UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- - - - - - - - - - - - - - - - -
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Quarterly Period Ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission File Number 333-64513
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 65-0822351
(State or other jurisdiction Employer Identification Number)
of incorporation or organization) (I.R.S.
1815 GRIFFIN ROAD, SUITE #300, DANIA, FL 33004-2252
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (954) 926-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) AND 12(g) OF THE ACT: NONE
TITLE OF CLASS NAME OF EXCHANGE ON WHICH REGISTERED
N/A N/A
Indicate by check mark whether each registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date.
Common Stock, par value $0.01 per share: 100 shares outstanding at February 14,
2000.
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AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
FORM 10-Q
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
- December 31, 1999 and March 31, 1999 2
Condensed Consolidated Statements of
Operations - Three Months and
Nine Months Ended December 31, 1999 and 1998 3
Condensed Consolidated Statements of Cash Flows
- Nine Months Ended December 31, 1999 and 1998 4
Consolidated Statements of Stockholder's Equity
- December 31, 1999 and March 31, 1999. 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 24
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings 25
ITEM 6 Exhibits and Reports on Form 8-K 25
<PAGE>
<TABLE>
<CAPTION>
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
PART I, ITEM 1
DECEMBER 31,
1999 MARCH 31,
(UNAUDITED) 1999
-------------- -----------
<S> <C> <C>
ASSETS (Note 1)
Current assets:
Cash and cash equivalents $ 678 $ 3,311
Accounts receivable, net of allowance of $234 and $567, 22,230 16,421
respectively
Receivable from Viad 2,174 2,125
Prepaid expenses 3,498 650
Spare parts and supplies 2,356 2,095
-------------- -----------
Total current assets 30,936 24,602
Property, plant and equipment, net of accumulated depreciation
of $11,394 and $6,176, respectively 49,689 46,889
Goodwill, net of accumulated amortization of $4,574 and 50,442 48,668
$2,545, respectively
Deferred financing costs, net of accumulated amortization of
$756 and $337, respectively 2,862 3,205
Investments in and advances to joint venture 316 224
Other assets 175 166
-------------- -----------
Total assets $ 134,420 $ 123,754
============== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 7,834 $ 5,082
Accrued expenses 15,427 12,850
Customer deposits 3,459 3,488
Current portion of notes payable 1,433 57
-------------- -----------
Total current liabilities 28,153 21,477
Long-term debt 86,701 82,927
-------------- -----------
Total liabilities 114,854 104,404
Commitments - -
Stockholder's equity:
Common stock, $0.01 par value; 1,000 shares authorized; 100
shares issued and outstanding - -
Paid-in capital 27,800 24,100
Accumulated deficit (8,275) (4,770)
Accumulated other comprehensive income 41 20
-------------- -----------
Total stockholder's equity 19,566 19,350
-------------- -----------
Total liabilities and stockholder's equity $ 134,420 $ 123,754
============== ===========
</TABLE>
See accompanying notes.
1
<PAGE>
<TABLE>
<CAPTION>
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------ --------------------
1999 1998 1999 1998
-------- -------- --------- -----------
<S> <C> <C> <C> <C>
Revenues $35,579 $31,751 $103,290 $ 92,994
Cost and expenses:
Operating expenses 29,315 25,709 84,405 75,179
Selling, general and administrative 1,966 2,054 7,209 6,091
Amortization 689 636 2,036 1,861
Depreciation 1,913 1,588 5,390 4,623
-------- -------- --------- ---------
Total cost and expenses 33,883 29,987 99,040 87,754
-------- -------- --------- ---------
Operating income 1,696 1,764 4,250 5,240
Other income (expense), net 66 (21) 140 (201)
Interest income 41 56 89 197
Interest and other financial expense (2,685) (2,362) (7,954) (8,856)
-------- -------- --------- ---------
Loss before income taxes and
Extraordinary item (882) (563) (3,475) (3,620)
Income tax expense (benefit) 4 (276) 30 47
-------- -------- --------- ---------
Loss before extraordinary item (886) (287) (3,505) (3,667)
Extraordinary loss on early extinguishment of debt - - - (213)
-------- -------- --------- ---------
Net loss $ (886) $ (287) $ (3,505) $ (3,880)
======== ======== ========= =========
Basic and diluted loss per share:
Loss before extraordinary item $(8,860) $(2,870) $(35,050) $(36,670)
Extraordinary loss on early extinguishment of debt - - - (2,130)
-------- -------- --------- ---------
Net loss $(8,860) $(2,870) $(35,050) $(38,880)
======== ======== ========= =========
Weighted average common shares outstanding-
basic and diluted 100 100 100 100
======== ======== ========= =========
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
<CAPTION>
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
DECEMBER 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES $ (3,505) $ (3,880)
Net loss
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization of intangible assets 2,036 1,861
Depreciation 5,390 4,623
Amortization of deferred financing costs 420 2,691
Extraordinary loss on early extinguishment of debt - 213
Deferred income taxes (2) 8
Gain on sale of fixed assets (37) -
Equity in (income)/loss in joint venture (92) 183
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable (4,002) (5,137)
Prepaid expenses (2,828) (1,064)
Spare parts and supplies (261) (257)
Other assets 123 (157)
Accounts payable 2,599 (1,009)
Accrued expenses 1,997 3,893
Customer deposits (29) 841
--------- ---------
Net cash provided by operating activities 1,809 2,809
INVESTING ACTIVITIES
Purchases of property, plant and equipment (7,203) (8,517)
Purchase of ASIG business, less cash acquired of $6,513 - (88,487)
Purchase of Elsinore, LP (6,012) -
Advances to joint venture - (200)
--------- ---------
Net cash used in investing activities (13,215) (97,204)
FINANCING ACTIVITIES
Issuance of common stock - 24,100
Proceeds from Sale of Senior Notes - 77,703
Payments of deferred financing costs (77) (5,299)
Revolving credit facility (476) -
Proceeds from Key term note, net 4,727 -
Proceeds from capital contribution 3,700 -
Proceeds from notes payable 899 -
--------- ---------
Net cash provided by financing activities 8,773 96,504
--------- ---------
Net (decrease) increase in cash (2,633) 2,109
Cash and cash equivalents at beginning of period 3,311 0
--------- ---------
Cash and cash equivalents at end of period $ 678 $ 2,109
========= =========
- -----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 5,179 $ 2,645
Taxes paid $ 512 $ 240
========= =========
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
<CAPTION>
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
(AMOUNTS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
Consolidated Statements of Stockholder's Equity
Nine Months Ended December 31, 1999
(Unaudited)
Accumulated
Common Other Total
Stock Common Paid-in Accumulated Comprehensive Stockholder's
Outstanding Stock Capital Deficit Income Equity
=================================== =========== ======= ======== ============= ============== ===============
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1999 100 $ - $ 24,100 $ (4,770) $ 20 $ 19,350
Capital contribution - - 3,700 - - 3,700
Comprehensive loss:
Net loss - - - (3,505) - (3,505)
Currency translation adjustment - - - - 21 21
- ----------------------------------- ----------- ------- -------- ------------- -------------- ---------------
BALANCE AT DECEMBER 31, 1999 100 $ - $ 27,800 $ (8,275) $ 41 $ 19,566
=================================== =========== ======= ======== ============= ============== ===============
</TABLE>
4
<PAGE>
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
The condensed 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 condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the year ended March
31, 1999, which is available at the SEC's website on the Internet at
http://www.sec.gov.
The results of operations for the three and nine months ended December 31,
1999 are not necessarily indicative of results to be expected for the fiscal
year ending March 31, 2000.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Our accounting policies are as set forth in the Notes to Consolidated
Financial Statements referred to above.
Certain amounts in prior years' consolidated financial statements have been
reclassified to conform to current period financial statement presentations.
The balance sheet at March 31, 1999 has been derived from the audited
financial statements of that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For our operations where the functional currency is other than the U.S.
Dollar, balance sheet amounts are translated using the exchange rate in effect
at the balance sheet date. Income statement amounts are translated at the
average exchange rates during the year or period. Translation adjustments
resulting from the changes in exchange rates from year to year are recorded as
accumulated other comprehensive income.
We account for our investment in a 50% owned joint venture under the equity
method of accounting. The joint venture, Skytanking GmbH, located in Munich,
Germany, provides aviation fueling and aircraft ground services at Munich
International Airport.
The Company, during its ordinary course of business, pursues acquisition
targets frequently and expends funds in such pursuits. The costs of the
acquisition pursuits are capitalized on the balance sheet until such time as the
acquisition occurs or dissolves. If the acquisition occurs, these costs are
included as part of the purchase price of the acquired entity. If, however, in
the Company's opinion, the acquisition will not occur, then the capitalized
costs associated with that specific acquisition are written off to the statement
of operations. As of December 31, 1999, the Company had $1.9 million of
capitalized costs in pursuit of on-going acquisitions which is included in
prepaid expenses on the accompanying balance sheet.
5
<PAGE>
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In fiscal 1999, we adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share" (SFAS No. 128). SFAS No. 128 replaced the calculation
of primary and fully diluted earnings per share with basic and diluted earnings
per share. Basic earnings per share will typically be higher than primary
earnings per share due to the exclusion of any dilutive effects of options,
warrants and convertible securities from the calculation. Diluted earnings per
share is similar to the previously reported fully diluted earnings per share.
The adoption of SFAS No. 128 had no impact on the Company.
Effective January 1, 1998, we adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130), which
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income, which
includes, but is not limited to, unrealized gains for marketable securities and
future contracts, foreign currency translation adjustments and minimum pension
liability adjustments. The accompanying financial statements for the Company
reflect other comprehensive income (loss) consisting of net income (loss) and
foreign currency translation adjustments.
In fiscal 1999, we adopted Statement of Financial Accounting Standards No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits-an
amendment of FASB Statements No. 87, 88, and 106" (SFAS No. 132). SFAS No. 132
revises employers' disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans;
therefore, the adoption of SFAS No. 132 affected the Company's disclosure
information only.
2. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1999 and March 31,
1999 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 1999
------------- ----------
<S> <C> <C>
Revolving loan facility dated April 2, 1998, allows borrowings up to
the lessor of $10 million or a borrowing base as defined. Facility bears
interest at prime rates or LIBOR rates plus applicable margins and
matures on August 31, 2002 or sooner as provided in facility. $ 2,430 $ 2,927
Term loan agreement dated May 20, 1999, payable in quarterly
installments, balance due in May 2005, bears interest in a manner
identical to the revolving loan facility. 4,750 -
Series B 11% Senior Notes dated August 18, 1998 payable
August 15, 2005. Interest paid semiannually on February 15 and
August 15. 80,000 80,000
Promissory note dated May 21, 1999 payable in full on May 21,
2000. Interest accrues at 8% and is due at maturity. 899 -
Various promissory note obligations, maturing 2000 to 2001, bears
interest at rates ranging from 11 % to 13 %. 55 57
------------- ----------
Total long-term debt 88,134 82,984
Less current portion of term note and promissory notes 1,433 57
------------- ----------
$ 86,701 $ 82,927
============= ==========
</TABLE>
6
<PAGE>
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
On April 2, 1998, we issued $75 million of notes (the "Senior Increasing
Rate Notes"). The proceeds from the Senior Increasing Rate Notes were used to
consummate the acquisition of the Aircraft Service International Group
businesses from Viad Corporation. On August 18, 1998, we issued $80 million of
notes (the "Old Notes"). The proceeds from the Old Notes were used to repay the
Senior Increasing Rate Notes. On February 12, 1999, we exchanged the Old Notes
for substantially identical Series B 11% Senior Notes (the "Notes"). The Notes
mature in August, 2005, and bear interest at 11%, payable semiannually on each
February 15 and August 15, commencing February 15, 1999. The Notes are
redeemable at the option of the Company, at any time on or after August 15,
2003, at a premium of 105.5% in 2003 and at 100% of the principal amount in 2004
and thereafter. In addition, we may redeem, at our option, up to 33 1/3% of the
original principal amount of the Notes at any time on or prior to August 15,
2001, at a redemption price equal to 111% of theprincipal amount being redeemed,
with the net proceeds of one or more public offerings, provided that at least
$53.3 million aggregate principal amount of the Notes remain outstanding after
any such redemption and that any such redemption occurs within 90 days following
the closing of such public offering. Upon the occurrence of a Change in Control
(as defined in the Indenture covering the Notes), each holder of the Notes is
entitled to require the Company to repurchase such Notes at a premium of 101%.
The Notes are fully and unconditionally guaranteed, on an unsecured basis, by
the Company's domestic subsidiaries (see Note 6).
The Notes contain certain covenants, which among other things limit the
ability of the Company to incur additional indebtedness, issue common and
preferred stock of its subsidiaries, pay dividends, transfer and sell assets and
enter into transactions with affiliates.
Concurrent with the consummation of the issuance of the Old Notes, we wrote
off the remaining $213,000 of unamortized deferred financing costs previously
incurred in connection with the Senior Increasing Rate Notes that were repaid
with the net proceeds of the issuance of the Old Notes. The write-off of such
deferred financing costs has been reported as an extraordinary loss on the early
extinguishment of debt.
On April 2, 1998, we entered into a revolving credit facility with Key
Corporate Capital (the "Senior Credit Facility"). The Senior Credit Facility
allows for borrowings in the aggregate of up to the lesser of $10 million or a
borrowing base, equal to 85% of eligible accounts receivable, as defined. The
revolving loans under the Senior Credit Facility mature on August 31, 2002 or
sooner as provided in the Senior Credit Facility.
Indebtedness of the Company under the Senior Credit Facility is guaranteed
by each of our domestic subsidiaries and will generally be secured by: (i) all
of the Company's cash equivalents, accounts receivable, contract rights, general
intangibles, instruments and chattel paper relating thereto; (ii) all of the
Company's inventory; (iii) amounts (if any) held in a commercial deposit account
with the lending bank, and (iv) all proceeds from (i) to (iii) inclusive.
The Company's borrowings under the Senior Credit Facility bear interest at
a floating rate and may be maintained as Prime Rate Loans or LIBOR loans.
Borrowings made pursuant to the Prime Rate Loans bear interest rates equal to
the prime rate plus the Applicable Margin (as defined in the Senior Credit
Facility) and borrowings made pursuant to the LIBOR Loans bear interest rates
equal to the LIBOR rate plus the Applicable Margin. The Applicable Margin for
Prime Rate Loans was 0% through June 1999 and thereafter will range from 0% to
0.50% based on the Company's Leverage Ratio (as defined in the Senior Credit
Facility). The Applicable Margin for LIBOR Loans was 1.75% through June 1999 and
thereafter will range from 1.25% to 2.25% based on the Company's Leverage Ratio.
7
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AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Senior Credit Facility requires the Company to meet certain financial
tests, including, without limitation, minimum interest coverage and maximum
leverage ratios. The Senior Credit Facility also contains certain covenants,
which among other things, will limit the incurrence of additional indebtedness,
the making of loans or investments, the declaration of dividends, transactions
with affiliates, asset sales, acquisitions, mergers and consolidations, the
incurrence of liens and encumbrances and other matters customarily restricted in
such agreements. There was approximately $2.4 million outstanding and $7.3
million available under the Senior Credit Facility as of December 31, 1999.
On May 20, 1999, the Senior Credit Facility was amended to add a $5 million
Term Loan (the "Term Loan"). The Term Loan principal is payable in quarterly
installments of $125,000. Interest is due quarterly, in arrears, 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. The Company must meet a minimum
EBITDA test. The Term Loan is secured by all of the Company's equipment.
On May 20, 1999, the Company entered into a promissory note agreement in
the amount of $899,372 (subject to adjustment as described in the asset purchase
agreement dated May 20, 1999) with Elsinore, L.P. (See Note 3). The promissory
note, in conjunction with the amendment to the Term Loan described above was
used to purchase the assets of Elsinore, L.P. The note, along with interest at
a rate equal to 8% payable in full on May 20, 2000, less any working capital
adjustments.
3. ELSINORE, L.P. ACQUISITION
On May 20, 1999, Elsinore Acquisition Corporation ("EAC"), a
newly-created, wholly-owned subsidiary of the Company, acquired substantially
all of the assets of Elsinore, L.P., ("Elsinore"), which includes 23 operating
units in 10 states, the U.S. Virgin Islands and Puerto Rico. Elsinore provides a
variety of ground handling, fueling, aircraft cleaning and other aviation
services to major commercial airlines. EAC will primarily continue the same
business as previously conducted by Elsinore. The Company and its sole
shareholder, Ranger Aerospace, are guarantors of EAC's obligations under the
agreement governing the asset purchase.
The total consideration paid by EAC was approximately $5.9 million (subject
to post-closing adjustments), which consists of $5 million in cash and a
promissory note of approximately $0.9 million (see Note 2). The promissory note
has a maturity of one year from the date of purchase, and is subject to
post-closing adjustments. The Company borrowed the cash portion of the purchase
price from Key Corporate Capital, Inc. 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 was recorded as goodwill and is being amortized using
the straight-line method over 20 years.
8
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AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following is a preliminary summary of the purchase price allocation:
<TABLE>
<CAPTION>
<S> <C>
Net working capital, including cash of $9 $1,131
Property, plant and equipment 950
Other assets 130
Goodwill 3,688
------
$5,899
======
The purchase price was funded as follows:
Senior Credit Facility (see Note 2) $5,000
Promissory Note (see Note 2) 899
------
$5,899
======
</TABLE>
The following unaudited pro forma data presents a summary of consolidated
results of operations of the Company for the three months and nine months ended
December 31, 1999 and December 31, 1998 as if the Elsinore acquisition had
occurred on April 1, 1998:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------ --------------------
1999 1998 1999 1998
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenue $35,579 $35,241 $105,042 $103,624
Net loss (886) (1,415) (3,588) (4,859)
</TABLE>
The unaudited pro forma results have been prepared for comparison purposes only
and include certain adjustments, such as additional amortization expense due to
the goodwill related to the Elsinore acquisition and additional interest expense
associated with the debt related to the Elsinore acquisition. The unaudited pro
forma results do not purport to be indicative of the results of operation which
actually would have resulted had the Elsinore acquisition occurred on April 1,
1998, or of future results of operations of the Company.
4. COMMITMENTS AND CONTINGENCIES
Leases:
In the normal course of conducting our business, we are involved in various
lease agreements. There has been no material change in lease agreements from
those disclosed previously in the Company's Form 10-K for the year ended March
31, 1999, except as discussed below.
Effective July 14, 1999, we entered into a seven year operating lease with
Capital Associates International, Inc. ("the Master Lease"). The initial
equipment leased was for 72 towable hydrant carts at a total cost of $4.9
million. Delivery dates varied from July 15, 1999 through December 1999. This
lease is pursuant to a new into-plane agreement with Epsilon Trading, Inc.
("Epsilon") which specifically states that we will be reimbursed for the cost of
the hydrant carts by Epsilon and Epsilon will also serve as a guarantor on the
lease agreement.
On January 1, 2000, the Company added 76 towable hydrant carts at a total
cost of $2.4 million to the Master Lease. Delivery dates varied from October
1999 through March 2000. This amendment is pursuant to a new 21 year into-plane
agreement with Northwest Airlines which specifically states that we will be
reimbursed for the cost of the hydrant carts by Northwest Airlines and Northwest
Airlines will also serve as guarantor on the lease agreement.
9
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AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Legal:
In the normal course of conducting our business, we are involved in various
litigation. There has been no material changes in legal proceedings from those
disclosed previously in the Company's Form 10-K annual report for the year ended
March 31, 1999 except as discussed below. We are not a party to any litigation
or governmental proceedings which management believes could result in any
judgements or fines against us that would have a material adverse affect on the
Company's financial position, liquidity or results of operations.
In conjunction with the purchase of the Company from Viad Corporation
("Viad") in April 1998, Viad agreed to retain certain liabilities and to future
adjustments of the purchase price based upon the purchase and sale agreement. In
July 1999, the Company and Viad had agreed that Viad would pay the Company $2.2
million in settlement of these claims which has been recorded as "Receivable
from Viad" on the accompanying balance sheet.
Subsequent to this date, disputes arose between the parties regarding the
settlement of these claims. Consequently, an arbitrator has been appointed to
settle the disputed matters. Management's belief is that the ultimate
resolution of these claims is not likely to be less than the receivable from
Viad recorded on the balance sheet.
5. BUSINESS SEGMENTS
Pursuant to SFAS No. 131, "Disclosure About Segments of a Business
Enterprise and Related Information," the Company is required to report segment
information. As the Company only operates in one business segment, no additional
reporting is required.
6. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING/COMBINING FINANCIAL STATEMENTS
The Company has outstanding $80 million in aggregate principal amount of
Series B 11% Senior Notes due 2005 (the "Notes"). The Notes are fully and
unconditionally guaranteed on a senior unsecured basis, jointly and severally,
by the Company's domestic subsidiaries (the "Guarantors"). The Guarantors
include Aircraft Services International, Inc., Dispatch Services, Inc., Florida
Aviation Fueling Co and Elsinore Acquisition Corporation. The condensed
consolidated financial statements of the Guarantors should be read in connection
with the consolidated financial statements of the Company. Separate financial
statements of the Guarantors are not presented because the Company believes such
information is not material and that the condensed consolidated financial
statements presented are more meaningful in understanding the financial position
and results of operations of the Guarantors. Those supplemental guarantor
condensed combining financial statements that do not contain a column for
elimination entries and/or a column for ASIG, Inc. do so because all amounts
that would appear in the column are zero.
10
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AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS)
(Unaudited)
6. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
GUARANTOR NON- GUARANTOR ELIMINATION CONSOLIDATED
ASIG, INC. SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
--------------- -------------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 253 $ (253) $ 678 $ - $ 678
Accounts receivable, net 54 19,862 2,314 - 22,230
Receivable from Viad 2,174 - - - 2,174
Prepaid expenses 76 3,370 52 - 3,498
Spare parts and supplies - 2,331 25 - 2,356
--------------- -------------- ------------- -------------- ---------
Total current assets 2,557 25,310 3,069 - 30,936
Property, plant and equipment, net 73 46,404 3,212 - 49,689
Due from affiliates 92,532 (82,782) 22,786 (32,536) -
Notes receivable from affiliates 11,919 - - (11,919) -
Goodwill, net - 50,032 410 - 50,442
Deferred financing costs, net 2,862 - - - 2,862
Investment in consolidated subsidiaries 445 1,172 - (1,617) -
Investments in and advances in joint venture - - 316 - 316
Other assets 4 165 6 - 175
--------------- -------------- ------------- -------------- ---------
Total assets $ 110,392 $ 40,301 $ 29,799 $ (46,072) $134,420
=============== ============== ============= ============== =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ - $ 7,223 $ 611 $ - $ 7,834
Due to affiliates 9,099 13,773 9,664 (32,536) -
Notes payable to affiliates - - 11,919 (11,919) -
Accrued expenses 3,496 5,065 6,866 - 15,427
Customer deposits - 3,383 76 - 3,459
Current portion notes payable 500 899 34 - 1,433
--------------- -------------- ------------- -------------- ---------
Total current liabilities 13,095 30,343 29,170 (44,455) 28,153
Notes payable 6,680 - 21 - 6,701
Long-term debt 80,000 - - - 80,000
--------------- -------------- ------------- -------------- ---------
Total liabilities 99,775 30,343 29,191 (44,455) 114,854
Stockholder's equity:
Common stock - 6 26 (32) -
Paid-in capital 27,800 441 1,144 (1,585) 27,800
Retained earnings (accumulated deficit) (17,183) 9,511 (603) - (8,275)
Accumulated other comprehensive income - - 41 - 41
--------------- -------------- ------------- -------------- ---------
Total stockholder's equity 10,617 9,958 608 (1,617) 19,566
--------------- -------------- ------------- -------------- ---------
Total liabilities and stockholder's equity $ 110,392 $ 40,301 $ 29,799 $ (46,072) $134,420
=============== ============== ============= ============== =========
</TABLE>
11
<PAGE>
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS)
6. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
GUARANTOR NON-GUARANTOR ELIMINATION CONSOLIDATED
ASIG, INC. SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
--------------- ------------- ------------ -------------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 124 $ 2,216 $ 971 $ - $ 3,311
Accounts receivable, net - 15,261 1,160 - 16,421
Receivable from Viad 2,125 - - - 2,125
Prepaid expenses 18 602 30 - 650
Spare parts and supplies - 2,067 28 - 2,095
--------------- ------------- ------------ -------------- ---------
Total current assets 2,267 20,146 2,189 - 24,602
Property, plant and equipment, net 78 44,186 2,625 - 46,889
Due from affiliates 90,120 - 21,565 (111,685) -
Notes receivable from affiliates 11,018 - - (11,018) -
Goodwill, net - 48,249 419 - 48,668
Deferred financing costs, net 3,205 - - - 3,205
Investment in consolidated subsidiaries 445 1,170 - (1,615) -
Investments in and advances in joint venture - - 224 - 224
Other assets 4 156 6 - 166
--------------- ------------- ------------ -------------- ---------
Total assets $ 107,137 $ 113,907 $ 27,028 $ (124,318) $123,754
=============== ============= ============ ============== =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ - $ 4,602 $ 480 $ - $ 5,082
Due from affiliates 9,099 91,933 10,653 (111,685) -
Notes payable to affiliates - - 11,018 (11,018) -
Accrued expenses 1,319 8,257 3,274 - 12,850
Customer deposits - 3,398 90 - 3,488
Current portion notes payable - - 57 - 57
--------------- ------------- ------------ -------------- ---------
Total current liabilities 10,418 108,190 25,572 (122,703) 21,477
Notes payable 2,927 - - - 2,927
Long-term debt 80,000 - - - 80,000
--------------- ------------- ------------ -------------- ---------
Total liabilities 93,345 108,190 25,572 (122,703) 104,404
Stockholder's equity:
Common stock - 4 26 (30) -
Paid-in capital 24,100 441 1,144 (1,585) 24,100
Retained earnings (accumulated deficit) (10,308) 5,272 266 - (4,770)
Accumulated other comprehensive income - - 20 - 20
--------------- ------------- ------------ -------------- ---------
Total stockholder's equity 13,792 5,717 1,456 (1,615) 19,350
--------------- ------------- ------------ -------------- ---------
Total liabilities and stockholder's equity $ 107,137 $ 113,907 $ 27,028 $ (124,318) $123,754
=============== ============= ============ ============== =========
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS)
(Unaudited)
6. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended December 31, 1999
---------------------------------------------------------
GUARANTOR NON-GUARANTOR CONSOLIDATED
ASIG, INC. SUBSIDIARIES SUBSIDIARIES TOTAL
--------------- -------------- -------------- --------
<S> <C> <C> <C> <C>
Revenues $ - $ 31,841 $ 3,738 $35,579
Cost and expenses:
Operating expenses 4 26,111 3,200 29,315
Selling, general and administrative - 1,617 349 1,966
Amortization - 684 5 689
Depreciation 4 1,756 153 1,913
--------------- -------------- -------------- --------
Total cost and expenses 8 30,168 3,707 33,883
--------------- -------------- -------------- --------
Operating income (loss) (8) 1,673 31 1,696
Other income (expense), net - 1 65 66
Interest income 2 39 - 41
Interest and other financial expense (2,302) (106) (277) (2,685)
--------------- -------------- -------------- --------
Income (loss) before income taxes (2,308) 1,607 (181) (882)
Income taxes - 4 - 4
--------------- -------------- -------------- --------
Net income (loss) $ (2,308) $ 1,603 $ (181) $ (886)
=============== ============== ============== ========
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS)
(Unaudited)
6. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended December 31, 1998
---------------------------------------------------------
GUARANTOR NON-GUARANTOR CONSOLIDATED
ASIG, INC. SUBSIDIARIES SUBSIDIARIES TOTAL
--------------- -------------- -------------- --------
<S> <C> <C> <C> <C>
Revenues $ - $ 26,105 $ 5,646 $31,751
Cost and expenses:
Operating expenses - 20,540 5,169 25,709
Selling, general and administrative - 1,713 341 2,054
Amortization 4 632 - 636
Depreciation 2 1,458 128 1,588
--------------- -------------- -------------- --------
Total cost and expenses 6 24,343 5,638 29,987
--------------- -------------- -------------- --------
Operating income (loss) (6) 1,762 8 1,764
Other income (expense), net (2) - (19) (21)
Interest income 3 31 22 56
Interest and other financial expense (2,065) (21) (276) (2,362)
--------------- -------------- -------------- --------
Income (loss) before income taxes (2,070) 1,772 (265) (563)
Income taxes - - (276) (276)
--------------- -------------- -------------- --------
Net income (loss) $ (2,070) $ 1,772 $ 11 $ (287)
=============== ============== ============== ========
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS)
(Unaudited)
6. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended December 31, 1999
----------------------------------------------------------
GUARANTOR NON-GUARANTOR CONSOLIDATED
ASIG, INC. SUBSIDIARIES SUBSIDIARIES TOTAL
--------------- -------------- -------------- ---------
<S> <C> <C> <C> <C>
Revenues $ - $ 92,433 $ 10,857 $103,290
Cost and expenses:
Operating expenses 5 74,958 9,442 84,405
Selling, general and administrative - 6,053 1,156 7,209
Amortization - 2,020 16 2,036
Depreciation 13 4,944 433 5,390
--------------- -------------- -------------- ---------
Total cost and expenses 18 87,975 11,047 99,040
--------------- -------------- -------------- ---------
Operating income (loss) (18) 4,458 (190) 4,250
Other income (expense), net - (2) 142 140
Interest income 6 75 8 89
Interest and other financial expense (6,863) (262) (829) (7,954)
--------------- -------------- -------------- ---------
Income (loss) before income taxes (6,875) 4,269 (869) (3,475)
Income taxes - 30 - 30
--------------- -------------- -------------- ---------
Net income (loss) $ (6,875) $ 4,239 $ (869) $ (3,505)
=============== ============== ============== =========
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS)
(Unaudited)
6. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended December 31, 1998
--------------------------------------------------------
GUARANTOR NON-GUARANTOR CONSOLIDATED
ASIG, INC. SUBSIDIARIES SUBSIDIARIES TOTAL
--------------- ------------- -------------- --------
<S> <C> <C> <C> <C>
Revenues $ - $ 75,962 $ 17,032 $92,994
Cost and expenses:
Operating expenses - 60,751 14,428 75,179
Selling, general and administrative - 5,174 917 6,091
Amortization 11 1,850 - 1,861
Depreciation 6 4,182 435 4,623
--------------- ------------- -------------- --------
Total cost and expenses 17 71,957 15,780 87,754
--------------- ------------- -------------- --------
Operating income (loss) (17) 4,005 1,252 5,240
Other income (expense), net (5) 26 (222) (201)
Interest income 20 128 49 197
Interest and other financial expense (8,195) 157 (818) (8,856)
--------------- ------------- -------------- --------
Income (loss) before income taxes and
extraordinary item (8,197) 4,316 261 (3,620)
Income taxes - - 47 47
--------------- ------------- -------------- --------
Net income (loss) before extraordinary item (8,197) 4,316 214 (3,667)
Extraordinary loss on
early extinguishment of debt 213 - - 213
--------------- ------------- -------------- --------
Net income (loss) $ (8,410) $ 4,316 $ 214 $(3,880)
=============== ============= ============== ========
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONDENSED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS)
(Unaudited)
6. SUPPLEMENTAL GUARANTOR FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, 1999
-------------------------------------------------------
GUARANTOR NON GUARANTOR CONSOLIDATED
ASIG, INC. SUBSIDIARIES SUBSIDIARIES TOTAL
------------ -------------- -------------- ---------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (6,875) $ 4,239 $ (869) $ (3,505)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of intangible assets 1 2,012 16 2,029
Depreciation 13 4,944 434 5,391
Amortization of deferred financing costs 419 1 - 420
Deferred income taxes - (2) - (2)
Gain on sale of fixed assets - (30) (8) (38)
Equity income of joint venture - - (92) (92)
Changes in operating assets and liabilities,
net of effects of acquisition:
Accounts receivable (103) (2,767) (1,132) (4,002)
Due from (to) affiliates - (2,550) 2,550 -
Prepaid expenses (58) (2,748) (22) (2,828)
Spare parts and supplies - (265) 4 (261)
Other assets 130 (7) - 123
Accounts payable (153) 2,621 131 2,599
Accrued expenses (307) 2,565 (261) 1,997
Customer deposits - (15) (14) (29)
------------ -------------- -------------- ---------
Net cash provided by (used in) operating activities (6,933) 7,998 737 1,802
INVESTING ACTIVITIES
Purchases of property, plant and equipment (8) (6,152) (1,043) (7,203)
Change in Goodwill 7 (7) -
Purchase of Elsinore, LP 23 (6,028) - (6,005)
------------ -------------- -------------- ---------
Net cash provided by (used in) investing activities 15 (12,173) (1,050) (13,208)
FINANCING ACTIVITIES
Payments of deferred financing costs (77) - - (77)
Revolving credit facility (826) 330 20 (476)
Proceeds from Key term note, net 4,250 477 - 4,727
Proceeds from Capital contribution 3,700 3,700
Proceeds from notes payable 899 899
------------ -------------- -------------- ---------
Net cash provided by financing activities 3,347 5,406 20 8,773
------------ -------------- -------------- ---------
Net increase (decrease) in cash (3,571) 1,231 (293) (2,633)
Cash at beginning of period 124 2,216 971 3,311
------------ -------------- -------------- ---------
Cash at end of period $ (3,447) $ 3,447 $ 678 $ 678
============ ============== ============== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 5,179 $ - $ - $ 5,179
============ ============== ============== =========
Taxes paid $ - $ 54 $ 458 $ 512
============ ============== ============== =========
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS)
(Unaudited)
6. SUPPLEMENTAL GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, 1998
-------------------------------------------------------
GUARANTOR NON GUARANTOR CONSOLIDATED
ASIG, INC. SUBSIDIARIES SUBSIDIARIES TOTAL
------------ -------------- -------------- ---------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (8,410) $ 4,316 $ 214 $ (3,880)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of intangible assets 11 1,850 - 1,861
Depreciation 6 4,182 435 4,623
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,
net of effects of acquisition:
Accounts receivable - (4,774) (363) (5,137)
Due from (to) affiliates (2,368) (8,451) 10,819 -
Prepaid expenses - (1,053) (11) (1,064)
Spare parts and supplies - (254) (3) (257)
Other assets (157) - (157)
Accounts payable (21) (1,098) 110 (1,009)
Accrued expenses (81) 12,967 (8,993) 3,893
Customer deposits - 800 41 841
------------ -------------- -------------- ---------
Net cash provided by (used in) operating activities (7,959) 8,328 2,440 2,809
INVESTING ACTIVITIES
Purchases of property, plant and equipment (57) (8,329) (131) (8,517)
Purchase of ASIG business (88,487) - - (88,487)
Advances to joint venture - - (200) (200)
------------ -------------- -------------- ---------
Net cash used in investing activities (88,544) (8,329) (331) (97,204)
FINANCING ACTIVITIES
Issuance of common stock 24,100 - - 24,100
Borrowings, net 77,702 1 - 77,703
Payments of deferred financing costs (5,299) - - (5,299)
------------ -------------- -------------- ---------
Net cash provided by financing activities 96,503 1 - 96,504
------------ -------------- -------------- ---------
Net increase in cash - - 2,109 2,109
Cash at beginning of period - - - -
Cash at end of period $ - $ - $ 2,109 $ 2,109
============ ============== ============== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 2,645 $ - $ - $ 2,645
============ ============== ============== =========
Taxes paid $ - $ 33 $ 207 $ 240
============ ============== ============== =========
</TABLE>
18
<PAGE>
PART I, ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Certain statements contained with this report may be deemed
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. All statements in this report other than statements of historical
fact are forward-looking statements that are subject to known and unknown risks,
uncertainties and other factors, which could cause actual results and
performance of the Company to differ materially from such statements. The words
"believe," "expect," "anticipate," "intend," "will," and similar expressions
identify forward-looking statements. In addition, forward-looking statements
contained herein relate to, among other things, (i) anticipated financial
performance, (ii) ability to comply with the Company's general working capital
requirements, (iii) ability to generate sufficient cash flow from operations to
fund all costs of operations and (iv) "Year 2000" computer issues. While the
Company believes the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance such expectations will prove to have
been correct. There are a variety of factors which would cause future outcomes
to differ materially from those described in this report, including, but not
limited to, (i) general economic conditions, (ii) inability to maintain
profitability, (iii) material reduction in revenues, (iv) inability to collect
in a timely manner a material amount of receivables, (v) increased competitve
pressures, (vi) inability to obtain required permits and approvals to conduct
operations, (vii) changes in federal, state and local laws and regulations,
especially aircraft regulations, or interpretation of such, (viii) potential
increases in equipment, maintenance, operating or labor costs, (ix) management
retention and development, (x) the requirement to use internally generated funds
for purposes not presently anticipated, (xi) inability or failure to convert the
computer systems of the Company's key suppliers, customers, creditors and
financial service organizations, in order to be "Year 2000" compliant, (xii) any
sudden or substantial change in senior management, which could adversely affect
major customer relationships, (xiii) the adverse affect on the Company's
customers resulting from the increase in the price or the decrease in the
availability of aviation fuel, (xiv) risks associated with doing business in
foreign countries and with foreign customers and (xv) the loss of one or more of
the Company's significant customers. The Company undertakes no obligations to
update publicly any forward-looking statement, whether as a result of new
information, future events or otherwise.
The Company's business includes aviation fueling services; aircraft ground
services and other aviation services. Aviation fueling services are comprised
primarily of into-plane fueling, maintenance and operation of fuel storage and
delivery systems and the retail sale of fuel products. Generally, the Company
has custody over, but not ownership of, the fuel it manages and delivers.
Aircraft ground services consist primarily of ground handling, aircraft interior
grooming, cargo handling, passenger and traffic services and Fixed Base
Operations (FBOs). The Company acquired the business of Elsinore, L.P. on May
20, 1999 (See Note 3 to Notes to Consolidated Financial Statements) and Gatwick
Handling on January 12, 1999.
19
<PAGE>
Results of Operations
The following table summarizes the Company's results of operations for the
periods indicated (dollars in millions):
<TABLE>
<CAPTION>
Three months ended December 31, Nine Months Ended December 31,
------------------------------ -------------------------------
1999 1998 1999 1998
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $35.6 100.0% $31.8 100.0% $103.3 100.0% $93.0 100.0%
Costs and expenses:
Operating expenses 29.3 82.3% 25.7 80.8% 84.4 81.7% 75.2 80.9%
Selling, general and administrative 2.0 5.6% 2.1 6.6% 7.2 6.9% 6.1 6.5%
Depreciation and amortization 2.6 7.3% 2.2 6.9% 7.4 7.2% 6.5 7.0%
-------------- -------------- --------------- --------------
Operating income $ 1.7 4.8% $ 1.8 5.7% $ 4.3 4.2% $ 5.2 5.6%
============== ============== =============== ==============
Net loss after extraordinary item $(0.9) (2.5)% $(0.3) (0.9)% $ (3.5) (3.4)% $(3.9) (4.2)%
============== ============== =============== ==============
EBITDA $ 4.3 12.1% $ 4.0 12.6% $ 11.7 11.3% $11.7 12.6%
============== ============== =============== ==============
</TABLE>
EBITDA is defined herein as net income (loss) before interest, income
taxes, depreciation, amortization, extraordinary items and other income/(loss).
Due to the nature of the Company's capitalization structure, EBITDA is one of
the principal managing factors that management uses to evaluate performance.
Although EBITDA is not a measure of performance calculated in accordance with
generally accepted accounting principles ("GAAP"), the Company has included
information concerning EBITDA because it is commonly used by certain investors
and analysts as a measure of a company's ability to service its debt
obligations. The Company's calculation of EBITDA may not be comparable to
similarly titled measures reported by other companies since all companies do not
calculate this non-GAAP measure in the same manner. The Company's EBITDA
calculation is not intended to represent cash used in operating activities,
since it does not include interest and taxes and changes in operating assets and
liabilities, nor is it intended to represent the net increase or decrease in
cash, since it does not include cash provided by (used) in investing and
financing activities.
Summary Three Months Ended December 31, 1999 and 1998
Revenues for the quarter ended December 31, 1999 increased $3.8 million or
11.9% from $31.8 million to $35.6 million. Included in the revenue for the
quarter ended December 31, 1998 is $2.9 million of revenue from the British
Airways grooming contract that was lost in January 1999. Included in the revenue
for the quarter ended December 31, 1999 is $3.6 million of revenue from the
acquisitions of Elsinore, L.P. and Gatwick Handling. Thus, for the quarter ended
December 31, 1999, core business (business excluding the British Airways
grooming contract and the acquisitions of Elsinore, L.P. and Gatwick Handling)
revenue increased $3.1 million or 10.7%. This revenue increase is primarily the
result of new contracts and existing contract price increases.
Operating expenses for the quarter ended December 31, 1999 increased
$3.6 million or 14.0% from $25.7 million to $29.3 million. Included in the
operating expenses for the quarter ended December 31, 1998 is $2.2 million of
operating expenses from the British Airways grooming contract that was lost in
January 1999. Included in the operating expenses for the quarter ended December
31, 1999 is $3.3 million of operating expenses from the acquisitions of
Elsinore, L.P. and Gatwick Handling. In addition, effective January 1, 2000, the
Company renegotiated its aviation liability insurance policy at a reduced
premium. During the quarter ended December 1999, the Company incurred $0.3
million of insurance costs which will not recur based on the newly renegotiated
policy. Thus, for the quarter ended December 31, 1999, core business (business
excluding the British Airways grooming contract, the acquisitions of
20
<PAGE>
Elsinore, L.P. and Gatwick Handling and the renegotiated insurance policy)
operating expenses increased $2.2 million or 9.4%. Core business operating
expenses compared to core business revenues equaled 80.3% versus 81.3% for the
comparable quarter in 1998. These expenses increased from 1998 primarily due to
costs incurred pursuant to new contracts.
Selling, general and administrative expenses for the quarter ended December
31, 1999 decreased $0.1 million or 4.8% from $2.1 million to $2.0 million. This
decrease in the selling, general and administrative expenses for the quarter
ended December 31, 1999 is mainly attributable to reduced wages and benefits.
Depreciation and amortization expense for the quarter ended December 31,
1999 increased $0.4 million or 18.2% from $2.2 million to $2.6 million. This
increase is due to the addition of Elsinore, L.P. and Gatwick Handling, as well
as, the depreciation of assets placed in service during this quarter.
Interest expense increased $0.3 million for the quarter ended December 31,
1999 as compared to the same period last year due to a higher outstanding
balance on the line of credit.
EBITDA for the quarter ended December 31, 1999 increased $0.3 million or
7.5% from $4.0 million to $4.3 million. Included in the EBITDA for the quarter
ended December 31, 1998 is $0.7 million of EBITDA from the British Airways
grooming contract that was lost in January 1999. Included in the EBITDA for the
quarter ended December 31, 1999 is $0.3 million of EBITDA from the acquisitions
of Elsinore, L.P. and Gatwick Handling and $0.3 million for the renegotiated
insurance policy. Thus, core business (business excluding the British Airways
grooming contract, the acquisitions of Elsinore, L.P. and Gatwick Handling and
the renegotiated insurance policy) EBITDA increased $1.0 million or 30.3%. This
increase was primarily attributable to EBITDA relating to new contracts and
existing contract price increases.
Summary Nine Months Ended December 31, 1999 and 1998
Revenues for the nine months ended December 31, 1999 increased $10.3
million or 11.1% from $93.0 million to $103.3 million. Included in the revenue
for the nine months ended December 31, 1998 is $9.1 million of revenue from the
British Airways grooming contract that was lost in January 1999. Included in the
revenue for the nine months ended December 31, 1999 is $9.2 million of revenue
from the acquisitions of Elsinore, L.P. and Gatwick Handling. In addition, the
Company sustained a one-time revenue loss of $0.3 million in September 1999 due
to temporary station closures caused by Hurricane Floyd. Thus, for the nine
months ended December 31, 1999, core business (business excluding the British
Airways grooming contract, the acquisitions of Elsinore, L.P. and Gatwick
Handling and the impact of Hurricane Floyd) revenue increased $10.5 million or
12.5%. This revenue increase is primarily the result of new contracts and
existing contract price increases.
Operating expenses for the nine months ended December 31, 1999 increased
$9.2 million or 12.2% from $75.2 million to $84.4 million. Included in the
operating expenses for the nine months ended December 31, 1998 is $7.1 million
of operating expenses from the British Airways grooming contract that was lost
in January 1999. Included in the operating expenses for the nine months ended
December 31, 1999 is $8.2 million of operating expenses from the acquisitions of
Elsinore, L.P. and Gatwick Handling and $0.2 million from Hurricane Floyd. In
addition, effective January 1, 2000, the Company renegotiated its aviation
liability insurance policy at a reduced premium. During the quarter ended
December 1999, the Company incurred $0.3 million of insurance costs which will
not recur based on the newly renegotiated policy. Thus, for the nine months
ended December 31, 1999, core business (business excluding the British Airways
grooming contract, the acquisitions of Elsinore, L.P. and Gatwick Handling, the
renegotiated insurance policy and the impact of Hurricane Floyd) operating
expenses increased $8.0 million or 11.7%. Core business operating expenses
compared to core business revenues equaled 80.6% versus 81.2% for the comparable
nine months in 1998. These expenses increased from 1998 primarily due to costs
incurred pursuant to new contracts.
21
<PAGE>
Selling, general and administrative expenses for the nine months ended
December 31, 1999 increased $1.1 million or 18% from $6.1 million to $7.2
million. This increase in the selling, general and administrative expenses for
the nine months ended December 31, 1999 is mainly attributable to an increase in
administrative payroll and fringes of $0.2 million and one-time expenses for
acquisition and accounting costs of $0.5 million. The increase in salaries is
mainly attributable to the hiring of the new CFO and VP/Controller while
continuing to pay fees under the consulting agreements to the departed VP
Finance and Controller.
Depreciation and amortization expense increased $0.9 million or 13.8% for
the nine months ended December 31, 1999, over the same period last year due to
the addition of Elsinore, L.P. and Gatwick Handling, as well as, the
depreciation of assets placed in service during this period.
Interest expense decreased $0.9 million for the nine months ended December
31, 1999 as compared to the same period last year due to the higher amortization
of deferred financing costs in the prior year.
EBITDA for the nine months ended December 31, 1999 equaled last years
results of $11.7 million. Included in the EBITDA for the nine months ended
December 31, 1998 is $2.0 million of EBITDA from the British Airways grooming
contract that was lost in January 1999. Included in the EBITDA for the nine
months ended December 31, 1999 is $1.0 million of EBITDA from the acquisitions
of Elsinore, L.P. and Gatwick Handling, $0.7 million of one-time selling,
general and administrative costs, the renegotiated insurance policy of $0.3
million and a loss due to Hurricane Floyd of $0.1 million. Thus, core business
(business excluding the British Airways grooming contract, the acquisitions of
Elsinore, L.P. and Gatwick Handling, one-time selling, general and
administrative costs, the renegotiated insurance policy and the impact of
Hurricane Floyd) EBITDA increased $2.1 million or 21.6%.
Liquidity and Capital Resources
Net cash provided by operating activities was $1.8 million for the nine
months ended December 31, 1999, as compared to $2.8 million cash provided by
operating activities for the same period of 1998. The net cash provided by
operating activities decreased primarily due to a $1.1 million increase in
accounts receivable due to new contracts won and an increase in prepaid expenses
due to an increased amount of acquisition costs capitalized. Offsetting these
decreases was a net increase of accounts payable and accrued expenses of $1.7
million. Accrued expenses increased due to customer deposits received in
December 1999 relating to four fuel farm contracts.
Net cash used in investing activities was $13.2 million for the nine months
ended December 31, 1999 as compared to $97.2 million for the same period of
1998. The decrease in cash used was primarily attributable to the acquisition of
the Company for $88.0 million during the nine months ended December 31, 1998.
For the nine months ended December 31, 1999 net cash used includes the purchase
price of Elsinore, L.P. of approximately $6.0 million.
Net cash provided by financing activities was $8.8 million for the nine
months ended December 31, 1999 as compared to $96.5 million for the nine months
ended December 31, 1998. This decrease is primarily due to the issuance of the
Senior Increasing Rate Notes in 1998, as compared to a new term loan of $5.0
million from Key Bank and an equity contribution of $3.7 million from Ranger
Aerospace in 1999.
Our primary sources of liquidity are from cash flow provided by operations
and borrowings under our Senior Credit Facility. Based upon the successful
implementation of management's business and operating strategy, we believe that
these funds will provide sufficient liquidity and capital resources to meet
current and future financial obligations, including the payment of principal and
interest on our outstanding Notes, as well as, to provide funds for our working
capital, capital investments and other needs for the next twelve months. Our
future operating performance and ability to service or refinance the Notes and
22
<PAGE>
to repay, extend or refinance the Senior Credit Facility will be subject to
future economic conditions and to financial, business and other factors, many of
which are beyond our control. There can be no assurance that such sources of
funds will be adequate and that we will not require additional capital from
borrowings or securities offerings to satisfy such requirements. In addition,
there can be no assurance that we will have sufficient available capital
resources to realize our acquisition strategy. Such future acquisitions,
depending on their size and the form of consideration, may require us to seek
additional debt or equity financing.
Year 2000 Issue
The staff of the Securities and Exchange Commssion has indicated that each
public company should discuss its "Year 2000" issues. The Year 2000 issue arises
because many computer systems were designed to identify a year using only two
digits, instead of four digits, in order to conserve memory and other resources.
For instance, "1999" would be held in the memory of a computer as "99".
When the year changes from 1999 to 2000, a two digit system would read the
year as changing from "99" to "00." For a variety of reasons, many computer
systems are not designed to make such a date change or are not designed to
"understand" or react appropriately to such a date change. Therefore, as the
date changes to the year 2000, many computer systems could completely stop
working or could perform in an unpredictable manner.
The Company conducted a review of its computer systems to identify the
systems which it anticipated could be affected by the Year 2000 issue, and the
Company believes that all such systems, were already, or are being converted to
be, Year 2000 compliant. Such conversion, where required, did not entail
material expenditures by the Company. Pursuant to the Company's Year 2000
planning, the Company has requested information regarding the computer systems
of its key suppliers, customers, creditors, and financial service organizations
and has been informed that they are substantially Year 2000 compliant. There can
be no assurance, however, that such key organizations are actually year 2000
compliant and that the year 2000 issue will not adversely affect the Company's
financial position or results of operations. The Company believes that its
expenditures in addressing its Year 2000 issues will not have a material adverse
effect on the Company's financial position or results of operations.
For Year 2000 to date, the Company has not experienced any problems
associated with Year 2000. However, due to the uncertainties of how Year 2000
may affect the Company's vendors or customers as the year progresses, we are
unable to determine the effect, if any, on the Company's financial condition, or
results of operations.
Contingency Plans
The Company does not currently have any contingency plans with respect to
Year 2000 issues. If in the future the Company identifies a material problem
with a critical system, the Company will develop an appropriate contingency plan
at that time. However, circumstances may occur for which there are no
satisfactory contingency plans, such as airline flight disruptions, airport air
traffic control problems, among others.
Euro Conversion Issue
On January 1, 1999, certain member countries of the European Union
established fixed conversion rates between their existing currencies and the
European Union's common currency ("Euro"). The transition period for the
introduction of the Euro will be between January 1, 1999 and January 1, 2002.
The Company is currently evaluating methods to address the many issues involved
with the introduction of the Euro, including the conversion of information
technology systems, recalculating currency risk, strategies concerning
continuity of contracts, and impacts on the processes for preparing taxation and
accounting records.
Based on the analysis performed to date, the Company believes the Euro
conversion will not have a material adverse impact on the Company's consolidated
financial statements.
23
<PAGE>
Impact of Inflation
Although the Company cannot accurately determine the precise effect of
inflation on its operations, it does not believe that inflation has had a
material effect on its revenue or results of operations for the periods
presented herein. However, substantial increases in the Company's costs,
particularly labor or employee benefits costs, would be likely to adversely
affect the Company's revenues and operating results. In addition, because
inflation would likely materially and adversely affect the airline industry as a
whole, and the Company's business depends to a large extent on the economic
health of the airline industry, an increase in inflation would likely have a
material adverse effect on the Company's revenue and operating results.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to interest rate risk in connection with the
revolving loans and the term loan under its Senior Credit Facility, which bear
interest at floating rates. As of December 31, 1999, there was approximately
$2.4 million outstanding under the revolving loans (at an interest rate of 8.50%
at such time) and $4.8 million outstanding under the term loan (at an interest
rate of 9.25% at such time). The Company currently believes that the interest
rate risk associated with these loans is not material.
Also, approximately 8.5% of the Company's revenues are generated by its
operations in the United Kingdom and are denominated in British Pounds. The
financial condition and results of operations of the Company's U.K. operations
are reported in British Pounds and then translated into U.S. dollars at the
applicable rate for inclusion in the Company's consolidated financial
statements. As a result, the Company's reported results would be impacted by
changes in the exchange rate between the U.S. dollar and the British Pound. The
Company does not seek to mitigate this translation risk through the use of
derivative financial instruments and currently believes that such risk is not
material.
24
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
There are no additional material legal proceedings pending against the
Company and/or its subsidiaries not previously reported by the Company in Item 3
of its Form 10-K for the year ended March 31, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No report on Form 8-K was filed by the Company during the third quarter of
2000.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
By:
/s/ Jeffrey P. Hartman
----------------------------------------------
Jeffrey P. Hartman
Sr. Vice President and Chief Financial Officer
Date: February 14, 2000
26
<PAGE>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AIRCRAFT SERVICE INTERNATIONAL GROUP, INC. FOR THE THREE
MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
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