SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 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 0-17846
CCAIR, Inc.
Incorporated under the laws of Delaware 56-1428192
(I.R.S. Employer ID No.)
P. O. Box 19929
Charlotte, North Carolina 28219-0929
(704) 359-8990
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes __X__ No____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 2, 1998
Common stock, $0.01 par value 8,926,195
1
<PAGE>
CCAIR, Inc.
FORM 10-Q QUARTERLY REPORT FOR
FISCAL QUARTER ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
PAGE NO.
PART I - FINANCIAL INFORMATION:
ITEM 1. Financial Statements: 3
Condensed Balance Sheets as of
September 30, 1998 and December 31, 1997. 3
Condensed Statements of Income for
the Three Months and Nine Months
ended September 30, 1998 and 1997. 4
Condensed Statements of Cash Flows
for the Nine Months ended September 30,
1998 and 1997. 5
Notes to Condensed Financial Statements. 6
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations. 8
ITEM 3. Quantitative and Qualitative Disclosures
About Market Risk 12
PART II - OTHER INFORMATION:
ITEM 1. Legal Proceedings. 12
ITEM 2. Changes in Securities. 12
ITEM 3. Defaults Upon Senior Securities. 12
ITEM 4. Submission of Matters to a Vote
of Security Holders. 12
ITEM 5. Other Information. 12
ITEM 6. Exhibits and Reports on Form 8-K. 12
SIGNATURES 13
EXHIBIT INDEX E-1
2
<PAGE>
CCAIR, Inc.
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONDENSED BALANCE SHEETS
(Unaudited)
-----------
September 30, December 31,
1998 1997
---------- -----------
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 25,357 $ 11,647
Receivables, net 6,019,446 5,047,701
Inventories, less allowance for
obsolescence of $466,000 943,684 509,586
Parts held for resale, net of
valuation reserves of $700,000 952,824 1,205,277
Prepaid expenses and deposits 2,150,977 1,976,896
----------- -----------
Total current assets 10,092,288 8,751,107
----------- -----------
PROPERTY AND EQUIPMENT:
Flight equipment and leasehold improvements 6,474,355 5,525,291
Ground and other property and equipment 4,451,823 4,380,712
----------- -----------
10,926,178 9,906,003
Less accumulated depreciation
and amortization ( 7,071,104) ( 6,552,430)
----------- -----------
3,855,074 3,353,573
----------- -----------
OTHER ASSETS 846,851 35,522
----------- -----------
Total assets $14,794,213 $12,140,202
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
- -------------------------------------
CURRENT LIABILITIES:
Notes payable and current
maturities of long-term debt $ 670,635 $ 2,490,334
Note payable expected to be refinanced -- 7,920,000
Short-term borrowings 1,700,000 900,000
Current obligations under capital leases 159,246 229,194
Accounts payable 4,617,620 8,129,043
Accrued overhaul expenses 1,946,148 883,639
Accrued expenses 4,490,472 5,099,252
----------- -----------
Total current liabilities 13,584,121 25,651,462
Long-term debt, less current maturities 9,658,726 373,147
Capital lease obligations, less
current obligations 2,057,148 2,269,230
----------- -----------
Total liabilities 25,299,995 28,293,839
----------- -----------
Commitments and contingencies
SHAREHOLDERS' DEFICIT:
Common stock, $.01 par value, 30,000,000
shares authorized, 8,926,195 and
8,333,695 issued and outstanding at
September 30, 1998 and December 31, 1997 89,262 83,357
Additional paid-in-capital 21,400,511 19,508,276
Accumulated deficit (31,995,555) (35,745,270)
----------- -----------
Total shareholders' deficit (10,505,782) (16,153,637)
----------- -----------
Total liabilities and
shareholders' deficit $14,794,213 $12,140,202
=========== ===========
See notes to condensed financial statements.
3
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CCAIR, Inc.
CONDENSED STATEMENTS OF INCOME
(Unaudited)
-----------
<TABLE>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Passenger $ 17,853,167 $16,454,854 $50,035,491 $ 49,995,259
Other 215,099 290,295 689,384 1,244,337
------------ ------------ ------------ ------------
Total 18,068,266 16,745,149 50,724,875 51,239,596
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Flight operations 5,124,527 5,343,816 14,409,825 17,210,450
Fuel and oil 1,307,775 1,451,431 3,572,417 4,763,174
Maintenance 3,999,829 3,334,877 10,213,603 9,910,138
Ground operations 2,740,648 2,158,634 7,281,047 6,335,633
Advertising, promotions
and commissions 2,482,566 2,435,888 7,039,742 7,464,076
General and administration 900,675 992,423 3,120,612 3,140,424
Depreciation and amortization 199,188 390,384 618,898 1,168,296
------------ ------------ ------------ ------------
Total 16,755,208 16,107,453 46,256,144 49,992,191
------------ ------------ ------------ ------------
OPERATING INCOME 1,313,058 637,696 4,468,731 1,247,405
Interest expense (208,163) (264,866) (741,012) (600,727)
Other income (expense), net (7,039) 20,351 21,994 31,879
------------ ------------ ------------ ------------
Income before taxes and cumulative
effect of a change in accounting principle 1,097,856 393,181 3,749,713 678,557
Provision for income taxes -- -- -- (140,928)
------------ ------------ ------------ ------------
Income before cumulative effect of a change
in accounting principle 1,097,856 393,181 3,749,713 678,557
Cumulative effect on prior year (to June 30,
1997) of changing to the accrual method of
accounting for major component overhauls -- (12,981,816) -- (12,981,816)
------------ ------------ ------------ ------------
Net income (loss) $ 1,097,856 $(12,588,635) $ 3,749,713 $(12,444,187)
============ ============ ============ ============
BASIC EARNINGS (LOSS) PER SHARE $ .13 $ (1.61) $ .45 $ (1.60)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 8,379,157 7,790,695 8,362,518 7,790,695
============ ============ ============ ============
DILUTED EARNINGS (LOSS) $ .12 $ (1.61) $ .42 $ (1.60)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING(1) 9,247,365 7,790,695 8,892,365 7,790,695
============ ============ ============ ============
(1) The effect of including stock options in 1997 would be antidilutive and therefore is excluded from the
calculation.
</TABLE>
See notes to condensed financial statements.
4
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CCAIR, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
-----------
<TABLE>
Nine Months Ended September 30,
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,749,713 $(12,444,187)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Note discount amortization 54,001 46,185
Depreciation and amortization(1) 618,899 4,205,801
Gain on disposal of assets (21,994) (18,724)
Lease expense less than payments -- (371,750)
Change in accounting principle -- 12,981,816
Changes in certain assets and liabilities:
Accounts receivable (971,745) (332,970)
Inventories (434,098) (160,414)
Parts held for resale 252,453 --
Accounts payable (3,511,423) (210,612)
Accrued expenses 453,729 1,444,574
Prepaid expenses and deposits (996,302) 31,548
Other changes, net 10,892 29,980
----------- ------------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES (795,875) 5,201,247
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,133,392) ( 4,981,204)
Proceeds from sale of assets 34,985 21,351
----------- ------------
NET CASH USED BY
INVESTING ACTIVITIES (1,098,407) ( 4,959,853)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 1,898,142 --
Issuance of notes and long-term debt 1,926,792 825,079
Short-term borrowings, net 800,000 70,000
Reductions of notes and long-term debt (2,716,942) (818,367)
----------- ------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 1,907,992 76,712
----------- ------------
Net increase in cash 13,710 318,106
Cash, beginning of period 11,647 9,990
----------- ------------
CASH, END OF PERIOD $ 25,357 $ 328,096
=========== ============
1 Amortization through June 30, 1997, of capitalized overhauls is included
herein and in maintenance, materials and repairs expense in the
accompanying Condensed Statements of Income for the nine months ended
September 30, 1997.
</TABLE>
See notes to condensed financial statements.
5
<PAGE>
CCAIR, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
-----------
1. Basis of Presentation:
The condensed financial statements included herein have been prepared by
CCAIR, Inc. (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. These condensed
financial statements reflect all adjustments which are, in the opinion of
management, necessary for a fair statement of results for the interim
period. These adjustments consist solely of normal recurring adjustments.
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures
are adequate to make the information presented not misleading. It is
suggested that these condensed financial statements be read in conjunction
with the financial statements and the notes thereto included in the
Company's transition report on Form 10-K for the six-months ended
December 31, 1997.
2. Earnings Per Common Share:
In February, 1997 the FASB issued SFAS No. 128, "Earnings Per Share." This
statement establishes standards for computing and presenting EPS. It
requires presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and requires
reconciliation of the computation of basic EPS and diluted EPS. Basic EPS
is computed by dividing income available to shareholders by the weighted
average number of shares outstanding for the period. Diluted EPS gives
effect to all dilutive potential common shares that were outstanding
during the period. Prior period EPS has been restated to conform to the
new statement.
<TABLE>
Three-Month Period Three-Month Period
Ended September 30, Ended September 30,
1998 1997
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------------------------------------------------------------------------
Basic earnings per share
Net income $ 1,097,856 8,379,157 $ .13 $(12,588,635) 7,790,695 $(1.61)
Effect of dilutive securities
(options and warrants)(1) 868,478 ---
---------- ----------
Diluted earnings per share
Net income (loss) $ 1,097,856 9,247,635 $ .12 $(12,588,635) 7,790,695 $(1.61)
========== ==========
<CAPTION>
Nine-Month Period Nine-Month Period
Ended September 30, Ended September 30,
1998 1997
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
---------------------------------------------------------------------------------
Basic earnings per share
Net income $ 3,749,713 8,362,518 $ .45 $(12,444 187) 7,790,695 $(1.60)
Effect of dilutive securities
(options and warrants)(1) 529,847 ---
---------- ---------
Diluted earnings per share
Net income (loss) $ 3,749,713 8,892,365 $ .42 $(12,444,187) 7,790,695 $(1.60)
========== =========
Pro forma effect of retroactive
application (through June 30,
1997) of change in
accounting principle
Net loss $(12,753,768) 7,790,695 $(1.64)
(1) The effect of including stock options in 1997 would be antidulutive and therefore is excluded
from the calculation.
</TABLE>
6
<PAGE>
3. Commitments and Contingencies:
The Company is subject to the regulatory authority, among others, of the
Federal Aviation Administration and the Department of Transportation.
These agencies require compliance with their standards and conduct safety
and compliance audits. Violations, if any, of these regulations subject
the Company to fines or sanctions. The Company is also subject to other
claims arising in the ordinary course of business. In the opinion of
management, the outcome of these matters would not have a material adverse
impact on the Company's financial condition, results of operations or cash
flows.
Proposed Merger of CCAIR, Inc. with Mesa Air Group, Inc.
In August, 1998, the Company and Mesa Air Group, Inc. ("Mesa") signed a
letter of intent to merge the companies. The proposed transaction
stipulates that Mesa would acquire all outstanding shares of the Company's
common stock by issuing Mesa shares, subject to a maximum of .982 shares
and a minimum of .568 shares of Mesa for each share of CCAIR, Inc.,
depending upon the market price of Mesa common stock on the consummation
date. The proposal also stipulates the use of the pooling method to
account for the merger of the companies. Consummation of the transaction
is subject to certain conditions, including completion of mutual due
diligence, the negotiation and execution of a definitive purchase
agreement, receipt of regulatory approval, satisfaction of closing
conditions, and shareholder approval. Both companies have taken initial
steps toward the completion of due diligence tasks.
Resolution of Potential Reimbursement Obligation
The Company has reached a resolution with Her Majesty the Queen in Right
of Canada as Represented by the Ministry of Industry, Science and
Technology (the "Ministry") regarding a potential reimbursement obligation
to the Ministry arising from the change in lessor for four de Havilland
DHC 8-102 aircraft leased by the Company. In October, 1998 the Company
consummated a lease agreement for a Canadian-made Bombardier de Havilland
Dash 8 aircraft that is covered by economic development insurance provided
by the Ministry. As a result of entering into the lease agreement, the
Company has settled all claims by the Ministry, including a purported
claim of $16,996,995, as long as the Company fulfills its obligations
under the lease for the new aircraft.
Related Party Transaction
In June, 1995 the Company entered into a sale leaseback agreement with a
related party partnership (the "Partnership") for certain engines owned by
the Company. These leases were operating in nature, and did not provide
for a purchase option at the end of the first lease term. This lease
expired on June 30, 1998. To induce this transaction, the Partnership
received 250,000 warrants to purchase Company common stock, immediately
exercisable, and originally expiring on the last day of the first lease
term. Under provisions of the lease, the Company is required to return the
engines to the partnership in freshly overhauled condition, or with a cash
payment in lieu of, based upon a stipulated calculation. The Company has
approached the partnership with alternative return conditions which are
being contemplated. The alternatives include a lump sum cash payment to
the Partnership and the extension of its warrants to purchase stock; or
issuance of shares of stock to the Partnership as compensation for the end
of lease conditions. In the latter two cases, the Company proposes that it
receive title to the engines, at which time they may be sold to offset
expenses related to the lease expiration. The Company and the Partnership
have not yet reached a determination as to which option may be
implemented. The Company established an accrual for the anticipated
expenses in the amount of $515,000 as of December 31, 1997.
Business Agreement with US Airways
Approximately 80% of the Company's passenger revenue is generated by
passengers who are connecting with US Airways flights and is determined
under an agreement for the sharing of joint passenger fares and division
of revenue with US Airways (the "Agreement"). This Agreement expired on
October 31, 1998. The Company has received verbal confirmation from
representatives of US Airways that the Agreement will be renewed. The
Company is in the process of documenting the Agreement renewal, and
anticipates the contract period will extend for several years. During the
last 18 months the Company has exceeded US Airways' operating performance
goals in the areas of on-time arrivals and departures, maintenance
reliability and controllable flight completion percentage.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company recorded net income of $1,098,000 in the quarter ended
September 30, 1998, versus net income before changes in accounting principle of
$393,000 in the quarter ended September 30, 1997, an increase of 178%. The
capacity increase in the third quarter was realized through the addition of
three Dash 8 aircraft; one added in July and two in September. The Company's
operating results continue to benefit from reductions in fuel, flight operations
and depreciation expenses.
Results of Operations
The following table sets forth selected operating comparisons for the
three-month and nine-month periods ended September 30, 1998 and 1997:
<TABLE>
Airline Operating Statistics
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
----------------------------- ---------------------------
% %
1998 1997 Change 1998 1997 Change
------------------------------ -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenue $18,068,265 $16,745,14 7.9 $50,724,875 $51,239,596 (1.0)
Operating expense $16,755,208 $16,107,45 4.0 $46,256,144 $49,992,191 (7.5)
Revenue passengers carried 239,404 205,149 16.7 620,614 587,800 5.6
Revenue passenger miles (1) 45,645,629 37,940,714 20.3 114,550,111 108,440,328 5.6
Available seat miles (2) 79,743,825 71,318,199 11.8 199,085,372 216,014,191 (7.8)
Passenger load factor (3) 57.2% 53.2% 7.5 57.5% 50.2% 14.5
Passenger breakeven load factor 53.7% 51.9% 3.5 53.2% 49.5% 7.5
Yield per revenue passenger
mile (4) 39.1(cent) 43.4(cent) (9.9) 43.7(cent) 46.1(cent) (5.2)
Passenger revenue per available
seat mile 22.4(cent) 23.1(cent) (3.0) 25.1(cent) 23.1(cent) 8.7
Operating cost per available
seat mile 21.0(cent) 22.6(cent) (7.1) 23.2(cent) 23.1(cent) .4
Average passenger trip (mil 190.7 184.9 3.1 184.6 184.5 .1
Average passenger fare $74.57 $80.21 (7.0) $80.62 $85.05 (5.2)
Completion factor 96.3% 97.9% (1.6) 97.1% 96.2% .9
</TABLE>
(1) One revenue passenger transported one mile ("RPMs").
(2) The product of the number of aircraft miles and the number of available
seats on each stage, representing the total passenger capacity offered.
(3) The ratio of revenue passenger miles to available seat miles, representing
the percentage of seats occupied by revenue passengers.
(4) The passenger revenue per revenue passenger mile.
For the Three Months Ended September 30, 1998 Compared to Three Months Ended
September 30, 1997
Operating revenues increased $1,323,000, or 7.9% for the quarter ended
September 30, 1998 versus September 30, 1997. The Company carried 239,404
revenue passengers in the current quarter, as compared to 205,149 in the quarter
ended September 30, 1997, an increase of 16.7%. RPMs increased 20.3% in the
quarter ended September 30, 1998. As the average passenger trip increased from
184.9 miles in the quarter ended September 30, 1997 to 190.7 miles for the same
period in 1998, RPMs increased at a greater percentage than the increase in
passengers. Capacity increased 11.8% in the quarter ended September 30, 1998 as
compared to the same period in 1997. The Company began service to Gainesville,
Florida from Charlotte in August, 1998 with four round trips daily helping fuel
the increase in ASMs and average passenger trip. The yield decreased from
43.4(cent) for the quarter ended September 30, 1997 to 39.1(cent) for the same
period in 1998. In addition, the Company's revenue per ASM ("RASM") decreased
from 23.1(cent) for the quarter ended September 30, 1997 to 22.4(cent) for the
quarter ended September 30, 1998. The addition of the relatively long-haul
flights to Gainesville caused some of the decrease in RASM. Based upon the
Company's analysis of this reduction in RASM, the Company has eliminated
unprofitable flying in the Raleigh, North Carolina - Roanoke, Virginia -
Richmond, Virginia market as well as the Raleigh - Savannah, Georgia market in
the fourth quarter of 1998. Operating income was negatively impacted by
Hurricane Bonnie, which struck the coast of North and South Carolina in the last
week of August 1998 and forced the cancellation of approximately 200 flights and
negatively impacted travel to the area for some period afterward.
8
<PAGE>
Also, the Company was negatively impacted by a change in the passenger
revenue-sharing formula initiated by US Airways. US Airways changed the factors
to the revenue-sharing formula for operational reasons at the end of the second
quarter of 1998, but the unintended effect was to reduce the revenues earned by
the Company by approximately $300,000 in the third quarter of 1998. The Company
and US Airways are exploring methods to rectify the situation, but there are
no assurances that such rectification will be applied retroactively to the third
quarter of 1998, thus the Company has not accounted for any benefit it may
receive.
Appreciable operational efficiencies were achieved through the Company's
fleet restructuring activities, particularly in the flight operations sector. In
the quarter ended September 30, 1998, total operating expenses increased 4.0%
with an increase in ASMs of 11.8%, resulting in a decrease of 7.1% in the
Company's operating cost per ASM. The following table compares components of
operating cost per ASM for the three months ended September 30, 1998 and 1997.
Cost per ASM -
Quarter Ended
September 30,
(in cents)
----------------
1998 1997
---- ----
Flight operations 6.4 7.5
Fuel and oil 1.6 2.0
Maintenance 5.0 4.7
Ground operations 3.5 3.0
Advertising, promotions, commissions 3.1 3.4
General and administration 1.1 1.4
Depreciation and amortization 0.3 0.6
----- -----
21.0 22.6
The decrease in flight operations expense on a per unit basis was due to
reduced aircraft lease expense and reduced hull insurance expense. Maintenance
expenses increased on a per ASM basis, and were directly related to the
reduction in total seat capacity through the replacement of Shorts aircraft (36
seats) with the Jetstream aircraft (19 seats) on many of the Company's routes.
Ground operations expense increased 0.5(cent) as a result of increases in
customer service employee salaries and wages, as well as additions to customer
service staffing levels initiated to remain in accordance with US Airways'
commitment to higher levels of passenger service. A decrease in travel agents'
commissions charged to the Company resulted in reduced advertising, promotions
and commissions expense of 0.3(cent). Fuel prices as compared to the prior year
remain low, and resulted in a decrease of 0.4(cent) per ASM.
For the Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997
The Company recorded net income of $3,750,000 for the nine months ended
September 30, 1998 as compared to income before the cumulative effect of a
change in accounting principle of $538,000 for the same period in 1997.
Operating revenues decreased 1.0%, as the yield decreased 5.2%. This yield
decrease was offset by a 5.6% increase in RPMs, on a 7.8% reduction in ASMs.
Operating costs decreased 7.5% for the nine-month period ended September
30, 1998. Reductions in fuel prices and efficiencies achieved through the
restructuring plan resulted in significant reductions in fuel, flight operations
and advertising, promotions and commissions expense, which were only partially
offset by increases in maintenance and ground operations expense.
Liquidity and Capital Resources
The cash position and cash flows of the Company continue to be critical
issues as of September 30, 1998. The Company utilized borrowing under two
revolving lines of credit and short-term loans and proceeds from the issuance of
common stock to satisfy its operating cash requirements during the period ended
September 30, 1998. The key elements to improved operating results are the level
of yield per RPM and passenger load factors. For the quarter ended September 30,
1998, the yield per RPM decreased 9.9% as compared to the prior year quarter.
Additionally, the yield could be affected by fare discounting beyond the control
of the Company. The load factor increased 7.5% and revenue passengers carried
increased 16.7% in the third quarter of 1998 versus the same period last year.
9
<PAGE>
The Company maintains a line of credit with British Aerospace Asset
Management ("BAAM") to provide for more even cash flows between ACH settlements.
As of September 30, 1998 the Company had $1.7 million outstanding under this
line. The maximum outstanding balance on this line during the three months ended
September 30, 1998 was $4 million, with interest charged at an average rate of
10.25%.
In September, 1998, the Company signed a five-year, $1,100,000
subordinated note with its local bank. The interest rate is 13.75%, and the
Company issued 145,588 warrants in conjunction with the note's issuance.
Principal payments begin in the thirteenth month after closing. The proceeds
were used for general corporate purposes.
If operating cash flows and the Company's line of credit are insufficient
to meet obligations, it may obtain financing through short-term loans from
officers and directors, extension of terms with trade creditors, or issuance of
Company stock.
Shares of the Company's common stock are traded on the Nasdaq SmallCap
Market ("Nasdaq"). As of December 31, 1997 the Company did not meet certain
requirements to maintain its listing on Nasdaq. The Company has submitted a
request to Nasdaq for exception to certain of the maintenance criteria. No
adverse action has been taken by Nasdaq and the Company does not anticipate that
adverse action will be taken. Should the Company not be able to maintain the
criteria for continued listing, and adverse action is taken by Nasdaq, and the
Company is unable to obtain listing on another market, the Company and its
shareholders may be adversely affected.
The Company's balance sheet reflects a deficit in working capital, defined
as current assets less current liabilities, of approximately $3,492,000 on
September 30, 1998, as compared to $16,900,000 on December 31, 1997.
Working capital is affected by seasonality of operations.
Cash utilized by operating activities was $796,000 for the nine months
ended September 30, 1998. The primary sources of cash were net income,
depreciation, and the increase in accrued expenses, for a total of $4,822,000.
The major uses of cash were increases in accounts receivables, prepaid expenses
and inventories and the reduction of accounts payable, aggregating to
$5,914,000.
The Company's capital expenditures totaled $1,133,000, comprised primarily
of purchases of major spare parts assemblies and leasehold improvements. Capital
expenditures planned for the remainder of the year consist of purchases of major
spare parts assemblies, leasehold improvements and fixed asset replacement.
Effective July 1, 1997, the Company began accounting for major component
overhauls using the accrual method, as opposed to the deferral method practiced
in prior years. The change in accounting method, while causing a change in the
way overhaul expenditures are characterized, does not relieve the Company of the
cash expenditures related to the performance of major component overhauls.
Therefore, expenditures for overhauls in the current year are not included in
planned capital expenditures. The Company made scheduled debt payments of
$2,717,000 in the nine-month period ended September 30, 1998.
Restructuring
On September 11, 1997 the Company entered into a transaction with Lynrise
Air Lease, Inc. ("Lynrise") to return the Company's nine leased Shorts aircraft
to Lynrise as lessor. The aircraft leases were scheduled to continue through
September, 2004, at a monthly rate of $34,000 per aircraft. These aircraft did
not meet US Airways criteria of cabin service, as they are unpressurized and
slow. In addition, the lease expense per block hour was high, and the operating
expenses continued to escalate. The aircraft were returned between November,
1997 and January, 1998. In return for this early termination of the aircraft
leases, the Company issued a promissory note in the amount of $9,725,000. The
promissory note was issued in contemplation of the Company's obligations to the
lessor: lease termination and aircraft remarketing provisions - $6.1 million,
previously recorded liabilities in the form of accrued rent and notes payable -
$1.8 million and return condition obligations - $1.8 million.
In September, 1998 the Company exercised its option issued in conjunction
with the note by issuing 500,000 shares of its common stock to Lynrise. As a
result, the Company's short-term obligation of $1,675,000 was satisfied by
Lynrise's subsequent sale of the stock. The remainder of the note was converted
to a long-term subordinated note, face amount $8,334,775, which is convertible
to common stock at $7.50 per share. This subordinated note is due in 2004, with
interest and principal payments beginning in 1999. Principal payments may be
paid in cash or stock, at the Company's option.
10
<PAGE>
Under an accord reached with an aircraft lessor in November, 1997 the
Company agreed to replace its 14 Jetstream 31 aircraft with 20 Jetstream Super
31 aircraft. In return for renegotiated lease rates, the Company agreed to lease
14 of the Jetstream Super 31 aircraft for seven years, and the additional six
Jetstream Super 31 aircraft until December 31, 1998. The final Jetstream Super
31 aircraft was operational in the Company's system prior to April 30, 1998. The
Jetstream Super 31 aircraft are newer and faster than the predecessor
Jetstreams, and can operate with fewer weight restrictions.
The Company estimates that the return condition specifications on these
aircraft will cost approximately $50,000 per aircraft. These costs were provided
for as restructuring charges in the period ended December 31, 1997. As a result
of the retirement of two aircraft types, the Company wrote down its spare parts
inventory to net realizable value at December 31, 1997. The writedowns consisted
of $1.5 million in Shorts parts; $500,000 in Jetstream parts; $300,000 in
ancillary parts required to maintain both fleets; and a valuation reserve
increase of $700,000 in contemplation of uncertainties in the resale market. The
Company anticipates aggressively marketing its excess spares. The net book value
of parts held for resale was $953,000 on September 30, 1998. Additionally, the
Company wrote off $680,000 in unamortized leasehold improvements related to
these two aircraft types in the period ended December 31, 1997.
As a result of the restructuring plans undertaken to accomplish fleet
simplification and cost reductions, the Company estimates total annual expense
reductions in excess of $4 million per year, commencing in 1998. These savings
will result principally from the reduction in aircraft rentals, maintenance
expense, flight crew and other labor costs, landing fees and spare parts
inventory levels. In addition, the fleet simplification should improve the
Company's ability to achieve higher levels of reliability, resulting in fewer
flight cancellations and delays and increased revenues. The Company does not
anticipate any additional restructuring charges at this time.
Other
Change in Accounting Principle
Effective July 1, 1997 the Company elected to change its method of
accounting for engine, propeller and landing gear overhauls from the deferral
method to the accrual method. Under the method previously utilized, the Company
capitalized these expenditures and amortized them over the estimated service
life of the overhaul. The change in accounting principle results in accrual for
future expenditures for overhauls based on fight hours incurred each month, at a
rate commensurate with the future expected cost of overhaul. Implementation of
the change in principle necessitated the write-off of previously capitalized
items, along with the related accumulated amortization, as of July 1, 1997. The
Company believes the newly implemented accounting principle more closely
emulates its lease agreements and contracts for repair and maintenance of these
components. Results of operations for the three months ended September 30, 1997
reflect the impact of this retroactive change.
Year 2000 Compliance
The Company has evaluated its information infrastructure for Year 2000
compliance. Substantially all of the systems operated under license agreements,
including mainframe operation, maintenance, operations scheduling, and general
ledger packages, are either compliant or in the final updating and testing
phases for Year 2000 compliance. The Company expects to complete this process in
early 1999. The Company has not completed its process of evaluating non-
information technology systems. The Company also depends upon passenger
reservations, operational control, revenue accounting and banking systems
maintained by other companies, vendors and government entities. The Company has
utilized internal personnel to evaluate and rectify Year 2000 issues when
possible. All other modifications have been performed under annual software
maintenance contracts at no additional cost to the Company. Expenses incurred to
complete software updates on these systems have not been substantial; any
incremental expenses incurred in these modifications have been expensed as
incurred. In the event that any system utilized by the Company is not Year 2000
compliant, the Company's operations and operating results, and liquidity could
be materially adversely affected. The length of time and extent to which the
Company may be affected by noncompliance of any systems utilized in operations
has not been determined. The Company has not yet developed a contingency plan to
address the possible consequences of information and operational system failures
due to Year 2000 compliance issues. Contingency plan alternatives will be
reviewed and addressed in 1999 following final verification of third party
system Year 2000 compliance.
11
<PAGE>
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Certain statements in this Quarterly Report on Form 10-Q reflect
projections or expectations of future financial or economic performance of the
Company and are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 and are subject to risks and
uncertainties that may cause future results to differ materially from those set
forth in such statements. The Company is not obligated to update forward-looking
statements to reflect events or circumstances after the date of this report.
No assurance can be given that actual results or events will not differ
materially from those projected, estimated, assumed or anticipated in any such
forward-looking statements. Important factors that could result in such
differences include: the Company's relationship with US Airways; general
economic conditions in the Company's markets; price competition in the airline
industry; increases in the costs for fuel and maintenance; new governmental
regulations concerning aircraft or air transportation; operating results for US
Airways; and other factors discussed in the Company's filings with the
Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
None to report.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
None to report.
ITEM 2. Changes in Securities
None to report.
ITEM 3. Defaults Upon Senior Securities
None to report.
ITEM 4. Submission of Matters to a Vote of Security Holders
None to report.
ITEM 5. Other Information
None to report.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Exhibit
3.1 Amended and Restated Certificate of Incorporation
4 Specimen Common Stock Certificate. (1)
12
<PAGE>
(b) Reports on Form 8-K
None to report.
- ----------------------
(1) Incorporated by reference to Registration Statement on Form S-1, File
No. 33-28967.
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.
November 13, 1998
CCAIR, Inc.
By: /s/ Kenneth W. Gann By: /s/ Eric W. Montgomery
----------------------------- -----------------------------
Kenneth W. Gann, President Eric W. Montgomery
and Chief Executive Officer Vice President - Finance
(Principal Executive Officer) (Principal Financial Officer)
13
<PAGE>
EXHIBIT INDEX
Exhibit Filed Sequential
No. Exhibit Herewith At Page No.
- ------- ------- ----------- ----------
3.1 Amended and Restated Certificate
of Incorporation
4 Specimen Common Stock
Certificate. (1)
- ---------------------
(1) Incorporated by reference to Registration Statement on Form S-1, File
No. 33-28967.
E-1
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
3-MOS 9-MOS
<ARTICLE> 5
<LEGEND>
*This schedule contains summary financial information extracted from
CCAIR, Inc condensed financial statements for this fiscal quarter ended
September 30, 1998 and is qualified in its entirety by reference to such
statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> SEP-30-1998 SEP-30-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 25,357 25,357
<SECURITIES> 0 0
<RECEIVABLES> 6,019,446 6,019,446
<ALLOWANCES> 0 0
<INVENTORY> 1,896,508 1,896,508
<CURRENT-ASSETS> 10,092,288 10,092,288
<PP&E> 10,926,178 10,926,178
<DEPRECIATION> (7,071,104) (7,071,104)
<TOTAL-ASSETS> 14,794,213 14,794,213
<CURRENT-LIABILITIES> 13,584,121 13,584,121
<BONDS> 0 0
<COMMON> 89,262 89,262
0 0
0 0
<OTHER-SE> (10,595,044) (10,595,044)
<TOTAL-LIABILITY-AND-EQUITY> 14,794,213 14,794,213
<SALES> 0 0
<TOTAL-REVENUES> 18,068,266 50,724,875
<CGS> 0 0
<TOTAL-COSTS> 16,755,208 46,256,144
<OTHER-EXPENSES> 7,039 (21,994)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 208,163 741,012
<INCOME-PRETAX> 1,097,856 3,749,713
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 1,097,856 3,749,713
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,097,856 3,749,713
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<EPS-DILUTED> .12 .42
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