<PAGE> 1
UNITED STATES
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 September 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 Number)
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
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) AND 12(g) OF THE ACT: NONE
TITLE OF CLASS NAME OF EXCHANGE ON WHICH REGISTERED
-------------- ------------------------------------
N/A N/A
Indicate by check mark whether each 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 report(s), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the last practicable date.
Common Stock, par value $0.01 per share: 100 shares outstanding at
November 15, 1999.
<PAGE> 2
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Consolidated Balance Sheets - September 30, 1999 and March 31, 1999 .......... 2
Consolidated Statements of Operations - Three Months and Six Months Ended
September 30, 1999 and 1998 ............................................. 3
Consolidated Statements of Cash Flows - Six Months Ended
September 30, 1999 and 1998 ............................................. 4
Consolidated Statements of Stockholder's Equity - September 30, 1999
and March 31, 1999 ...................................................... 5
Notes to Consolidated Financial Statements ................................... 6
ITEM 2 Management's Discussion and Analysis of Financial Condition
And Results of Operations ............................................... 21
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk ................... 24
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings ............................................................ 25
ITEM 5 Other Information ............................................................ 25
ITEM 6 Exhibits and Reports on Form 8-K ............................................. 25
</TABLE>
<PAGE> 3
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
PART I, ITEM 1
The consolidated financial statements included herein have been
prepared by the Company (which may be referred to as "we", "us" or "our"),
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). Certain information and note disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes the disclosures which are made are
adequate to make the information presented not misleading. Further, the
consolidated financial statements reflect, in the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position and results of operations as of and for
the periods indicated.
These consolidated financial statements should be read in conjunction
with the consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended March 31, 1999, which is
available at the SEC's website on the Internet at http://www.sec.gov.
The results of operations for the three and six months ended September
30, 1999, are not necessarily indicative of results to be expected for the
fiscal year ending March 31, 2000.
<PAGE> 4
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999 MARCH 31,
(UNAUDITED) 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 732 $ 3,311
Accounts receivable, net of allowance of $618 and $567,
respectively 23,607 16,421
Receivable from Viad 2,125 2,125
Prepaid expenses 2,184 650
Spare parts and supplies 2,419 2,095
--------- ---------
Total current assets 31,067 24,602
Property, plant and equipment, net of accumulated depreciation of
$9,683 and $6,176, respectively 50,146 46,889
Goodwill, net of accumulated amortization of $3,887 and $2,545,
respectively 51,021 48,668
Deferred financing costs, net of accumulated amortization of $623 and
$337, respectively 2,991 3,205
Investments in and advances to joint venture 300 224
Other assets 283 166
--------- ---------
Total assets $ 135,808 $ 123,754
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 8,291 $ 5,082
Accrued expenses 12,078 12,850
Customer deposits 3,357 3,488
Current portion of notes payable 1,407 57
--------- ---------
Total current liabilities 25,133 21,477
Notes payable - long term 4,375 --
Revolving credit note 5,797 2,927
Long-term debt 80,000 80,000
--------- ---------
Total liabilities 115,305 104,404
Commitments -- --
Stockholder's equity:
Common stock, $0.01 par value; 1,000 shares authorized; 100 shares
issued and outstanding -- --
Paid-in capital 27,800 24,100
Accumulated deficit (7,391) (4,770)
Accumulated other comprehensive income 94 20
--------- ---------
Total stockholder's equity 20,503 19,350
--------- ---------
Total liabilities and stockholder's equity $ 135,808 $ 123,754
========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE> 5
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 35,130 $ 30,994 $ 67,711 $ 61,243
Cost and expenses:
Operating expenses 28,661 25,137 55,091 49,471
Selling, general and administrative 2,682 1,989 5,242 4,035
Amortization 691 622 1,346 1,225
Depreciation 1,678 1,474 3,478 3,034
-------- -------- -------- --------
Total cost and expenses 33,712 29,222 65,157 57,765
-------- -------- -------- --------
Operating income 1,418 1,772 2,554 3,478
Other income (expense), net 53 (109) 74 (128)
Interest income 31 70 47 140
Interest and other financial expense (2,684) (3,225) (5,269) (6,496)
-------- -------- -------- --------
Loss before income taxes and
extraordinary item (1,182) (1,492) (2,594) (3,006)
Income taxes 27 166 27 323
-------- -------- -------- --------
Loss before extraordinary item (1,209) (1,658) (2,621) (3,329)
Extraordinary loss on early extinguishment of
debt -- -- -- (213)
-------- -------- -------- --------
Net loss $ (1,209) $ (1,658) $ (2,621) $ (3,542)
======== ======== ======== ========
Basic and diluted loss per share:
Before extraordinary item $(12,090) $(16,580) $(26,210) $(33,290)
Extraordinary loss -- -- -- (2,130)
-------- -------- -------- --------
Net loss $(12,090) $(16,580) $(26,210) $(35,420)
======== ======== ======== ========
Weighted average common shares outstanding-
basic and diluted 100 100 100 100
======== ======== ======== ========
</TABLE>
3
<PAGE> 6
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC
STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
----------------------
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES $ (2,621) $ (3,542)
Net loss
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Amortization of intangible assets 1,346 1,225
Depreciation 3,478 3,034
Amortization of deferred financing costs 286 2,338
Extraordinary loss on early extinguishment of debt -- 213
Deferred income taxes (2) 14
(Gain)/loss on sale of fixed assets (9) 17
Equity income/(loss) in joint venture (76) 40
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable (5,359) (1,800)
Prepaid expenses (1,514) (945)
Spare parts and supplies (324) (385)
Other assets 15 357
Accounts payable 3,056 (904)
Accrued expenses (1,273) 2,481
Customer deposits (131) 875
-------- --------
Net cash provided by (used in) operating activities (3,128) 3,018
INVESTING ACTIVITIES
Purchases of property, plant and equipment (5,776) (6,337)
Purchase of ASIG business, less cash acquired of $6,513 -- (88,487)
Purchase of Elsinore, LP (5,897) --
Advances to joint venture -- 19
-------- --------
Net cash used in investing activities (11,673) (94,805)
FINANCING ACTIVITIES
Issuance of common stock -- 24,100
Borrowings, net -- 75,900
Deferred financing costs (73) (3,462)
Revolving credit facility 2,870 --
Proceeds from Key term note, net 4,826 --
Proceeds from equity contribution 3,700 --
Proceeds from notes payable 899 --
-------- --------
Net cash provided by financing activities 12,222 96,538
-------- --------
Net increase (decrease) in cash (2,579) 4,751
Cash and cash equivalent at beginning of period 3,311 1
-------- --------
Cash and cash equivalent at end of period $ 732 $ 4,752
======== ========
SUPPLEMENTAL DISBURSERS OF CASH FLOW INFORMATION:
Interest paid $ 5,000 $ 3,065
======== ========
Taxes paid $ 108 $ --
======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE> 7
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
(Amounts in thousands, except for share amounts)
Consolidated Statements of Stockholder's Equity
<TABLE>
<CAPTION>
Accumulated
Common Other Total
Stock Common Paid-in Accumulated Comprehensive Stockholder's
Outstanding Stock Capital Deficit Income Equity
------------ -------- ------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1999 100 $ -- $24,100 $(4,770) $ 20 $ 19,350
Capital Contribution -- -- 3,700 -- -- 3,700
Comprehensive loss:
Net loss -- -- -- (2,621) -- (2,621)
Currency translation adjustment -- -- -- -- 74 74
------ -------- ------- ------- ------ --------
BALANCE AT SEPTEMBER 30, 1999 100 $ -- $27,800 $(7,391) $ 94 $ 20,503
====== ======== ======= ======= ====== ========
</TABLE>
5
<PAGE> 8
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
Reference is made herein to the Notes to Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended March 31, 1999.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Our accounting policies are as set forth in the Notes to Consolidated
Financial Statements referred to above.
Certain amounts in prior years' consolidated financial statements have
been reclassified to conform to current period financial statement
presentations.
For our operations where the functional currency is other than the U.S.
Dollar, balance sheet amounts are translated using the exchange rate in effect
at the balance sheet date. Income statement amounts are translated at the
average exchange rates during the year or period. Translation adjustments
resulting from the changes in exchange rates from year to year are recorded as
accumulated other comprehensive income.
We account for our investment in a 50% owned joint venture under the
equity method of accounting. The joint venture, Skytanking GmbH, located in
Munich, Germany, provides aviation fueling and aircraft ground services at
Munich International Airport.
The Company, during its ordinary course of business, pursues
acquisition targets frequently and expends funds in that pursuit. The costs of
the acquisition pursuits are capitalized on the balance sheet until such time as
the acquisition occurs or dissolves. If the acquisition occurs, these costs are
reclassified on the balance sheet to their appropriate category. If however, in
the Company's opinion, the acquisition will not occur, then the capitalized
costs associated with that specific acquisition are written off to the income
statement. As of September 30, 1999, the Company had $0.8 million capitalized on
the balance sheet in pursuit of on-going acquisitions.
In fiscal 1999, we adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" (SFAS No. 128). SFAS No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Basic earnings per share will typically be higher
than primary earnings per share due to the exclusion of any dilutive effects of
options, warrants and convertible securities from the calculation. Diluted
earnings per share is similar to the previously reported fully diluted earnings
per share. The adoption of SFAS No. 128 had no impact on the Company.
Effective January 1, 1998, we adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130), which
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income, which
includes, but is not limited to, unrealized gains for marketable securities and
future contracts, foreign currency translation adjustments and minimum pension
liability adjustments. The accompanying financial statements for the Company
reflect other comprehensive income (loss) consisting of net income (loss) and
foreign currency translation adjustments.
In fiscal 1999, we adopted Statement of Financial Accounting Standards
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits - an amendment of FASB Statements No. 87, 88, and 106" (SFAS No. 132).
SFAS No. 132 revises employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement or
6
<PAGE> 9
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
recognition of those plans; therefore, the adoption of SFAS No. 132 affected the
Company's disclosure information only.
In fiscal year 2000, we adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133), which is effective for fiscal quarters of fiscal
years beginning after June 15, 1999. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
adoption of SFAS 133 had no impact on the Company.
2. LONG-TERM DEBT
Long-term debt consists of the following at September 30, 1999 and
March 31, 1999 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1999 1999
------------- ---------
<S> <C> <C>
Revolving loan facility dated April 2, 1998, allows borrowings up to the lessor
of $10 million or a borrowing base as defined. Facility bears interest at prime
rates or LIBOR rates plus applicable margins and matures
on August 31, 2002 or sooner as provided in facility $ 5,797 $ 2,927
Term loan agreement dated May 20, 1999, payable in quarterly installments,
balance due in May 2005, bears interest in a manner identical to the revolving
loan facility 4,875 --
Series B 11% Senior Notes dated August 18, 1998 payable August 15, 2005
Interest paid semiannually on February 15 and August 15 80,000 80,000
Promissory note dated May 21, 1999 payable in full on May 21, 2000
Interest due at maturity and accrues at 8% 899 --
Various promissory note obligations, maturing 1994 to 2001, bears
interest at rates ranging from 11% to 13% 8 57
------- -------
Total long-term debt 91,579 82,984
Less current portion of term note and promissory note 1,399 --
Less current portion of various promissory notes 8 57
------- -------
$90,172 $82,927
======= =======
</TABLE>
On April 2, 1998, we issued $75 million of notes (the "Senior
Increasing Rate Notes"). The proceeds from the Senior Increasing Rate Notes were
used to consummate the acquisition of the Aircraft Service International Group
businesses from Viad Corporation. On August 18, 1998, we issued $80 million of
notes (the "Old Notes"). The proceeds from the Old Notes were used to repay the
Senior Increasing Rate Notes. On February 12, 1999, we exchanged the Old Notes
for substantially identical Series B 11% Senior Notes (the "Notes"). 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, we may redeem at our 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
7
<PAGE> 10
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 6).
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.
Concurrent with the consummation of the issuance of the Old Notes, we
expensed approximately $213,000 to write off the remaining unamortized deferred
financing costs previously incurred in connection with the Senior Increasing
Rate Notes that were repaid with the net proceeds of the issuance of the Old
Notes. The unamortized expenses related to the deferred financing costs were
accounted for as an extraordinary loss on the early extinguishment of debt.
On April 2, 1998, we 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. 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 our domestic subsidiaries and will generally be secured
by: (i) all of the Company's cash equivalents, accounts receivable, contract
rights, general intangibles, instruments and chattel paper relating thereto;
(ii) all of the Company's inventory; (iii) amounts (if any) held in a commercial
deposit account with the lending bank, and (iv) all proceeds from (i) to (iii)
inclusive.
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, will 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 $5.8 million
outstanding under the Senior Credit Facility as of September 30, 1999 and $3.9
million available 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"). The Term Loan principal is payable in
quarterly installments of $125,000. The interest is due quarterly in arrears
over its five-year life. The Company's borrowings under the Term
8
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AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Loan will bear interest in a manner identical 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. The
Company must meet a minimum EBITDA test. The term loan is secured by all of the
Company's equipment.
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, L.P. The promissory note,
in conjunction with the amendment to the Term Loan described above was used to
purchase the assets of Elsinore, L.P. The note, along with interest at a rate
equal to eight percent is payable in full on May 20, 2000.
3. ELSINORE, L.P. ACQUISITION
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 Aerospace, 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.
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 2) $5,000
Promissory Note (see Note 2) 899
------
$5,899
======
9
<PAGE> 12
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following unaudited pro forma data presents a summary of consolidated
results of operation of the Company for the three months and six months ended
September 30, 1999 and September 30, 1998 as if the Elsinore acquisition had
occurred on April 1, 1998:
Three Months Ended Six Months Ended
September 30, September 30,
------------------------- -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
Revenue $ 35,130 $ 34,640 $ 69,463 $ 68,383
Net loss (1,209) (1,608) (2,704) (3,393)
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.
4. COMMITMENTS AND CONTINGENCIES
Leases
In the normal course of conducting our business, we are involved in
various lease agreements. There has been no material change in lease agreements
from those disclosed previously in the Company's Form 10-K for the year ended
March 31, 1999, except as discussed below.
Effective July 14, 1999, we entered into a seven year operating lease
with Capital Associates International, Inc. for 72 towable hydrant carts at a
total cost of $4.9 million. Delivery dates vary from July 15, 1999 through
December 1999. This lease is pursuant to a new into-plane agreement with Epsilon
Trading, Inc. ("Epsilon") which specifically states that we will be reimbursed
for the cost of the hydrant carts by Epsilon and Epsilon will also serve as a
guarantor on the lease agreement.
Legal
In the normal course of conducting our business, we are involved in
various litigation. There has been no material changes in legal proceedings from
those disclosed previously in the Company's Form 10-K annual report for the year
ended March 31, 1999. We are not a party to any litigation or governmental
proceedings which our management believes could result in any judgements or
fines against us that would have a material adverse affect on the Company's
financial position, liquidity or results of operations.
5. BUSINESS SEGMENTS
Pursuant to SFAS No. 131, "Disclosure About Segments of a Business
Enterprise and Related Information," the Company is required to report segment
information. As the Company only operates in one business segment, no additional
reporting is required.
10
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AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING/COMBINING FINANCIAL STATEMENTS
The Company offered $80 million in aggregate principal amount of Series B
11% Senior Notes due 2005 (the "Notes"). The Notes are fully and unconditionally
guaranteed on a senior unsecured basis, jointly and severally, by the Company's
domestic subsidiaries (the "Guarantors"). The Guarantors include Aircraft
Services International, Inc., Dispatch Services, Inc., Florida Aviation Fueling
Co and Elsinore Acquisition Corporation. The condensed consolidated 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 consolidated 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 and/or
a column for ASIG, Inc. do so because all amounts that would appear in the
column are zero.
11
<PAGE> 14
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)
(Unaudited)
6. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATION CONSOLIDATED
ASIG, INC. SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
--------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 236 $ 165 $ 331 $ -- $ 732
Accounts receivable, net 54 21,014 2,539 -- 23,607
Receivable from Viad 2,125 -- -- -- 2,125
Prepaid expenses 90 1,922 172 -- 2,184
Spare parts and supplies -- 2,390 29 -- 2,419
--------- -------- -------- -------- ---------
Total current assets 2,505 25,491 3,071 -- 31,067
Property, plant and equipment, net 69 47,090 2,987 -- 50,146
Due from affiliates 96,275 (87,014) 22,074 (31,335) --
Notes receivable from affiliates 11,642 -- -- (11,642) --
Goodwill, net -- 50,606 415 -- 51,021
Deferred financing costs, net 2,991 -- -- -- 2,991
Investment in consolidated subsidiaries 445 1,172 -- (1,617) --
Investments in and advances in joint
venture -- -- 300 -- 300
Other assets 4 273 6 -- 283
--------- -------- -------- -------- ---------
Total assets $ 113,931 $ 37,618 $ 28,853 $(44,594) $ 135,808
========= ======== ======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ -- $ 7,390 $ 901 $ -- 8,291
Due to affiliates 9,099 12,975 9,261 (31,335) --
Notes payable to affiliates -- -- 11,642 (11,642) --
Accrued expenses 1,256 4,729 6,093 -- 12,078
Customer deposits -- 3,270 87 -- 3,357
Current portion notes payable 500 899 8 -- 1,407
--------- -------- -------- -------- ---------
Total current liabilities 10,855 29,263 27,992 (42,977) 25,133
Notes payable 10,151 -- 21 -- 10,172
Long-term debt 80,000 -- -- -- 80,000
--------- -------- -------- -------- ---------
Total liabilities 101,006 29,263 28,013 (42,977) 115,305
Stockholder's equity:
Common stock -- 6 26 (32) --
Paid-in capital 27,800 441 1,144 (1,585) 27,800
Retained earnings (accumulated deficit) (14,875) 7,908 (424) -- (7,391)
Accumulated other comprehensive income -- -- 94 -- 94
--------- -------- -------- -------- ---------
Total stockholder's equity 12,925 8,355 840 (1,617) 20,503
--------- -------- -------- -------- ---------
Total liabilities and
stockholder's equity $ 113,931 $ 37,618 $ 28,853 $(44,594) $ 135,808
========= ======== ======== ======== =========
</TABLE>
12
<PAGE> 15
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)
6. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-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>
13
<PAGE> 16
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)
(Unaudited)
6. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended September 30, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR CONSOLIDATED
ASIG, INC. SUBSIDIARIES SUBSIDIARIES TOTAL
---------- ------------ ------------- ----------
<S> <C> <C> <C> <C>
Revenues $ -- $ 31,605 $ 3,525 $ 35,130
Cost and expenses:
Operating expenses 1 25,511 3,149 28,661
Selling, general and administrative -- 2,267 415 2,682
Amortization -- 686 5 691
Depreciation 4 1,535 139 1,678
------- -------- ------- --------
Total cost and expenses 5 29,999 3,708 33,712
------- -------- ------- --------
Operating income (loss) (5) 1,606 (183) 1,418
Other income (expense), net -- (1) 54 53
Interest income 2 29 -- 31
Interest and other financial expense (2,344) (63) (277) (2,684)
------- -------- ------- --------
Income (loss) before income taxes (2,347) 1,571 (406) (1,182)
Income taxes -- 27 -- 27
------- -------- ------- --------
Net income (loss) $(2,347) $ 1,544 $ (406) $ (1,209)
======= ======== ======= ========
</TABLE>
14
<PAGE> 17
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)
(Unaudited)
6. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended September 30, 1998
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR CONSOLIDATED
ASIG, INC. SUBSIDIARIES SUBSIDIARIES TOTAL
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ -- $ 25,156 $ 5,838 $ 30,994
Cost and expenses:
Operating expenses -- 20,333 4,804 25,137
Selling, general and administrative -- 1,703 286 1,989
Amortization 4 618 -- 622
Depreciation 4 1,345 125 1,474
------- -------- ------- --------
Total cost and expenses 8 23,999 5,215 29,222
------- -------- ------- --------
Operating income (loss) (8) 1,157 623 1,772
Other income (expense), net (3) 15 (121) (109)
Interest income 10 44 16 70
Interest and other financial expense (2,931) (17) (277) (3,225)
------- -------- ------- --------
Income (loss) before income taxes (2,932) 1,199 241 (1,492)
Income taxes -- -- 166 166
------- -------- ------- --------
Net income (loss) $(2,932) $ 1,199 $ 75 $ (1,658)
======= ======== ======= ========
</TABLE>
15
<PAGE> 18
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)
(Unaudited)
6. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
CONSOLIDATED STATEMENT OF OPERATIONS
Six Months Ended September 30, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR CONSOLIDATED
ASIG, INC. SUBSIDIARIES SUBSIDIARIES TOTAL
---------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Revenues $ -- $ 60,592 $ 7,119 $ 67,711
Cost and expenses:
Operating expenses 1 48,847 6,243 55,091
Selling, general and administrative -- 4,436 806 5,242
Amortization -- 1,335 11 1,346
Depreciation 9 3,188 281 3,478
------- -------- ------- --------
Total cost and expenses 10 57,806 7,341 65,157
------- -------- ------- --------
Operating income (loss) (10) 2,786 (222) 2,554
Other income (expense), net -- (3) 77 74
Interest income 3 37 7 47
Interest and other financial expense (4,561) (157) (551) (5,269)
------- -------- ------- --------
Income (loss) before income taxes (4,568) 2,663 (689) (2,594)
Income taxes -- 27 -- 27
------- -------- ------- --------
Net income (loss) $(4,568) $ 2,636 $ (689) $ (2,621)
======= ======== ======= ========
</TABLE>
16
<PAGE> 19
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)
(Unaudited)
6. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
CONSOLIDATED STATEMENT OF OPERATIONS
Six Months Ended September 30, 1998
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR CONSOLIDATED
ASIG, INC. SUBSIDIARIES SUBSIDIARIES TOTAL
---------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ -- $ 49,858 $ 11,385 $ 61,243
Cost and expenses:
Operating expenses -- 40,211 9,260 49,471
Selling, general and administrative -- 3,461 574 4,035
Amortization 7 1,218 -- 1,225
Depreciation 5 2,723 306 3,034
------- -------- -------- --------
Total cost and expenses 12 47,613 10,140 57,765
------- -------- -------- --------
Operating income (loss) (12) 2,245 1,245 3,478
Other income (expense), net (3) 27 (152) (128)
Interest income 17 96 27 140
Interest and other financial expense (6,461) (35) -- (6,496)
------- -------- -------- --------
Income (loss) before income taxes
and extraordinary item (6,459) 2,333 1,120 (3,006)
Income taxes -- -- 323 323
------- -------- -------- --------
Net income (loss) before extraordinary item (6,459) 2,333 797 (3,329)
Extraordinary loss on
early extinguishment of debt 213 -- -- 213
------- -------- -------- --------
Net income (loss) $(6,672) $ 2,333 $ 797 $ (3,542)
======= ======== ======== ========
</TABLE>
17
<PAGE> 20
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(AMOUNTS IN THOUSANDS)
(Unaudited)
6. SUPPLEMENTAL GUARANTOR FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
NON
GUARANTOR GUARANTOR CONSOLIDATED
ASIG, INC. SUBSIDIARIES SUBSIDIARIES TOTAL
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (867) $ (1,138) $ (616) $ (2,621)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of intangible assets 1 1,331 14 1,346
Depreciation 9 3,188 281 3,478
Amortization of deferred financing costs 286 -- -- 286
Deferred income taxes (2) (2)
(Gain)/Loss on sale of fixed assets (20) 11 (9)
Equity loss in joint venture -- -- (76) (76)
Changes in operating assets and
liabilities, net of acquisition:
Accounts receivable (54) (3,923) (1,382) (5,359)
Due from (to) affiliates -- 1,277 (1,277) --
Prepaid expenses (72) (1,300) (142) (1,514)
Spare parts and supplies -- (323) (1) (324)
Other assets 130 (117) 2 15
Accounts payable (153) 2,788 421 3,056
Accrued expenses (6,291) 2,199 2,819 (1,273)
Customer deposits -- (128) (3) (131)
------- -------- ------- --------
Net cash provided by (used in) operating
activities (7,011) 3,834 49 (3,128)
INVESTING ACTIVITIES
Purchases of property, plant and equipment -- (5,122) (654) (5,776)
Change in Goodwill 7 (7) --
Purchase of Elsinore, LP 23 (5,920) -- (5,897)
------- -------- ------- --------
Net cash used in investing activities 23 (11,035) (661) (11,673)
FINANCING ACTIVITIES
Revolving Credit Facility 2,798 51 21 2,870
Proceeds from Key Term Note, net 4,375 500 (49) 4,826
Proceeds from Equity Contribution 3,700 3,700
Notes Payable to General Lyon 899 899
Deferred financing costs (73) -- -- (73)
------- -------- ------- --------
Net cash provided by financing activities 7,100 5,150 (28) 12,222
------- -------- ------- --------
Net increase (decrease) in cash 112 (2,051) (640) (2,579)
Cash at beginning of period 124 2,216 971 3,311
------- -------- ------- --------
Cash at end of period $ 236 $ 165 $ 331 $ 732
======= ======== ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 5,000 $ -- $ -- $ 5,000
======= ======== ======= ========
Taxes paid $ -- $ 27 $ 81 $ 108
======= ======== ======= ========
</TABLE>
18
<PAGE> 21
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)
(Unaudited)
6. SUPPLEMENTAL GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
NON
GUARANTOR GUARANTOR CONSOLIDATED
ASIG, INC. SUBSIDIARIES SUBSIDIARIES TOTAL
--------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (6,128) $ 1,789 $ 797 $ (3,542)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of intangible assets 7 1,218 -- 1,225
Depreciation 5 2,723 306 3,034
Amortization of deferred financing costs 2,338 -- -- 2,338
Extraordinary loss 213 213
Deferred income taxes 14 14
(Gain)/Loss on sale of fixed assets 17 17
Equity loss in joint venture -- -- 40 40
Changes in operating assets and
liabilities, net of acquisition:
Accounts receivable -- (2,068) 268 (1,800)
Due from (to) affiliates (3,703) 4,244 (541) --
Prepaid expenses -- (887) (58) (945)
Spare parts and supplies -- (386) 1 (385)
Other assets 363 (6) 357
Accounts payable (11) (1,157) 264 (904)
Accrued expenses (83) 1,456 1,108 2,481
Customer deposits -- 851 24 875
-------- ------- ------- --------
Net cash provided by (used in) operating
activities (7,362) 8,163 2,217 3,018
INVESTING ACTIVITIES
Purchases of property, plant and equipment (57) (6,176) (104) (6,337)
Purchase of ASIG business (88,487) -- -- (88,487)
Advances to joint venture -- -- 19 19
-------- ------- ------- --------
Net cash used in investing activities (88,544) (6,176) (85) (94,805)
FINANCING ACTIVITIES
Issuance of common stock 24,100 -- -- 24,100
Borrowings, net 75,900 -- -- 75,900
Deferred financing costs (3,462) -- -- (3,462)
-------- ------- ------- --------
Net cash provided by financing activities 96,538 -- -- 96,538
-------- ------- ------- --------
Net increase in cash 632 1,987 2,132 4,751
Cash at beginning of period -- 1 -- 1
-------- ------- ------- --------
Cash at end of period $ 632 $ 1,988 $ 2,132 $ 4,752
======== ======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 3,065 $ -- $ -- $ 3,065
======== ======= ======= ========
</TABLE>
19
<PAGE> 22
PART I, ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Certain statements contained with this report may be deemed
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended (collectively, the "Private Securities Litigation Reform Act of
1995"). All statements in this report other than statements of historical fact
are forward-looking statements that are subject to known and unknown risks,
uncertainties and other factors, which could cause actual results and
performance of the Company to differ materially from such statements. The words
"believe," "expect," "anticipate," "intend," "will," and similar expressions
identify forward-looking statements. In addition, forward-looking statements
contained herein relate to, among other things, (i) anticipated financial
performance, (ii) ability to comply with the Company's general working capital
requirements, (iii) ability to generate sufficient cash flow from operations to
fund all costs of operations and (iv) "Year 2000" computer issues. While the
Company believes the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance such expectations will prove to have
been correct. There are a variety of factors which would cause future outcomes
to differ materially from those described in this report, including, but not
limited to, (i) general economic conditions, (ii) inability to maintain
profitability, (iii) material reduction in revenues, (iv) inability to collect
in a timely manner a material amount of receivables, (v) increased competitve
pressures, (vi) inability to obtain required permits and approvals to conduct
operations, (vii) changes in federal, state and local laws and regulations,
especially aircraft regulations, or interpretation of such, (viii) potential
increases in equipment, maintenance, operating or labor costs, (ix) management
retention and development, (x) the requirement to use internally generated funds
for purposes not presently anticipated, (xi) inability or failure to convert the
computer systems of the Company's key suppliers, customers, creditors and
financial service organizations, in order to be "Year 2000" compliant, (xii) the
adverse affect on the Company's customers resulting from the increase in the
price or the decrease in the availability of aviation fuel, (xiii) risks
associated with doing business in foreign countries and with foreign customers
and (xiv) the loss of one or more of the Company's significant customers. The
Company undertakes no obligations to update publicly any forward-looking
statement, whether as a result of new information, future events or otherwise.
20
<PAGE> 23
Results of Operations
The following table summarizes the Company's results of operations for
the periods indicated (dollars in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, SIX MONTHS ENDED SEPTEMBER 30,
------------------------------------------ ----------------------------------------
1999 1998 1999 1998
------------------ ------------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $35.1 100.0% $31.0 100.0% $67.7 100.0% $61.2 100.0%
Costs and expenses:
Operating expenses 28.6 81.5% 25.1 81.0% 55.1 81.2% 49.5 80.8%
Selling, general and administrative 2.7 7.7% 2.0 6.4% 5.2 7.7% 4.0 6.5%
Depreciation and amortization 2.4 6.8% 2.1 6.8% 4.8 7.1% 4.2 6.9%
------------------ ------------------- ----------------- -----------------
Operating income $ 1.4 4.0% $ 1.8 5.8% $ 2.6 3.8% $ 3.5 5.7%
================== =================== ================= =================
Net income (loss) after
extraordinary item $(1.2) (3.4)% $(1.7) (5.5)% $(2.6) (3.8)% $(3.5) (5.7)%
================== =================== ================= =================
EBITDA $ 3.8 10.8% $ 3.9 12.6% $ 7.4 10.9% $ 7.7 12.6%
================== =================== ================= =================
</TABLE>
EBITDA is defined herein as net income (loss) before interest, income
taxes, depreciation, amortization, extraordinary items and other income/(loss).
Although EBITDA is not a measure of performance calculated in accordance with
generally accepted accounting principles ("GAAP"), 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.
Summary Three and Six Months Ended September 30, 1999 and 1998
The Company's business includes aviation fueling services; aircraft
ground services and other aviation services. 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). The Company acquired the business of Elsinore,
L.P. on May 20, 1999 (See Note 3 to Notes to Consolidated Financial Statements)
and Gatwick Handling on January 12, 1999.
21
<PAGE> 24
Revenues for the quarter ended September 30, 1999 increased $4.1
million or 13.2% from $31.0 million to $35.1 million. Included in the revenue
for the quarter ended September 30, 1998 is $3.3 million of revenue from the
British Airways grooming contract that was lost in January 1999. Included in the
revenue for the quarter ended September 30, 1999 is $3.7 million of revenue from
the acquisitions of Elsinore, L.P. and Gatwick Handling. In addition, the
Company sustained a one-time revenue loss of $0.3 million in September 1999 due
to temporary station closures caused by Hurricane Floyd. Thus, for the quarter
ended September 30, 1999, core business (business excluding the British Airways
grooming contract, the acquisitions of Elsinore, L.P. and Gatwick Handling and
the impact of Hurricane Floyd) revenue increased $4.0 million or 14.4%. Revenues
for the six months ended September 30, 1999 increased $6.5 million or 10.6% from
$61.2 million to $67.7 million. Included in the revenue for the six months ended
September 30, 1998 is $6.2 million of revenue from the British Airways grooming
contract that was lost in January 1999. Included in the revenue for the six
months ended September 30, 1999 is $5.6 million of revenue from the acquisitions
of Elsinore, L.P. and Gatwick Handling. In addition, the Company sustained a
one-time revenue loss of $0.3 million in September 1999 due to temporary station
closures caused by Hurricane Floyd. Thus, for the six months ended September 30,
1999, core business (business excluding the British Airways grooming contract,
the acquisitions of Elsinore, L.P. and Gatwick Handling and the impact of
Hurricane Floyd) revenue increased $7.4 million or 13.5%.
Operating expenses for the quarter ended September 30, 1999 increased
$3.5 million or 13.9% from $25.1 million to $28.6 million. Included in the
operating expenses for the quarter ended September 30, 1998 is $2.6 million of
operating expenses from the British Airways grooming contract that was lost in
January 1999. Included in the operating expenses for the quarter ended September
30, 1999 is $3.3 million of operating expenses from the acquisitions of
Elsinore, L.P. and Gatwick Handling. Thus, for the quarter ended September 30,
1999, core business (business excluding the British Airways grooming contract,
the acquisitions of Elsinore, L.P. and Gatwick Handling and the impact of
Hurricane Floyd) operating expenses increased $2.8 million or 12.4%. Core
business operating expenses compared to core business revenues equaled 81.0%
versus 81.1% for the comparable quarter in 1998. Operating expenses for the six
months ended September 30, 1999 increased $5.6 million or 11.3% from $49.5
million to $55.1 million. Included in the operating expenses for the six months
ended September 30, 1998 is $4.3 million of operating expenses from the British
Airways grooming contract that was lost in January 1999. Included in the
operating expenses for the six months ended September 30, 1999 is $5.6 million
of operating expenses from the acquisitions of Elsinore, L.P. and Gatwick
Handling. Thus, for the six months ended September 30, 1999, core business
(business excluding the British Airways grooming contract, the acquisitions of
Elsinore, L.P. and Gatwick Handling and the impact of Hurricane Floyd) operating
expenses increased $4.3 million or 9.5%. Core business operating expenses
compared to core business revenues equaled 80.5% versus 81.0% for the comparable
six months in 1998.
Selling, general and administrative expenses for the quarter ended
September 30, 1999 increased $0.7 million or 35% from $2.0 million to $2.7
million. This increase in the selling, general and administrative expenses for
the quarter ended September 30, 1999 is mainly attributable to an increase in
administrative payroll and fringes of $0.3 million. The increase in salaries is
mainly attributable to the hiring of the new CFO and VP/Controller while
continuing to pay the consulting agreements for the departed VP Finance and
Controller. Futhermore, one-time expenses for acquisition and accounting costs
of $0.2 million were incurred in the quarter ended September 1999. Selling,
general and administrative expenses for the six months ended September 30, 1999
increased $1.2 million or 30% from $4.0 million to $5.2 million. This increase
in the selling, general and administrative expenses for the six months ended
September 30, 1999 is mainly attributable to an increase in administrative
payroll and fringes of $0.4 million. The increase in salaries is mainly
attributable to the hiring of the new CFO and VP/Controller while continuing to
pay the consulting agreements for the departed VP Finance and Controller.
Futhermore, one-time expenses for acquisition and accounting costs of $0.5
million and bank fees of $0.1 million were incurred for the six months ended
September 1999.
Depreciation and amortization expense increased $0.3 million or 14.3%
for the quarter ended September 30, 1999 as compared to the same period last
year due to the addition of Elsinore, L.P. and Gatwick Handling, as well as, the
depreciation of the leasehold improvements before the re-valuation done at March
31, 1999. Depreciation and amortization expense increased $0.6 million or 14.3%
for the six months ended September 30, 1999, over the same period last year due
to the addition of Elsinore, L.P. and Gatwick Handling, as well as, the
depreciation of the leasehold improvements before the re-valuation done at March
31, 1999.
Interest expense decreased $0.5 million for the quarter ended September
30, 1999 as compared to the same period last year due to higher amortization of
deferred financing costs in the prior year. Interest expense decreased $1.4
million for the six months ended September 30, 1999 as compared to the same
period last year due to the higher amortization of deferred financing costs in
the prior year.
EBITDA for the quarter ended September 30, 1999 decreased $0.1 million
or 2.6% from $3.9 million to $3.8 million. Included in the EBITDA for the
quarter ended September 30, 1998 is $0.7 million of EBITDA from the British
Airways grooming contract that was lost in January 1999. Included in the EBITDA
for the quarter ended September 30, 1999 is $0.4 million of EBITDA from the
acquisitions of Elsinore, L.P. and Gatwick Handling and a loss due to Hurricane
Floyd of $0.1 million. Thus, core business (business excluding the British
Airways grooming contract, the acquisitions of Elsinore, L.P. and Gatwick
Handling and the impact of Hurricane Floyd) EBITDA increased $0.3 million or
9.4%. EBITDA for the six months ended September 30, 1999 decreased $0.3 million
or 3.9% from $7.7 million to $7.4 million. Included in the EBITDA for the six
months ended September 30, 1998 is $1.1 million of EBITDA from the British
Airways grooming contract that was lost in January 1999. Included in the EBITDA
for the six months ended September 30, 1999 is $0.6 million of EBITDA from the
acquisitions of Elsinore, L.P. and Gatwick Handling and a loss due to Hurricane
Floyd of $0.1 million. Thus, core business (business excluding the British
Airways grooming contract, the acquisitions of Elsinore, L.P. and Gatwick
Handling and the impact of Hurricane Floyd) EBITDA increased $0.3 million or
4.5%.
Liquidity and Capital Resources
Net cash used in operating activities was $3.1 million for the six
months ended September 30, 1999, as compared to $3.0 million cash provided by
operating activities for the same period of 1998. The net cash provided by
operating activities decreased primarily due to a $5.3 million increase in
accounts receivable due to the acquisition of Elsinore, L.P. and Gatwick
Handling, new contracts won and a $1.5
22
<PAGE> 25
million increase in prepaid expenses primarily relating to the Epsilon lease.
These funds will be released to us within the current fiscal year.
Net cash used in investing activities was $11.7 million for the six
months ended September 30, 1999 as compared to $94.4 million for the same period
of 1998. The decrease in cash used was primarily attributable to the acquisition
of the Company for $88.0 million during the six months ended September 30, 1998.
For the six months ended September 30, 1999 net cash used includes the purchase
price of Elsinore, L.P. of approximately $5.9 million.
Net cash provided by financing activities was $12.2 million for the six
months ended September 30, 1999 as compared to $4.7 million for the six months
ended September 30, 1998. This increase is primarily due to a new term loan of
$5.0 million from Key Bank and an equity contribution of $3.7 million from
Ranger Aerospace.
Our primary sources of liquidity are from cash flow provided by
operations and borrowings under our Senior Credit Facility. Based upon the
successful implementation of management's business and operating strategy, we
believe that these funds will provide sufficient liquidity and capital resources
to meet current and future financial obligations, including the payment of
principal and interest on the Notes, as well as, to provide funds for our
working capital, capital investments and other needs for the next twelve months.
Our future operating performance and ability to service or refinance the Notes
and to repay, extend or refinance the Senior Credit Facility will be subject to
future economic conditions and to financial, business and other factors, many of
which are beyond our control. There can be no assurance that such sources of
funds will be adequate and that we will not require additional capital from
borrowings or securities offerings to satisfy such requirements. In addition,
there can be no assurance that we will have sufficient available capital
resources to realize our acquisition strategy. Such future acquisitions,
depending on their size and the form of consideration, may require us to seek
additional debt or equity financing.
Year 2000 Issue
The staff of the Securities and Exchange Commssion has indicated that
each public company should discuss its "Year 2000" issues. The Year 2000 issue
arises because many computer systems were designed to identify a year using only
two digits, instead of four digits, in order to conserve memory and other
resources. For instance, "1999" would be held in the memory of a computer as
"99".
When the year changes from 1999 to 2000, a two digit system would read
the year as changing from "99" to "00." For a variety of reasons, many computer
systems are not designed to make such a date change or are not designed to
"understand" or react appropriately to such a date change. Therefore, as the
date changes to the year 2000, many computer systems could completely stop
working or could perform in an unpredictable manner.
The Company has conducted a review of its computer systems to identify
the systems which it anticipated could be affected by the Year 2000 issue, and
the Company believes that all such systems, were already, or are being converted
to be, Year 2000 compliant. Such conversion, where required, did not entail
material expenditures by the Company. Pursuant to the Company's Year 2000
planning, the Company has requested information regarding the computer systems
of its key suppliers, customers, creditors, and financial service organizations
and has been informed that they are substantially Year 2000 compliant. There can
be no assurance, however, that such key organizations are actually year 2000
compliant and that the year 2000 issue will not adversely affect the Company's
financial position or results of operations. The Company believes that its
expenditures in addressing its Year 2000 issues will not have a material adverse
effect on the Company's financial position or results of operations.
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
23
<PAGE> 26
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.
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 September 30, 1999, there was approximately $5.8 million
outstanding under the revolving loans (at an interest rate of 8.25% at such
time) and $4.9 million outstanding under the term loan (at an interest rate of
8.75% 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.
24
<PAGE> 27
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
There are no additional material legal proceedings pending against the
Company and/or its subsidiaries not previously reported by the Company in Item 3
of its Form 10-K for the year ended March 31, 1999.
Item 5. Other Information
Key Employee Change
On August 2, 1999, the Company appointed Jeffrey P. Hartman, Sr. Vice
President and Chief Financial Officer. Mr. Hartman came to the Company from
Signature Flight Support Corporation where he served as the Vice President of
Finance since 1993. Prior to 1993, Mr. Hartman was an audit manager with KPMG,
LLP. Mr. Hartman is a Certified Public Accountant who received both a Masters
Degree in Accounting and a Masters of Business Administration from Northeastern
University in Boston, Massachusetts.
Mr. Michael Krane who was the former acting Chief Financial Officer and
Vice President of Finance resigned from the Company effective October 8, 1999.
Effective May 21, 1999, Ms. Shirley O'Connor was appointed Vice
President of the Company and effective October 8, 1999 she assumed the position
of Vice President of Finance/Controller. Ms. O'Connor was previously the Chief
Financial Officer for Elsinore Aviation, L.P., which was acquired by the Company
in May 1999. Ms. O'Connor is a Certified Public Accountant who received a
Masters Degree in Taxation from California State University in Fullerton,
California.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No report on Form 8-K was filed by the Company during the
second quarter of 2000.
25
<PAGE> 28
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.
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
By: /s/ Jeffrey P. Hartman
--------------------------------------
Jeffrey P. Hartman
Sr. Vice President and Chief Financial Officer
Date: November 15, 1999
26
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AIRCRAFT SERVICE INTERNATIONAL GROUP, INC. FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
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