<PAGE>
- --------------------------------------------------------------------------------
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 JUNE 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 0-22526
TOWER AIR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-2621046
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
HANGAR NO. 17
J.F.K. INTERNATIONAL AIRPORT
JAMAICA, N.Y. 11430
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
(718) 553-4300
(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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of June 30, 1998, there were 15,363,256 shares of Common Stock, par value
$.01 per share, outstanding.
- --------------------------------------------------------------------------------
Page 1 of 19 pages
<PAGE>
TOWER AIR, INC. REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
----
PART I. FINANCIAL INFORMATION
<C> <S> <C>
Item 1. Financial Statements
Balance Sheets as of June 30, 1998
and December 31, 1997.......................................... 3
Statements of Operations for the three months and six months
ended
June 30, 1998 and 1997......................................... 4
Statements of Cash Flows for the six months ended June 30,
1998 and 1997.................................................. 5
Notes to Financial Statements................................... 6
Selected Operating Data......................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk...... 17
PART II. OTHER INFORMATION............................................... 18
SIGNATURES................................................................ 19
</TABLE>
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOWER AIR, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
(UNAUDITED) (NOTE)
----------- ------------
ASSETS
- ------
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................ $ 3,010 $ 3,922
Certificates of deposit, at cost, which approximates
market.............................................. 2,157 2,407
Receivables, net..................................... 33,946 28,151
Income tax receivable................................ 150 3,850
Prepaid expenses and other current assets............ 1,301 880
-------- --------
Total current assets................................ 40,564 39,210
Property and Equipment, at cost:
Flight equipment..................................... 431,697 419,851
Ground property and equipment........................ 33,878 33,489
-------- --------
465,575 453,340
Less accumulated depreciation and amortization....... 209,474 186,945
-------- --------
256,101 266,395
Other Assets......................................... 10,173 4,515
-------- --------
$306,838 $310,120
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Notes payable........................................ $ 11,019 $ 21,038
Accounts payable..................................... 60,751 55,313
Accrued liabilities.................................. 31,795 40,698
Air traffic liability................................ 27,892 18,867
Current maturities of long-term debt (Note 2)........ 65,148 43,273
-------- --------
Total current liabilities........................... 196,605 179,189
Long-Term Debt (Note 2)............................... 54,488 63,321
Deferred Income Taxes................................. 10,815 16,399
Deferred Rent......................................... 1,795 1,790
Stockholders' Equity (Note 3):
Preferred stock, $.01 par value; 5,000,000 shares
authorized; none issued............................. -- --
Common stock, $.01 par value; 35,000,000 shares
authorized; 15,573,256 issued....................... 156 155
Additional paid-in capital........................... 44,422 43,885
Retained earnings.................................... 68 6,892
Less treasury stock, at cost (210,000 shares)........ (1,511) (1,511)
-------- --------
Total stockholders' equity.......................... 43,135 49,421
-------- --------
$306,838 $310,120
======== ========
</TABLE>
See accompanying notes to financial statements.
- -----------
Note: The Balance Sheet at December 31, 1997 has been derived from the audited
financial statements at that date.
3
<PAGE>
TOWER AIR, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ------------------
1998 1997 1998 1997
--------- --------- -------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Scheduled Passenger Service......... $ 74,005 $ 55,067 $126,730 $ 97,844
Commercial Charter Service.......... 18,774 38,484 44,545 56,514
Military Charter Service............ 17,620 16,260 30,643 31,771
Cargo Service....................... 6,327 652 9,789 966
Other............................... 2,830 2,113 4,589 3,491
--------- --------- -------- --------
Total operating revenues........... 119,556 112,576 216,296 190,586
OPERATING EXPENSES:
Fuel................................ 17,031 15,524 32,537 32,283
Flight equipment rentals and
insurance.......................... 9,136 6,399 17,418 11,325
Maintenance......................... 13,791 12,745 25,490 20,712
Crew costs and other................ 8,774 7,609 15,342 13,121
Aircraft and traffic servicing...... 19,832 15,880 38,698 30,476
Passenger servicing................. 13,352 10,656 25,637 20,641
Promotion, sales and commissions.... 16,188 16,887 30,105 27,272
General and administrative.......... 4,621 4,651 9,473 9,439
Depreciation and amortization....... 12,906 12,713 27,026 22,879
--------- --------- -------- --------
Total operating expenses........... 115,631 103,064 221,726 188,148
--------- --------- -------- --------
OPERATING INCOME (LOSS).............. 3,925 9,512 (5,430) 2,438
OTHER (INCOME) EXPENSES:
Other (income)...................... (862) (23) (795) (18)
Interest expense.................... 3,877 3,022 7,774 5,809
--------- --------- -------- --------
Total other expenses............... 3,015 2,999 6,979 5,791
--------- --------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES.... 910 6,513 (12,409) (3,353)
Income Tax Provision (Benefit)...... 409 2,930 (5,585) (1,511)
--------- --------- -------- --------
NET INCOME (LOSS).................... $ 501 $ 3,583 $ (6,824) $ (1,842)
========= ========= ======== ========
BASIC AND DILUTED INCOME (LOSS) PER
SHARE............................... $ 0.03 $ 0.23 $ (0.44) $ (0.12)
========= ========= ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING.. 15,343 15,290 15,343 15,290
========= ========= ======== ========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
TOWER AIR, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss.......................................... $ (6,824) $ (1,842)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization................... 27,026 22,879
Provision for doubtful accounts................. 189 --
Deferred income taxes........................... (5,585) (1,511)
Deferred rent and other......................... 346 (130)
(Gain) Loss on disposal of property and
equipment...................................... (846) 15
Changes in operating assets and liabilities:
Receivables.................................... (5,973) (6,268)
Income tax receivable.......................... 3,700 6,397
Prepaid expenses and other assets.............. (5,794) 2,456
Accounts payable and accrued liabilities....... 8,683 (6,232)
Air traffic liability.......................... 9,025 6,956
------------ ------------
Net cash provided by operating activities......... 23,947 22,720
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of flight equipment...................... (17,855) (32,895)
Purchase of ground property and equipment......... (390) (108)
Proceeds from sale of property and equipment...... 2,400 100
Decrease (Increase) in certificates of deposit.... 250 (1,725)
------------ ------------
Net cash used in investing activities............. (15,595) (34,628)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings.......................... 213,716 200,614
Principal payments on borrowings.................. (222,453) (187,090)
Proceeds from the exercise of stock options....... 189 --
Other............................................. (716) (308)
------------ ------------
Net cash (used in) provided by financing
activities....................................... (9,264) 13,216
------------ ------------
Net (decrease) increase in cash and cash
equivalents...................................... (912) 1,308
Cash and cash equivalents at beginning of period.. 3,922 2,968
------------ ------------
Cash and cash equivalents at end of period........ $ 3,010 $ 4,276
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest.......... $ 7,196 $ 5,523
Cash paid during the period for income taxes, net. $ -- $ 24
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Purchase of flight equipment accrued but not paid. $ 2,088 $ 16,643
Purchase of flight equipment financed through
debt............................................. $ 11,760 $ 5,867
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by Tower
Air, Inc. (the "Company") in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
these financial statements contain all adjustments, consisting of normal
recurring accruals, necessary to present fairly the financial position,
results of operations and cash flows for the periods indicated. These interim
financial statements and related notes should be read in conjunction with the
financial statements and notes included in the Company's Annual Report on Form
10-K for the year ended December 31, 1997. The results of operations for the
three months and the six months ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the full year.
2. LONG-TERM DEBT
In September 1997, the Company entered into the Amended and Restated Loan and
Security Agreement (the "Loan Agreement") with Heller Financial, Inc.
("Heller") which extended the term of a line of credit until September 1999.
The line of credit, which is for $15.0 million, is secured by accounts
receivable, general intangibles, inventory, intellectual property, cash held
in the Company's lock-box account, one spare airframe, aircraft spare parts
and landing and gate rights.
Since February 1998, the Company has entered into six amendments to the Loan
Agreement providing, among other things, for (i) changes in the maximum amount
of the revolving loan during different periods; (ii) subordination of loans
made to the Company by officers and directors; (iii) increases to the spread
between the amount of collateral required and the amount of available
borrowing under the Loan Agreement; (iv) modification of the financial
covenant relating to the Company's Tangible Net Worth (as defined therein) to
facilitate compliance by the Company; and (v) increases in the interest rate
from Prime (as defined therein) plus 0.75% to Prime plus 1.50% (10.0% at June
30, 1998). Through a combination of the fourth amendment on May 14, 1998 and
the sixth amendment on July 13, 1998, the Company and Heller agreed to modify
the Tangible Net Worth covenant in the Loan Agreement by reducing the amount
of Tangible Net Worth the Company is required to maintain from $47.0 million
prior to August 31, 1998 and $55.0 million thereafter to $35.0 million through
May 1998, $38.0 million for June 1998, $47.5 million through August 1, 1998
and $55.0 million from August 31, 1998 and thereafter. On June 1, 1998, the
fifth amendment permanently limited the maximum amount of borrowings under the
facility to $15.0 million beginning on June 29, 1998, a decrease from the
$25.0 million maximum amount originally permitted. The sixth amendment to the
Loan Agreement waived defaults resulting from the repayment of the 12% Note
(as defined herein), the issuance of the Nachtomi Note (as defined herein) and
the defaults referred to below. As of June 30, 1998, the Company had $11.0
million of obligations outstanding under the Loan Agreement, of which an
additional $2.0 million consisted of letters of credit issued to various
suppliers and insurance companies.
In January 1998, the Company entered into a loan agreement with a commercial
financial institution for $13.6 million secured by twelve Pratt & Whitney JT9D
engines, of which $11.3 million was used to pay the balance remaining on two
previous agreements with the same commercial financial institution and $1.6
million was paid toward engines under repair.
In February and March 1998, the Company borrowed $6.0 million which bears
interest at a rate of 12% (the "12% Note") from Funding Enterprises, LLC, a
limited liability company in which the Company's Chairman and former President
were members. On July 1, 1998, the Company discharged its obligations under
the 12% Note by issuing a new note (the "Nachtomi Note"), due August 7, 1998,
to
6
<PAGE>
the Company's Chairman in the principal amount of $3.0 million and repaying
the balance of the 12% Note in cash. The Nachtomi Note bears interest at an
annual rate of 12.0% which increases to 15.0% after August 7, 1998. In
connection with the 12% Note, warrants for the purchase of 1.2 million shares
of Common Stock of the Company were issued with an exercise price of $5.00.
The warrants expire in February 2008.
From time to time during 1998, the Company has been in default under certain
provisions of the Loan Agreement, including maintenance of minimum levels of
Tangible Net Worth (as defined therein) and EBITDA (as defined therein). The
Company has entered into amendments with Heller waiving such defaults, and is
currently in compliance with such provisions as they have been amended. In
addition, the Company does not meet the minimum net worth requirements of an
operating lease agreement entered into connection with a sale and leaseback
transaction, but has obtained a waiver of that provision through September 1,
1998. The Company has also been notified that it was in default under three
separate engine lease agreements because certain lease payments were due and
were not timely paid. The Company has negotiated waivers and revised payment
schedules to remedy such defaults. These defaults may have constituted
defaults under certain of the Company's other debt instruments and leases and
the Company has obtained waivers of such cross-defaults from the respective
parties.
The Company has obtained agreements with other lessors for deferred or revised
payment terms for approximately $8.1 million of lease and maintenance reserve
payments. In addition the Company agreed with certain of its vendors and
suppliers to extend payment terms, and has, in some cases, obtained payment
extensions with respect to certain of the Company's current obligations. As a
result of some of the payment term extensions, the Company is required to pay
interest on the deferred amounts.
To the extent that the Company's access to capital is constrained, the Company
may not be able to make certain capital expenditures, meet certain other
requirements or continue to implement certain other aspects of its strategic
plan. The Company's ability to make scheduled principal and interest payments
and to refinance its indebtedness and to meet its other obligations and future
capital commitments will be dependent upon its financial and operating
performance, which is subject to general economic conditions and to financial,
business and other factors, including factors beyond its control. Although
management believes that the Company's cash flow from its operations and
financing activities should be sufficient in the next twelve months to meet
the Company's debt service and other obligations, future capital commitments
and liquidity requirements, the airline industry in general and the Company in
particular are subject to significant risks and uncertainties. Therefore,
there can be no assurance that the Company's operating results and financing
activities will be sufficient in the foreseeable future to meet such
obligations and commitments.
3. STOCKHOLDERS' EQUITY
In an effort to conserve cash, the Company did not pay a cash dividend on the
Common Stock during the six months ended June 1998.
4. INCOME TAXES
Income taxes are calculated at the estimated annual effective tax rate, which
differs from the federal statutory rate of 35%, primarily due to the effect of
state income taxes and certain nondeductible items.
7
<PAGE>
5. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ------------------
1998 1997 1998 1997
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Numerator for basic earnings per share-
income (loss) available to common
stockholders.......................... 501 3,583 (6,824) (1,842)
Numerator for diluted earnings per
share-income (loss) available to
common stockholders after assumed
conversions........................... 501 3,583 (6,824) (1,842)
Denominator:
Denominator for basic earnings per
share-weighted average shares....... 15,343 15,290 15,343 15,290
Effect of dilutive securities:
Employee stock options............... 175 77 -- --
--------- --------- -------- --------
Dilutive potential common shares....... 175 77 -- --
Denominator for diluted earnings per
share-adjusted
weighted-average shares and assumed
conversions........................... 15,518 15,367 15,343 15,290
========= ========= ======== ========
Basic earnings per share............... $ 0.03 $ 0.23 $ (0.44) $ (0.12)
========= ========= ======== ========
Diluted earnings per share............. $ 0.03 $ 0.23 $ (0.44) $ (0.12)
========= ========= ======== ========
</TABLE>
8
<PAGE>
TOWER AIR, INC.
SELECTED OPERATING DATA
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS ENDED
ENDED JUNE 30, JUNE 30,
------------------ --------------------
1998 1997 1998 1997
--------- ------- --------- ---------
<S> <C> <C> <C> <C>
Scheduled Passenger Service:
Revenue passengers carried (in
thousands)......................... 334 253 629 475
Revenue passenger miles (in
thousands) (RPMs)(1)............... 913,834 706,595 1,669,135 1,277,072
Available seat miles (in thousands)
(ASMs)(2).......................... 1,251,409 959,510 2,245,750 1,763,988
Passenger load factor(3)............ 73.02% 73.64% 74.32% 72.40%
Yield per RPM(4).................... $ .0810 $ .0779 $ .0759 $ .0766
Block hours flown(5)................ 5,982 4,530 10,679 8,338
Operating expense per ASM(6)........ $ .0536 $ .0464 $ .0546 $ .0498
Revenue per block hour(7)........... $ 12,376 $12,156 $ 11,867 $ 11,735
Variable expense per block hour(8).. $ 10,092 $ 8,655 $ 10,016 $ 8,898
Commercial Charter Service:
Block hours flown(5)................ 2,814 5,973 6,555 8,593
Revenue per block hour(7)........... $ 6,672 $ 6,443 $ 6,796 $ 6,577
Variable expense per block hour(8).. $ 3,743 $ 3,448 $ 3,937 $ 3,484
Military Charter Service:
Block hours flown(5)................ 1,501 1,387 2,607 2,694
Revenue per block hour(7)........... $ 11,739 $11,723 $ 11,754 $ 11,793
Variable expense per block hour(8).. $ 6,854 $ 6,226 $ 6,982 $ 7,529
Cargo Service:
Block hours flown(5)................ 1,315 198 1,927 239
Revenue per block hour(7)........... $ 4,811 $ 3,293 $ 5,080 $ 4,042
Variable expense per block hour(8).. $ 2,000 $ 2,094 $ 2,417 $ 1,804
Total:
Block hours flown(5)................ 11,612 12,088 21,768 19,864
Revenue per block hour(7)........... $ 10,052 $ 9,138 $ 9,726 $ 9,419
Variable expense per block hour(8).. $ 7,218 $ 5,695 $ 7,193 $ 6,285
Average hours of daily utilization.. 8.8 14.8 9.0 11.4
Employees (at period-end)........... 1,989 1,565 1,989 1,565
Number of aircraft in service(9).... 16 16 16 16
</TABLE>
- --------
(1) "Revenue passenger miles" or "RPMs" represent the number of miles flown by
revenue passengers.
(2) "Available seat miles" or "ASMs" represent the number of seats available
for passengers multiplied by the number of miles those seats are flown.
(3) "Passenger load factor" represents revenue passenger miles divided by
available seat miles.
(4) "Yield per RPM" represents total revenue from scheduled passenger service
divided by RPMs.
(5) "Block hours" represent the period of time between the aircraft's
departure from the place where it is parked to its arrival at its
destination.
(6) "Operating expense per ASM" represents certain direct variable costs for
scheduled passenger service, which include passenger service, passenger
liability insurance, catering, crew costs, fuel, landing and handling
fees, maintenance, navigation fees, "power by the hour" rent and marketing
and reservations, and an allocation of certain fixed costs based on block
hours, divided by total scheduled passenger service ASMs.
(7) "Revenue per block hour" represents total revenue from scheduled passenger
service, commercial charter service, military charter service and cargo
service divided by total block hours flown.
(8) "Variable expense per block hour" represents total direct variable costs,
which include passenger liability insurance, catering, crew costs,
commissions, fuel, landing and handling fees, maintenance, navigation fees
and insurance and "power by the hour" rent, divided by block hours.
(9) For the relevant periods, aircraft in service (at the end of each period)
excludes a cargo aircraft which has been out of service since February
1996 pursuant to certain Airworthiness Directive requirements ("ADs") and
two passenger aircraft which have not been in the active fleet since June
1997 and January 1998, respectively.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS:
Certain statements contained herein constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such statements incorporate assumptions that entail uncertainties and unknown
risks. A variety of factors may cause the actual results and performance of
the Company or industry to differ materially from any future results or
performance expressed or implied by such forward-looking statements. The
factors related to the Company include, among others, the following:
substantial indebtedness; significant capital expenditure requirements and
limited liquidity; recent operating losses and future uncertainties relating
to results of operations; the age of the fleet and noise reduction
requirements; dependency on aircraft availability; capital intensive nature of
aircraft acquisitions; international business risks; dependence on certain
routes and charters; control by the principal stockholder, Morris Nachtomi;
new management and dependence on key personnel; employee relations; relations
with travel agents and tour operators and insurance coverage. In addition,
factors related to the industry include, among other things, the following:
competition; the cost of fuel; government regulation and political, social and
economic conditions.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THREE MONTHS ENDED JUNE 30,
1997
For the three months ended June 30, 1998 (the "1998 Second Quarter"), the
Company reported an operating profit of $3.9 million compared to an operating
profit of $9.5 million for the three months ended June 30, 1997 (the "1997
Second Quarter"). The net income in the 1998 Second Quarter was $0.5 million
compared to net income of $3.6 in the 1997 Second Quarter. Scheduled passenger
service unit operating expenses (per scheduled ASM) rose by 15.5% in the 1998
Second Quarter compared with the 1997 Second Quarter. Overall operating
margins decreased from 8.4% in the 1997 Second Quarter to 3.3% in the 1998
Second Quarter.
OPERATING REVENUES. The Company's total operating revenues increased by $7.0
million, or 6.2%, to $119.6 million in the 1998 Second Quarter from $112.6
million in the 1997 Second Quarter.
Scheduled passenger service revenues increased $18.9 million, or 34.4%, to
$74.0 million in the 1998 Second Quarter from $55.1 million in the 1997 Second
Quarter. This increase was primarily attributable to increased frequencies on
certain existing routes and an increase in yields partially offset by a lower
load factor. Scheduled passenger traffic (as measured in RPMs) for the 1998
Second Quarter increased by 29.3% and scheduled capacity (as measured in ASMs)
for the 1998 Second Quarter increased 30.4%, resulting in a load factor of
73.0% in the 1998 Second Quarter compared to 73.6% in the 1997 Second Quarter.
For the 1998 Second Quarter, passenger yield was $.0810 per RPM compared with
$.0779 per RPM for the 1997 Second Quarter, a 4.0% increase. Increased yields
were due primarily to an increase in the average ticket price. Domestic market
demand also increased during the 1998 Second Quarter which resulted in an
increase of $13.1 million, or 61.3%, in additional revenue for the 1998 Second
Quarter over the 1997 Second Quarter. The Company also realized a $2.5
million, or 8.9%, increase in Tel Aviv revenues due to increased demand in
this market.
Commercial charter revenues decreased $19.7 million, or 51.2%, to $18.8
million in the 1998 Second Quarter from $38.5 million in the 1997 Second
Quarter. This decrease was primarily due to the earlier inception of Hajj
charter operations that began in early March in 1998 compared to the start of
the Hajj in late March in 1997, and the cancellation of certain charter
flights that were scheduled to commence in March 1998 because of the late
release of three aircraft from heavy maintenance facilities.
Military charter revenues increased by $1.4 million, or 8.4%, to $17.6 million
in the 1998 Second Quarter from $16.3 million in the 1997 Second Quarter
primarily as a result of increased activities
10
<PAGE>
related to the deployment or repatriation of troops. The military charter
business depends in large part upon the deployment or repatriation of troops,
and revenues from this market are subject to significant fluctuation.
Cargo service revenue increased to $6.3 million in the 1998 Second Quarter
from $0.7 million in the 1997 Second Quarter due to a new aircraft, crew,
maintenance and insurance contract ("ACMI Contract") with a South American
airline and the addition of an aircraft in March 1998 to the Company's cargo
fleet as a result of the conversion of a leased passenger aircraft. The
Company had operated only one cargo aircraft since February 1996, when the FAA
promulgated certain ADs which restricted the cargo carrying capacity of one of
the Company's Boeing 747-100 cargo aircraft, as well as nine other similarly
converted Boeing 747-100 cargo aircraft operated by other carriers. At that
time, the Company decided to ground the aircraft rather than operate it with
the restricted payload as required by such ADs. In order to return the cargo
capacity of such aircraft to what the Company believes to be economically
attractive levels, an FAA-approved modification plan will be required. Such
modifications are being designed and tested by the GATX-Airlog Co.
OPERATING EXPENSES. The Company's operating expenses increased $12.6 million,
or 12.2%, to $115.6 million in the 1998 Second Quarter from $103.1 million in
the 1997 Second Quarter. Operating expenses, excluding aircraft fuel and
depreciation, increased 14.5% in the 1998 Second Quarter. This increase in
operating expenses reflected a number of factors, including (i) delayed
completion of overhauls on eight of the Company's owned engines due in part to
the Company's cash deficiencies, resulting in an increase in the number of
engines leased by the Company, (ii) higher rental expense as a result of the
addition of two aircraft to the Company's fleet and the conversion of one
aircraft to cargo configuration, and (iii) increased crew costs resulting from
certain of the Company's commercial charter operations.
Aircraft fuel expenses increased $1.5 million, or 9.7%, to $17.0 million in
the 1998 Second Quarter from $15.5 million in the 1997 Second Quarter. This
increase reflected a 19.0% increase in fuel consumption partially offset by a
7.1% decrease in the cost of fuel.
Flight equipment rentals and insurance expenses increased $2.7 million, or
42.8%, to $9.1 million in the 1998 Second Quarter from $6.4 million in the
1997 Second Quarter. This increase was attributable to charges associated with
the rental of two additional leased aircraft to support the Company's fleet
requirements as well as increased aircraft rent resulting from the conversion
of one leased aircraft from passenger to cargo configuration. In addition,
rental expenses associated with certain flight equipment increased in the 1998
Second Quarter relative to the 1997 Second Quarter in accordance with the
terms of the relevant sale and leaseback transaction. Furthermore, the Company
incurred approximately $1.7 million in engine rental charges as a result of
the delayed completion of work on certain of the Company's owned engines.
Maintenance costs increased $1.0 million, or 8.2%, to $13.8 million in the
1998 Second Quarter from $12.7 million in the 1997 Second Quarter. This
increase was attributable primarily to increased maintenance reserves
associated with aircraft and engine rentals. Increased maintenance costs for
the 1998 Second Quarter included $2.2 million in maintenance reserves
associated with the rental engines described above. This increase was
partially offset by the Company's May 1998 implementation of an FAA-approved
program which allows the Company to reduce expenses associated with bench-
testing serviceable spare part components at third-party facilities.
Crew costs and other expenses increased $1.2 million, or 15.3%, to $8.8
million in the 1998 Second Quarter from $7.6 million in the 1997 Second
Quarter. This increase primarily resulted from certain foreign regulations
affecting certain of the Company's charter operations which are more
restrictive
11
<PAGE>
than FAA regulations, resulting in increased crew costs, such as additional
overtime, per diem and hotel costs.
Aircraft and traffic servicing expenses increased $4.0 million, or 24.9%, to
$19.8 million in the 1998 Second Quarter from $15.9 million in the 1997 Second
Quarter. This increase resulted primarily from the change in the Company's
business mix described above. Scheduled service block hours, where the Company
is responsible for all expenses, increased from 4530 to 5982. As a percentage
of total block hours, scheduled service block hours represented 51.5% in the
1998 Second Quarter compared to 37.5% in the 1997 Second Quarter.
Passenger servicing expenses increased $2.7 million, or 25.3%, to $13.4
million in the 1998 Second Quarter from $10.7 million in the 1997 Second
Quarter. This increase resulted primarily from the change in the Company's
business mix described above.
Promotion, sales and commission expenses decreased $0.7 million, or 4.1%, to
$16.2 million in the 1998 Second Quarter from $16.9 million in the 1997 Second
Quarter. This decrease was primarily due to lower commission expenses from
decreased Hajj commercial charter revenues partially offset by higher
commission expenses from increased scheduled passenger service revenues in the
1998 Second Quarter.
General and administrative expenses decreased to $4.6 million in the 1998
Second Quarter from $4.7 million in the 1997 Second Quarter. As a percentage
of operating revenue, general and administrative expenses for the 1998 Second
Quarter were 3.9% compared with 4.1% for the 1997 Second Quarter.
Depreciation and amortization expenses increased $0.2 million, or 1.5%, to
$12.9 million in the 1998 Second Quarter from $12.7 million in the 1997 Second
Quarter. This increase was primarily due to depreciation expenses associated
with capitalized engine overhauls and heavy airframe maintenance, which was
partially offset by the June 1998 revision to the Company's maintenance
program that involves spreading certain work typically performed during
infrequent major overhauls over the course of more frequent, smaller
maintenance checks. This revision also schedules heavy service maintenance
overhauls as a function of both aircraft utilization and elapsed time since
the last heavy overhaul while the prior program scheduled heavy maintenance
overhauls based solely on the elapsed time. As a result of the revision, the
Company is able to depreciate its heavy airframe maintenance overhaul expenses
over a longer time period.
OTHER EXPENSES AND INCOME. Interest expense increased $0.9 million, or 28.3%,
to $3.9 million in the 1998 Second Quarter from $3.0 million in the 1997
Second Quarter. This increase primarily reflects a higher average outstanding
debt balance in the 1998 Second Quarter, increases in the interest rate under
the Loan Agreement and a one-time charge of $0.4 million associated with
warrants issued in connection with borrowings from Funding Enterprises LLC.
INCOME TAX PROVISION. The income tax provision for the 1998 Second Quarter was
$2.5 million compared with $2.9 million in the 1997 Second Quarter. This
decrease was principally attributable to reduced profits earned during the
period.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1997
For the six months ended June 30, 1998 (the "1998 First Half"), the Company
reported an operating loss of $5.4 million compared to an operating profit of
$2.4 million for the six months ended June 30, 1997 (the "1997 First Half").
The net loss in the 1998 First Half was $6.8 million compared to a net loss of
$1.8 million in the 1997 First Half. Scheduled passenger service unit
operating expenses (per scheduled ASM) increased by 9.6% in the 1998 First
Half compared with the 1997 First Half. Overall operating margins decreased to
(2.5)% in the 1998 First Half from 1.3% in the 1997 First Half.
12
<PAGE>
OPERATING REVENUES. The Company's total operating revenues increased by $25.7
million, or 13.5%, to $216.3 million in the 1998 First Half from $190.6
million in the 1997 First Half.
Scheduled passenger service revenues increased $28.9 million, or 29.5%, to
$126.7 million in the 1998 First Half from $97.8 million in the 1997 First
Half. This increase was primarily attributable to a higher load factor and
increased frequencies on certain existing routes, partially offset by a
decline in yields. Scheduled passenger traffic (as measured in RPMs) for the
1998 First Half increased by 30.7% and scheduled capacity (as measured in
ASMs) for the 1998 First Half increased 27.3%, resulting in a load factor of
74.3% in the 1988 First Half compared to 72.4% in the 1997 First Half. For the
1998 First Half, passenger yield was $.0759 per RPM compared with $.0766 per
RPM for the 1997 First Half, a 0.9% decrease. Decreased yields were due
primarily to a decrease in the average ticket price which resulted from the
Company's implementation of a multi-tiered pricing system in December 1997,
which was discontinued in May 1998, and an increase in domestic RPMs as a
percentage of total RPMs which generally have lower yields than international
RPMs. Domestic market demand increased during the 1998 First Half which
resulted in an increase of $23.3 million, or 54.9%, in domestic revenues for
the 1998 First Half over the 1997 First Half. The Company also realized a $6.8
million, or 15.3%, increase in Tel Aviv revenues due to increased demand in
this market. The enhanced activities in the domestic and Tel Aviv markets in
the 1998 First Half were partially offset by the March 1997 discontinuation of
Brazil scheduled passenger service.
Commercial charter revenues decreased by $12.0 million, or 21.2% to $44.5
million in the 1998 First Half from $56.5 million in the 1997 First Half. This
decrease was primarily due to the cancellation of charter flights because of
the late release of three aircraft from heavy maintenance facilities.
Military charter revenues decreased by $1.1 million, or 3.6%, to $30.6 million
in the 1998 First Half from $31.8 million in the 1997 First Half primarily as
a result of decreased activities related to the deployment or repatriation of
U.S. military troops. The military charter business depends in large part upon
the deployment or repatriation of troops, and revenues from this market are
subject to significant fluctuation.
Cargo service revenues increased to $9.8 million in the 1998 First Half from
$1.0 million in the 1997 First Half due to a new ACMI Contract with a South
American airline and the addition of an aircraft in March 1998 to the
Company's cargo fleet as a result of the conversion of a leased passenger
aircraft. The Company had operated only one cargo aircraft since February
1996, when the FAA promulgated certain ADs which restricted the cargo carrying
capacity of one of the Company's Boeing 747-100 cargo aircraft, as well as
nine other similarly converted Boeing 747-100 cargo aircraft operated by other
carriers. At that time, the Company decided to ground the aircraft rather than
operate it with the restricted payload as required by such ADs. In order to
return the cargo capacity of such aircraft to what the Company believes to be
economically attractive levels, an FAA-approved modification plan will be
required. Such modifications are being designed and tested by GATX-Airlog Co.
OPERATING EXPENSES. The Company's operating expenses increased $33.6 million,
or 17.8%, to $221.7 million in the 1998 First Half from $188.1 million in the
1997 First Half. Operating expenses, excluding aircraft fuel and depreciation,
increased 21.9% in the 1998 First Half. This increase in operating expenses
reflected a number of factors, including (i) additional operating costs
resulting from a 9.6% increase in block hours flown, (ii) higher costs arising
from delayed completion of work on, and late release of, three aircraft from
heavy maintenance and one aircraft from cargo conversion facilities, (iii)
delayed completion of overhauls on eight of the Company's owned engines due in
part to the Company's cash deficiencies, resulting in an increase in the
number of engines leased by the Company, (iv) higher rental expense as a
result of the addition of two leased aircraft to the Company's fleet and the
conversion of one leased aircraft to cargo configuration, (v) higher
depreciation expense associated with capitalized engine overhauls and heavy
airframe maintenance, and (vi) increased crew costs resulting from one of the
Company's commercial charter operations.
13
<PAGE>
Aircraft fuel expenses increased $0.3 million, or 0.8%, to $32.5 million in
the 1998 First Half from $32.3 million in the 1997 First Half. This increase
reflected a 16.7% increase in fuel consumption partially offset by a 13.3%
decrease in the cost of fuel.
Flight equipment rentals and insurance expenses increased $6.1 million, or
53.8%, to $17.4 million in the 1998 First Half from $11.3 million in the 1997
First Half. This increase was attributable to charges associated with the
rental of two additional leased aircraft to support the Company's fleet
requirements as well as increased aircraft rent resulting from the conversion
of one leased aircraft from passenger to cargo configuration. In addition,
rental expenses associated with certain flight equipment increased in the 1998
First Half relative to the 1997 First Half in accordance with the terms of the
relevant sale and leaseback transaction. Furthermore, the Company incurred
approximately $4.1 million in engine rental charges as a result of the delayed
completion of work on certain of the Company's owned engines.
Maintenance costs increased $4.8 million, or 23.1%, to $25.5 million in the
1998 First Half from $20.7 million in the 1997 First Half. This increase was
attributable primarily to an increase in the number of block hours flown and
increased maintenance reserves associated with aircraft and engine rentals.
Increased maintenance costs for the 1998 First Half included $4.5 million in
maintenance reserves associated with the rental engines described above. This
increase was partially offset by the Company's May 1998 implementation of an
FAA-approved program which allows the Company to reduce expenses associated
with bench-testing serviceable spare part components at third-party
facilities.
Crew costs and other expenses increased $2.2 million, or 16.9%, to $15.3
million in the 1998 First Half from $13.1 million in the 1997 First Half. This
increase primarily resulted from an increase in block hours flown. In
addition, certain foreign regulations affecting certain of the Company's
charter operations, which are more restrictive than FAA regulations, resulted
in increased crew costs, such as additional overtime, per diem and hotel
costs.
Aircraft and traffic servicing expenses increased $8.2 million, or 27.0%, to
$38.7 million in the 1998 First Half from $30.5 million in the 1997 First
Half. This increase resulted primarily from the change in the Company's
business mix described above. Scheduled service block hours, where the Company
is responsible for all operating expenses, increased 28.1% from 8,338 block
hours to 10,679 block hours. As a percentage of total block hours, scheduled
service block hours represented 49.1% in the 1998 First Half versus 41.9% in
the 1997 First Half.
Passenger servicing expenses increased $5.0 million, or 24.2%, to $25.6
million in the 1998 First Half from $20.6 million in the 1997 First Half. This
increase resulted primarily from the change in the Company's business mix
described above.
Promotion, sales and commission expenses increased $2.8 million, or 10.4%, to
$30.1 million in the 1998 First Half from $27.3 million in the 1997 First
Half. This increase was primarily due to increased commission expenses from
increased scheduled passenger service revenues partially offset by decreased
commission expenses from decreased Hajj commercial charter revenues in the
1998 First Half.
General and administrative expenses increased to $9.5 million in the 1998
First Half from $9.4 million in the 1997 First Half. As a percentage of total
operating revenues, general and administrative expenses for the 1998 First
Half were 4.4% compared with 5.0% for the 1997 First Half.
Depreciation and amortization expenses increased $4.1 million, or 18.1%, to
$27.0 million in the 1998 First Half from $22.9 million in the 1997 First
Half. This increase was primarily due to depreciation expenses associated with
capitalized engine overhauls and heavy airframe maintenance, which was
partially offset by the June 1998 revision to the Company's maintenance
program that involves spreading certain work typically performed during
infrequent major overhauls over the course of more
14
<PAGE>
frequent, smaller maintenance checks. This revision also schedules heavy
service maintenance overhauls as a function of both aircraft utilization and
elapsed time since the last heavy overhaul while the prior program scheduled
heavy maintenance overhauls based solely on elapsed time. As a result of the
revision, the Company is able to depreciate its heavy airframe maintenance
overhaul expenses over a longer time period.
OTHER EXPENSES AND INCOME. Interest expense increased $2.0 million, or 33.8%,
to $7.8 million in the 1998 First Half from $5.8 million in the 1997 First
Half. This increase primarily reflects a higher average outstanding debt
balance in the 1998 First Half, increases in the interest rate under the Loan
Agreement and a one-time charge of $0.4 million associated with warrants issued
in connection with borrowings from Funding Enterprises LLC. See Note 2 to the
Notes to the Company's Financial Statements included elsewhere herein for
additional information regarding the financing of certain flight equipment
expenditures.
INCOME TAX BENEFIT. The Company's income tax benefit for the 1998 First Half
was $5.6 million compared to $1.5 million in the 1997 First Half. This increase
was principally attributable to increased losses incurred during the period.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its working capital and capital
expenditure requirements with cash flows generated from operations and through
lease, debt and equity financing.
The Company's cash, cash equivalents and short-term investments at December 31,
1997 and June 30, 1998 were $6.3 million and $5.2 million, respectively. The
Company generated cash from operations for 1997 and the 1998 First Half of
$67.2 million and $23.9 million, respectively.
Net cash used in investing activities was $76.3 million for 1997 and $15.6
million for the 1998 First Half. The Company's cash expenditures for flight
equipment were $72.7 million for 1997 and $17.9 million for the 1998 First
Half. In addition, the Company's capital expenditures for flight equipment
financed through debt were $27.2 million for 1997 and $11.8 million for the
1998 First Half. Expenditures for flight equipment in the 1998 First Half
included capitalized engine overhauls, engine upgrades and heavy airframe
maintenance. Expenditures for flight equipment in 1997 included the purchase of
spare engines, capitalized engine overhauls, engine upgrades and heavy airframe
maintenance.
As of June 30, 1998, the Company had negative working capital of $156.0 million
compared to negative working capital of $140.0 million as of December 31, 1997.
Historically, the Company has operated with a working capital deficit.
In September 1997, the Company entered into the Loan Agreement which extended
the term of a line of credit with Heller until September 1999. The line of
credit, which is for $15.0 million, is secured by accounts receivable, general
intangibles, inventory, intellectual property, cash held in the Company's lock-
box account, one spare airframe, aircraft spare parts and landing and gate
rights. The Loan Agreement provides that the Company shall not, directly or
indirectly, create or become liable in respect of any indebtedness, with
certain specified exceptions.
Since February 1998, the Company has entered into six amendments to the Loan
Agreement providing, among other things, for (i) changes in the maximum amount
of the revolving loan during different periods; (ii) subordination of loans
made to the Company by officers and directors; (iii) increases to the spread
between the amount of collateral required and the amount of available borrowing
under the Loan Agreement; (iv) modification of the financial covenant relating
to the Company's Tangible Net Worth (as defined therein) to facilitate
compliance by the Company; and (v) increases in the interest rate from Prime
(as defined therein) plus 0.75% to Prime plus 1.50% (10.0% at June 30, 1998).
Through a combination of the fourth amendment on May 14, 1998 and the sixth
amendment on July 13, 1998, the Company and Heller agreed to modify the
Tangible Net Worth covenant in the Loan Agreement by reducing the amount of
Tangible Net Worth the Company is
15
<PAGE>
required to maintain from $47.0 million prior to August 31, 1998 and $55.0
million thereafter to $35.0 million through May 1998, $38.0 million for June
1998, $47.5 million through August 1, 1998 and $55.0 million from August 31,
1998 and thereafter. On June 1, 1998, the fifth amendment permanently limited
the maximum amount of borrowings under the facility to $15.0 million beginning
on June 29, 1998, a decrease from the $25.0 million maximum amount originally
permitted. The sixth amendment to the Loan Agreement waived defaults resulting
from the repayment of the 12% Note, the issuance of the Nachtomi Note and the
defaults referred to below. As of June 30, 1998, the Company had $11.0 million
of obligations outstanding under the Loan Agreement, of which an additional
$2.0 million consisted of letters of credit issued to various suppliers and
insurance companies.
In January 1998, the Company entered into a loan agreement with a commercial
financial institution for $13.6 million secured by twelve Pratt & Whitney JT9D
engines, of which $11.3 million was used to pay the balance remaining on two
previous agreements with the same commercial financial institution and $1.6
million was paid toward engines under repair.
The Company has entered into a letter of intent with International Lease
Finance Corp. to lease two new Boeing 777 aircraft for an initial term of ten
years. If a definitive agreement is executed, the Company will be required to
pay $4.8 million in deposits for the two leased aircraft, of which $0.4
million is due during the second half of 1998. The deposits are refundable,
subject to certain conditions, at the end of the lease term.
The Company also has entered into a letter of intent with Boeing to purchase
two new Boeing 777 aircraft with the option to purchase two additional new
Boeing 777 aircraft. The letter of intent also contemplates certain credits
for the retirement of two Boeing 747 passenger aircraft which are owned by the
Company but not in its active fleet. The Company expects capital expenditures
in 1998 will include approximately $1.6 million in pre-delivery payments to
Boeing in connection with the purchase of the two aircraft.
Subject to certain factors, including executing definitive agreements with
ILFC and Boeing, Boeing's manufacturing schedule and the Company obtaining
outside financing for the aircraft to be purchased, the Company expects
deliveries of such aircraft to commence in the first quarter of 2000. The
lease payments and the purchase prices will be set forth in the respective
definitive agreements with ILFC and Boeing. There can be no assurance that the
Company and each of ILFC and Boeing will be able to negotiate a definitive
agreement or that such agreement will be on the same terms as those
contemplated by the respective letters of intent. The Company has not entered
into any financing commitments relating to the aircraft to be purchased and
there can be no assurance that the Company will obtain such outside financing
to purchase such aircraft. In addition, there can be no assurance that the
Company will be able to purchase or lease any of the Boeing 777 aircraft in
accordance with the terms of the letters of intent, if at all.
In February and March 1998 pursuant to the 12% Note, the Company borrowed $6.0
million from Funding Enterprises, LLC, a limited liability company in which
the Company's Chairman and former President were members. On July 1, 1998, the
Company discharged its obligations under the 12%
Note by issuing the Nachtomi Note, due August 7, 1998, to the Company's
Chairman in the principal amount of $3.0 million and repaying the balance of
the 12% Note in cash. The Nachtomi Note bears interest at an annual rate of
12.0% which increases to 15.0% after August 7, 1998. In connection with the
12% Note, warrants for the purchase of 1.2 million shares of Common Stock of
the Company were issued with an exercise price of $5.00. The warrants expire
in February 2008.
From time to time during 1998, the Company has been in default under certain
provisions of the Loan Agreement, including maintenance of minimum levels of
Tangible Net Worth (as defined therein) and EBITDA (as defined therein). The
Company has entered into amendments with Heller waiving such defaults, and is
currently in compliance with such provisions as they have been amended. In
addition, the Company does not meet the minimum net worth requirements of an
operating lease agreement entered into connection with a sale and leaseback
transaction, but has obtained a waiver of that
16
<PAGE>
provision through September 1, 1998. The Company has also been notified that
it was in default under three separate engine lease agreements because certain
lease payments were due and were not timely paid. The Company has negotiated
waivers and revised payment schedules to remedy such defaults. These defaults
may have constituted defaults under certain of the Company's other debt
instruments and leases and the Company has obtained waivers of such cross-
defaults from the respective parties.
The Company has obtained agreements with other lessors for deferred or revised
payment terms for approximately $8.1 million of lease and maintenance reserve
payments. In addition the Company agreed with certain of its vendors and
suppliers to extend payment terms, and has, in some cases, obtained payment
extensions with respect to certain of the Company's current obligations. As a
result of some of the payment term extensions, the Company is required to pay
interest on the deferred amounts.
To the extent that the Company's access to capital is constrained, the Company
may not be able to make certain capital expenditures, meet certain other
requirements or continue to implement certain other aspects of its strategic
plan. The Company's ability to make scheduled principal and interest payments
and to refinance its indebtedness and to meet its other obligations and future
capital commitments will be dependent upon its financial and operating
performance, which is subject to general economic conditions and to financial,
business and other factors, including factors beyond its control. Although
management believes that the Company's cash flow from its operations and
financing activities should be sufficient in the next twelve months to meet
the Company's debt service and other obligations, future capital commitments
and liquidity requirements, the airline industry in general and the Company in
particular are subject to significant risks and uncertainties. Therefore,
there can be no assurance that the Company's operating results and financing
activities will be sufficient in the foreseeable future to meet such
obligations and commitments.
As of June 30, 1998, the Company had $65.1 million of required principal
payments on long-term debt due within one year, of which $3.0 million was paid
on July 1, 1998 in connection with the repayment of the 12% Note.
In an effort to conserve cash, the Company suspended cash dividends on its
Common Stock after the third quarter of 1996.
YEAR 2000
The Company's comprehensive year 2000 initiative is being managed by a team of
internal staff. The team's activities are designed to ensure that there is no
adverse effect on the Company's core business operation and that transactions
with customers, suppliers and financial institutions are fully supported. The
Company has determined that due to its most recent software upgrades, its
internal systems will function properly with respect to dates in the year 2000
and beyond. The Company has initiated discussions with its significant
suppliers, large customers and financial institutions to ensure that those
parties have appropriate plans to remediate year 2000 issues where their
systems interface with the Company's systems or otherwise impact its
operations. The Company is assessing the extent to which its operations are
vulnerable should those organizations fail to remediate properly their
computer systems. While the Company believes its planning efforts are adequate
to address its year 2000 concerns, there can be no guarantee that the systems
of other companies or governmental agencies on which the Company's systems and
operations rely will be converted on a timely basis and, if not so converted,
will not have a material adverse effect on the Company's business or its
ability to make payments on the Notes. The Company does not expect the cost of
its year 2000 initiatives to have a material adverse effect on the Company's
business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The only changes in legal proceedings as disclosed in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 are the following:
In the matter of Leticia Parra, individually and on behalf of all persons
similarly situated v. Tower Air, Inc., the plaintiff voluntarily dismissed her
case on April 23, 1998 with her counsel claiming that the matter would be
pursued in state court. To date, no such further action has occurred.
A verified complaint was filed in the Supreme Court of the State of New York,
County of Nassau, in Steven Liechtung on behalf of himself and all others
similarly situation v. Tower Air, Inc., Index No. 98/008729 on April 2, 1998,
seeking class-action certification and unspecified damages on behalf of a
class of passengers who purchased allegedly "non-stop" tickets to/from Tel
Aviv/New York which flights were allegedly diverted to an unscheduled
destination for refueling, during the period from June 1994 until the present.
Plaintiff claims breach of contract, unjust enrichment/restitution, wrongful
imprisonment and reckless, wanton and willful misconduct. In its Answer filed
May 12, 1998, the Company denied each and every allegation which might give
rise to a cause of action against it. The Company intends to vigorously defend
this litigation and believes that it has valid defenses, although it is too
early to predict the outcome of this action.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Company's Annual Meeting of Stockholders on May 19, 1998, Terry V.
Hallcom and Eli J. Segal were elected to the Company's Board of Directors and
Morris K. Nachtomi, Stephen L. Gelband, Stephen A. Osborn, Henry P. Baer and
Leo-Arthur Kelmenson were re-elected to the Company's Board of Directors. The
Directors were elected by the following votes totals: Morris K. Nachtomi was
elected with 12,037,423 affirmative votes, 28,550 negative votes and no votes
withheld and each of Terry V. Hallcom, Stephen L. Gelband, Steven A. Osborn,
Henry P. Baer, Leo-Arthur Kelmenson and Eli J. Segal were elected with
12,041,523 affirmative votes, 24,450 negative votes and no votes withheld. The
proposal to ratify the appointment of Ernst & Young LLP as auditors for the
fiscal year ending December 31, 1998 was approved by a vote of 12,047,703
affirmative votes, 15,180 negative votes and 3,090 votes withheld. The
proposal to amend the Company's 1993 Long-Term Incentive Plan was approved by
a vote of 12,019,713 affirmative votes, 41,970 negative votes and 4,290 votes
withheld.
ITEM 5. OTHER INFORMATION.
Subsequent to his election, Terry V. Hallcom resigned on July 7, 1998 as a
member of the Company's Board of Directors and as President and Executive Vice
President-Operations. In a letter to the Company, Mr. Hallcom claims that the
Company breached certain provisions under his employment agreement. The
Company denies Mr. Hallcom's claims and, in the event litigation ensues, will
vigorously defend the action.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
<C> <S>
(a) Exhibit 10 (28). Heller Financial, Inc. Fifth Amendment to Loan and
Security Agreement, Dated June 1, 1997
Exhibit 10 (29). Employment Agreement between the Company and Nathan
Nelson
Exhibit 10 (30). Heller Financial, Inc. Sixth Amendment to Loan and
Security Agreement, Dated July 13, 1998
(b) Exhibit 27. Financial Data Schedule
</TABLE>
18
<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.
Tower Air, Inc.
(Registrant)
Date: July 15, 1998 /s/ Morris K. Nachtomi
-------------------------------------
Morris K. Nachtomi
President, Chief Executive Officer
and Chairman of the Board of
Directors (Principal Executive
Officer)
Date: July 15, 1998
/s/ Nathan Nelson
-------------------------------------
Nathan Nelson
Chief Financial Officer (Principal
Financial and Accounting Officer)
19
<PAGE>
EXHIBIT 10.28
FIFTH AMENDMENT TO AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT
This Fifth Amendment to that certain Amended and Restated Loan and
Security Agreement ("AMENDMENT") is made and entered into this 29th day of May,
1998 by and between Tower Air, Inc. ("BORROWER"), the financial institutions
listed on the signature pages thereof (collectively, "LENDERS") and Heller
Financial, Inc., (in its individual capacity, "Heller"), for itself as a Lender
and as Agent ("Agent").
WHEREAS, Lender and Borrower are parties to a certain Loan and Security
Agreement, dated September 1, 1997 and all amendments thereto (the "AGREEMENT");
and
WHEREAS, the parties desire to amend the Agreement as hereinafter set
forth;
NOW THEREFORE, in consideration of the mutual conditions and agreements
set forth in the Agreement and this Amendment, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. DEFINITIONS. Capitalized terms used in this Amendment, unless
-----------
otherwise defined herein, shall have the meaning ascribed to such term in the
Agreement.
2. AMENDMENTS. Effective as of June 1, 1998, the Agreement shall
----------
hereby be amended as follows:
(a) By deleting subsection 2.1(A) in its entirety and inserting
the following in lieu thereof:
"(A) Revolving Loan. Subject to the terms and conditions of
--------------
this Agreement and in reliance upon the representations and warranties
of the Borrower and the other Loan Parties set forth herein and in the
other Loan Documents, each Lender, severally agrees to lend to Borrower
from time to time its Pro Rata Share of each Revolving Advance. From
and after the Closing Date through the Termination Date, the aggregate
amount of all Revolving Loan Commitments shall not exceed the following
amounts during the following periods: (1) from June 1, 1998 to and
including June 7, 1998, Nineteen Million Dollars ($19,000,000); (ii)
from June 8, 1998 to and including June 14, 1998, Eighteen Million
Dollars ($18,000,000); (iii) from June 15, 1998 to and including June
21, 1998, Seventeen Million Dollars ($17,000,000); (iv) from June 22,
1998 to and including June 28, 1998, Sixteen Million Dollars
($16,000,000); (v) from June 29, 1998 and at all times
<PAGE>
thereafter, Fifteen Million Dollars ($15,000,000), each as reduced by
subsection 2.4(B). Amounts borrowed under this subsection 2.1(A) may be
-----------------
repaid and reborrowed at any time prior to the earlier of (i) the
termination of the Revolving Loan commitment pursuant to subsection 8.3
or (ii) the Termination Date. Except as otherwise provided herein no
Lender shall have any obligation to make an advance under this
subsection 2.1 (A) to the extent such advance would cause the Revolving
Loan (after giving effect to any immediate application of the proceeds
thereof) to exceed the Maximum Revolving Loan Amount.
(1) "Maximum Revolving Loan Amount" means, as of any date of
determination, the lesser of (a) the Revolving Loan Commitment(s) of all
Lenders minus the Letter of Credit Reserve or (b) the Borrowing Base
minus the Letter of Credit Reserve.
(2) "Borrowing Base" means, as of any date of determination,
an amount equal to the sum of (a) eighty-five percent (85%) of the value
of the Eligible Accounts plus (b) sixty percent (60%) of the orderly
liquidation value of the Eligible Rotable Inventory (as determined by
the Appraiser and set forth in the Appraisal or any subsequent appraisal
(c) fifty percent (50%) of the orderly liquidation value of the Eligible
Consumable Inventory (as determined by the Appraiser and set forth in
the Appraisal or any subsequent appraisals) (d) eighty percent (80%) of
the orderly liquidation value of the Eligible Aircraft Collateral (as
determined by the Appraiser and set forth in the Appraisal or any
subsequent appraisals) in each case subject to such reserves as the
Agent in its reasonable discretion may elect to establish; provided,
however, that, notwithstanding anything to the contrary contained
herein, in no event shall the amount of the Borrowing Base attributable
to Eligible Inventory exceed Fifteen Million Dollars ($15,000,000).
(b) By deleting subsection 2.2(A) in its entirety and
inserting the following in lieu thereof:
"Interest.
(A) Rate of Interest. The Loans and all other Obligations
----------------
shall bear interest from the date such Loans are made or such other
Obligations become due to the date paid at a rate per annum equal to (i)
in the case of Base Rate Loans and all other Obligations for which no
other interest rate is specified, the Base rate plus one and one half
percent (1.50%) or as otherwise provided below (the "Interest Rate").
After the occurrence and during the continuance of an Event of
Default, (i) the Loans and all other Obligations shall, at Lender's
option, bear interest at a rate per annum equal to two percent (2.0%)
plus the applicable Interest Rate ("Default Rate").
2
<PAGE>
(c) By deleting subsection 2.2(B) in its entirety and
inserting the following in lieu thereof:
"(B) Effective as of June 1, 1998, notwithstanding
anything in the Agreement to the contrary, (i) Borrower shall no longer
have the right to any LIBOR Loans (ii) each existing LIBOR Loan shall be
automatically converted to Base Rate Loan at the end of the applicable
Interest Period and (iii) no Loans may be converted to LIBOR loans.
4. CONDITIONS. This Amendment shall be effective as of June 1,
----------
1998 subject to the following conditions (unless specifically waived in writing
by Lender):
(a) There shall have occurred no material adverse change in
the business, operations, financial condition, profits or prospects of Borrower,
or in the Collateral;
(b) Borrower shall have executed and delivered such other
documents and instruments as Lender may require;
(c) All proceedings taken in connection with the
transactions contemplated by this Amendment and all documents, instruments and
other legal matters incident thereto shall be satisfactory to Lender and its
legal counsel;
(d) No Default or Event of Default under the Agreement as
amended hereby shall have occurred and be continuing;
(e) Borrower shall have paid Lender an amendment fee in the
amount of Fifty Thousand Dollars ($50,000); and
(f) Borrower to provide, within 15 days of execution of this
Amendment a listing of Borrower's projected cash needs with respect to aircraft
and engine maintenance for the following twelve month period.
5. CORPORATE ACTION. The execution, delivery, and performance of
----------------
this Amendment has been duly authorized by all requisite corporate action on the
part of Borrower and this Amendment has been duly executed and delivered by
Borrower.
6. SEVERABILITY. Any provision of this Amendment held by a court
------------
of competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
3
<PAGE>
7. REFERENCES. Any reference to the Agreement contained in any
-----------
notice, request, certificate, or other document executed concurrently with or
after the execution and delivery of this Amendment shall be deemed to include
this Amendment unless the context shall otherwise require.
8. COUNTERPARTS. This Amendment may be executed in one or more
-------------
counterparts, each of which shall constitute an original, but all of which taken
together shall be one and the same instrument.
9. RATIFICATION. The terms and provisions set forth in this
-------------
Amendment shall modify and supersede all inconsistent terms and provisions of
the Agreement and, except as expressly modified and superseded by this
Amendment, the terms and provisions of the Agreement are ratified and confirmed
and shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed under seal and delivered by their respective duly authorized
officers on the date first written above.
HELLER FINANCIAL, INC. TOWER AIR, INC.
By: /s/ [FULL SIGNATURE IS ILLEGIBLE] By: /s/ [FULL SIGNATURE IS ILLEGIBLE]
--------------------------------- ---------------------------------
Title: V.P. Title: CEO
------------------------------ ------------------------------
4
<PAGE>
EXHIBIT 10(29)
EMPLOYMENT AGREEMENT
This Agreement is made this 28th day of April, 1998 between TOWER AIR, INC.,
whose headquarters is located at Hangar 17, JFK International Airport, Jamaica,
New York 11043 (hereinafter referred to as the "Company") and NATHAN NELSON,
whose residence is located at 1020 Fordham Lane, Woodmere, New York 11598
(hereinafter referred to as "Nelson").
1. The Company agrees to employ Nelson and Nelson agrees to be employed
by the Company on a full-time basis, as follows:
a. Effective May 11, 1998, (the "effective date") Nelson will serve
as CFO/Treasurer.
b. The employment contract will be for a period of 2 years from the
effective date and may be extended by mutual agreement if
approved by the Company.
2. Nelson shall have and exercise authority and perform duties and
responsibilities consistent with his title in connection with the following
areas of responsibility: finance, revenue accounting and other areas related to
Tower as may be directed by the President of the Company.
3. Nelson shall report and be responsible directly to the President of
the Company. He will liaise with other Company officials, directors, employees
and agents whenever necessary or appropriate.
4. For services performed at CFO/Treasurer, Nelson will be compensated
at the rate of $175,000 per year payable in accordance with usual Company
procedures and practices.
5. Nelson will participate in all Company benefits available for the
office he holds, including the executive incentive plan, the medical plan and
401k program. He will also be entitled to vacation time as well as addition days
due to any religious observance days and pass privileges available to Company
officers.
6. Effective the first day of the first month following six months of
employment, from the effective date, Nelson will be issued options to purchase
5,000 shares of the common stock of the Company exerciseable in accordance with
all applicable laws and regulations at the closing purchase price of such shares
on the date the options are issued.
7. On Nelson's first anniversary date of the effective date of
employment, Nelson will be issued options to purchase 5,000 shares of the common
stock of the Company exerciseable in accordance with all applicable laws and
regulations at the closing purchase price of such shares on the first
anniversary of the effective date of the employment contract. All such options
mentioned in (6) above and this paragraph (7) are subject to approval by the
Board of Directors and the Shareholders of Tower Air, Inc.
<PAGE>
8. Nelson shall be eligible for any merit and/or executive bonus
compensation when deemed appropriate and approved by Tower's Board of Directors
after the first anniversary of the effective date of employment.
9. During his employment as CFO/Treasurer, Nelson's employment may be
terminated by the Company without any breach of this agreement under the
circumstances set forth below, 9a, 9b and 9c:
(a) Death or Disability. (i) Nelson's employment hereunder shall
automatically terminate upon the death of Nelson. (ii) If, as a
result of Nelson's physical or mental incapacity, causing
Nelson to be absent from his duties for any four (4)
consecutive months, his employment may be terminated.
(b) Cause. The Company may terminate Nelson's employment at any
time for Cause. For this agreement "cause" shall be defined as
willful failure to follow instructions of a significant nature,
any act constituting material dishonesty, misfeasance or
malfeasance or conduct that is criminal, fraudulent or grossly
negligent.
(c) If, in the unlikely event, Nelson's employment as CFO/Treasurer
is terminated by the Company for reasons other than cause, the
Company will pay Nelson six month's salary as severance pay.
Nelson will be entitled to no payments or benefits or
compensation if the termination of his employment is for cause.
10. Nelson agrees that for a period of one year following his voluntary
termination of his employment with the Company, he will not perform services for
any person or company engaged in a business which competes directly with the
Company in the U.S.-Tel Aviv market.
11. The parties agree that regardless of where executed this Agreement
shall be construed in accordance with the laws of the State of New York, U.S.A.
(without regard to the conflict of laws provisions of such laws), that any
disputes against the Company arising hereunder shall be litigated solely in the
state or federal courts located in the State of New York and that neither party
will object to the jurisdiction or venue of such courts.
12. The terms of this Agreement are severable and if any provision
hereof is found by a competent court not to be enforceable, all other provisions
hereof shall remain in effect and construed to give maximum effect to the
overall intent of the parties.
13. This Agreement contains the entire understanding of the parties and
supersedes any other previous oral or written agreements made by the parties.
This Agreement may not be changed orally, but only in writing signed by both
parties.
14. The terms of this Agreement shall be kept confidential by both
parties, except as may be required by law.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
/s/ Nathan Nelson /s/ Terry V. Hallcom
- ------------------------- -------------------------
NATHAN NELSON TERRY V. HALLCOM
PRESIDENT/
EXECUTIVE VICE PRESIDENT-OPERATIONS
<PAGE>
EXHIBIT 10(30)
SIXTH AMENDMENT TO AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT
This Sixth Amendment to that certain Amended and Restated Loan and
Security Agreement ("Agreement") is made and entered into this 13th day of July,
1998 by and between Tower Air, Inc. ("Borrower"), the financial institutions
listed on the signature pages thereof (collectively called "Lenders") and Heller
Financial, Inc. (in its individual capacity, "Heller"), for itself as a Lender
and as Agent ("Agent").
WHEREAS, Agent and Borrower are parties to a certain Amended and
Restated Loan and Security Agreement dated September 1, 1997 and all amendments
thereto (the "Agreement"); and
WHEREAS, certain Events of Default are in existence under the Agreement;
WHEREAS, as Event of Default has occurred as a result of Borrower's
breach of the EBITDA covenant contained in subsection 6.2 for the trailing
twelve month period ended June 30, 1998 (the "EBITDA Default");
WHEREAS, an Event of Default under subsection 7.1 of the Agreement has
occurred as a result of the loan of $3,000,000 by Morris Nachtomi to the
Borrower (the "Other Indebtedness Default");
WHEREAS, an Event of Default under subsection 8.1(B) of the Agreement
has occurred as a result of a failure to pay amounts due to (a) The Ages Group
as referred to in a letter dated July 6, 1998 from The Ages Group, (b) Hartford
Aviation Group, Inc. as referred to in a letter dated June 9, 1998 from Hartford
Aviation Group, Inc. and (c) Willis Lease Finance Corporation as referred to in
a letter dated May 8, 1998 from Willis Lease Finance Corporation (collectively,
the "Cross Default");
WHEREAS, as Event of Default has occurred under subsection 5.1Q of the
Agreement as a result of repayment of $2,000,000 of subordinated debt to Funding
Enterprises, Inc. (the "Sub-Debt Repayment Default"),
WHEREAS, Borrower has requested Agent waive the Existing Events of
Default; and
WHEREAS, the parties desire to amend the Agreement in hereinafter set
forth;
NOW THEREFORE, in consideration of the mutual conditions and agreements
set forth in the Agreement and this Amendment, and other good and valuable
consideration, the receipt of sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
<PAGE>
1. Definitions. Capitalized terms used in this Amendment, unless
-----------
otherwise defined herein, shall have the meaning ascribed to such term in the
Agreement.
(a) Letter Agreement shall mean the Letter Agreement
attached to this Amendment.
2. Amendments. The Agreement is amended as follows:
----------
(a) Section 5 is amended by deleting subsection 5.16 in its
entirety and substituting the following in lieu thereof:
"5.16 Suppressed Availability. Borrower shall maintain
-----------------------------
Suppressed Availability in an amount of at least $7,000,000 at
all times."
(b) Section 6 is amended by deleting subsection 6.1 (B) in
its entirety, and inserting the following in lieu thereof;
"Borrower shall maintain Tangible Net Worth equal to at least
$47,500,000 from August 1, 1998 through August 1, 1998, and
$55,000,000 on August 31, 1998 and at all times thereafter."
3. Waiver. Agent hereby waives the (a) EBITDA Default, the Cross
------
Default, the Sub-Debt Repayment Default and (b) Other Indebtedness Default until
July 31, 1998, provided that Morris Nachtomi enters into a letter agreement with
Agent attached hereto as Exhibit A (the "Letter Agreement"). If, on July 31,
1998, Morris Nachtomi and Borrower have not entered into a subordination
agreement with Agent which subordinates $2,000,000 of the Nachtomi Debt (as
defined in the Letter Agreement) to Borrower's Obligations under the Agreement,
then an Event of Default shall be in existence. This is a limited waiver and
shall not be deemed to constitute a waiver of any other Event of Default or any
future breach of the Agreement or any of the other Loan Documents.
4. Conditions. The effectiveness of this Amendment is subject to
----------
the following conditions precedent (unless specifically waived in writing by
Agent):
(a) There shall have occurred no material adverse change in
the business, operations, financial condition, profits or prospects of Borrower,
or in the Collateral;
(b) Borrower shall have executed and delivered such other
documents and instruments as Agent may require;
(c) All proceedings taken in connection with the
transactions contemplated by this Amendment and all documents, instruments and
other legal matters incident thereto shall be satisfactory to Agent and its
legal counsel;
2
<PAGE>
(d) No Default or Event of Default under the Agreement as
amended hereby shall have occurred and be continuing;
(e) Borrower shall have paid Agent an amendment fee in the
amount of $50,000;
(f) Borrower shall provide Agent with a signed and duly
executed copy of the Letter Agreement of even date herewith between Mr. Morris
Nachtomi and Agent.
5. Corporate Action. The execution, delivery, and performance of
----------------
this Amendment has been duly authorized by all requisite corporate action on the
part of Borrower and this Amendment has been duly executed and delivered by
Borrower.
6. Severability. Any provision of this Amendment held by a court
------------
of competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
7. References. Any reference to the Agreement contained in any
----------
notice, request, certificate, or other document executed concurrently with or
after the execution and delivery of this Amendment shall be deemed to include
this Amendment unless the context shall otherwise require.
8. Counterparts. This Amendment may be executed in one or more
------------
counterparts, each of which shall constitute an original, but all of which taken
together shall be one and the same instrument.
9. Ratification. The terms and provisions set forth in this
-------------
Amendment shall modify and supersede all inconsistent terms and provisions of
the Agreement and, except as expressly modified and superseded by this
Amendment, the terms and provisions of the Agreement are ratified and confirmed
and shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed under seal and delivered by their respective duly authorized
officers on the date first written above.
HELLER FINANCIAL, INC. TOWER AIR, INC.
By: /s/ Anthony Vizgirda By: /s/ Morris K. Nachtomi
-------------------------------- --------------------------------
Title: Vice President Title: President, Chief Executive
Officer and Chairman of the
Board of Directors (Principal
Executive Officer)
3
<PAGE>
July 13, 1998
BY FACSIMILE: (718) 553-4387
- -----------------------------
Mr. Morris K. Nachtomi
Tower Air, Inc.
Hangar 17, J.F.K. International Airport
Jamaica, NY 11430
RE: TOWER AIR, INC.
---------------
Dear Mr. Nachtomi:
Reference is made to that certain Amended and Restated Loan and Security
Agreement between Tower Air, Inc. ("Borrower") and Heller Financial, Inc.
("Heller") dated September 1, 1997, as amended from time to time (the
"Agreement"). Unless otherwise defined herein, all capitalized terms shall have
the same meaning as in the Agreement (as defined in the Agreement).
In conjunction with (1) the Sixth Amendment to the Loan Agreement dated
July 13, 1998 and (2) your $3,000,000 loan to the Company on or about July 1,
1998 ("Nachtomi Debt") you agree to enter into (i) a Subordination Agreement
(the "Subordination Agreement") and (ii) any other related documents or
modifications to existing documents, acceptable to Heller in its sole discretion
on or before July 31, 1998.
Among other provisions, the Subordination Agreement shall provide for
the subordination of $2,000,000 of the Nachtomi Debt to the Obligations provided
that the Nachtomi Debt may be paid out of the proceeds of the $150,000,000
unsecured debt facility in which Paine Webber is Agent.
<PAGE>
Mr. Morris K. Nachtomi
July 13, 1998
Page 2.
Please indicate your agreement for the foregoing by signing below.
Very truly yours,
HELLER FINANCIAL, INC.
/s/ ANTHONY VIZGIRDA
Anthony Vizgirda
MORRIS K. NACHTOMI, INDIVIDUALLY
/s/ MORRIS K. NACHTOMI
- ---------------------------
Sign Name
MORRIS K. NACHTOMI
- ---------------------------
Print Name
vm
cc: Anne M. Ellsworth, Esq.
Michael Nemoroff, Esq. (by facsimile)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE FORM 10-Q FOR THE QUARTER ENDED JUNE 30,
1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,010
<SECURITIES> 2,157
<RECEIVABLES> 35,233
<ALLOWANCES> 1,287
<INVENTORY> 0
<CURRENT-ASSETS> 40,564
<PP&E> 465,575
<DEPRECIATION> 209,474
<TOTAL-ASSETS> 306,838
<CURRENT-LIABILITIES> 196,605
<BONDS> 119,636
0
0
<COMMON> 156
<OTHER-SE> 42,979
<TOTAL-LIABILITY-AND-EQUITY> 306,838
<SALES> 0
<TOTAL-REVENUES> 119,556
<CGS> 0
<TOTAL-COSTS> 115,631
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 175
<INTEREST-EXPENSE> 3,877
<INCOME-PRETAX> 910
<INCOME-TAX> 409
<INCOME-CONTINUING> 501
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 501
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
