-----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, PUPyfHHJYXTb6YstnbKyKT3aMNfOfvEs/H8KACjIgEWkB6uWDm4b47S3/q4YeGRv atijooEfZEDomWa7LB3H8A== 0000700674-98-000009.txt : 19980331 0000700674-98-000009.hdr.sgml : 19980331 ACCESSION NUMBER: 0000700674-98-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 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: SEC FILE NUMBER: 001-08306 FILM NUMBER: 98577950 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 1997 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, 1997 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required) for the transition period from __to____. Commission file number: 1-8306 AIR EXPRESS INTERNATIONAL CORPORATION (Exact name of Registrant as Specified in its Charter) Delaware 36-2074327 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 120 Tokeneke Road, Darien, Connecticut 06820 (203) 655-7900 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) Securities registered pursuant to Section 12(b) of the Act: Securities registered pursuant to Section 12(g) of the Act: Title of Class Common Stock, $.01 par value Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes [X] No___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| The aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 20, 1998 was $854,369,138. The number of shares of common stock outstanding as of March 20, 1998 was 34,671,672. DOCUMENTS INCORPORATED BY REFERENCE: To the extent specified, part III of this Form 10-K incorporates information by reference to the Registrant's definitive proxy statement for the 1998 Annual Meeting of Shareholders. AIR EXPRESS INTERNATIONAL CORPORATION 1997 Form 10-K Annual Report Table of Contents Part I Page Item 1. Business.........................................................1 Item 2. Properties.......................................................8 Item 3. Legal Proceedings................................................9 Item 4. Submission of Matters to a Vote of Security Holders and Executive Officers of the Registrant............................9 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............................................11 Item 6. Selected Financial Data.........................................12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................13 Item 8. Financial Statements and Supplementary Data.....................20 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures...........................20 Part III Item 10. Directors and Executive Officers of the Registrant..............20 Item 11. Executive Compensation..........................................20 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................20 Item 13. Certain Relationships and Related Transactions..................20 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................................21 Part I Item 1. Business (a) General Development of Business ------------------------------- Air Express International Corporation ( the "Company" or the "Registrant") is the oldest and largest international airfreight forwarder based in the United States and a leading provider of global logistics services for importers and exporters worldwide. The Company is primarily engaged in providing cargo transportation logistics management, including international air and ocean freight forwarding, customs brokerage and warehousing and distribution services. Beyond its traditional freight forwarding and customs brokerage services, the Company's value-added logistics services and information systems help its customers to streamline operations, reduce inventories, increase speed and reliability of worldwide deliveries and, ultimately, improve management of the customers' supply chain. Through its global network of Company-operated facilities and agents, the Company provides total integrated transportation logistics solutions centered around the consolidation, documentation and arrangements for the transportation of its customers' shipments of cargo throughout the world. During 1997, the Company handled more than 2,097,000 individual airfreight shipments, with an average weight of 554 pounds, to more than 3,000 cities in more than 200 countries. Approximately 56% of the total airfreight shipments for 1997 originated from locations outside the United States. The Company generated gross revenues in excess of $1.5 billion in 1997, of which approximately 60% were attributable to locations outside the United States. Headquartered in the United States, the Company has a global network with offices located in 711 cities, including 270 cities in the United States, 165 cities in Europe and 276 cities in Asia, the South Pacific, the Middle East, Africa and Latin America. As of December 31, 1997, this network consisted of 312 Company-operated facilities, including 96 in the United States and 216 abroad, supplemented at 399 additional locations, which are served by agents, many of whom serve the Company on an exclusive basis. The network is managed by experienced professionals, most of whom are nationals of the countries in which they serve. Approximately 74% of the Company's 53 regional and country managers have been employed by the Company for more than ten years. Since 1985, when its current management assumed control, the Company has focused on the international transportation of heavy cargo and devoted its resources to expanding and enhancing its global network and the information systems necessary to more effectively service its customers' cargo transportation and integrated logistics needs. In December 1987, the Company acquired the Pandair Group, a European-based international airfreight forwarder with facilities in 14 countries. The Pandair acquisition significantly strengthened the Company's presence in key foreign markets, particularly the United Kingdom and The Netherlands. In July 1993, the Company acquired the Votainer group of companies ("Votainer"), a Non-Vessel Operating Common Carrier ("NVOCC") based in The Netherlands, which provides ocean freight consolidation services, with a network of 34 Company-operated facilities in 12 countries. During 1994, the Company -1- acquired all the outstanding common stock of Unimodal Australia Pty. Ltd., an ocean freight forwarder located in Australia; Banner International Ltd., an airfreight forwarder located in New Zealand; Pace Express Pty. Ltd., an airfreight forwarder located in Australia, and 75% of the outstanding common stock of Universal Airfreight AS, the Company's exclusive airfreight agent in Norway. During 1995, the Company acquired all of the outstanding common stock of Radix Ventures, Inc., a leading provider of customs brokerage in the United States; Jagro International, Inc., an ocean freight forwarder and customs broker located in Canada; Brantford International, Inc., an air and ocean freight forwarder located in the United Kingdom; and 40% ownership of the outstanding common stock of Air Express International (Emirates), the Company's exclusive air and ocean freight agent in the United Arab Emirates. In March 1996, the Company acquired all of the outstanding stock of the Profreight group of companies, a customs broker and air and ocean freight forwarder in South Africa. In April 1996, the Company acquired Lusk Shipping Company, Inc., a New Orleans, Louisiana-based ocean freight forwarder and customs broker. In May 1996, the Company purchased the business and certain assets of John V. Carr & Son, Inc. ("J.V. Carr"), a United States and Canadian customs broker. In May 1996, the Company acquired an additional 50% of the outstanding stock of AEI Finland Oy, bringing its ownership of this Finland-based air and ocean freight forwarder to approximately 90%. In November 1996, the Company acquired Muller Airfreight B.V., an air and ocean freight forwarder based in The Netherlands. In May 1997, the Company acquired both an additional 28% of the outstanding stock of AEI Iberfreight bringing its ownership of this Spain-based air and ocean freight forwarder to 48%, and it established a joint venture in Korea through the acquisition of 50% of the stock of Korea Air Freight, Ltd., its long-time agent in South Korea. The joint venture company was renamed "AEI Korea, Ltd." The acquisitions were consistent with the Company's strategy of strengthening its market position, further enhancing its operating efficiencies and providing its customers with a global logistics solution encompassing a broad range of transportation and distribution-related services. (b) Financial Information About Industry Segments --------------------------------------------- The Company currently is engaged in the business of freight forwarding. See Management's Discussion and Analysis of Financial Condition and Results of Operations (Item 7), and the Company's Consolidated Financial Statements, including the Notes thereto, for data related to the Company's revenues, operating profit and identifiable assets. (c) Narrative Description of Business --------------------------------- Airfreight Forwarding and Related Services - ------------------------------------------ An airfreight forwarder procures shipments from a large number of customers, consolidates shipments bound for a particular destination from a common place of origin, determines the routing over which the consolidated shipment will move, selects an airline serving that route on the basis of departure time, available cargo capacity and rate, and books the consolidated shipment for transportation on that airline. In addition, the forwarder prepares all required shipping documents, delivers the shipment to the transporting airline and, in many cases, arranges for clearance of the various components of the shipment through customs at the final destination. If so requested by its customers, the forwarder also will arrange for delivery of the individual components of the consolidated shipment from the arrival airport to their intended consignees. -2- As a result of its consolidation of customers' shipments, the forwarder is usually able to obtain lower rates from airlines than its customers could obtain directly from those airlines. In addition, in certain tradelanes and with certain airlines where the forwarder generates a continuing high volume of freight, that forwarder is often able to obtain even lower rates. Accordingly, the forwarder is generally able to offer its customers a lower rate than would otherwise be available to the customer from the airline. However, the rate charged by the forwarder to its customers is greater than that obtained by the forwarder from the airline, and the difference represents the forwarder's gross profit. Ocean Freight Services - ---------------------- The Company's revenue from international ocean freight forwarding is derived from service both as an indirect ocean carrier (NVOCC) and as an authorized agent for shippers and importers. The Company contracts with ocean shipping lines to obtain transportation for a fixed number of containers between various points during a specified time period at an agreed rate. The Company solicits freight from its customers to fill the containers, charging rates lower than the rates offered directly to customers by shipping lines for similar type shipments. In 1997, the Company handled more than 122,000 containers. Customs Brokerage Services - -------------------------- The Company provides customs brokerage clearance services in the United States and 21 foreign countries. These services entail the preparation and assembly of required documentation in many instances, the advancement of customs duties on behalf of importers, and the arrangement for the delivery of goods after the customs clearance process is completed. Additionally, other services may be provided such as the procurement and placement of surety bonds on behalf of importers, duty drawback (recovery of previously paid duties when goods are re-exported), and the arrangement of bonded warehouse services which allow importers to store goods while deferring payment of customs duties until the goods are required for delivery. In June 1995, the Company acquired Radix Ventures, Inc. ("Radix") which, through its subsidiary, Radix Group International, Inc., is a leading United States customs broker, with offices in 23 U.S. cities and approximately 520 employees. Radix's customs brokerage services were largely performed for importers who used other freight forwarders for the transportation of goods to the United States. In May 1996, the Company purchased the business and certain assets of J.V. Carr which primarily serves the U.S. - Canada border with 32 offices in 25 U.S. and two Canadian cities. Since the acquisition of Radix, the Company has continued to maintain and expand its United States customs brokerage activities to existing and new clients without regard to whether the Company provides transportation services to these importers. It is the Company's strategy to ultimately expand its relationship with customs brokerage customers by providing other services, including transportation and warehousing and distribution. In 1997, the Company processed approximately 1,847,000 customs entries of which 1,012,000 were in the United States; in 1996, it processed 1,579,000 entries of which 807,000 were in the United States; and in 1995, 905,000 entries were processed of which 173,000 were in the United States. The primary reason for the increase in 1997 was attributable to the inclusion of a full year of J.V. Carr business. -3- Integrated Global Logistics Services - ------------------------------------ In addition to providing air and ocean freight forwarding and customs brokerage services, the Company provides its import and export customers with an array of fully integrated global logistics services, including, most notably, warehousing and distribution services and its proprietary logistics information system for global freight tracking and tracing. Other total logistics services offered by the Company include extensive ground transportation capabilities enabling door-to-door pickup and freight delivery; duty drawback; Free Trade Zone management and associated services; information management services such as electronic data interchange (EDI), electronic invoicing and purchase order management; inventory management; cargo consolidation, deconsolidation, assembly and protective packing; bonded warehousing; project cargo management; and cargo insurance coverage. Warehousing and Distribution - ---------------------------- The Company owns and leases warehouse space with major facilities in the U.S., The Netherlands, U.K., Germany, United Arab Emirates, New Zealand, Australia, Singapore, Malaysia and South Africa. The Company's warehousing services include receiving, deconsolidation and decontainerization, cargo loading and unloading, assembly of freight, customer inventory management and protective packing and storage. The Company receives storage charges for use of its warehouses and fees for other services. In 1997, warehouse and distribution services contributed approximately 2% of gross revenues and net revenues. Logistics Information System (LOGIS) - ------------------------------------ The Company introduced its proprietary logistics information system ("LOGIS") for airfreight operations in 1986 and since that time has allocated substantial resources to expand the system's geographic reach and enhance its capabilities. Mainframe computers located at the Company's headquarters in Darien, Connecticut and a facility near London, England are linked to, and accessible from, terminals at 340 Company-operated and agent facilities in substantially all major markets, permitting real-time inputting, processing and retrieval of shipments, pricing, scheduling, space availability, booking and tracking data, as well as automated preparation of shipping, customs and billing documents. LOGIS has been developed to include worldwide ocean shipment tracing and tracking and to provide information for logistics facilities offered by the Company, including assembly and distribution activities for clients. As of December 31, 1997, the LOGIS system permitted electronic interfacing with more than 1,900 of the Company's major customers' locations in 39 countries, 52 international airlines and customs authorities in the United States, United Kingdom, Australia, New Zealand, Belgium, Germany and France. Electronic data interchange ("EDI") connections to the airlines permit instant retrieval by the Company, and by those of its customers interfacing with the LOGIS system, of information on the status of shipments in the custody of the airlines. With its EDI capabilities, LOGIS can receive a customer's shipping instructions and information with respect to the cargo being shipped and converts the data automatically into shipping documents. Where LOGIS is linked to customs in the country of destination, it can prepare customs declarations, calculate the -4- appropriate customs duties and provide for automatic customs invoicing and clearance. The LOGIS system has enabled the Company to improve the productivity of its personnel and the quality of its customer service and has enabled many of its customers to manage their freight transportation logistics needs more effectively. The system has resulted in substantial reductions in paperwork and expedited the entry, processing, retrieval and dissemination of critical information. The Company plans to continually improve and enhance the LOGIS system. Management believes that the LOGIS system has positioned the Company to better capitalize on the continuing trend toward outsourcing by large corporations of logistics management functions and reliance by many of these corporations on single-source providers. Operations - ---------- The Company has a global network of Company-operated facilities and supporting agents with offices located in over 711 cities, including 270 in the United States, 165 in Europe, 129 in Asia and the South Pacific and 147 in the Middle East, Africa and Latin America. As a consequence, a substantial portion of its revenues and profits is derived from the shipment of goods from or between locations outside the United States. For the year ended December 31, 1997, approximately 60% of its gross revenues and 56% of its net revenues were recorded in locations outside the United States. The Company neither owns nor operates any ships or aircraft. It arranges for transportation of its customers' shipments via steamship lines, commercial airlines and air cargo carriers. On limited occasions, when the size of a particular shipment so warrants, the Company will charter a cargo aircraft. The Company acts solely as a forwarder for approximately 91% of the shipments it handles. When acting as an airfreight forwarder, the Company becomes legally responsible to its customer for the safe delivery of the customer's cargo to its ultimate destination, subject to a limitation on liability of $20.00 per kilo ($9.07 per pound). When acting as an ocean freight consolidator, the Company assumes cargo liability to its customers for lost or damaged shipments. This liability is typically limited by contract to a maximum of $500 per package or customary freight unit. However, because a freight forwarder's relationship to an airline or steamship line (the "Carrier") is that of a shipper to a carrier, the Carrier generally assumes the same responsibility to the Company as the Company assumes to its customers. On occasion, the Company acts in the capacity of a cargo agent for a designated Carrier. In this capacity, the Company contracts for freight carriage for which it receives a commission from the Carrier, but it does not have legal responsibility for the safe delivery of the shipment. During 1997, shipments for which the Company acted as a cargo agent accounted for less than 2% of its revenues. The Company also offers door-to-door express delivery among 20 European countries through its Pandalink service which operates from a central hub in Brussels. Pandalink operates predominately as an overnight service to major European cities, with alternative delivery services to outlying areas within 48 to 72 hours. -5- Quality Initiatives - ------------------- The Company maintains a department focused on implementing quality initiatives to better serve its customers' needs. In 1997, more than 90% of the Company's revenues were handled by International Organization for Standardization ("ISO") 9002 certified offices. ISO is a stringent set of internationally recognized quality assurance guidelines. The Company is committed to a broad program to maintain and to increase its ISO 9002 certifications. The Company also sponsors a Shippers' Council to stimulate discussion among customers aimed at identifying, upgrading and standardizing the Company's and the industry's best practices. Regulation - ---------- The Company's activities as an International Air Transport Association ("IATA") cargo agent are subject to the rules and regulations of that organization to the extent the Company acts as an agent for an airline which is an IATA member. Certain IATA rules and regulations are subject to the Department of Transportation ("DOT") approval. In addition, several states in which the Company operates regulate intrastate trucking. In these states, the Company has obtained the necessary operating authority. In the United States, the Company, operating as a customs broker, is licensed by the United States Department of the Treasury and regulated by the United States Customs Service. Customs brokerage fees are not subject to regulation. The Company is licensed as an ocean freight forwarder by the United States Federal Maritime Commission ("FMC") which prescribes qualifications for acting as a shipping agent, including surety bonding requirements. The FMC does not regulate the Company's fees in any material respect. The Company's ocean freight NVOCC business is subject to regulation as an indirect ocean cargo carrier under the FMC tariff filing and surety bond requirements, which require the Company to abide by tariffs filed with the FMC specifying the rates which may be charged to customers. Customers and Marketing - ----------------------- The Company's principal customers are large manufacturers and distributors of computers and electronics equipment, pharmaceuticals, heavy industrial and construction equipment, motion pictures and printed materials. During 1997, the Company shipped goods and provided logistics services for more than 200,000 customer accounts, none of which individually accounted for more than 10% of the Company's revenues. The Company markets its global cargo transportation and integrated logistics services worldwide through an international sales organization consisting of 543 full-time salespersons (as of December 31, 1997), supported by the sales efforts of senior management and the Company's country, regional and district managers. In markets where the Company does not operate its own facilities, its direct sales efforts are supplemented by those of the Company's agents. The Company's marketing is directed primarily to large, multinational corporations with substantial requirements for the international transportation of cargo. -6- Competition - ----------- Competition within the freight forwarding industry is intense. Although the industry is highly fragmented with a large number of participants, the Company competes primarily with a relatively small number of international firms with worldwide networks and the capability to provide the breadth of services offered by the Company. The Company also encounters competition from regional and local freight forwarders, integrated transportation companies that operate their own aircraft, cargo sales agents and brokers, surface freight forwarders and carriers, certain airlines, and associations of shippers organized for the purpose of consolidating their members' shipments to obtain lower freight rates from carriers. Currency and Other Risk Factors - ------------------------------- The Company operates in many countries throughout the world, resulting in significant sums of money to be collected in various local currencies. There are risks from fluctuations in the value of these currencies, devaluations, or other actions and events which may result in the Company carrying assets in foreign currencies that are not easily convertible, or not convertible at all, into U.S. dollars. These foreign currency assets are included in the Company's net investment in its foreign operations. From time to time and when feasible and cost effective, the Company seeks to minimize the effect of fluctuations in the values of foreign currencies on its financial position through the purchase of foreign currency forward exchange contracts (See Note 13 to the Consolidated Financial Statements). In addition, the Company's business requires good working relationships with the airlines, which are its largest creditor as a group. To the extent that the airlines decrease cargo space available to forwarders, cut back cargo or passenger flights or enter the forwarding business themselves, the airfreight forwarding business could be adversely affected. The Company considers its working relationship with the airlines to be good. Employees - --------- As of December 31, 1997, the Company employed 7,419 people, of whom 4,652 were based at locations outside the United States, including 2,077 in the United Kingdom and Europe, 1,290 in Asia and 1,285 in the South Pacific, South America, Africa and Canada. Approximately 689 of the Company's 2,767 employees based in the United States were covered by agreements with various locals of the International Brotherhood of Teamsters, the United Auto Workers and the International Association of Machinists and Aerospace Workers. In addition, approximately 26% of the Company's foreign-based personnel are represented by various types of collective bargaining organizations. The Company maintains a good working relationship with its employees. -7- (d) Financial Information About Foreign and Domestic Operations ----------------------------------------------------------- See the Company's Consolidated Financial Statements including the Notes thereto for data related to the Company's revenues, operating profit and identifiable assets. Item 2. Properties ---------- The Company owns its worldwide headquarters building (approximately 40,000 square feet in area) in Darien, Connecticut; a warehouse and office facility (approximately 78,000 square feet in area) in Sydney, Australia, which is subject to a $1.9 million mortgage; a warehouse and distribution facility (approximately 59,000 square feet in area) in Venlo, Holland, which is subject to a $.9 million mortgage; a warehouse and distribution facility (approximately 150,000 square feet in area) in Singapore, which is subject to a $3.9 million term loan; and a warehouse and office facility (approximately 43,000 square feet in area) in Johannesburg, South Africa. The Company leases facilities at or near airports, ocean terminals and international borders at 72 locations in the United States and 148 offices in 32 other countries. Most facilities have office, loading dock and warehouse space. The principal facilities are set forth in the following table: *
Approximate Sq. Feet of Lease Location Floor Space Expiration Amsterdam, The Netherlands 68,000 sq.ft. of warehouse and office 1998 Chicago, Illinois 208,400 sq.ft. of warehouse and office 1998/1999 Frankfurt, Germany 37,000 sq.ft. of warehouse and office 2007 Johannesburg, South Africa 55,000 sq.ft. of warehouse and office 2000 London, England 93,000 sq.ft. of warehouse and office 2002 Los Angeles, California 151,300 sq.ft. of warehouse and office 2001 Miami, Florida 337,000 sq.ft. of warehouse and office 1999/2006 New York, New York 90,000 sq.ft. of warehouse and office 1999 New York, New York 135,000 sq.ft. of warehouse and office 2015 San Francisco, California 78,000 sq.ft. of warehouse and office 1998/2000
The Company believes that its facilities are adequate for its needs now and in the foreseeable future and none of its principal facilities are material to the operation of its business. -8- Item 3. Legal Proceedings ----------------- While all litigation, claims and assessments contain an element of uncertainty with respect to their resolution and their outcome cannot be predicted with certainty, based on information presently available, the Company believes that it is unlikely that the aggregate effect of all known and threatened litigation, claims and assessments will have a material adverse effect on the Company's consolidated financial position. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None. Executive Officers of the Registrant - ------------------------------------ Following is a listing of the executive officers of the Company. The information listed below with respect to age and business experience for the past five years has been furnished to the Company as of March 30, 1998 by each executive officer of the Company. There are no family relationships between any Director or officer of the Company. Positions with the Company and Business Experience for the Name Age Past Five Years Guenter Rohrmann 58 President and Chief Executive Officer of the Company since 1989 (President and Chief Operating Officer from 1985 to 1989). Hendrik J. Hartong, Jr. 58 Chairman of the Company since 1985; (Chief Executive Officer of the Company from 1985 through 1989); General Partner since 1985 of The Brynwood Management Limited Partnerships, which serve as managing general partners of The Brynwood Partners Limited Partnerships, private investment partnerships; Director of Hurco Companies, Inc. Dennis M. Dolan 40 Vice President and Chief Financial Officer of the Company since 1989; U.S. Controller from 1985 to 1989. -9- Giorgio Laccona 39 Vice President - General Manager - North America since 1996; Vice President-Operations from 1994 to 1996, Vice President - Export Sales and Operations from 1989 to 1994. Daniel J. McCauley 63 Vice President, General Counsel and Secretary of the Company since 1991. Paul J. Gallagher 52 Vice President - Treasurer of the Company since 1993; Vice President- International Controller from 1989 to 1993. Walter L. McMaster 65 Vice President and Controller of the Company since 1983; U.S. Controller from 1974 to 1983. Robert J. O'Connell 61 Senior Vice President since 1996; Vice President - General Manager - North America of the Company from 1989; Vice President-North America Sales of the Company from 1985 to 1989. -10- Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters --------------------------------------------------------------------- The Company's common stock, $.01 par value (the "Common Stock"), trades on The Nasdaq Stock Market under the symbol: AEIC. The table below indicates the quarterly high and low prices of the Common Stock and the dividends declared per share for the years ended December 31, 1997 and 1996.
Quarter 1st 2nd 3rd 4th Year Ended December 31, 1997: High $ 22 1/8 $ 26 5/8 $ 36 1/2 $ 37 1/8 Low $ 19 7/8 $ 20 1/2 $ 24 1/2 $ 26 3/8 Dividends $ .04 $ .05 $ .05 $ .05 Year Ended December 31, 1996: High $ 17 1/2 $ 19 1/2 $ 19 3/8 $ 23 Low $ 13 3/8 $ 17 $ 15 5/8 $ 18 5/8 Dividends $ .033 $ .04 $ .04 $ .04
At March 20, 1998, there were 922 holders of record of the Company's Common Stock. The closing price of the Common Stock on that date was $26.1875 per share. -11- Item 6. Selected Financial Data ----------------------- AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES (In thousands, except per share data)
Years Ended December 31, 1997 1996 1995 1994 1993 Revenues ............................ $1,545,720 $1,335,447 $ 1,222,217 $ 997,379 $ 725,719 Net income .......................... $ 49,451 $ 38,500 $ 29,027 $ 22,619 $ 17,340 Net income per common share: (1) Basic .............................$ 1.44 $ 1.23 $ 1.07 $ .87 $ .67 Diluted ...........................$ 1.41 $ 1.16 $ .99 $ .81 $ .65 Cash dividends declared per common share .......................$ .19 $ .153 $ .127 $ .102 $ .083 Total assets .........................$ 638,141 $ 581,329 $ 486,843 $ 383,626 $ 298,816 Long-term debt (excluding current portion) .........$ 31,008 $ 16,616 $ 82,762 $ 83,992 $ 78,464 Stockholders' investment .............$ 291,562 $ 259,086 $ 147,566 $ 99,350 $ 78,119
- -------------------------------- (1) Income per share amounts for all periods presented give effect to a three-for-two stock split in the nature of a 50.0% stock dividend in July 1997 and December 1994 and are based upon the weighted-average number of shares of Common Stock outstanding during each period. -12- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources - ------------------------------- Cash and cash equivalents at December 31, 1997 increased to $67.6 million compared to $46.5 million at December 31, 1996. The Company's primary sources of cash in 1997 consisted of $48.6 million provided by operating activities and $19.0 million from long-term borrowings. The Company's primary uses of cash in 1997 were capital expenditures of $18.7 million, restricted funds of $16.0 million (See Note 4 to the Consolidated Financial Statements), and dividend payments of $6.2 million. Cash flow provided by operating activities increased $31.8 million over 1996. The increase resulted from the ongoing integration of prior years' acquisitions which has improved the management of working capital. Working capital increased $35.0 million to $135.2 million at December 31, 1997 from $100.2 million at December 31, 1996, primarily due to the increase in the excess of cash and trade receivables over trade payables. The Company makes significant disbursements on behalf of its customers, such as customs duties, which are billed directly to the Company's customers. The billings for these disbursements, which may be several times the amount of revenue and fees derived from these transactions, are not recorded as revenue and expense in the Company's income statement. Capital expenditures increased approximately $4.9 million from $13.8 million for 1996 to $18.7 million for 1997. The $18.7 million of capital expenditures were primarily for improvement and expansion of facilities and management information systems. Depreciation and amortization expense (including goodwill amortization) totaled $15.8 million in 1997 and $12.7 million in 1996. Capital expenditures for 1998 are estimated to be approximately $40.0 million, of which approximately $25.0 million pertains to the completion of the construction of a freight terminal at New York's John F. Kennedy International Airport (See Note 8 to the Consolidated Financial Statements), and the anticipated expansion of the Company's warehouse facility in Singapore. The balance of the 1998 estimated capital expenditures will be primarily for management information systems and improvement and expansion of facilities. At December 31, 1997, the Company had available for future borrowings approximately $71.8 million of its $75.0 million revolving credit facility (See Note 7 to the Consolidated Financial Statements). The Company utilized approximately $3.2 million under this facility mainly for letters of credit issued in connection with its insurance programs. Additionally, various of the Company's foreign subsidiaries maintained overdraft facilities with foreign banks, aggregating approximately $22.8 million, of which approximately $.3 million was outstanding. In July 1997, through the issuance of bonds to finance in part the construction of the John F. Kennedy freight terminal (See Note 8 to the Consolidated Financial Statements), the Company's long-term debt increased $19.0 million and correspondingly its debt to equity ratio (total long- term debt as a percentage of stockholders' investment) was 11.5% at December 31, 1997 as compared to 7.9% at December 31, 1996. During the fourth quarter of 1997, the Company's Board of Directors authorized the purchase, from time to time in the open market, of up to one million shares of the Company's common stock. As of December 31, 1997, no shares had been purchased under this authorization. Additionally, in June 1997, the Board of Directors authorized an increase in the quarterly cash dividend from four cents ($.04) to five cents ($.05) per share. -13- The Company purchases foreign currency forward exchange contracts principally to hedge foreign currency exposure associated with net investments in certain foreign operations and certain intercompany transactions. The Company does not speculate in the financial markets and therefore does not hold these contracts for trading purposes. The Company's risk management procedures include the monitoring of foreign exchange exposures and the Company's offsetting hedge positions utilizing analytical analysis of value-at-risk estimates. However, the use of this technique to quantify market risk should not be construed as an endorsement of its accuracy or the accuracy of the related assumptions. The estimated maximum yearly loss in earnings due to foreign exchange rate instruments, calculated utilizing value-at-risk estimates, is not material to the Company's results of the operations. Actual results in the future may differ materially from projected results due to actual developments in global financial markets. A discussion of the Company's accounting policies for foreign exchange rate instruments is disclosed in the Company's financial statements (See Note 13 to the Consolidated Financial Statements). Management believes that the Company's available cash and sources of credit, together with expected future sources of credit and cash generated from operations, will be sufficient to satisfy its anticipated needs for working capital, capital expenditures and dividends. Results of Operations 1997 Compared to 1996 - --------------------- The Company considers its total business to represent a single segment comprised of three major services: airfreight forwarding, ocean freight forwarding, and customs brokerage and other services, all of which are fully integrated. The following table sets forth the gross revenues and net revenues (gross revenues minus transportation expenses) for each of these three service categories, as well as the Company's internal operating expenses (terminal and selling, general and administrative expenses) and operating profit:
1997 1996 ($ in millions) Gross Revenues: Airfreight ..................................... $ 1,202.3 $ 1,026.5 Ocean freight .................................. 201.1 190.1 Customs brokerage and other .................................... 142.3 118.9 Total Gross Revenues ............................. $ 1,545.7 $ 1,335.5 Net Revenues: Airfreight ..................................... $ 310.1 $ 274.5 Ocean freight .................................. 58.1 51.9 Customs brokerage and other .................................... 120.0 106.0 Total Net Revenues ............................... 488.2 432.4 Internal Operating Expenses: Terminal ....................................... 266.9 234.6 Selling, general and administrative ............ 150.4 139.0 Total Internal Operating Expenses ................ 417.3 373.6 Operating Profit ................................. $ 70.9 $ 58.8
-14- Gross revenues increased $210.2 million (15.7%) in 1997 over 1996, reflecting increases of $175.8 million (17.1%) in airfreight revenues, $11.0 million (5.8%) in ocean freight revenues and $23.4 million (19.7%) in customs brokerage and other revenues. The increase in revenues was negatively impacted by approximately $50.2 million due to the effect of a stronger U.S. dollar when converting foreign currency revenues into U.S. dollars for financial reporting purposes. Net revenues increased $55.8 million (12.9%) to $488.2 million in 1997 with the increase comprised of $35.6 million (13.0%) in airfreight net revenues, $6.2 million (11.9%) in ocean freight net revenues and $14.0 million (13.2%) in customs brokerage and other net revenues. The increases in both gross and net revenues from airfreight services were attributable to increased airfreight shipping volumes, as the number of shipments increased 14.0% and the total weight of cargo shipped increased 18.1% over 1996, and to higher prices initiated by the Company in response to rate increases from the airlines. The increases in gross and net revenues from ocean freight services were attributable to greater shipping volumes from existing customers and the Company's continuing penetration into the ocean freight market. The increases in gross and net revenues from customs brokerage and other services were from the Company's continuing efforts to expand its customs brokerage activities to existing and new customers. The Company's internal operating expenses increased $43.7 million (11.7%) in 1997 over 1996. The increase was attributable to the inclusion of operating expenses from acquired companies and the greater volume of shipments handled. As a percentage of gross revenues, internal operating expenses decreased to 27.0% in 1997 from 28.0% in 1996 and as a percentage of net revenues, decreased to 85.5% in 1997 from 86.4% in 1996. Consolidated operating profit increased $12.1 million (20.6%) over 1996 due primarily to the growth in the Company's business and the improvement in internal operating expenses as a percentage of gross and net revenues. Interest expense, net improved $2.7 million to $1.4 million of interest income in 1997 due primarily to the elimination of interest expense associated with the conversion of the 6.0% Convertible Subordinated Debentures on or before July 8, 1996. Other, net increased $2.3 million to $6.9 million in 1997 due to a gain of approximately $1.9 million on the sale of the Company's 60.0% interest in a foreign subsidiary (See Note 14 to the Consolidated Financial Statements). The Company's effective tax rate decreased to 37.5% compared to 38.0% in 1996. The decrease was largely the result of a shift in the mix of worldwide earnings to countries with lower effective income tax rates, along with a reduction in the total nondeductible expenses as a percentage of pre-tax income. United States Operations - ------------------------ United States gross revenues increased $100.4 million (19.6%) to $612.2 million in 1997 compared to 1996, reflecting increases of $83.9 million (20.8%) in airfreight revenues, $9.0 million (15.0%) in ocean freight revenues and $7.5 million (15.3%) in customs brokerage and other revenues. The increase in airfreight revenues was attributable to increased shipping volumes, as the number of shipments increased 18.7% and the total weight of cargo shipped increased 13.6% over 1996, and to higher prices initiated by the Company in response to rate increases from the airlines. The significant increase in the -15- number of shipments was due to a large increase in United States domestic shipments (the United States domestic business accounted for only 3.0% of consolidated revenues for 1997). Excluding United States domestic shipments, the increase in airfreight shipments was 2.7%. The increase in ocean freight revenue was attributable to the Company's ongoing efforts to market its ocean freight services to both existing and new customers. The increase in customs brokerage and other revenues was from the Company's continuing efforts to expand its customs brokerage activities to existing and new customers. United States internal operating expenses increased $24.5 million (14.7%) over 1996. The increase was primarily the result of the inclusion of expenses from acquired companies, increased volume of transactions handled, and the ongoing integration and expansion of management information systems and facilities. As a percentage of gross revenues, internal operating expenses decreased to 31.3% from 32.7% in 1996 and as a percentage of net revenues, decreased to 89.1% in 1997 from 90.7% in 1996, resulting in a $6.3 million (36.7%) increase in operating profit. Foreign Operations - ------------------ Foreign revenues increased $109.8 million (13.3%) in 1997 over 1996. The increase in foreign revenues was negatively impacted by approximately $50.2 million (Europe $25.8 million, Asia and Others $24.4 million) due to the effect of a stronger U.S. dollar when converting foreign currency revenues into U.S. dollars for financial reporting purposes. European revenues increased $56.9 million (13.9%) over 1996, due to increases of $37.8 million (11.4%) in airfreight revenues, $9.0 million (18.9%) in ocean freight revenues and $10.1 million (34.0%) in customs brokerage and other revenues. Revenues in the Asia and Others region increased $52.9 million (12.8%) in 1997 over 1996, reflecting increases of $54.1 million (18.6%) in airfreight revenues, $5.8 million (14.5%) in customs brokerage and other revenues, and a $7.0 million (8.4%) decrease in ocean freight revenues. Excluding the effects from the sale of an affiliate (See Note 14 of the Consolidated Financial Statements), ocean freight revenues from continuing operations were marginally lower than 1996. The increase in airfreight revenues was attributable to greater shipping volumes from existing and new customers. Customs brokerage and other revenues increased primarily due to the increase in the number of import clearances. Foreign operating profit increased $5.9 million (14.1%) in 1997 over 1996 to $47.5 million. The European region's operating profit increased $6.4 million (37.5%) in 1997 over 1996, while the Asia and Others region's operating profit decreased $.5 million (2.0%) compared to 1996. The increase in European operating profit was attributable to the higher revenues as airfreight shipments increased 10.5% and the weight of cargo shipped increased 23.0%, and a decline in internal operating expenses as a percentage of revenues. The $.5 million decrease in the Asia and Others region's operating profit was attributable to Australia and New Zealand, where increased competition in transporting cargo to and from Australia and New Zealand, and a significant reduction in the exports of perishable produce, particularly to the Far East Region, resulted in a reduction in operating profit for these countries. This decline was offset in part by increases in operating profit from Asia, Africa, South America and Others which make up the region. -16- Results of Operations 1996 Compared to 1995 - --------------------- The following table sets forth the gross revenues and net revenues for each service category, as well as the Company's internal operating expenses and operating profit:
1996 1995 ($ in millions) Gross Revenues: Airfreight ..................................... $ 1,026.5 $ 972.6 Ocean freight .................................. 190.1 166.2 Customs brokerage and other .................................... 118.9 83.4 Total Gross Revenues ............................. $ 1,335.5 $ 1,222.2 Net Revenues: Airfreight ..................................... $ 274.5 $ 245.7 Ocean freight .................................. 51.9 38.8 Customs brokerage and other .................................... 106.0 82.1 Total Net Revenues ............................... 432.4 366.6 Internal Operating Expenses: Terminal ....................................... 234.6 196.6 Selling, general and administrative ............ 139.0 122.6 Total Internal Operating Expenses ................ 373.6 319.2 Operating Profit ................................. $ 58.8 $ 47.4
Gross revenues increased $113.3 million (9.3%) in 1996 over 1995, reflecting increases of $53.9 million (5.5%) in airfreight revenues, $23.9 million (14.4%) in ocean freight revenues and $35.5 million (42.6%) in customs brokerage and other revenues. Net revenues increased $65.8 million (17.9%) to $432.4 million in 1996 and was comprised of increases of $28.8 million (11.7%) in airfreight net revenues, $13.1 million (33.8%) in ocean freight net revenues and $23.9 million (29.1%) in customs brokerage and other net revenues. The increases in both gross and net revenues from airfreight services were attributable to increased airfreight shipping volumes, as the number of shipments increased (3.7%) and the total weight of cargo shipped increased (7.0%) over 1995, and to higher prices initiated by the Company in response to rate increases from the airlines. The increases in gross and net revenues from ocean freight services were attributable to greater shipping volumes from existing customers, the Company's continuing penetration into the ocean freight market and the inclusion of ocean freight business of acquired companies. The increases in gross and net revenues from customs brokerage and other services were largely due to the acquisitions of Radix in June 1995 and J.V. Carr in May 1996. The Company's internal operating expenses increased $54.4 million (17.0%) in 1996 over 1995. The increase was attributable to the inclusion of operating expenses from acquired companies and the greater volume of shipments handled. As a percentage of gross revenues, internal operating expenses increased to 28.0% from 26.1% in 1995, due largely to the inclusion of the operating expenses related to the customs brokerage operations of Radix and J.V. Carr. However, due to the higher level of customs brokerage revenues, for which gross and net revenues are the same, internal operating expenses, as a percentage of net revenues, decreased to 86.4% in 1996 from 87.1% in 1995. -17- Consolidated operating profit increased $11.4 million (24.1%) over 1995, due primarily to significant improvement in operating profits in the Company's European region and its Asia and Others region (See Note 5 to the Consolidated Financial Statements). Interest expense, net decreased $2.1 million to $1.3 million in 1996 due primarily to the conversion of the Company's 6.0% Convertible Subordinated Debentures. Other, net increased $1.1 million to $4.6 million in 1996, due primarily to increased earnings from unconsolidated affiliates and foreign exchange gains (See Note 14 to the Consolidated Financial Statements). The Company's effective income tax rate for 1996 decreased to 38.0% compared to 39.0% in 1995. The decrease in the effective income tax rate was largely the result of reduced losses incurred by certain foreign subsidiaries for which there were no tax benefits available, and the utilization of net operating loss carryforwards by other foreign subsidiaries. The Company's effective income tax rate fluctuates due to changes in tax rates and regulations in the countries in which it operates and the level of pre-tax profit earned in those countries. United States Operations - ------------------------ United States revenues increased $52.5 million (11.4%) to $511.8 million in 1996 compared to 1995, reflecting increases of $19.2 million (5.0%) in airfreight revenues, $12.1 million (25.3%) in ocean freight revenues and $21.2 million (76.1%) in customs brokerage and other revenues. The increase in airfreight revenues was due to an 11.0% increase in the weight of cargo shipped, as well as price increases initiated in response to airline rate increases. The increase in ocean freight revenues was attributable to the Company's ongoing efforts to market its ocean freight services to both existing and new customers. The increase in customs brokerage and other revenues was largely attributable to the inclusion of business from Radix, which was acquired in June of 1995 and J.V. Carr in May of 1996. United States internal operating expenses increased $47.7 million (39.9%) over 1995. The increase was primarily the result of the inclusion of expenses from acquired companies, particularly J.V. Carr, increased volume of transactions handled, and the ongoing integration and expansion of management information systems and facilities. The higher expenses resulted in a marginal increase in United States operating profit of $.5 million (2.8%) over 1995. Foreign Operations - ------------------ Foreign revenues increased $60.8 million (8.0%) in 1996 over 1995. The increase in foreign revenues was negatively impacted by approximately $12.9 million due to the effect of a stronger U.S. dollar when converting foreign currency revenues into U.S. dollars for financial reporting purposes. European revenues increased $22.9 million (5.9%) over 1995, due to increases of $16.5 million (5.2%) in airfreight revenues, $2.1 million (4.5%) in ocean freight revenues and $4.3 million (17.1%) in customs brokerage and other revenues. Revenues in the Asia and Others region increased $37.9 million (10.1%) in 1996 over 1995, reflecting increases of $18.2 million (6.7%) in airfreight revenues, $9.7 million (13.3%) in ocean freight revenues and $10.0 million (33.3%) in customs brokerage and other revenues. The increases in both airfreight and ocean freight revenues were attributable to greater shipping volumes from existing and new customers and the inclusion of business from acquired companies. Customs brokerage and other revenues increased primarily due to the increase in the number of import clearances. -18- Foreign operating profit increased $10.9 million (35.3%) over 1995 to $41.7 million. The European region's operating profit increased $5.8 million (51.8%) over 1995, while the Asia and Others region's operating profit increased $5.1 million (26.0%) over 1995. The increase in European operating profit was attributable to the higher revenues as airfreight shipments increased 4.3% and the weight of cargo shipped increased 4.0%, coupled with management initiatives to reduce internal operating expenses in selected European countries in the last quarter of 1995 and first half of 1996. The increase in Asia and Others operating profit was largely attributable to greater shipping volumes. Year 2000 - --------- In 1997, the Company undertook an assessment to determine the impact of year 2000 compliance on its computer systems. This assessment resulted in preliminary plans to prepare the Company for year 2000 readiness. These plans include remediation of certain systems and the upgrading and replacement of certain other of the Company's systems. In accordance with Issue 96-14 of the Emerging Issues Task Force of the Financial Accounting Standards Board, which requires the costs associated with modifying computer software for the year 2000 to be expensed as incurred, the Company will expense the costs incurred to remediate the applicable systems. These costs are estimated to be in the range of $5.0 to $7.0 million. The estimated costs will vary as the remediation and testing of the Company's systems progresses. The Company believes that the remediation, upgrade and replacement of its systems will be ready for year 2000 prior to any impact on its operations. If, however, the remediation, upgrade or replacement of the Company's systems is not completed timely, and negatively impacts the Company's year 2000 readiness, the Company's operations may be materially affected. New Accounting Standard - ----------------------- In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use"("SOP"). The SOP provides guidance on accounting for the costs of computer software developed or obtained for internal use. The provisions of this SOP will be effective for financial statements for fiscal years beginning after December 15, 1998. Earlier application is permitted. The Company will elect early application and adopt the SOP in the first quarter of 1998. Adoption of this statement of position is not expected to have a material impact on the Company's results of operations. Forward-Looking Statements - -------------------------- Statements contained herein which are not historical facts are forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). These statements are based upon information available to the Company on the date hereof. Inherent in these statements are a variety of risks and other factors, both known and unknown, which may cause the Company's actual results to differ materially from those in forward-looking statements. Accordingly, the realization of forward-looking statements is not certain, and all such statements should be evaluated based upon the applicable risks and uncertainties affecting the Company. -19- Item 7a. Not Applicable. Item 8. Financial Statements and Supplementary Data The financial statements and supplementary data required by this Item 8 are included in the Company's Consolidated Financial Statements and set forth in the pages indicated in Item 14(a) of this Annual Report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Part III Item 10. Directors and Executive Officers of the Registrant The information called for by this item is incorporated herein by reference to the Company's definitive proxy statement to be filed with the Securities and Exchange Commission not later than 120 days after the Company's year end and to be delivered by the Company to its shareholders in conjunction with the 1998 Annual Meeting of Shareholders. Item 11. Executive Compensation The information called for by this item is incorporated herein by reference to the Company's definitive proxy statement to be filed with the Securities and Exchange Commission not later than 120 days after the Company's year end and to be delivered by the Company to its shareholders in conjunction with the 1998 Annual Meeting of Shareholders. Item 12. Security Ownership of Certain Beneficial Owners and Management The information called for by this item is incorporated herein by reference to the Company's definitive proxy statement to be filed with the Securities and Exchange Commission not later than 120 days after the Company's year end and to be delivered by the Company to its shareholders in conjunction with the 1998 Annual Meeting of Shareholders. Item 13. Certain Relationships and Related Transactions The information called for by this item is incorporated herein by reference to the Company's definitive proxy statement to be filed with the Securities and Exchange Commission not later than 120 days after the Company's year end and to be delivered by the Company to its shareholders in conjunction with the 1998 Annual Meeting of Shareholders. -20- Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) The following documents are filed as a part of this report on Form 10-K. (1) Financial Statements: Page Report of Independent Public Accountants. F-1 Consolidated Balance Sheets as of December 31, 1997 and 1996. F-2 Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995. F-3 Consolidated Statements of Stockholders' Investment for the years ended December 31, 1997, 1996 and 1995. F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995. F-5 Notes to Consolidated Financial Statements. F-6 (2) Financial Statement Schedules: Schedule II - Valuation and Qualifying Accounts. F-22 All other financial statement schedules are omitted because they are not applicable, not required, or because the required information is included in the Company's Consolidated Financial Statements or Notes thereto. Separate financial statements of the Company have been omitted since less than 25% of the net assets of its subsidiaries and equity investments are formally restricted from being loaned, advanced or distributed to the holding company. -21- (3) Exhibits required to be filed by Item 601 of Regulation S-K. 3a. Certificate of Incorporation, as amended through July 29, 1992. b. The Bylaws, as amended through March 22, 1992 (Incorporated herein by reference to Exhibit 3 to the Company's Current Report on Form 8-K, filed March 22, 1992). 10. Material Contracts: a. Employment Agreement, effective July 1, 1997 between the Company and Hendrik J. Hartong, Jr. b. Employment Agreement, effective January 1, 1986, between the Company and Guenter Rohrmann (Incorporated herein by reference to Exhibit 10(iv) to the Company's Current Report on Form 8-K filed March 22, 1991). c. Air Express International Corporation 1984 International Employees' Stock Option Plan (Incorporated herein by reference to the Company's Proxy Statement, dated July 18, 1984, furnished to stockholders in connection with the Annual Meeting of Stockholders held on August 9, 1984). d. Air Express International Corporation Employees' 1991 Incentive Stock Option Plan, approved by the Shareholders of the Company on June 20, 1991 (Incorporated herein by reference to the Company's Proxy Statement, dated May 17, 1991, furnished to stockholders in connection with the Annual Meeting of Stockholders held on June 20, 1991). e. Air Express International Corporation Employees' 1996 Incentive Stock Option Plan, approved by the Shareholders of the Company on June 20, 1996 (Incorporated herein by reference to the Company's Proxy Statement dated May 17, 1996, furnished to stockholders in connection with the Annual Meeting of Stockholders held on June 20, 1996). f. Agreement And Plan Of Reorganization dated May 3, 1995, by and among RADIX VENTURES, INC., the Company, AEIC ACQUISITION CORPORATION and THE SHAREHOLDER REPRESENTATIVES (as defined therein) (Incorporated herein by reference to the Company's Report on 10Q, filed August 11, 1995). g. Industrial Development Revenue Bonds, due July 1, 2024, to finance in part the development of an air cargo facility terminal building at John F. Kennedy International Airport. (The Company is not required to file this Indenture pursuant to Rule 601 (b)(iii). The Company agrees that it will furnish a copy to the Commission upon request). -22- 21. Subsidiaries of the Registrant. Exhibit 21. 23. Consent of Independent Public Accountants. Exhibit 23. 27. Financial Data Schedule. Exhibit 27. All other exhibits are omitted because they are not applicable, not required or because the required information is included in the Consolidated Financial Statements or Notes thereto. (b) Reports on Form 8-K: None. -23- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AIR EXPRESS INTERNATIONAL CORPORATION Registrant By: /s/ Dennis M. Dolan Dennis M. Dolan Vice President and Chief Financial Officer (Principal Financial Officer) By: /s/ Walter L. McMaster Walter L. McMaster Vice President and Controller (Principal Accounting Officer) Date: March 30, 1998 -24- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date - --------- ----- ----- /s/ John M. Fowler Director March 30, 1998 (John M. Fowler) /s/ Hendrik J. Hartong, Jr. Chairman of the Board (Hendrik J. Hartong, Jr.) of Directors March 30, 1998 /s/ Donald J. Keller Director March 30, 1998 (Donald J. Keller) /s/ Andrew L. Lewis IV Director March 30, 1998 (Andrew L. Lewis IV) /s/ Richard T. Niner Director March 30, 1998 (Richard T. Niner) /s/ John Radziwill Director March 30, 1998 (John Radziwill) /s/ Guenter Rohrmann President, Chief Executive (Guenter Rohrmann) Officer and Director (Principal Executive Officer) March 30, 1998 /s/ Noel E. Vargas Director March 30, 1998 (Noel E. Vargas) -25- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Air Express International Corporation: We have audited the accompanying consolidated balance sheets of Air Express International Corporation (a Delaware corporation) and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' investment and cash flows for each of the three years in the period ended December 31, 1997. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Air Express International Corporation and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index of financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP New York, New York March 20, 1998 F-1
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996 (Dollars in thousands) 1997 1996 Assets Current assets: Cash and cash equivalents ........................... $ 67,576 $ 46,516 Accounts receivable (less allowance for doubtful accounts of $4,224 and $4,721) ............ 366,159 346,323 Other current assets ................................ 8,344 6,295 Total current assets ............................ 442,079 399,134 Investment in unconsolidated affiliates .............. 19,174 13,991 Restricted funds ..................................... 15,957 -- Property, plant and equipment (less accumulated depreciation and amortization of $57,235 and $53,455) ....................................... 60,441 61,112 Deposits and other assets ............................ 17,386 15,226 Goodwill (less accumulated amortization of $12,424 and $10,673) ............................ 83,104 91,866 Total assets .................................... $ 638,141 $ 581,329 Liabilities and stockholders' investment Current liabilities: Current portion of long-term debt ................... $ 2,654 $ 3,915 Bank overdrafts payable ............................. 315 2,058 Transportation payables ............................. 174,125 166,686 Accounts payable .................................... 58,373 50,201 Accrued liabilities ................................. 61,263 61,347 Income taxes payable ................................ 10,168 14,691 Total current liabilities ....................... 306,898 298,898 Long-term debt ...................................... 31,008 16,616 Other liabilities ................................... 8,673 6,729 Total liabilities ............................... 346,579 322,243 Commitments and contingencies (Note 12) Stockholders' investment: Capital stock - Preferred (authorized 1,000,000 shares, none outstanding) ................................. -- -- Common, $.01 par value (authorized 40,000,000 shares, issued 34,676,626 and 34,179,227 shares) .. 347 342 Capital surplus ..................................... 142,674 137,060 Cumulative translation adjustments .................. (28,961) (15,633) Retained earnings ................................... 180,887 137,989 294,947 259,758 Less: 132,388 and 40,958 shares of treasury stock, at cost .................................. (3,385) (672) Total stockholders' investment .................. 291,562 259,086 Total liabilities and stockholders' investment .. $ 638,141 $ 581,329 See Notes to Consolidated Financial Statements.
F-2
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Dollars in thousands, except per share data) 1997 1996 1995 Revenues ............................... $ 1,545,720 $ 1,335,447 $ 1,222,217 Operating expenses: Transportation ....................... 1,057,499 903,016 855,568 Terminal ............................. 266,897 234,636 196,639 Selling, general and administrative .. 150,412 139,040 122,603 1,474,808 1,276,692 1,174,810 Operating profit ....................... 70,912 58,755 47,407 Other income (expense): Interest expense, net ................ 1,360 (1,277) (3,344) Other, net ........................... 6,850 4,618 3,522 8,210 3,341 178 Income before provision for income taxes 79,122 62,096 47,585 Provision for income taxes ............. 29,671 23,596 18,558 Net income ............................. $ 49,451 $ 38,500 $ 29,027 Net income per common share: Basic ................................ $ 1.44 $ 1.23 $ 1.07 Diluted .............................. $ 1.41 $ 1.16 $ .99 See Notes to Consolidated Financial Statements.
F-3
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 Cumulative Common Stock Capital Translation Retained Treasury Shares Amount Surplus Adjustments Earnings Stock Total (Dollars in thousands) Balance, December 31, 1994 ............... 29,430,504 $ 294 $ 41,900 $(11,442) $ 108,600 $(40,002) $ 99,350 Exercise of common stock options ...... 303,966 3 1,450 -- -- -- 1,453 Purchase of treasury stock ............ -- -- -- -- -- (990) (990) Translation of foreign currency financial statements ................ -- -- -- (1,097) -- -- (1,097) Dividends declared ($.127 per share) .. -- -- -- -- (3,481) -- (3,481) Net income for the year ............... -- -- -- -- 29,027 -- 29,027 Stock issued for Radix acquisition, net................................... 1,469,831 15 23,906 -- -- (617) 23,304 Retirement of treasury stock .......... (3,337,766) (33) (7,185) -- (33,774) 40,992 -- Balance, December 31, 1995 ............... 27,866,535 279 60,071 (12,539) 100,372 (617) 147,566 Exercise of common stock options ...... 214,067 1 1,843 -- -- -- 1,844 Purchase of treasury stock ............ -- -- -- -- -- (55) (55) Translation of foreign currency financial statements ................ -- -- -- (3,094) -- -- (3,094) Dividends declared ($.153 per share) .. -- -- -- -- (5,016) -- (5,016) Net income for the year ............... -- -- -- -- 38,500 -- 38,500 Stock issued for Muller acquisition ... 37,500 -- 802 -- -- -- 802 Stock issued for Lusk acquisition- acquired under pooling of interests .. 1,124,991 12 67 -- 4,133 -- 4,212 Conversion of convertible subordinated debentures .............. 4,936,134 50 74,277 -- -- -- 74,327 Balance, December 31, 1996 ............... 34,179,227 342 137,060 (15,633) 137,989 (672) 259,086 Exercise of common stock options ...... 497,399 5 5,614 -- -- -- 5,619 Purchase of treasury stock ............ -- -- -- -- -- (2,713) (2,713) Translation of foreign currency financial statements ................ -- -- -- (13,328) -- -- (13,328) Dividends declared ($.19 per share) ... -- -- -- -- (6,553) -- (6,553) Net income for the year ............... -- -- -- -- 49,451 -- 49,451 Balance, December 31, 1997 ............... 34,676,626 $ 347 $142,674 $(28,961) $ 180,887 $ (3,385) $291,562
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, 1997, 1996 AND 1995 (Dollars in thousands) 1997 1996 1995 Cash flows from operating activities: Net Income .................................................. $ 49,451 $ 38,500 $ 29,027 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ........................... 13,282 10,310 7,794 Amortization of goodwill ................................ 2,563 2,370 1,983 Amortization of bond discount ........................... -- 115 230 Deferred income taxes ................................... 728 1,353 (785) Equity in earnings of unconsolidated affiliates ............................................. (2,993) (1,276) (1,449) Losses (gains) on sales of assets, net .................. 34 (164) (208) (Gain) on sale of affiliate .............................. (1,876) -- -- Changes in assets and liabilities, net of business acquisitions: (Increase) in accounts receivable, net ................... (26,031) (51,565) (29,402) (Increase) decrease in other current assets .............. (2,274) 25 (1,191) (Increase) in other assets ............................... (2,362) (837) (2,126) Increase in transportation payables ..................... 9,271 2,051 20,726 Increase (decrease) in accounts payable ................. 10,455 291 (4,170) Increase (decrease) in accrued liabilities .............. 590 11,585 (2,085) (Decrease) increase in income taxes payable .............. (3,735) 3,861 290 Increase in other liabilities ........................... 1,508 169 1,164 Total adjustments ..................................... (840) (21,712) (9,229) Net cash provided by operating activities ............... 48,611 16,788 19,798 Cash flows from investing activities: Entity acquisitions, net of cash acquired ................... -- (15,393) (1,292) Restricted funds ............................................ (15,957) -- -- Other investing activities .................................. 700 (1,653) (1,934) Proceeds from sales of assets ............................... 444 436 606 Proceeds from sale of affiliate, net of cash given ................................................. 2,003 -- -- Capital expenditures ........................................ (18,732) (13,826) (20,389) Investment in unconsolidated affiliates ..................... (4,164) (70) (1,746) Sales of marketable securities .............................. -- -- 19,981 Net cash used in investing activities ................... (35,706) (30,506) (4,774) Cash flows from financing activities: Net (repayments) borrowings in bank overdrafts payable ......................................... (1,522) 1,573 (780) Additions to long-term debt ................................. 19,000 9,737 1,327 Payment of long-term debt ................................... (2,902) (1,904) (2,556) Issuance of common stock .................................... 5,619 1,844 1,453 Payment of cash dividends ................................... (6,189) (4,581) (3,250) Purchase of treasury stock .................................. (2,713) (55) (990) Net cash provided (used) by financing activities ............................................ 11,293 6,614 (4,796) Effect of foreign currency exchange rates on cash ....................................................... (3,138) (843) 67 Net increase (decrease) in cash and cash equivalents ................................................... 21,060 (7,947) 10,295 Cash and cash equivalents at beginning of year ................. 46,516 54,463 44,168 Cash and cash equivalents at end of year ....................... $ 67,576 $ 46,516 $ 54,463
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 as "Cumulative Translation Adjustments" in a separate component of stockholders' investment. Translation gains or losses of the Company's entities which operate in highly inflationary economies are included in the income statement as a component of Other, net. Accounting Estimates - - -------------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Management believes these estimates do not materially affect either the Company's results of operations or financial position. Method of Revenue Recognition - - ----------------------------- International revenues from the transportation of international freight are recognized at the time the freight has been exported from the country of origin via commercial carrier. The corresponding transportation costs charged by the commercial carriers are recognized concurrently with the freight revenues. Destination delivery costs are recognized as incurred and subsequently billed to consignees, except door-to-door cargo movements which are accrued concurrently with freight revenue recognition. Domestic revenues from the transportation of freight within the United States are recognized on the day freight departs the Company's terminal of origin. Transportation costs and destination delivery costs are recognized concurrently with freight revenues. For both international and domestic revenues, the above methods of revenue recognition approximate recognizing revenues and expenses when a shipment is completed. F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued Property, Plant and Equipment - - ----------------------------- The Company provides depreciation and amortization using the straight-line method over the estimated useful lives of the related assets. Maintenance and repairs are charged to expense as incurred. Estimated Useful Life Buildings and improvements 25-40 years Furniture and fixtures 3-10 years Automotive equipment 3-5 years Terminal and data processing equipment 3-5 years Leasehold improvements Life of lease or estimated useful life, if shorter Goodwill - - -------- Goodwill, which represents the excess of purchase price over the fair value of net assets acquired, is being amortized on a straight-line basis over periods not exceeding 40 years. The Company periodically evaluates the existence of goodwill impairment. When deemed necessary, the Company analyzes the value of goodwill based upon the projected, undiscounted, net cash flows of the related business unit. Impairment would be recognized in operating results if permanent diminution in value were to occur. Cash and Cash Equivalents - - ------------------------- Cash and cash equivalents include cash on hand, demand deposits and short-term investments with original maturities of three months or less. Transportation Payables - - ----------------------- Transportation payables represent the Company's largest trade payables which are mainly due to airlines, steamship and trucking companies. Reclassification - - ---------------- Certain prior year amounts were reclassified to conform with the current year presentation. F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (2) Common Stock Split: ------------------ On June 19, 1997, the Company's Board of Directors declared a three-for-two split of the Company's Common Stock, payable in the form of a stock dividend. The additional shares were distributed on July 25, 1997 to shareholders of record on July 11, 1997. Accordingly, all share and per share information throughout the consolidated financial statements were restated to reflect the split. (3) Earnings Per Share: ------------------ In the fourth quarter of 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("FASB 128"), which establishes the standards for computing and presenting earnings per share. FASB 128 replaces the presentation of primary and fully diluted earnings per share with basic and diluted earnings per share, respectively. Upon adoption of FASB 128, all prior period earnings per share data was restated to conform with the new Statement. Basic earnings per share is computed by dividing net income by the weighted average of the common shares outstanding during the year. Diluted earnings per share is computed by dividing net income by the weighted average of both the common shares and common share equivalents outstanding during the year. For the years 1996 and 1995, diluted earnings per share were calculated assuming the conversion of the convertible subordinated debentures outstanding in those years, and the elimination of the related interest expense, net after tax, which approximated $1.5 million for 1996 and $2.9 million for 1995. The $1.4 million decrease in net interest expense in 1996, as compared with 1995, resulted from the Company's conversion of its 6.0% Convertible Subordinated Debentures on or before July 8, 1996. The basic and diluted earnings per share and number of common share and common share equivalents were as follows:
1997 1996 1995 Earnings per share: Basic ....................................... $ 1.44 $ 1.23 $ 1.07 Diluted ..................................... $ 1.41 $ 1.16 $ .99 Common share and common share equivalents (in thousands) Weighted-average shares outstanding ......... 34,356 31,377 27,065 Basic shares ................................ 34,356 31,377 27,065 Shares issuable with respect to subordinated convertible securities and additional common share equivalents ............................... 742 3,218 5,371 Diluted equivalent shares ................... 35,098 34,595 32,436
F-8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (4) Restricted Funds: ---------------- The restricted funds consist of cash and investments held in trust and committed for the construction of an air cargo facility terminal building in accordance with the Company's bond indenture (See Note 8). Investments are stated at cost, which approximates market, as it is the intent of the Company to hold the investments until maturity. The funds are invested in compliance with the Company's bond indenture which restricts the type, quality and maturity of investments. (5) Regional Operations: ------------------- Revenues, operating profit and identifiable assets are set forth below by geographic area.
Year Ended December 31, 1997 1996 1995 Revenues: U.S.A ............................. $ 612,191 $ 511,759 $ 459,265 Europe ............................ 466,912 410,027 387,164 Asia and Others ................... 466,617 413,661 375,788 Total foreign ................... 933,529 823,688 762,952 Total revenues .................... $1,545,720 $1,335,447 $1,222,217 Operating profit: U.S.A ............................. $ 23,389 $ 17,107 $ 16,636 Europe ............................ 23,295 16,943 11,159 Asia and Others ................... 24,228 24,705 19,612 Total foreign .................... 47,523 41,648 30,771 Total operating profit ............ $ 70,912 $ 58,755 $ 47,407 December 31, 1997 1996 1995 Identifiable assets: U.S.A ............................ $ 279,616 $ 214,959 $ 181,464 Europe ........................... 176,250 171,708 142,121 Asia and Others .................. 163,101 180,671 150,030 Total foreign .................. 339,351 352,379 292,151 Investment in unconsolidated affiliates ..................... 19,174 13,991 13,228 Total identifiable assets ........ $ 638,141 $ 581,329 $ 486,843
At December 31, 1997, net assets of foreign subsidiaries including intercompany accounts deemed to be long-term investments amounted to approximately $138.5 million. F-9 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, 1997 1996 Buildings and improvements ......................... $ 29,555 $ 29,258 Leasehold improvements ............................. 10,620 10,319 Automotive equipment ............................... 4,064 5,149 Furniture and fixtures ............................. 20,345 21,276 Terminal and data processing equipment ............. 47,690 42,202 112,274 108,204 Less: accumulated depreciation and amortization .... (57,235) (53,455) 55,039 54,749 Land ............................................... 5,402 6,363 Property, plant and equipment, net ................. $ 60,441 $ 61,112
(7) Revolving Credit Loan Agreement and Other Short-term Borrowing Facilities: The Company maintains a $75.0 million unsecured Revolving Credit Loan Agreement (the "Agreement"). The Agreement with a syndicated group of U.S. banks has a three year term which expires in June 2000 with the option to extend annually on the anniversary date. The interest charged on borrowings is the bank's prime rate, or London Interbank Offered Rate (LIBOR) plus .25% to .50% per annum. The Company is required to pay an annual facility fee at a variable rate of .12% to .25% on the maximum amount available under the Agreement. Among the various covenants contained in this Agreement, the Company is required to maintain certain ratios and balances as to minimum stockholders' investment, debt to stockholders' investment and fixed charge coverage. The Company is in compliance with all conditions of the Agreement. At December 31, 1997, the Company was utilizing approximately $3.2 million under this facility primarily for letters of credit issued in connection with the Company's insurance programs. A number of the Company's foreign subsidiaries have unsecured short-term overdraft facilities with foreign banks which approximated $22.8 million at December 31, 1997. The largest single facility, extended to the Company's Netherlands subsidiary, was approximately $6.3 million. Borrowings under these facilities generally bear interest at .5% to 2.0% over the foreign banks' equivalent of the prime rate. At December 31, 1997, outstanding borrowings from these facilities were approximately $.3 million. F-10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (8) Long-Term Debt: -------------- Long-term debt consists of the following:
December 31, 1997 1996 Industrial Development Revenue Bonds ............... $ 19,000 $ -- Term Loan Holland-principal paid quarterly through 2004, in local currency, bearing interest at 4.30% .............. 7,190 9,765 Term Loan Singapore - principal paid semi-annually through 2007, in local currency, bearing interest at 4.90% .............. 3,952 5,002 Mortgage Australia - principal paid quarterly through 2002, in local currency, bearing interest at 10.2% payable monthly ................ 1,902 2,841 Mortgage Holland - principal paid quarterly through 2002, in local currency, bearing interest at 8.51% ................................ 938 1,310 Other long-term debt ............................... 680 1,613 33,662 20,531 Less: current portion .............................. (2,654) (3,915) $ 31,008 $ 16,616
The maturities of long-term debt are as follows:
Year Ending Principal December 31, Amount 1998 $ 2,654 1999 2,437 2000 2,236 2001 2,232 2002 and beyond 24,103 $ 33,662
The combined carrying value of the assets collateralized under mortgages was approximately $7.4 million at December 31, 1997. On July 1, 1997, as part of a lease development agreement entered into with the New York City Industrial Development Agency, the Company issued $19.0 million of Industrial Development Revenue Bonds ("Bonds"), due July 1, 2024, to finance in part the development of an air cargo facility terminal building at John F. Kennedy International Airport. The Bonds are fully secured by an irrevocable direct-pay letter of credit issued by a U.S. bank with a termination date of July 16, 2002. The Company is obligated under agreement to reimburse the bank for amounts drawn under the letter of credit. At the direction of the Company, the Bonds may be redeemed in whole or in part prior to maturity date. The Bonds were issued with a variable interest rate based upon a Weekly Rate (as determined by a Remarketing Agent) which is the minimum rate necessary for the Remarketing Agent to sell the Bonds on the effective date of such Weekly Rate at a price equal to 100% of the Bonds' principal amount without regard to accrued interest. The Company may from time to time change the method of determining the interest rate to a daily, weekly, commercial paper or long-term interest rate. F-11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (8) Long-Term Debt - continued: -------------------------- However, in no event shall the interest rate exceed the maximum annual interest rate of 15%. For 1997, the interest rate on the Bonds ranged between 3.3% and 4.1%. The Singapore term loan is a two-tranche, fully secured loan facility for the construction of warehouse and distribution facilities. The first tranche is fully utilized bearing a 4.90% interest rate for the first five years of the loan and thereafter at the rate per annum exceeding by 1.25% the six-month SWAP Offer Rate. At December 31, 1997, the second tranche was unutilized with an available balance of approximately $9.5 million. At December 31, 1997, the fair value of the Company's long-term debt approximated the carrying amount of $33.7 million. Interest expense on long-term debt for the years ended December 31, 1997, 1996 and 1995 was approximately $1.0 million, $3.3 million and $5.5 million, respectively. (9) Common Stock Option Plans: ------------------------- The Company has three fixed stock option plans: the 1984 International Employees' Stock Option Plan ("International Plan") and the 1991 and 1996 Employees Incentive Stock Plans ("Incentive Plans"). Under all three plans, the Company may grant options to its officers and employees at prices equal to or greater than the fair market value of the common stock on the date of the grant. Additionally, under both Incentive Plans, the Company may grant stock appreciation rights (SAR's) to employees at prices equal to or greater than the fair market value of the common stock on the date of the grant. To date, no SAR's have been granted. For all plans, options become exercisable over a four-year vesting period and expire five years after the grant date. Under the combined plans, 3,787,500 shares of the Company's Common Stock were authorized. The Company applies APB 25 and related interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for these plans. Had compensation cost for the Company's option plans been determined based upon the fair value at the grant dates for awards under these plans consistent with the method set forth under FASB Statement 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
1997 1996 1995 Net Income: As reported .......... $ 49,451 $ 38,500 $ 29,027 Pro forma ............ $ 47,574 $ 37,409 $ 28,521 Earnings Per share: Basic - As reported .......... $ 1.44 $ 1.23 $ 1.07 Pro forma ............ $ 1.38 $ 1.19 $ 1.05 Diluted - As reported .......... $ 1.41 $ 1.16 $ .99 Pro forma ............ $ 1.36 $ 1.12 $ .97
F-12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (9) Common Stock Option Plans - continued: ------------------------------------- The fair value of each option granted is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted-average assumptions used for grants in 1997, 1996 and 1995, respectively: expected volatility of 27.0%, 28.0% and 27.0%, risk-free interest rates of 6.2%, 6.3% and 5.8%, dividend yield of .8% for 1997 and 1.2% for 1996 and 1995 and an expected life of four years for all years. A summary of the status of the Company's fixed stock option plans as of December 31, 1997, 1996 and 1995, and the changes during the years ending on those dates is presented below:
1997 1996 1995 Weighted-Average Weighted-Average Weighted-Average Options Shares Exercise Price Shares Exercise Price Shares Exercise Price Options Outstanding Beginning of Year 1,990,450 $ 12.99 2,072,517 $12.32 1,457,921 $ 8.47 Options Granted ... 1,011,375 24.48 132,000 16.49 930,375 15.83 Options Exercised . (497,398) 11.30 (214,067) 8.61 (303,966) 4.79 Options Canceled or Expired .......... (155,157) 15.01 -- -- (11,813) 8.14 Options Outstanding End of Year 2,349,270 $ 18.15 1,990,450 $12.99 2,072,517 $ 12.32 Options Exercisable End of Year 790,590 789,897 438,105 Weighted-Average Fair Value of Options Granted During the Year $7.23 $4.76 $4.35
The following table summarizes information about fixed stock options outstanding at December 31, 1997:
Options Outstanding Options Exercisable Range of Number Weighted-Average Number Exercise Outstanding Years Remaining Weighted-Average Exercisable Weighted-Average Prices at 12/31/97 Contract Life Exercise Price at 12/31/97 Exercise Price $ 8.14- $ 12.33 476,026 .7 $ 9.17 396,999 $ 9.27 $ 15.50- $ 18.24 903,869 2.5 $ 15.92 389,841 $ 15.87 $ 20.42- $ 24.87 969,375 4.5 $ 24.64 3,750 $ 21.92 2,349,270 790,590
F-13 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, 1997 1996 1995 Income before provision for income taxes: U.S ........................... $ 31,767 $ 20,204 $ 17,538 Foreign ....................... 47,355 41,892 30,047 $ 79,122 $ 62,096 $ 47,585 Current provision: U.S. Federal .................. 10,837 6,346 6,056 Foreign ....................... 16,357 14,494 11,803 State ......................... 1,950 1,356 1,484 29,144 22,196 19,343 Deferred provision: U.S. Federal .................. 621 1,368 334 Foreign ....................... (187) (165) (1,139) State ......................... 93 197 20 527 1,400 (785) Total provision for income taxes ..... $ 29,671 $ 23,596 $ 18,558
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, 1997 1996 1995 Net operating losses .......................... $ -- $ -- $ (960) Net change in allowance for doubtful accounts and other reserves ................. (264) 768 (817) Undistributed earnings of unconsolidated affiliates .................................. 1,124 544 453 Accelerated depreciation ...................... 260 294 186 Net unrealized foreign exchange (losses) gains ............................... (593) (206) 353 $ 527 $ 1,400 $ (785)
F-14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (10) Income Taxes - continued: ------------------------ The difference between the actual provision and the amount computed at the statutory U.S. Federal income tax rate of 35.0% for 1997, 1996 and 1995 is attributable to the following:
Years Ended December 31, 1997 1996 1995 Income before provision for income taxes ... $ 79,122 $ 62,096 $ 47,585 Tax provision computed at statutory rate ... $ 27,693 $ 21,734 $ 16,655 Increases (reductions) in tax provision due to: Benefit of operating loss carryforwards . (356) (523) -- Net operating losses for which no tax benefit has been recognized ........... 778 455 931 Goodwill amortization ................... 846 802 625 Other nondeductible expenses ............ 337 879 777 Foreign income taxed at different rates . (1,643) (1,304) (1,083) State income tax, net of Federal tax benefit ............................... 2,043 1,553 1,249 Other ................................... (27) -- (596) Total provision for income taxes ........... $ 29,671 $ 23,596 $ 18,558
For tax reporting purposes, the Company and its subsidiaries had available, dependent upon future taxable income, the following net operating loss carryforwards and foreign tax credits as of December 31, 1997:
Expiring In Net Operating Losses Foreign Tax Credit 1998 $ -- $ 480 2000 136 -- 2001 685 -- 2002 696 -- 2003 268 -- 2004 108 -- No Expiration 15,139 -- $ 17,032 $ 480
The net operating losses include $7.6 million incurred by companies prior to their acquisition by the Company. Future utilization of the $7.6 million in net operating losses will be treated as a reduction of goodwill. The use of any loss carryforwards or foreign tax credits is dependent upon future taxable income in the applicable taxing jurisdiction. F-15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (10) Income Taxes - continued: ------------------------ Accumulated unremitted earnings of foreign subsidiaries, which are intended to be permanently reinvested for continued use in their operations and for which no U.S. income taxes have been provided, aggregated approximately $137.9 million at December 31, 1997. Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities were as follows:
December 31, 1997 1996 Deferred tax assets: Reserve for doubtful accounts and other operating reserves .......................... $ 5,681 $ 5,635 Net operating losses ............................... 7,081 5,447 Foreign tax credits ................................ 480 480 Depreciation ....................................... 707 334 Realized foreign exchange losses ................... 49 -- Total deferred tax assets ....................... 13,998 11,896 Valuation allowance for deferred tax assets ........ (6,121) (4,487) Net deferred tax asset (included in "Deposits and other assets") ................... $ 7,877 $ 7,409 Deferred tax liabilities: Realized foreign exchange gains .................... $ -- $ 544 Depreciation ....................................... 1,194 667 Other .............................................. -- 114 Undistributed earnings of unconsolidated affiliates ......................... 2,462 1,337 Amortization of deductible goodwill ................ 507 507 Total deferred tax liabilities (included in "other liabilities") .............. 4,163 3,169 Net deferred tax (asset) ........................... $ (3,714) $ (4,240)
F-16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (11) Retirement Plans: ---------------- The Company maintains a 401(k) Retirement Plan, covering substantially all U.S. employees not participating in collective bargaining agreements. The Company contributes 3.0% of salary for all eligible participants. In addition, the Company matches, dollar for dollar, employee contributions up to 3.0% of salary, subject to certain limitations imposed by the Internal Revenue Code. The total expense for Company contributions was $3.0 million in 1997, $2.8 million in 1996 and $1.6 million in 1995. Pursuant to collective bargaining agreements with its labor unions, the Company made payments to union-sponsored, multi-employer pension plans, based upon the hours worked by covered employees. Such payments approximated $1.7 million in 1997, $1.4 million in 1996 and $1.2 million for 1995. These amounts were determined by the union contracts, and the Company does not administer or control the funds. In the event of plan terminations or Company withdrawal from the plans, the Company may be liable for a portion of the plans' unfunded vested benefits, if any. In 1994 the Company recorded a pre-tax charge in the amount of $1.0 million for the Company's estimated portion of its unfunded vested liability to one multi- employer pension plan. The Company accrued interest on this amount in 1995 and 1996 and subsequently paid approximately $1.6 million in the third quarter of 1996 to the Plan's trustees in full settlement of the unfunded vested liability. One foreign subsidiary maintains a defined benefit pension plan ("the Plan") which covers substantially all of its employees. The Plan provides benefits based upon years of service and compensation which are in addition to certain retirement benefits accruing to the employees under government regulations. Participating employees contribute 5.0% of their annual compensation to the Plan. The net periodic pension cost for the years ended December 31, 1997, 1996 and 1995 for the Plan are as follows:
December 31, 1997 1996 1995 Service cost ............................ $ 789 $ 733 $ 648 Interest cost ........................... 1,579 1,328 1,176 Actual return on assets - (gains) ....... (4,292) (2,950) (2,040) Net amortization and deferral of actuarial gains ........................ 3,294 1,752 309 Net periodic pension cost ............... $ 1,370 $ 863 $ 93
F-17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (11) Retirement Plans - continued: ---------------------------- The funding of the Plan is actuarially determined. The Plan's assets are invested primarily in equity securities, and contributions were made by the Company to the Plan in 1997, 1996 and 1995. The funded status of the Plan at December 31, 1997 and 1996 is summarized below:
December 31, 1997 1996 Actuarial present value of benefit obligation: Vested and non-vested benefits ................... $ 9,159 $ 8,416 Accumulated benefit obligation ................... $ 9,159 $ 8,416 Effect of anticipated salary increases ........... 10,893 9,361 Projected benefit obligation ..................... 20,052 17,777 Plan assets at fair market value ................... 26,520 22,337 Unrecognized net gain .............................. $ 6,468 $ 4,560
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, 1997 1996 1995 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, 1997, 1996 and 1995, pension expense for these plans approximated $5.0 million, $4.7 million and $4.0 million, respectively. The Company does not sponsor any material retirement benefits other than pensions. Post- employment benefits other than pensions are insignificant. F-18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (12) Commitments and Contingencies: ----------------------------- The Company is obligated under long-term operating lease agreements for computer equipment, terminal facilities and automotive equipment. At December 31, 1997, the minimum annual rentals under these long-term leases were as follows:
Year Ending December 31, Amount 1998 $ 28,266 1999 26,276 2000 20,711 2001 15,864 2002 10,166 2003 and thereafter 36,715
For the years ended December 31, 1997, 1996 and 1995, rental expense for assets leased under long-term operating lease agreements approximated $23.3 million, $23.1 million and $17.2 million, respectively. The Company is involved in various legal proceedings generally incidental to its business. While the result of any litigation contains an element of uncertainty, the Company presently believes that the outcome of any known pending or threatened legal proceeding or claim, or all of them combined, will not have a material adverse effect on its results of operations or consolidated financial position. (13) Foreign Currency Translation: ---------------------------- The Company purchases foreign currency forward exchange contracts to hedge its foreign currency exposures associated with investments in certain foreign operations and certain intercompany transactions. The Company does not use these contracts for trading purposes. At December 31, 1997, the carrying value of these contracts represents approximately $1.3 million of net unrealized gains, which was determined from the fair valuation of such contracts, and is included in other current assets in the accompanying balance sheet. The aggregate notional amount of these contracts, which will mature at various dates in 1998, was $14.7 million at December 31, 1997. Gains or losses resulting from forward exchange contracts purchased to hedge investments in certain foreign subsidiaries are excluded from the statement of operations and are recorded, net of tax, directly to stockholders' investment. In 1997, the Company recognized a $1.3 million gain on these contracts compared with a $1.1 million loss in 1996. The Company recognizes, in foreign exchange gains, net, gains and losses on forward exchange contracts purchased to hedge certain intercompany transactions. In 1997, the Company recognized a $1.2 million pre-tax gain on these contracts. Additionally, both gains and losses from other foreign currency transactions and translation gains and losses of subsidiaries operating in highly inflationary economies are recognized in Other, net (See Note 14 to the Consolidated Financial Statements). F-19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued The Company operates in many countries throughout the world, resulting in significant sums of money to be collected in various local currencies. There are risks from fluctuations in the value of these currencies, devaluations, or other actions and events which may result in the Company carrying assets in foreign currencies that are not easily convertible, or not convertible at all, into U.S. dollars. These foreign currency assets are included in the Company's net investment in its foreign operations. From time to time and when feasible and cost effective, the Company seeks to minimize the effect of fluctuations in the values of foreign currencies on its financial position through the purchase of foreign currency forward exchange contracts. (14) Other, net: ---------- Other, net consists of the following:
Year Ended December 31, 1997 1996 1995 Equity in earnings of unconsolidated affiliates ........................... $ 3,743 $ 2,578 $ 2,148 Gain on sale of affiliate .............. 1,876 -- -- Foreign exchange gains ................. 1,265 1,876 1,144 (Losses) gains on sales of assets ...... (34) 164 208 Other .................................. -- -- 22 $ 6,850 $ 4,618 $ 3,522
(15) Supplemental Disclosures of Cash Flow Information: ------------------------------------------------- Interest and income taxes paid were as follows:
Year Ended December 31, 1997 1996 1995 Interest ....................... $ 1,182 $ 3,020 $ 5,493 Income Taxes ................... $ 28,270 $ 17,064 $ 17,647
Non cash investing and financing activities: On July 8, 1996, as a result of Debenture conversions, the Company issued 4,936,134 shares of its Common Stock valued at approximately $74.4 million. In June 1995, as part of the Radix acquisition, the Company issued 1,431,912 shares of Common Stock valued at approximately $23.3 million. F-20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (16) Quarterly Revenues and Earnings (Unaudited): ------------------------------------------
Quarter 1st 2nd 3rd 4th Year Ended December 31, 1997 Revenues ...................... $351,155 $386,591 $395,405 $412,569 Operating profit .............. $ 12,287 $ 19,411 $ 19,738 $ 19,476 Net income .................... $ 8,539 $ 13,042 $ 13,363 $ 14,507 Income per common share: Basic ....................... $ .25 $ .38 $ .39 $ .42 Diluted ..................... $ .25 $ .37 $ .38 $ .41 Year Ended December 31, 1996 Revenues ...................... $294,787 $320,660 $340,928 $379,072 Operating profit .............. $ 10,103 $ 15,678 $ 15,540 $ 17,434 Net income .................... $ 6,147 $ 9,709 $ 10,626 $ 12,018 Income per common share: Basic ....................... $ .22 $ .33 $ .32 $ .35 Diluted ..................... $ .21 $ .30 $ .31 $ .35
F-21
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Dollars in thousands) Net Balance at Write-offs Balance at Beginning Charges Charged to End of Period to Income Other(1) Reserves of Period Year ended December 31, 1997: Allowance for doubtful accounts .................. $4,721 $1,906 $ -- $2,403 $4,224 Year ended December 31, 1996: Allowance for doubtful accounts .................. $4,695 $1,124 $ 320 $1,418 $4,721 Year ended December 31, 1995: Allowance for doubtful accounts .................. $3,290 $2,254 $ 545 $1,394 $4,695
(1) Addition to the allowance for doubtful accounts is attributable to business acquisitions which the Company made during the year. F-22 EXHIBIT INDEX Exhibit Sequential No. Description Page No. 3 Certificate of Incorporation 51 10 Employment Agreement 55 21 Subsidiaries of the Registrant 57 23 Consent of Independent Public Accountants 58 27 Financial Data Schedule 59 EXHIBIT 3 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION Air Express International Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the Board of Directors of Air Express International Corporation, by the unanimous vote of its members, duly adopted a resolution setting forth a proposed amendment to the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a meeting of the shareholders of said Corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: RESOLVED, that a proposal shall be presented for vote by the shareholders of the corporation at the 1992 Annual Meeting on the Board of Directors' recommendation that the Company's Certificate of Incorporation be amended to provide for an increase in the number of shares of stock which the Company shall have authority to issue from eleven million (11,000,000) shares to forty- one million (41,000,000) shares of which forty million (40,000,000) shares shall be Common Stock with a par value of one cent ($.01) per share and one million (1,000,000) shares which shall be Preferred Stock with a par value of one dollar ($1.00) per share. SECOND: That thereafter, pursuant to the foregoing resolution of its Board of Directors, a meeting of the shareholders of said corporation was duly called and held on June 25, 1992 upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, at which meeting the necessary number of shares as required by statute were voted in favor of the amendment to the Certificate of Incorporation. THIRD: That said amendment to the Certificate of Incorporation was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said Air Express International Corporation has caused this certificate to be signed by Dennis M. Dolan, its Vice President, and attested by Daniel J. McCauley, its Secretary, this 29th day of June, 1992. AIR EXPRESS INTERNATIONAL CORPORATION By:_____________________________ Dennis M. Dolan, Vice President ATTEST: By:____________________________ Daniel J. McCauley, Secretary CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION *********** Air Express International Corporation, a corporation organized and existing under ane by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the Board of Directors of Air Express International Corporation, by the unanimous written consent of its members, filed with the minutes of the board, duly adopted resolutions setting forth a proposed amendment to the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of this corporation be amended by adding Article Ninth thereof so that as amended, said Article shall be and read as follows: "No Director shall have any personal liability to the Company or its shareholders for any monetary damages for breach of fiduciary duty as a Director, except that this Article shall not eliminate or limit the liability of each Director (i) for any breach of such Director's duty of loyalty to the Company or its shareholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which such Director derived an improper personal benefit. This Article shall not eliminate or limit the liability of such Director for any act or omission occurring prior to the date when this Article becomes effective." SECOND: That thereafter, pursuant to resolution of its Board of Directors, a meeting of the shareholders of said corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, at which meeting the necessary number of shares as required by stature were voted in favor of the amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said Air Express International Corporation has caused this certificate to be signed by Walter L. McMaster, its Vice President, and attested by David L. Dephtereos, its Secretary, this 30th day of June, 1987. AIR EXPRESS INTERNATIONAL CORPORATION By: ___________________________ Walter L. McMaster Vice President ATTEST: By: ___________________ David L. Dephtereos Secretary CERTIFICATE OF MERGER OF AIR EXPRESS INTERNATIONAL CORPORATION AND AIR EXPRESS INTERNATIONAL MERGING CORPORATION (Pursuant to Section 252(c) of the General Corporation Law of the State of Delaware) AIR EXPRESS INTERNATIONAL CORPORATION, a corporation organized and existing under the laws of the State of Illinois and AIR EXPRESS INTERNATIONAL MERGING CORPORATION, a corporation organized and existing under the laws of the State of Delaware, DO HEREBY CERTIFY: FIRST: That Air Express International Corporation was incorporated on September 21, 1946, pursuant to the Business corporation Act of the State of Illinois (AEI-Illinois) and Air Express International Merging Corporation was incorporated on October 2, 1981, pursuant to the General Corporation Law of the State of Delaware (AEI-Delaware). SECOND: Pursuant to the requirements of Section 252(c) of the Delaware General Corporation Law and Section 69a of the Illinois Business Corporation Act, an agreement of merger (the "Agreement of Merger") between AEI-Illinois and AEI-Delaware has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations. THIRD: The name of the surviving corporation shall be AIR EXPRESS INTERNATIONAL MERGING CORPORATION, which shall change its name to AIR EXPRESS INTERNATIONAL CORPORATION effective upon filing of the Certificate of Merger. FOURTH: The Certificate of Incorporation of the surviving corporation shall be the Certificate of Incorporation of AIR EXPRESS INTERNATIONAL MERGING CORPORATION with no amendments or changes other than the change of name set forth in Article THIRD hereof. FIFTH: The executed Agreement of Merger is on file at the principal place of business of AEI-Delaware, the surviving corporation, at 151 Harvard Avenue, Stamford, Connecticut 06902. SIXTH: A copy of the Agreement of Merger was provided to each stockholder of AEI- Illinois as Annex I to the Proxy Statement of AEI-Illinois dated October 21, 1981 which was mailed to each stockholder of record on October 22, 1981 and an additional copy will be provided without charge to any stockholder of either constituent corporation who so requests. SEVENTH: The authorized Capital Stock of-AEI Illinois is 5,000,000 shares of Common Stock, par value $.Ol per share, and 10,000 shares of $6.00 cumulative convertible preferred stock, par value $1.00 per share. EIGHTH: The Merger shall be effective on the 31st day of December, 1981. IN WITNESS WHEREOF, we have signed this certificate on the 23 day of December, 1981. AIR EXPRESS INTERNATIONAL CORPORATION, an Illinois corporation Attest: __________________________ By:________________________ Secretary President AIR EXPRESS INTERNATIONAL MERGING CORPORATION, a Delaware corporation Attest: __________________________ By:___________________________ Secretary President Exhibit 10 EMPLOYMENT AGREEMENT Agreement made as of July 1, 1997, by and between AIR EXPRESS INTERNATIONAL CORPORATION, a Delaware corporation with its offices at 120 Tokeneke Road, Darien, Connecticut 06820 ("AEI") and HENDRIK J. HARTONG, JR. of Two Soundview Drive, Greenwich, Connecticut 06830 ("HJH"). The parties agree as follows: 1. That HJH is hereby employed by AEI as the Chairman of the Board of Directors of AEI to: - Serve as Chairman of the Meetings of the Board of Directors of AEI. - Serve as Chairman of the Meetings of the Shareholders of AEI. - Serve as Chairman of the Executive Committee of the Board of Directors of AEI. In addition, HJH shall provide such evaluation and due diligence of acquisition candidates and investor relations services as shall be requested by the Chief Executive Officer of AEI. 2. This Agreement shall commence on July 1, 1997 and end on June 30, 2002. The Agreement may be terminated at any time by the Board of Directors of AEI or by mutual agreement of HJH and the Board of Directors of AEI. In either event, on termination of this Agreement, HJH will be paid a sum equal to the annual salary payable by AEI to HJH hereunder for the remaining term of this Agreement. 3. If there is a "change in control" of AEI, as is defined in this Agreement, either party will have the right to terminate this Agreement at any time after the change in control, and in the event of such termination, HJH will be paid a sum equal to the annual salary payable by AEI to HJH hereunder for the remaining term of this Agreement. "Change in control" is defined to have occurred when: a) more than 40 percent of AEI's outstanding common stock (or the equivalent in voting power of any class or classes of outstanding securities of AEI ordinarily entitled to vote in the election of directors) shall be beneficially held or acquired by any corporation or person or group; or (b) there is a sale or other disposition of all or substantially all of the assets or business of AEI. 4. HJH will receive an annual salary of $150,000.00 and shall be eligible to participate in the AEI medical/dental/life insurance and 401(k) benefit plans. 5. AEI will continue to provide life insurance coverage to HJH under General American Life Insurance Policy Number 6127139 during the term of this Agreement. 6. This Agreement shall be governed by the laws of the State of Connecticut and constitutes the only agreement between the parties relating to the employment of HJH by AEI, and supersedes and terminates all previous consulting, employment and severance agreements between HJH and AEI. AIR EXPRESS INTERNATIONAL CORPORATION Attest: By: _______________________________ Guenter Rohrmann, President ______________________________ and Chief Executive Officer Daniel J. McCauley, Secretary _______________________________ HENDRIK J. HARTONG, JR. EXHIBIT 21 AIR EXPRESS INTERNATIONAL CORPORATION SUBSIDIARIES OF THE REGISTRANT AT DECEMBER 31, 1997 Percent Jurisdiction of Shares of Owned by Name Incorporation Direct Parent Air Express International USA, Inc. Delaware 100% Radix Ventures Inc. Delaware 100% Surface Freight Corporation Florida 100% Votainer USA Inc. Delaware 100% Luskcom Group Inc. Louisiana 100% Air Express International (Australia) Australia 100% Air Express International (Belgium) N.V. Belgium 100% Air Express International do Brazil Ltda. S.C. Brazil 100% Air Express International (Canada) Limited Canada 100% Air Express International (Fiji) Limited Fiji 100% Air Express International Finland Oy Finland 90% Air Express International France S.A. France 100% Air Express International GmbH Germany 100% Air Express International (H.K.) Limited Hong Kong 100% Air Express International (Ireland) Limited Ireland 100% Air Express International Luxembourg Luxembourg 100% Air Express International Holding B.V. The Netherlands 100% Air Express International Limited New Zealand 100% AEI (Norway) A.S. Norway 75% Air Express International (PNG) Pty. Limited Papua New Guinea 100% Air Express International Corporation Del Peru S.A. Peru 100% Air Express International Singapore (Pte.) Limited Singapore 100% Air Express International (S.A.) Pty. Limited South Africa 100% AEI Ltd. Switzerland 100% Air Express International Limited Switzerland 100% AEIC Air Cargo, Inc. Taiwan 100% Air Express International (U.K.) Ltd. United Kingdom 100% Air Express International (PVT) Limited Zimbabwe 100% EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report, dated March 20, 1998, included in this Form 10-K, into the Company's previously filed Registration Statement File Nos. 33-10799, 33-52955, 33-63035, 333-18853, 333-6999 and 333-25629. ARTHUR ANDERSEN LLP New York, New York March 20, 1998 EX-27 2 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1000 12-MOS RESTATED RESTATED DEC-31-1997 DEC-31-1996 DEC-31-1995 DEC-31-1997 DEC-31-1996 DEC-31-1995 67,576 46,516 54,463 0 0 0 370,383 351,044 272,984 4,224 4,721 4,695 0 0 0 442,079 399,134 327,506 117,676 114,567 97,391 57,235 53,455 43,242 638,141 581,329 486,843 306,898 298,898 250,608 31,008 16,616 82,762 347 342 279 0 0 0 0 0 0 323,561 275,049 160,443 638,141 581,329 486,843 0 0 0 1,545,720 1,335,447 1,222,217 0 0 0 1,057,499 903,016 855,568 266,897 234,636 196,639 1,906 1,124 2,254 1,403 3,804 5,999 79,122 62,096 47,585 29,671 23,596 18,558 49,451 38,500 29,027 0 0 0 0 0 0 0 0 0 49,451 38,500 29,027 1.44 1.23 1.07 1.41 1.16 .99
-----END PRIVACY-ENHANCED MESSAGE-----