SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to ___________________
Commission File No. 1-11775
AVIATION SALES COMPANY
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 65-0665658
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
6905 NW 25TH STREET
MIAMI, FLORIDA 33122
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (305) 592-4055
Indicate by check whether the issuer (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 [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 8,162,500 SHARES OF COMMON
STOCK, $.001 PAR VALUE PER SHARE, WERE OUTSTANDING AS OF NOVEMBER 13, 1996.
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1995 September 30, 1996
----------------- ------------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $253,307 $1,365,930
Accounts receivable, net of
allowance for doubtful accounts
of $1,951,395 and $2,298,569,
and allowance for sales returns
of $1,245,598 and $1,480,598, in
1995 and 1996, respectively 23,824,362 33,057,460
Inventories 48,956,682 63,160,052
Prepaid expenses 56,963 763,977
---------- ----------
Total current assets 73,091,314 98,347,419
---------- ----------
SPARE PARTS ON LEASE, net of accumulated
amortization of $1,024,904 in 1995
and $2,062,522 in 1996 11,697,151 17,478,855
---------- ----------
FIXED ASSETS:
Property and equipment 3,121,702 4,108,178
Less - Accumulated depreciation (1,259,658) (1,774,055)
---------- ----------
Total fixed assets 1,862,044 2,334,123
---------- ----------
AMOUNTS DUE FROM AFFILIATES 3,031,198 2,977,512
---------- ----------
OTHER ASSETS:
Deferred financing costs, net 2,972,454 910,693
Deferred income taxes - 4,860,741
Deposits and other 682,469 374,091
---------- ----------
Total other assets 3,654,923 6,145,525
---------- ----------
Total assets $93,336,630 $127,283,434
=========== ============
Continued
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
(UNAUDITED)
LIABILITIES, STOCKHOLDERS' EQUITY, AND PARTNERS' CAPITAL
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $10,453,278 $12,348,551
Accrued expenses 4,080,634 5,558,313
Accrued interest payable 794,800 414,115
Income taxes payable - 393,297
Other liabilities, vendor-held parts 1,030,228 908,461
Notes payable, current maturities-
Senior 10,000,000 7,428,571
Other, revolver 42,808 5,121,812
----------- ------------
Total current liabilities 26,401,748 32,173,120
----------- ------------
LONG-TERM LIABILITIES:
Deferred income 877,315 890,065
Notes Payable-
Senior 45,000,000 16,714,286
Subordinated debt 7,000,000 -
----------- ------------
Total long-term liabilities 52,877,315 17,604,351
----------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL:
Partners' capital 14,057,567 -
Stockholders' equity-
Preferred stock, $.01 par value,
1,000,000 shares authorized, none
outstanding - -
Common stock, $.001 par value, 30,000,000
shares authorized, 8,162,500 shares
outstanding at September 30, 1996 - 8,163
Additional paid-in capital - 71,497,670
Retained earnings - 6,000,130
----------- ------------
Total stockholders' equity and partners' capital 14,057,567 77,505,963
----------- ------------
Total liabilities, stockholders' equity and
partners' capital $93,336,630 $127,283,434
=========== ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
BALANCE SHEETS.
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPT 30, FOR THE NINE MONTHS ENDED SEPT 30,
----------------------------------- ----------------------------------
1995 1996 1995 1996
-------------- -------------- --------------- ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Sales of aircraft parts, net $27,052,143 $36,560,172 $80,690,345 $98,622,265
Rentals from leases and other 1,729,105 2,947,952 5,290,843 8,078,329
---------- ---------- ---------- -----------
28,781,248 39,508,124 85,981,188 106,700,594
COST OF SALES 18,756,368 26,754,407 53,165,095 70,987,453
---------- ---------- ---------- -----------
10,024,880 12,753,717 32,816,093 35,713,141
---------- ---------- ---------- -----------
OPERATING EXPENSES:
Operating 2,324,476 2,293,686 6,689,905 6,864,461
Selling 1,131,180 1,484,906 3,494,514 4,498,779
General and administrative 2,225,914 2,647,682 6,442,446 7,157,258
Depreciation and amortization 376,894 580,477 1,023,922 1,550,014
---------- ---------- ---------- -----------
6,058,464 7,006,751 17,650,787 20,070,512
---------- ---------- ---------- -----------
INCOME FROM OPERATIONS 3,966,416 5,746,966 15,165,306 15,642,629
INTEREST EXPENSE, AMORIZATION OF
DEFERRED FINANCING COSTS AND
OTHER 2,094,830 746,489 6,278,121 4,614,774
---------- ---------- ---------- -----------
INCOME BEFORE BENEFIT FOR INCOME TAXES
AND EXTRAORDINARY ITEM 1,871,586 5,000,477 8,887,185 11,027,855
BENEFIT FOR INCOME TAXES - 1,862,311 - 2,715,770
---------- ---------- ---------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 1,871,586 6,862,788 8,887,185 13,743,625
EXTRAORDINARY ITEM NET OF INCOME TAXES - 1,862,140 - 1,862,140
(Note 2) ---------- ---------- ---------- -----------
NET INCOME $1,871,586 $5,000,648 $8,887,185 $ 11,881,485
========== ========== ========== ============
EARNINGS PER SHARE:
Income before extraordinary item $0.86
Extraordinary item, net of income taxes 0.23
----------
Net income $0.63
==========
PRO FORMA EARNINGS PER SHARE (Note 3):
Pro forma income before extraordinary item $0.23 $0.38 $1.08 $1.12
Extraordinary item, net of income taxes - 0.23 - 0.31
---------- ---------- ---------- -----------
Pro forma net income $0.23 $0.15 $1.08 $0.81
========== ========== ========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 5,000,000 7,998,157 5,000,000 6,006,680
========== ========== ========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
1995 1996
<S> <C> <C>
---------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $8,887,185 $11,881,485
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 1,524,976 2,072,493
Provision for doubtful accounts 270,000 600,000
Deferred income tax benefit - (4,860,741)
Extraordinary item, net of income taxes - 1,862,140
(Increase) decrease in accounts receivable (10,792,080) (6,817,389)
(Increase) decrease in inventories 8,785,794 (8,203,370)
(Increase) decrease in prepaid expenses (76,681) (707,014)
(Increase) decrease in deposits and other (236,065) 308,378
Increase (decrease) in accounts payable 723,601 1,870,045
Increase (decrease) in accrued expenses (171,534) 1,477,679
Increase (decrease) in accrued interest payable 109,287 (380,685)
Increase (decrease) in income taxes payable - 1,583,846
Increase (decrease) in vendor-held parts (77,235) (121,767)
Increase (decrease) in deferred income 106,156 12,750
----------- ----------
Net cash provided by operating activities 9,053,404 577,850
----------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of spare parts on lease (2,500,000) (6,819,324)
Purchases of equipment, net (821,928) (886,476)
Due from affiliates (2,132) 53,686
Purchase of certain assets of the business of Dixie
Bearings, Incorporated - (9,090,481)
----------- ----------
Net cash used in investing activities (3,324,060) (16,742,595)
----------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Payment of deferred financing costs (84,529) (1,511,404)
Borrowings under original credit facility (811,007) 15,763,592
Payments under original credit facility (2,500,000) (5,000,000)
Payment of initial public offering proceeds
to original credit facility and subordinated debt - (52,806,400)
Payment to J/T Aviation Partners - (10,160,250)
Borrowings under new credit facility - 5,121,812
Payments under new credit facility - (1,857,143)
Issuance of senior debt under acquisition subfacility - 6,000,000
Partner distributions (3,240,718) (3,041,936)
Proceeds from common stock offering - 64,769,097
----------- ----------
Net cash provided by financing activities (6,636,254) 17,277,368
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS (906,910) 1,112,623
CASH AND CASH EQUIVALENTS, beginning of period 1,482,279 253,307
----------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 575,369 $1,365,930
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Purchase of certain assets of the business of
Dixie Bearings, Incorporated
Accounts receivable $ - $3,015,709
Inventory - 6,000,000
Fixed assets - 100,000
Accounts payable - (25,228)
----------- ----------
Cash paid $ - $9,090,481
=========== ==========
Interest paid $ 5,367,805 $4,114,302
=========== ==========
Income taxes paid $ - $516,000
=========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION:
Organization and Operations
Aviation Sales Company (ASC or the Company) is a newly organized Delaware
corporation. The operations of the Company were initially conducted by AJT
Capital Partners d/b/a Aerospace International Services (AIS). AIS was formed in
February 1992 to acquire certain aircraft spare parts owned by Eastern Air
Lines, Inc. (the EAL Inventory) and certain outstanding accounts receivable. On
December 2, 1994, (effective November 30, 1994) AIS organized ASC Acquisition
Partners, L.P. (the Partnership) to acquire the Aviation Sales Company business
unit from Aviall Services, Inc. (Aviall) and to operate the business of AIS and
the Partnership on a going forward basis. Simultaneously with the acquisition,
AIS contributed all of its assets to the Partnership. For accounting purposes,
the Partnership and AIS were considered related parties as the ultimate
ownership interests of the Partnership interests were held by parties who owned
substantially the same ownership percentage in AIS. As a result, the combination
was accounted for in a manner similar to a pooling of interest.
On June 26, 1996, all but one of the parties holding interests in the
Partnership contributed their interests in the Partnership to the Company in
exchange for shares of common stock. Simultaneously, one of the parties holding
an interest in the Partnership, J/T Aviation Partners (J/T), contributed its
interest in the Partnership to the Company in exchange for shares of common
stock and an amount equal to the proceeds to be received by the Company for
575,000 shares of common stock sold in the offering, as more completely
described below.
On June 26, 1996, the Company's Registration Statement on Form S-1 was declared
effective. On July 2, 1996, the Company closed its public offering of 3,250,000
shares of its common stock at $19 per share. In addition, the Company granted
the underwriters of its public offering a 30-day option to purchase up to
487,500 additional shares of its common stock to cover over-allotments. On July
25, 1996, the underwriters exercised the over-allotment option and the Company
sold an additional 487,500 shares of its common stock.
The net proceeds from the offering after all expenses were $64,769,097. Of such
proceeds, $10,160,250 were used to pay indebtedness due to J/T in connection
with the formation of the Company. The remaining proceeds were used to repay
senior and subordinated indebtedness (see Note 2).
On August 9, 1996, the Company completed the acquisition of certain assets of
the business of Dixie Bearings, Incorporated (Dixie) relating primarily to the
sale of new bearings for use in aircraft for the purchase price of approximately
$9 million. In addition, the Company assumed certain liabilities in the amount
of approximately $25,000. The acquisition was accounted for using the purchase
method of accounting. The historical operations of Dixie, when compared to the
historical operations of the Company, are not significant.
In connection with the acquisition, the Company: (a) borrowed $6,000,000 of
senior notes payable to financial institutions and (b) paid the balance in cash.
<PAGE>
Interim Condensed Financial Statements
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements of ASC contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position of ASC
as of September 30, 1996 and the results of its operations and cash flows for
the three and nine month periods ended September 30, 1996 and 1995. The results
of operations and cash flows for the nine month period ended September 30, 1996
are not necessarily indicative of the results of operations or cash flows which
may be reported for the remainder of 1996.
The accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
for reporting on Form 10-Q. Pursuant to such rules and regulations, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The accompanying unaudited interim condensed financial
statements should be read in connection with the Company's December 31, 1995
financial statements and the notes thereto included in the Prospectus contained
in the Company's Form S-1 Registration Statement.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
2. NOTES PAYABLE AND LONG-TERM DEBT:
On July 2, 1996, the Company completed the repayment of indebtedness and
restructuring of its credit facility per the terms of an Amended Credit
Facility, dated June 27, 1996. The Amended Credit Facility consists of (i) a
term loan facility (the Term Loan) in an original principal amount of $20.0
million and (ii) a $50.0 million revolving loan, letter of credit and
acquisition loan facility, subject to an availability calculation based on the
eligible borrowing base (the Revolving Credit Facility). The letter of credit
portion of the Revolving Credit Facility is subject to a $10.0 million sublimit
and the acquisition loan portion of the Revolving Credit Facility is subject to
a $30.0 million sublimit with the imposition of certain borrowing criteria based
on the satisfaction of certain debt ratios. The unused portion of the
acquisition loan portion of the Revolving Credit Facility expires on the second
anniversary of the closing date of the Amended Credit Facility. The interest
rate on the Amended Credit Facility is, at the option of the Company, (i) prime
plus a margin, or (ii) LIBOR plus a margin, where the margin determination is
made based upon the Company's financial performance over the prior 12 month
period (ranging from 0.25% to 1.25% in the event prime is utilized, or 1.75% to
2.75% in the event LIBOR is utilized). At the present time, the margin is .25%
for prime rate loans and 1.75% for LIBOR rate loans. In connection with the
repayment and restructuring of the credit facility, the Company wrote-off
$3,052,689 of deferred financing costs. This write-off is classified as an
extraordinary item net of income taxes in the accompanying statement of income.
As described in Note 1, the Company borrowed $6.0 million on August 9, 1996
under the acquisition loan portion of the Revolving Credit Facility for the
acquisition of certain assets of the business of Dixie.
The Term Loan will amortize in equal quarterly installments and will terminate
on December 1, 1999. Interim payments under the Revolving Credit Facility will
be made daily from collections of the Company's accounts receivable and the
Revolving Credit Facility will terminate on December 1, 1999. The Amended Credit
Facility contains financial and other covenants of the Company and mandatory
prepayment events and is secured by a lien on substantially all of the assets of
the Company.
<PAGE>
3. PRO FORMA DISCLOSURES:
Pro Forma Income Taxes
As described in Note 1, prior to June 26, 1996, the business of the Company was
conducted by the Partnership. The Partnership was not subject to income taxes.
On June 26, 1996, the net assets of the Partnership were contributed to a C
Corporation (ASC) and became subject to federal and state income taxes. The
transfer of J/T's interest in the Partnership to the Company described in Note 1
resulted in a step-up in basis in the Partnership's net assets for tax purposes.
As a result, during the three months ended September 30, 1996, a deferred income
tax benefit of $3,962,498 was credited to operations. Upon transfer of the net
assets of the Partnership to ASC, a deferred income tax benefit of $914,459,
reflecting the tax effect of temporary differences between the Partnership's
book and tax basis of certain assets and liabilities, was credited to
operations.
The following pro forma adjustments to record income taxes at the Company's
estimated effective tax rate have been reflected in the pro forma earnings per
share data presented in the accompanying condensed consolidated statements of
income of all periods presented:
<TABLE>
<CAPTION>
For the Three Months Ended Sept 30, For the Nine Months Ended Sept 30,
----------------------------------- ----------------------------------
1995 1996 1995 1996
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Historical income before income
taxes and extraordinary item $1,871,586 $5,000,477 $8,887,185 $11,027,855
Pro forma provision for income taxes (729,919) (1,950,186) (3,466,002) (4,300,863)
------------- ------------- ------------ -------------
Pro forma income before extraordinary item 1,141,667 3,050,291 5,421,183 6,726,992
Extraordinary item, net of income taxes -- 1,862,140 -- 1,862,140
------------- ------------- ------------ -------------
Pro forma net income $1,141,667 $1,188,151 $5,421,183 $ 4,864,852
============= ============= ============ =============
</TABLE>
Pro Forma Net Income Per Share
Pro forma net income per share has been computed by dividing pro forma net
income by the number of shares of ASC common stock which the partners of the
Partnership received upon the formation of the Company. For periods prior to the
closing of the Company's public offering, the pro forma weighted average number
of common shares outstanding of 5,000,000 assumes that the 4,425,000 shares
issued to the partners and the 575,000 shares of common stock, the net proceeds
in respect of which were paid to J/T, were outstanding in all periods.
4. STOCK OPTION PLANS:
In connection with the organization of the Company, the Company adopted two
stock option plans (the Plans). Pursuant to the 1996 Director Stock Option Plan
(the Director Plan), options to acquire a maximum of the greater of 150,000
shares or 2% of the number of shares of common stock then outstanding may be
granted to directors of the Company. Pursuant to the 1996 Stock Option Plan,
(the 1996 Plan), options to acquire a maximum of the greater of 650,000 shares
of common stock or 8% of the number of shares of common stock then outstanding
may be granted to executive officers, employees (including employees who are
directors), independent contractors and consultants of the Company. Options to
purchase 190,000 shares at an exercise price equal to $19.00 per share have been
granted under the Plans, 119,999 of which are immediately exercisable.
<PAGE>
ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW: The following discussion and analysis should be read in conjunction
with the information set forth under: Management's Discussion and Analysis of
Financial Condition and Results of Operations on pages 16 through 22 of Aviation
Sales Company's Form S-1 as amended dated June 26, 1996. This discussion
contains forward looking information which involves risks and uncertainties and
is based upon information currently available to the Company. Actual results
could differ from those described herein and future results may be subject to
numerous factors, many of which are beyond the control of the Company.
RESULTS OF OPERATIONS: Third-quarter operating revenues rose 37.3% to $39.5
million, compared with $28.8 million for the same period last year. Operating
revenues for the nine months ended September 30, 1996, increased 24.1% to $106.7
million, compared with $86.0 million, for the same period last year. Operating
revenues increased due to the addition of new sales personnel, increased
customer penetration, increased investment in and availability of inventory and
the expansion of services offered to customers.
Gross profit increased to $12.8 million for the quarter ended September 30,
1996, compared with $10.0 million, for the same period last year ($35.7 million
for the nine months ended September 30, 1996, compared to $32.8 million for the
same period last year). Gross profit margin declined to 32.3% and 33.5%,
respectively, for the third quarter and first nine months of 1996, from 34.8%
and 38.2%, respectively, for the same period in 1995, due to a change in mix of
inventories sold during the periods. Gross profits in 1995 were significantly
impacted by the bulk inventory acquisition of the Aviation Sales business unit
from Aviall Services, Inc. During 1996, the Company has not completed a
comparable bulk inventory acquisition and accordingly, gross profits have not
been positively impacted in a similar manner.
The Company's operating expenses increased $0.9 million from the third quarter
of 1995 to the third quarter of 1996. Operating expenses as a percent of
operating revenues declined from 21.1% of revenues for the third quarter of 1995
to 17.7% for the third quarter of 1996. Operating expenses were $17.7 million
for the first nine months of 1995, or 20.5% of operating revenues, compared with
$20.1 million for the first nine months of 1996, or 18.8% of operating revenues.
The increase in absolute dollars from the first nine months of 1995 vs. the
first nine months of 1996 is due to higher selling and operating expenses as a
result of the higher sales levels achieved during 1996 as compared to 1995.
Lower operating expenses as a percentage of operating revenues reflects the
continuing benefits of economies of scale.
Interest expense, amortization of deferred financing costs and other declined
from period to period due to the repayment of $52,806,400 of indebtedness during
the third quarter 1996 from the proceeds of the initial public offering. As a
result of the completion of the Company's initial public offering and the use of
the proceeds therefrom for the repayment of indebtedness due to certain
financial institutions, the Company recorded an extraordinary adjustment net of
taxes during the third quarter of 1996 of $1.9 million to write-off deferred
financing costs associated with the debt that was repaid.
As a result of the above factors, income before benefit for income taxes and
extraordinary item was $5.0 million and $11.0 million respectively for the three
and nine months ended September 30, 1996, as compared with $1.9 million and $8.9
million, respectively, for the three and nine months ended September 30, 1995.
Income before extraordinary item was $6.9 million ($0.86 per share) for the
three months ended September 30, 1996. After accounting for pro forma income
taxes (as if the Company had been taxed as a C corporation), pro forma net
income before the extraordinary item were $3.1 million ($0.38 per share) and
$6.7 million ($1.12 per share), respectively, for the three and nine months
ended September 30, 1996.
LIQUIDITY AND FINANCIAL RESOURCES: On June 27, 1996, the Company's registration
statement on Form S-1 was declared effective. On July 2, 1996 the Company closed
its public offering of 3,250,000 shares of its common stock at $19 per share. In
addition, the Company granted the underwriters a 30-day option to purchase up to
487,500 additional shares to cover over-allotments. On July 25, 1996, the
underwriters exercised the over-allotment option and the Company sold an
additional 487,500 shares of its common stock . The net proceeds from the
offering after all expenses were $64,769,097. Of such proceeds, $10,160,250 were
used to pay indebtedness due to J/T Aviation Partners in connection with the
formation of the Company. The remaining proceeds were used to repay senior and
subordinated indebtedness.
On July 2, 1996 the Company completed the repayment of indebtedness and
restructuring of its credit facility per the terms of the Amended Credit
Facility dated June 27, 1996. The Amended Credit Facility consists of (i) a term
loan facility (the Term Loan) in an original principal amount of $20.0 million
and (ii) a $50.0 million revolving loan, letter of credit and acquisition loan
facility, subject to an availability calculation based on the eligible borrowing
base (the Revolving Credit Facility). The letter of credit portion of the
Revolving Credit Facility is subject to a $10.0 million sublimit and the
acquisition loan portion of the Revolving Credit Facility is subject to $30.0
million sublimit with the imposition of certain borrowing criteria based on the
satisfaction of certain debt ratios. The unused portion of the acquisition loan
portion of the Revolving Credit Facility expires on the second anniversary of
the closing date of the Amended Credit Facility. The interest rate on the
Amended Credit Facility is, at the option of the Company, (i) prime plus a
margin, or (ii) LIBOR plus a margin, where the margin determination is made
based upon the Company's financial performance over the prior 12 month period
(ranging from 0.25% to 1.25% in the event prime is utilized, or 1.75% to 2.75%
in the event LIBOR is utilized).
<PAGE>
The Term loan will amortize in equal quarterly installments and will terminate
on December 1, 1999. Interim payments under the Revolving Credit Facility will
be made daily from collections of the Company's accounts receivable and the
Revolving Credit Facility will terminate on December 1, 1999. The Amended Credit
Facility contains financial and other covenants of the Company and mandatory
prepayment events and is secured by a lien on substantially all of the assets of
the Company.
During the first nine months of 1996, net cash provided by operating activities
was $0.6 million. The Company used $16.7 million of cash in investing activities
primarily for the purchase of aircraft spare parts on lease and to acquire
certain assets of Dixie Bearings, Incorporated. Cash flow provided by financing
activities for the nine months ended September 30, 1996 of $17.3 million
resulted from (i) the receipt of $64.8 million of net proceeds from the initial
public offering which were used to repay J/T Aviation Partners for indebtedness
incurred in connection with the formation of the Company and to repay amounts
outstanding under the original credit facility, subordinated debt and debt costs
associated with the amended credit facility, (ii) net borrowings under the
original and amended credit agreements of $14.0 million primarily to finance the
purchase of aircraft spare parts and other operating activities, (iii) $6.0
million of the acquisition loan sub facility borrowings to finance the Dixie
acquisition and (iv) distributions to partners of $3.0 million.
As a result of the completion of the Company's initial public offering and the
use of the proceeds therefrom for the repayment of indebtedness due to certain
financial institutions, the Company recorded an adjustment net of taxes during
the third quarter of 1996 of $1.9 million to write-off deferred financing costs
associated with the debt that was repaid.
The repayment of indebtedness from the net proceeds of the offering improved the
Company's liquidity by reducing both the Company's interest expense and the
principal amount of the indebtedness required to be repaid in the future. The
Company believes that the cash flow from operations and borrowings availability
under the Amended Credit Facility will be sufficient to satisfy the Company's
anticipated working capital requirements over the next two years.
During 1996, the Company expects to incur capital expenditures of approximately
$1.0 million ($0.9 million of which was expended during the first nine months of
1996), the majority of which will be used to make enhancements to the Company's
management information systems, telecommunication systems and other capital
equipment and improvements. The Company anticipates that the funds for these
capital expenditures will be provided from cash flow from operations.
OUTLOOK: As part of its growth strategy, the Company intends to continue to
pursue acquisitions of bulk inventories of aircraft spare parts and
complementary businesses. Financing for such acquisitions will be provided from
operations and from the proceeds of the Amended Credit Facility. The Company may
also issue additional debt and/or equity securities in connection with one or
more of these acquisitions. The Company is currently evaluating a number of
acquisition opportunities and is at varying stages of negotiation with respect
to such acquisitions. Except as described herein, no commitments or binding
agreements have been entered into to date and accordingly no assurance can be
given that any of the acquisitions currently being considered will be
consummated.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LITIGATION
Not Applicable
Item 2. CHANGES IN SECURITIES
Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(c.) EXHIBITS.
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 1,365,930
<SECURITIES> 0
<RECEIVABLES> 33,057,460<F1>
<ALLOWANCES> 3,779,167
<INVENTORY> 63,160,052
<CURRENT-ASSETS> 98,347,419
<PP&E> 4,108,178
<DEPRECIATION> 1,774,055
<TOTAL-ASSETS> 127,283,434
<CURRENT-LIABILITIES> 32,173,120
<BONDS> 17,604,351<F2>
0
0
<COMMON> 8,163
<OTHER-SE> 77,497,800
<TOTAL-LIABILITY-AND-EQUITY> 127,283,434
<SALES> 98,622,265
<TOTAL-REVENUES> 106,700,594
<CGS> 70,987,453
<TOTAL-COSTS> 70,987,453
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,614,774
<INCOME-PRETAX> 11,027,855<F3>
<INCOME-TAX> 4,300,863<F4>
<INCOME-CONTINUING> 6,726,992<F5>
<DISCONTINUED> 0
<EXTRAORDINARY> 1,862,140
<CHANGES> 0
<NET-INCOME> 4,864,852<F6>
<EPS-PRIMARY> .81<F7>
<EPS-DILUTED> .81<F8>
<PAGE>
<FN>
<F1>Net of allowance for doubtful accounting of $2,298,569 and allowance for
sales returns of $1,480,598.
<F2>Comprised of long-term debt
<F3>Excludes income tax benefit of $2,715,770. (See Note 3 to Financial
Statements)
<F4>Pro forma income taxes. (See Note 3 to Financial Statements)
<F5>Pro forma income before extraordinary item after giving effect to pro-forma
income taxes. (See Note 3 to Financial Statements)
<F6>Net income after giving effect to pro forma income taxes. (See Note 3 to
Financial Statements)
<F7>Net income after giving effect to pro forma income taxes. (See Note 3 to
Financial Statements)
<F8>Net income after giving effect to pro forma income taxes. (See Note 3 to
Financial Statements)
</FN>
</TABLE>
