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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 September 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 November
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 September 30, 2002 and December 31, 2001
Consolidated Statements of Operations for the three months and
nine months ended September 30, 2002 and 2001
Consolidated Statements of Cash Flows for the nine months ended September 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
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)
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 2,473 $ 5,280
Restricted cash equivalents -- 750
Accounts receivable, less allowance for doubtful accounts 61,248 64,263
Deferred income taxes 9,880 9,880
Prepaid and other current assets 8,059 7,149
--------- ---------
Total current assets 81,660 87,322
Property and equipment:
Property and equipment 61,679 49,868
Less accumulated depreciation (8,983) (2,858)
--------- ---------
52,696 47,010
Intangible assets including goodwill, net 171,600 170,912
Other long-term assets 1,868 1,924
--------- ---------
Total assets $ 307,824 $ 307,168
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 15,434 $ 19,937
Accrued salaries, wages and benefits 14,855 15,634
Due to parent 87,469 72,067
Other accrued liabilities 23,154 27,782
Current portion of long-term debt 1,350 1,350
--------- ---------
Total current liabilities 142,262 136,770
Deferred income taxes 10,757 10,757
Long-term debt, less current portion 128,946 129,746
Stockholder's equity:
Common stock -- --
Additional paid-in capital 76,361 75,527
Retained deficit (52,033) (45,625)
Accumulated other comprehensive gain (loss) 1,531 (7)
--------- ---------
Total stockholder's equity 25,859 29,895
--------- ---------
Total liabilities and stockholder's equity $ 307,824 $ 307,168
========= =========
See accompanying notes.
WORLDWIDE FLIGHT SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2002 2001 2002 2001
--------- ---------- --------- ---------
Revenues $ 90,648 $ 83,191 $ 263,700 $ 259,698
Expenses:
Salaries, wages and benefits 58,266 55,521 167,347 169,368
Materials, supplies and services 12,326 12,072 37,185 38,272
Equipment and facilities rental 6,646 5,936 19,192 18,132
Depreciation and amortization 3,611 5,283 9,468 15,086
Other operating expenses 7,726 14,333 22,321 28,258
--------- --------- --------- ---------
Total operating expenses 88,575 93,145 255,513 269,116
Operating income (loss) 2,073 (9,954) 8,187 (9,418)
Interest expense, net 4,697 5,411 13,723 16,246
Other expense, net 659 1,582 1,043 1,712
--------- --------- --------- ---------
Loss before income taxes (3,283) (16,947) (6,579) (27,376)
Benefit (provision) for income taxes (55) 69 171 1,098
--------- --------- --------- ---------
Net loss $ (3,338) $ (16,878) $ (6,408) $ (26,278)
========= ========= ========= =========
See accompanying notes.
WORLDWIDE FLIGHT SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30,
2002 2001
--------- ---------
OPERATING ACTIVITIES:
Net loss $ (6,408) $(26,278)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 9,468 15,086
Deferred income taxes -- (2,562)
Change in assets and liabilities:
Accounts receivable 4,244 7,692
Prepaid and other assets (147) --
Accounts payable and accrued liabilities (16,226) (1,300)
Other, net 1,756 862
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (7,313) (6,500)
INVESTING ACTIVITIES:
Capital expenditures (10,265) (13,758)
Acquisitions, net of cash -- (2,700)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (10,265) (16,458)
FINANCING ACTIVITIES:
Proceeds from revolver, net -- 23,265
Proceeds from intercompany borrowings, net 12,696 --
Equity contribution by parent 834 --
Other, net 491 (1,736)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 14,021 21,529
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,557) (1,429)
Cash and cash equivalents at beginning of period 6,030 1,429
-------- --------
Cash and cash equivalents at end of period $ 2,473 $ --
======== ========
See accompanying notes.
WORLDWIDE FLIGHT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 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 nine-month periods ended September 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 nine-month periods ended September
30, 2002 and September 30, 2001 (in thousands).
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2002 2001 2002 2001
--------- ----------- --------- ---------
Net loss .................................... $ (3,338) $(16,878) $ (6,408) $(26,278)
Foreign currency translation gain (loss) .... (15) -- 1,538 (1,466)
-------- -------- -------- --------
Total comprehensive loss ................ $ (3,353) $(16,878) $ (4,870) $(27,744)
======== ======== ======== ========
Common Stock
As of September 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 or initial fair value and are
depreciated using the straight-line method over their estimated useful lives.
Maintenance and repair costs are expensed as incurred. At the date of the
acquisition, October 5, 2001, the fair value of fixed assets was estimated to be
approximately their net book value of $47.9 million pending the completion of an
appraisal. During the third quarter of 2002, we received an appraisal of the
fair value of our fixed assets as of the acquisition date and adjusted the
carrying value to reflect that fair value. Accordingly, we increased the value
of our fixed assets by approximately $3.7 million, with a corresponding
reduction to goodwill. We recorded depreciation expense of $0.6 million in the
third quarter of 2002 to reflect the additional depreciation that would have
occurred if we had the results of the fair value appraisal at October 5, 2001.
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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2002 2001 2002 2001
--------- --------- -------- ---------
Net loss:
Reported net loss ....... $ (3,338) $(16,878) $ (6,408) $(26,278)
Goodwill amortization ... -- 1,604 -- 4,855
-------- -------- -------- --------
Adjusted net loss ....... $ (3,338) $(15,274) $ (6,408) $(21,423)
======== ======== ======== ========
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 September 30, 2002, our long-term debt consisted primarily of $125.8
million of 12 1/4 % Senior Notes due August 2007 (the "Senior Notes") and $4.5
million of capital lease obligations. Our obligation under the Senior Notes is
unconditionally guaranteed on a joint and several basis by our 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 September 30, 2002, the outstanding balance was $87.5 million, which
consists of $83.9 million of principal, $1.9 million of interest and $1.7
million of fees related to a consulting arrangement with Vinci Airports US Inc.
This loan is subordinate to the JPMorgan Chase Bank line of credit facility
discussed below.
On May 3, 2002 we entered into a discretionary line of credit facility (the
"Chase Facility") with JPMorgan Chase Bank ("Chase"), which expires on March 31,
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 September 30, 2002, there was no outstanding balance
due on this facility.
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 65 basis points per annum. As September 30, 2002, there was $5.8 million in
letters of credit issued and outstanding.
5. RESTRUCTURING CHARGES
The following table summarizes the activity related to the restructuring reserve
(in thousands):
RESERVE BALANCE RESERVE BALANCE
DESCRIPTION DECEMBER 31, 2001 REVISIONS PAYMENTS SEPTEMBER 30, 2002
- ----------- ----------------- --------- -------- ------------------
Involuntary employee severance ......... $ 1,691 $ 397 $(1,179) $ 909
Non-employee contract terminations ..... 628 (609) (19) --
Lease terminations ..................... 54 -- (54) --
Other exit costs ....................... 252 -- (44) 208
Other business restructuring ........... 459 (130) (329) --
------- ------- ------- -------
Total .............................. $ 3,084 $ (342) $(1,625) $ 1,117
======= ======= ======= =======
The final allocation of the purchase price remains subject to change, therefore,
these 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. (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 nine-month period ended September 30, 2002, we borrowed an
additional $12.7 million, net and accrued $1.5 million in interest expense. In
addition, we accrued $1.2 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 September 30, 2002 Vinci Airports US Inc. and ACAC had purchased $63.9
million and $10.0 million, respectively, of our Senior Notes on the open market.
ACAC purchased the notes in 2001. Vinci Airports US Inc. purchased $5.0 million
of Notes in October 2001, $22.4 million in December 2001, $8.0 million in July
2002, $20.5 million in August 2002 and $8.0 million in September 2002. 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. On
August 15, 2002 Vinci Airports US Inc. and ACAC received an interest payment
from us of $3.1 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 September 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 September 30, 2002 and December 31, 2001 was
zero.
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 our 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
SEPTEMBER 30, 2002
GUARANTOR NON-GUARANTOR
COMBINED COMBINED
DOMESTIC FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ -------------- ------------ ------------
Current assets:
Cash and cash equivalents ............ $ 1,508 $ 212 $ 753 $ -- $ 2,473
Accounts receivable, net ............. 45,791 2,937 12,520 -- 61,248
Other current assets ................. 12,497 262 5,180 -- 17,939
-------- -------- -------- -------- --------
Total current assets ............. 59,796 3,411 18,453 -- 81,660
Non-current assets:
Property and equipment, net .......... 31,380 343 20,973 -- 52,696
Intercompany receivable .............. 18,852 -- -- (18,852) --
Investment in affiliates ............. 4,202 -- -- (4,202) --
Intangible assets including
goodwill, net ........................ 168,173 -- 3,427 -- 171,600
Other long-term assets ............... 1,428 146 294 1,868
-------- -------- -------- -------- --------
Total non-current assets ......... 224,035 489 24,694 (23,054) 226,164
-------- -------- -------- -------- --------
Total assets ..................... $283,831 $ 3,900 $ 43,147 $(23,054) $307,824
======== ======== ======== ======== ========
Current liabilities:
Accounts payable ..................... $ 6,997 $ 210 $ 8,227 $ -- $ 15,434
Intercompany payables ................ -- 1,412 17,440 (18,852) --
Due to Parent ........................ 82,952 -- 4,517 87,469
Other accrued liabilities ............ 31,870 1,134 6,355 -- 39,359
-------- -------- -------- -------- --------
Total current liabilities ........ 121,819 2,756 36,539 (18,852) 142,262
Non-current liabilities:
Long-term debt ....................... 125,332 222 3,392 -- 128,946
Deferred income taxes ................ 10,757 -- -- -- 10,757
-------- -------- -------- -------- --------
Total non-current liabilities .... 136,089 222 3,392 -- 139,703
Stockholder's equity ................... 25,923 922 3,216 (4,202) 25,859
-------- -------- -------- -------- --------
Total liabilities and
stockholder's equity ............. $283,831 $ 3,900 $ 43,147 $(23,054) $307,824
======== ======== ======== ======== ========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2002
GUARANTOR
COMBINED NON-GUARANTOR
DOMESTIC COMBINED FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ---------------- ------------ ------------
Revenues ............................... $ 210,747 $ 9,158 $ 43,795 $ -- $ 263,700
Expenses:
Salaries, wages and benefits ......... 144,239 6,750 16,358 -- 167,347
Materials, supplies, and services .... 36,690 45 450 -- 37,185
Equipment and facility rental ........ 13,588 313 5,291 -- 19,192
Depreciation and Amortization ........ 8,354 101 1,013 -- 9,468
Other miscellaneous expenses ......... 2,986 2,034 17,301 -- 22,321
--------- --------- --------- --------- ---------
Operating expenses ............... 205,857 9,243 40,413 -- 255,513
Operating income (loss) ................ 4,890 (85) 3,382 -- 8,187
Interest expense, net ................ 12,917 -- 806 -- 13,723
Other expense, net ................... 1,021 12 10 -- 1,043
Equity in earnings of subsidiaries ... 2,469 -- -- (2,469) --
--------- --------- --------- --------- ---------
Income (loss) before income taxes ...... (6,579) (97) 2,566 (2,469) (6,579)
Benefit for income taxes ............... 171 46 (605) 559 171
--------- --------- --------- --------- ---------
Net income (loss) ...................... $ (6,408) $ (51) $ 1,961 $ (1,910) $ (6,408)
========= ========= ========= ========= =========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2002
GUARANTOR
COMBINED NON-GUARANTOR
DOMESTIC COMBINED FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ---------------- ------------ ------------
Cash provided by (used in) operating
activities ................................ $(10,517) $ (1,028) $ 4,232 $ -- $ (7,313)
Cash used in investing activities ........... (358) (153) (9,754) -- (10,265)
Cash provided by financing activities ....... 6,202 1,343 6,476 -- 14,021
-------- -------- -------- ---- --------
Change in cash .............................. $ (4,673) $ 162 $ 954 $ -- $ (3,557)
======== ======== ======== ==== ========
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2001
GUARANTOR
COMBINED NON-GUARANTOR
DOMESTIC COMBINED 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:
Property and equipment, 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
NINE MONTHS ENDED SEPTEMBER 30, 2001
GUARANTOR
COMBINED NON-GUARANTOR
DOMESTIC COMBINED FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ---------------- ------------ ------------
Revenues ................................. $ 213,985 $ 8,853 $ 36,860 $ -- $ 259,698
Expenses:
Salaries, wages and benefits ........... 149,212 5,958 14,198 -- 169,368
Materials, supplies, and services ...... 37,712 99 461 -- 38,272
Equipment and facility rental .......... 13,249 356 4,527 -- 18,132
Depreciation and amortization .......... 14,150 67 869 -- 15,086
Other miscellaneous expenses ........... 11,806 2,686 13,766 -- 28,258
--------- --------- --------- --------- ---------
Operating expenses .................. 226,129 9,166 33,821 -- 269,116
--------- --------- --------- --------- ---------
Operating income (loss) .................. (12,144) (313) 3,039 -- (9,418)
Interest expense, net .................. 16,134 -- 112 -- 16,246
Other expense, net ..................... 1,487 4 221 -- 1,712
Equity in earnings of subsidiaries ..... 2,389 -- -- (2,389) --
--------- --------- --------- --------- ---------
Income (loss) before income taxes ........ (27,376) (317) 2,706 (2,389) (27,376)
Benefit (provision) for income taxes ..... 1,098 123 (788) 665 1,098
--------- --------- --------- --------- ---------
Net income (loss) ........................ $ (26,278) $ (194) $ 1,918 $ (1,724) $ (26,278)
========= ========= ========= ========= =========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2001
GUARANTOR
COMBINED NON-GUARANTOR
DOMESTIC COMBINED FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ---------------- ------------ ------------
Cash provided by (used in)
operating activities ................... $ (9,370) $ 882 $ 1,988 $ -- $ (6,500)
Cash used in investing activities ...... (9,396) (1,375) (5,687) -- (16,458)
Cash provided by
financing activities ................... 18,599 812 2,118 -- 21,529
-------- -------- -------- ------ --------
Change in cash ......................... $ (167) $ 319 $ (1,581) $ -- $ (1,429)
======== ======== ======== ====== ========
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
September 30, 2002 were $90.6 million, $2.1 million, and $3.3 million,
respectively. Revenue, operating loss, and net loss for the three-month period
ended September 30, 2001 were $83.2 million, $10.0 million, and $16.9 million,
respectively.
Revenues, operating income, and net loss for the nine-month period ended
September 30, 2002 were $263.7 million, $8.2 million, and $6.4 million,
respectively. Revenue, operating loss, and net loss for the nine-month period
ended September 30, 2001 were $259.7 million, $9.4 million, and $26.3 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. As a result, our revenues during
September 2001 and the following months were negatively impacted. In response to
these attacks, many airlines reduced their operating schedules by as much as
20%. Our 2002 results continue to be adversely impacted by the September 11,
2001 attacks and the resulting effect on the economy and the air transportation
industry.
In November 2001 the Aviation and Transportation Security Act ("ATSA") was
enacted, creating a new government agency, the Transportation Security
Administration ("TSA"). The newly formed TSA is part of the United States
Department of Transportation and 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. The TSA
assumed most passenger screening functions in February 2002, largely by
contracting with private-sector security providers, including Worldwide;
however, the TSA is required to have its own federal employees performing these
functions by November 2002. In the third quarter of 2002, the TSA assumed most
of our passenger screening activity, which represents less than 6.0% of
Worldwide's annual revenue.
Revenues
Total revenues increased $7.4 million to $90.6 million for the quarter ended
September 30, 2002 and increased $4.0 million to $263.7 million in the
nine-month period ended September 30, 2002 compared to the same periods in 2001.
In 2002, revenues were positively impacted by an increase in the number of new
service contracts. Furthermore, revenues in September 2001 were negatively
impacted by the terrorist attacks. For the nine-month period 2002, these
increases were partially offset by a decrease in deicing revenues in the first
quarter and by the residual effects of September 11, 2001 that spilled over into
the first half of 2002.
Salaries, wages and benefits
Salaries, wages and benefits increased $2.8 million to $58.3 million for the
quarter ended September 30, 2002 and decreased $2.1 million to $167.3 million in
the nine-month period ended September 30, 2002 compared to the same periods in
2001. The $2.8 million increase is primarily attributable to the events of
September 11, 2001, during which time we experienced brief shutdown of our
operations followed by a sharp decline in flight frequencies. These events
consequently reduced our labor needs during that period. The $2.1 million
decrease in the nine-month period is mainly due to the impact of our headquarter
restructuring in December 2001 and better management of manpower at field
locations.
Materials, supplies and services
Materials, supplies and services increased $0.2 million to $12.3 million for the
quarter ended September 30, 2002 and decreased $1.1 million to $37.2 million in
the nine-month period ended September 30, 2002, compared to the same periods in
2001. The $0.2 million increase mainly relates to new service contracts in the
third quarter of 2002, partially offset by a decrease in legal expenses due
primarily to changes in our administrative procedures. The $1.1 million decrease
for the nine-month period in 2002 is primarily attributable to a decrease in
legal expenses and temporary labor. In addition, we experienced a decrease in
the costs associated with deicing and experienced lower flight frequencies
during the first quarter of 2002. These decreases were partially offset by new
service contracts.
Depreciation and amortization
Depreciation and amortization decreased $1.7 million to $3.6 million for the
quarter ended September 30, 2002 and decreased $5.6 million to $9.5 million in
the nine-month period ended September 30, 2002, 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. In connection with the fair
value appraisal obtained in the third quarter, we adjusted our depreciation
expense to reflect the additional depreciation that would have occurred if we
had the results of the fair value appraisal at October 5, 2001. This additional
depreciation expense of $0.6 million partially offset the benefit from adopting
SFAS No. 142.
Other operating expenses
Other operating expenses decreased $6.6 million to $7.7 for the quarter ended
September 30, 2002 and decreased $6.1 million to $22.3 million in the nine-month
period ended September 30, 2002, compared to the same periods in 2001. These
decreases are mainly attributable to decreases in bad debt charges, payroll
processing fees, aviation damage charges, airport fees and various other
miscellaneous operating expenses. In September 2001, as a result of the
terrorist attacks, management reassessed the future value of certain assets
including receivables. In the summer of 2001, we implemented the payroll module
of SAP, eliminating the need for third-party payroll processing. The Aviation
Department of Miami-Dade County International Airport performed an audit of our
Gross Revenues calculation, which is used in determining the airport fees paid
under our general aeronautical services permit. In connection with that audit
the airport assessed $0.8 million in additional airport fees which was recorded
in September 2001. In addition, our insurance cost increased in 2002 as a result
of the terrorist attacks on September 11, 2001.
Operating income
For the quarter ended September 30, 2002, we had operating income of $2.1
million, compared to an operating loss of $10.0 million in 2001. For the
nine-month period ended September 30, 2002, we had operating income of $8.2
million, compared to an operating loss of $9.4 million in 2001. Operating income
was positively impacted by increased revenues 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 September 30,
2002, the outstanding balance was $85.8 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 March 31,
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 September 30, 2002, there was no outstanding balance
due on this facility.
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 65 basis points per annum. As September 30, 2002, there was $5.8 million in
letters of credit issued and outstanding.
In the nine-month period ended September 30, 2002, $7.3 million of net cash was
used in operations and $12.7 million net was borrowed under the intercompany
demand loan. In addition to funding operations, approximately $10.3 million was
used to fund capital expenditures. At September 30, 2002, we had $2.5 million in
cash and cash equivalents.
As of September 30, 2002, we had $130.3 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 $4.5 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 September 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 nine-month period ended
September 30, 2002, we spent $10.3 million on capital expenditures, primarily
for warehouses and ground handling equipment to support our business, compared
to $13.8 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, 2001. 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 $6.4
million for the nine-month period ended September 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. In
connection with this acquisition, we initially 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. During the third quarter of 2002, we received an appraisal of the
fair value of our fixed assets and adjusted the carrying value to reflect that
fair value at the acquisition date. Accordingly, we increased the value of our
fixed assets by approximately $3.7 million, with a corresponding reduction to
goodwill. 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
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information about market risks for the three months ended September 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.
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)
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)
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-Q 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:
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 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 our
most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 8, 2002
/s/ Jean-Francois Gouedard
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 (Filed herewith)
99.2 Uncommitted Letter of Credit Agreement dated September 20, 2002 between Worldwide
Flight Services, Inc. and Credit Lyonnais (Filed herewith)
99.3 Parent agreement associated with the Uncommitted Letter of Credit Agreement dated
September 20, 2002 between Worldwide Flight Services, Inc. and Credit Lyonnais
(Filed herewith)