<PAGE> 1
===============================================================================
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 SEPTEMBER 30, 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
-------------------------------------
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 75234-8999
(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 November 3, 1997 was 19,898,972.
===============================================================================
<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 Nine months ended
September 30, September 30,
--------------------------------------------------
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 100,267 98,637 288,012 284,399
Cost of sales 75,339 74,210 215,807 211,605
- ------------------------------------------------------------------------------------------------------------------
Gross profit 24,928 24,427 72,205 72,794
Operating and other expenses:
Selling and administrative expenses 17,017 19,378 50,035 61,051
Nonrecurring items -- 2,763 (1,436) 6,613
Interest expense 752 3,503 2,477 9,656
- ------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations before income taxes 7,159 (1,217) 21,129 (4,526)
Provision for income taxes 123 1,210 1,023 1,657
- ------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations 7,036 (2,427) 20,106 (6,183)
Discontinued operations:
Gain on disposal -- 6,446 -- 16,946
- ------------------------------------------------------------------------------------------------------------------
Earnings from discontinued operations -- 6,446 -- 16,946
- ------------------------------------------------------------------------------------------------------------------
Net earnings before extraordinary item 7,036 4,019 20,106 10,763
- ------------------------------------------------------------------------------------------------------------------
Extraordinary loss -- 3,421 -- 3,421
- ------------------------------------------------------------------------------------------------------------------
Net earnings $ 7,036 598 20,106 7,342
==================================================================================================================
Net earnings (loss) per share:
Earnings (loss) from continuing operations $ 0.35 (0.13) 1.01 (0.32)
Earnings from discontinued operations 0.00 0.33 0.00 0.87
Extraordinary loss 0.00 (0.17) 0.00 (0.17)
- ------------------------------------------------------------------------------------------------------------------
Net earnings $ 0.35 0.03 1.01 0.38
==================================================================================================================
Weighted average common and common equivalent shares 20,242,129 19,539,541 19,960,853 19,516,576
</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>
September 30, December 31,
1997 1996
- ------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 5,521 4,191
Receivables 56,552 60,716
Inventories 73,999 73,088
Prepaid expenses and other current assets 1,765 2,649
Deferred income taxes 12,551 12,551
- ------------------------------------------------------------------------------------------------------------
Total current assets 150,388 153,195
- ------------------------------------------------------------------------------------------------------------
Property, plant and equipment 8,290 8,727
Intangible assets 55,634 59,560
Deferred income taxes 36,575 36,593
Other assets 3,910 2,802
- ------------------------------------------------------------------------------------------------------------
Total assets $254,797 260,877
============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 7,820 5,237
Accounts payable 25,901 28,478
Accrued expenses 43,198 52,499
- ------------------------------------------------------------------------------------------------------------
Total current liabilities 76,919 86,214
- ------------------------------------------------------------------------------------------------------------
Long-term debt 31,307 48,971
Other liabilities 29,276 31,731
Shareholders' equity (includes common stock of $.01 par value per share with
80,000,000 shares authorized; 19,842,234 shares and 19,551,688 shares issued
and outstanding at September 30, 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) 117,295 93,961
- ------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $254,797 260,877
============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
AVIALL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-------------------------
1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 20,106 7,342
Gain on disposal of discontinued operations -- (16,946)
Nonrecurring items (1,436) 6,613
Extraordinary loss -- 3,421
Depreciation and amortization 4,069 8,051
Deferred income taxes 18 (2,814)
Changes in:
Receivables (5,854) (559)
Inventories (861) 4,164
Accounts payable (2,577) 6,231
Accrued expenses (7,527) (2,637)
Other, net (1,852) (4,087)
Discontinued operations working capital changes -- 5,020
- -----------------------------------------------------------------------------------------------------
4,086 13,799
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from note repayment 12,000 --
Proceeds from businesses sold -- 261,276
Capital expenditures (2,127) (1,027)
Sales of property, plant and equipment 105 2,011
Net change in discontinued operations property, plant and equipment -- 603
- -----------------------------------------------------------------------------------------------------
9,978 262,863
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt proceeds -- 50,000
Net change in revolving credit facility (2,189) (152,542)
Debt repaid (13,772) (169,632)
Debt issue costs paid -- (2,571)
Issuance of common stock 3,227 475
- -----------------------------------------------------------------------------------------------------
(12,734) (274,270)
- -----------------------------------------------------------------------------------------------------
Change in cash 1,330 2,392
Cash, beginning of period 4,191 4,690
- -----------------------------------------------------------------------------------------------------
Cash, end of period $ 5,521 7,082
=====================================================================================================
CASH PAID FOR INTEREST AND INCOME TAXES:
Interest $ 3,030 17,583
Income taxes $ 1,098 1,123
</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- and
nine-month periods ended September 30, 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 per share in accordance with the provisions
of FASB Statement No. 128, the pro forma basic net earnings per share for the
three-month periods ended September 30, 1997 and 1996 would have been $0.36 and
$0.03, respectively, and the pro forma diluted net earnings per share for the
three-month periods ended September 30, 1997 and 1996 would have been $0.35 and
$0.03, respectively. The pro forma basic net earnings per share for the
nine-month periods ended September 30, 1997 and 1996 would have been $1.02 and
$0.38, respectively, and the pro forma diluted net earnings per share for the
nine-month periods ended September 30, 1997 and 1996 would have been $1.01 and
$0.38, 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 Nine months ended
(Unaudited) September 30, September 30,
----------------------------------------------
(In thousands) 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales:
Ongoing business $100,267 91,244 288,012 261,314
Fastener Business -- 7,393 -- 23,085
- ---------------------------------------------------------------------------------------------
Total net sales $100,267 98,637 288,012 284,399
=============================================================================================
Gross profit:
Ongoing business $ 24,928 22,132 72,205 65,791
Fastener Business -- 2,295 -- 7,003
- ---------------------------------------------------------------------------------------------
Total gross profit $ 24,928 24,427 72,205 72,794
=============================================================================================
Selling and administrative expenses:
Ongoing business $ 17,017 17,733 50,035 55,534
Fastener Business -- 1,645 -- 5,517
- ---------------------------------------------------------------------------------------------
Total selling and administrative expenses $ 17,017 19,378 50,035 61,051
=============================================================================================
</TABLE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 1996. Net sales for the ongoing business in the third
quarter of 1997 were $100.3 million, up $9.0 million, or 9.9%, from the $91.2
million recorded in the same 1996 quarter. Higher sales came from growth in
airline and general aviation markets in Europe, Asia-Pacific and North America.
Gross profit for the ongoing business of $24.9 million was $2.8 million
higher than the $22.1 million in the 1996 third quarter. Gross profit as a
percentage of sales increased from 24.3% to 24.9%. This increase in gross profit
percentage was primarily a result of an improved pricing environment.
Selling and administrative expenses for the ongoing business decreased $0.7
million or 4% to $17.0 million in the third quarter of 1997. The decrease was
primarily due to savings from staff reductions implemented throughout 1996 and
severance expenses in 1996.
Interest expense was lower than in the third quarter 1996, reflecting lower
debt, lower amortization of debt issuance costs, and lower interest rates from
the 1996 bank agreement.
The 1996 results include a $6.4 million gain on disposal of the
discontinued engine services business due to changes in estimates for
transaction-related expenses and the determination of the final sale price of
this business and a $2.8 million nonrecurring charge in continuing operations
due to the disposal of the Fastener Business. Also included in the 1996 results
is a $3.4 million extraordinary non-cash charge to write off unamortized debt
issuance costs.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1996. Net sales in the first nine months of 1997 were
$288.0 million, an increase of $26.7 million, or 10.2%, from the $261.3 million
recorded by the ongoing business in the comparable 1996 period. Higher sales for
the ongoing business came from growth in general aviation, airline and
information services in Europe, Asia-Pacific and North American regions.
6
<PAGE> 7
Gross profit of $72.2 million in the first nine months of 1997 increased
$6.4 million, or 9.7%, from the first nine months of 1996 for the ongoing
business. Gross profit as a percentage of sales decreased slightly from 25.2% in
1996 to 25.1% in 1997.
Selling and administrative expenses from the ongoing business decreased by
$5.5 million, or 9.9% to $50.0 million in the first nine months of 1997. The
decrease was primarily due to staff reductions implemented during 1996 and the
expenses incurred in 1996 relating to amending the Company's former bank
agreement.
The $1.4 million nonrecurring gain 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 1996 nonrecurring charge of $6.6 million was
comprised of the effect of the final contract terms and related transaction
costs in connection with the disposal of the Fastener Business.
Interest expense was lower than in 1996, reflecting lower debt, lower
interest rates and lower debt issuance amortization under the 1996 bank
agreement.
The 1996 results include a $16.9 million gain from disposal of the
discontinued operations due to the receipt of cash rather than an anticipated
partial stock payment, changes in estimates for transaction-related expenses and
the determination of the final sale price of the Company's commercial engine
services business.
FINANCIAL CONDITION. Cash flows from operations were $4.1 million in the first
nine months of 1997 and $13.8 million in the comparable 1996 period. Cash
generated in the first nine months of 1997 from improved profitability was
offset by $8.5 million in expenditures related to liabilities retained for
previously owned businesses, a net investment in receivables due to sales growth
and a reduction in accounts payable due to timing of payments at quarter end. In
1996, $5.0 million of the positive cash flow came from the discontinued
operations.
The Company believes that its expected cash flow from operations and
availability under its revolving lines of credit are sufficient to meet its
current working capital and operating needs. Improvements in earnings are
expected to further enhance the Company's access to capital and will enable the
Company to finance future investment opportunities.
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 Company filed its 1996 U.S. income tax return in September 1997. Based
on this return, at December 31, 1996 the Company had approximately $219.0
million in net operating loss carryforwards for U.S. federal tax purposes which
substantially expire in 2009-2011.
OUTLOOK. Management continues to be encouraged by the progress being made by the
Company and intends to continue to work on operational improvements while
positioning the Company to take advantage of growth opportunities. During 1997,
the Company has realigned its sales organization to maximize customer coverage,
while maintaining the market specialization that its customers demand. The
Company has also started to improve its systems to better meet the expectations
of its customers and suppliers and forestall any year 2000 problems. The Company
intends to seek further progress in reducing costs and improving operational
efficiencies.
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.
7
<PAGE> 8
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.
8
<PAGE> 9
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.
November 7, 1997 By /s/ Jacqueline K. Collier
---------------------------------
Jacqueline K. Collier
Vice President and Controller
(Principal Accounting Officer)
November 7, 1997 By /s/ Cornelius Van Den Handel
---------------------------------
Cornelius Van Den Handel
Treasurer and Director of Planning
(Principal Financial Officer)
9
<PAGE> 10
INDEX TO EXHIBITS
Exhibit
Number Description
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AVIALL,
INC.'S THIRD QUARTER 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH THIRD QUARTER 1997 FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,521
<SECURITIES> 0
<RECEIVABLES> 61,486
<ALLOWANCES> 4,934
<INVENTORY> 73,999
<CURRENT-ASSETS> 150,388
<PP&E> 36,308
<DEPRECIATION> 28,018
<TOTAL-ASSETS> 254,797
<CURRENT-LIABILITIES> 76,919
<BONDS> 31,307
0
0
<COMMON> 198
<OTHER-SE> 117,097
<TOTAL-LIABILITY-AND-EQUITY> 254,797
<SALES> 288,012
<TOTAL-REVENUES> 288,012
<CGS> 215,807
<TOTAL-COSTS> 215,807
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,477
<INCOME-PRETAX> 21,129
<INCOME-TAX> 1,023
<INCOME-CONTINUING> 20,106
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,106
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 0
</TABLE>
