<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 333-64513
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 65-0822351
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1815 GRIFFIN ROAD, SUITE #300, DANIA, FL 33004-2252
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (954) 926-2000
Not Applicable
(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 Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $0.01 per share: 100 shares outstanding at August 5,
1999.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
June 30, March 31,
1999 1999
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,690 $ 3,311
Accounts receivable, net of allowance of $570 and
$567 respectively 22,018 16,421
Receivable from Viad 2,125 2,125
Prepaid expenses 1,678 650
Spare parts and supplies 2,394 2,095
--------- ---------
Total current assets 29,905 24,602
Property, plant and equipment, net of accumulated
depreciation of $8,001 and $6,176 respectively 49,687 46,889
Goodwill, net of accumulated amortization of $3,199
and $2,545 respectively 51,709 48,668
Deferred financing costs, net of accumulated
amortization of $490 and $337 respectively 3,123 3,205
Investments in and advances to joint venture 246 224
Other assets 305 166
--------- ---------
Total assets $ 134,975 $ 123,754
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 5,080 $ 5,082
Accrued expenses 14,819 12,850
Customer deposits 3,724 3,488
Current portion of notes payable 1,444 57
--------- ---------
Total current liabilities 25,067 21,477
Notes payable 11,975 2,927
Long-term debt 80,000 80,000
--------- ---------
Total liabilities 117,042 104,404
Commitments
Stockholder's equity:
Common stock, $0.01 par value; 1,000 shares
authorized; 100 shares issued and outstanding -- --
Paid-in capital 24,100 24,100
Accumulated deficit (6,182) (4,770)
Accumulated other comprehensive income 15 20
--------- ---------
Total stockholder's equity 17,933 19,350
--------- ---------
Total liabilities and stockholder's equity $ 134,975 $ 123,754
========= =========
</TABLE>
SEE ACCOMPANYING NOTES
2
<PAGE> 3
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
--------------------------
1999 1998
----------- ---------
<S> <C> <C>
Revenues $ 32,581 $ 30,249
Cost and expenses:
Operating expenses 26,430 24,334
Selling, general and administrative 2,560 2,047
Amortization 656 603
Depreciation 1,800 1,560
-------- --------
Total cost and expenses 31,446 28,544
-------- --------
Operating income 1,135 1,705
Other income (expense), net 21 (70)
Interest income 16 70
Interest and other financial expense (2,584) (3,482)
-------- --------
Loss before income taxes (1,412) (1,777)
Income taxes -- 157
-------- --------
Net loss $ (1,412) $ (1,934)
======== ========
Basic and diluted loss per share $(14,120) $(19,340)
======== ========
Weighted average common shares outstanding basic and diluted 100 100
======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE> 4
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
1999 1998
---------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,412) $ (1,934)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Amortization of intangible assets 656 603
Depreciation 1,800 1,560
Amortization of deferred financing costs 152 1,544
Deferred income taxes (2) (24)
Equity (income) loss in joint venture (22) 34
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable (3,749) 1,264
Prepaid expenses (1,008) (1,321)
Spare parts and supplies (299) 28
Other assets (7) 386
Accounts payable (155) (1,909)
Accrued expenses 1,389 2,210
Customer deposits 236 704
-------- --------
Net cash provided by (used in) operating activities (2,421) 3,145
INVESTING ACTIVITIES
Purchase of property, plant and equipment (3,687) (3,023)
Purchase of ASIG business, less cash acquired of $6,513 -- (88,487)
Purchase of Elsinore business, less cash acquired of $9 (5,890) --
Advances to joint venture -- (30)
-------- --------
Net cash used in investing activities (9,577) (91,540)
FINANCING ACTIVITIES
Issuance of common stock -- 24,100
Proceeds from borrowings on long-term notes -- 70,900
Deferred financing costs (71) (596)
Proceeds from borrowings on promissory note 899 --
Borrowings under revolving credit facility 5,449 --
Repayments on revolving credit facility (900)
Proceeds from term note borrowings 5,000 --
-------- --------
Net cash provided by financing activities 10,377 94,404
-------- --------
Net increase (decrease) in cash (1,621) 6,009
Cash and cash equivalent at beginning of period 3,311 --
-------- --------
Cash and cash equivalent at end of period $ 1,690 $ 6,009
======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE> 5
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION AND NATURE OF BUSINESS
BASIS OF PRESENTATION
Aircraft Service International Group, Inc. (the "Company") was organized in
March 1998 for the purpose of acquiring beneficial ownership and control of all
the outstanding capital stock or other equity interests in Aircraft Service
International, Inc., Dispatch Services, Inc., Florida Aviation Fueling Co.,
Bahamas Airport Service, Ltd., Freeport Flight Services, Ltd., Aircraft Service,
Ltd., ASII Holding GmbH, and ASII Aircraft Service Canada, Ltd. (collectively
the "ASIG business") from Viad Corp ("Viad") and Viad Service Companies, Limited
as of April 1, 1998 pursuant to a share purchase agreement (the "Acquisition").
Prior to the Acquisition by the Company, Viad operated the ASIG business under
the divisional name of Aircraft Services International Group. The Company is
100% owned by Ranger Aerospace Corporation ("Ranger"). Prior to April 1, 1998,
the Company had no operations.
On April 1, 1998, the Company completed the Acquisition for a purchase price of
approximately $95 million in cash plus fees and expenses of approximately $4.1
million. The original purchase price was subject to a purchase price adjustment
in favor of the Company for any shortfall in the net asset value, net working
capital or required cash (as such terms are defined in the purchase agreement)
of the ASIG business from the levels represented at the closing of the
Acquisition. The purchase price was also subject to adjustment in favor of Viad
in an amount equal to the amount of cash in the ASIG business at the closing of
the Acquisition in excess of the required cash. As a result of the purchase
price adjustments, the Company is due a purchase price settlement of $2.125
million from Viad, which is shown in the accompanying consolidated balance sheet
as a receivable.
The Acquisition was accounted for as a purchase and, accordingly, the purchase
price was allocated to the assets acquired and liabilities assumed based on
appraisals and other estimates of their underlying fair values. The excess of
the purchase price over the fair value of net assets acquired of approximately
$50.8 million is classified as goodwill and is being amortized over 20 years.
On May 20, 1999, Elsinore Acquisition Corporation ("EAC"), a newly-created,
wholly-owned subsidiary of the Company, acquired substantially all of the assets
of Elsinore, L.P., ("Elsinore"), which includes 23 operating units in 10 states,
the U.S. Virgin Islands and Puerto Rico. Elsinore provides a variety of ground
handling, fueling, aircraft cleaning and other aviation services to major
commercial airlines. EAC will primarily continue the same business as previously
conducted by Elsinore. The Company and its sole shareholder, Ranger, are
guarantors of EAC's obligations under the agreement governing the asset
purchase.
The total consideration paid by EAC was approximately $5.9 million (subject to
post-closing adjustments), which consists of $5 million in cash and a promissory
note of approximately $0.9 million. The promissory note has a maturity of one
year from the date of purchase, and is subject to post-closing adjustments. The
Company borrowed the cash portion of the purchase price from Key Corporate
Capital, Inc. ("Key") pursuant to the terms of an amendment to the Company's
existing senior credit facility, which the Company recorded on the books of EAC.
The Elsinore acquisition was accounted for as a purchase and accordingly, the
purchase price was allocated to the assets acquired and liabilities assumed
based on appraisals and other estimates of their underlying fair values. The
excess of the purchase price over the fair value of net assets acquired of
approximately $3.7 million is classified as goodwill and is being amortized over
20 years.
5
<PAGE> 6
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION AND NATURE OF BUSINESS - (CONTINUED)
The following is a preliminary summary of the purchase price allocation:
Net working capital, including cash of $9 $1,131
Property, plant and equipment 950
Other assets 130
Goodwill 3,688
------
$5,899
======
The purchase price was funded as follows:
Senior Credit Facility (see Note 4) $5,000
Promissory Note (see Note 4) 899
------
$5,899
======
The following unaudited pro forma data presents a summary of consolidated
results of operation of the Company for the three months ended June 30, 1999 and
June 30, 1998 as if the Elsinore acquisition had occurred on April 1, 1998:
JUNE 1999 JUNE 1998
--------- ---------
Revenues $ 34,333 $ 33,743
Net loss (1,452) (1,755)
The unaudited pro forma results have been prepared for comparison purposes only
and include certain adjustments, such as additional amortization expense due to
the goodwill related to the Elsinore acquisition and additional interest expense
associated with the debt related to the Elsinore acquisition. The unaudited pro
forma results do not purport to be indicative of the results of operation which
actually would have resulted had the Elsinore acquisition occurred on April 1,
1998, or of future results of operation of the Company.
NATURE OF BUSINESS
The Company and its subsidiaries provide aviation fueling services, aircraft
ground services and other aviation services at various airports in the United
States, Europe and the Caribbean.
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the quarter ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
March 31, 2000. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended March 31, 1999.
6
<PAGE> 7
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
June 30, 1999
-------------
<S> <C>
Operating equipment ...................... $ 44,123
Buildings and leasehold improvements ..... 3,726
Office furniture and equipment ........... 1,618
Construction in progress ................. 8,221
--------
57,688
Accumulated depreciation ................. (8,001)
--------
$ 49,687
========
</TABLE>
3. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------
<S> <C>
Salaries and wages ....................... $ 4,247
Damage claims ............................ 1,654
Pension liability ........................ 158
Accrued interest ......................... 3,374
Other .................................... 5,386
-------
Total ................................. $14,819
=======
</TABLE>
4. NOTES PAYABLE
On April 2, 1998, the Company entered into a revolving credit facility with Key
Corporate Capital (the "Senior Credit Facility"). The Senior Credit Facility
allows for borrowings in the aggregate of up to the lesser of $10 million or a
borrowing base, equal to 85% of Eligible Accounts Receivable, as defined in the
Senior Credit Facility. The revolving loans under the Senior Credit Facility
mature on August 31, 2002 or sooner as provided in the Senior Credit Facility.
Indebtedness of the Company under the Senior Credit Facility is guaranteed by
each of the Company's domestic subsidiaries and will generally be secured by:
(i) all of the Company's existing and future accounts receivable, contract
rights, general intangibles, instruments and chattel paper relating thereto;
(ii) all of the Company's currently-owned and after-acquired inventory; (iii)
amounts (if any) held in a commercial deposit account with the lending bank;
(iv) existing and future cash, cash equivalents, instruments and deposit
accounts relating to items (i) to (iii); and (v) all proceeds from (i) to (iv).
The Company's borrowings under the Senior Credit Facility bear interest at a
floating rate and may be maintained as Prime Rate Loans or LIBOR loans.
Borrowings made pursuant to the Prime Rate Loans bear interest rates equal to
the prime rate plus the Applicable Margin (as defined in the Senior Credit
Facility) and borrowings made pursuant to the LIBOR Loans bear interest rates
equal to the LIBOR rate plus the Applicable Margin. The Applicable Margin for
Prime Rate Loans was 0% through June 1999 and thereafter will range from 0% to
0.50% based on the Company's Leverage Ratio (as defined in the Senior Credit
Facility). The Applicable Margin for LIBOR Loans was 1.75% through June 1999 and
thereafter will range from 1.25% to 2.25% based on the Company's Leverage Ratio.
The Senior Credit Facility requires the Company to meet certain financial tests,
including, without limitation, minimum interest coverage and maximum leverage
ratios. The Senior Credit Facility also contains certain covenants, which among
other things, limit the incurrence of additional indebtedness, the making of
loans or investments, the declaration of dividends, transactions with
affiliates, asset sales, acquisitions, mergers and consolidations, the
incurrence of liens and encumbrances and other matters customarily restricted in
such agreements. There was approximately $7,475 outstanding under the Senior
Credit Facility as of June 30, 1999.
7
<PAGE> 8
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
4. NOTES PAYABLE -(CONTINUED)
The amounts outstanding under the Senior Credit Facility bear interest at 7.75%.
As of June 30, 1999 there was $2,260 of available credit under the Senior Credit
Facility.
On May 20, 1999, the Senior Credit Facility was amended to add a $5 million Term
Loan (the "Term Loan") and to amend certain existing provisions. The proceeds of
the Term Loan were used as part of the purchase price for Elsinore. The Term
Loan is payable in quarterly installments in arrears at varying amounts over its
five-year life. The Company's borrowings under the Term Loan will bear interest
in a manner similar to the Senior Credit Facility except that the Applicable
Margin for Prime Rate Loans will range from 0% to 1.25% based on the Company's
Leverage Ratio and the Applicable Margin for LIBOR Loans will range from 2% to
3% based on the Company's Leverage Ratio. Furthermore, the requirement to meet a
minimum interest coverage test is no longer applicable for either the Term Loan
or Senior Credit Facility as of April 1, 1999. Rather, the Company must meet a
minimum EBITDA test.
Indebtedness of the Company under the Term Loan will generally be secured by:
(i) all of the Company's currently-owned and after-acquired equipment; (ii)
amounts (if any) held in a commercial deposit account with the lending bank;
(iii) existing and future cash, cash equivalents, instruments and deposit
accounts relating to items (i) and (ii); and (iv) all proceeds from (i) to
(iii).
On May 20, 1999, the Company entered into a promissory note agreement in the
amount of $899,372 (subject to adjustment as described in the Asset Purchase
Agreement dated May 20, 1999) with Elsinore. The promissory note, in conjunction
with the amendment to the Term Loan described above was used to purchase the
assets of Elsinore. The note, along with interest at a rate equal to eight
percent is payable in full on May 20, 2000.
5. LONG-TERM DEBT
On April 2, 1998, the Company issued $75 million of notes (the "Senior
Increasing Rate Notes") in a private placement. The proceeds from the Senior
Increasing Rate Notes were used to consummate the Acquisition. On August 18,
1998, the Company issued $80 million of notes (the "Old Notes") in a private
placement. The proceeds from the Old Notes were used to repay all of the Senior
Increasing Rate Notes. On February 12, 1999, the Company exchanged all of the
Old Notes for substantially identical Series B 11% Senior Notes (the "Notes") in
a transaction registered with the SEC. The Notes mature in August 2005, and bear
interest at 11%, payable semiannually on each February 15 and August 15,
commencing February 15, 1999. The Notes are redeemable at the option of the
Company, at any time on or after August 15, 2003, at a premium of 105.5% in 2003
and at 100% of the principal amount in 2004 and thereafter. In addition, the
Company may redeem at its option up to 33 1/3% of the original principal amount
of the Notes at any time on or prior to August 15, 2001, at a redemption price
equal to 111% of the principal amount being redeemed, with the net proceeds of
one or more public offerings, provided that at least $53.3 million aggregate
principal amount of the Notes remain outstanding after any such redemption and
that any such redemption occurs within 90 days following the closing of such
public offering. Upon the occurrence of a Change in Control (as defined in the
Indenture covering the Notes), each holder of the Notes is entitled to require
the Company to repurchase such Notes at a premium of 101%. The Notes are fully
and unconditionally guaranteed, on an unsecured basis, by the Company's domestic
subsidiaries (see Note 7).
The Notes contain certain covenants which, among other things, limit the ability
of the Company to incur additional indebtedness, issue common and preferred
stock of its subsidiaries, pay dividends, transfer and sell assets and enter
into transactions with affiliates.
8
<PAGE> 9
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
6. LITIGATION
The Company is engaged in litigation arising in the normal course of business.
Management believes that the outcome of such litigation will not have a material
adverse effect on the Company's financial position or its results of operations.
7. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The Company's Notes are fully and unconditionally guaranteed on a senior
unsecured basis, jointly and severally, by the Company's wholly owned domestic
subsidiaries (the "Guarantors"). The Guarantors include Aircraft Services
International, Inc., Dispatch Services, Inc., Florida Aviation Fueling Co.
Guarantor documents are in the process of being executed for Elsinore
Acquisition Corp. The condensed consolidating financial statements of the
Guarantors should be read in connection with the consolidated financial
statements of the Company. Separate financial statements of the Guarantors are
not presented because the Company believes such information is not material and
that the condensed consolidating financial statements presented are more
meaningful in understanding the financial position and results of operations of
the Guarantors. Those supplemental guarantor condensed combining financial
statements that do not contain a column for elimination entries do so because
all amounts that would appear in the column are zero.
9
<PAGE> 10
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
7. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR ELIMINATION CONSOLIDATED
ASIG, INC. SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
--------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 180 $ 939 $ 571 $ -- $ 1,690
Accounts receivable, net 54 20,460 1,504 -- 22,018
Receivable from Viad 2,125 -- -- -- 2,125
Prepaid expenses 21 1,632 25 -- 1,678
Spare parts and supplies -- 2,365 29 -- 2,394
--------- -------- -------- -------- ---------
Total current assets 2,380 25,396 2,129 -- 29,905
Property, plant and equipment, net 74 46,709 2,904 -- 49,687
Due from affiliates 99,227 (88,636) 23,125 (33,716) --
Notes receivable from affiliates 11,365 -- -- (11,365) --
Goodwill, net -- 51,288 421 -- 51,709
Deferred financing costs, net 3,105 18 -- -- 3,123
Investment in consolidated subsidiaries 445 1,170 -- (1,615) --
Investments in and advances in joint venture -- -- 246 -- 246
Other assets 3 296 6 -- 305
--------- -------- -------- -------- ---------
Total assets $ 116,599 $ 36,241 $ 28,831 $(46,696) $ 134,975
========= ======== ======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ -- $ 4,692 $ 388 $ -- $ 5,080
Due from affiliates 9,099 14,026 10,591 (33,716) --
Notes payable to affiliates -- -- 11,365 (11,365) --
Accrued expenses 3,453 6,196 5,170 -- 14,819
Customer deposits -- 3,619 105 -- 3,724
Current portion notes payable 500 899 45 -- 1,444
--------- -------- -------- -------- ---------
Total current liabilities 13,052 29,432 27,664 (45,081) 25,067
Notes payable 11,975 -- -- -- 11,975
Long-term debt 80,000 -- -- -- 80,000
--------- -------- -------- -------- ---------
Total liabilities 105,027 29,432 27,664 (45,081) 117,042
Stockholder's equity:
Common stock -- 4 26 (30) --
Paid-in capital 24,100 441 1,144 (1,585) 24,100
Retained earnings (accumulated deficit) (12,528) 6,364 (18) -- (6,182)
Accumulated other comprehensive income -- -- 15 -- 15
--------- -------- -------- -------- ---------
Total stockholder's equity 11,572 6,809 1,167 (1,615) 17,933
--------- -------- -------- -------- ---------
Total liabilities and stockholder's equity $ 116,599 $ 36,241 $ 28,831 $(46,696) $ 134,975
========= ======== ======== ======== =========
</TABLE>
10
<PAGE> 11
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
7. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR ELIMINATION CONSOLIDATED
ASIG, INC. SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
--------- ------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 124 $ 2,216 $ 971 $ -- $ 3,311
Accounts receivable, net -- 15,261 1,160 -- 16,421
Receivable from Viad 2,125 -- -- -- 2,125
Prepaid expenses 18 602 30 -- 650
Spare parts and supplies -- 2,067 28 -- 2,095
--------- -------- ------- --------- ---------
Total current assets 2,267 20,146 2,189 -- 24,602
Property, plant and equipment, net 78 44,186 2,625 -- 46,889
Due from affiliates 90,120 -- 21,565 (111,685) --
Notes receivable from affiliates 11,018 -- -- (11,018) --
Goodwill, net -- 48,249 419 -- 48,668
Deferred financing costs, net 3,205 -- -- -- 3,205
Investment in consolidated subsidiaries 445 1,170 -- (1,615) --
Investments in and advances in joint venture -- -- 224 -- 224
Other assets 4 156 6 -- 166
--------- -------- ------- --------- ---------
Total assets $ 107,137 $113,907 $27,028 $(124,318) $ 123,754
========= ======== ======= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ -- $ 4,602 $ 480 $ -- $ 5,082
Due from affiliates 9,099 91,933 10,653 (111,685) --
Notes payable to affiliates -- -- 11,018 (11,018) --
Accrued expenses 1,319 8,257 3,274 -- 12,850
Customer deposits -- 3,398 90 -- 3,488
Current portion notes payable -- -- 57 -- 57
--------- -------- ------- --------- ---------
Total current liabilities 10,418 108,190 25,572 (122,703) 21,477
Notes payable 2,927 -- -- -- 2,927
Long-term debt 80,000 -- -- -- 80,000
--------- -------- ------- --------- ---------
Total liabilities 93,345 108,190 25,572 (122,703) 104,404
Stockholder's equity:
Common stock -- 4 26 (30) --
Paid-in capital 24,100 441 1,144 (1,585) 24,100
Retained earnings (accumulated deficit) (10,308) 5,272 266 -- (4,770)
Accumulated other comprehensive income -- -- 20 -- 20
--------- -------- ------- --------- ---------
Total stockholder's equity 13,792 5,717 1,456 (1,615) 19,350
--------- -------- ------- --------- ---------
Total liabilities and stockholder's equity $ 107,137 $113,907 $27,028 $(124,318) $ 123,754
========= ======== ======= ========= =========
</TABLE>
11
<PAGE> 12
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
7. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR CONSOLIDATED
ASIG, INC. SUBSIDIARIES SUBSIDIARIES TOTAL
-------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ -- $ 28,987 $ 3,594 $ 32,581
Cost and expenses:
Operating expenses 1 23,335 3,094 26,430
Selling, general and administrative -- 2,169 391 2,560
Amortization -- 650 6 656
Depreciation 4 1,654 142 1,800
------- -------- ------- --------
Total cost and expenses 5 27,808 3,633 31,446
------- -------- ------- --------
Operating income (loss) (5) 1,179 (39) 1,135
Other income (expense), net -- (2) 23 21
Interest income 1 8 7 16
Interest and other financial expense (2,216) (94) (274) (2,584)
------- -------- ------- --------
Income (loss) before income taxes (2,220) 1,091 (283) (1,412)
Income taxes -- -- -- --
------- -------- ------- --------
Net income (loss) $(2,220) $ 1,091 $ (283) $ (1,412)
======= ======== ======= ========
</TABLE>
12
<PAGE> 13
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
7. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR CONSOLIDATED
ASIG, INC. SUBSIDIARIES SUBSIDIARIES TOTAL
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ -- $ 24,702 $ 5,547 $ 30,249
Cost and expenses:
Operating expenses -- 19,879 4,455 24,334
Selling, general and administrative -- 1,758 289 2,047
Amortization 4 599 -- 603
Depreciation -- 1,378 182 1,560
------- -------- ------- --------
Total cost and expenses 4 23,614 4,926 28,544
------- -------- ------- --------
Operating income (loss) (4) 1,088 621 1,705
Other income (expense), net -- 11 (81) (70)
Interest income 7 52 11 70
Interest and other financial expense (3,199) (18) (265) (3,482)
------- -------- ------- --------
Income (loss) before income taxes (3,196) 1,133 286 (1,777)
Income taxes -- -- 157 157
------- -------- ------- --------
Net income (loss) $(3,196) $ 1,133 $ 129 $ (1,934)
======= ======== ======= ========
</TABLE>
13
<PAGE> 14
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
7. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR CONSOLIDATED
ASIG, INC. SUBSIDIARIES SUBSIDIARIES TOTAL
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(2,220) $ 1,091 $ (283) $ (1,412)
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Amortization of intangible assets -- 650 6 656
Depreciation 4 1,654 142 1,800
Amortization of deferred financing cost 152 -- -- 152
Deferred income taxes -- -- (2) (2)
Equity income in joint venture -- -- (22) (22)
Changes in operating assets and
liabilities, net of acquisition:
Accounts receivable (54) (3,364) (331) (3,749)
Due from (to) affiliates (9,454) 10,729 (1,275) --
Prepaid expenses (3) (1,010) 5 (1,008)
Spare parts and supplies -- (298) (1) (299)
Other assets 1 (10) 2 (7)
Accounts payable -- (63) (92) (155)
Accrued expenses 2,134 (2,641) 1,896 1,389
Customer deposits -- 221 15 236
------- -------- ------- --------
Net cash provided by (used in) by operating
activities (9,440) 6,959 60 (2,421)
INVESTING ACTIVITIES
Purchases of property, plant and equipment -- (3,227) (460) (3,687)
Purchase of Elsinore business, less cash
acquired of $9 -- (5,890) -- (5,890)
------- -------- ------- --------
Net cash used in investing activities -- (9,117) (460) (9,577)
FINANCING ACTIVITIES
Proceeds from borrowings on promissory note -- 899 -- 899
Borrowings under revolving credit facility 5,449 -- -- 5,449
Repayments on revolving credit facility (900) -- -- (900)
Deferred financing costs (53) (18) -- (71)
Proceeds from term note borrowings 5,000 -- -- 5,000
------- -------- ------- --------
Net cash provided by financing activities 9,496 881 -- 10,377
------- -------- ------- --------
Net increase in cash 56 (1,277) (400) (1,621)
Cash at the beginning of the period 124 2,216 971 3,311
------- -------- ------- --------
Cash at the end of the period $ 180 $ 939 $ 571 $ 1,690
======= ======== ======= ========
</TABLE>
14
<PAGE> 15
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
7. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR CONSOLIDATED
ASIG, INC. SUBSIDIARIES SUBSIDIARIES TOTAL
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (3,196) $ 1,133 $ 129 $ (1,934)
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Amortization of intangible assets 4 599 -- 603
Depreciation -- 1,378 182 1,560
Amortization of deferred financing cost 1,544 -- -- 1,544
Deferred income taxes -- -- (24) (24)
Equity loss in joint venture -- -- 34 34
Changes in operating assets and
liabilities, net of acquisition:
Accounts receivable -- 1,312 (48) 1,264
Due from (to) affiliates (3,179) 4,835 (1,656) --
Prepaid expenses -- (1,314) (7) (1,321)
Spare parts and supplies -- 29 (1) 28
Other assets (115) 501 -- 386
Accounts payable (1,915) (56) 62 (1,909)
Accrued expenses 1,950 (3,133) 3,393 2,210
Customer deposits -- 681 23 704
-------- ------- -------- --------
Net cash provided by (used in) operating
activities (4,907) 5,965 2,087 3,145
INVESTING ACTIVITIES
Purchases of property, plant and equipment (59) (2,931) (33) (3,023)
Purchase of ASIG business (88,487) -- -- (88,487)
Advances to joint venture -- -- (30) (30)
-------- ------- -------- --------
Net cash used in investing activities (88,546) (2,931) (63) (91,540)
FINANCING ACTIVITIES
Issuance of common stock 24,100 -- -- 24,100
Proceeds from borrowings on long-term notes 70,900 -- -- 70,900
Deferred financing costs (596) -- -- (596)
-------- ------- -------- --------
Net cash provided by financing activities 94,404 -- -- 94,404
-------- ------- -------- --------
Net increase in cash 951 3,034 2,024 6,009
Cash at the beginning of the period -- -- -- --
-------- ------- -------- --------
Cash at the end of the period $ 951 $ 3,034 $ 2,024 $ 6,009
======== ======= ======== ========
</TABLE>
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the Company's consolidated results of operations and
financial condition should be read in conjunction with the consolidated
financial statements and the Notes thereto, which appear in Part I, Item 1 of
this Form 10-Q.
FORWARD-LOOKING INFORMATION
This report contains statements that may constitute "forward-looking statements"
as defined in Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such forward-looking
statements are based on management's current plans, beliefs and expectations as
well as on assumptions made by and information currently available to the
Company at the time these forward-looking statements were made. When used in
this report, words such as "anticipate," "believe," estimate," expect,"
"intends" and similar expressions, as they relate to the Company, are intended
to identify forward-looking statements. These forward-looking statements are
subject to various risks and uncertainties that could cause actual results to
differ from those described in the forward-looking statements. Such risks and
uncertainties include, but are not limited to: the substantial leverage of the
Company; restrictions imposed by the Senior Credit Facility and the Indenture;
general economic conditions; effects of aviation fuel availability and price
increases on customers; the credit quality of the Company's receivables;
dependence on significant customers; competition; the nature of the Company's
contracts; the nature and rights of the Company to operate at airports; the
Company's participation in a regulated industry; the Company's relationship with
its unions and ability to retain employees; and its dependence upon key
personnel. This list of risks and uncertainties is not intended to be exhaustive
and should be read in conjunction with other cautionary statements made in this
report, in other reports and registration statements of the Company filed from
time to time with the SEC and in press releases issued by the Company from time
to time.
OVERVIEW
The Company's business includes aviation fueling services (62% of fiscal year
1999 revenues); aircraft ground services (35%) and other aviation services (3%).
Aviation fueling services are comprised primarily of into-plane fueling,
maintenance and operation of fuel storage and delivery systems and the retail
sale of fuel products. Generally, the Company has custody over, but not
ownership of, the fuel it manages and delivers. Aircraft ground services consist
primarily of ground handling, aircraft interior grooming, cargo handling,
passenger and traffic services and Fixed Base Operations (FBOs).
An investor group capitalized Ranger Aerospace Corporation with an aggregate
investment of $24.1 million, all of which was contributed as equity to the
Company, by Ranger in return for all of the Company's outstanding common stock
on April 1, 1998. The net proceeds from the equity investment and the Company's
issuance of $75 million of Senior Increasing Rate Notes were used to consummate
the acquisition of the ASIG business from Viad for $95 million (subject to final
adjustments). Concurrent with the acquisition of the ASIG business (the
"Acquisition"), the Company entered into a $10 million senior credit facility
which was subsequently amended in May 1999 and increased to $15 million to
consummate the purchase of the assets of Elsinore.
REVENUES
Into-plane fueling service consists of providing airplanes with specified
amounts of fuel from fuel storage facilities located at or near the airport. The
Company generally records revenue from its into-plane fueling contracts based on
a fee per gallon of fuel delivered. Fuel system maintenance and operation
consists of the maintenance and operation of the fuel storage and delivery
systems at an airport. These systems are typically composed of storage tanks,
pumps, pipes and filter/separators. The Company generally records revenue from
its maintenance and operation contracts based on reimbursement of costs, plus an
additional monthly fee. In addition, the Company sells aviation fuel to private
aircraft at retail prices at locations where it has FBOs.
Ground handling services consist of the provision of ground handling crews and
all necessary ground support equipment to process airline flights through the
full range of on-the-ground services. Aircraft interior grooming consists of the
cleaning of aircraft cabins between flights and cargo handling consists of the
loading,
16
<PAGE> 17
warehousing and documentation of cargo. Passenger and traffic services include
passenger ticketing, check-in and boarding, security clearance, special
assistance and skycap services. FBOs generally include the provision of terminal
services, pilot facilities, maintenance, weather service, flight planning and
hangar space to private, executive and corporate aircraft. For each of these
aircraft ground services, other than FBOs, the Company is generally compensated
by a fixed fee for each aircraft serviced, based on the size of the aircraft.
For FBOs, the Company is generally compensated by a fixed fee for specific
services rendered.
The Company provides its services to its customers pursuant to contractual
agreements and currently has approximately 800 contracts. In fiscal year 1999,
the Company's largest contract accounted for 5.0% of revenue and no other
contract accounted for more than 3.6% of revenue. The majority of the Company's
contracts have an industry standard initial length of one year, although the
Company's larger contracts generally run for initial terms of three to five
years.
COSTS AND EXPENSES
The Company's principal operating expenses are labor costs and direct
supervision at its stations along with related benefits and payroll taxes, cost
of fuel sold, workers' compensation, property and liability insurance, rent
expense, repairs and maintenance expenses and miscellaneous other direct
station-related expenses. Certain of these expenses are relatively fixed,
regardless of the extent of operations at a particular station, including the
cost of the facility, station management and related administrative expenses.
Selling, general and administrative expenses include the costs of marketing the
Company's services, general supervision provided to the stations, and
accounting, finance and personnel related expenses. These costs are generally
comprised of labor costs and related benefits and payroll taxes, legal and other
professional fees and miscellaneous expenses.
RESULTS OF OPERATIONS
The following table summarizes the Company's results of operations as a percent
of revenue for the periods indicated (dollars in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-----------------------------------------------------
1999 % OF REVENUE 1998 % OF REVENUE
----- ------------ ----- ------------
<S> <C> <C> <C> <C>
Revenues $32.6 100.0% $30.2 100.0%
Costs and expenses:
Operating expenses 26.4 81.0 24.3 80.5
Selling, general and administrative 2.6 8.0 2.0 6.6
Depreciation and amortization 2.5 7.7 2.2 7.3
----- ----- ----- -----
Operating income $ 1.1 3.4 $ 1.7 5.6
===== ===== ===== =====
Net loss $(1.4) (4.3) $(1.9) (6.3)
===== ===== ===== =====
EBITDA $ 3.6 11.0 $ 3.9 12.9
===== ===== ===== =====
</TABLE>
EBITDA is defined herein as net income (loss) before interest, income taxes,
depreciation, amortization and other income (expense). Although EBITDA is not a
measure of performance calculated in accordance with generally accepted
accounting principles, the Company has included information concerning EBITDA
because it is commonly used by certain investors and analysts as a measure of a
company's ability to service its debt obligations. The Company's calculation of
EBITDA may not be comparable to similarly titled measures reported by other
companies since all companies do not calculate this non-GAAP measure in the same
manner. The Company's EBITDA calculation is not intended to represent cash used
in operating activities, since it does not include interest and taxes and
changes in operating assets and liabilities, nor is it intended to represent the
net increase or decrease in cash, since it does not include cash provided by
(used in) investing and financing activities.
17
<PAGE> 18
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Revenues increased $2.4 million, or 7.9%, from $30.2 million for the three
months ended June 30, 1998, to $32.6 million for the three months ended June 30,
1999. This increase was attributable to, among other things, the purchase of
substantially all of the assets of Elsinore (by Elsinore Acquisition Corp.) and
all of the stock of Ground Aviation Handling (renamed ASIG U.K.) which generated
$1.4 million and $1.0 million in revenues respectively. Additionally, $2.1
million was attributable to increased business awarded in Philadelphia, Atlanta,
San Francisco, and Orlando. The increase was partially offset by the lost
British Airways grooming contract at Heathrow airport in London which amounted
to $2.9 million in revenues for the three months ended June 30, 1998.
Operating expenses increased $2.1 million, or 8.6%, from $24.3 million for the
three months ended June 30, 1998 to $26.4 million for the three months ended
June 30, 1999. This increase was primarily attributable to increased labor costs
resulting from the additional revenue mentioned above, bonus payments, and
uniform costs associated with branding to the ASIG logo. As a result, operating
expenses as a percentage of revenues increased from 80.5% for the three months
ended June 30, 1998 to 81.0% for the three months ended June 30, 1999.
Selling, general and administrative expenses increased $0.6 million, or 30.0%,
from $2.0 million for the three months ended June 30, 1998, to $2.6 million for
the three months ended June 30, 1999. This increase was principally due to
increased legal fees, audit fees, and payroll and fringe benefits relating to
additional administrative positions needed to support the Company's growth. As a
result, selling, general and administrative expenses as a percentage of revenue
increased from 6.6% for the three months ended June 30, 1998 to 8.0% for the
three months ended June 30, 1999.
Depreciation and amortization expenses increased $0.3 million, or 13.6%, from
$2.2 million for the three months ended June 30, 1998 to $2.5 million for the
three months ended June 30, 1999. The increase was caused primarily by
depreciation of fiscal 1999 capital expenditures and amortization of goodwill
associated with the purchase of the assets of Elsinore. Depreciation and
amortization expenses as a percentage of revenues increased from 7.3% for the
three months ended June 30, 1998 to 7.7% for the three months ended June 30,
1999.
As a result of the above factors, operating income decreased $0.6 million from
$1.7 million for the three months ended June 30, 1998 to $1.1 million for the
three months ended June 30, 1999. Operating income margins decreased from 5.6%
for the three months ended June 30, 1998 to 3.4% for the three months ended June
30, 1999.
Interest and other financial expense decreased $0.9 million from $3.5 million
for the three months ended June 30, 1998 to $2.6 million for the three months
ended June 30, 1999. This decrease is primarily attributable to lower
amortization of deferred financing costs related to the Senior Notes outstanding
at June 30, 1999 compared to amortization of deferred financing costs related to
the Senior Increasing Rate Notes outstanding at June 30, 1998, partially offset
by current year interest charges on the outstanding balances of the Senior
Credit Facility and the borrowings for the Elsinore Acquisition.
The net loss decreased $0.5 million from $1.9 million for the three months ended
June 30, 1998, to $1.4 million for the three months ended June 30, 1999.
The foregoing factors resulted in a decrease in EBITDA of $0.3 million, or 7.7%,
from $3.9 million for the three months ended June 30, 1998 to $3.6 million for
the three months ended June 30, 1999. EBITDA margin decreased from 12.9% to
11.0% for the respective periods.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by (used in) operating activities was $3.1 million for the
three months ended June 30, 1998, as compared to $(2.4) million for the three
months ended June 30, 1999. Net cash provided by operating activities decreased
primarily due to an increase in accounts receivable.
18
<PAGE> 19
Net cash used in investing activities was $91.5 million for the three months
ended June 30, 1998, as compared to $9.6 million for the three months ended June
30, 1999. The 1998 amount reflects the Acquisition of the ASIG business in April
1998. The 1999 amount primarily reflects the acquisition of the assets of
Elsinore in May 1999. In addition to investing in acquisitions, in the normal
course of the Company's business, net cash used in investing activities is also
affected by the Company's capital expenditure needs for maintaining and
upgrading its existing vehicle and equipment fleet, and generally represents a
majority of the Company's capital expenditures. In addition, the Company
frequently makes capital investments necessary to support new contracts won by
the Company.
Net cash provided by financing activities was $94.4 million for the three months
ended June 30, 1998 and $10.4 million for the three months ended June 30, 1999.
The 1998 amount primarily reflects the issuance of common stock of the Company
and borrowings under the Senior Increasing Rate Notes in April 1998, while the
1999 amount primarily represents borrowings against the Senior Credit Facility
and the related term loan used to finance the purchase of the assets of Elsinore
in May 1999.
The Company's primary sources of liquidity are cash flow from operations and
borrowings under its Senior Credit Facility. The Company needed additional funds
to meet its debt service obligation for the August 1999 payment on the 11%
Senior Notes. The required funds were received in the form of additional equity
contributed from the owner of the company. Other than the aforementioned, based
upon the successful implementation of management's business and operating
strategy, the Company believes that its cash flows from operations and
borrowings under its Senior Credit Facility will provide sufficient liquidity
and capital resources to meet current and future financial obligations,
including the future payments of principal and interest on the 11% Senior Notes,
as well as provide funds for the Company's working capital, capital investments
and other needs for the next twelve months. The Company's future operating
performance and ability to service or refinance the 11% Senior Notes and to
repay, extend or refinance its Senior Credit Facility will be subject to future
economic conditions and to financial, business and other factors, many of which
are beyond the Company's control. There can be no assurance that such sources of
funds will be adequate and that the Company will not require additional capital
from borrowings or securities offerings to satisfy such requirements. In
addition, there can be no assurance that the Company will have sufficient
available capital resources to realize its acquisition strategy. Such future
acquisitions, depending on their size and the form of consideration, may require
the Company to seek additional debt or equity financing.
RECENT DEVELOPMENTS
No material events have occurred since the acquisition of substantially all of
the assets of Elsinore, L.P. by Elsinore Acquisition Corporation.
ENVIRONMENTAL MATTERS
The Company is subject to compliance obligations and liabilities imposed
pursuant to federal, state, local and foreign environmental and workplace health
and safety requirements, including CERCLA. In particular, the Company's aviation
fueling services are subject to liabilities and obligations relating to the
above ground and underground storage of, and the release and cleanup of,
petroleum products. Although the Company believes it is in material compliance
with environmental, health and safety requirements, the possibility exists that
noncompliance could occur or be identified in the future, and the penalties or
costs of corrective action associated therewith could have a material adverse
effect on the Company's business, operating results and financial condition. In
addition, requirements are complex, change frequently and have tended to become
more stringent over time, and there can be no assurance that these requirements
will not change in the future in a manner that could materially and adversely
affect the Company.
The Company is currently conducting or funding, or expects to conduct or fund,
environmental investigations, monitoring and cleanups at certain of its
previously or currently operated facilities. Also, from time to time, the
Company receives notices of potential liability for cleanup costs associated
with offsite waste recycling or disposal facilities at which wastes associated
with its operations allegedly have come to be located. In addition, airport
authorities are coming under increasing pressure to clean up previous
contamination at their facilities and are seeking financial contribution from
airport tenants and companies which operate at their airports. Although the
Company has taken steps to mitigate or remove the foregoing liabilities, the
Company could bear
19
<PAGE> 20
direct liability for the foregoing matters and such liability could have a
material adverse effect on the Company's business, operating results and
financial condition.
YEAR 2000 ISSUE
READINESS
The Company has evaluated and believes it has addressed the Year 2000 issue as
it relates to its internal information technology systems. The Company's
internal efforts included the upgrading of critical hardware and software
systems to become Year 2000 compliant. The Company is in the process of
surveying its customers with whom it has material relationships for Year 2000
compliance.
COSTS
The costs of achieving Year 2000 compliance have not been material to date and
additional costs are not expected to be material.
RISKS
Based on its investigation to date, the Company does not believe it will
experience any material adverse effects as a result of the Year 2000 issue.
However, there can be no assurance in this regard, and the Year 2000 issue could
have a material adverse effect on the Company. While the Company has undertaken
its own evaluation and testing of its information technology systems, it is
dependent to some extent on the assurance and guidance provided by suppliers of
hardware, software and programming services as to its Year 2000 readiness.
The Company's Year 2000 evaluation includes an analysis of the possible effects
on, and the state of Year 2000 compliance by, its customers with whom it has
material relationships. However, the Company has limited ability to
independently verify the possible effect of Year 2000 issues on such customers
as this process is limited to such persons' public statements, responses to the
Company's inquiries and information available to the Company from other third
party sources, if any. Therefore, the Company's beliefs about the effects of its
customers' Year 2000 compliance may be inaccurate.
In addition, there can be no assurance that, despite the Company's Year 2000
efforts and its belief that its internal systems are Year 2000 compliant, the
Company will not be materially or adversely affected by the Year 2000 issue. The
most reasonably likely worst case scenario with respect to Year 2000 issues is
that the Company's remediation of its information technology systems proves to
be ineffective and critical systems fail or malfunction as a result of Year 2000
problems and disrupt its operations or the Company's customers (or airports
where its customers operate) Year 2000 remediation efforts are unsuccessful,
which leads to interruptions or problems in their operations, which could
adversely affect the Company. The Company is currently unable to quantify the
effect of such occurrences; however, such events could have a material adverse
effect on the Company.
CONTINGENCY PLANS
The Company does not currently have any contingency plans with respect to Year
2000 issues. If in the future the Company identifies a material problem with a
critical system, the Company will develop an appropriate contingency plan at
that time. However, circumstances may occur for which there are no satisfactory
contingency plans, such as airline flight disruptions, airport air traffic
control problems, among others.
EURO CONVERSION ISSUE
On January 1, 1999, certain member countries of the European Union established
fixed conversion rates between their existing currencies and the European
Union's common currency ("Euro"). The transition period for the introduction of
the Euro will be between January 1, 1999 and January 1, 2002. The Company is
currently evaluating methods to address the many issues involved with the
introduction of the Euro, including the conversion of information technology
systems, recalculating currency risk, strategies concerning continuity of
contracts, and impacts on the processes for preparing taxation and accounting
records.
20
<PAGE> 21
Based on its work to date, the Company believes the Euro conversion will not
have a material adverse impact on the Company's consolidated financial
statements.
IMPACT OF INFLATION
Although the Company cannot accurately determine the precise effect of inflation
on its operations, it does not believe that inflation has had a material effect
on its revenue or results of operations for the periods presented herein.
However, substantial increases in the Company's costs, particularly labor or
employee benefits costs, would be likely to adversely affect the Company's
revenues and operating results. In addition, because inflation would likely
materially and adversely affect the airline industry as a whole, and the
Company's business depends to a large extent on the economic health of the
airline industry, an increase in inflation would likely have a material adverse
effect on the Company's revenue and operating results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate risk in connection with the revolving
loans and the term loan under its Senior Credit Facility, which bear interest at
floating rates. As of June 30, 1999, there was approximately $7.5 million
outstanding under the revolving loans (at an interest rate of 7.75% at such
time) and $5 million outstanding under the term loan (at an interest rate of
8.50% at such time). The Company currently believes that the interest rate risk
associated with these loans is not material.
Also, approximately 8.6% of the Company's revenues are generated by its
operations in the United Kingdom and are denominated in British Pounds. The
financial condition and results of operations of the Company's U.K. operations
are reported in British Pounds and then translated into U.S. dollars at the
applicable rate for inclusion in the Company's consolidated financial
statements. As a result, the Company's reported results would be impacted by
changes in the exchange rate between the U.S. dollar and the British Pound. The
Company does not seek to mitigate this translation risk through the use of
derivative financial instruments and currently believes that such risk is not
material.
21
<PAGE> 22
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USES OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
During the first quarter of the Company's 1999 fiscal year, the Company's sole
shareholder, Ranger Aerospace Corporation, approved by written consent the
acquisition of substantially all of the assets of Elsinore and an amendment to
the Company's Senior Credit Facility to include a $5 million term loan to
finance the acquisition.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
2.1 Elsinore Asset Purchase Agreement incorporated by reference to
current report on Form 8-K of the Company dated May 20, 1999 and
filed with the Securities and Exchange Commission (the "Commission")
on June 4, 1999.
10.1 Senior Credit Facility and First Amendment Agreement including forms
of subsidiary guarantors and pledge and security agreements by
reference to current report on Form 10-K of the Company dated
March 31, 1999 and filed with the Securities and Exchange Commission
(the "Commission") on June 29, 1999.
10.2 Elsinore Asset Purchase Agreement; see Exhibit 2.1.
27.1 Consolidated Financial Data Schedule
(b) Reports on Form 8-K.
On June 4, 1999, the Company filed a report on Form 8-K reporting the
acquisition by Elsinore Acquisition Corporation, a newly-created, wholly-owned
subsidiary of the Company, of substantially all of the assets of Elsinore on May
20, 1999, which includes Elsinore's 23 operating units in 10 states, the U.S.
Virgin Islands and Puerto Rico providing a variety of ground handling, fueling,
aircraft cleaning, and other aviation services to major commercial airlines. The
annual statements of Elsinore and the required pro forma financial information
were omitted and filed by amendment on August 2, 1999.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on August 13, 1999 on its
behalf by the undersigned thereunto duly authorized.
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
(Registrant)
By: /s/ Michael A. Krane
-----------------------------------
Name: Michael A. Krane
Title: Vice President-Finance
(Principal Accounting and
Financial Officer)
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AIRCRAFT SERVICE INTERNATIONAL GROUP, INC. FOR THE THREE
MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 1,690
<SECURITIES> 0
<RECEIVABLES> 22,588
<ALLOWANCES> 570
<INVENTORY> 2,394
<CURRENT-ASSETS> 29,905
<PP&E> 57,688
<DEPRECIATION> 8,001
<TOTAL-ASSETS> 134,975
<CURRENT-LIABILITIES> 25,067
<BONDS> 80,000
0
0
<COMMON> 0
<OTHER-SE> 17,933
<TOTAL-LIABILITY-AND-EQUITY> 134,975
<SALES> 32,581
<TOTAL-REVENUES> 32,581
<CGS> 26,430
<TOTAL-COSTS> 31,446
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,584
<INCOME-PRETAX> (1,412)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,412)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,412)
<EPS-BASIC> (14,120)
<EPS-DILUTED> (14,120)
</TABLE>
