<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File No.
June 30, 2000 0-24275
------------- -------
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
(Exact name of registrant as specified on its charter)
Delaware 52-2081515
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
587 Greenway Industrial Drive
Fort Mill, South Carolina 29708
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(Address of principal executive offices) (Zip code)
(803) 548-2160
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Shares -$.001 par value per share, Outstanding at August 10, 2000
7,768,971
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<PAGE> 2
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- ---------
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 10 $ 91
Receivables:
Trade and other, net of allowances of $455 at June 30, 2000
and $366 at December 31, 1999 14,789 18,843
Affiliate -- 631
Cost and estimated earnings in excess of billings on uncompleted contracts, net 71 981
Inventories 80,915 67,596
Prepaid expenses 1,683 825
Income tax receivable 2,260 --
-------- --------
Total current assets 99,728 88,967
Property and equipment, net 15,081 11,787
Assets under capital lease, net 16 19
Assets held for lease, net 633 633
Goodwill and acquisitions costs, net of amortization 11,334 10,520
Deferred financing fees 1,416 1,595
Investments in affiliated companies 2,310 --
Other assets 946 343
-------- --------
$131,464 $113,864
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving line of credit $ 72,644 $ 51,288
Current maturities of long-term debt 3,517 347
Capital lease obligations - current portion 1,023 965
Accounts payable and accrued expenses 13,686 20,300
Notes payable to related parties - current portion 127 168
Income taxes payable -- 1,159
-------- --------
Total current liabilities 90,997 74,227
-------- --------
Long-term debt, net of current maturities 5,403 3,121
-------- --------
Capital lease obligations - long-term portion 5,846 6,371
-------- --------
Notes payable to related parties - long-term portion 4 88
-------- --------
Deferred income taxes 316 316
-------- --------
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value; 2,000,000 shares authorized;
no shares issued or outstanding -- --
Common stock, $.001 par value; 20,000,000 shares authorized;
7,768,971 and 7,190,104 shares issued and outstanding at June 30, 2000
and December 31, 1999, respectively 7 7
Additional paid-in capital 22,504 20,450
Warrants outstanding 212 --
Retained earnings 6,421 9,284
Treasury stock (246) --
-------- --------
Total stockholders' equity 28,898 29,741
-------- --------
$131,464 $113,864
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these balance sheets.
F-2
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AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2000 1999 2000 1999
------- ------- ------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net revenues $19,245 $15,748 $33,092 $29,317
Cost of sales and service 16,515 9,900 26,927 18,860
------- ------- ------- -------
GROSS PROFIT 2,730 5,848 6,165 10,457
------- ------- ------- -------
Operating Expenses:
Selling and marketing 1,146 1,223 2,289 2,034
General and administrative 2,600 1,302 4,490 2,637
------- ------- ------- -------
Total operating expenses 3,746 2,525 6,779 4,671
------- ------- ------- -------
(LOSS) INCOME FROM OPERATIONS (1,016) 3,323 (614) 5,786
Other (expense) income:
Interest expense, net (2,215) (682) (3,877) (1,055)
Other (expense) income (102) -- (103) --
Deferred financing fees (100) (99) (100) (99)
------- ------- ------- -------
(LOSS) INCOME BEFORE INCOME TAXES (3,433) 2,542 (4,694) 4,632
(Benefit) provision for income taxes (1,339) 1,009 (1,831) 1,809
------- ------- ------- -------
NET (LOSS) INCOME $(2,094) $ 1,533 $(2,863) $ 2,823
======= ======= ======= =======
Basic (loss) earnings per share $ (0.28) $ 0.21 $ (0.39) $ 0.39
======= ======= ======= =======
Diluted (loss) earnings per share $ (0.28) $ 0.21 $ (0.39) $ 0.38
======= ======= ======= =======
Weighted average shares outstanding:
Basic 7,380 7,190 7,352 7,190
======= ======= ======= =======
Diluted 7,380 7,316 7,352 7,447
======= ======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-3
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AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
2000 1999
-------- --------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $ (2,863) $ 2,823
Adjustments to reconcile net (loss) income to cash used in operating activities:
Depreciation and amortization 1,079 668
Provision for uncollectible accounts 89 --
Decrease (increase) in trade and other receivables (439) (5,136)
Decrease (increase) in costs and estimated earnings in excess of billings
on uncompleted contracts, net 910 (209)
Increase in inventories (13,114) (15,643)
Increase in prepaid expenses (744) (394)
Increase in other assets (603) (1,037)
(Decrease) increase in accounts payable and accrued expenses (1,578) 4,834
Decrease in accounts payable to related parties -- (54)
Change in income tax liability (3,419) (753)
-------- --------
Net cash used in operating activities (20,682) (14,901)
-------- --------
INVESTING ACTIVITIES
Capital expenditures (4,169) (5,089)
Change in assets held for lease -- (5,160)
Investment in affiliated companies (2,310) --
Acquisition of businesses (1,040) (48)
-------- --------
Net cash used in investing activities (7,519) (10,297)
-------- --------
FINANCING ACTIVITIES
Net borrowings on revolving line of credit 21,356 35,959
Increase in capital expenditure line 2,012 --
Issuance of notes payable, net 3,440 --
Repayment of long-term debt -- (10,821)
Increase in deferred financing fees -- (1,866)
Principal repayments of notes payable to related parties, net (125) --
Purchase of treasury stock (246) --
Repayment of capital lease obligations (468) --
Issuance of additional shares of common stock 2,151 --
-------- --------
Net cash provided by financing activities 28,120 23,272
-------- --------
Net decrease in cash and cash equivalents (81) (1,926)
Cash and cash equivalents, beginning of period 91 2,150
-------- --------
Cash and cash equivalents, end of period $ 10 $ 224
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-4
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AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
FOR THE FISCAL QUARTER ENDED JUNE 30, 2000
THIS FORM 10-Q AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY AMERICAN
AIRCARRIERS SUPPORT, INCORPORATED OR ITS REPRESENTATIVES CONTAIN STATEMENTS
WHICH MAY CONSTITUTE "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF THE
SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934 AS AMENDED BY THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. 15 U.S.C.A. SECTIONS 77Z-2 AND
78U-5 (SUPP. 1996). THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE INTENT,
BELIEF OR CURRENT EXPECTATIONS OF AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND
MEMBERS OF ITS MANAGEMENT TEAM AS WELL AS THE ASSUMPTIONS ON WHICH SUCH
STATEMENTS ARE BASED. PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD
LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISK AND
INCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS. IMPORTANT FACTORS CURRENTLY
KNOWN TO MANAGEMENT THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE IN FORWARD LOOKING STATEMENTS ARE SET FORTH IN THE RISK FACTORS SECTION OF
THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FILED MARCH 30, 2000, WHICH IS
INCORPORATED HEREIN BY REFERENCE. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE
OR REVISE FORWARD LOOKING STATEMENTS TO REFLECT CHANGES ASSUMPTIONS, THE
OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES TO FUTURE OPERATING RESULTS OVER
TIME.
F-5
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AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Interim Financial Statements
The accompanying unaudited, consolidated financial statements of American
Aircarriers Support, Incorporated, a Delaware corporation, and its wholly-owned
subsidiaries Aviation Services, Inc., AAS Landing Gear Services, Inc., AAS
Amjet, Inc., AAS Complete Controls, Inc., AAS Aircraft Services, Inc., and AAS
Technologies, Inc., (collectively "AAS") are presented in accordance with the
requirements of Form 10-Q and Rule 10-01 of Regulation S-X.
All significant intercompany accounts have been eliminated in the consolidation.
These statements have been prepared by AAS, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission and reflect all
adjustments that, in management's opinion, are necessary for fair presentation.
All such adjustments are of a normal, recurring nature. The balance sheet as of
December 31, 1999 has been derived from the audited, consolidated financial
statements as of that date. Operating results for the three- and six-month
periods ending June 30, 2000, are not necessarily indicative of the results that
may be expected for the year ending December 31, 2000.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
we believe the disclosures are adequate to make the information presented not
misleading. It is suggested that these unaudited consolidated interim financial
statements be read in conjunction with the consolidated financial statements and
the notes thereto that are included in the Company's Form 10-KSB for the year
ended December 31, 1999.
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, liabilities, revenues and expenses.
Actual results could differ from those estimates. Basic net loss per common
share is based on the weighted average number of shares of common stock
outstanding during the period. Diluted net loss per common share is not
presented as it is anti-dilutive. Stock options and warrants are the only
securities issued that would have been included in the diluted earnings per
share calculation.
Reclassifications
Certain reclassification have been made to the 19999 financial statements to
conform with the 2000 presentation.
F-6
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AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2. LINE OF CREDIT
In May, 1999, AAS entered into a five-year revolving credit agreement and
capital expenditure loan facility ("Credit Agreement") with Bank of America
("the agent") and other financial institutions ("the lenders"). The Credit
Agreement provides a line of credit up to $100 million of which $10 million is
designated as the Capital Expenditure Loan Facility. The Credit Agreement
replaced an existing $35 million line of credit, which was repaid in full from
the proceeds of the new facility. In conjunction with the new financing, AAS
wrote off $0.1 million of deferred financing fees associated with the previous
line of credit. Principal amounts outstanding under the credit agreement bear
interest on a variable rate basis at various interest rates tied to either the
London Interbank Offered Rate ("LIBOR") or the prime rate, depending on certain
indebtedness ratios. The terms for the credit agreement also provide for a
facility non-use fee of 3/8% per annum on the unused portion of the facility.
The Credit Agreement is secured by substantially all of AAS' assets and the
capital expenditure loan facility is secured by all of the equipment funded by
the facility.
The amount of credit available under the agreement at any given time is
determined by an availability calculation, based on the eligible borrowing base,
as defined in the credit agreement which includes the outstanding receivables
and inventories with certain exclusions. In December 1999, the existing credit
facility was amended to allow for an additional $1 million, in excess of the
availability established by the borrowing base calculation, to be available to
us until additional subordinated debt could be obtained. In March 2000, AAS
signed a commitment letter to issue up to $25 million in subordinated debt to an
unaffiliated institutional investor. As of April 30, 2000, the credit facility
which allowed for the additional $1 million of availability on the revolver
expired. In May 2000, the potential investor was unable to close the transaction
and AAS' senior lenders decided not to extend the $1 million excess
availability. This resulted in AAS being in an overadvance position on its line
of credit. AAS was also not in compliance with its restrictive financial
covenants and was in default under certain provisions of its Credit Agreement.
On June 22, 2000, AAS entered into a Forbearance Agreement with its senior
lenders which provided accommodations in the form of certain restricted
overadvances up to $7.2 million of the borrowing limits established by the
borrowing base calculation until August 1, 2000 and an agreement by lenders to
forbear to exercise their rights and remedies afforded in default under the
Credit Agreement while the Company pursues additional financing. The Forbearance
Agreement also disallowed any further borrowings on the capital expenditure
line, but deferred the conversion of the line to a term loan until October 2000.
The interest rate for both the revolver and the capital expenditure line was
increased by 1/2%. In addition, the Company was required to pay a $0.5 million
fee to its lenders for the Forbearance Agreement.
As of June 30, 2000, pursuant to the Credit Agreement and the Forbearance
Agreement, as amended, there was $72.6 million and $5.5 million outstanding
under the revolver and capital expenditure loan facility, respectively and the
available credit was $1.2 million.
F-7
<PAGE> 8
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2. LINE OF CREDIT - CONTINUED
In August 2000, the Company entered into a new $85 million credit facility under
a waiver and sixth amendment with its lenders (the "Credit Facility"). The new
Credit Facility reduces the limit on the credit line from $100 million to $85
million. This step-down in the credit limit will reduce the amount of non-use
commitment fees incurred by the Company. The new Credit Facility requires the
Company to have (i) a $1 million equity investment in the Company by August 15,
2000, (ii) a $5 million equity investment in the Company by August 31, 2000, and
(iii) to have subordinated debt of $10 million in place by September 30, 2000.
The agreement also provides the Company with an overadvance allowance of $7.2
million, subject to certain restrictions and step-downs. It restricts certain
debt repayments until the earlier of September 30, 2000 or the funding of the
subordinated debt. The Company incurred no additional fees associated with the
new agreement and the lenders have agreed to waive the prepayment penalties
through May 2001. The Credit Facility also waives all financial ratio covenants
through March 31, 2001. As of August 10, 2000, the Company was in compliance
with all requirements set forth by the Credit Facility. However, there can be no
assurances that the Company will successfully secure the equity or the
subordinated debt in the time required by the new agreement. Failure to comply
with any or all of the requirements would constitute a default under the
agreement.
3. TREASURY STOCK
In February 2000, AAS entered into an agreement to exchange $621,000, which was
classified on the Company's balance sheet as of December 31, 1999, as accounts
receivable from affiliates, for 69,000 shares of AAS' common stock. These shares
had been previously issued to the affiliate in connection with one of AAS'
acquisitions. Subsequent to the agreement, AAS sold 66,666 shares of the stock
for $600,000 to an unaffiliated third party. The agreement also called for the
registration of the remaining 56,000 shares held by the affiliate or the
Company's assistance with a private placement of those shares. During March
2000, AAS repurchased 25,000 of those shares from the affiliate for an aggregate
purchase price of $9 per share, or $225,000. During May 2000, AAS reclassified
an additional 2,333 shares at $9 per share as treasury stock to relieve the
remaining accounts receivable balance of $21,000 from the unaffiliated third
party. AAS holds the total 27,333 common shares at cost in the treasury stock
account and the cost of the shares is reflected on the Company's balance sheet
as a separate deduction from shareholders' equity.
Six Months
Ended
June 30, 2000
(000's)
-------
Basic weighted average shares outstanding, beginning of period 7,190
Exercised Stock Options 84
Additional Issued Shares 97
Purchased Treasury Stock (19)
-----
Basic weighted average shares outstanding, end of period 7,352
=====
F-8
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AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
4. EARNINGS PER SHARE
The computation of basic earnings per share in accordance with SFAS No. 128 is
as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net (loss) income as reported $(2,094) $1,533 $(2,863) $2,823
======= ====== ======= ======
Weighted average shares outstanding 7,380 7,190 7,352 7,190
------- ------ ------- ------
Basic (loss) earnings per share $ (0.28) $ 0.21 $ (0.39) $ 0.39
======= ====== ======= ======
</TABLE>
The computation of diluted earnings per share in accordance with SFAS No. 128 is
as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net (loss) income as reported $(2,094) $1,533 $(2,863) $2,823
======= ====== ======= ======
Weighted average shares outstanding 7,380 7,190 7,352 7,190
Effect of dilutive securities -- 126 -- 257
------- ------ ------- ------
Diluted weighted average shares
outstanding 7,380 7,316 7,352 7,447
------- ------ ------- ------
Diluted (loss) earnings per share $ (0.28) $ 0.21 $ (0.39) $ 0.39
======= ====== ======= ======
</TABLE>
As of June 30, 2000, options to purchase 694,750 shares of common stock at a
range of $6.00 to $10.75 per share and 200,000 warrants priced at $7.98 and
75,000 warrants priced at $8.00 were outstanding during the second quarter 2000
but were not included in the computation of diluted Earnings Per Share because
to do so would have been antidilutive for the periods presented.
5. OTHER LOANS
In January 2000, AAS entered into a technology partnering agreement with
SupplyAccessTM for the joint development of an Internet-based distribution model
for parts sales. The Company borrowed $3 million from an unaffiliated private
investor to fund its participation in the development and marketing of this
business-to-business e-Procurement solution for the aerospace industry. Both
principal and interest on the loan are due at the earlier of one hundred twenty
days from the closing or the funding of a subordinated debenture offering in the
minimum amount of $10 million. The loan is evidenced by an unsecured,
subordinated promissory note that bears interest at 9.5% per annum and is
secured by the personal guaranty of the Company's founder and CEO of AAS. The
lender also received an option to purchase 25,000 shares of common stock at
$8.00 per share for a four-year period. The option has customary anti-dilution
provisions and the holder has certain registration rights.
F-9
<PAGE> 10
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
5. OTHER LOANS - CONTINUED
In April 2000, AAS finalized the purchase of a facility from a related party for
$353,000 and assumed the $450,000 mortgage on the facility and entered into a
new lease for another facility previously subleased from the related party. The
$353,000 was evidenced by a promissory note and was initially payable on July 3,
2000. The Company was unable to pay the promissory note on July 3, 2000 and is
presently in negotiations to restructure the agreement. There can be no
assurances that a new agreement will be reached.
In April 2000, the Company borrowed $2 million from an unaffiliated private
investor to use as working capital for a period of 30 days. The loan was
evidenced by an unsecured, subordinated promissory note with interest at 9.5%
per annum. The note was convertible to equity at the average of the closing
price for the 5 trading days immediately preceding the due date of the note. The
investor was also granted an option to purchase 50,000 shares of common stock
for a five- year period for $8.00 per share. At the end of the 30 days and a
28-day non-payment period, the private investor converted the full amount of
principal and interest to equity.
6. LEGAL
AAS is involved in various claims and lawsuits incidental to its business
operations and the Company's present liquidity situation. In the opinion of
management, the ultimate resolution of these claims and lawsuits should not have
a material adverse effect on the financial condition of the Company.
F-10
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AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion may contain "forward-looking" statements, as that term
is defined by (i) the Private Securities Litigation Reform Act of 1995 (the
"Reform Act") and (ii) in releases made by the Securities and Exchange
Commission from time to time. Forward-looking statements are subject to risks
and uncertainties that may cause future results to differ materially from those
set forth in such forward-looking statements. We undertake no obligation to
update forward-looking statements to reflect events or circumstances after the
date hereof. Various trend and factors beyond our control my affect our future
operating results. Accordingly, past results and trends should not be used by
investors to anticipate future results or trends.
OVERVIEW
Our Company, founded in 1985, provides integrated aviation maintenance, repair
and overhaul services including spare parts for commercial airlines, cargo
operators and maintenance and repair facilities worldwide. We offer engine and
aircraft management services, maintenance, repair and overhaul of flight
controls, landing gear systems and jet engines at our FAA licensed facilities,
and, as of February 2000, heavy maintenance for complete aircraft. We are one of
the few companies that specialize in both engine and airframe components and
spare parts and also provides aviation services that include:
1) sale, lease or exchange of all major airframe and engine components
and spare parts;
2) complete FAA and JAA (a consortium of European civil aviation
regulatory authorities) certified maintenance, repair and overhaul
("MRO") services for engines, landing gear and flight control surfaces;
3) engine and aircraft management, insurance claims assistance and
other services; and
4) as of February 2000, FAA certified heavy maintenance and
modification for both narrow and wide body aircraft.
RESULTS OF OPERATIONS
Our operating results may fluctuate significantly on a quarterly and annual
basis due to general economic conditions, specific industry economic conditions,
the availability and timing of orders and payments from customers, the timing
and ability to make bulk inventory purchases, the mix of products sold and
services provided and various other factors, many of which are beyond our
control.
Many of our operating expenses are relatively fixed. Since we do not typically
obtain long-term purchase orders or commitments from our customers, we must
anticipate future orders based upon historical purchasing patterns of our
customers and discussions as to their future requirements. Cancellations,
reductions or delays in orders by our customers could have a material adverse
effect on our business, financial condition, results of operations and cash
flows.
F-11
<PAGE> 12
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
RESULTS OF OPERATIONS - CONTINUED
Comparison of Three Months Ended June 30, 2000 and 1999
Net revenues increased approximately $3.5 million, or 22.2%, to $19.2 million in
the three months ended June 30, 2000 from $15.7 million in the corresponding
period in 1999. Businesses acquired during the first quarter of 2000 accounted
for approximately $3.4 million of the total net revenues for the three months
ended June 30, 2000.
Cost of sales and service totaled approximately $16.5 million, or 85.8% of net
revenues, in the second quarter of 2000, compared with $9.9 million, or 62.9% of
net revenues, in the second quarter of 1999. Gross profit decreased 53.3% to
$2.7 million for the three months ended June 30, 2000, compared with $5.8
million for the same period last year. As a percentage of revenues, gross profit
was approximately 14.2% of revenues in the three months ended June 30, 2000,
compared with approximately 37.1% in the three months ended June 30, 1999. Our
gross profit margin decrease was attributable to a combination of pricing
pressures due to the present industry slowdown and the increased costs
associated with the use of alternative vendors as a result of our liquidity
difficulties. Also, during the quarter, one brokered engine sale generated
little margin, but resulted in a very good internal rate of return due to our
one-day ownership. The engine was sold for $3.5 million, but had only $30,000 of
gross profit. Excluding this one transaction, gross profit as a percentage of
revenues approximated 17.1% for the three months ended June 30, 2000. Another
contributing factor to the gross margin decline was the inefficiencies incurred
at our start-up aircraft maintenance facility. These inefficiencies resulted in
a gross profit margin of approximately 1% on $3.9 million of revenue.
Selling and marketing expenses decreased $0.1 million, or 6.3%, to $1.1 million
in the three months ended June 30, 2000 from $1.2 million in the three months
ended June 30, 1999. As a percentage of net revenues, selling and marketing
expenses decreased to 6.0% in the three months ended June 30, 2000, compared to
7.8% of net revenues in the three months ended June 30, 1999.
General and administrative expenses increased $1.3 million, or 99.7%, to $2.6
million in the three months ended June 30, 2000 from $1.3 million in the
comparable 1999 period. The majority of the increase in expenses is attributable
to the approximately $0.7 million of general and administrative expenses
associated with the recently acquired operations. Other expense increases which
negatively impacted results were insurance, rent and depreciation. As a
percentage of net revenues for the three months ended June 30, 2000, general and
administrative expenses were 13.5%, compared with 8.3% of net revenues in the
three months ended June 30, 1999.
Net interest expense for the three months ended June 30, 2000 increased by $1.5
million to approximately $2.2 million, compared to $0.7 million in the three
months ended June 30, 1999. This increase is due to the higher levels of
indebtedness outstanding used to finance the recent acquisitions, inventory
purchases and working capital requirements. For the three months ended June 30,
2000, the weighted average borrowings under the Credit Facility were $76.0
million and the weighted average interest rate was 9.08%.
F-12
<PAGE> 13
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
RESULTS OF OPERATIONS - CONTINUED
Comparison of Three Months Ended June 30, 2000 and 1999 - continued
Net other expense for the three months ended June 30, 2000 increased by $0.1
million to $0.2 million, compared to $0.1 million for the three months ended
June 30, 1999. In the second quarter of 2000, we wrote off approximately $0.1
million of one-time fees incurred in an unsuccessful effort to obtain
subordinated debt and recognized $0.1 million of a one-time total forbearance
fee of $0.5 million. The forbearance fee covered the period June 22, 2000
through July 31, 2000. The remaining $0.4 million of this fee will be recognized
in the third quarter. In 1999, we wrote off approximately $0.1 million of
deferred financing fees. The one-time charge was a result of the restructuring
of the credit facility.
As a result of the above, net income before taxes decreased $5.9 million, or
235%, to a pre-tax loss of $3.4 million in the second quarter of 2000 from
pre-tax income of $2.5 million in the same period in 1999. Net loss after the
income tax benefit of $1.3 million was $2.1 million ($0.28 loss per diluted
share) for the three months ended June 30, 2000.
Comparison of Six Months Ended June 30, 2000 and 1999
Net revenues increased approximately $3.8 million, or 12.9%, to $33.1 million in
the six months ended June 30, 2000 from $29.3 million in the corresponding
period in 1999. Businesses acquired during the first quarter of 2000 accounted
for approximately $3.9 million of the total net revenues as of June 30, 2000.
This revenue was partially offset by a decrease in net revenues of the other
companies of approximately $0.1 million.
A number of factors contributed to the decrease in revenues such as delays of
customer approvals for MRO services and purchasing decisions not to buy parts
due to an industry slowdown that was caused by the uncertainty of fuel prices
during the first part of the year.
Cost of sales and service totaled approximately $26.9 million, or 81.4% of net
revenues, in the six months ended June 30, 2000, compared with $18.9 million, or
64.3% of net revenues, in the six months ended June 30, 1999. Gross profit
decreased 41.0% to $6.2 million for the six months ended June 30, 2000, compared
with $10.5 million for the same period last year. As a percentage of revenues,
gross profit was approximately 18.6% of revenues in the six months ended June
30, 2000, compared with approximately 35.7% in the six months ended June 30,
1999. The decrease in gross profit is largely attributable to the pricing
pressures resulting from the increased competition related to the industry
slowdown and delayed customer purchases combined with the increased cost of
using alternative vendors associated with our current liquidity difficulties.
Selling and marketing expenses increased $0.3 million, or 12.5%, to $2.3 million
in the six months ended June 30, 2000 from $2.0 million in the six months ended
June 30, 1999. This increase primarily reflects compensation expenses related to
additional staffing, fees paid to outside agents and sales related travel. As a
percentage of net revenues, selling and marketing expenses remained constant at
6.9% for the six months ended June 30, 2000 and June 30, 1999.
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AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
RESULTS OF OPERATIONS - CONTINUED
Comparison of Six Months Ended June 30, 2000 and 1999 - continued
General and administrative expenses increased $1.9 million, or 70.3%, to $4.5
million in the six months ended June 30, 2000 from $2.6 million in the
comparable 1999 period. The majority of the increase in expenses is attributable
to the approximately $1.3 million of general and administrative expenses
associated with the operations acquired in the second quarter of 1999 and the
first quarter of 2000. Other expense increases which negatively impacted results
were insurance, rent and depreciation. As a percentage of net revenues for the
six months ended June 30, 2000, general and administrative expenses were 13.6%,
compared with 9.0% of net revenues in the six months ended June 30, 1999.
Net interest expense for the six months ended June 30, 2000 increased by $2.8
million to approximately $3.9 million, compared to $1.1 million in the six
months ended June 30, 1999. This increase is due to the higher levels of
indebtedness outstanding used to finance the recent acquisitions, inventory
purchases and working capital requirements. For the six months ended June 30,
2000, the weighted average borrowings under the Credit Facility were $70.9
million and the weighted average interest rate was 8.80%.
Net other expense for the six months ended June 30, 2000 increased by $0.1
million to $0.2 million, compared to $0.1 million for the six months ended June
30, 1999. In the second quarter of 2000, we wrote off approximately $0.1 million
of one-time fees incurred in an unsuccessful effort to obtain subordinated debt
and recognized $0.1 million of a one-time total forbearance fee of $0.5 million.
The forbearance fee covered the period June 22, 2000 through July 31, 2000. The
remaining $0.4 million of this fee will be recognized in the third quarter. In
1999, we wrote off approximately $0.1 million of deferred financing fees. The
one-time charge was a result of the restructuring of the credit facility.
As a result of the above, net income before taxes decreased $9.3 million, or
201%, to a pre-tax loss of $4.7 million for the six months ended June 30, 2000
from pre-tax income of $4.6 million in the same period in 1999. Net loss after
the income tax benefit of $1.8 million was $2.9 million ($0.39 loss per diluted
share) for the six months ended June 30, 2000.
Recent Developments
In January 2000, we borrowed $3 million from an unaffiliated private investor to
fund our investment in SupplyAccess(TM) for the joint development of an
Internet-based distribution model for parts sales. Both principal and interest
on the loan were due at the earlier of one hundred twenty days from the closing
or the funding of a subordinated debt offering in the minimum amount of $10
million. The loan is evidenced by an unsecured, subordinated promissory note
that bears interest at 9.5% per annum and is secured by a personal guaranty of
our founder and CEO. The lender also received warrants to purchase 25,000 shares
of our common stock at $8.00 per share for a four-year period. In July 2000, due
to our inability to close the $25 million subordinated debt offering prior to
the 120 days, the lender agreed to extend the loan until we obtain additional
financing. The extension agreement calls for us to pay interest at 13% per
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<PAGE> 15
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
RESULTS OF OPERATIONS - CONTINUED
Recent Developments - continued
annum and issue 75,000 additional warrants at $2.93 per share and reprice the
original 25,000 options to $2.93 per share. The costs associated with the
repricing of these warrants is expected to be approximately $66,000. In
exchange, the investor has agreed that at the time the note is repaid, the
investor will convert $1 million of the debt to equity at the same share price
as any other group of investors whose investment cumulatively totals $5 million.
Additionally, the investor will be granted 7% equity of AAS Technologies, Inc.
In April 1999, we entered into a ten-year operating lease and build-out for the
expansion of our engine maintenance, overhaul and repair facility. The facility
was originally scheduled to be operational in October 1999. Due to certain
deadlines that the lessor failed to meet and our present liquidity situation,
the project was put on hold. We are currently in negotiations with the lessor to
terminate the lease.
In July 2000, we signed a letter of intent with Pegasus Aviation, Inc. for a
strategic investment in the Company. Pegasus Aviation, Inc. is a global lessor
of aircraft with annual revenues of approximately $400 million and a portfolio
of over 200 aircraft valued in excess of $3 billion. The investment, subject to
due diligence, will be made through a private placement of equity in the
Company. The agreement also includes the merger of International Aero Components
("IAC"), a parts distribution affiliate of Pegasus Aviation, into AAS.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity prior to completion of the May 1998 initial
public offering were cash flows from operating activities, borrowings under the
prior credit facility and advances from its two founders. We require capital to
purchase inventory, to fund product servicing and overhaul facilities, for
normal operating expenses and for general working capital purposes.
In May 1999, we entered into a five-year revolving credit agreement and capital
expenditure loan facility. The Credit Agreement provides for a line of credit up
to $100 million, of which $10 million is designated as the Capital Expenditure
Loan Facility. The Credit Agreement replaced an existing $35 million line of
credit, which was repaid in full from the proceeds of the new facility. In
conjunction with the new financing, we wrote off $0.1 million of deferred
financing fees associated with the previous line of credit. Principal amounts
outstanding under the Credit Agreement bear interest on a variable rate basis at
various interest rates tied to either the LIBOR or the prime rate, depending on
certain indebtedness ratios. The terms of the Credit Agreement also provide for
a facility non-use fee of 3/8% per annum on the unused portion of the facility.
The Credit Agreement is secured by substantially all of our assets and the
capital expenditure loan facility is secured by all of the equipment funded by
the facility. The Credit Agreement provided for advances on the capital
expenditure loan facility through May 2000, at which time it was to convert into
a term loan amortizing over the remaining term of the Credit Agreement.
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AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
LIQUIDITY AND CAPITAL RESOURCES - CONTINUED
The amount of credit available under the Credit Agreement at any given time is
determined by an availability calculation, based on the eligible borrowing base,
as defined in the Credit Agreement which includes the outstanding receivables
and inventories, with certain exclusions. In December 1999, the existing credit
facility was amended to allow for an additional $1 million, in excess of the
availability established by the borrowing base calculation, to be available to
us until additional subordinated debt could be obtained.
On June 22, 2000, we entered into a Forbearance Agreement with its senior
lenders which provided accommodations in the form of certain restricted
overadvances up to $7.2 million of the borrowing limits established by the
borrowing base calculation until August 1, 2000 and an agreement by our lenders
to forbear to exercise their rights and remedies afforded upon default under the
Credit Agreement while we pursue additional financing. The Forbearance Agreement
also disallowed any further borrowings on the capital expenditure line, but
deferred the conversion of the line to a term loan until October 2000. The
interest rate for both the revolver and the capital expenditure line was
increased by 1/2%. In addition, the Company was required to pay a $0.5 million
fee to its lenders for the Forbearance Agreement. As of June 30, 2000, pursuant
to the Credit Agreement and the Forbearance Agreement, as amended, there was
$72.6 million and $5.5 million outstanding under the revolver and capital
expenditure loan facility, respectively and the available credit was $1.2
million.
Also in June 2000, we signed a commitment letter to issue $10 million of
subordinated debt to an unaffiliated institutional investor, subject to a due
diligence review and certain equity investment requirements.
For the six months ended June 30, 2000, operating activities used cash of $20.7
million. Cash was used primarily for increases in inventory, as well as
decreases in accounts payable, accrued expenses and income taxes payable, which
were partially offset by decreases in accounts receivable.
Net cash used in investing activities during the six months ended June 30, 2000
was $7.5 million. This reflected the purchase of fixed assets, increased
acquisition costs that were incurred in connection with the purchase of certain
assets of Santa Barbara Aerospace, Inc., which closed on February 14, 2000, and
an investment in a technology partnering agreement for the development of an
internet-based distribution model for aircraft parts sales. Net cash provided by
financing activities during the six months ended June 30, 2000, was $28.1
million, which consisted primarily of net borrowings under the Credit Agreement.
Capital expenditures were approximately $4.2 million for the six months ended
June 30, 2000. Of this amount, approximately $2.1 million is related to the
acquisition of AAS Aircraft Services and approximately $1.3 million is related
to the leasehold improvements necessary for the completion of the expansion of
our flight control maintenance, repair and overhaul facility in Tucson, Arizona.
The expansion was completed and the new facility opened in February 2000. Our
planned expansions of our plating facility for our landing gear operation, along
with our new engine maintenance, repair and overhaul facility, have been delayed
due to the delays in closing our subordinated debt financing.
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AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
LIQUIDITY AND CAPITAL RESOURCES - CONTINUED
In August, we entered into a new $85 million Credit Facility under a waiver and
sixth amendment to the Credit Agreement with its lenders. The new facility
reduces the limit on the revolving credit line from $100 million to $85 million.
This step-down in the revolver limit will reduce the amount of non-use
commitment fees that we incur. The new Credit Facility requires us to have (i) a
$1 million equity investment in the Company by August 15, 2000, (ii) a $5
million equity investment in the Company by August 31, 2000, and (iii)
subordinated debt of $10 million in place by September 30, 2000. The agreement
also provides us with an overadvance allowance of $7.2 million, subject to
certain restrictions and step-downs. It restricts certain debt repayments until
the earlier of September 30, 2000 or the funding of the subordinated debt. We
will incur no additional fees associated with the new agreement and the lenders
have agreed to waive the prepayment penalties through May 2001. The Credit
Facility also waives all financial ratio covenants through March 31, 2001. As of
August 10, 2000, we were in compliance with all requirements set forth by the
Credit Facility. However, there can be no assurances that the we will
successfully secure the equity or the subordinated debt in the time required by
the new agreement. Failure to comply with any or all of the requirements would
constitute a default under the agreement.
We have experienced significant historical growth in 1997, 1998 and 1999 which
led the us to increase our infrastructure substantially, in late 1999, in
anticipation of continued growth. The current industry conditions, caused by
increased fuel costs, increased interest rates and recent operating results has
forced us to institute cost reduction measures. In addition company wide
headcount reduction plans were implemented in June, with further headcount
reductions effective in July. The headcount reductions should not affect our
ability to produce future revenues due to the anticipated efficiencies from the
restructuring of shop floors and workflows.
We have also recently begun a plan to significantly reduce our debt through the
sale of certain assets held for rotable exchanges at our MRO facilities and the
reduction of inventory levels. Existing cash balances, accounts receivable and
amounts available under the Credit Facility may not be sufficient to meet future
short-term capital requirements. If we are unsuccessful in closing the private
equity transactions or the subordinated debt facility in the near future, we
will be forced to seek other financial alternatives. There can be no assurance
that we will be capable of securing additional capital.
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AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). This statement addresses the accounting
for derivative instruments, including certain derivative instruments imbedded in
other contracts, and hedging activities. The Statement is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999. In June 1999,
the FASB issued SFAS No. 137 which delayed the effective date of SFAS No. 133
until fiscal quarters of all fiscal years beginning after June 15, 2000. We do
not believe that the adoption of the provisions of SFAS No. 133 will
significantly impact the financial reporting of American Aircarriers Support,
Incorporated and Subsidiaries.
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<PAGE> 19
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
AAS is involved in various claims and lawsuits incidental to its business
operations and the Company's present liquidity difficulties. In the opinion of
management, the ultimate resolution of these claims and lawsuits should not have
a material adverse effect on the financial condition of the Company.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable
(b) Not applicable
(c) Not applicable
(d) Not applicable
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Fifth Amendment and Forbearance Agreement
10.2 Waiver and Sixth Amendment to Loan and Security Agreement
27 Financial Data Schedule
(b) Reports on Form 8-K
None
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<PAGE> 20
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
American Aircarriers Support, Incorporated
(Registrant)
Date: August 11, 2000
By: /s/ Elaine T. Rudisill
-------------------------------
Elaine T. Rudisill
(Principal Financial and Accounting Officer)
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