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 JUNE 30, 1999
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 checkmark 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: 15,005,576 shares
of common stock, $.001 par value per share, were outstanding as of August 10,
1999.
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, JUNE 30,
1998 1999
---------- --------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,536 $ 10,896
Accounts receivable, net 115,974 154,761
Inventories 277,131 354,683
Deferred income taxes 5,932 6,814
Other current assets 16,416 24,624
-------- --------
Total current assets 425,989 551,778
-------- --------
EQUIPMENT ON LEASE, net 28,354 11,055
-------- --------
FIXED ASSETS, net 69,744 78,329
-------- --------
AMOUNTS DUE FROM RELATED PARTIES 2,204 2,153
-------- --------
OTHER ASSETS:
Goodwill, net 56,936 55,294
Deferred financing costs, net 8,104 8,827
Other assets 8,046 13,425
-------- --------
Total other assets 73,086 77,546
-------- --------
Total assets $599,377 $720,861
======== ========
(Continued)
1
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(CONTINUED)
DECEMBER 31, JUNE 30,
1998 1999
---------- --------
(Unaudited)
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 50,931 $ 58,073
Accrued expenses 26,317 39,491
Current maturities of notes payable 4,908 3,640
Current maturities of capital lease obligations 84 84
Revolving loan 174,007 187,739
-------- --------
Total current liabilities 256,247 289,027
-------- --------
LONG-TERM LIABILITIES:
Senior subordinated notes 164,163 164,208
Notes payable, net of current portion 18,881 1,069
Capital lease obligations, net of current portion 4,133 4,216
Deferred income 1,371 5,330
Other long-term liabilities 284 299
-------- --------
Total long-term liabilities 188,832 175,122
-------- --------
COMMITMENTS AND CONTINGENCIES, (Note 5)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none outstanding -- --
Common stock, $.001 par value, 30,000,000 shares
authorized, 12,515,809 and 15,003,050 shares
outstanding at December 31, 1998 and June 30,
1999, respectively 12 15
Additional paid-in capital 64,344 149,334
Retained earnings 89,942 107,363
-------- --------
Total stockholders' equity 154,298 256,712
-------- --------
Total liabilities and stockholders' equity $599,377 $720,861
======== ========
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
2
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- ------------------------
1998 1999 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Sales of products, net $ 88,511 $ 101,662 $ 168,792 $ 210,981
Services and other 20,624 77,627 42,517 146,266
--------- --------- --------- ---------
109,135 179,289 211,309 357,247
COST OF SALES AND SERVICES 80,093 134,986 156,993 271,789
--------- --------- --------- ---------
GROSS PROFIT 29,042 44,303 54,316 85,458
OPERATING EXPENSES 15,622 20,902 30,460 41,138
--------- --------- --------- ---------
INCOME FROM OPERATIONS 13,420 23,401 23,856 44,320
INTEREST EXPENSE AND OTHER 4,786 8,423 8,733 17,112
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES, EQUITY INCOME OF
AFFILIATE AND EXTRAORDINARY ITEM 8,634 14,978 15,123 27,208
INCOME TAX EXPENSE 3,389 5,868 5,877 10,638
--------- --------- --------- ---------
INCOME BEFORE EQUITY INCOME OF AFFILIATE AND
EXTRAORDINARY ITEM 5,245 9,110 9,246 16,570
EQUITY INCOME OF AFFILIATE (356) (393) (701) (851)
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEM 5,601 9,503 9,947 17,421
EXTRAORDINARY ITEM, NET OF INCOME TAXES -- -- 599 --
--------- --------- --------- ---------
NET INCOME $ 5,601 $ 9,503 $ 9,348 $ 17,421
========= ========= ========= =========
BASIC EARNINGS PER SHARE:
Income before extraordinary item $ 0.45 $ 0.73 $ 0.80 $ 1.35
Extraordinary item, net of income taxes -- -- 0.04 --
--------- --------- --------- ---------
Net income $ 0.45 $ 0.73 $ 0.76 $ 1.35
========= ========= ========= =========
DILUTED EARNINGS PER SHARE:
Income before extraordinary item $ 0.44 $ 0.71 $ 0.79 $ 1.32
Extraordinary item, net of income taxes -- -- 0.05 --
--------- --------- --------- ---------
Net income $ 0.44 $ 0.71 $ 0.74 $ 1.32
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------
1998 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,348 $ 17,421
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 4,685 8,921
Proceeds from sale of equipment on lease, net of gain -- 1,088
Provision for doubtful accounts 428 941
Equity in earnings of affiliate, net of taxes (701) (851)
Extraordinary item, net of income taxes 599 --
Deferred income taxes (1,222) (39,728)
Increase in accounts receivable 5 (1,165)
Increase in inventories (33,040) (78,224)
Decrease (increase) in other current assets 1,565 (8,208)
Increase in other assets (6,475) (4,722)
Increase (decrease) in accounts payable (5,021) 7,141
Increase in accrued expenses 837 14,334
Increase in deferred income 801 3,959
Increase in other liabilities -- 299
--------- ---------
Net cash used in operating activities (28,191) (78,794)
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Cash used in acquisitions, net of cash acquired (12,564) --
Purchases of fixed assets (8,338) (14,065)
Purchases of equipment on lease (14,799) --
Payments from related parties 498 51
--------- ---------
Net cash used in investing activities (35,203) (14,014)
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings under senior debt facilities 186,536 272,850
Payments under senior debt facilities (290,155) (259,119)
Payment on equipment loans (411) (610)
Payment on notes payable -- (3,729)
Proceeds from issuance of senior subordinated notes 164,002 --
Proceeds from secondary public offering -- 80,318
Proceeds from equipment loan 6,084 --
Stock options exercised 347 4,678
Payments on capital leases (31) (60)
Payments of deferred financing costs (5,080) (1,160)
--------- ---------
Net cash provided by financing activities 61,292 93,168
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,102) 360
--------- ---------
CASH AND CASH EQUIVALENTS, beginning of period 6,237 10,536
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 4,135 $ 10,896
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 3,955 $ 14,365
========= =========
Income taxes paid $ 8,571 $ 14,375
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION:
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim condensed consolidated 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 consolidated financial statements should be read in
conjunction with Aviation Sales Company's (the "Company") December 31, 1998
financial statements and the notes thereto included in the Company's Form 10-K,
as amended, (File No. 001-11775).
In the opinion of management, the accompanying unaudited interim
condensed consolidated financial statements of the Company contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position of the Company as of June 30, 1999 and the
results of its operations for the three and six month periods ended June 30,
1998 and 1999 and its cash flows for the six month periods ended June 30, 1998
and 1999. The results of operations and cash flows for the six month period
ended June 30, 1999 are not necessarily indicative of the results of operations
or cash flows which may be reported for the year ending December 31, 1999.
The accompanying unaudited interim condensed consolidated financial
statements give retroactive effect to the acquisition of Whitehall Corporation
("Whitehall") which the Company acquired in July 1998. The acquisition of
Whitehall has been accounted for under the pooling of interests method of
accounting. See Note 3 for a further discussion of this transaction.
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.
COMPREHENSIVE INCOME
For all periods presented comprehensive income is equal to net income.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants ("ACSEC") issued Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use". SOP 98-1 establishes criteria for determining
which costs of developing or obtaining internal use computer software should be
charged to expense and which should be capitalized. The Company adopted SOP 98-1
prospectively on January 1, 1999. The adoption of SOP 98-1 did not have a
material effect on the Company's financial position or results of operations.
In April 1998, the ACSEC issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities". SOP 98-5 establishes standards for the reporting and
disclosure of start-up costs, including organization costs. The Company adopted
SOP 98-5 effective on January 1, 1999. The adoption of SOP 98-5 did not have a
material effect on the Company's financial position or results of operations.
5
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
2. INVESTMENT IN AFFILIATE:
During 1994, Whitehall obtained a 40% ownership in a joint venture
involved in the development of aircraft-related technology for an initial
investment of $1. The Company accounts for its investment in the joint venture
under the equity method. In 1994, Whitehall loaned $2,000 to the joint venture,
which is evidenced by a promissory note which accrues interest at a maximum rate
of 5% per annum. Principal and accrued interest became due on January 5, 1999.
Management is evaluating the possibility of extending the note or converting the
note and accrued interest into a capital contribution. The note is secured by
certain assets of the joint venture.
3. BUSINESS COMBINATIONS:
ACQUISITIONS ACCOUNTED FOR UNDER THE PURCHASE METHOD OF ACCOUNTING:
In March 1998, the Company completed the acquisition of Caribe
Aviation, Inc. ("Caribe") and Caribe's wholly owned subsidiary Aircraft Interior
Design, Inc. ("AIDI") for $23,300, consisting of $5,000 in cash; $5,000 in
promissory notes payable over two years; the issuance of 182,143 shares of the
Company's common stock; and the repayment of approximately $7,600 of
indebtedness owed by Caribe and AIDI to a financial institution.
In September 1998, the Company completed the acquisition of Triad
International Maintenance Corporation ("TIMCO") for $63,300 in cash.
Additionally, as a part of the transaction, the Company agreed to guarantee
certain industrial revenue bond financing incurred in connection with the
development of TIMCO's Greensboro operating facilities, in the approximate
amount of $11,700 and the Company has posted an irrevocable letter of credit to
secure its obligations thereunder.
The Company's acquisitions of Caribe, AIDI and TIMCO have been
accounted for under the purchase method of accounting and accordingly, the
purchase price has been allocated to the assets purchased and liabilities
assumed based upon the fair values at the date of acquisition, and their results
of operations have been included in the accompanying condensed consolidated
financial statements from their respective dates of acquisition.
The Company's unaudited pro forma condensed consolidated results of
operations for the six months ended June 30, 1998 assuming the Caribe, AIDI and
TIMCO acquisitions had occurred on January 1, 1998 are as follows:
Revenue $287,725
Income before extraordinary item $ 10,697
Net income $ 10,098
Diluted earnings per share before extraordinary item $ 0.79
The preliminary purchase price allocations during the six months ended
June 30, 1998 for business combinations accounted for under the purchase method
of accounting were as follows:
Accounts receivable ........................... $ 4,140
Inventories ................................... 9,124
Deposits and other assets ..................... 116
Fixed assets .................................. 3,667
Goodwill ...................................... 9,588
Accounts payable .............................. (3,351)
Notes payable ................................. (5,000)
Common stock issued ........................... (5,720)
--------
Cash used in acquisitions, net of cash acquired $ 12,564
========
6
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
3. BUSINESS COMBINATIONS:--(CONTINUED)
ACQUISITIONS ACCOUNTED FOR UNDER THE POOLING OF INTERESTS METHOD OF ACCOUNTING:
In July 1998, the Company acquired Whitehall for consideration of
2,844,079 shares of the Company's common stock. The acquisition was accounted
for using the pooling of interests method of accounting and thus, the
accompanying condensed consolidated financial statements have been restated to
give retroactive effect for the acquisition for all periods presented.
The following reflects the results of operations for the six months
ended June 30, 1998 of the Company and of Whitehall, which was acquired in 1998,
for the period before the pooling of interests combination was consummated:
REVENUE:
The Company .................. $173,457
Whitehall .................... 37,852
--------
$211,309
========
Income before extraordinary item:
The Company .................. $ 9,188
Whitehall .................... 759
--------
$ 9,947
========
7
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
4. NOTES PAYABLE AND REVOLVING LOAN:
In February 1998, the Company sold $165,000 of senior subordinated
notes due in 2008 with a coupon rate of 8.125% at a price of 99.395%. The
proceeds of the sale were used to repay all amounts then outstanding under the
Company's Credit Facility and to fund the cash requirements related to the
acquisition of Caribe and AIDI. The Company wrote off deferred financing costs
of $981 in connection with the repayment of the term loan portion of the Credit
Facility, resulting in an extraordinary item, net of taxes, of $599.
In September and November of 1998 and May of 1999, the Credit Facility
was amended to increase the revolving loan and letter of credit facility to
$200,000, $250,000 and $300,000, respectively.
Borrowings under the Credit Facility are secured by a lien on
substantially all of the Company's assets and the borrowing base consists of
substantially all of the Company's receivables and inventory. Interest under the
Credit Facility is, at the option of the Company, (a) prime plus a margin, or
(b) LIBOR plus a margin, where the respective margin determination is made upon
the Company's financial performance over a 12 month period (ranging from 0.0% to
1.0% in the event prime is utilized, or 1.125% to 2.5% in the event LIBOR is
utilized). At June 30, 1999, the margin was 0.75% for prime rate loans and 2.25%
for LIBOR rate loans.
The Credit Facility contains certain financial covenants regarding the
Company's financial performance and certain other covenants, including
limitations on the amount of annual capital expenditures and the incurrence of
additional debt, and provides for the suspension of borrowing and repayment of
all debt in the event of a material adverse change in the business of the
Company or a change in control. In addition, the Credit Facility requires
mandatory repayments from the proceeds of a sale of assets or an issuance of
equity or debt securities (see Note 6) or as a result of insufficient collateral
to meet the borrowing base requirements thereunder. At June 30, 1999 the Company
was in compliance with its financial covenants. At June 30, 1999, $38,583 was
available for borrowing under the Credit Facility and outstanding letters of
credit aggregated $22,585.
The senior subordinated notes mature on February 15, 2008. Interest is
payable on February 15 and August 15 of each year, commencing August 15, 1998.
The senior subordinated notes are general unsecured obligations of the Company,
subordinated in right of payment to all existing and future senior debt,
including indebtedness outstanding under the Credit Facility and under
facilities which may replace the credit facility in the future. In addition, the
senior subordinated notes are effectively subordinated to all secured
obligations to the extent of the assets securing such obligations, including the
Credit Facility.
8
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
4. NOTES PAYABLE AND REVOLVING LOAN--(CONTINUED):
SENIOR SUBORDINATED NOTES
The indenture pursuant to which the senior subordinated notes have been
issued permits the Company and its subsidiaries to incur substantial additional
indebtedness, including additional senior debt. Under the indenture, the Company
may borrow unlimited additional amounts so long as after incurring such debt it
meets a fixed charge coverage ratio for the most recent four fiscal quarters of
2.0 to 1 until February 15, 2000 and 2.25 to 1 thereafter. At June 30, 1999, the
Company's fixed charge coverage ratio for the last four fiscal quarters was 3.7
to 1. Additionally, the indenture allows the Company to borrow and have
outstanding additional amounts of indebtedness (even if it does not meet the
required fixed charge coverage ratios), up to enumerated limits. The senior
subordinated notes are also effectively subordinated in right of payment to all
existing and future liabilities of any of its subsidiaries which do not
guarantee the senior subordinated notes.
The senior subordinated notes are fully and unconditionally guaranteed,
on a senior subordinated basis, by substantially all of the Company's existing
subsidiaries and each subsidiary that will be organized in the future by the
Company unless such subsidiary is designated as an unrestricted subsidiary.
Subsidiary guarantees are joint and several, full and unconditional, general
unsecured obligations of the subsidiary guarantors. Subsidiary guarantees are
subordinated in right of payment to all existing and future senior debt of
subsidiary guarantors, including the Credit Facility, and are also effectively
subordinated to all secured obligations of subsidiary guarantors to the extent
of the assets securing their obligations, including the Credit Facility.
Furthermore, the indenture permits subsidiary guarantors to incur additional
indebtedness, including senior debt, subject to certain limitations. The Company
has not presented separate financial statements and other disclosures concerning
each of the subsidiary guarantors because management has determined that such
information is not material to investors.
The senior subordinated notes are redeemable, at the Company's option,
in whole or in part, at any time after February 15, 2003, at the following
redemption prices, plus accrued and unpaid interest and liquidated damages, if
any, to the redemption date: (i) 2003--104.063%; (ii) 2004--102.708%; (iii)
2005--101.354%; and (iv) 2006 and thereafter--100%. In addition, on or prior to
February 15, 2001, the Company may redeem up to 35% of the aggregate principal
amount of the senior subordinated notes at a redemption price of 108.125% of the
principal amount thereof, plus accrued and unpaid interest and liquidated
damages, if any, thereon to the redemption date with the net proceeds of a
public offering of common stock of the Company; provided, that at least 65% of
the aggregate principal amount of the senior subordinated notes originally
issued remains outstanding immediately after the occurrence of this redemption.
Upon the occurrence of a change of control, the Company will be
required to make an offer to repurchase all or any part of each holder's senior
subordinated notes at a repurchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest and liquidated damages, if any,
thereon to the repurchase date. There can be no assurance that the Company will
have the financial resources necessary to purchase the senior subordinated notes
upon a change of control or that such repurchase will then be permitted under
the Credit Facility.
The indenture contains certain covenants that, among other things,
limits the Company's ability and that of its subsidiaries to incur additional
indebtedness and issue preferred stock, pay dividends or make other
distributions, make investments, dispose of assets, issue capital stock of
subsidiaries, create certain liens securing indebtedness, enter into certain
transactions with affiliates, sell assets or enter into certain mergers and
consolidations or sell all or substantially all of the Company's assets.
9
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
4. NOTES PAYABLE AND REVOLVING LOAN--(CONTINUED):
OTHER LOANS
The Company has a term loan agreement outstanding in the amount of
$1,259 to finance certain equipment and rotable parts on a long-term lease which
secures the loan. The loan bears interest at a rate of 8.21% and is payable
monthly through August 2002. The loan contains financial and other covenants and
mandatory prepayment events, as defined. At June 30, 1999, the Company was in
compliance with all covenants of the loan.
In connection with the Company's acquisition of Kratz-Wilde Machine
Company in October 1997, a subsidiary of the Company delivered a
non-interest-bearing promissory note (guaranteed by the Company) to the sellers
in the original principal amount of $2,200. A payment of $1,250 was made during
January 1999 and another payment of $1,250 is due January 1, 2000. Interest on
this note has been imputed at 8%.
In connection with the acquisition of Caribe and AIDI, a subsidiary of
the Company delivered to the sellers a promissory note in the original principal
amount of $5,000, which was guaranteed by the Company. The note is payable over
a two year period with an interest rate of 8% per annum. The first payment of
$2,500 was made during March 1999.
5. COMMITMENTS AND CONTINGENCIES:
LITIGATION AND CLAIMS
On January 8, 1999, Paine Webber Incorporated filed in the Supreme
Court of the State of New York a complaint against the Company and its
subsidiary, Whitehall, alleging breach of contract claims and related claims
against the Company and Whitehall and a tortious interference with a contract
claim against the Company. Paine Webber alleges that it is due a fee in
connection with the Company's acquisition of TIMCO, based upon a 1997 agreement
between Whitehall and Paine Webber relating to a then proposed acquisition of
TIMCO by Whitehall which did not occur. Paine Webber is seeking approximately
$1,000, plus costs and an unstated amount of punitive damages. Paine Webber is
also seeking approximately $250 allegedly due relating to the failure of
Whitehall to honor an alleged right of first refusal provision in the 1997
agreement.
The Company believes that its acquisition of TIMCO was not within the
scope of the 1997 Paine Webber/Whitehall agreement and that claims brought under
this agreement against the Company and Whitehall are without merit. The Company
is vigorously defending these claims. Although the Company can give no
assurance, based upon the available facts, the Company believes that the
ultimate outcome of this matter will not have a material adverse effect upon its
financial condition.
10
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
5. COMMITMENTS AND CONTINGENCIES:--(CONTINUED)
On June 24, 1998, Zantop International Airlines, Inc. filed an action
against Aero Corp.-Macon, Inc., one of the Company's subsidiaries (which is now
part of TIMCO), in the Superior Court of Bibb County, Georgia. The suit seeks an
unspecified amount of damages and certain equitable relief arising out of the
July 1997 sale to Aero Corp.-Macon, Inc. (then a subsidiary of Whitehall) of
certain assets used in connection with the operation of Aero Corp.-Macon, Inc.
The nature of the action involves a contractual dispute relative to certain
purchase price adjustments and inventory purchases. The Company is vigorously
defending this action. Although the Company can give no assurance, based upon
the available facts, the Company believes that the ultimate outcome of this
matter will not have a material adverse effect upon its financial condition.
The Company is also involved in various lawsuits and other
contingencies arising out of operations in the normal course of business. In the
opinion of management, the ultimate resolution of these claims and lawsuits will
not have a material adverse effect upon the financial position of the Company.
ENVIRONMENTAL MATTERS
The Company is taking remedial action pursuant to Environmental
Protection Agency and Florida Department of Environmental Protection ("FDEP")
regulations at TIMCO-Lake City. Ongoing testing is being performed and new
information is being gathered to continually assess the impact and magnitude of
the required remediation efforts on the Company. Based upon the most recent cost
estimates provided by environmental consultants, the Company believes that the
total remaining testing, remediation and compliance costs for this facility will
be approximately $2,400. Testing and evaluation for all known sites on
TIMCO-Lake City's property is substantially complete and the Company has
commenced a remediation program. The Company is currently monitoring the
remediation, which will extend into the future. Subsequently, the Company's
accruals were increased because of this monitoring, which indicated a need for
new equipment and additional monitoring. Based on current testing, technology,
environmental law and clean-up experience to date, the Company believes that it
has established an accrual for a reasonable estimate of the costs associated
with its current remediation strategies. To comply with the financial assurances
required by the FDEP, the Company has issued a $1,700 standby letter of credit
in favor of the FDEP.
Additionally, there are other areas adjacent to TIMCO-Lake City's
facility that could also require remediation. The Company does not believe that
it is responsible for these areas; however, it may be asserted that TIMCO and
other parties are jointly and severally liable and are responsible for the
remediation of those properties. No estimate of any such costs to the Company is
available at this time.
In connection with the sale of Whitehall's electronics business,
Whitehall was required to perform, at its own expense, an environmental site
assessment at the electronics business' facility. Whitehall was also required to
remedy all recognized environmental conditions identified in the assessment to
bring such facility into compliance with all applicable Federal, State, and
local environmental laws. The buyer of this business, subject to the terms and
conditions set forth in the agreement, recently exercised its option of
requiring Whitehall to repurchase this property for $300.
Accrued expenses in the accompanying June 30, 1999 condensed
consolidated balance sheet includes $2,720 related to obligations to remediate
the environmental matters described above.
Future information and developments will require the Company to
continually reassess the expected impact of the environmental matters discussed
above. Actual costs to be incurred in future periods may vary from the
estimates, given the inherent uncertainties in evaluating environmental
exposures. These uncertainties include the extent of required remediation based
on testing and evaluation not yet completed and the varying costs and
effectiveness of remediation methods.
11
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
5. COMMITMENTS AND CONTINGENCIES:--(CONTINUED)
LEASE FOR NEW FACILITY
On December 17, 1998, the Company entered into an operating lease for a
new corporate headquarters and warehouse facility with First Security Bank,
National Association, as trustee of a newly created trust, as lessor. The lease
has an initial term of five years and is a triple net lease with annual rent as
provided in the lease. The lease contains financial covenants regarding the
Company's financial performance and other affirmative and negative covenants.
Substantially all of the Company's subsidiaries have guaranteed the Company's
obligations under the lease. Additionally, the Company has an option to acquire
the new facility at the end of the lease for an option price determined in the
lease. Alternatively, if it does not purchase the new facility at the end of the
lease, it will be obligated to pay certain amounts as provided in the lease.
The development of the new facility has been financed by the trust
through a $35,500 loan facility provided by a syndicate of financial
institutions. Pursuant to the agreements entered into in connection with this
financing, the Company is obligated to develop the new facility on behalf of the
trust and is responsible for the timely completion thereof within an established
construction budget. The Company and substantially all of its subsidiaries have
guaranteed the repayment of $31,200 of the trust's obligations under the loan
agreement. The trust's obligations under these agreements are secured by a lien
on the real property and improvements comprising the new facility and on the
fixtures therein. Further, the Company has posted an irrevocable letter of
credit in favor of the trust in the amount of approximately $8,000 to secure
both its obligations under the lease and the trust's obligations under the loan
agreement.
6. EQUITY OFFERING:
On June 16, 1999 the Company closed its public offering of 2,000,000
shares of common stock and on June 24, 1999 the Company's underwriters exercised
their option to purchase an additional 300,000 shares of common stock. The net
proceeds of the offering, $80,318, were used to repay amounts outstanding under
the Credit Facility. See Note 4. The Company also filed a separate registration
statement with respect to the public offering of $85.0 million of the Company's
senior subordinated notes due 2008, but has not to date sold any of these new
notes. The Company intends to continually assess market conditions and may
complete the offering of the notes when the Company determines market conditions
are appropriate. No assurances can be given as to when or if the Company will
complete the offering of its notes.
12
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
7. EARNINGS PER SHARE:
The computation of weighted average common and common equivalent shares
used in the calculation of basic and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------- -------------------------
1998 1999 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding
used in calculating basic earnings per share ......... 12,436,201 12,986,877 12,364,989 12,885,375
Effect of dilutive options ........................... 298,029 352,711 301,265 396,566
---------- ---------- ---------- ----------
Weighted average common and common
equivalent shares outstanding used in
calculating diluted earnings per share ............... 12,734,230 13,339,588 12,666,254 13,281,941
========== ========== ========== ==========
Options and warrants outstanding which
are not included in the calculation of diluted
earnings per share because their impact
is antidilutive ...................................... 19,500 13,350 19,500 10,000
========== ========== ========== ==========
</TABLE>
- ----------------------------------
For business combinations accounted for as a pooling of interests, earnings per
share computations are based on the aggregate of the weighted-average
outstanding shares of the surviving business for all periods presented.
8. SUBSEQUENT EVENTS:
In July 1999, the Company executed a definitive agreement with Kitty
Hawk, Inc. to acquire the assets of Kitty Hawk's airframe and JT8D engine
maintenance operations located in Oscoda, Michigan. Under the terms of the
acquisition agreement, the Company will pay approximately $21.5 million in cash
and other consideration. Consummation of the acquisition is subject to certain
conditions, including the receipt of governmental approvals. The acquisition is
expected to close in the near future.
13
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS OR MAY CONTAIN FORWARD-LOOKING
STATEMENTS, SUCH AS STATEMENTS REGARDING THE COMPANY'S GROWTH STRATEGY AND
ANTICIPATED TRENDS IN THE INDUSTRIES AND ECONOMIES IN WHICH THE COMPANY
OPERATES. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON THE COMPANY'S CURRENT
EXPECTATIONS AND ARE SUBJECT TO A NUMBER OF RISKS, UNCERTAINTIES AND ASSUMPTIONS
RELATING TO THE COMPANY'S OPERATIONS AND RESULTS OF OPERATIONS, COMPETITIVE
FACTORS, SHIFTS IN MARKET DEMAND, AND OTHER RISKS AND UNCERTAINTIES, INCLUDING
IN ADDITION TO THOSE DESCRIBED BELOW THOSE DISCLOSED IN THE COMPANY'S ANNUAL
REPORT ON FORM 10-K, AS AMENDED, FOR THE YEAR ENDED DECEMBER 31, 1998,
UNCERTAINTIES WITH RESPECT TO CHANGES OR DEVELOPMENTS IN SOCIAL, BUSINESS,
ECONOMIC, INDUSTRY, MARKET, LEGAL AND REGULATORY CIRCUMSTANCES AND CONDITIONS
AND ACTIONS TAKEN OR OMITTED TO BE TAKEN BY THIRD PARTIES, INCLUDING THE
COMPANY'S CONTRACTORS, CUSTOMERS, SUPPLIERS, COMPETITORS, STOCKHOLDERS,
LEGISLATIVE, REGULATORY AND JUDICIAL AND OTHER GOVERNMENTAL AUTHORITIES. SHOULD
ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD THE
UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY
FROM RESULTS EXPRESSED OR IMPLIED IN ANY FORWARD-LOOKING STATEMENTS MADE BY THE
COMPANY IN THIS QUARTERLY REPORT ON FORM 10-Q. THE COMPANY DOES NOT UNDERTAKE
ANY OBLIGATION TO REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT FUTURE
EVENTS OR CIRCUMSTANCES.
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" in the Company's Annual Report on
Form 10-K (the "Form 10-K"), as amended, for the year ended December 31, 1998.
RECENT DEVELOPMENTS
On June 16, 1999 the Company closed its public offering of 2,000,000
shares of common stock and on June 24, 1999 the Company's underwriters exercised
their option to purchase an additional 300,000 shares of common stock. The net
proceeds of the offering, $80,318, were used to repay amounts outstanding under
the Credit Facility. The Company also filed a separate registration statement
with respect to the public offering of $85.0 million of the Company's senior
subordinated notes due 2008, but has not to date sold any of these new notes.
The Company intends to continually assess market conditions and may complete the
offering of the notes when the Company determines market conditions are
appropriate. No assurances can be given as to when or if the Company will
complete the offering of its notes.
In July 1999, the Company executed a definitive agreement with Kitty
Hawk, Inc. to acquire the assets of Kitty Hawk's airframe and JT8D engine
maintenance operations located in Oscoda, Michigan. Under the terms of the
acquisition agreement, the Company will pay approximately $21.5 million in cash
and other consideration. Consummation of the acquisition is subject to certain
conditions, including the receipt of governmental approvals. The acquisition is
expected to close in the near future.
RESULTS OF OPERATIONS
Operating revenues consist primarily of sales of products and service
revenues, net of allowances for returns. Cost of sales and services consists
primarily of product costs, labor, freight charges, commission to outside sales
representatives and an inventory provision for damaged and obsolete products.
Product costs consist of the acquisition cost of the products and any costs
associated with repairs, overhaul or certification.
The Company's operating results are affected by many factors, including
the timing of orders from large customers, the timing of expenditures to
purchase inventory in anticipation of future sales, the timing of bulk inventory
purchases, the number of airline customers seeking maintenance, repair and
overhaul ("MR&O") services at any time, the Company's ability to fully utilize
its available hangar space dedicated to MR&O operations from period to period,
the timeliness of customer aircraft in arriving for scheduled maintenance and
the mix of available aircraft spare parts contained, at any time, in the
Company's inventory. A large portion of the Company's operating expenses are
relatively fixed. Since the Company typically does not obtain long-term purchase
orders or commitments from its customers, it must anticipate the future volume
of orders based upon the historic purchasing patterns of its customers and upon
its discussions with its customers as to their future requirements.
Cancellations, reductions or delays in orders by a customer or group of
customers could have a material adverse effect on the Company's business,
financial condition and results of operations.
14
<PAGE>
Operating revenues for the six months ended June 30, 1999 increased
$145.9 million or 69.1% to $357.2 million, from $211.3 million for the same
period in 1998. Operating revenues for the three months ended June 30, 1999
increased $70.2 million or 64.3% to $179.3 million from $109.1 million for the
same period in 1998. Incremental revenues attributable to operations acquired in
1998 and accounted for under the purchase method of accounting was $104.0
million for the six months ended June 30, 1999. Product and service revenues
from period to period also increased due to increased customer penetration,
increased sales from investments in additional inventories and improved capacity
utilization of the Company's MR&O facilities.
Gross profit increased $31.2 million or 57.3% to $85.5 million for the
six months ended June 30, 1999, compared with $54.3 million for the six months
ended June 30, 1998. Gross profit margin for the six months ended June 30, 1999
decreased to 23.9%, from 25.7% for the same period in 1998. Gross profit
increased $15.3 million or 52.5% to $44.3 million for the 1999 second quarter,
compared with $29.0 million for the 1998 second quarter. Gross profit margin for
the three months ended June 30, 1999 decreased to 24.7%, from 26.6% for the same
period in 1998. Gross profit margins in 1999 were lower than the comparable
periods in 1998 primarily due to a higher percentage of sales derived from the
Company's MR&O operations, which generally operate at lower gross profit margins
than the Company's redistribution operations.
The Company's operating expenses increased $10.6 million to $41.1
million for the six months ended June 30, 1999 compared with $30.5 million for
the same period in 1998 and increased $5.4 million, to $21.0 million for the
three months ended June 30, 1999 compared with $15.6 million for the same period
in 1998. Operating expenses as a percentage of operating revenues were 11.5% for
the six months ended June 30, 1999, compared to 14.4% for 1998. The improvement
in operating leverage is primarily due to a higher percentage of the Company's
sales being derived from the Company's MR&O operations, which generally operate
at lower operating expense levels than the Company's other operations, and to
economies of scale.
Interest expense and other, for the six months ended June 30, 1999
increased by $8.4 million from period to period, due to increased borrowings
during 1998 and the first half of 1999 to finance the acquisitions of Caribe,
AIDI and TIMCO, inventory acquisitions and equipment held for lease.
As a result of the above factors, income before equity income of
affiliate and extraordinary item for the six months ended June 30, 1999 was
$16.6 million, an increase of 79.2% over 1998 income before equity income of
affiliate and extraordinary item of $9.2 million.
Equity income of affiliate, net of income taxes, increased $150,000 for
the six months ended June 30, 1999 to $851,000, from $701,000 for the same
period in 1998. The increase was due to increased sales of aircraft noise
reduction kits.
In connection with the repayment of the term and acquisition portions
of the Credit Facility utilizing the proceeds of the Company's Senior
Subordinated Notes due 2008, the Company wrote off, during the first quarter of
1998, $1.0 million of deferred financing costs resulting in an extraordinary
item, net of income taxes, of $0.6 million ($.05 per diluted share).
After accounting for all of the above factors, net income for the six
months ended June 30, 1999 was $17.4 million ($1.32 per diluted share) compared
to net income of $9.3 million ($0.74 per diluted share) for the six months ended
June 30, 1998. After accounting for all of the above factors, net income for the
three months ended June 30, 1999 was $9.5 million ($0.71 per diluted share)
compared to net income of $5.6 million ($0.44 per diluted share) for the three
months ended June 30, 1998. Weighted average common and common equivalent shares
outstanding (diluted) were 13.3 million during the three months and six months
ended June 30, 1999, compared to 12.7 million for the three months and six
months ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
CASH
Net cash used in operating activities during the six months ended June
30, 1998 and 1999 was $28.2 million and $78.8 million, respectively. Cash used
in investing activities during the six months ended June 30, 1998 and 1999 was
$35.2 million and $14.0 million, respectively. The Company has continued to
invest in spare parts inventories in order to support increased parts sales, and
believes that its present inventory levels should support increased parts sales
without substantial inventory growth over the next six to twelve months. During
the six months ended June 30, 1998 and 1999, the Company financed its operating
and investing activities primarily with its cash flow from financing activities,
amounting to $61.3 million and $93.2 million, respectively.
15
<PAGE>
CREDIT FACILITY
On September 18, 1998, the Company entered into a Four Year Senior
Secured Revolving Credit Facility (the "Credit Facility") which provided the
Company with a $200.0 million revolving line of credit, including a $30.0
million letter of credit sublimit, with the imposition of certain borrowing
criteria based on the satisfaction of certain debt ratios. The eligible
borrowing base includes certain receivables and inventories of the Company. The
interest rate on the Credit Facility is, at the option of the Company,
(a) prime plus a margin, or (b) LIBOR plus a margin, where the respective margin
determination is made upon the Company's financial performance over a 12 month
period (ranging from 0.0% to 1.0% in the event prime is utilized, or 1.125% to
2.5% in the event LIBOR is utilized).
In November 1998 and May 1999, the Credit Facility was further amended
to increase the revolving loan and letter of credit facility to $250.0 and
$300.0 million, respectively. At August 10, 1999, the margin was 0.75% for prime
rate loans and 2.25% for LIBOR rate loans and $208.7 million was outstanding
under the Credit Facility.
The Credit Facility contains certain financial covenants regarding the
financial performance of the Company and certain other covenants, including
limitations on the amount of annual capital expenditures and the incurrence of
additional debt, and provides for the suspension of the Credit Facility and
repayment of all debt in the event of a material adverse change in the business
or a change in control. In addition, the Credit Facility requires mandatory
repayments from the proceeds of a sale of assets or an issuance of equity or
debt securities or as a result of insufficient collateral to meet the borrowing
base requirements thereunder. Substantially all of the Company's assets are
pledged as collateral for amounts borrowed. The Credit Facility will terminate
on July 31, 2002. At June 30, 1999, the Company was in compliance with all
covenants of the Credit Facility.
SENIOR SUBORDINATED NOTES
In February 1998 the Company completed the offering and sale of $165.0
million in senior subordinated notes (the "Notes") due in 2008 with a coupon
rate of 8.125% at a price of 99.395%. The Notes mature on February 15, 2008.
Interest is payable on February 15 and August 15 of each year, commencing August
15, 1998. The Notes are general unsecured obligations of the Company,
subordinated in right of payment to all existing and future senior debt of the
Company, including indebtedness outstanding under the Credit Facility and under
facilities which may replace the Credit Facility in the future. In addition, the
Notes are effectively subordinated to all secured obligations to the extent of
the assets securing such obligations, including the Credit Facility.
The indenture pursuant to which the Notes have been issued (the
"Indenture") permits the Company and its subsidiaries to incur substantial
additional indebtedness, including senior debt. Under the Indenture, the Company
may borrow unlimited additional amounts so long as after incurring such debt the
Company meets a fixed charge coverage ratio for the most recent four fiscal
quarters of 2.0 to 1 until February 15, 2000 and 2.25 to 1 thereafter. At June
30, 1999, the Company's fixed charge coverage ratio for the last four fiscal
quarters was 3.7 to 1. Additionally, the Indenture allows the Company to borrow
and have outstanding additional amounts of indebtedness (even if the Company
does not meet the required fixed charge coverage ratios), up to enumerated
limits. The Notes are also effectively subordinated in right of payment to all
existing and future liabilities of any subsidiaries of the Company which do not
guarantee the Notes.
The Notes are unconditionally guaranteed, on a senior subordinated
basis, by substantially all of the Company's existing subsidiaries and each
subsidiary that will be organized in the future by the Company, unless such
subsidiary is designated as an unrestricted subsidiary (the "Subsidiary
Guarantors"). Subsidiary Guarantees are joint and several, full and
unconditional, general unsecured obligations of the Subsidiary Guarantors.
Subsidiary Guarantees are subordinated in right of payment to all existing and
future senior debt of Subsidiary Guarantors, including the Credit Facility, and
are also effectively subordinated to all secured obligations of Subsidiary
Guarantors to the extent of the assets securing such obligations, including the
Credit Facility. Furthermore, the Indenture permits Subsidiary Guarantors to
incur additional indebtedness, including senior debt, subject to certain
limitations.
The Notes are redeemable, at the option of the Company, in whole or in
part, at any time after February 15, 2003, at the following redemption prices,
plus accrued and unpaid interest and liquidated damages, if any, to the
redemption date: (i) 2003--104.063%; (ii) 2004--102.708%; (iii) 2005--101.354%;
and (iv) 2006 and thereafter--100%. In addition, on or prior to February 15,
2001, the Company may redeem up to 35% of the aggregate principal amount of the
Notes at a redemption price of 108.125% of the principal amount thereof, plus
accrued and unpaid interest and liquidated damages, if any, thereon to the
redemption date with the net proceeds of a public offering of common stock of
the Company; provided, that at least 65% of the aggregate principal amount of
the Notes originally issued remains outstanding immediately after the occurrence
of such redemption.
16
<PAGE>
Upon the occurrence of a change of control, the Company will be
required to make an offer to repurchase all or any part of holder's Notes at a
repurchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest and liquidated damages, if any, thereon to the repurchase date.
There can be no assurance that the Company will have the financial resources
necessary to purchase the Notes upon a change of control or that such repurchase
will be permitted under the Credit Facility.
The Indenture contains certain covenants that, among other things, will
limit the ability of the Company and its subsidiaries to incur additional
indebtedness and issue preferred stock, pay dividends or make other
distributions, make investments, dispose of assets, issue capital stock of
subsidiaries, create certain liens securing indebtedness, enter into certain
transactions with affiliates, sell assets or enter into certain mergers and
consolidations or sell all or substantially all of their assets.
OTHER NOTES
The Company has a term loan agreement in the amount of $1,259,000 to
finance certain equipment and rotable parts on a long-term lease which secures
the loan. The loan bears interest at a rate of 8.21% and is payable monthly
through August 2002. The loan contains financial and other covenants and
mandatory prepayment events, as defined. At June 30, 1999, the Company was in
compliance with all covenants of the loan.
In connection with the acquisition of Kratz-Wilde, a subsidiary of the
Company delivered a non-interest-bearing promissory note (guaranteed by the
Company) to the sellers in the original principal amount of $2.2 million. A
payment of $1,250,000 was made during January 1999 and another payment of
$1,250,000 is due January 1, 2000. Interest on this note has been imputed at 8%.
In connection with the acquisition of Caribe and AIDI, a subsidiary of
the Company delivered to the sellers a promissory note in the original principal
amount of $5.0 million, which was guaranteed by the Company. The note is payable
over a two year period with an interest rate of 8% per annum. The first payment
of $2.5 million was made during March 1999.
CAPITAL EXPENDITURES
During the six month periods ended June 30, 1998 and 1999, the Company
incurred capital expenditures of approximately $8.3 million and $14.1 million,
respectively, primarily to renovate MR&O facilities and to make enhancements to
the Company's management information systems. The Company expects to incur
capital expenditures of approximately $27.4 million for 1999 for new equipment
for manufacturing operations, fixtures for its new corporate headquarters, new
MIS systems and enhancements to existing MIS systems, as well as ordinary course
replacement of existing equipment.
LEASE FOR NEW FACILITY
In 1998, the Company decided to move to a new corporate headquarters
and warehouse facility. On December 17, 1998, the Company entered into an
operating lease for a new corporate headquarters and warehouse facility with
First Security Bank, National Association, as trustee of a newly created trust,
as lessor. The lease has an initial term of five years and is a triple net
lease. The lease contains financial covenants regarding the Company's financial
performance and other affirmative and negative covenants. Substantially all of
the Company's subsidiaries have guaranteed the Company's obligations under the
lease. Additionally, the Company has an option to acquire the new facility at
the end of the lease and if it does not purchase the new facility at the end of
the lease, it will be obligated to pay a fee.
The lessor has financed the development of the new facility through a
$35.5 million loan from a syndicate of financial institutions. The Company is
obligated to develop the new facility on behalf of the lessor and is responsible
for the timely completion of the facility within an established construction
budget. The Company and substantially all of its subsidiaries have guaranteed
the repayment of $31.2 million of the lessor's obligations under its loan
agreement. The lessor's obligations under the agreement are secured by a lien on
the real property and on the new facility. Further, the Company has posted an
irrevocable letter of credit in favor of the lessor in the amount of
approximately $8.0 million to secure both the Company's obligations under the
lease and the lessor's obligations under the loan agreement.
LIQUIDITY
As part of its growth strategy, the Company intends to continue to
pursue growth through internal expansion as well as acquisitions of other
businesses. Financing for such activities will be provided from operations and
from borrowings under the Credit Facility. The Company believes that its
available capital resources should be sufficient to satisfy the Company's
anticipated working capital requirements over the next twelve months.
17
<PAGE>
ENVIRONMENTAL
Except as described below, the Company believes that its properties are
in compliance in all material respects with applicable environmental laws.
Unidentified environmental liabilities could arise, however, and could
materially affect the Company's business, financial condition, or results of
operations. Federal, state and local laws and regulations relating to the
protection of the environment may require a current or previous owner or
operator of real estate to investigate and clean up hazardous or toxic
substances or petroleum product releases on a property. The owner or operator
may have to pay a governmental entity or third parties for property damage and
for investigation and clean-up costs incurred by these parties in connection
with the contamination. These laws typically impose clean-up responsibility and
liability without regard to whether the owner or operator knew of or caused the
presence of the contaminants. Even if more than one person may have been
responsible for the contamination, each person covered by applicable
environmental laws may be held responsible for all of the clean-up costs
incurred. In addition, third parties may sue the owner or operator of a site for
damages and costs resulting from environmental contamination emanating from that
site.
Due to the presence of soil and groundwater contamination at the
Company's facility in Lake City, Florida, the Company is taking remedial action
pursuant to regulations of Environmental Protection Agency ("EPA") and Florida
Department of Environmental Protection ("FDEP") and a post-closure permit issued
by FDEP. The Company is in the process of renewing the FDEP post-closure permit,
and recently filed a renewal application. The Company expects the renewal
application to be approved and does not expect FDEP, in connection with its
review, to impose additional remediation obligations.
The Company has substantially completed testing and evaluation for all
known sites on the property in Lake City, and has commenced a remediation
program. The Company is conducting ongoing testing and gathering new information
to continually assess the impact and magnitude of the required remediation
efforts. Based upon the most recent cost estimates provided by environmental
consultants, the Company believes that the total remaining testing, remediation
and compliance costs for this facility will be approximately $2.4 million. This
amount is based on current testing, technology, environmental law and clean-up
experience to date. The Company will continue to monitor the remediation which
will extend into the future. To comply with the financial assurances required by
the FDEP, the Company issued a $1.7 million standby letter of credit in favor of
the FDEP in 1999. The Company also provided evidence of self-insurance in the
amount of $8.0 million to the FDEP for potential third-party liability.
Additionally, there are other areas adjacent to the facility in Lake
City which the Company does not own that could also require remediation. While
the Company does not believe that it is responsible for these areas, it may be
asserted that TIMCO and other parties are jointly and severally liable and are
responsible for the remediation of those properties. As explained above, under
applicable environmental laws it is possible that the Company could be held
responsible for all or part of the damages or clean-up costs associated with the
areas adjacent to the Lake City facility. The Company has no estimate of any
such potential costs at this time.
In connection with the sale of Whitehall's electronics business,
Whitehall was required to perform, at its own expense, an environmental site
assessment at the electronics business' facility. Whitehall was also required to
remedy all recognized environmental conditions identified in the assessment to
bring the facility into compliance with all applicable federal, state and local
environmental laws. The buyer of this business, subject to the terms and
conditions set forth in the agreement, recently exercised its option to require
Whitehall to repurchase this property for $300,000.
The Company accrued $3.4 million in 1997 towards potential obligations
to remediate the environmental matters described above of which $2.7 million of
that reserve presently remains.
Future information and developments will require the Company to
continually reassess the expected impact of the environmental matters discussed
above. Other than as described above, the Company is not aware of any
environmental condition which the Company believes would have a material adverse
effect on its condition or results of operations. Nevertheless, it is possible
that there are environmental liabilities of which the Company is unaware.
Moreover, no assurances can be given that (i) future laws, ordinances or
regulations will not impose any material environmental liability or (ii) the
current environmental condition of the Company's properties have not been or
will not be affected by tenants and occupants of the properties, by the
condition of properties in the vicinity of the properties or by unrelated third
parties. As a result, actual costs incurred in future periods may vary from the
estimate, given the inherent uncertainties in evaluating environmental
exposures. The uncertainties include the extent to required remediation based on
testing and evaluation not yet completed and the varying costs and effectiveness
of remediation methods.
IMPACT OF THE YEAR 2000
Since the fourth quarter of 1997, the Company has been implementing new
management information systems ("MIS") in order to both allow the computer
systems to meet the Company's needs into the foreseeable future and to mitigate
the Year 2000 issues inherent in the existing systems.
The Year 2000 issue is the potential for system and processing failures
of date-related data and the result of computer-controlled systems using two
digits rather than four to define the applicable year. The Company may be
affected by Year 2000 issues in its non-compliant information technology ("IT")
systems or non-IT systems, as well as by Year 2000 issues related to
non-compliant IT and non-IT systems operated by third parties.
18
<PAGE>
STATE OF READINESS
The Company has substantially completed an assessment of internal and
external (third-party) IT systems and non-IT systems. At this point in the
assessment, which the Company believes is approximately 95% complete (in the
aggregate), other than as described in this report, the Company is not currently
aware of any Year 2000 problems relating to systems or the systems operated by
third parties which would materially adversely affect the Company's business,
results of operations or financial condition, without taking into account
efforts to avoid such problems, although there can be no assurances of this
fact. In addition, the Company believes the year 2000 remediation and validation
are approximately 81% and 50% complete (in the aggregate), respectively.
The Company's IT systems consist of software licensed from third
parties and hardware purchased or leased from third parties. The Company is
currently implementing new systems, which are primarily designed to service the
redistribution operations and manufacturing operations, including new software
and hardware, which the Company believes, once fully implemented, will be Year
2000 compliant and will meet the requirements of these operations into the
foreseeable future.
The Company has determined that the MIS system which is currently used
in the redistribution operations is not Year 2000 compliant. In order to give
the Company the time to implement new systems for these operations in an orderly
fashion, the Company engaged a vendor to remediate the existing system to make
it Year 2000 compliant. The Company believes that the remediation to the
existing system will be completed by the end of August 1999 at an estimated cost
of $1.0 million, and that the remediated system can be validated, as modified,
for Year 2000 compliance by the beginning of the fourth quarter of 1999. While
the Company has been informed by the vendor that the existing system can be
brought into Year 2000 compliance on a timely basis, there can be no assurance
of this fact.
The Company has substantially remediated the MIS systems used by the
manufacturing operations for Year 2000 compliance and has also substantially
remediated the MIS systems used by the maintenance and repair operations for
Year 2000 compliance.
The Company has substantially completed an assessment of the Year 2000
issues of the non-IT systems which have been identified as containing embedded
chip systems. The Company is not currently aware of any Year 2000 problems
relating to these systems which would materially adversely affect the Company's
business, results of operations, or financial condition, without taking into
account efforts to avoid these problems.
The Company is reviewing the efforts of vendors and customers to become
Year 2000 compliant. Letters and questionnaires have been or are in the process
of being sent to all critical entities with which the Company does business to
assess their Year 2000 readiness. To date, the Company has received responses
from approximately 61% of these third parties, and approximately 72% of the
companies that have responded have assured the Company that they have already
addressed, or that they will address on a timely basis, all of their known
significant Year 2000 issues. Although this review is continuing, the Company is
not currently aware of any vendor or customer circumstances that may materially
adversely impact the Company. The Company will seek alternate suppliers if
circumstances warrant. The Company cannot make assurances that Year 2000
compliance plans of vendors and customers will be completed on a timely manner.
A substantial majority of the aircraft spare parts in inventory do not
have date-sensitive technologies and, as a result, do not pose Year 2000
compliance issues. For the small portion of aircraft spare parts inventory that
may pose Year 2000 compliance issues, the Company has contacted vendors to
assess the Year 2000 compliance of those parts. The Company believes that issues
relating to the Year 2000 compliance of aircraft spare parts in inventory, if
any, will ultimately be the responsibility of the manufacturers of such parts,
although no assurances can be made of this fact. Further, it is unclear whether
the Company's product liability insurance would ultimately cover a claim based
upon a Year 2000 problem in a part sold.
COSTS
The Company believes that the cost of the new MIS system (1) for the
redistribution operations will be approximately $13.5 million, of which
approximately $8.6 million has been spent to date and approximately $4.9 million
of which the Company believes will be expended during 1999 and (2) for the
manufacturing operations will be approximately $2.1 million, all of which has
been spent to date. The costs incurred to date in connection with the
remediation of maintenance and repair operations for Year 2000 compliance have
not been material. The Company is funding the costs of new systems from the
existing credit facility. The $10.7 million spent to date has related
substantially to the cost of the new systems and not to bringing the existing
MIS systems into Year 2000 compliance. The Company intended to replace these
systems to meet future needs and to incur the costs regardless of the Year 2000
compliance efforts. Such cost estimates include both hardware and software
costs, as well as the anticipated costs of the use of consultant services, but
do not include internal costs associated with such efforts, which are not
separately tracked for Year 2000 compliance efforts. Such internal costs
principally consists of the payroll costs for employees working on such
compliance efforts.
19
<PAGE>
The Company has decided to update the MIS system currently used in the
redistribution operations to make it Year 2000 compliant, so that such system
remains available for use in operations until the new system for these
operations becomes fully operational. The Company expects the cost of such
update to be approximately $1.0 million. The Company can not recover this cost
in connection with the development and implementation of the new system.
RISKS RELATING TO FAILURE TO BECOME YEAR 2000 COMPLIANT
The Company's failure to bring existing systems into Year 2000
compliance by the end of 1999 would likely materially adversely affect the
Company, in that it would make it very difficult to conduct business in the
ordinary course and would likely cause loss of revenues, increased operating
costs and business interruptions of a material nature (which would likely not be
covered by existing business interruption insurance) until the systems were
fixed. In addition, no assurances can be made that the Year 2000 issues of other
entities will not materially adversely impact the systems or results of
operations.
CONTINGENCY PLANS
The Company is currently considering what the contingency plans will be
in the event that the Company is not able to bring the IT and non-IT systems
into Year 2000 compliance by the end of 1999. The Company has substantially
completed its contingency plans and anticipates it will complete them by the end
of September 1999.
20
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
See Note 5 to the Company's Unaudited Condensed Consolidated Financial
Statements included in this filing.
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
No matters were submitted to the Company's shareholders during the
second quarter of 1999.
Item 5. OTHER INFORMATION
On June 25, 1999, George F. Baker and Jeffrey N. Greenblatt resigned
from the Company's Board of Directors.
Item 6. EXHIBITS AND REPORTS ON FORMS 8-K
(a) EXHIBITS
EXHIBIT NO. DESCRIPTION
10.01 Special Incentive Compensation Plan
10.02 Amendment No. 7, Waiver and Consent dated as of June 30, 1999,
to the Third Amended and Restated Credit Agreement
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
Current Report on Form 8-K filed on May 20, 1999.
21
<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
Dated: August 13, 1999
BY: /s/ GARLAN BRAITHWAITE
----------------------
Garlan Braithwaite, Vice President-Finance
(Principal Accounting Officer)
22
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.01 Special Incentive Compensation Plan
10.02 Amendment No. 7, Waiver and Consent dated as of June 30, 1999,
to the Third Amended and Restated Credit Agreement
27 Financial Data Schedule
AVIATION SALES COMPANY
SPECIAL INCENTIVE COMPENSATION PLAN
1. PURPOSES. This Aviation Sales Company Special Incentive Compensation
Plan (the "Plan") is intended to provide an incentive for certain senior
management employees of Aviation Sales Company, a Delaware corporation, and its
subsidiaries (collectively, the "Company").
2. ADMINISTRATION. This Plan shall be administered by the Compensation
Committee of the Board of Directors of the Company, or if there is no
Compensation Committee, by the Board of Directors of the Company (the
"Committee"). The interpretation and construction by the Committee of the Plan,
the calculation by the Committee of payments and any other determinations or
calculations made by the Committee hereunder, shall be conclusive, final and
binding, except as otherwise provided herein. The Committee may delegate the
administration of this Plan and such other aspects of the Plan (which may
include any or all of the determinations and calculations required by this Plan)
to such officer(s) of the Company as the Committee shall deem appropriate, and
no such officer, no member of the Committee, and no member of the Board of
Directors of the Company shall be liable to any person for any action,
determination or calculation in connection with this Plan made in good faith.
Each such officer and member of the Committee or Board of Directors shall be
fully protected in taking any action hereunder in reliance in good faith upon
the books and records of the Company or upon such information, opinions, reports
or statements presented to the Company by any person as to matters such officer
or member of the Committee or Board of Directors reasonably believes are within
such other person's professional or expert competence and who has been selected
with reasonable care by or on behalf of the Company.
3. CERTAIN DEFINITIONS.
The following definitions and related rules shall apply for purposes of
this Plan.
"Allocation Factor" means, with respect to a particular Participant, a
percentage equal to the quotient of such Participant's Participation Percentage,
divided by the sum of the Participation Percentages of all of the Participants
at the time of determining such Participant's Allocation Factor. In no event
shall the Allocation Factor of a Participant exceed 40 percent.
"Assumed Non-public Equity Value" means the aggregate Fair Market Value
as of the Measurement Date of all outstanding shares of all classes of capital
stock of the Company which are not listed for trading on any securities exchange
or similar market, including the New York Stock Exchange, American Stock
Exchange, NASDAQ or over-the-counter markets.
"Assumed Publicly Traded Class Market Cap" means the sum of the values
calculated in the manner provided for below with respect to each class of
capital stock of the Company which is listed for trading on any securities
exchange or similar market, including the New York Stock Exchange, American
Stock Exchange, NASDAQ or over-the-counter markets. The value referred to above
for each such class of capital stock is an amount equal to the product of (i)
the Average Share Price for such class as of the Measurement Date multiplied by
(ii) the sum of the total number of shares of
<PAGE>
such class outstanding as of the Measurement Date, plus the number of shares of
such class that the Company would be required to issue pursuant to fully vested
stock options outstanding as of the Measurement Date that have an exercise price
which is less than or equal to the Average Share Price for such class.
"Average Share Price" means, with respect to any class of capital stock
of the Company which is listed for trading on any securities exchange or similar
market, including the New York Stock Exchange, American Stock Exchange, NASDAQ
or over-the-counter markets, the average of all of the closing prices reported
in the Wall Street Journal (absent manifest error) for one share of such class
for all of the trading days during the period commencing on the date which is 10
days prior to the Measurement Date and ending on and including the Measurement
Date.
"Cause" means any of the following: (i) any embezzlement or wrongful
diversion of funds of the Company or any affiliate of the Company by the
Participant; (ii) gross malfeasance by the Participants in the conduct of his
duties; (iii) material breach of the Participant's duties under any agreement
with the Company; (iv) gross neglect by the Participant in carrying out his
duties, and (v) any action which would constitute "cause" under any other
agreement between the Participant and the Company or its affiliates.
"Change of Control" shall mean any of the following events:
(i) The Company is merged or consolidated or reorganized into
or with another corporation or other legal person, and as a result of such
merger, consolidation or reorganization less than a majority of the combined
voting power of the then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate by the holders of
voting stock of the Company immediately prior to such transaction;
(ii) The Company sells or otherwise transfers all or
substantially all of its assets to any other corporation or other legal person,
and less than a majority of the combined voting power of the then-outstanding
securities of such corporation or person immediately after such sale or transfer
is held in the aggregate by the holders of voting stock of the Company
immediately prior to such sale or transfer;
(iii) There is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report), each as promulgated pursuant
to the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
disclosing that any person (as the person" is used in Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the
term "beneficial owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act) of securities representing more
than 50 percent of the then outstanding voting stock of the Company.
Notwithstanding the foregoing provisions of clauses (ii) and (iii)
above, a "Change of Control" shall not be deemed to have occurred for purposes
of this Agreement (i) solely because the
2
<PAGE>
Company, a subsidiary of the Company, or a Company-sponsored employee stock
ownership plan or other employee benefit plan of the Company either files or
becomes obligated to file a report under or in response to Schedule 13D,
Schedule 14D-1 or Form 8-K (or any successor schedule, form or report or item
therein) under the Exchange Act, disclosing beneficial ownership by it of shares
of voting stock of the Company, whether in excess of 50% or otherwise, or
because the Company reports that a change of control of the Company has or may
have occurred or will or may occur in the future by reason of such beneficial
ownership or (ii) solely because of a change of control of any subsidiary.
"Company Liabilities" means the total liabilities of the Company as of
the Measurement Date that would be accrued and reflected on a balance sheet of
the Company prepared as of such date in accordance with generally accepted
accounting principles.
"Equity Value" means the sum of (i) the Assumed Publicly Traded Class
Market Cap as of the Measurement Date, plus (ii) the Assumed Non-public Equity
Value as of the Measurement Date.
"Fair Market Value," means, with respect to any item, the price at
which a willing buyer would purchase said item from a willing seller, as
determined by the Committee in good faith, in its reasonable discretion.
"Measurement Date" means the date immediately preceding the date on
which a Change in Control occurs.
"Participants" means the persons designated as Participants in this
Plan by the Committee from time to time. The Committee shall identify the
Participants by means of a written resolution adopted by the Committee prior to
the occurrence of a Change in Control. The Committee may terminate the status of
any person as a Participant by providing such person with written notice of such
termination, but such termination shall not become effective until one year
after the date on which such notice is provided to such person. Notwithstanding
the foregoing, if a Participant voluntarily terminates his employment with the
Company or its subsidiaries, or if a Participant's employment is terminated by
the Company or its subsidiaries for Cause, then such Participant shall cease to
be a Participant, and such Participant's Participation Percentage shall be
reduced to zero immediately upon such termination. If a Participant dies prior
to the termination of such Participant's status as a Participant, the estate of
the Participant shall be deemed to be a Participant until the earlier of (i) the
first anniversary of such Participant's death, or (ii) the effective date of
such Participant's termination pursuant to the second sentence of this
paragraph.
"Participation Percentage" means, with respect to a particular
Participant, the Participation Percentage assigned to such Participant by the
Committee. The Committee shall assign Participation Percentages to the
Participants by means of a written resolution adopted by the Committee at any
time prior to the occurrence of a Change in Control. In no event shall the sum
of the Participation Percentages of all of the Participants exceed 100 percent,
and in no event shall the Participation
3
<PAGE>
Percentage assigned to any single Participant exceed 40 percent. If a
Participant's status as such is terminated, such Participant's Participation
Percentage shall be reduced to zero.
"Special Incentive Compensation Amount" means, with respect to a
particular Participant, a sum of money in United States Dollars equal to the
product of the Transaction Value as of the Measurement Date, multiplied by
one-one hundredth (.01), multiplied by such Participant's Allocation Factor as
of the Measurement Date.
"Transaction Value" means the sum of the Equity Value as of the
Measurement Date, plus the Company Liabilities as of the Measurement Date.
4. TERMS AND CONDITIONS.
(a) PAYMENTS. Simultaneously with the closing of a transaction
resulting in a Change of Control, the Company shall pay to each Participant a
sum of money equal to the Special Incentive Compensation Amount for such
Participant. In addition to the foregoing amount, if applicable, the Company
shall also pay to each Participant the amount calculated with respect to each
such Participant pursuant to Section 5 below. All payments hereunder shall be
subject to withholding of applicable income, employment or similar taxes.
(b) SPECIAL RULES FOR CONVERTIBLE ITEMS. In the case of any debt
instrument of the Company which is convertible into an equity security of the
Company or vice versa, for purposes of calculating the Transaction Value, such
item will be treated as if converted if such conversion would result in a higher
Transaction Value as of the Measurement Date; otherwise, it will be considered
in its unconverted form.
5. GROSS-UP PAYMENT.
(a) If the payment of the Special Incentive Compensation Amount
provided for in Section 4(a) hereof (the "Payment") will be subject to the tax
(the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code") (or any similar tax that may hereafter be imposed), the
Company shall pay to the Participant in cash an additional amount (the "Gross-Up
Payment") such that the net amount retained by the Participant after deduction
from the Payment and the Gross-Up Payment of any Excise Tax imposed upon the
Payment and any federal, state and local income tax and Excise Tax imposed upon
the Gross-Up Payment shall be equal to the original amount of the Payment, prior
to deduction of any Excise Tax imposed with respect to the Payment. Nothing in
this Plan shall be construed as requiring the Company to include in the Gross-Up
Payment any amount relating to any federal income or other taxes on the Payment
(other than Excise Taxes) provided for under this Plan, other than federal
income or other taxes on any Gross-Up Payment. The Gross-Up Payment shall be
paid to the Participant at such time as the Payment is paid to the Participant.
For purposes of determining the amount of the Gross-Up Payment, the Participant
shall be deemed to pay Federal income taxes at the highest marginal rate of
Federal income taxation in the calendar year in which the Gross-Up Payment is to
be made, and
4
<PAGE>
state and local income taxes at the highest marginal rate of taxation in the
state and locality of the Participant's residence on the date of termination,
net of the maximum reduction in Federal income taxes which could be obtained
from deduction of such state and local taxes.
(b) Subject to the provisions of Section 5(f), all determinations
required to be made under this Section 5, including whether an Excise Tax is
payable by the Participant and the amount of such Excise Tax and whether a
Gross-Up Payment is required to be paid by the Company to the Participant and
the amount of such Gross-Up Payment, if any, shall be made by a nationally
recognized accounting firm (the "Accounting Firm") selected by the Committee in
its sole discretion. The Committee shall direct the Accounting Firm to submit
its determination and detailed supporting calculations to both the Company and
the Participant within 30 calendar days after the date on which the Company pays
the Special Incentive Compensation Amount to the Participant. If the Accounting
Firm determines that any Excise Tax is payable by the Participant, the Company
shall pay the required Gross-Up Payment to the Participant within five business
days after receipt of such determination and calculations with respect to any
Payment to the Participant. If the Accounting Firm determines that no Excise Tax
is payable by the Participant, it shall, at the same time as it makes such
determination, furnish the Company and the Participant an opinion that the
Participant has substantial authority not to report any Excise Tax on his
federal, state or local income or other tax return. As a result of the
uncertainty in the application of Section 4999 of the Code (or any successor
provision thereto) and the possibility of similar uncertainty regarding
applicable state or local tax law at the time of any determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made (an "Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts or fails to pursue its remedies pursuant to Section
5(f) and the Participant thereafter is required to make a payment of any Excise
Tax, the Participant shall direct the Accounting Firm to determine the amount of
the Underpayment that has occurred and to submit its determination and detailed
supporting calculations to both the Company and the Participant as promptly as
possible. Any such Underpayment shall be promptly paid by the Company to, or for
the benefit of the Participant within five business days after receipt of such
determination and calculations.
(c) The Company and the Participant shall each provide the Accounting
Firm access to and copies of any books, records and documents in the possession
of the Company or the Participant, as the case may be, reasonably requested by
the Accounting Firm, and otherwise cooperate with the Accounting Firm in
connection with the preparation and issuance of the determinations and
calculations contemplated by Section 5(b). Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment shall be binding upon the Company
and the Participant.
(d) The federal, state and local income or other tax returns filed by
the Participant shall be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax payable by
the Participant. The Participant shall make proper payment of the amount of any
Excise Payment, and at the request of the Company, provide to the Company true
and correct copies (with any amendments) of his federal income tax return as
filed with the Internal
5
<PAGE>
Revenue Service and corresponding state and local tax returns, if relevant, as
filed with the applicable taxing authority, and such other documents reasonably
requested by the Company, evidencing such payment. If prior to the filing of the
Participant's federal income tax return, or corresponding state or local tax
return, if relevant, the Accounting Firm determines that the amount of the
Gross-Up Payment should be reduced, the Participant shall within five business
days pay to the Company the amount of such reduction.
(e) The fees and expenses of the Accounting Firm for its services in
connection with the determinations and calculations contemplated by Section 5(b)
shall be borne by the Company. If such fees and expenses are initially paid by
the Participant, the Company shall reimburse the Participant the full amount of
such fees and expenses within five business days after receipt from the
Participant of a statement therefor and reasonable evidence of his payment
thereof.
(f) The Participant shall notify the Company in writing of any claim by
the Internal Revenue Service or any other taxing authority that, if successful,
would require the payment by the Company of a Gross-Up Payment. Such
notification shall be given as promptly as practicable but no later than 10
business days after the Participant actually receives notice of such claim and
the Participant shall further apprise the Company of the nature of such claim
and the date on which such claim is requested to be paid (in each case, to the
extent known by the Participant). The Participant shall not pay such claim prior
to the earlier of (i) the expiration of the 30-calendar-day period following the
date on which he gives such notice to the Company and (ii) the date that any
payment of amount with respect to such claim is due. If the Company notifies the
Participant in writing prior to the expiration of such period that it desires to
contest such claim, the Participant shall:
(i) provide the Company with any written records or documents
in his possession relating to such claim reasonably requested by the
Company;
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including without limitation accepting legal representation with
respect to such claim by an attorney competent in respect of the
subject matter and reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Participant, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of this
Section 5(f), the Company shall control all proceedings taken in connection with
the contest of any claim
6
<PAGE>
contemplated by this Section 5(f) and, at its sole option, may pursue or forego
any and all administrative appeals, proceedings, hearings and conferences with
the taxing authority in respect of such claim (provided, however, that the
Participant may participate therein at his own cost and expenses) and may, at
its option, either direct the Participant to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Participant
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company
directs the Participant to pay the tax claimed and sue for a refund, the Company
shall advance the amount of such payment to the Participant on an interest-free
basis and shall indemnify and hold the Participant harmless, on an after-tax
basis, from any Excise Tax or income or other tax, including interest or
penalties with respect thereto, imposed with respect to such advance; and
provided further, however, that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Participant with
respect to which the contested amount is claimed to be due is limited solely to
such contested amount. Furthermore, the Company's control of any such contested
claim shall be limited to issues with respect to which a Gross-Up Payment would
be payable hereunder and the Participant shall be entitled to settle or contest,
as the case may be, any other issue raised by the Internal Revenue Service or
any other taxing authority.
(g) If, after the receipt by the Participant of an amount advanced by
the Company pursuant to Section 5(f), the Participant receives any refund with
respect to such claim, the Participant shall (subject to the Company's complying
with the requirements of Section 5(f) promptly pay to the Company the amount of
such refund (together with any interest paid or credited thereon after any taxes
applicable thereto). If, after the receipt by the Participant of an amount
advanced by the Company pursuant to Section 5(f), a determination is made that
the Participant shall not be entitled to any refund with respect to such claim
and the Company does not notify the Participant in writing of its intent to
contest such denial or refund prior to the expiration of 30 calendar days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of any such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid by the
Company to the Participant pursuant to this Section 5.
6. CERTAIN LIMITATIONS; INTEREST.
(a) GENERAL LIMITATIONS ON PAYMENT. Notwithstanding anything herein to
the contrary, no Payments shall be payable hereunder so long as the payment
thereof would (i) result in a breach of, or a default or acceleration of
payments under, any agreement (including any loan agreement) to which the
Company or any of its subsidiaries is a party, or (ii) cause the Company or any
subsidiary to be required to meet more restrictive covenants under the Company's
charter or any agreement (including any credit or loan agreement) to which the
Company or any of its subsidiaries is a party than the Company or any such
subsidiary was required to meet prior to the payment (or accrual for payment)
thereof.
7
<PAGE>
(b) INTEREST CHARGES. If for any reason the Company is unable to make
any payments due under the Plan (a "Deferred Payment"), such Deferred Payment
will be carried as an account payable on the books of the Company, will bear
interest at eight percent (8%) per annum, compounded quarterly, from the date
due until paid, and shall be payable out of the first available cash of the
Company.
7. RIGHTS OF EMPLOYEES. A Participant's participation in this Plan does
not create any obligation whatsoever by the Company or any of its subsidiaries
to continue such Participant's employment or otherwise affect the Company's
right to terminate such Participant's employment at will, with or without cause
in the sole discretion of the Company or any of the Company's subsidiaries which
is an employer of such Participant; PROVIDED, HOWEVER, that nothing contained in
this Section 7 shall be construed to amend or modify in any respect any written
employment agreements between the Company and any Participant. No person shall
solely as a result of the existence of this Plan or such person's participation
herein be entitled to review or have access to the books and records of the
Company or any of its subsidiaries. The Company shall provide each Participant
with a copy of the Company's financial statements, along with a schedule showing
how such Participant's payment hereunder was calculated. Amounts due hereunder
shall be in addition to amounts which may be due to an employee by reason of any
other agreements between the Participant and the Company.
8. EFFECTIVE DATE OF PLAN AND TERMINATION. The Plan shall become
effective as of January 1, 1999. This Plan shall terminate on December 31, 2008.
No payments shall be made hereunder with respect to any Change in Control
occurring after such date. In addition, this Plan shall apply only with respect
to the first Change in Control occurring after the effective date hereof.
8
EXHIBIT 10.02
AMENDMENT NO. 7, CONSENT AND WAIVER
Dated as of June 30, 1999
to
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of October 17, 1997
This Amendment No. 7, Consent and Waiver (the "Amendment")
dated as of June 30, 1999 is entered into among AVIATION SALES DISTRIBUTION
SERVICES COMPANY, a Delaware corporation ("ASOC"), AEROCELL STRUCTURES, INC., an
Arkansas corporation ("Aerocell"), AVS/KRATZ-WILDE MACHINE COMPANY, a Delaware
corporation ("Kratz-Wilde"), WHITEHALL CORPORATION, a Delaware corporation
("Whitehall"), TRIAD INTERNATIONAL MAINTENANCE CORPORATION, a Delaware
corporation ("TIMCO"), APEX MANUFACTURING, INC., an Arizona corporation
("Apex"), CARIBE AVIATION, INC., a Florida corporation ("Caribe"), AIRCRAFT
INTERIOR DESIGN, INC., a Florida corporation ("Design"), AVIATION SALES LEASING
COMPANY, a Delaware corporation ("Leasing"), TIMCO ENGINE CENTER, INC., a
Delaware corpporation ("TIMCO Engine"), AVIATION SALES COMPANY, a Delaware
corporation ("Parent"), and the "Lenders" (as defined in the Credit Agreement
identified below) a party hereto. Capitalized terms used herein without
definition are used herein as defined in the Credit Agreement.
PRELIMINARY STATEMENT:
WHEREAS, ASOC, Aerocell, Kratz-Wilde, Whitehall, TIMCO, Apex,
Caribe, and Design, as Borrowers, Parent, Citicorp USA, Inc., as Agent, and
certain financial institutions, as Lenders and Issuing Banks, are parties to
that certain Third Amended and Restated Credit Agreement dated as of October 17,
1997, as heretofore amended (the "Credit Agreement");
WHEREAS, effective December 15, 1998, the Credit Agreement was
amended pursuant to the terms of that certain Amendment No. 4 and Consent (the
"TROL Amendment") and under the terms of the TROL Amendment, the Parent,
Borrowers and Guarantors were permitted to enter into certain guaranties and
make certain Restricted Junior Payments with respect to Indebtedness incurred in
connection with a certain synthetic lease transaction more particularly
described in the TROL Amendment;
WHEREAS, due to increased costs related to the construction of
improvements on the real property which is the subject of the TROL Lease, the
principal amount of such Indebtedness guaranteed will increase by no more than
$5,000,000 and the consent of the Requisite Lenders is required to permit the
guarantee of such additional Indebtedness and any Restricted
<PAGE>
Junior Payments required to be made in connection therewith;
WHEREAS, effective May 11, 1999, the Credit Agreement was
amended pursuant to the terms of that certain Amendment No. 6, Consent and
Waiver (the "Recapitalization Amendment"), at which time, it was anticipated
that Parent would issue 2,600,000 shares of its common stock (plus up to an
additional 525,000 of its common stock to underwriters under certain
circumstances) as more particularly described in its Form S-3 Registration
Statement filed with the Securities and Exchange Commission on April 20, 1999
and the Tangible Net Worth covenants set forth in Section 11.07 of the Credit
Agreement were determined based on the projected proceeds of the issuance of
such equity;
WHEREAS, in view of only 2,300,000 shares of Parent common
stock (including that issued to the underwriters) being issued generating
proceeds (net of underwriting discount but before expenses) in an aggregate
amount of approximately $80,100,000, the Borrowers have requested a modification
of the covenant levels set forth in Section 11.07 of the Credit Agreement for
the periods ending on and after June 30, 1999;
WHEREAS, Parent has caused TIMCO Engine to be formed as a new
wholly-owned Subsidiary of Aviation Sales Maintenance, Repair & Overhaul Company
and Parent, TIMCO and TIMCO Engine have entered into a Purchase Agreement dated
as of June 30, 1999 (the "Purchase Agreement"), with Kitty Hawk, Inc., a
Delaware corporation ("KHI"), Kitty Hawk International, Inc., a Michigan
corporation ("KHII"), and Kitty Hawk Aircargo, Inc., a Texas corporation
("KHAC") (KHI, KHII and KHAC being collectively referred to as "Kitty Hawk")
pursuant to which TIMCO Engine will acquire certain assets of Kitty Hawk's JT8D
repair and overhaul operations and Boeing 727 heavy maintenance operations
(collectively, the "Kitty Hawk Assets") upon payment of $18,000,000 in cash
(subject to adjustment as provided in the Purchase Agreement) and execution and
delivery by Parent, on behalf of certain of the Borrowers and Guarantors, of a
certain agreement with KHI granting to KHI "purchase credits" in the aggregate
amount of $3,500,000, as more particularly described in the Purchase Agreement;
WHEREAS, the formation of TIMCO Engine and the above-described
Investment in the Kitty Hawk Assets require the consent of the Requisite Lenders
and, as a condition to such consent, the Lenders have required that TIMCO Engine
become a party to the Credit Agreement as a Borrower, jointly and severally
liable with the other Borrowers for the Obligations;
WHEREAS, the Borrowers have requested an additional
extension of the time permitted for completion of Inventory
appraisals; and
WHEREAS, in consideration of the foregoing, the parties
hereto have agreed to amend the Credit Agreement as set forth
<PAGE>
below in SECTION 1, subject to the terms and conditions stated in this
Amendment;
NOW, THEREFORE, the parties hereto hereby agree as follows:
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT. Effective as of
June 30, 1999, subject to the satisfaction of the conditions precedent set forth
in SECTION 3 hereof, the Credit Agreement is hereby amended as follows:
1.1 SECTION 1.01 is amended to (a) delete the definitions of
"Borrower" in its entirety and substitute the following definitions therefor:
"BORROWER" means, individually, any of Aviation Sales
Distribution Services Company, a Delaware corporation; Aviation Sales Leasing
Company, a Delaware corporation; Aerocell Structures, Inc., an Arkansas
corporation; Apex Manufacturing, Inc., an Arizona corporation; Caribe Aviation,
Inc., a Florida corporation; AVS/Kratz-Wilde Machine Company, a Delaware
corporation; Aircraft Interior Design, Inc., a Florida corporation; Triad
International Maintenance Corporation, a Delaware corporation; Whitehall
Corporation, a Delaware corporation, and TIMCO Engine Center, Inc., a Delaware
corporation; and "BORROWERS" means, collectively, all of such Persons.
and (b) add the following definition for "TIMCO Engine":
"TIMCO Engine" means TIMCO Engine Center, Inc., a Delaware corporation
and wholly-owned Subsidiary of MR&O.
1.2 SECTION 11.07 is amended to delete the provisions thereof
in their entirety and substitute the following therefor:
11.07. MINIMUM TANGIBLE NET WORTH. The Parent shall maintain a
Tangible Net Worth of at least the amount set forth below for the fiscal quarter
of the Parent ending during the period set forth below opposite such amount.
PERIOD ENDING MINIMUM TANGIBLE NET WORTH
------------- --------------------------
March 31, 1999 $ 95,000,000
June 30, 1999 $180,000,000
September 30, 1999 $190,000,000
December 31, 1999 $200,000,000
3
<PAGE>
March 31, 2000 $200,000,000
June 30, 2000 $200,000,000
September 30, 2000 $200,000,000
December 31, 2000 $240,000,000
March 31, 2001 $240,000,000
June 30, 2001 $240,000,000
September 30, 2001 $240,000,000
December 31, 2001 $280,000,000
March 31, 2002 $280,000,000
June 30, 2002 $280,000,000
1.3 Exhibits F and G to the Credit Agreement are hereby
deleted in their entirety and Exhibits F and G attached hereto and made a part
hereof are substituted therefor. Schedules 7.01-A and 7.01-C to the Credit
Agreement shall be deleted in their entirety and Schedules 7.01-A and 7.01-C
referenced on SCHEDULE 1 attached hereto and made a part hereof will be
substituted therefor upon their delivery as required by Section 3(b) below.
SECTION 2. CONSENTS AND WAIVER.
2.1 The Borrowers having heretofore covenanted and agreed to
obtain and deliver an appraisal of each Borrower's and its respective
Subsidiary's Inventory prepared by an independent appraiser satisfactory to the
Agent and on the same basis as the Appraisal by May 19, 1999, having heretofore
obtained extensions of such due date, and requested an additional extension of
the time permitted for such delivery, the Lenders hereby consent to the delivery
of such appraisal to the Agent and Lenders by no later than August 31, 1999.
2.2 The Lenders a party hereto, constituting at least the
Requisite Lenders, hereby consent to the increase by no more than $5,000,000 of
the principal amount of the Indebtedness evidenced by the Series A Notes issued
by First Security Bank, National Association, as trustee under Aviation Sales
Trust 1998- 1, a trust formed under the laws of the State of Florida guaranteed
pursuant to the terms of the TROL Guaranties, and any increased Restricted
Junior Payments required to be made in connection therewith as more particularly
described in Section 10.06(d).
2.3 The Lenders a party hereto, constituting at least
<PAGE>
the Requisite Lenders, hereby waive any rights and remedies that might otherwise
arise under the terms of the Credit Agreement with respect to the formation of
TIMCO Engine and consent to the Investment in the Kitty Hawk Assets as described
herein; PROVIDED THAT TIMCO Engine executes and delivers to the Agent this
Amendment and the agreements and documents identified on SCHEDULE 1 attached
hereto and made a part hereof on or before the earlier to occur of the date on
which the Kitty Hawk Assets are acquired as aforesaid or August 15, 1999.
SECTION 3. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS
AMENDMENT. This Amendment shall become effective as of June 30, 1999, if, and
only if the Agent shall have received:
(a) a facsimile or original executed copy of this Amendment executed by
the Parent, each Borrower (including TIMCO Engine), and the Requisite
Lenders; and
(b) solely with respect to all provisions of this Amendment other than
the consent set forth in Sections 2.1 and 2.2 hereof, the agreements
and documents identified on SCHEDULE 1 attached hereto and made a part
hereof on or before the earlier to occur of the date TIMCO Engine
acquires the Kitty Hawk Assets or August 15, 1999.
SECTION 4. REPRESENTATIONS AND WARRANTIES; ACKNOWLEDGMENT. The
Borrowers hereby represent and warrant as follows:
4.1 This Amendment and the Credit Agreement as previously
executed and delivered and as amended hereby constitute legal, valid and binding
obligations of the Borrowers and are enforceable against the Borrowers in
accordance with their terms.
4.2 No Event of Default or Potential Event of Default exists,
other than that arising due to the formation of TIMCO Engine without the prior
written consent of the Requisite Lenders as required by SECTION 10.04 of the
Credit Agreement as referenced above, or would result from any of the
transactions contemplated by this Amendment.
4.3 Upon the effectiveness of this Amendment, (a) each
Borrower hereby reaffirms all covenants, representations and warranties made by
it in the Credit Agreement to the extent the same are not amended hereby and
agree that all such covenants, representations and warranties shall be deemed to
have been remade as of the date this Amendment becomes effective (unless a
representation and warranty is stated to be given on and as of a specific date,
in which case such representation and warranty shall be true, correct and
complete as of such date) and (b) TIMCO Engine shall be jointly and severally
liable for all of the Obligations, whether incurred or arising prior to, on, or
after
<PAGE>
the date of this Amendment.
SECTION 5. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT.
5.1 Upon the effectiveness of this Amendment, each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import shall mean and be a reference to the Credit Agreement, as
amended hereby, each reference to the Credit Agreement in any other document,
instrument or agreement executed and/or delivered in connection with the Credit
Agreement shall mean and be a reference to the Credit Agreement as amended
hereby, and each reference in the Loan Documents to "Borrowers" or "Borrower"
shall mean and include TIMCO Engine.
5.2 Except as specifically amended above, the Credit
Agreement, the Notes and all other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.
5.3 The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of any
Lender or Issuing Bank or the Agent under the Credit Agreement, the Notes or any
of the other Loan Documents, nor constitute a waiver of any provision contained
therein, except as specifically set forth herein.
SECTION 6. EXECUTION IN COUNTERPARTS. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument. Delivery of an executed counterpart of this
Amendment by telecopier shall be effective as delivery of a manually executed
counterpart of this Amendment.
SECTION 7. GOVERNING LAW. This Amendment shall be
governed by and construed in accordance with the laws of the State of New York.
SECTION 8. HEADINGS. Section headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized
as of the date first above written.
<PAGE>
AVIATION SALES DISTRIBUTION AEROCELL STRUCTURES, INC.
SERVICES COMPANY
By___________________________ By________________________
Name: Name:
Title: Title:
AVS/KRATZ-WILDE MACHINE COMPANY WHITEHALL CORPORATION
By___________________________ By________________________
Name: Name:
Title: Title:
TRIAD INTERNATIONAL MAINTENANCE APEX MANUFACTURING, INC.
CORPORATION
By___________________________ By________________________
Name: Name:
Title: Title:
AIRCRAFT INTERIOR DESIGN, INC. CARIBE AVIATION, INC.
By___________________________ By________________________
Name: Name:
Title: Title:
<PAGE>
AVIATION SALES COMPANY AVIATION SALES LEASING COMPANY
By__________________________ By________________________
Name: Name:
Title: Title:
TIMCO ENGINE CENTER, INC.
By__________________________
Name:
Title:
CITICORP USA, INC. HELLER FINANCIAL, INC.
By___________________________ By__________________________
Shapleigh B. Smith Name:
Vice President Title:
CONGRESS FINANCIAL CORPORATION NATIONAL CITY COMMERCIAL
FINANCE, INC.
By____________________________ By__________________________
Name: Name:
Title: Title:
FIRST UNION COMMERCIAL CREDIT LYONNAIS, ATLANTA
CORPORATION AGENCY
By___________________________ By__________________________
Terri K. Lins David M. Cawrse
Vice President First Vice President &
Manager
IBJ WHITEHALL BUSINESS CREDIT BANKBOSTON, N.A.
CORPORATION
<PAGE>
By__________________________ By__________________________
Robert R. Wallace Tony Zhang
Vice President Vice President
SUNTRUST BANK, MIAMI, N.A. BANKATLANTIC
By_________________________ By_________________________
Name: Ana C. Bolduc
Title: Senior Vice President
THE INTERNATIONAL BANK OF NATIONAL BANK OF CANADA
MIAMI, N.A. A Canadian Chartered Bank
By_________________________ By_________________________
Caridad C. Errazquin Frank H. D'Alto
Vice President Vice President
Trade Finance Division
By_________________________
Michael S. Bloomenfeld
Vice President & Manager
MERCANTILE BUSINESS CREDIT, INC. CITIZENS BUSINESS CREDIT
COMPANY
By_________________________ By_________________________
Steven C. Gonzalez Ralph L. Letner
Assistant Vice President Vice President
<PAGE>
AMSOUTH BANK PNC BANK NATIONAL ASSOCIATION
By__________________________ By_________________________
Name: Name:
Title: Title:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from the Company's
quarterly report on Form 10-Q for the quarter ended June 30, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 10,896
<SECURITIES> 0
<RECEIVABLES> 154,761
<ALLOWANCES> 0
<INVENTORY> 354,683
<CURRENT-ASSETS> 551,778
<PP&E> 78,329
<DEPRECIATION> 0
<TOTAL-ASSETS> 720,861
<CURRENT-LIABILITIES> 289,027
<BONDS> 164,208
0
0
<COMMON> 15
<OTHER-SE> 256,697
<TOTAL-LIABILITY-AND-EQUITY> 720,861
<SALES> 357,247
<TOTAL-REVENUES> 357,247
<CGS> 271,789
<TOTAL-COSTS> 271,789
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,112
<INCOME-PRETAX> 27,208
<INCOME-TAX> 10,638
<INCOME-CONTINUING> 16,570
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,421
<EPS-BASIC> 1.35
<EPS-DILUTED> 1.32
</TABLE>
