FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended December 31, 1998
Commission File Number 0-11720
AIR TRANSPORTATION HOLDING COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1206400
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Post Office Box 488, Denver, North Carolina 28037
(Address of principal executive offices)
(704) 377-2109
(Registrant's telephone number, including area code)
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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
2,688,653 Common Shares, par value of $.25 per share were outstanding as of
February 5, 1999.
This filing contains 20 pages.
The exhibit index is on page 19.
AIR TRANSPORTATION HOLDING COMPANY, INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings
for the three and nine-month periods ended
December 31, 1998 and 1997 (Unaudited) 3
Consolidated Balance Sheets at
December 31, 1998 (Unaudited)
and March 31, 1998 4
Consolidated Statements of Cash
Flows for the nine-month periods
ended December 31, 1998 and 1997 (Unaudited) 5
Notes to Consolidated Financial
Statements (Unaudited) 6-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9-15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16-18
Exhibit Index 19
Exhibits 20
2 <PAGE>
<TABLE>
AIR TRANSPORTATION HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Operating Revenues:
Cargo $ 4,925,340 $ 4,852,046 $ 14,496,799 $ 13,880,202
Maintenance 2,982,195 3,634,536 9,743,912 10,146,149
Ground equipment 2,997,077 6,367,958 9,690,672 7,920,810
Aircraft services and other 1,560,400 1,608,000 3,959,814 3,426,775
12,465,012 16,462,539 37,891,197 35,373,935
Operating Expenses:
Flight operations 3,402,322 3,498,380 10,142,042 9,876,900
Maintenance and brokering 4,468,634 4,435,256 12,673,717 12,103,189
Ground equipment 2,746,920 4,869,276 8,233,800 6,040,056
General and administrative 1,561,109 2,115,382 5,232,802 4,328,167
Depreciation and amortization 186,414 162,030 538,177 384,037
Facility start-up & merger expense- 8,766 - 188,521
12,365,400 15,089,089 36,820,539 32,920,869
Operating Income 99,612 1,373,450 1,070,658 2,453,066
Non-operating Expense (Income):
Interest 101,124 - 225,810 -
Deferred retirement expense 6,249 - 18,747 418,000
Investment income (32,532) (51,234) (135,954)
(208,687)
Gain on asset sale - 12,501 - 20,833
74,841 (38,733) 108,603 230,146
Earnings Before Income Taxes 24,771 1,412,183 962,055 2,222,920
Income Taxes 9,137 519,667 400,590 817,267
Net Earnings $ 15,634 $ 892,516 $ 561,465 $ 1,405,653
Net Earnings Per Share:
Basic $ 0.01 $ 0.34 $ 0.21 $ 0.53
Diluted $ 0.01 $ 0.32 $ 0.20 $ 0.50
Average Shares Outstanding:
Basic 2,688,653 2,650,653 2,698,875 2,649,246
Diluted 2,783,974 2,780,396 2,795,496 2,785,942
<FN>
See notes to consolidated financial statements.
</TABLE>
3
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<TABLE>
AIR TRANSPORTATION HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31, 1998 March 31,1998
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 46,906 $ 193,918
Marketable securities 2,295,224 2,556,257
Accounts receivable, net 5,655,898 6,673,101
Inventories 6,897,744 5,325,613
Deferred tax asset, net 272,980 272,980
Prepaid expenses and other 66,962 33,922
Total Current Assets 15,235,714 15,055,791
Property and Equipment 5,179,799 4,693,268
Less accumulated depreciation (2,900,188) (2,429,031)
2,279,611 2,264,237
Deferred Tax Asset 394,625 152,000
Intangible Pension Asset 479,495 389,495
Other Assets 389,861 427,880
Total Assets $ 18,779,306 $ 18,289,403
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to bank $ 3,371,301 $ 916,079
Accounts payable 2,994,211 3,975,633
Accrued expenses 1,360,404 1,778,664
Income taxes payable 114,081 762,961
Current portion of long-term obligations 56,297 56,241
Total Current Liabilities 7,896,294 7,489,578
Capital Lease Obligation (less current
portion) 27,041 30,904
Deferred Retirement Obligation (less current
portion) 1,109,568 1,056,795
Stockholders' Equity:
Preferred stock, $1 par value, authorized
10,000,000 shares, none issued - -
Common stock, par value $.25; authorized
4,000,000 shares; 2,688,653 and
2,711,653 shares issued 671,491 677,241
Additional paid in capital 6,985,157 7,128,907
Retained earnings 2,089,756 1,905,978
9,746,403 9,712,126
Total Liabilities and Stockholders' Equity $ 18,779,306 $ 18,289,403
<FN>
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
AIR TRANSPORTATION HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Nine Months Ended
December 31,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 561,465 $ 1,405,653
Adjustments to reconcile net earnings to net
cash used in operations:
Depreciation and amortization 538,177 384,037
Change in deferred tax asset (242,625) (80,000)
Change in retirement obligation 52,773 718,000
Change in assets and liabilities which
provided (used) cash:
Accounts receivable 1,017,203 (4,719,768)
Inventories (1,572,131) (1,391,017)
Prepaid expenses and other (85,021) (240,266)
Accounts payable (981,422) 2,656,555
Accrued expenses (422,067) 227,635
Income taxes payable (648,880) 30,537
Total adjustments (2,343,993) (2,414,287)
Net cash used in
operating activities (1,782,528) (1,008,634)
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisition - (715,981)
Capital expenditures (553,552) (540,174)
Purchase of marketable securities (189,250) (960,757)
Sale of marketable securities 450,283 716,446
Net cash used in
investing activities (292,519) (1,500,466)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 2,455,222 1,545,645
Payment of cash dividend (377,687) (265,143)
Repurchase of common stock (149,500) (67,254)
Proceeds from exercise of stock options - 18,750
Net cash provided by
financing activities 1,928,035 1,231,998
NET DECREASE IN CASH CASH EQUIVALENTS (147,012) (1,277,102)
CASH & CASH EQUIVALENTS AT BEGINNING
OF PERIOD 193,918 2,377,898
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 46,906 $ 1,100,796
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 194,586 $ 3,760
Income/Franchise taxes 1,439,144 879,176
<FN>
See notes to consolidated financial statements.
</TABLE>
5
<PAGE>
AIR TRANSPORTATION HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. Financial Statements
The Consolidated Balance Sheet as of December 31, 1998, the
Consolidated Statements of Earnings for the three and nine-month
periods ended December 31, 1998 and 1997 and the Consolidated
Statements of Cash Flows for the nine-month periods ended December 31,
1998 and 1997 have been prepared by Air Transportation Holding Company,
Inc. (the Company) without audit. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary
to present fairly the financial position, results of operations and
cash flows as of December 31, 1998, and for prior periods presented,
have been made.
It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended March 31,
1998. The results of operations for the period ended December 31 are
not necessarily indicative of the operating results for the full year.
B. Income Taxes
The tax effect of temporary differences, primarily asset reserves
and accrued liabilities, gave rise to the Company's deferred tax asset
in the accompanying December 31, 1998 and March 31, 1998 consolidated
balance sheets.
The Company recorded a valuation allowance for the nine-months
ended December 31, 1997 in order to reduce its deferred tax asset to an
amount which is more likely than not to be realized. Changes in the
valuation allowance, related to future utilization of net operating
losses, reduced the provision for income taxes by $44,000 during the
nine-months ended December 31, 1997. At December 31, 1998, the Company
had no valuation allowance.
The income tax provisions for the nine-months ended December 31,
1998 and 1997 differ from the federal statutory rate primarily as a
result of state income taxes and a reduction in the above mentioned
valuation allowance.
C. Net Earnings Per Share
Basic earnings per share has been calculated by dividing net
earnings by the weighted average number of common shares outstanding
during each period. For purposes of calculating diluted earnings per
share, shares issuable under employee stock options which were dilutive
were considered common share equivalents and were included in the
weighted average common shares.
6
<PAGE>
The computation of basic and diluted earnings per common share is as
follows:
Three Months Ended Nine Months Ended
December 31, December 31,
1998 1997 1998 1997
Net earnings $ 15,634 $ 892,516 $ 561,465 $1,405,653
Weighted average common shares:
Shares outstanding-basic 2,688,653 2,650,653 2,698,875 2,649,246
Dilutive stock options 95,321 129,743 96,621 136,696
Shares outstanding-diluted 2,783,974 2,780,396 2,795,496 2,785,942
Net earnings per common share:
Basic $ 0.01 $ 0.34 $ 0.21 $ 0.53
Diluted $ 0.01 $ 0.32 $ 0.20 $ 0.50
D. Acquisition
On August 29, 1997, the Company acquired the Simon Deicer
Division of Terex, Inc. for $716,000 cash. The acquisition, renamed
Global Ground Support, LLC (Global), manufactures, sells and services
aircraft deicer equipment on a worldwide basis. The acquisition was
accounted for using the purchase method; accordingly, the assets and
liabilities (which included $1,522,000 inventory, $287,000 fixed assets
and $3,000 accounts receivable, net of $1,048,000 in customer deposits
and $49,000 warranty obligation) of the acquired entity have been
recorded at their estimated fair values at the date of acquisition.
Global's results of operations have been included in the Consolidated
Statement of Income since the date of acquisition.
E. Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information"(SFAS 131) was
issued in June 1997. SFAS 131 is effective for the Company in the
fiscal year ending March 31, 1999. SFAS 131 redefines how operating
segments are determined and requires disclosure of certain financial
and descriptive information about a company's operating segments.
Management does not believe that the adoption of SFAS 131 will have a
material impact on the Company's current disclosures of its operating
segments.
In March 1998, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position 98-1, Accounting for
Costs of Computer Software Developed or Obtained for Internal Use ("SOP
98-1"). SOP 98-1 provides a framework for determining the accounting
treatment of costs incurred to obtain or develop computer software.
In April 1998, the AICPA issued Statement of Position 98-5,
Reporting on the Costs of Start-Up Activities ("SOP 98-5"), which
requires immediate expensing of certain organization and start-up
costs.
7
<PAGE>
E. Recent Accounting Pronouncement (Cont'd)
For SOP 98-1 and 98-5 the Company will adopt these standards for
fiscal year ended March 31, 2000. Company management currently
believes that the adoption of these statements will not have a material
impact.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133
established accounting and reporting standards for derivative
instruments and for hedging activities. SFAS No. 133 is effective for
the Company in the fiscal year ending March 31, 2001. Management is
currently evaluating the effect of SFAS No. 133 on the Company's
financial statements.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Overview
Statements in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" or made by management of
the Company which contain more than historical information may be
considered forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995) which are subject to
risks and uncertainties. Actual results may differ materially from
those expressed in the forward-looking statements because of important
risks and uncertainties, including but not limited to the effects of
economic, competitive and market conditions in the aviation industry.
The Company's most significant component of revenue (cargo and
maintenance) is generated through its air cargo subsidiaries, Mountain
Air Cargo, Inc. (MAC) and CSA Air, Inc. (CSA), which are short-haul
express air freight carriers flying nightly under contracts for a major
express delivery company out of 80 cities, principally located in 30
states in the eastern half of the United States and in Puerto Rico,
Canada and the Virgin Islands. Under the terms of its dry-lease
service contracts (which currently cover approximately 98% of the
revenue aircraft operated), the Company passes through to its customer
certain cost components of its operations without markup. The cost of
fuel, flight crews, landing fees, outside maintenance, aircraft
certification and conversion, parts and certain other direct operating
costs are included in operating expenses and billed to the customer as
cargo and maintenance revenue. Air cargo related revenue contributed
$24,240,000 and $24,026,000 respectively for the nine-month periods
ended December 31, 1998 and 1997.
In May 1997, to expand its revenue base, the Company's Mountain
Aircraft Services, LLC (MAS) subsidiary expanded its offering of
aircraft component repair services. MAS's revenue contributed
$3,695,000 and $3,322,000 to the Company's revenues for the nine-month
periods ended December 31, 1998 and 1997, respectively.
In August 1997, the Company acquired certain assets and order
backlog and assumed certain liabilities of Simon Deicer Company, a
division of Terex Aviation Ground Equipment, Inc. located in Olathe,
Kansas. The acquisition, renamed Global Ground Support, LLC (Global),
manufactures, services and supports aircraft deicers on a worldwide
basis. Global is operated as a subsidiary of MAS. Global's revenue
contributed $9,691,000 to the Company's revenues for the nine-month
period ended December 31, 1998 and $7,921,000 for the aproximately four-
month period from date of acquisition through December 31, 1997.
9
<PAGE>
Seasonality
Global's business has historically been highly seasonal. In
general, the bulk of Global's revenues and earnings have typically
occurred during the second and third fiscal quarters in anticipation of
the winter season, and comparatively little has occurred during the
first and fourth fiscal quarters due to the nature of its product line.
The Company is currently attempting to reduce Global's seasonal
fluctuation in revenues and earnings by broadening its product line to
increase revenues and earnings in the first and fourth fiscal quarters.
The Company expended exceptional effort in the second and third quarter
of 1998 to design and produce prototype equipment to expand its current
product line. The remainder of the Company's business is not materially
seasonal.
Results of Operations
Consolidated revenue increased $2,517,000 (7.1%) to $37,891,000
and decreased $3,998,000 (24.3%) to $12,465,000, respectively, for the
nine and three-month periods ended December 31, 1998 compared to their
equivalent 1997 periods. The nine-month increase was primarily due to a
$1,770,000 (22.3%) increase in Global's revenue due to a full nine
months of operations for the nine-month period ended December 31, 1998
compared to four months of operations for the similar period ended
December 31, 1997. The three-month decrease was principally due to a
$3,371,000 (52.9%) decrease in Global's revenue due to reduced demand
attributed to above normal winter temperatures, increased price
competition (which resulted in both reduced sales and higher than
normal product sales discounts) and the introduction of lower cost
units to diversify the product line. Decreases in air cargo
maintenance billings further reduced current period revenue by $402,000
(4.0%) and $652,000 (17.9%), respectively, for the nine and three-month
periods ended December 31, 1998.
Operating expenses increased $3,900,000 (11.9%) to $36,821,000 for
the nine-month period ended December 31, 1998 and decreased $2,724,000
(18.1%) to $12,319,000 for the three-month period ended December 31,
1998 compared to their equivalent 1997 periods. The change in
operating expenses for the nine-month period consisted of the
following: cost of flight operations increased $265,000 (2.7%),
primarily as a result of increases in pilot and flight personnel and
costs associated with pilot travel; maintenance and brokerage expense
increased $571,000 (4.7%), primarily as a result of increases
associated with contract services, and cost of parts and labor related
to the expansion of MAS's repair shop; ground equipment increased
$2,194,000 (36.3%), as a result of nine months of operation in the
current 1998 period compared to four months of activity during the
prior 1997 period; depreciation and amortization increased $154,000
(40.1%) as a result of increased depreciation related to the above
Global acquisition; general and administrative expense increased
$905,000 (20.9%) primarily as a result of increases associated with the
above mentioned nine full months of expanded Global operations, the
expansion of MAS's repair shop operations and increases in employee
benefit and professional fees; facility start-up and merger expense
decreased $189,000 in 1998 compared to the previous nine-month period
due to the expensing of start-up and merger related cost in 1997.
10
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Results of Operations (cont'd)
Operating expenses decreased $2,724,000 (18.1%) for the three-
month period ended December 31, 1998 compared to its similar 1997
period. The decrease primarily resulted from the following changes in
operating costs: Cost of flight operations decreased $96,000 (2.8%)
primarily due to an insurance refund partly offset by higher travel
related costs; ground equipment decreased $2,122,000 (43.6%) due to
decreased cost of sales related to lower sales of aircraft deicers;
general and administrative expense decreased $554,000 (26.2%) primarily
due to a current period adjustment to reclassify $244,000 from office
to maintenance salaries and insurance refunds of $261,000.
The $122,000 decrease in non-operating expense for the nine months
ended December 31, 1998 compared to December 31, 1997 was principally
due to a $418,000 accrual in the first quarter of 1997, to fulfill
contractual benefits related to the death of the Company's Chairman and
CEO, offset by a $226,000 increase in interest expense in the 1998 nine-
month period. The $114,000 increase in non-operating expense for the
comparative three-month periods ended December 31, 1998 and 1997 was
primarily due to $101,000 in interest expense incurred in the 1998
period.
Pretax earnings decreased $1,261,000 and $1,387,000 for the nine
and three-month periods ended December 31, 1998, respectively compared
to their respective December 31, 1997 periods. The nine-month decrease
was principally due to a $596,000 current period net loss at Global
compared to $1,244,000 net income in 1997, offset in part by the above
1997 death benefit provision. The third quarter decrease was again
principally due to a $1,514,000 decrease in Global's profitability.
The provision for income taxes decreased $417,000 and $511,000 for
the nine and three-month periods ended December 31, 1998, respectively
compared to their respective 1997 periods due to changes in taxable
income offset in part by higher effective tax rates.
Liquidity and Capital Resources
As of December 31, 1998 the Company's working capital amounted to
$7,339,000, a decrease of $227,000 compared to March 31, 1998. The net
decrease primarily resulted from a decrease in profitable operations
and increased financing required to fund the operations of Global and
expansion of MAS.
On July 17, 1998, the Company increased its unsecured line of
credit from $5,000,000 to $7,000,000. The line, which matures August
31, 1999, is expected to be renewed before its expiration date.
Amounts advanced under the line of credit bear interest at the 30-day
"LIBOR" rate (5.06% at December 31, 1998) plus 137 basis points.
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Liquidity and Capital Resources (cont'd)
Under the terms of the line of credit the Company must maintain
certain financial ratios and may not encumber certain real or personal
property. At December 31, 1998 the Company was in compliance with the
debt covenants. As of December 31, 1998, the Company was in a net
borrowing position against its line of credit in the amount of
$3,371,000, a $2,455,000 increase over the March 31, 1998 loan balance,
principally to fund the expanded operations of Global. Management
believes that funds anticipated from operations and existing credit
facilities will provide adequate cash flow to meet the Company's future
financial needs.
The respective nine-month periods ended December 31, 1998 and 1997
resulted in the following changes in cash flow: operating activities
used $1,783,000 and $1,009,000, investing activities used $293,000 and
$1,500,000 and financing activities provided $1,928,000 and $1,232,000.
Net cash decreased $147,000 and $1,277,000 for the respective nine-
month periods ended December 31, 1998 and 1997.
Cash used in operating activities was $774,000 more for the nine-
months ended December 31, 1998 compared to the similar 1997 period,
principally due to increases in inventory, a decrease in profitable
operations, decreases in accounts, accrued and taxes payable and a 1997
$418,000 provision related to the death of the Company's former
Chairman and CEO partially offset by a reduction in accounts
receivable.
Cash used in investing activities for the nine-months ended
December 31, 1998 was approximately $1,208,000 less than the comparable
period in 1997, principally due to the 1997 Global business acquisition
and a current period decrease in purchase of marketable securities.
Cash provided by financing activities for the nine-months ended
December 31, 1998 was approximately $696,000 more than the comparable
1997 period, principally due to an increase in borrowings under the
line of credit in 1998, partially offset by an increase in cash
dividend and repurchase of common stock.
There are currently no commitments for significant capital
expenditures. The Company's Board of Directors, on August 7, 1997,
adopted the policy to pay an annual cash dividend in the first quarter
of each fiscal year, in an amount to be determined by the board. The
Company paid a $0.14 per share cash dividend in June 1998.
Recent Accounting Pronouncement
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information (SFAS 131) was
issued in June 1997. SFAS 131 is effective for the Company in the
fiscal year ending March 31, 1999. SFAS 131 redefines how operating
segments are determined and requires disclosure of certain financial
and descriptive information about a company's operating segments.
Management does not believe that the adoption of SFAS 131 will have a
material impact on the Company's current disclosures of its operating
segments.
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Deferred Retirement Obligation
The Company's former Chairman and Chief Executive Officer passed
away on April 18, 1997. In addition to amounts previously expensed,
under the terms of his supplemental retirement agreement, death
benefits with a present value of approximately $418,000 were expensed
in the first quarter 1998. The death benefits are payable in the
amount of $75,000 per year for 10 years.
Impact of Inflation
The Company believes that due to the current low levels of
inflation the impact of inflation and changing prices on its revenues
and net earnings will not have a material effect on its manufacturing
operations, or on its air cargo business since the major cost
components of its operations, consisting principally of fuel, crew and
certain maintenance costs are reimbursed, without markup, under current
contract terms.
Year 2000 Issue
The Company has initiated a comprehensive review of its operations
and computer systems to identify the extent to which it could be
affected by the "year 2000 issue", which is the result of computer
programs written using two digits rather than four to define the
applicable year. The Company has broken down its review to assess its
information technology systems (IT Systems), the aspects of its
operations that rely on devices that may contain embedded microchips
(Non-IT Systems) and its relationships and reliance on vendors,
suppliers, customers and others with whom the Company deals whose
operations may be affected by the year 2000 issue. This review was
conducted by the Company's Year 2000 committee, authorized to assess
the Company's risks and develop a comprehensive plan to address the
year 2000 issue.
State of Readiness
IT Systems. As a result of such review, as of the date of this
Quarterly Report on Form 10-Q, the Company believes it has catalogued
all IT Systems utilized directly by the Company. The Company has
revised certain customized IT Systems to enable such systems to work
properly following the year 2000 and is in the process of confirming
oral verification that recently acquired IT Systems from third-party
vendors are "year 2000 compliant". Management currently believes three
significant IT Systems, which are used in the operations area of the
Company, have not been confirmed as being "year 2000 compliant".
Management has decided to utilize external resources to upgrade these
software systems to become year 2000 compliant. Management believes
that such systems can be upgraded by June 30, 1999. Management
believes that adequate replacement systems that are year 2000 compliant
are commercially available and can be properly installed and operating
before the year 2000 in the event that such upgrades cannot be timely
completed.
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Year 2000 Issue (cont'd)
Non-IT Systems. The Company utilizes a number of devices that
include embedded microchips that may be affected by the year 2000
issue, including aircraft operated under lease agreements with its
major customer. The Company anticipates completing the testing and
replacing of any noncompliant devices by June 30, 1999. Under its
agreements with its major customer the cost of replacing such
components in aircraft leased by the Company from its customer would be
passed on to the customer.
Material Third Parties. The Company is making concerted efforts
to understand the year 2000 compliance of third parties (including,
among others, domestic and international government agencies and air
traffic control systems material to the Company's operations, vendors,
suppliers and major customers) whose year 2000 non-compliance could
either have a material adverse effect on the Company's business,
financial condition or results of operations or involve a safety risk
to employees or customers.
The Company is actively encouraging year 2000 compliance on the
part of third parties and is developing contingency plans in the event
of their year 2000 non-compliance by June 30, 1999. The Company has
contacted, in writing, each material vendor and supplier, requesting
completion of a questionnaire to assess such third party's year 2000
compliance. Failure to respond to these questionnaires will result in
further mail or phone correspondence and contingency plan development
including, if necessary, vendor/product replacement.
The Company has met with its major air cargo customer on numerous
occasions to discuss year 2000 readiness. In addition, the Company has
reviewed public filings of its major customer to assess the customer's
state of year 2000 compliance. Such discussions and filings indicate
plans by such customer to be 100% internal systems year 2000
compliance, including operating subsidiaries, by November 1, 1999.
However, such customer's operations rely on many third parties,
including governmental agencies, airports and air traffic control
systems described below.
In conjunction with the Company's major air cargo customer and
industry trade associations, the Company is involved in an industry-
wide effort to understand the year 2000 compliance status of airports,
air traffic systems, and other U.S. and international government
agencies that may affect the Company's air cargo operations. The
Company's air cargo routes are selected and scheduled by its major
customer.
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Risks (Cont'd)
In addition to general risks raised by the year 2000 issue, the
Company's primary business segment, providing air cargo services to the
overnight express delivery industry, is subject to significant
additional risks. First, the Company's relationship with its major air
cargo customer is based, in significant part, on the Company's
operating reliability. A failure to timely confirm its year 2000
compliance to the customer could result in a loss of such relationship.
The Company has provided this customer with an anticipated time
schedule for completion of its year 2000 compliance program, which the
Company believes fits within the customer's planned schedule. In
addition, the bulk of the Company's aircraft fleet is leased from such
customer and is dedicated for use in flying routes designated by the
customer. Accordingly, the Company cannot currently develop meaningful
contingency plans for its air cargo operations in the event that year
2000 issues interrupt the operations of the Company's major air cargo
customer to the extent that such customer does not require the
Company's services.
Costs
The Company currently anticipates that costs of its year 2000
compliance program will likely be in the range of $150,000, assuming
that planned revisions to the remaining IT Systems which are not yet
year 2000 compliant can be successfully completed. If such revisions
cannot be successfully completed, the cost of replacement systems would
add materially to that estimate. As of December 31, 1998, the Company
had incurred approximately $70,000 in year 2000 compliance costs. The
foregoing costs do not include the allocation of internal employee time
since the Company does not track such internal costs.
Contingency Plans
The Company has begun developing possible contingency plans for
year 2000 non-compliance, some of which are discussed above. Due to
the Company's dependence upon, and its current uncertainty with, the
year 2000 compliance of certain government agencies, third-party
suppliers, vendors and customers with whom the Company deals, the
Company is unable to determine at this time its most reasonably likely
worst case scenario. While costs related to the lack of year 2000
compliance by third parties, business interruptions, litigation and
other liabilities related to year 2000 issues could materially and
adversely affect the Company's business, results of operations and
financial condition, the Company expects its internal year 2000
compliance efforts to reduce significantly the Company's level of
uncertainty about the impact of year 2000 issues affecting both its IT
Systems and Non-IT Systems.
15
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No. Description
3.1 Certificate of Incorporation, as amended, incorporated by
reference to Exhibit 3.1 of the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1994
3.2 By-laws of the Company, incorporated by reference to
Exhibit 3.2 of the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1996
4.1 Specimen Common Stock Certificate, incorporated by
reference to exhibit 4.1 of the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1994
10.1 Aircraft Dry Lease and Service Agreement dated February 2,
1994 between Mountain Air Cargo, Inc. and Federal Express
Corporation, incorporated by reference to Exhibit 10.13 to
Amendment No. 1 on Form 10-Q/A to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended December 31,
1993
10.2 Loan Agreement among NationsBank of North Carolina, N.A.,
the Company and its subsidiaries, dated July 17, 1998
incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30,
1998.
10.3 Aircraft Wet Lease Agreement dated April 1, 1994 between
Mountain Air Cargo, Inc. and Federal Express Corporation,
incorporated by reference to Exhibit 10.4 of Amendment No. 1 on
Form 10-Q/Q to the Company's Quarterly Report on Form 10-Q for
the period ended September 30, 1994
10.4 Adoption Agreement regarding the Company's Master 401(k) Plan and
Trust, incorporated by reference to Exhibit 10.7 to the Company's
Annual Report on form 10-K for the fiscal year ended March 31, 1993*
10.5 Form of options to purchase the following amounts of Common Stock
issued by the Company (adjusted for one-for-five reverse stocks split
effective May 16, 1994) to the following executive officers during
the following fiscal years ended March 31:*
Number of Shares
Executive Officer 1993 1992 1991
J. Hugh Bingham 30,000 30,000 40,000
John J. Gioffre 20,000 20,000 25,000
William H. Simpson 40,000 40,000 60,000
incorporated by reference to Exhibit 10.8 of the Company's
Annual Report on Form 10-K for the fiscal year ended March 31,
1993
16
<PAGE>
10.6 Premises and Facilities Lease dated November 16, 1995
between Global TransPark Foundation, Inc. and Mountain Air
Cargo, Inc., incorporated by reference to Exhibit 10.5 to
Amendment No. 1 on form 10-Q/A to the Company's Quarterly
Report on Form 10-Q for the period ended December 31, 1995
10.7 Employment Agreement dated January 1, 1996 between the
Company, Mountain Air Cargo Inc. and Mountain Aircraft
Services, LLC and William H. Simpson, incorporated by reference
to Exhibit 10.8 to the Company's Annual Report Form 10-K for
the fiscal year ended March 31, 1996*
10.8 Employment Agreement dated January 1, 1996 between the
Company, Mountain Air Cargo Inc. and Mountain Aircraft
Services, LLC and John J. Gioffre, incorporated by reference to
Exhibit 10.9 to the Company's Annual Report Form 10-K for the
fiscal year ended March 31, 1996*
10.9 Employment Agreement dated January 1, 1996 between Company, Mountain
Air Cargo Inc. and Mountain Aircraft Services, LLC and J. Hugh
Bingham, incorporated by reference to Exhibit 10.10 to the Company's
Annual Report Form 10k for the fiscal year end March 31, 1996.*
10.10 Employment Agreement dated September 30, 1997 between Mountain
Aircraft Services, LLC and J. Leonard Martin, incorporated by
reference to Exhibit 10.10 to the Company's Quarterly Report
Form 10-Q for the quarter ended December 31, 1997.*
10.11 Omibus Securities Award Plan, incorporated by reference to Exhibit
10.11 to the Company's Quarterly Report Form 10-Q for the quarter
quarter ended June 30, 1998.*
10.12 Commercial and Industrial Lease Agreement dated August 25, 1998
between William F. Bieber and Global Ground Support, LLC incorp-
orate by reference to Exhibit 10.12 of the Company's Quarterly
Report on 10Q for the period ended September 30, 1998.
10.13 Amendment, dated February 1, 1999, to Aircraft Dry Lease and
Service Agreement dated February 2, 1994 between Mountain Air
Cargo, Inc. and Federal Express Corporation.
21.1 List of subsidiaries of the Company, incorporated by reference to
Exhibit 21.1 of the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 1997
27.1 Financial Data Schedule (For SEC use only)
* Management compensatory plan or arrangement required to be filed as an
exhibit to this report.
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed in the third quarter of fiscal
1999.
17
<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.
AIR TRANSPORTATION HOLDING COMPANY, INC.
(Registrant)
Date: February 10, 1999 ___________________________
Walter Clark, Chief Executive Officer
Date: February 10, 1999 ___________________________
John J. Gioffre, Chief Financial Officer
18
<PAGE>
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.
AIR TRANSPORTATION HOLDING COMPANY, INC.
(Registrant)
Date: February 10, 1999 /s/ Walter Clark
Walter Clark, Chief Executive Officer
Date: February 10, 1999 /s/ John Gioffre
John J. Gioffre, Chief Financial Officer
18
<PAGE>
AIR TRANSPORTATION HOLDING COMPANY, INC.
EXHIBIT INDEX
EXHIBIT PAGE
10.13 Amendment, dated February 1, 1999, to Aircraft Dry Lease
and Service Agreement dated February 2, 1994 between
Mountain Air Cargo, Inc. and Federal Express Corporation. 20
27.1 Financial Data Schedule (For SEC use only)
19
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<ARTICLE> 5
<LEGEND>
"This schedule contains summary financial information extracted from Air
Transportation Holding Company, Inc. SEC Form 10-Q for Quarter ended December
31, 1998 (identify specific financial statements) and is qualified in its
entirety by reference to such financial statements."
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
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<INVENTORY> 6897744
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</TABLE>
Contract No. 94-0844-005
AMENDMENT
This AMENDMENT, made as of the 1st day of
February, 1999, between FEDERAL EXPRESS CORPORATION
("Federal") and MOUNTAIN AIR CARGO, INC. ("Lesssee").
RECITALS
1.Federal and Lessee entered into an Aircraft Dry
Lease And Service Agreement dated February 2, 1994 (the
"Agreement").
2.Federal and Lessee now desire to amend the
Agreement.
FOR AND IN CONSIDERATION of the mutual covenants
contained in this Amendment, Federal and Lessee
(the "parties") agree as follows:
1.The term of the Lease is extended for a period of
five (5) years commencing February 1, 1999 and expiring
January 31, 2004, unless earlier terminated under the
terms of the Agreement.
2.Except as otherwise provided in this Amendment,
all words and definitions used in this Amendment shall
have the same meaning in this Amendment as in the
Agreement.
3.Other than as provided in this Amendment, all
terms and provisions of the Agreement are hereby
ratified and confirmed.
IN WITNESS WHEREOF, the parties hereby execute
this Amendment on the day and year first above
written.
MOUNTAIN AIR CARGO, INC. FEDERAL EXPRESS CORPORATION
By: William Simpson By: Mark S. Blair
Title: President Title: Vice President
("Lessee") ("Federal")
