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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 March 31, 2003
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.)
1925 W. JOHN CARPENTER FREEWAY
SUITE 450
IRVING, TEXAS 75063
(Address of principal executive offices) (Zip Code)
(972) 629-5000
(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 May 14,
2003 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 general economic conditions or conditions affecting the aviation
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
o competitive pressures in the industry increase
o loss of significant customers through bankruptcy, industry
consolidation or other factors
o geopolitical unrest surrounding the aviation industry such as war or
acts of terrorism
o future revenues are lower than expected
o increase in payroll or other costs and/or shortage of an adequate base
of employees
o expected cost savings or revenues from our acquisitions or expected
cost savings from our restructuring plan are not fully realized or
realized within the expected time frame
o inability to obtain additional capital due to covenant restrictions or
other factors, and/or increase in debt levels beyond our ability to
support repayment
o changes in the interest rate environment
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 March 31, 2003 and December 31,
2002
Consolidated Statements of Operations for the three months ended
March 31, 2003 and 2002
Consolidated Statements of Cash Flows for the three months ended
March 31, 2003 and 2002
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
Item 4 Controls and Procedures
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)
MARCH 31, DECEMBER 31,
2003 2002
--------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 2,069 $ 5,223
Accounts receivable, less allowance for doubtful accounts 66,880 66,001
Deferred income taxes 7,030 7,030
Prepaid and other current assets 8,121 9,393
--------- ---------
Total current assets 84,100 87,647
Equipment and property:
Equipment and property, at cost 74,484 67,251
Less accumulated depreciation (15,441) (12,377)
--------- ---------
59,043 54,874
Intangible assets including goodwill, net 173,228 173,205
Other long-term assets 1,660 1,965
--------- ---------
Total assets $ 318,031 $ 317,691
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 15,355 $ 20,670
Accrued salaries, wages and benefits 13,978 16,311
Due to parent 13,788 --
Due to affiliate 13,097 11,663
Other accrued liabilities 17,389 23,773
Current portion of long-term debt 7,350 3,350
--------- ---------
Total current liabilities 80,957 75,767
Deferred income taxes 7,908 7,908
Long-term debt, less current portion 128,695 128,817
Stockholder's equity:
Common stock -- --
Additional paid-in capital 157,580 157,580
Retained deficit (59,577) (54,560)
Accumulated other comprehensive income 2,468 2,179
--------- ---------
Total stockholder's equity 100,471 105,199
--------- ---------
Total liabilities and stockholder's equity $ 318,031 $ 317,691
========= =========
See accompanying notes.
WORLDWIDE FLIGHT SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED MARCH 31,
2003 2002
---------- ----------
Revenues $ 89,073 $ 84,258
Expenses:
Salaries, wages and benefits 58,511 54,344
Materials, supplies and services 14,326 10,473
Equipment and facilities rental 6,881 6,477
Depreciation and amortization 3,037 2,948
Other operating expenses 7,409 6,752
-------- --------
Total operating expenses 90,164 80,994
Operating income (loss) (1,091) 3,264
Interest expense, net 4,209 4,425
Other expense, net 205 456
-------- --------
Loss before income taxes (5,505) (1,617)
Benefit for income taxes 488 99
-------- --------
Net loss $ (5,017) $ (1,518)
======== ========
See accompanying notes.
WORLDWIDE FLIGHT SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED MARCH 31,
2003 2002
--------- -----------
Operating Activities:
Net loss $ (5,017) $ (1,518)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 3,037 2,948
Change in assets and liabilities:
Accounts receivable (664) 2,364
Other, net 2,097 1,268
Accounts payable and accrued liabilities (14,163) (12,893)
-------- --------
Net cash used in operating activities (14,710) (7,831)
Investing activities:
Capital expenditures (6,581) (1,324)
-------- --------
Net cash used by investing activities (6,581) (1,324)
Financing activities:
Proceeds from short-term debt, net 4,000 --
Proceeds from intercompany borrowings 13,771 3,615
Equity contribution by parent -- 834
Other, net 366 (170)
-------- --------
Net cash provided by financing activities 18,137 4,279
-------- --------
Net decrease in cash and cash equivalents (3,154) (4,876)
Cash and cash equivalents at beginning of period 5,223 6,030
-------- --------
Cash and cash equivalents at end of period $ 2,069 $ 1,154
======== ========
See accompanying notes.
WORLDWIDE FLIGHT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2003
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
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 period ended March 31, 2003
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2003.
The balance sheet at December 31, 2002 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, 2002.
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.
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 periods ended March 31, 2003 and March
31, 2002 (in thousands).
2003 2002
--------- ----------
Net loss ..................................... $ (5,017) $ (1,518)
Foreign currency translation gain (loss) ..... 289 (134)
--------- ---------
Total comprehensive loss ................. $ (4,728) $ (1,652)
========= =========
Common Stock
As of March 31, 2003 and December 31, 2002, 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.
Off-Balance-Sheet Instruments
Worldwide utilizes letters of credit to back certain financing instruments,
insurance policies and payment obligations. On September 20, 2002, we entered
into an uncommitted line of credit facility (the "Lyonnais Facility") with
Credit Lyonnais for the issuance of standby letters of credit. Subject to the
discretion of Credit Lyonnais, the maximum amount available for letters of
credit is $15.0 million. The Lyonnais Facility is guaranteed by Vinci SA and is
subject to certain financial and non-financial covenants. Interest on
outstanding letters of credit is charged at a rate equal to 0.65% per annum. At
March 31, 2003, we had $10.3 million in letters of credit issued and outstanding
with Credit Lyonnais. We had an additional $0.7 million in letters of credit
issued and outstanding with JPMorgan Chase Bank.
Worldwide is also a party to certain surety bonds that are typically issued
through insurance carriers. At March 31, 2003, approximately $3.9 million of
surety bonds were issued and backed by $1.8 million in letters of credit. Both
the letters of credit and the performance bonds reflect fair value as a
condition of their underlying purpose and are subject to fees competitively
determined. We do not expect any material losses to result from these
instruments.
2. 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.
Our annual impairment test was performed in January 2003 and did not result in
an impairment of our goodwill.
3. COMMITMENTS AND CONTINGENCIES
The Company is involved in an investigation by the National Transportation
Safety Board (the "NTSB") into the cause of 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 March 31, 2003, 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 $4.3
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 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
March 31, 2003, the outstanding balance was $13.8 million.
On May 3, 2002 we entered into a discretionary line of credit facility (the
"Chase Facility") with JPMorgan Chase Bank ("Chase") which expires on June 30,
2003. Subject to the discretion of Chase, the maximum amount available under the
Chase Facility is the lesser of $15.0 million or seventy-five percent of the
Company's eligible accounts receivable balance, as defined in the agreement. The
Chase 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 Chase's Prime rate, at the option of the Company when
the loan is originated. At March 31, 2003, the outstanding balance due on this
facility was $6.0 million.
5. RESTRUCTURING CHARGES
The following table summarizes the activity related to the restructuring reserve
(in thousands):
RESERVE BALANCE RESERVE BALANCE
DESCRIPTION DECEMBER 31, 2002 PAYMENTS MARCH 31, 2003
- ----------- -------------------- ------------- ---------------
Involuntary employee severance .............. $ 653 $(130) $ 523
Other exit costs ............................ 145 (20) 125
----- ----- -----
Total ................................... $ 798 $(150) $ 648
6. RELATED PARTY TRANSACTIONS
On December 31, 2002, we received additional paid-in capital of approximately
$81.2 million from our parent which was used to repay the intercompany demand
loan, including interest. Additional borrowings from our parent in the first
quarter of 2003 amounted to $13.8 million.
On October 5, 2001, we entered into a management arrangement with Vinci Airports
SA, an affiliate of Worldwide. Under this arrangement, Vinci Airports SA will
provide Worldwide with business and organizational strategies as well as
financial, advisory and certain banking services. For both of the quarters ended
March 31, 2003 and 2002, we incurred approximately $0.4 million in charges
related to this management arrangement.
In conjunction with the purchase of Worldwide, Vinci Airports US Inc. also
purchased Airline Container Leasing Corp. ("ACL") formally known as Airline
Container Acquisition Corp. and its subsidiaries. Worldwide
has no ownership in ACL and therefore ACL's financial information is not
included in the consolidated financial statements of Worldwide. However,
Worldwide provides ACL with management and other services. In addition, ACL
participates with Worldwide in certain shared services such as communication and
employee benefits. In the first quarter of 2003, the total of these transactions
was approximately $0.3 million. There were no significant transactions in the
first quarter of 2002.
In 1999 we issued $130.0 million of Senior Notes. Interest payments are due
semi-annually, on February 15 and August 15. As of March 31, 2003 Vinci Airports
US Inc. and ACL had purchased $76.1 million and $10.0 million, respectively, of
the Senior Notes on the open market. In addition, $5.5 million of bonds were
retired in October 2001. On February 15, 2003 Vinci Airports US Inc. and ACL
received interest payments of $4.7 million and $0.6 million, respectively. As of
May 14, 2003, $38.4 million of Senior Notes remain outstanding with non-related
parties.
In August 2002, SFS, a wholly owned subsidiary of Worldwide, established an
intercompany demand loan with Vinci SA, an affiliate of Worldwide. The interest
rate on this loan is based on the one-month LIBOR rate plus 0.75% and is payable
upon demand. At March 31, 2003, approximately $10.6 million was outstanding and
is included in due to affiliates. Proceeds from this loan were primarily used to
fund capital expenditures relating to the new warehouse lease at Charles De
Gaulle International Airport in Paris, France.
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%. All remaining interest
rate caps, with a total notional amount of $20.0 million, expired in March 2003.
8. 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
MARCH 31, 2003
GUARANTOR NON-GUARANTOR
COMBINED COMBINED
DOMESTIC FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ ------------- ------------ ------------
Current assets:
Accounts receivable, net .... $ 48,495 $ 3,808 $ 14,577 $ -- $ 66,880
Other current assets ........ 11,891 936 4,393 -- 17,220
---------- ---------- ---------- ---------- ----------
Total current assets .... 60,386 4,744 18,970 -- 84,100
Non-current assets:
Equipment and property, net . 31,364 347 27,332 -- 59,043
Intercompany receivable ..... 25,331 -- -- (25,331) --
Investment in affiliates .... 1,173 -- -- (1,173) --
Intangible assets including
goodwill, net ............... 169,778 -- 3,450 -- 173,228
Other long-term assets ...... 559 202 899 -- 1,660
---------- ---------- ---------- ---------- ----------
Total assets ............ $ 288,591 $ 5,293 $ 50,651 $ (26,504) $ 318,031
========== ========== ========== ========== ==========
Current liabilities:
Accounts payable ............ $ 6,824 $ 180 $ 8,351 $ -- $ 15,355
Intercompany payables ....... -- 6,357 18,974 (25,331) --
Due to Parent ............... 13,664 124 -- -- 13,788
Due to affiliate ............ 2,475 -- 10,622 -- 13,097
Other accrued liabilities ... 32,204 13 6,500 -- 38,717
---------- ---------- ---------- ---------- ----------
Total current liabilities 55,167 6,674 44,447 (25,331) 80,957
Non-current liabilities and
stockholder's equity:
Long-term debt .............. 125,045 98 3,552 -- 128,695
Other non-current liabilities 7,908 -- -- -- 7,908
Stockholder's equity ........ 100,471 (1,479) 2,652 (1,173) 100,471
---------- ---------- ---------- ---------- ----------
Total liabilities and
stockholder's equity .... $ 288,591 $ 5,293 $ 50,651 $ (26,504) $ 318,031
========== ========== ========== ========== ==========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003
GUARANTOR NON-GUARANTOR
COMBINED COMBINED
DOMESTIC FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- --------------- --------------- ------------ ------------
Revenues ........................... $ 66,647 $ 4,430 $ 17,996 $ -- $ 89,073
Expenses:
Salaries, wages and benefits ..... 49,236 2,394 6,881 -- 58,511
Materials, supplies, and services 6,535 1,168 6,623 -- 14,326
Equipment and facility rental .... 4,582 104 2,195 -- 6,881
Depreciation and Amortization .... 2,625 26 386 -- 3,037
Other operating expenses ......... 5,019 326 2,064 -- 7,409
---------- ---------- ---------- ---------- ----------
Operating expenses ........... 67,997 4,018 18,149 -- 90,164
---------- ---------- ---------- ---------- ----------
Operating income (loss) ............ (1,350) 412 (153) -- (1,091)
Interest expense, net ............ (3,822) -- (387) -- (4,209)
Other expense, net ............... (154) (39) (12) -- (205)
Equity in loss of subsidiaries ... (179) -- -- 179 --
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes .. (5,505) 179 (5,505) 373 (552)
(Provision) benefit for income taxes 488 (162) (143) 305 488
---------- ---------- ---------- ---------- ----------
Net income (loss) .................. $ (5,017) $ 211 $ (695) $ 484 $ (5,017)
========== ========== ========== ========== ==========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2003
GUARANTOR NON-GUARANTOR
COMBINED COMBINED
DOMESTIC FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ ------------- ------------ ------------
Cash provided by (used in) operating
activities .......................... $ (14,020) $ 188 $ (878) $ -- $ (14,710)
---------- ---------- ---------- ---------- ----------
Cash used in investing activities ... (2,855) (30) (3,696) -- (6,581)
Cash provided by financing activities 15,993 340 1,804 -- 18,137
---------- ---------- ---------- ---------- ----------
Change in cash ...................... $ (882) $ 498 $ (2,770) $ -- $ (3,154)
========== ========== ========== ========== ==========
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2002
GUARANTOR NON-GUARANTOR
COMBINED COMBINED
DOMESTIC FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ ------------- ------------ ------------
Current assets:
Accounts receivable, net ........ $ 48,383 $ 3,987 $ 13,631 $ -- $ 66,001
Other current assets ............ 10,837 1,098 9,711 -- 21,646
---------- ---------- ---------- ---------- ----------
Total current assets ........ 59,220 5,085 23,342 -- 87,647
Non-current assets:
Equipment and property, net ..... 30,509 343 24,022 -- 54,874
Intercompany receivable ......... 24,731 -- -- (24,731) --
Investment in affiliates ........ 1,601 -- -- (1,601) --
Intangible assets including
goodwill, net ................. 169,782 -- 3,423 -- 173,205
Other long-term assets ............ 1,271 322 372 -- 1,965
---------- ---------- ---------- ---------- ----------
Total assets ................ $ 287,114 $ 5,750 $ 51,159 $ (26,332) $ 317,691
========== ========== ========== ========== ==========
Current Liabilities:
Accounts payable ................ $ 10,334 $ 608 $ 9,728 $ -- $ 20,670
Intercompany payables ........... -- 6,044 18,687 (24,731) --
Due to affiliate ................ 2,487 80 9,096 -- 11,663
Other accrued liabilities ....... 36,795 (158) 6,797 -- 43,434
---------- ---------- ---------- ---------- ----------
Total current liabilities ... 49,616 6,574 44,308 (24,731) 75,767
Non-current liabilities and
stockholder's equity:
Long-term debt .................. 125,141 115 3,561 -- 128,817
Other non-current liabilities ... 7,158 750 -- -- 7,908
Stockholder's equity ............ 105,199 (1,689) 3,290 (1,601) 105,199
---------- ---------- ---------- ---------- ----------
Total liabilities and
stockholder's equity ........ $ 287,114 $ 5,750 $ 51,159 $ (26,332) $ 317,691
========== ========== ========== ========== ==========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002
GUARANTOR NON-GUARANTOR
COMBINED COMBINED
DOMESTIC FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ ------------ ------------ ------------
Revenues ........................... $ 68,563 $ 3,216 $ 12,479 $ -- $ 84,258
Expenses:
Salaries, wages and benefits ..... 47,970 2,079 4,295 -- 54,344
Materials, supplies, and services 5,124 533 4,816 -- 10,473
Equipment and facility rental .... 4,681 109 1,687 -- 6,477
Depreciation and Amortization .... 2,612 31 305 -- 2,948
Other miscellaneous expenses ..... 5,200 214 1,338 -- 6,752
---------- ---------- ---------- ---------- ----------
Operating expenses ........... 65,587 2,966 12,441 -- 80,994
---------- ---------- ---------- ---------- ----------
Operating income (loss) ............ 2,976 250 38 -- 3,264
Interest expense, net ............ (4,200) -- (225) -- (4,425)
Other income (expense), net ...... (557) (5) 106 -- (456)
Equity in earnings of subsidiaries 164 -- -- (164) --
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes .. (1,617) 245 (81) (164) (1,617)
(Provision) benefit for income taxes 99 (99) (277) 376 99
---------- ---------- ---------- ---------- ----------
Net income (loss) .................. $ (1,518) $ 146 $ (358) $ 212 $ (1,518)
========== ========== ========== ========== ==========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2002
GUARANTOR NON-GUARANTOR
COMBINED COMBINED
DOMESTIC FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
Cash provided by (used in) operating
activities .......................... $ (8,767) $ (132) $ 1,068 $ -- $ (7,831)
--------- --------- --------- --------- ---------
Cash used in investing activities ... (466) (3) (855) -- (1,324)
Cash provided by financing activities 2,792 613 874 -- 4,279
--------- --------- --------- --------- ---------
Change in cash ...................... $ (6,441) $ 478 $ 1,087 $ -- $ (4,876)
========= ========= ========= ========= =========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Overall Summary
Revenues, operating loss, and net loss for the three-month period ended March
31, 2003 were $89.1 million, $1.1 million, and $5.0 million, respectively.
Revenue, operating income, and net loss for the three-month period ended March
31, 2002 were $84.3 million, $3.3 million, and $1.5 million, respectively. These
results reflect continual changes in the status of our contracts, including lost
and added contracts, throughout the periods reported.
In November 2001 the Aviation and Transportation Security Act ("ATSA") was
enacted, creating a new government agency, the Transportation Security
Administration ("TSA"). The TSA, now part of the United States Department of
Homeland Security ("DHS"), is responsible for aviation security. The ATSA
mandates that the TSA shall provide for the screening of all passengers and
property, including U.S. mail, cargo, carry-on and checked baggage. During the
transition period, which ended in November 2002, the TSA provided most
passenger-screening functions by contracting with private-sector security
providers including Worldwide. However, by the end of this transition period,
the TSA assumed all passenger-screening functions using federal employees.
The threat of a conflict in Iraq and then its outburst in late March 2003 had a
significant adverse impact on domestic and international airline travel during
the first quarter of 2003, which is expected to continue for an unknown period
of time after the war. We do not know nor can we reasonably predict the full
extent of such impact.
During the first quarter of 2003, there has been an outbreak of Severe Acute
Respiratory Syndrome (SARS), largely concentrated in Asia. Although the impact
of SARS on our first quarter 2003 results was minimal, it is expected to have a
significant adverse impact on our Hong Kong and Toronto operations in the second
quarter of 2003 as airlines and air cargo carriers reduce flights. Additionally,
the significant spread of SARS beyond Asia could have an adverse impact on all
of our operations.
Revenues
Total revenues increased $4.8 million to $89.1 million for the quarter ended
March 31, 2003, compared to the same period in 2002. The increase in revenues
was primarily attributable to the expansion of our operations in Canada ($1.7
million) and Europe ($5.7 million). Approximately $3.1 million of the $5.7
million related to foreign currency as the average exchange rate for the Euro
climbed from approximately 0.88 in the first quarter of 2002 to 1.07 in the
first quarter of 2003. In addition, we experienced an increase in the demand for
deicing services ($1.1 million) and technical services ($1.1 million) in North
America. These increases were partially offset by the loss of
passenger-screening revenue ($3.1 million) when these functions were taken over
by the TSA. In addition, uncertainty surrounding the war in Iraq along with the
financial difficulties surrounding the aviation industry led to reductions in
flight frequencies or cancellation of routes by our customers. This situation
was further compounded by various airline bankruptcies or threats thereof.
Salaries, wages and benefits
Salaries, wages and benefits increased $4.2 million to $58.5 million for the
quarter ended March 31, 2003, compared to the same period in 2002. This increase
is primarily attributable to expanded operations in Europe ($3.0 million) and
new contracts in Canada ($1.7 million). These increases were partially offset by
decreases associated with lost contracts, particularly all passenger-screening
activities which were taken over by the TSA.
Materials, supplies and services
Materials, supplies and services increased $3.9 million to $14.3 million for the
quarter ended March 31, 2003, compared to the same period in 2002. This increase
is primarily attributable to expanded operations in Europe ($1.7 million),
increased fuel cost in North America ($0.5 million) and increased cost of goods
sold related to technical services ($0.5 million). We also experienced an
increase in expenses related to deicing ($0.3 million) and other outside
services.
Other operating expense
Other operating expenses increased $0.7 million to $7.4 million for the quarter
ended March 31, 2003, compared to the same period in 2002. This increase is
primarily attributable to expanded operations in Europe ($0.8 million) and new
contracts in Canada ($0.3 million). These increases were partially offset by a
decrease in bad debt expense ($0.5 million).
Operating loss
Operating loss for the quarter ended March 31, 2003 was $1.1 million compared to
operating income of $3.3 million in 2002. Disruptions in operations resulting
from the decline in air traffic as well as numerous changes in frequencies and
routes by our customers in the period prior to the war with Iraq led to
increased costs. Furthermore, costs associated with the start-up of new business
in Europe and North America negatively impacted operating income. We expect an
increase in revenues from these new operations, which should positively impact
our second quarter 2003 results.
LIQUIDITY AND CAPITAL RESOURCES
Our primary source of liquidity has been borrowings under an intercompany demand
loan and borrowings under a discretionary line of credit. Continued
participation by our parent is essential in the current economic environment.
On October 5, 2001, we established an intercompany demand loan from 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. On
December 31, 2002, we received additional paid-in capital of approximately $81.2
million from our parent which was used to repay the intercompany demand loan,
including accrued interest. At March 31, 2003, the outstanding balance was $13.8
million.
On May 3, 2002 we entered into a discretionary line of credit facility (the
"Chase Facility") with JPMorgan Chase Bank ("Chase") which expires on June 30,
2003. Subject to the discretion of Chase, the maximum amount available under the
Chase Facility is the lesser of $15.0 million or seventy-five percent of the
Company's eligible accounts receivable balance, as defined in the agreement. The
Chase 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 Chase's Prime rate, at the option of the Company when
the loan is originated. At March 31, 2003, the outstanding balance due on this
facility was $6.0 million.
On September 20, 2002, we entered into an uncommitted line of credit facility
(the "Lyonnais Facility") with Credit Lyonnais for the issuance of standby
letters of credit. Subject to the discretion of Credit Lyonnais, the maximum
amount available for letters of credit is $15.0 million. The Lyonnais Facility
is guaranteed by Vinci SA and is subject to certain financial and non-financial
covenants. Interest on outstanding letters of credit is charged at a rate equal
to 0.65% per annum. At March 31, 2003, we had $10.3 million in letters of credit
issued and outstanding with Credit Lyonnais. We had an additional $0.7 million
in letters of credit issued and outstanding with JPMorgan Chase Bank.
In the three-month period ended March 31, 2003, we used $14.7 million of net
cash in operations and borrowed $13.8 million under the intercompany demand
loan. We also borrowed $4.0 million under the Chase Facility. We used these
borrowings to fund operations and capital expenditures. At March 31, 2003, we
had $2.1 million in cash and cash equivalents.
As of March 31, 2003, we had $130.1 million of long-term debt of which
approximately $1.4 million is due within one year. We also had $6.0 million of
short-term borrowings under the Chase Facility. 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 $4.3 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 December 31, 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 three-month period ended
March 31, 2003, we spent $6.6 million on capital expenditures, primarily
relating to the new warehouse lease at Charles De Gaulle International Airport
and other ground handling equipment to support our business.
We continue to look for ways to increase our cash flows from operations
including an increased focus on safety and accident prevention as well as the
pursuit of new business. 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, 2003, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 143, Accounting for Asset Retirement Obligations, SFAS
145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections and SFAS 146, Accounting For Cost
Associated With Exit or Disposal Activities. The adoption of these new
accounting pronouncements did not have a significant impact on our results of
operations or financial position.
Critical 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.
Goodwill - in accordance with SFAS 142, recoverability of our goodwill is
measured annually using a discounted cash flow method. While this test did not
indicate any impairment as of March 31, 2003, continued disruptions in our
business may impair the recoverability of goodwill at some future point.
Health and medical liability - our health and medical plan is self-funded with a
$0.25 million per person annual stop loss and a $1.0 million aggregate limit per
person. Because of a lag in reporting claims, we use actuarial data to estimate
the monthly cost of our program. To ensure accuracy, we also perform trend
analysis and other reviews.
Workers compensation liability - our workers compensation coverage provides for
a $0.5 million per occurrence deductible with no aggregate stop loss.
Significant judgment is used to evaluate each claim and to estimate the probable
loss. We utilize a third-party claims administrator to review each claim and
assign an initial probable loss estimate. Then, based annually on historical
trending analysis, we apply a loss development factor to each claim to estimate
and accrue for the ultimate probable loss.
Allowance for doubtful accounts - losses on trade receivables are recognized
when incurred. Measurement of such losses requires significant consideration of
historical loss experience and judgments about the probable effects of relevant
observable data, including present economic conditions and the financial health
of specific customers. Exposures to losses on trade receivables at March 31,
2003 was $71.0 million, against which an allowance for losses of $4.1 million
was provided. At March 31, 2003, American Airlines and its affiliates accounted
for approximately 19.1% of our total accounts receivable balance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information about market risks for the three months ended March 31, 2003 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, 2002.
ITEM 4. CONTROLS AND PROCEDURES
Worldwide's management, including the Chief Executive Officer, have conducted an
evaluation of the effectiveness of disclosure controls and procedures pursuant
to Exchange Act Rule 13a-14. Based on that evaluation, the Chief Executive
Officer concluded that the disclosure controls and procedures are effective in
ensuring that all material information required to be filed in this quarterly
report has been made known to him in a timely fashion. There have been no
significant changes in internal controls, or in factors that could significantly
affect internal controls, subsequent to the date the Chief Executive Officer
completed his evaluation.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 3 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)
May 14, 2003 By: /s/ JEAN-FRANCOIS GOUEDARD
-------------------------------------
Jean-Francois Gouedard
President and Chief Operating Officer
(duly authorized signatory)
May 14, 2003 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)
May 14, 2003 By: /s/ JEAN-FRANCOIS GOUEDARD
-------------------------------------
Jean-Francois Gouedard
President and Chief Operating Officer
(duly authorized signatory)
May 14, 2003 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)
May 14, 2003 By: /s/ JEAN-FRANCOIS GOUEDARD
-------------------------------------
Jean-Francois Gouedard
President and Chief Operating Officer
(duly authorized signatory)
May 14, 2003 By: /s/ JAY P. NORRIS
-------------------------------------
Jay P. Norris
Controller
(Principal Accounting Officer)
CERTIFICATION WORLDWIDE FLIGHT SERVICES, INC.
CERTIFICATIONS PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Jean-Francois Gouedard, certify that:
1. I have reviewed this quarterly report on Form 10-K of Worldwide Flight
Services, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to me by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based on my
evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and Audit Committee:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors and Audit Committee any
material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my most
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ Jean-Francois Gouedard
Chief Executive Officer
EXHIBITS INDEX
ITEM 6(a)
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------ ----------- ------
99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002