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 September 30, 1997 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. 2,650,653 Common Shares, par value of $.25 per share were outstanding as of November 7, 1997. This filing contains 16 pages. The exhibit index is on page 15.
AIR TRANSPORTATION HOLDING COMPANY, INC. AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Earnings for the three and six-month periods ended September 30, 1997 and 1996 (Unaudited) 3 Consolidated Balance Sheets at September 30, 1997 (Unaudited) and March 31, 1997 4 Consolidated Statements of Cash Flows for the six-month periods ended September 30, 1997 and 1996 (Unaudited) 5 Notes to Consolidated Financial Statements (Unaudited) 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 11-13 Exhibit Index 14 Exhibits 15-16
<TABLE> AIR TRANSPORTATION HOLDING COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) <CAPTION> Three Months Ended Six Months Ended September 30, September 30, 1997 1996 1997 1996 <S> <C> <C> <C> <C> Operating Revenues: Cargo $ 4,653,947 4,467,154 9,028,156 8,840,836 Maintenance 3,372,192 2,940,414 6,511,613 5,981,353 Aircraft services and other 1,173,325 871,791 1,818,775 1,515,860 Ground equipment 1,552,852 - 1,552,852 - 10,752,316 8,279,359 18,911,396 16,338,049 Operating Expenses: Flight operations 3,363,464 3,172,405 6,378,520 6,061,255 Maintenance 4,054,929 3,697,929 7,484,505 7,138,918 Ground equipment 1,170,780 - 1,170,780 - General and administrative 1,381,146 1,045,610 2,396,213 2,070,352 Depreciation and amortization 114,994 103,598 222,007 221,362 Facility start-up & merger exp 52,191 167,788 179,755 210,000 10,137,504 8,187,330 17,831,780 15,701,887 Operating Income 614,812 92,029 1,079,616 636,162 Non-operating (Income) Expense: Investment income (77,946) (54,368) (157,453) (119,285) Deferred retirement obligation - - 418,000 - Gain on asset sale & other 6,249 (180,716) 8,332 (182,359) (71,697) (235,084) 268,879 (301,644) Earnings Before Income Taxes 686,509 327,113 810,737 937,806 Provision For Income Taxes 267,869 198,622 297,600 403,956 Net Earnings $ 418,640 128,491 513,137 533,850 Weighted Average Shares 2,781,773 2,798,311 2,786,356 2,808,811 Net Earnings Per Common Share $ 0.15 0.05 0.18 0.19 <FN> See notes to consolidated financial statements. </TABLE>
<TABLE> AIR TRANSPORTATION HOLDING COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS <CAPTION> September 30, 1997 March 31,1997 <S> <C> <C> ASSETS (Unaudited) Current Assets: Cash and equivalents $ 1,159,830 2,377,898 Short term investments 2,461,317 2,229,708 Accounts receivable, net 3,987,440 3,310,810 Inventory, parts and supplies 3,470,264 1,069,206 Prepaid expense and other 35,270 119,828 Deferred tax asset, net 424,980 344,980 Total Current Assets 11,539,101 9,452,430 Property and Equipment 3,990,486 3,398,636 Less accumulated depreciation (2,141,027) (1,943,020) 1,849,459 1,455,616 Intangible pension asset and other 555,153 210,365 Total Assets $ 13,943,713 11,118,411 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 1,707,614 809,245 Accrued liabilities 1,689,415 1,665,046 Income taxes 220,005 389,916 Customer deposits 1,154,985 - Total Current Liabilities 4,772,019 2,864,207 Deferred Retirement Obligation 718,000 - Stockholders' Equity: Preferred stock, $1 par value, authorized 10,000,000 shares, none issued - - Common stock, par value $.25; authorized 4,000,000 shares; 2,650,653 and 2,651,433 shares issued 661,991 662,858 Additional paid in capital 7,078,657 7,126,294 Retained earnings 713,046 465,052 8,453,694 8,254,204 Total Liabilities and Stockholders' Equity $ 13,943,713 11,118,411 <FN> See notes to consolidated financial statements. </TABLE>
<TABLE> AIR TRANSPORTATION HOLDING COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) <CAPTION> Six Months Ended September 30, 1997 1996 <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 513,137 533,850 Adjustments to reconcile net earnings to net cash provided by operations: Depreciation and amortization 222,007 221,362 Change in deferred tax asset (80,000) 122,723 Change in retirement obligation 718,000 - Gain on sale of assets - (182,359) Charge in lieu of income taxes - 15,837 Asset and liability changes which provided (used) cash: Accounts receivable (673,437) 360,582 Parts and supplies (878,029) (191,398) Prepaid expense and other (260,230) 75,574 Accounts payable 898,369 (653,076) Accrued expenses 81,472 50,400 Income taxes payable (169,911) (112,156) Total adjustments (141,759) (292,511) Net cash provided by operating activities 371,378 241,339 CASH FLOWS FROM INVESTING ACTIVITIES: Business acquisition (715,981) - Capital expenditures (328,209) (189,409) Purchase of short term investments (948,055) (655,593) Sale of short term investments 716,446 - Proceeds from disposal of equipment - 415,000 Net cash used in investing activities (1,275,799) (430,002) CASH FLOWS FROM FINANCING ACTIVITIES: Payment of cash dividend (265,143) (218 435) Repurchase of common stock (67,254) (466,967) Proceeds from exercise of stock options 18,750 5,000 Net cash used in financing activities (313,647) (680,402) NET DECREASE IN CASH & EQUIVALENTS (1,218,068) (869,065) CASH & EQUIVALENTS AT BEGINNING OF PERIOD 2,377,898 2,213,841 CASH & EQUIVALENTS AT END OF PERIOD $ 1,159,830 1,344,776 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 67 390 Income/Franchise taxes 559,118 384,424 <FN> See notes to consolidated financial statements. </TABLE>
AIR TRANSPORTATION HOLDING COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) A. Financial Statements The Consolidated Balance Sheet as of September 30, 1997, the Consolidated Statements of Earnings for the three and six-month periods ended September 30, 1997 and 1996 and the Consolidated Statements of Cash Flows for the six-month periods ended September 30, 1997 and 1996 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 September 30, 1997, 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, 1997. The results of operations for the period ended September 30 are not necessarily indicative of the operating results for the full year. B. Acquisition On August 29, 1997, the Company acquired the Simon Deicer Division of Terex, Inc. for $715,000 cash. The acquisition, renamed Global Ground Support, LLC (Global), manufactures, sells and services aircraft deice 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 value at the date of acquisition. Global's results of operations have been included in the Consolidated Statement of Income since the date of acquisition. The following table presents unaudited pro forma results of operations as if the acquisition had occurred on April 1, 1996. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisition been made at the beginning of fiscal 1997 or of results which may occur in the future. Furthermore, no effect has been given in the pro forma information for operating benefits that are expected to be realized through the combination of the entities because precise estimates of such benefits cannot be quantified. Six Months Ended September 30, (Unaudited) 1996 1997 Net sales $18,297,000 20,654,000 Net income 142,000 659,000 Net income per share .05 .24
C. Income Taxes The tax effect of temporary differences gave rise to the Company's deferred tax asset in the accompanying September 30, 1997 and March 31, 1997 consolidated balance sheets. The Company has recorded a valuation allowance 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 and $42,000, respectively, during the six-months ended September 30, 1997 and 1996. The income tax provisions for the three and six-months ended September 30, 1997 and 1996 differ from the federal statutory rate primarily as a result of state income taxes and reductions in the valuation allowance. The Company completed the utilization of all federal net operating loss carryforwards available for tax return purposes during the quarter ended September 30, 1996. These carryforwards, to the extent realized, resulted in a reduction of goodwill, until goodwill was reduced to zero in the quarter ended June 30, 1996. D. Net Earnings Per Share Primary earnings per share has been compiled by dividing net earnings by weighted average number of common shares outstanding during each period. There was no difference between primary and fully diluted earnings per share. Shares issuable under employee stock options are considered common share equivalents and were included in the weighted average common shares as of September 30, 1997 and 1996. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share". SFAS No. 128 specified new standards for computing and disclosing earnings per share effective for financial statements issued for periods ending after December 15, 1997. The adoption of SFAS No. 128 for the six month periods ended September 30, 1997 and 1996 would result in Basic Earnings Per Share of $0.19 and $0.20, for the respective periods. E. Reclassifications Certain reclassifications have been made in the 1996 financial statements to conform with the 1997 presentation.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Overview The Company's most significant component of revenue 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 contracts for a major express delivery company out of 81 cities, principally located in 30 states in the eastern half of the United States and in Puerto Rico, Canada and the Virgin Islands. In 1993, the Company organized Mountain Aircraft Services, LLC (MAS) to engage in the sale of commercial aircraft parts and provide aircraft engine overhaul management and component repair services. In August 1997 the Company acquired the assets and order backlog 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 will be operated as a subsidiary of MAS. 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, 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. Results of Operations Consolidated revenue increased $2,573,000 (15.8%) to $18,911,000 and $2,473,000 (29.9%) to $10,752,000, respectively, for the six and three-month periods ended September 30, 1997 compared to their equivalent 1996 periods. The six and three-month current period net increase in revenue primarily resulted from a $1,553,000 increase in revenue associated with the September 2, 1997 start-up of Global, increases in maintenance service revenue and increased engine overhaul and parts revenue. Operating expenses increased $2,130,000 (13.6%) to $17,832,000 for the six-month period ended September 30, 1997 and $1,950,000 (23.8%) to $10,138,000 for the three-month period ended September 30, 1997 compared to their equivalent 1996 periods. The change in operating expenses for the six- month period consisted of the following: cost of flight operations increased $317,000 (5.2%), primarily as a result of additional costs associated with flight crews, fuel and airport fees; maintenance expense increased $346,000 (4.8%), primarily as a result of heavy maintenance checks due on aircraft, cost of parts and increased maintenance staffing; ground equipment increased $1,171,000 (100.0%), as a result of the August 1997 Global acquisition; depreciation and amortization increased $1,000 (.3%) as a result of additional depreciable assets purchased in the acquisition of Global, offset by
Results of Operations (cont'd) depreciation related to the sale of aircraft in fiscal 1997; general and administrative expense increased $326,000 (15.7%) as a result of $111,000 in G&A costs associated with the Company's operation of Global and increased insurance and employee benefits, staffing, salary and wage rates. Facility start-up expenses decreased $30,000 (14.4%) and, reflect for fiscal 1997, cost associated with the Company's start-up and relocation of maintenance operations to Kinston, N.C. compared to proposed merger and repair shop component start-up cost for fiscal 1998. The $571,000 increase in non-operating expense was principally due to a $418,000 provision to fulfill contractual benefits related to the death of the Company's Chairman and CEO and a $182,000 gain on sale of aircraft which took place in fiscal 1997. Pretax earnings decreased $127,000 for the six-month period ended September 30, 1997 and increased $359,000 for the three-month period ended September 30, 1997 compared to their respective 1996 periods. The changes were respectively due to a $418,000 obligation booked in the first quarter 1998 while the second quarter included the profitable results of Global, which added $246,000 pretax. The provision for income taxes decreased $106,000 for the six-month period ended September 30, 1997 and increased $69,000 for the three-month period ended September 30, 1997 compared to their respective 1996 periods due to changes in taxable income and effective tax rates. Liquidity and Capital Resources As of September 30, 1997 the Company's working capital amounted to $6,767,000, an increase of $179,000 compared to March 31, 1997. The net increase primarily resulted from profitable operations offset by cash required for the Global acquisition. The Company's secured bank financing line provides credit in the aggregate of up to $4,000,000 through August 1998. Loans under the line of credit bear interest at the lender's prime rate. Substantially all of the Company's accounts receivable and inventory, have been pledged as collateral under this financing arrangement. As of September 30, 1997 the Company was in a net investment position against its credit line. Management believes that funds anticipated from operations and existing credit facilities will provide adequate cash flow to meet the Company's financial needs for the foreseeable future. The respective six-month periods ended September 30, 1997 and 1996 resulted in the following changes in cash flow: operating activities provided $371,000 and $241,000, investing activities used $1,276,000 and $430,000 and financing activities used $314,000 and $680,000. Net cash decreased $1,218,000 and $869,000 for the respective six-month periods ended September 30, 1997 and 1996.
Liquidity and Capital Resources (cont'd) Cash provided by operating activities was $130,000 more for the six- months ended September 30, 1997 compared to the similar 1996 period principally due to a deferred retirement obligation offset, in part, by the net assets acquired in the acquisition of Global. Cash used in investing activities for the six-months ended September 30, 1997 was approximately $846,000 more than the comparable period in 1996, principally due to expenditures related to the acquisition of Global. Cash used in financing activities was $367,000 less in the 1997 six-month period due to a reduction in the repurchase of common stock. During the six months ended September 30, 1997 the Company repurchased 15,780 shares of its common stock at a total cost of $67,000. Pursuant to its previously announced stock repurchase program, $204,000 remains available for repurchase of common stock. Cost associated with the Company's start-up of an FAA approved 145 component repair facility which opened at Kinston, N. C. in June 1997, professional fees related to terminated merger discussions and start-up cost associated with Global amounted to $180,000 for the six-month period ended September 30, 1997. There are currently no commitments for significant capital expenditures. The Company paid a $.10 per share cash dividend in June 1997. 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. Impact of Inflation The Company believes the impact of inflation and changing prices on its revenues and earnings is not material since the major cost components of its operations, consisting principally of fuel, aircraft, crew and certain maintenance costs are passed through to its customer under current contract terms.
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, 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 January 17, 1995, incorporated by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the period ended December 31,1994 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 to the following executive officers during the following fiscal years ended March 31:* Number of Shares Executive Officer 1993 1992 1991 J. Hugh Bingham 150,000 150,000 200,000 John J. Gioffre 100,000 100,000 125,000 William H. Simpson 200,000 200,000 300,000 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.
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 the 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 10-K for the fiscal year ended March 31, 1996.* 11.1 Computation of Primary and Fully Diluted Earnings per Common Share 21.1 List of subsidiaries of the Company. 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 first quarter of fiscal 1997.
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: November 10, 1997 /s/ Walter Clark Walter Clark, Chief Executive Officer Date: November 10, 1997 /s/ John Gioffre John J. Gioffre, Chief Financial Officer
AIR TRANSPORTATION HOLDING COMPANY, INC. EXHIBIT INDEX Exhibit PAGE 11.1 Computation of Primary and Fully Diluted Earnings Per Common Share........................... 15 21.1 List of Subsidiaries of Air Transportation Holding Company, Inc. . . . . . . 16
AIR TRANSPORTATION HOLDING COMPANY, INC. AND SUBSIDIARIES Exhibit 21.1 List of Subsidiaries of Air Transportation Holding Company, Inc. 1) Mountain Air Cargo, Inc. a North Carolina Corporation 2) CSA Air, Inc. a North Carolina Corporation 3) Mountain Aircraft Services, LLC a North Carolina Limited Liability Company 4) Global Ground Support, LLC a North Carolina Limited Liability Company