<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 1-12380
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AVIALL, INC.
(Exact name of Registrant as specified in its Charter)
DELAWARE 65-0433083
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2075 DIPLOMAT DRIVE
DALLAS, TEXAS 75234-8989
(Address of principal executive offices) (Zip Code)
(972) 406-2000
(Registrant's telephone number, including area code)
Indicate by check X whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares of Common Stock, par value $.01 per share, outstanding
at May 6, 1997 was 19,619,015.
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<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
AVIALL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
1997 1996
------------ ------------
<S> <C> <C>
Net sales $ 91,682 92,168
Cost of sales 68,638 67,572
------------ ------------
Gross profit 23,044 24,596
Operating and other expenses:
Selling and administrative expenses 16,191 21,474
Nonrecurring items (1,436) 3,850
Interest expense 734 2,763
------------ ------------
Earnings (loss) before income taxes 7,555 (3,491)
Provision for income taxes 612 236
------------ ------------
Net earnings (loss) $ 6,943 (3,727)
============ ============
Net earnings (loss) per share $ 0.35 (0.19)
Weighted average common and common equivalent shares 19,694,428 19,457,739
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
AVIALL, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 7,396 4,191
Receivables 53,139 60,716
Inventories 71,492 73,088
Prepaid expenses and other current assets 3,136 2,649
Deferred income taxes 12,551 12,551
------------ ------------
Total current assets 147,714 153,195
------------ ------------
Property, plant and equipment 8,092 8,727
Intangible assets 59,010 59,560
Deferred income taxes 36,585 36,593
Other assets 3,513 2,802
------------ ------------
Total assets $ 254,914 260,877
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 7,241 5,237
Accounts payable 28,194 28,478
Accrued expenses 47,470 52,499
------------ ------------
Total current liabilities 82,905 86,214
------------ ------------
Long-term debt 39,565 48,971
Other liabilities 31,187 31,731
Shareholders' equity (includes common stock of $.01 par value per share with
80,000,000 shares authorized; 19,596,851 shares and
19,551,688 shares issued and outstanding at March 31, 1997
and at December 31, 1996, respectively; preferred stock of
$.01 par value per share with 10,000,000 shares
authorized and no shares issued and outstanding) 101,257 93,961
------------ ------------
Total liabilities and shareholders' equity $ 254,914 260,877
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
AVIALL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 6,943 (3,727)
Nonrecurring items (1,436) 3,850
Continuing operations depreciation and amortization 1,375 2,318
Deferred income taxes 5 (1,190)
Changes in:
Receivables (2,895) 1,055
Inventories 1,596 667
Accounts payable (284) 9,252
Accrued expenses (5,029) (2,206)
Other, net (1,079) (720)
Discontinued operations working capital changes -- (7,419)
------------ ------------
(804) 1,880
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds received from note repayment 12,000 --
Continuing operations capital expenditures (136) (378)
Net change in discontinued operations property, plant and equipment -- (29)
Sales of property, plant and equipment 67 23
------------ ------------
11,931 (384)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in revolving credit facility 3,978 7,555
Debt repaid (12,253) (6,318)
Issuance of common stock 353 104
------------ ------------
(7,922) 1,341
------------ ------------
Change in cash 3,205 2,837
Cash, beginning of period 4,191 4,690
------------ ------------
Cash, end of period $ 7,396 7,527
============ ============
CASH PAID FOR INTEREST AND INCOME TAXES:
Interest $ 1,606 7,864
Income taxes $ 513 84
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
AVIALL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, these financial statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation have been included. Operating results for the
three-month period ended March 31, 1997 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997. For further
information, refer to the financial statements and footnotes thereto included
in Aviall, Inc.'s Form 10-K for the year ended December 31, 1996.
NOTE 2 - NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings per Share" effective for interim and annual
periods ending after December 15, 1997. FASB Statement No. 128 establishes
standards for computing and presenting earnings per share ("EPS") and
simplifies the standards for computing EPS previously found in APB Opinion No.
15, "Earnings Per Share." If Aviall had computed net earnings (loss) per share
in accordance with the provisions of FASB Statement No. 128, the pro forma
basic and diluted net earnings (loss) per share for the three-month periods
ended March 31, 1997 and 1996 would have been $0.35 and ($0.19), respectively.
5
<PAGE> 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW. The following discussion and analysis should be read in conjunction
with the information set forth under Item 7: Management's Discussion and
Analysis of Financial Condition and Results of Operations on pages 12 through
18 of Aviall, Inc.'s (the "Company") Form 10-K for the year ended December 31,
1996.
The following table sets forth net sales, gross profit, and selling and
administrative expenses for the ongoing business separate from the aerospace
fastener distribution business (the "Fastener Business") which was sold in
September 1996, excluding nonrecurring charges and interest:
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------
(In thousands) 1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Net sales:
Ongoing business $ 91,682 84,351
Fastener Business -- 7,817
--------- ---------
Total net sales $ 91,682 92,168
========= =========
Gross profit:
Ongoing business $ 23,044 22,280
Fastener Business -- 2,316
--------- ---------
Total gross profit $ 23,044 24,596
========= =========
Selling and administrative expenses:
Ongoing business $ 16,191 19,489
Fastener Business -- 1,985
--------- ---------
Total selling and administrative expenses $ 16,191 21,474
========= =========
</TABLE>
RESULTS OF OPERATIONS. Net sales for the ongoing business in the first quarter
of 1997 were $91.7 million, up $7.3 million, or 9%, from the $84.4 million
recorded in the same 1996 quarter. The increase was driven primarily by
increased shipments to domestic general aviation and international aviation
customers as well as higher inventory information services revenue.
Gross profit for the ongoing business of $23.0 million was 3% higher than
the $22.3 million recorded in the 1996 first quarter. Gross profit as a
percentage of sales decreased from 26.4% to 25.1%, primarily as a result of a
reclassification of expenses between selling and administrative expenses and
cost of sales.
Selling and administrative expenses for the ongoing business decreased by
$3.3 million, or 17%, to $16.2 million in the first quarter of 1997. The
decrease was primarily due to staff reductions implemented during 1996, high
expenses in 1996 related to amending the Company's former bank agreement, and
the expense reclassification mentioned above.
The $1.4 million nonrecurring item was related to the repayment in January
1997 of a $12.0 million unsecured subordinated note received in connection with
the 1995 sale of the business aviation engine overhaul, and aircraft and
terminal services operations. The Company had carried the note at a discounted
value of $10.5 million. The nonrecurring charge of $3.9 million in the 1996
first quarter consisted of the writedown of inventory and accrual of estimated
expenses related to the expected sale of the Fastener Business.
Interest expense was lower than in the first quarter 1996, reflecting lower
debt, interest income from the $12.0 million note, and lower interest rates and
debt issuance cost amortization under the new bank agreement completed in
September 1996.
6
<PAGE> 7
FINANCIAL CONDITION. In January 1997, a $12.0 million unsecured subordinated
note received in connection with the 1995 sale of the business aviation engine
overhaul, and aircraft and terminal services operations was repaid. The Company
applied the proceeds as a permanent reduction of the Company's secured term
loan due through 2001. The unsecured subordinated note bore interest at 12% per
annum payable semiannually, and accrued interest of $0.3 million was received
by the Company at the time of the note repayment.
The Company believes that its expected cash flow from operations and
availability under its revolving lines are sufficient to meet its current
working capital and operating needs. Improvements in earnings will further
enhance the Company's access to capital and will enable the Company to finance
future investment opportunities.
Cash flow from operations was $(0.8) million in the first three months of
1997 and $1.9 million in the comparable 1996 period. Cash generated in the
first quarter 1997 from improved profitability was offset by $3.5 million in
expenditures related to liabilities retained for previously owned businesses
and net investments in working capital. In 1996, positive cash flow from the
continuing business was largely offset by working capital investments in the
discontinued operations.
OUTLOOK. Aviall's focus is on the distribution of aviation parts and providing
inventory information services. Management believes the Company has made
significant progress in streamlining corporate functions to reduce cost and
improve efficiency. The Company intends to seek further opportunities for cost
reductions and efficiency improvements in all areas of its operation. In
addition, the Company's estimated $180 million net operating loss carryforward
as of December 31, 1996 will minimize U.S. federal income tax payments for
several years.
CERTAIN FORWARD-LOOKING STATEMENTS. This report contains certain
forward-looking statements (as such term is defined in the Private Securities
Litigation Reform Act of 1995) relating to the Company that are based on the
beliefs of the management of the Company, as well as assumptions and estimates
made by and information currently available to the Company's management. When
used in this report, the words "anticipate," "believe," "estimate," "expect,"
"intend" and similar expressions, as they relate to the Company or the
Company's management, identify forward-looking statements. Such statements
reflect the current views of the Company with respect to future events and are
subject to certain risks, uncertainties and assumptions relating to the
operations and results of operations of the Company as well as its customers
and suppliers, including as a result of competitive factors and pricing
pressures, shifts in market demand, general economic conditions and other
factors including, among others, those that effect flight activity in
commercial, business and general aviation, the business activities of the
Company's customers and suppliers and developments in information and
communication technology. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions or estimates prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated, expected or intended.
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which
this report is filed.
7
<PAGE> 8
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.
AVIALL, INC.
May 9, 1997 By /s/ Jacqueline K. Collier
----------------------------------
Jacqueline K. Collier
Vice President and Controller
(Principal Accounting Officer)
May 9, 1997 By /s/ Cornelius Van Den Handel
----------------------------------
Cornelius Van Den Handel
Treasurer and Director of Planning
(Principal Financial Officer)
8
<PAGE> 9
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AVIALL,
INC'S FIRST QUARTER 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FIRST QUARTER 1997 FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,396
<SECURITIES> 0
<RECEIVABLES> 58,151
<ALLOWANCES> 5,012
<INVENTORY> 71,492
<CURRENT-ASSETS> 147,714
<PP&E> 40,540
<DEPRECIATION> 32,448
<TOTAL-ASSETS> 254,914
<CURRENT-LIABILITIES> 82,905
<BONDS> 39,565
0
0
<COMMON> 196
<OTHER-SE> 101,061
<TOTAL-LIABILITY-AND-EQUITY> 254,914
<SALES> 91,682
<TOTAL-REVENUES> 91,682
<CGS> 68,638
<TOTAL-COSTS> 63,638
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 734
<INCOME-PRETAX> 7,555
<INCOME-TAX> 612
<INCOME-CONTINUING> 6,943
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,943
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0
</TABLE>
