<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 333-88593
For the transition period from _______ to ________
WORLDWIDE FLIGHT SERVICES, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-1932711
---------------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
Incorporation or organization)
1001 West Euless Boulevard
Suite 320
Euless, Texas 76040
----------------------------------------
(Address of principal executive offices)
(Registrant's telephone number, including area code) (817) 665-3200
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 [ ]
The number of shares of the registrant's Common Stock outstanding as of August
10, 2000 was 1,000 shares. There is no public trading market for the shares of
the registrant's common stock.
<PAGE> 2
CO-REGISTRANTS
<TABLE>
<CAPTION>
EXACT NAME OF CO-REGISTRANT AS STATE OR OTHER JURISDICTION OF PRIMARY STANDARD INDUSTRIAL
SPECIFIED IN ITS CHARTER INCORPORATION OR ORGANIZATION CLASSIFICATION CODE NUMBER
<S> <C> <C>
Worldwide Flight Finance Company Delaware 4581
Worldwide Flight Security Service Delaware 4581
Corporation
Miami International Airport Cargo Florida 4581
Facilities & Services, Inc.
International Enterprises Group, Inc. Florida 4581
Miami Aircraft Support, Inc. Delaware 4581
Aerolink International, Inc. Pennsylvania 4581
Aerolink Maintenance, Inc. Pennsylvania 4581
Aerolink Management, Inc. Pennsylvania 4581
Aerolink International, L.P. Pennsylvania 4581
Oxford Electronics, Inc. Delaware 4581
</TABLE>
i
<PAGE> 3
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C> <C>
Part I. Financial Information
Item 1 Financial Statements
Consolidated Statements of Operations for
the three and six months ended June 30, 2000,
the three months ended June 30, 1999 and the
three months ended March 31, 1999 2
Consolidated Balance Sheets as of
June 30, 2000 and December 31, 1999 3
Consolidated Statements of Cash Flows for the
six months ended June 30, 2000, the three months
ended June 30, 1999, and the three months ended
March 31, 1999 4
Notes to Consolidated Condensed Financial Statements 5
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3 Quantitative and Qualitative Disclosures about Market Risk 13
Part II. Other Information
Item 6 Exhibits and Reports on Form 8-K 14
</TABLE>
<PAGE> 4
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934. The words
"believe," "estimate," "anticipate," "project," "intend," "expect" and similar
expressions are intended to identify forward-looking statements. All
forward-looking statements involve some risks and uncertainties. In light of
these risks and uncertainties, the forward-looking events discussed in this
report might not occur. Factors that may cause actual results or events to
differ materially from those contemplated by the forward-looking statements
include, among other things, the following possibilities:
o future revenues are lower than expected;
o increase in payroll or other costs and/or shortage of an
adequate base of employees;
o loss of significant customers through bankruptcy or industry
consolidation;
o inability to obtain additional capital due to covenant
restrictions or other factors, and/or increases in debt levels
beyond our ability to support repayment;
o conditions in the securities markets are less favorable than
expected;
o costs or difficulties relating to the integration of
businesses that we acquire are greater than expected;
o expected cost savings from our acquisitions are not fully
realized or realized within the expected time frame;
o competitive pressures in the industry increase; and
o general economic conditions or conditions affecting the
airline industry or other industries that ship cargo by air,
whether internationally, nationally or in the states in which
we do business, are less favorable than expected.
You are cautioned not to place undue reliance on forward-looking statements
contained in this report as these speak only as of its date. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
1
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Worldwide Worldwide Worldwide Worldwide Predecessor
Three Months Three Months Six Months Three Months Three Months
ended Ended ended Ended ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999 March 31, 1999
------------- -------------- ------------- ------------- --------------
<C> <C> <C> <C> <C>
Revenues:
External customers $ 85,831 $ 59,877 $ 171,026 $ 59,877 $ 38,640
Affiliates 22,835
--------- --------- --------- --------- ---------
Total operating revenues 85,831 59,877 171,026 59,877 61,475
Expenses:
Salaries, wages and benefits 55,855 39,682 113,321 39,682 39,679
Materials, supplies and services 9,829 7,126 18,836 7,126 7,744
Equipment and facilities rental 5,163 3,693 10,111 3,693 3,641
Depreciation and amortization 4,570 1,973 8,491 1,973 1,627
Other miscellaneous expenses 7,443 4,451 16,153 4,451 4,784
Allocated general and administrative
expenses -- -- -- -- 2,269
Restructuring Charge 7,673 -- 7,673 -- --
--------- --------- --------- --------- ---------
Total operating expenses 90,533 56,925 174,585 56,925 59,744
Income (loss) from continuing operations (4,702) 2,952 (3,559) 2,952 1,731
Interest expense 5,570 1,556 10,574 1,556 --
Interest income 53 -- 173 -- 440
Other income (expense), net (206) (270) (218) (270) (552)
--------- --------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes (10,425) 1,126 (14,178) 1,126 1,619
Provision (benefit) for income taxes (1,457) 587 (1,985) 587 644
--------- --------- --------- --------- ---------
Income (loss) from continuing operations (8,968) 539 (12,193) 539 975
Loss from discontinued operations, net
of tax benefits of $139 -- -- -- -- (210)
--------- --------- --------- --------- ---------
Net income (loss) $ (8,968) $ 539 $ (12,193) $ 539 $ 765
========= ========= ========= ========= =========
</TABLE>
2
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WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, DECEMBER 31,
2000 1999
---------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,469 $ 1,775
Restricted cash equivalent 750 750
Accounts receivable, less allowance for
doubtful accounts 58,128 73,144
Deferred income taxes 5,462 4,305
Prepaid and other current assets 9,471 7,413
--------- ---------
TOTAL CURRENT ASSETS 75,280 87,387
EQUIPMENT AND PROPERTY:
Equipment and property, at cost 49,451 45,915
Less accumulated depreciation (7,399) (3,185)
--------- ---------
42,052 42,730
Intangible assets including Goodwill, net 114,412 105,559
Other long-term assets 11,029 10,465
--------- ---------
TOTAL ASSETS $ 242,773 $ 246,141
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 32,078 $ 23,350
Accrued salaries, wages and benefits 9,990 13,308
Other accrued liabilities 18,203 21,404
Current portion of long-term debt 2,132 2,876
--------- ---------
TOTAL CURRENT LIABILITIES 62,403 60,938
DEFERRED INCOME TAXES 12,290 14,233
LONG TERM DEBT, LESS CURRENT PORTION 144,683 137,081
STOCKHOLDER'S EQUITY:
Common stock -- --
Additional paid-in-capital 40,720 38,918
Accumulated deficit (15,389) (3,197)
Accumulated other comprehensive loss (1,934) (1,832)
--------- ---------
TOTAL STOCKHOLDER'S EQUITY 23,397 33,889
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 242,773 $ 246,141
========= =========
</TABLE>
3
<PAGE> 7
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Worldwide Worldwide Predecessor
Six Months Three Months Three Months
ended ended ended
June 30, 2000 June 30, 1999 March 31, 1999
------------- ------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(12,193) $ 539 $ 765
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization
8,491 1,973 1,627
Deferred income taxes (3,100) 286 1,584
Change in assets and liabilities:
Accounts receivable 15,016 (16,831) (4,190)
Accounts payable and accrued liabilities 1,222 10,007 (7,117)
Other, net (2,469) (1,575) 183
-------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES
6,967 (5,601) (7,148)
-------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures (4,372) (989) (1,688)
Acquisition, net of cash (11,290) (83,628) --
Other -- (28) 26
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES (15,662) (84,645) (1,662)
-------- -------- --------
FINANCING ACTIVITIES:
Proceeds from long term debt 8,000 68,780 --
Payments on long term debt (1,413) (800) --
Proceeds from sale of stock -- 28,250 --
Equity contribution by parent 1,802 -- --
Dividend to parent -- -- (5,390)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 8,389 96,230 (5,390)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (306) 5,984 (14,200)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,775 -- 14,200
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,469 $ 5,984 $ --
-------- -------- --------
</TABLE>
4
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Introduction and Basis of Presentation
On March 31, 1999, MR Services Corporation completed the acquisition of all of
the outstanding stock of AMR Services Corporation ("Predecessor"), a wholly
owned subsidiary of AMR Services Holding Corporation, which was a wholly owned
subsidiary of AMR Corporation, the parent company of American Airlines, Inc.
("American"). MR Services Acquisition Corporation was immediately merged with
and into AMRS, and AMRS, the surviving corporation was renamed Worldwide Flight
Services, Inc. ("Worldwide" or "Company"). Worldwide is owned by WFS Holdings,
Inc. The initial purchase price was $75.0 million plus subsequent possible
adjustments. On August 12, 1999, Worldwide purchased all of the stock of Miami
Aircraft Services, Inc. ("MAS"), an independent provider of express air cargo
handling services in the United States, for $63.0 million plus transaction
costs. Also, on August 23, 1999, Worldwide completed the acquisition of Aerolink
International, Inc. and affiliates ("Aerolink"), a provider of ground services,
located in Pittsburgh, Pennsylvania for a purchase price of $5.9 million plus
possible additional consideration. As more fully discussed in Note 2 below, the
Company completed its acquisition of Oxford Electronics, Inc. ("Oxford") during
the second quarter of 2000. Its results of operations are consolidated with
those of the Company effective April 1, 2000. The operations of MAS, Aerolink
and Oxford are included in the operations of Worldwide since the date of
acquisition.
The accompanying unaudited consolidated financial statements included herein
have been prepared by the Company pursuant to generally accepted accounting
principles for interim financial information, and in accordance with the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles for complete financial
statements have been excluded. The Company believes that the disclosures are
adequate to make the information presented not misleading. These consolidated
condensed financial statements should be read in conjunction with the financial
statements and the notes to consolidated financial statements included in the
Annual Report, Form 10-K for the nine-month period ended December 31, 1999.
In the opinion of the Company, all adjustments that are normal recurring in
nature have been included that were necessary to present fairly the financial
position of Worldwide and subsidiaries as of June 30, 2000 and the results of
operations and cash flows for the three and six months ended June 30, 2000 and
June 30, 1999, respectively. Operating results for the three and six month
periods ended June 30, 2000 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2000.
5
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - Acquisitions
Oxford Electronics, Inc.
On April 5, 2000 the Company completed the acquisition of Oxford, a provider of
airport technical services, for a cash purchase price at closing of $9.6 million
and up to $2.5 million in deferred payments to be determined based on earnings
for Oxford's fiscal 2000. The purchase price was funded with borrowings under
the existing senior secured credit facility and a $1.0 million capital
contribution from the Company's parent, which was actually received on March 24,
2000. The acquisition has been accounted for under the purchase method of
accounting in the second quarter ended June 30, 2000. Its results of operations
have been included with those of the Company since April 1, 2000. The Company
filed Form 8-K with the Securities and Exchange Commission on April 17, 2000 and
Form 8-K/A on June 15, 2000 with a more complete description of this
acquisition.
NOTE 3 - Comprehensive Income
The components of comprehensive income (loss) for the Company include net
income (loss), and changes in the cumulative foreign currency translation.
Total comprehensive income (loss) for the three month periods ended June 30,
2000 and June 30, 1999 were ($9.6) million and $0.1 million, respectively.
Total comprehensive income (loss) for the six month period ended June 30, 2000
was ($12.3) million.
NOTE 4 - Capital Contributions
Capital contributions from parent included $1.0 million for the funding of the
Oxford acquisition (discussed above) and for $.8 million of cash received from
employees for stock purchases.
NOTE 5 - Restructuring Charges
In June 2000, Worldwide's management approved a restructuring plan to realign
the company's organization, reduce overhead costs and eliminate excess and
duplicative facilities. Restructuring charges of $7.7 million were expensed. The
restructuring consists primarily of two parts: (1) the merging and integration
of operations of Worldwide with MAS and Aerolink, and (2) other headquarters
cost reduction measures.
In connection with the acquisitions of MAS and Aerolink, management initiated
plans to consolidate and integrate the operations of these two companies into
Worldwide through workforce reductions and the closure of duplicative
facilities. As a result of the integration plan, WFS will close 10 facilities
and lay-off approximately 100 employees. Amounts contained within the
restructuring charge include severance (both statutory and contractual) of $1.7
million. Estimated holding costs of vacated facilities and contract termination
penalties of $3.7 million
6
<PAGE> 10
were associated with distribution and office space, and termination of vehicle
leases. Other exit costs of $0.8 million primarily related to professional fees
and incidentals.
The remaining $1.5 million in charges represents termination payments related to
the approximate 20% staff level reduction at the Company's headquarters, located
in Euless, Texas.
The aforementioned charges are reflected in the accompanying consolidated
statements of operations under the caption "Restructuring Charges". The Company
estimates that actions it has already taken will generate significant cost
savings as a result of its restructuring plan, and expects additional cost
savings to result from further planned cost reduction actions.
Management expects to complete all parts of the restructuring plan by the end of
2000, with the majority of the cash expenditures to occur during the last half
of 2000. As of June 30, 2000 the Company had paid $0.3 million for restructuring
costs. Given the nature of the costs reflected herein, increases or decreases
may be necessary throughout the tenure of the Company's restructuring plans. Any
such changes will be reflected in the statement of operations as incurred, and
classified in the manner discussed above.
NOTE 6 - Senior Secured Credit Facility and Senior Notes
The Company maintains a senior secured credit facility with a group of lenders
that provides up to $75.0 million for purposes of funding working capital
requirements and future acquisitions. As of August 10, 2000, the Company had
drawn $30.0 million under the credit facility with an additional $3.0 million
allocated to issued letters of credit. Of this amount, approximately $8.6
million was drawn to purchase Oxford in April 2000.
Future additional availability under the senior secured credit facility may be
less than the remaining unutilized commitment amount and will depend on the
borrowing base ($44.8 million as of August 10, 2000 under the modified senior
secured credit facility discussed below) and the ability of the Company to meet
the applicable leverage and coverage ratios and other customary conditions.
While the Company believes that current availability under the credit facility
and other potential sources allowed under the facility are adequate to manage
its liquidity, future liquidity needs could change.
On August 14, 2000 the Company agreed with its lenders to modify certain
provisions of the senior secured credit facility. Specifically, the Company and
its banks have agreed to increase availability under its borrowing base through
the inclusion of certain non-US dollar denominated accounts receivable, as well
as clarify certain definitions related to the leverage ratio, coverage ratio and
capital expenditure threshold. Notwithstanding the aforementioned, the Company's
liquidity could be limited if the improved cash flow from the Company's cost
reduction program does not materialize. If the Company defaults under the credit
facility due to the failure to maintain financial ratios or meet other
covenants, it may not be able to make additional borrowings under the facility
if the bank refuses to allow additional advances and the Company is unable to
obtain additional capital from other sources.
On June 30, 2000 the Company complied with all debt covenants. On August 10,
2000 the Company had approximately $7.0 million in cash and cash equivalents and
committed and discretionary unused lines of credit aggregating an additional
$11.8 million.
7
<PAGE> 11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Recent Developments
In the second quarter Worldwide continued its efforts to improve the
profitability of the Company. Management initiated several programs to reduce
operating costs and to realize cost savings from its recent acquisitions,
including MAS, Aerolink and Oxford. The programs included a workforce reduction
at Worldwide headquarters, workforce reductions at certain operating locations,
the closure of duplicative facilities, and general discretionary spending
decreases. Management expects these initiatives to significantly improve the
future operating results and cash flow of the Company.
Mark Dunkerley, President and Chief Operating Officer of Worldwide Flight
Services, also left the Company during the quarter.
Overall Summary
Revenues, operating income (loss), and income (loss) from continuing operations
for the six months ended June 30, 2000 were $171.0 million, $(3.6) million, and
($12.2) million, respectively compared to $121.4 million, $4.7 million, and $1.5
million, respectively for the six months ended June 30, 1999. The 2000 results
include restructuring charges of $7.7 million recorded in the second quarter.
The results also include contributions from MAS and Aerolink for the six months
ended June 30, 2000 and include Oxford for the three months ended June 30, 2000.
Revenues, operating income (loss), and income (loss) from continuing operations
for the three months ended June 30, 2000 were $85.8 million, ($4.7) million, and
($9.0) million, respectively compared to $59.9 million, $3 million, and $0.5
million, respectively for the three months ended June 30, 1999.
As a result of the acquisition of Worldwide effective March 31, 1999, results
for the six months ended June 30, 2000 are not comparable to results in the
comparable period of the prior year. Financial information for the period ended
March 31, 1999 is that of the Predecessor, and as such is presented on a
different basis of accounting. However, for information purposes results of
operations for the three and six months ended June 30, 1999 have been included
in this analysis. The Predecessor reported revenue, operating income, and income
from continuing operations for the three months ended March 31, 1999 of $61.5
million, $1.7 million, and $1.0 million, respectively.
Revenues
For the six months ended June 30, 2000 total revenues of $171.0 million
increased $49.6 million, or 40.9% from $121.4 million in the prior year. The
acquisitions of MAS and Aerolink in August 1999 and Oxford in April 2000
accounted for $42.9 million of the increase. The remaining increase of $6.7
million is due to new contracts and price increases on existing contracts. For
the three month period ended June 30, 2000 total revenues of $85.8 million
8
<PAGE> 12
increased $25.9 million, or 43.2% from $59.9 million in the prior year. MAS,
Aerolink and Oxford contributed $22.6 million of the increase and $3.3 million,
or 5.5% was primarily due to new contracts.
Since the acquisition of AMRS, we have identified revenue information for the
cargo handling, ramp services, passenger services and technical services
categories. Prior to the acquisition, AMRS did not identify revenues in similar
categories. The following table contains, for the current year only, revenues by
cargo handling, ramp services, passenger services and technical services
categories (in thousands).
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 2000
---------------- ------------------
<S> <C>
Cargo handling $ 80,818 $41,585
Ramp services 39,829 20,504
Passenger services 30,853 15,175
Technical services 19,526 8,567
-------- -------
Total $171,026 $85,831
======== =======
</TABLE>
Salaries, wages and benefits
For the six months ended June 30, 2000 salaries, wages and benefits of $113.3
million increased $33.9, or 42.7% from $79.4 million in 1999. MAS, Aerolink and
Oxford contributed $26.5 million of the increase. The remaining increase of $7.4
million is the result of costs associated with increased sales volume over the
prior year of approximately $4.2 million, general and administrative salaries of
$1.8 million for headquarters support which had previously been allocated by
AMR, and $1.4 million or 2% related to higher labor costs. For the three months
ended June 30, 2000 salaries, wages and benefits of $55.9 million increased
$16.2 million, or 40.8% from $39.7 million in 1999. MAS, Aerolink and Oxford
contributed $13.7 million of the increase for the quarter. The remaining
increase of $2.5 million is the result of costs associated with higher sales
volume over the prior year of approximately $2.0 million and $.5 million or 1.3%
related to higher labor costs.
Materials, supplies and services
Materials, supplies and services of $18.8 million for the current six months
increased $3.9 million from $14.9 million in 1999. The increase is primarily due
to the acquisitions of MAS, Aerolink and Oxford. For the three months ended June
30, 2000 materials, supplies and services of $9.8 million increased $2.7 million
from $7.1 million in 1999. MAS, Aerolink and Oxford contributed $2.0 million of
the increase. The remainder is due to increased general and administrative costs
of $.7 million for services previously allocated by AMR.
Equipment and facilities rental
For the six months, equipment and facilities rental of $10.1 million increased
$2.8 million from $7.3 million in the prior year. The increase is primarily due
to the acquisitions of MAS, Aerolink
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<PAGE> 13
and Oxford not included in the prior year. For the second quarter, equipment and
facilities rental of $5.2 million increased $1.5 million from $3.7 million in
1999 from the acquisitions of MAS, Aerolink and Oxford.
Depreciation and amortization
Depreciation and amortization of $8.5 million for the first half of 2000
increased $4.9 million from $3.6 million in 1999. Approximately $2.5 million of
the increase is due the amortization of intangibles, including goodwill on the
acquisitions of AMRS, MAS, Aerolink and Oxford. In addition, $2.1 million is
related to depreciation expense from the acquisitions of MAS, Aerolink and
Oxford. The remaining increase is additional depreciation expense on new
equipment purchases.
Other miscellaneous expenses
For the six months ended June 30, 2000 other miscellaneous expenses of $16.2
million increased $7.0 million from $9.2 million in the prior year.
Approximately $3.9 million of the increase is due to operating expenses from
MAS, Aerolink and Oxford. Other operating expenses increased $1.4 million or
15.2% over the prior year primarily due to operating costs associated with new
contracts. The remaining increase of $1.7 million represents increased selling,
general and administrative expenses for functions which were previously
allocated by AMR, and recurring costs associated with the administration of an
independent company including the accrual of management fees from the parent
company, and non-recurring costs associated with the transition to an
independent company. For the second quarter, other miscellaneous expenses of
$7.4 million increased $2.9 million from $4.5 million in 1999. MAS, Aerolink and
Oxford accounted for $2.2 million of the increase. The remainder was due to
increased operating expenses for new contracts of $.7 million or 15.6% over the
prior year.
General and administrative allocated expenses
Predecessor was allocated $2.3 million of general and administrative expense in
the three months ended March 31, 1999 for staff functions including finance,
human resources, legal, planning and executive management. There are no
allocated expenses from AMR in the current year. To replace the functions
previously allocated by AMR, the Company has incurred direct expenses for
personnel and other costs as described above.
Operating income from continuing operations (excluding restructuring charges)
As a result of the factors described above, operating income from continuing
operations of $4.1 million decreased $.6 million from $4.7 million in 1999 for
the six months ended June 30, 2000. The acquisitions of MAS, Aerolink and Oxford
contributed $4.4 million of operating income offset by goodwill amortization of
$2.5 million, increased wages and benefit costs from operations of $1.3 million,
and $1.2 million of additional selling, general and administrative costs.
10
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Restructuring charges
In June 2000, Worldwide's management approved a restructuring plan to realign
the company's organization, reduce overhead costs and eliminate excess and
duplicative facilities. Restructuring charges of $7.7 million were expensed in
the quarter. The restructuring consists primarily of two parts: (1) the merging
and integration of operations of Worldwide with MAS and Aerolink, and (2) other
headquarters cost reduction measures.
In connection with the acquisitions of MAS and Aerolink, management initiated
plans to consolidate and integrate the operations of the two acquired companies
with Worldwide through workforce reductions and the closure of duplicative
facilities. As a result of the integration plan, Worldwide will close 10
facilities and lay-off approximately 100 employees. Amounts contained within the
restructuring charge include severance (both statutory and contractual) of $1.7
million. Estimated holding costs of vacated facilities and contract termination
penalties of $3.7 million were associated with distribution and office space,
and termination of vehicle leases. Other exit costs of $0.8 million primarily
related to professional fees and incidentals.
The remaining $1.5 million in charges represents termination payments related to
the approximate 20% staff level reduction at the Company's headquarters, located
in Euless, Texas.
The aforementioned charges are reflected in the accompanying consolidated
statements of operations under the caption "Restructuring Charges". The Company
estimates that actions it has already taken will generate annualized cost
savings of approximately $5.0 million as a result of its restructuring plan, and
expects additional cost savings to result from further planned actions.
Management expects to complete all parts of the restructuring plans by the end
of 2000, with the majority of the cash expenditures to occur during the last
half of 2000. As of June 30, 2000 the Company had paid $0.3 million for
restructuring costs. Given the nature of the costs reflected herein, increases
or decreases may be necessary throughout the tenure of the Company's
restructuring plans. Any such changes will be reflected in the statement of
operations as incurred, and classified in the manner discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $2.2 million (including restricted cash) at June
30, 2000, a decrease of $0.3 million from $2.5 million at December 31, 1999. Net
cash provided by operating activities was $7.0 million for the six month period
ended June 30, 2000, reflecting the contribution from operating earnings plus
improved working capital management, primarily related to improved collections
of accounts receivable.
The Company reduced working capital (excluding cash and restructuring accruals)
by $6.0 million for the six months. The reduction is primarily due to a decrease
of $16.9 million in accounts receivable from improved collection efforts,
however the Company expects that accounts receivable will fluctuate for the
remainder of the year primarily from the normal seasonality of the business. The
decrease in accounts receivable was offset, in part, by reductions in accrued
interest from the semi-annual interest payment on the Senior Notes of $8.1
million on
11
<PAGE> 15
February 15, 2000 and payments to AMR. The next interest payment on the Senior
Notes of approximately $8.0 million, which the Company plans to make by a
combination of borrowings under its senior secured credit facility and
utilization of cash balances, is due on August 15, 2000.
As of June 30, 2000 the Company owed AMR approximately $4.3 million classified
as accounts payable on which the payment terms had been extended. Approximately
$1.8 million was paid in July with the remainder due in periodic installments
prior to December 31, 2000.
Net cash used in investing activities for capital spending was $4.4 million,
$1.0 million, and $1.7 million for the six months ended June 30, 2000, the three
months ended June 30, 1999 and the three months ended March 31, 1999,
respectively. Capital expenditures during the period were primarily associated
with new equipment and software purchases. The Company expects its capital
spending for 2000 to be about $10 million.
Net cash provided by (used in) financing activities was $8.4 million, $96.2
million, and ($5.4) million for the six months ended June 30, 2000, the three
months ended June 30, 1999, and the three months ended March 31, 1999,
respectively. During the first six months of 2000 the Company received an equity
contribution of $1.8 million from its parent and made net borrowings of $6.6
million, both primarily to fund the Oxford acquisition. For the three months
ended June 30, 1999 the Company received proceeds of $28.3 million for the sale
of stock to its Parent and $68.0 million from borrowings on outside debt used
for the acquisition of the Predecessor. At June 30, 2000, the Company had total
debt of $146.8 million.
The Company maintains a senior secured credit facility with a group of lenders
that provides up to $75.0 million for purposes of funding working capital
requirements and future acquisitions. As of August 10, 2000, the Company had
drawn $30.0 million under the credit facility with an additional $3.0 million
allocated to issued letters of credit.
Future additional availability under the senior secured credit facility may be
less than the remaining unutilized commitment amount and will depend on the
borrowing base ($44.8 million as of August 10, 2000 under the modified senior
secured credit facility discussed below) and the ability of the Company to meet
the applicable leverage and coverage ratios and other customary conditions.
While the Company believes that current availability under the credit facility
and other potential sources allowed under the facility are adequate to manage
its liquidity, future liquidity needs could change.
On August 14, 2000 the Company agreed with its lenders to modify certain
provisions of the senior secured credit facility. Specifically, the Company and
its banks have agreed to increase availability under its borrowing base through
the inclusion of certain non-US dollar denominated accounts receivable, as well
as clarify certain definitions related to the leverage ratio, coverage ratio and
capital expenditure threshold. Notwithstanding the aforementioned, the Company's
liquidity could be limited if the improved cash flow from the Company's cost
reduction program does not materialize. If the Company defaults under the credit
facility due to the failure to maintain financial ratios or meet other
covenants, it may not be able to make additional borrowings under the facility
if the bank refuses to allow additional advances and the Company is unable to
obtain additional capital from other sources.
12
<PAGE> 16
On June 30, 2000 the Company complied with all debt covenants. On August 10,
2000 the Company had approximately $7.0 million in cash and cash equivalents and
committed and discretionary unused lines of credit aggregating an additional
$11.8 million.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information about market risks for the six months ended June 30, 2000 does not
differ materially from that discussed under Item 7A of the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.
13
<PAGE> 17
PART II
OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Executive Employment agreement dated May 17, 2000
between Worldwide Flight Services, Inc. and David F.
Chavenson
10.2 Executive Employment agreement dated June 1, 2000
between Worldwide Flight Services, Inc. and Bradley
G. Stanius
10.3 AMENDMENT NO. 2 dated as of August 14, 2000, to the
Credit Agreement dated as of August 12, 1999 (as
amended, supplemented or otherwise modified from
time to time, the "Credit Agreement"), among WFS
HOLDINGS, INC., a Delaware corporation ("Holdings"),
WORLDWIDE FLIGHT SERVICES, INC., a Delaware
corporation (the "Borrower"), the lenders party
thereto (the "Lenders") and THE CHASE MANHATTAN
BANK, a New York banking corporation, as
administrative agent for the Lenders (in such
capacity, the "Administrative Agent").
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
1. On June 15, 2000, the Company filed an
amendment to Form 8-K, reporting under Item 7, to
include audited financial statements of Oxford
Electronics, Inc. and to include unaudited pro forma
condensed financial statements of the Company and
Oxford Electronics, Inc.
14
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Euless, State of Texas on the 14th day of August, 2000.
WORLDWIDE FLIGHT SERVICES, INC.
By: /s/ David F. Chavenson
------------------------------------
Name: David F. Chavenson
Title: Senior Vice President and
Chief Financial Officer
By: /s/ Donna Reeves
------------------------------------
Name: Donna Reeves
Title: Vice President and Controller
(principal accounting officer)
<PAGE> 19
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Euless, State of Texas on the 14th day of August, 2000.
WORLDWIDE FLIGHT FINANCE
COMPANY
By: /s/ David F. Chavenson
------------------------------------
Name: David F. Chavenson
Title: Chief Financial Officer
By: /s/ Donna Reeves
------------------------------------
Name: Donna Reeves
Title: Vice President and Controller
(principal accounting officer)
<PAGE> 20
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Euless, State of Texas on the 14th day of August, 2000.
WORLDWIDE FLIGHT SECURITY
SERVICE CORPORATION
By: /s/ David F. Chavenson
------------------------------------
Name: David F. Chavenson
Title: Chief Financial Officer
By: /s/ Donna Reeves
------------------------------------
Name: Donna Reeves
Title: Vice President and Controller
(principal accounting officer)
<PAGE> 21
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Euless, State of Texas on the 14th day of August, 2000.
MIAMI INTERNATIONAL AIRPORT
CARGO FACILITIES & SERVICES, INC.
By: /s/ David F. Chavenson
------------------------------------
Name: David F. Chavenson
Title: Chief Financial Officer
By: /s/ Donna Reeves
------------------------------------
Name: Donna Reeves
Title: Vice President and Controller
(principal accounting officer)
<PAGE> 22
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Euless, State of Texas on the 14th day of August, 2000.
INTERNATIONAL ENTERPRISES
GROUP, INC.
By: /s/ David F. Chavenson
------------------------------------
Name: David F. Chavenson
Title: Chief Financial Officer
By: /s/ Donna Reeves
------------------------------------
Name: Donna Reeves
Title: Controller (principal accounting
officer)
<PAGE> 23
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Euless, State of Texas on the 14th day of August, 2000.
MIAMI AIRCRAFT SUPPORT, INC.
By: /s/ David F. Chavenson
------------------------------------
Name: David F. Chavenson
Title: Chief Financial Officer
By: /s/ Donna Reeves
------------------------------------
Name: Donna Reeves
Title: Vice President and Controller
(principal accounting officer)
<PAGE> 24
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Euless, State of Texas on the 14th day of August, 2000.
AEROLINK INTERNATIONAL, INC.
By: /s/ David F. Chavenson
------------------------------------
Name: David F. Chavenson
Title: Chief Financial Officer
By: /s/ Donna Reeves
------------------------------------
Name: Donna Reeves
Title: Vice President and Controller
(principal accounting officer)
<PAGE> 25
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Euless, State of Texas on the 14th day of August, 2000.
AEROLINK MAINTENANCE, INC.
By: /s/ David F. Chavenson
------------------------------------
Name: David F. Chavenson
Title: Chief Financial Officer
By: /s/ Donna Reeves
------------------------------------
Name: Donna Reeves
Title: Vice President and Controller
(principal accounting officer)
<PAGE> 26
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Euless, State of Texas on the 14th day of August, 2000.
AEROLINK MANAGEMENT, INC.
By: /s/ David F. Chavenson
------------------------------------
Name: David F. Chavenson
Title: Chief Financial Officer
By: /s/ Donna Reeves
------------------------------------
Name: Donna Reeves
Title: Vice President and Controller
(principal accounting officer)
<PAGE> 27
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Euless, State of Texas on the 14th day of August, 2000.
AEROLINK INTERNATIONAL, L.P.
By: AEROLINK MANAGEMENT, INC.
Its general partner
By: /s/ David F. Chavenson
------------------------------------
Name: David F. Chavenson
Title: Chief Financial Officer
By: /s/ Donna Reeves
------------------------------------
Name: Donna Reeves
Title: Vice President and Controller
(principal accounting officer)
<PAGE> 28
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Euless, State of Texas on the 14th day of August, 2000.
OXFORD ELECTRONICS, INC.
By: /s/ David F. Chavenson
------------------------------------
Name: David F. Chavenson
Title: Chief Financial Officer
By: /s/ Donna Reeves
------------------------------------
Name: Donna Reeves
Title: Vice President and Controller
(principal accounting officer)
<PAGE> 29
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.1 Executive Employment agreement dated May 17, 2000
between Worldwide Flight Services, Inc. and David F.
Chavenson
10.2 Executive Employment agreement dated June 1, 2000
between Worldwide Flight Services, Inc. and Bradley
G. Stanius
10.3 AMENDMENT NO. 2 dated as of August 14, 2000, to the
Credit Agreement dated as of August 12, 1999 (as
amended, supplemented or otherwise modified from
time to time, the "Credit Agreement"), among WFS
HOLDINGS, INC., a Delaware corporation ("Holdings"),
WORLDWIDE FLIGHT SERVICES, INC., a Delaware
corporation (the "Borrower"), the lenders party
thereto (the "Lenders") and THE CHASE MANHATTAN BANK,
a New York banking corporation, as administrative
agent for the Lenders (in such capacity, the
"Administrative Agent").
27 Financial Data Schedule
</TABLE>
