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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 333-64513
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 65-0822351
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1815 GRIFFIN ROAD, SUITE #300, DANIA, FL 33004-2252
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (954) 926-2000
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $0.01 per share: 100 shares outstanding at November 14,
2000.
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AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
FORM 10-Q
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TABLE OF CONTENTS
PAGE
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PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements (Unaudited)
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Consolidated Balance Sheets - September 30, 2000 and March 31, 2000. 2
Consolidated Statements of Operations - Six Months Ended
September 30, 2000 and 1999 . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows - Three months ended
September 30, 2000 and 1999 . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements. . . . . . . . . . . 5
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 19
ITEM 3 Quantitative and Qualitative Disclosures about Market Risk 24
PART II .OTHER INFORMATION
ITEM 2. .Changes in Securities and Uses of Proceeds 25
ITEM 6. .Exhibits and Reports on Form 8-K 26
</TABLE>
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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, 2000, 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,
2000 are not necessarily indicative of results to be expected for the fiscal
year ending March 31, 2001.
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AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
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SEPTEMBER 30, MARCH 31,
2000 2000
---- ----
(UNAUDITED) (NOTE 1)
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ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . $ 3,304 $ 421
Accounts receivable, net of allowance of $646 and
$645 respectively. . . . . . . . . . . . . . . 29,577 24,028
Prepaid expenses. . . . . . . . . . . . . . . . . 1,725 1,694
Receivable from Viad. . . . . . . . . . . . . . . 111 -
Spare parts and supplies. . . . . . . . . . . . . 2,554 2,428
------------ ---------
Total current assets . . . . . . . . . . . 37,271 28,571
Property, plant and equipment, net of accumulated
depreciation of $17,806 and $13,526, respectively 45,529 48,162
Goodwill, net of accumulated amortization of $6,633
and $5,262, respectively . . . . . . . . . . . . 48,247 49,571
Deferred financing costs, net of accumulated
Amortization of $1,155 and $889 respectively. . . 2,470 2,736
Receivable from Viad . . . . . . . . . . . . . . . . - 2,125
Investments in and advances to joint venture . . . . 453 359
Other assets . . . . . . . . . . . . . . . . . . . . 875 808
------------ ---------
Total assets . . . . . . . . . . . . . . . $ 134,845 $132,332
============ =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . $ 5,487 $ 6,387
Accrued expenses. . . . . . . . . . . . . . . . . 23,078 17,500
Customer deposits . . . . . . . . . . . . . . . . 4,167 3,645
Current portion of Term Loan and other. . . . . . 468 1,039
------------ ---------
Total current liabilities. . . . . . . . . 33,200 28,571
Term Loan. . . . . . . . . . . . . . . . . . . . . . 3,875 4,145
Senior Credit Facility . . . . . . . . . . . . . . . 7,239 5,930
Senior Notes . . . . . . . . . . . . . . . . . . . . 80,000 80,000
------------ ---------
Total liabilities. . . . . . . . . . . . . 124,314 118,646
Commitments and contingencies
Stockholder's equity:
Common stock, $0.01 par value; 1,000 shares
Authorized; 100 shares issued and outstanding. - -
Paid-in capital . . . . . . . . . . . . . . . . . 27,800 27,800
Accumulated deficit . . . . . . . . . . . . . . . (17,055) (14,095)
Accumulated other comprehensive loss, net . . . . (214) (19)
------------ ---------
Total stockholder's equity . . . . . . . . 10,531 13,686
------------ ---------
Total liabilities and stockholder's equity $ 134,845 $132,332
============ =========
</TABLE>
See accompanying notes.
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AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
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THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
--------------- ------------------ -------- --------
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Revenues . . . . . . . . . . . . . . $ 39,672 $ 35,130 $78,511 $67,711
Cost and expenses:
Operating expenses . . . . . . . . . 32,973 28,661 65,066 55,091
Selling, general and administrative 2,593 2,682 5,299 5,242
Amortization. . . . . . . . . . . . 689 691 1,377 1,346
Depreciation. . . . . . . . . . . . 2,191 1,678 4,376 3,478
--------------- ------------------ -------- --------
Total cost and expenses. . . . . . . 38,446 33,712 76,118 65,157
--------------- ------------------ -------- --------
Operating income . . . . . . . . . . 1,226 1,418 2,393 2,554
Other income (expense), net. . . . . 53 53 101 74
Interest income. . . . . . . . . . . 10 31 20 47
Interest and other financial expense (2,745) (2,684) (5,475) (5,269)
--------------- ------------------ -------- --------
Loss before income taxes . . . . . . (1,456) (1,182) (2,961) (2,594)
--------------- ------------------ -------- --------
Income taxes . . . . . . . . . . . . - 27 - 27
--------------- ------------------ -------- --------
Net loss . . . . . . . . . . . . . . $ (1,456) $ (1,209) $(2,961) $(2,621)
=============== ================== ======== ========
</TABLE>
See accompanying notes.
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AIRCRAFT SERVICE INTERNATIONAL GROUP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
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SIX MONTHS ENDED
SEPTEMBER 30,
2000 1999
------------------ ---------
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OPERATING ACTIVITIES
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,961) $ (2,621)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Amortization of intangible assets. . . . . . . . . . . . . . . 1,377 1,346
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 4,376 3,478
Amortization of deferred financing costs . . . . . . . . . . . 266 286
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . - (2)
(Gain)/Loss on sale of fixed assets . . . . . . . . . . . . . . . . . 49 (9)
Equity in income of joint venture. . . . . . . . . . . . . . . (142) (76)
Changes in operating assets and liabilities, net of effects of
acquisition:
Accounts receivable. . . . . . . . . . . . . . . . . . . . (3,729) (5,359)
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . (396) (1,514)
Spare parts and supplies . . . . . . . . . . . . . . . . . (126) (324)
Other assets . . . . . . . . . . . . . . . . . . . . . . . (67) 15
Accounts payable . . . . . . . . . . . . . . . . . . . . . (900) 3,056
Accrued expenses . . . . . . . . . . . . . . . . . . . . . 5,578 (1,273)
Customer deposits. . . . . . . . . . . . . . . . . . . . . 522 (131)
------------------ ---------
Net cash provided by (used in) operating activities . . . . . . 3,847 (3,128)
INVESTING ACTIVITIES
Purchase of property, plant and equipment . . . . . . . . . . . (1,427) (5,776)
Purchase of Elsinore business, less cash acquired of $9 . . . . - (5,897)
Purchase of ACE business. . . . . . . . . . . . . . . . . . . . (5) -
------------------ ---------
Net cash used in investing activities . . . . . . . . . . . . . (1,432) (11,673)
FINANCING ACTIVITIES
Deferred financing costs. . . . . . . . . . . . . . . . . . . . - (73)
(Repayments)/proceeds on promissory note. . . . . . . . . . . . (591) 899
Borrowings under Senior Credit Facility . . . . . . . . . . . . 1,309 2,870
Proceeds from equity contribution . . . . . . . . . . . . . . . - 3,700
(Repayments)/proceeds from Term Loan. . . . . . . . . . . . . . (250) 4,826
------------------ ---------
Net cash provided by financing activities . . . . . . . . . . . 468 12,222
------------------ ---------
Net increase (decrease) in cash . . . . . . . . . . . . . . . . 2,883 (2,579)
Cash and cash equivalents at beginning of period. . . . . . . . 421 3,311
------------------ ---------
Cash and cash equivalents at end of period. . . . . . . . . . . $ 3,304 $ 732
================== =========
</TABLE>
See accompanying notes.
<PAGE>
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND NATURE OF BUSINESS
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six months ended September
30, 2000 are not necessarily indicative of the results that may be expected for
the year ending March 31, 2001. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended March 31, 2000.
The balance sheet at March 31, 2000 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
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 had a maturity of one
year from the date of purchase, and was subject to post-closing adjustments. In
March 2000, a working capital adjustment of approximately $407 to reduce the
note payable was made pursuant to an agreement with General William Lyon, which
reduced goodwill. No further adjustments are anticipated. The promissory note
was paid in full on May 19, 2000. 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.
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AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND NATURE OF BUSINESS (CONTINUED)
The following is a summary of the purchase price allocation:
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Net working capital, including cash of $9. $1,110
Property, plant and equipment. . . . . . . 799
Other assets . . . . . . . . . . . . . . . 130
Goodwill . . . . . . . . . . . . . . . . . 3,453
------
$5,492
======
The purchase price was funded as follows:
Senior Credit Facility (see Note 4). . . . $5,000
Promissory note (see Note 4) . . . . . . . 492
------
$5,492
======
</TABLE>
The following unaudited pro forma data presents a summary of consolidated
results of operations of the Company for the six months ended September 30, 1999
as if the Elsinore acquisition had occurred on April 1, 1999:
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Six Months Ended
September 30, 1999
--------------------
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Revenue. $ 41,363
Net loss $ (1,240)
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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, 1999, or of future results of operations of the Company.
NATURE OF BUSINESS
The Company and its subsidiaries provide aviation fueling services,
aircraft ground services and other aviation services at various airports in the
United States, Europe and the Caribbean.
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AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
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2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at September 30, 2000:
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Operating equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 52,785
Buildings and leasehold improvements. . . . . . . . . . . . . . . . . . . . . 7,344
Office furniture and equipment. . . . . . . . . . . . . . . . . . . . . . . . 2,508
Construction in progress. . . . . . . . . . . . . . . . . . . . . . . . . . . 698
---------
63,335
Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . (17,806)
---------
$ 45,529
=========
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3. ACCRUED EXPENSES
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Accrued expenses consisted of the following at September 30, 2000:
Salaries and wages . . . . . . . . . . . . . . . . . . . . . . . . $ 4,101
Damage claims. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,240
Pension liability. . . . . . . . . . . . . . . . . . . . . . . . . 271
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . 1,210
Consortium funds . . . . . . . . . . . . . . . . . . . . . . . . . 12,522
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,734
-------
$23,078
=======
</TABLE>
4. NOTES PAYABLE
SENIOR CREDIT FACILITY
------------------------
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. In July 2000, the Company
amended its Senior Credit Facility to increase the amount available under the
facility to $15 million.
Indebtedness of the Company under the Senior Credit Facility is guaranteed
by each of the Company's domestic subsidiaries and will generally be secured by:
(i) all of the Company's 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, (iv) certain cash and cash equivalents related to
the foregoing, and (v) all proceeds from (i) to (iv) inclusive.
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AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
SENIOR CREDIT FACILITY(CONTINUED)
------------------------
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 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 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, a minimum yearly earning before interest, taxes, depreciation
and amortization "EBITDA", as defined test 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 $7,239 outstanding under the Senior Credit Facility
as of September 30, 2000. The amounts outstanding under the Senior Credit
Facility bear interest at 9.5%. As of September 30, 2000, there was $7,506 of
available credit under the Senior Credit Facility. In July 2000, the Company
amended its Senior Credit Facility to increase the amount available under the
Facility to $15 million.
TERM LOAN
----------
On May 20, 1999, the Senior Credit Facility was amended to add a $5 million
Term Loan (the "Term Loan"). The proceeds of the Term Loan were used as part of
the purchase price for the assets of Elsinore, L.P. (See Note 1). The Term Loan
is payable in quarterly installments in arrears at varying amounts over its
five-year life. The Company's borrowings under the Term Loan will bear interest
in a manner 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. Furthermore, the requirement to meet a
minimum interest coverage test is no longer applicable as of April 1, 1999.
Rather, the Company must meet a minimum EBITDA test. The Term Loan is secured by
all of the Company's (i) equipment, (ii) amounts, (if any) held in a commercial
deposit account with the lending bank, (iii) certain cash and cash equivalents
related to the forgoing and (iv) all proceeds from (i) to (iii) .inclusive. As
of September 30, 2000, $3,875 was outstanding under the Term Loan.
5. SENIOR NOTES
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 "Old Notes"). The proceeds from the Old Notes were used to
repay the Senior Increasing Rate Notes. On February 12, 1999, the Company
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, the Company may redeem at
its option up to 33 1/3% of the original principal amount of the Notes at any
time on or prior to August 15, 2001, at a redemption price equal to 111% of the
principal amount being redeemed, with the net proceeds of one or more public
offerings, provided that at least $53.3 million aggregate principal
<PAGE>
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
5. SENIOR NOTES (CONTINUED)
amount of the Notes remain outstanding after any such redemption and that any
such redemption occurs within 90 days following the closing of such public
offering. Upon the occurrence of a Change in Control (as defined in the
Indenture covering the Notes), each holder of the Notes is entitled to require
the Company to repurchase such Notes at a premium of 101%. The Notes are fully
and unconditionally guaranteed, on an unsecured basis, by the Company's domestic
subsidiaries (see Note 7).
The Notes contain certain covenants, which among other things limit the
ability of the Company to incur additional indebtedness, issue common and
preferred stock of its subsidiaries, pay dividends, transfer and sell assets and
enter into transactions with affiliates.
6. COMMITMENTS AND CONTINGENCIES
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.
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.
On April 1, 1998, the Company completed the Acquisition for a purchase
price of approximately $95 million in cash plus fees and direct acquisition
costs of approximately $4.1 million. The original purchase price was subject to
a purchase price adjustment in favor of the Company for any shortfall in the net
asset value, net working capital or required cash (as such terms are defined in
the purchase agreement) of the ASIG business from the levels represented at the
closing of the Acquisition. The purchase price was also subject to adjustment
in favor of Viad Corporation ("Viad") in an amount equal to the amount of cash
in the ASIG business at the closing of the Acquisition in excess of the required
cash. As a result of the purchase price adjustments, the Company was due a
purchase price settlement of $2.125 million from Viad, which is shown in the
accompanying March 31, 2000 consolidated balance sheet as a receivable. The
Company and Viad disputed the amount of the purchase price settlement. Both
Viad and the Company submitted claims to an
independent arbitrator.
<PAGE>
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In early August 2000, the Company learned that it had prevailed in a
neutral auditor/arbitration process with respect to its claim for a purchase
price adjustment from Viad. As a result of this favorable ruling, the Company
received payment of $2,014 from Viad on August 28, 2000. The Company also had
additional indemnification claims against Viad. On August 28, 2000, the Company
settled and received $400 in payment for the additional indemnification claims.
Approximately 56.2% of the Company's employees are represented by labor
unions. There are currently approximately 33 collective bargaining contracts
(among 7 separate union entities) in place, almost all of which have terms of
three years. Contract expirations are staggered with approximately one-third
coming up for renewal each year. The Company believes that it has had good
relations with the several unions representing its employees.
Tioga Capital Corporation, an affiliate of the Chairman of the Company and
Ranger, will receive a bonus of $1,350 if the Company satisfies certain market
value and liquidity requirements in connection with a sale of the business of
Ranger or the Company or a public offering of equity securities of Ranger.
7. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
In connection with the acquisition as discussed in Note 1 to the Company's
consolidated financial statements included in its annual report to shareholders
on Form 10-K, 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., ASIG Miami Inc. (formerly known
as Dispatch Services, Inc.), ASIG Fueling Miami, Inc. (formerly known as Florida
Aviation Fueling Co.), and Elsinore Acquisition Corporation. The condensed
consolidating financial statements of the Guarantors should be read in
connection with the consolidated financial statements of the Company. Separate
financial statements of the Guarantors are not presented because the Company
believes such information is not material and that the condensed consolidating
financial statements presented are more meaningful in understanding the
financial position and results of operations of the Guarantors. Those
supplemental guarantor condensed combining financial statements that do not
contain a column for elimination entries and/or a column for ASIG, Inc. (or the
Predecessor) do so because all amounts that would appear in the column are zero.
<PAGE>
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
7. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING/COMBINING FINANCIAL
STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
NON-
GUARANTOR GUARANTOR CONSOLIDATED
ASIG, INC. SUBSIDIARIES SUBSIDIARIES TOTAL
------------ ------------- -------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and equivalents . . . . . . . . . . . . $ 86 $ 2,767 $ 451 $ 3,304
Accounts receivable, net . . . . . . . . . . 58 26,738 2,781 29,577
Prepaid expenses . . . . . . . . . . . . . . 19 1,576 130 1,725
Receivable from Viad . . . . . . . . . . . . 111 -- -- 111
Spare parts and supplies . . . . . . . . . . -- 2,522 32 2,554
------------ ------------- -------------- ---------
Total current assets . . . . . . . . . . . . 274 33,603 3,394 37,271
Property, plant and equipment, net. . . . . . 67 42,169 3,293 45,529
Goodwill, net . . . . . . . . . . . . . . . . -- 47,646 601 48,247
Deferred financing costs, net . . . . . . . . 2,470 -- -- 2,470
Investments in and advances in joint venture. -- 2 451 453
Other assets. . . . . . . . . . . . . . . . . 4 865 6 875
------------ ------------- -------------- ---------
Total assets. . . . . . . . . . . . . . . . . $ 2,815 $ 124,285 $ 7,745 $134,845
============ ============= ============== =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . $ -- $ 5,102 $ 385 $ 5,487
Due to (from) affiliates . . . . . . . . . . (85,922) 86,967 (1,045) --
Notes payable to affiliates. . . . . . . . . (6,969) -- 6,969 --
Accrued expenses . . . . . . . . . . . . . . 1,244 20,778 1,056 23,078
Customer deposits. . . . . . . . . . . . . . -- 4,040 127 4,167
Current portion of Term Loan and other . . -- 1 467 468
------------ ------------- -------------- ---------
Total current liabilities. . . . . . . . . . (91,647) 116,888 7,959 33,200
Notes payable . . . . . . . . . . . . . . . . 11,114 -- -- 11,114
Senior Notes. . . . . . . . . . . . . . . . . 80,000 -- -- 80,000
------------ ------------- -------------- ---------
Total liabilities. . . . . . . . . . . . . . (533) 116,888 7,959 124,314
Stockholder's Equity:
Common stock . . . . . . . . . . . . . . . . -- -- -- --
Paid-in capital. . . . . . . . . . . . . . . 27,800 -- -- 27,800
Retained earnings (accumulated deficit). . . (24,452) 7,397 -- (17,055)
Accumulated other comprehensive loss, net. . -- -- (214) (214)
------------ ------------- -------------- ---------
Total stockholder's equity . . . . . . . . . 3,348 7,397 (214) 10,531
------------ ------------- -------------- ---------
Total liabilities and stockholder's equity . $ 2,815 $ 124,285 $ 7,745 $134,845
============ ============= ============== =========
</TABLE>
<PAGE>
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
7. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING/COMBINING FINANCIAL
STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
NON-
GUARANTOR GUARANTOR CONSOLIDATED
ASIG, INC. SUBSIDIARIES SUBSIDIARIES TOTAL
------------ -------------- -------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and equivalents . . . . . . . . . . . . $ 111 $ (14) $ 324 $ 421
Accounts receivable, net . . . . . . . . . . -- 21,953 2,075 24,028
Prepaid expenses . . . . . . . . . . . . . . 27 1,159 508 1,694
Spare parts and supplies . . . . . . . . . . -- 2,394 34 2,428
------------ -------------- -------------- ---------
Total current assets . . . . . . . . . . . . 138 25,492 2,941 28,571
Property, plant and equipment, net. . . . . . 77 45,176 2,909 48,162
Due from affiliates . . . . . . . . . . . . . 112 (112) -- --
Goodwill, net . . . . . . . . . . . . . . . . -- 49,006 565 49,571
Deferred financing costs, net . . . . . . . . 2,736 -- -- 2,736
Investments in and advances in joint venture. -- 1 358 359
Receivable from Viad. . . . . . . . . . . . . 2,125 -- -- 2,125
Other assets. . . . . . . . . . . . . . . . . 4 798 6 808
------------ -------------- -------------- ---------
Total assets. . . . . . . . . . . . . . . . . $ 5,192 $ 120,361 $ 6,779 $132,332
============ ============== ============== =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . $ -- $ 6,049 $ 338 $ 6,387
Due to (from) affiliates . . . . . . . . . . (82,754) 89,102 (6,348) --
Notes payable to affiliates. . . . . . . . . (12,193) -- 12,193 --
Accrued expenses . . . . . . . . . . . . . . 1,271 15,134 1,095 17,500
Customer deposits. . . . . . . . . . . . . . -- 3,519 126 3,645
Current portion of notes payable and Term
Loan and other. . . . . . . . . . . . . . 500 491 48 1,039
------------ -------------- -------------- ---------
Total current liabilities. . . . . . . . . . (93,176) 114,295 7,452 28,571
Notes payable . . . . . . . . . . . . . . . . 10,055 -- 20 10,075
Senior Notes. . . . . . . . . . . . . . . . . 80,000 -- -- 80,000
------------ -------------- -------------- ---------
Total liabilities. . . . . . . . . . . . . . (3,121) 114,295 7,472 118,646
Stockholder's Equity:
Common stock . . . . . . . . . . . . . . . . -- -- -- --
Paid-in capital. . . . . . . . . . . . . . . 27,800 -- -- 27,800
Retained earnings (accumulated deficit). . . (19,487) 6,066 (674) (14,095)
Accumulated other comprehensive income . . . -- -- (19) (19)
------------ -------------- -------------- ---------
Total stockholder's equity . . . . . . . . . 8,313 6,066 (693) 13,686
------------ -------------- -------------- ---------
Total liabilities and stockholder's equity . $ 5,192 $ 120,361 $ 6,779 $132,332
============ ============== ============== =========
</TABLE>
<PAGE>
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
7. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000
NON-
GUARANTOR GUARANTOR CONSOLIDATED
ASIG, INC. SUBSIDIARIES SUBSIDIARIES TOTAL
---------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenues. . . . . . . . . . . . . . . $ - $ 35,236 $ 4,436 $39,672
Cost and expenses:
Operating expenses . . . . . . . . . 8 29,485 3,480 32,973
Selling, general and administrative. 5 2,274 314 2,593
Amortization . . . . . . . . . . . . - 684 5 689
Depreciation . . . . . . . . . . . . 4 2,025 162 2,191
------------ -------------- -------------- --------
Total cost and expenses . . . . . . . 17 34,468 3,961 38,446
------------ -------------- -------------- --------
Operating income (loss) . . . . . . . (17) 768 475 1,226
Other income (expense), net . . . . . - (22) 75 53
Interest income . . . . . . . . . . . - 10 -- 10
Interest and other financial expense. (2,491) (116) (138) (2,745)
------------ -------------- -------------- --------
Income (loss) before income taxes . . (2,508) 640 412 (1,456)
Income taxes. . . . . . . . . . . . . - - - -
------------ -------------- -------------- --------
Net income (loss) . . . . . . . . . . $ (2,508) $ 640 $ 412 $(1,456)
============ ============== ============== ========
</TABLE>
<PAGE>
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
7. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999
NON-
GUARANTOR 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>
<PAGE>
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
7. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 2000
NON-
GUARANTOR GUARANTOR CONSOLIDATED
ASIG, INC. SUBSIDIARIES SUBSIDIARIES TOTAL
--------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues. . . . . . . . . . . . . . . $ - $ 69,848 $ 8,663 $78,511
Cost and expenses:
Operating expenses . . . . . . . . . - 58,169 6,897 65,066
Selling, general and administrative. 3 4,677 619 5,299
Amortization . . . . . . . . . . . . - 1,366 11 1,377
Depreciation . . . . . . . . . . . . 9 4,037 330 4,376
------------ -------------- -------------- --------
Total cost and expenses . . . . . . . 12 68,249 7,857 76,118
------------ -------------- -------------- --------
Operating income (loss) . . . . . . . (12) 1,599 806 2,393
Other income (expense), net . . . . . - (41) 142 101
Interest income . . . . . . . . . . . - 19 1 20
Interest and other financial expense. (4,952) (247) (276) (5,475)
------------ -------------- -------------- --------
Income (loss) before income taxes . . (4,964) 1,330 673 (2,961)
Income taxes. . . . . . . . . . . . . - - - -
------------ -------------- -------------- --------
Net income (loss) . . . . . . . . . . $ (4,964) $ 1,330 $ 673 $(2,961)
============ ============== ============== ========
</TABLE>
<PAGE>
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
7. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1999
NON-
GUARANTOR 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>
<PAGE>
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
7. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30, 2000
NON
GUARANTOR GUARANTOR CONSOLIDATED
ASIG, INC. SUBSIDIARIES SUBSIDIARIES TOTAL
------------ -------------- -------------- --------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss). . . . . . . . . . . . . . . $ 35 $ (3,669) $ 673 $(2,961)
Adjustments to reconcile net income to
Net cash provided by (used in) operating
Activities:
Amortization of intangible assets . . . . . . - 1,366 11 1,377
Depreciation. . . . . . . . . . . . . . . . . 8 4,038 330 4,376
Amortization of deferred financing costs. . . 266 - - 266
Deferred income taxes . . . . . . . . . . . . - (2) 2 -
(Gain)/Loss on sale of fixed assets . . . . . - 46 3 49
Equity income in joint venture. . . . . . . . - - (142) (142)
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . 2,068 (4,896) (901) (3,729)
Due from (to) affiliates. . . . . . . . . . - (499) 499 -
Prepaid expenses. . . . . . . . . . . . . . 8 (417) 13 (396)
Spare parts and supplies. . . . . . . . . . - (128) 2 (126)
Other assets. . . . . . . . . . . . . . . . - (204) 137 (67)
Accounts payable. . . . . . . . . . . . . . - (947) 47 (900)
Accrued expenses. . . . . . . . . . . . . . (3,195) 8,889 (116) 5,578
Customer deposits . . . . . . . . . . . . . - 520 2 522
------------ -------------- -------------- --------
Net cash provided by (used in) by operating
activities. . . . . . . . . . . . . . . . . . (810) 4,097 560 3,847
INVESTING ACTIVITIES
Purchases of property, plant and equipment . . - (1,075) (352) (1,427)
Investment in joint venture. . . . . . . . . . - (71) 71 -
Investment in ACE. . . . . . . . . . . . . . . - 203 (208) (5)
------------ -------------- -------------- --------
Net cash used in investing activities. . . . . - (943) (489) (1,432)
FINANCING ACTIVITIES
Repayments of borrowings on promissory
note
(276) (295) (20) (591)
Borrowings under Senior Credit Facility. . . . 1,311 (2) - 1,309
Repayments of Term Note borrowings . . . . . . (250) - - (250)
------------ -------------- -------------- --------
Net cash provided by financing activities. . . 785 (297) (20) 468
------------ -------------- -------------- --------
Net increase/(decrease) in cash. . . . . . . . (25) 2,857 51 2,883
Cash at the beginning of the period. . . . . . 111 (90) 400 421
------------ -------------- -------------- --------
Cash at the end of the period. . . . . . . . . $ 86 $ 2,767 $ 451 $ 3,304
============ ============== ============== ========
</TABLE>
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
7. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30, 1999
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 income 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) by 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 business, less cash
acquired of $9
23 (5,920) - (5,897)
------------ -------------- -------------- ---------
Net cash used in investing activities. . . . 23 (11,035) (661) (11,673)
FINANCING ACTIVITIES
Proceeds from borrowings on promissory
Note
- 899 - 899
Borrowings under Senior Credit Facility. . . 2,798 51 21 2,870
Proceeds from equity contribution. . . . . . - 3,700 - 3,700
Repayments on Senior Credit Facility . . . . - - (49) (49)
Deferred financing costs . . . . . . . . . . (73) - - (73)
Proceeds from Term Note borrowings . . . . . 4,375 500 - 4,875
------------ -------------- -------------- ---------
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 the beginning of the period. . . . . 124 2,216 971 3,311
------------ -------------- -------------- ---------
Cash at the end of the period. . . . . . . . $ 236 $ 165 $ 331 $ 732
============ ============== ============== =========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the Company's consolidated results of
operations and financial condition should be read in conjunction with the
consolidated financial statements and the Notes thereto, which appear in Part I,
Item 1 of this Form 10-Q.
FORWARD-LOOKING INFORMATION
This report contains statements that may constitute "forward-looking
statements" as defined in Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements are based on management's current plans, beliefs and
expectations as well as on assumptions made by and information currently
available to the Company at the time these forward-looking statements were made.
When used in this report, words such as "anticipate," "believe," estimate,"
expect," "intends" and similar expressions, as they relate to the Company, are
intended to identify forward-looking statements. These forward-looking
statements are subject to various risks and uncertainties that could cause
actual results to differ from those described in the forward-looking statements.
Such risks and uncertainties include, but are not limited to: the substantial
leverage of the Company; restrictions imposed by the Senior Credit Facility and
the Indenture; general economic conditions; effects of aviation fuel
availability and price increases on customers; the credit quality of the
Company's receivables; dependence on significant customers; competition; the
nature of the Company's contracts; the nature and rights of the Company to
operate at airports; the Company's participation in a regulated industry; the
Company's relationship with its unions and ability to retain employees; and its
dependence upon key personnel. This list of risks and uncertainties is not
intended to be exhaustive and should be read in conjunction with other
cautionary statements made in this report, in other reports and registration
statements of the Company filed from time to time with the SEC and in press
releases issued by the Company from time to time.
OVERVIEW
The Company's business includes aviation fueling services (64% of quarter
ended September 30, 2000 revenues); aircraft ground services (32%) 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, by Ranger, in return for all of the Company's outstanding common
stock on April 1, 1998. The net proceeds from the equity investment and the
Company's issuance of $75 million of Senior Increasing Rate Notes were used to
consummate the acquisition of the ASIG business from Viad for $95 million
(subject to final adjustments). Concurrent with the acquisition of the ASIG
business (the "Acquisition"), the Company entered into a $10 million senior
credit facility which was subsequently amended in May 1999 and increased to $15
million to consummate the purchase of the assets of Elsinore. Additional equity
of $3.7 million was contributed to the Company in August 1999.
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.
<PAGE>
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 850 contracts. In quarter ended
September 30, 2000, the Company's largest contract accounted for 5.4% of
revenue, and no other contract accounted for more than 3.6% of revenue. The
majority of the Company's contracts have an industry standard initial length of
one year, although the Company's larger contracts generally run for initial
terms of three to five years.
Costs and Expenses
The Company's principal operating expenses are labor costs and direct
supervision at its stations along with related benefits and payroll taxes, cost
of fuel sold, workers' compensation, property and liability insurance, rent
expense, repairs and maintenance expenses and miscellaneous other direct
station-related expenses. Certain of these expenses are relatively fixed,
regardless of the extent of operations at a particular station, including the
cost of the facility, station management and related administrative expenses.
Selling, general and administrative expenses include the costs of marketing
the Company's services, general supervision provided to the stations,
acquisition-related expenses and accounting, finance and personnel related
expenses. These costs are generally comprised of labor costs and related
benefits and payroll taxes, legal and other professional fees and miscellaneous
expenses.
RESULTS OF OPERATIONS
The following table summarizes the Company's results of operations as a
percent of revenue for the periods indicated (dollars in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, . SIX MONTHS ENDED SEPTEMBER 30,
-------------------------------- ---------------------------------
% OF % OF % OF % OF
2000 REVENUE 1999 REVENUE 2000 REVENUE 1999 REVENUE
------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $39.7 100.0% $35.1 100.0% $78.5 100.0% $67.7 100.0%
Costs and expenses:
Operating expenses. . . . . . . . . 33.0 83.1% 28.7 81.7% 65.1 82.9% 55.1 81.4%
Selling, general and administrative 2.6 6.6% 2.7 7.7% 5.3 6.8% 5.2 7.7%
Depreciation and amortization . . . 2.9 7.3% 2.3 6.6% 5.7 7.3% 4.8 7.1%
------ -------- ------ -------- ------ -------- ------ --------
Operating income. . . . . . . . . . . $ 1.2 3.0% $ 1.4 4.0% $ 2.4 3.0% $ 2.6 3.8%
====== ======== ====== ======== ====== ======== ====== ========
Net loss. . . . . . . . . . . . . . . $(1.5) (3.8%) $(1.2) (3.4%) $(3.0) (3.8%) $(2.6) (3.8%)
====== ======== ====== ======== ====== ======== ====== ========
EBITDA. . . . . . . . . . . . . . . . $ 4.1 10.3% $ 3.7 10.5% $ 8.1 10.3% $ 7.4 10.9%
====== ======== ====== ======== ====== ======== ====== ========
</TABLE>
<PAGE>
EBITDA is defined herein as net income (loss) before interest, income
taxes, depreciation, amortization and other income (expense). Although EBITDA is
not a measure of performance calculated in accordance with generally accepted
accounting principles, the Company has included information concerning EBITDA
because it is commonly used by certain investors and analysts as a measure of a
company's ability to service its debt obligations. The Company's calculation of
EBITDA may not be comparable to similarly titled measures reported by other
companies since all companies do not calculate this non-GAAP measure in the same
manner. The Company's EBITDA calculation is not intended to represent cash used
in operating activities, since it does not include interest and taxes and
changes in operating assets and liabilities, nor is it intended to represent the
net increase or decrease in cash, since it does not include cash provided by
(used in) investing and financing activities.
Summary Three and Six Months Ended September 30, 2000 Compared to September 30,
1999
Revenues increased $4.6 million or 13.1%, from $35.1 million to $39.7
million for the three months ended September 30, 2000 as compared to the same
period for 1999. The increase was attributable to, among other things, new
business and increased activity on existing contracts. Revenues increased $10.8
million or 16% from $67.7 million to $78.5 million for the six months ended
September 30, 2000 as compared to the six months ended September 30, 1999. The
increase was attributable to, among other things, new business, increased
activity on existing contracts and the acquisition of Elsinore, L.P.
Operating expenses increased $4.3 million or 15%, from $28.7 million to
$33.0 million for the three months ended September 30, 2000 as compared to the
three months ended September 30, 1999. The increase was attributable to, among
other things, new business and increased activity on existing contracts. The
increase in operating expenses as a percentage of revenue was mainly due to
temporary increases in operating expenses at certain stations and an increase in
property insurance. Operating expenses increased $10 million or 18.1%, from
$55.1 million to $65.1 million for the six months ended September 30, 2000 as
compared to the six months ended September 30, 1999. The increase was
attributable to, among other things, new business, increased activity on
existing accounts and the acquisition of Elsinore, L.P. The increase in
operating expenses as a percentage of revenue was mainly due to increases in
operating expenses at certain stations and an increase in property insurance.
Selling, general and administrative expenses decreased $0.1 or 3.7% from
$2.7 million to $2.6 million for the three months ended September 30, 2000 as
compared to the same period of 1999. The decrease is primarily due to a
decrease in payroll. Selling, general and administrative expenses increased
$0.1 or 1.9% from $5.2 million to $5.3 million for the six months ended
September 30, 2000 as compared to the same period of 1999. The increase is
mainly attributable to costs associated with a one-time cost associated with a
change in 401K benefits providers.
Depreciation and amortization increased $0.6 million or 26% for the three
months ended September 30, 2000 as compared to the same period of 1999.
Depreciation and amortization increased $0.9 million or 18.7% for the six months
ended September 30, 2000 as compared to the same period of 1999. The increase
is primarily attributable to the depreciation on new equipment purchases.
As a result of the above factors, operating income decreased $0.2 million
or 14.3% from $1.4 million to $1.2 million for the three months ended September
30, 2000 as compared to the three months ended September 30, 1999. As a result
of the above factors, operating income decreased $0.2 million or 7.7% from $2.6
million to $2.4 million for the six months ended September 30, 2000 as compared
to the six months ended September 30, 1999.
Interest and other financial expense increased $0.1 million or 3.8% from
$2.6 million to $2.7 million for the three months ended September 30, 2000 as
compared to the three months ended September 30, 1999. Interest and other
financial expenses increased $0.2 million or 3.8% from $5.2 million to $5.4
million for the six months ended September 30, 2000 compared to the six months
ended September 30, 1999. This increase is mainly attributable to interest
expense related to the use of the Senior Credit Facility.
<PAGE>
Income Taxes decreased due to a reclassification of excise tax to other
income (expense).
Accordingly, net loss increased $0.3 million or 25% from $(1.2) million to
$(1.5) million for the three months ended September 30, 2000 as compared to the
same period of 1999. Net loss increased $0.4 million or 15.4% from $(2.6)
million to $(3.0) million for the six months ended September 30, 2000 as
compared to the six months ended September 30, 1999.
For the three months ended September 30, 2000, EBITDA increased by $0.4
million or 10.8% from $3.7 million to $4.1 million. For the six months ended
September 30, 2000, EBITDA increased by $0.7 million or 9.5% from $7.4 million
to $8.1 million.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by (used in) operating activities was $3.8 million for
the six months ended September 30, 2000, as compared to $(3.1) million for the
six months ended September 30, 1999. Net cash provided by operating activities
increased primarily due to the receipt of $2,014,000 from certain Viad
settlement, increase in accrued liabilities and more favorable working capital.
Net cash used in investing activities was $1.4 million for the six months
ended September 30, 2000, as compared to $11.7 million for the six months ended
September 30, 1999. The 1999 amount primarily reflects the acquisition of
Elsinore in May 1999. In addition to investing in acquisitions, in the normal
course of the Company's business in fiscal 1999, net cash used in investing
activities is also affected by the Company's capital expenditure needs for
maintaining and upgrading its existing vehicle and equipment fleet.
Net cash provided by financing activities was $0.5 million for the six
months ended September 30, 2000 and $12.2 million for the six months ended
September 30, 1999. The 1999 amount primarily represents borrowings against the
Senior Credit Facility and the related Term Loan used to finance the purchase of
the assets of Elsinore L.P. in May 1999.
As of September 30, 2000, the Company had long-term indebtedness of $80.0
million in the form of its Series B 11% Senior Notes due 2005, $7.2 million of
Senior Credit Facility and $3.9 million of Term Loan.
The Company's primary sources of liquidity are cash flow from operations,
borrowings under its Senior Credit Facility and cash infusions from the Parent.
In July 2000, the Company amended its Senior Credit Facility to increase the
amount available under the Facility to $15,000,000. As of September 30, 2000,
the amount available to borrow under the amended Senior Credit Facility was
approximately $7.5 million. Based upon the successful implementation of
management's business and operating strategy, the Company believes that its cash
flows from operations and borrowings under its Senior Credit Facility will
provide sufficient liquidity and capital resources to meet current and future
financial obligations, including the future payments of principal and interest
on the 11% Senior Notes, as well as provide funds for the Company's working
capital, capital investments and other needs for the next twelve months. The
Company's future operating performance and ability to service or refinance the
11% Senior Notes and to repay, extend or refinance its Senior Credit Facility
will be subject to future economic conditions and to financial, business and
other factors, many of which are beyond the Company's control. There can be no
assurance that such sources of funds will be adequate and that the Company will
not require additional capital from borrowings or securities offerings to
satisfy such require-ments. 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.
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
<PAGE>
ENVIRONMENTAL MATTERS (CONTINUED)
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
Costs
The Company did not experience any significant disruptions in its internal
information technology systems as a result of the Year 2000 date change. To
date, the Company is not aware of any material Year 2000 problems at any of its
material customers or suppliers. The Company's costs of achieving Year 2000
compliance have not been material to date and no further material costs are
expected. The Company will continue to monitor its internal information
technology systems and its material suppliers and customers for latent Year 2000
problems. Although the Company has not been materially adversely affected by
the Year 2000 issue to date, there can be no assurance that the Company and/or
its customers and suppliers will not experience system failures or malfunctions
as a result of the Year 2000 issue, which could have a material adverse effect
on the Company.
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") and adopted the Euro as their common
legal currency. The transition period for the introduction of the Euro will be
between January 1, 1999 and January 1, 2002. The Company is currently
evaluating the effects of the Euro conversion as it relates to the conversion of
information technology systems, recalculating currency risk, strategies
concerning continuity of contracts and the impact on its operations and
financial condition, particularly as the Euro conversion relates to the
Company's European operations.
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.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates and currency
exchange rates, which may adversely affect our results of operations and
financial condition. We seek to minimize the risks from these interest rate and
currency exchange rate fluctuations through our regular operating and financing
activities. Management believes that such risks are not material to the results
of operations and the financial condition of the Company.
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USES OF PROCEEDS
Pursuant to stock purchase agreements dated August 31, 2000, Ranger
[Aerospace Corporation] sold shares of its Class B Common Stock, $0.01 par value
per share, at $100 per share and shares of its Preferred Stock, $0.01 par value
per share, at $1,000 per share for an aggregate purchase price of $508,800 to
certain of its executive officers and other existing investors as set forth
below. Each purchaser paid an amount equal to the par value of the shares
purchased in cash and the balance with a promissory note secured by the shares
purchased.
<TABLE>
<CAPTION>
Number of Class B Number of Aggregate
Purchaser Common Shares Preferred Shares Purchase Price
--------------------------------------------- ------------------ ---------------- ---------------
<S> <C> <C> <C>
Gene Z. Salkind, trustee for Danielle
Schwartz Trust UAD 10/1/93 (1)(2) . . . 1,022 154 $ 256,200
Steven D. Townes, President,
Chief Executive Officer & Director (2) . 435 65 $ 108,500
George W. Watts, Executive Vice President (2)
116 18 $ 29,600
Jeffrey P. Hartman, Senior Vice President
& Chief Financial Officer (2) . . . . 200 30 $ 50,000
Kraig Danielson . . . . . . . . . . . . . . . 255 39 $ 64,500
<FN>
_________________
(1) Danielle Schwartz is the wife of George Schwartz, Chairman of Ranger and the Company.
(2) The stock purchase agreements pertaining to these transactions indicate that they are to be
effective as of March 7, 2000.
</TABLE>
Each stock purchase agreement, among other things, restricts the transfer
of such securities, grants Ranger and certain significant stockholders the right
to repurchase such securities upon the employee's termination and requires the
employee to consent to a sale of Ranger approved by its Board and the holders of
a majority of its common stock. [Except for the sale to Mr. Hartman, all of the
sales described above were intended to "gross-up" the Ranger common stock
ownership of the purchasers to enable them to maintain their percentage
ownership of Ranger common stock in connection with previous private placements
of Ranger securities to other investors. Ranger was contractually obligated to
sell to the purchasers the majority of the securities listed above and provide
the loans to finance such obligatory sales.] The securities issued under these
stock purchase agreements were issued pursuant to the exemption from
registration provided by Rule 701 promulgated under the Securities Act of 1933,
as amended (the "Securities Act") and/or pursuant to the exemption from
registration provided under Section 4(2) of the Securities Act.
Around the time of the execution of the stock purchase agreements described
above, Ranger issued a warrant (the "Tioga Warrant") to Tioga Capital
Corporation, an affiliate of George Schwartz, the Chairman of Ranger and the
Company, pursuant to a warrant agreement dated March 7, 2000. Pursuant to the
Tioga Warrant, Tioga may acquire up to 1,474 shares of Ranger's Class B Common
Stock at a price of $100 per share. The Tioga Warrant expires on March 31,
2008. The Tioga Warrant vests only upon a "Qualified Sale of the Company" (as
defined in the Tioga Warrant) resulting in a cumulative annual internal rate of
return in excess of 35% for certain securities of Ranger. The Tioga Warrant was
issued pursuant to the exemption from registration provided under Section 4(2)
of the Securities Act.
<PAGE>
PART II - OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
27.1 Consolidated Financial Data Schedule
(b) Reports on Form 8-K.
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on November 14, 2000 on its
behalf by the undersigned thereunto duly authorized.
Aircraft Service International Group, Inc.
----------------------------------------------
(Registrant)
By: \s\ Jeffrey P. Hartman.
--------------------------
Name: Jeffrey P. Hartman
Title: Senior Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
Date: November 14, 2000
<PAGE>
