-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lw+2vBpkPWizcHDYidqzQbU0za1DDisLVxbPOSpigbqNjsH6Zq34CFq6OFXqi+tZ GaRv55RhAY0WSp5zD3qNCQ== 0000353184-99-000005.txt : 19990215 0000353184-99-000005.hdr.sgml : 19990215 ACCESSION NUMBER: 0000353184-99-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990212 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIR TRANSPORTATION HOLDING CO INC CENTRAL INDEX KEY: 0000353184 STANDARD INDUSTRIAL CLASSIFICATION: AIR COURIER SERVICES [4513] IRS NUMBER: 521206400 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-11720 FILM NUMBER: 99534060 BUSINESS ADDRESS: STREET 1: 3524 AIRPORT RD CITY: MAIDEN STATE: NC ZIP: 28650 BUSINESS PHONE: 704648741X227 MAIL ADDRESS: STREET 1: P O BOX 488 CITY: DENVER STATE: NC ZIP: 28037 FORMER COMPANY: FORMER CONFORMED NAME: ATLANTA EXPRESS AIRLINE CORP DATE OF NAME CHANGE: 19840321 10-Q 1 DEC 31 1998 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For Quarter Ended December 31, 1998 Commission File Number 0-11720 AIR TRANSPORTATION HOLDING COMPANY, INC. (Exact name of registrant as specified in its charter) Delaware 52-1206400 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Post Office Box 488, Denver, North Carolina 28037 (Address of principal executive offices) (704) 377-2109 (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 APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 2,688,653 Common Shares, par value of $.25 per share were outstanding as of February 5, 1999. This filing contains 20 pages. The exhibit index is on page 19. AIR TRANSPORTATION HOLDING COMPANY, INC. AND SUBSIDIARIES INDEX Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Earnings for the three and nine-month periods ended December 31, 1998 and 1997 (Unaudited) 3 Consolidated Balance Sheets at December 31, 1998 (Unaudited) and March 31, 1998 4 Consolidated Statements of Cash Flows for the nine-month periods ended December 31, 1998 and 1997 (Unaudited) 5 Notes to Consolidated Financial Statements (Unaudited) 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-15 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 16-18 Exhibit Index 19 Exhibits 20 2 AIR TRANSPORTATION HOLDING COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Three Months Ended Nine Months Ended December 31, December 31, 1998 1997 1998 1997 Operating Revenues: Cargo $ 4,925,340 $ 4,852,046 $ 14,496,799 $ 13,880,202 Maintenance 2,982,195 3,634,536 9,743,912 10,146,149 Ground equipment 2,997,077 6,367,958 9,690,672 7,920,810 Aircraft services and other 1,560,400 1,608,000 3,959,814 3,426,775 12,465,012 16,462,539 37,891,197 35,373,935 Operating Expenses: Flight operations 3,402,322 3,498,380 10,142,042 9,876,900 Maintenance and brokering 4,468,634 4,435,256 12,673,717 12,103,189 Ground equipment 2,746,920 4,869,276 8,233,800 6,040,056 General and administrative 1,561,109 2,115,382 5,232,802 4,328,167 Depreciation and amortization 186,414 162,030 538,177 384,037 Facility start-up & merger expense- 8,766 - 188,521 12,365,400 15,089,089 36,820,539 32,920,869 Operating Income 99,612 1,373,450 1,070,658 2,453,066 Non-operating Expense (Income): Interest 101,124 - 225,810 - Deferred retirement expense 6,249 - 18,747 418,000 Investment income (32,532) (51,234) (135,954) (208,687) Gain on asset sale - 12,501 - 20,833 74,841 (38,733) 108,603 230,146 Earnings Before Income Taxes 24,771 1,412,183 962,055 2,222,920 Income Taxes 9,137 519,667 400,590 817,267 Net Earnings $ 15,634 $ 892,516 $ 561,465 $ 1,405,653 Net Earnings Per Share: Basic $ 0.01 $ 0.34 $ 0.21 $ 0.53 Diluted $ 0.01 $ 0.32 $ 0.20 $ 0.50 Average Shares Outstanding: Basic 2,688,653 2,650,653 2,698,875 2,649,246 Diluted 2,783,974 2,780,396 2,795,496 2,785,942 See notes to consolidated financial statements.
3 AIR TRANSPORTATION HOLDING COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, 1998 March 31,1998 (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 46,906 $ 193,918 Marketable securities 2,295,224 2,556,257 Accounts receivable, net 5,655,898 6,673,101 Inventories 6,897,744 5,325,613 Deferred tax asset, net 272,980 272,980 Prepaid expenses and other 66,962 33,922 Total Current Assets 15,235,714 15,055,791 Property and Equipment 5,179,799 4,693,268 Less accumulated depreciation (2,900,188) (2,429,031) 2,279,611 2,264,237 Deferred Tax Asset 394,625 152,000 Intangible Pension Asset 479,495 389,495 Other Assets 389,861 427,880 Total Assets $ 18,779,306 $ 18,289,403 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable to bank $ 3,371,301 $ 916,079 Accounts payable 2,994,211 3,975,633 Accrued expenses 1,360,404 1,778,664 Income taxes payable 114,081 762,961 Current portion of long-term obligations 56,297 56,241 Total Current Liabilities 7,896,294 7,489,578 Capital Lease Obligation (less current portion) 27,041 30,904 Deferred Retirement Obligation (less current portion) 1,109,568 1,056,795 Stockholders' Equity: Preferred stock, $1 par value, authorized 10,000,000 shares, none issued - - Common stock, par value $.25; authorized 4,000,000 shares; 2,688,653 and 2,711,653 shares issued 671,491 677,241 Additional paid in capital 6,985,157 7,128,907 Retained earnings 2,089,756 1,905,978 9,746,403 9,712,126 Total Liabilities and Stockholders' Equity $ 18,779,306 $ 18,289,403 See notes to consolidated financial statements.
4 AIR TRANSPORTATION HOLDING COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended December 31, 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 561,465 $ 1,405,653 Adjustments to reconcile net earnings to net cash used in operations: Depreciation and amortization 538,177 384,037 Change in deferred tax asset (242,625) (80,000) Change in retirement obligation 52,773 718,000 Change in assets and liabilities which provided (used) cash: Accounts receivable 1,017,203 (4,719,768) Inventories (1,572,131) (1,391,017) Prepaid expenses and other (85,021) (240,266) Accounts payable (981,422) 2,656,555 Accrued expenses (422,067) 227,635 Income taxes payable (648,880) 30,537 Total adjustments (2,343,993) (2,414,287) Net cash used in operating activities (1,782,528) (1,008,634) CASH FLOWS FROM INVESTING ACTIVITIES: Business acquisition - (715,981) Capital expenditures (553,552) (540,174) Purchase of marketable securities (189,250) (960,757) Sale of marketable securities 450,283 716,446 Net cash used in investing activities (292,519) (1,500,466) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from line of credit 2,455,222 1,545,645 Payment of cash dividend (377,687) (265,143) Repurchase of common stock (149,500) (67,254) Proceeds from exercise of stock options - 18,750 Net cash provided by financing activities 1,928,035 1,231,998 NET DECREASE IN CASH CASH EQUIVALENTS (147,012) (1,277,102) CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 193,918 2,377,898 CASH & CASH EQUIVALENTS AT END OF PERIOD $ 46,906 $ 1,100,796 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 194,586 $ 3,760 Income/Franchise taxes 1,439,144 879,176 See notes to consolidated financial statements.
5 AIR TRANSPORTATION HOLDING COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) A. Financial Statements The Consolidated Balance Sheet as of December 31, 1998, the Consolidated Statements of Earnings for the three and nine-month periods ended December 31, 1998 and 1997 and the Consolidated Statements of Cash Flows for the nine-month periods ended December 31, 1998 and 1997 have been prepared by Air Transportation Holding Company, Inc. (the Company) without audit. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows as of December 31, 1998, and for prior periods presented, have been made. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 1998. The results of operations for the period ended December 31 are not necessarily indicative of the operating results for the full year. B. Income Taxes The tax effect of temporary differences, primarily asset reserves and accrued liabilities, gave rise to the Company's deferred tax asset in the accompanying December 31, 1998 and March 31, 1998 consolidated balance sheets. The Company recorded a valuation allowance for the nine-months ended December 31, 1997 in order to reduce its deferred tax asset to an amount which is more likely than not to be realized. Changes in the valuation allowance, related to future utilization of net operating losses, reduced the provision for income taxes by $44,000 during the nine-months ended December 31, 1997. At December 31, 1998, the Company had no valuation allowance. The income tax provisions for the nine-months ended December 31, 1998 and 1997 differ from the federal statutory rate primarily as a result of state income taxes and a reduction in the above mentioned valuation allowance. C. Net Earnings Per Share Basic earnings per share has been calculated by dividing net earnings by the weighted average number of common shares outstanding during each period. For purposes of calculating diluted earnings per share, shares issuable under employee stock options which were dilutive were considered common share equivalents and were included in the weighted average common shares. 6 The computation of basic and diluted earnings per common share is as follows: Three Months Ended Nine Months Ended December 31, December 31, 1998 1997 1998 1997 Net earnings $ 15,634 $ 892,516 $ 561,465 $1,405,653 Weighted average common shares: Shares outstanding-basic 2,688,653 2,650,653 2,698,875 2,649,246 Dilutive stock options 95,321 129,743 96,621 136,696 Shares outstanding-diluted 2,783,974 2,780,396 2,795,496 2,785,942 Net earnings per common share: Basic $ 0.01 $ 0.34 $ 0.21 $ 0.53 Diluted $ 0.01 $ 0.32 $ 0.20 $ 0.50 D. Acquisition On August 29, 1997, the Company acquired the Simon Deicer Division of Terex, Inc. for $716,000 cash. The acquisition, renamed Global Ground Support, LLC (Global), manufactures, sells and services aircraft deicer equipment on a worldwide basis. The acquisition was accounted for using the purchase method; accordingly, the assets and liabilities (which included $1,522,000 inventory, $287,000 fixed assets and $3,000 accounts receivable, net of $1,048,000 in customer deposits and $49,000 warranty obligation) of the acquired entity have been recorded at their estimated fair values at the date of acquisition. Global's results of operations have been included in the Consolidated Statement of Income since the date of acquisition. E. Recent Accounting Pronouncements Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information"(SFAS 131) was issued in June 1997. SFAS 131 is effective for the Company in the fiscal year ending March 31, 1999. SFAS 131 redefines how operating segments are determined and requires disclosure of certain financial and descriptive information about a company's operating segments. Management does not believe that the adoption of SFAS 131 will have a material impact on the Company's current disclosures of its operating segments. In March 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 98-1, Accounting for Costs of Computer Software Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 provides a framework for determining the accounting treatment of costs incurred to obtain or develop computer software. In April 1998, the AICPA issued Statement of Position 98-5, Reporting on the Costs of Start-Up Activities ("SOP 98-5"), which requires immediate expensing of certain organization and start-up costs. 7 E. Recent Accounting Pronouncement (Cont'd) For SOP 98-1 and 98-5 the Company will adopt these standards for fiscal year ended March 31, 2000. Company management currently believes that the adoption of these statements will not have a material impact. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 established accounting and reporting standards for derivative instruments and for hedging activities. SFAS No. 133 is effective for the Company in the fiscal year ending March 31, 2001. Management is currently evaluating the effect of SFAS No. 133 on the Company's financial statements. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Overview Statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" or made by management of the Company which contain more than historical information may be considered forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) which are subject to risks and uncertainties. Actual results may differ materially from those expressed in the forward-looking statements because of important risks and uncertainties, including but not limited to the effects of economic, competitive and market conditions in the aviation industry. The Company's most significant component of revenue (cargo and maintenance) is generated through its air cargo subsidiaries, Mountain Air Cargo, Inc. (MAC) and CSA Air, Inc. (CSA), which are short-haul express air freight carriers flying nightly under contracts for a major express delivery company out of 80 cities, principally located in 30 states in the eastern half of the United States and in Puerto Rico, Canada and the Virgin Islands. Under the terms of its dry-lease service contracts (which currently cover approximately 98% of the revenue aircraft operated), the Company passes through to its customer certain cost components of its operations without markup. The cost of fuel, flight crews, landing fees, outside maintenance, aircraft certification and conversion, parts and certain other direct operating costs are included in operating expenses and billed to the customer as cargo and maintenance revenue. Air cargo related revenue contributed $24,240,000 and $24,026,000 respectively for the nine-month periods ended December 31, 1998 and 1997. In May 1997, to expand its revenue base, the Company's Mountain Aircraft Services, LLC (MAS) subsidiary expanded its offering of aircraft component repair services. MAS's revenue contributed $3,695,000 and $3,322,000 to the Company's revenues for the nine-month periods ended December 31, 1998 and 1997, respectively. In August 1997, the Company acquired certain assets and order backlog and assumed certain liabilities of Simon Deicer Company, a division of Terex Aviation Ground Equipment, Inc. located in Olathe, Kansas. The acquisition, renamed Global Ground Support, LLC (Global), manufactures, services and supports aircraft deicers on a worldwide basis. Global is operated as a subsidiary of MAS. Global's revenue contributed $9,691,000 to the Company's revenues for the nine-month period ended December 31, 1998 and $7,921,000 for the aproximately four- month period from date of acquisition through December 31, 1997. 9 Seasonality Global's business has historically been highly seasonal. In general, the bulk of Global's revenues and earnings have typically occurred during the second and third fiscal quarters in anticipation of the winter season, and comparatively little has occurred during the first and fourth fiscal quarters due to the nature of its product line. The Company is currently attempting to reduce Global's seasonal fluctuation in revenues and earnings by broadening its product line to increase revenues and earnings in the first and fourth fiscal quarters. The Company expended exceptional effort in the second and third quarter of 1998 to design and produce prototype equipment to expand its current product line. The remainder of the Company's business is not materially seasonal. Results of Operations Consolidated revenue increased $2,517,000 (7.1%) to $37,891,000 and decreased $3,998,000 (24.3%) to $12,465,000, respectively, for the nine and three-month periods ended December 31, 1998 compared to their equivalent 1997 periods. The nine-month increase was primarily due to a $1,770,000 (22.3%) increase in Global's revenue due to a full nine months of operations for the nine-month period ended December 31, 1998 compared to four months of operations for the similar period ended December 31, 1997. The three-month decrease was principally due to a $3,371,000 (52.9%) decrease in Global's revenue due to reduced demand attributed to above normal winter temperatures, increased price competition (which resulted in both reduced sales and higher than normal product sales discounts) and the introduction of lower cost units to diversify the product line. Decreases in air cargo maintenance billings further reduced current period revenue by $402,000 (4.0%) and $652,000 (17.9%), respectively, for the nine and three-month periods ended December 31, 1998. Operating expenses increased $3,900,000 (11.9%) to $36,821,000 for the nine-month period ended December 31, 1998 and decreased $2,724,000 (18.1%) to $12,319,000 for the three-month period ended December 31, 1998 compared to their equivalent 1997 periods. The change in operating expenses for the nine-month period consisted of the following: cost of flight operations increased $265,000 (2.7%), primarily as a result of increases in pilot and flight personnel and costs associated with pilot travel; maintenance and brokerage expense increased $571,000 (4.7%), primarily as a result of increases associated with contract services, and cost of parts and labor related to the expansion of MAS's repair shop; ground equipment increased $2,194,000 (36.3%), as a result of nine months of operation in the current 1998 period compared to four months of activity during the prior 1997 period; depreciation and amortization increased $154,000 (40.1%) as a result of increased depreciation related to the above Global acquisition; general and administrative expense increased $905,000 (20.9%) primarily as a result of increases associated with the above mentioned nine full months of expanded Global operations, the expansion of MAS's repair shop operations and increases in employee benefit and professional fees; facility start-up and merger expense decreased $189,000 in 1998 compared to the previous nine-month period due to the expensing of start-up and merger related cost in 1997. 10 Results of Operations (cont'd) Operating expenses decreased $2,724,000 (18.1%) for the three- month period ended December 31, 1998 compared to its similar 1997 period. The decrease primarily resulted from the following changes in operating costs: Cost of flight operations decreased $96,000 (2.8%) primarily due to an insurance refund partly offset by higher travel related costs; ground equipment decreased $2,122,000 (43.6%) due to decreased cost of sales related to lower sales of aircraft deicers; general and administrative expense decreased $554,000 (26.2%) primarily due to a current period adjustment to reclassify $244,000 from office to maintenance salaries and insurance refunds of $261,000. The $122,000 decrease in non-operating expense for the nine months ended December 31, 1998 compared to December 31, 1997 was principally due to a $418,000 accrual in the first quarter of 1997, to fulfill contractual benefits related to the death of the Company's Chairman and CEO, offset by a $226,000 increase in interest expense in the 1998 nine- month period. The $114,000 increase in non-operating expense for the comparative three-month periods ended December 31, 1998 and 1997 was primarily due to $101,000 in interest expense incurred in the 1998 period. Pretax earnings decreased $1,261,000 and $1,387,000 for the nine and three-month periods ended December 31, 1998, respectively compared to their respective December 31, 1997 periods. The nine-month decrease was principally due to a $596,000 current period net loss at Global compared to $1,244,000 net income in 1997, offset in part by the above 1997 death benefit provision. The third quarter decrease was again principally due to a $1,514,000 decrease in Global's profitability. The provision for income taxes decreased $417,000 and $511,000 for the nine and three-month periods ended December 31, 1998, respectively compared to their respective 1997 periods due to changes in taxable income offset in part by higher effective tax rates. Liquidity and Capital Resources As of December 31, 1998 the Company's working capital amounted to $7,339,000, a decrease of $227,000 compared to March 31, 1998. The net decrease primarily resulted from a decrease in profitable operations and increased financing required to fund the operations of Global and expansion of MAS. On July 17, 1998, the Company increased its unsecured line of credit from $5,000,000 to $7,000,000. The line, which matures August 31, 1999, is expected to be renewed before its expiration date. Amounts advanced under the line of credit bear interest at the 30-day "LIBOR" rate (5.06% at December 31, 1998) plus 137 basis points. 11 Liquidity and Capital Resources (cont'd) Under the terms of the line of credit the Company must maintain certain financial ratios and may not encumber certain real or personal property. At December 31, 1998 the Company was in compliance with the debt covenants. As of December 31, 1998, the Company was in a net borrowing position against its line of credit in the amount of $3,371,000, a $2,455,000 increase over the March 31, 1998 loan balance, principally to fund the expanded operations of Global. Management believes that funds anticipated from operations and existing credit facilities will provide adequate cash flow to meet the Company's future financial needs. The respective nine-month periods ended December 31, 1998 and 1997 resulted in the following changes in cash flow: operating activities used $1,783,000 and $1,009,000, investing activities used $293,000 and $1,500,000 and financing activities provided $1,928,000 and $1,232,000. Net cash decreased $147,000 and $1,277,000 for the respective nine- month periods ended December 31, 1998 and 1997. Cash used in operating activities was $774,000 more for the nine- months ended December 31, 1998 compared to the similar 1997 period, principally due to increases in inventory, a decrease in profitable operations, decreases in accounts, accrued and taxes payable and a 1997 $418,000 provision related to the death of the Company's former Chairman and CEO partially offset by a reduction in accounts receivable. Cash used in investing activities for the nine-months ended December 31, 1998 was approximately $1,208,000 less than the comparable period in 1997, principally due to the 1997 Global business acquisition and a current period decrease in purchase of marketable securities. Cash provided by financing activities for the nine-months ended December 31, 1998 was approximately $696,000 more than the comparable 1997 period, principally due to an increase in borrowings under the line of credit in 1998, partially offset by an increase in cash dividend and repurchase of common stock. There are currently no commitments for significant capital expenditures. The Company's Board of Directors, on August 7, 1997, adopted the policy to pay an annual cash dividend in the first quarter of each fiscal year, in an amount to be determined by the board. The Company paid a $0.14 per share cash dividend in June 1998. Recent Accounting Pronouncement Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information (SFAS 131) was issued in June 1997. SFAS 131 is effective for the Company in the fiscal year ending March 31, 1999. SFAS 131 redefines how operating segments are determined and requires disclosure of certain financial and descriptive information about a company's operating segments. Management does not believe that the adoption of SFAS 131 will have a material impact on the Company's current disclosures of its operating segments. 12 Deferred Retirement Obligation The Company's former Chairman and Chief Executive Officer passed away on April 18, 1997. In addition to amounts previously expensed, under the terms of his supplemental retirement agreement, death benefits with a present value of approximately $418,000 were expensed in the first quarter 1998. The death benefits are payable in the amount of $75,000 per year for 10 years. Impact of Inflation The Company believes that due to the current low levels of inflation the impact of inflation and changing prices on its revenues and net earnings will not have a material effect on its manufacturing operations, or on its air cargo business since the major cost components of its operations, consisting principally of fuel, crew and certain maintenance costs are reimbursed, without markup, under current contract terms. Year 2000 Issue The Company has initiated a comprehensive review of its operations and computer systems to identify the extent to which it could be affected by the "year 2000 issue", which is the result of computer programs written using two digits rather than four to define the applicable year. The Company has broken down its review to assess its information technology systems (IT Systems), the aspects of its operations that rely on devices that may contain embedded microchips (Non-IT Systems) and its relationships and reliance on vendors, suppliers, customers and others with whom the Company deals whose operations may be affected by the year 2000 issue. This review was conducted by the Company's Year 2000 committee, authorized to assess the Company's risks and develop a comprehensive plan to address the year 2000 issue. State of Readiness IT Systems. As a result of such review, as of the date of this Quarterly Report on Form 10-Q, the Company believes it has catalogued all IT Systems utilized directly by the Company. The Company has revised certain customized IT Systems to enable such systems to work properly following the year 2000 and is in the process of confirming oral verification that recently acquired IT Systems from third-party vendors are "year 2000 compliant". Management currently believes three significant IT Systems, which are used in the operations area of the Company, have not been confirmed as being "year 2000 compliant". Management has decided to utilize external resources to upgrade these software systems to become year 2000 compliant. Management believes that such systems can be upgraded by June 30, 1999. Management believes that adequate replacement systems that are year 2000 compliant are commercially available and can be properly installed and operating before the year 2000 in the event that such upgrades cannot be timely completed. 13 Year 2000 Issue (cont'd) Non-IT Systems. The Company utilizes a number of devices that include embedded microchips that may be affected by the year 2000 issue, including aircraft operated under lease agreements with its major customer. The Company anticipates completing the testing and replacing of any noncompliant devices by June 30, 1999. Under its agreements with its major customer the cost of replacing such components in aircraft leased by the Company from its customer would be passed on to the customer. Material Third Parties. The Company is making concerted efforts to understand the year 2000 compliance of third parties (including, among others, domestic and international government agencies and air traffic control systems material to the Company's operations, vendors, suppliers and major customers) whose year 2000 non-compliance could either have a material adverse effect on the Company's business, financial condition or results of operations or involve a safety risk to employees or customers. The Company is actively encouraging year 2000 compliance on the part of third parties and is developing contingency plans in the event of their year 2000 non-compliance by June 30, 1999. The Company has contacted, in writing, each material vendor and supplier, requesting completion of a questionnaire to assess such third party's year 2000 compliance. Failure to respond to these questionnaires will result in further mail or phone correspondence and contingency plan development including, if necessary, vendor/product replacement. The Company has met with its major air cargo customer on numerous occasions to discuss year 2000 readiness. In addition, the Company has reviewed public filings of its major customer to assess the customer's state of year 2000 compliance. Such discussions and filings indicate plans by such customer to be 100% internal systems year 2000 compliance, including operating subsidiaries, by November 1, 1999. However, such customer's operations rely on many third parties, including governmental agencies, airports and air traffic control systems described below. In conjunction with the Company's major air cargo customer and industry trade associations, the Company is involved in an industry- wide effort to understand the year 2000 compliance status of airports, air traffic systems, and other U.S. and international government agencies that may affect the Company's air cargo operations. The Company's air cargo routes are selected and scheduled by its major customer. 14 Risks (Cont'd) In addition to general risks raised by the year 2000 issue, the Company's primary business segment, providing air cargo services to the overnight express delivery industry, is subject to significant additional risks. First, the Company's relationship with its major air cargo customer is based, in significant part, on the Company's operating reliability. A failure to timely confirm its year 2000 compliance to the customer could result in a loss of such relationship. The Company has provided this customer with an anticipated time schedule for completion of its year 2000 compliance program, which the Company believes fits within the customer's planned schedule. In addition, the bulk of the Company's aircraft fleet is leased from such customer and is dedicated for use in flying routes designated by the customer. Accordingly, the Company cannot currently develop meaningful contingency plans for its air cargo operations in the event that year 2000 issues interrupt the operations of the Company's major air cargo customer to the extent that such customer does not require the Company's services. Costs The Company currently anticipates that costs of its year 2000 compliance program will likely be in the range of $150,000, assuming that planned revisions to the remaining IT Systems which are not yet year 2000 compliant can be successfully completed. If such revisions cannot be successfully completed, the cost of replacement systems would add materially to that estimate. As of December 31, 1998, the Company had incurred approximately $70,000 in year 2000 compliance costs. The foregoing costs do not include the allocation of internal employee time since the Company does not track such internal costs. Contingency Plans The Company has begun developing possible contingency plans for year 2000 non-compliance, some of which are discussed above. Due to the Company's dependence upon, and its current uncertainty with, the year 2000 compliance of certain government agencies, third-party suppliers, vendors and customers with whom the Company deals, the Company is unable to determine at this time its most reasonably likely worst case scenario. While costs related to the lack of year 2000 compliance by third parties, business interruptions, litigation and other liabilities related to year 2000 issues could materially and adversely affect the Company's business, results of operations and financial condition, the Company expects its internal year 2000 compliance efforts to reduce significantly the Company's level of uncertainty about the impact of year 2000 issues affecting both its IT Systems and Non-IT Systems. 15 PART II -- OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits No. Description 3.1 Certificate of Incorporation, as amended, incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1994 3.2 By-laws of the Company, incorporated by reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996 4.1 Specimen Common Stock Certificate, incorporated by reference to exhibit 4.1 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1994 10.1 Aircraft Dry Lease and Service Agreement dated February 2, 1994 between Mountain Air Cargo, Inc. and Federal Express Corporation, incorporated by reference to Exhibit 10.13 to Amendment No. 1 on Form 10-Q/A to the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 1993 10.2 Loan Agreement among NationsBank of North Carolina, N.A., the Company and its subsidiaries, dated July 17, 1998 incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1998. 10.3 Aircraft Wet Lease Agreement dated April 1, 1994 between Mountain Air Cargo, Inc. and Federal Express Corporation, incorporated by reference to Exhibit 10.4 of Amendment No. 1 on Form 10-Q/Q to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1994 10.4 Adoption Agreement regarding the Company's Master 401(k) Plan and Trust, incorporated by reference to Exhibit 10.7 to the Company's Annual Report on form 10-K for the fiscal year ended March 31, 1993* 10.5 Form of options to purchase the following amounts of Common Stock issued by the Company (adjusted for one-for-five reverse stocks split effective May 16, 1994) to the following executive officers during the following fiscal years ended March 31:* Number of Shares Executive Officer 1993 1992 1991 J. Hugh Bingham 30,000 30,000 40,000 John J. Gioffre 20,000 20,000 25,000 William H. Simpson 40,000 40,000 60,000 incorporated by reference to Exhibit 10.8 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1993 16 10.6 Premises and Facilities Lease dated November 16, 1995 between Global TransPark Foundation, Inc. and Mountain Air Cargo, Inc., incorporated by reference to Exhibit 10.5 to Amendment No. 1 on form 10-Q/A to the Company's Quarterly Report on Form 10-Q for the period ended December 31, 1995 10.7 Employment Agreement dated January 1, 1996 between the Company, Mountain Air Cargo Inc. and Mountain Aircraft Services, LLC and William H. Simpson, incorporated by reference to Exhibit 10.8 to the Company's Annual Report Form 10-K for the fiscal year ended March 31, 1996* 10.8 Employment Agreement dated January 1, 1996 between the Company, Mountain Air Cargo Inc. and Mountain Aircraft Services, LLC and John J. Gioffre, incorporated by reference to Exhibit 10.9 to the Company's Annual Report Form 10-K for the fiscal year ended March 31, 1996* 10.9 Employment Agreement dated January 1, 1996 between Company, Mountain Air Cargo Inc. and Mountain Aircraft Services, LLC and J. Hugh Bingham, incorporated by reference to Exhibit 10.10 to the Company's Annual Report Form 10k for the fiscal year end March 31, 1996.* 10.10 Employment Agreement dated September 30, 1997 between Mountain Aircraft Services, LLC and J. Leonard Martin, incorporated by reference to Exhibit 10.10 to the Company's Quarterly Report Form 10-Q for the quarter ended December 31, 1997.* 10.11 Omibus Securities Award Plan, incorporated by reference to Exhibit 10.11 to the Company's Quarterly Report Form 10-Q for the quarter quarter ended June 30, 1998.* 10.12 Commercial and Industrial Lease Agreement dated August 25, 1998 between William F. Bieber and Global Ground Support, LLC incorp- orate by reference to Exhibit 10.12 of the Company's Quarterly Report on 10Q for the period ended September 30, 1998. 10.13 Amendment, dated February 1, 1999, to Aircraft Dry Lease and Service Agreement dated February 2, 1994 between Mountain Air Cargo, Inc. and Federal Express Corporation. 21.1 List of subsidiaries of the Company, incorporated by reference to Exhibit 21.1 of the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1997 27.1 Financial Data Schedule (For SEC use only) * Management compensatory plan or arrangement required to be filed as an exhibit to this report. (b) Reports on Form 8-K No Current Reports on Form 8-K were filed in the third quarter of fiscal 1999. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AIR TRANSPORTATION HOLDING COMPANY, INC. (Registrant) Date: February 10, 1999 ___________________________ Walter Clark, Chief Executive Officer Date: February 10, 1999 ___________________________ John J. Gioffre, Chief Financial Officer 18 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AIR TRANSPORTATION HOLDING COMPANY, INC. (Registrant) Date: February 10, 1999 /s/ Walter Clark Walter Clark, Chief Executive Officer Date: February 10, 1999 /s/ John Gioffre John J. Gioffre, Chief Financial Officer 18 AIR TRANSPORTATION HOLDING COMPANY, INC. EXHIBIT INDEX EXHIBIT PAGE 10.13 Amendment, dated February 1, 1999, to Aircraft Dry Lease and Service Agreement dated February 2, 1994 between Mountain Air Cargo, Inc. and Federal Express Corporation. 20 27.1 Financial Data Schedule (For SEC use only) 19 EX-27 2
5 "This schedule contains summary financial information extracted from Air Transportation Holding Company, Inc. SEC Form 10-Q for Quarter ended December 31, 1998 (identify specific financial statements) and is qualified in its entirety by reference to such financial statements." 9-MOS MAR-31-1999 DEC-31-1998 46906 2295224 5655898 0 6897744 15235714 5179799 2900188 18779306 7896294 0 0 0 671491 0 18779306 37891197 37891197 0 36820539 108603 0 0 962055 400590 561465 0 0 0 561465 0.21 0.20
EX-10 3 Contract No. 94-0844-005 AMENDMENT This AMENDMENT, made as of the 1st day of February, 1999, between FEDERAL EXPRESS CORPORATION ("Federal") and MOUNTAIN AIR CARGO, INC. ("Lesssee"). RECITALS 1.Federal and Lessee entered into an Aircraft Dry Lease And Service Agreement dated February 2, 1994 (the "Agreement"). 2.Federal and Lessee now desire to amend the Agreement. FOR AND IN CONSIDERATION of the mutual covenants contained in this Amendment, Federal and Lessee (the "parties") agree as follows: 1.The term of the Lease is extended for a period of five (5) years commencing February 1, 1999 and expiring January 31, 2004, unless earlier terminated under the terms of the Agreement. 2.Except as otherwise provided in this Amendment, all words and definitions used in this Amendment shall have the same meaning in this Amendment as in the Agreement. 3.Other than as provided in this Amendment, all terms and provisions of the Agreement are hereby ratified and confirmed. IN WITNESS WHEREOF, the parties hereby execute this Amendment on the day and year first above written. MOUNTAIN AIR CARGO, INC. FEDERAL EXPRESS CORPORATION By: William Simpson By: Mark S. Blair Title: President Title: Vice President ("Lessee") ("Federal") -----END PRIVACY-ENHANCED MESSAGE-----