SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 30, 1999
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 of, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
NONE
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date (applicable only to corporate
registrants).
The number of shares of common stock outstanding as of August 9, 1999 was
33,527,805 (Net of 1,817,660 Treasury Shares).
<PAGE>
AIR EXPRESS INTERNATIONAL CORPORATION
June 1999 Form 10-Q Quarterly Report
Table of Contents
Part I - Financial Information
Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as at
June 30, 1999 and December 31, 1998................... 2
Condensed Consolidated Statements of Operations -
Three Months and Six Months Ended June 30, 1999
and 1998.............................................. 3
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1999 and 1998............... 4
Notes to Condensed Consolidated Financial
Statements............................................ 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 8
Part II - Other Information
Item 1. Legal Proceedings................................................ 14
Item 4. Submission of Matters to a Vote of Security Holders.............. 14
Item 6. Exhibits and Reports on Form 8-K................................. 14
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Page 2
<TABLE>
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, 1999 Dec 31, 1998
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents ......................... $ 51,286 $ 60,246
Accounts receivable (less allowance for
doubtful accounts of $5,294 and $5,112) ........... 355,972 366,417
Marketable securities .............................. -- 7,188
Other current assets ............................... 7,071 7,096
Total current assets ......................... 414,329 440,947
Investment in unconsolidated affiliates ............... 29,513 29,507
Restricted funds ...................................... 1,136 2,126
Property, plant and equipment (less accumulated
depreciation of $74,720 and $70,515) ................. 87,344 81,178
Deposits and other assets ............................. 16,343 13,937
Goodwill (less accumulated amortization of $16,277
and $15,331) ......................................... 103,186 107,783
Total assets .................................$ 651,851 $ 675,478
Liabilities and stockholders' investment
Current Liabilities:
Current portion of long-term debt ..................$ 4,062 $ 4,337
Bank overdrafts payable ............................ 1,604 4,432
Transportation payables ............................ 151,410 157,763
Accounts payable ................................... 64,300 66,023
Accrued liabilities ................................ 61,483 72,780
Income taxes payable ............................... 5,704 6,644
Total current liabilities .................... 288,563 311,979
Long-term debt ..................................... 41,617 42,578
Other liabilities .................................. 6,847 10,050
Total liabilities ............................ 337,027 364,607
Stockholders' Investment:
Capital stock-
Preferred (authorized 1,000,000 shares, none
outstanding) ...................................... -- --
Common, $.01 par value (authorized 100,000,000
shares, issued 35,283,023 and 35,028,154 shares) .. 353 350
Additional paid-in capital ......................... 151,003 147,544
Accumulative other comprehensive income ............ (39,384) (28,192)
Retained earnings .................................. 238,749 216,763
350,721 336,465
Less: 1,807,502 and 1,217,586 shares of treasury
stock, at cost.................................. (35,897) (25,594)
Total stockholders' investment ..................... 314,824 310,871
Total liabilities and stockholders' investment .....$ 651,851 $ 675,478
The accompanying notes are an integral part of these financial statements.
</TABLE>
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Page 3
<TABLE>
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except
per share data)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues ................. $373,263 $378,494 $727,947 $750,870
Operating expenses:
Transportation .......... 246,618 255,459 480,924 509,982
Terminal ................ 70,296 66,806 139,816 133,932
Selling, general and
administrative ......... 37,604 36,592 76,558 74,163
Operating profit ......... 18,745 19,637 30,649 32,793
Other income:
Interest, net ........... 37 633 113 990
Other, net .............. 1,391 1,586 11,036 3,641
1,428 2,219 11,149 4,631
Income before provision
for income taxes ....... 20,173 21,856 41,798 37,424
Provision for income taxes 7,464 8,195 15,465 14,033
Net income ............... $ 12,709 $ 13,661 $ 26,333 $ 23,391
Income per common share:
Basic ............... $ .38 $ .39 $ .78 $ .67
Diluted ............. $ .38 $ .39 $ .78 $ .66
Weighted average number
of common shares:
Basic ............... 33,429 34,753 33,584 34,694
Diluted ............. 33,850 35,343 33,919 35,329
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Page 4
<TABLE>
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Dollars in thousands)
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net Income ........................................... $ 26,333 $ 23,391
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense .............................. 8,501 6,945
Amortization of goodwill .......................... 1,526 1,262
Deferred income taxes ............................. 773 954
Equity in earnings of unconsolidated affiliates ... (848) (1,898)
Gains on sales of assets, net ..................... (10) (23)
Gain on sale of marketable securities ............. (7,852) --
Changes in assets and liabilities, net of acquisitions:
(Increase) decrease in accounts receivable, net .... (2,183) 28,859
(Increase) decrease in other current assets ........ (244) 1,277
(Increase) in other assets ......................... (1,704) (637)
(Decrease) in transportation payables .............. (1,865) (23,537)
Increase (decrease) in accounts payable ........... 2,162 (1,063)
(Decrease) in accrued liabilities .................. (9,922) (369)
(Decrease) in income taxes payable ................. (52) (1,291)
Increase in other liabilities ..................... 138 192
Total adjustments ............................... (11,580) 10,671
Net cash provided by operating activities ......... 14,753 34,062
Cash flows from investing activities:
Acquisitions, net of cash acquired ................... -- (9,532)
Restricted funds ..................................... 990 6,103
Other investing activities ........................... -- 1,370
Proceeds from sales of assets ........................ 48 674
Proceeds from sale of marketable securities .......... 7,877 --
Capital expenditures ................................. (15,673) (14,494)
Investment in unconsolidated affiliates .............. (1,726) (7,102)
Net cash used by investing activities ............. (8,484) (22,981)
Cash flows from financing activities:
Net (repayments) borrowings in bank overdrafts payable (2,586) 1,132
Additions to long-term debt .......................... 2,058 --
Payment of long-term debt ............................ (1,511) (792)
Issuance of common stock ............................. 2,332 2,746
Payment of cash dividends ............................ (4,032) (3,464)
Purchase of treasury stock ........................... (9,692) --
Net cash used by financing activities ............. (13,431) (378)
Effect of foreign currency exchange rates on cash ........ (1,798) (1,398)
Net (decrease) increase in cash and cash equivalents ..... (8,960) 9,305
Cash and cash equivalents at beginning of period ......... 60,246 67,576
Cash and cash equivalents at end of period ............... $ 51,286 $ 76,881
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Page 5
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. The consolidated balance sheet at June 30, 1999, the consolidated
statements of operations for the three-month and six-month periods ended
June 30, 1999 and 1998, and the consolidated statements of cash flows for
the six-month periods ended June 30, 1999 and 1998 were prepared by the
Company without audit. In the opinion of management, all adjustments
necessary to present fairly the financial position, results of operations,
and cash flows for the interim periods were made. Certain items in the June
30, 1998 financial statements were reclassified to conform to the
classification of June 30, 1999 financial statements.
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted
accounting principles, were condensed or omitted. Accordingly, these
condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in
the Company's annual report to stockholders for the year ended December 31,
1998.
Statements included herein which are not historical facts are
forward-looking statements. 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.
Consequently, the results of operations for the three-month and six-month
periods ended June 30, 1999 are not necessarily indicative of the results
of operations expected for the full year ending December 31, 1999.
B. Marketable securities:
During the first quarter of 1999, the Company sold approximately 30% of its
investment in the equity securities of Equant, N.V., an international data
network service provider, for a pre-tax gain of approximately $7.9 million
(See Note D) and an after-tax gain of approximately $4.9 million, or $.14
per diluted share. The remaining shares are not currently marketable and
are carried at a cost of approximately $.1 million in the accompanying
balance sheet.
C. Interest, net was as follows:
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest expense ....... $ (607) $ (343) $(1,217) $ (666)
Interest income ........ 644 976 1,330 1,656
$ 37 $ 633 $ 113 $ 990
</TABLE>
<PAGE>
Page 6
D. Other, net was as follows:
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Gain on the sale of
marketable securities ... $ -- $ -- $ 7,852 $ --
Equity in earnings of
unconsolidated affiliates 1,243 1,196 2,386 2,770
Foreign exchange gains .... 236 367 836 840
Other ..................... (88) 23 (38) 31
$ 1,391 $ 1,586 $ 11,036 $ 3,641
</TABLE>
<TABLE>
E. Comprehensive income:
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income ....................$ 12,709 $13,661 $26,333 $23,391
Other comprehensive income:
Translation of foreign
currency financial statements . (1,247) (5,496) (7,852) (7,357)
Income tax benefit (expense) .. 400 (276) 787 (138)
(847) (5,772) (7,065) (7,495)
Reclassification adjustment for
gain on sale of marketable
securities included in net
income...................... (7,019)
Income tax expense ............ -- -- 2,892 --
-- -- (4,127) --
Comprehensive income ..........$ 11,862 $ 7,889 $15,141 $15,896
</TABLE>
F. Supplemental disclosures of cash flow information:
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest and income taxes paid:
Interest ....................... $ 449 $ 295 $ 778 $ 517
Income taxes. .................. 9,262 8,037 13,672 12,502
$ 9,711 $ 8,332 $14,450 $13,019
</TABLE>
Noncash investing and financing activities:
During the second quarter of 1998, as part of an acquisition, the Company
issued a $6.0 million note.
<PAGE>
Page 7
G. Regional Operations:
The Company operates its integrated logistics business as 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.
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues by service:
Airfreight ................. $276,147 $291,485 $544,423 $583,015
Ocean freight .............. 55,727 51,697 104,979 94,852
Customs brokerage & other .. 41,389 35,312 78,545 73,003
Total revenues ............. $373,263 $378,494 $727,947 $750,870
Revenues by geographic area:
U.S.A ...................... $144,900 $160,288 $286,295 $319,769
United Kingdom ............ 36,002 39,011 70,958 78,290
Other ..................... 75,318 76,212 149,447 151,939
Europe ..................... 111,320 115,223 220,405 230,229
Asia and Others ............ 117,043 102,983 221,247 200,872
Total foreign ............ 228,363 218,206 441,652 431,101
Total revenues ............. $373,263 $378,494 $727,947 $750,870
Operating profit by
geographic area:
U.S.A ...................... $ 8,432 $ 8,803 $ 13,251 $ 11,617
Europe ..................... 3,256 5,270 4,912 10,930
Asia and Others ............ 7,057 5,564 12,486 10,246
Total foreign ............ 10,313 10,834 17,398 21,176
Total operating profit ..... $ 18,745 $ 19,637 $ 30,649 $ 32,793
</TABLE>
<PAGE>
Page 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
The Company operates its integrated logistics business as 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,
selling, general and administrative expenses) and operating profit:
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Gross Revenues:
Airfreight ........................ $ 276.2 $ 291.5 $ 544.4 $ 583.0
Ocean freight ..................... 55.7 51.7 105.0 94.9
Customs brokerage and other ....... 41.4 35.3 78.5 73.0
Total Gross Revenues ............ $ 373.3 $ 378.5 $ 727.9 $ 750.9
Net Revenues:
Airfreight ........................ $ 75.8 $ 78.0 $ 151.8 $ 152.6
Ocean freight ..................... 17.2 16.6 32.6 29.1
Customs brokerage and other ....... 33.6 28.4 62.6 59.2
Total Net Revenues .............. 126.6 123.0 247.0 240.9
Internal Operating Expenses:
Terminal .......................... 70.3 66.8 139.8 133.9
Selling, general and administrative 37.6 36.6 76.6 74.2
Total Internal Operating Expenses 107.9 103.4 216.4 208.1
Operating Profit .................... $ 18.7 $ 19.6 $ 30.6 $ 32.8
</TABLE>
Consolidated gross revenues for the second quarter and first six months of
1999 decreased 1.4% to $373.3 million and 3.1% to $727.9 million, respectively,
compared to the same periods in 1998. Additionally, gross revenues for the
quarter and six months were negatively impacted by approximately $4.9 million
and $6.7 million, respectively, due to the effect of a stronger U.S. dollar when
converting foreign currency revenues into U.S. dollars for financial reporting
purposes. Consolidated net revenues for the second quarter and first six months
of 1999 increased 2.9% to $126.6 million and 2.5% to $247.0 million,
respectively, over the comparable 1998 periods.
Gross airfreight revenues for the second quarter and first six months of
1999 decreased 5.2% to $276.2 million and 6.6% to $544.4 million, respectively,
compared to the same 1998 periods. The declines in gross airfreight revenues for
both the second quarter and first six months of 1999 were mainly attributable to
<PAGE>
Page 9
softness in exports from the United States and Europe and generally lower
selling prices. Airfreight net revenues for the second quarter and first six
months of 1999 declined $2.2 million (2.8%) and $.8 million (.5%), respectively,
compared to the same periods in 1998. Airfreight gross margin (net revenues as a
percentage of gross revenues) for the second quarter and first six months of
1999 increased .6% to 27.4% and 1.7% to 27.9%, respectively, over the comparable
1998 periods. The increases were mainly due to lower transportation costs and
improved routing and mix of cargo.
Ocean freight gross revenues for the second quarter and first six months of
1999 increased $4.0 million (7.7%) and $10.1 million (10.6%), respectively, over
the comparable 1998 periods. Ocean freight net revenues for the second quarter
and first six months of 1999 increased $.6 million (3.6%) and $3.5 million
(12.0%), respectively, over the comparable 1998 periods. Excluding the $.8
million reclassification from customs brokerage and other gross revenues which
occurred during the second quarter of 1998, which pertained to the first quarter
of 1998, ocean freight gross and net revenues increased $4.8 million (9.4%) and
$1.4 million (8.9%), respectively, over the second quarter of 1998. The
increases in both gross and net ocean freight revenues were due to increased
shipping volumes from existing customers and the continuing expansion into the
ocean freight market.
Customs brokerage and other gross revenues for the second quarter and first
six months of 1999 increased $6.1 million (17.3%) and $5.5 million (7.5%),
respectively, over the comparable 1998 periods. Customs brokerage and other net
revenues for the second quarter and first six months of 1999 increased $5.2
million (18.3%) and $3.4 million (5.7%), respectively, over the comparable 1998
periods. Excluding the previously noted $.8 million reclassification, customs
brokerage and other gross and net revenues for the second quarter increased $5.3
million (14.7%) and $4.4 million (15.1%), respectively, over the second quarter
of 1998. The increases in customs brokerage and other gross and net revenues
were mainly attributable to increased brokerage activity, particularly in the
United States, and the inclusion of revenues from businesses acquired subsequent
to the second quarter of 1998.
Internal operating expenses for the second quarter and first six months of
1999 increased $4.5 million (4.4%) and $8.3 million (4.0%), respectively, over
the comparable 1998 periods. The increases resulted primarily from expenses
related to acquisitions made subsequent to the second quarter of 1998, and an
increase in expenses pertaining to the Company's information systems.
Consolidated operating profit for the second quarter of 1999 decreased $.9
million (4.6%) compared to the second quarter of 1998. For the first six
months of 1999, consolidated operating profit decreased $2.2 million (6.7%)
compared to the first six months of 1998.
Interest, net for the second quarter and first six months of 1999 declined
$.6 million and $.9 million, respectively, compared to the same 1998 periods.
The declines resulted from higher interest expense associated with the increase
in long-term debt and lower interest income due to the reduced amount of excess
cash available for investment (See Note C).
<PAGE>
Page 10
Other, net for the second quarter of 1999 decreased $.2 million compared to
the second quarter of 1998 which was primarily due to lower foreign exchange
gains. For the first six months of 1999, Other, net increased $7.4 million over
the comparable 1998 period. The increase resulted primarily from a $7.9 million
gain on the sale of marketable securities, (See Note B), which was offset by a
$.5 million decline which was mainly attributable to the results from the
Company's equity in the earnings of unconsolidated affiliates.
The effective income tax rate for both the second quarter and first six
months of 1999 decreased .5% to 37.0% compared to 37.5% for the comparable 1998
periods. The decrease was largely the result of a change in the geographic
composition of worldwide earnings to countries with lower effective income tax
rates.
United States gross revenues for the second quarter and first six months of
1999 declined $15.4 million (9.6%) to $144.9 million and $33.5 million (10.5%)
to $286.3 million, respectively, compared to the second quarter and first six
months of 1998. The decrease in the second quarter was comprised of a $17.6
million (14.1%) decline in airfreight revenues, a $1.8 million (8.9%) decline in
ocean freight revenues and a $4.0 million (28.6%) increase in customs brokerage
and other revenues. The decrease in the first six months of 1999 was comprised
of a $36.3 million (14.4%) decline in airfreight revenues, a $.5 million (1.2%)
decline in ocean freight revenues and a $3.3 million (10.5%) increase in customs
brokerage and other revenues. Excluding the $.8 million reclassification, which
was previously discussed, ocean freight revenues for the second quarter declined
$1.0 million (5.2%) and customs brokerage and other revenues increased $3.3
million (21.7%). The decreases in airfreight revenues for the second quarter and
first six months of 1999 were primarily the result of lower export shipments and
selling prices. The decreases in ocean freight revenues for the second quarter
and first half of 1999 resulted from lower selling rates. The increases in
customs brokerage and other revenues for the second quarter and first half of
1999 resulted from an increase in brokerage activity and the inclusion of
results of an acquisition which was made subsequent to the second quarter of
1998.
United States operating profit for the second quarter decreased $.4 million
(4.2%) to $8.4 million compared to the second quarter of 1998. For the first six
months of 1999, operating profit increased $1.6 million (14.1%) to $13.2 million
compared to the first six months of 1998. The decrease in the second quarter
operating profit was mainly the result of higher information systems expenses.
The increase in operating profit for the first six months of 1999 was the result
of improved margins resulting from improvement in the mix of cargo and lower
transportation costs, and the inclusion of the results of an acquisition which
was made subsequent to the second quarter of 1998.
Foreign gross revenues for the second quarter and first six months of 1999
increased $10.2 million (4.7%) to $228.4 million and $10.6 million (2.4%) to
$441.6 million, respectively, over the comparable 1998 periods. Foreign gross
revenues were negatively impacted for the quarter and six months by
approximately $4.9 million (Europe $4.6 million, Asia and Others $.3 million)
and $6.7 million (Europe $3.0 million, Asia and Others $3.7 million),
respectively, due to the effect of a stronger U.S. dollar when converting
foreign currency revenues into U.S. dollars for financial reporting purposes.
European gross revenues for the second quarter declined $3.9 million (3.4%) to
$111.3 million. The decline was comprised of a $5.0 million (5.5%) decrease in
airfreight revenues, a $.6 million (4.1%) increase in ocean freight revenues and
<PAGE>
Page 11
a $.5 million (4.7%) increase in customs brokerage and other revenues. For the
first half of 1999, European gross revenues declined $9.8 million (4.3%) to
$220.4 million which was comprised of a $12.1 million (6.7%) decrease in
airfreight revenues which was offset by increases in ocean freight revenues and
customs brokerage and other revenues of $1.8 million (6.6%) and $.5 million
(2.3%), respectively. The decrease in airfreight gross revenues was the result
of lower export shipments and generally lower selling prices. The increase in
ocean freight revenues was attributable to greater shipping volumes from new and
existing customers. The increase in customs brokerage and other revenues
resulted from increases in brokerage activity. Asia and Others gross revenues
for the second quarter increased $14.1 million (13.7%) over the second quarter
of 1998. The increase was comprised of a $7.3 million (9.6%) increase in
airfreight revenues, a $5.3 million (31.4%) increase in ocean freight revenues
and a $1.5 million (14.3%) increase in customs brokerage and other revenues. For
the first half of 1999, gross revenues increased $20.4 million (10.1%) over the
comparable 1998 period. The increase was comprised of a $9.8 million (6.6%)
increase in airfreight revenues, an $8.8 million (28.3%) increase in ocean
freight revenues and a $1.8 million (8.7%) increase in customs brokerage and
other revenues. The increases in airfreight and ocean freight gross revenues
were due to greater shipping volumes from new and existing customers. The
increases in customs brokerage and other gross revenues resulted primarily from
an acquisition made subsequent to the second quarter of 1998.
Foreign operating profit for the second quarter of 1999 declined $.5
million (4.8%) to $10.3 million compared to the second quarter of 1998. For the
first six months of 1999, operating profit declined $3.8 million (17.8%) to
$17.4 million compared to the first six months of 1998. The European region's
operating profit for the second quarter of 1999 decreased $2.0 million (38.2%)
compared to the second quarter of 1998. For the first six months of 1999, the
European region's operating profit decreased $6.0 million (55.1%) compared to
the first six months of 1998. The declines were mainly the result of weakness in
airfreight shipments and lower selling rates throughout the region with The
Netherlands experiencing the greatest impact. The Asia and Others region's
operating profit for the second quarter of 1999 increased $1.5 million (26.8%)
over the comparable 1998 period. For the first six months of 1999, the Asia and
Others region's operating profit increased $2.2 million (21.9%) over the
comparable 1998 period.
Liquidity and Capital Resources
At June 30, 1999, cash and cash equivalents decreased approximately $8.9
million to $51.3 million from $60.2 million at December 31, 1998. For the first
six months of 1999, the Company's primary sources of cash consisted of $14.8
million from operating activities and $7.9 million from sale of marketable
securities, while the primary uses of cash consisted of $15.7 million for
capital expenditures, $9.7 million for puchase of treasury stock and $4.0
million for payment of dividends. Cash from operating activities decreased
approximately $19.3 million compared to the first six months of 1998. The
decrease was mainly the result of a slowing in the collection of trade
receivables.
Capital expenditures for the first six months of 1999 increased $1.2
million over the first six months of 1998 to $15.7 million. The $15.7 million of
capital expenditures was primarily for management information services and for
improvement and expansion of facilities.
<PAGE>
Page 12
At June 30, 1999, the Company had available for future borrowings
approximately $71.8 million of its $75.0 million revolving credit facility. 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 $23.2 million, of which
approximately $1.6 million was outstanding.
The Company's Board of Directors has authorized the purchase from time to
time in the open market of up to 2,000,000 shares of the Company's common stock.
During the first six months of 1999, the Company purchased 557,500 of its common
shares at a cost of approximately $9.7 million. As of June 30, 1999, the Company
has purchased 1,635,000 of the 2,000,000 shares authorized at a cost of
approximately $31.7 million. Additionally, in June 1999, the Company's Board of
Directors authorized an increase in the quarterly cash dividend from six cents
($.06) to seven cents ($.07) per share.
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.
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
included remediation, upgrading or replacement of the Company's various systems
including those utilizing embedded technology. 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 has and will continue to
expense the costs incurred to remediate the applicable systems. For 1997, the
Company incurred approximately $1.0 million of expense and approximately $3.6
million of expense in 1998. Year 2000 expense for 1999 is anticipated to be
approximately $2.5 million with approximately $1.5 million expended in the first
half of 1999.
The remediation of the Company's systems was 100% completed by the end of
the first quarter of 1999. Systems testing was completed in the middle of July
1999. The systems testing verified existing functionality and system operation
before, during and after January 1, 2000. The testing placed particular emphasis
on the high risk dates of September 9, 1999, December 31, 1999, January 1, 2000,
February 28, 2000, February 29, 2000, March 1, 2000, February 28, 2001 and March
1, 2001. The Company believes that the remediation, upgrade and replacement of
its systems have been materially completed in July 1999; however, the Company
intends to continue testing its systems for the remainder of 1999. Management
believes that Year 2000 - related matters for the Company's internal systems
will not have a material adverse effect on the Company's operations or financial
position; however the ultimate degree to which the Company's systems may be
affected by Year 2000 is uncertain.
<PAGE>
Page 13
In connection with this effort, the Company has initiated a program to
communicate with its many customers and suppliers to determine the level of Year
2000 readiness of these entities and the potential impact on the Company's
operations if these entities' computer systems are not ready. This program
encompasses contacting the Company's major customers and its significant
suppliers - airlines, steamship lines, trucking companies, handling agents,
customs authorities and other governmental agencies and financial institutions.
During the third quarter and early fourth quarter of 1998, questionnaires were
sent to the Company's significant suppliers. As of August 4, 1999, the Company
surveyed approximately 1,400 of its significant suppliers - approximately 91% of
those suppliers surveyed have advised the Company that they are currently Year
2000 compliant or expect compliance by September 30, 1999.
The Company has identified those suppliers who have either not responded to
the questionnaires or will not be compliant and will discontinue utilizing those
suppliers later in 1999. Additionally, during the third quarter of 1999,
detailed contingency plans will be formulated within each country where the
Company operates to minimize the risk of significant service disruptions due to
a Year 2000 failure by supplier(s). Contingency plans will include: redeployment
of existing personnel and employing additional personnel to processes that were
automated and may require manual intervention due to Year 2000 non-compliance,
selection of alternative airlines, steamship lines, trucking companies etc.,
customer notification of possible service disruptions in markets where carriers,
aviation and/or customs authorities may not be Year 2000 compliant.
The Company's Year 2000 compliance evaluation of customers and suppliers is
ongoing and the potential impact of non-compliance by the Company's customers
and suppliers has not been determined. However, the Company does not warrant as
true and accurate any assurance it receives from customers and suppliers
regarding the compliance of their systems. The Company relies entirely on its
transportation suppliers' airlines, steamship lines and independent trucking
firms to transport its customers' cargo throughout its network. To the degree
that the operations of any number of transportation providers are adversely
affected by Year 2000, disruptions in the Company's business may occur which may
have a material adverse effect on the Company's operations.
New Accounting Standard
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted in years beginning after June 15, 2000. The Statement
establishes accounting and financial reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The Company does not anticipate that the
adoption of this Statement will have a material impact on either its results of
operations or financial position.
<PAGE>
Page 14
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings
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.
Item 4. - Submission of Matters to a Vote of Security Holders
a) The annual meeting of shareholders was held on June 17, 1999.
b) The following persons (constituting the entire Board of Directors of
the Company) were elected as directors at the annual meeting of
shareholders:
Number of Common Shares Voted:
<TABLE>
For Withhold Authority
<S> <C> <C> <C>
1) John M. Fowler ......... 26,053,441 164,520
2) Hendrik J. Hartong, Jr.. 26,056,996 160,965
3) Donald J. Keller ....... 26,040,500 177,461
4) Andrew L. Lewis IV ..... 25,678,705 539,256
5) Richard T. Niner ....... 26,053,141 164,820
6) John Radziwill ......... 26,057,210 160,751
7) Guenter Rohrmann ....... 26,034,936 183,025
</TABLE>
c) At the Annual Meeting of Shareholders, the Shareholders approved an
Amendment to the Company's 1996 Incentive Stock Plan to permit the
grant of stock options and stock application rights to members of the
Board of Directors of the Company who are not salaried employees of The
Company.
Shares voted for the Amendment 20,044,291
Shares voted against the Amendment 4,908,125
Shares abstaining 1,187,565
Item 6. - Exhibits and Reports on Form 8-K
a) Exhibits:
Exhibit 11 - Computation of Earnings Per Common Share.
Exhibit 27 - Financial Data Schedule.
b) Reports on Form 8-K:
None.
<PAGE>
Page 15
SIGNATURES
Pursuant to the requirements 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)
Date: August 13, 1999 /s/ Dennis M. Dolan
Dennis M. Dolan
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 13, 1999 /s/ Martin J. McDonnell
Martin J. McDonnell
Vice President - Controller
(Principal Accounting Officer)
<TABLE>
<CAPTION>
Exhibit 11
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(Unaudited)
(In thousands, except
per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income applicable to
common shares ............. $12,709 $13,661 $26,333 $23,391
Earnings per share:
Basic ..................... $ .38 $ .39 $ .78 $ .67
Diluted ................... $ .38 $ .39 $ .78 $ .66
Common share and common
share equivalents:
Weighted average of common
shares outstanding ...... 33,429 34,753 33,584 34,694
Basic shares ............. 33,429 34,753 33,584 34,694
Common share equivalents
(stock options) .......... 421 590 335 635
Diluted equivalent shares 33,850 35,343 33,919 35,329
<FN>
Basic earnings per share is computed by dividing net income by the weighted
average common shares outstanding during the period. Diluted earnings per
share is computed by dividing net income by the weighted average of common
shares and common share equivalents outstanding during the period.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 51,286
<SECURITIES> 0
<RECEIVABLES> 361,266
<ALLOWANCES> 5,294
<INVENTORY> 0
<CURRENT-ASSETS> 414,329
<PP&E> 162,064
<DEPRECIATION> 74,720
<TOTAL-ASSETS> 651,851
<CURRENT-LIABILITIES> 288,563
<BONDS> 41,617
<COMMON> 353
0
0
<OTHER-SE> 389,752
<TOTAL-LIABILITY-AND-EQUITY> 651,851
<SALES> 0
<TOTAL-REVENUES> 727,947
<CGS> 0
<TOTAL-COSTS> 480,924
<OTHER-EXPENSES> 139,816
<LOSS-PROVISION> 757
<INTEREST-EXPENSE> 1,217
<INCOME-PRETAX> 41,798
<INCOME-TAX> 15,465
<INCOME-CONTINUING> 26,333
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,333
<EPS-BASIC> .78
<EPS-DILUTED> .78
</TABLE>
