-----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, K9o5wm9iBU1DYhn6a/GtA5RhS1NNxGbyyhujH85Y5VTkYlvKLP64x8wdLuMvy6nP m7w7kWMyl6cRRgrvuzE15Q== 0000950168-99-001570.txt : 19990518 0000950168-99-001570.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950168-99-001570 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CCAIR INC CENTRAL INDEX KEY: 0000850922 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, SCHEDULED [4512] IRS NUMBER: 561428192 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-17846 FILM NUMBER: 99627197 BUSINESS ADDRESS: STREET 1: P O BOX 19929 CITY: CHARLOTTE STATE: NC ZIP: 28219-0929 BUSINESS PHONE: 7043598990 MAIL ADDRESS: STREET 1: 4700 YORKMONT ROAD SECOND FLOOR CITY: CHARLOTTE STATE: NC ZIP: 28208 10-Q 1 CCAIR, INC. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission file number 0-17846 CCAIR, INC. Incorporated under the laws of Delaware 56-1428192 (I.R.S. Employer ID No.) P. O. BOX 19929 CHARLOTTE, NORTH CAROLINA 28219-0929 (704) 359-8990 Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AT MAY 3, 1999 ----- -------------------------- Common stock, $0.01 par value 8,970,695 CCAIR, INC. FORM 10-Q QUARTERLY REPORT FOR FISCAL QUARTER ENDED MARCH 31, 1999 TABLE OF CONTENTS PAGE NO. PART I - FINANCIAL INFORMATION: ITEM 1. Financial Statements: 3 Condensed Balance Sheets as of March 31, 1999 and December 31, 1998. 3 Condensed Statements of Income for the Three Months ended March 31, 1999 and 1998. 4 Condensed Statements of Cash Flows for the Three Months ended March 31, 1999 and 1998. 5 Notes to Condensed Financial Statements. 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 7 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 11 PART II - OTHER INFORMATION: ITEM 1. Legal Proceedings. 11 ITEM 2. Changes in Securities. 11 ITEM 3. Defaults Upon Senior Securities. 11 ITEM 4. Submission of Matters to a Vote of Security Holders. 11 ITEM 5. Other Information. 11 ITEM 6. Exhibits and Reports on Form 8-K. 11 SIGNATURES 12 EXHIBIT INDEX E-1 2 CCAIR, INC. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS -------------------- CONDENSED BALANCE SHEETS (UNAUDITED) -----------
MARCH 31, DECEMBER 31, 1999 1998 -------------------------------- ASSETS - ------ CURRENT ASSETS: Cash and cash equivalents $ 141,012 $ 45,584 Receivables, net 7,670,080 6,345,751 Inventories, less allowance for obsolescence of $466,000 1,267,290 968,352 Parts held for resale, net of valuation reserves of $726,000 944,964 944,964 Prepaid expenses and deposits 1,940,434 1,894,238 ----------- ----------- Total current assets 11,963,780 10,198,889 ----------- ----------- PROPERTY AND EQUIPMENT: Flight equipment and leasehold improvements 7,209,724 6,669,267 Ground and other property and equipment 4,600,036 4,564,950 ---------- --------- 11,809,760 11,234,217 Less accumulated depreciation and amortization ( 7,230,643) ( 7,013,897) ----------- ----------- 4,579,117 4,220,320 ----------- ----------- OTHER ASSETS: Deferred preoperating costs ---- 719,443 Other assets 24,630 27,022 ----------- ----------- Total assets $16,567,527 $15,165,674 =========== =========== LIABILITIES AND SHAREHOLDERS' DEFICIT - ------------------------------------- CURRENT LIABILITIES: Notes payable and current maturities of long-term debt $ 1,390,078 $ 1,581,071 Short-term borrowings 968,406 ---- Current obligations under capital leases 186,833 188,473 Accounts payable 5,128,047 5,540,975 Accrued expenses 8,795,831 8,013,802 ----------- ----------- Total current liabilities 16,469,195 15,324,321 Long-term debt, less current maturities 8,596,127 8,643,029 Capital lease obligations, less current obligations 1,937,679 1,982,422 Warrants liability 232,000 232,000 ----------- ----------- Total liabilities 27,235,001 26,181,772 ----------- ----------- Commitments and contingencies SHAREHOLDERS' DEFICIT: Common stock, $.01 par value, 30,000,000 shares authorized, 8,965,695 and 8,931,195 issued and outstanding at March 31, 1999 and December 31, 1998, respectively 89,657 89,312 Additional paid-in-capital 21,313,000 21,260,187 Accumulated deficit (32,070,131) (32,365,597) ----------- ----------- Total shareholders' deficit (10,667,474) (11,016,098) ----------- ----------- Total liabilities and shareholders' deficit $16,567,527 $15,165,674 =========== ===========
See notes to condensed financial statements. 3 CCAIR, INC. CONDENSED STATEMENTS OF INCOME (UNAUDITED) ----------- THREE MONTHS ENDED MARCH 31, ---------------------------- 1999 1998 ----------- ----------- OPERATING REVENUES: Passenger $18,792,124 $14,334,346 Other 461,132 229,115 ----------- ----------- Total 19,253,256 14,563,461 ----------- ----------- OPERATING EXPENSES: Flight operations 6,104,042 4,505,534 Fuel and oil 1,245,606 1,120,454 Maintenance 4,042,904 2,748,118 Ground operations 2,679,917 2,122,331 Advertising, promotions and commissions 2,632,400 1,966,054 General and administration 961,734 1,156,663 Depreciation and amortization 216,746 194,621 ----------- ----------- Total 17,883,349 13,830,135 ----------- ----------- OPERATING INCOME 1,369,907 733,326 Interest expense ( 354,998) ( 214,684) Other income, net ---- 29,893 ----------- ----------- Income before income taxes and cumulative effect of a change in accounting principle 1,014,909 548,535 Provision for income taxes --- --- ----------- ----------- Income before cumulative effect of a change in accounting principle 1,014,909 548,535 Cumulative effect of change in accounting principle (Note 3) 719,443 ---- ----------- ------------ Net income $ 295,466 $ 548,535 =========== ============ BASIC EARNINGS PER SHARE $ .03 $ .07 =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 8,958,028 8,345,695 =========== =========== DILUTED EARNINGS PER SHARE $ .03 $ .06 =========== =========== WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 9,569,739 8,958,287 =========== =========== See notes to condensed financial statements. 4 CCAIR, INC. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) -----------
THREE MONTHS ENDED MARCH 31, 1999 1998 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 295,466 $ 548,535 Adjustments to reconcile net income to net cash provided by operating activities: Note discount amortization 9,000 23,860 Depreciation and amortization 216,746 194,621 Gain (loss) on disposal of assets ---- ( 29,893) Change in accounting principle 719,443 ---- Changes in certain assets and liabilities: Accounts receivable (1,324,329) ( 735,663) Inventories ( 298,938) ( 186,131) Accounts payable ( 412,928) (1,558,714) Accrued expenses 782,029 1,875,488 Prepaid expenses and deposits ( 46,196) 576,543 Other changes, net 2,392 10,892 ----------- ------------ NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES ( 57,315) 719,538 ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 575,543) ( 450,514) Proceeds from sale of assets ---- 34,985 ----------- ------------ NET CASH USED BY INVESTING ACTIVITIES ( 575,543) ( 415,529) ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock 53,158 35,626 Short-term borrowings, net 968,406 ---- Reductions of notes and long-term debt ( 293,278) ( 330,326) ----------- ------------ NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 728,286 ( 294,700) ----------- ------------ Net increase in cash 95,428 9,309 Cash, beginning of period 45,584 11,647 ----------- ------------ CASH, end of period $ 141,012 $ 20,956 =========== ============
See notes to condensed financial statements. 5 CCAIR, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) ----------- 1. BASIS OF PRESENTATION: ---------------------- The condensed financial statements included herein have been prepared by CCAIR, Inc. (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. These condensed financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of results for the interim period. These adjustments consist solely of normal recurring adjustments. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1998. 2. EARNINGS PER COMMON SHARE: -------------------------- In February, 1997 the FASB issued SFAS No. 128, "Earnings Per Share." This statement establishes standards for computing and presenting EPS. It requires presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires reconciliation of the computation of basic EPS and diluted EPS. Basic EPS is computed by dividing income available to shareholders by the weighted average number of shares outstanding for the period. Diluted EPS gives effect to all dilutive potential common shares that were outstanding during the period.
THREE-MONTH PERIOD THREE-MONTH PERIOD ENDED MARCH 31, ENDED MARCH 31, 1999 1998 Income Shares Per Share Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------------------------------- ----------------------------------- Basic earnings per share Income from operations $ 1,014,909 8,958,028 $ .11 $ 548,535 8,345,695 $ 0.07 Cumulative effect of accounting change $( 719,443) ---- $( .08) $ ----- ----- --- ------------ ---------- ------- ----------------------------------- Net income $ 295,466 8,958,028 $ .03 $ 548,535 8,345,695 $ 0.07 ============ ======= ============ ======== Effect of dilutive securities (options and warrants) 611,711 612,592 ---------- ---------- Diluted earnings per share Income from operations $ 1,014,909 9,569,739 $ .11 $ 548,535 8,958,287 $ 0.06 Cumulative effect of accounting change $( 719,443) ---- $( .08) $ ----- ----- --- ------------ ---------- ------- ----------------------------------- Net income $ 295,466 9,569,739 $ .03 $ 548,535 8,958,287 $ 0.06 ============ ========== ======= ===================================
3. DEFERRED PREOPERATING COSTS --------------------------- The Company accepted delivery of six additional Dash 8 aircraft from June, 1998 through October, 1998. Certain costs were incurred to integrate the aircraft into the Company's operations. These expenditures were comprised primarily of rental payments on the aircraft prior to their entrance into scheduled flying, costs incurred for the retention and training of flight crews and expenses for initial airworthiness inspections. These costs were capitalized as preoperating costs and were being amortized over 24 months. The AICPA issued its Statement of Position 98-5, which became effective for fiscal years beginning after December 15, 1998. This Statement precludes the capitalization of preoperating costs of this nature. Accordingly, the Company was required to write off the unamortized deferred asset balance as of January 1, 1999, which was reflected as a cumulative effect of a change in accounting principle of $719,443 in the accompanying unaudited condensed statements of income for the three months ended March 31, 1999. 6 4. COMMITMENTS AND CONTINGENCIES: ------------------------------ The Company is subject to the regulatory authority, among others, of the Federal Aviation Administration and the Department of Transportation. These agencies require compliance with their standards and conduct safety and compliance audits. Violations, if any, of these regulations subject the Company to fines or sanctions. The Company is also subject to other claims arising in the ordinary course of business. In the opinion of management, the outcome of these matters would not have a material adverse impact on the Company's financial condition, results of operations or cash flows. PROPOSED MERGER OF THE COMPANY WITH MESA AIR GROUP, INC. -------------------------------------------------------- The Company and Mesa Air Group, Inc. ("Mesa"), a regional airline based in Phoenix, Arizona, executed a definitive purchase agreement dated as of January 28, 1999, whereby the Company will become a wholly-owned subsidiary of Mesa. The transaction is valued at approximately $54 million and is intended to be accounted for as a pooling of interests. The purchase agreement contemplates an all stock transaction whereby Mesa will acquire all outstanding shares of the Company's common stock by issuing Mesa shares equivalent in value to $4.35 for each share of the Company's common stock, subject to a maximum of .6214 shares (at a Mesa share price of $7.00) and a minimum of .435 shares (at a Mesa share price of $10.00). Consummation of the transaction is subject to certain conditions, including regulatory approval, satisfaction of closing conditions and shareholder approval from both the Company's shareholders (as to the merger) and Mesa's shareholders (as to the issuance of Mesa shares in the merger). The shareholders of both CCAIR and Mesa will vote on the transaction at each company's Special Meeting of Shareholders to be held on June 8, 1999. BUSINESS AGREEMENT WITH US AIRWAYS ---------------------------------- Approximately 80% of the Company's passenger revenue is generated by passengers who are connecting with US Airways flights and is determined under an agreement for the sharing of joint passenger fares and division of revenue with US Airways (the "Agreement"). On March 5, 1999, the Company and US Airways announced the extension of the Agreement through December 31, 2003. The Agreement provides that it may be terminated upon 180 days prior written notice for any reason by either US Airways or the Company or upon sixty (60) days prior written notice by US Airways under certain conditions, including: (i) the Company's failure to maintain at least a minimum required operating schedule; (ii) if during any one month the Company's flight completion percentage is less than 95% due to cancellations attributable to maintenance or operational deficiencies within the Company's control; (iii) the Company's failure to comply with the trademark licensing provisions of the Agreement; (iv) the initiation of a bankruptcy or similar proceeding for the Company or its assets; (v) the Company's failure to perform, keep or observe terms, conditions or covenants after notice by US Airways; or (vi) a change of control or ownership of 51% or more of the Company's common stock or a change in the Company's President or Chief Executive Officer without the consent of US Airways. While the Company has not received written approval by US Airways of the proposed merger with Mesa, US Airways has expressed its willingness to consent to the transaction. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL - ------- The Company recorded net income before change in accounting principle of $1,015,000 in the quarter ended March 31, 1999, versus net income of $549,000 in the quarter ended March 31, 1998, an increase of 84.9%. As previously discussed, on January 1, 1999 the Company recorded a $719,000 charge, representing the cumulative effect of adopting new accounting guidelines which required the Company to expense unamortized preoperating costs related to certain fleet additions. The Company has increased its fleet size significantly since the first quarter of 1998, when it operated fourteen Jetstream Super 31 aircraft (with nineteen seats) and four de Havilland Dash 8 aircraft (with thirty-seven seats). In the quarter ended March 31, 1999, the Company operated sixteen Jetstream 31 and ten Dash 8 aircraft. As a result of this expansion, available seat miles increased 56.3% and operating revenues increased 32.2%. RESULTS OF OPERATIONS - --------------------- The following table sets forth selected operating comparisons for the three-month periods ended March 31, 1999 and 1998: 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AIRLINE OPERATING STATISTICS
FOR THE THREE MONTHS ENDED MARCH 31, ----------------------------------- % 1999 1998 CHANGE ----------- ----------- ------ Operating revenue $19,253,256 $14,563,461 32.2 Operating expense $17,883,349 $13,830,135 29.3 Revenue passengers carried 197,589 162,795 21.4 Revenue passenger miles (1) 44,429,721 29,416,144 51.0 Available seat miles (2) 84,998,092 54,368,082 56.3 Passenger load factor (3) 52.3% 54.1% ( 3.3) Passenger breakeven load factor 49.4% 52.1% ( 5.2) Yield per revenue passenger mile (4) 42.3(cent) 48.7(cent) (13.1) Passenger revenue per available seat mile 22.1(cent) 26.4(cent) (16.3) Operating cost per available seat mile 21.0(cent) 25.4(cent) (17.3) Average passenger trip (miles) 224.8 180.7 24.4 Average passenger fare $95.11 $88.05 8.0 Completion factor 95.4% 96.6% ( 1.2)
(1) One revenue passenger transported one mile ("RPMs"). (2) The product of the number of aircraft miles and the number of available seats on each stage, representing the total passenger capacity offered. (3) The ratio of revenue passenger miles to available seat miles, representing the percentage of seats occupied by revenue passengers. (4) The passenger revenue per revenue passenger mile. FOR THE THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ------------------------------------------------------------------ ENDED MARCH 31, 1998 --------------------- Operating revenues increased $4,740,000 or 32.2% for the quarter ended March 31, 1999 versus March 31, 1998. The Company carried 197,589 revenue passengers in the current quarter, as compared to 162,795 in the quarter ended March 31, 1998, an increase of 21.4%. RPMs increased 51.0% in the quarter ended March 31, 1999. RPMs increased at a greater percentage than the increase in passengers as the average passenger trip increased from 180.7 miles in the quarter ended March 31, 1998 to 224.8 miles for the same period in 1999, an increase of 24.4%. The yield decreased from 48.7(cent) for the quarter ended March 31, 1998 to 42.3(cent) for the same period in 1999. In addition, the Company's revenue per ASM ("RASM") decreased from 26.4(cent) for the quarter ended March 31, 1998 to 22.1(cent) for the quarter ended March 31, 1999. The Company's previously announced expansion in Florida in the last six months of 1998, which are relatively long-haul flights, is the principal reason for the increase in RPMs, ASMs and average passenger trip, and the decrease in yield and RASM. Appreciable operational efficiencies have been achieved through the Company's fleet restructuring activities and subsequent expansion in Florida, particularly in the flight operations sector. In the quarter ended March 31, 1999, total operating expenses increased 29.3% with an increase in ASMs of 56.3%, resulting in a decrease of 17.3% in the Company's operating cost per ASM. The following table compares components of operating cost per ASM for the three months ended March 31, 1999 and 1998. COST PER ASM - QUARTER ENDED MARCH 31, (IN CENTS) ---------- 1999 1998 ---- ---- Flight operations 7.2 8.3 Fuel and oil 1.5 2.1 Maintenance 4.8 5.1 Ground operations 3.1 3.9 Advertising, promotions, commissions 3.1 3.6 General and administration 1.1 2.1 Depreciation and amortization 0.2 0.3 ----- ----- 21.0 25.4 ==== ==== 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The decrease in flight operations expense on a per unit basis was due to reduced aircraft lease expense and reduced hull insurance expense. Fuel expense decreased on a per ASM basis, as a 43.9% increase in fuel consumption was offset by a 25.5% reduction in the average cost per gallon of fuel. Maintenance, ground operations, marketing, general and administrative and depreciation and amortization expense all decreased on a per unit basis due to efficiencies related to the Company's fleet expansion. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The cash position and cash flows of the Company continue to be critical issues as of March 31, 1999. The Company utilized borrowings under two revolving lines of credit to satisfy its operating cash requirements during the period ended March 31, 1999. The key elements to improved operating results are the level of yield per RPM and passenger load factors. For the quarter ended March 31, 1999, the yield per RPM decreased 13.1% as compared to the prior year quarter. Additionally, the yield could be affected by fare discounting beyond the control of the Company. The load factor decreased 3.3% and revenue passengers carried increased 21.4% in the first quarter of 1999 versus the same period last year. The Company maintains a line of credit with British Aerospace Asset Management ("BAAM") to provide for more even cash flows between ACH settlements. As of March 31, 1999 the Company had $968,000 outstanding under this line. The maximum outstanding balance on this line during the three months ended March 31, 1999 was $4.5 million, with interest charged at an average rate of 10.25%. If operating cash flows and the Company's line of credit are insufficient to meet obligations, it may obtain financing through short-term loans from officers and directors, extension of terms with trade creditors, or issuance of Company stock. The Company's balance sheet reflects a deficit in working capital, defined as current assets less current liabilities, of approximately $4,505,000 on March 31, 1999, as compared to $5,125,000 on December 31, 1998. Working capital is affected by seasonality of operations. Cash utilized by operating activities was $57,000 for the three months ended March 31, 1999. The primary sources of cash were net income, depreciation, and the increase in accrued expenses, for a total of $1,294,000. The major uses of cash were increases in accounts receivables and inventories and the reduction of accounts payable, aggregating to $2,036,000. The Company's capital expenditures totaled $576,000, comprised primarily of purchases of major spare parts assemblies and leasehold improvements. Capital expenditures planned for the remainder of the year consist of purchases of major spare parts assemblies, leasehold improvements and fixed asset replacement. The Company made scheduled debt payments of $293,000 in the three-month period ended March 31, 1999. OTHER - ----- YEAR 2000 COMPLIANCE -------------------- Many currently installed computer systems, imbedded microchips and software products are coded to accept two-digit entries in the date code field. These date code fields will need to accept four digit entries to distinguish years beginning with "20" from years beginning with "19". Any programs that have time sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in the computer shutting down or performing incorrect computations. As a result, computer systems and software used by many companies will need to be upgraded to comply with such "Year 2000" requirements. Certain of the Company's systems, including information and computer systems and automated equipment, will be affected by the Year 2000 issue. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company completed its comprehensive inventory of its core business applications to determine the adequacy of these systems to meet future business requirements. The Company has also been performing system upgrades, which are approximately 80% complete. After these upgrades and system evaluations are complete, the Company will begin testing the results of its compliance work. To date, the Company's Year 2000 remediation efforts have focused on its core business computer applications (i.e., those systems that the Company is dependent upon for the conduct of day-to-day business operations). Out of this effort, a number of systems have already been identified for upgrade. In no case has a system been replaced or contemplated to be replaced solely because of Year 2000 issues with the exception of the Company's voice mail system, which can be replaced for approximately $20,000. Additionally, while the Company may have incurred an opportunity cost for addressing the Year 2000 issue, it does not believe that any specific information technology projects have been deferred as a result of its Year 2000 efforts. The Company's reservation system is tied to its code-sharing partner, US Airways. The Company's representatives have met with US Airways to assess the Year 2000 progress of the reservations system providers. The Company has installed an upgraded version of its current accounting, revenue accounting, maintenance parts and payroll systems. Approximately 75% of these systems have been tested. The Company has had extensive discussions with the manufacturers of its various aircraft to discuss Year 2000 issues and identify the required avionics and flight systems upgrades which will be implemented during 1999. The aircraft manufacturers are also required to report the Year 2000 status of their aircraft to the FAA. The Company is currently assessing other potential Year 2000 issues, including noninformation technology systems. A broad-based Year 2000 Task Force has been formed and has begun meeting to identify areas of concern and develop action plans. The Company has also been meeting with similar task forces at US Airways and Mesa. The Company's relationships with vendors, contractors, financial institutions and other third parties will be examined to determine the status of the Year 2000 issue efforts on the part of the other parties to material relationships. The Year 2000 Task Force will include both internal and Company-external representation. The Company expects to incur Year 2000-specific costs in the future but does not at present anticipate that these costs will be material. In the worst case scenario, the Company believes that relationships it has with third parties would cease as a result of either the Company or the third party not successfully completing their Year 2000 remediation efforts. If this were to occur, the Company would encounter disruptions to its business that could have a material adverse effect on its business, financial position and results of operations. The Company could be materially impacted by widespread economic or financial market disruption or by Year 2000 computer system failures. The Company has not at this time established a formal Year 2000 contingency plan but will consider and, if necessary, address doing so as part of its Year 2000 Task Force activities. The Company maintains and deploys contingency plans designed to address various other potential business interruptions. These plans may be applicable to address the interruption of support provided by third parties resulting from their failure to be Year 2000 ready. The Company has relationships with certain governmental entities such as the FAA upon which it is dependent to operate its aircraft. The FAA has represented on its web page that its systems are Year 2000 compliant. If, however, systems at the FAA fail, the Company's aircraft will not be able to operate or will operate at a substantially reduced level. If this were to occur, the Company approximates that it would lose substantially all the revenue associated with these nonoperated flights. For each day that the Company is unable to operate flights as a result of Year 2000 failures, it anticipates a $225,000 loss of revenue and net loss of approximately $110,000. NEW ACCOUNTING PRONOUNCEMENTS ----------------------------- In April 1998, the AICPA issued its Statement of Position 98-5, "Reporting on the Costs of Start-up Activities", which requires that start-up and preoperating costs be expensed as incurred and becomes effective for fiscal years beginning after December 15, 1998. Any unamortized deferred assets must be written off on the effective date. Accordingly, the Company wrote off its unamortized deferred asset balance as of January 1, 1999, which was reflected as a cumulative effect of a change in accounting principle of approximately $719,000. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 - -------------------------------------------------------------------------------- Certain statements in this Quarterly Report on Form 10-Q reflect projections or expectations of future financial or economic performance of the Company and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that may cause future results to differ materially from those set forth in such statements. The Company is not obligated to update forward-looking statements to reflect events or circumstances after the date of this report. No assurance can be given that actual results or events will not differ materially from those projected, estimated, assumed or anticipated in any such forward-looking statements. Important factors that could result in such differences include: the Company's relationship with US Airways; general economic conditions in the Company's markets; price competition in the airline industry; increases in the costs for fuel and maintenance; new governmental regulations concerning aircraft or air transportation; operating results for US Airways; and other factors discussed in the Company's filings with the Securities and Exchange Commission. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK None to report. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS ----------------- None to report. ITEM 2. CHANGES IN SECURITIES --------------------- None to report. ITEM 3. DEFAULTS UPON SENIOR SECURITIES ------------------------------- None to report. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- None to report. ITEM 5. OTHER INFORMATION ----------------- None to report. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits EXHIBIT NO. EXHIBIT ----------- ------- 4 Specimen Common Stock Certificate. (1) 11 (b) Reports on Form 8-K None to report. - ---------------------- (1) Incorporated by reference to Registration Statement on Form S-1, File No. 33-28967. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. May 17, 1999 CCAIR, INC. By: /s/ Kenneth W. Gann By: /s/ Eric W. Montgomery -------------------- ----------------------- Kenneth W. Gann, President Eric W. Montgomery and Chief Executive Officer Vice President - Finance (Principal Executive Officer) (Principal Financial Officer) 12 EXHIBIT INDEX EXHIBIT FILED SEQUENTIAL NO. EXHIBIT HEREWITH AT PAGE NO. --- ------- ----------- -------- 4 Specimen Common Stock Certificate. (1) - --------------------- (1) Incorporated by reference to Registration Statement on Form S-1, File No. 33-28967. E-1 EX-27 2 FDS --CCAIR, INC.
5 The schedule contains summary financial information extracted from CCAIR,Inc. financial statements for the quarter ended March 31, 1999 and is qualified in its entirety by reference to such financial statements. 3-MOS DEC-31-1999 MAR-31-1999 141,012 0 7,670,080 0 2,212,254 11,963,780 11,809,760 (7,230,643) 16,567,527 16,469,195 0 0 0 89,657 (10,757,131) 16,567,527 0 19,253,256 0 17,883,349 0 0 354,998 1,014,909 0 1,014,909 0 0 (719,443) 295,466 .03 .03
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