<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, 1997 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 requirement 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 20, 1998 was $854,369,138.
The number of shares of common stock outstanding as of March 20, 1998 was
34,671,672.
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 1998 Annual
Meeting of Shareholders.
<PAGE>
AIR EXPRESS INTERNATIONAL CORPORATION
1997 Form 10-K Annual Report
Table of Contents
Part I
Page
Item 1. Business.........................................................1
Item 2. Properties.......................................................8
Item 3. Legal Proceedings................................................9
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
<PAGE>
Part I
Item 1. Business
(a) General Development of Business
-------------------------------
Air Express International Corporation ( the "Company" or the "Registrant") is
the oldest and largest international airfreight forwarder based in the United
States 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 1997, the
Company handled more than 2,097,000 individual airfreight shipments, with an
average weight of 554 pounds, to more than 3,000 cities in more than 200
countries. Approximately 56% of the total airfreight shipments for 1997
originated from locations outside the United States. The Company generated gross
revenues in excess of $1.5 billion in 1997, of which approximately 60% were
attributable to locations outside the United States.
Headquartered in the United States, the Company has a global network with
offices located in 711 cities, including 270 cities in the United States, 165
cities in Europe and 276 cities in Asia, the South Pacific, the Middle East,
Africa and Latin America. As of December 31, 1997, this network consisted of 312
Company-operated facilities, including 96 in the United States and 216 abroad,
supplemented at 399 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
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acquired all the outstanding common stock of Unimodal Australia Pty. Ltd., an
ocean freight forwarder located in Australia; Banner International Ltd., an
airfreight forwarder located in New Zealand; 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. In May 1997,
the Company acquired both an additional 28% of the outstanding stock of AEI
Iberfreight bringing its ownership of this Spain-based air and ocean freight
forwarder to 48%, and it established a joint venture in Korea through the
acquisition of 50% of the stock of Korea Air Freight, Ltd., its long-time agent
in South Korea. The joint venture company was renamed "AEI Korea, Ltd." 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.
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As a result of its consolidation of customers' shipments, the forwarder is
usually able to obtain lower rates from airlines than its customers could obtain
directly from those airlines. In addition, in certain tradelanes and with
certain airlines where the forwarder generates a continuing high volume of
freight, that forwarder is often able to obtain even lower rates. Accordingly,
the forwarder is generally able to offer its customers a lower rate than would
otherwise be available to the customer from the airline. However, the rate
charged by the forwarder to its customers is greater than that obtained by the
forwarder from the airline, and the difference represents the forwarder's gross
profit.
Ocean Freight Services
- ----------------------
The Company's revenue from international ocean freight forwarding is derived
from service both as an indirect ocean carrier (NVOCC) and as an authorized
agent for shippers and importers. The Company contracts with ocean shipping
lines to obtain transportation for a fixed number of containers between various
points during a specified time period at an agreed rate. The Company solicits
freight from its customers to fill the containers, charging rates lower than the
rates offered directly to customers by shipping lines for similar type
shipments. In 1997, the Company handled more than 122,000 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 allow
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 J.V. Carr
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 1997, the Company processed approximately 1,847,000 customs entries of which
1,012,000 were in the United States; in 1996, it processed 1,579,000 entries of
which 807,000 were in the United States; and in 1995, 905,000 entries were
processed of which 173,000 were in the United States. The primary reason for the
increase in 1997 was attributable to the inclusion of a full year of J.V. Carr
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 1997, 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 340 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, 1997, the LOGIS system permitted electronic interfacing with more
than 1,900 of the Company's major customers' locations in 39 countries, 52
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 to customs in the
country of destination, it can prepare customs declarations, calculate the
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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 711 cities, including 270 in the United
States, 165 in Europe, 129 in Asia and the South Pacific and 147 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, 1997,
approximately 60% of its gross revenues and 56% 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 1997, 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 1997, 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 1997, the
Company shipped goods and provided logistics services for more than 200,000
customer accounts, none of which individually accounted for more than 10% of the
Company's revenues.
The Company markets its global cargo transportation and integrated logistics
services worldwide through an international sales organization consisting of 543
full-time salespersons (as of December 31, 1997), 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 sums of money 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 not 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, 1997, the Company employed 7,419 people, of whom 4,652 were
based at locations outside the United States, including 2,077 in the United
Kingdom and Europe, 1,290 in Asia and 1,285 in the South Pacific, South America,
Africa and Canada. Approximately 689 of the Company's 2,767 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 26% 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 $1.9 million mortgage; a warehouse and distribution facility
(approximately 59,000 square feet in area) in Venlo, Holland, which is subject
to a $.9 million mortgage; a warehouse and distribution facility (approximately
150,000 square feet in area) in Singapore, which is subject to a $3.9 million
term loan; 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 72 locations in the United States and 148 offices in 32
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 208,400 sq.ft. of warehouse and office 1998/1999
Frankfurt, Germany 37,000 sq.ft. of warehouse and office 2007
Johannesburg, South Africa 55,000 sq.ft. of warehouse and office 2000
London, England 93,000 sq.ft. of warehouse and office 2002
Los Angeles, California 151,300 sq.ft. of warehouse and office 2001
Miami, Florida 337,000 sq.ft. of warehouse and office 1999/2006
New York, New York 90,000 sq.ft. of warehouse and office 1999
New York, New York 135,000 sq.ft. of warehouse and office 2015
San Francisco, California 78,000 sq.ft. of warehouse and office 1998/2000
</TABLE>
The Company believes that its facilities are adequate for its needs now and in
the foreseeable future and none of its principal facilities are material to the
operation of its business.
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Item 3. Legal Proceedings
-----------------
While all litigation, claims and assessments contain an element of uncertainty
with respect to their resolution and their outcome cannot be predicted with
certainty, based on information presently available, the Company believes that
it is unlikely that the aggregate effect of all known and threatened litigation,
claims and assessments will have a material adverse effect on the Company's
consolidated financial position.
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 30, 1998 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
Guenter Rohrmann 58 President and Chief Executive
Officer of the Company since 1989
(President and Chief Operating
Officer from 1985 to 1989).
Hendrik J. Hartong, Jr. 58 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.
Dennis M. Dolan 40 Vice President and Chief Financial
Officer of the Company since 1989;
U.S. Controller from 1985 to 1989.
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Giorgio Laccona 39 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 63 Vice President, General Counsel and
Secretary of the Company since 1991.
Paul J. Gallagher 52 Vice President - Treasurer of the
Company since 1993; Vice President-
International Controller from 1989 to
1993.
Walter L. McMaster 65 Vice President and Controller of the
Company since 1983; U.S. Controller
from 1974 to 1983.
Robert J. O'Connell 61 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, 1997 and
1996.
<TABLE>
<CAPTION>
Quarter
1st 2nd 3rd 4th
Year Ended December 31, 1997:
<S> <C> <C> <C> <C>
High $ 22 1/8 $ 26 5/8 $ 36 1/2 $ 37 1/8
Low $ 19 7/8 $ 20 1/2 $ 24 1/2 $ 26 3/8
Dividends $ .04 $ .05 $ .05 $ .05
Year Ended December 31, 1996:
High $ 17 1/2 $ 19 1/2 $ 19 3/8 $ 23
Low $ 13 3/8 $ 17 $ 15 5/8 $ 18 5/8
Dividends $ .033 $ .04 $ .04 $ .04
</TABLE>
At March 20, 1998, there were 922 holders of record of the Company's Common
Stock. The closing price of the Common Stock on that date was $26.1875 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,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Revenues ............................ $1,545,720 $1,335,447 $ 1,222,217 $ 997,379 $ 725,719
Net income .......................... $ 49,451 $ 38,500 $ 29,027 $ 22,619 $ 17,340
Net income per common share: (1)
Basic .............................$ 1.44 $ 1.23 $ 1.07 $ .87 $ .67
Diluted ...........................$ 1.41 $ 1.16 $ .99 $ .81 $ .65
Cash dividends declared per
common share .......................$ .19 $ .153 $ .127 $ .102 $ .083
Total assets .........................$ 638,141 $ 581,329 $ 486,843 $ 383,626 $ 298,816
Long-term debt
(excluding current portion) .........$ 31,008 $ 16,616 $ 82,762 $ 83,992 $ 78,464
Stockholders' investment .............$ 291,562 $ 259,086 $ 147,566 $ 99,350 $ 78,119
</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 July
1997 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, 1997 increased to $67.6 million
compared to $46.5 million at December 31, 1996. The Company's primary sources of
cash in 1997 consisted of $48.6 million provided by operating activities and
$19.0 million from long-term borrowings. The Company's primary uses of cash in
1997 were capital expenditures of $18.7 million, restricted funds of $16.0
million (See Note 4 to the Consolidated Financial Statements), and dividend
payments of $6.2 million. Cash flow provided by operating activities increased
$31.8 million over 1996. The increase resulted from the ongoing integration of
prior years' acquisitions which has improved the management of working capital.
Working capital increased $35.0 million to $135.2 million at December 31, 1997
from $100.2 million at December 31, 1996, primarily due to the increase in the
excess of cash and 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 increased approximately $4.9 million from $13.8 million for
1996 to $18.7 million for 1997. The $18.7 million of capital expenditures were
primarily for improvement and expansion of facilities and management information
systems. Depreciation and amortization expense (including goodwill amortization)
totaled $15.8 million in 1997 and $12.7 million in 1996. Capital expenditures
for 1998 are estimated to be approximately $40.0 million, of which approximately
$25.0 million pertains to the completion of the construction of a freight
terminal at New York's John F. Kennedy International Airport (See Note 8 to the
Consolidated Financial Statements), and the anticipated expansion of the
Company's warehouse facility in Singapore. The balance of the 1998 estimated
capital expenditures will be primarily for management information systems and
improvement and expansion of facilities.
At December 31, 1997, the Company had available for future borrowings
approximately $71.8 million of its $75.0 million revolving credit facility (See
Note 7 to the Consolidated Financial Statements). The Company utilized
approximately $3.2 million under this facility mainly for letters of credit
issued in connection with its insurance programs. Additionally, various of the
Company's foreign subsidiaries maintained overdraft facilities with foreign
banks, aggregating approximately $22.8 million, of which approximately $.3
million was outstanding.
In July 1997, through the issuance of bonds to finance in part the construction
of the John F. Kennedy freight terminal (See Note 8 to the Consolidated
Financial Statements), the Company's long-term debt increased $19.0 million and
correspondingly its debt to equity ratio (total long- term debt as a percentage
of stockholders' investment) was 11.5% at December 31, 1997 as compared to 7.9%
at December 31, 1996.
During the fourth quarter of 1997, the Company's Board of Directors authorized
the purchase, from time to time in the open market, of up to one million shares
of the Company's common stock. As of December 31, 1997, no shares had been
purchased under this authorization. Additionally, in June 1997, the Board of
Directors authorized an increase in the quarterly cash dividend from four cents
($.04) to five cents ($.05) per share.
-13-
<PAGE>
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. The Company's risk management procedures include the
monitoring of foreign exchange exposures and the Company's offsetting hedge
positions utilizing analytical analysis of value-at-risk estimates. However, the
use of this technique to quantify market risk should not be construed as an
endorsement of its accuracy or the accuracy of the related assumptions. The
estimated maximum yearly loss in earnings due to foreign exchange rate
instruments, calculated utilizing value-at-risk estimates, is not material to
the Company's results of the operations. Actual results in the future may differ
materially from projected results due to actual developments in global financial
markets. A discussion of the Company's accounting policies for foreign exchange
rate instruments is disclosed in the Company's financial statements (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
1997 Compared to 1996
- ---------------------
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>
1997 1996
($ in millions)
Gross Revenues:
<S> <C> <C>
Airfreight ..................................... $ 1,202.3 $ 1,026.5
Ocean freight .................................. 201.1 190.1
Customs brokerage
and other .................................... 142.3 118.9
Total Gross Revenues ............................. $ 1,545.7 $ 1,335.5
Net Revenues:
Airfreight ..................................... $ 310.1 $ 274.5
Ocean freight .................................. 58.1 51.9
Customs brokerage
and other .................................... 120.0 106.0
Total Net Revenues ............................... 488.2 432.4
Internal Operating Expenses:
Terminal ....................................... 266.9 234.6
Selling, general and administrative ............ 150.4 139.0
Total Internal Operating Expenses ................ 417.3 373.6
Operating Profit ................................. $ 70.9 $ 58.8
</TABLE>
-14-
<PAGE>
Gross revenues increased $210.2 million (15.7%) in 1997 over 1996, reflecting
increases of $175.8 million (17.1%) in airfreight revenues, $11.0 million (5.8%)
in ocean freight revenues and $23.4 million (19.7%) in customs brokerage and
other revenues. The increase in revenues was negatively impacted by
approximately $50.2 million due to the effect of a stronger U.S. dollar when
converting foreign currency revenues into U.S. dollars for financial reporting
purposes. Net revenues increased $55.8 million (12.9%) to $488.2 million in 1997
with the increase comprised of $35.6 million (13.0%) in airfreight net revenues,
$6.2 million (11.9%) in ocean freight net revenues and $14.0 million (13.2%) 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 14.0% and the total
weight of cargo shipped increased 18.1% over 1996, 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 and the
Company's continuing penetration into the ocean freight market. The increases in
gross and net revenues from customs brokerage and other services were from the
Company's continuing efforts to expand its customs brokerage activities to
existing and new customers.
The Company's internal operating expenses increased $43.7 million (11.7%) in
1997 over 1996. 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 decreased to 27.0%
in 1997 from 28.0% in 1996 and as a percentage of net revenues, decreased to
85.5% in 1997 from 86.4% in 1996.
Consolidated operating profit increased $12.1 million (20.6%) over 1996 due
primarily to the growth in the Company's business and the improvement in
internal operating expenses as a percentage of gross and net revenues.
Interest expense, net improved $2.7 million to $1.4 million of interest income
in 1997 due primarily to the elimination of interest expense associated with the
conversion of the 6.0% Convertible Subordinated Debentures on or before July 8,
1996. Other, net increased $2.3 million to $6.9 million in 1997 due to a gain of
approximately $1.9 million on the sale of the Company's 60.0% interest in a
foreign subsidiary (See Note 14 to the Consolidated Financial Statements).
The Company's effective tax rate decreased to 37.5% compared to 38.0% in 1996.
The decrease was largely the result of a shift in the mix of worldwide earnings
to countries with lower effective income tax rates, along with a reduction in
the total nondeductible expenses as a percentage of pre-tax income.
United States Operations
- ------------------------
United States gross revenues increased $100.4 million (19.6%) to $612.2 million
in 1997 compared to 1996, reflecting increases of $83.9 million (20.8%) in
airfreight revenues, $9.0 million (15.0%) in ocean freight revenues and $7.5
million (15.3%) in customs brokerage and other revenues. The increase in
airfreight revenues was attributable to increased shipping volumes, as the
number of shipments increased 18.7% and the total weight of cargo shipped
increased 13.6% over 1996, and to higher prices initiated by the Company in
response to rate increases from the airlines. The significant increase in the
-15-
<PAGE>
number of shipments was due to a large increase in United States domestic
shipments (the United States domestic business accounted for only 3.0% of
consolidated revenues for 1997). Excluding United States domestic shipments, the
increase in airfreight shipments was 2.7%. The increase in ocean freight revenue
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 from the Company's continuing efforts to expand its
customs brokerage activities to existing and new customers.
United States internal operating expenses increased $24.5 million (14.7%) over
1996. The increase was primarily the result of the inclusion of expenses from
acquired companies, increased volume of transactions handled, and the ongoing
integration and expansion of management information systems and facilities. As a
percentage of gross revenues, internal operating expenses decreased to 31.3%
from 32.7% in 1996 and as a percentage of net revenues, decreased to 89.1% in
1997 from 90.7% in 1996, resulting in a $6.3 million (36.7%) increase in
operating profit.
Foreign Operations
- ------------------
Foreign revenues increased $109.8 million (13.3%) in 1997 over 1996. The
increase in foreign revenues was negatively impacted by approximately $50.2
million (Europe $25.8 million, Asia and Others $24.4 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 $56.9
million (13.9%) over 1996, due to increases of $37.8 million (11.4%) in
airfreight revenues, $9.0 million (18.9%) in ocean freight revenues and $10.1
million (34.0%) in customs brokerage and other revenues. Revenues in the Asia
and Others region increased $52.9 million (12.8%) in 1997 over 1996, reflecting
increases of $54.1 million (18.6%) in airfreight revenues, $5.8 million (14.5%)
in customs brokerage and other revenues, and a $7.0 million (8.4%) decrease in
ocean freight revenues. Excluding the effects from the sale of an affiliate (See
Note 14 of the Consolidated Financial Statements), ocean freight revenues from
continuing operations were marginally lower than 1996. The increase in
airfreight revenues was attributable to greater shipping volumes from existing
and new customers. Customs brokerage and other revenues increased primarily due
to the increase in the number of import clearances.
Foreign operating profit increased $5.9 million (14.1%) in 1997 over 1996 to
$47.5 million. The European region's operating profit increased $6.4 million
(37.5%) in 1997 over 1996, while the Asia and Others region's operating profit
decreased $.5 million (2.0%) compared to 1996. The increase in European
operating profit was attributable to the higher revenues as airfreight shipments
increased 10.5% and the weight of cargo shipped increased 23.0%, and a decline
in internal operating expenses as a percentage of revenues. The $.5 million
decrease in the Asia and Others region's operating profit was attributable to
Australia and New Zealand, where increased competition in transporting cargo to
and from Australia and New Zealand, and a significant reduction in the exports
of perishable produce, particularly to the Far East Region, resulted in a
reduction in operating profit for these countries. This decline was offset in
part by increases in operating profit from Asia, Africa, South America and
Others which make up the region.
-16-
<PAGE>
Results of Operations
1996 Compared to 1995
- ---------------------
The following table sets forth the gross revenues and net revenues for each
service category, as well as the Company's internal operating expenses and
operating profit:
<TABLE>
<CAPTION>
1996 1995
($ 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>
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 $65.8 million (17.9%) to $432.4 million
in 1996 and was comprised of increases of $28.8 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 $54.4 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.
-17-
<PAGE>
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. 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.
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 ongoing 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 $60.8 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.
-18-
<PAGE>
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.
Year 2000
- ---------
In 1997, the Company undertook an assessment to determine the impact of year
2000 compliance on its computer systems. This assessment resulted in preliminary
plans to prepare the Company for year 2000 readiness. These plans include
remediation of certain systems and the upgrading and replacement of certain
other of the Company's systems. In accordance with Issue 96-14 of the Emerging
Issues Task Force of the Financial Accounting Standards Board, which requires
the costs associated with modifying computer software for the year 2000 to be
expensed as incurred, the Company will expense the costs incurred to remediate
the applicable systems. These costs are estimated to be in the range of $5.0 to
$7.0 million. The estimated costs will vary as the remediation and testing of
the Company's systems progresses. The Company believes that the remediation,
upgrade and replacement of its systems will be ready for year 2000 prior to any
impact on its operations. If, however, the remediation, upgrade or replacement
of the Company's systems is not completed timely, and negatively impacts the
Company's year 2000 readiness, the Company's operations may be materially
affected.
New Accounting Standard
- -----------------------
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use"("SOP"). The SOP provides guidance on
accounting for the costs of computer software developed or obtained for internal
use. The provisions of this SOP will be effective for financial statements for
fiscal years beginning after December 15, 1998. Earlier application is
permitted. The Company will elect early application and adopt the SOP in the
first quarter of 1998. Adoption of this statement of position is not expected to
have a material impact on the Company's results of operations.
Forward-Looking Statements
- --------------------------
Statements contained herein which are not historical facts are forward-looking
statements (as such term is defined in the Private Securities Litigation Reform
Act of 1995). These statements are based upon information available to the
Company on the date hereof. Inherent in these statements are a variety of risks
and other factors, both known and unknown, which may cause the Company's actual
results to differ materially from those in forward-looking statements.
Accordingly, the realization of forward-looking statements is not certain, and
all such statements should be evaluated based upon the applicable risks and
uncertainties affecting the Company.
-19-
<PAGE>
Item 7a.
Not Applicable.
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 Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
The information called for by this item is incorporated herein by reference to
the Company's definitive proxy statement to be filed with the Securities and
Exchange Commission not later than 120 days after the Company's year end and to
be delivered by the Company to its shareholders in conjunction with the 1998
Annual Meeting of Shareholders.
Item 11. Executive Compensation
The information called for by this item is incorporated herein by reference to
the Company's definitive proxy statement to be filed with the Securities and
Exchange Commission not later than 120 days after the Company's year end and to
be delivered by the Company to its shareholders in conjunction with the 1998
Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information called for by this item is incorporated herein by reference to
the Company's definitive proxy statement to be filed with the Securities and
Exchange Commission not later than 120 days after the Company's year end and to
be delivered by the Company to its shareholders in conjunction with the 1998
Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions
The information called for by this item is incorporated herein by reference to
the Company's definitive proxy statement to be filed with the Securities and
Exchange Commission not later than 120 days after the Company's year end and to
be delivered by the Company to its shareholders in conjunction with the 1998
Annual Meeting of Shareholders.
-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, 1997 and 1996. F-2
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995. F-3
Consolidated Statements of Stockholders' Investment for the
years ended December 31, 1997, 1996 and 1995. F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995. F-5
Notes to Consolidated Financial Statements. F-6
(2) Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts. F-22
All other financial statement schedules are omitted because they are not
applicable, not required, or because the required information is included in 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.
3a. Certificate of Incorporation, as amended through July 29, 1992.
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).
10. Material Contracts:
a. Employment Agreement, effective July 1, 1997 between the Company and
Hendrik J. Hartong, Jr.
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 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).
d. 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).
e. 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).
f. Agreement And Plan Of Reorganization dated May 3, 1995, by and among
RADIX VENTURES, INC., the Company, AEIC ACQUISITION CORPORATION and
THE SHAREHOLDER REPRESENTATIVES (as defined therein) (Incorporated
herein by reference to the Company's Report on 10Q, filed August 11,
1995).
g. Industrial Development Revenue Bonds, due July 1, 2024, to finance in
part the development of an air cargo facility terminal building at
John F. Kennedy International Airport. (The Company is not required to
file this Indenture pursuant to Rule 601 (b)(iii). The Company agrees
that it will furnish a copy to the Commission upon request).
-22-
<PAGE>
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 30, 1998
-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 30, 1998
(John M. Fowler)
/s/ Hendrik J. Hartong, Jr. Chairman of the Board
(Hendrik J. Hartong, Jr.) of Directors March 30, 1998
/s/ Donald J. Keller Director March 30, 1998
(Donald J. Keller)
/s/ Andrew L. Lewis IV Director March 30, 1998
(Andrew L. Lewis IV)
/s/ Richard T. Niner Director March 30, 1998
(Richard T. Niner)
/s/ John Radziwill Director March 30, 1998
(John Radziwill)
/s/ Guenter Rohrmann President, Chief Executive
(Guenter Rohrmann) Officer and Director
(Principal Executive Officer) March 30, 1998
/s/ Noel E. Vargas Director March 30, 1998
(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, 1997 and 1996, and the related consolidated statements of
operations, stockholders' investment and cash flows for each of the three years
in the period ended December 31, 1997. 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, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997 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 20, 1998
F-1
<PAGE>
<TABLE>
<CAPTION>
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(Dollars in thousands)
1997 1996
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents ........................... $ 67,576 $ 46,516
Accounts receivable (less allowance for
doubtful accounts of $4,224 and $4,721) ............ 366,159 346,323
Other current assets ................................ 8,344 6,295
Total current assets ............................ 442,079 399,134
Investment in unconsolidated affiliates .............. 19,174 13,991
Restricted funds ..................................... 15,957 --
Property, plant and equipment (less accumulated
depreciation and amortization of $57,235
and $53,455) ....................................... 60,441 61,112
Deposits and other assets ............................ 17,386 15,226
Goodwill (less accumulated amortization
of $12,424 and $10,673) ............................ 83,104 91,866
Total assets .................................... $ 638,141 $ 581,329
Liabilities and stockholders' investment
Current liabilities:
Current portion of long-term debt ................... $ 2,654 $ 3,915
Bank overdrafts payable ............................. 315 2,058
Transportation payables ............................. 174,125 166,686
Accounts payable .................................... 58,373 50,201
Accrued liabilities ................................. 61,263 61,347
Income taxes payable ................................ 10,168 14,691
Total current liabilities ....................... 306,898 298,898
Long-term debt ...................................... 31,008 16,616
Other liabilities ................................... 8,673 6,729
Total liabilities ............................... 346,579 322,243
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 34,676,626 and 34,179,227 shares) .. 347 342
Capital surplus ..................................... 142,674 137,060
Cumulative translation adjustments .................. (28,961) (15,633)
Retained earnings ................................... 180,887 137,989
294,947 259,758
Less: 132,388 and 40,958 shares of treasury
stock, at cost .................................. (3,385) (672)
Total stockholders' investment .................. 291,562 259,086
Total liabilities and stockholders' investment .. $ 638,141 $ 581,329
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, 1997, 1996 AND 1995
(Dollars in thousands, except per share data)
1997 1996 1995
<S> <C> <C> <C>
Revenues ............................... $ 1,545,720 $ 1,335,447 $ 1,222,217
Operating expenses:
Transportation ....................... 1,057,499 903,016 855,568
Terminal ............................. 266,897 234,636 196,639
Selling, general and administrative .. 150,412 139,040 122,603
1,474,808 1,276,692 1,174,810
Operating profit ....................... 70,912 58,755 47,407
Other income (expense):
Interest expense, net ................ 1,360 (1,277) (3,344)
Other, net ........................... 6,850 4,618 3,522
8,210 3,341 178
Income before provision for income taxes 79,122 62,096 47,585
Provision for income taxes ............. 29,671 23,596 18,558
Net income ............................. $ 49,451 $ 38,500 $ 29,027
Net income per common share:
Basic ................................ $ 1.44 $ 1.23 $ 1.07
Diluted .............................. $ 1.41 $ 1.16 $ .99
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, 1997, 1996 AND 1995
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, 1994 ............... 29,430,504 $ 294 $ 41,900 $(11,442) $ 108,600 $(40,002) $ 99,350
Exercise of common stock options ...... 303,966 3 1,450 -- -- -- 1,453
Purchase of treasury stock ............ -- -- -- -- -- (990) (990)
Translation of foreign currency
financial statements ................ -- -- -- (1,097) -- -- (1,097)
Dividends declared ($.127 per share) .. -- -- -- -- (3,481) -- (3,481)
Net income for the year ............... -- -- -- -- 29,027 -- 29,027
Stock issued for Radix acquisition,
net................................... 1,469,831 15 23,906 -- -- (617) 23,304
Retirement of treasury stock .......... (3,337,766) (33) (7,185) -- (33,774) 40,992 --
Balance, December 31, 1995 ............... 27,866,535 279 60,071 (12,539) 100,372 (617) 147,566
Exercise of common stock options ...... 214,067 1 1,843 -- -- -- 1,844
Purchase of treasury stock ............ -- -- -- -- -- (55) (55)
Translation of foreign currency
financial statements ................ -- -- -- (3,094) -- -- (3,094)
Dividends declared ($.153 per share) .. -- -- -- -- (5,016) -- (5,016)
Net income for the year ............... -- -- -- -- 38,500 -- 38,500
Stock issued for Muller acquisition ... 37,500 -- 802 -- -- -- 802
Stock issued for Lusk acquisition-
acquired under pooling of interests .. 1,124,991 12 67 -- 4,133 -- 4,212
Conversion of convertible
subordinated debentures .............. 4,936,134 50 74,277 -- -- -- 74,327
Balance, December 31, 1996 ............... 34,179,227 342 137,060 (15,633) 137,989 (672) 259,086
Exercise of common stock options ...... 497,399 5 5,614 -- -- -- 5,619
Purchase of treasury stock ............ -- -- -- -- -- (2,713) (2,713)
Translation of foreign currency
financial statements ................ -- -- -- (13,328) -- -- (13,328)
Dividends declared ($.19 per share) ... -- -- -- -- (6,553) -- (6,553)
Net income for the year ............... -- -- -- -- 49,451 -- 49,451
Balance, December 31, 1997 ............... 34,676,626 $ 347 $142,674 $(28,961) $ 180,887 $ (3,385) $291,562
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<TABLE>
<CAPTION>
<PAGE>
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in thousands)
<S> <C> <C> <C>
1997 1996 1995
Cash flows from operating activities:
Net Income .................................................. $ 49,451 $ 38,500 $ 29,027
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ........................... 13,282 10,310 7,794
Amortization of goodwill ................................ 2,563 2,370 1,983
Amortization of bond discount ........................... -- 115 230
Deferred income taxes ................................... 728 1,353 (785)
Equity in earnings of unconsolidated
affiliates ............................................. (2,993) (1,276) (1,449)
Losses (gains) on sales of assets, net .................. 34 (164) (208)
(Gain) on sale of affiliate .............................. (1,876) -- --
Changes in assets and liabilities, net of
business acquisitions:
(Increase) in accounts receivable, net ................... (26,031) (51,565) (29,402)
(Increase) decrease in other current assets .............. (2,274) 25 (1,191)
(Increase) in other assets ............................... (2,362) (837) (2,126)
Increase in transportation payables ..................... 9,271 2,051 20,726
Increase (decrease) in accounts payable ................. 10,455 291 (4,170)
Increase (decrease) in accrued liabilities .............. 590 11,585 (2,085)
(Decrease) increase in income taxes payable .............. (3,735) 3,861 290
Increase in other liabilities ........................... 1,508 169 1,164
Total adjustments ..................................... (840) (21,712) (9,229)
Net cash provided by operating activities ............... 48,611 16,788 19,798
Cash flows from investing activities:
Entity acquisitions, net of cash acquired ................... -- (15,393) (1,292)
Restricted funds ............................................ (15,957) -- --
Other investing activities .................................. 700 (1,653) (1,934)
Proceeds from sales of assets ............................... 444 436 606
Proceeds from sale of affiliate, net of
cash given ................................................. 2,003 -- --
Capital expenditures ........................................ (18,732) (13,826) (20,389)
Investment in unconsolidated affiliates ..................... (4,164) (70) (1,746)
Sales of marketable securities .............................. -- -- 19,981
Net cash used in investing activities ................... (35,706) (30,506) (4,774)
Cash flows from financing activities:
Net (repayments) borrowings in bank
overdrafts payable ......................................... (1,522) 1,573 (780)
Additions to long-term debt ................................. 19,000 9,737 1,327
Payment of long-term debt ................................... (2,902) (1,904) (2,556)
Issuance of common stock .................................... 5,619 1,844 1,453
Payment of cash dividends ................................... (6,189) (4,581) (3,250)
Purchase of treasury stock .................................. (2,713) (55) (990)
Net cash provided (used) by financing
activities ............................................ 11,293 6,614 (4,796)
Effect of foreign currency exchange rates
on cash ....................................................... (3,138) (843) 67
Net increase (decrease) in cash and cash
equivalents ................................................... 21,060 (7,947) 10,295
Cash and cash equivalents at beginning of year ................. 46,516 54,463 44,168
Cash and cash equivalents at end of year ....................... $ 67,576 $ 46,516 $ 54,463
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(1) Summary of Significant Accounting Policies:
------------------------------------------
Principles of Consolidation -
- ---------------------------
The consolidated financial statements include the accounts of Air Express
International Corporation and its majority-owned subsidiaries (the "Company"),
all of which conduct operations in a single line of business: freight
forwarding. All significant intercompany accounts and transactions have been
eliminated. Investments in 20.0% to 50.0% owned affiliates are accounted for
using the equity method.
With the exception of entities operating in highly inflationary economies,
assets and liabilities of foreign subsidiaries are translated at rates of
exchange in effect at the close of the period. Revenues and expenses are
translated at average exchange rates in effect during the year. The resulting
translation adjustments are recorded 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 June 19, 1997, 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 July 25, 1997 to shareholders of
record on July 11, 1997. Accordingly, all share and per share information
throughout the consolidated financial statements were restated to reflect the
split.
(3) Earnings Per Share:
------------------
In the fourth quarter of 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("FASB 128"), which
establishes the standards for computing and presenting earnings per share. FASB
128 replaces the presentation of primary and fully diluted earnings per share
with basic and diluted earnings per share, respectively. Upon adoption of FASB
128, all prior period earnings per share data was restated to conform with the
new Statement. Basic earnings per share is computed by dividing net income by
the weighted average of the common shares outstanding during the year. Diluted
earnings per share is computed by dividing net income by the weighted average of
both the common shares and common share equivalents outstanding during the year.
For the years 1996 and 1995, 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. The $1.4 million
decrease in net interest expense in 1996, as compared with 1995, resulted from
the Company's conversion of its 6.0% Convertible Subordinated Debentures on or
before July 8, 1996.
The basic and diluted earnings per share and number of common share and common
share equivalents were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
Earnings per share:
<S> <C> <C> <C>
Basic ....................................... $ 1.44 $ 1.23 $ 1.07
Diluted ..................................... $ 1.41 $ 1.16 $ .99
Common share and common share
equivalents (in thousands)
Weighted-average shares outstanding ......... 34,356 31,377 27,065
Basic shares ................................ 34,356 31,377 27,065
Shares issuable with respect to
subordinated convertible securities
and additional common share
equivalents ............................... 742 3,218 5,371
Diluted equivalent shares ................... 35,098 34,595 32,436
</TABLE>
F-8
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(4) Restricted Funds:
----------------
The restricted funds consist of cash and investments held in trust and committed
for the construction of an air cargo facility terminal building in accordance
with the Company's bond indenture (See Note 8). Investments are stated at cost,
which approximates market, as it is the intent of the Company to hold the
investments until maturity. The funds are invested in compliance with the
Company's bond indenture which restricts the type, quality and maturity of
investments.
(5) Regional Operations:
-------------------
Revenues, operating profit and identifiable assets are set forth below by
geographic area.
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
Revenues:
<S> <C> <C> <C>
U.S.A ............................. $ 612,191 $ 511,759 $ 459,265
Europe ............................ 466,912 410,027 387,164
Asia and Others ................... 466,617 413,661 375,788
Total foreign ................... 933,529 823,688 762,952
Total revenues .................... $1,545,720 $1,335,447 $1,222,217
Operating profit:
U.S.A ............................. $ 23,389 $ 17,107 $ 16,636
Europe ............................ 23,295 16,943 11,159
Asia and Others ................... 24,228 24,705 19,612
Total foreign .................... 47,523 41,648 30,771
Total operating profit ............ $ 70,912 $ 58,755 $ 47,407
December 31,
1997 1996 1995
Identifiable assets:
U.S.A ............................ $ 279,616 $ 214,959 $ 181,464
Europe ........................... 176,250 171,708 142,121
Asia and Others .................. 163,101 180,671 150,030
Total foreign .................. 339,351 352,379 292,151
Investment in unconsolidated
affiliates ..................... 19,174 13,991 13,228
Total identifiable assets ........ $ 638,141 $ 581,329 $ 486,843
</TABLE>
At December 31, 1997, net assets of foreign subsidiaries including intercompany
accounts deemed to be long-term investments amounted to approximately $138.5
million.
F-9
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(6) Property, Plant and Equipment:
-----------------------------
A summary of property, plant and equipment, at cost, is as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Buildings and improvements ......................... $ 29,555 $ 29,258
Leasehold improvements ............................. 10,620 10,319
Automotive equipment ............................... 4,064 5,149
Furniture and fixtures ............................. 20,345 21,276
Terminal and data processing equipment ............. 47,690 42,202
112,274 108,204
Less: accumulated depreciation and amortization .... (57,235) (53,455)
55,039 54,749
Land ............................................... 5,402 6,363
Property, plant and equipment, net ................. $ 60,441 $ 61,112
</TABLE>
(7) Revolving Credit Loan Agreement and Other Short-term
Borrowing Facilities:
The Company maintains 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 term which expires in June 2000 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 required 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, 1997, the Company was
utilizing approximately $3.2 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 $22.8 million at
December 31, 1997. The largest single facility, extended to the Company's
Netherlands subsidiary, was approximately $6.3 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, 1997, outstanding borrowings from
these facilities were approximately $.3 million.
F-10
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(8) Long-Term Debt:
--------------
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Industrial Development Revenue Bonds ............... $ 19,000 $ --
Term Loan Holland-principal paid
quarterly through 2004, in local
currency, bearing interest at 4.30% .............. 7,190 9,765
Term Loan Singapore - principal paid
semi-annually through 2007, in local
currency, bearing interest at 4.90% .............. 3,952 5,002
Mortgage Australia - principal paid quarterly
through 2002, in local currency, bearing
interest at 10.2% payable monthly ................ 1,902 2,841
Mortgage Holland - principal paid quarterly
through 2002, in local currency, bearing
interest at 8.51% ................................ 938 1,310
Other long-term debt ............................... 680 1,613
33,662 20,531
Less: current portion .............................. (2,654) (3,915)
$ 31,008 $ 16,616
</TABLE>
The maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending Principal
December 31, Amount
<S> <C> <C>
1998 $ 2,654
1999 2,437
2000 2,236
2001 2,232
2002 and beyond 24,103
$ 33,662
</TABLE>
The combined carrying value of the assets collateralized under mortgages was
approximately $7.4 million at December 31, 1997.
On July 1, 1997, as part of a lease development agreement entered into with the
New York City Industrial Development Agency, the Company issued $19.0 million of
Industrial Development Revenue Bonds ("Bonds"), due July 1, 2024, to finance in
part the development of an air cargo facility terminal building at John F.
Kennedy International Airport. The Bonds are fully secured by an irrevocable
direct-pay letter of credit issued by a U.S. bank with a termination date of
July 16, 2002. The Company is obligated under agreement to reimburse the bank
for amounts drawn under the letter of credit. At the direction of the Company,
the Bonds may be redeemed in whole or in part prior to maturity date.
The Bonds were issued with a variable interest rate based upon a Weekly Rate (as
determined by a Remarketing Agent) which is the minimum rate necessary for the
Remarketing Agent to sell the Bonds on the effective date of such Weekly Rate at
a price equal to 100% of the Bonds' principal amount without regard to accrued
interest. The Company may from time to time change the method of determining the
interest rate to a daily, weekly, commercial paper or long-term interest rate.
F-11
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(8) Long-Term Debt - continued:
--------------------------
However, in no event shall the interest rate exceed the maximum annual interest
rate of 15%. For 1997, the interest rate on the Bonds ranged between 3.3% and
4.1%.
The Singapore term loan is a two-tranche, fully secured loan facility for the
construction of warehouse and distribution facilities. The first tranche is
fully utilized bearing a 4.90% interest rate for the first five years of the
loan and thereafter at the rate per annum exceeding by 1.25% the six-month SWAP
Offer Rate. At December 31, 1997, the second tranche was unutilized with an
available balance of approximately $9.5 million.
At December 31, 1997, the fair value of the Company's long-term debt
approximated the carrying amount of $33.7 million.
Interest expense on long-term debt for the years ended December 31, 1997, 1996
and 1995 was approximately $1.0 million, $3.3 million and $5.5 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
Employees Incentive Stock Plans ("Incentive Plans"). 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, 3,787,500 shares of the Company's Common Stock were authorized.
The Company applies APB 25 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>
1997 1996 1995
Net Income:
<S> <C> <C> <C>
As reported .......... $ 49,451 $ 38,500 $ 29,027
Pro forma ............ $ 47,574 $ 37,409 $ 28,521
Earnings Per share:
Basic -
As reported .......... $ 1.44 $ 1.23 $ 1.07
Pro forma ............ $ 1.38 $ 1.19 $ 1.05
Diluted -
As reported .......... $ 1.41 $ 1.16 $ .99
Pro forma ............ $ 1.36 $ 1.12 $ .97
</TABLE>
F-12
<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 1997, 1996 and 1995, respectively: expected
volatility of 27.0%, 28.0% and 27.0%, risk-free interest rates of 6.2%, 6.3% and
5.8%, dividend yield of .8% for 1997 and 1.2% for 1996 and 1995 and an 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, 1997, 1996 and 1995, and the changes during the years ending on those dates
is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
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 1,990,450 $ 12.99 2,072,517 $12.32 1,457,921 $ 8.47
Options Granted ... 1,011,375 24.48 132,000 16.49 930,375 15.83
Options Exercised . (497,398) 11.30 (214,067) 8.61 (303,966) 4.79
Options Canceled or
Expired .......... (155,157) 15.01 -- -- (11,813) 8.14
Options Outstanding
End of Year 2,349,270 $ 18.15 1,990,450 $12.99 2,072,517 $ 12.32
Options Exercisable
End of Year 790,590 789,897 438,105
Weighted-Average Fair
Value of Options
Granted During the Year $7.23 $4.76 $4.35
</TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Range of Number Weighted-Average Number
Exercise Outstanding Years Remaining Weighted-Average Exercisable Weighted-Average
Prices at 12/31/97 Contract Life Exercise Price at 12/31/97 Exercise Price
<S> <C> <C> <C> <C> <C> <C>
$ 8.14- $ 12.33 476,026 .7 $ 9.17 396,999 $ 9.27
$ 15.50- $ 18.24 903,869 2.5 $ 15.92 389,841 $ 15.87
$ 20.42- $ 24.87 969,375 4.5 $ 24.64 3,750 $ 21.92
2,349,270 790,590
</TABLE>
F-13
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(10) Income Taxes:
------------
The Company and its domestic subsidiaries file a consolidated U.S. Federal
income tax return. Foreign subsidiaries file separate corporate income tax
returns in their respective countries.
The components of income before provision for income taxes and the current and
deferred components of the provision for income taxes were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Income before provision for income
taxes:
U.S ........................... $ 31,767 $ 20,204 $ 17,538
Foreign ....................... 47,355 41,892 30,047
$ 79,122 $ 62,096 $ 47,585
Current provision:
U.S. Federal .................. 10,837 6,346 6,056
Foreign ....................... 16,357 14,494 11,803
State ......................... 1,950 1,356 1,484
29,144 22,196 19,343
Deferred provision:
U.S. Federal .................. 621 1,368 334
Foreign ....................... (187) (165) (1,139)
State ......................... 93 197 20
527 1,400 (785)
Total provision for income taxes ..... $ 29,671 $ 23,596 $ 18,558
</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,
1997 1996 1995
<S> <C> <C> <C>
Net operating losses .......................... $ -- $ -- $ (960)
Net change in allowance for doubtful
accounts and other reserves ................. (264) 768 (817)
Undistributed earnings of unconsolidated
affiliates .................................. 1,124 544 453
Accelerated depreciation ...................... 260 294 186
Net unrealized foreign exchange
(losses) gains ............................... (593) (206) 353
$ 527 $ 1,400 $ (785)
</TABLE>
F-14
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(10) Income Taxes - continued:
------------------------
The difference between the actual provision and the amount computed at the
statutory U.S. Federal income tax rate of 35.0% for 1997, 1996 and 1995 is
attributable to the following:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Income before provision for income taxes ... $ 79,122 $ 62,096 $ 47,585
Tax provision computed at statutory rate ... $ 27,693 $ 21,734 $ 16,655
Increases (reductions) in tax provision
due to:
Benefit of operating loss carryforwards . (356) (523) --
Net operating losses for which no tax
benefit has been recognized ........... 778 455 931
Goodwill amortization ................... 846 802 625
Other nondeductible expenses ............ 337 879 777
Foreign income taxed at different rates . (1,643) (1,304) (1,083)
State income tax, net of Federal tax
benefit ............................... 2,043 1,553 1,249
Other ................................... (27) -- (596)
Total provision for income taxes ........... $ 29,671 $ 23,596 $ 18,558
</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, 1997:
<TABLE>
<CAPTION>
Expiring In Net Operating Losses Foreign Tax Credit
<S> <C> <C> <C>
1998 $ -- $ 480
2000 136 --
2001 685 --
2002 696 --
2003 268 --
2004 108 --
No Expiration 15,139 --
$ 17,032 $ 480
</TABLE>
The net operating losses include $7.6 million incurred by companies prior to
their acquisition by the Company. Future utilization of the $7.6 million in net
operating 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-15
<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 $137.9 million at
December 31, 1997.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
December 31,
<S> <C> <C>
1997 1996
Deferred tax assets:
Reserve for doubtful accounts and
other operating reserves .......................... $ 5,681 $ 5,635
Net operating losses ............................... 7,081 5,447
Foreign tax credits ................................ 480 480
Depreciation ....................................... 707 334
Realized foreign exchange losses ................... 49 --
Total deferred tax assets ....................... 13,998 11,896
Valuation allowance for deferred tax assets ........ (6,121) (4,487)
Net deferred tax asset (included in
"Deposits and other assets") ................... $ 7,877 $ 7,409
Deferred tax liabilities:
Realized foreign exchange gains .................... $ -- $ 544
Depreciation ....................................... 1,194 667
Other .............................................. -- 114
Undistributed earnings of
unconsolidated affiliates ......................... 2,462 1,337
Amortization of deductible goodwill ................ 507 507
Total deferred tax liabilities
(included in "other liabilities") .............. 4,163 3,169
Net deferred tax (asset) ........................... $ (3,714) $ (4,240)
</TABLE>
F-16
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(11) Retirement Plans:
----------------
The Company maintains a 401(k) Retirement Plan, covering substantially all U.S.
employees not participating in collective bargaining agreements. The Company
contributes 3.0% of salary for all eligible participants. In addition, the
Company matches, dollar for dollar, employee contributions up to 3.0% of salary,
subject to certain limitations imposed by the Internal Revenue Code. The total
expense for Company contributions was $3.0 million in 1997, $2.8 million in 1996
and $1.6 million in 1995.
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 $1.7 million in
1997, $1.4 million in 1996 and $1.2 million for 1995. 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. In 1994 the Company recorded a pre-tax charge in the amount of
$1.0 million for the Company's estimated portion of its unfunded vested
liability to one multi- employer pension plan. The Company accrued interest on
this amount in 1995 and 1996 and subsequently paid approximately $1.6 million in
the third quarter of 1996 to the Plan's trustees in full settlement of the
unfunded vested liability.
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, 1997, 1996 and
1995 for the Plan are as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
<S> <C> <C> <C>
Service cost ............................ $ 789 $ 733 $ 648
Interest cost ........................... 1,579 1,328 1,176
Actual return on assets - (gains) ....... (4,292) (2,950) (2,040)
Net amortization and deferral of
actuarial gains ........................ 3,294 1,752 309
Net periodic pension cost ............... $ 1,370 $ 863 $ 93
</TABLE>
F-17
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(11) Retirement Plans - continued:
----------------------------
The funding of the Plan is actuarially determined. The Plan's assets are
invested primarily in equity securities, and contributions were made by the
Company to the Plan in 1997, 1996 and 1995. The funded status of the Plan at
December 31, 1997 and 1996 is summarized below:
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested and non-vested benefits ................... $ 9,159 $ 8,416
Accumulated benefit obligation ................... $ 9,159 $ 8,416
Effect of anticipated salary increases ........... 10,893 9,361
Projected benefit obligation ..................... 20,052 17,777
Plan assets at fair market value ................... 26,520 22,337
Unrecognized net gain .............................. $ 6,468 $ 4,560
</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,
1997 1996 1995
<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, 1997, 1996 and 1995, pension expense for these plans approximated
$5.0 million, $4.7 million and $4.0 million, respectively.
The Company does not sponsor any material retirement benefits other than
pensions. Post- employment benefits other than pensions are insignificant.
F-18
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(12) Commitments and Contingencies:
-----------------------------
The Company is obligated under long-term operating lease agreements for computer
equipment, terminal facilities and automotive equipment. At December 31, 1997,
the minimum annual rentals under these long-term leases were as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
<S> <C> <C>
1998 $ 28,266
1999 26,276
2000 20,711
2001 15,864
2002 10,166
2003 and thereafter 36,715
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, rental expense for assets
leased under long-term operating lease agreements approximated $23.3 million,
$23.1 million and $17.2 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, 1997, the carrying value of
these contracts represents approximately $1.3 million of net unrealized gains,
which was determined from the fair valuation of such contracts, and is included
in other current assets in the accompanying balance sheet. The aggregate
notional amount of these contracts, which will mature at various dates in 1998,
was $14.7 million at December 31, 1997.
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 1997, the Company recognized a $1.3 million gain on these contracts compared
with a $1.1 million loss in 1996.
The Company recognizes, in foreign exchange gains, net, gains and losses on
forward exchange contracts purchased to hedge certain intercompany transactions.
In 1997, the Company recognized a $1.2 million pre-tax gain on these contracts.
Additionally, both gains and losses from other foreign currency transactions and
translation gains and losses of subsidiaries operating in highly inflationary
economies are recognized in Other, net (See Note 14 to the Consolidated
Financial Statements).
F-19
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
The Company operates in many countries throughout the world, resulting in
significant sums of money 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 not 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.
(14) Other, net:
----------
Other, net consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Equity in earnings of unconsolidated
affiliates ........................... $ 3,743 $ 2,578 $ 2,148
Gain on sale of affiliate .............. 1,876 -- --
Foreign exchange gains ................. 1,265 1,876 1,144
(Losses) gains on sales of assets ...... (34) 164 208
Other .................................. -- -- 22
$ 6,850 $ 4,618 $ 3,522
</TABLE>
(15) Supplemental Disclosures of Cash Flow Information:
-------------------------------------------------
Interest and income taxes paid were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Interest ....................... $ 1,182 $ 3,020 $ 5,493
Income Taxes ................... $ 28,270 $ 17,064 $ 17,647
</TABLE>
Non cash investing and financing activities:
On July 8, 1996, as a result of Debenture conversions, the Company issued
4,936,134 shares of its Common Stock valued at approximately $74.4 million.
In June 1995, as part of the Radix acquisition, the Company issued 1,431,912
shares of Common Stock valued at approximately $23.3 million.
F-20
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Continued
(16) Quarterly Revenues and Earnings (Unaudited):
------------------------------------------
<TABLE>
<CAPTION>
Quarter
<S> <C> <C> <C> <C>
1st 2nd 3rd 4th
Year Ended December 31, 1997
Revenues ...................... $351,155 $386,591 $395,405 $412,569
Operating profit .............. $ 12,287 $ 19,411 $ 19,738 $ 19,476
Net income .................... $ 8,539 $ 13,042 $ 13,363 $ 14,507
Income per common share:
Basic ....................... $ .25 $ .38 $ .39 $ .42
Diluted ..................... $ .25 $ .37 $ .38 $ .41
Year Ended December 31, 1996
Revenues ...................... $294,787 $320,660 $340,928 $379,072
Operating profit .............. $ 10,103 $ 15,678 $ 15,540 $ 17,434
Net income .................... $ 6,147 $ 9,709 $ 10,626 $ 12,018
Income per common share:
Basic ....................... $ .22 $ .33 $ .32 $ .35
Diluted ..................... $ .21 $ .30 $ .31 $ .35
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars 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, 1997:
Allowance for doubtful accounts .................. $4,721 $1,906 $ -- $2,403 $4,224
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 $4,695
</TABLE>
(1) Addition to the allowance for doubtful accounts is attributable to business
acquisitions which the Company made during the year.
F-22
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
No. Description Page No.
3 Certificate of Incorporation 51
10 Employment Agreement 55
21 Subsidiaries of the Registrant 57
23 Consent of Independent Public
Accountants 58
27 Financial Data Schedule 59
<PAGE>
EXHIBIT 3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Air Express International Corporation, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of Air Express International
Corporation, by the unanimous vote of its members, duly adopted a
resolution setting forth a proposed amendment to the Certificate of
Incorporation of said corporation, declaring said amendment to be advisable and
calling a meeting of the shareholders of said Corporation for consideration
thereof. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that a proposal shall be presented for vote by the shareholders
of the corporation at the 1992 Annual Meeting on the Board of Directors'
recommendation that the Company's Certificate of Incorporation be amended
to provide for an increase in the number of shares of stock which the
Company shall have authority to issue from eleven million (11,000,000)
shares to forty- one million (41,000,000) shares of which forty million
(40,000,000) shares shall be Common Stock with a par value of one cent
($.01) per share and one million (1,000,000) shares which shall be
Preferred Stock with a par value of one dollar ($1.00) per share.
SECOND: That thereafter, pursuant to the foregoing resolution of its
Board of Directors, a meeting of the shareholders of said corporation was
duly called and held on June 25, 1992 upon notice in accordance with
Section 222 of the General Corporation Law of the State of Delaware, at
which meeting the necessary number of shares as required by statute were
voted in favor of the amendment to the Certificate of Incorporation.
THIRD: That said amendment to the Certificate of Incorporation was
duly adopted in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Air Express International Corporation has caused
this certificate to be signed by Dennis M. Dolan, its Vice President, and
attested by Daniel J. McCauley, its Secretary, this 29th day of June, 1992.
AIR EXPRESS INTERNATIONAL CORPORATION
By:_____________________________
Dennis M. Dolan, Vice President
ATTEST:
By:____________________________
Daniel J. McCauley, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
***********
Air Express International Corporation, a corporation organized and existing
under ane by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of Air Express International
Corporation, by the unanimous written consent of its members, filed with the
minutes of the board, duly adopted resolutions setting forth a proposed
amendment to the Certificate of Incorporation of said corporation, declaring
said amendment to be advisable and calling a meeting of the stockholders of said
corporation for consideration thereof. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by adding Article Ninth thereof so that as amended, said Article
shall be and read as follows:
"No Director shall have any personal liability to the Company or its
shareholders for any monetary damages for breach of fiduciary duty as a
Director, except that this Article shall not eliminate or limit the
liability of each Director (i) for any breach of such Director's duty of
loyalty to the Company or its shareholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which such Director
derived an improper personal benefit. This Article shall not eliminate or
limit the liability of such Director for any act or omission occurring
prior to the date when this Article becomes effective."
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, a meeting of the shareholders of said corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary number
of shares as required by stature were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said Air Express International Corporation has caused
this certificate to be signed by Walter L. McMaster, its Vice President, and
attested by David L. Dephtereos, its Secretary, this 30th day of June, 1987.
AIR EXPRESS INTERNATIONAL CORPORATION
By: ___________________________
Walter L. McMaster
Vice President
ATTEST:
By: ___________________
David L. Dephtereos
Secretary
<PAGE>
CERTIFICATE OF MERGER
OF
AIR EXPRESS INTERNATIONAL CORPORATION
AND
AIR EXPRESS INTERNATIONAL MERGING CORPORATION (Pursuant to Section
252(c) of the General Corporation Law of the State of Delaware)
AIR EXPRESS INTERNATIONAL CORPORATION, a corporation organized and existing
under the laws of the State of Illinois and AIR EXPRESS INTERNATIONAL MERGING
CORPORATION, a corporation organized and existing under the laws of the State of
Delaware, DO HEREBY CERTIFY:
FIRST: That Air Express International Corporation was incorporated on
September 21, 1946, pursuant to the Business corporation Act of the State of
Illinois (AEI-Illinois) and Air Express International Merging Corporation was
incorporated on October 2, 1981, pursuant to the General Corporation Law of the
State of Delaware (AEI-Delaware).
SECOND: Pursuant to the requirements of Section 252(c) of the Delaware
General Corporation Law and Section 69a of the Illinois Business Corporation
Act, an agreement of merger (the "Agreement of Merger") between AEI-Illinois and
AEI-Delaware has been approved, adopted, certified, executed and acknowledged by
each of the constituent corporations.
THIRD: The name of the surviving corporation shall be AIR EXPRESS
INTERNATIONAL
MERGING CORPORATION, which shall change its name to AIR EXPRESS
INTERNATIONAL CORPORATION effective upon filing of the Certificate of Merger.
FOURTH: The Certificate of Incorporation of the surviving corporation shall
be the Certificate of Incorporation of AIR EXPRESS INTERNATIONAL MERGING
CORPORATION with no amendments or changes other than the change of name set
forth in Article THIRD hereof.
FIFTH: The executed Agreement of Merger is on file at the principal place
of business of AEI-Delaware, the surviving corporation, at 151 Harvard Avenue,
Stamford, Connecticut 06902.
SIXTH: A copy of the Agreement of Merger was provided to each stockholder
of AEI- Illinois as Annex I to the Proxy Statement of AEI-Illinois dated October
21, 1981 which was mailed to each stockholder of record on October 22, 1981 and
an additional copy will be provided without charge to any stockholder of either
constituent corporation who so requests.
SEVENTH: The authorized Capital Stock of-AEI Illinois is 5,000,000 shares
of Common Stock, par value $.Ol per share, and 10,000 shares of $6.00 cumulative
convertible preferred stock, par value $1.00 per share.
EIGHTH: The Merger shall be effective on the 31st day of December, 1981.
IN WITNESS WHEREOF, we have signed this certificate on the 23 day of
December, 1981.
AIR EXPRESS INTERNATIONAL
CORPORATION, an Illinois corporation
Attest:
__________________________ By:________________________
Secretary President
AIR EXPRESS INTERNATIONAL
MERGING
CORPORATION, a Delaware corporation
Attest:
__________________________ By:___________________________
Secretary President
<PAGE>
Exhibit 10
EMPLOYMENT AGREEMENT
Agreement made as of July 1, 1997, by and between AIR EXPRESS INTERNATIONAL
CORPORATION, a Delaware corporation with its offices at 120 Tokeneke Road,
Darien, Connecticut 06820 ("AEI") and HENDRIK J. HARTONG, JR. of Two Soundview
Drive, Greenwich, Connecticut 06830 ("HJH").
The parties agree as follows:
1. That HJH is hereby employed by AEI as the Chairman of the Board of
Directors of AEI to:
- Serve as Chairman of the Meetings of the Board of Directors of AEI.
- Serve as Chairman of the Meetings of the Shareholders of AEI.
- Serve as Chairman of the Executive Committee of the Board of
Directors of AEI.
In addition, HJH shall provide such evaluation and due diligence of
acquisition candidates and investor relations services as shall be
requested by the Chief Executive Officer of AEI.
2. This Agreement shall commence on July 1, 1997 and end on June 30,
2002. The Agreement may be terminated at any time by the Board of
Directors of AEI or by mutual agreement of HJH and the Board of
Directors of AEI. In either event, on termination of this Agreement,
HJH will be paid a sum equal to the annual salary payable by AEI to
HJH hereunder for the remaining term of this Agreement.
3. If there is a "change in control" of AEI, as is defined in this
Agreement, either party will have the right to terminate this
Agreement at any time after the change in control, and in the event of
such termination, HJH will be paid a sum equal to the annual salary
payable by AEI to HJH hereunder for the remaining term of this
Agreement. "Change in control" is defined to have occurred when: a)
more than 40 percent of AEI's outstanding common stock (or the
equivalent in voting power of any class or classes of outstanding
securities of AEI ordinarily entitled to vote in the election of
directors) shall be beneficially held or acquired by any corporation
or person or group; or (b) there is a sale or other disposition of all
or substantially all of the assets or business of AEI.
4. HJH will receive an annual salary of $150,000.00 and shall be eligible
to participate in the AEI medical/dental/life insurance and 401(k)
benefit plans.
5. AEI will continue to provide life insurance coverage to HJH under
General American Life Insurance Policy Number 6127139 during the term
of this Agreement.
6. This Agreement shall be governed by the laws of the State of
Connecticut and constitutes the only agreement between the parties
relating to the employment of HJH by AEI, and supersedes and
terminates all previous consulting, employment and severance
agreements between HJH and AEI.
AIR EXPRESS INTERNATIONAL CORPORATION
Attest: By: _______________________________
Guenter Rohrmann, President
______________________________ and Chief Executive Officer
Daniel J. McCauley, Secretary
_______________________________
HENDRIK J. HARTONG, JR.
<PAGE>
EXHIBIT 21
AIR EXPRESS INTERNATIONAL CORPORATION
SUBSIDIARIES OF THE REGISTRANT AT DECEMBER 31, 1997
Percent
Jurisdiction of Shares
of Owned by
Name Incorporation Direct Parent
Air Express International USA, Inc. Delaware 100%
Radix Ventures Inc. Delaware 100%
Surface Freight Corporation Florida 100%
Votainer USA Inc. Delaware 100%
Luskcom Group Inc. Louisiana 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 (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, dated March 20, 1998, included in this Form 10-K, into the Company's
previously filed Registration Statement File Nos. 33-10799, 33-52955, 33-63035,
333-18853, 333-6999 and 333-25629.
ARTHUR ANDERSEN LLP
New York, New York
March 20, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS RESTATED RESTATED
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 67,576 46,516 54,463
<SECURITIES> 0 0 0
<RECEIVABLES> 370,383 351,044 272,984
<ALLOWANCES> 4,224 4,721 4,695
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 442,079 399,134 327,506
<PP&E> 117,676 114,567 97,391
<DEPRECIATION> 57,235 53,455 43,242
<TOTAL-ASSETS> 638,141 581,329 486,843
<CURRENT-LIABILITIES> 306,898 298,898 250,608
<BONDS> 31,008 16,616 82,762
<COMMON> 347 342 279
0 0 0
0 0 0
<OTHER-SE> 323,561 275,049 160,443
<TOTAL-LIABILITY-AND-EQUITY> 638,141 581,329 486,843
<SALES> 0 0 0
<TOTAL-REVENUES> 1,545,720 1,335,447 1,222,217
<CGS> 0 0 0
<TOTAL-COSTS> 1,057,499 903,016 855,568
<OTHER-EXPENSES> 266,897 234,636 196,639
<LOSS-PROVISION> 1,906 1,124 2,254
<INTEREST-EXPENSE> 1,403 3,804 5,999
<INCOME-PRETAX> 79,122 62,096 47,585
<INCOME-TAX> 29,671 23,596 18,558
<INCOME-CONTINUING> 49,451 38,500 29,027
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 49,451 38,500 29,027
<EPS-PRIMARY> 1.44 1.23 1.07
<EPS-DILUTED> 1.41 1.16 .99
</TABLE>
