facilities. The higher expenses resulted in a marginal increase in
United States operating profit of $.5 million (2.8%) over 1995.
Foreign Operations
Foreign revenues increased $60.7 million (8.0%) in 1996 over 1995. The increase
in foreign revenues was negatively impacted by approximately $12.9 million due
to the effect of a stronger U.S. dollar when converting foreign currency
revenues into U.S. dollars for financial reporting purposes. European revenues
increased $22.9 million (5.9%) over 1995, due to increases of $16.5 million
(5.2%) in airfreight revenues, $2.1 million (4.5%) in ocean freight revenues and
$4.3 million (17.1%) in customs brokerage and other revenues. Revenues in the
Asia and Others region increased $37.9 million (10.1%) in 1996 over 1995,
reflecting increases of $18.2 million (6.7%) in airfreight revenues, $9.7
million (13.3%) in ocean freight revenues and $10.0 million (33.3%) in customs
brokerage and other 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 and other revenues increased primarily due to the increase in the
number of import clearances.
Foreign operating profit increased $10.9 million (35.3%) over 1995 to $41.7
million. The European region's operating profit increased $5.8 million (51.8%)
over 1995, while the Asia and Others region's operating profit increased $5.1
million (26.0%) over 1995. The increase in European operating profit was
attributable to the higher revenues as airfreight shipments increased 4.3% and
the weight of cargo shipped increased 4.0%, coupled with management initiatives
to reduce internal operating expenses in selected European countries in the last
quarter of 1995 and first half of 1996. The increase in Asia and Others
operating profit was largely attributable to greater shipping volumes.
-16-
<PAGE>
Results of Operations
1995 Compared to 1994
The following table sets forth the gross revenues and net revenues for each
service category, as well as the Company's internal operating expenses and
operating profit:
<TABLE>
<CAPTION>
1995 1994
($ in millions)
Gross Revenues:
<S> <C> <C>
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 ....................................... $ 245.7 $204.5
Ocean freight .................................... 38.8 28.2
Customs brokerage
and other ...................................... 82.1 57.3
Total Net Revenues ................................. 366.6 290.0
Internal Operating Expenses:
Terminal ......................................... 196.6 151.7
Selling, general and administrative .............. 122.6 101.4
Total Internal Operating Expenses .................. 319.2 253.1
Operating Profit ................................... $ 47.4 $ 36.9
</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 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
-17-
<PAGE>
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.
The Company's internal operating expenses increased $66.2 million (26.2%) 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 26.1% from 25.4% in 1994, due
largely to the inclusion of operating expenses related to Radix's customs
brokerage operations. However, due to the higher level of customs brokerage
revenues, for which gross and net revenues are the same, internal operating
expenses, as a percentage of net revenues, decreased to 87.1% from 87.3% in
1994.
Consolidated operating profit increased $10.5 million (28.5%) 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 impacted 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.
Interest expense, net increased $.1 million to $3.3 million in 1995. Other, net
increased $.4 million to $3.5 million in 1995 (See Note 14 to the Consolidated
Financial Statements).
The Company's effective income tax rate for 1995 was 39.0% compared to 38.5% in
1994. The increase in the effective income 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 income tax rate fluctuates 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.
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 and other 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.
-18-
<PAGE>
United States operating profit in 1995 increased $9.7 million (141.0%) 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 (22.0%) in airfreight
revenues, $5.6 million (14.0%) in ocean freight revenues and $.4 million in
customs brokerage and other 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 and other 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.
Foreign operating profit was $30.8 million compared to $30.0 million in 1994.
The increase was attributable entirely to the Asia and Others region, where
operating profit increased $3.0 million (17.8%) over 1994, offsetting a decline
of $2.2 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.
-19-
<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
1997 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
1997 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
1997 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
1997 Annual Meeting of Shareholders is incorporated herein by reference.
-20-
<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, 1996 and 1995. F-2
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994. F-3
Consolidated Statements of Stockholders' Investment for the
years ended December 31, 1996, 1995 and 1994. F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994. F-5
Notes to Consolidated Financial Statements. F-6
(2) Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts. F-23
All other financial statement schedules are omitted because they are not
applicable, not required, or because the required information is included in the
Company's Consolidated Financial Statements or Notes thereto.
Separate financial statements of the Company have been omitted since less
than 25% of the net assets of its subsidiaries and equity investments are
formally restricted from being loaned, advanced or distributed to the holding
company.
-21-
<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).
-22-
<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).
g. Air Express International Corporation Employees' 1996 Incentive
Stock Option Plan, approved by the Shareholders of the Company on
June 20, 1996 (Incorporated herein by reference to the Company's
Proxy Statement dated May 17, 1996, furnished to stockholders in
connection with the Annual Meeting of Stockholders held on June 20,
1996).
21. 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.
-23-
<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 28, 1997
-24-
<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 28, 1997
(John M. Fowler)
/s/ Hendrik J. Hartong, Jr. Chairman of the Board
(Hendrik J. Hartong, Jr.) of Directors March 28, 1997
/s/ Donald J. Keller Director March 28, 1997
(Donald J. Keller)
/s/ Andrew L. Lewis IV Director March 28, 1997
(Andrew L. Lewis IV)
/s/ Richard T. Niner Director March 28, 1997
(Richard T. Niner)
/s/ John Radziwill Director March 28, 1997
(John Radziwill)
/s/ Guenter Rohrmann President, Chief Executive
(Guenter Rohrmann) Officer and Director
(Principal Executive Officer) March 28, 1997
/s/ Noel E. Vargas Director March 28, 1997
(Noel E. Vargas)
-25-
<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, 1996 and 1995, and the related consolidated statements of
operations, stockholders' investment and cash flows for each of the three years
in the period ended December 31, 1996. 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, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996 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 27, 1997
F-1
<PAGE>
<TABLE>
<CAPTION>
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(Dollars in thousands)
1996 1995
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents ........................... $ 46,516 $ 54,463
Accounts receivable (less allowance for
doubtful accounts of $4,721 and $4,695) ............ 346,323 268,289
Other current assets ................................ 6,295 4,754
Total current assets ............................ 399,134 327,506
Investment in unconsolidated affiliates .............. 13,991 13,228
Property, plant and equipment (less accumulated
depreciation and amortization of $53,455
and $43,242) ....................................... 61,112 54,149
Deposits and other assets ............................ 15,226 12,999
Goodwill (less accumulated amortization
of $10,673 and $8,269) ............................. 91,866 78,961
Total assets .................................... $ 581,329 $ 486,843
Liabilities and stockholders' investment
Current liabilities:
Current portion of long-term debt ................... $ 3,915 $ 2,690
Bank overdrafts payable ............................. 2,058 620
Transportation payables ............................. 166,686 149,536
Accounts payable .................................... 50,201 41,625
Accrued liabilities ................................. 61,347 45,556
Income taxes payable ................................ 14,691 10,581
Total current liabilities ....................... 298,898 250,608
Long-term debt ...................................... 16,616 82,762
Other liabilities ................................... 6,729 5,907
Total liabilities ............................... 322,243 339,277
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 22,786,341 and 18,577,880 shares) .. 228 186
Capital surplus ..................................... 137,174 60,164
Cumulative translation adjustments .................. (15,633) (12,539)
Retained earnings ................................... 137,989 100,372
259,758 148,183
Less: 27,305 and 25,279 shares of treasury
stock, at cost .................................. (672) (617)
Total stockholders' investment .................. 259,086 147,566
Total liabilities and stockholders' investment .. $ 581,329 $ 486,843
See Notes to Consolidated Financial Statements.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in thousands)
1996 1995 1994
<S> <C> <C> <C>
Revenues ................................. $ 1,335,447 $ 1,222,217 $ 997,379
Operating expenses:
Transportation ......................... 903,016 855,568 707,338
Terminal ............................... 234,636 196,639 151,769
Selling, general and administrative .... 139,040 122,603 101,398
1,276,692 1,174,810 960,505
Operating profit ......................... 58,755 47,407 36,874
Other income (expense):
Interest expense, net .................. (1,277) (3,344) (3,201)
Other, net ............................. 4,618 3,522 3,106
3,341 178 (95)
Income before provision for income taxes . 62,096 47,585 36,779
Provision for income taxes ............... 23,596 18,558 14,160
Net income ............................... $ 38,500 $ 29,027 $ 22,619
Net income per common share:
Primary ................................ $ 1.81 $ 1.58 $ 1.28
Fully diluted .......................... $ 1.72 $ 1.48 $ 1.21
See Notes to Consolidated Financial Statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Cumulative
Common Stock Capital Translation Retained Treasury
Shares Amount Surplus Adjustments Earnings Stock Total
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 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
Exercise of common stock options......... 142,711 1 1,843 - - - 1,844
Purchase of treasury stock............... - - - - - (55) (55)
Translation of foreign currency
financial statements .................. - - - (3,094) - - (3,094)
Dividends declared ($.23 per share)...... - - - - (5,016) - (5,016)
Net income for the year.................. - - - - 38,500 - 38,500
Stock issued for Muller acquisition...... 25,000 - 802 - - - 802
Stock issued for Lusk acquisition -
acquired under pooling of interests..... 749,994 8 71 - 4,133 - 4,212
Conversion of convertible
subordinated debentures................. 3,290,756 33 74,294 - - - 74,327
Balance, December 31, 1996.................. 22,786,341 $ 228 $ 137,174 $ (15,633) $ 137,989 $ (672) $ 259,086
</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, 1996, 1995 AND 1994
(Dollars in thousands)
<S> <C> <C> <C>
1996 1995 1994
Cash flows from operating activities:
Net Income ......................................$ 38,500 $ 29,027 $ 22,619
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ............... 10,310 7,794 6,224
Amortization of goodwill .................... 2,370 1,983 1,414
Amortization of bond discount ............... 115 230 230
Deferred income taxes ....................... 1,352 (788) (1,577)
Equity in earnings of unconsolidated
affiliates ................................ (1,276) (1,449) (1,039)
(Gains) losses on sales of assets ............ (164) (208) 41
Changes in assets and liabilities, net of
business acquisitions:
(Increase) in accounts receivable, net ....... (50,627) (26,411) (38,851)
(Increase) decrease in other current assets .. (91) (1,137) 850
(Increase) decrease in other assets .......... (803) (2,081) 177
Increase in transportation payables ......... 1,705 19,228 25,291
(Decrease) in accounts payable ............... (489) (5,062) (1,729)
Increase (decrease) in accrued liabilities .. 11,700 (2,600) 10,957
Increase (decrease) in income taxes payable . 4,044 216 (415)
Increase in other liabilities ............... 192 1,117 1,567
Total adjustments ......................... (21,662) (9,168) 3,140
Net cash provided by operating activities ... 16,838 19,859 25,759
Cash flows from investing activities:
Business acquisitions, net of cash acquired ..... (15,393) (1,292) (14,992)
Sales of short-term investments ................. -- -- 10,109
Other investing activities ...................... (1,653) (1,934) (1,110)
Proceeds from sales of assets ................... 436 606 588
Capital expenditures ............................ (13,826) (20,389) (12,076)
Investment in unconsolidated affiliates ......... (70) (1,746) --
Sales (purchases) of marketable securities ...... -- 19,981 (19,961)
Net cash used in investing activities ....... (30,506) (4,774) (37,442)
Cash flows from financing activities:
Net borrowings (repayments) in bank
overdrafts payable ............................. 1,523 (841) (1,068)
Additions to long-term debt ..................... 9,737 1,327 4,575
Payment of long-term debt ....................... (1,904) (2,556) (1,776)
Issuance of common stock ........................ 1,844 1,453 806
Payment of cash dividends ....................... (4,581) (3,250) (2,555)
Purchase of treasury stock ...................... (55) (990) (358)
Net cash provided (used) by
financing activities ...................... 6,564 (4,857) (376)
Effect of foreign currency exchange rates
on cash .......................................... (843) 67 1,164
Net (decrease) increase in cash and
cash equivalents ................................. (7,947) 10,295 (10,895)
Cash and cash equivalents at beginning of year ..... 54,463 44,168 55,063
Cash and cash equivalents at end of year ...........$ 46,516 $ 54,463 $ 44,168
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(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 as "Cumulative Translation Adjustments" in
a separate component of stockholders' investment. Translation gains or losses of
the Company's entities which operate in highly inflationary economies are
included in the income statement as a component of Other, net.
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 United States 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. When deemed necessary, the Company analyzes the value of
goodwill 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 represent the Company's largest trade payables which are
mainly due to airlines, steamship and trucking companies.
Reclassification -
Certain prior year amounts were reclassified to conform with the current year
presentation.
F-7
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(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 were restated to reflect the
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 1996, 1995 and 1994, fully diluted earnings per share were
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 approximated $1.5 million for 1996 and $2.9 million for
1995 and 1994. The $1.4 million decrease in net interest expense in 1996, as
compared with 1995 and 1994, resulted from the Company's conversion of its 6.0%
Convertible Subordinated Debentures (See Note 8).
The primary and fully diluted earnings per share and number of common and common
share equivalents were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
Earnings per share:
<S> <C> <C> <C>
Primary ..................................... $ 1.81 $ 1.58 $ 1.28
Fully diluted ............................... $ 1.72 $ 1.48 $ 1.21
Common and common share
equivalents (in thousands)
Weighted average shares outstanding ......... 20,918 18,043 17,403
Common share equivalents .................... 392 289 227
Primary equivalent shares ................... 21,310 18,332 17,630
Shares issuable with respect to
subordinated convertible securities
and additional common share
equivalents ............................... 1,889 3,295 3,406
Fully diluted equivalent shares ............. 23,199 21,627 21,036
</TABLE>
F-8
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(4) Business Acquisitions:
During 1996, the Company acquired five companies in separate transactions. Four
of the acquisitions were accounted for as purchases and one as a pooling of
interest. In March, the Company acquired all the outstanding stock of the
Profreight group of companies, a customs broker and air and ocean freight
forwarder in South Africa. In May, the Company made two acquisitions. The first
was John V. Carr & Son, Inc., a United States and Canadian customs broker, of
which the Company acquired the business and certain assets. The second was AEI
Finland Oy, a Finland based air and ocean freight forwarder, of which the
Company acquired an additional 50% of the outstanding stock bringing its
ownership to approximately 90%. In November, the Company acquired all the
outstanding stock of Muller Air Freight B.V., a provider of air and ocean
freight forwarding, warehousing and distribution and related logistic services
in The Netherlands. The total paid for these four acquisitions approximated
$19.2 million which included 25,000 shares of the Company's Common Stock valued
at approximately $.8 million issued in connection with the Muller acquisition.
The total cost in excess of the net assets acquired for these four acquisitions
of approximately $15.3 million is being amortized over 40 years. The results of
operations of these acquisitions were included in the Consolidated Statement of
Operations from the dates of acquisitions. Additionally, in April, the Company
acquired Lusk Shipping Company, Inc., a New Orleans, Louisiana based ocean
freight forwarder and customs broker for 749,994 shares of the Company's Common
Stock. The acquisition was accounted for as a pooling of interest. The combined
effect of these acquisitions did not have a material pro forma impact on either
the Company's results of operations or financial position.
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. The acquisition was accounted for as a purchase. Accordingly, the purchase
price was allocated on the basis of the estimated fair market value of the
assets acquired and the liabilities assumed. This allocation resulted in
goodwill of approximately $26.4 million. Radix's results of operations were
included in the consolidated statement of income from the acquisition date
forward.
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.
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
Revenues:
<S> <C> <C> <C>
U.S.A .......................... $ 511,759 $ 459,265 $ 367,249
Europe ......................... 410,027 387,164 324,025
Asia and Others ................ 413,661 375,788 306,105
Total foreign ................ 823,688 762,952 630,130
Total revenues ................. $1,335,447 $1,222,217 $ 997,379
Operating profit:
U.S.A .......................... $ 17,107 $ 16,636 $ 6,890
Europe ......................... 16,943 11,159 13,338
Asia and Others ................ 24,705 19,612 16,646
Total foreign ................. 41,648 30,771 29,984
Total operating profit ......... $ 58,755 $ 47,407 $ 36,874
</TABLE>
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
Identifiable assets:
<S> <C> <C> <C>
U.S.A ................................ $214,959 $181,464 $128,554
Europe ............................... 171,708 142,121 121,946
Asia and Others ...................... 180,671 150,030 123,756
Total foreign ...................... 352,379 292,151 245,702
Investment in unconsolidated
affiliates ......................... 13,991 13,228 9,370
Total identifiable assets ............ $581,329 $486,843 $383,626
</TABLE>
At December 31, 1996, net assets of foreign subsidiaries including intercompany
accounts deemed to be long-term investments amounted to approximately $138.2
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,
1996 1995
<S> <C> <C>
Buildings and improvements ......................... $ 29,258 $ 29,376
Leasehold improvements ............................. 10,319 8,313
Automotive equipment ............................... 5,149 4,831
Furniture and fixtures ............................. 21,276 17,400
Terminal and data processing equipment ............. 42,202 31,698
108,204 91,618
Less: accumulated depreciation and amortization .... (53,455) (43,242)
54,749 48,376
Land ............................................... 6,363 5,773
Property, plant and equipment, net ................. $ 61,112 $ 54,149
</TABLE>
(7) Revolving Credit Loan Agreement and Other Short-term
Borrowing Facilities:
In June 1996, the Company entered into a $75.0 million unsecured Revolving
Credit Loan Agreement (the "Agreement"). The Agreement with a syndicated group
of U.S. banks has a three year maturity which expires in June 1999 with the
option to extend annually on the anniversary date. The interest charged on
borrowings is the bank's prime rate, or London Interbank Offered Rate (LIBOR)
plus .25% to .50% per annum. The Company is required to pay an annual facility
fee at a variable rate of .12% to .25% on the maximum amount available under the
Agreement. Among the various covenants contained in this Agreement, the Company
is to maintain certain ratios and balances as to minimum stockholders'
investment, debt to stockholders' investment and fixed charge coverage. The
Company is in compliance with all conditions of the Agreement. At December 31,
1996, the Company was utilizing approximately $2.6 million under this facility
primarily for letters of credit issued in connection with the Company's
insurance programs.
A number of the Company's foreign subsidiaries have unsecured short-term
overdraft facilities with foreign banks which approximated $15.6 million at
December 31, 1996. 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, 1996, outstanding borrowings from these facilities
were approximately $2.1 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,
1996 1995
<S> <C> <C>
Term Loan Holland-principal paid
quarterly through 2004, in local
currency, bearing interest at 4.30% .............. $ 9,765 $ --
Mortgage Singapore - principal paid
semi-annually through 2000, in local
currency, bearing interest at 5.55% .............. 5,002 6,370
Convertible Subordinated Debentures
due 2003, bearing interest at 6%, net of
unamortized discount of $1,661 ................... -- 73,089
Mortgage Australia - principal paid quarterly
through 2002, in local currency, bearing
interest at 10.2 % payable monthly ............... 2,841 3,141
Mortgage Holland - principal paid quarterly
through 2002, in local currency, bearing
interest at 8.51% ................................ 1,310 1,713
Other long-term debt ............................... 1,613 1,139
20,531 85,452
Less: current portion .............................. (3,915) (2,690)
$ 16,616 $ 82,762
</TABLE>
The maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending Principal
December 31, Amount
<S> <C>
1997 $ 3,915
1998 4,166
1999 3,821
2000 2,856
2001 and beyond 5,773
$20,531
</TABLE>
The combined carrying value of the assets collateralized under mortgages was
approximately $18.4 million at December 31, 1996.
On July 8, 1996, the Company completed its announced redemption for all of its
$74,750,000 outstanding 6.0% Convertible Subordinated Debentures ("Debentures").
The outstanding Debentures were convertible into the Company's Common Stock at
$22.71 per share or 44.03 common shares for each $1,000 principal amount of
Debentures. As a result, $74,735,000 of the Debentures were converted, resulting
in the issuance of 3,290,756 shares of Common Stock with the remainder redeemed
for cash. The impact of cash redemptions was immaterial to the Company's results
of operations.
F-12
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(8) Long-Term Debt - continued:
At December 31, 1996, the fair value of the Company's long-term debt
approximated the carrying amount of $20.5 million.
Interest expense on long-term debt for the years ended December 31, 1996, 1995
and 1994 was $3.3 million, $5.5 million and $5.2 million, respectively.
(9) Common Stock Option Plans:
The Company has three fixed stock option plans. The 1984 International
Employees' Stock Option Plan ("International Plan") and the 1991 and 1996
Employee Incentive Stock Plans ("Incentive Plans"). During 1996, the Company's
Board of Directors adopted and shareholders approved the 1996 Incentive Plan.
The plan makes available an additional 500,000 shares for grants of options.
Under all three plans, the Company may grant options to its officers and
employees at prices equal to or greater than the fair market value of the common
stock on the date of the grant. Additionally, under both Incentive Plans, the
Company may grant 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. To date, no SAR's have been granted. For all plans, options become
exercisable over a four-year vesting period and expire five years after the
grant date. Under the combined plans, 2,525,000 shares of the Company's Common
Stock were authorized.
The Company applies APB25 and related interpretations in accounting for its
stock option plans. Accordingly, no compensation cost has been recognized for
these plans. Had compensation cost for the Company's option plans been
determined based upon the fair value at the grant dates for awards under these
plans consistent with the method set forth under FASB Statement 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net Income:
As reported ........................ $ 38,500 $ 29,027
Pro forma .......................... $ 37,409 $ 28,521
Earnings Per share:
Primary -
As reported ........................ $ 1.81 $ 1.58
Pro forma .......................... $ 1.76 $ 1.56
Fully diluted -
As reported ........................ $ 1.72 $ 1.48
Pro forma .......................... $ 1.68 $ 1.45
</TABLE>
F-13
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(9) Common Stock Option Plans - continued:
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes options-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: expected volatility
of 28.0% and 27.0%, risk-free interest rates of 6.3% and 5.8%, dividend yield of
1.2% for all years, and expected life of four years for all years.
A summary of the status of the Company's fixed stock option plans as of December
31, 1996, 1995 and 1994, and the changes during the years ending on those dates
is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
Weighted Average Weighted Average Weighted Average
Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Options Outstanding
Beginning of Year ......... 1,381,678 $ 18.48 971,947 $ 12.71 961,860 $ 11.55
Options Granted ............. 88,000 24.73 620,250 23.75 216,000 13.06
Options Exercised ........... (142,711) 12.91 (202,644) 7.18 (145,906) 5.53
Options Canceled or
Expired .................... -- -- (7,875) 12.21 (60,007) 12.92
Options Outstanding
End of Year ................ 1,326,967 $ 19.49 1,381,678 $ 18.48 971,947 $ 12.71
Options Exercisable
End of Year ................ 526,598 292,070 292,126
Weighted Average Fair Value
of Options Granted
During the Year ............ $7.14 $ 6.53
</TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
RANGE OF NUMBER WEIGHTED AVERAGE NUMBER
EXERCISE OUTSTANDING YEARS REMAINING WEIGHTED AVERAGE EXERCISABLE WEIGHTED AVERAGE
PRICES AT 12/31/96 CONTRACT LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
<S> <C> <C> <C> <C> <C> <C>
$ 12.21 - $12.92 387,223 1.6 $ 12.62 205,348 $ 12.59
$ 14.33 - $18.50 236,932 1.3 $ 17.73 164,745 $ 17.87
$ 23.25 - $27.36 702,812 3.6 $ 23.87 156,505 $ 23.73
----------
1,326,967 526,598
</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,
1996 1995 1994
<S> <C> <C> <C>
Income before provision for income
taxes:
U.S ........................... $ 20,204 $ 17,538 $ 11,286
Foreign ....................... 41,892 30,047 25,493
$ 62,096 $ 47,585 $ 36,779
Current provision:
U.S. Federal .................. 6,346 6,056 5,383
Foreign ....................... 14,494 11,803 9,215
State ......................... 1,356 1,484 1,073
22,196 19,343 15,671
Deferred provision:
U.S. Federal .................. 1,368 334 (1,190)
Foreign ....................... (165) (1,139) (158)
State ......................... 197 20 (163)
1,400 (785) (1,511)
Total provision for income taxes ..... $ 23,596 $ 18,558 $ 14,160
</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,
1996 1995 1994
<S> <C> <C> <C>
Net operating losses .......................... $ -- $ (960) $ --
Net change in allowance for doubtful
accounts and other reserves ................. 768 (817) (2,378)
Undistributed earnings of unconsolidated
affiliates .................................. 544 453 343
Accelerated depreciation ...................... 294 186 7
Net unrealized foreign exchange
(losses) gains ............................... (206) 353 517
$ 1,400 $ (785) $(1,511)
</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 1996 and 1995, and 34.3% for
1994 is attributable to the following:
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Income before provision for income taxes ... $ 62,096 $ 47,585 $ 36,779
Tax provision computed at statutory rate ... $ 21,734 $ 16,655 $ 12,615
Increases (reductions) in tax provision
due to:
Benefit of operating loss carryforwards . (523) -- --
Net operating losses for which no tax
benefit has been recognized ........... 455 931 961
Goodwill amortization ................... 802 625 375
Other nondeductible expenses ............ 879 777 645
Foreign income taxed at different rates . (1,304) (1,083) (776)
State income tax, net of Federal tax
benefit ............................... 1,553 1,249 910
Other ................................... -- (596) (570)
Total provision for income taxes ........... $ 23,596 $ 18,558 $ 14,160
</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, 1996:
<TABLE>
<CAPTION>
Expiring In Net Operating Losses Foreign Tax Credit
<S> <C> <C>
1998 $ 541 $ 480
1999 746 --
2000 282 --
2001 52 --
2002 73 --
2003 65 --
No Expiration 12,338 --
$14,097 $ 480
The net operating losses consist of $2,641 incurred by the Pandair companies
prior to the December 23, 1987 acquisition and $1,612 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.
F-16
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(10) Income Taxes - continued:
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 $131.3 million at
December 31, 1996.
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:
December 31,
1996 1995
<S> <C> <C>
Deferred tax assets:
Reserve for doubtful accounts and
other operating reserves .......................... $ 5,635 $ 5,054
Net operating losses ............................... 5,447 5,687
Foreign tax credits ................................ 480 480
Depreciation ....................................... 334 318
Total deferred tax assets ....................... 11,896 11,539
Valuation allowance for deferred tax assets ........ (4,487) (4,727)
Net deferred tax asset (included in
"Deposits and Other Assets") ................... $ 7,409 $ 6,812
Deferred tax liabilities:
Realized foreign exchange gains .................... $ 544 $ 750
Depreciation ....................................... 667 298
Other .............................................. 114 185
Undistributed earnings of
unconsolidated affiliates ......................... 1,337 789
Amortization of deductible goodwill ................ 507 528
Total deferred tax liabilities
(included in "Other Liabilities") .............. 3,169 2,550
Net deferred tax (asset) ........................... $ (4,240) $ (4,262)
</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 $2.8 million in 1996, $1.6 million in
1995, and $1.5 million in 1994.
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 $1.4 million in
1996, $1.2 million for 1995 and $1.3 million for 1994. These amounts were
determined by the union contracts, and the Company does not administer or
control the funds. 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. In 1996, the Company made a payment of
approximately $1.6 million to the pension plan trustees to settle in full the
unfunded vested liability. As part of the settlement, the Company recorded an
additional pre-tax charge in 1996 which did not have a material impact on the
Company's results of operations.
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, 1996, 1995 and
1994 for the Plan are as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
<S> <C> <C> <C>
Service cost .................................. $ 733 $ 648 $ 543
Interest cost ................................. 1,328 1,176 1,014
Actual return on assets - (gains) losses ...... (2,950) (2,040) 2,399
Net amortization and deferral of actuarial
gains (losses) ............................... 1,752 309 (3,840)
Net periodic pension cost ..................... $ 863 $ 93 $ 116
</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 contributions were made by the
Company to the Plan in 1996, 1995 and 1994. The funded status of the Plan at
December 31, 1996 and 1995 is summarized below:
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested and non-vested benefits ................... $ 8,416 $ 7,135
Accumulated benefit obligation ................... $ 8,416 $ 7,135
Effect of anticipated salary increases ........... 9,361 7,429
Projected benefit obligation ..................... 17,777 14,564
Plan assets at fair market value ................... 22,337 17,943
Unrecognized net gain .............................. $ 4,560 $ 3,379
</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,
1996 1995 1994
<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, 1996, 1995 and 1994, pension expense for these plans
approximated $4.7 million, $4.0 million and $3.1 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, 1996,
the minimum annual rentals under these long-term leases were as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
<S> <C>
1997 $24,817
1998 20,598
1999 14,957
2000 10,317
2001 10,416
2002 and thereafter 24,520
</TABLE>
For the years ended December 31, 1996, 1995 and 1994, rental expense for assets
leased under long-term operating lease agreements approximated $23.1 million,
$17.2 million and $15.3 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, 1996, the carrying value of
these contracts represents approximately $.3 million of net unrealized losses,
which approximates fair value, and are included in accrued liabilities in the
accompanying balance sheet. The aggregate notional amount of these contracts,
which will mature at various dates in 1997, was $29.6 million at December 31,
1996.
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.
In 1996, the Company recognized a $1.1 million loss on these contracts compared
with a $.5 million loss in 1995.
The Company recognizes, in foreign exchange gains, net, gains and losses on
forward exchange contracts purchased to hedge certain intercompany transactions.
In 1996, the Company recognized a $.6 million pre-tax loss on these contracts.
Additionally, both gains and losses from other foreign currency transactions and
translation gains and losses of subsidiaries operating in highly inflationary
economies are recognized in Other, net (See Note 14).
F-20
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(14) Other, net:
Other, net consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Equity in earnings of unconsolidated
affiliates ........................... $ 2,578 $ 2,148 $ 1,371
Gains (losses) on sales of assets ...... 164 208 (41)
Foreign exchange gains ................. 1,876 1,144 1,876
Other .................................. -- 22 (100)
------- ------ -------
$ 4,618 $ 3,522 $ 3,106
</TABLE>
(15) Supplemental Disclosures of Cash Flow Information:
Interest and income taxes paid were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Interest ......................................... $ 3,020 $ 5,493 $ 5,314
Income Taxes ..................................... $17,064 $17,647 $15,170
</TABLE>
Non cash investing and financing activities:
On July 8, 1996, as a result of Debenture conversions, the Company issued
3,290,756 shares of its Common Stock valued at approximately $74.4 million (See
Note 8).
In June 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).
F-21
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(16) Quarterly Revenues and Earnings (Unaudited):
<TABLE>
<CAPTION>
Quarter
1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
Revenues ...................... $294,787 $320,660 $340,928 $379,072
Operating profit .............. $ 10,103 $ 15,678 $ 15,340 $ 17,634
Net income .................... $ 6,147 $ 9,709 $ 10,626 $ 12,018
Income per common share:
Primary ..................... $ .33 $ .49 $ .48 $ .52
Fully diluted ............... $ .31 $ .45 $ .46 $ .52
Year Ended December 31, 1995
Revenues $279,962 $299,387 $ 314,269 $328,599
Operating profit $ 8,461 $ 12,369 $ 12,014 $ 14,563
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
</TABLE>
F-22
<PAGE>
<TABLE>
<CAPTION>
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(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, 1996:
Allowance for doubtful accounts .. $4,695 $1,124 $ 320 $1,418 $4,721
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
</TABLE>
(1) Addition to the allowance for doubtful accounts is attributable to business
acquisitions which the Company made during the year.
F-23
<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, 1996
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 Finland Oy Finland 90%
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%
AEI (Norway) A.S. 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%
AEI Ltd. Switzerland 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 27, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 46,516
<SECURITIES> 0
<RECEIVABLES> 351,044
<ALLOWANCES> 4,721
<INVENTORY> 0
<CURRENT-ASSETS> 399,134
<PP&E> 114,567
<DEPRECIATION> 53,455
<TOTAL-ASSETS> 581,329
<CURRENT-LIABILITIES> 298,898
<BONDS> 16,616
<COMMON> 228
0
0
<OTHER-SE> 275,163
<TOTAL-LIABILITY-AND-EQUITY> 581,329
<SALES> 0
<TOTAL-REVENUES> 1,335,447
<CGS> 0
<TOTAL-COSTS> 903,016
<OTHER-EXPENSES> 234,636
<LOSS-PROVISION> 1,124
<INTEREST-EXPENSE> 3,804
<INCOME-PRETAX> 62,096
<INCOME-TAX> 23,596
<INCOME-CONTINUING> 38,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,500
<EPS-PRIMARY> 1.81
<EPS-DILUTED> 1.72
</TABLE>
