-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K3UCk4nrrjIYSNAbg+oPQXsKwYt7zFGI1xzq+aGgeRO3UJkJemXl8tXelJMEqKSz F3SgqElHeffiBEtK64815g== 0000700674-96-000005.txt : 19960401 0000700674-96-000005.hdr.sgml : 19960401 ACCESSION NUMBER: 0000700674-96-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIR EXPRESS INTERNATIONAL CORP /DE/ CENTRAL INDEX KEY: 0000700674 STANDARD INDUSTRIAL CLASSIFICATION: ARRANGEMENT OF TRANSPORTATION OF FREIGHT & CARGO [4731] IRS NUMBER: 362074327 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08306 FILM NUMBER: 96541995 BUSINESS ADDRESS: STREET 1: 120 TOKENEKE RD PO BOX 1231 CITY: DARIEN STATE: CT ZIP: 06820 BUSINESS PHONE: 2036557900 MAIL ADDRESS: STREET 1: 120 TOKENEKE RD STREET 2: P O BOX 1231 CITY: DARIEN STATE: CT ZIP: 06820 10-K 1 1995 YEAR END 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) for the fiscal year ended December 31, 1995 or [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required) for the transition period from _____to ______. Commission file number: 1-8306 AIR EXPRESS INTERNATIONAL CORPORATION (Exact name of Registrant as Specified in its Charter) Delaware 36-2074327 (State or Other of Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 120 Tokeneke Road, Darien, Connecticut 06820 (203) 655-7900 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) Securities registered pursuant to Section 12(b) of the Act: Title of Class Name of Each Exchange on Which Registered 6% Convertible Subordinated Debentures American Stock Exchange Due 2003 Securities registered pursuant to Section 12(g) of the Act: Title of Class Common Stock, $.01 par value Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [__] The aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 25, 1996 was $420,937,877. The number of shares of common stock outstanding as of March 25, 1996 was 18,582,205. DOCUMENTS INCORPORATED BY REFERENCE: To the extent specified, part III of this Form 10-K incorporates information by reference to the Registrant's definitive proxy statement for the 1996 Annual Meeting of Shareholders. AIR EXPRESS INTERNATIONAL CORPORATION 1995 Form 10-K Annual Report Table of Contents Part I Page Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . 1 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . 7 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 7 Item 4. Submission of Matters to a Vote of Security Holders and Executive Officers of the Registrant . . . . . . . 8 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . 10 Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . 12 Item 8. Financial Statements and Supplementary Data. . . . . . . 19 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures. . . . . . . . . . 19 Part III Item 10. Directors and Executive Officers of the Registrant . . . 19 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . 19 Item 12. Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . . . . . . . . . 19 Item 13. Certain Relationships and Related Transactions . . . . . 19 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 20 Part I Item 1. Business (a) General Development of Business Air Express International Corporation (the "Company" or the "Registrant") is the oldest and largest international airfreight forwarder based in the United States. Through its global network of Company-operated facilities and agents, it consolidates, documents and arranges for transportation of its customers' shipments of heavy cargo throughout the world. During 1995, the Company handled more than 1,774,000 individual airfreight shipments, with an average weight of 519 pounds, to more than 2,860 cities in more than 182 countries. The Company generated revenues in excess of $1.2 billion in 1995, of which approximately 57% were attributable to shipments from locations outside the United States. Although the Company's headquarters is located in the United States, its network is global, with offices located in over 837 cities, including 235 cities in the United States, 185 cities in Europe and 417 cities in Asia, the South Pacific, the Middle East, Africa and Latin America. As of December 31, 1995, this network consisted of 194 Company-operated facilities, including 55 in the United States and 139 abroad, supplemented at 643 additional locations, a substantial number of which are served by agents, many of whom serve the Company on an exclusive basis. The network is managed by experienced professionals, most of whom are nationals of the countries in which they serve. Approximately 75% of the Company's 32 regional and country managers have been employed by the Company for more than ten years. Since 1985, when its current management assumed control, the Company has focused on the international transportation of heavy cargo and devoted its resources to expanding and enhancing its global network and the information systems necessary to more effectively service its customers' transportation logistics needs. In December 1987, the Company acquired the Pandair Group, a European-based international airfreight forwarder with facilities in 14 countries. The Pandair acquisition significantly strengthened the Company's presence in key foreign markets, particularly the United Kingdom and Holland. In July 1993, the Company acquired the Votainer group of companies ("Votainer"), a Netherlands-based Non-Vessel Operating Common Carrier ("NVOCC") which provides ocean freight consolidation services, with a network of 34 company-operated facilities in 12 countries. During 1994, the Company acquired all the outstanding common stock of Unimodal Australia Pty. Ltd., an ocean freight forwarder located in Australia, Banner International Ltd., an airfreight forwarder located in New Zealand and Pace Express Pty. Ltd., an airfreight forwarder located in Australia, and 75% of the outstanding common stock of Universal Airfreight AS, the Company's exclusive airfreight agent in Norway. During 1995, the Company acquired all of the outstanding common stock of Radix Ventures, Inc., a leading provider of customs brokerage in the United States, Jagro International, Inc., an ocean freight forwarder and customs broker located in Canada, Brantford International, Inc., an air and ocean freight forwarder located in the United Kingdom, and 40% ownership of the outstanding common stock of Air Express International (Emirates), the Company's exclusive air and ocean freight agent in the United Arab Emirates. The acquisitions were consistent with the Company's strategy of strengthening its market position, further enhancing its operating efficiencies and providing its customers a broader range of transportation and distribution related services. -1- (b) Financial Information About Industry Segments The Company currently is engaged in the business of freight forwarding. See Management's Discussion and Analysis of Financial Condition and Results of Operations (Item 7), and the Company's Consolidated Financial Statements, including the Notes thereto, for data related to the Company's revenues, operating profit and identifiable assets. (c) Narrative Description of Business Airfreight Forwarding and Related Services An airfreight forwarder procures shipments from a large number of customers, consolidates shipments bound for a particular destination from a common place of origin, determines the routing over which the consolidated shipment will move, selects an airline serving that route on the basis of departure time, available cargo capacity and rate, and books the consolidated shipment for transportation on that airline. In addition, the forwarder prepares all required shipping documents, delivers the shipment to the transporting airline and, in many cases, arranges for clearance of the various components of the shipment through customs at the final destination. If so requested by its customers, the forwarder also will arrange for delivery of the individual components of the consolidated shipment from the arrival airport to their intended consignees. As a result of its consolidation of customers' shipments, the forwarder is usually able to obtain lower rates from airlines than its customers could obtain directly from those airlines. In addition, in certain tradelanes and with certain airlines, where the forwarder generates a continuing high volume of freight, that forwarder is often able to obtain even lower rates. Accordingly, the forwarder is generally able to offer its customers a lower rate than would otherwise be available to the customer from the airline. However, the rate charged by the forwarder to its customers is greater than that obtained by the forwarder from the airline, and the difference represents the forwarder's gross profit. Ocean Freight Services The Company's revenue from international ocean freight forwarding is derived from service both as an indirect ocean carrier (NVOCC) and as an authorized agent for shippers and importers. The Company contracts with ocean shipping lines to obtain transportation for a fixed number of containers between various points during a specified time period at an agreed rate. The Company solicits freight from its customers to fill the containers, charging rates lower than the rates offered directly to customers by shipping lines for similar type shipments. Customs Brokerage Services The Company provides customs brokerage clearance services in the United States and 18 foreign countries. These services entail the preparation and assembly of required documentation, in many instances, the advancement of customs duties on behalf of importers, and the arrangement for the delivery of goods after the customs clearance process is completed. Additionally, other services may be provided such as the procurement and placement of surety bonds on behalf of importers, duty drawback (recovery of previously paid duties when goods are re-exported), and the arrangement of bonded warehouse services which allows importers to store goods while deferring payment of customs duties until the goods are required for delivery. -2- In June of 1995, the Company acquired Radix Ventures, Inc. ("Radix") which, through its subsidiary, Radix Group International, Inc., is a leading U.S. customs broker, with offices in 23 U.S. cities and approximately 520 employees. Radix's customs brokerage services were largely performed for importers who used other freight forwarders for the transportation of goods to the United States. Since the acquisition of Radix, the Company has continued to maintain and expand its U.S. customs brokerage activities to existing and new clients without regard to whether the Company provides transportation services to these importers. It is the Company's strategy to ultimately expand its relationship with customs brokerage customers by providing other services, including transportation, and warehousing and distribution. In 1995, the Company processed approximately 905,000 customs entries of which 173,000 were in the United States; in 1994, it processed 729,000 entries of which 63,000 were in the United States and in 1993, 641,000 entries were processed, of which 55,000 were in the United States. Operations The Company has a global network of Company-operated facilities and supporting agents with offices located in over 837 cities, including 235 in the United States, 185 in Europe, 120 in Asia and the South Pacific and 297 in the Middle East, Africa and Latin America. As a consequence, a substantial portion of its revenues and profits is derived from the shipment of goods from, or between, locations outside the United States. For the year ended December 31, 1995, approximately 62% of its gross revenues and net revenues were recorded in locations outside the United States. The Company neither owns nor operates any ships or aircraft. It arranges for transportation of its customers' shipments via steamship lines, commercial airlines and air cargo carriers. On limited occasions, when the size of a particular shipment so warrants, the Company will charter a cargo aircraft. The Company acts solely as a forwarder in respect of approximately 91% of the shipments it handles. When acting as an airfreight forwarder, the Company becomes legally responsible to its customer for the safe delivery of the customer's cargo to its ultimate destination, subject to a limitation on liability of $20.00 per kilo ($9.07 per pound). When acting as an ocean freight consolidator, the Company assumes cargo liability to its customers for lost or damaged shipments. This liability is typically limited by contract to a maximum of $500 per package or customary freight unit. However, because a freight forwarder's relationship to an airline or steamship line (the "Carrier") is that of a shipper to a carrier, the Carrier generally assumes the same responsibility to the Company as the Company assumes to its customers. On occasion, the Company acts in the capacity of a cargo agent for a designated Carrier. In this capacity, the Company contracts for freight carriage, for which it receives a commission from the Carrier, but it does not have legal responsibility for the safe delivery of the shipment. During 1995, shipments for which the Company acted as a cargo agent accounted for less than 2% of its revenues. -3- The Company also offers door-to-door express delivery among 20 European countries through its Pandalink service, which operates from a central hub in Brussels. Pandalink operates predominately as an overnight service to major European cities, with alternative delivery services to outlying areas within 48 to 72 hours. Ancillary Services In connection with its services as a freight forwarder and customs broker, the Company provides ancillary services, such as door-to-door pick-up and delivery of freight, purchase order management, warehousing and distribution, inventory management, cargo assembly, protective packing, consolidation and deconsolidation services. The LOGIS System The Company introduced its proprietary logistics information system ("LOGIS") for airfreight operations in 1986 and since that time has allocated substantial resources to expand the system's geographic reach and enhance its capabilities. Mainframe computers located at the Company's headquarters in Darien, Connecticut, and a facility near London, England, are linked to, and accessible from, terminals at 304 of its Company-operated facilities and with its agents in substantially all major markets, permitting real-time inputting, processing and retrieval of shipments, pricing, scheduling, space availability, booking and tracking data, as well as automated preparation of shipping, customs and billing documents. LOGIS has been developed to include worldwide ocean shipment tracing and tracking and to provide information for logistics facilities offered by the Company, including assembly and distribution activities for clients. As of December 31, 1995, the LOGIS system permitted electronic interfacing with more than 590 of the Company's major customers in 35 countries, 41 international airlines and customs authorities in the United States, the United Kingdom, Australia, New Zealand, Belgium and France. Electronic data interchange ("EDI") connections to the airlines permit instant retrieval by the Company, and by those of its customers interfacing with the LOGIS system, of information on the status of shipments in the custody of the airlines. With its EDI capabilities, LOGIS can receive a customer's shipping instructions and information with respect to the cargo being shipped and convert these data automatically into shipping documents. Where customs authorities in the country of destination are linked to the system, it can prepare customs declarations, calculate the appropriate customs duties and provide for automatic customs invoicing and clearance. -4- The LOGIS system has enabled the Company to improve the productivity of its personnel and the quality of its customer service and has enabled many of its customers to manage their freight transportation logistics needs more effectively. The system has resulted in substantial reductions in paperwork and expedited the entry, processing, retrieval and dissemination of critical information. The Company plans to continually improve and enhance the LOGIS system. Management believes that the LOGIS system has positioned the Company to better capitalize on the continuing trend toward outsourcing by large corporations of logistics management functions and reliance by many of these corporations on single-source providers. Regulation The Company's activities as an International Air Transport Association ("IATA") cargo agent are subject to the rules and regulations of that organization to the extent the Company acts as an agent for an airline which is an IATA member. Certain IATA rules and regulations are subject to the Department of Transportation ("DOT") approval. In addition, several states in which the Company operates regulate intrastate trucking. In these states, the Company has obtained the necessary operating authority. In the United States, the Company, operating as a customs broker, is licensed by the United States Department of the Treasury and regulated by the United States Customs Service. Customs brokerage fees are not subject to regulation. The Company is licensed as an ocean freight forwarder by the United States Federal Maritime Commission ("FMC") which prescribes qualifications for acting as a shipping agent, including surety bonding requirements. The FMC does not regulate the Company's fees in any material respect. The Company's ocean freight NVOCC business is subject to regulation, as an indirect ocean cargo carrier, under the FMC tariff filing and surety bond requirements, which require the Company to abide by tariffs filed with the FMC specifying the rates which may be charged to customers. Customers and Marketing The Company's principal customers are large manufacturers and distributors of computers and electronics equipment, pharmaceuticals, heavy industrial and construction equipment, motion pictures and printed materials. During 1995, the Company shipped goods for more than 60,000 customer accounts, none of which accounted for more than 5% of the Company's revenues. The Company markets its services worldwide through an international sales organization consisting of approximately 502 full-time salespersons (as of December 31, 1995), supported by the sales efforts of senior management and the Company's country, regional, branch and district managers. In markets where the Company does not operate its own facilities, its direct sales efforts are supplemented by those of the Company's agents. The Company's marketing is directed primarily to large, multinational corporations with substantial requirements for the international transportation of heavy cargo. -5- Competition Competition within the freight forwarding industry is intense. Although the industry is highly fragmented, with a large number of participants, the Company competes primarily with a relatively small number of international firms with worldwide networks and the capability to provide the breadth of services offered by the Company. The Company also encounters competition from regional and local freight forwarders, integrated transportation companies that operate their own aircraft, cargo sales agents and brokers, surface freight forwarders and carriers, certain airlines, and associations of shippers organized for the purpose of consolidating their members' shipments to obtain lower freight rates from carriers. Currency and Other Risk Factors The Company operates in many countries throughout the world, resulting in significant funds to be collected in various local currencies. There are risks from fluctuations in the value of these currencies, devaluations, or other actions and events which may result in the Company carrying assets in foreign currencies that are not easily convertible, or convertible at all, into U.S. dollars. These foreign currency assets are included in the Company's net investment in its foreign operations. From time to time, and when feasible and cost effective, the Company seeks to minimize the effect of fluctuations in the values of foreign currencies on its financial position through the purchase of foreign currency forward exchange contracts (See Note 13 to the Consolidated Financial Statements). In addition, the Company's business requires good working relationships with the airlines, which are its largest creditor as a group. To the extent that the airlines decrease cargo space available to forwarders, cut back cargo or passenger flights or enter the forwarding business themselves, the airfreight forwarding business could be adversely affected. The Company considers its working relationship with the airlines to be good. Employees As of December 31, 1995, the Company employed 5,522 people, of whom 3,678 were based at locations outside the United States, including 1,669 in the United Kingdom and Europe, 895 in Asia and 1,114 in the South Pacific, South America, Africa and Canada. Of the Company's 1,844 U.S.-based employees at that date, approximately 516 were covered by agreements with various locals of the International Brotherhood of Teamsters, the United Auto Workers and the International Association of Machinists and Aerospace Workers. In addition, approximately 25% of the Company's foreign-based personnel are represented by various types of collective bargaining organizations. The Company considers its relationship with its employees to be satisfactory. -6- (d) Financial Information About Foreign and Domestic Operations See the Company's Consolidated Financial Statements including the Notes thereto for data related to the Company's revenues, operating profit and identifiable assets. Item 2. Properties The Company owns its worldwide headquarters building (approximately 40,000 square feet in area) in Darien, Connecticut, a warehouse and office facility (approximately 78,000 square feet in area) in Sydney, Australia, which is subject to a $3.1 million mortgage, a warehouse and distribution facility (approximately 59,000 square feet in area) in Venlo, Holland, which is subject to a $1.7 million mortgage, and a warehouse and distribution facility (approximately 150,000 square feet in area) in Singapore, which is subject to a $6.4 million mortgage. The Company leases facilities at or near airports at 50 locations in the United States and 132 offices in 27 other countries. Most facilities have office, loading dock and warehouse space. The principal facilities are set forth in the following table:
Approximate Sq. Feet of Lease Location Floor Space Expiration Amsterdam, The Netherlands 68,000 sq. ft. of warehouse and office 1998 Chicago, Illinois 116,000 sq. ft. of warehouse and office 1998 Frankfurt, Germany 37,000 sq. ft. of warehouse and office 1996 London, England 93,000 sq. ft. of warehouse and office 2002 Los Angeles, California 93,000 sq. ft. of warehouse and office 2001 Miami, Florida 98,000 sq. ft. of warehouse and office 1996 New York, New York 80,000 sq. ft. of warehouse and office 1996 San Francisco, California 52,000 sq. ft. of warehouse and office 2000
The Company believes that its facilities are adequate for its needs now and in the foreseeable future. Item 3. Legal Proceedings None. -7- Item 4. Submission of Matters to a Vote of Security Holders None. Executive Officers of the Registrant Following is a listing of the executive officers of the Company. The information listed below with respect to age and business experience for the past five years has been furnished to the Company as of March 25, 1996 by each executive officer of the Company. There are no family relationships between any Director or officer of the Company. Positions with the Company an Business Experience for the Name Age Past Five Years Hendrik J. Hartong, Jr. 56 Chairman of the Company since 1985; (Chief Executive Officer of the Company from 1985 through 1989); General Partner since 1985 of Brynwood Management and since 1988 of Brynwood Management II L.P., which serve, respectively, as managing general partners of Brynwood Partners Limited Partnership and Brynwood Partners II L.P., private investment partnerships; Director of Hurco Companies, Inc. Guenter Rohrmann 56 President and Chief Executive Officer of the Company since 1989 (President and Chief Operating Officer from 1985 to 1989). Dennis M. Dolan 38 Vice President and Chief Financial Officer of the Company since 1989; U.S. Controller from 1985 to 1989. -8- Giorgio Laccona 37 Vice President - General Manager - North America since 1996; Vice President-Operations from 1994 to 1996, Vice President - Export Sales and Operations from 1989 to 1994. Daniel J. McCauley 61 Vice President, General Counsel and Secretary of the Company since 1991; Executive Vice President, Secretary and General Counsel, for more than five years prior to 1990, and consultant from 1990 to 1991, Emery Airfreight Corporation, Wilton, CT, a transportation company. Paul J. Gallagher 50 Vice President - Treasurer of the Company since 1993; Vice President- International Controller from 1989 to 1993. Walter L. McMaster 63 Vice President and Controller of the Company for more than the past five years. Robert J. O'Connell 59 Senior Vice President since 1996; Vice President - General Manager - North America of the Company since 1989; Vice President-North America Sales of the Company from 1985 to 1989. -9- Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Since April 5, 1994, the Company's common stock, $.01 par value (the "Common Stock"), trades on The Nasdaq Stock Market under the symbol: AEIC. Previously the Common Stock traded on the American Stock Exchange. The table below indicates the quarterly high and low prices of the Common Stock and the dividends declared per share for the years ended December 31, 1995 and 1994. The 1994 per share information has been restated to reflect the three-for-two stock split on December 21, 1994 (See Note 2 to the Consolidated Financial Statements).
Quarter 1st 2nd 3rd 4th Year Ended December 31, 1995: High ........................ $ 25 1/2 $ 26 1/2 $ 25 1/2 $ 25 1/4 Low ......................... $ 18 1/2 $ 20 3/4 $ 22 1/4 $ 20 1/4 Dividends ................... $ .04 $ .05 $ .05 $ .05 Year Ended December 31, 1994: High ........................ $ 15 3/4 $ 16 5/8 $ 18 7/8 $ 20 Low ......................... $ 12 1/4 $ 13 7/8 $ 14 5/8 $ 15 1/8 Dividends ................... $ .033 $ .04 $ .04 $ .04
At March 25, 1996, there were 926 holders of record of the Company's Common Stock. The closing price of the Common Stock on that date was $25.75 per share. -10- Item 6. Selected Financial Data
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES (In thousands, except per share data) Years Ended December 31, 1995 1994 1993 1992 1991 Revenues ......................$1,222,217 $997,379 $725,719 $672,287 $601,939 Net income ....................$ 29,027 $ 22,619 $ 17,340 $ 18,633 $ 13,936 Net income per common share:(1) Primary ....................$ 1.58 $ 1.28 $ .99 $ 1.08 $ .81 Fully diluted ..............$ 1.48 $ 1.21 $ .97 $ 1.08 $ .75 Cash dividends declared per common share ................$ .19 $ .153 $ .125 $ .085 $ .05 Total assets ..................$ 486,843 $383,626 $298,816 $211,721 $211,434 Long-term debt (excluding currentportion) ...........$ 82,762 $ 83,992 $ 78,464 $ 7,120 $ 24,928 Stockholders' investment ......$ 147,566 $ 99,350 $ 78,119 $65,376 $ 65,270 (1)Income per share amounts for all periods presented give effect to a three-for-two stock split in the nature of a 50.0% stock dividend in each of August 1991, July 1992 and December 1994 and are based upon the weighted average number of shares of Common Stock outstanding during each period.
-11- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Cash and cash equivalents at December 31, 1995 totaled $54.5 million compared to $44.2 million at December 31, 1994. The increase was largely attributable to the sale of the Company's holdings of U.S. Government securities and the subsequent reclassification of the sale proceeds into cash and cash equivalents (See Note 1 to the Consolidated Financial Statements). Such cash proceeds, together with an increase in the excess of trade receivables over trade payables, resulted in a working capital increase of approximately $18.0 million (30.6%) to $76.9 million at December 31, 1995 from $58.9 million at December 31, 1994. Capital expenditures for 1995 were $20.4 million compared to $12.1 million for 1994 and were made primarily for expansion and improvement of buildings, facilities and management information systems. Of the $8.3 million (68.6%) increase, approximately $6.0 million was attributable to construction and related costs for the Company's new warehouse and distribution facility in Singapore. Depreciation and amortization expense (including goodwill amortization) totaled $9.8 million in 1995 and $7.6 million in 1994. Capital expenditures for 1996 are estimated to be approximately $15.0 million and will be primarily for improvement and expansion of facilities and management information systems. In June 1995, the Company acquired all the outstanding shares of Radix in exchange for 954,608 shares of Common Stock and $.5 million in cash. The acquisition was valued at approximately $23.8 million (See Note 4 to the Consolidated Financial Statements). At December 31, 1995, various of the Company's foreign subsidiaries maintained overdraft facilities with foreign banks, aggregating approximately $14.3 million, of which approximately $.6 million was outstanding. During the third quarter of 1995, the Company allowed its $20.0 million revolving credit facility to expire. The Company anticipates that a syndicated unsecured revolving credit facility for approximately $75.0 million will be finalized during the first half of 1996 (See Note 7 to the Consolidated Financial Statements). During the second quarter of 1995, the Company's Board of Directors authorized a 25% increase in the quarterly cash dividend from four cents ($.04) to five cents ($.05) per share. Additionally, during the third quarter of 1995, the Board of Directors authorized the purchase, from time to time in the open market, of up to one million shares of the Company's Common Stock. As of December 31, 1995, no shares had been purchased under this authorization. The Company purchases foreign currency forward exchange contracts principally to hedge foreign currency exposure associated with net investments in certain foreign operations and certain intercompany transactions. The Company does not speculate in the financial markets and therefore does not hold these contracts for trading purposes (See Note 13 to the Consolidated Financial Statements). -12- Management believes that the Company's available cash and sources of credit, together with expected future sources of credit and cash generated from operations, will be sufficient to satisfy its anticipated needs for working capital and capital expenditures. Results of Operations 1995 Compared to 1994 The Company considers its total business to represent a single segment comprised of three major services: airfreight forwarding, ocean freight forwarding and customs brokerage and other services, all of which are fully integrated. The following table sets forth the gross revenues and net revenues (gross revenues minus transportation expenses) for each of these three service categories, as well as the Company's internal operating expenses (terminal and selling, general and administrative expenses) and operating profit:
1995 1994 ($ in millions) Gross Revenues: Airfreight ............................ $ 972.6 $ 810.6 Ocean freight ......................... 166.2 112.3 Customs brokerage and other ........................... 83.4 74.4 Total Gross Revenues .................... $ 1,222.2 $ 997.3 Net Revenues: Airfreight ............................ $ 245.8 $ 204.5 Ocean freight ......................... 38.8 28.2 Customs brokerage and other ........................... 82.1 57.3 Total Net Revenues ...................... 366.7 290.0 Internal Operating Expenses: Terminal .............................. 196.6 151.7 Selling, general and administrative ... 120.5 100.1 Total Internal Operating Expenses ....... 317.1 251.8 Operating Profit ........................ $ 49.6 $ 38.2
Gross revenues increased $224.9 million (22.6%) in 1995 over those for 1994, reflecting increases of $162.0 million (20.0%) in airfreight revenues, $53.9 million (48.0%) in ocean freight revenues and $9.0 million (12.1%) in customs brokerage and other revenues. Additionally, approximately $34.3 million of the increase in gross revenues was attributable to the effect of a weaker U.S. dollar when converting foreign currency revenues into U.S. dollars for financial reporting purposes. Gross revenues from customs brokerage in 1994 included $16.0 million of handling and related revenues. In 1995, $21.4 million of what were formerly classified as handling and related revenues were reclassified as a reduction to related transportation expense. Net revenues (gross revenues minus transportation expenses) increased $76.7 million (26.4%) to $366.7 million in 1995 and was attributable to increases of $41.3 million (20.2%) in airfreight net revenues, $10.6 million (37.6%) in ocean freight net revenues and $24.8 million (43.3%) in customs brokerage and other net revenues. The increases in both gross and net revenues from airfreight services were attributable to increased airfreight shipping volumes, as the number of shipments increased 8.7% and the total weight of cargo shipped increased 16.8% over 1994, and to higher prices initiated by the Company in response to rate increases from the airlines. The increases in gross and net revenues from ocean freight services were attributable to greater shipping volumes from existing customers, the Company's continuing penetration into the ocean freight market since its acquisition of Votainer in 1993 and the inclusion of ocean freight business of acquired companies. The increases in gross and net revenues from customs brokerage and other services were largely due to the acquisition of Radix. -13- The Company's internal operating expenses (terminal and selling, general and administrative expenses) increased $65.3 million (25.9%) in 1995 over 1994. The increase was attributable to the inclusion of operating expenses from acquired companies and the greater volume of shipments handled. Additionally, 1994 internal operating expenses included a one-time pre-tax charge of $1.0 million for the Company's estimated proportionate withdrawal liability from a multi-employer pension plan covering certain of its employees (See Note 11 to the Consolidated Financial Statements). As a percentage of gross revenues, internal operating expenses increased to 25.9% from 25.2% in 1994, due largely to the inclusion of operating expenses related to Radix's customs brokerage operations. Consolidated operating profit increased $11.4 million (29.8%) over 1994, due primarily to significant improvement in operating profits in the Company's United States region and its Asia and Others region (See Note 5 to the Consolidated Financial Statements). The Company's European operations were negatively effected by economic weakness in Europe, particularly during the second half of 1995 when the Company experienced only minimal growth in the weight of airfreight cargo shipped. Net interest expense increased $.1 million to $3.3 million in 1995, and other income declined $.3 million to $1.4 million in 1995 due to a decline in foreign exchange gains, net when compared to 1994. The Company's effective tax rate for 1995 was 39.0% compared to 38.5% in 1994. The increase in the effective tax rate was largely due to losses in countries where no tax credit was available and an increase in the amount of nondeductible expenses. The Company's effective tax rates fluctuate due to changes in tax rates and regulations in the countries in which it operates and the level of pre-tax profit earned in those countries. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". This statement establishes the accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. The Company believes that this statement, when adopted during the first quarter of 1996, will not have a material impact on either its results of operations or financial position. -14- Additionally, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation". This statement establishes a fair-value-based method of accounting for stock options and other equity instruments. The statement permits entities to continue to use the intrinsic value method included in APB-25 (Accounting for Stock Issued to Employees), but regardless of the method used to account for the compensation cost associated with stock options and similar plans, the statement requires entities to provide additional disclosure information. In 1996, the Company will adopt the disclosure provisions of this statement, but will continue to account for its employee stock-based compensation under APB-25. United States Operations United States revenues increased $92.0 million (25.0%) to $459.3 million in 1995 compared to 1994, reflecting increases of $70.7 million (22.6%) in airfreight revenues, $15.3 million (47.2%) in ocean freight revenues and $6.0 million (27.5%) in customs brokerage revenues. The increase in airfreight revenues was due to an 18.7% increase in the weight of cargo shipped, as well as price increases initiated in response to airline rate increases. The increase in ocean freight revenues was attributable to the Company's ongoing efforts to market its ocean freight services to both existing and new customers. The increase in customs brokerage revenues was largely attributable to the inclusion of business from Radix, which was acquired in June of 1995. United States operating profit in 1995 increased $10.6 million (154.0%) over 1994, due to increased airfreight revenues, the inclusion of Radix customs brokerage and freight forwarding business, and the achievement of operating profitability in ocean freight services in 1995 compared to a loss of $2.0 million from these services in 1994. Foreign Operations Foreign revenues increased $132.8 million (21.1%) in 1995 over 1994. Approximately $34.3 million of the increase was attributable to the effect of a weaker U.S. dollar when converting foreign currency revenues into U.S. dollars for financial reporting purposes. European revenues increased $63.1 million (19.5%) over 1994, due to increases of $57.1 million (22%) in airfreight revenues, $5.6 million (14.0%) in ocean freight revenues and $.4 million in customs brokerage revenues. The rate of increase in European airfreight revenues declined throughout the year, as the percentage increase in the weight of airfreight cargo shipped declined from approximately 27.0% in the first quarter to 1.0% in the fourth quarter of 1995, due largely to a slowdown in economic activity in the region. Revenues in the Asia and Others region increased $69.7 million (22.8%) in 1995 over 1994, reflecting increases of $34.3 million (14.4%) in airfreight revenues, $33.0 million (82.5%) in ocean freight revenues and $2.4 million in customs brokerage revenues. The increases in both airfreight and ocean freight revenues were attributable to greater shipping volumes from existing and new customers and the inclusion of business from acquired companies. Customs brokerage revenues increased primarily due to the increase in the number of import clearances. -15- Foreign operating profit was $32.1 million compared to $31.4 million in 1994. The increase was attributable entirely to the Asia and Others region, where operating profit increased $3.8 million (20.7%) over 1994, offsetting a decline of $3.1 million in the Company's European region. The lower operating profit in Europe was primarily due to losses in the Company's German operations, which negatively impacted European operating profit by $2.5 million. In the second half of 1995, the Company initiated actions in Germany to lower costs through reductions in personnel and reductions in other operating expenses. As a result of the weaker shipping volumes handled in Europe, and the losses in Germany, the Company's European operating profit for the third and fourth quarters of 1995 were lower than for the comparable quarters of 1994. In addition to the losses in Germany, a decline in operating profit was realized in the United Kingdom, which contributed 39.6% and 49.2% of European revenue and operating profit, respectively. The slowdown in economic activity in Europe has continued in 1996 and may negatively impact the Company's European operations in 1996. In addition to the actions taken in Germany, management is implementing operating cost reductions in other European countries in an effort to minimize the impact of weaker shipping volumes in 1996. 1994 Compared to 1993 The following table shows the consolidated results of airfreight and ocean freight activities for 1994 compared to 1993. Revenues from customs brokerage and other services are included in airfreight revenues:
1994 1993 Ocean Ocean Airfreight Freight Total Airfreight Freight Total ($ in millions) Gross Revenues ........... $885.0 $112.3 $997.3 $674.3 $51.4 $725.7 Expenses: Transportation .......... 623.2 84.1 707.3 457.2 39.2 496.4 Terminal ................ 134.4 17.3 151.7 112.8 7.0 119.8 Selling, general and administrative ..... 89.3 10.8 100.1 72.0 6.1 78.1 Operating profit (loss) .. $ 38.1 $ .1 $ 38.2 $ 32.3 $ (.9) $ 31.4
Gross revenues in 1994 were $271.6 million (37.4%) greater than in 1993. Airfreight revenues in 1994 increased $210.7 million (31.2%) over 1993. Airfreight shipping volumes were very strong in 1994, as the number of airfreight shipments increased 9.8% and the total weight of cargo shipped increased 30.1% over 1993. The higher shipping volumes were attributable to increased economic activity in countries where the Company operates, particularly European countries which emerged from recession in 1994, as well as the inclusion of revenues of acquired companies. Ocean freight revenues in 1994 were $60.9 million greater than in 1993; however, since the Company initiated its ocean freight activities with the acquisition of Votainer in July of 1993, only six months of ocean freight revenues were recorded in 1993. -16- Gross profit (revenue minus transportation expense) increased $60.7 million (26.5%) to $290.0 million in 1994 compared with 1993. Gross margin (gross profit as a percentage of revenues) decreased 2.5% to 29.0% in 1994 compared to 31.5% in 1993. The decrease in gross margin was largely due to the impact of greater weight per shipment which resulted in lower selling prices per unit of weight, and competitive pricing pressures. Internal operating expenses (terminal and selling, general and administrative) increased $53.9 million (27.2%) over 1993 due largely to the inclusion of expenses of companies acquired in 1994 and additional expenses incurred in connection with the substantially greater shipping volumes. Also, included in 1994 internal operating expenses was a one-time pre-tax charge of $1.0 million for the Company's estimated proportionate withdrawal liability with respect to a multi-employer pension plan covering certain of its employees (See Note 11 to the Consolidated Financial Statements). As a percentage of revenues, internal operating expenses declined to 25.2% of revenues in 1994 from 27.2% of revenues in 1993. Consolidated operating profit in 1994 was $6.8 million (21.7%) greater than in 1993 after giving effect to the one-time charge discussed above. However, excluding the one-time charge, operating profit increased 24.8%. Net interest expense decreased $.5 million (13.4%) to $3.2 million in 1994 compared with 1993. The decrease was attributable to higher interest earned on invested funds. The Company's effective tax rate for 1994 was 38.5% compared to 38.0% for 1993. The Company's effective tax rates fluctuate due to changes in tax rates and regulations in the countries in which it operates and the level of pre-tax profit earned in each of those countries. United States Operations United States revenues increased $58.8 million (19.1%) to $367.3 million in 1994 compared to 1993, reflecting a $46.1 million (16.9%) increase in airfreight revenues, and $12.7 million (64.4%) increase in ocean freight revenues. The increase in airfreight revenues was attributable to a 5.9% increase in the number of shipments and a 18.1% increase in the total weight of cargo shipped. The increase in ocean freight revenues was attributable to the inclusion of twelve months of ocean freight revenues in 1994 compared to only six months in 1993. However, ocean freight revenues for the last six months of 1994 were $3.8 million (19.3%) below those for the comparable period in 1993. The decrease in ocean freight revenues was attributable to significant reduction in shipments received from some of the Company's competitors in freight forwarding who made up a substantial portion of the Votainer USA customer base prior to the Company's acquisition of Votainer in July 1993. The Company has initiated sales programs in the United States to market the Company's ocean freight capabilities directly to its existing airfreight customers and other non-freight forwarding companies, thereby reducing Votainer's reliance on business received from other freight forwarders. -17- United States operating profit for 1994 decreased marginally from 1993 to $6.9 million. The decrease was mainly attributable to an $.8 million ocean freight operating loss combined with the previously-discussed $1.0 million one-time charge included in the airfreight operating profit. Excluding this charge, United States operating profit increased $1.0 million (13.9%) in 1994 compared to 1993. Foreign Operations Foreign revenues increased $212.9 million (51.0%) to $630.1 million in 1994 compared with 1993, reflecting a $164.6 million (42.7%) increase in airfreight revenues and a $48.3 million (152.0%) increase in ocean freight revenues. The increase in airfreight revenues was attributable to a 13.2% increase in the number of shipments and a 41.7% increase in the total weight of cargo shipped. Additionally, when converting foreign currency revenues into U.S. dollars for financial reporting purposes, the effect of a weaker U.S. dollar accounted for approximately $10.4 million of the increase in airfreight revenues. The increase in ocean freight revenues was attributable to the inclusion of twelve months of ocean freight revenues in 1994 compared to only six months in 1993. The number of airfreight shipments and total weight of cargo shipped in the Company's European region increased 8.5% and 27.6%, respectively. In the Company's Asia and Others region, the number of airfreight shipments and total weight of cargo shipped increased 23.6% and 65.6%, respectively. Operating profit from foreign operations increased $6.9 million (28.3%) to $31.4 million for 1994 largely due to increased airfreight shipping volumes. Operating profit in the European region increased $3.3 million, while operating profit in the Asia and Others region increased $3.6 million. -18- Item 8. Financial Statements and Supplementary Data The financial statements and supplementary data required by this Item 8 are included in the Company's Consolidated Financial Statements and set forth in the pages indicated in Item 14(a) of this Annual Report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None. Part III Item 10. Directors and Executive Officers of the Registrant The Company's definitive Proxy Statement to be issued in conjunction with the 1996 Annual Meeting of Shareholders is incorporated herein by reference. Item 11. Executive Compensation The Company's definitive Proxy Statement to be issued in conjunction with the 1996 Annual Meeting of Shareholders is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management The Company's definitive Proxy Statement to be issued in conjunction with the 1996 Annual Meeting of Shareholders is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions The Company's definitive Proxy Statement to be issued in conjunction with the 1996 Annual Meeting of Shareholders is incorporated herein by reference. -19- Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) The following documents are filed as a part of this report on Form 10-K. (1) Financial Statements: Page Report of Independent Public Accountants. F-1 Consolidated Balance Sheets as of December 31, 1995 and 1994. F-2 Consolidated Statements of Operations for the years ended December 31, 1995, 1994 and 1993. F-3 Consolidated Statements of Stockholders' Investment for the years ended December 31, 1995, 1994 and 1993. F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993. F-5 Notes to Consolidated Financial Statements. F-6 (2) Financial Statement Schedules: Schedule II - Valuation and Qualifying Accounts. F-22 All other financial statement schedules are omitted because they are not applicable, not required, or because the required information is included in theCompany's Consolidated Financial Statements or Notes thereto. Separate financial statements of the Company have been omitted since less than 25% of the net assets of its subsidiaries and equity investments are formally restricted from being loaned, advanced or distributed to the holding company. -20- (3) Exhibits required to be filed by Item 601 of Regulation S-K. 3 a. Certificate of Incorporation, as amended through July 24, 1993. b. The Bylaws, as amended through March 22, 1992 (Incorporated herein by reference to Exhibit 3 to the Company's Current Report on Form 8-K, filed March 22, 1992). 4 a. Indenture, dated as of January 15, 1993, between the Company and The Bank of New York, as Trustee (Incorporated herein by reference to Exhibit 1 to the Company's Current Report on Form 8-K, dated February 2, 1993). b. Specimen Convertible Subordinated Debenture (Incorporated herein by reference to Exhibit 4(b) to the Company's Registration Statement on Form S-3, dated December 22, 1992). c. Specimen certificate representing the Common Stock (Incorporated herein by reference to Exhibit 4(c) to the Company's Registration Statement on Form S-3,dated December 22, 1992). 10. Material Contracts: a. Employment Agreement, effective January 1, 1986, between the Company and Hendrik J. Hartong, Jr. (Incorporated herein by reference to Exhibit 10(iii) to the Company's Current Report on Form 8-K, filed March 22, 1992). b. Employment Agreement, effective January 1, 1986, between the Company and Guenter Rohrmann (Incorporated herein by reference to Exhibit 10(iv) to the Company's Current Report on Form 8-K filed March 22, 1991). c. Air Express International Corporation Employees' 1981 Incentive Stock Option Plan (Incorporated herein by reference to Exhibit 10(i) to the Company's Report on Form 10-K, dated April 12, 1985). d. Air Express International Corporation 1984 International Employees' Stock Option Plan (Incorporated herein by reference to the Company's Proxy Statement, dated July 18, 1984, furnished to stockholders in connection with the Annual Meeting of Stockholders held on August 9, 1984). e. Lease Agreement, entered into in June 1986, between the Company and The Port Authority of New York and New Jersey for Hangar 5, John F. Kennedy Airport (Incorporated herein by reference to Exhibit A to the Company's Report on Form 8-K filed March 19, 1987). -21- f. Air Express International Corporation Employees' 1991 Incentive Stock Option Plan, approved by the Shareholders of the Company on June 20, 1991 (Incorporated herein by reference to the Company's Proxy Statement, dated May 17, 1991, furnished to stockholders in connection with the Annual Meeting of Stockholders held on June 20, 1991). 21. List of Subsidiaries of the Registrant. Exhibit 21. 23. Consent of Independent Public Accountants. Exhibit 23. 27. Financial Data Schedule. Exhibit 27. All other exhibits are omitted because they are not applicable, not required or because the required information is included in the Consolidated Financial Statements or Notes thereto. (b) Reports on Form 8-K: None. -22- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AIR EXPRESS INTERNATIONAL CORPORATION Registrant By: /s/ Dennis M. Dolan Dennis M. Dolan Vice President and Chief Financial Officer (Principal Financial Officer) By: /s/ Walter L. McMaster Walter L. McMaster Vice President and Controller (Principal Accounting Officer) Date: March 29, 1996 -23- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ John M. Fowler Director March 29, 1996 (John M. Fowler) /s/ Hendrik J. Hartong, Jr. Chairman of the Board (Hendrik J. Hartong, Jr.) of Directors March 29, 1996 /s/ Donald J. Keller Director March 29, 1996 (Donald J. Keller) /s/ Andrew L. Lewis IV Director March 29, 1996 (Andrew L. Lewis IV) /s/ Richard T. Niner Director March 29, 1996 (Richard T. Niner) /s/ John Radziwill Director March 29, 1996 (John Radziwill) /s/ Guenter Rohrmann President, Chief Executive (Guenter Rohrmann) Officer, and Director (Principal Executive Officer) March 29, 1996 -24- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Air Express International Corporation: We have audited the accompanying consolidated balance sheets of Air Express International Corporation (a Delaware corporation) and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' investment and cash flows for each of the three years in the period ended December 31, 1995. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Air Express International Corporation and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index of financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP New York, New York March 25, 1996 F-1
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1995 AND 1994 (Dollars in thousands) 1995 1994 Assets Current assets: Cash and cash equivalents ...............................$ 54,463 $ 44,168 Accounts receivable (less allowance for doubtful accounts of $4,695 and $3,290) ................ 268,289 208,704 Other current assets .................................... 4,754 2,938 Total current assets ................................ 327,506 255,810 Investment in unconsolidated affiliates .................. 13,228 9,370 Marketable securities .................................... -- 19,961 Property, plant and equipment (less accumulated depreciation and amortization of $43,242 and $37,057) ........................................... 54,149 39,599 Deposits and other assets ................................ 12,999 6,957 Goodwill (less accumulated amortization of $8,269 and $6,403) .................................. 78,961 51,929 Total assets ........................................$ 486,843 $ 383,626 Liabilities and stockholders' investment Current liabilities: Current portion of long-term debt .......................$ 2,690 $ 2,029 Bank overdrafts payable ................................. 620 1,399 Transportation payables ................................. 149,536 101,657 Accounts payable ........................................ 41,625 36,779 Accrued liabilities ..................................... 45,556 43,988 Income taxes payable .................................... 10,581 10,991 Total current liabilities ........................... 250,608 196,843 Long-term debt .......................................... 82,762 83,992 Other liabilities ....................................... 5,907 3,441 Total liabilities ................................... 339,277 284,276 Commitments and contingencies (Note 12) .................. -- -- Stockholders' investment: Capital stock - Preferred (authorized 1,000,000 shares, none outstanding) ..................................... -- -- Common, $.01 par value (authorized 40,000,000 shares, issued 18,577,880 and 19,620,526 shares) ...... 186 196 Capital surplus ......................................... 60,164 41,998 Cumulative translation adjustments ...................... (12,539) (11,442) Retained earnings ....................................... 100,372 108,600 148,183 139,352 Less: 25,279 and 2,184,208 shares of treasury stock, at cost ...................................... (617) (40,002) Total stockholders' investment ...................... 147,566 99,350 Total liabilities and stockholders' investment ......$ 486,843 $ 383,626 See Notes to Consolidated Financial Statements. F-2
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (Dollars in thousands, except per share data) 1995 1994 1993 Revenues .....................................$1,222,217 $ 997,379 $ 725,719 Operating expenses: Transportation .............................. 855,568 707,338 496,459 Terminal .................................... 196,639 151,769 19,814 Selling, general and administrative ......... 120,455 100,027 78,075 1,172,662 959,134 694,348 Operating profit ............................. 49,555 38,245 31,371 Other income (expense): Interest expense, net ....................... (3,344) (3,201) (3,698) Other, net .................................. 1,374 1,735 308 (1,970) (1,466) (3,390) Income before provision for income taxes ..... 47,585 36,779 27,981 Provision for income taxes ................... 18,558 14,160 10,641 Net income ...................................$ 29,027 $ 22,619 $ 17,340 Net income per common share: Primary ....................................$ 1.58 $ 1.28 $ .99 Fully diluted ..............................$ 1.48 $ 1.21 $ .97
See Notes to Consolidated Financial Statements. F-3
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 Cumulative Common Stock Capital Translation Retained Treasury Shares Amount Surplus Adjustment Earnings Stock Total (Dollars in thousands) Balance, December 31, 1992 .................... 19,389,673 $ 194 $ 40,777 $(10,759) $ 73,453 $ (38,289) $ 65,376 Exercise of common stock options ............. 81,627 1 378 -- -- -- 379 Purchase of treasury stock ................... -- -- -- -- -- (1,355) (1,355) Translation of foreign currency financial statements ........................ -- -- -- (1,523) -- -- (1,523) Issuance of common stock for previous year's stock bonus plan ..................... 3,320 -- 38 -- -- -- 38 Dividends declared ($.125 per share) ......... -- -- -- -- (2,136) -- (2,136) Net income for the year ...................... -- -- -- -- 17,340 -- 17,340 Balance, December 31, 1993 .................... 19,474,620 195 41,193 (12,282) 88,657 (39,644) 78,119 Exercise of common stock options ............. 145,906 1 805 -- -- -- 806 Purchase of treasury stock ................... -- -- -- -- -- (358) (358) Translation of foreign currency financial statements ........................ -- -- -- 840 -- -- 840 Dividends declared ($.153 per share) ......... -- -- -- -- (2,676) -- (2,676) Net income for the year ...................... -- -- -- -- 22,619 -- 22,619 Balance, December 31, 1994 .................... 19,620,526 196 41,998 (11,442) 108,600 (40,002) 99,350 Exercise of common stock options ............. 202,644 2 1,451 -- -- -- 1,453 Purchase of treasury stock ................... -- -- -- -- -- (990) (990) Translation of foreign currency financial statements ........................ -- -- -- (1,097) -- -- (1,097) Dividends declared ($.19 per share) .......... -- -- -- -- (3,481) -- (3,481) Net income for the year ...................... -- -- -- -- 29,027 -- 29,027 Stock issued for Radix acquisition, net ...... 979,887 10 23,911 -- -- (617) 23,304 Retirement of treasury stock ................. (2,225,177) (22) (7,196) -- (33,774) 40,992 -- Balance, December 31, 1995 .................... 18,577,880 $ 186 $ 60,164 $(12,539) $ 100,372 $ (617) $147,566
See Notes to Consolidated Financial Statements. F-4
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (Dollars in thousands) 1995 1994 1993 Cash flows from operating activities: Net Income ...................................... $ 29,027 $ 22,619 $ 17,340 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ................. 7,794 6,224 5,333 Amortization of goodwill ...................... 1,983 1,414 973 Amortization of bond discount ................. 230 230 215 Deferred income taxes ......................... (788) (1,577) (18) Undistributed earnings of affiliates .......... (1,449) (1,039) (140) (Gains) losses on sales of assets, net ......... (208) 41 (116) Changes in assets and liabilities, net of business acquisitions: (Increase) in accounts receivable, net ......... (26,411) (38,851) (6,439) (Increase) decrease in other current assets .... (1,137) 850 1,415 (Increase) decrease in other assets ............ (2,081) 177 (1,807) Increase in transportation payables ........... 19,228 25,291 2,005 (Decrease) in accounts payable ................. (5,062) (1,729) (7,788) (Decrease) increase in accrued liabilities ..... (2,600) 10,957 719 Increase (decrease) in income taxes payable ... 216 (415) 873 Increase in other liabilities ................. 1,117 1,567 -- Total adjustments ........................... (9,168) 3,140 (4,775) Net cash provided by operating activities ..... 19,859 25,759 12,565 Cash flows from investing activities: Business acquisitions, net of cash acquired ..... (1,292) (14,992) (12,825) Sales (purchases) of short-term investments ..... -- 10,109 (10,109) (Losses) gains from hedging activities ........... (1,934) (1,110) 668 Proceeds from sales of assets ................... 606 588 353 Capital expenditures ............................ (20,389) (12,076) (4,924) Investment in unconsolidated affiliates ......... (1,746) -- (63) Sales (purchases) of marketable securities ...... 19,981 (19,961) -- Net cash used in investing activities ........... (4,774) (37,442) (26,900) Cash flows from financing activities: Net repayments under revolving credit agreement ..................................... -- -- (5,000) Net repayments in bank overdrafts payable ....... (841) (1,068) (1,256) Additions to long-term debt ..................... 1,327 4,575 72,414 Payment of long-term debt ....................... (2,556) (1,776) (7,468) Issuance of common stock ........................ 1,453 806 417 Payment of cash dividends ....................... (3,250) (2,555) (1,963) Purchase of treasury stock ...................... (990) (358) (1,355) Net cash (used) provided by financing activities .................................... (4,857) (376) 55,789 Effect of foreign currency exchange rates on cash ................................. 67 1,164 (504) Net increase (decrease) in cash and cash equivalents .............................. 10,295 (10,895) 40,950 Cash and cash equivalents at beginning of year ....................................... 44,168 55,063 14,113 Cash and cash equivalents at end of year ......... $ 54,463 $ 44,168 $ 55,063
See Notes to Consolidated Financial Statements. F-5 AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (1) Summary of Significant Accounting Policies: Principles of Consolidation - The consolidated financial statements include the accounts of Air Express International Corporation and its majority-owned subsidiaries (the "Company"), all of which conduct operations in a single line of business: freight forwarding. All significant intercompany accounts and transactions have been eliminated. Investments in 20.0% to 50.0% owned affiliates are accounted for using the equity method. With the exception of entities operating in highly inflationary economies, assets and liabilities of foreign subsidiaries are translated at rates of exchange in effect at the close of the period. Revenues and expenses are translated at average exchange rates in effect during the year. The resulting translation adjustments are recorded in a separate component of stockholders' investment, "Cumulative Translation Adjustments". Translation gains or losses of the Company's entities which operate in highly inflationary economies are included as a component of other income (expense). Accounting Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Management believes these estimates do not materially affect either the Company's results of operations or financial position. Method of Revenue Recognition - International revenues from the transportation of international freight are recognized at the time the freight has been exported from the country of origin via commercial carrier. The corresponding transportation costs charged by the commercial carriers are recognized concurrently with the freight revenues. Destination delivery costs are recognized as incurred and subsequently billed to consignees, except door-to-door cargo movements which are accrued concurrently with freight revenue recognition. Domestic revenues from the transportation of freight within the U.S. are recognized on the day freight departs the Company's terminal of origin. Transportation costs and destination delivery costs are recognized concurrently with freight revenues. For both international and domestic revenues, the above methods of revenue recognition approximate recognizing revenues and expenses when a shipment is completed. F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued Property, Plant and Equipment - The Company provides depreciation and amortization using the straight-line method over the estimated useful lives of the related assets. Maintenance and repairs are charged to expense as incurred. Estimated Useful Life Buildings and improvements 25-40 years Furniture and fixtures 3-10 years Automotive equipment 3-5 years Terminal and data processing equipment 3-5 years Leasehold improvements Life of lease or estimated useful life, if shorter Goodwill - Goodwill, which represents the excess of purchase price over the fair value of net assets acquired, is being amortized on a straight-line basis over periods not exceeding 40 years. The Company periodically evaluates the existence of goodwill impairment on the basis of whether the goodwill is fully recoverable based upon the projected, undiscounted, net cash flows of the related business unit. Impairment would be recognized in operating results if permanent diminution in value were to occur. Cash and Cash Equivalents - Cash and cash equivalents include cash on hand, demand deposits, and short-term investments with original maturities of three months or less. Transportation Payables - Transportation payables represents the Company's largest trade payables which are mainly due to airlines, steamship and trucking companies. Marketable Securities - During 1995, the Company sold, for a marginal gain, all of its marketable securities for approximately $19.8 million. The proceeds from the sale were reinvested in financial instruments with original maturities of three months or less and were classified as cash and cash equivalents. The marketable securities were sold in order to take advantage of the favorable decline in long term interest rates during the year. In 1994, the Company adopted Statement of Financial Accounting Standard No. 115 "Accounting for Certain Investments in Debt and Equity Securities". As a result, the Company had investments of approximately $20.0 million in U.S. Government securities, maturing at various dates in 1996, classified as held-to-maturity and carried at amortized cost. As of December 31, 1994, the total amortized F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued cost, gross unrealized holding losses and aggregate fair values were $19.9 million, $.4 million, and $19.5 million, respectively. There was no impact from the adoption of this standard either on stockholders' investment or net income. Reclassification and Restatement - Certain prior year amounts have been reclassified to conform with the current year presentation. Additionally, all share and per share information has been restated to reflect a three-for-two split of the Company's Common Stock (See Note 2). (2) Common Stock Split: On November 17, 1994, the Company's Board of Directors declared a three-for-two split of the Company's Common Stock, payable in the form of a stock dividend. The additional shares were distributed on December 21, 1994 to shareholders of record on December 5, 1994. Accordingly, all share and per share information throughout the consolidated financial statements have been restated to reflect this split. (3) Earnings Per Share: Primary earnings per share is computed by dividing net income by the weighted average of the common and common share equivalents outstanding during the year. For the years 1995, 1994 and 1993, fully diluted earnings per share have been calculated assuming the conversion of the convertible subordinated debentures outstanding in those years, and the elimination of the related interest expense, net after tax, which approximates $2.9 million for 1995 and 1994 and $2.7 million for 1993. The primary and fully diluted earnings per share and number of common and common share equivalents were as follows: 1995 1994 1993 Earnings per share: Primary ................................... $ 1.58 $ 1.28 $ .99 Fully diluted ............................. $ 1.48 $ 1.21 $ .97 Common and common share equivalents (in thousands) Weighted average shares outstanding ....... 18,043 17,403 17,330 Common share equivalents .................. 289 227 208 Primary equivalent shares ................. 18,332 17,630 17,538 Shares issuable with respect to subordinated convertible securities and additional common share equivalents ............................. 3,295 3,406 3,018 Fully diluted equivalent shares ........... 21,627 21,036 20,556
F-8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (4) Business Acquisitions: On June 8, 1995, the Company acquired Radix Ventures, Inc. ("Radix") for 954,608 shares of Common Stock valued at approximately $23.3 million and $.5 million in cash. Radix, through its 23 U.S. offices, was a leading provider of customs brokerage services in the United States. Additionally, Radix provided both airfreight and ocean freight forwarding services. For its fiscal year ended July 31, 1994, Radix generated approximately $65 million in revenues. The acquisition has been accounted for as a purchase. Accordingly, the purchase price has been allocated on the basis of the estimated fair market value of the assets acquired and the liabilities assumed. This allocation has resulted in goodwill of approximately $25.6 million. Radix's results of operations are included in the consolidated statement of income from the acquisition date forward. The following unaudited pro forma summary combines the results of the Company and Radix's results of operations as if the acquisition occurred as of January 1, 1994. The pro forma information is provided for informational purposes only. It is based upon historical information and does not necessarily reflect the actual results that would have occurred nor is it necessarily indicative of the future results of operations.
Twelve Months Ended December 31, 1995 1994 Revenues ......................... $ 1,251,919 $ 1,073,245 Net income ....................... $ 29,385 $ 23,178 Income per share: Primary ......................... $ 1.56 $ 1.25 Fully diluted ................... $ 1.46 $ 1.19
F-9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (5) Regional Operations: Revenues, operating profit and identifiable assets are set forth below by geographic area. Beginning in 1995, net revenues for international shipments are shared among the participating countries. For 1994 and 1993, amounts have been adjusted to reflect the current allocation methodology.
Year Ended December 31, 1995 1994 1993 Revenues: U.S.A ...................... $ 459,265 $ 367,249 $ 308,465 Europe ..................... 387,164 324,025 237,242 Asia and Others ............ 375,788 306,105 180,012 Total foreign ............ 762,952 630,130 417,254 Total revenues ............. $1,222,217 $ 997,379 $ 725,719 Operating profit: U.S.A ...................... $ 17,494 $ 6,890 $ 6,927 Europe ..................... 10,301 13,338 10,028 Asia and Others ............ 21,760 18,017 14,416 Total foreign ............ 32,061 31,355 24,444 Total operating profit ..... $ 49,555 $ 38,245 $ 31,371
December 31, 1995 1994 1993 Identifiable assets: U.S.A ...................... $ 181,464 $ 128,554 $ 117,946 Europe ..................... 142,121 121,946 96,706 Asia and Others ............ 150,030 123,756 76,569 Total foreign .............. 292,151 245,702 173,275 Investment in unconsolidated affiliates ................. 13,228 9,370 7,595 Total identifiable assets .. $ 486,843 $ 383,626 $ 298,816
At December 31, 1995, net assets of foreign subsidiaries including intercompany accounts deemed to be long-term investments amounted to approximately $116.3 million. F-10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (6) Property, Plant and Equipment: A summary of property, plant and equipment, at cost, is as follows:
December 31, 1995 1994 Buildings and improvements ........................... $ 29,376 $ 20,659 Leasehold improvements ............................... 8,313 7,443 Automotive equipment ................................. 4,831 4,925 Furniture and fixtures ............................... 17,400 11,636 Terminal and data processing equipment ............... 31,698 26,120 91,618 70,783 Less: accumulated depreciation and amortization ...... (43,242) (37,057) 48,376 33,726 Land ................................................. 5,773 5,873 Property, plant and equipment, net ................... $ 54,149 $ 39,599
(7) Revolving Credit Loan Agreement and Other Short-term Borrowing Facilities: In the third quarter of 1995, the Company allowed its $20.0 million revolving credit facility agreement to expire. The Company anticipates that a syndicated unsecured revolving credit facility for approximately $75.0 million will be finalized during the first half of 1996. A number of the Company's foreign subsidiaries have unsecured short-term overdraft facilities with foreign banks which approximated $14.3 million at December 31, 1995. The largest single facility, extended to the Company's German subsidiary, was approximately $3.7 million. Borrowings under these facilities generally bear interest at .5% to 2.0% over the foreign banks' equivalent of the prime rate. At December 31, 1995, outstanding borrowings from these facilities were approximately $.6 million. F-11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (8) Long-Term Debt: Long-term debt consists of the following:
December 31, 1995 1994 Mortgage Singapore - principal paid semi-annually through 2000, bearing interest at 5.55% ................................. $ 6,370 $ 4,924 Convertible Subordinated Debentures due 2003, bearing interest at 6%, net of unamortized discount of $1,661 and $1,891 ......... 73,089 72,859 Mortgage Australia - principal of $121 paid quarterly through 2002, bearing interest at 10.2 % payable monthly ......................... 3,141 3,781 Mortgage Holland - principal of $59 paid quarterly through 2002, bearing interest at 8.51% .......................................... 1,713 1,751 Other long-term debt ............................... 1,139 2,706 85,452 86,021 Less: current portion .............................. (2,690) (2,029) $ 82,762 $ 83,992
The maturities of long-term debt are as follows:
Year Ending Principal December 31, Amount 1996 $ 2,690 1997 2,397 1998 2,284 1999 2,231 2000 and beyond 75,850 $ 85,452
The Singapore mortgage, payable in local currency, is secured by a warehouse facility with a net book value of $10.3 million at December 31, 1995. The Australia mortgage, payable in local currency, is secured by land and building with a net book value of $6.8 million at December 31, 1995. The Holland mortgage, payable in local currency, is secured by land and building with a net book value of $2.7 million at December 31, 1995. On January 28, 1993, the Company issued and sold $74.8 million aggregate principal amount of its 6.0% Convertible Subordinated Debentures due 2003 (the "Debentures") and received net (after commissions and expense) receipts from the F-12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (8) Long-Term Debt - continued: sale of the Debentures of $72.5 million. The Debentures are convertible into Common Stock of the Company through maturity, unless previously redeemed, at $22.7083 per share, subject to adjustment. Interest on the Debentures is payable on January 15 and July 15, commencing July 15, 1993. The Debentures are not redeemable prior to January 15, 1996. Thereafter, the Debentures will be redeemable on at least 30 days' notice at the option of the Company, in whole or in part at any time, initially at 104.2% and at decreasing prices thereafter to 100.0% at maturity, in each case together with accrued interest. The Debentures also may be redeemed at the option of the holder if there is a Fundamental Change (as defined) at declining redemption prices, subject to adjustment, together with accrued interest. At December 31, 1995, the fair value of the Company's long-term debt amounted to $93.1 million compared to the carrying amount of $85.5 million. The difference was attributable to the quoted market price of the Debentures. Interest expense on long-term debt for the years ended December 31, 1995, 1994 and 1993 was $5.5 million, $5.2 million and $5.7 million, respectively. (9) Common Stock Option Plans: The 1984 International Employees' Stock Option Plan ("International Plan") authorizes the granting of stock options to officers and employees at prices equal to or greater than the fair market value of the common stock on the date of grant. There were 333,450 options outstanding, of which 110,000 were exercisable at December 31, 1995. There are no options available for future grant under this plan. F-13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued The 1991 Employees' Incentive Stock Option Plan authorizes the granting of stock options and/ or stock appreciation rights ("SAR'S") to employees at prices equal to or greater than the fair market value of the common stock on the date of the grant. There were 1,048,228 options outstanding, of which 182,070 were exercisable at December 31, 1995. Options for 48,187 shares were available for future grant at December 31, 1995 under this plan. To date no SAR'S have been granted. At December 31, 1995, 1,429,865 shares of common stock were reserved for issuance pursuant to the Company's option plans. Option activity is summarized as follows:
1995 1994 Options outstanding, beginning of year ............. 971,947 961,860 Options granted ............... 620,250 216,000 Options exercised ............. (202,644) (145,906) Options canceled or expired ... (7,875) (60,007) Options outstanding, end of year ................... 1,381,678 971,947 Exercise price of options exercised ............. $ 4.29 - $ 18.50 $ 4.26 - $ 12.92 Exercise price of options outstanding, end of year ...... $ 7.22 - $ 23.75 $ 4.29 - $ 18.50
F-14 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:
Years Ended December 31, 1995 1994 1993 Income before provision for income taxes: U.S .................. $ 17,538 $ 11,286 $ 7,702 Foreign .............. 30,047 25,493 20,279 $ 47,585 $ 36,779 $ 27,981 Current provision: U.S. Federal ......... $ 6,056 $ 5,383 $ 3,227 Foreign .............. 11,803 9,215 7,041 State ................ 1,484 1,073 688 19,343 15,671 10,956 Deferred provision: U.S. Federal ......... 334 (1,190) (337) Foreign .............. (1,139) (158) 80 State ................ 20 (163) (58) (785) (1,511) (315) Total provision for income taxes ......... $ 18,558 $ 14,160 $ 10,641
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:
Years Ended December 31, 1995 1994 1993 Net operating losses .................. $ (960) $ - $ - Net change in allowance for doubtfulaccounts and other reserves ........................ (817) (2,378) (574) Undistributed earnings of unconsolidated affiliates ............. 453 343 (34) Accelerated depreciation .............. 186 7 681 Net unrealized foreign exchange gains ........................ 353 517 (388) $ (785) $(1,511) $(315)
F-15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (10) Income Taxes - continued: The difference between the actual provision and the amount computed at the statutory U.S. Federal income tax rate of 35.0% for 1995, 34.3% for 1994 and 35.0% for 1993 is attributable to the following:
Years Ended December 31, 1995 1994 1993 Income before provision for income taxes .................... $ 47,585 $ 36,779 $ 27,981 Tax provision computed at statutory rate .................. $ 16,655 $ 12,615 $ 9,793 Increases (reductions) in tax provision due to: Net operating losses for which no tax benefit has been recognized ..................... 931 961 589 Goodwill amortization ........... 625 375 271 Other nondeductible expenses .... 777 645 359 Foreign income taxed at different rates ................. (1,083) (776) (781) State income tax, net of Federal tax benefit ............. 1,249 910 630 Other ........................... (596) (570) (220) Total provision for income taxes .................... $ 18,558 $ 14,160 $ 10,641
For tax reporting purposes, the Company and its subsidiaries had available, dependent upon future taxable income, the following net operating loss carryforwards and foreign tax credits as of December 31, 1995:
Expiring In Net Operating Losses Foreign Tax Credit 1998 $ 903 $ 480 1999 778 - 2000 45 - 2001 52 - 2002 73 - 2008 232 - No Expiration 13,072 - $ 15,155 $ 480
The net operating losses consist of $3,166 incurred by the Pandair companies prior to the December 23, 1987 acquisition and $1,852 incurred by the Votainer companies prior to the July 1, 1993 acquisition. Future utilization of Pandair and Votainer losses will be treated as a reduction of goodwill. The use of any loss carryforwards or foreign tax credits is dependent upon future taxable income in the applicable taxing jurisdiction. The Company's Federal income tax returns for 1988 through 1993 are currently under review by the Internal Revenue Services (IRS). While the IRS has raised several issues for the years 1988 through 1990 involving significant amounts of F-16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (10) Income Taxes - continued: additional tax, the management of the Company is of the opinion that the ultimate outcome of this review will not result in any material additional charge to reported earnings. Accumulated unremitted earnings of foreign subsidiaries, which are intended to be permanently reinvested for continued use in their operations and for which no U.S. income taxes have been provided, aggregated approximately $104.7 million at December 31, 1995. Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities were as follows:
December 31, 1995 1994 Deferred tax assets: Reserve for doubtful accounts and other operating reserves.......................... $ 5,054 $ 2,342 Net operating losses .............................. 5,687 4,139 Foreign tax credits ............................... 480 783 Depreciation ...................................... 318 382 Total deferred tax assets ......................... 11,539 7,646 Valuation allowance for deferred tax assets ....... (4,727) (4,442) Net deferred tax asset (included in "Deposits and Other Assets") ...................... $ 6,812 $ 3,204 Deferred tax liabilities: Realized foreign exchange gain or loss ............ $ 750 $ 398 Depreciation ...................................... 298 91 Operating reserves ................................ 185 103 Undistributed earnings of affiliates .............. 789 336 Amortization of deductible goodwill ............... 528 525 Other ............................................. -- 19 Total deferred tax liabilities (included in "Other Liabilities") ................. 2,550 1,472 Net deferred tax (asset) .......................... $ (4,262) $(1,732)
F-17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (11) Retirement Plans: The Company maintains a 401(k) Retirement Plan, covering substantially all U.S. employees not participating in collective bargaining agreements. The Company contributes 3.0% of salary for all eligible participants. In addition, the Company matches, dollar for dollar, employee contributions up to 3.0% of salary, subject to certain limitations imposed by the Internal Revenue Code. The total expense for Company contributions was $1.6 million in 1995, $1.5 million in 1994, and $1.3 million in 1993. Pursuant to collective bargaining agreements with its labor unions, the Company made payments to union-sponsored, multi-employer pension plans, based upon the hours worked by covered employees. Such payments approximated $1.2 million in 1995, and $1.3 million for the years ended December 31, 1994 and 1993. These amounts were determined by the union contracts, and the Company does not administer or control the funds in any way. In the event of plan terminations or Company withdrawal from the plans, the Company may be liable for a portion of the plans' unfunded vested benefits, if any. The Company was advised by the trustees of one multi-employer pension plan ("Plan") to which the Company contributes, that the present value of the Plan's liabilities for vested benefits is significantly in excess of the Plan's assets. In the fourth quarter of 1994, the Company initiated a withdrawal from this Plan and incurred a pre-tax charge of $1.0 million for its estimated portion of the unfunded vested liability. The Company's pre-tax charge of $1.0 million represents the present value of the estimated payment of $.1 million per year for 20 years. The trustees of this Plan have terminated the Plan effective January 31, 1996. The Company's actual withdrawal liability, payment schedule for funding the withdrawal liability and the assessment of the Company's proportionate minimum funding deficiencies, if any, will be determined in 1996 or 1997. One foreign subsidiary maintains a defined benefit pension plan (the "Plan")which covers substantially all of its employees. The Plan provides benefits based upon years of service and compensation which are in addition to certain retirement benefits accruing to the employees under government regulations. Participating employees contribute 5.0% of their annual compensation to the Plan. The net periodic pension cost for the years ended December 31, 1995, 1994 and 1993 for the Plan are as follows:
December 31, 1995 1994 1993 Service cost .......................... $ 648 $ 543 $ 495 Interest cost ......................... 1,176 1,014 858 Actual return on assets - (gains) losses ........................ (2,040) 2,399 (3,820) Net amortization and deferral of actuarial gains (losses) .......... 309 (3,840) 2,512 Net periodic pension cost ............. $ 93 $ 116 $ 45
F-18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (11) Retirement Plans - continued: The funding of the Plan is actuarially determined. The Plan's assets are invested primarily in equity securities, and no contributions were made by the Company to the Plan in 1995, 1994 or 1993. The funded status of the Plan at December 31, 1995 and 1994 is summarized below:
December 31, 1995 1994 Actuarial present value of benefit obligation: Vested and non-vested benefits ............. $ 7,135 $ 6,588 Accumulated benefit obligation ............. $ 7,135 $ 6,588 Effect of anticipated salary increases ..... 7,429 6,316 Projected benefit obligation ............... 14,564 12,904 Plan assets at fair market value ............. 17,943 15,831 Unrecognized net gain ........................ $ 3,379 $ 2,927
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.
December 31, 1995 1994 1993 Discount rate ....................................... 9 % 9 % 9 % Rate of increase in future compensation ............. 6 % 6 % 6 % Long-term investment return ......................... 9 % 9 % 9 %
Many of the Company's other foreign subsidiaries maintain either defined benefit or defined contribution plans covering substantially all of their employees. The plan benefits are funded essentially through insurance companies using deferred annuity contracts. The cost is funded on an annual basis by the foreign subsidiary, and the employee if the plan is contributory. For the years ended December 31, 1995, 1994 and 1993, pension expense for these plans approximated $4.0 million, $3.1 million and $2.3 million, respectively. The Company does not sponsor any material retirement benefits, other than pensions. Post-employment benefits other than pensions are insignificant. F-19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (12) Commitments and Contingencies: The Company is obligated under long-term operating lease agreements for computer equipment, terminal facilities and automotive equipment. At December 31, 1995, the minimum annual rentals under these long-term leases were as follows:
Year Ending December 31, Amount 1996 $ 19,739 1997 17,198 1998 11,343 1999 8,177 2000 5,573 2001 and thereafter 21,504
For the years ended December 31, 1995, 1994 and 1993, rental expense for assets leased under long-term operating lease agreements approximated $17.2 million, $15.3 million and $12.9 million, respectively. The Company is involved in various legal proceedings generally incidental to its business. While the result of any litigation contains an element of uncertainty, the Company presently believes that the outcome of any known pending or threatened legal proceeding or claim, or all of them combined, will not have a material adverse effect on its results of operations or consolidated financial position. (13) Foreign Currency Translation: The Company purchases foreign currency forward exchange contracts to hedge its foreign currency exposures associated with investments in certain foreign operations and certain intercompany transactions. The Company does not use these contracts for trading purposes. At December 31, 1995, the carrying value of these contracts was $.4 million, which approximates fair value, and is included in accrued liabilities in the accompanying balance sheet. The aggregate notional amount of these contracts, which will mature at various dates in 1996, was $51.8 million at December 31, 1995. Gains or losses resulting from forward exchange contracts purchased to hedge investments in certain foreign subsidiaries are excluded from the statement of operations and are recorded, net of tax, directly to stockholders' investment. As a result, in 1995 the Company recognized a $.5 million loss on these contracts compared with a $1.6 million loss in 1994. The Company recognizes, in foreign exchange gains, net, gains and losses on forward exchange contracts purchased to hedge certain intercompany transactions. In 1995, the Company recognized a $.6 million pre-tax gain on these contracts. Additionally, both gains and losses from other foreign currency transactions and translation gains and losses of subsidiaries operating in highly inflationary economies are recognized in foreign exchange gains, net (See Note 14). F-20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (14) Other Income (Expense): Other income (expense) consists of the following:
Year Ended December 31, 1995 1994 1993 Gain (loss) on sales of assets, net ......... $ 208 $ (41) $ 116 Foreign exchange gains, net ................. 1,144 1,876 192 Other, net .................................. 22 (100) - $ 1,374 $ 1,735 $ 308
(15) Supplemental Disclosures of Cash Flow Information: Interest and income taxes paid were as follows:
Year Ended December 31, 1995 1994 1993 Interest ............... $ 5,493 $ 5,314 $ 3,389 Income Taxes ........... $ 17,647 $ 15,170 $ 10,716
Non cash investing and financing activities: In 1995, as part of the Radix acquisition, the Company issued 954,608 shares of Common Stock valued at approximately $23.3 million (See Note 4). (16) Quarterly Revenues and Earnings (Unaudited):
Quarter 1st 2nd 3rd 4th Year Ended December 31, 1995 Revenues ................... $ 279,962 $ 299,387 $ 314,269 $ 328,599 Operating profit ........... $ 8,585 $ 13,048 $ 12,577 $ 15,345 Net income ................. $ 5,113 $ 7,557 $ 7,274 $ 9,083 Income per common share: Primary .................... $ .29 $ .42 $ .39 $ .48 Fully diluted .............. $ .28 $ .39 $ .36 $ .44 Year Ended December 31, 1994 Revenues ................... $ 204,810 $ 237,999 $ 258,175 $ 296,395 Operating profit ........... $ 6,056 $ 10,217 $ 10,736 $ 11,236 Net income ................. $ 3,482 $ 6,149 $ 6,310 $ 6,678 Income per common share: Primary .................... $ .20 $ .35 $ .36 $ .38 Fully diluted .............. $ .20 $ .33 $ .33 $ .35
F-21
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (In thousands) Net Balance at Write-offs Balance at Beginning Charges Charged to End of Period to Income Other(1) Reserves of Period Year ended December 31, 1995: Allowance for doubtful accounts $3,290 $2,254 $ 545 $1,394 $4,695 Year ended December 31, 1994: Allowance for doubtful accounts $2,846 $1,111 $ 239 $ 906 $3,290 Year ended December 31, 1993: Allowance for doubtful accounts $1,759 $1,180 $1,083 $1,176 $2,846 (1) Addition to the allowance for doubtful accounts is attributable to business acquisitions which the Company made during the year.
F-22 EXHIBIT INDEX Exhibit Sequential No. Description Page No. 21 Subsidiaries of the Registrant 49 23 Consent of Independent Public Accountants 50 27 Financial Data Schedule 51 EXHIBIT 21 AIR EXPRESS INTERNATIONAL CORPORATION SUBSIDIARIES OF THE REGISTRANT AT DECEMBER 31, 1995 Percent Jurisdiction of Shares of Owned by Name Incorporation Direct Parent AEI Ocean Services Corp. Delaware 100% Air Express International USA, Inc. Delaware 100% Radix Ventures Inc. Delaware 100% Surface Freight Corporation Florida 100% Votainer USA Inc. Delaware 100% Air Express International (Australia) Australia 100% Air Express International (Belgium) N.V Belgium 100% Air Express International do Brazil Ltda. S.C Brazil 100% Air Express International (Canada) Limited Canada 100% Air Express International (Fiji) Limited Fiji 100% Air Express International France S.A France 100% Air Express International GmbH Germany 100% Air Express International (H.K.) Limited Hong Kong 100% Air Express International (Ireland) Limited Ireland 100% Air Express International Luxembourg Luxembourg 100% Air Express International Holding B.V The Netherlands 100% Air Express International Limited New Zealand 100% Universal Airfreight AS Norway 75% Air Express International (Panama) S.A Panama 100% Air Express International (PNG) Pty. Limited Papua New Guinea 100% Air Express International Corporation Del Peru S.A Peru 100% Air Express International Singapore (Pte.) Limited Singapore 100% Air Express International (S.A.) Pty. Limited South Africa 100% Air Express International Limited Switzerland 100% AEIC Air Cargo, Inc. Taiwan 100% Air Express International (U.K.) Ltd United Kingdom 100% Air Express International (PVT) Limited Zimbabwe 100% EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statement File Nos. 33- 10674, 33-10799 and 33-56114. ARTHUR ANDERSEN LLP New York, New York March 25, 1996 EX-27 2
5 1000 12-MOS DEC-31-1995 DEC-31-1995 54,463 0 272,984 4,695 0 327,506 97,391 43,242 486,843 250,608 82,762 186 0 0 160,536 486,843 0 1,222,217 0 855,568 196,639 2,254 5,999 47,585 18,558 29,027 0 0 0 29,027 1.58 1.48
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