UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[Mark One]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
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 33122
MIAMI, FLORIDA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (305) 592-4055
Indicate by check 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 report(s), 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 equity, as of the latest practicable date: 8,562,500 shares of common
stock, $.001 par value per share, were outstanding as of May 13, 1997.
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,262,149 $ 574,006
Accounts receivable, net of allowances
for doubtful accounts of $3,779,580
and $3,688,006 and allowances for
sales returns of $1,227,598 and
$1,240,816 in 1996 and 1997,
respectively 37,086,899 42,763,696
Inventories 72,974,397 81,676,169
Prepaid expenses 4,067,332 2,391,393
Deferred income taxes 1,972,410 2,215,420
------------ ------------
Total current assets 117,363,187 129,620,684
------------ ------------
SPARE PARTS ON LEASE, net of
accumulated amortization of
$2,601,069 in 1996 and
$2,616,530 in 1997 17,950,783 16,418,548
------------ ------------
FIXED ASSETS
Property and equipment 4,330,070 4,804,510
Less - Accumulated depreciation (2,027,197) (2,228,835)
------------ ------------
Total fixed assets 2,305,873 2,575,675
------------ ------------
AMOUNTS DUE FROM RELATED PARTIES 2,914,615 2,835,280
------------ ------------
OTHER ASSETS
Deposits and other 369,191 321,938
Deferred income taxes 3,406,331 3,197,146
Deferred financing costs, net 872,568 871,143
------------ ------------
Total other assets 4,648,090 4,390,227
------------ ------------
Total assets $145,182,548 $155,840,414
============ ============
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 15,736,288 $ 8,610,253
Accrued expenses 6,809,734 9,506,215
Income taxes payable 1,691,638 2,179,623
Notes payable, current maturities
Senior 7,428,571 7,428,571
Revolver 16,697,985 30,314,466
------------ ------------
Total current liabilities 48,364,216 58,039,128
------------ ------------
LONG-TERM LIABILITIES
Deferred income 890,065 890,065
Notes payable - Senior 14,857,143 13,000,000
------------ ------------
Total long-term liabilities 15,747,208 13,890,065
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value,
1,000,000 shares authorized,
none outstanding -- --
Common stock, $.001 par value,
30,000,000 shares authorized,
8,562,500 shares outstanding
in 1996 and 1997, respectively 8,563 8,563
Additional paid-in capital 71,305,305 71,305,305
Retained earnings 9,757,256 12,597,353
------------ ------------
Total stockholders' equity 81,071,124 83,911,221
------------ ------------
Total liabilities and
stockholders' equity $145,182,548 $155,840,414
============ ============
The accompanying notes are an integral part of these
condensed consolidated balance sheets.
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31,
-----------------------------------------
1996 1997
----------- -----------
(UNAUDITED)
OPERATING REVENUES
Sales of aircraft parts, net $33,378,843 $46,674,097
Rentals from leases and other 2,175,303 2,376,639
----------- -----------
35,554,146 49,050,736
COST OF SALES 23,235,443 35,227,738
----------- -----------
12,318,703 13,822,998
----------- -----------
OPERATING EXPENSES
Operating 2,513,764 2,739,630
Selling 1,589,428 1,941,325
General and administrative 2,328,851 2,804,108
Depreciation and amortization 460,805 673,936
----------- -----------
6,892,848 8,158,999
----------- -----------
INCOME FROM OPERATIONS 5,425,855 5,663,999
OTHER EXPENSES
Interest expense and
amortization of
deferred financing
costs 2,030,968 1,008,102
----------- -----------
INCOME BEFORE INCOME TAXES 3,394,887 4,655,897
INCOME TAX EXPENSE -- 1,815,800
----------- -----------
NET INCOME $ 3,394,887 $ 2,840,097
=========== ===========
EARNINGS PER SHARE:
Net income per share $ 0.33
===========
PRO FORMA EARNINGS PER SHARE
(Note 3):
Pro forma net income per share $ 0.40 $ 0.33
=========== ===========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 5,400,000 8,604,425
=========== ===========
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
FOR THE THREE MONTHS ENDED MARCH 31,
-----------------------------------------
1996 1997
----------- -------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,394,887 $ 2,840,097
Adjustments to reconcile net
income to net cash used in
operating activities
Depreciation and amortization 647,666 755,604
Provision for doubtful
accounts 219,247 285,000
Increase in deferred income
taxes -- (33,825)
Gain on sale of spare parts
on lease -- (841,838)
(Increase) decrease in
accounts receivable, net (3,524,063) (5,961,797)
(Increase) decrease in
inventory (4,690,701) (8,701,772)
(Increase) decrease in
prepaid expenses (296,351) 1,675,939
(Increase) decrease in
deposits and other 76,928 47,253
Increase (decrease) in
accounts payable 41,784 (7,126,023)
Increase (decrease) in
accrued expenses (328,373) 1,760,059
Increase (decrease) in
income taxes payable -- 1,424,395
----------- ------------
Net cash used in
operating activities (4,458,976) (13,876,908)
----------- ------------
CASH FLOW FROM INVESTING
ACTIVITIES
Purchases of equipment, net (362,601) (471,440)
Purchase of spare parts on lease -- (1,098,224)
Proceeds from sale of spare parts
on lease -- 3,000,000
Payments from related parties 33,834 79,335
----------- ------------
Net cash provided by
(used in) investing
activities (328,767) 1,509,671
----------- ------------
CASH FLOW FROM FINANCING ACTIVITIES
Repayment of senior debt (2,500,000) --
Net issuance of senior revolving
facility 7,578,768 --
Net borrowings under new credit
facility -- 13,616,481
Payment under new credit facility -- (1,857,143)
Payment of deferred financing
costs -- (80,244)
----------- ------------
Net cash provided by
financing activities 5,078,768 11,679,094
----------- ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 291,025 (688,143)
----------- ------------
CASH AND CASH EQUIVALENTS,
beginning of period 253,307 1,262,149
----------- ------------
CASH AND CASH EQUIVALENTS,
end of period $ 544,332 $ 574,006
=========== ============
Interest paid $ 1,725,588 $ 822,033
=========== ============
Income taxes paid -- $ 425,230
=========== ============
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
March 31, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION:
Interim Condensed Financial Statements
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 disclosure 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 conjunction with the Company's December 31, 1996
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 (File No. 1-11775).
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements of Aviation Sales Company (the "Company") contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position of the Company as of March 31,1997 and the
results of its operations and cash flows for the three month periods ended March
31, 1997 and 1996. The results of operations and cash flows for the three month
period ended March 31, 1997 are not necessarily indicative of the results of
operations or cash flows which may be reported for the year ending December 31,
1997.
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.
Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS No. 128"), is effective for fiscal years ending after December 15, 1997.
This statement specifies the computation, presentation and disclosure
requirements for earnings per share for entities with publicly held common stock
or potential common stock. This pronouncement is not expected to have a material
impact on the financial statements of the Company.
2. ACQUISITION:
On December 10, 1996, the Company acquired AvEng Trading Partners, Inc.
("AvEng") for consideration of 400,000 shares of the Company's common stock. The
acquisition was accounted for using the pooling of interests method of
accounting, and therefore, the Company's consolidated statements of income,
partners' capital and stockholders' equity and cash flows for the year ended
December 31, 1996 reflect the results of operations of AvEng as if the
acquisition had occurred on January 1, 1996. The company's consolidated
statements of income, partners' capital and stockholders' equity and cash flows
prior to December 31, 1995 have not been restated to give retroactive effect for
the acquisition due to the immateriality of the restated amounts.
3. PRO FORMA DISCLOSURES:
Pro Forma Income Taxes
Prior to June 26, 1996 the business of the Company was conducted by a
partnership and not subject to income taxes. As a result of the transfer of the
net assets of the partnership to the Company and the initial public offering of
its common stock in June 1996, the Company became subject to federal and state
income taxes.
<PAGE>
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:
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1996 1997
----------- -----------
Historical income before income taxes $ 3,394,887 $ 4,655,897
Pro forma provision for income taxes (1,324,006) (1,815,800)
----------- -----------
Pro forma net income $ 2,070,881 $ 2,840,097
=========== ===========
Pro Forma Net Income Per Share
Pro forma net income per share has been computed by dividing pro forma net
income by the weighted average number of common and common equivalent shares
outstanding during the period. Outstanding stock options are considered common
stock equivalents and are included in the calculation using the treasury stock
method.
<PAGE>
ITEM 2: MANAGEMENT'S 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 15 through 22 of Aviation Sales
Company's Annual Report on Form 10-K for the year ended December 31, 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
First quarter operating revenues rose 38% to $49.1 million, compared with $35.6
million for the same period last year. Operating revenues increased due to the
Company's entrance into the bearings distribution business, the addition of new
sales personnel, increased customer penetration, increased investment in and
availability of inventory and the continued expansion of services offered to
customers and customers utilizing the Company's services.
Gross profit increased 12% to $13.8 million for the first quarter ended March
31, 1997, compared with $12.3 million for the same period last year. Gross
profit margin declined to 28.2% for the 1997 first quarter from 34.6% for the
1996 first quarter and from 29.6% for the 1996 fourth quarter. The decline in
gross profit margin was expected as the mix of inventories sold during the
period continued to reflect a declining contribution from bulk inventories
acquired prior to 1995 and an increase in revenues from the Company's bearings
distribution business acquired in August, 1996. Gross profit margin from
bearings distribution was 22.6% for the first quarter of 1997. As the Company's
mix of products and services offered to customers matures, the Company expects
that its gross profit margin from period to period will fluctuate between 27%
to 31%.
The Company's operating expenses increased $1.3 million in the first quarter of
1997 compared with the first quarter of 1996, due to higher sales levels. The
increase in absolute dollars from the first three months of 1996 versus the
first three months of 1997 is due to higher selling and operating expenses as a
result of higher sales levels principally achieved during 1997 as compared to
1996. Operating expenses as a percentage of sales declined, however, to 16.7% in
the 1997 first quarter from 19.4% in the corresponding period of 1996,
reflecting the continuing benefits of economies of scale and operating
efficiencies.
Interest expense and amortization of deferred financing costs declined from
period to period due to the repayment of $52,806,400 of indebtedness during the
third quarter of 1996 from the proceeds of the Company's initial public
offering.
As a result of the above factors, income before income taxes increased $1.3
million, or 37%, from $3.4 million to $4.7 million, respectively, from the three
month period ended March 31, 1996 to the same period ending in 1997. Net income
was $2.8 million, or $.33 per share for the first quarter of 1997, compared to
net income, after accounting for pro forma income taxes, of $2.1 million, or
$.40 per share for the first quarter of 1996. Weighted average shares
outstanding were 8.6 million during the first quarter of 1997, compared to 5.4
million during the first quarter of 1996.
<PAGE>
LIQUIDITY AND FINANCIAL RESOURCES
During the three month periods ended March 31, 1996 and 1997, the Company
financed its working capital requirements primarily with its cash flow from
financing activities, amounting to $5.1 million and $11.7 million, respectively.
Cash flow used in operations for the three month periods ended March 31, 1996
and 1997 was $4.5 million and $13.9 million, respectively.
The Company's primary uses of cash to date have been investing activities and
the repayment of indebtedness. Cash used in investing activities was $.3 million
for the three month period ended March 31, 1996 and cash provided by investing
activities was $1.5 million for the three month period ended March 31, 1997.
On July 2, 1996, the Company completed the repayment of indebtedness and
restructuring of its credit facility per the terms of an Amended and Restated
Credit Facility (the "Amended Credit Facility"), dated June 27, 1996. The
Amended Credit Facility consists of (a) a term loan facility (the "Amended Term
Loan") in an original principal amount of $20 million, and (b) 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 "Amended
Revolving Credit Facility"). The eligible borrowing base includes certain
receivables and inventories of the Company. At March 31, 1997, the Company had
availability under the Amended Credit Facility of approximately $13.4 million.
The letter of credit portion of the Amended 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 Amended 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, (a) prime plus a margin, or (b) 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
March 31, 1997, the margin was .75% for prime rate loans and 2.25% for LIBOR
rate loans.
The Amended Term Loan amortizes in equal quarterly installments and terminates
on December 1, 1999. Interim payments under the Amended Revolving Credit
Facility will be made from daily collections of the Company's accounts
receivable. The Amended 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, in the event of certain circumstances,
as defined. At March 31, 1997, the Company was in compliance with all of its
requirements under the Amended Credit Facility. The Amended Credit Facility also
contains mandatory prepayment events and is secured by a lien on substantially
all of the assets of the Company. At March 31, 1997, the outstanding balances
under the Amended Term Loan and Amended Revolving Credit Facility were $20.4
million and $30.3 million, respectively.
During the three month period ended March 31, 1997, the Company incurred capital
expenditures of approximately $.5 million, primarily to make enhancements to the
Company's management information systems, telecommunication systems and other
capital equipment and improvements.
<PAGE>
The repayment of indebtedness with the net proceeds of the Company's June 1996
initial public 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 cash flow from operations
and borrowing availability under the Amended Credit Facility will be sufficient
to satisfy the Company's anticipated working capital requirements over the next
12 months.
As part of its growth strategy, the Company intends to pursue acquisitions of
bulk inventories of aircraft spare parts and complementary businesses.
Additionally, the Company is currently evaluating the prospect of purchasing and
implementing a new management information system and exploring the possibility
of consolidating its various facilities into a single warehouse facility.
Financing for such activities would be provided from operations and from the
proceeds of the Amended Credit facility. The Company may also issue additional
debt and/or equity securities or seek to borrow additional funds under its
Amended Credit Facility in connection with its business activities.
<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 FORMS 8-K
(C.) EXHIBITS
EXHIBIT
NO. DESCRIPTION
- ---------- -----------
27 Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AVIATION SALES COMPANY
By: /s/ DALE S. BAKER
------------------------------------
Dale S. Baker, President and
Chief Executive Officer
By: /s/ JOSEPH E. CIVILETTO
-----------------------------------
Joseph E. Civiletto, Vice President
And Chief Financial Officer
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE
- ------- ----
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 574,006
<SECURITIES> 0
<RECEIVABLES> 42,763,696<F1>
<ALLOWANCES> 3,688,006
<INVENTORY> 81,676,169
<CURRENT-ASSETS> 129,620,684
<PP&E> 4,804,510
<DEPRECIATION> 2,228,835
<TOTAL-ASSETS> 155,840,414
<CURRENT-LIABILITIES> 58,039,128
<BONDS> 13,000,000<F2>
0
0
<COMMON> 8,563
<OTHER-SE> 83,902,658
<TOTAL-LIABILITY-AND-EQUITY> 155,840,414
<SALES> 46,674,097
<TOTAL-REVENUES> 49,050,736
<CGS> 35,227,738
<TOTAL-COSTS> 35,227,738
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,008,102
<INCOME-PRETAX> 4,655,897
<INCOME-TAX> 1,815,800
<INCOME-CONTINUING> 2,840,097
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,840,097
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
<FN>
<F1>Net of allowance for doubtful accounts of $3,688,006
<F2>Comprised of long-term debt
</FN>
</TABLE>
