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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 333-88593
WORLDWIDE FLIGHT SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-1932711
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1001 WEST EULESS BOULEVARD
SUITE 320
EULESS, TEXAS 76040
(Address of principal executive offices) (Zip Code)
(817) 665-3200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X. No. .
--- ---
The number of shares of the registrant's common stock outstanding as of August
1, 2002 was 1,000 shares. There is no public trading market for the shares of
the registrant's common stock.
CO-REGISTRANTS
STATE OR OTHER PRIMARY STANDARD
JURISDICTION OF INDUSTRIAL
EXACT NAME OF CO-REGISTRANT AS INCORPORATION OR CLASSIFICATION I.R.S. EMPLOYER
SPECIFIED IN ITS CHARTER ORGANIZATION CODE NUMBER IDENTIFICATION NUMBER
- ------------------------------ ---------------- ----------------- ---------------------
Worldwide Flight Security Service Delaware 4581 75-2276559
Corporation
Oxford Electronics, Inc. Delaware 4581 11-2407710
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. The words "believe,"
"estimate," "anticipate," "project," "intend," "expect," and similar expressions
are intended to identify forward-looking statements. All forward-looking
statements involve some risks and uncertainties. In light of these risks and
uncertainties, the forward-looking events discussed in this report might not
occur. Factors that may cause actual results or events to differ materially from
those contemplated by the forward-looking statements include, among other
things, the following possibilities:
o future revenues are lower than expected;
o increase in payroll or other costs and/or shortage of an adequate base
of employees;
o loss of significant customers through bankruptcy or industry
consolidation;
o inability to obtain additional capital due to covenant restrictions or
other factors, and/or increases in debt levels beyond our ability to
support repayment;
o conditions in the securities markets are less favorable than expected;
o costs or difficulties relating to the integration of businesses that
we acquire are greater than expected;
o expected cost savings from our acquisitions are not fully realized or
realized within the expected time frame;
o competitive pressures in the industry increase; and
o general economic conditions or conditions affecting the airline
industry or other industries that ship cargo by air, whether
internationally, nationally or in the states in which we do business,
are less favorable than expected.
You are cautioned not to place undue reliance on forward-looking statements
contained in this report as these speak only as of its date. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
INDEX
WORLDWIDE FLIGHT SERVICES, INC.
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001
Consolidated Statements of Operations for the three months and six months ended June 30, 2002
and 2001
Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001
Notes to Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3 Quantitative and Qualitative Disclosures about Market Risk
PART II. OTHER INFORMATION
Item 1 Legal Proceedings
Item 6 Exhibits and Reports on Form 8-K
SIGNATURES
PART I. FINANCIAL INFORMATION
WORLDWIDE FLIGHT SERVICES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
2002 2001
-------------------- --------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 5,680 $ 5,280
Restricted cash equivalents - 750
Accounts receivable, less allowance for doubtful accounts 56,432 64,263
Deferred income taxes 9,880 9,880
Prepaid and other current assets 10,573 7,149
--------------------- --------------------
Total current assets 82,565 87,322
Equipment and property:
Equipment and property, at cost 53,217 49,868
Less accumulated depreciation (8,869) (2,858)
--------------------- --------------------
44,348 47,010
Intangible assets including goodwill, net 174,936 170,912
Other long-term assets 1,991 1,924
--------------------- --------------------
Total assets $ 303,840 $ 307,168
===================== ====================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 13,981 $ 19,937
Accrued salaries, wages and benefits 14,972 15,634
Due to parent 77,131 72,067
Other accrued liabilities 27,289 27,782
Current portion of long-term debt 1,350 1,350
--------------------- --------------------
Total current liabilities 134,723 136,770
Deferred income taxes 10,757 10,757
Long-term debt, less current portion 129,148 129,746
Stockholder's equity:
Common stock - -
Additional paid-in capital 76,361 75,527
Retained deficit (48,695) (45,625)
Accumulated other comprehensive gain (loss) 1,546 (7)
--------------------- --------------------
Total stockholder's equity 29,212 29,895
--------------------- --------------------
Total liabilities and stockholder's equity $ 303,840 $ 307,168
===================== ====================
See accompanying notes.
WORLDWIDE FLIGHT SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2002 2001 2002 2001
------------------ ------------------ ------------------ ------------------
Revenues $ 86,992 $ 84,153 $ 173,052 $ 176,507
Expenses:
Salaries, wages and benefits 54,737 55,316 109,081 113,847
Materials, supplies and services 12,584 11,234 24,860 26,200
Equipment and facilities rental 6,069 5,444 12,545 11,861
Depreciation and amortization 2,909 5,047 5,857 9,803
Other miscellaneous expenses 7,843 6,490 14,595 14,256
------------------ ------------------ ------------------ ------------------
Total operating expenses 84,142 83,531 166,938 175,967
Operating income 2,850 622 6,114 540
Interest expense, net 4,601 5,505 9,025 10,835
Other (income) expense, net (72) 62 385 134
------------------ ------------------ ------------------ ------------------
Loss before income taxes (1,679) (4,945) (3,296) (10,429)
Benefit for income taxes 127 499 226 1,029
------------------ ------------------ ------------------ ------------------
Net loss $ (1,552) $ (4,446) $ (3,070) $ (9,400)
================== ================== ================== ==================
See accompanying notes.
WORLDWIDE FLIGHT SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED JUNE 30,
2002 2001
-------------------- --------------------
OPERATING ACTIVITIES:
Net loss $ (3,070) $ (9,400)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 5,857 9,803
Deferred income taxes - (2,562)
Change in assets and liabilities:
Accounts receivable 7,831 5,464
Prepaid and other assets (3,491) -
Other, net 1,297 (6,599)
Accounts payable and accrued liabilities (11,684) (2,535)
-------------------- --------------------
NET CASH USED IN OPERATING ACTIVITIES (3,260) (5,829)
INVESTING ACTIVITIES:
Capital expenditures (1,922) (9,685)
Acquisitions, net of cash - (2,700)
-------------------- --------------------
NET CASH USED BY INVESTING ACTIVITIES (1,922) (12,385)
FINANCING ACTIVITIES:
Proceeds from revolver, net - 18,668
Proceeds from intercompany borrowings, net 3,320 -
Equity contribution by parent 834 -
Other, net 678 (285)
-------------------- --------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,832 18,383
-------------------- --------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (350) 169
Cash and cash equivalents at beginning of period 6,030 2,179
-------------------- --------------------
Cash and cash equivalents at end of period $ 5,680 $ 2,348
==================== ====================
Supplemental non-cash disclosure:
Adjustments to purchase price allocation 4,573 -
Adjustments to purchase price allocation (4,573) -
See accompanying notes.
WORLDWIDE FLIGHT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2002
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
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 accounting principles generally accepted in the United
States for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Because of seasonal and other factors,
operating results for the three-month and six-month periods ended June 30, 2002
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2002.
The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes to consolidated financial
statements included in the Worldwide Flight Services, Inc. (the "Company" or
"Worldwide") Annual Report on Form 10-K for the year ended December 31, 2001.
The accompanying consolidated interim financial statements include the accounts
of Worldwide together with its subsidiaries. The Company reports financial
information and evaluates its operations by locations and not by its four
service categories. As a result, the Company has determined that it operates
under one reportable segment.
On October 5, 2001, Vinci Airports US Inc. acquired all of the capital stock of
WFS Holdings, Inc., the parent of Worldwide Flight Services, Inc. This
acquisition did not result in a new entity, but it did result in a change in the
basis of accounting. Consequently, the financial information at any point or for
any period subsequent to October 5, 2001 is not comparable to financial
information at any point or for any period prior to the acquisition.
Worldwide continues to gather information needed to reflect the acquired assets
and liabilities at fair values as of the date of acquisition, therefore, the
final allocation of the purchase price remains subject to change. Any changes in
purchase price allocation identified from gathering this additional information
may result in changes in goodwill and the related asset, liability and deferred
tax amounts.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current
year presentation.
Comprehensive Income (Loss)
The following table presents the components of total comprehensive income
(loss), net of tax, for the three-month and six-month periods ended June 30,
2002 and June 30, 2001 (in thousands).
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2002 2001 2002 2001
---------------- ---------------- ---------------- ---------------
Net loss..................................... $(1,552) $ (4,446) $ (3,070) $ (9,400)
Foreign currency translation gain (loss)..... 1,687 (1,782) 1,553 (1,466)
---------------- ---------------- ---------------- ---------------
Total comprehensive income (loss)........ $ 135 $ (6,228) $ (1,517) $ (10,866)
================ ================ ================ ===============
Common Stock
As of June 30, 2002 and December 31, 2001, the Company had 1,000 shares of
common stock, $.01 par value, authorized and outstanding.
Property and Equipment
Property and equipment are carried at cost and are depreciated using the
straight-line method over their estimated useful lives. Maintenance and repair
costs are expensed as incurred. At the time of sale, October 5, 2001, the fair
value of fixed assets was estimated to be approximately their net book value of
$47.9 million. In accordance with the purchase method of accounting, Worldwide
is assessing the fair value of its property and equipment. Any changes to
finalized fair value would be an adjustment to the asset, deferred taxes and
goodwill.
2. CHANGE IN ACCOUNTING FOR GOODWILL AND CERTAIN OTHER INTANGIBLES
On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, Goodwill and Other Intangibles Assets. Under SFAS
No. 142, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized but will be subject to impairment tests at least annually.
In the fourth quarter of 2001 we performed an assessment of the carrying value
of our goodwill due to the significant slowdown of the airline industry after
September 11. As a result of this assessment we recorded a goodwill impairment
charge of $40.0 million to write down the value of our goodwill. As required by
SFAS No. 142, the Company performed an impairment analysis of its goodwill and
other intangible assets and determined no further transition adjustment was
necessary.
Supplemental comparative disclosure as if the change had been retroactively
applied to the prior year period is as follows (in thousands):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2002 2001 2002 2001
----------------- ---------------- --------------- ---------------
Net loss:
Reported net loss..................... $ (1,552) $ (4,446) $ (3,070) $ (9,400)
Goodwill amortization................. - 1,618 - 3,252
----------------- ---------------- --------------- ---------------
Adjusted net loss..................... $ (1,552) $ (2,828) $ (3,070) $ (6,148)
================= ================ =============== ===============
3. COMMITMENTS AND CONTINGENCIES
The National Transportation Safety Board (the "NTSB") is investigating the crash
of an Emery Worldwide Airlines, Inc. cargo jet on February 16, 2000. The crash
occurred shortly after takeoff from Mather Field in Sacramento, California,
killing all three people aboard. Miami Aircraft Support, Inc., a subsidiary of
Worldwide, loaded the cargo onto the plane. We are cooperating with the NTSB in
the investigation, and to date the NTSB has not issued its report.
In addition to the NTSB investigation, we are one of several defendants in three
individual lawsuits arising out of the crash. One of the suits is filed in state
court in California, one in state court in Ohio, and one in state court in
Texas. We believe that we have adequate insurance coverage for any liability
that may ultimately be assessed in these suits.
Miami-Dade County is currently investigating various environmental conditions at
the Miami International Airport. During the second quarter of 2001 the County
filed a lawsuit against several companies operating within the airport.
Worldwide was not directly named in this lawsuit, however we were named as a
potential contributor. Worldwide's portion of the cleanup cost cannot be
reasonably estimated due to various factors, including the unknown extent of the
remedial actions that may be required and the proportion of costs that will
ultimately be assigned to Worldwide. Other than the Miami-Dade action, we are
not aware of any other significant environmental issues or related actions.
Actions and claims against the Company under common law and state and federal
statutes for employment, personal injury, property damage and breach of contract
arise in the ordinary course of its businesses. The remedies sought in such
actions include compensatory, punitive and exemplary damages as well as
equitable relief. Reserves for such lawsuits and claims are recorded to the
extent that losses are deemed probable and can be reasonably estimated. In the
opinion of management, the resolution of all such pending lawsuits and claims
will not have a material effect on the earnings, cash flows or consolidated
financial position of Worldwide.
AMR Earn-Out
In connection with its initial acquisition from AMR Corporation ("AMR") on March
31, 1999, Worldwide is contingently obligated to pay AMR an additional amount if
revenues from AMR exceed specific amounts over a ten-year period from the date
of the acquisition. If these revenue targets are met, we will pay AMR up to
$10.0 million plus accrued interest. We are not able to predict whether or not
we will meet these revenue targets therefore, no liability is recorded in our
financial statements.
4. DEBT
As of June 30, 2002, the Company's long-term debt consisted primarily of $125.8
million of 12 1/4 % Senior Notes due August 2007 (the "Senior Notes") and $4.7
million of capital lease obligations. The Company's obligation under the Senior
Notes is unconditionally guaranteed on a joint and several basis by its domestic
subsidiaries (see Note 8).
On October 5, 2001 we established an intercompany demand loan from our parent
Vinci Airports US Inc. to provide short-term liquidity. The interest rate on
this loan is based on the one-month LIBOR rate plus 0.75% and is payable upon
demand. At June 30, 2002, the outstanding balance was $77.1 million, which
consists of $74.5 million of principal, $1.4 million of interest and $1.2
million of fees related to a consulting arrangement with Vinci Airports US Inc.
On May 3, 2002 the Company entered into a discretionary line of credit facility
(the "Facility") with JPMorgan Chase Bank (the "Bank"), which expires on March
31, 2003. Subject to the discretion of the Bank, the maximum amount available
under the Facility is the lesser of $15 million or seventy-five percent of the
Company's eligible accounts receivable balance, as defined in the agreement. The
Facility is secured by the Company's trade accounts receivable and is subject to
certain financial and non-financial covenants. Interest is based on an adjusted
LIBOR rate or the Bank's Prime rate, at the option of the Company when the loan
is originated. At June 30, 2002, there was no outstanding balance due on this
facility.
5. RESTRUCTURING CHARGES
The following table summarizes the activity related to the restructuring reserve
(in thousands):
RESERVE BALANCE
RESERVE BALANCE JUNE 30,
DESCRIPTION DECEMBER 31, 2001 REVISIONS PAYMENTS 2002
- ----------- ----------------- --------------- -------------- -----------------
Involuntary employee severance........... $ 1,691 $ 397 $ (901) $ 1,187
Non-employee contract terminations....... 628 (609) - 19
Lease terminations....................... 54 - (54) -
Other exit costs......................... 252 - (39) 213
Other business restructuring............. 459 (130) (329) -
----------------- --------------- -------------- -----------------
Total................................ $ 3,084 $ (342) $ (1,323) $ 1,419
================= =============== ============== =================
As indicated in Note 1, the final allocation of the purchase price remains
subject to change, therefore, revisions to our restructuring reserve were made
through goodwill.
6. RELATED PARTY TRANSACTIONS
On October 5, 2001 we established an intercompany demand loan from Vinci
Airports US Inc. to provide short-term liquidity until we can acquire other
funding. (See Note 4) The interest rate on this loan is based on the one-month
LIBOR rate plus 0.75% and is payable upon demand. For the six-month period ended
June 30, 2002, we borrowed an additional $3.3 million, net and accrued $1.0
million in interest expense. In addition, we accrued $0.7 million in fees for
management services provided by Vinci Airports US Inc.
In conjunction with the purchase of Worldwide, Vinci Airports US Inc. also
purchased Airline Container Acquisition Corp. ("ACAC") and its subsidiaries.
Worldwide has no ownership in ACAC or any of its subsidiaries, therefore, ACAC's
financial information is not included in the consolidated financial statements
of Worldwide.
As of June 30, 2002 Vinci Airports US Inc. and ACAC had purchased $27.4 million
and $10.0 million, respectively, of our Senior Notes on the open market. ACAC
purchased the notes in the first quarter of 2001. Vinci Airports US Inc.
purchased $5.0 million of Notes in October 2001 and another $22.4 million of
Notes in December 2001. On February 15, 2002 Vinci Airports US Inc. and ACAC
received an interest payment from us of $1.4 million and $0.6 million,
respectively, on these notes.
7. FINANCIAL INSTRUMENTS
In connection with the former Senior Secured Credit Facility, Worldwide was
required to purchase interest rate caps in order to manage risks related to
changes in variable interest rates. The interest rate caps limited Worldwide's
exposure to floating interest rates and caps it at 6.5%. These caps have a
notional amount of $20.0 million and $50.0 million at June 30, 2002 and December
31, 2001, respectively. In March 2002, $30.0 million of these caps expired and
the remaining $20.0 million expire in March 2003. The approximate fair value of
these instruments at June 30, 2002 and December 31, 2001 was zero.
8. SUBSEQUENT EVENTS
In July and August of 2002, Vinci Airports US Inc. purchased an additional $12.0
million in aggregate of our Senior Notes on the open market. To help fund these
purchases, Worldwide paid $3.9 million on the intercompany demand loan from
Vinci Airports US Inc.
9. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS
The Senior Notes discussed in Note 4 are fully and unconditionally guaranteed on
a joint and several basis by current domestic subsidiaries. Foreign subsidiaries
do not guarantee the Senior Notes. The following tables present condensed
consolidating financial information for the Company, its subsidiary guarantors
and non-guarantor foreign subsidiaries (in thousands):
CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 2002
GUARANTOR NON-GUARANTOR
COMBINED COMBINED
DOMESTIC FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ---------------- -------------- --------------
Current assets:
Accounts receivable, net ......... $ 38,082 $ 2,398 $ 15,952 $ - $ 56,432
Other current assets ............. 21,268 438 4,427 - 26,133
------------- ------------- ---------------- -------------- --------------
Total current assets ......... 59,350 2,836 20,379 - 82,565
Non-current assets:
Equipment and property, net ...... 29,351 272 14,725 - 44,348
Intercompany receivable .......... 17,989 - - (17,989) -
Investment in affiliates ......... 4,202 - - (4,202) -
Intangible assets including
goodwill, net..................... 171,529 - 3,407 - 174,936
Other long-term assets ........... 1,622 123 246 - 1,991
------------- ------------- ---------------- -------------- --------------
Total assets ................. $284,043 $ 3,231 $ 38,757 $ (22,191) $ 303,840
============= ============= ================ ============== ==============
Current liabilities:
Accounts payable ................. $ 4,678 $ 163 $ 9,140 $ - $ 13,981
Intercompany payables ............ - 1,072 16,917 (17,989) -
Due to Parent..................... 77,131 - - - 77,131
Other accrued liabilities ........ 36,630 910 6,071 - 43,611
------------- ------------- ---------------- -------------- --------------
Total current liabilities .... 118,439 2,145 32,128 (17,989) 134,723
Non-current liabilities and
stockholder's equity:
Long-term debt ................... 125,645 148 3,355 - 129,148
Deferred Income Taxes............. 10,747 10 - - 10,757
Stockholder's equity ............. 29,212 928 3,274 (4,202) 29,212
------------- ------------- ---------------- -------------- --------------
Total liabilities and
stockholder's equity ......... $284,043 $ 3,231 $ 38,757 $ (22,191) $ 303,840
============= ============= ================ ============== ==============
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002
GUARANTOR NON-GUARANTOR
COMBINED COMBINED
DOMESTIC FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ -------------- ------------ ------------
Revenues $ 139,876 $ 5,967 $ 27,209 $ - $ 173,052
Expenses:
Salaries, wages and benefits ............. 94,948 4,260 9,873 - 109,081
Materials, supplies, and services ........ 24,543 27 290 - 24,860
Equipment and facility rental ............ 8,975 210 3,360 - 12,545
Depreciation and Amortization ............ 5,136 64 657 - 5,857
Other miscellaneous expenses ............. 2,105 1,441 11,049 - 14,595
------------ ------------ -------------- ------------ -------------
Operating expenses ................... 135,707 6,002 25,229 - 166,938
Operating income (loss) .................... 4,169 (35) 1,980 - 6,114
Interest expense, net .................... 8,582 - 443 - 9,025
Other (income) expense, net .............. 415 10 (40) - 385
Equity in earnings of subsidiaries ....... (1,532) - - 1,532 -
------------ ------------ -------------- ------------ -------------
Income (loss) before income taxes (3,296) (45) 1,577 (1,532) (3,296)
Benefit (provision) for income taxes ....... 641 19 (434) - 226
------------ ------------ -------------- ------------ -------------
Net income (loss) .......................... $ (2,655) $ (26) $ 1,143 $ (1,532) $ (3,070)
============ ============ ============== ============ =============
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2002
GUARANTOR
COMBINED NON-GUARANTOR
DOMESTIC COMBINED FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------------- ------------ ---------------- ------------ -------------
Cash provided by (used in) operating $ (3,615) $ (844) $ 1,199 $ - $ (3,260)
activities ..............................
Cash used in investing activities ....... 778 (45) (2,655) - (1,922)
Cash provided by financing activities.... 2,414 1,019 1,399 - 4,832
--------------- ------------ ---------------- ------------ -------------
Change in cash .......................... $ (423) $ 130 $ (57) $ - $ (350)
=============== ============ ================ ============ =============
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2001
GUARANTOR NON-GUARANTOR
COMBINED COMBINED
DOMESTIC FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ ---------------- ------------ ------------
Current assets:
Accounts receivable, net............ $ 50,530 $ 2,195 $ 11,538 $ - $ 64,263
Other current assets................ 19,660 301 3,098 - 23,059
---------- ------------ ---------------- ------------ ------------
Total current assets............ 70,190 2,496 14,636 - 87,322
Non-current assets:
Equipment and property, net......... 32,606 291 14,113 - 47,010
Intercompany receivable............. 15,552 - - (15,552) -
Investment in affiliates............ 3,108 - - (3,108) -
Intangible assets including
goodwill, net..................... 167,830 - 3,082 - 170,912
Other long-term assets................ 1,667 138 119 - 1,924
---------- ------------ ---------------- ------------ ------------
Total assets.................... $290,953 $ 2,925 $ 31,950 $ (18,660) $ 307,168
========== ============ ================ ============ ============
Current Liabilities:
Accounts payable.................... $ 12,302 $ 441 $ 7,194 $ - $ 19,937
Intercompany payables............... - 16 15,536 (15,552) -
Due to parent....................... 72,067 - - - 72,067
Other accrued liabilities........... 39,708 1,310 3,748 - 44,766
---------- ------------ ---------------- ------------ ------------
Total current liabilities....... 124,077 1,767 26,478 (15,552) 136,770
Non-current liabilities and
stockholder's equity:
Long-term debt...................... 126,224 185 3,337 - 129,746
Deferred Income Taxes............... 10,757 - - - 10,757
Stockholder's equity................ 29,895 973 2,135 (3,108) 29,895
---------- ------------ ---------------- ------------ ------------
Total liabilities and
stockholder's equity............ $290,953 $ 2,925 $ 31,950 $ (18,660) $ 307,168
========== ============ ================ ============ ============
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2001
GUARANTOR NON-GUARANTOR
COMBINED COMBINED
DOMESTIC FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ---------------- ------------ ------------
Revenues................................ $ 145,388 $ 6,076 $ 25,043 $ - $ 176,507
Expenses:
Salaries, wages and benefits.......... 100,610 3,907 9,330 - 113,847
Materials, supplies, and services..... 25,802 70 328 - 26,200
Equipment and facility rental......... 8,632 237 2,992 - 11,861
Depreciation and amortization......... 9,212 38 553 - 9,803
Other miscellaneous expenses.......... 3,216 1,829 9,211 - 14,256
--------- ------------ ---------------- ------------ ------------
Operating expenses................. 147,472 6,081 22,414 - 175,967
--------- ------------ ---------------- ------------ ------------
Operating income (loss)................. (2,084) (5) 2,629 - 540
Interest expense, net................. 10,799 - 36 - 10,835
Other income (expense), net........... 136 (1) (269) - (134)
Equity in earnings of subsidiaries.... (2,318) - - (2,318) -
--------- ------------ ---------------- ------------ ------------
Income (loss) before income taxes....... (10,429) (6) 2,234 (2,318) (10,429)
Benefit (provision) for income taxes.... 1,029 2 (1,158) 1,156 1,029
--------- ------------ ---------------- ------------ ------------
Net income (loss)....................... $ (9,400) $ (4) $ 1,166 $ (1,162) $ (9,400)
========= ============ ================ ============ ============
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001
GUARANTOR NON-GUARANTOR
COMBINED COMBINED
DOMESTIC FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ---------------- ------------ ------------
Cash provided by (used in)
operating activities.................. $ (8,292) $ 1,489 $ 974 $ - $ (5,829)
Cash used in investing activities..... (4,843) (1,171) (6,371) - (12,385)
Cash provided by (used in)
financing activities.................. 14,109 (156) 4,430 - 18,383
--------- ------------ ---------------- ------------ ------------
Change in cash........................ $ 974 $ 162 $ (967) $ - $ 169
========= ============ ================ ============ ============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overall Summary
Revenues, operating income, and net loss for the three-month period ended June
30, 2002 were $87.0 million, $2.9 million, and $1.6 million, respectively.
Revenue, operating loss, and net loss for the three-month period ended June 30,
2001 were $84.2 million, $0.6 million, and $4.5 million, respectively.
Revenues, operating income, and net loss for the six-month period ended June 30,
2002 were $173.1 million, $6.1 million, and $3.1 million, respectively. Revenue,
operating loss, and net loss for the six-month period ended June 30, 2001 were
$176.5 million, $0.5 million, and $9.4 million, respectively.
On September 11, 2001 four passenger airline aircraft were hijacked and
destroyed in terrorist attacks on the World Trade Center and the Pentagon.
During the weeks following the attacks, the airline industry experienced a sharp
decline in passenger traffic and yields. In response, many airlines reduced
their operating schedules by as much as 20%. The long-term impact is not yet
known, however, air traffic has not yet returned to pre-September 11 levels.
Revenues
Total revenues increased $2.8 million to $87.0 million for the quarter ended
June 30, 2002 and decreased $3.4 million to $173.1 million in the six-month
period ended June 30, 2002 compared to the same periods in 2001. The $2.8
million increase is mainly attributable to short-term service contracts in
North America and an increase in revenue at various international locations.
These increases were partially offset by decreases in North American revenues.
The lingering effects of September 11, 2001 and a decrease in demand for
deicing were the primary causes of the $3.4 million decrease for the six-month
period. In the months following September 11, 2001, we experienced a
significant decline in flight frequencies that continued to negatively impact
revenues in 2002. In addition, certain customers in-sourced their ground
handling services resulting in lost revenues.
Salaries, wages and benefits
Salaries, wages and benefits decreased $0.6 million to $54.7 million for the
quarter ended June 30, 2002 and $4.8 million to $109.1 million in the six-month
period ended June 30, 2002 compared to the same periods in 2001. The decrease is
primarily attributable to the same factors impacting our revenues, which include
a decrease in demand for deicing, lower flight frequencies due to the events of
September 11, and lost contracts, partially offset by increases relating to new
passenger service contracts.
Materials, supplies and services
Materials, supplies and services increased $1.4 million to $12.6 million for
the quarter ended June 30, 2002 and decreased $1.3 million to $24.9 million in
the six-month period ended June 30, 2002 compared to the same periods in 2001.
The $1.4 million increase mainly relates to new passenger service contracts in
the second quarter of 2002. The $1.3 million decrease is primarily attributable
to the same factors impacting our revenues, which include a decrease in demand
for deicing, lower flight frequencies due to the events of September 11,
bankruptcies and lost contracts, partially offset by increases relating to new
passenger service contracts.
Depreciation and amortization
Depreciation and amortization decreased $2.1 million to $2.9 million for the
quarter ended June 30, 2002 and $3.9 million to $5.9 million in the six-month
period compared to the same periods in 2001. The decrease is primarily
attributable to the impact of adopting SFAS No. 142, which eliminated the
amortization of goodwill.
Operating income
For the quarter ended June 30, 2002, we had operating income of $2.9 million,
compared to operating income of $0.6 million in 2001. For the six-month period
ended June 30, 2002, we had operating income of $6.1 million, compared to
operating income of $0.5 million in 2001. Operating income was positively
impacted by the adoption of SFAS No. 142 and the reduction of other costs as
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Until the acquisition on October 5, 2001, our primary sources of liquidity were
cash flows from operations and borrowings under the former Senior Secured Credit
Facility. At the change of control the Senior Secured Credit Facility was
terminated and fully repaid for $46.5 million. From October 5, 2001, the primary
source of liquidity was cash flows from borrowings under the intercompany demand
loan.
The intercompany demand loan from Vinci Airports US Inc. was established to
provide short-term liquidity. The interest rate on this loan is based on the
one-month LIBOR rate plus 0.75% and is payable upon demand. At June 30, 2002,
the outstanding balance was $77.1 million.
On May 3, 2002 the Company entered into a discretionary line of credit facility
(the "Facility") with JPMorgan Chase Bank (the "Bank"), which expires on March
31, 2003. Subject to the discretion of the Bank, the maximum amount available
under the Facility is the lesser of $15 million or seventy-five percent of the
Company's eligible accounts receivable balance, as defined in the agreement. The
Facility is secured by the Company's trade accounts receivable and is subject to
certain financial and non-financial covenants. Interest is based on an adjusted
LIBOR rate or the Bank's Prime rate, at the option of the Company when the loan
is originated. At June 30, 2002, there was no outstanding balance due on this
facility.
In the six-month period ended June 30, 2002, $3.3 million of net cash was used
in operations and $3.3 million, net was borrowed under the intercompany demand
loan. In addition to funding operations, approximately $1.9 million was used to
fund capital expenditures. At June 30, 2002, we had $5.7 million of cash and
cash equivalents.
As of June 30, 2002, we had $130.5 million of long-term debt of which
approximately $1.4 million is due within one year. Our long-term debt consists
of Senior Notes with a face value of $124.5 million and a carrying value of
$125.8 million and $4.7 million in capital lease obligations. The Senior Notes
are due in 2007 and interest is payable semi-annually on February 15 and August
15. Based on the Senior Notes outstanding at June 30, 2002 our annual interest
payments are approximately $15.3 million.
In addition to our debt service obligation, our principal liquidity needs are
for working capital and capital expenditures. In the six-month period ended June
30, 2002, we spent $1.9 million on capital expenditures, primarily for ground
handling equipment to support our business, compared to $9.6 million during the
same period in 2001. In 2002 we expect a continued reduction in our capital
expenditures mainly attributable to the declining economic conditions of the
airline industry and the completion of several core computer projects in 2001.
Our working capital requirements, capital expenditures and scheduled debt
service requirements for the next twelve months will be provided through a
combination of anticipated cash flow generated from operations and borrowings.
Recent Accounting Pronouncements
On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, Goodwill and Other Intangibles Assets. Under SFAS
No. 142, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized but will be subject to impairment tests at least annually.
In the fourth quarter of 2001 we performed an assessment of the carrying value
of our goodwill due to the significant slowdown of the airline industry after
September 11. As a result of this assessment we recorded a goodwill impairment
charge of $40.0 million to write down the value of our goodwill. As required by
SFAS No. 142, the Company performed an impairment analysis of its goodwill and
other intangible assets and determined no further transition adjustment was
necessary. Application of the non-amortization provisions of SFAS No. 142
avoided goodwill amortization expense of approximately $4.3 million for the
six-month period ended June 30, 2002, based on the goodwill balance at December
31, 2001. On January 1, 2002, we also adopted SFAS No. 141, Business
Combinations and SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets which did not have any impact on our financial statements.
We plan to adopt SFAS No. 143, Accounting for Asset Retirement Obligations, SFAS
No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections, SFAS No. 146, Accounting For Cost
Associated With Exit or Disposal Activities as required on January 1, 2003. We
are studying the impact that these new standards will have on our consolidated
financial statements and currently do not expect the adoption of these new
standards to have a significant effect on our results of operations or financial
position.
Significant Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. We believe the following critical accounting
policies require the most significant estimates and judgments.
As a result of the acquisition on October 5, 2001, we adjusted our assets and
liabilities to their estimated fair values as required by the purchase method of
accounting. These estimates were based on the nature of our assets and
liabilities, as well as our understanding of current market conditions. Although
the final fair value allocations are not yet complete and are subject to change,
we recorded goodwill of $210.9 million, which represented the difference between
the purchase price and the initial estimate of the fair value of net assets
acquired on the date of the transaction. We will periodically review our
goodwill for impairment in accordance with SFAS No. 142. (See Note 2)
We periodically review the estimated useful lives of our depreciable assets
based on factors including historical experience, the expected beneficial
service period of the asset, the quality and durability of the asset and our
maintenance policy.
The following is a listing of other items that are inherently uncertain and
require subjective and complex judgments:
o Health and medical liability
o Workers compensation liability
o Allowance for doubtful accounts
o Provisions for legal and environmental reserves
Other
Jeff Kinsella, Executive Vice President, North American Operations, left the
Company in April 2002.
On August 11, 2002, US Airways Group Inc. filed for Chapter 11 bankruptcy
protection in the U.S. Bankruptcy Court for the Eastern District of Virginia.
We are still assessing the impact of this filing on our accounts receivable.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information about market risks for the three months ended June 30, 2002 does not
differ materially from that discussed under Item 7A of the Company's Annual
Report on Form 10-K for the year ended December 31, 2001.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 2 of Notes to Consolidated Financial Statements herein for a
description of legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
A list of exhibits required by Item 601 of Regulation S-K and filed as part
of this report is set forth in the Exhibits Index, which immediately
precedes such exhibits.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, this Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WORLDWIDE FLIGHT SERVICES, INC.
(Registrant)
August 14, 2002 By: /s/ JEAN-FRANCOIS GOUEDARD
--------------------------------------
Jean-Francois Gouedard
President and Chief Executive Officer
(duly authorized signatory)
August 14, 2002 By: /s/ JAY P. NORRIS
-------------------------------------
Jay P. Norris
Controller
(Principal Accounting Officer)
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, this Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WORLDWIDE FLIGHT SECURITY SERVICE CORPORATION
(Registrant)
August 14, 2002 By: /s/ JEAN-FRANCOIS GOUEDARD
-------------------------------------
Jean-Francois Gouedard
President and Chief Executive Officer
(duly authorized signatory)
August 14, 2002 By: /s/ JAY P. NORRIS
-------------------------------------
Jay P. Norris
Controller
(Principal Accounting Officer)
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, this Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
OXFORD ELECTRONICS, INC.
(Registrant)
August 14, 2002 By: /s/ JEAN-FRANCOIS GOUEDARD
-------------------------------------
Jean-Francois Gouedard
President and Chief Executive Officer
(duly authorized signatory)
August 14, 2002 By: /s/ JAY P. NORRIS
-------------------------------------
Jay P. Norris
Controller
(Principal Accounting Officer)
EXHIBITS INDEX
ITEM 6(a)
EXHIBIT
NUMBER DESCRIPTION
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99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002