<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 December 31, 1998
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 No X
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 February 10,
1998.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
ASSETS (Successor) (Successor)
----------- -----------
(unaudited)
<S> <C>
Current assets:
Cash $ 2,109 $ 0.1
Accounts receivable, net of allowance of $531....................................... 22,100
Prepaid expenses.................................................................... 1,182
Spare parts and supplies............................................................ 2,076
-------- --------
Total current assets....................................................... 27,467
Property, plant and equipment, net....................................................... 47,350
Intangibles, net of accumulated amortization of $1,850 .................................. 47,358
Investments in and advances to joint venture............................................. 272
Deferred financing costs, net of accumulated amortization of $166........................ 2,884
Other assets 444
-------- --------
Total assets............................................................... $125,775 $ 0.1
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.................................................................... $ 4,439
Accrued expenses.................................................................... 17,716
Customer deposits................................................................... 3,274
-------- --------
Total current liabilities.................................................. 25,429
Long-term debt........................................................................... 80,000
Deferred income taxes.................................................................... 15
Commitments
Stockholder's equity:
Common stock; $0.01 par value; 1,000 shares authorized; 100 shares issued and
outstanding....................................................................... --
Paid-in capital..................................................................... 24,100 $ 0.1
Cumulative translation adjustment................................................... 111
Retained deficit.................................................................... (3,880)
-------- --------
Total stockholder's equity................................................. 20,331 0.1
-------- --------
Total liabilities and stockholder's equity................................. $125,775 $ 0.1
======== ========
</TABLE>
See accompanying notes.
1
<PAGE> 3
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------------- ------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
(CONSOLIDATED) (COMBINED) (CONSOLIDATED) (COMBINED)
(SUCCESSOR) (PREDECESSOR) (SUCCESSOR) (PREDECESSOR)
<S> <C> <C> <C> <C>
Revenues.................................................... $31,751 $30,555 $ 92,994 $89,509
Costs and expenses:
Operating expenses....................................... 25,709 25,267 75,179 72,916
Selling, general and administrative...................... 2,054 2,138 6,091 5,749
Depreciation and amortization............................ 2,224 1,137 6,484 3,432
------- ------- -------- -------
Total costs and expenses...................... 29,987 28,542 87,754 82,097
------- ------- -------- -------
Operating income............................................ 1,764 2,013 5,240 7,412
------- ------- -------- -------
Other income (expense), net................................. (21) (189) (201) (107)
Interest income............................................. 56 124 197 312
Interest and other financial expense........................ (2,362) (174) (8,856) (504)
------- ------- -------- -------
Income (loss) before income taxes........................... (563) 1,774 (3,620) 7,113
Income tax expense (benefit)................................ (276) 654 47 2,668
------- ------- -------- -------
Net income (loss) before extraordinary item................. (287) 1,120 (3,667) 4,445
Extraordinary loss on early extinguishment of debt.......... -- -- (213) --
------- ------- -------- -------
Net income (loss)........................................... $ (287) $ 1,120 $ (3,880) $ 4,445
======= ======= ======== =======
Basic and diluted loss per share:
Before extraordinary item................................... $(2,870) $(36,660)
======= ========
Extraordinary loss.......................................... $ 0 $ (2,130)
======= ========
Net loss.................................................... $(2,870) $(38,800)
======= ========
Weighted average common shares outstanding-basic and diluted 100 100
======= ========
</TABLE>
See accompanying notes.
2
<PAGE> 4
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
------------------------------
1998 1997
-------------- -------------
(CONSOLIDATED) (COMBINED)
(SUCCESSOR) (PREDECESSOR)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)..................................................................... $(3,880) $ 4,445
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization.................................................... 6,484 3,432
Amortization of deferred financing costs......................................... 2,691 --
Extraordinary loss............................................................... 213 --
Deferred income taxes............................................................ 8 (458)
Equity loss in joint venture..................................................... 183 133
Changes in operating assets and liabilities:
Accounts receivable.......................................................... (5,137) (1,426)
Prepaid expenses............................................................. (1,064) (189)
Spare parts and supplies..................................................... (257) (119)
Other assets................................................................. (157) (137)
Accounts payable............................................................. (1,009) 522
Accrued expenses............................................................. 3,893 (1,588)
Customer deposits............................................................ 841 385
-------- -------
Net cash provided by operating activities............................................. 2,809 5,000
INVESTING ACTIVITIES
Purchases of property, plant and equipment............................................ (8,517) (2,549)
Purchase of ASIG business, less cash acquired of $6,513............................... (88,487) --
Advances to joint venture, net........................................................ (200) (323)
-------- -------
Net cash used in investing activities................................................. (97,204) (2,872)
FINANCING ACTIVITIES
Issuance of common stock.............................................................. 24,100 --
Borrowings, net....................................................................... 77,703 --
Deferred financing costs.............................................................. (5,299) -
Payments on notes payable............................................................. -- (91)
Advances to Parent, net............................................................... -- (2,812)
------- -------
Net cash provided by (used in) financing activities................................... 96,504 (2,903)
Net increase in cash.................................................................. 2,109 (775)
Cash at beginning of period........................................................... 775
Cash at end of period................................................................. $ 2,109 $ --
======= =======
</TABLE>
See accompanying notes.
3
<PAGE> 5
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
1. 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., Aircrafts
Service, Ltd., ASII Holding GmbH, and ASII Aircraft Service Canada Ltd.
(collectively the "ASIG business" or "Predecessor") from Viad Corp ("Viad") and
Viad Service Companies, Limited as of April 1, 1998 pursuant to a share purchase
agreement (the "Acquisition"). Prior to its Acquisition by the Company, the ASIG
business was operated by Viad under the divisional name of Aircraft Services
International Group. The operations of the ASIG business are included in the
accompanying consolidated interim financial statements beginning on April 1,
1998. The Company is 100% owned by Ranger Aerospace Corporation. Prior to April
1, 1998, the Company had no operations.
The purchase price of the Acquisition was $95 million in cash, plus fees
and expenses of $4.1 million. The purchase price is 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 Share
Purchase Agreement) of the ASIG business from the levels represented at the
closing of the Acquisition. The purchase price is 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.
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
allocation of the purchase price is preliminary pending finalization of
appraisals and other estimates. The excess of the purchase price over the fair
value of net assets acquired of approximately $49.0 million is classified as
goodwill and other intangibles and is generally being amortized over 20 years.
The following is a summary of the purchase price allocation:
<TABLE>
<CAPTION>
<S> <C>
Net working capital, including cash of $6,513....................................... $ 3,879
Property, plant and equipment....................................................... 43,259
Other assets........................................................................ 3,056
Intangibles......................................................................... 48,906
-------
$99,100
=======
</TABLE>
The purchase price was funded as follows:
<TABLE>
<CAPTION>
<S> <C>
Sale of 100 shares of common stock, $0.01 par value, to Ranger Aerospace Corporation...... $24,100
Borrowings under Senior Increasing Rate Notes (see Note 6)................................ 75,000
-------
$99,100
=======
</TABLE>
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 Bahamas.
4
<PAGE> 6
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Prior to the Acquisition, the accounts of the ASIG
business were not presented on a combined basis as those of a separate reporting
entity. Accordingly, the predecessor information included in the accompanying
consolidated financial statement of operations and cash flows for the three and
nine months ended December 1997, respectively, were carved out of Viad's
historical accounting records. All significant intercompany balances and
transactions were eliminated.
SPARE PARTS AND SUPPLIES
Spare parts and supplies are valued at the lower of cost or market. Cost is
computed using the first-in first-out cost method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is recorded
using the straight-line method over the estimated useful lives of the assets,
which ranges from 4 to 20 years for operating equipment, 20 to 30 years for
buildings, and 3 to 10 years for office furniture and equipment. Leasehold
improvements are amortized over the life of the lease or the related asset,
whichever is shorter. Maintenance and repairs are charged to expense when
incurred. Significant expenditures, which extend the useful lives of assets, are
capitalized.
FOREIGN CURRENCY TRANSLATION
For the Company's 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. Translation adjustments resulting from
the changes in exchange rates from year to year are recorded as a separate
component of stockholders' equity.
INVESTMENTS IN AND ADVANCES TO JOINT VENTURE
The Company accounts for its investment in a 50% owned joint venture under
the equity method of accounting. The joint venture, Omni Aircraft Service GmbH,
located in Munich, Germany, provides aviation fueling and aircraft ground
services at Munich International Airport.
Intangible assets consist of the excess of net assets acquired over
liabilities assumed, which is being amortized on the straight-line basis over 20
years, and other identifiable intangible assets, including covenants not to
compete, which are being amortized on the straight-line basis over their
respective lives.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for the impairment of long-lived assets under
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS No. 121). SFAS No. 121 requires impairment losses to be recorded on
long-lived assets when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. The Company believes no impairment indicators exist at December
31, 1998.
5
<PAGE> 7
AIRCRAFT SERVICE INTERNATIONALGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNANDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
NET LOSS PER COMMON SHARE
In 1998, the Company 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.
COMPREHENSIVE INCOME
In accordance with Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income," the Company had a comprehensive loss of $3,769
and $324, which consisted of a net loss and unrealized foreign currency
translation losses/gains, for the nine months and three months ended December
31, 1998, respectively.
CONCENTRATION OF CREDIT RISK
The Company provides services to domestic and foreign airlines and
continually monitors its exposure for credit losses. The Company limits its
exposure by requiring prepayments or deposits from certain customers.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INTERIM FINANCIAL DATA
In the opinion of management, the accompanying unaudited interim
consolidated financial statements include all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the consolidated
financial position of the Company as of December 31, 1998, the consolidated
results of operations for the three and nine months ended December 31, 1998, and
the combined results of operations of the ASIG business for the three and nine
months ended December 31, 1997. Results of operations for the three and nine
months ended December 31, 1998 are not necessarily indicative of the results to
be expected for the full fiscal year.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, accounts receivable, accounts payable, and
accrued expenses in the accompanying financial statements approximate their fair
value because of their short maturity.
6
<PAGE> 8
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
DECEMBER 31, 1998
-----------------
Operating equipment......................................... $37,599
Buildings and leasehold improvements........................ 6,785
Office furniture and equipment.............................. 1,565
Construction in progress.................................... 6,014
-------
51,963
Accumulated depreciation and amortization................... (4,613)
-------
$47,350
=======
4. ACCRUED EXPENSES
Accrued expenses consisted of the following:
DECEMBER 31, 1998
-----------------
Salaries and wages.......................................... $ 4,049
Damage claims............................................... 1,447
Accrued interest............................................ 3,279
Other....................................................... 8,941
-------
Total..................................................... $17,716
=======
5. 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. 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 will be
guaranteed by each of the Company's 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 will 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 will be 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 will be 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 were no amounts outstanding under the Senior Credit
Facility as of December 31, 1998.
7
<PAGE> 9
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
6. LONG-TERM DEBT
On April 2, 1998, the Company issued $75 million of notes (the "Senior
Increasing Rate Notes"). 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 "Senior Notes"). The proceeds from the Senior Notes were
used to repay the Senior Increasing Rate Notes. The Senior Notes mature in
August, 2005, and bear interest at 11%, payable semiannually on each February 15
and August 15, commencing February 15, 1999. The Senior 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 100.0% 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 Senior Notes at any time on or prior to August 15, 2001,
at a redemption price equal to 111.0% 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 Senior 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 Senior Notes), each holder
of the Senior Notes is entitled to require the Company to repurchase such Senior
Notes at a premium of 101%. The Senior Notes are fully and unconditionally
guaranteed, on an unsecured basis, by the Company's domestic subsidiaries (see
Note 8).
The Senior 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.
7. 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.
8
<PAGE> 10
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
8. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING/COMBINING FINANCIAL
STATEMENTS
The Notes are guaranteed on a senior unsecured basis, jointly and
severally, by each of the Company's domestic operating subsidiaries (the
"Guarantors"). The Guarantors are Aircraft Services International, Inc.,
Dispatch Services, Inc., and Florida Aviation Fueling Co., each of which is a
wholly-owned subsidiary of the Company. The condensed consolidating/combining
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 Guarantors are jointly,
severally and unconditionally liable under the guarantees, and the Company
believes the condensed consolidating/combining financial statements presented
are more meaningful in understanding the financial position and results of
operations of the Guarantors.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------------------------
GUARANTOR NON-GUARANTOR ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash..................................................... $ -- $ 2,109 $ 2,109
Accounts receivable, net................................. 20,976 1,124 22,100
Prepaid expenses......................................... 1,148 34 1,182
Spare parts and supplies................................. 2,031 45 2,076
-------- ------- -------- --------
Total current assets............................... 24,155 3,312 27,467
Property, plant and equipment, net.......................... 44,552 2,798 47,350
Due from (to) affiliates.................................... 3,049 13,684 $(16,733) --
Notes receivable due from (to) affiliates................... 10,819 -- (10,819) --
Intangibles, net............................................ 47,358 -- 47,358
Investment in consolidated subsidiaries................... 2,079 -- (2,079) --
Investments in and advances to joint venture................ -- 272 272
Deferred financing costs.................................... 2,884 -- 2,884
Other assets .............................................. 440 4 444
-------- ------- -------- --------
Total Assets....................................... $135,336 $20,070 $(29,631) $125,775
======== ======= ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable......................................... $ 3,943 $ 496 $ 4,439
Due from (to) affiliates................................. 13,684 3,049 $(16,733) --
Notes Payable due from (to) affiliates................... -- 10,819 (10,819) --
Accrued expenses......................................... 14,526 3,190 17,716
Customer deposits........................................ 3,177 97 3,274
-------- ------- -------- --------
Total current liabilities.......................... 35,330 17,651 (25,498) 25,429
Deferred income taxes -- 15 -- 15
Long-term debt.............................................. 80,000 -- 80,000
Stockholder's equity:
Common stock............................................. -- 935 (935) --
Paid-in capital.......................................... 24,100 1,144 (1,144) 24,100
Cumulative translation adjustment........................ -- 111 111
Retained earnings (deficit) (4,094) 214 -- (3,880)
-------- ------- -------- --------
Total stockholder's equity......................... 20,006 2,404 (2,079) 20,331
-------- ------- -------- --------
Total liabilities and stockholder's equity......... $135,336 $20,070 $(29,631) $125,775
======== ======= ======== ========
</TABLE>
9
<PAGE> 11
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
8. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING/COMBINING FINANCIAL
STATEMENTS - (CONTINUED)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, 1998 NINE MONTHS ENDED DECEMBER 31, 1998
---------------------------------------------------- -----------------------------------------------------
GUARANTOR NON-GUARANTOR ELIMINATION CONSOLIDATED GUARANTOR NON-GUARANTOR ELIMINATION CONSOLIDATED
SUCCESSOR SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
- --------- ------------ ------------ ----------- ------------ ------------ ------------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............... $26,105 $5,646 $ $31,751 $75,962 $17,032 $ $92,994
Costs and expenses:
Operating expenses.. 20,540 5,169 25,709 60,751 14,428 75,179
Selling, general and
administrative..... 1,713 341 2,054 5,174 917 6,091
Depreciation and
amortization....... 2,096 128 2,224 6,049 435 6,484
------- ------ ------ ------- ------- ------- ----- -------
Total costs and
expenses....... 24,349 5,638 -- 29,987 71,974 15,780 -- 87,754
------- ------ ------ ------- ------- ------- ----- -------
Operating Income....... 1,756 9 -- 1,764 3,988 1,252 -- 5,240
------- ------ ------ ------- ------- ------- ----- -------
Other income (expense),
net................ (2) (19) (21) 21 (222) (201)
Interest income...... 34 22 56 148 49 197
Interest and other
financial expense... (2,086) (276) (2,362) (8,038) (818) (8,856)
------- ------ ------ ------- ------- ------- ----- -------
Income (loss) before
income taxes........ (298) (265) -- (563) (3,881) 261 -- (3,620)
------- ------ ------ ------- ------- ------- ----- -------
Income taxes ....... -- (276) (276) -- 47 47
------- ------ ------ ------- ------- ------- ----- -------
Net income (loss)
before extraordinary
item................ (298) 11 (287) (3,881) 214 (3,667)
Extraordinary loss on
early extinguishment
of debt............. -- -- -- -- (213) -- -- (213)
------- ------ ------ ------- ------- ------- ----- -------
Net income (loss).... $ (298) $ 11 $ -- $ (287) $(4,094) $ 214 $ -- $(3,880)
======= ====== ====== ======= ======= ======= ===== =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, 1998 NINE MONTHS ENDED DECEMBER 31, 1998
--------------------------------------------------- ----------------------------------------------------
GUARANTOR NON-GUARANTOR ELIMINATION COMBINED GUARANTOR NON-GUARANTOR ELIMINATION COMBINED
PREDECESSOR SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
- ----------- ------------ ------------ ----------- -------- ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.............. $25,110 $5,445 $ $30,555 $74,471 $15,038 $ $89,509
Costs and expenses:
Operating expenses 20,874 4,393 25,267 60,772 12,144 72,916
Selling, general
and administrative.. 1,863 275 2,138 4,962 787 5,749
Depreciation and
amortization....... 970 167 1,137 2,999 433 3,432
------- ------ ------ ------- ------- ------- ----- -------
Total costs and
expenses...... 23,707 4,835 -- 28,542 68,733 13,364 -- 82,097
------- ------ ------ ------- ------- ------- ----- -------
Operating Income..... 1,403 610 -- 2,013 5,738 1,674 -- 7,412
------- ------ ------ ------- ------- ------- ----- -------
Other income (expense),
net.................. 6 (195) (189) 20 (127) (107)
Interest income....... 75 49 124 202 110 312
Interest and other
financial expense.... (174) -- (174) (504) -- (504)
------- ------ ------ ------- ------- ------- ----- -------
Income before income
taxes................ 1,310 464 -- 1,774 5,456 1,657 -- 7,113
------- ------ ------ ------- ------- ------- ----- -------
Income taxes.......... 528 126 654 2,273 395 2,668
------- ------ ------ ------- ------- ------- ----- -------
Net income ........... $ 782 $ 338 $ -- $ 1,120 $ 3,183 $ 1,262 $ -- $ 4,445
======= ====== ====== ======= ======= ======= ===== =======
</TABLE>
10
<PAGE> 12
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
8. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING/COMBINING FINANCIAL
STATEMENTS - (CONTINUED)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31, 1998
----------------------------------------------------------------------
GUARANTOR NON-GUARANTOR ELIMINATION CONSOLIDATED
SUCCESSOR SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
- --------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................... $ (4,094) $ 214 $ $ (3,880)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization.................. 6,049 435 6,484
Amortization of deferred financing costs....... 2,691 -- 2,691
Extraordinary loss............................. 213 -- 213
Deferred income taxes.......................... -- 8 8
Equity loss in joint venture................... -- 183 183
Changes in operating assets and liabilities:
Accounts Receivable........................ (4,774) (363) (5,137)
Due from (to) affiliates................... (10,819) 10,819 --
Prepaid expenses........................... (1,053) (11) (1,064)
Spare parts and supplies................... (254) (3) (257)
Other assets............................... (157) -- (157)
Accounts payable........................... (1,119) 110 (1,009)
Accrued expenses........................... 12,886 (8,993) 3,893
Customer deposits.......................... 800 41 841
-------- ------- ------- --------
Net cash provided by operating activities........... 369 2,440 2,809
INVESTING ACTIVITIES
Purchases of property, plant and equipment.......... (8,386) (131) (8,517)
Purchase of ASIG business........................... (88,487) -- (88,487)
Advances to joint venture, net...................... -- (200) (200)
-------- ------- ------- --------
Net cash used in investing activities............... (96,873) (331) (97,204)
FINANCING ACTIVITIES
Issuance of common stock............................ 24,100 -- 24,100
Borrowings, net..................................... 77,702 -- 77,703
Deferred financing costs............................ (5,299) -- (5,299)
-------- ------- ------- --------
Net cash provided by financing activities........... 96,503 -- 96,504
-------- ------- ------- --------
Net increase in cash................................ -- 2,109 2,109
Cash at beginning of period......................... -- -- --
-------- ------- ------- --------
Cash at end of period............................... $ -- $ 2,109 $ -- $ 2,109
======== ======= ======= ========
</TABLE>
11
<PAGE> 13
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
8. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING/COMBINING FINANCIAL
STATEMENTS - (CONTINUED)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31, 1997
----------------------------------------------------------------------
COMBINATION AND
GUARANTOR NON-GUARANTOR ELIMINATION CONSOLIDATED
PREDECESSOR SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
- ----------- ------------ ------------- --------------- ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income........................................... $ 3,183 $ 1,262 $ 4,445
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 2,999 433 3,432
Deferred income taxes........................... (516) 58 (458)
Equity income................................... -- 133 133
Changes in operating assets and liabilities:
Accounts Receivable......................... (647) (779) (1,426)
Due from (to) affiliates.................... (713) 713 --
Prepaid expenses............................ (142) (47) (189)
Spare parts and supplies.................... (112) (7) (119)
Other assets................................ (157) 20 (137)
Accounts payable............................ (582) 1,654 $(550) 522
Accrued expenses............................ 1,003 (2,591) (1,588)
Customer deposits........................... (117) 502 385
------- ------- ----- -------
Net cash provided by operating activities............ 4,199 1,351 (550) 5,000
INVESTING ACTIVITIES
Purchases of property, plant and equipment........... (1,852) (697) (2,549)
Advances to joint venture............................ -- (323) (323)
------- ------- ----- -------
Net cash used in investing activities................ (1,852) (1,020) (2,872)
FINANCING ACTIVITIES
Payments on notes payable............................ (91) -- (91)
Advances from (to) Parent, net....................... (2,256) (556) (2,812)
------- ------- ----- -------
Net cash used in financing activities................ (2,347) (556) (2,903)
------- ------- ----- -------
Net increase (decrease) in cash...................... -- (225) (550) (775)
Cash at beginning of period.......................... -- 775 -- 775
------- ------- ----- -------
Cash at end of period................................ $ -- $ 550 $(550) $ --
======= ======= ===== =======
</TABLE>
12
<PAGE> 14
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.
OVERVIEW
The Company's business includes aviation fueling services (57% of 1997
revenues), aircraft ground services (39%) and other aviation services (4%).
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 in return for all of its outstanding common stock. The net proceeds
from this equity investment and the Company's issuance of $75 million of Senior
Increasing Rate Notes under a Note Purchase Agreement were used to consummate
the Acquisition of the ASIG business from Viad for $95 million on April 1, 1998.
The Company has adopted a fiscal year end of March 31.
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, 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 740 contracts, which have been in
place, including extensions, for an average of 5.0 years each. In 1997, the
Company's largest contract accounted for 8.8% of revenue, and no other contract
accounted for more than 4.3% 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.
13
<PAGE> 15
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 historical results of
operations as a percent of revenue for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, NINE MONTHS ENDED DECEMBER 31,
--------------------------------------------- ---------------------------------------------
1998 1997 1998 1997
--------------------- --------------------- --------------------- ---------------------
$ OF $ OF % OF % OF
(SUCCESSOR) REVENUE (PREDECESSOR) REVENUE (SUCCESSOR) REVENUE (PREDECESSOR) REVENUE
----------- ------- ------------- ------- ----------- ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $31.8 100.0% $30.6 100.0% $93.0 100.0% $89.5 100.0%
Costs and expenses:
Operating expenses............. 25.7 81.0 25.3 82.7 75.2 80.8 72.9 81.5
Selling, general and
administrative................ 2.1 6.5 2.1 7.0 6.1 6.5 5.7 6.4
Depreciation and amortization.. 2.2 7.0 1.1 3.7 6.5 7.0 3.4 3.8
------ ----- ------ ------ ----- ------ ----- -----
Operating income.................. $ 1.8 5.6 $ 2.0 6.6 $ 5.2 5.6 $ 7.4 8.3
====== ===== ====== ====== ===== ====== ===== =====
Net income (loss)................. $ (.3) (0.9) $ 1.1 3.7 $(3.9) (4.2) $ 4.4 5.0
====== ===== ====== ====== ===== ====== ===== =====
EBITDA............................ $ 4.0 12.6 $ 3.2 10.3 $11.7 12.6 $10.8 12.1
====== ===== ===== ===== ===== ====== ===== =====
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1997
Revenues increased $1.2 million, or 3.9%, from $30.6 million for the
quarter ended December 31, 1997, to $31.8 million for the quarter ended December
31, 1998. This increase was attributable to, among other things, new business
awarded to the Company in Philadelphia, new business and increased rates at the
Company's Atlanta operation and additional flight activity and fueling service
at the two London airports. The increase was partially offset by lost Delta
ground handling business in certain locations where the company operates of $0.9
million. The lost Delta business was primarily due to a strategic decision by
the Company either to increase margins on selected low margin ground services
contracts or to terminate those contracts and Delta's decision to in-source
certain ground services which had previously been outsourced to the Company.
Operating expenses increased $0.4 million or 1.7%, from $25.3 million for
the three months ended December 31, 1997 to $25.7 million for the three months
ended December 31, 1998. This increase was primarily attributable to increased
labor costs. Despite this increase, operating expenses as a percentage of
revenues decreased from 82.7% in the three months ended December 31, 1997 to
81.0% in the three months ended December 31, 1998, primarily due to a reduction
in workers compensation costs.
Selling, general and administrative expenses decreased $84,000 or 3.9%,
from $2.1 million for the three months ended December 31, 1997, to $2.1 million
for the three months ended December 31, 1998. This decrease was principally due
to reduced payroll and related fringe benefits. As a result, selling, general
and administrative expenses as a percentage of revenue decreased from 7.0% in
the three months ended December 31, 1997 to 6.5% in the three months ended
December 31, 1998.
14
<PAGE> 16
Depreciation and amortization expenses increased $1.1 million or 95.6%,
from $1.1 million for the three months ended December 31, 1997 to $2.2 million
for the three months ended December 31, 1998. This increase reflects the
increase in depreciation expense related to the allocation of the Acquisition
purchase price to the assets acquired, based on the underlying fair values of
those assets, which resulted in an increase in fixed assets of $24.6 million.
The increase also reflects $632,000 of amortization of intangibles resulting
from the Acquisition, which are generally being amortized over 20 years.
As a result of the above factors, operating income decreased $0.2 million
from $2.0 million for the three months ended December 31, 1997 to $1.8 million
for the three months ended December 31, 1998. Operating income margins decreased
from 6.6% in the three months ended December 31, 1997 to 5.6% in the three
months ended December 31, 1998.
Interest and other financial expense increased $2.2 million from $0.2
million for the three months ended December 31, 1997 to $2.4 million for the
three months ended December 31, 1998. This increase relates primarily to the
interest accrued on the outstanding debt of the Company which was incurred in
connection with the company's 11% Senior Notes due 2005. It also relates to the
amortization of approximately $2.6 million of deferred finance costs related to
the incurrence of this debt. Deferred finance costs relating to the 11% Senior
Notes are being amortized over the seven year life of the notes.
NINE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO NINE MONTHS ENDED
DECEMBER 31, 1997
Revenues increased $3.5 million, or 3.9%, from $89.5 million for the nine
months ended December 31, 1997 to $93.0 million for the nine months ended
December 31, 1998. The improvement over last year resulted principally from
increased aircraft grooming revenues in London, a new contract to provide
fueling services at London's Gatwick airport and new business at Philadelphia
and Orlando. These increases were partially offset by the loss of Delta ground
handling business of $2.7 million, as described above.
Operating expenses increased $2.3 million or 3.1%, from $72.9 million for
the nine months ended December 31, 1997 to $75.2 million for the nine months
ended December 31, 1998. The increase in operating expenses was primarily
attributable to increased labor costs. Operating expenses as a percentage of
revenues decreased from 81.5% in the nine months ended December 31, 1997 to
80.8% for the nine months ended December 31, 1998.
Selling, general and administrative expenses increased $0.4 million or
5.9%, from $5.7 million for the nine months ended December 31, 1997 to $6.1
million for the nine months ended December 31, 1998. The increase is primarily
due to increased legal and audit fees and additional salary expense for the
company's management. As a result, selling, general and administrative expenses
as a percentage of revenue increased from 6.4% in the nine months ended December
31, 1997 to 6.5% in the nine months ended December 31, 1998.
Depreciation and amortization expenses increased $3.1 million or 88.9%
from $3.4 million for the nine months ended December 31, 1997 to $6.5 million
for the nine months ended December 31, 1998. This increase reflects the increase
in depreciation expense related to the allocation of the Acquisition purchase
price to the assets acquired, based on the underlying fair values of those
assets, which resulted in an increase in fixed assets of $24.6 million. The
increase also reflects $1.9 million of amortization of intangibles resulting
from the Acquisition, which are generally being amortized over 20 years.
As a result of the above factors, operating income decreased $2.2 million
from $7.4 million for the nine months ended December 31, 1997 to $5.2 million
for the nine months ended December 31, 1998. Operating income margins decreased
from 8.3% in the nine months ended December 31, 1997 to 5.6 % in the nine months
ended December 31, 1998.
Interest and other financial expense increased $8.4 million from $0.5
million for the nine months ended December 31, 1997 to $8.9 million for the nine
months ended December 31, 1998. This increase relates primarily to the interest
on the outstanding debt of the Company which was incurred in connection with the
Acquisition. It also relates to the amortization of approximately $5.2 million
of deferred finance costs incurred upon the issuance of the Senior Increasing
Rate Notes and the 11% Senior Notes. Deferred finance costs relating to the
Senior Increasing Rate Notes have been fully amortized. Deferred finance costs
relating to the 11% Senior Notes are being amortized over the seven year life of
the notes.
15
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $5.0 million for the nine
months ended December 31, 1997, as compared to $2.8 million for the nine months
ended December 31, 1998. Net cash provided by operating activities decreased
primarily due to a decrease in net income, an increase in prepaid expenses and
accounts receivable and an increase in accounts payable partially offset by
increased depreciation and amortization related to the Acquisition.
Net cash used in investing activities was $2.9 million for the nine months
ended December 31, 1997, as compared to $96.5 million for the nine months ended
December 31, 1998. The increase was primarily attributable to the Acquisition.
Net cash used in investing activities is affected by the Company's capital
expenditure needs for maintaining and upgrading its existing vehicle and
equipment fleet, which generally represent 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. Through March 31, 1999,
the Company plans to invest an additional $0.2 million primarily related to the
ongoing maintenance of its fleet and $5.8 million for additional equipment to
support new contracts it has already won and the continued upgrading of its
fleet.
Net cash provided by (used in) financing activities was ($2.9) million for
the nine months ended December 31, 1997 and $94.5 million for the nine months
ended December 31, 1998. This increase is due primarily to the issuance of
common stock of the Company and borrowing under the Senior Increasing Rate
Notes.
As of December 31, 1998, the Company had long-term indebtedness of $80.0
million in the form of its 11% Senior Notes, cash of approximately $2.1 million
and approximately $8.1 million of availability and no borrowings outstanding
under its senior credit facility. Concurrent with the consummation of the
offering of the 11% Senior Notes, the Company expensed approximately $0.2
million 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 11% Senior Notes. The expenses related
to the deferred financing costs were accounted for as an extraordinary loss on
the early extinguishment of debt.
The Company's primary sources of liquidity are from cash flow provided by
operations and borrowings under its senior credit facility. Based upon the
successful implementation of management's business and operating strategy, the
Company believes that these funds will provide it with sufficient liquidity and
capital resources to meet current and future financial obligations, including
the payment of principal and interest on the 11% Senior Notes, as well as to
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
British Airways did not renew its contract with the Company for the
provision of aircraft grooming services at London-Heathrow airport following the
expiration of such contract in January 1999. This contract generated
approximately 8.8% of the Company's revenues in 1997 and the anticipated
reduction in revenues as a result of the loss of this contract for the fiscal
year ended March 31, 1999 is $2.1 million.
16
<PAGE> 18
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 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.
17
<PAGE> 19
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. The Company is currently unable to
quantify the effect of such a malfunction, however, such an event 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.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, ("SFAS 131") "Disclosures about Segments
of an Enterprise and Related Information." SFAS 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires those enterprises to report
selected information about operating segments in interim financial reports
issued to shareholders. The provisions of SFAS 131 are effective for fiscal
years beginning after December 15, 1997. The Company does not anticipate that
the requirements of SFAS 131 will have a significant impact on the reporting of
its 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.
18
<PAGE> 20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibit Index
27.1 Consolidated Financial Data Schedule
(B) No reports on Form 8-K were filed during the nine months
ending December 31, 1998
19
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on February ___, 1999 on
their 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
20
<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 NINE
MONTHS ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> MAR-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,109
<SECURITIES> 0
<RECEIVABLES> 22,631
<ALLOWANCES> 531
<INVENTORY> 2,076
<CURRENT-ASSETS> 27,467
<PP&E> 51,973
<DEPRECIATION> 4,623
<TOTAL-ASSETS> 125,775
<CURRENT-LIABILITIES> 25,429
<BONDS> 80,000
0
0
<COMMON> 0
<OTHER-SE> 20,331
<TOTAL-LIABILITY-AND-EQUITY> 125,775
<SALES> 92,994
<TOTAL-REVENUES> 92,994
<CGS> 75,179
<TOTAL-COSTS> 87,753
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,856
<INCOME-PRETAX> (3,620)
<INCOME-TAX> 47
<INCOME-CONTINUING> (3,667)
<DISCONTINUED> 0
<EXTRAORDINARY> (213)
<CHANGES> 0
<NET-INCOME> (3,880)
<EPS-PRIMARY> (38,800)
<EPS-DILUTED> (38,800)
</TABLE>
