SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 30, 1995
Commission file number: 1-8306
AIR EXPRESS INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-2074327
(State or Other of Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
120 Tokeneke Road, Darien, Connecticut 06820
(203) 655-7900
(Address of, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
NONE
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 3 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date (applicable only to corporate
registrants).
The number of shares of common stock outstanding as of August 9, 1995 was
18,493,818. (Net of 2,189,330 Treasury Shares)
AIR EXPRESS INTERNATIONAL CORPORATION
June 1995 Form 10-Q Quarterly Report
Table of Contents
Part I - Financial Information
Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as at
June 30, 1995 and December 31, 1994 2
Condensed Consolidated Statements of Operations -
three months and six months ended June 30, 1995
and 1994 3
Consolidated Statements of Cash Flows -
six months ended June 30, 1995 and 1994 4
Notes to Condensed Consolidated Financial
Statements 5
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II - Other Information
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
Page 2
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
06/30/95 12/31/94
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents .............................. $ 56,379 $ 44,168
Accounts receivable, (less allowance for
doubtful accounts of $3,641 and $3,290) ............... 246,870 206,012
Other current assets ................................... 6,075 2,938
Total current assets ................................ 309,324 253,118
Investment in unconsolidated affiliates .................. 11,465 9,370
Marketable securities .................................... -- 19,961
Property, plant and equipment (less accumulated
depreciation and amortization of $40,896
and $37,057) ........................................... 51,989 39,599
Deposits and other assets ................................ 8,446 6,957
Goodwill (less accumulated amortization
of $7,309 and $6,403) ................................. 78,357 51,929
Total assets ........................................ $ 459,581 $ 380,934
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current portion of long-term debt ...................... $ 2,575 $ 2,029
Bank overdrafts payable ................................ 243 1,399
Transportation payables ................................ 127,356 101,657
Accounts payable ....................................... 44,460 34,087
Accrued liabilities .................................... 49,021 43,988
Income taxes payable ................................... 11,507 10,991
Total current liabilities ........................... 235,162 194,151
Long-term debt ......................................... 85,735 83,992
Other liabilities ...................................... 3,403 3,441
Total liabilities ................................... 324,300 281,584
Stockholders' Investment:
Capital stock-
Preferred (authorized 1,000,000 shares,
none outstanding) ..................................... -- --
Common, $.01 par value (authorized 40,000,000
shares, issued 20,669,148 and 19,620,526 shares)....... 207 196
Capital surplus ........................................ 66,530 41,998
Cumulative translation adjustments ..................... (10,988) (11,442)
Retained earnings ...................................... 119,646 108,600
175,395 139,352
Less: 2,189,330 and 2,184,208 shares of treasury
stock, at cost ......................................... (40,114) (40,002)
Total stockholders' investment ......................... 135,281 99,350
Total liabilities and stockholders' investment ......... $ 459,581 $ 380,934
The accompanying notes are an integral part
of these financial statements.
Page 3
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except
per share data)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
Revenues ....................... $ 304,354 $ 237,999 $ 588,427 $ 442,809
Operating expenses:
Transportation ................ 214,441 167,140 417,700 311,024
Terminal ...................... 47,902 36,667 91,529 70,129
Selling, general and
administrative ............... 28,963 23,975 57,565 45,383
Operating income ............... 13,048 10,217 21,633 16,273
Other income (expense):
Interest expense, net ......... (800) (793) (1,467) (1,712)
Other, net .................. 226 565 612 972
(574) (228) (855) (740)
Income before provision
for income taxes .............. 12,474 9,989 20,778 15,533
Provision for income taxes ..... 4,917 3,840 8,108 5,902
Net income ..................... $ 7,557 $ 6,149 $ 12,670 $ 9,631
Income per common share
Primary ..................... $ .42 $ .35 $ .70 $ .55
Fully diluted ............... $ .39 $ .33 $ .66 $ .53
Weighted average number
of common shares (000):
Primary ..................... 18,144 17,564 17,991 17,528
Fully diluted ............... 21,436 20,864 21,307 20,841
The accompanying notes are an integral part
of these financial statements.
Page 4
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(Unaudited)
(Dollars in thousands)
1995 1994
Cash flows from operating activities:
Net income ............................................. $ 12,670 $ 9,631
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ....................... 3,446 2,811
Amortization of goodwill ............................ 871 605
Deferred income taxes ............................... (560) (141)
Undistributed (earnings) losses of affiliates ....... (624) (357)
Gain on sales of assets, net ........................ (143) (12)
Other, net .......................................... 1,215 (16)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable, net ..... (7,861) (1,836)
Decrease (increase) in other current assets ......... (2,425) (404)
Increase (decrease) in transportation payables ...... (4,026) 2,413
Increase (decrease) in accounts payable ............. 7,402 (5,162)
Increase (decrease) in accrued liabilities .......... (5,013) 1,320
Increase (decrease) in income taxes payable ......... 1,002 77
Increase (decrease) in other liabilities ............ (171) --
Total adjustments .................................. (6,887) (702)
Net cash provided by operating activities ........... 5,783 8,929
Cash flows from investing activities:
Business acquisitions, net of cash acquired ............ 74 (3,946)
Purchase of short-term investments ..................... -- (14,981)
Sale of marketable securities .......................... 19,981 --
Gains (losses) from hedging activities ................. (1,043) (572)
Proceeds from sales of assets .......................... 346 189
Capital expenditures ................................... (12,787) (4,504)
Investment in unconsolidated affiliates ................ (196) --
Net cash (used) provided in investing activities .... 6,375 (23,814)
Cash flows from financing activities:
Net borrowings (repayments) in bank overdrafts
payable .............................................. (1,251) 856
Additions to long-term debt ............................ 3,110 1,070
Payment of long-term debt .............................. (1,360) (771)
Issuance of common stock ............................... 622 491
Payment of cash dividends .............................. (1,398) (1,156)
Purchase of treasury stock ............................. (112) (332)
Net cash (used) provided in financing activities .... (389) 158
Effect of foreign currency exchange rates on cash ........ 442 681
Net increase (decrease) in cash and cash equivalents ..... 12,211 (14,046)
Cash and cash equivalents at beginning of period ......... 44,168 55,063
Cash and cash equivalents at end of period ............... $ 56,379 $ 41,017
The accompanying notes are an integral part
of these financial statements.
Page 5
AIR EXPRESS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. The consolidated balance sheet at June 30, 1995, the consolidated
statements of operations for the three-month and six-month periods ended
June 30, 1995 and 1994, and the consolidated statements of cash flows for
the six-month periods ended June 30, 1995 and 1994 have been prepared by
the Company without audit. In the opinion of management, all adjustments
necessary to present fairly the financial position, results of operations,
and cash flows for the interim periods have been made. Certain items in the
June 30, 1994 financial statements have been reclassified to conform to the
classification of June 30, 1995.
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted
accounting principles, have been condensed or omitted. Accordingly, these
condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in
the Company's annual report to stockholders for the year ended December 31,
1994. The results of operations for the three and six month periods ended
June 30, 1995 are not necessarily indicative of the results of operations
expected for the full year ending December 31, 1995.
B. Investments in equity affiliates are recorded using the equity method.
Consolidated net income reflects joint venture profits of $679,000 and
$803,000, respectively, for the quarter and six months ended June 30, 1995,
compared with profits of $361,000 and $411,000, for the quarter and six
months ended June 30, 1994.
C. Interest expense, net is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
Interest expense ........... $(1,504) $(1,420) $(2,954) $(2,840)
Interest income ............ 704 627 1,487 1,128
Interest expense, net ...... $ (800) $ (793) $(1,467) $(1,712)
Page 6
D. Other income (expense) is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
Foreign exchange
gains, net ........ $ 118 $ 572 $ 435 $ 960
Other, net .......... 108 (7) 177 12
$ 226 $ 565 $ 612 $ 972
E. Acquisitions:
On June 8, 1995, the Company acquired Radix Ventures, Inc. (Radix) for $.5
million in cash and 979,887 of the Company's common shares valued at
approximately $23.9 million. Radix, through its 23 U.S. offices, is a
leading provider of customs brokerage services in the United States.
Additionally, Radix provides both airfreight and ocean freight forwarding
services. For its fiscal year ended July 31, 1994, Radix generated
approximately $65 million in revenues. The acquisition has been accounted
for as a purchase. Accordingly, the purchase price has been allocated on
the basis of the estimated fair market value of the assets acquired and the
liabilities assumed. This allocation has resulted in goodwill of
approximately $25.0 million. Radix's results of operations are included in
the consolidated statement of income from the acquisition date forward.
The following unaudited pro forma summary combines the results of the
Company and Radix's results of operations as if the acquisition occurred as
of January 1, 1994. The pro forma information is provided for informational
purposes only. It is based upon historical information and does not
necessarily reflect the actual results that would have occurred nor is it
necessarily indicative of the future results of operations.
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
Revenues ............. $317,629 $255,208 $620,463 $477,462
Net income ........... $ 7,628 $ 6,191 $ 12,831 $ 9,539
Income per share:
Primary ............ $ .40 $ .33 $ .68 $ .52
Fully diluted ...... $ .37 $ .32 $ .64 $ .50
Page 7
F. Supplemental disclosures of cash flow information:
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
Interest and income tax paid:
Interest ................... $ 272 $ 155 $ 2,709 $ 2,572
Income taxes ............... 4,591 2,984 7,447 6,049
$ 4,863 $ 3,139 $10,156 $ 8,621
Non cash investing and financing activities:
In June 1995, as part of the Radix acquisition, the Company issued 979,887
of its common shares valued at approximately $23.9 million. See Note E.
G. Marketable Securities:
During the second quarter of 1995, the Company sold, for a marginal gain,
all of its marketable securities for approximately $19.8 million which
approximated amortized cost. The proceeds from the sale were reinvested in
financial instruments with original maturities of three months or less and
were classified as cash and cash equivalents. The marketable securities
were sold in order to take advantage of the favorable decline in long term
interest rates which occurred during the first six months of 1995.
Page 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
The following table shows the consolidated revenues and gross profit
attributable to the Company's airfreight and ocean freight activities and the
Company's consolidated expenses for the quarter and six months ended June 30,
1995 and 1994. Revenues from customs brokerage and other related services are
included in airfreight revenues. Gross profit is determined by deducting
transportation expenses from revenues.
Three Months Ended Six Months Ended
Ended June 30, Ended June 30,
1995 1994 1995 1994
Revenues:
Airfreight ......................... $264,081 $212,150 $514,434 $394,806
Ocean Freight ...................... 40,273 25,849 73,993 48,003
Total ............................ $304,354 $237,999 $588,427 $442,809
Gross Profit:
Airfreight ......................... $ 80,137 $ 64,979 $152,640 $120,663
Ocean freight ...................... 9,776 5,880 18,087 11,122
Total ............................ $ 89,913 $ 70,859 $170,727 $131,785
Expenses:
Terminal ......................... $ 47,902 $ 36,667 $ 91,529 $ 70,129
Selling, general
and administrative ............. 28,963 23,975 57,565 45,383
Total ............................ $ 76,865 $ 60,642 $149,094 $115,512
Operating Income ................... $ 13,048 $ 10,217 $ 21,633 $ 16,273
Consolidated revenues for the second quarter and six months ended June 30,
1995 increased 27.9% to $304.4 million and 32.9% to $588.4 million,
respectively, over the comparable periods in 1994. Airfreight revenues for the
second quarter and six months increased 24.5% to $264.1 million and 30.3% to
$514.4 million, respectively. The increase in airfreight revenues for both the
quarter and six months was due to increases in shipments and the total weight of
cargo shipped. For the quarter, shipments increased 8.8% and the weight of cargo
shipped increased 22.0% over the second quarter of 1994. For the six month
period, shipments increased 10.0% and the weight of cargo shipped increased
27.0% over the first six months of 1994. Revenues from ocean freight operations
for the second quarter and six months increased 55.8% to $40.3 million and 54.1%
to $74.0 million, respectively. The increase in ocean freight revenues for the
quarter and six months was due to increased shipping volumes. The higher
shipping volumes were attributable to increased economic activity and the
inclusion of shipping volumes of companies acquired subsequent to the second
quarter of 1994.
Page 9
Gross profit (revenues less transportation expense) for the second quarter
of 1995 increased $19.1 million or 26.9% over the comparable 1994 period to
$89.9 million. For the six months, gross profit increased $38.9 million or 29.5%
over the comparable 1994 period to $170.7 million. Gross margin (gross profit as
a percentage of revenues) decreased 1.0% to 29.5% for the quarter, and 2.7% to
29.0% for the six months when compared to the comparable periods in 1994. The
decrease in gross margin was largely due to the impact of greater weight per
shipment which resulted in lower selling prices per unit of weight, and
competitive pricing pressures. Gross profit from airfreight operations for the
second quarter of 1995 increased $15.2 million or 23.3% over the comparable 1994
period to $80.1 million. For the six months, gross profit increased $32.0
million or 26.5% over the comparable 1994 period to $152.6 million. Gross profit
from ocean freight operations for the second quarter of 1995 increased $3.9
million or 66.3% over the comparable 1994 period to $9.8 million. For the six
months, ocean freight gross profit increased $7.0 million or 62.6% over the
comparable 1994 period to $18.1 million. The higher gross profit for both
airfreight and ocean freight operations was attributable to increased shipping
volumes.
Internal operating expenses (terminal, selling and general and
administrative) increased $16.2 million or 26.8% for the quarter and $33.6
million or 29.1% for the six month period from the comparable periods in 1994.
These increases were mainly attributable to additional expenses incurred in
connection with greater shipping volumes and to the inclusion of expenses of
companies acquired subsequent to the second quarter of 1994. As a percentage of
revenues, internal operating expenses were 25.3% for the quarter and 25.3% for
the six months in 1995 as compared to 25.5% and 26.1%, respectively, for the
comparable periods in 1994. The improvement in both periods resulted from the
greater efficiencies associated with the increase in shipping volumes.
Operating income for the second quarter of 1995 increased $2.8 million or
27.7% over the second quarter of 1994. For the six months, operating income
increased $5.4 million or 32.9% over 1994. The increases in operating income for
the quarter and six months ended June 30, 1995 were negatively impacted by
approximately $2.1 million and $2.8 million, respectively, due to losses
attributable to operations in Germany, South Africa and New Zealand. Turnaround
strategies for these operations have been developed and are being implemented.
Interest expense, net was marginally higher for the second quarter 1995
compared to the comparable period in 1994. For the first six months of 1995,
interest expense, net decreased approximately $.2 million. The decrease was the
result of the higher rate of interest earned by the Company on its invested
funds.
The effective income tax rate for the quarter and six months ended June 30,
1995 was 39.4% and 39.0%, respectively, an increase of approximately 1.0% over
both the second quarter and first six months of 1994. The 1% increase was mainly
due to losses incurred by certain foreign subsidiaries for which there were no
tax benefits available.
Page 10
Liquidity and Capital Resources
At June 30, 1995, the Company's working capital increased to $74.2 million
from $59.0 million at December 31, 1994. The increase was attributable to the
sale of marketable securities and the subsequent reclassification of the sale
proceeds into cash and cash equivalents. See Note G.
Capital expenditures for the six months ended June 30, 1995 were $12.7
million compared to $4.5 million for the first six months of 1994. This increase
was mainly due to the construction costs for the Company's new warehouse and
distribution facility in Singapore. This facility is scheduled for completion
during the third quarter of 1995.
At June 30, 1995, the Company had available for future borrowings
approximately $18.4 million of its $20.0 million revolving credit facility. The
Company utilized approximately $1.6 million under this facility for letters of
credit issued in connection with its insurance programs. Additionally, the
Company's foreign subsidiaries maintained approximately $13.5 million of
overdraft facilities with various foreign banks of which $.2 million was
utilized.
The Company announced at its Annual Meeting of Shareholders that its Board
of Directors declared a quarterly cash dividend of five cents ($.05) per share,
payable on July 28, 1995 to shareholders of record on July 7, 1995. The
quarterly dividend was increased twenty-five percent (25%) over the existing
dividend paid by the Company. This increase represents the fourth time the Board
of Directors has increased the dividend since the Company reinstated the payment
of dividends in 1991.
Management believes that the Company's available cash and sources of
credit, together with expected future cash generated from operations, will be
sufficient to satisfy its anticipated needs for working capital, capital
expenditures, and future business acquisitions.
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings
The Company believes that there are no legal proceedings, other than ordinary
routine litigation incidental to the business of the Company, to which the
Company or any of its subsidiaries is a party. Management is of the opinion that
the ultimate outcome of existing legal proceedings, if adverse, would not have a
material effect on the Company's consolidated financial position.
Page 11
Item 6. - Exhibits and Reports on Form 8-K
a) Exhibits:
Exhibit 2 - Agreement and Plan of Reorganization.
Exhibit 11 - Computation of Earnings per Common Share.
Exhibit 27 - Financial Data Schedule.
b) Reports on Form 8-K:
A report on Form 8-K dated June 8, 1995 was filed by the Company
reporting the acquisition of Radix.
A report on Form 8-K/A (Amendment No.1) dated August 8, 1995 was filed
by the Company amending the Company's report on Form 8-K dated June 8,
1995. The amendment was filed to include the pro forma condensed
consolidated statements of operations for both the year ended December
31, 1994 and for the three months ended March 31, 1995 as well as the
pro forma condensed consolidated balance sheet as of March 31, 1995.
Page 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Air Express International Corporation
(Registrant)
Date: August 11, 1995 /s/ Dennis M. Dolan
Dennis M. Dolan
Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 11, 1995 /s/ Walter L. McMaster
Walter L. McMaster
Vice President - Controller
(Principal Accounting Officer)