<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY , 1996
REGISTRATION NO. 333-4164
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GREENWICH AIR SERVICES, INC.
(Exact name of registrant as specified in its charter)
SEE TABLE OF ADDITIONAL REGISTRANTS BELOW
--------------------------
<TABLE>
<S> <C> <C>
DELAWARE 3724 58-1758941
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
</TABLE>
--------------------------
P.O. BOX 522187
MIAMI, FLORIDA 33152
(305) 526-7000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
ROBERT J. VANARIA
SENIOR VICE PRESIDENT OF ADMINISTRATION AND CHIEF FINANCIAL OFFICER
GREENWICH AIR SERVICES, INC.
P.O. BOX 522187
MIAMI, FLORIDA 33152
(305) 526-7000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
ANDREW HULSH, Esq.
Greenberg, Traurig, Hoffman, HOWARD L. SHECTER, Esq.
Lipoff, Rosen & Quentel, P.A. Morgan, Lewis & Bockius LLP
1221 Brickell Avenue 101 Park Avenue
Miami, Florida 33131 New York, New York 10178
(305) 579-0500 (212) 309-6000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same
offering. / / _____________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _____________________
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / / _____________________
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
ADDRESS, INCLUDING ZIP
STATE OR OTHER PRIMARY STANDARD CODE, AND TELEPHONE NUMBER,
JURISDICTION INDUSTRIAL INCLUDING AREA CODE, OF
OF CLASSIFICATION I.R.S. EMPLOYER REGISTRANT'S PRINCIPAL
NAME INCORPORATION CODE NUMBER IDENTIFICATION NUMBER EXECUTIVE OFFICES
- --------------------------- -------------- ------------------- --------------------- ------------------------------
<S> <C> <C> <C> <C>
Gas Turbine Corporation Delaware 3724 06-1391887 51 Bardley Park Rd.
P.O. Box 1258
East Granby, CT 06026
(305) 526-7000
Greenwich Turbine, Inc. Delaware 1629 06-1419037 51 Bardley Park Rd
P.O. Box 1258
East Granby, CT 06026
(305) 526-7000
GASI Engine Services Delaware 3724 -- P.O. Box 522187
Corporation Miami, FL 33152
(305) 526-7000
Gas Turbine Test Delaware 3724 11-3137992 51 Bardley Park Rd
Corporation P.O. Box 1258
East Granby, CT 06026
(305) 526-7000
Greenwich Foreign Sales Barbados 3724 -- P.O. Box 522187
Corporation Miami, FL 33152
(305) 526-7000
</TABLE>
<PAGE>
GREENWICH AIR SERVICES, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS OF FORM S-1.
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN FORM S-1 REGISTRATION STATEMENT LOCATION IN PROSPECTUS
- ------------------------------------------------------------------ ----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus........................ Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................ Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio of Earnings
to Fixed Charges...................................... Prospectus Summary; Risk Factors; Selected
Historical Financial Data
4. Use of Proceeds........................................ Prospectus Summary; Use of Proceeds; Management's
Discussion and Analysis of Financial Condition and
Results of Operations
5. Determination of Offering Price........................ Underwriting
6. Dilution............................................... Not Applicable
7. Selling Security Holders............................... Not Applicable
8. Plan of Distribution................................... Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered............. Prospectus Summary; Capitalization; Dividend Policy;
Description of Notes
10. Interests of Named Experts and Counsel................. Legal Matters
11. Information with Respect to the Registrant............. Outside Front and Inside Front Cover Pages;
Prospectus Summary; Risk Factors; The Aviall
Acquisition; Concurrent Transactions;
Capitalization; Unaudited Pro Forma Combined
Financial Information; Selected Historical
Financial Data; Management's Discussion and
Analysis of Financial Condition and Results of
Operations; Industry Overview; Business;
Management; Certain Transactions; Principal
Stockholders; Description of Capital Stock;
Description of Certain Indebtedness; Description of
Notes; Financial Statements
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities........................ Not Applicable
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
<PAGE>
SUBJECT TO COMPLETION
MAY 15, 1996
PROSPECTUS
$150,000,000
[LOGO]
GREENWICH AIR SERVICES, INC.
% SENIOR NOTES DUE 2006
The % Senior Notes Due 2006 (the "Notes") are being offered (the "Note
Offering") by Greenwich Air Services, Inc. ("Greenwich" or the "Company") and
will mature on , 2006. Interest on the Notes will be payable
semi-annually on and of each year, commencing
, 1996. The Notes will be redeemable at the option of the Company at
any time, in whole or in part, on or after , 2001, at the redemption
prices set forth herein, plus accrued and unpaid interest, if any, to the date
of redemption. Upon a Change in Control (as defined herein), holders of the
Notes may require the Company to purchase all or a portion of the Notes at a
purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of purchase. See "Description of
Notes--Repurchase at the Option of Holders Upon a Change of Control."
The Notes will be senior unsecured obligations of the Company, will rank PARI
PASSU with all unsubordinated, unsecured indebtedness of the Company, and will
rank senior in right of payment to all existing and future subordinated
indebtedness of the Company. The Notes will also be guaranteed on a senior
unsecured basis by the Subsidiary Guarantors (as defined) and jointly secured on
a PARI PASSU basis with indebtedness under the New Credit Facility (as defined)
by a pledge of 65% of the capital stock of Aviall U.K. As of March 31, 1996,
after giving effect to the Note Offering and the Initial Drawdown (as defined)
under the New Credit Facility, the total consolidated indebtedness of the
Company would have been $239.6 million.
Concurrent with the Note Offering, the Company is offering 3,400,000 shares and
a selling stockholder is offering 600,000 shares of Class B Common Stock of the
Company (the "Class B Common Stock") to the public (the "Common Stock
Offering"). Consummation of the Note Offering is not contingent upon
consummation of the Common Stock Offering, and there can be no assurance that
the Common Stock Offering will be consummated. Consummation of the Note Offering
is contingent upon, and will occur simultaneously with, the consummation of the
New Credit Facility and the Aviall Acquisition (as defined).
SEE "RISK FACTORS" BEGINNING ON PAGE 12 HEREOF FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT COMPANY(2)
Per Note........................................ % % %
<S> <C> <C> <C>
Total........................................... $ $ $
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</TABLE>
(1) Plus accrued interest, if any, from , 1996 to the date of
delivery.
(2) Before deducting expenses payable by the Company estimated to be
$ .
The Notes are offered subject to receipt and acceptance by the Underwriters, to
prior sale and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the Notes will be made through the facilities of The Depository
Trust Company, on or about , 1996.
SALOMON BROTHERS INC
OPPENHEIMER & CO., INC.
DILLON, READ & CO. INC.
The date of this Prospectus is , 1996
<PAGE>
One of the Company's four 100,000-pound thrust test cells with computerized
real-time data retrieval and trim balance systems used to performance test high
by-pass engines. The Company operates a total of ten engine test cells.
IN CONNECTION WITH THE NOTE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) AND PRO FORMA
FINANCIAL INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. THE CONSUMMATION
OF THE NOTE OFFERING WILL OCCUR CONCURRENTLY WITH, AND IS CONDITIONED UPON, THE
CONSUMMATION OF (I) GREENWICH'S ACQUISITION (THE "AVIALL ACQUISITION") OF THE
COMMERCIAL GAS TURBINE ENGINE SERVICE AND ENGINE COMPONENTS REPAIR BUSINESS OF
AVIALL, INC. AND AVIALL SERVICES, INC. (COLLECTIVELY, "AVIALL") AND (II) A
$175.0 MILLION SENIOR SECURED REVOLVING CREDIT FACILITY (THE "NEW CREDIT
FACILITY"). THE NOTE OFFERING IS ANTICIPATED TO OCCUR CONCURRENTLY WITH, BUT IS
NOT CONTINGENT UPON, THE COMMON STOCK OFFERING. IN THE EVENT THAT THE COMMON
STOCK OFFERING IS NOT CONSUMMATED, BUT THE NOTE OFFERING AND THE NEW CREDIT
FACILITY ARE CONSUMMATED, GREENWICH WILL PAY $80.4 MILLION OF THE PURCHASE PRICE
FOR THE AVIALL BUSINESS (AS DEFINED BELOW) BY THE DELIVERY OF UP TO $55.0
MILLION IN SHARES OF ITS CLASS B COMMON STOCK TO AVIALL, AND THE BALANCE WILL BE
PAID IN CASH THROUGH ADDITIONAL BORROWINGS UNDER THE NEW CREDIT FACILITY. ALL
INFORMATION IN THIS PROSPECTUS ASSUMES (I) A PUBLIC OFFERING PRICE IN THE COMMON
STOCK OFFERING OF $25 1/4 PER SHARE, THE CLOSING PRICE OF THE CLASS B COMMON
STOCK AS REPORTED BY THE NASDAQ NATIONAL MARKET ON MAY 10, 1996, (II) NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION IN CONNECTION WITH THE
COMMON STOCK OFFERING AND (III) THE DISTRIBUTION ON MAY 8, 1996 BY GREENWICH OF
ONE SHARE OF CLASS B COMMON STOCK FOR EACH SHARE OF GREENWICH'S CLASS A COMMON
STOCK OUTSTANDING ON APRIL 18, 1996. PRO FORMA INFORMATION IN THIS PROSPECTUS
GIVES EFFECT TO (I) THE NOTE OFFERING, (II) THE AVIALL ACQUISITION, (III)
INITIAL BORROWINGS UNDER THE NEW CREDIT FACILITY OF $74.4 MILLION (THE "INITIAL
DRAWDOWN") AND (IV) THE COMMON STOCK OFFERING, IN EACH CASE AS IF IT HAD
OCCURRED ON OCTOBER 1, 1994, UNLESS OTHERWISE INDICATED. ALL REFERENCES TO
FISCAL YEARS REFER TO THE FISCAL YEAR OF GREENWICH ENDED SEPTEMBER 30 UNLESS THE
CONTEXT OTHERWISE INDICATES.
ALL REFERENCES TO (I) COMMON STOCK INCLUDE BOTH THE COMPANY'S CLASS A COMMON
STOCK AND CLASS B COMMON STOCK, (II) "GREENWICH" MEAN GREENWICH AIR SERVICES,
INC. AND ITS CONSOLIDATED SUBSIDIARIES BEFORE GIVING EFFECT TO THE AVIALL
ACQUISITION, (III) THE "AVIALL BUSINESS" MEAN THE COMMERCIAL GAS TURBINE ENGINE
SERVICE AND ENGINE COMPONENTS REPAIR BUSINESS OF AVIALL BEFORE GIVING EFFECT TO
THE AVIALL ACQUISITION AND (IV) THE "COMPANY" MEAN GREENWICH AND ITS
CONSOLIDATED SUBSIDIARIES AFTER GIVING EFFECT TO THE AVIALL ACQUISITION.
THE COMPANY
On April 19, 1996, Greenwich and Aviall signed a definitive purchase
agreement for the acquisition by Greenwich of the gas turbine engine service and
engine components repair business of Aviall. The combination of Greenwich and
the Aviall Business will create the largest and most diversified independent gas
turbine engine repair and overhaul company in the world. On a pro forma basis,
the Company would have had combined sales of $701.1 million and EBITDA (as
defined below) of $63.1 million in fiscal 1995.
GREENWICH
Greenwich is a leading independent provider of repair and overhaul services
for gas turbine aircraft engines used to power Boeing 707, 727, 737 and 747;
McDonnell Douglas DC-8, DC-9, DC-10 and MD-80; Airbus A-300; Lockheed L-1011;
and a variety of military aircraft. Greenwich also services aeroderivative
engines used in a variety of industrial and marine applications. In addition,
Greenwich manages government and military service and maintenance programs and
provides for the sale and refurbishment of gas turbine power plants (with
electrical power output of up to 120 megawatts) in various countries around the
world.
Greenwich provides services to more than 400 customers including passenger
airlines such as Carnival Airlines, Continental Airlines and VASP Brazilian
Airlines; freight and package air carriers such as Emery Worldwide Airlines and
United Parcel Service; banks and leasing companies such as The CIT Group and
International Air Leases; utilities and industrial users such as Commonwealth
Edison, Dow Chemical and Southern California Gas; and military and government
programs such as those involving the United States government, Boeing and
Lockheed Martin. Greenwich's principal engine repair,
3
<PAGE>
overhaul and testing facilities are located at Miami International Airport,
Miami, Florida; Bradley International Airport, East Granby, Connecticut; JFK
International Airport, New York, New York; and Westover Airport, Chicopee,
Massachusetts. Greenwich's net sales have increased from $75.8 million in fiscal
1991 to $196.3 million in fiscal 1995.
THE AVIALL BUSINESS
The Aviall Business is the leading independent provider of gas turbine
aircraft engine maintenance and engine components repair services. The Aviall
Business provides repair and overhaul services for gas turbine engines used to
power Boeing 727, 737, 747 and 767; McDonnell Douglas DC-9, DC-10, MD-11, MD-80
and MD-90; and Airbus A-300, A-319, A-320, A-321, A-330 and A-340 aircraft, and
also services turboprop engines predominantly used by regional air carriers. The
primary customer base of the Aviall Business includes major and regional
commercial air and freight and package carriers such as America West, British
Airways, Continental Airlines, Federal Express, Southwest Airlines and USAir.
The engine repair and overhaul operations of the Aviall Business are located in
Dallas, Texas; Fort Worth, Texas; and Prestwick, Scotland, and its components
repair operations are located in McAllen, Texas.
Aviall's engine repair and overhaul operations date back to 1932, and in
1955, it became the world's first major independent gas turbine engine repair
facility. These operations have been owned by Aviall since Aviall was spun-off
from Ryder System, Inc. ("Ryder") in 1993. The Aviall Business' net sales have
increased to $504.8 million in 1995 from $482.9 million in 1993. The Aviall
Business has spent in excess of $84.0 million over the last five calendar years
to build state-of-the-art engine repair and overhaul facilities and to develop
programs designed to provide the fastest overhaul turnaround time in the engine
repair and overhaul industry. However, its operating income has declined
significantly over this period. These declines in profitability can be
attributed to a variety of factors, including unfavorable pricing granted to
certain customers, inefficiencies in its overhaul operations, expenses
associated with reengineering its facilities, and significant costs and
penalties on specific contracts where the Aviall Business was unable to meet
contractual requirements.
THE INDUSTRY
The Company believes that the worldwide market for aircraft gas turbine
engine repair and overhaul services is approximately $6.5 billion. Growth of the
engine repair and overhaul market is primarily driven by the activity of the
commercial aviation industry. Such market is projected to grow over the next ten
years at an annual rate of 4% in North America, 8% in the Asia-Pacific region
and 6% in Latin America. Approximately 55% of this market is currently serviced
by operators of the engines, principally major commercial airlines, for their
own engine needs. The remaining gas turbine engines are serviced by commercial
airlines, the original equipment manufacturers ("OEMs") and by a limited number
of independent operators, including the Company. Commercial airlines, OEMs and
independent operators compete on the ability to provide services tailored to
each customer's requirements, turnaround times, breadth of services offered and
price.
The repair and overhaul of aircraft engines is regulated by governmental
agencies throughout the world, including the Federal Aviation Administration
(the "FAA") and the British Civil Aviation Authority (the "BCAA"), and is
supplemented by guidelines established by OEMs which generally require that
engines be overhauled and certain engine components and parts be replaced after
a certain number of flight hours or cycles (take-offs and landings). Engine
maintenance costs can range from $100,000 for certain repairs to as much as $1.5
million or more for a complete engine overhaul.
Certain trends within the aviation industry favoring independent overhaul
providers include:
-OUTSOURCING OF COMMERCIAL ENGINE SERVICES. In order to lower costs, many
passenger airlines and freight and package carriers are seeking to
outsource their engine servicing. Airlines such as British Airways,
Continental Airlines, Southwest Airlines and USAir currently utilize third
parties, and other airlines are expected to follow as labor agreements
allow.
-OUTSOURCING OF MILITARY MAINTENANCE SERVICES. It is estimated that the U.S.
military market is greater than the commercial aircraft market for engine
and aircraft maintenance and related
4
<PAGE>
services. The closing of military bases and reductions in personnel have
resulted in an increase in the demand for these services in the commercial
marketplace. As additional bases are closed or realigned, this trend is
expected to continue.
-INCREASED AIR TRAVEL. It is estimated that world air travel will grow by
70% by 2005 and the number of passenger and freight and package delivery
aircraft in service will increase by 47%, which should substantially
increase the demand for engine repair and overhaul services.
-START-UP AIRLINES. Deregulation of the aviation industry in the United
States and the European Community, relatively low barriers to entry and
excess capacity in equipment, as well as increased consumer demand for air
travel, has led to the emergence of several low cost start-up airlines.
Because start-up airlines generally do not invest in the infrastructure
necessary to service their aircraft, many outsource all of their engine
repair and overhaul services. Start-up airlines also tend to use older
aircraft with engines that require greater servicing. Consequently, the
Company believes that the growth of start-up airlines is increasing demand
for independent engine repair and overhaul services.
-GROWTH OF DEMAND FOR AIR FREIGHT AND PACKAGE DELIVERY. The demand for air
freight and package delivery is projected to grow at an average annual rate
of 7% over the next 20 years. This trend is expected to result in the
continued growth of established carriers such as Airborne Express, Emery
Worldwide Airlines, Federal Express and United Parcel Service, and has
caused the emergence of new cargo carriers such as Atlas Air and Polar Air.
Many of these carriers also use older aircraft, increasing the demand for
engine repair and overhaul services.
-LEASING COMPANIES. The number of aircraft owned by financial institutions
or leasing companies, many of which use independent engine repair and
overhaul services, has grown from just over 200 aircraft in 1986 to over
1,000 aircraft in 1995.
THE AVIALL ACQUISITION
On April 19, 1996, Greenwich entered into a definitive agreement to acquire
the gas turbine engine service and engine components repair business of Aviall
for a purchase price estimated to be approximately $239.0 million (net of
assumed liabilities). The purchase price of the Aviall Business, $5.6 million in
estimated expenses related to the Aviall Acquisition and the New Credit Facility
and amounts needed to repay certain existing indebtedness of $55.3 million will
be financed through approximately $80.4 million of net proceeds from the Common
Stock Offering, approximately $145.1 million of net proceeds of the Note
Offering and approximately $74.4 million from the Initial Drawdown. In the event
that the Common Stock Offering is not consummated, but the Note Offering and the
New Credit Facility are consummated, Greenwich will pay $80.4 million of the
purchase price for the Aviall Business by the delivery of up to $55.0 million in
shares of its Class B Common Stock to Aviall, and the balance will be paid in
cash through additional borrowings under the New Credit Facility.
COMPETITIVE ADVANTAGES
The Company believes that its principal competitive advantages are:
-WORLDWIDE LEADER. The Company will be the world's largest independent gas
turbine engine repair and overhaul company and will have major facilities
strategically located in the United States and in Europe. In addition, the
Company believes that its base of over 500 customers will be the largest
and most diversified of all independent providers of gas turbine repair and
overhaul services.
-FULL SERVICE PROVIDER. Upon consummation of the Aviall Acquisition, the
Company will provide repair and overhaul services on 14 engine lines and 50
engine models, supporting the world's five leading gas turbine engine
manufacturers -- CFM International, General Electric, International Aero
Engines, Pratt & Whitney and Rolls Royce. The Company believes that no
other independent overhaul company or OEM has this breadth of capabilities.
5
<PAGE>
-EFFICIENT PROVIDER. The Company believes that it will continue to provide
its customers with a high level of service at competitive prices, as a
result of existing and anticipated productivity of its work force,
efficient production techniques and the ability to acquire inventory and
fixed assets at costs which will improve combined profit margins and reduce
the cost of entry into new product lines.
-STRONG ENTREPRENEURIAL MANAGEMENT TEAM. Greenwich's operating income has
grown at a compound annual growth rate of 43% since 1993. In 1994,
Greenwich acquired the assets of Gas Turbine Corporation East Granby
Division (the "GTC Division"), a company with revenues of approximately 83%
of Greenwich's revenues at the time of the acquisition. Greenwich
successfully integrated the GTC Division and improved its operating
performance and profitability through the reduction of personnel, the
elimination of duplicate functions, the rationalization of product lines
and the realignment of overhaul services among Greenwich's facilities.
COMPANY STRATEGY
INTEGRATION PLAN
The Company's strategy following the Aviall Acquisition is to improve the
profitability of the Aviall Business, enhance services offered to the Company's
customers and to maintain Greenwich's historical efficiency. The Company intends
to implement this strategy by:
-ACHIEVING COST REDUCTIONS. The Aviall Acquisition will enable the Company
to eliminate duplicative functions currently being performed by both
Greenwich and the Aviall Business in the areas of administration, finance,
sales, marketing, purchasing, technical and field services, and management
information systems ("MIS systems"). The Company will also eliminate a
portion of certain other corporate overhead charges which have historically
been allocated by Aviall to the Aviall Business. In addition, the Company
will benefit by having Greenwich utilize the Aviall Business' components
repair facility to perform work that Greenwich formerly contracted out to
third parties.
-IMPROVING OPERATING EFFICIENCIES. Greenwich believes that it is one of the
most efficient providers of gas turbine engine repair and overhaul
services. The Company intends to achieve greater production and operating
efficiencies by realigning engine repair and overhaul services among its
several facilities. The Company also intends to integrate the MIS systems
which have been successfully utilized by Greenwich with those of the Aviall
Business. These MIS systems are expected to provide the Company's
management with the ability to monitor operating costs utilizing real-time
data while enhancing the information flow to the Company's customers.
-IMPROVING CONTRACTUAL PERFORMANCE. Greenwich believes that its experienced
and entrepreneurial management team will enable the Aviall Business to
improve engine turnaround time and reduce related contractual penalties
through increased productivity of the Aviall Business' domestic workforce
and improved operating and production efficiencies. The Aviall Business
incurred contractual penalties of approximately $6.2 million in 1995,
primarily for late deliveries on scheduled engine overhauls.
STRATEGIC OBJECTIVES
Upon integration of Greenwich and the Aviall Business, the Company's
long-term strategic objectives will be to improve its profitability, maintain
its position as the world's largest independent provider of gas turbine engine
repair and overhaul services, and accelerate its growth. The Company's strategic
objectives may be summarized as follows:
-SERVICE NEW ENGINE LINES AND MODELS. Greenwich has successfully implemented
a strategy to increase the number of engine lines and models serviced by
its facilities, thereby creating new market opportunities while offering
its customers one-stop shopping capability. The Company will continue this
strategy and seek to develop servicing capabilities for additional high
by-pass and high horsepower gas turbine engines. Many of the Company's
existing customers use engines
6
<PAGE>
for which the Company currently has no servicing capabilities and
development of such capabilities would present the Company with
opportunities to expand the services provided to these customers.
-OFFER ADDITIONAL SERVICES TO EXISTING CUSTOMERS. Many of the engine lines
and models serviced by the Aviall Business are not currently serviced by
Greenwich and many of the engine lines and models serviced by Greenwich are
not currently serviced by the Aviall Business. The Company believes that
opportunities exist to provide services to customers of both Greenwich and
the Aviall Business for engine lines and models previously serviced by
competitors. Continental Airlines is the only major customer serviced by
both Greenwich and the Aviall Business.
-SERVICE AERODERIVATIVE ENGINE LINES. Certain of the engine lines serviced
by the Company for its airline and cargo customers have aeroderivative
engine lines used in industrial, marine and military applications.
Greenwich has been successful in providing service to the aeroderivative
gas turbine engine market, resulting in sales growth in these services from
$10.5 million in 1992 to $19.0 million in 1995.
-EXPAND SERVICE TO REGIONAL CARRIERS. The Aviall Business is a leading
provider of engine repair and overhaul services for the PW-100, an engine
predominantly used by regional carriers. The Company believes that this
market has the potential for substantial growth and that the Company will
be well-positioned to capture a larger share of this market.
The Company maintains its principal executive offices at 4590 N.W. 36th
Street, Building 23, Miami International Airport, Miami, Florida, 33122, and its
telephone number is (305) 526-7000.
7
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Notes Offered..................... $150,000,000 principal amount of % Senior Notes due
2006.
Maturity.......................... The Notes will mature on , 2006.
Interest Payment Dates............ Interest on the Notes is payable semiannually on each
and , commencing , 1996.
Optional Redemption............... The Notes will be redeemable at the option of the
Company at any time, in whole or in part, on or after
, 2001, at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, to the
date of redemption.
Sinking Fund...................... None.
Change of Control................. Upon a Change of Control (as defined), the Company will
be required to make an offer to purchase the Notes at a
purchase price equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the
date of purchase. See "Description of Notes --
Repurchase at the Option of Holders Upon a Change of
Control."
Ranking........................... The Notes are senior unsecured obligations of the
Company, will rank PARI PASSU with other unsubordinated,
unsecured indebtedness of the Company, and will rank
senior in right of payment to all existing and any
future subordinated indebtedness of the Company. The
Notes will also be guaranteed on a senior unsecured
basis by the Subsidiary Guarantors (as defined) and
jointly secured on a PARI PASSU basis with indebtedness
under the New Credit Facility by a pledge of 65% of the
capital stock of Aviall Limited. As of March 31, 1996,
after giving effect to the Note Offering, Common Stock
Offering, the Aviall Acquisition and the Initial
Drawdown, the total consolidated indebtedness of the
Company would have been approximately $239.6 million.
See "Risk Factors -- Substantial Leverage; Restrictive
Covenants," "Capitalization," "Description of Certain
Indebtedness" and "Description of Notes."
Certain Covenants................. The Indenture (as defined) for the Notes will contain
limitations on, among other things, (a) the Incurrence
of additional Company Indebtedness, (b) the Incurrence
of Indebtedness or the issuance of Preferred Stock by
Restricted Subsidiaries, (c) the payment of dividends
and other distributions with respect to Capital Stock of
the Company and the purchase, redemption or retirement
of Capital Stock of the Company, (d) the making of
certain Investments, (e) the incurrence of certain
Liens, (f) sale and leaseback transactions, (g) the
issuance and sale of Capital Stock of, and certain
payments by, Restricted Securities, (h) Asset Sales (as
defined) by the Company or the Restricted Subsidiaries,
(i) transactions with Affiliates, (j) the designation of
Restricted and Unrestricted Subsidiaries, (k) Guar-
antees of Indebtedness by the Company's Restricted
Subsidiaries and (l) consolidations, mergers and
transfers of assets. See "Description of Notes."
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Concurrent Transactions........... Concurrently with the Note Offering, the Company is con-
ducting the Common Stock Offering by means of a separate
Prospectus (the Note Offering and the Common Stock
Offering are together referred to herein as the
"Offerings"). The Note Offering will occur concurrently
with, and is contingent upon, consummation of the Aviall
Acquisition and the New Credit Facility. The Note
Offering is anticipated to occur concurrently with, but
is not contingent upon, the consummation of the Common
Stock Offering, and no assurance can be given that the
Common Stock Offering will be consummated. Concurrently
with the consummation of the Note Offering and the
Aviall Acquisition, the Company will refinance certain
existing indebtedness through the New Credit Facility, a
$175.0 million senior secured revolving credit facility.
Pursuant to the Initial Drawdown, the Company
anticipates that it will initially borrow approximately
$74.4 million under the New Credit Facility. In the
event that the Common Stock Offering is not consummat-
ed, but the Note Offering and the New Credit Facility
are consummated, Greenwich will pay $80.4 million of the
purchase price for the Aviall Business by the delivery
of up to $55.0 million in shares of its Class B Common
Stock to Aviall, and the balance will be paid in cash
through additional borrowings under the New Credit
Facility. See "Concurrent Transactions," "Management's
Discussion and Analysis of Financial Condition and
Results of Operations -- Pro Forma Liquidity and Capital
Resources" and "Description of Certain Indebtedness."
Use of Proceeds................... The net proceeds from the Offerings and the Initial
Drawdown are estimated to be approximately $299.9
million ($314.3 million if the Underwriters'
over-allotment option is exercised in full). The net
proceeds from the Offerings and the Initial Drawdown
will be used to pay the purchase price for the Aviall
Acquisition of $239.0 million and $5.6 million in
expenses relating to the New Credit Facility and the
Aviall Acquisition and to refinance certain existing
indebtedness of $55.3 million. See "Use of Proceeds."
Risk Factors...................... An investment in the Notes offered hereby involves
certain risks including (i) Substantial Leverage;
Restrictive Covenants; (ii) Risks of Business
Integration; (iii) Declining Operating Income of Aviall
Business; (iv) Dependence Upon Key Customers; (v)
Unfavorable Agreements and Penalties; (vi) Competition;
(vii) Potential Labor Issues; (viii) Dependence on Key
Suppliers; (ix) Dependence on Key Management; (x)
Control by Principal Stockholders; (xi) Defense Spending
Reductions; (xii) Airline Industry Risks; (xiii)
Government Regulation; (xiv) Environmental Regulation;
(xv) Product Liability Risks; (xvi) Risks Relating to a
Change of Control and (xvii) Absence of a Previous
Market for the Notes. See "Risk Factors."
</TABLE>
9
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary historical and pro forma financial data should be read
in conjunction with Greenwich's Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus and the Aviall Business' Combined
Financial Statements and Notes thereto included elsewhere in this Prospectus as
well as the information appearing in "Unaudited Pro Forma Combined Financial
Information," "Selected Historical Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, 1995
--------------------------------------------------------
HISTORICAL
---------------------------- PRO FORMA
AVIALL --------------------------
GREENWICH BUSINESS (1) ADJUSTMENTS COMBINED
----------- --------------- ------------- -----------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales........................................... $ 196,320 $ 504,755 $ $ 701,075
Gross profit........................................ 31,362 42,196 20,394 93,952
Income from operations.............................. 17,725 12,150 25,084 54,959
Interest expense.................................... 7,951 19,216 (2,227) 24,940
Net income (loss)................................... 6,201 (9,780) 22,130 18,551
Fully-diluted weighted average number of shares..... 12,836,406 16,236,406
Fully-diluted earnings per share.................... $ 0.54 $ 1.18
Ratio of earnings to fixed charges (2).............. 2.1x 2.1x
OTHER FINANCIAL DATA:
EBITDA (3).......................................... $ 19,932 $ 31,809 $ 11,407 $ 63,148
Depreciation and amortization....................... 1,815 19,659 (13,677) 7,797
Capital expenditures................................ 2,725 13,246 15,971
Pro forma total debt to EBITDA...................... 3.8x
Pro forma EBITDA to interest expense................ 2.5x
<CAPTION>
SIX MONTHS ENDED MARCH 31, 1996
--------------------------------------------------------
HISTORICAL
---------------------------- PRO FORMA
AVIALL --------------------------
GREENWICH BUSINESS (4) ADJUSTMENTS COMBINED
----------- --------------- ------------- -----------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales........................................... $ 118,625 $ 264,749 $ $ 383,374
Gross profit........................................ 18,703 11,097 12,993 42,793
Income (loss) from operations....................... 10,961 (6,392) 15,641 20,210
Interest expense.................................... 3,635 9,087 (593) 12,129
Net income (loss)................................... 4,418 (56,219) 56,730 4,929
Fully-diluted weighted average number of shares..... 12,844,590 16,244,590
Fully-diluted earnings per share.................... $ 0.35 $ 0.31
Cash dividends declared per share of common stock... $ 0.01 $ 0.01
Ratio of earnings to fixed charges (2).............. 2.6x 1.6x
OTHER FINANCIAL DATA:
EBITDA (3).......................................... $ 11,980 $ 3,636 $ 8,604 $ 24,220
Depreciation and amortization....................... 1,019 10,028 (7,037) 4,010
Capital expenditures................................ 1,737 4,530 6,267
Pro forma EBITDA to interest expense................ 2.0
BALANCE SHEET DATA (AT PERIOD END):
Working capital..................................... $ 98,178 $ 132,331 $ 18,901 $ 249,410
Total assets........................................ 188,298 463,038 (84,901) 566,435
Total debt.......................................... 65,653 17,954 155,947 239,554
Stockholders' equity (Aviall investment)............ 50,873 300,829 (220,479) 131,223
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
--------------------------------------------------------------- ------------------------
GREENWICH 1991 1992 1993 1994 1995 1995 1996
- -------------------------------- ------------- ---------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL OPERATING DATA:
Net sales..................... $ 75,821(5) $ 62,009 $ 69,467 $ 105,233 $ 196,320 $ 83,147 $ 118,625
Gross profit.................. 13,576 12,779 14,391 17,259 31,362 13,228 18,703
Income from operations........ 9,150 6,902 8,698 10,253 17,725 7,757 10,961
Interest expense.............. 3,678 2,950 3,039 4,758 7,951 3,813 3,635
Net income.................... 3,469 2,506 3,374 3,346 6,201 2,359 4,418
Fully-diluted weighted average
number of shares............. 9,972,000 9,648,000 8,000,000 12,574,654 12,836,406 13,102,190 12,844,590
Fully-diluted earnings per
share........................ $ 0.35 $ 0.26 $ 0.42 $ 0.33 $ 0.54 $ 0.21 $ 0.35
Cash dividends declared per
share of common stock........ $ 0.01
Ratio of earnings to fixed
charges (2).................. 2.3x 2.2x 2.5x 1.9x 2.1x 1.9x 2.6x
OTHER FINANCIAL DATA:
EBITDA (3).................... $ 10,090 $ 7,803 $ 9,696 $ 11,609 $ 19,932 $ 8,676 $ 11,980
Depreciation and
amortization................. 829 807 950 1,285 1,815 875 1,019
Capital expenditures.......... 243 1,791 5,128 1,691 2,725 586 1,737
BALANCE SHEET DATA (AT PERIOD
END)
Working capital............... $ 33,329 $ 39,430 $ 46,010 $ 76,078 $ 87,829 $ 83,480 $ 98,178
Total assets.................. 50,376 59,102 67,708 138,423 185,620 160,210 188,298
Total debt.................... 26,338 29,411 35,686 74,985 67,880 79,537 65,653
Stockholders' equity.......... 10,620 13,126 15,951 27,963 36,788 30,322 50,873
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------- --------------------
AVIALL BUSINESS 1993 1994 1995 1995 (4) 1996 (4)
- ---------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
HISTORICAL OPERATING DATA:
Net sales............................................... $ 482,938 $ 490,390 $ 504,755 $ 267,067 $ 264,749
Gross profit............................................ 62,374 53,167 42,196 30,342 11,097
Income (loss) from operations........................... 32,368 17,776 12,150 14,048 (6,392)
Interest expense........................................ 13,984 18,171 19,216 9,958 9,087
Net income (loss)....................................... 7,606 (4,407) (9,780) 2,459 (56,219)
Ratio of earnings to fixed charges (2).................. 2.2x 1.4x
OTHER FINANCIAL DATA:
EBITDA (3).............................................. $ 48,545 $ 35,031 $ 31,809 $ 23,377 $ 3,636
Depreciation and amortization........................... 16,177 17,255 19,659 9,329 10,028
Capital expenditures.................................... 14,501 21,572 13,246 9,807 4,530
BALANCE SHEET DATA (AT PERIOD END)
Working capital......................................... $ 194,602 $ 226,000 $ 175,436 $ 195,033 $ 132,331
Total assets............................................ 482,255 500,376 463,337 479,861 463,038
Total debt.............................................. 25,299 19,731 17,509 23,061 17,954
Aviall investment....................................... 343,311 390,888 347,786 365,206 300,829
</TABLE>
- ------------------------------
(1) Historical financial information presented for the Aviall Business is for
the year ended December 31, 1995.
(2) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of income before income taxes, change in accounting,
extraordinary items and fixed charges. Fixed charges consist of interest on
indebtedness, including, if any, the amortization of debt issue costs,
accretion of debt discount, interest expense accrued in accordance with
EITF Issue No. 86-15 and one-third of rental expense (which is deemed
representative of the interest factor therein). Earnings for the Aviall
Business were insufficient to cover fixed charges in the historical fiscal
years ended December 31, 1994 and 1995 and for the six months ended March
31, 1996 by $395, $7,066 and $55,046 (including $39,567 of restructuring
costs), respectively.
(3) EBITDA represents net income (loss) before the cumulative effect of change
in accounting plus provisions for income taxes, interest expense,
depreciation and amortization, restructuring costs, and any charge related
to any premium or penalty paid in connection with redeeming and retiring
any indebtedness prior to its stated maturity. While EBITDA should not be
construed as a substitute for income from operations, net income (loss) or
cash flows from operating activities in analyzing the Company's operating
performance, financial position and cash flows, the Company has included
EBITDA because it is commonly used by certain investors to analyze and
compare companies on the basis of operating performance, leverage and
liquidity, and to determine the Company's ability to service debt.
(4) Historical financial information presented for the Aviall Business for the
six months ended March 31, 1995 and 1996 includes the three months ended
December 31, 1994 and 1995, respectively, which is also included in the
summary historical financial information of the Aviall Business for the
fiscal years ended December 31, 1994 and 1995, respectively.
(5) Includes $7,075 in revenues derived from the de-emphasized structural
aircraft services business.
11
<PAGE>
RISK FACTORS
In evaluating an investment in the Notes offered hereby, prospective
investors should carefully consider the following factors together with the
other information in this Prospectus.
SUBSTANTIAL LEVERAGE; RESTRICTIVE COVENANTS. On a pro forma basis, the
Company's total indebtedness on March 31, 1996 would have been $239.6 million,
and the ratio of total debt to total capitalization as of March 31, 1996 would
have been 0.65:1 ($264.9 million and 0.71:1, respectively, if the Company elects
to issue Class B Common Stock as partial payment of the purchase price for the
Aviall Acquisition in lieu of consummating the Common Stock Offering). The
consequences of such leverage include, but are not limited to, the following:
(i) the Company will have significantly increased cash requirements for debt
service; (ii) financial and other covenants and operating restrictions imposed
by the terms of the New Credit Facility and the indenture (the "Indenture")
entered into in connection with the Note Offering will require the Company to
meet certain financial tests and will limit, among other things, its ability to
borrow additional funds or to dispose of assets; (iii) the Company may be at a
competitive disadvantage if the Company is more highly leveraged than its
competitors; (iv) a downturn in the Company's business will have a more
significant impact on its results of operations and (v) the Company will have
approximately $86.0 million of indebtedness ranking pari passu to the Notes
which will be secured by certain assets of the Company. The Notes will be
effectively subordinated to all secured indebtedness of the Company to the
extent of the assets securing such indebtedness. If the Company is in default
under the New Credit Facility, the lenders thereunder could foreclose upon such
collateral, which would have a material adverse effect upon the Company and the
holders of Notes. The Company's ability to meet its debt service obligations
will depend upon its ability successfully to integrate the Aviall Business with
existing operations and other factors, many of which are not within its control,
including fluctuating interest rates and general economic conditions. See "The
Aviall Acquisition," "Concurrent Transactions," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Pro
Forma Liquidity and Capital Resources" and "Description of Certain
Indebtedness."
RISKS OF BUSINESS INTEGRATION. There can be no assurance that the Company
will be able to integrate the operations of Greenwich and the Aviall Business
successfully. The full benefits of a business combination of Greenwich and the
Aviall Business will require the integration of administrative, finance,
purchasing, engineering, sales and marketing organizations; the coordination of
production efforts; and the implementation of appropriate operational, financial
and management systems and controls. Such benefits will also be dependent upon
an increase in the productivity of the workforce of the Aviall Business and the
ability to meet performance requirements under specific contracts. These will
require substantial attention from the senior management of Greenwich which has
limited experience integrating the operations of acquired companies. Greenwich
also has limited experience in conducting foreign operations such as the
operations of the Aviall Business in Prestwick, Scotland. If the Company fails
successfully to integrate Greenwich and the Aviall Business, the Company's
business, results of operations and financial condition would be materially
adversely affected. In addition, the Unaudited Pro Forma Combined Financial
Information contains adjustments relating to the integration of the Aviall
Business. Although these adjustments are based upon available information and
certain assumptions the Company considers reasonable as of the date of this
Prospectus, actual amounts could differ from those set forth therein. Moreover,
no assurance can be given that the anticipated impact of the integration of the
Aviall Business upon the Company's financial condition and results of operations
as presented in such pro forma information will be as presented. See "Unaudited
Pro Forma Combined Financial Information."
DECLINING OPERATING INCOME OF AVIALL BUSINESS. During each of the three
years ended December 31, 1993, 1994 and 1995, operating income of the Aviall
Business was $32.4 million, $17.8 million and $12.2 million, respectively. This
decline in operating income was primarily due to unprofitable results at certain
of the Aviall Business' domestic engine service facilities, which the Company
believes can be attributed to a variety of factors, including unfavorable
pricing granted to certain customers, inefficiencies in its overhaul operations,
high operating costs, contractual penalties for failing to meet agreed-
12
<PAGE>
upon turnaround times on completion of engine services and unfavorable customer
contracts. A combination of price pressure from key commercial airline customers
and inefficiencies or high operating costs could contribute to further declines
in operating income or losses from certain of the domestic engine service
operations purchased from Aviall, as well as erosion of the profit contributions
from the Company's other operating facilities. No assurance can be given that
the cost-saving and other measures intended to be implemented by the Company
will be sufficient to enable these facilities to increase their level of
profitability or to operate profitably in the future. A substantial reduction in
anticipated consolidated earnings as a result of the occurrence of losses from
consolidated operations of the Company could result in defaults under the New
Credit Facility, the Notes or its 8% Convertible Subordinated Debentures due
2000 (the "Debentures"). Any such default would have a material adverse effect
upon the Company's business and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Pro
Forma Liquidity and Capital Resources."
DEPENDENCE ON KEY CUSTOMERS. The Company is dependent upon certain of its
principal customers. USAir, Continental Airlines and Southwest Airlines
accounted for approximately 19%, 17% and 12%, respectively, of the net sales
derived by the Aviall Business, and the top five customers of the Aviall
Business accounted for approximately 59% of its combined net sales, during the
year ended December 31, 1995. Continental Airlines and Emery Worldwide Airlines
accounted for approximately 18% and 10%, respectively, of Greenwich's net sales,
and the top five customers of Greenwich accounted for approximately 44% of
Greenwich's net sales, during fiscal 1995. On a pro forma basis, Continental
Airlines would have accounted for approximately 17% of the Company's net sales,
and the top five customers of the Company would have accounted for approximately
47% of the Company's net sales in fiscal 1995. The Aviall Business is currently
seeking to renegotiate or extend certain long-term agreements under which engine
repair and overhaul services are being provided to certain of its customers,
including the agreement with USAir which will expire in October 1996. No
assurance can be given that any or all of these agreements will be modified,
renewed or extended on terms which are commercially favorable to the Company.
The loss of any one or more of the Company's major customers could have a
material adverse effect on the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview" and
"Business -- Customers."
UNFAVORABLE AGREEMENTS AND PENALTIES. The pricing and related terms of
certain of the Aviall Business' long-term agreements with major customers,
including penalties for failure to achieve agreed-upon turnaround times, have
contributed to the significant declines in profitability of the Aviall Business.
The Aviall Business suffered turnaround time penalties under certain engine
services agreements of approximately $700,000 and $6.2 million in 1994 and 1995,
respectively. Agreements, which represented net sales aggregating approximately
$62.8 million in 1995 (12% of net sales) of the Aviall Business, provide for
payments based upon revenue per flight hour of a customer's entire fleet of a
specified engine type. Under such agreements, commonly referred to as
"power-by-the-hour" agreements, the Aviall Business performs required repair and
overhaul services for the engines covered by such agreement and receives a
specified fee for each hour those engines are operated. Profitability under this
type of agreement is dependent upon accurate estimates, including the number of
hours to be flown and the extent of repairs required to be made to the engines
covered by the agreement. The Company believes that certain of such
"power-by-the-hour" agreements contributed negative cash flow and low gross
margins to the Aviall Business in its fiscal year ended December 31, 1995. In
December 1995, the Aviall Business adjusted its estimates under certain of these
agreements and recorded a charge to earnings of $5.2 million. No assurance can
be given that the adjusted estimates are accurate or that the Company will not
incur similar charges or experience negative cash flow or low gross margins
under these agreements. Furthermore, no assurance can be given that the Company
will be able to improve operating efficiencies sufficiently or to renegotiate
more favorable terms under such agreements so as to enable the Company to
improve its overall profit margins and avoid continuing penalties or losses
under certain of these agreements.
COMPETITION. The Company is subject to intense competition in providing
engine repair and overhaul services from certain of the major domestic and
international commercial airlines, OEMs and
13
<PAGE>
other independent service centers, certain of which competitors have
substantially greater capital and other resources than the Company. OEMs may
also link the sale of aircraft engines with packages providing for financing
terms and repair and overhaul services for both new engines and engines which
are currently in use. See "Industry Overview" and "Business -- Competition."
POTENTIAL LABOR ISSUES. The Aviall Business located at the Dallas, Texas
engine service facility and the Fort Worth, Texas repair and test facility are
represented by separate unions. Under the terms of the Purchase Agreement with
Aviall, neither Greenwich nor the Company will assume Aviall's collective
bargaining agreements with such unions. The Company intends to offer employment
to those hourly employees of the Dallas and Fort Worth facilities as the Company
requires and deems qualified. Recently, proposals were made to the unions
representing the Dallas and Fort Worth employees to accept certain contractual
concessions. Although the concessions were ratified by the Fort Worth employees
subject to approval by the Dallas employees, the Dallas employees rejected such
proposals. Following consummation of the Aviall Acquisition, no assurance can be
given that the Company will be able to initially hire a sufficient number of
hourly employees upon acceptable terms to meet its immediate needs, or that the
Company would not be subject to labor disruption or other labor disputes which
could materially adversely affect operations. In addition, no assurance can be
given that, if the Company elects to reduce or shut down operations in Dallas or
Fort Worth, the relocation of engine services to its other facilities will be
accepted by major customers, or that such relocation can be accomplished without
significant expense or disruption of operations. See "Business -- Employees."
DEPENDENCE ON KEY SUPPLIERS. The Company is dependent on certain domestic
and international OEMs for many of the key parts and components for the engines
which it services. Many of these OEMs maintain their own gas turbine engine
overhaul and repair facilities and compete with the Company for business from
major commercial airlines and other customers. Although the Company believes
that these manufacturers will continue to adhere to their current policy of
supporting qualified independently-owned engine service providers, if their
policy should change or if certain OEMs require scarce parts for their own
overhaul and repair operations, the Company may incur shortages in the supply of
required parts and components. An inability by the Company to maintain access to
parts and components on commercially reasonable terms would have a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON KEY MANAGEMENT. The Company's operations are dependent in
part upon the expertise of certain key employees. Loss of the services of such
employees, particularly Eugene P. Conese, the Chairman and Chief Executive
Officer, or Eugene P. Conese, Jr., the President and Chief Operating Officer,
could adversely affect the Company. The Company does not maintain key man life
insurance for any of its executive officers.
CONTROL BY PRINCIPAL STOCKHOLDERS. As of March 31, 1996, Eugene P. Conese,
the Chairman of the Board and Chief Executive Officer of the Company, and his
wife own of record and beneficially an aggregate of 55% of the Class A Common
Stock and 55% of the Class B Common Stock and Eugene P. Conese, Jr., the
President and Chief Operating Officer of the Company, owns of record and
beneficially 3% of the Company's outstanding Class A Common Stock and 3% of the
Class B Common Stock. Upon consummation of the Common Stock Offering, Eugene P.
Conese and members of his immediate family will own in the aggregate
approximately 58% of the outstanding Class A Common Stock and will control all
decisions on matters submitted to a vote of the Company's stockholders. See
"Principal Stockholders."
DEFENSE SPENDING REDUCTIONS. Approximately 14% and 13% of Greenwich's net
sales in fiscal 1995 and for the six months ended March 31, 1996, respectively,
were derived from services provided for the United States military and other
domestic and foreign government agencies, either directly or to prime
contractors under military and government contracts. On a pro forma basis, sales
to military and government agencies would have accounted for approximately 6% of
sales in fiscal 1995. To date, reductions in the federal government's defense
spending have not resulted in a decrease in net sales from military and other
governmental programs. The Company believes that recent closings of military
14
<PAGE>
aircraft bases and reductions in personnel may increase the number of military
gas turbine engines available for servicing by independent contractors, such as
the Company, although no assurance can be given in this regard. Nevertheless,
the Company cannot predict whether reductions in defense and governmental
spending in general will adversely affect the Company's results of operations in
the future. See "Business -- Engine Services -- Government Programs."
AIRLINE INDUSTRY RISKS. In past years, the airline industry has been
adversely affected by a number of factors, including increased fuel and labor
costs and intense price competition. Several passenger airline carriers have
encountered significant financial difficulties, resulting in certain of such
carriers ceasing to conduct business or seeking protection from creditors under
the federal bankruptcy laws. Certain passenger airline carriers have continued
to operate under the protection of the federal bankruptcy laws and have
continued to provide business to engine service providers such as the Company.
However, in the event that any of the Company's customers cease to conduct
business or seek protection from creditors under the federal bankruptcy laws,
the Company would be classified as a general unsecured creditor to the extent
that it does not have a priority mechanic's lien on the engines of such customer
being serviced by the Company and may be forced to incur substantial losses from
the write-off of accounts receivable. The loss of any of the Company's
significant customers could result in a decrease in the Company's net sales and
could have a material adverse effect upon the Company's business. In addition, a
number of the historical customers of Greenwich are smaller domestic and foreign
passenger airlines, freight and package carriers, charter airlines and aircraft
leasing companies, which may also suffer from the factors adversely affecting
the airline industry generally. As a result, certain of the Company's customers
may pose credit risks to the Company. The Company's inability to collect
receivables from a large engine repair, refurbishment or overhaul project could
adversely affect its results of operations for a particular period. Although the
bad debt losses of both Greenwich and the Aviall Business have averaged less
than 1% of net sales in each of their respective last three fiscal years, there
can be no assurance that such bad debt losses will not materially increase in
the future.
GOVERNMENT REGULATION. FAA and BCAA regulations require that aircraft
engines serviced in the United States and the United Kingdom be serviced by a
certified provider such as the Company. The Company is also required to maintain
certifications from other foreign governments in order to service their local
aircraft. Although the Company believes that it possesses all required domestic
and foreign governmental certifications, including FAA certifications entitling
it to service all gas turbine aircraft engine lines and models in its domestic
facilities, the revocation or limitation of its FAA or BCAA certification would
have a material adverse effect on its operations. See "Business -- Government
Regulation."
ENVIRONMENTAL REGULATION. The Company's business operations and facilities
are subject to a number of federal, state, local and foreign environmental laws
and regulations, including requirements under the Clean Air Act Amendments of
1990 relating to the discharge of air pollutants into the environment. Although
the Company believes that its operations and facilities are in material
compliance with all federal, state, local and foreign environmental laws and
regulations, no assurance can be given that future changes either in such laws,
regulations or interpretations thereof or in the nature of the Company's
operations will not require the Company to make significant additional capital
expenditures in order to effect compliance. See "Business -- Environmental
Matters."
PRODUCT LIABILITY RISKS. The Company currently has in force aviation
products, premises and hangarkeepers insurance, which the Company believes
provides coverage in amounts and on terms that are generally consistent with
industry practice. The Company also has insurance coverage for liability in
connection with the industrial or marine gas turbine engines that it services.
To date, the Company has not experienced any significant uninsured or insured
aviation-related claims and has not experienced any material product liability
claims related to its industrial and marine engine services. However, the
Company is subject to a material loss to the extent that a claim is made against
the Company which is not covered in whole or in part by insurance and for which
third-party indemnification is not available.
15
<PAGE>
RISKS RELATING TO A CHANGE OF CONTROL. In the event of a Change of Control
(as defined), the Company will be required, subject to certain conditions, to
make an offer to purchase all outstanding Notes at a price equal to 101 percent
of the principal amount of the Notes, plus accrued and unpaid interest. See
"Description of Notes -- Repurchase at the Option of Holders Upon a Change of
Control." Existing Indebtedness (as defined) includes, and future Indebtedness
(including indebtedness to be incurred under the New Credit Facility) may
include, change of control provisions pursuant to which the Company would be
required upon a change in control to repurchase, or the lender could demand
repayment of, the Indebtedness due thereunder. No assurance can be given that
the Company would have sufficient funds available or could obtain the financing
required, or would be contractually permitted, to purchase the Notes tendered by
holders following a Change of Control. If a Change of Control occurred and the
Company had inadequate funds or financing available to pay for, or was otherwise
prohibited from purchasing, Notes tendered for purchase, an Event of Default (as
defined) would be triggered under the Indenture. See "Description of Notes."
ABSENCE OF A PREVIOUS MARKET FOR THE NOTES. The Notes are a new issue of
securities with no established trading market, and the Company does not intend
to apply for listing of the Notes on any securities exchange. The Company has
been advised by the Underwriters that, subject to applicable laws and
regulations, each of them currently intends to make a market in the Notes;
however, they are not obligated to do so and may discontinue any such market
making at any time without notice. No assurance can be given as to the
development or liquidity of any trading market in the Notes. If an active market
does not develop, the market price and liquidity of the Notes may be adversely
affected.
16
<PAGE>
THE AVIALL ACQUISITION
On April 19, 1996, Greenwich, its wholly-owned subsidiary GASI Engine
Services Corporation and Aviall entered into an Agreement of Purchase and Sale
(the "Purchase Agreement"). Pursuant to the Purchase Agreement, the Company
agreed to acquire the Aviall Business, which consists of: (a) substantially all
of the assets and business of the commercial engine services divisions (the "CES
Divisions") of Aviall and (b) all of the issued and outstanding shares of
capital stock of Aviall Limited ("Aviall UK"), a subsidiary of Aviall. The CES
Divisions include (i) all of the engine repair and overhaul operations of Aviall
located in Dallas and Fort Worth, Texas and (ii) the components and parts repair
business of Aviall located in McAllen, Texas (the "Components Division"). Aviall
UK operates an engine repair and overhaul facility in Prestwick, Scotland (the
"Caledonian Operation"). The Company has agreed to assume, pay and discharge,
when due, only certain specified obligations and liabilities of Aviall as they
exist at the closing date. The purchase price for the Aviall Business is
estimated to be approximately $239.0 million (net of assumed liabilities) based
upon the March 31, 1996 balance sheet of the Aviall Business. Such estimated
purchase price is subject to adjustment based upon the balance sheet of the
Aviall Business on the date that the Aviall Acquisition is consummated. As part
of the Aviall Acquisition, Aviall has agreed to provide the Company with certain
MIS and related accounting services for the CES Divisions on a short-term basis.
The Company intends to pay the entire purchase price for the Aviall
Acquisition in cash at the closing. The purchase price is being financed with
the proceeds from the Offerings and the Initial Drawdown. In the event that the
Common Stock Offering is not consummated, but the Note Offering and the New
Credit Facility are consummated, Greenwich will pay $80.4 million of the
purchase price for the Aviall Business by the delivery of up to $55.0 million in
shares of its Class B Common Stock, and the balance will be paid in cash through
additional borrowings under the New Credit Facility. See "Use of Proceeds."
CONCURRENT TRANSACTIONS
Concurrently with the Note Offering, the Company is conducting the Common
Stock Offering. The consummation of the Common Stock Offering is anticipated to
occur concurrently with, but is not a condition to, the consummation of the Note
Offering.
Concurrently with the consummation of the Note Offering and the Aviall
Acquisition, the Company will refinance substantially all indebtedness under its
existing credit facility through the New Credit Facility, a $175.0 million
senior secured revolving credit facility with a commercial lender, individually
and as agent for other lenders. Pursuant to the Initial Drawdown, the Company
anticipates that it will initially borrow approximately $74.4 million under the
New Credit Facility. Funds advanced and repaid under the New Credit Facility may
be reborrowed through May 2001, subject to the conditions specified in the New
Credit Facility. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Pro Forma Liquidity and Capital
Resources" and "Description of Certain Indebtedness."
17
<PAGE>
USE OF PROCEEDS
The net proceeds from the Offerings and the Initial Drawdown, after
deducting underwriting discounts and other expenses of the Offerings, are
estimated to be approximately $299.9 million ($314.3 million if the
Underwriters' over-allotment option is exercised in full). The consummation of
the Note Offering is contingent upon, and will occur concurrently with, the
Aviall Acquisition and the Initial Drawdown. Consummation of the Note Offering
is anticipated to occur concurrently with, but is not contingent upon, the
consummation of the Common Stock Offering. See "The Aviall Acquisition." The
estimated sources and uses of funds from the Offerings and the Initial Drawdown
are summarized as follows (dollars in thousands):
<TABLE>
<S> <C>
SOURCES
- -------------------------------------------------------
Initial Drawdown.......................... $ 74,429
Note Offering, net of underwriting
discounts and expenses................... 145,150
Common Stock Offering, net of underwriting
discounts and expenses................... 80,350
-----------
Total................................... $ 299,929
-----------
-----------
USES
- -------------------------------------------------------
Payment of purchase price for Aviall
Business (1)............................. $ 239,000
Repayment of outstanding advances under
existing credit facilities (2)........... 55,347
Expenses (3)(4)........................... 5,582
-----------
Total................................... $ 299,929
-----------
-----------
</TABLE>
- ------------------------
(1) The estimated purchase price is subject to adjustment based upon the balance
sheet of the Aviall Business on the date that the Aviall Acquisition is
consummated.
(2) Includes $50,528 outstanding under Greenwich's existing credit facility and
$4,819 outstanding under the Aviall U.K. overdraft facility as of March 31,
1996.
(3) Includes estimated expenses relating to the New Credit Facility and the
Aviall Acquisition.
(4) Does not include expenses relating to the integration of Greenwich and the
Aviall Business, estimated to be approximately $8.5 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Pro Forma Liquidity and Capital Resources."
18
<PAGE>
CAPITALIZATION
The following table sets forth, as of March 31, 1996, (i) the actual
capitalization of Greenwich as of such date and (ii) the capitalization of the
Company as adjusted to give effect to the Aviall Acquisition, the Initial
Drawdown and the Offerings as if each occurred on March 31, 1996 and the
application of the estimated net proceeds from the Initial Drawdown and the
Offerings. See "Use of Proceeds." This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Unaudited Pro Forma Combined Financial Information" and the
Consolidated and Combined Financial Statements of each of Greenwich and the
Aviall Business and Notes thereto included in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------
ACTUAL AS ADJUSTED
----------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
DEBT
Current portion of long-term debt....................................................... $ 3,181 $ 3,181
----------- -----------
Long-term debt:
Term loans............................................................................ 7,004 7,004
Loan payable.......................................................................... 1,379 1,379
Existing credit facility.............................................................. 50,528 --
New Credit Facility................................................................... -- 74,429
% Senior Notes due 2006............................................................ -- 150,000
Debentures............................................................................ 3,561 3,561
----------- -----------
Total long-term debt.............................................................. 62,472 236,373
----------- -----------
Total debt........................................................................ $ 65,653 $ 239,554
----------- -----------
STOCKHOLDERS' EQUITY
Class A Common Stock, $.01 par value (25,000,000 shares authorized; 6,279,841 shares
issued and outstanding).............................................................. $ 63 $ 63
Class B Common Stock, $.01 par value (25,000,000 shares authorized; none outstanding;
9,679,841 shares issued and outstanding, as adjusted)................................ 63 97
Preferred stock, $.01 par value (2,500,000 shares authorized; none
outstanding)......................................................................... -- --
Capital in excess of par value........................................................ 22,463 102,779
Retained earnings..................................................................... 28,284 28,284
----------- -----------
Total stockholders' equity........................................................ $ 50,873 $ 131,223
----------- -----------
Total capitalization.............................................................. $ 116,526 $ 370,777
----------- -----------
----------- -----------
</TABLE>
19
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following sets forth the Company's Unaudited Pro Forma Combined
Financial Information for the fiscal year ended September 30, 1995, and the six
months ended March 31, 1996, and the Company's Unaudited Pro Forma Combined
Balance Sheet Information at March 31, 1996, in each case giving effect to the
Aviall Acquisition under the "purchase" method of accounting, the Offerings and
the Initial Drawdown. The Company's Unaudited Pro Forma Combined Income
Statement Information presents the Aviall Acquisition, the Offerings and the
Initial Drawdown, in each case as if it or they had been consummated at the
beginning of the periods presented. The Company's Unaudited Pro Forma Combined
Balance Sheet Information presents the Aviall Acquisition, the Offerings and the
Initial Drawdown, in each case as if it or they had been consummated on March
31, 1996. The Unaudited Pro Forma Combined Financial Information of the Company
are presented for illustrative purposes only, and therefore do not purport to
present the financial position or results of operations of the Company had the
Aviall Acquisition, the Offerings and the Initial Drawdown occurred on the dates
indicated, nor are they necessarily indicative of the results of operations
which may be expected to occur in the future.
The historical balance sheet information for Greenwich and the Aviall
Business has been derived from the unaudited March 31, 1996 balance sheet of
Greenwich and the Aviall Business included in this Prospectus. The data for the
six months ended March 31, 1996 have been derived from Greenwich's unaudited
income statement for the six months ended March 31, 1996 included elsewhere
herein and the unaudited income statement of the Aviall Business for the six
months ended March 31, 1996 not included elsewhere herein. The pro forma
adjustments relating to the integration of the Aviall Business represent the
Company's preliminary determinations of these adjustments and are based upon
available information and certain assumptions the Company considers reasonable
under the circumstances. Final amounts could differ from those set forth
therein. The unaudited historical financial statements of Greenwich referred to
above, in the opinion of management of Greenwich, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of Greenwich for the unaudited interim periods. The
unaudited historical financial statements of the Aviall Business referred to
above, in the opinion of management of Aviall, include all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the results of the Aviall Business for the unaudited interim
periods.
20
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
INCOME STATEMENT
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
HISTORICAL(1)
--------------------------- PRO FORMA(2)
AVIALL --------------------------------------
GREENWICH BUSINESS ADJUSTMENTS COMBINED
-------------- ----------- ------------ -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales..................................... $ 196,320 $ 504,755 $ $ 701,075
Cost of sales................................. 164,958 462,559 (20,394) 3(b,d) 607,123
-------------- ----------- ------------ -------------
Gross profit.................................. 31,362 42,196 20,394 93,952
Selling, general and administrative
expenses..................................... 13,637 30,046 (4,690) 3(b,c) 38,993
-------------- ----------- ------------ -------------
Income from operations........................ 17,725 12,150 25,084 54,959
Nonoperating (income) expense:
Interest expense............................ 7,951 19,216 (2,227) 3(a) 24,940
Other expense (income), net................. (392) (392)
-------------- ----------- ------------ -------------
Total nonoperating (income) expense..... 7,559 19,216 (2,227) 24,548
-------------- ----------- ------------ -------------
Income (loss) before provision for income
taxes........................................ 10,166 (7,066) 27,311 30,411
Provision for income taxes.................... 3,965 2,714 5,181 3(f) 11,860
-------------- ----------- ------------ -------------
Net income (loss)............................. $ 6,201 $ (9,780) $ 22,130 $ 18,551
-------------- ----------- ------------ -------------
-------------- ----------- ------------ -------------
OTHER OPERATING DATA:
Ratio of earnings to fixed charges (note
7)......................................... 2.1x 2.1x
Depreciation and amortization............... $ 1,815 $ 19,659 $ (13,677) 3(b,c) $ 7,797
EBITDA (note 6)............................. 19,932 31,809 11,407 63,148
PRIMARY EARNINGS PER SHARE:
Net income per share........................ $ 0.61 $ 1.36
-------------- -------------
-------------- -------------
Weighted average shares of common stock
outstanding................................ 10,233,234 13,633,234
-------------- -------------
-------------- -------------
FULLY DILUTED EARNINGS PER SHARE:
Net income per share........................ $ 0.54 $ 1.18
-------------- -------------
-------------- -------------
Weighted average common shares
outstanding................................ 12,836,406 16,236,406
-------------- -------------
-------------- -------------
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information.
21
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
INCOME STATEMENT
SIX MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
HISTORICAL(1)
--------------------------- PRO FORMA(2)
AVIALL --------------------------------------
GREENWICH BUSINESS ADJUSTMENTS COMBINED
-------------- ----------- ------------ -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales..................................... $ 118,625 $ 264,749 $ $ 383,374
Cost of sales................................. 99,922 253,652 (12,993) 3(b,d) 340,581
-------------- ----------- ------------ -------------
Gross profit.................................. 18,703 11,097 12,993 42,793
Selling, general and administrative
expenses..................................... 7,742 17,489 (2,648) 3(b,c) 22,583
-------------- ----------- ------------ -------------
Income (loss) from operations................. 10,961 (6,392) 15,641 20,210
-------------- ----------- ------------ -------------
Nonoperating (income) expense:
Interest expense............................ 3,635 9,087 (593) 3(a) 12,129
Restructuring costs......................... 39,567 (39,567) 3(e)
-------------- ----------- ------------ -------------
Total nonoperating (income) expense..... 3,635 48,654 (40,160) 12,129
-------------- ----------- ------------ -------------
Income (loss) before provision for income
taxes........................................ 7,326 (55,046) 55,801 8,081
Provision for income taxes.................... 2,908 1,173 (929) 3(f) 3,152
-------------- ----------- ------------ -------------
Net income (loss)............................. $ 4,418 $ (56,219) $ 56,730 $ 4,929
-------------- ----------- ------------ -------------
-------------- ----------- ------------ -------------
OTHER OPERATING DATA:
Ratio of earnings to fixed charges (note
7)......................................... 2.6x 1.6x
Depreciation and amortization............... $ 1,019 $ 10,028 $ (7,037) $ 4,010
EBITDA (note 6)............................. $ 11,980 $ 3,636 $ 8,604 $ 24,220
PRIMARY EARNINGS PER SHARE:
Net income per share........................ $ 0.36 $ 0.32
-------------- -------------
-------------- -------------
Weighted average shares of common stock
outstanding................................ 12,105,468 15,505,468
-------------- -------------
-------------- -------------
FULLY DILUTED EARNINGS PER SHARE:
Net income per share........................ $ 0.35 $ 0.31
-------------- -------------
-------------- -------------
Weighted average common shares
outstanding................................ 12,844,590 16,244,590
-------------- -------------
-------------- -------------
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information.
22
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
BALANCE SHEET
MARCH 31, 1996
ASSETS
<TABLE>
<CAPTION>
HISTORICAL (1)
-------------------------- PRO FORMA (2)
AVIALL --------------------------------------
GREENWICH BUSINESS ADJUSTMENTS COMBINED
----------- ------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current assets:
Cash......................................... $ 268 $ 30 $ (26) 4(a) $ 272
Accounts and notes receivable................ 47,256 109,249 (2,439) 4(b) 154,066
Inventories.................................. 111,673 151,739 (11,746) 4(c) 251,666
Prepaid expenses and other current assets.... 1,256 3,729 (1,230) 4(d) 3,755
----------- ------------- ------------ -------------
Total current assets..................... 160,453 264,747 (15,441) 409,759
Deferring financing costs...................... 741 7,720 4(e) 8,461
Property, plant and equipment.................. 26,376 120,040 (11,376) 4(f) 135,040
Other assets................................... 728 78,251 (65,804) 4(g) 13,175
----------- ------------- ------------ -------------
Total assets............................. $ 188,298 $ 463,038 $ (84,901) $ 566,435
----------- ------------- ------------ -------------
----------- ------------- ------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................. $ 36,001 $ 58,529 $ $ 94,530
Accrued expenses and current portion of
long-term liabilities....................... 16,475 34,320 (22,761) 4(i) 28,034
Customer deposits and deferred revenue....... 9,777 9,777
Accrued restructuring cost................... 39,567 (39,567) 4(h)
Other liabilities, current................... 26,905 4(j) 26,905
Income taxes payable......................... 23 23
----------- ------------- ------------ -------------
Total current liabilities................ 62,276 132,416 (35,423) 159,269
Deferred taxes payable......................... 4,305 11,891 16,196
Other liabilities, long-term................... 8,372 10,649 9,172 4(j) 28,193
Long-term debt................................. 58,911 7,253 161,829 4(k) 227,993
Debentures..................................... 3,561 3,561
----------- ------------- ------------ -------------
Total liabilities........................ 137,425 162,209 135,578 435,212
----------- ------------- ------------ -------------
Aviall, Inc.'s investment in and advances to
the Aviall Business........................... 300,829 (300,829) 4(l)
Stockholders' equity........................... 50,873 80,350 5 131,223
----------- ------------- ------------ -------------
Total liabilities and stockholders' equity..... $ 188,298 $ 463,038 $ (84,901) $ 566,435
----------- ------------- ------------ -------------
----------- ------------- ------------ -------------
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information.
23
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
1. The pro forma periods for the year ended September 30, 1995 and for the six
months ended March 31, 1996 are Greenwich's historical financial reporting
periods. For the pro forma year ended September 30, 1995, the Aviall
Business has been included for the twelve months ended December 31, 1995
because they have historically reported on a calendar year end as part of
Aviall. Historical financial information of the Aviall Business for the six
months ended March 31, 1996 included in the pro forma financial information
for the six months ended March 31, 1996, includes the three months ended
December 31, 1995, which has also been included in the pro forma year ended
September 30, 1995. For the three months ended December 31, 1995, net sales
were $130,004 and net income (loss) was ($11,216). The Company believes the
effect of the difference in these reporting periods is not significant and
is not reflected in the Unaudited Pro Forma Combined Financial Information.
The purchase price will be determined based upon an audit as of the closing
date. The purchase price is $330,000 less certain adjustments based on the
difference between the actual current assets as of the closing date and
$271,000 and less the value of certain assumed liabilities as of the closing
date. Based upon the Aviall Business' March 31, 1996 balance sheet, the
purchase price would have been calculated as follows:
<TABLE>
<CAPTION>
PURCHASE PRICE DETERMINATION:
<S> <C>
Gross purchase price........................................... $ 330,000
Less:
Current assets adjustment.................................... 10,000
Value of assumed liabilities................................. 81,000
---------
Net purchase price......................................... $ 239,000
---------
---------
PURCHASE PRICE ALLOCATION:
Current assets................................................. $ 249,306
Property, plant and equipment.................................. 108,664
Other assets................................................... 12,447
Accounts payable and accrued expenses.......................... (70,088)
Deferred taxes................................................. (11,891)
Liabilities for fair value adjustments of certain long-term
engine maintenance contracts, and liabilities related to
engine product line relocation costs, customer or supplier
transfer approvals or accommodations, licenses and other...... (49,438)
---------
Net purchase price......................................... $ 239,000
---------
---------
</TABLE>
The foregoing purchase price determination and allocation are based on the
March 31, 1996 Aviall Business balance sheet and preliminary estimates of
fair value. The final purchase price determination and allocation will be
contingent upon final assessment or appraisal of the fair value of the net
assets acquired, and the audited balance sheet of the Aviall Business as it
relates to certain items being acquired or assumed as of the closing date.
2. The Unaudited Pro Forma Combined Financial Information is presented for
illustrative purposes only, giving effect to the Aviall Acquisition, the
Offerings and the Initial Drawdown by Greenwich, accounted for as a
"purchase," as such term is used under generally accepted accounting
principles.
Certain amounts reported in the Aviall Business' historical combined
financial information have been reclassified to conform with the Greenwich
presentations in the Unaudited Pro Forma Combined Balance Sheet and
Statements of Income.
24
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION (CONTINUED)
(DOLLARS IN THOUSANDS)
3. The Company's pro forma income statement data for the year ended September
30, 1995 and the six month period ended March 31, 1996 present the effects
on the historical combined financial statements of the Aviall Acquisition,
the Offerings and the Initial Drawdown, in each case as if they occurred as
of the beginning of such periods, including:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
SEPTEMBER 30, ENDED
1995 MARCH 31, 1996
-------------- ---------------
<S> <C> <C> <C>
a. The pro forma adjustments to interest expense arising from the Aviall
Acquisition, the Offerings and the Initial Drawdown are presented below.
The pro forma interest expense adjustment assumes that $55,347 of the
proceeds from the New Credit Facility of $74,429 will be used to retire
indebtedness under the existing revolving credit facility
Elimination of interest expenses related to the repayment of:
Existing Greenwich revolving credit facility.............................. $ 4,926 $ 2,463
Existing Aviall Business indebtedness and advances from Aviall............ 19,216 9,087
Additional interest cost related to:
Initial Drawdown and the Notes............................................ (21,143) (10,571)
Amortization of deferred financing costs.................................. (772) (386)
-------------- ---------------
Pro forma adjustment...................................................... 2,227 593
Interest savings associated with the repayment of $55,347 under the
existing revolving credit facility was calculated based on an average
interest rate of 9.75%. Interest on the initial borrowing under the New
Credit Facility was computed at an assumed interest rate of 7.75% per
annum.
A 0.25% increase or decrease in the interest rates used above would result
in an increase or decrease in annual interest expense of $561.
b. Decrease in depreciation expense to reflect the fair value and useful
lives of the acquired property, plant and equipment as allocated to:
Cost of sales............................................................. 8,987 4,389
Selling, general and administrative....................................... 919 449
c. Elimination of amortization expense of goodwill and other intangible
assets of the Aviall Business............................................ 3,771 2,199
d. Increase in gross profit resulting from the adjustment to fair value of
long-term engine maintenance contracts which expire within from one to
three years.............................................................. 11,407 8,604
e. Elimination of restructuring costs incurred by Aviall on behalf of the
Aviall Business, as a result of the Aviall Acquisition................... -- 39,567
f. Adjustment to the provision for income taxes to the combined expected
effective rate of 39%.................................................... (5,181) 929
-------------- ---------------
Pro forma income statement adjustments.................................... $ 22,130 $ 56,730
-------------- ---------------
-------------- ---------------
</TABLE>
PRO FORMA INCOME STATEMENT ADJUSTMENTS NOT MADE -- Included in the operating
results for the Aviall Business, for which pro forma adjustments have not
been made, are certain pension costs (U.S. operations only) and severance
expenses for which Greenwich does not have similar pension plans
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION (CONTINUED)
(DOLLARS IN THOUSANDS)
or severance arrangements, salaries and expenses attributable to the
departments run by the President, Senior Vice President and Chief Financial
Officer of Aviall which are not contractually being assumed by Greenwich,
and non-recurring reengineering expenses as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
SEPTEMBER 30, ENDED
1995 MARCH 31, 1996
--------------- ---------------
<S> <C> <C>
Pension and severance expenses........................................ $ 3,581 $ 3,525
Certain salaries and expenses......................................... 2,865 1,526
Non-recurring reengineering expenses.................................. 2,061 2,313
------- -------
Total............................................................. $ 8,507 $ 7,364
------- -------
------- -------
</TABLE>
In addition to the above, the Company believes additional cost savings will
be realized through the combination of the two companies.
4. For purposes of preparing the Unaudited Pro Forma Combined Balance Sheet,
the Aviall Business' assets and liabilities acquired or assumed have been
recorded at their estimated fair values. A final determination of the
required purchase accounting adjustments and of the fair value of the assets
and liabilities of the Aviall Business acquired or assumed has not yet been
made. Accordingly, the purchase accounting adjustments made in connection
with the development of the unaudited pro forma financial information
reflect Greenwich management's best estimate based upon currently available
information.
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1996
---------------
<S> <C> <C> <C>
a. Cash of the Aviall Business has been adjusted to reflect the cash balances
being contractually acquired............................................. $ (26)
b. Accounts receivable of the Aviall Business have been adjusted to eliminate
accounts not being contractually acquired by Greenwich................... (2,439)
c. Inventories have been adjusted to reflect their fair value to the combined
entity based on Greenwich's accounting and valuation policies, including
analysis of the anticipated combined inventory needs..................... (11,746)
d. Prepaid expenses and other current assets of the Aviall Business have been
adjusted to eliminate accounts not being contractually acquired by
Greenwich................................................................ (1,230)
e. Deferred financing costs have been recorded related to the New Credit
Facility and the Note Offering associated with the Aviall Acquisition,
the Offerings and the Initial Drawdown................................... 7,720
f. Property, plant and equipment have been recorded at their estimated fair
value.................................................................... (11,376)
g. Other assets (principally goodwill) of the Aviall Business have been
written off.............................................................. (65,804)
h. Restructuring liabilities not assumed, including severance, pension
termination, insurance and environmental................................. (39,567)
i. Accrued expenses and current portion of long term liabilities of the
Aviall Business have been adjusted to eliminate certain liabilities not
being contractually assumed.............................................. (22,761)
</TABLE>
26
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1996
---------------
j. Other liabilities includes adjustments under Accounting Principles Board
Opinion No. 16 for:
<S> <C> <C> <C>
- Fair value adjustments of certain long-term engine maintenance
contracts which expire within one to three years...................... $ 33,598
- Costs to be incurred in connection with required customer
and supplier transfer approvals or accommodations..................... 5,794
- Relocation of certain of the Aviall Business' engine line repair
capabilities and related inventories incidental to the Aviall
Acquisition........................................................... 4,250
- Liabilities for contractual management services incidental to
the Aviall Acquisition................................................ 2,443
- Stamp tax and other miscellaneous items incidental to the
acquisition........................................................... 561
- The elimination of certain other Aviall Business liabilities,
including pension and post-retirement benefits not being
contractually assumed................................................. (10,569) 36,077
Other liabilities, current portion........................................ 26,905
---------------
Other liabilities, long-term.............................................. 9,172
k. Adjustments to long-term debt and notes payable include the impact of the
following:
- Initial Drawdown under the New Credit Facility......................... $ 74,429
- The Note Offering...................................................... 150,000
- Repayment of the Company's existing credit facilities (55,347)
- Adjustment for certain indebtedness of the Aviall Business
not assumed.......................................................... (7,253) 161,829
l. Elimination of Aviall's investment in and advances to the Aviall
Business................................................................. 300,829
</TABLE>
5. Stockholders' equity has been adjusted to reflect issuance of shares of
Greenwich Class B Common Stock at an assumed price of $25 1/4 per share, net
of expenses of approximately $5,500.
6. EBITDA represents net income (loss) before the cumulative effect of change
in accounting plus provisions for income taxes, interest expense,
depreciation and amortization, restructuring costs and any charge related to
any premium or penalty paid in connection with redeeming and retiring any
indebtedness prior to its stated maturity. While EBITDA should not be
construed as a substitute for income from operations, net income (loss) or
cash flows from operating activities in analyzing the Company's operating
performance, financial position and cash flows, the Company has included
EBITDA because it is commonly used by certain investors to analyze and
compare companies on the basis of operating performance, leverage and
liquidity, and to determine the Company's ability to service debt.
7. For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of income before income taxes, change in accounting,
extraordinary items and fixed charges. Fixed charges consist of interest on
indebtedness, including, if any, the amortization of debt issue costs,
accretion of debt discount, interest expense accrued in accordance with EITF
Issue No. 86-15 and one-third of rental expense (which is deemed
representative of the interest factor therein). Earnings for the Aviall
Business were insufficient to cover fixed charges in the historical fiscal
year ended December 31, 1995 and for the six months ended March 31, 1996 by
$7,066 and $55,046 (including $39,567 of restructuring costs), respectively.
27
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected historical financial data for Greenwich as of September 30,
1994 and 1995 and for each of the three years in the period ended September 30,
1995, and for the Aviall Business as of December 31, 1994 and 1995 and for each
of the three years in the period ended December 31, 1995, have been derived from
Greenwich's Audited Consolidated Financial Statements and Notes thereto and the
Aviall Business' Audited Combined Financial Statements and Notes thereto,
respectively, included in this Prospectus and should be read in conjunction
therewith. The selected historical financial data for Greenwich as of and for
the six months ended March 31, 1996 and for the six months ended March 31, 1995
have been derived from Greenwich's Unaudited Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus and should be read in
conjunction therewith. The summary historical financial data for Greenwich as of
March 31, 1995 has been derived from unaudited financial information prepared by
Greenwich and not included in this Prospectus. The selected historical financial
data for Greenwich as of September 30, 1993 and for the fiscal years 1991 and
1992 have been derived from Greenwich's audited consolidated financial
statements and notes thereto not included in this Prospectus. The selected
historical financial data for the Aviall Business for the six months ended March
31, 1995 and as of and for the six months ended March 31, 1996 have been derived
from unaudited financial information prepared by the Aviall Business and not
included in this Prospectus. The summary historical financial data for the
Aviall Business as of March 31, 1996, have been derived from the Aviall
Business' Unaudited Financial Statements and Notes thereto included in this
Prospectus and should be read in conjunction therewith. The unaudited historical
information of Greenwich contained herein includes, in the opinion of management
of Greenwich, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the information of Greenwich for the
unaudited interim periods. The unaudited historical financial statements of the
Aviall Business contained herein, in the opinion of management of Aviall,
include all adjustments, (consisting only of normal recurring adjustments),
necessary for a fair presentation of the information of the Aviall Business for
the unaudited interim periods. The operating results of Greenwich for the six
months ended March 31, 1996 may not be indicative of the operating results for
the full year. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
--------------------------------------------------------------- ------------------------
GREENWICH 1991 1992 1993 1994 1995 1995 1996
- -------------------------------- ------------- ---------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Operating Data:
Net sales..................... $ 75,821(1) $ 62,009 $ 69,467 $ 105,233 $ 196,320 $ 83,147 $ 118,625
Gross profit.................. 13,576 12,779 14,391 17,259 31,362 13,228 18,703
Income from operations........ 9,150 6,902 8,698 10,253 17,725 7,757 10,961
Interest expense.............. 3,678 2,950 3,039 4,758 7,951 3,813 3,635
Net income.................... 3,469 2,506 3,374 3,346 6,201 2,359 4,418
Fully-diluted weighted average
number of shares............. 9,972,000 9,648,000 8,000,000 12,574,654 12,836,406 13,102,190 12,844,590
Fully-diluted earnings per
share........................ $ 0.35 $ 0.26 $ 0.42 $ 0.33 $ 0.54 $ 0.21 $ 0.35
Cash dividends declared per
common share................... $ 0.01
Ratio of earnings to fixed
charges (2).................. 2.3x 2.2x 2.5x 1.9x 2.1x 1.9x 2.6x
Other Financial Data:
EBITDA (3).................... $ 10,090 $ 7,803 $ 9,696 $ 11,609 $ 19,932 $ 8,676 $ 11,980
Depreciation and
amortization................. 829 807 950 1,285 1,815 875 1,019
Capital expenditures.......... 243 1,791 5,128 1,691 2,725 586 1,737
Balance Sheet Data (at period
end)
Working capital............... $ 33,329 $ 39,430 $ 46,010 $ 76,078 $ 87,829 $ 83,480 $ 98,178
Total assets.................. 50,376 59,102 67,708 138,423 185,620 160,210 188,298
Total debt.................... 26,338 29,411 35,686 74,985 67,880 79,537 65,653
Stockholders' equity.......... 10,620 13,126 15,951 27,963 36,788 30,322 50,873
</TABLE>
28
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31, THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------- -------------------- --------------------
AVIALL BUSINESS 1993 1994 1995 1995 1996 1995 (4) 1996 (4)
- ------------------------------------ --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Operating Data:
Net sales......................... $ 482,938 $ 490,390 $ 504,755 $ 120,572 $ 134,745 $ 267,067 $ 264,749
Gross profit...................... 62,374 53,167 42,196 13,838 7,882 30,342 11,097
Income (loss) from operations..... 32,368 17,776 12,150 6,241 (910) 14,048 (6,392)
Interest expense.................. 13,984 18,171 19,216 5,415 4,283 9,958 9,087
Net income (loss)................. 7,606 (4,407) (9,780) 363 (45,003) 2,459 (56,219)
Ratio of earnings to fixed charges
(2).............................. 2.2x 1.2x 1.4x
Other Financial Data:
EBITDA (3)........................ $ 48,545 $ 35,031 $ 31,809 $ 10,982 $ 4,208 $ 23,377 $ 3,636
Depreciation and amortization..... 16,177 17,255 19,659 4,741 5,118 9,329 10,028
Capital expenditures.............. 14,501 21,572 13,246 4,093 1,444 9,807 4,530
Balance Sheet Data (at period end)
Working capital................... $ 194,602 $ 226,000 $ 175,436 $ 195,033 $ 132,331 $ 195,033 $ 132,331
Total assets...................... 482,255 500,376 463,337 479,861 463,038 479,861 463,038
Total debt........................ 25,299 19,731 17,509 23,061 17,954 23,061 17,954
Aviall investment................. 343,311 390,888 347,786 365,206 300,829 365,206 300,829
</TABLE>
- --------------------------
(1) Includes $7,075 in revenues derived from the de-emphasized structural
aircraft services business.
(2) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of income before income taxes, change in accounting,
extraordinary items and fixed charges. Fixed charges consist of interest on
indebtedness, including, if any, the amortization of debt issue costs,
accretion of debt discount, interest expense accrued in accordance with EITF
Issue No. 86-15 and one-third of rental expense (which is deemed
representative of the interest factor therein). Earnings for the Aviall
Business were insufficient to cover fixed charges in the historical fiscal
years ended December 31, 1994 and 1995 and for the three and six months
ended March 31, 1996 by $395, $7,066, $44,756 and $55,046 (the 1996 amounts
include $39,567 of restructuring costs), respectively.
(3) EBITDA represents net income (loss) before the cumulative effect of change
in accounting plus provisions for income taxes, interest expense,
depreciation and amortization, restructuring costs, and any charge related
to any premium or penalty paid in connection with redeeming and retiring any
indebtedness prior to its stated maturity. While EBITDA should not be
construed as a substitute for income from operations, net income (loss) or
cash flows from operating activities in analyzing the Company's operating
performance, financial position and cash flows, the Company has included
EBITDA because it is commonly used by certain investors to analyze and
compare companies on the basis of operating performance, leverage and
liquidity and to determine the Company's ability to service debt.
(4) Historical financial information presented for the Aviall Business for the
six months ended March 31, 1995 and 1996 includes the three months ended
December 31, 1994 and 1995, respectively, which is also included in the
selected historical financial data of the Aviall Business for the fiscal
years ended December 31, 1994 and 1995, respectively. For the three months
ended December 31, 1994 and 1995, net sales were $146,495 and $130,004,
respectively, and net income (loss) was $2,096 and ($11,216), respectively.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
GENERAL
Greenwich is a leading independent provider of repair and overhaul services
for gas turbine engines used in both aviation and industrial applications and
provides management services for government and military agencies, as well as
for the worldwide installation of gas turbine powered electrical generation
plants. Under current management's direction, internal growth and strategic
acquisitions have increased Greenwich's net sales from $75.8 million in 1991 to
$196.3 million in 1995. Similarly, net income has increased 78.8% from $3.5
million in 1991 to $6.2 million in 1995. The acquisition of the Aviall Business
is expected to diversify further the Company's servicing capabilities, increase
market share and provide access to previously unavailable markets. Management
believes that these factors, coupled with Greenwich's entrepreneurial approach
and commitment to remain a high-quality, efficient provider of gas turbine
engine services, will enable the Company to maintain its position as a
successful competitor in the global marketplace.
In April 1994, Greenwich, through its newly-formed subsidiary Gas Turbine
Corporation ("GTC"), acquired the operating assets and business of the Gas
Turbine Corporation East Granby Division (the "GTC Division") from Chromalloy
Gas Turbine Corporation, a competitor of Greenwich that had the capability to
repair certain engine models that Greenwich did not then service, including the
Pratt & Whitney JT8D-200 medium by-pass aircraft engine and GG4 industrial
engine. In fiscal 1994, the operations of the GTC Division contributed sales of
$28.9 million for the five and one-half months during which it was owned by
Greenwich, which increased in fiscal 1995 to $72.4 million, reflecting a full
year of operations.
Income from operations as a percentage of sales declined from 12.5% in
fiscal 1993 to 9.0% in fiscal 1995, primarily as a result of the acquisition of
the GTC Division, which had significantly lower operating margins than Greenwich
at the time of such acquisition. On a pro forma basis, however, fiscal 1993
income from operations would have been 7.4% of net sales, had the GTC
acquisition taken place as of October 1, 1992. The integration of the GTC
Division generated cost savings from productivity improvements and the
elimination of duplicative overhead expenses. A portion of these cost savings
were, however, offset by:
-A shift in product mix to a greater proportion of low and medium by-pass
engines, which historically have provided lower gross margins compared with
high by-pass (wide body aircraft) engines;
-Competitive pricing pressures within Greenwich's markets; and
-Lower gross margins under a five-year agreement with Continental Airlines,
which Greenwich entered into in January 1995.
After the Aviall Acquisition, the Company will derive a greater percentage
of its net sales under long-term contracts which historically carry lower gross
margins but provide more predictable and steady streams of revenue. However, no
assurance can be given that any or all of these agreements (including the
contract with USAir which expires in October 1996 and is currently being
renegotiated) will be renewed or extended on terms which are commercially
favorable to the Company.
30
<PAGE>
RESULTS OF OPERATIONS
GREENWICH
The following table sets forth, for the periods indicated, the relative
percentages that certain income and expense items of Greenwich bear to its net
sales.
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH
YEARS ENDED SEPTEMBER 30, 31,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................................. 79.3% 83.6% 84.0% 84.1% 84.2%
----- ----- ----- ----- -----
Gross profit............................................ 20.7% 16.4% 16.0% 15.9% 15.8%
Selling, general and administrative expenses.............. 8.2% 6.6% 7.0% 6.6% 6.5%
----- ----- ----- ----- -----
Income from operations.................................. 12.5% 9.8% 9.0% 9.3% 9.3%
Interest expense.......................................... 4.4% 4.5% 4.0% 4.6% 3.1%
Other income.............................................. (.1)% (.1)% (.2)% (.1)% (.0)%
----- ----- ----- ----- -----
Income (loss) before provision for income taxes......... 8.2% 5.4% 5.2% 4.8% 6.2%
Provision for income taxes................................ 3.3% 2.2% 2.0% 2.0% 2.5%
----- ----- ----- ----- -----
Net income.............................................. 4.9% 3.2% 3.2% 2.8% 3.7%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
SIX MONTHS ENDED MARCH 31, 1996 COMPARED WITH SIX MONTHS ENDED MARCH 31,
1995
Net sales increased $35.5 million or 42.7% to $118.6 million in the first
six months of fiscal 1996 from $83.1 million in the first six months of fiscal
1995. The increase was due to increased sales in all four of Greenwich's
marketing and technical units.
Gross profit for the first six months of fiscal 1996 increased to $18.7
million, or 15.8% of net sales, from $13.2 million or 15.9% of net sales for the
first six months of fiscal 1995. The increase was primarily due to the increase
in net sales in the first six months of 1996 from the corresponding period in
1995.
Selling, general and administrative expenses for the first six months of
fiscal 1996 increased to $7.7 million, or 6.5% of net sales, from $5.5 million,
or 6.6% of net sales for the first six months of fiscal 1995. The increase in
the first six months of 1996 from the corresponding period in 1995 is primarily
attributable to the increase in net sales in the first six months of 1996 from
the corresponding period in 1995.
Interest expense for the first six months of fiscal 1996 decreased to $3.6
million, or 3.1% of net sales, from $3.8 million or 4.6% of net sales for the
first six months of fiscal 1995, primarily due to a reduction in interest paid
on the Company's Debentures as a result of the conversion of more than $13.0
million principal amount of the Debentures since March 31, 1995. This reduction
was partially offset by $1.2 million increase in average borrowings under the
Company's existing credit facility during the first six months of 1996.
Income taxes for the first six months of fiscal 1996 increased to $2.9
million, or 2.5% of net sales, from $1.6 million, or 2.0% of net sales for the
first six months of fiscal 1995, primarily due to an increase in income before
taxes.
As a result of the above factors, net income increased to a record $4.4
million, or 3.7% of net sales for the first six months of 1996, from $2.4
million, or 2.8% of net sales for the first six months of 1995.
FISCAL 1995 COMPARED WITH FISCAL 1994
Net sales for fiscal 1995 increased 86.6% to $196.3 million, from $105.2
million for fiscal 1994. This increase resulted from strong sales gains in all
four of Greenwich's marketing and technical units and Greenwich's ability to
capitalize on the trend toward outsourcing in the commercial aviation and
military markets. Additionally, fiscal 1995 marked Greenwich's first full year
of sales produced by the GTC Division, with GTC Division sales of $72.4 million
in fiscal 1995, as compared to sales of $28.9 million for only five and one-half
months of fiscal 1994.
31
<PAGE>
Gross profit for fiscal 1995 increased 81.7% to $31.4 million, or 16.0% of
net sales, from $17.3 million or 16.4% of net sales, for fiscal 1994. This
increase in gross profit is primarily due to Greenwich's increased net sales
during the period. The decrease as a percentage of net sales was primarily due
to the timing of the integration of the operations of the GTC Division and a
shift in product mix to a greater proportion of low and medium by-pass engines.
Selling, general and administrative expenses for fiscal 1995 increased 94.7%
to $13.6 million, or 7.0% of net sales, from $7.0 million, or 6.6% of net sales
for fiscal 1994. The increase was primarily due to the addition of marketing and
administrative expenses from increased business activity, a full year of GTC
Division operations, the write-off of uncollectible accounts and the higher
incentive bonus expense related to Greenwich's financial performance.
Interest expense for fiscal 1995 increased 67.1% to $8.0 million, or 4.0% of
net sales, from $4.8 million, or 4.5% of net sales, for fiscal 1994, primarily
due to an increase in Greenwich's average borrowings during the period as a
result of increased business activity and the acquisition of the GTC Division.
Net other non-operating income for fiscal 1995 increased 450.7% to $391,000,
or 0.2% of net sales, from $71,000, or 0.1% of net sales, for fiscal 1994,
primarily due to an approximately $319,000 foreign exchange rate gain on the
sale of approximately $1.4 million in notes receivable related to the
installation of a 25 megawatt power station in Senegal, West Africa.
Income taxes for fiscal 1995 increased 78.6% to $4.0 million, or 2.0% of net
sales, from $2.2 million, or 2.2% of net sales, for fiscal 1994. The increase is
attributed primarily to the increase in Greenwich's business for fiscal 1995 as
compared with fiscal 1994.
As a result of the above factors, net income increased 85.3% to $6.2
million, or 3.2% of net sales, for fiscal 1995, from $3.3 million, or 3.2% of
net sales, for fiscal 1994.
FISCAL 1994 COMPARED WITH FISCAL 1993
Net sales for fiscal 1994 increased 50.0% to $105.2 million, from $69.5
million for fiscal 1993. The increase resulted from sales of $28.9 million
generated by the GTC Division subsequent to the acquisition, as well as a 10.0%
increase in net sales at Greenwich's Miami Facility from the servicing of medium
and high by-pass aircraft turbine engines and increased activity in connection
with government programs.
Gross profit for fiscal 1994 increased 20.0% to $17.3 million, or 16.4% of
net sales, from $14.4 million or 20.7% of net sales, for fiscal 1993. This
increase in gross profit is primarily due to Greenwich's increased net sales
during the period. The decrease as a percentage of net sales was due to a shift
in product mix to a larger percentage of low and medium by-pass engines and
fewer high by-pass and industrial engines, competitive pricing pressures within
the airline industry and the inclusion of progress billings for power station
installations, which historically carry lower gross profits.
Selling, general and administrative expenses for fiscal 1994 increased 22.8%
to $7.0 million, or 6.6% of net sales, from $5.7 million, or 8.2% of net sales,
for fiscal 1993. The increase was primarily due to the addition of marketing and
administrative expenses from the GTC Division's operations and an increase in
professional and other expenses associated with operating as a public company.
Greenwich incurred no relocation or hurricane expenses in 1994, as compared
with $140,000 or 0.2% of net sales, in fiscal 1993.
Interest expense for fiscal 1994 increased 56.6% to $4.8 million, or 4.5% of
net sales, from $3.0 million, or 4.4% of net sales, for fiscal 1993, primarily
due to an increase in Greenwich's average borrowings during the period as a
result of the acquisition of the GTC Division and increased borrowings to
support growth in the Miami operations. Interest expense was also affected by an
increase in interest rates in fiscal 1994 compared to fiscal 1993.
32
<PAGE>
Net other non-operating income for fiscal 1994 increased 48.2% to $71,000 or
0.1% of net sales, from $48,000, or 0.1% of net sales, for fiscal 1993.
Income taxes for fiscal 1994 decreased 4.3% to $2.2 million, or 2.2% of net
sales, from $2.3 million, or 3.4% of net sales, for fiscal 1993. This decrease
was attributed primarily to a decrease in Greenwich's effective tax rate to
39.8% for fiscal 1994, as compared with 40.9% of income before taxes for fiscal
1993.
As a result of the factors described above, net income decreased 0.8% to
$3.3 million, or 3.2% of net sales, for fiscal 1994, from $3.4 million, or 4.9%
of net sales, for fiscal 1993.
AVIALL BUSINESS
The following table sets forth, for the periods indicated, the relative
percentages that certain income and expense items of the Aviall Business bear to
its net sales. This information does not purport to present the results of
operations that may be expected following the Aviall Acquisition.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................................. 87.1% 89.2% 91.6% 88.5% 94.2%
----- ----- ----- ----- -----
Gross profit.............................................. 12.9% 10.8% 8.4% 11.5% 5.8%
Selling and administrative expenses....................... 6.2% 7.2% 6.0% 6.3% 6.5%
----- ----- ----- ----- -----
Income (loss) from operations before restructuring
costs, interest and taxes.............................. 6.7% 3.6% 2.4% 5.2% (0.7)%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
Net sales in the first three months of 1996 increased 11.8% to $134.7
million from $120.6 million in the first three months of 1995. The net increase
resulted primarily from higher CFM56 sales to USAir, which were partially offset
by lower CFM56 sales to Southwest Airlines. Sales related to CF6 and V2500
engines were higher as well, the former primarily to Federal Express and others,
partially offset by lower sales to Continental Airlines.
Gross profit in the first three months of 1996 decreased 43.0% to $7.9
million, or 5.8% of net sales, from $13.8 million, or 11.5% of net sales, in the
first three months of 1995. This decline was primarily attributable to
re-engineering related expenses at the Dallas facility, higher quality costs and
a less favorable customer mix at Aviall U.K.
Selling and administrative expenses in the first three months of 1996
increased 15.7% to $8.8 million, or 6.5% of net sales, from $7.6 million, or
6.3% of net sales, in the first three months of 1995. This increase was
primarily due to expenses associated with severance costs in the first three
months of 1996.
Restructuring costs approximating $55.0 million will be incurred in 1996 by
Aviall on behalf of the Aviall Business. The combined financial statements of
the Aviall Business for the three months ended March 31, 1996 include $39.6
million of such restructuring costs incurred by Aviall. To the extent any
additional amount of such restructuring costs are incurred by Aviall prior to
consummation of the Aviall Acquisition, such expense will be reflected in any
financial statements of the Aviall Business compiled for the period between
March 31, 1996 and the date of consummation of the Aviall Acquisition. No
amounts in respect of such restructuring costs will be reflected in the
Company's financial statements after consummation of the Aviall Acquisition
except for certain expenses in respect of Aviall U.K. for which the Company has
been indemnified by Aviall.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
Net sales for 1995 increased 2.9% to $504.8 million from $490.4 million for
1994. The net increase resulted primarily from higher CFM56 engine repair and
overhaul service sales to USAir, offset by declines in sales from the servicing
of both low by-pass JT8D engines for Continental Airlines and high by-pass V2500
engines.
33
<PAGE>
Gross profit for 1995 decreased 20.6% to $42.2 million, or 8.4% of net
sales, from $53.2 million, or 10.8% of net sales, for 1994. The decrease was
principally attributable to unfavorable performance against assumptions used in
certain long-term maintenance contracts and the disruptive effects of re-
engineering programs at its Dallas facilities, which resulted in turnaround time
penalties in 1995 of $5.7 million under certain long-term agreements with
commercial airlines.
Selling and administrative expenses for 1995 decreased 15.1% to $30.0
million, or 6.0% of net sales, from $35.4 million, or 7.2% of net sales, for
1994. The decrease was primarily attributable to a reduction in re-engineering
related consulting expenses and lower provisions for uncollectible accounts.
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEAR ENDED DECEMBER 31, 1993
Net sales for 1994 increased 1.5% to $490.4 million from $482.9 million for
1993. This increase was primarily attributable to increases in the servicing of
the CFM56 engine product line offset by decreases in servicing other engine
product lines including CF6, PW100, JT8D and V2500.
Gross profit for 1994 decreased 14.8% to $53.2 million, or 10.8% of net
sales, from $62.4 million, or 12.9% of net sales, for 1993. A competitive 1994
pricing environment reduced gross profit percentages on most major contracts
signed during the year. Voluntary severance payments at the Dallas engine
facility also adversely affected gross profits, partially offset by lower UK
currency exchange losses in 1994 compared with 1993.
Selling and administrative expenses for 1994 increased 17.9% to $35.4
million, or 7.2% of net sales, from $30.0 million, or 6.2% of net sales, for
1993. The increase was primarily due to re-engineering related expenses,
additional marketing expenses and higher allocated corporate expenses associated
with Aviall operating as a public company.
PRO FORMA LIQUIDITY AND CAPITAL RESOURCES
Upon consummation of the Offerings, the Initial Drawdown and the Aviall
Acquisition, the Company's primary sources of liquidity will be cash flow from
operations and borrowings under the New Credit Facility. In addition, other
sources of liquidity are anticipated to be advance payments for power station
installations and other customer progress payments. Under the New Credit
Facility, lenders will provide the Company with a $175.0 million senior secured
revolving credit facility secured by the Company's accounts receivable and
inventories. Advances under the New Credit Facility will be based upon
percentages of outstanding eligible accounts receivable, inventories and
contract rights. Pursuant to the New Credit Facility, it is anticipated that an
aggregate of approximately $74.4 million will be borrowed initially pursuant to
the Initial Drawdown and approximately $3.0 million will be utilized for
outstanding letters of credit and that approximately $97.6 million will be
available for future borrowings. See "Use of Proceeds" and "Description of
Certain Indebtedness -- New Credit Facility." The Company may be required to
borrow additional amounts under the New Credit Facility in the six months
following consummation of the Aviall Acquisition in order to reduce accounts
payable and build inventory acquired in the Aviall Acquisition, as well as to
purchase additional inventory required to service certain customers under new
contracts being negotiated or under existing contracts. The New Credit Facility
will require the Company to comply with certain financial covenants (relating to
minimum ratios of cash flow to fixed charges, minimum ratio of funded debt to
cash flow and minimum tangible net worth) and other covenants, including
limitations on additional debt (in excess of the Notes, Debentures and other
currently outstanding debt), dividends and changes in control.
Under the New Credit Facility, the Company may elect to borrow at either the
lender's prime rate, plus 0.875% (subject to reduction to 0.5% or increase to
1.125% based upon the Company's achieving or failing to achieve certain
financial goals), or (ii) the LIBOR rate (adjustable every three months) plus
2.375%. As at March 31, 1996, the lender's prime rate was 7.75% and the
three-month LIBOR rate was 5.44%.
Concurrently with the Note Offering, the Company is offering 3,400,000
shares and a selling stockholder is offering 600,000 of Class B Common Stock to
the public by means of a separate Prospectus. The Company will not receive any
of the proceeds from the sale of Class B Common Stock
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<PAGE>
by the selling stockholder. The Company will, however, receive the proceeds from
the sale of its Class B Common Stock. The consummation of the Note Offering is
not contingent upon the consummation of the Common Stock Offering, and no
assurance can be given that the Common Stock Offering will be consummated. See
"Concurrent Transactions," "Principal Stockholders" and "Description of Capital
Stock."
Greenwich's aggregate capital expenditures for fiscal 1994 and fiscal 1995
and the six months ended March 31, 1996 were $1.7 million, $2.7 million and $1.7
million, respectively. The capital expenditures of the Aviall Business for 1994
and 1995 were $21.6 million and $13.2 million, respectively. Management
anticipates that the total capital expenditures for the balance of fiscal 1996
and fiscal 1997 will be approximately $6.0 million, which will be used to fund
the purchase of production tooling and data processing equipment. Management
plans to fund these capital expenditures from cash flow from operations and, if
necessary, borrowings under the New Credit Facility.
The Company's liquidity will also be affected by the substantial
indebtedness the Company will incur in connection with the financing of the
Aviall Acquisition, which will substantially increase the Company's cash
requirements for debt service and will impose various operating restrictions.
The New Credit Facility and the Indenture contain certain restrictions that,
among other things, limit the Company's ability to incur additional
indebtedness, create liens, pay dividends and make other restricted payments,
make certain investments, transact with affiliates, and consolidate, merge or
transfer assets. See "Description of Certain Indebtedness."
The success of the Company's expansion plan and its ability to meet
operating forecasts will depend in part upon its acquisition and maintenance of
adequate inventories of parts. The Company believes that its ability to stock a
broad parts inventory, including the availability of satisfactory credit and
other supplier arrangements, will enhance its efficiency and turnaround time on
overhaul, emergency repair and refurbishment work. The Company intends to fund
increases in its parts inventory, as needed, from cash flow from operations and
borrowings under the New Credit Facility. In connection with its January 1995
five-year engine service agreement with Continental Airlines, Greenwich entered
into an inventory purchase agreement with Continental Airlines in May 1995.
Under the terms of this agreement, Greenwich acquired substantially all of
Continental Airlines' JT8D engine parts inventory. The purchase price for the
inventory was negotiated as a bulk sale, with approximately 5.7% of the purchase
price paid in cash and 8.5% credited against outstanding receivables owed to
Greenwich by Continental Airlines. The remaining obligation, 85.8%, is being
satisfied in the form of service credits applied against future invoices for
services provided to Continental Airlines under the engine service agreement. As
of March 31, 1996, an aggregate of $11.9 million was owed by Greenwich to
Continental Airlines for such inventory.
On a pro forma basis, for the fiscal year ended September 30, 1995, the
Company's cash flow from operations was $154.9 million; cash used for investing
activities was $8.4 million; cash generated by financing activities was $230.3
million; and the ratio of earnings to fixed charges was 2.1:1.
Based upon current and anticipated levels of operations and plans for
integrating the Aviall Business, the Company believes that its cash flow from
operations, combined with borrowings available under the New Credit Facility,
will be sufficient to enable the Company to meet its current and anticipated
cash operating requirements, including scheduled interest and principal
payments, capital expenditures and working capital needs. On a pro forma basis,
the Company's (i) income from operations (excluding non-recurring charges) for
the twelve months ended September 30, 1995 and the six months ended March 31,
1996 totaled $55.0 million and $20.2 million, respectively and (ii) working
capital as of March 31, 1996 was $250.5 million.
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<PAGE>
The Company believes that the integration of the operations of Greenwich and
the Aviall Business following the Aviall Acquisition will result in
opportunities to improve cash flows by capitalizing on the cost savings
resulting from the elimination of duplicative functions in the areas of
administration, sales, marketing, purchasing, technical and field services and
management information systems. The Company anticipates, however, that it will
incur expenditures of approximately $8.5 million related to the integration of
the operations of Greenwich and the Aviall Business, which is expected to be
completed within the first year following the Aviall Acquisition. Such
non-recurring expenditures include amounts related to integration of management
information systems and other costs of consolidation. These non-recurring
expenditures initially will be funded through cash flow from operations and
borrowings under the New Credit Facility.
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INDUSTRY OVERVIEW
Gas turbine engines are used to power aircraft, industrial equipment and
marine vessels and to generate electrical power. A gas turbine aircraft engine
compresses air and mixes it with fuel which is ignited to create thrust. Land
based ("aeroderivative") gas turbine engines use the same technology, but
instead of creating thrust, the engine turns a drive shaft or pump to power
marine vessels, or is used in a variety of industrial applications such as power
plants. The major manufacturers of gas turbine engines are CFM International,
General Electric, International Aero Engines, Pratt & Whitney and Rolls Royce.
The need for more powerful and fuel efficient engines has led to the creation of
the larger "high by-pass" aircraft engine which captures and compresses larger
amounts of air with increases in thrust.
The Company believes that the worldwide market for aircraft gas turbine
engine repair and overhaul services is approximately $6.5 billion. Growth of the
engine repair and overhaul market is primarily driven by the activity of the
commercial aviation industry. Such market is projected to grow over the next ten
years at an annual rate of 4% in North America, 8% in the Asia-Pacific region
and 6% in Latin America. Approximately 55% of this market is currently serviced
by operators of the engines, principally major commercial airlines, for their
own engine needs. The remaining gas turbine engines are serviced by commercial
airlines, the OEMs and by a limited number of independent operators, including
the Company. Commercial airlines, OEMs and independent operators compete on the
ability to provide services tailored to each customer's requirements, turnaround
times, breadth of services offered and price.
The repair and overhaul of aircraft engines are regulated by governmental
agencies throughout the world, including the FAA and the BCAA, and is
supplemented by guidelines established by OEMs which generally require that
engines be overhauled and certain engine components and parts be replaced after
a certain number of flight hours or cycles (take-offs and landings). Engine
maintenance costs can range from $100,000 for certain repairs to as much as $1.5
million or more for a complete engine overhaul.
Certain trends within the aviation industry favoring independent overhaul
providers include:
-OUTSOURCING OF COMMERCIAL ENGINE SERVICES. In order to lower costs, many
passenger airlines and freight and package carriers are seeking to
outsource their engine servicing. Airlines such as British Airways,
Continental Airlines, Southwest Airlines and USAir currently utilize third
parties, and other airlines are expected to follow as labor agreements
allow.
-OUTSOURCING OF MILITARY MAINTENANCE SERVICES. It is estimated that the
U.S. military market is greater than the commercial aircraft market for
engine and aircraft maintenance and related services. The closing of
military bases and reductions in personnel have resulted in an increase in
the demand for these services in the commercial marketplace. As additional
bases are closed or realigned, this trend is expected to continue.
-INCREASED AIR TRAVEL. It is estimated that world air travel will grow by
70% by 2005, and the number of passenger and freight and package delivery
aircraft in service will increase by 47%, which should substantially
increase the demand for engine repair and overhaul services.
-START-UP AIRLINES. Deregulation of the aviation industry in the United
States and the European Community, relatively low barriers to entry and
excess capacity in equipment, as well as increased consumer demand for air
travel, has led to the emergence of several low cost start-up airlines.
Because start-up airlines generally do not invest in the infrastructure
necessary to service their aircraft, many outsource all of their engine
repair and overhaul services. Start-up airlines also tend to use older
aircraft with engines that require greater servicing. Consequently, the
Company believes that the growth of start-up airlines is increasing demand
for independent engine repair and overhaul services.
-GROWTH OF DEMAND FOR AIR FREIGHT AND PACKAGE DELIVERY. The demand for air
freight and package delivery is projected to grow at an average annual rate
of 7% over the next 20 years. This trend is expected to result in the
continued growth of established carriers such as Airborne Express,
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Emery Worldwide Airlines, Federal Express and United Parcel Service, and
has caused the emergence of new cargo carriers such as Atlas Air and Polar
Air. Many of these carriers also use older aircraft, increasing the demand
for engine repair and overhaul services.
-LEASING COMPANIES. The number of aircraft owned by financial institutions
or leasing companies, many of which use independent engine repair and
overhaul services, has grown from just over 200 aircraft in 1986 to over
1,000 aircraft in 1995.
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BUSINESS
GENERAL
On April 19, 1996, Greenwich and Aviall signed a definitive purchase
agreement for the acquisition by Greenwich of the gas turbine engine service and
engine components repair business of Aviall. The combination of Greenwich and
the Aviall Business will create the largest and most diversified independent gas
turbine engine repair and overhaul company in the world. On a pro forma basis,
the Company would have had combined sales of $701.1 million and EBITDA of
approximately $63.1 million in fiscal 1995.
The Company provides its services on a worldwide basis through four major
engine repair and overhaul service centers located in Dallas, Texas; Miami,
Florida; East Granby, Connecticut; and Prestwick, Scotland, supported by an
engine components repair facility in McAllen, Texas, an engine repair and
testing facility in Fort Worth, Texas and an engine testing facility at JFK
International Airport in New York.
GREENWICH
Greenwich is a leading independent provider of repair and overhaul services
for gas turbine aircraft engines used to power Boeing 707, 727, 737 and 747;
McDonnell Douglas DC-8, DC-9, DC-10 and MD-80; Airbus A-300; Lockheed L-1011;
and a variety of military aircraft. Greenwich also services aeroderivative
engines used in a variety of industrial and marine applications. In addition,
Greenwich manages government and military service and maintenance programs and
provides for the sale and refurbishment of gas turbine power plants (with
electrical power output of up to 120 megawatts) in various countries around the
world.
Greenwich provides services to more than 400 customers including passenger
airlines such as Carnival Airlines, Continental Airlines and VASP Brazilian
Airlines; freight and package air carriers such as Emery Worldwide Airlines and
United Parcel Service; banks and leasing companies such as The CIT Group and
International Air Leases; utilities and industrial users such as Commonwealth
Edison, Dow Chemical and Southern California Gas; and military and government
programs such as those involving the United States government, Boeing and
Lockheed Martin. Greenwich's principal engine repair, overhaul and testing
facilities are located at Miami International Airport, Miami, Florida; Bradley
International Airport, East Granby, Connecticut; JFK International Airport, New
York, New York; and Westover Airport, Chicopee, Massachusetts. Greenwich's net
sales have increased from $75.8 million in fiscal 1991 to $196.3 million in
fiscal 1995.
Greenwich is organized into four marketing and technical units: (i)
commercial aircraft engines, (ii) government programs, (iii) industrial and
marine engines and (iv) power stations. These groups comprised 71%, 14%, 10% and
5%, respectively, of fiscal 1995 net sales.
In October 1987, Greenwich acquired substantially all of the operating
assets and business of a Miami-based aircraft service corporation. At the time
of the acquisition, the corporation was primarily engaged in structural airframe
maintenance and the repair and servicing of low by-pass Pratt & Whitney JT3D
engines and components operated by affiliates of its former owners, with sales
to such entities accounting for approximately 30% of its net sales. Upon
obtaining control, Greenwich's management established the strategic goals of
expanding the number and types of gas turbine engines serviced and increasing
the existing customer base to include more package and freight air carriers,
industrial and marine users, and military and government agencies.
In order to focus on the higher profit margin gas turbine engine repair and
related services business, Greenwich sold in 1990 the assets of a division that
serviced small turboprop engines. In 1991, management decided to de-emphasize
Greenwich's efforts in the highly competitive and labor-intensive structural
airframe business and continued to diversify into additional engine lines and
models in order to reduce Greenwich's dependence on the low by-pass JT3D engine,
an older engine which was out of production and supported by a diminishing
market. Servicing of the JT3D engine represented 12% of Greenwich's net sales in
fiscal 1995.
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In 1992, Greenwich moved its principal operations from a 200,000 square foot
facility near the cargo center of Miami International Airport to the 480,000
square foot engine service center formerly operated by Eastern Airlines.
Concurrent with entering into a favorable thirty-year lease for the larger
facility, which includes three on-site engine test cells, Greenwich acquired
from the Eastern Airlines estate substantially all of the equipment and tooling
necessary for the repair and maintenance of Rolls Royce RB211-22B and General
Electric CF6-6 and CF6-50 high by-pass aircraft engines. This paved the way for
Greenwich's entry into the servicing market for these larger and more efficient
engines, which are used to power wide-body aircraft such as the Airbus A300,
Boeing 747, Lockheed L-1011 and McDonnell-Douglas DC-10.
In late 1993, Greenwich raised approximately $23.7 million in capital
through its initial public offering of Class A Common Stock and the Debentures.
Using the proceeds from that offering along with additional bank financing, in
April 1994 Greenwich, through its newly-formed subsidiary GTC, acquired the
operating assets and business of the GTC Division from Chromalloy Gas Turbine
Corporation, a competitor of Greenwich that had the capability to repair certain
engine lines and models that Greenwich did not then service, including the Pratt
& Whitney JT8D-200 medium by-pass aircraft engine and GG4 industrial engine. The
acquisition also provided Greenwich with additional test cell capabilities for
high by-pass engines, including the Pratt & Whitney JT9D. Greenwich also
acquired the GTC Division's well-established power station design and
installation operation. In fiscal 1994, the operations of the GTC Division
contributed sales of $28.9 million for the five and one-half months during which
it was owned by Greenwich, which increased in fiscal 1995 to $72.4 million,
reflecting a full year of operations.
As a result of these actions:
- Net sales (excluding the de-emphasized structural aircraft services
business) increased from $68.7 million in fiscal 1991 to $196.3 million in
fiscal 1995;
- Net income and EBITDA increased from $3.5 million and $10.1 million,
respectively, in fiscal 1991, to $6.2 million and $19.9 million,
respectively, in fiscal 1995;
- Net sales from the servicing of high by-pass engines increased to $24.1
million in fiscal 1995, or 12% of Greenwich's total sales, since
initiation of these services in fiscal 1992;
- Net sales from the low by-pass engine services and lower margin aircraft
structural services decreased from $45.8 million, or 64% of total sales,
in fiscal 1989 to $24.2 million, or 12% of total sales, in fiscal 1995;
- Net sales from the servicing of industrial and marine gas turbine engines
and related services increased from $2.5 million, or 3% of total sales, in
fiscal 1989 to $19.0 million, or 10% of Greenwich's total sales, in fiscal
1995;
- Net sales from programs supporting military and government agencies
increased from $3.7 million, or 5% of total sales, in fiscal 1989 to $27.9
million, or 14% of total sales, in fiscal 1995; and
- Net sales from power station installations were $10.5 million, or 5% of
total sales, in the first full year following the acquisition of the GTC
Division.
THE AVIALL BUSINESS
The Aviall Business is the leading independent provider of gas turbine
aircraft engine maintenance and engine components repair services. The Aviall
Business provides repair and overhaul services for gas turbine engines used to
power Boeing 727, 737, 747 and 767; McDonnell Douglas DC-9, DC-10, MD-11, MD-80
and MD-90; and Airbus A-300, A-319, A-320, A-321, A-330 and A-340 aircraft, and
also services turboprop engines predominantly used by regional air carriers. The
primary customer base of the Aviall Business includes major and regional
commercial air and freight and package carriers such as America West, British
Airways, Continental Airlines, Federal Express, Southwest Airlines and USAir.
The engine repair and overhaul operations of the Aviall Business are located in
Dallas, Texas; Fort Worth, Texas; and Prestwick, Scotland, and its components
repair operations are located in McAllen, Texas.
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Aviall's engine repair and overhaul operations date back to 1932, and in
1955 it became the world's first major independent gas turbine engine repair
facility. These operations have been owned by Aviall since Aviall was spun-off
from Ryder in 1993. The Aviall Business' net sales have increased to $504.8
million in 1995 from $482.9 million in 1993. The Aviall Business has spent in
excess of $84.0 million over the last five calendar years to build
state-of-the-art engine repair and overhaul facilities and to develop programs
designed to provide the fastest overhaul turnaround time in the engine repair
and overhaul industry. However, its operating income has declined significantly
over this period. These declines in profitability can be attributed to a variety
of factors, including unfavorable pricing granted to certain customers,
inefficiencies in its overhaul operations, expenses associated with
reengineering its facilities, and significant costs and penalties on specific
contracts where the Aviall Business was unable to meet contractual requirements.
COMPANY STRATEGY
INTEGRATION PLAN
The Company's strategy following the Aviall Acquisition is to improve the
profitability of the Aviall Business, enhance services offered to the Company's
customers and to maintain Greenwich's historical efficiency. The Company intends
to implement this strategy by:
- ACHIEVING COST REDUCTIONS. The Aviall Acquisition will enable the Company
to eliminate duplicative functions currently being performed by both
Greenwich and the Aviall Business in the areas of administration, finance,
sales, marketing, purchasing, technical and field services, and MIS
systems. The Company will also eliminate a portion of certain other
corporate overhead charges which have historically been allocated by
Aviall to the Aviall Business. In addition, the Company will benefit by
having Greenwich utilize the Aviall Business' components repair facility
to perform work that Greenwich formerly contracted out to third parties.
- IMPROVING OPERATING EFFICIENCIES. Greenwich believes that it is one of
the most efficient providers of gas turbine engine repair and overhaul
services. The Company intends to achieve greater production and operating
efficiencies by realigning engine repair and overhaul services among its
several facilities. The Company also intends to integrate the MIS systems
which have been successfully utilized by Greenwich with those of the
Aviall Business. These MIS systems are expected to provide the Company's
management with the ability to monitor operating costs utilizing real-time
data while enhancing the information flow to the Company's customers.
- IMPROVING CONTRACTUAL PERFORMANCE. Greenwich believes that its
experienced and entrepreneurial management team will enable the Aviall
Business to improve engine turnaround time and reduce related contractual
penalties through increased productivity of the Aviall Business' domestic
workforce and improved operating and production efficiencies. The Aviall
Business incurred contractual penalties of approximately $6.2 million in
1995, primarily for late deliveries on scheduled engine overhauls.
STRATEGIC OBJECTIVES
Upon integration of Greenwich and the Aviall Business, the Company's
long-term strategic objectives will be to improve its profitability, maintain
its position as the world's largest independent provider of gas turbine engine
repair and overhaul services, and accelerate its growth. The Company's strategic
objectives may be summarized as follows:
- SERVICE NEW ENGINE LINES AND MODELS. Greenwich has successfully
implemented a strategy to increase the number of engine lines and models
serviced by its facilities, thereby creating new market opportunities
while offering its customers one-stop shopping capability. The Company
will continue this strategy and seek to develop servicing capabilities for
additional high by-pass and high horsepower gas turbine engines. Many of
the Company's existing customers use engines for which the Company
currently has no servicing capabilities and development of such
capabilities would present the Company with opportunities to expand the
services provided to these customers.
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- OFFER ADDITIONAL SERVICES TO EXISTING CUSTOMERS. Many of the engine lines
and models serviced by the Aviall Business are not currently serviced by
Greenwich and many of the engine lines and models serviced by Greenwich
are not currently serviced by the Aviall Business. The Company believes
that opportunities exist to provide services to customers of both
Greenwich and the Aviall Business for engine lines and models previously
serviced by competitors. Continental Airlines is the only major customer
serviced by both Greenwich and the Aviall Business.
- SERVICE AERODERIVATIVE ENGINE LINES. Certain of the engine lines serviced
by the Company for its airline and cargo customers have aeroderivative
engine lines used in industrial, marine and military applications.
Greenwich has been successful in providing service to the aeroderivative
gas turbine engine market, resulting in sales growth in these services
from $10.5 million in 1992 to $19.0 million in 1995.
- EXPAND SERVICE TO REGIONAL CARRIERS. The Aviall Business is a leading
provider of engine repair and overhaul services for the PW-100, an engine
predominantly used by regional carriers. The Company believes that this
market has the potential for substantial growth and that the Company will
be well-positioned to capture a larger share of this market.
ENGINE SERVICES
GENERAL
The gas turbine engine services provided by the Company include (i) engine
disassembly, (ii) cleaning of parts, (iii) inspection and nondestructive testing
for wear and damage, including cracks, erosion and sizing, (iv) evaluation of
necessary repairs, (v) the repair or replacement of parts, accessories or
components, (vi) reassembly and (vii) performance testing. The Company
identifies and tracks the parts from each individual engine throughout the
overhaul process in order to maintain the integrity of the engines it services.
The engine services offered by the Company also include 24-hour emergency
repairs whereby the Company will dispatch its personnel to repair engine
components or replace parts while the engine is mounted on the aircraft. The
Company also provides customers with quick engine change ("QEC") services on an
emergency basis. QEC services enable the customer to remove the aircraft engine
with its components attached. The Company then replaces or repairs components
while the engine is being serviced, tests the engine and components assembly,
and returns the refurbished product to the customer, ready for remounting on the
aircraft.
There are three primary reasons for removing an engine from an aircraft for
servicing: (i) an engine has been utilized to the point where the life limit for
one of its parts has been reached and the part must be replaced, (ii) the engine
has been damaged or (iii) the aircraft instrumentation system indicates that the
engine is not performing optimally. The cost of servicing an engine that has
been removed for these or other reasons may vary from $100,000 to more than $1.5
million, depending upon the age, size and model of engine, and the extent of the
repairs being performed.
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ENGINES SERVICED BY THE COMPANY
The following table sets forth: (i) the lines of gas turbine engines which
the Company services as of the date of this Prospectus, (ii) the number of such
engines currently in service as estimated by Greenwich, (iii) the principal
applications of such engines and (iv) whether such engines are currently being
serviced by Greenwich and/or the Aviall Business.
<TABLE>
<CAPTION>
SERVICED BY
------------------------------
NUMBER IN AVIALL
LINES SERVICE PRINCIPAL ENGINE APPLICATION (1) GREENWICH BUSINESS
- -------------------------------- ----------- ------------------------------------------ --------------- -------------
<S> <C> <C> <C> <C>
PRATT & WHITNEY
JT3D 1,888 DC-8, 707 yes no
JT8D-7-17 10,300 DC-9, 727, 737 yes yes
-200 2,600 727, MD-80 yes yes
JT9D 2,683 747,767,DC-10, A300, A310 yes no
PW100; 118-127(2) 3,000 ATR-42, ATR-72, DHC-8, EMB-120, F50 no yes
GG3 83 Industrial yes no
GG4 1,013 Industrial and marine yes no
J52 1,100 Military aircraft yes no
GENERAL ELECTRIC
CF6-6 466 DC-10 yes yes
-50 2,181 DC-10, 747, A300 yes yes
-80 2,000 MD-11, 747, 767, A300, A310, A330 no yes
LM1500 74 Industrial and marine yes no
LM2500 1,200 Industrial and marine yes no
ROLLS ROYCE
RB211-22B 500 L-1011 yes no
Avon 1,120 Industrial and marine yes no
CFM INTERNATIONAL
CFM56-3, -5 6,000 737, A320, A321, A340 no yes
INTERNATIONAL AERO ENGINES
V2500 400 A319, A320, A321, MD-90 no yes
</TABLE>
- ------------------------
(1) Aircraft designated as (i) DC-8 through DC-10 or MD-11 through MD-90 are
manufactured by McDonnell Douglas, (ii) 707 through 767 are manufactured by
Boeing, (iii) L-1011 are manufactured by Lockheed Martin; (iv) A300 through
A340 are manufactured by Airbus; (v) ATR-42 and -72 are manufactured by
Aerospatiale; (vi) DHC-8 are manufactured by De Havilland; (vii) EMB-120 are
manufactured by Embraer Brasilia; and (viii) F50 are manufactured by Fokker.
(2) Excludes the PW 119B, 123AF and 124A models.
The Company continues to overhaul and provide repair services for the low
by-pass Pratt & Whitney JT3D line of engines at its Miami, Florida and East
Granby, Connecticut facilities. Although production of this line of engines was
discontinued in 1978, a number of smaller charter and cargo carriers continue to
utilize these engines, which require increasing amounts of service as they age.
Although net sales from JT3D engine servicing originally represented a
substantial percentage of Greenwich's engine service net sales, Greenwich has
significantly reduced its dependence on such sales over the past five years.
The Pratt & Whitney JT8D engine line includes the modern medium by-pass
engine models (-209, -217 and -219), which are currently in production, and the
low by-pass engine models (-7 to -17) which are no longer in production. The
total market for medium by-pass JT8D-200s is approximately 2,600 units and the
Company expects this market to grow moderately in the next five years.
Approximately 10,300 low by-pass JT8D engines are currently in use worldwide.
Certain of the low by-pass JT8D engines do not meet present and future
regulatory noise reduction requirements in the United States
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and in Europe. However, there are several noise reduction kits available to JT8D
operators. The Company expects the number of low by-pass JT8D engines will
decline as they are replaced by newer, more fuel-efficient engines and as noise
reduction restrictions are phased in.
The PW100 turboprop engine, manufactured by Pratt & Whitney of Canada, was
introduced into commercial service in 1985. This engine line has approximately
3,000 units in use and is overhauled at the engine repair and testing facility
of the Aviall Business in Fort Worth, Texas.
International Aero Engines ("IAE") received certification from the FAA for
the V2500 engine line in 1988. Manufacturing participants in the IAE consortium
include Pratt & Whitney, Rolls Royce, MTU, Japanese Aero Engine Corporation and
FiatAvio. The Aviall Business began developing the first authorized V2500
maintenance facility in the western hemisphere in 1989 and completed its first
overhaul of that engine in 1992. There are currently approximately 400 V2500
engines in use, and the Company expects the number of such engines in use to
increase significantly over the next five years.
While manufacturers introduce new engine lines infrequently, they routinely
offer derivative models of existing engines. The Company continually evaluates
new engine lines, models and derivatives to determine whether the potential
demand for overhaul services justifies the expenditures required for inventory
and modifications to tooling and equipment. The Company has acquired tooling
required to service Rolls Royce RB211-524, and -535E4 engine models used on the
L-1011, 747, 757 and 767 aircraft, and is presently developing strategies to
enter these markets.
The Company also maintains a limited inventory of aircraft engines for
short-term rental to its overhaul customers. Such rental engines are generally
rented to customers for the period during which the customers' engines are
undergoing service by the Company's repair and overhaul operations.
GOVERNMENT PROGRAMS
Greenwich has, since 1987, provided engine, aircraft and accessory services
to the United States military and other domestic and foreign government
agencies. Greenwich acts as a subcontractor to major defense contractors, and in
fiscal 1993, Greenwich began actively bidding as a prime contractor to manage
military and government programs related to engine and aircraft services,
material distribution and logistics. During 1995, the Company was awarded two
major long-term contracts. The first was a three-year contract from Lockheed
Martin Aircraft Services to provide engine maintenance, training and logistics
support for 36 A-4M Skyhawk aircraft for the Argentina Air Force. The Company
anticipates that net sales under this contract will exceed $20.0 million. The
second was a three-year contract from Warner Robins Air Logistics Center to
overhaul and modify Pratt & Whitney JT3D engines in support of the U.S. Air
Force and U.S. Army E-8 Joint STARS aircraft. The Company anticipates that net
sales under this contract will approximate $22.0 million. The Aviall Business
also services aircraft engines used in military applications.
In fiscal 1993, 1994 and 1995, Greenwich's net sales to military and other
government agencies accounted for 21%, 20% and 14% of Greenwich's net sales,
respectively. On a pro forma basis, sales to military and other government
agencies accounted for approximately 6% of the Company's net sales in fiscal
1995.
INDUSTRIAL AND MARINE GAS TURBINE ENGINES
Industrial and marine gas turbine engines are used for an increasing variety
of applications, including driving pumps and compressors for oil and gas
pipelines, generating electric power for electric utilities, cogeneration
projects and industrial applications, and powering commercial and naval vessels.
The gas turbine engine, coupled with an exhaust heat recovery steam generator,
is an attractive technology for energy cogeneration (the production of
electricity and heat for process applications in a common facility) because it
is thermodynamically efficient and has a relatively low capital cost.
The number of high horsepower gas turbine engines for industrial and marine
use has increased significantly over the last ten years. For example, according
to General Electric, the number of General
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<PAGE>
Electric LM2500 industrial and marine engines in use has increased from
approximately 440 in 1981 to approximately 1,200 in 1995. Gas turbine industrial
and marine engines generally require an initial major overhaul after five years
of use and more frequently thereafter.
In fiscal 1993, fiscal 1994, and fiscal 1995, Greenwich's net sales from the
servicing of industrial and marine gas turbine engines and components accounted
for approximately 20%, 14% and 10%, respectively, of Greenwich's net sales. On a
pro forma basis, such sales accounted for approximately 3% of the Company's net
sales during fiscal 1995.
In addition to engine manufacturers, industrial and marine gas turbine
engines are serviced by a number of independently owned service providers,
including the Company. Based upon actual overhaul and refurbishment operations
performed in 1993, 1994 and 1995, and estimates received from General Electric
as to the number of General Electric LM2500 engines scheduled for overhaul or
refurbishment for the balance of calendar 1996 and in calendar 1997 and 1998,
the Company believes that the opportunity to service these engines will continue
to increase.
ENGINE COMPONENT AND ACCESSORY REFURBISHMENT
In addition to its gas turbine engine repair and overhaul services, the
Company also maintains an engine components repair operation in McAllen, Texas.
This operation provides gas turbine engine blade and vane repairs which require
a high level of expertise, advanced technology and sophisticated equipment.
These services were primarily provided to the engine repair and overhaul service
centers of the Aviall Business in Dallas, Texas and Prestwick, Scotland as
support for the engine repair and overhaul operations conducted at those
facilities. Upon completion of the Aviall Acquisition, such support will be
offered to all of the Company's service center operating facilities, including
those in Miami, Florida and East Granby, Connecticut. The accessory
refurbishment services offered by the Company also include the repair,
refurbishment and overhaul of numerous accessories and components mounted on gas
turbine engines, aircraft wings and frames or fuselages. Engine accessories
include fuel pumps, generators and fuel controls. Components include pneumatic
valves, starters and actuators, turbo compressors and constant speed drives,
hydraulic pumps, valves and actuators, electro-mechanical equipment and
auxiliary power unit accessories.
POWER STATIONS
The Company, through its wholly-owned subsidiary Greenwich Turbine, Inc.
("GTi"), provides worldwide management services for the design, sale,
refurbishment, and installation of complete gas turbine power plants with
electrical power output of up to 120 megawatts. The services provided include
the repair and overhaul of industrial and marine engines, and free turbines and
modules, as well as the installation of the equipment, start up, training, and
on-site testing. Depending on customer needs, GTi offers complete turnkey
operations or equipment only. In addition, GTi offers total turbine on-site
services worldwide.
During fiscal 1994, Greenwich had net sales of $3.0 million from power
station design work related to the installation of a 25 megawatt power station
for the national power company of the West African nation of Senegal. This
installation was completed in the second quarter of fiscal 1995, and Greenwich
had net sales of $7.0 million related to the completion of this project during
fiscal 1995. The Company is also designing and installing a 40 megawatt power
station for a municipal utility company in the United States, which installation
is planned to be completed in fiscal 1996. Greenwich generated $1.9 million in
net sales from this project in fiscal 1995.
ENGINES SERVICES AGREEMENTS
The Company generally provides services for regular customers under service
agreements providing for payments based upon any one of the following
arrangements:
- A time and materials formula normally predicated upon a negotiated hourly
labor rate multiplied by the actual hours expended plus a charge for
materials used and other subcontracted vendor services;
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<PAGE>
- Fixed price arrangements for components, modules and accessories, as well
as total engine overhauls based on specific work scopes; and
- For customers who wish to enter into long-term arrangements for scheduled
engine overhauls with predefined and scheduled payment terms, the Company
offers "power-by-the-hour" ("PBTH") agreements. A PBTH agreement requires
the customer to pay an hourly rate for engine services over the life of
the agreement based on the greater of actual flight hours or a minimum
number of monthly flight hours established in advance.
SALES AND MARKETING
The Company's marketing organization is comprised of four marketing and
technical groups: (i) commercial aircraft engine services, (ii) government
programs development, (iii) industrial and marine engine services and (iv) power
station sales. Members of the Company's senior management are responsible for
the coordination and overall performance of each of these groups. Direct sales
personnel include key employees with contacts in their respective industries. In
addition, the Company advertises in trade, technical and industrial journals and
maintains close working relationships with engine and aircraft manufacturers, as
well as with industrial and marine engine users.
The Company believes that the critical factors for customers in selecting an
engine repair and overhaul vendor are dependable performance through prompt
turnaround time and engine reliability, as well as responsiveness, price and
flexibility. The Company's gas turbine engine repair and overhaul operation
attempts to differentiate itself from the competition through flexibility and
customer responsiveness. This includes meeting delivery commitments, providing
around-the-clock service, customizing workscopes to the specific requirements of
each engine overhauled and offering state-of-the-art technical facilities and
expertise, including the development of new repairs. In marketing its services,
the Company emphasizes its experience in the repair, maintenance, refurbishment
and overhaul of aircraft gas turbine engines of various sizes and thrust
capacities and aeroderivative gas turbine engines. The Company also emphasizes
its domestic and international service capabilities; its turnaround time
performance; quality of work performed; extensive technical libraries; employee
training programs; and competitive pricing structures. The Company's turnaround
time for completing a gas turbine engine overhaul depends primarily upon the
size of the engine, availability of tooling, equipment and required parts, the
amount of repair needed for key components or accessories and the Company's
ability to perform such repairs in-house. The Company believes that following
the Aviall Acquisition, its Miami, Florida and East Granby, Connecticut
facilities will be able to improve their turnaround time by having access to the
engine components repair facility in McAllen, Texas.
CUSTOMERS
The Company provides services to more than 500 customers, primarily in the
commercial aviation industry, the natural resources and electrical utility
industries and government and military agencies. On a pro forma basis,
Continental Airlines would have accounted for 17% of the Company's net sales,
the top five customers of the Company would have accounted for $332.5 million,
or 47% of the Company's net sales, and sales to foreign customers would have
accounted for $184.6 million, or 26% of the Company's net sales, during fiscal
1995. On a pro forma basis, during fiscal 1995, the Company generated $412.3
million in net sales under long-term agreements. Four of the Company's top five
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customers were rendered services under these long-term agreements. No assurance
can be given that these agreements will be renewed upon commercially reasonable
terms or at all. The Company's principal customers are noted below:
<TABLE>
<CAPTION>
ALASKA AIRLINES DHL AIRWAYS NORTHWEST AIRLINES
<S> <C> <C>
AMERICA WEST DOW CHEMICAL PETROLEOS MEXICANOS (PEMEX)
ARCO ALASKA EMERY WORLDWIDE PROCTER & GAMBLE
BOEING FEDERAL EXPRESS SOUTHERN CALIFORNIA GAS
BRITANNIA FLORIDA POWER SOUTHWEST AIRLINES
BRITISH AIRWAYS GULF AIR TRANSCANADA PIPELINES
BURLINGTON AIR EXPRESS HAWAIIAN AIRLINES UNITED PARCEL SERVICE
CARNIVAL AIRLINES INTERNATIONAL AIR LEASES UNITED STATES GOVERNMENT
COMMONWEALTH EDISON LOCKHEED MARTIN USAIR
CONTINENTAL AIRLINES NORTHROP GRUMMAN VASP BRAZILIAN AIRLINES
</TABLE>
COMPETITION
The Company believes that the primary competitive factors in its industry
are quality, turnaround time, overall customer service and price. The Company
believes that it competes favorably on the basis of the foregoing factors.
Additionally, the Company believes that the large number of engine lines and
models it services provide it with a competitive advantage. The Company does not
believe that the location of its facilities is a significant factor to its
customers in selecting the Company, because substantially all of the engines
serviced by the Company are transported by common carrier to the Company's
facilities for service.
Competition for large airline engine repair and overhaul business comes from
three primary sources: major commercial airlines, OEMs and other independent
engine service companies. Certain major commercial airlines own and operate
engine and aircraft maintenance service centers. The engine repair and overhaul
services provided by domestic airlines are primarily for their own engines,
although these airlines outsource a limited amount of engine repair and overhaul
services to third parties. Foreign airlines which provide engine repair and
overhaul services typically provide these services for their own engines and for
third parties. The Company estimates that commercial airlines service
approximately 67% of the total aircraft engine repair and overhaul service
market, of which 12% of such total market represents engine repair and overhaul
services performed for third parties. OEMs such as General Electric, Pratt &
Whitney, Rolls Royce and CFM International also maintain gas turbine engine
service centers which provide repair and overhaul services for the aircraft and
aeroderivative gas turbine engines they manufacture. Other independent engine
service organizations also compete for the repair and overhaul business of other
users of large engines.
GOVERNMENT REGULATION
The FAA and the BCAA regulate providers of services on aircraft engines and
frames. As the holder of FAA Class 3 power plant repair station certificates for
its facilities in Dallas, Texas; Miami, Florida; and East Granby, Connecticut,
the Company is authorized to service all lines and models of gas turbine
aircraft engines. These certificates provide the Company with the competitive
advantage of not being required to obtain separate FAA certification of each
line of gas turbine aircraft engine it elects to service. The Company also has
separate FAA airframe and accessory class ratings. The Company's FAA
certificates cover all of the Company's operating facilities in the United
States. The Caledonian Operation holds a certification from the BCAA. Aside from
its FAA and BCAA certifications, the Company does not hold any material patents,
trademarks or licenses.
MANUFACTURER'S AUTHORIZATIONS
The Company has contractual relationships with OEMs that enable it to
provide services to its customers on favorable terms. These agreements enhance
the Company's ability to service such engines and outline the training and
support services which the manufacturer will furnish to the Company. Such
contractual relationships take the form of general terms agreements or more
formal approval and authorization agreements and licensing authorizations to
perform proprietary repairs.
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<PAGE>
The Company's management believes that its relations with OEMs are
excellent. The Company knows of no reason for OEMs to fail to renew or terminate
these agreements. However, no assurance can be given that these agreements will
be renewed upon commercially reasonable terms or at all.
EMPLOYEES
As of March 31, 1996, on a pro forma basis, the Company had approximately
3,110 full-time employees.
The Company's employees located in Miami, Florida; East Granby, Connecticut;
McAllen, Texas; and Prestwick, Scotland are not represented by any labor union.
The Company believes that its relations with employees at these locations are
good.
The Aviall Business has approximately 570 hourly employees in Dallas and
Fort Worth, Texas, who are covered by collective bargaining agreements. Under
the Purchase Agreement with Aviall, neither Greenwich nor the Company will
assume these collective bargaining agreements. See "Risk Factors -- Potential
Labor Issues."
In order to respond to changes in technology and new types of engines,
accessories and components, the Company conducts both formal classroom and
on-the-job training programs. The training programs include instruction on gas
turbine engines, components and airframes. Customers and vendors often utilize
the Company's training department to assist them in training both their
experienced personnel and apprentices on newly assigned equipment.
ENVIRONMENTAL MATTERS
The Company's operations are subject to extensive, and frequently changing,
federal, state and local environmental laws and substantial related regulation
by government agencies, including the United States Environmental Protection
Agency (the "EPA") and the United States Occupational Safety and Health
Administration. Among other matters, these regulatory authorities impose
requirements that regulate the operation, handling, transportation, and disposal
of hazardous materials, the health and safety of workers, and require the
Company to obtain and maintain licenses and permits in connection with its
operations. This extensive regulatory framework imposes significant compliance
burdens and risks on the Company. Notwithstanding these burdens, the Company
believes that it is in material compliance with all federal, state, and local
laws and regulations governing its operations.
The Company is principally subject to the requirements of the Clean Air Act
of 1970 (the "CAA"), as amended in 1990; the Clean Water Act of 1977; the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"); the Resource Conservation Recovery Act of 1976 (the "RCRA"); and the
Hazardous and Solid Waste Amendments of 1984 ("HSWA"). The following is a
summary of the material regulations that are applicable to the Company:
The CAA imposes significant requirements upon owners and operators of
facilities that discharge air pollutants into the environment. The CAA mandates
that facilities which emit air pollutants comply with certain operational
criteria and secure appropriate permits. Additionally, authorized states such as
Florida, Connecticut, Texas, and New York may implement various aspects of the
CAA and develop their own regulations for air pollution control. The Miami
facility presently holds an air emission permit for its engine test cells issued
by Dade County, Florida. The Company intends to conduct an air emissions
inventory and health and safety audit of the facility within the next six months
and, depending upon the results of such assessments, may find it necessary to
secure additional permits and/or to install additional control technology, which
could result in the initiation of an enforcement action, the imposition of
penalties and the possibility of substantial capital expenditures.
CERCLA, as amended by the Superfund Amendments and Reauthorization Act of
1986 ("SARA"), is designed to respond to the release of hazardous substances.
CERCLA's most notable objectives are to provide criteria and funding for the
cleanup of sites contaminated by hazardous substances and impose strict
liability on parties responsible for such contamination namely, owners and
operators of
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facilities or vessels from which such releases or threatened releases occur, and
persons who generated, transported, or arranged for the transportation of
hazardous substances to a facility from which such release or threatened release
occurs.
Ground water contamination was documented at the Company's Miami facility
and surrounding areas prior to the Company's occupation of the facility. Ground
water contamination is also suspected at the western portion of the Miami
International Airport (where the Company formerly conducted operations) and
adjoining areas. Remediation of the impacted ground water by Dade County is
currently underway. Under the terms of its lease of the Miami facility, Dade
County has agreed to indemnify the Company for all remediation and cleanup costs
associated with pre-existing contamination, unless such contamination occurred
as a result of the Company's operations. If Dade County were to default in its
indemnification obligations, the Company could potentially incur liability under
CERCLA or Florida law for hazardous substances released at or from the Miami
facility and for conditions in existence prior to the Company's occupancy. To
date, the Company has not been held liable for any investigation or cleanup
costs at either of these sites.
Ground water and soil contamination was also detected at the New York
facility prior to the Company's occupancy. The sources of contamination were not
positively identified and may be related to past facility operations or
originating from off-site. The site leases with the Port of Authority of New
York ("PANY") provide that the Company will be fully indemnified for
pre-existing conditions and for any off-site contamination migrating onto the
leasehold. The Company will be responsible for any increase in contamination
above the levels established as pre-existing conditions. If PANY defaults in its
indemnification obligations, the Company could incur liability under CERCLA and
New York law for the remediation of the contamination.
On April 19, 1996, the Texas Natural Resource Conservation Commission issued
a letter to Aviall requiring the submittal of a plan and associated schedule for
the characterization, assessment and potential remediation of documented levels
of trichlorethylene in the ground water at the Dallas facility. The Company
intends to submit its plan and schedule in a timely manner. Depending upon the
results of the characterization and assessment, remediation of the ground water
may be required. Under the terms of the Purchase Agreement, Aviall has agreed to
indemnify the Company for all remediation and cleanup costs associated with
preexisting conditions at the Dallas facility prior to the consummation of the
Aviall Acquisition. If remediation of the ground water is required and if Aviall
defaults on its indemnification obligations, then the Company could incur costs
associated with such remediation.
RCRA and EPA's implementing regulations establish the basic framework for
federal regulation of hazardous waste. RCRA governs the generation,
transportation, treatment, storage and disposal of hazardous waste through a
comprehensive system of hazardous waste management techniques and requirements.
RCRA requires facilities such as the Company's that treat, store, or dispose of
hazardous waste to comply with enumerated operating standards. The Company
believes that its facilities are in material compliance with all currently
applicable RCRA requirements, hold all applicable permits required under RCRA,
and are operating in material compliance with the terms of all such permits.
Many states, including Florida, have created programs similar to RCRA for
the purpose of issuing annual operating permits and conducting routine
inspections of such facilities to ensure regulatory compliance. A routine
inspection in October 1995 by the Florida Department of Environmental Protection
("FDEP") of the Miami facility identified several hazardous waste concerns,
including, without limitation, the Company's alleged failure to provide the
required personnel training, spill prevention program, and profiles of certain
stored waste, which may result in the initiation of an enforcement action and
the assessment of substantial penalties. The Company has subsequently addressed
each of the items identified in the FDEP inspection.
As part of the HSWA which amended RCRA, Congress enacted federal regulations
governing the underground storage of petroleum products and hazardous
substances. The federal underground storage tank ("UST") regulatory scheme
mandates that EPA establish requirements for leak detection, construction
standards for new USTs, reporting of releases, corrective actions, on-site
practices and record-keeping, closure standards, and financial responsibility.
Some states, including Florida, have
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<PAGE>
promulgated their own performance criteria for new USTs, including requirements
for spill and overfill protection, UST location, as well as primary and
secondary containment. The Company believes that its facilities are in material
compliance with the federal and state UST regulatory requirements and
performance criteria.
The three USTs at the Miami facility (which have been tested tight and are
properly permitted and registered) are steel tanks that are required under
Florida law to be retrofitted with secondary containment and leak detection
devices. To date, Dade County, which regulates the tanks on a local level, has
not directed that the tanks be retrofitted nor has it assessed any penalties for
operation without secondary containment or leak detection devices. Under the
terms of the lease of the Miami facility, Dade County agreed to indemnify the
Company for liabilities due to pre-existing conditions, which may include the
USTs. If Dade County does not provide this indemnification under the lease, the
Company could be subject to an enforcement action and penalties for failure to
replace or upgrade the tanks and could incur additional costs in replacing or
upgrading the tanks.
The USTs at the New York facility were transferred to the Company at the
time of sale, and the Company assumed all associated risks. In October 1994, a
jet fuel spill occurred during the filling of one of the tanks. The Company
completed remediation activities in 1995. Although the New York Department of
Environmental Conservation was notified within a week of the spill, there is a
possibility that the Company could be subject to an enforcement action and
penalties. During a recent audit conducted at the New York facility, two
additional USTs were identified; the status and permitting requirements for
these tanks and potential discharges are currently being assessed. Although
unknown at this point, the Company could be subject to an enforcement action and
penalties, as well as be required to make capital expenditures, the amount of
which cannot be estimated, to replace or upgrade these tanks in the future.
Ground water and soil contamination from spills and leaking USTs was also
documented at the Company's Fort Worth, Texas facility. Remediation of the
impacted ground water and soil was undertaken by the Company's predecessor in
interest, Aviall, which intends to seek closure from the Texas Natural Resource
Conservation Commission. Under the terms of the Purchase Agreement, Aviall has
agreed to remediate the contamination and has agreed to indemnify the Company
for all remediation and cleanup costs associated with pre-existing conditions at
the facility prior to the acquisition. If Aviall were to default on its
indemnification obligations, then the Company could potentially incur liability
for petroleum product releases at or from the Fort Worth, Texas facility and
from conditions in existence prior to the Company's occupancy of the facility.
The Company is also subject to a variety of environmental-related worker and
community safety laws. The Occupational Safety and Health Act of 1970 ("OSHA")
mandates general requirements for safe workplaces for all employees. In
particular, OSHA provides special procedures and measures for the handling of
certain hazardous and toxic substances. In addition, specific safety standards
have been promulgated for workplaces engaged in the treatment, disposal or
storage of hazardous waste. Requirements under state law, in some circumstances,
may mandate additional measures for facilities handling materials specified as
extremely dangerous. The Company believes that its operations are in material
compliance with OSHA's health and safety requirements, and anticipates upgrading
its facilities at a cost that may exceed $100,000; however, the Company believes
that such expenditures will not materially affect the Company's financial
conditions or operating results.
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PROPERTIES
The following table sets forth the principal operating facilities of the
Company. The Company will, in the normal course of business, from time to time
rent additional properties for warehousing and short-term maintenance
activities.
<TABLE>
<CAPTION>
SQUARE OWNED/
LOCATION FOOTAGE LEASED FUNCTION
- ------------------------------------------------ --------- --------- ------------------------------------------
<S> <C> <C> <C>
Miami International Airport 497,000 Leased Engine repair, overhaul, and testing;
Miami, FL executive offices
Bradley International Airport 112,000 Both Engine overhaul
East Granby, CT
Westover Airport, 91,000 Leased Warehouses, parts storage
Chicopee, MA
JFK Airport, New York, NY 21,000 Leased Engine test cell
Love Field, Dallas, TX 438,000 Both Engine repair and overhaul
Carter Field, Fort Worth, TX 80,000 Owned Engine repair, overhaul, and testing
Prestwick, Scotland 224,000 Owned Engine repair, overhaul, and testing
McAllen, TX 100,200 Owned Components repair
</TABLE>
The Company believes that its facilities, machinery and equipment will be
suitable for the purposes for which they are employed, are adequately maintained
and will be adequate for current requirements and projected normal growth.
LEGAL PROCEEDINGS
On June 25, 1990, Aeronautics & Astronautics Services U.S.A., Inc. ("AAS")
filed a complaint in the Dade County Circuit Court, Eleventh Judicial Circuit,
Dade County, Florida, alleging a breach of an agreement dated February 22, 1989
for the servicing by the Company of a DC-10 aircraft and its CF6 engine. AAS is
seeking damages in excess of $1,000,000. Based upon legal proceedings, discovery
to date, and the advice of legal counsel, management believes that the Company's
liability, if any, will not exceed $300,000 as a result of this action. It is
the Company's intention to defend this lawsuit vigorously.
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MANAGEMENT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- ---------------------------------------------------------------
<S> <C> <C>
Eugene P. Conese 66 Chairman of the Board and Chief Executive Officer
Eugene P. Conese, Jr. 36 President, Chief Operating Officer and Director
Robert J. Vanaria 50 Senior Vice President of Administration and Chief Financial
Officer
Orlando M. Machado 36 Vice President, Finance
Dard F. Stagg 47 Vice President, General Counsel and Secretary
Charles A. Gabriel 68 Director
Charles J. Simons 78 Director
Chesterfield Smith 78 Director
</TABLE>
EUGENE P. CONESE has been the Chairman of the Board of Directors and Chief
Executive Officer of the Company since October 1987. Mr. Conese was also the
founder, principal stockholder, Chief Executive Officer and Chairman of the
Board of The Greenwich Company, Ltd. ("GCL"), a private holding company formed
in 1980, that acquired Greenwich in October 1987. Prior to acquiring Greenwich,
GCL acquired Haskon Corporation ("Haskon"), a manufacturer of specialized seals
for aircraft and aircraft engines, and founded EPCO Technologies, Inc. ("EPCO"),
a company which produces specialty plastic components for consumer products.
Haskon and EPCO have since been sold, and GCL was merged with and into the
Company as of December 30, 1995. From 1970 to 1979, Mr. Conese served as
President, Chief Executive Officer and member of the Board of Directors of Irvin
Industries, Inc., a company listed on the American Stock Exchange engaged in the
manufacture and distribution of a number of products for the aerospace and
automotive industries. Mr. Conese is a member of the Board of Directors of Trans
World Airlines, Inc., and is a member of the Board of Trustees of Iona College.
EUGENE P. CONESE, JR. has served as President and Chief Operating Officer of
the Company since November 1990. Mr. Conese, Jr. has also served as Vice
President of the Company from March 1989 to November 1990, and he has served as
a director of the Company continuously since 1987. From 1984 through December
1995, Mr. Conese, Jr. served in various capacities for GCL, including President,
which position he held at the time GCL was merged with and into the Company. Mr.
Conese, Jr. also served as President and Chief Operating Officer and member of
the Board of Directors of Haskon, and as President of EPCO. Mr. Conese, Jr. is
the son of Eugene P. Conese.
ROBERT J. VANARIA joined the Company in March 1995 as Senior Vice President
of Administration and Chief Financial Officer. Prior to joining the Company, Mr.
Vanaria served as Senior Vice President of Finance and Chief Financial Officer
from 1982 to 1994 of Foamex International, Inc. Before joining Foamex, Mr.
Vanaria spent eight years at Quaker Fabric Corporation as Corporate Controller
and earlier held several management positions in finance with three other
companies.
ORLANDO M. MACHADO joined the Company in December 1987 as Vice President and
Controller, was promoted to Vice President and Treasurer in September 1991, and
became Vice President of Finance in December 1992. Prior to joining the Company,
Mr. Machado was employed by Coopers & Lybrand, L.L.P. as an audit manager.
DARD F. STAGG joined the Company in November 1993 as Vice President, General
Counsel and Secretary. Prior to joining the Company, Mr. Stagg was Counsel to
the Washington D.C. law firm of Galland, Kharasch, Morse & Garfinkle from 1991
through 1993 where he specialized in aviation matters including international
law and finance. From 1990 to 1991, he was Vice President -- Law for United
Aviation Services, and, from 1978 through 1988, Mr. Stagg served as counsel for
British Airways.
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CHARLES A. GABRIEL became a member of the Board of Directors in November
1992. He is a retired four-star General of the United States Air Force, and
served from June 1982 to June 1986 as Chief of Staff of the United States Air
Force and as a member of the Joint Chiefs of Staff. Prior to his appointment as
Chief of Staff, General Gabriel served as Commander in Chief, United States Air
Forces in Europe and commander of the Allied Air Forces, Central Europe. A
36-year veteran of the United States Air Force, General Gabriel is the recipient
of numerous honors, awards and medals offered by the United States Armed Forces.
General Gabriel serves as a member of the Board of Directors of GEC-Marconi and
Electronic Systems, Inc. and on the Board of Advisors of Riggs National Bank of
Virginia.
CHARLES J. SIMONS became a member of the Board of Directors in March 1988.
He is Chairman of the Board of Directors of G.W. Plastics, Inc. and is a
management and financial consultant. For over 40 years Mr. Simons was employed
by Eastern Airlines and served at various times during such period as Vice-
Chairman, Executive Vice President and director. Mr. Simons serves as a member
of the Board of Directors of Royce Laboratories, Inc., Calspan Corporation, and
Bessemer Trust Co. of Florida. Mr. Simons became Chairman, President and Chief
Executive Officer of General Development Corporation, a land developer, just
prior to that corporation's Chapter 11 bankruptcy filing in 1990. Mr. Simons
resigned all of his positions as President, Chief Executive Officer and Chairman
by the time General Development Corporation emerged from bankruptcy in 1992.
CHESTERFIELD SMITH became a member of the Board of Directors in March 1988.
Mr. Smith is a senior partner of the Florida law firm of Holland & Knight, which
firm has rendered certain legal services to the Company since 1990. He has
served as President of the American Bar Association, and as President of the
Florida Bar Association. Mr. Smith presently serves as a director and Chairman
of the Executive Committee of the Citrus & Chemical Bancorporation, Bartow,
Florida, and as Chairman of the Board of Trustees of The Emerald Funds.
The other key employees of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- ---------------------------------------------------------------
<S> <C> <C>
Graham P. Bell 52 Senior Vice President, Operations
R. Frank Leftwich 59 Senior Vice President and President of Texas Operations
Robert J. Loffredo 55 President of GTi
Mordechai Volovelsky 53 Senior Vice President, Commercial Aircraft, Marine and
Industrial Engine Services
Gerald Waltman 65 Senior Vice President, Government Programs
</TABLE>
GRAHAM P. BELL joined the Company in April 1994, as Senior Vice President,
Commercial Engines, and became Senior Vice President, Operations in July 1995,
and is responsible for overseeing all engine service center and related support
shop operations at the Company's Miami and East Granby facilities. Prior to
joining the Company, Mr. Bell served as President of Chromalloy Gas Turbine
Corporation East Granby Division, which position he held from 1990 through 1994.
Prior to 1990, Mr. Bell was employed by Pacific Southwest Airlines' engine
overhaul subsidiary where he served as Vice President and General Manager, and
was also a Board member.
R. FRANK LEFTWICH will join the Company as Senior Vice President and
President of Texas Operations and will retain his current role of President-Asia
operations upon completion of the Aviall Acquisition. Mr. Leftwich is currently
President of Aviall Asia Limited and also serves as Aviall's Executive Vice
President, Sales and Marketing -- Engine Services, which position he held at the
time Aviall was spun-off from Ryder. Mr. Leftwich has held various key
operational and marketing roles with Aviall and its predecessor companies.
ROBERT J. LOFFREDO joined the Company in April 1994 as President of
Greenwich Turbine, Inc., a wholly-owned subsidiary of the Company ("GTi"), where
Mr. Loffredo is responsible for overseeing all aspects of GTi's business. Prior
to joining the Company, Mr. Loffredo served in a similar capacity for Chromalloy
Gas Turbine Corporation from 1989 to 1994 and as that company's Vice President
of
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<PAGE>
Industrial Sales and Marketing from 1985 to 1989. Mr. Loffredo was also employed
by United Technologies Corporation for 15 years, where he served in many
capacities including engineering, product control, sales and project management.
MORDECHAI VOLOVELSKY joined the Company in October 1991 as Senior Vice
President, New Business Development and became Senior Vice President, Commercial
Aircraft, Marine and Industrial Engine Services in July 1995. He is responsible
for the Company's marketing and sales and customer support for all commercial
engine overhaul and repair services. From 1967 to 1990, Mr. Volovelsky was
employed by Israel Aircraft Industries ("IAI"), with responsibility for
management of the engine shops, and also served as General Director of Quality
Control and Engineering and as President of IAI-Latin America with
responsibility for all South and Central American operations. Mr. Volovelsky
also held the position of President of Commodore Aviation, an IAI subsidiary, a
company active in the overhaul and maintenance of commercial and military
aircraft. From 1990 to October 1991, he was employed by The Ages Group, a
partnership engaged in the sale and leasing of aircraft, and aircraft engines,
parts and components.
GERALD WALTMAN joined the Company in August 1992 as Vice President, Customer
Satisfaction, and became Senior Vice President, Operations in November 1992. In
July 1995, he became Senior Vice President, Government Programs, and is
responsible for the development of all of the Company's government-related
operations. From 1981 to 1992 and prior to joining the Company, Mr. Waltman was
employed by Pratt & Whitney Inc. as Director of Customer Support for Pratt &
Whitney's Commercial Engine Business in addition to being responsible for
technical direction of the entire JT8D/JT8D-200 engine fleet (approximately
14,000 engines). Prior to joining Pratt & Whitney, Mr. Waltman served in the
United States Air Force for 26 years, rising to the rank of Colonel. His last
assignment was Director of San Antonio Air Logistics Center Depot Maintenance
for aircraft and engines.
DIRECTORS' FEES AND COMPENSATION
Directors who are not employees of the Company each receive an annual
retainer of $20,000. No director of the Company receives any directors' fees for
attendance at meetings of the Board of Directors or committees thereof, although
members of the Board do receive reimbursement for actual expenses of such
attendance. Members of the Board of Directors of the Company serve for a
one-year term or until their successors are duly elected and qualified.
Directors who are also officers of the Company do not receive a retainer or any
other additional compensation for attendance at meetings of the Board of
Directors or any committees thereof.
54
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash and certain other compensation paid
by the Company to the Company's Chief Executive Officer and the four other most
highly-compensated executive officers of the Company (together with the Chief
Executive Officer, the "Named Executive Officers") during fiscal 1995, fiscal
1994 and fiscal 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------------- LONG-TERM ALL OTHER
NAME AND PRINCIPAL OTHER ANNUAL COMPENSATION COMPENSATION
POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($)(1) AWARDS (#)(2) ($)(3)
- ------------------------- --------- ----------- ----------- --------------------- --------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Eugene P. Conese 1995 400,001 394,846 80,000 0 100
Chairman and Chief 1994 381,527 46,000 103,502 0 100
Executive Officer 1993 152,870 25,000 315,880 0 100
Eugene P. Conese, Jr. 1995 175,001 172,745 20,000 0 100
President, Chief 1994 178,403 23,000 18,333 26,000 100
Operating Officer and 1993 132,902 25,000 49,767 0 100
Director
Robert J. Vanaria 1995 86,544 52,500 0 20,000 0
Senior Vice President of 1994 -- -- -- -- --
Administration and Chief 1993 -- -- -- -- --
Financial Officer (4)
Orlando M. Machado 1995 100,354 25,000 0 0 100
Vice President, Finance 1994 102,080 389 0 20,000 100
1993 86,792 10,000 0 0 100
Dard F. Stagg 1995 98,842 20,000 0 0 0
Vice President, General 1994 78,192 22,500 0 10,000 0
Counsel and Secretary 1993 -- -- -- -- --
(5)
</TABLE>
- --------------------------
(1) Includes deferred compensation of $80,000, $73,333 and $0 received by Eugene
P. Conese from the Company in fiscal 1995, 1994, and 1993, respectively.
Includes deferred compensation of $20,000, $18,333, and $0 received by
Eugene P. Conese, Jr. from the Company in fiscal 1995, 1994 and 1993,
respectively. Includes both direct and deferred compensation received by
each of Eugene P. Conese and Eugene P. Conese, Jr. from GCL in 1994 and
1993. In such years, the Company paid to GCL management fees aggregating
$120,000 and $840,000, respectively. The Company's management agreement with
GCL terminated upon consummation of the Company's initial public offering in
November 1993 and simultaneous with the commencement of the term of
employment agreements between the Company and each of Eugene P. Conese and
Eugene P. Conese, Jr. See "-- Employment Agreements." Until consummation of
the merger of GCL with and into the Company, Eugene P. Conese was the
principal stockholder and Chairman of the Board of Directors and Chief
Executive Officer of GCL, and Eugene P. Conese, Jr. was also a stockholder
and the President of GCL. Excludes personal benefits and other forms of
non-cash compensation that, in the opinion of management, do not in the
aggregate exceed the lesser of $50,000 or 10% of the total annual salary and
bonus reported for such named executive officers.
(2) The amounts in this column represent options granted pursuant to the
Company's 1992 Employee Incentive Stock Option Plan.
(3) Includes matching contributions expended by the Company under its 401(k)
Retirement Plan on behalf of the specified named executive officers.
(4) Mr. Vanaria joined the Company in March 1995. Therefore, compensation
information for fiscal 1995 represents the period from March to September
1995, and no compensation information is presented for Mr. Vanaria for
fiscal 1994 or 1993.
(5) Mr. Stagg joined the Company in November 1993. Therefore, compensation
information for fiscal 1994 represents the period from November 1993 to
September 1994, and no compensation information for Mr. Stagg is presented
for fiscal 1993.
55
<PAGE>
STOCK OPTIONS
The following table sets forth certain information concerning options
granted in fiscal 1995 to the Company's Named Executive Officers under the
Company's 1992 Employee Incentive Stock Option Plan (the "1992 Plan"). The
Company has no outstanding stock appreciation rights and granted no stock
appreciation rights during fiscal 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
% OF TOTAL APPRECIATION
OPTIONS OPTIONS GRANTED EXERCISE OR FOR OPTION TERM
GRANTED TO EMPLOYEES IN BASE PRICE EXPIRATION --------------------
NAME (#)(1) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- --------------------------------------- ----------- ------------------- ------------- --------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Vanaria...................... 20,000(1) 55.6% $ 3.50 April 5, 2000 $ 19,340 $ 42,736
</TABLE>
- ------------------------
(1) Represents 10,000 shares of each of Class A and Class B Common Stock. These
options were granted on March 6, 1995 pursuant to the 1992 Plan and are
exercisable beginning one year from the date of grant for 25% of the shares,
with the balance to become exercisable cumulatively in two installments each
year thereafter of 25% and 50% in years two and three, respectively. Upon
announcement of a change in control (pursuant to and as defined in the 1992
Plan), all options granted under the 1992 Plan will become immediately
exercisable. Upon consummation of a change in control, all unexercised
options will terminate.
The following table sets forth certain information concerning the value of
unexercised options held under the 1992 Plan at September 30, 1995 by the
Company's Named Executive Officers. None of the Named Executive Officers
exercised options during fiscal 1995.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FY-END (#) FY-END ($)(1)
-------------------------- --------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------------------------ -------------------------- --------------------------
<S> <C> <C>
Eugene P. Conese................................ 0/0 $0/$0
Eugene P. Conese, Jr............................ 6,500/19,500 $47,125/$141,375
Robert J. Vanaria............................... 0/20,000 $0/$135,000
Orlando M. Machado.............................. 5,000/15,000 $36,250/$108,750
Dard F. Stagg................................... 2,500/7,500 $18,125/$54,375
</TABLE>
- ------------------------
(1) Represents the value of unexercised, in-the-money options at September 29,
1995, the last trading day of fiscal 1995, using the closing price of the
Class A Common Stock on that date of $10. Amounts are rounded to the nearest
dollar.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Eugene P. Conese,
Chairman of the Board and Chief Executive Officer, and Eugene P. Conese, Jr.,
President and Chief Operating Officer. Mr. Conese's and Mr. Conese, Jr.'s
employment agreements are each for terms of three years which expire September
30, 1996, and provide for an annual base salary of $400,000 plus deferred
compensation of $80,000 per annum and $200,000 plus deferred compensation of
$20,000 per annum, respectively.
In addition to their base salaries and deferred compensation, Eugene P.
Conese and Eugene P. Conese, Jr. are entitled to share, in proportion to their
respective base salaries, an annual bonus equal to varying percentages of the
Company's income before taxes, after deducting the amount of the annual
56
<PAGE>
bonus, in each of the three years during the term of their employment
agreements. For fiscal 1996, the aggregate annual bonus amount that may be paid
under both agreements may not exceed $1,000,000. The bonus for each year of
these agreements is equal to 2% of the Company's income before taxes, after
deducting the amount of the annual bonus, in the event that such income is equal
to or in excess of $5.5 million (the "Base Income") but less than $6.5 million,
and 5% of such income in the event that such income is equal to or in excess of
$6.5 million.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Since 1992, the Company's Compensation Committee has decided all
compensation matters relating to the Company's Chairman and Chief Executive
Officer, and President and Chief Operating Officer, whose employment contracts
with the Company were approved by the Compensation Committee. Messrs. Charles J.
Simons and Chesterfield Smith have been members of the Compensation Committee
since its formation in 1992. General Charles A. Gabriel became a member of the
Compensation Committee in December 1993.
CERTAIN TRANSACTIONS
In September 1993, Greenwich adopted a policy with respect to future
related-party transactions which requires that all such transactions be approved
by both a majority of the entire Board of Directors as well as by a majority of
the independent outside directors or by a majority vote of the Greenwich's
disinterested stockholders. This policy is set forth in Greenwich's Bylaws.
In December 1995, Greenwich's stockholders approved the merger of GCL with
and into Greenwich, pursuant to which Greenwich acquired and cancelled 7,900,000
shares of its Common Stock from GCL and issued 7,900,620 shares of its Common
Stock to the stockholders of GCL.
Greenwich paid GCL management fees aggregating $840,000 and $120,000 for the
years ended September 30, 1993 and 1994, respectively. Greenwich's management
agreement with GCL terminated upon the completion of the Greenwich's initial
public offering in November 1993.
Interest expense on the $1 million GCL Subordinated Note amounted to
approximately $62,000 and $8,000 for the fiscal years ended September 30, 1993
and 1994, respectively.
In April 1993, Greenwich entered into simultaneous lease agreements with GCL
and an unrelated third party for the use of an aircraft engine. Under these
agreements, Greenwich leased the engine from GCL and sublet the engine to an
unrelated third party under an identical fee schedule. In accordance with the
lease terms, Greenwich paid a monthly rent of approximately $11,250 plus a fee
based on engine usage of which a minimum of $5,000 a month was required. This
agreement terminated in August 1993.
During fiscal 1994 and 1995 and for the six months ended March 31, 1996,
Greenwich purchased engine parts from World Air Lease, Inc. ("WAL") for amounts
totaling $136,691, $171,930 and $8,000, respectively. In addition, during fiscal
1994, Greenwich performed engine repair services for WAL amounting to $88,708
and received commissions amounting to $7,452 from WAL for the sale of an engine
to an unrelated third party. Such terms are believed by Greenwich's management
to have been on a market basis not materially different from those which would
have prevailed in a transaction on an arm's-length basis with an unrelated
person. WAL is wholly-owned by Eugene P. Conese, the Chairman and Chief
Executive Officer of the Company, and members of his immediate family, including
Eugene P. Conese, Jr., directly and through trusts.
During fiscal 1994 and 1995 and for the six months ended March 31, 1996,
Greenwich completed engine repair services on gas turbine aircraft engines owned
by Universal Air Lease, Inc. ("Universal"), amounting to $105,000, $103,000 and
$150,000, respectively. Such terms are believed by the Company's management to
have been on a market basis not materially different from those which would
57
<PAGE>
have prevailed in a transaction on an arm's-length basis with an unrelated
person. Universal is wholly-owned by Eugene P. Conese, the Chairman and Chief
Executive Officer of the Company, and members of his immediate family including
Eugene P. Conese, Jr.
In March 1995, Greenwich purchased an aircraft engine for a purchase price
of $1,170,000 from Universal and concurrently entered into an agreement to sell
the engine to a customer of Greenwich under substantially the same terms.
Greenwich received a fee of $10,000 and was reimbursed for its costs and
expenses. An added benefit of the transaction was that Greenwich was thereby
enabled to sell parts to, and obtain certain additional overhaul service
business from, the customer.
In June 1995, Greenwich entered into a 30-day aircraft engine lease
agreement with Pinnacle Partners One, Inc., a company in which the Chairman and
Chief Executive Officer of the Company holds a 38.5% equity interest, to provide
a replacement engine for a customer while the customer's engine was being
serviced by Greenwich. Concurrently with the entering into of such lease,
Greenwich and the customer entered into a lease at the same rental rate and on
substantially the same other terms.
In June 1995, Greenwich purchased an unserviceable General Electric CF6-50
engine for $550,000 from Universal. This engine was disassembled to provide
parts for an engine being repaired by the Company for an unaffiliated third
party. The terms of the purchase of such engine by Greenwich are believed by the
Company's management to have been on a market basis not materially different
from those which would have prevailed in a transaction on an arm's-length basis
with an unrelated person.
Chesterfield Smith, a director of the Company, is a senior partner in a law
firm which has received legal fees from Greenwich in connection with
professional services provided to Greenwich.
58
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information, as of March 31, 1996, regarding
the beneficial ownership of Class A Common Stock and Class B Common Stock by (i)
those persons known to the Company to be the beneficial owners of more than 5%
of the outstanding shares of Class A Common Stock and Class B Common Stock, (ii)
each of the Company's directors and the Named Executive Officers and (iii) all
directors and executive officers as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP PRIOR TO COMMON STOCK BENEFICIAL OWNERSHIP AFTER COMMON
OFFERING (12) NUMBER OF STOCK OFFERING
---------------------------------------------- SHARES OF ---------------------------------
CLASS B
NUMBER OF SHARES % OF CLASS COMMON STOCK NUMBER OF SHARES % OF CLASS
-------------------- ------------------------ OFFERED -------------------- -----------
NAME(1) CLASS A CLASS B CLASS A CLASS B CONCURRENTLY CLASS A CLASS B CLASS A
- ---------------------------- --------- --------- ----------- ----------- ------------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Eugene P. Conese (2)........ 3,468,028 3,450,934 55.1 55.0 600,000 3,468,028 2,850,934 55.1
Anna May Conese (3)......... 262,696 262,696 4.2 4.2 0 262,696 262,696 4.2
Eugene P. Conese, Jr. (4)... 190,222 185,094 3.0 3.0 0 190,222 185,094 3.0
Charles A. Gabriel (5)...... 4,473 4,473 * * 0 4,473 4,473 *
Charles J. Simons (6)....... 7,000 7,000 * * 0 7,000 7,000 *
Chesterfield Smith (7)...... 6,000 6,000 * * 0 6,000 6,000 *
Robert J. Vanaria (8)....... 2,500 2,500 * * 0 2,500 2,500 *
Orlando M. Machado (9)...... 5,241 3,532 * * 0 5,241 3,532 *
Dard F. Stagg (10).......... 1,405 1,405 * * 0 1,405 1,405 *
All Directors and Executive
Officers as a Group (8
persons) (11).............. 3,684,869 3,660,938 58.2 58.0 600,000 3,684,869 3,060,938 58.2
<CAPTION>
NAME(1) CLASS B
- ---------------------------- -----------
<S> <C>
Eugene P. Conese (2)........ 29.5
Anna May Conese (3)......... 2.7
Eugene P. Conese, Jr. (4)... 1.9
Charles A. Gabriel (5)...... *
Charles J. Simons (6)....... *
Chesterfield Smith (7)...... *
Robert J. Vanaria (8)....... *
Orlando M. Machado (9)...... *
Dard F. Stagg (10).......... *
All Directors and Executive
Officers as a Group (8
persons) (11).............. 31.5
</TABLE>
- ------------------------------
* Less than 1%
(1) The mailing address of each stockholder identified above is c/o Greenwich
Air Services, Inc., Post Office Box 522187, Miami, Florida 33152. Except as
indicated, each person listed has the sole voting and investment power with
respect to all shares of Common Stock listed above.
(2) Includes 17,094 shares of Class A Common Stock issuable upon conversion of
Debentures and 262,696 shares of each of Class A and Class B Common Stock
held beneficially by Anna May Conese, the wife of Eugene P. Conese.
(3) Does not include shares owned by Eugene P. Conese, the husband of Anna May
Conese. See (2), above.
(4) Mr. Conese and Anna May Conese are the parents of Eugene P. Conese, Jr.
Includes 6,500 shares of each of Class A and Class B Common Stock issuable
upon exercise of options and 5,128 shares of Class A Common Stock issuable
upon conversion of Debentures.
(5) Includes 4,000 shares of each of Class A and Class B Common Stock issuable
upon the exercise of stock options.
(6) Includes 5,000 shares of each of Class A and Class B Common Stock issuable
upon the exercise of stock options.
(7) Includes 5,000 shares of each of Class A and Class B Common Stock issuable
upon the exercise of stock options.
(8) Includes 2,500 shares of each of Class A and Class B Common Stock issuable
upon the exercise of stock options.
(9) Includes 2,500 shares of each of Class A and Class B Common Stock issuable
upon the exercise of stock options and 1,709 shares of Class A Common Stock
issuable upon conversion of Debentures.
(10) Includes 1,250 shares of each of Class A and Class B Common Stock issuable
upon the exercise of stock options.
(11) Includes 26,750 shares of each of Class A and Class B Common Stock issuable
upon the exercise of options and 23,931 shares of Class A Common Stock
issuable upon the conversion of Debentures.
(12) The Common Stock Offering is scheduled to occur concurrently with, but is
not a condition to, the consummation of the Note Offering. See "Concurrent
Transactions."
59
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 52,500,000 shares of
capital stock, consisting of (i) 25,000,000 shares of Class A Common Stock, par
value $.01 per share, (ii) 25,000,000 shares of Class B Common Stock, par value
$.01 per share, and (iii) 2,500,000 shares of Preferred Stock, par value $.01
per share. As of March 31, 1996, an aggregate of 6,279,841 shares of Class A
Common Stock and no shares of Class B Common Stock were outstanding. No shares
of Preferred Stock have been issued or are currently outstanding.
CLASS A COMMON STOCK
The Class A Common Stock has no preemptive rights and no redemption, sinking
fund or conversion provisions. All shares of Class A Common Stock have one vote
on any matter submitted to the vote of stockholders. The Class A Common Stock
does not have cumulative voting rights. Upon any liquidation of the Company, the
holders of Class A Common Stock are entitled to receive, share for share with
the holders of Class B Common Stock on a pro rata basis, all assets then legally
available for distribution after payment of debts and liabilities and
preferences on preferred stock, if any. Holders of Class A Common Stock are
entitled to receive dividends share for share with the holder's shares of Class
B Common Stock when and as declared by the Board of Directors out of funds
legally available therefor (subject to the prior rights of preferred stock, if
any). All shares of Common Stock are fully paid and nonassessable.
CLASS B COMMON STOCK
In April 1996, the Company declared a dividend to holders of record of its
Class A Common Stock on April 18, 1996 of one share of its Class B Common Stock
for each outstanding share of Class A Common Stock. As a result, an aggregate of
approximately 6.3 million shares of Class B Common Stock were issued on May 8,
1996.
The Class B Common Stock has no preemptive rights and no redemption, sinking
fund or conversion provisions. Except as otherwise required by law, the shares
of Class B Common Stock have no voting rights. Under Delaware law, holders of
Class B Common Stock are permitted to vote on amendments to the Company's
certificate of incorporation, whether or not entitled to vote thereon by the
certificate of incorporation, if such amendment would, among other things, alter
or change powers, preferences, or special rights of such class.
Upon any liquidation of the Company, the holders of Class B Common Stock are
entitled to receive, share for share with the holders of shares of Class A
Common Stock on a pro rata basis, all assets then legally available for
distribution after payments of debts of liabilities and preferences on preferred
stock, if any. Holders of Class B Common Stock are entitled to receive dividends
share for share with the holders of shares of Class A Common Stock when, as and
if declared by the Board of Directors out of funds legally available therefor
(subject to the prior rights of preferred stock, if any).
PREFERRED STOCK
The Board of Directors has the authority to issue up to 2,500,000 shares of
Preferred Stock in one or more series and to fix the number of shares
constituting any such series, the voting powers, designation, preferences and
relative participation, optional or other special rights and qualifications,
limitations or restrictions thereof, including the dividend rights and dividend
rate, terms of redemption (including sinking fund provisions), redemption price
or prices, conversion rights and liquidation preferences of the shares
constituting any series, without any further vote or action by the shareholders.
The issuance of Preferred Stock by the Board of Directors could affect the
rights of the holders of Common Stock. For example, such issuance could result
in a class of securities outstanding that would have preferences with respect to
voting rights and dividends, and in liquidation, over the Common Stock, and
could (upon conversion or otherwise) enjoy all of the rights appurtenant to
Common Stock.
60
<PAGE>
The authority possessed by the Board of Directors to issue Preferred Stock
could potentially be used to discourage attempts by others to obtain control of
the Company through merger, tender offer, proxy contest or otherwise by making
such attempts more difficult to achieve or more costly. The Board of Directors
may issue the Preferred Stock with voting and conversion rights that could
adversely affect the voting power of the holders of Class A Common Stock. There
are no agreements or understandings for the issuance of Preferred Stock and the
Board of Directors has no present intention to issue Preferred Stock.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 of the Delaware General Corporation Law prevents an "interested
stockholder" (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined in Section 203) with a publicly-held Delaware
corporation for three years following the date such person became an interested
stockholder unless (i) before such person became an interested stockholder, the
board of directors of the corporation approved either the transaction in which
the interested stockholder became an interested stockholder or the business
combination; (ii) upon consummation of the transactions that resulted in the
interested stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the corporation outstanding
at the time the transaction commenced (excluding stock held by directors who are
also officers of the corporation or by employee stock plans that do not provide
employees with the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer); or (iii) following
the transaction in which such person became an interested stockholder, the
business combination is approved by the board of directors of the corporation
and authorized at a meeting of the stockholders by the affirmative vote of the
holders of two-thirds of the outstanding voting stock of the corporation not
owned by the interested stockholder.
TRANSFER AGENT
The transfer agent for the Common Stock is American Stock Transfer & Trust
Company, New York, New York.
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Common Stock Offering, the Company will have
outstanding 6,279,841 shares of Class A Common Stock and 9,679,841 shares of
Class B Common Stock (excluding 600,000 shares of Class B Common Stock issuable
upon exercise of the Underwriter's over-allotment option). Of these shares,
6,103,747 shares of Class A Common Stock and 9,503,747 shares of Class B Common
Stock will be freely tradeable without restriction or further registration under
the Securities Act. The remaining 176,094 shares of Class A Common Stock and
176,094 shares of Class B Common Stock held by an existing stockholder are
"restricted securities" as defined in Rule 144 promulgated under the Securities
Act, and may only be sold in the public market if such shares are registered
under the Securities Act or sold in accordance with Rule 144 or another
exemption from registration under the Securities Act.
In general, under Rule 144 a person (or group of persons whose shares are
aggregated) who has beneficially owned restricted securities for at least two
years, including persons who may be deemed "affiliates" (as defined in Rule 144)
of the Company, will be entitled to sell, within any three month period, a
number of shares that does not exceed the greater of (i) 1% of the then
outstanding shares of the Class A Common Stock or Class B Common Stock (expected
to be equal to approximately 62,798 shares and 96,798 shares, respectively,
following the Common Stock Offering) or (ii) the average weekly trading volume
in the Class A Common Stock or Class B Common Stock during the four calendar
weeks preceding such sale. Sales under Rule 144 are also subject to certain
manner of sale limitations, notice requirements and the availability of current
public information about the Company. A person who has not been an "affiliate"
of the Company for the 90 days preceding a sale and who has beneficially owned
restricted securities for at least three years will be entitled to sell such
shares in the public market without restriction. Restricted securities properly
sold in reliance upon Rule 144 are thereafter freely tradeable without
restrictions or registration under the Securities Act, unless thereafter held by
an "affiliate" of the Company. For purposes of Rule 144, 126,095 of the
restricted shares of Class A Common Stock and 126,095 of the restricted shares
of Class B Common Stock outstanding have been beneficially owned by its holder
for over two years.
The Company is unable to estimate the amount, timing or nature of future
sales of outstanding Class A Common Stock or Class B Common Stock. Although the
shares of Class B Common Stock offered pursuant to the Common Stock Offering
will trade separately from the shares of Class A Common Stock, sales of
substantial amounts of either the Class A or Class B Common Stock in the public
market may have an adverse effect on the market price of both the Class A Common
Stock and the Class B Common Stock, because such classes are identical in all
respects, except that the Class B Common Stock has no voting rights. The Company
and its executive officers, directors and principal stockholders have agreed
that for a period of 90 days from the date of this Prospectus, they will not
offer for sale, sell, solicit an offer to buy, contract to sell, distribute,
grant any option for the sale of or otherwise transfer or dispose of, directly
or indirectly, any shares of Common Stock or any securities convertible into,
exercisable for or exchangeable for any shares of Common Stock without the prior
written consent of the underwriters of the Common Stock Offering.
62
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW CREDIT FACILITY
Under the New Credit Facility, lenders will provide the Company with a
$175.0 million senior secured revolving credit facility secured by the Company's
accounts receivable, inventories and contract rights. Advances under the New
Credit Facility will be based upon percentages of outstanding eligible accounts
receivable, inventories and other contract rights. Pursuant to the New Credit
Facility, it is anticipated that an aggregate of approximately $74.4 million
will be initially borrowed pursuant to the Initial Drawdown, $3.0 million will
be utilized for outstanding letters of credit and that approximately $97.6
million will be available for future borrowings. The New Credit Facility will
require the Company to comply with certain financial covenants (relating to
minimum ratios of cash flow to fixed charges, minimum ratio of funded debt to
cash flow and minimum tangible net worth) and other covenants, including
limitations on additional debt (in excess of the Notes, Debentures and other
outstanding debt), dividends and changes in control. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Pro Forma Liquidity and Capital Resources."
Under the New Credit Facility, the Company may elect to borrow at either the
lender's prime rate, plus 0.875% (subject to reduction to 0.5% or increase to
1.125% based upon the Company's achieving or failing to achieve certain
financial goals), or (ii) the LIBOR rate (adjustable every three months) plus
2.375%. As at March 31, 1996, the lender's prime rate was 7.75% and the
three-month LIBOR rate was 5.44%.
8% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2000
In November and December 1993, Greenwich issued $16,999,000 principal amount
of the Debentures. The Debentures are convertible into shares of Class A Common
Stock at any time prior to maturity, unless previously redeemed by the Company,
at a conversion price of $5.85 per share, subject to adjustment in certain
events. The Debentures are not redeemable by the Company prior to November 15,
1996. Thereafter, the Debentures are redeemable at a redemption price equal to
100% of the principal amount thereof plus accrued interest, provided that the
Debentures may not be redeemed unless the closing price of the Company's Class A
Common Stock has equaled or exceeded $6.75 for the previous 20 consecutive
trading days. As of March 31, 1996, there was $3,561,000 principal amount of the
Debentures outstanding, which are convertible into an aggregate of 608,716
shares of Class A Common Stock. The Debentures are subordinated in right of
payment to the Notes and to all present and future senior indebtedness of the
Company to commercial lenders.
The Company anticipates that if the price of its Class A Common Stock
exceeds $6.75 in November 1996, it will call all outstanding Debentures for
redemption. The Company expects that substantially all of the Debentures will
have been converted into Common Stock prior to redemption.
TERM LOANS
TERM LOAN. In November 1992, Greenwich entered into a loan and security
agreement with a commercial lender for a five-year, $9.0 million term loan
expiring in November 1997 (the "Term Loan"). The Term Loan is secured by the
Company's equipment and tooling, and bears interest at 8.75% per annum, payable
in 59 monthly installments (including principal and interest) of $143,205 each,
and a final payment of approximately $3.3 million due on November 1, 1997. As of
March 31, 1996, the balance of the Term Loan was $5.4 million.
GTC TERM LOAN. On May 26, 1994 Greenwich and GTC entered into a separate
loan and security agreement with a lender for a five-year, $8.0 million term
loan expiring in May, 1999 (the "GTC Term Loan"). The GTC Term Loan is secured
by substantially all of GTC's fixed assets (excluding real estate), and bears
interest at a rate of 8.99% per annum, payable monthly in arrears. Principal
repayments under this agreement are to be made in 24 consecutive monthly
installments of $166,667 each and an additional 36 consecutive monthly
installments of $111,111 each, with all such payments ending in May 1999. As of
March 31, 1996, the balance of the GTC Term Loan was $4.3 million.
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LOAN PAYABLE TO WAL. In November 1992, Greenwich entered into a loan and
security agreement with WAL for a five-year, $3.0 million term loan expiring in
November 1997 (the "WAL Loan"). The WAL Loan is secured by the Company's
equipment and tooling, and bears interest at 10.25% per annum, payable in 59
monthly installments (including principal and interest) of $50,519 each, and a
final payment of approximately $1.1 million due on November 1, 1997. On April 1,
1994, subject to the terms and conditions of the GTC Term Loan, WAL agreed to
grant a priority lien position to the lender under the GTC Term Loan on the
Company's tooling and equipment. In return, WAL was granted a priority lien
position on specific tooling and a first mortgage on certain real property that
the Company owns in East Granby, Connecticut. As of March 31, 1996, the balance
of the WAL loan was $1.8 million.
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DESCRIPTION OF NOTES
The Notes are to be issued under the Indenture dated as of ,
1996, between the Company, the Subsidiary Guarantors and American Stock Transfer
& Trust Company, as Trustee (the "Trustee"). A copy of the Indenture has been
filed as an exhibit to the Registration Statement. The Indenture is subject to
and is governed by the Trust Indenture Act of 1939, as amended (the "1939 Act").
The following summaries of certain provisions of the Indenture do not purport to
be complete and are subject, and are qualified in their entirety by reference,
to the 1939 Act and to all the provisions of the Notes and the Indenture,
including the definitions therein of certain terms. Wherever particular Sections
or defined terms of the Indenture are referred to herein, such Sections or
defined terms are incorporated by reference herein. For purposes of this
Section, references to the "Company" shall mean Greenwich Air Services, Inc.
excluding its subsidiaries, after giving effect to the Aviall Acquisition.
Certain terms used in this Section are defined under "-- Certain Definitions."
GENERAL
The Notes will mature on , 2006, and will be limited to an
aggregate principal amount of $150,000,000. The Notes will bear interest at the
rate set forth on the cover page of this Prospectus from , 1996 (the
"Issue Date"), or from the most recent date to which interest has been paid,
payable semiannually on and of each year, commencing on ,
1996, to the persons in whose names the Notes (or any predecessor Notes) are
registered at the close of business on the preceding or , as the
case may be. Interest on the Notes will be computed on the basis of a 360-day
year of twelve 30-day months.
Principal of, premium, if any, and interest on, the Notes will be payable,
and the Notes will be exchangeable and transferable, at an office or agency of
the Company, one of which will be maintained for such purpose in The City of New
York (which initially will be the Corporate Trust Office of the Trustee), or
such other office or agency permitted under the Indenture; PROVIDED, HOWEVER,
that payment of interest may be made at the option of the Company by check
mailed to the persons entitled thereto as shown on the Security Register. The
Notes will be issued only in fully registered form without coupons in
denominations of $1,000 or any integral multiple thereof. No service charge will
be made for any registration of transfer or exchange of Notes, except for any
tax or other governmental charge that may be imposed in connection therewith.
RANKING
The Notes will be senior unsecured obligations of the Company, will rank
PARI PASSU in right of payment with all existing and future senior indebtedness
of the Company and will be senior in right of payment to all existing and future
subordinated debt of the Company. However, the Notes will be effectively
subordinated to all secured indebtedness of the Company to the extent of the
assets securing such indebtedness, including indebtedness as of March 31, 1996
after giving effect to the Aviall Acquisition, the Offerings and the Initial
Drawdown of: (i) $74.4 million under the New Credit Facility, which will be
secured by the Company's inventory and accounts receivable; (ii) $4.3 million
under the GTC Term Loan, which is secured by all of GTC's fixed assets
(excluding real estate); (iii) $5.4 million under the Term Loan, which is
secured by certain of the Company's equipment and tooling; and (iv) $1.8 million
under the WAL Loan, which is secured by certain tooling not securing the GTC
Term Loan and certain real property owned by GTC in East Granby, Connecticut. As
of March 31, 1996, on a pro forma basis after giving effect to the Offerings,
the Initial Drawdown and the Aviall Acquisition, such secured indebtedness would
have aggregated approximately $86.0 million, the total consolidated indebtedness
of the Company and its subsidiaries would have been $239.6 million, and the
Company would have had the ability to borrow up to an additional $97.6 million
under the New Credit Facility.
The Notes will be guaranteed (each a "Subsidiary Guarantee") on a senior
unsecured basis by the Subsidiary Guarantors and will also be jointly secured on
a PARI PASSU basis with Indebtedness under the New Credit Facility by a pledge
of 65% of the capital stock of Aviall Limited pursuant to a pledge and security
agreement dated as of , 1996 (the "Pledge and Security Agreement")
between the
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Company, the Trustee and the lenders under the New Credit Facility. Each
Subsidiary Guarantee will be effectively subordinated to all secured
indebtedness of the related Subsidiary Guarantor to the extent of the assets
securing such indebtedness.
SUBSIDIARY GUARANTEES AND OTHER SECURITY
Each Subsidiary Guarantor will unconditionally Guarantee (each, a
"Subsidiary Guarantee"), jointly and severally, to each holder of Notes and the
Trustee, the full and punctual performance of the Company's obligations under
the Indenture and the Notes, including the payment of principal of and interest
on the Notes. Each of the Subsidiary Guarantees will be a senior unsecured
obligation of the respective Subsidiary Guarantor, and will rank PARI PASSU with
all existing and future senior unsecured indebtedness of such Subsidiary
Guarantor. However, each Subsidiary Guarantee will be effectively subordinated
(to the extent of the respective Subsidiary Guarantor's assets securing the New
Credit Facility) to the respective Subsidiary Guarantor's obligations under the
New Credit Facility, which will be secured by such Subsidiary Guarantor's
inventory, accounts receivable and certain contract rights.
The obligations of each Subsidiary Guarantor are limited to the maximum
amount which, after giving effect to any collections from or payments made by or
on behalf of any other Subsidiary Guarantor in respect of the obligations of
such other Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to
its contribution obligations under the Indenture, will result in the obligations
of such Subsidiary Guarantor under the Subsidiary Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law. Each
Subsidiary Guarantor that makes a payment or distribution under a Subsidiary
Guarantee shall be entitled to a pro rata contribution from each other
Subsidiary Guarantor based on the net assets of each Subsidiary Guarantor,
determined in accordance with GAAP.
Each Subsidiary Guarantor may consolidate with or merge into or sell its
assets to the Company or another Subsidiary Guarantor without limitation,
PROVIDED that such consolidation, merger or sale is otherwise in accordance with
the Indenture. Each Subsidiary Guarantor may consolidate with or merge into or
sell substantially all its assets to a corporation other than the Company or
another Subsidiary Guarantor (whether or not affiliated with the Subsidiary
Guarantor) and such Subsidiary Guarantor shall be released from all obligations
under its Subsidiary Guarantee if (a) such transaction would be permitted under
the "Limitation on Assets Sales" covenant described below and (b) immediately
before and after giving effect to such transaction on a pro forma basis, no
Default or Event of Default shall have occurred and be continuing.
Separate financial statements of the Subsidiary Guarantors are not included
herein because such Subsidiary Guarantors are jointly and severally liable with
respect to Greenwich's obligations pursuant to the Notes, and the aggregate
total assets, net income and stockholder's equity of the Subsidiary Guarantors
and Greenwich are substantially equivalent to the total assets, net income and
stockholder's equity of Greenwich on a consolidated basis.
Pursuant to the Pledge and Security Agreement, the Notes will be jointly
secured on a PARI PASSU basis with Indebtedness under the New Credit Facility by
a pledge of 65% of the capital stock of Aviall U.K. Such security will be in
addition to the accounts receivable, inventories and other contract rights of
Aviall U.K. securing Indebtedness under the New Credit Facility. Upon
declaration of a default under the New Credit Facility or under the Indenture
and, in each case, acceleration of the Indebtedness thereunder, the Collateral
Agent named in the Pledge and Security Agreement will either (a) liquidate the
accounts receivable, inventory and other contract rights securing Indebtedness
under the New Credit Facility or (b) sell the capital stock of Aviall U.K.
pledged pursuant to the Pledge and Security Agreement, whichever is determined
to be likely to generate more proceeds for the repayment of Aviall U.K.'s
Indebtedness. The lenders under the New Credit Facility will be entitled to
receive from such liquidation or sale proceeds equal to the value of the
accounts receivable, inventory and other contract rights to the extent of the
total Indebtedness outstanding under the New Credit Facility. All proceeds in
excess of such amount, if any, will be shared PARI PASSU on a pro rata basis
with the holders of the Notes. The Pledge and Security Agreement establishes
certain procedures to be followed by the Collateral Agent designed to provide
the maximum possible proceeds as a result of such a liquidation or sale.
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Separate financial information relating to Aviall Limited has been included
in the Aviall Business' Audited Combined Financial Statements and Notes thereto
included in this Prospectus.
OPTIONAL REDEMPTION
The Notes are not redeemable prior to , 2001. At any time on or
after , 2001, the Notes are redeemable at the option of the Company,
in whole or in part, on not less than 30 nor more than 60 days' notice, at the
following redemption prices expressed as percentages of principal amount, plus
accrued and unpaid interest, if any, to the date of redemption.
If redeemed during the 12-month period commencing of the years
indicated:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ------------------------------------------------------------ ------------
<S> <C>
2001........................................................ %
2002........................................................ %
2003........................................................ %
</TABLE>
and thereafter, beginning , 2004, at 100% of the principal amount
of the Notes.
SINKING FUND
There will be no mandatory sinking fund payments for the Notes.
REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined below), each holder
of Notes will have the right to require the Company to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of such holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at a
purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, thereon to the purchase date (the "Change of Control
Payment").
Within 30 days following any Change of Control, the Company will mail a
notice to each holder of Notes stating, among other things: (1) that a Change of
Control has occurred, that a Change of Control Offer is being made pursuant to
the covenant in the Indenture entitled "Mandatory Repurchase at the Option of
Holders Upon a Change of Control" and that all Notes (or portions thereof)
timely tendered will be accepted for payment; (2) the purchase price and the
purchase date, which will be, subject to any contrary requirements of applicable
law, no earlier than 30 days nor later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date"); (3) that any Note (or portion
thereof) accepted for payment (and duly paid on the Change of Control Payment
Date) pursuant to the Change of Control Offer will cease to accrue interest
after the Change of Control Payment Date; (4) that any Notes (or portions
thereof) not tendered will continue to accrue interest; (5) a description of the
transaction or transactions constituting the Change of Control; (6) that holders
accepting the offer to have their Notes purchased pursuant to a Change of
Control Offer will be required to surrender such Notes (or portions thereof) to
the Paying Agent at the address specified in the notice prior to the close of
business on the business day preceding the Change of Control Payment Date; (7)
that holders will be entitled to withdraw their acceptance if the Paying Agent
receives, not later than the close of business on the third business day
preceding the Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the holder, the principal
amount of such Notes delivered for purchase, and a statement that such holder is
withdrawing such holder's election to have such Notes (or portions thereof)
purchased; (8) that holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered, provided that each Note purchased and each such new Note
issued shall be in an original principal amount in denominations of $1,000 and
integral multiples thereof; and (9) any other procedures that holders must
follow to accept a Change of Control Offer or effect withdrawal of such
acceptance.
On the Change of Control Payment Date, the Company shall (i) accept for
payment the Notes or portions thereof properly tendered pursuant to the Change
of Control Offer, (ii) irrevocably deposit with the Trustee or with a Paying
Agent money sufficient to pay the purchase price of all Notes or portions
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thereof so tendered and (iii) deliver or cause to be delivered to the Trustee
the Notes so accepted together with an Officers' Certificate identifying such
Notes or portions thereof. The Trustee or a Paying Agent shall, on the Change of
Control Payment Date, mail or deliver to each tendering holder of the purchase
price of the Notes so accepted, and the Trustee shall promptly authenticate and
mail (and the Company and the Subsidiary Guarantors shall execute) to such
holder a new Note equal in principal amount to any unpurchased portion of the
Notes surrendered; provided that each such new Note shall be issued in an
original principal amount in denominations of $1,000 and integral multiples
thereof.
The Company will comply, to the extent applicable, with the requirements of
Rules 13e-4 and 14e-1 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and any other securities laws and regulations to the extent
such laws and regulations are applicable in connection with the purchase of
Notes in connection with a Change of Control. To the extent that the provisions
of any securities laws or regulations conflict with the provisions relating to
the Change of Control Offer, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations described above by virtue thereof.
Except as described above with respect to a Change of Control, the Indenture
does not contain any other provisions that permit the holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar restructuring.
There can be no assurance that the Company will be able to fund any such
repurchase of Notes. The New Credit Facility contains, and any future credit
agreements or other agreements relating to indebtedness of the Company may
contain, prohibitions or restrictions on the Company's ability to effect a
Change of Control Payment. In the event a Change of Control occurs at a time
when such prohibitions or restrictions are in effect, the Company could seek the
consent of its lenders to the purchase of Notes or could attempt to repay or
refinance the borrowings governed by the agreements that contain such
prohibitions or restrictions. If the Company does not obtain such a consent or
repay or refinance such borrowings, the Company will be effectively prohibited
from purchasing Notes. In such case, the Company's failure to purchase tendered
Notes would constitute an Event of Default under the Indenture.
A "Change of Control" will be deemed to occur if (i) (a) the Specified
Holders cease in the aggregate to "beneficially own" (as such term is used in
Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, at least
50% of the total voting power of the Voting Stock of the Company, whether as a
result of any issuance of securities of the Company, any merger, consolidation,
liquidation or dissolution of the Company or otherwise, and (b) any "person"
(within the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange Act or any
successor provision to either of the foregoing, including any group acting for
the purpose of acquiring, holding or disposing of securities within the meaning
of Rule 13d-5(b)(1) under the Exchange Act), other than an underwriter engaged
in a firm commitment underwriting on behalf of the Company and other than the
Specified Holders, becomes the "beneficial owner" (as defined in clause (a)
above, except that for the purposes of this clause (b) a person other than a
Specified Holder shall be deemed to have beneficial ownership of all shares that
such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of
either (x) 35% or more of the total voting power of the Voting Stock of the
Company or (y) a greater percentage of the total voting power of the Voting
Stock of the Company than the Specified Holders in the aggregate "beneficially
own" (as defined in clause (a) above), directly or indirectly; (ii) the
stockholders of the Company shall have approved any plan of liquidation or
dissolution of the Company; or (iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Company's Board
of Directors (together with any new directors whose election or appointment by
such board or whose nomination for election by the stockholders of the Company
was approved by a vote of at least 66 2/3% of the directors then still in office
who were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Company's Board of Directors then in office.
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BOOK-ENTRY SYSTEM
The Notes will initially be issued in the form of one or more Global
Securities (as defined in the Indenture) held in book-entry form. Accordingly,
The Depository Trust Company or its successor ("DTC") or DTC's nominee will
initially be the sole registered holder of the Notes for all purposes under the
Indenture.
Upon the issuance of a Global Security, DTC or its nominee will credit the
accounts of persons holding through it with the respective principal amounts of
the Notes represented by such Global Security purchased by such persons in this
Offering. Such accounts shall be designated by the Underwriters with respect to
Notes placed by the Underwriters for the Company. Ownership of beneficial
interests in a Global Security will be limited to persons that have accounts
with DTC ("participants") or persons that may hold interests through
participants. Ownership of beneficial interests by participants in a Global
Security will be shown on, and the transfer of that ownership interest will be
effected only through, records maintained by DTC for such Global Security.
Ownership of beneficial interests in a Global Security by persons that hold
through participants will be shown on, and the transfer of those ownership
interests within each participant will be effected only through, records
maintained by such participant. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Security.
Payment of principal and interest on Notes represented by any such Global
Security will be made to DTC or its nominee, as the case may be, as the sole
registered owner and the sole holder of the Notes represented thereby for all
purposes under the Indenture. None of the Company, the Subsidiary Guarantors,
the Trustee, the Underwriters or any of their respective agents will have any
responsibility or liability for (a) any aspect of DTC's records relating to, or
payments made by DTC or its nominee on account of, beneficial ownership
interests in a Global Security representing any Notes or (b) maintaining,
supervising or reviewing any of DTC's records relating to such beneficial
ownership interests.
The Company has been advised by DTC that upon receipt of any payment of
principal of, or interest on, any Global Security, DTC will immediately credit,
on its book-entry registration and transfer system, the accounts of participants
with payments in amounts proportionate to their respective beneficial interests
in the principal or face amount of such Global Security as shown on the records
of DTC. Payments by participants to owners of beneficial interests in a Global
Security held through such participants will be governed by standing
instructions and customary practices as is now the case with securities held for
customer accounts registered in "street name" and will be the sole
responsibility of such participants.
A Global Security may not be transferred except as a whole by DTC to a
nominee of DTC or by a nominee of DTC to DTC. A Global Security is exchangeable
for certificated Notes only if (i) DTC notifies the Company that it is unwilling
or unable to continue as a depositary for such Global Security or if at any time
DTC ceases to be a clearing agency registered under the Exchange Act, (ii) the
Company executes and delivers to the Trustee a notice that such Global Security
shall be so transferable and exchangeable, and such transfers shall be
registrable, or (iii) there shall have occurred and be continuing an Event of
Default or an event which, with the giving of notice or lapse of time or both,
would constitute an Event of Default with respect to the Notes represented by
such Global Security. Any Global Security that is exchangeable for certificated
Notes pursuant to the preceding sentence will be exchanged for certificated
Notes in such authorized denominations and registered in such names as the
depositary holding such Global Security may direct. Subject to the foregoing, a
Global Security is not exchangeable except for a Global Security of like
denomination to be registered in the name of the depositary or its nominee. In
the event that a Global Security becomes exchangeable for certificated Notes,
(i) certificated Notes will be issued only in fully registered form in
denominations of $1,000 or integral multiples thereof, (ii) payment of
principal, premium, if any, and interest on the certificated Notes will be
payable, and the transfer of the certificated Notes will be registrable, at the
office or agency of the Company maintained
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for such purposes, and (iii) no service charge will be made for any registration
of transfer or exchange of the certificated Notes, although the Company may
require payment of a sum sufficient to cover any tax or governmental charge
imposed in connection therewith.
So long as the depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the Notes
represented by such Global Security for the purposes of receiving payment on the
Notes and receiving notices, and for all other purposes under the Indenture and
the Notes. Beneficial interests in Notes will be evidenced only by, and
transfers thereof will be effected only through, records maintained by the
depositary and its participants. Cede & Co. has been appointed as the nominee of
DTC. Except as provided above, owners of beneficial interests in a Global
Security will not be considered the holders thereof for any purposes under the
Indenture. Accordingly, each person owning a beneficial interest in a Global
Security must rely on the procedures of the depositary, and, if such person is
not a participant, on the procedures of the participant through which such
person owns its interest, to exercise any rights of a holder of Notes under the
Indenture. The Company understands that under existing industry practices, in
the event that the Company requests any action of holders or that an owner of a
beneficial interest in a Global Security desires to give or take any action
which a holder of Notes is entitled to give or take under the Indenture, the
depositary would authorize the participants holding the relevant beneficial
interest to give or take such action and such participants would authorize
beneficial owners owning through such participants to give or take such action
or would otherwise act upon the instructions of beneficial owners owning through
them.
DTC has advised the Company that DTC is a limited-purpose trust company
organized under the Banking Law of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code, and a "clearing agency" registered under the
Exchange Act. DTC was created to hold the securities of its participants and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical movement
of securities certificates. DTC's participants include securities brokers and
dealers (including the Underwriters), banks, trust companies, clearing
corporations and certain other organizations, some of whom (and/or their
representatives) own DTC. Access to DTC's book-entry system is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly.
CERTAIN COVENANTS
LIMITATION ON COMPANY INDEBTEDNESS. The Indenture provides that the Company
will not, directly or indirectly, incur any Indebtedness unless no Default or
Event of Default shall have occurred and be continuing at the time of such
Incurrence and, after giving pro forma effect to the application of the proceeds
thereof, no Default or Event of Default would occur as a consequence of such
Incurrence and either (a) after giving pro forma effect to the Incurrence of
such Indebtedness and the receipt and application of the proceeds thereof, the
Consolidated Interest Coverage Ratio exceeds 2.0 or (b) such Indebtedness is
Permitted Company Indebtedness.
Permitted Company Indebtedness means any and all of the following: (a)
Indebtedness evidenced by the Notes; (b) Indebtedness under the New Credit
Facility, PROVIDED that the aggregate principal amount of all such Indebtedness
under the New Credit Facility, together with all Indebtedness Incurred pursuant
to clause (i) of this paragraph in respect of Indebtedness previously Incurred
pursuant to this clause (b), and all Indebtedness Incurred pursuant to clause
(a) of "Limitation on Restricted Subsidiary Indebtedness and Preferred Stock"
together with all Indebtedness Incurred and Preferred Stock issued pursuant to
clause (g) of such paragraph in respect of Indebtedness previously Incurred
pursuant to such clause (a), at any one time outstanding does not exceed the sum
of 80% of the aggregate amount of receivables (including unbilled accounts
receivable) and 60% of the aggregate amount of inventory as of the end of the
most recent fiscal quarter; (c) Indebtedness of the Company to any of its Wholly
Owned Subsidiaries (but only so long as such Indebtedness is held by a Wholly
Owned Subsidiary);
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(d) Indebtedness in connection with one or more standby letters of credit,
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature Incurred in the ordinary course of business
consistent with past practice and not in connection with the borrowing of money
or the obtaining of advances or credit; (e) Indebtedness under Currency
Agreements and Interest Rate Protection Agreements entered into for the purpose
of limiting currency rate or interest rate risks, PROVIDED that such Currency
Agreements and Interest Rate Protection Agreements do not increase the
Indebtedness of the Company or its Restricted Subsidiaries outstanding at any
time other than as a result of fluctuations in currency rates or interest rates
or by reason of customary fees, indemnities and compensation payable thereunder
and either, with respect to Currency Agreements, are entered into for the
purpose of limiting currency exchange rate risks in connection with transactions
entered into in the ordinary course of business, or, with respect to Interest
Rate Protection Agreements, are related to payment obligations on Indebtedness
otherwise permitted by the terms of the "Limitation on Company Indebtedness"
covenant; (f) certain specified Indebtedness outstanding on the Issue Date not
otherwise permitted in clauses (a) through (e) above or clause (g) below; (g)
Indebtedness in respect of Capital Lease Obligations directly Incurred by the
Company, PROVIDED that the aggregate principal amount of such Indebtedness
Incurred under this clause (g) and clause (f) under "Limitation on Restricted
Subsidiary Indebtedness and Preferred Stock" does not exceed $10 million at any
one time outstanding; (h) Indebtedness Incurred in connection with a repurchase
of Notes pursuant to a Change of Control, PROVIDED that the principal amount of
such Indebtedness does not exceed 101% of the principal amount of the Notes
repurchased and the reasonable and customary expenses, fees and costs of the
Company in connection therewith, and such Indebtedness (i) has an Average Life
to Stated Maturity that is equal to or greater than the remaining Average Life
to Stated Maturity of the Notes and (ii) has a Stated Maturity no earlier than
the Stated Maturity of the Notes; (i) Indebtedness Incurred in exchange for, or
the proceeds of which are used to refinance, Indebtedness referred to in clauses
(a) through (f) or clause (h) of this paragraph (including Indebtedness
previously Incurred pursuant to this clause (i)); PROVIDED, HOWEVER, that (i)
such Indebtedness is in an aggregate principal amount not in excess of the sum
of (A) the aggregate principal amount then outstanding of the Indebtedness being
exchanged or refinanced and (B) an amount necessary to pay any reasonable fees
and expenses, including premiums, related to such exchange or refinancing, (ii)
such Indebtedness has a Stated Maturity no earlier than the Stated Maturity of
the Indebtedness being exchanged or refinanced, (iii) such Indebtedness has an
Average Life to Stated Maturity at the time such Indebtedness is Incurred that
is equal to or greater than the Average Life to Stated Maturity of the
Indebtedness being exchanged or refinanced, and (iv) such Indebtedness is
subordinated in right of payment to the Notes to at least the same extent, if
any, as the Indebtedness being exchanged or refinanced and the covenants
relating to such Indebtedness are no more restrictive in the aggregate than
those relating to the Indebtedness being exchanged or refinanced; and (j)
Indebtedness not otherwise permitted to be Incurred pursuant to clauses (a)
through (i) above, PROVIDED that the aggregate principal amount of all
Indebtedness Incurred and Preferred Stock issued pursuant to this clause (j) and
clause (h) under "Limitation on Restricted Subsidiary Indebtedness and Preferred
Stock" does not exceed $25 million at any one time outstanding.
LIMITATION ON RESTRICTED SUBSIDIARY INDEBTEDNESS AND PREFERRED STOCK. The
Indenture provides that the Company will not permit any of its Restricted
Subsidiaries, directly or indirectly, to Incur any Indebtedness or issue any
Preferred Stock unless no Default or Event of Default shall have occurred and be
continuing at the time of such Incurrence or issuance, and, after giving pro
forma effect to the application of the proceeds thereof, no Default or Event of
Default would occur as a consequence of such Incurrence or issuance and such
Indebtedness or such Preferred Stock is Permitted Restricted Subsidiary
Indebtedness or Preferred Stock.
Permitted Restricted Subsidiary Indebtedness or Preferred Stock means any
and all of the following: (a) Indebtedness under the New Credit Facility,
PROVIDED that the aggregate principal amount of all such Indebtedness under the
New Credit Facility, together with all Indebtedness Incurred pursuant to clause
(g) of this paragraph in respect of Indebtedness previously Incurred pursuant to
this clause (a) and all Indebtedness Incurred pursuant to clause (b) of
"Limitation on Company Indebtedness"
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together with all Indebtedness Incurred pursuant to clause (i) of such paragraph
in respect of Indebtedness previously Incurred pursuant to such clause (b), at
any one time outstanding does not exceed the sum of 80% of the aggregate amount
of receivables (including unbilled accounts receivable) and 60% of the aggregate
amount of inventory as of the end of the most recent fiscal quarter; (b)
Indebtedness or Preferred Stock held by the Company or any of its Wholly Owned
Subsidiaries (but only so long as such Indebtedness or Preferred Stock is held
by the Company or a Wholly Owned Subsidiary); (c) Indebtedness in connection
with one or more standby letters of credit, statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature Incurred
in the ordinary course of business consistent with past practice and not in
connection with the borrowing of money or the obtaining of advances or credit;
(d) Indebtedness under Currency Agreements and Interest Rate Protection
Agreements entered into for the purpose of limiting currency rate or interest
rate risks, PROVIDED that such Currency Agreements and Interest Rate Protection
Agreements do not increase the Indebtedness of such Restricted Subsidiary
outstanding at any time other than as a result of fluctuations in currency rates
or interest rates or by reason of customary fees, indemnities and compensation
payable thereunder and either, with respect to Currency Agreements, are entered
into for the purpose of limiting currency exchange rate risks in connection with
transactions entered into in the ordinary course of business, or, with respect
to Interest Rate Protection Agreements, are related to payment obligations on
Indebtedness otherwise permitted by the terms of the "Limitation on Restricted
Subsidiary Indebtedness and Preferred Stock" covenant; (e) certain specified
Indebtedness or Preferred Stock of Restricted Subsidiaries outstanding on the
Issue Date not otherwise permitted in clauses (a) through (d) above or clause
(f) below; (f) Indebtedness in respect of Capital Lease Obligations directly
Incurred by a Restricted Subsidiary, PROVIDED that the aggregate principal
amount of such Indebtedness Incurred under this clause (f) and clause (g) under
"Limitation on Company Indebtedness" does not exceed $10 million at any one time
outstanding; (g) Indebtedness Incurred or Preferred Stock issued in exchange
for, or the proceeds of which are used to refinance, Indebtedness or Preferred
Stock referred to in clauses (a) through (e) of this paragraph (including
Indebtedness previously Incurred and Preferred Stock previously issued pursuant
to this clause (g)); PROVIDED, HOWEVER, that (i) such Indebtedness or Preferred
Stock is in an aggregate principal amount not in excess of the sum of (A) the
aggregate principal amount then outstanding of the Indebtedness or Preferred
Stock being exchanged or refinanced and (B) an amount necessary to pay any
reasonable fees and expenses, including premiums, related to such exchange or
refinancing, (ii) such Indebtedness or such Preferred Stock, as the case may be,
has a Stated Maturity or final redemption date (if any) no earlier than the
Stated Maturity or final redemption date (if any) of the Indebtedness or
Preferred Stock being exchanged or refinanced, (iii) such Indebtedness or such
Preferred Stock, as the case may be, has an Average Life to Stated Maturity at
the time such Indebtedness is Incurred or such Preferred Stock is issued, as the
case may be, that is equal to or greater than the Average Life to Stated
Maturity of the Indebtedness or Preferred Stock being exchanged or refinanced,
and (iv) such Indebtedness or such Preferred Stock, as the case may be, is
subordinated in right of payment to the Notes to at least the same extent, if
any, as the Indebtedness or Preferred Stock being exchanged or refinanced and
the covenants relating to such Indebtedness or Preferred Stock are no more
restrictive in the aggregate than those relating to the Indebtedness or
Preferred Stock being exchanged or refinanced; and (h) Indebtedness or Preferred
Stock not otherwise permitted to be Incurred or issued pursuant to clauses (a)
through (g) above, PROVIDED that the aggregate principal amount of all
Indebtedness Incurred or Preferred Stock issued pursuant to this clause (h) and
clause (j) under "Limitation on Company Indebtedness" does not exceed $25
million at any one time outstanding.
LIMITATION ON LIENS. The Indenture provides that the Company will not, and
will not permit any of its Restricted Subsidiaries, directly or indirectly, to
Incur any Lien (other than Permitted Liens) on or with respect to any Property
or assets of the Company or any Restricted Subsidiary owned on the Issue Date or
thereafter acquired with the proceeds of any Asset Sale, or any interest therein
or any income or profits therefrom, unless the Notes are secured equally and
ratably with (or prior to) any and all other obligations secured by such Lien;
PROVIDED, HOWEVER, that the Company and each Restricted Subsidiary may incur
other Liens to secure Indebtedness as long as the sum, without duplication, of
(x) the amount of outstanding Indebtedness secured by Liens Incurred pursuant to
this proviso plus (y) the Attributable
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Indebtedness with respect to all outstanding leases in connection with Sale and
Leaseback Transactions entered into pursuant to the proviso to the covenant
described under "-- Limitation on Sale and Leaseback Transactions" does not
exceed 5% of Consolidated Net Tangible Assets as determined by reference to the
consolidated balance sheet of the Company and its Restricted Subsidiaries as of
the end of the most recent fiscal quarter for which financial statements are
available.
Permitted Liens means any or all of the following: (a) Liens existing as of
the Issue Date; (b) any Lien existing on any Property at the time of the
acquisition thereof (and not Incurred in anticipation of such acquisition),
PROVIDED that such Liens are not extended to other Property of the Company or
any Restricted Subsidiary; (c) Liens securing Indebtedness Incurred under the
New Credit Facility; PROVIDED that (i) such Indebtedness was Incurred in
compliance with clause (b) of the definition of Permitted Company Indebtedness
or clause (a) of the definition of Permitted Restricted Subsidiary Indebtedness
or Preferred Stock and (ii) such Liens on assets of any Restricted Subsidiary
extend only to the assets of such Restricted Subsidiary that Incurred such
Indebtedness; (d) Liens securing standby letters of credit, statutory
obligations, surety or appeal bonds, performance bonds or other obligations of a
like nature Incurred in compliance with clause (d) of the definition of
Permitted Company Indebtedness or clause (c) of the definition of Permitted
Restricted Subsidiary Indebtedness and Preferred Stock; PROVIDED, that such
Liens on assets of any Restricted Subsidiary extend only to the assets of such
Restricted Subsidiary that Incurred such Indebtedness; (e) Liens securing
Indebtedness in respect of Capital Lease Obligations permitted under clause (g)
of the definition of Permitted Company Indebtedness or clause (f) of the
definition of Permitted Restricted Subsidiary Indebtedness and Preferred Stock;
PROVIDED that (i) the amount of Indebtedness Incurred in any specific case does
not, at the time such Indebtedness is Incurred, exceed the Fair Market Value of
the Property or asset acquired or constructed in connection with such Capital
Lease Obligation and (ii) no Property or assets of the Company or any of its
Restricted Subsidiaries (other than the Property or asset acquired or
constructed in connection with such Capital Lease Obligation) are subject to any
Lien securing such Indebtedness; (f) Liens on Property of a Person (including an
Unrestricted Subsidiary) existing at the time such Person is merged with or into
or consolidated with the Company or a Restricted Subsidiary or otherwise becomes
a Restricted Subsidiary (and not Incurred in anticipation of any such
transaction); PROVIDED that such Liens are not extended to any other Property or
assets of the Company and its Restricted Subsidiaries; (g) Liens to secure any
permitted extension, renewal, refinancing, refunding or exchange (or successive
extensions, renewals, refinancings, refundings or exchanges), in whole or in
part, of or for any Indebtedness secured by Liens referred to in the foregoing
clauses (a) through (f); PROVIDED, HOWEVER, that (i) such new Lien shall be
limited to all or part of the same Property that secured the original Lien and
(ii) the Indebtedness secured by such Lien at such time is not increased.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS. The Indenture provides that
the Company will not, and will not permit any of its Restricted Subsidiaries,
directly or indirectly, to enter into any Sale and Leaseback Transaction unless
(i) the Indebtedness of the Company or such Restricted Subsidiary with respect
thereto would be permitted under the "Limitation on Company Indebtedness"
covenant or under the "Limitation on Restricted Subsidiary Indebtedness and
Preferred Stock" covenant, (ii) the net proceeds from such Sale and Leaseback
Transaction are at least equal to the Fair Market Value of such Property being
transferred, and (iii) the net proceeds from such Sale and Leaseback Transaction
are applied in accordance with the "Limitation on Asset Sales" covenant;
PROVIDED, HOWEVER, that the Company or any Restricted Subsidiary may enter into
a Sale and Leaseback Transaction as long as the sum, without duplication, of (x)
the Attributable Indebtedness with respect to such Sale and Leaseback
Transaction and all other Sale and Leaseback Transactions entered into pursuant
to this proviso, plus (y) the amount of outstanding Indebtedness secured by
Liens Incurred pursuant to the proviso to the first paragraph under "--
Limitation on Liens," does not exceed 5% of Consolidated Net Tangible Assets as
determined by reference to the consolidated balance sheet of the Company and its
Restricted Subsidiaries as of the end of its most recent fiscal quarter.
LIMITATION ON RESTRICTED PAYMENTS. The Indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries, directly or
indirectly, to make any Restricted Payment if, at the
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time of and after giving effect to the proposed Restricted Payment, (a) any
Default or Event of Default would have occurred and be continuing, (b) the
Company could not Incur at least $1.00 of additional Indebtedness pursuant to
clause (a) of the first paragraph of the "Limitation on Company Indebtedness"
covenant, or (c) the aggregate amount expended or declared for all Restricted
Payments from and after the Issue Date would exceed the sum of $2.5 million plus
(i) 50% of the aggregate Consolidated Net Income of the Company (or, if
Consolidated Net Income shall be a deficit, less 100% of such deficit)
commencing on the first day of the fiscal quarter in which the Issue Date
occurs, and ending on the last day of the fiscal quarter ending on or
immediately preceding the date of such Restricted Payment, (ii) 100% of the
aggregate net cash proceeds received by the Company subsequent to the Issue Date
from the issuance or sale (other than to a Subsidiary of the Company) of Capital
Stock of the Company, including, without limitation, Capital Stock of the
Company issued upon conversion of convertible debt or convertible Redeemable
Stock or upon the exercise of options, warrants or rights to purchase Capital
Stock, and (iii) an amount equal to the aggregate net reduction in Investments
made by the Company and its Restricted Subsidiaries subsequent to the Issue Date
in other Persons (other than the Company and its Restricted Subsidiaries)
resulting from (A) payments of interest on debt, dividends, repayment of loans
or advances, or other transfers or distributions of Property (but only to the
extent the Company excludes such transfers or distributions from the calculation
of Consolidated Net Income for purposes of clause (i) above), in each case to
the Company or any Restricted Subsidiary from any such Person, or (B) the
designation of any Unrestricted Subsidiary as a Restricted Subsidiary, not to
exceed, in the case of clauses (A) and (B), taken together, the aggregate amount
of such Investments previously made in such other Persons which were treated as
Restricted Payments.
The foregoing limitations do not prevent the Company or any Restricted
Subsidiary from (a) paying a dividend on its Capital Stock within 60 days after
declaration thereof if, on the declaration date, such dividend could have been
paid in compliance with the Indenture, or (b) making Permitted Investments so
long as no Default or Event of Default shall have occurred and be continuing.
Permitted Investments means any and all of the following: (a) Permitted
Short-Term Investments; (b) Investments in property, plant and equipment used in
the ordinary course of business; (c) Investments in any other Person, as a
result of which such other Person becomes a Restricted Subsidiary in compliance
with the "Restricted and Unrestricted Subsidiaries" covenant; and (d)
Investments in joint ventures in the Aerospace Industry and Gas Turbine Engine
Business, whether in the form of cash or through the contribution of assets (the
value of any payment other than cash is to be determined by the Board of
Directors and evidenced by a board resolution), in an amount not to exceed $10
million.
LIMITATION ON ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. The Indenture provides that the Company will not (a) permit any
Restricted Subsidiary to issue any Capital Stock other than to the Company or
one of its Wholly Owned Subsidiaries or (b) permit any Person other than the
Company or a Wholly Owned Subsidiary to own any Capital Stock of any Restricted
Subsidiary of the Company (other than directors' qualifying shares), except, in
each case, for (i) a sale of all of the Capital Stock of a Restricted Subsidiary
owned by the Company and its Restricted Subsidiaries effected in accordance with
the "Limitation on Asset Sales" covenant and (ii) Preferred Stock permitted
under the "Limitation on Restricted Subsidiary Indebtedness and Preferred Stock"
covenant.
LIMITATION ON ASSET SALES. The Indenture provides that the Company will
not, and will not permit any Restricted Subsidiary to, consummate any Asset Sale
unless (i) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the Fair
Market Value of the Property subject to such Asset Sale, (ii) at least 75% of
the consideration paid to the Company or such Restricted Subsidiary for such
Property is in the form of cash and cash equivalents and (iii) the Company or
such Restricted Subsidiary, as the case may be, uses the Net Cash Proceeds from
such Asset Sale in the manner set forth in the next two paragraphs.
The Net Cash Proceeds, or any portion thereof, from Asset Sales may be
applied by the Company or a Restricted Subsidiary, to the extent the Company or
such Restricted Subsidiary elects, (A) to
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reinvest in additional assets in the Aerospace Industry and Gas Turbine Engine
Business ("Replacement Assets") (including by means of an Investment in
Replacement Assets by a Restricted Subsidiary with Net Cash Proceeds received by
the Company or another Restricted Subsidiary); and (B) to prepay, repay or
purchase Indebtedness of the Company ranking PARI PASSU to the Notes in right of
payment or Indebtedness of a Restricted Subsidiary (in each case excluding
Indebtedness owed to the Company or an Affiliate of the Company).
Any Net Cash Proceeds from an Asset Sale not applied in accordance with the
preceding paragraph within 270 days from the date of such Asset Sale will
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $10 million, the Company will be required to make an offer to purchase
(the "Prepayment Offer") the Notes at a purchase price in cash of at least 100%
of their principal amount plus accrued and unpaid interest thereon (if any) to
the Purchase Date (as defined below) in accordance with the procedures
(including prorating in the event of oversubscription) set forth in the
Indenture. If the aggregate principal amount of Notes surrendered by holders
thereof exceeds the amount of Excess Proceeds, then the Excess Proceeds will be
allocated pro rata according to the principal amount of the Notes surrendered
and the Trustee will select the Notes to be purchased in accordance with the
Indenture. To the extent that any Excess Proceeds remain after compliance with
the preceding sentences of this paragraph, and PROVIDED that all holders of
Notes have been given the opportunity to tender their Notes for purchase as
described in the next succeeding paragraph in accordance with the Indenture, the
Company or such Restricted Subsidiary may use such remaining Excess Cash
Proceeds for general corporate purposes and the amount of Excess Proceeds will
be reset to zero.
Within five Business Days after 270 days from the date of an Asset Sale, the
Company will, if it is obligated to apply an amount equal to any Excess Proceeds
to fund an offer to purchase the Notes, send a written Prepayment Offer notice,
by first-class mail, to the holders of the Notes (the "Prepayment Offer
Notice"), accompanied by such information regarding the Company and its
Subsidiaries as the Company in good faith believes will enable such holders to
make an informed decision with respect to the Prepayment Offer. The Prepayment
Offer Notice will state, among other things, (a) that the Company is offering to
purchase Notes pursuant to the provisions of the Indenture described herein
under "-- Limitation on Asset Sales," (b) that any Note (or any portion thereof)
accepted for payment (and duly paid on the Purchase Date) pursuant to the
Prepayment Offer will cease to accrue interest after the Purchase Date, (c) the
purchase price and purchase date, which will be, subject to any contrary
requirements of applicable law, no less than 30 days nor more than 60 days after
the date the Prepayment Offer Notice is mailed (the "Purchase Date"), (d) the
maximum aggregate principal amount of Notes to be purchased and (e) the
procedures which holders of Notes must follow in order to tender their Notes (or
portions thereof) and the procedures that holders of Notes must follow in order
to withdraw an election to tender their Notes for payment.
The Company will comply, to the extent applicable, with the requirements of
Rules 13e-4 and 14e-1 under the Exchange Act and any other securities laws and
regulations to the extent such laws and regulations are applicable in connection
with the purchase of Notes as described above. To the extent that the provisions
of any securities laws or regulations conflict with the provisions relating to a
Prepayment Offer, the Company will comply with the applicable securities laws
and regulations and will not be deemed to have breached its obligations
described above by virtue thereof.
TRANSACTIONS WITH AFFILIATES. The Indenture provides that the Company will
not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, conduct any business or enter into any transaction or series of
transactions (including, but not limited to, the sale, transfer, disposition,
purchase, exchange or lease of Property, the making of any Investment, the
giving of any Guarantee or the rendering of any service) with or for the benefit
of any Affiliate of the Company, unless (a) such transaction or series of
transactions is in the best interest of the Company or such Restricted
Subsidiary, (b) such transaction or series of transactions is on terms which in
the aggregate are no less favorable to the Company or such Restricted Subsidiary
than those that could be obtained in a comparable arm's-length transaction with
a Person that is not an Affiliate of the Company or such Restricted Subsidiary
and
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(c) with respect to a transaction or series of transactions involving aggregate
payments or other consideration to or from the Company and its Restricted
Subsidiaries having a Fair Market Value equal to or in excess of (i) $5 million
but less than $10 million, the Board of Directors of the Company (including a
majority of the disinterested members of the Board of Directors of the Company)
approves such transaction or series of transactions and, in its good faith
judgment, believes that such transaction or series of transactions complies with
clauses (a) and (b) of this paragraph, as evidenced by a certified resolution
delivered to the Trustee, or (ii) $10.0 million, (A) the Company receives the
written opinion of an independent appraisal firm or investment banking firm
nationally recognized in the United States that such transaction (or series of
transactions) is fair, from a financial point of view, to the Company or such
Restricted Subsidiary and (B) the Board of Directors of the Company (including a
majority of the disinterested members of the Board of Directors of the Company)
approves such transaction or series of transactions and, in its good faith
judgment, believes that such transaction or series of transactions complies with
clauses (a) and (b) of this paragraph, as evidenced by a certified resolution
delivered to the Trustee.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective, or enter into any
agreement with any Person that would cause to become effective, any encumbrance
or restriction (other than pursuant to law or regulation) on the legal right of
any Restricted Subsidiary to (a) pay dividends, in cash or otherwise, or make
any distributions on or in respect of its Capital Stock or Redeemable Stock, or
pay any Indebtedness or other obligation owed to the Company or any other
Restricted Subsidiary, (b) make any loans or advances to the Company or any
other Restricted Subsidiary or (c) transfer any of its property or assets to the
Company or any other Restricted Subsidiary.
The limitation contained in the foregoing paragraph will not apply to: (i)
any encumbrance or restriction existing under certain specified agreements in
effect on the Issue Date; (ii) any encumbrance or restriction in connection with
an acquisition of Property, so long as such encumbrance or restriction relates
solely to the Property so acquired and was not created in connection with or in
anticipation of such acquisition; (iii) any encumbrance or restriction existing
in connection with Indebtedness permitted under the Indenture of a Restricted
Subsidiary at the date on which such Restricted Subsidiary became a Restricted
Subsidiary (other than Indebtedness Incurred by such Restricted Subsidiary in
connection with or in anticipation of its becoming a Restricted Subsidiary,
whether upon its acquisition by the Company or otherwise); (iv) any encumbrance
or restriction existing under an agreement effecting a permitted refinancing of
Indebtedness issued pursuant to an agreement creating an encumbrance or
restriction permitted by clauses (i) through (iii) above, so long as the
encumbrances and restrictions existing under any such refinancing agreement are
no more restrictive in the aggregate than the encumbrances and restrictions
existing under the agreement pursuant to which the refinanced Indebtedness was
issued; (v) customary provisions restricting subletting or assignment of leases
and customary provisions in other agreements that restrict assignment of such
agreements or rights thereunder; and (vi) any restriction on the sale or other
disposition of assets or Property securing Indebtedness as a result of a
Permitted Lien on such assets or Property.
RESTRICTED AND UNRESTRICTED SUBSIDIARIES. Unless defined or designated as
an Unrestricted Subsidiary, any Person that becomes a Subsidiary of the Company
or any of its Restricted Subsidiaries shall be classified as a Restricted
Subsidiary subject to the provisions of the next paragraph. The Company may
designate a Subsidiary (including a newly formed or newly acquired Subsidiary)
of the Company or any of its Restricted Subsidiaries as an Unrestricted
Subsidiary if (i) such Subsidiary does not have any Indebtedness or other
obligations which, if in default, would result (with the passage of time or
notice or otherwise) in a default on any Indebtedness of the Company or any
Restricted Subsidiary and (ii)(A) such designation is effective immediately upon
such Subsidiary becoming a Subsidiary of the Company or of a Restricted
Subsidiary or (B) the Subsidiary to be so designated has total assets of $1,000
or less. Except as provided in clause (ii)(B) of this paragraph, no Restricted
Subsidiary may be redesignated as an Unrestricted Subsidiary. An Unrestricted
Subsidiary may be redesignated as a
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Restricted Subsidiary upon compliance with the provisions described in the next
paragraph; PROVIDED, HOWEVER, that once a Restricted Subsidiary has been
redesignated an Unrestricted Subsidiary, it may not thereafter be redesignated a
Restricted Subsidiary. The designation of an Unrestricted Subsidiary or removal
of such designation is required to be made by the Board of Directors of the
Company or a committee thereof pursuant to a certified resolution delivered to
the Trustee and shall be effective as of the date specified in the applicable
certified resolution, which shall not be prior to the date such certified
resolution is delivered to the Trustee.
The Company will not, and will not permit any of its Restricted Subsidiaries
to, take any action or enter into any transaction or series of transactions that
would result in a Person becoming a Restricted Subsidiary (whether through an
acquisition or otherwise) unless, after giving effect to such action,
transaction or series of transactions, on a pro forma basis, (i) the Company
could Incur at least $1.00 of additional Indebtedness pursuant to clause (a) of
the first paragraph under "-- Limitation on Company Indebtedness," (ii) such
Restricted Subsidiary could then Incur or issue, pursuant to the "-- Limitation
on Restricted Subsidiary Indebtedness and Preferred Stock" covenant, all
Indebtedness and Preferred Stock as to which it is obligated at such time, (iii)
no Default or Event of Default would occur or be continuing and (iv) such
Restricted Subsidiary could then Incur, pursuant to the "-- Limitation on Liens"
covenant, all liens with respect to its Property in existence at such time.
GUARANTEES OF CERTAIN INDEBTEDNESS. The Company will not permit any of its
Restricted Subsidiaries, directly or indirectly, to Incur, Guarantee or secure
through the granting of Liens or pledge of Property the payment of any
Indebtedness under the New Credit Facility or any refunding or refinancing
thereof in each case unless such Restricted Subsidiary (if it has not already
done so) enters into a Subsidiary Guarantee and becomes a Subsidiary Guarantor
pursuant to the terms of the Indenture. Such Subsidiary Guarantee will be a
senior unsecured obligation of such Restricted Subsidiary as described under
"Subsidiary Guarantees and Other Security" above. Neither the Company nor any
Subsidiary Guarantor shall be required to make a notation on the Notes or the
Subsidiary Guarantees to reflect any such subsequent Subsidiary Guarantee. This
covenant is not intended to permit any Restricted Subsidiary of the Company to
incur any Indebtedness or grant any Lien otherwise prohibited by the "Limitation
on Restricted Subsidiary Indebtedness and Preferred Stock" covenant or the
"Limitation on Liens" covenant.
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Indenture provides that the Company will not, and will not permit any
Restricted Subsidiary to, merge or consolidate with or into any other entity
(other than a merger of a Restricted Subsidiary into the Company or into another
Restricted Subsidiary), or (in the case of the Company), directly or indirectly,
sell, transfer, assign, lease, convey or otherwise dispose of all or
substantially all of its Property or assets in any one transaction or series of
transactions, unless: (a) the entity formed by or surviving any such
consolidation or merger (if the Company is a party to the transaction and is not
the surviving entity) or the Person to which such sale, assignment, transfer,
lease or conveyance is made (the "Surviving Entity") shall be a corporation
organized and existing under the laws of the United States of America or a State
thereof or the District of Columbia and such corporation expressly assumes, by
supplemental indenture satisfactory to the Trustee, executed and delivered to
the Trustee by such corporation, the due and punctual payment of the principal
of, premium, if any, and interest on all the Notes, according to their tenor,
and the due and punctual performance and observance of all of the covenants and
conditions of the Indenture to be performed by the Company; (b) in the case of a
sale, transfer, assignment, lease, conveyance or other disposition of all or
substantially all of the Company's Property or assets, such Property and assets
shall have been transferred as an entirety or virtually as an entirety to one
Person; (c) immediately before and after giving effect to such transaction or
series of transactions on a pro forma basis (including, without limitation, any
Indebtedness Incurred or anticipated to be Incurred in connection with such
transaction or series of transactions), no Default or Event of Default shall
have occurred and be continuing; (d) immediately after giving effect to such
transaction or series of transactions on a pro forma basis (including, without
limitation, any Indebtedness Incurred or anticipated to be Incurred in
connection with such transaction or series of transactions), the Company or the
Surviving Entity, as the
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case may be, would be able to Incur at least $1.00 of additional Indebtedness
under clause (a) of the first paragraph under "-- Limitation on Company
Indebtedness"; and (e) immediately after giving effect to such transaction or
series of transactions on a pro forma basis (including, without limitation, any
Indebtedness Incurred or anticipated to be Incurred in connection with such
transaction or series of transactions), the Company or the Surviving Entity, as
the case may be, shall have a Consolidated Net Worth equal to or greater than
the Consolidated Net Worth of the Company immediately prior to the transaction
or series of transactions.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other capitalized terms used herein for which no
definition is provided.
"AEROSPACE INDUSTRY AND GAS TURBINE ENGINE BUSINESS" means a business
engaged in airline or aircraft related support services as well as a business
based on gas turbine engines used in the aerospace industry and military,
marine, industrial and power plant applications.
"AFFILIATE" of any specified Person means any other Person (i) which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person or (ii)
which beneficially owns or holds directly or indirectly 10% or more of any class
of the Voting Stock of such specified Person or of any Subsidiary of such
specified Person. For the purposes of this definition, "control," when used with
respect to any specified Person, means the power to direct the management and
policies of such Person directly or indirectly, whether through the ownership of
Voting Stock, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"ASSET SALE" means, with respect to any Person, any transfer, conveyance,
sale, lease or other disposition (including, without limitation, dispositions
pursuant to any consolidation or merger but excluding any Sale and Leaseback
Transaction) by such Person or any of its Restricted Subsidiaries, in any single
transaction or series of transactions, of (a) shares of Capital Stock or other
ownership interests of another Person (including Capital Stock of Unrestricted
Subsidiaries) or (b) any other Property or assets of such Person or any of its
Restricted Subsidiaries; PROVIDED, HOWEVER, that the aggregate Fair Market Value
of the Property and assets transferred, conveyed, sold, leased or otherwise
disposed of, exceeds $2 million. Notwithstanding the foregoing, the term "Asset
Sale" shall not include (i) any asset disposition permitted pursuant to the
covenant described under "-- Merger, Consolidation and Sale of Assets" which
constitutes a disposition of all or substantially all of the Company's Property
or assets; (ii) the sale or transfer of Permitted Short-Term Investments or
inventory in the ordinary course of business; (iii) the liquidation of Property
received in settlement of Indebtedness owing to the Company or any Restricted
Subsidiary as a result of foreclosure, perfection or enforcement of any Lien or
Indebtedness, which Indebtedness was owing to the Company or any Restricted
Subsidiary in the ordinary course of business of the Company or such Restricted
Subsidiary; or (iv) the sale or transfer of any Property by the Company or a
Restricted Subsidiary to the Company or a Wholly-Owned Subsidiary.
"ATTRIBUTABLE INDEBTEDNESS" means Indebtedness deemed to be incurred in
respect of a Sale and Leaseback Transaction and shall be, at the date of
determination, the present value (discounted at the actual rate of interest
implicit in such transaction, compounded annually), of the total obligations of
the lessee for rental payments during the remaining term of the lease included
in such Sale and Leaseback Transaction (including any period for which such
lease has been extended).
"AVERAGE LIFE" means as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
scheduled redemption payment in respect of such Preferred Stock, as the case may
be, multiplied by the amount of such payment by (ii) the sum of all such
principal or redemption payments.
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"CAPITAL LEASE OBLIGATION" of any Person means an obligation which is
required to be classified and accounted for as a capital lease or a liability on
the face of a balance sheet of such Person in accordance with GAAP. For purposes
of the "Limitation on Liens" covenant, a Capital Lease Obligation shall be
deemed to be secured by a Lien on the property being leased.
"CAPITAL STOCK" in any Person means any and all shares, interests,
participations or other equivalents in the equity interest (however designated)
in such Person and any rights (other than debt securities convertible into an
equity interest), warrants or options to subscribe for or to acquire an equity
interest in such Person; PROVIDED, HOWEVER, that "Capital Stock" shall not
include Redeemable Stock.
"CONESE FAMILY" means collectively Eugene P. Conese, Sr. and members of his
immediate family, any of their respective spouses, estates, lineal descendants,
heirs, executors, personal representatives, administrators, trusts for any of
their benefit and charitable foundations to which shares of the Company's
Capital Stock beneficially owned by any of the foregoing have been transferred.
"CONSOLIDATED INTEREST COVERAGE RATIO" means, as of the date of the
transaction giving rise to the need to calculate the Consolidated Interest
Coverage Ratio (the "Transaction Date"), the ratio of (i) the aggregate amount
of EBITDA of the Company and its consolidated Restricted Subsidiaries for the
four full fiscal quarters immediately prior to the Transaction Date to (ii) the
aggregate Consolidated Interest Expense of the Company and its Restricted
Subsidiaries that is anticipated to accrue during a period consisting of the
fiscal quarter in which the Transaction Date occurs and the three fiscal
quarters immediately subsequent thereto (based upon the pro forma amount and
maturity of, and interest payments in respect of, Indebtedness of the Company
and its Restricted Subsidiaries expected by the Company to be outstanding on the
Transaction Date), assuming for the purposes of this measurement the
continuation of market interest rates prevailing on the Transaction Date and
base interest rates in respect of floating interest rate obligations equal to
the base interest rates on such obligations in effect as of the Transaction
Date; PROVIDED, that if the Company or any of its Restricted Subsidiaries is a
party on the Transaction Date to any Interest Rate Protection Agreement which
would have the effect of changing the interest rate on any Indebtedness of the
Company or any of its Restricted Subsidiaries for such four-quarter period (or a
portion thereof), the resulting rate shall be used for such four-quarter period
or portion thereof; PROVIDED FURTHER that any Consolidated Interest Expense with
respect to Indebtedness Incurred or retired by the Company or any of its
Restricted Subsidiaries during the fiscal quarter in which the Transaction Date
occurs shall be calculated as if such Indebtedness was so Incurred or retired on
the first day of the fiscal quarter in which the Transaction Date occurs; and
PROVIDED FURTHER that if the transaction giving rise to the need to calculate
the Consolidated Interest Coverage Ratio would have the effect of increasing or
decreasing EBITDA in the future, EBITDA shall be calculated on a pro forma basis
as if such transaction had occurred on the first day of the four fiscal quarters
referred to in clause (i) of this definition, and if, during the same four
fiscal quarters, (x) the Company or any of its Restricted Subsidiaries shall
have engaged in any Asset Sale, EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive), or increased by an amount equal to the
EBITDA (if negative), directly attributable to the assets which are the subject
of such Asset Sale for such period calculated on a pro forma basis as if such
Asset Sale and any related retirement of Indebtedness had occurred on the first
day of such period or (y) the Company or any of its Restricted Subsidiaries
shall have acquired any material assets outside of the ordinary course of
business, EBITDA shall be calculated on a pro forma basis as if such asset
acquisitions and any related Incurrence of Indebtedness had occurred on the
first day of such four fiscal quarter period.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, without duplication, (i) the sum of (a) the aggregate amount of cash and
noncash interest expense (including capitalized interest) of such Person and its
Restricted Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP in respect of Indebtedness (including, without limitation,
(A) any amortization of debt discount, (B) net costs associated with Interest
Rate Protection Agreements (including any amortization of discounts), (C) the
interest portion of any deferred payment obligation, (D) all accrued interest,
and (E) all commissions, discounts, commitment fees, origination fees and other
fees and charges owed with respect to the New Credit Facility (including any
refinancing thereof) and other
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Indebtedness) paid, accrued or scheduled to be paid or accrued during such
period; (b) Preferred Stock dividends and Redeemable Stock dividends of such
Person (and of its Restricted Subsidiaries, if paid to a Person other than such
Person or its Wholly Owned Subsidiaries) declared and payable other than in
kind; (c) the portion of any Capital Lease Obligation of such Person or its
Restricted Subsidiaries allocable to interest expense in accordance with GAAP;
(d) the portion of any rental obligation of such Person or its Restricted
Subsidiaries in respect of any Sale and Leaseback Transaction allocable to
interest expense (determined as if such obligation were treated as a Capital
Lease Obligation); and (e) to the extent any Indebtedness of any other Person
(other than Restricted Subsidiaries) is Guaranteed by such Person or any of its
Restricted Subsidiaries, the aggregate amount of interest paid, accrued or
scheduled to be paid or accrued by such other Person during such period
attributable to such Indebtedness; less (ii) to the extent included in clause
(i) above, amortization or write-off of deferred financing costs of such Person
and its Restricted Subsidiaries during such period and any charge related to any
premium or penalty paid in connection with redeeming or retiring any
Indebtedness of such Person and its Restricted Subsidiaries prior to its Stated
Maturity; in the case of both clauses (i) and (ii) above, after elimination of
intercompany accounts among such Person and its Restricted Subsidiaries and as
determined in accordance with GAAP.
"CONSOLIDATED NET INCOME" of any Person means, for any period, the aggregate
net income (or net loss, as the case may be) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; PROVIDED that there shall be excluded therefrom, without duplication,
(i) items classified as extraordinary; (ii) the net income of any Restricted
Subsidiary of such Person to the extent the transfer to that Person of that
income is restricted by contract or otherwise, except for any cash dividends or
cash distributions actually paid by such Restricted Subsidiary to such Person
during such period; (iii) the net income (or loss) of any other Person in which
such specified Person or any of its Restricted Subsidiaries has an interest
(which interest does not cause the net income of such other Person to be
consolidated with the net income of such specified Person in accordance with
GAAP or is an interest in a consolidated Unrestricted Subsidiary), except to the
extent of the amount of cash dividends or other cash distributions actually paid
to such Person or its Restricted Subsidiaries by such other Person during such
period; (iv) the net income of any Person acquired by such Person or any of its
Restricted Subsidiaries in a pooling-of-interests transaction for any period
prior to the date of such acquisition; (v) any gain or loss realized on the
termination of any employee pension benefit plan; (vi) gains (but not losses) in
respect of Asset Sales by such Person or any of its Restricted Subsidiaries
other than gains resulting from the sale of inventory; (vii) restructuring
costs; and (viii) the cumulative effect of a change in accounting principles and
the effect of the adoption of Statement of Financial Accounting Standards No.
106 to the extent expenses recognized pursuant to such adoption exceed the
amounts with respect to such expenses which would have been recognized during
such period using the "pay as you go" accounting method.
"CONSOLIDATED NET WORTH" of any Person means the stockholders' equity of
such Person and its Restricted Subsidiaries, as determined on a consolidated
basis in accordance with GAAP, less (to the extent included in stockholders'
equity) amounts attributable to Redeemable Stock of such Person or any of its
Restricted Subsidiaries.
"CONSOLIDATED NET TANGIBLE ASSETS" means, as of any date of determination,
the sum of the amounts that would appear on a consolidated balance sheet of the
Company and its consolidated Subsidiaries (other than Unrestricted Subsidiaries)
as the total assets (less accumulated depreciation and amortization, allowances
for doubtful receivables, other applicable reserves and other properly
deductible items) of the Company and its consolidated Subsidiaries (other than
Unrestricted Subsidiaries), determined on a consolidated basis in accordance
with GAAP, after giving effect to purchase accounting and after deducting
therefrom, to the extent otherwise included, the amounts of (without
duplication): (i) the excess of cost over fair market value of assets or
businesses acquired; (ii) any revaluation or other write-up in book value of
assets subsequent to the last day of the fiscal quarter of the Company
immediately preceding the Issue Date as a result of a change in the method of
valuation in accordance with GAAP;
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and (iii) unamortized debt discount and expenses, other unamortized deferred
charges, goodwill, patents, trademarks, service marks, trade names, copyrights,
licenses, organization or developmental expenses and other intangible items (if
included in total assets).
"CURRENCY AGREEMENT" means, with respect to any Person, any foreign exchange
contract, currency swap agreement or other similar arrangement designed to
protect such Person or its Restricted Subsidiaries against fluctuations in
currency values, as in effect from time to time.
"DEFAULT" means any event, act or condition the occurrence or existence of
which is, or after notice or the passage of time or both would be, an Event of
Default.
"EBITDA" means, with respect to any Person for any period, the Consolidated
Net Income of such Person and its consolidated Restricted Subsidiaries for such
period, plus the sum of, to the extent reflected in the consolidated income
statement of such Person and its Restricted Subsidiaries for such period from
which Consolidated Net Income is determined and deducted in the determination of
such Consolidated Net Income, without duplication, (i) income tax expense, (ii)
Consolidated Interest Expense, (iii) depreciation and amortization expense and
(iv) any charge related to any premium or penalty paid in connection with
redeeming or retiring any Indebtedness prior to its Stated Maturity.
"EVENT OF DEFAULT" has the meaning set forth under the caption "-- Events of
Default and Notice."
"FAIR MARKET VALUE" means, with respect to any assets to be transferred
pursuant to any Asset Sale or Sale and Leaseback Transaction or any non-cash
consideration or property transferred or received by any Person, the fair market
value of such assets, consideration or property as determined in good faith by
(i) any officer of the Company if such fair market value is less than $5 million
and (ii) the Board of Directors of the Company as evidenced by a certified
resolution delivered to the Trustee if such fair market value is equal to or in
excess of $5 million.
"GAAP" means generally accepted accounting principles in the United States
as in effect on the date of the Indenture, unless stated otherwise.
"GUARANTEE" means, with respect to any Person, any obligation, contingent or
otherwise, of such Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other Person (the "primary obligor") in any
manner, whether directly or indirectly, and including, without limitation, (a)
any Lien on the assets of such Person securing any Indebtedness of the primary
obligor and (b) any obligation of such Person (i) to purchase or pay (or advance
or supply funds for the purchase or payment of) any Indebtedness of the primary
obligor or to purchase (or to advance or supply funds for the purchase of) any
security for the payment of such Indebtedness, (ii) to purchase Property or
services for the purpose of assuring the holder of such Indebtedness of the
payment of such Indebtedness, or (iii) to maintain working capital, equity
capital, any other financial statement condition or the liquidity of the primary
obligor so as to enable the primary obligor to pay such Indebtedness (and
"Guaranteed," "Guaranteeing" and "Guarantor" shall have meanings correlative to
the foregoing); PROVIDED, HOWEVER, that a Guarantee by any Person shall not
include endorsements by such Person for collection or deposit, in either case,
in the ordinary course of business.
"INCUR" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), extend,
assume, Guarantee or otherwise become liable in respect of such Indebtedness or
other obligation or to record, as required pursuant to GAAP or otherwise, any
such Indebtedness or obligation on the balance sheet of such Person (and
"Incurrence," "Incurred," "Incurrable" and "Incurring" shall have meanings
correlative to the foregoing); PROVIDED, HOWEVER, that a change in GAAP that
results in an obligation of such Person that exists at such time, and is not
theretofore classified as Indebtedness, becoming Indebtedness shall not be
deemed to be an Incurrence of such Indebtedness. For purposes of this
definition, Indebtedness of the Company or a Restricted Subsidiary held by a
Wholly Owned Subsidiary of the Company shall be deemed to be Incurred by the
Company or such Restricted Subsidiary in the event such Wholly Owned Subsidiary
ceases to be a Wholly Owned Subsidiary or in the event such Indebtedness is
transferred to a Person other than the Company or a Wholly Owned Subsidiary.
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"INDEBTEDNESS" means at any time (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person,
and whether or not contingent, (i) any obligation of such Person for borrowed
money, (ii) any obligation of such Person evidenced by bonds, debentures, notes,
Guarantees or other similar instruments, including, without limitation, any such
obligations Incurred in connection with the acquisition of Property, assets or
businesses, (iii) any reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities issued for the
account of such Person, (iv) any obligation of such Person issued or assumed as
the deferred purchase price of Property or services (but excluding trade
accounts payable or accrued liabilities arising in the ordinary course of
business), (v) any Capital Lease Obligation of such Person, (vi) the maximum
fixed redemption or repurchase price of Redeemable Stock of such Person at the
time of determination, (vii) any payment obligation of such Person under
Currency Agreements or Interest Rate Protection Agreements at the time of
determination, (viii) any obligation to pay rent or other amounts of such Person
with respect to any Sale and Leaseback Transaction to which such Person is a
party and (ix) any obligation of the type referred to in clauses (i) through
(viii) of this paragraph of another Person and all dividends of another Person
the payment of which, in either case, such Person has Guaranteed or is
responsible or liable for, directly or indirectly, as obligor, Guarantor or
otherwise. For purposes of the preceding sentence, the maximum fixed repurchase
price of any Redeemable Stock that does not have a fixed repurchase price shall
be calculated in accordance with the terms of such Redeemable Stock as if such
Redeemable Stock were repurchased on any date on which Indebtedness is required
to be determined pursuant to the Indenture; PROVIDED, HOWEVER, that if such
Redeemable Stock is not then permitted to be repurchased, the repurchase price
shall be the book value of such Redeemable Stock. The amount of Indebtedness of
any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability at such
date in respect of any contingent obligations described above.
"INTEREST RATE PROTECTION AGREEMENT" means, with respect to any Person, any
interest rate swap agreement, forward rate agreement, interest rate cap or
collar agreement or other financial agreement or arrangement designed to protect
such Person or its Restricted Subsidiaries against fluctuations in interest
rates, as in effect from time to time.
"INVESTMENT" means, with respect to any Person, (a) any advance, loan or
capital contribution to any other Person, (b) the acquisition, by purchase or
otherwise, of any stock, bonds, notes, debentures or other securities or
evidence of beneficial ownership of, any other Person or (c) the acquisition, by
purchase or otherwise, of all or substantially all of the business or assets of
any other Person; PROVIDED, HOWEVER, that Investments shall not include
extensions of trade credit on commercially reasonable terms in accordance with
normal trade practices or any increase in the equity ownership in any Person
resulting solely from retained earnings of such Person.
"ISSUE DATE" means the date upon which the Notes first were issued and
authenticated under the Indenture.
"LIEN" means, with respect to any Property, any mortgage or deed of trust,
pledge, hypothecation, assignment, deposit arrangement, security interest, lien
(statutory or other), charge, easement, encumbrance, preference, priority or
other security or similar agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such Property (including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing). For purposes of
the "Limitation on Liens" covenant, a Capital Lease Obligation shall be deemed
to be secured by a Lien on the property being leased.
"NET CASH PROCEEDS" from an Asset Sale, by any Person or any of its
Restricted Subsidiaries, means cash and cash equivalents received, net of (i)
all reasonable out-of-pocket expenses of such Person or such Restricted
Subsidiary Incurred in connection with such Asset Sale, including, without
limitation, all legal, title and recording tax expenses, commissions and other
fees and expenses Incurred (but excluding any finder's fee or brokers' fee
payable to any Affiliate of such Person), and all Federal, state, provincial,
foreign and local taxes that are paid or required to be accrued as liabilities
under GAAP by
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such Person or such Restricted Subsidiary as a consequence of such Asset Sale,
(ii) all payments made by such Person or such Restricted Subsidiary on any
Indebtedness which is secured by any assets subject to such Asset Sale in
accordance with the terms of any Lien upon or with respect to such assets, or
which must, by its terms, or in order to obtain a necessary consent to such
Asset Sale or by applicable law, be repaid out of the proceeds from such Asset
Sale, and (iii) all contractually required distributions and other payments made
to minority interest holders (but excluding distributions and payments to
Affiliates of such Person) in Restricted Subsidiaries of such Person as a result
of such Asset Sale; PROVIDED that, in the event that any consideration for an
Asset Sale (which would otherwise constitute Net Cash Proceeds) is required to
be held in escrow pending determination of whether a purchase price adjustment
will be made, such consideration (or any portion thereof) shall become Net Cash
Proceeds only at such time as it is released to such Person or its Restricted
Subsidiaries from escrow, and PROVIDED that any non-cash or non-cash equivalent
consideration received in connection with an Asset Sale, which is subsequently
converted to cash or cash equivalents, shall be deemed to be Net Cash Proceeds
at such time and shall thereafter be applied in accordance with the covenant
described under "Certain Covenants -- Limitation on Asset Sales."
"NEW CREDIT FACILITY" means, for the purposes of the Indenture, any credit
facility or agreement (including the $175 million senior secured revolving
credit facility known elsewhere in this Prospectus as the New Credit Facility)
with a bank or syndicate of banks or other financial institutions (including
working capital or revolving credit facilities) including any related
guarantees, collateral documents, instruments and agreements executed in
connection therewith, as such agreements may be amended, renewed, extended,
substituted, refinanced, restructured, replaced, supplemented or otherwise
modified from time to time (including without limitation, any successive
renewals, extensions, substitutions, refinancings, restructurings, replacements,
supplementations or other modifications of the foregoing). For all purposes
under the Indenture, "New Credit Facility" shall include any amendments,
renewals, extensions, substitutions, refinancings, restructurings, replacements,
supplements or any other modifications that increase the principal amount of
Indebtedness thereunder or commitments to lend thereunder and have been made in
compliance with the "Limitation on Company Indebtedness" and "Limitation on
Restricted Subsidiary Indebtedness and Preferred Stock" covenants; PROVIDED that
for the purposes of the definitions of "Permitted Company Indebtedness" and
"Permitted Restricted Subsidiary Indebtedness or Preferred Stock," no such
increase may result in the principal amount of Indebtedness of the Company or
its Restricted Subsidiaries under the New Credit Facility exceeding the amount
permitted by clause (b) of "Permitted Company Indebtedness" or by clause (a) of
"Permitted Restricted Subsidiary Indebtedness or Preferred Stock", respectively.
"PERMITTED SHORT-TERM INVESTMENTS" means (a) Investments in U.S. Government
Obligations maturing within one year of the date of acquisition thereof, (b)
Investments in certificates of deposit or Eurodollar deposits maturing within
one year of the date of acquisition thereof issued by a bank or trust company
which is organized under the laws of the United States of America or any State
thereof and is a member of the Federal Reserve System having capital, surplus
and undivided profits aggregating in excess of $500 million and whose long-term
indebtedness is rated "A" (or higher) according to Moody's Investors Service
Inc. and its successors ("Moody's"), and (c) Investments in commercial paper,
maturing not more than one year after the date of acquisition, issued by a
corporation (other than an Affiliate of the Company) organized and in existence
under the laws of the United States of America or any State thereof with a
rating at the time as of which any Investment therein is made of "P-1" (or
higher) according to Moody's or "A-1" (or higher) according to Standard & Poor's
Ratings Group and its successors.
"PERSON" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization, other business entity or government or any
agency or political subdivision thereof.
"PREFERRED STOCK" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets
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upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person; PROVIDED,
HOWEVER, that "Preferred Stock" shall not include Redeemable Stock.
"PROPERTY" means, with respect to any Person, any interest of such Person in
any kind of property or asset, whether real, personal or mixed, or tangible or
intangible, including, without limitation, Capital Stock in any other Person
(but excluding Capital Stock or other securities issued by such first-mentioned
Person).
"REDEEMABLE STOCK" of any Person means any equity security of such Person
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable), or otherwise (including on the happening of an
event), (a) is or could become required to be redeemed for cash or other
Property or is or could become redeemable for cash or other Property at the
option of the holder thereof, in whole or in part, prior to the Stated Maturity
of the Notes or (b) is or could become exchangeable at the option of the holder
thereof for Indebtedness at any time, in whole or in part, prior to the Stated
Maturity of the Notes.
"RESTRICTED PAYMENT" means (i) a dividend or other distribution declared or
paid on the Capital Stock or Redeemable Stock of the Company or to the Company's
stockholders (other than dividends and distributions paid solely in Capital
Stock of the Company), or declared and paid to any Person other than the Company
or any of its Wholly Owned Subsidiaries on the Capital Stock or Redeemable Stock
of any Restricted Subsidiary, (ii) a payment made by the Company or any of its
Restricted Subsidiaries (other than to the Company or any Wholly Owned
Subsidiary) to purchase, redeem, acquire or retire any Capital Stock or
Redeemable Stock of the Company or of a Restricted Subsidiary, (iii) a payment
made by the Company or any of its Restricted Subsidiaries to redeem, repurchase,
defease or otherwise acquire or retire for value (including pursuant to
mandatory repurchase covenants), prior to any scheduled maturity, scheduled
sinking fund or scheduled mandatory redemption, Indebtedness of the Company
which is subordinate (whether pursuant to its terms or by operation of law) in
right of payment to the Notes other than payments made by the Company to redeem
the Debentures, or (iv) an Investment by the Company or a Restricted Subsidiary
in any Person other than the Company or a Wholly Owned Subsidiary and other than
Investments by the Company or a Restricted Subsidiary in any Person who becomes
a Wholly Owned Subsidiary as a result of such Investment.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company that the Company
has not designated an Unrestricted Subsidiary in the manner provided in the
covenant described under "-- Certain Covenants -- Restricted and Unrestricted
Subsidiaries."
"SALE AND LEASEBACK TRANSACTION" means, with respect to any Person, any
direct or indirect arrangement (excluding, however, any such arrangement between
such Person and a Wholly Owned Subsidiary of such Person or between two or more
Wholly Owned Subsidiaries of such Person) pursuant to which Property is sold or
transferred by such Person or a Restricted Subsidiary of such Person and is
thereafter leased back from the purchaser or transferee thereof by such Person
or one of its Restricted Subsidiaries.
"SPECIFIED HOLDERS" means the Conese Family and any corporation organized
and existing under the laws of the United States of America or any State thereof
or the District of Columbia, the capital stock of which is wholly owned by the
Conese Family.
"STATED MATURITY," when used with respect to any security or any installment
of principal thereof or interest thereon, means the date specified in such
security as the fixed date on which the principal of such security or such
installment of principal or interest is due and payable, including, without
limitation, pursuant to any mandatory redemption provision (but excluding any
provision providing for the repurchase of such security at the option of the
holder thereof upon the happening of any contingency unless such contingency has
occurred).
"SUBSIDIARY" of a Person means (a) another Person which is a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned or
controlled by (i) the first Person, (ii) the first
84
<PAGE>
Person and one or more of its Subsidiaries, or (iii) one or more of the first
Person's Subsidiaries or (b) another Person which is not a corporation (x) at
least 50% of the ownership interest of which and (y) the power to elect or
direct the election of a majority of the directors or members of any other
governing body of which are controlled by Persons referred to in clause (i),
(ii) or (iii) above.
"SUBSIDIARY GUARANTORS" means GTC; GTi; GASI Engine Services Corporation, a
Delaware corpora-tion; Gas Turbine Test Corporation, a Delaware corporation; and
Greenwich Foreign Sales Corporation, a Barbados corporation; PROVIDED, HOWEVER,
that any Subsidiary of the Company, including Aviall U.K. (which is not a
Subsidiary Guarantor) may become a Subsidiary Guarantor by delivering a
supplemental indenture subjecting the Subsidiary to the provisions of the
Indenture as a Subsidiary Guarantor and an opinion of counsel to the effect that
such supplemental indenture constitutes a legal, valid and binding obligation of
such Subsidiary, each in accordance with the provisions of the Indenture.
"UNRESTRICTED SUBSIDIARY" means (i) each Subsidiary of the Company
designated as an Unrestricted Subsidiary as of the Issue Date including but not
limited to GTi, (ii) each Subsidiary of the Company that the Company has
designated pursuant to the covenant described under "-- Certain Covenants --
Restricted and Unrestricted Subsidiaries" as an Unrestricted Subsidiary and
(iii) any Subsidiary of an Unrestricted Subsidiary.
"VOTING STOCK" of any Person means Capital Stock and Redeemable Stock of
such Person which ordinarily has voting power for the election of directors (or
persons performing similar functions) of such person whether at all times or
only so long as no senior class of securities has such voting power by reason of
any contingency.
"WHOLLY OWNED SUBSIDIARY" means, at any time, a Restricted Subsidiary all of
the Voting Stock of which (except directors' qualifying shares) is at the time
owned, directly or indirectly, by the Company and its other Wholly Owned
Subsidiaries.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Company will be discharged from all its
obligations with respect to the Notes (except for certain obligations to
exchange or register the transfer of Notes, to replace stolen, lost or mutilated
Notes, to maintain paying agencies and to hold moneys for payment in trust) upon
the deposit in trust for the benefit of the holders of the Notes of money or
U.S. Government Obligations, or a combination thereof, which, through the
payment of principal and interest in respect thereof in accordance with their
terms, will provide money in an amount sufficient to pay the principal of and
any premium and interest on the Notes at Stated Maturity or on earlier
redemption in accordance with the terms of the Indenture and the Notes. Such
defeasance or discharge may occur only if, among other things, the Company has
delivered to the Trustee an Opinion of Counsel to the effect that (a) (i) the
Company has received from, or there has been published by, the United States
Internal Revenue Service a ruling or (ii) since the date of the Indenture there
has been a change in the applicable Federal income tax law, in either case to
the effect that holders of the Notes will not recognize gain or loss for Federal
income tax purposes as a result of such deposit, defeasance and discharge and
will be subject to Federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such deposit, defeasance
and discharge were not to occur; and (b) the resulting trust will not be an
"Investment Company" within the meaning of the Investment Company Act of 1940
unless such trust is qualified thereunder or exempt from regulation thereunder.
The Indenture provides that the Company may omit to comply with certain
covenants, including those described under "-- Certain Covenants" and in clauses
(d) and (e) under "-- Merger, Consolidation and Sale of Assets", and that the
occurrence of certain Events of Default, which are described below in clause (c)
(with respect to such covenants) and clauses (d) and (e) under "-- Events of
Default and Notice," will be deemed not to be or result in an Event of Default.
The Company, in order to exercise such option, will be required to deposit, in
trust for the benefit of the holders of the Notes, money or U.S. Government
Obligations, or a combination thereof, which, through the payment of principal
and interest in respect thereof in accordance with their terms, will provide
money in an amount sufficient to pay the
85
<PAGE>
principal of and any premium and interest on the Notes at Stated Maturity or on
earlier redemption in accordance with the terms of the Indenture and the Notes.
The Company will also be required, among other things, to deliver to the Trustee
an Opinion of Counsel to the effect that (a) holders of the Notes will not
recognize gain or loss for Federal income tax purposes as a result of such
deposit and defeasance of certain obligations and will be subject to Federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such deposit and defeasance were not to occur; and
(b) the resulting trust will not be an "Investment Company" within the meaning
of the Investment Company Act of 1940 unless such trust is qualified thereunder
or exempt from regulation thereunder. In the event the Company were to exercise
this option and the Notes were declared due and payable because of the
occurrence of any Event of Default, the amount of money and U.S. Government
Obligations so deposited in trust would be sufficient to pay amounts due on the
Notes at the time of their Stated Maturity but may not be sufficient to pay
amounts due on the Notes upon any acceleration resulting from such Event of
Default. In such case, the Company would remain liable for such payments.
EVENTS OF DEFAULT AND NOTICE
The following are summaries of Events of Default under the Indenture with
respect to the Notes: (a) failure to pay any interest on the Notes when due,
continued for 30 days; (b) failure to pay principal of (or premium, if any, on)
the Notes when due; (c) failure to perform any other covenant or agreement of
the Company in the Indenture, continued for 60 days after written notice as
provided in the Indenture; (d) a default under any Indebtedness by the Company
or any Restricted Subsidiary which results in acceleration of the maturity of
such Indebtedness, or failure to pay any such Indebtedness at maturity within
any applicable grace period, in an aggregate outstanding principal amount
greater than $10 million if such Indebtedness is not discharged or such
acceleration is not rescinded or annulled within 10 days after written notice as
provided in the Indenture; (e) one or more judgments or orders by a court of
competent jurisdiction are entered against the Company or any Restricted
Subsidiary in an uninsured aggregate amount in excess of $10 million and such
judgments or orders are not discharged, waived, stayed, satisfied or bonded for
a period of 45 consecutive days; and (f) certain events of bankruptcy,
insolvency or reorganization of the Company or any Restricted Subsidiary.
The Indenture provides that if an Event of Default (other than an Event of
Default described in clause (f) above) shall occur and be continuing, either the
Trustee or the holders of at least 25% in aggregate principal amount of the
Notes then outstanding, by notice as provided in the Indenture, may declare the
principal amount of the Notes to be due and payable immediately. If an Event of
Default described in clause (f) above shall occur, the principal amount of the
Notes will automatically, and without any action by the Trustee or any holder of
Notes, become immediately due and payable. After any such acceleration, but
before a judgment or decree based on acceleration, the holders of a majority in
aggregate principal amount of the Notes then outstanding may, under certain
circumstances, rescind and annul such acceleration if all Events of Default,
other than the nonpayment of accelerated principal (or other specified amounts),
have been cured or waived as provided in the Indenture.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the holders of the Notes, unless
such holders shall have offered to the Trustee reasonable indemnity. Subject to
such provisions for the indemnification of the Trustee, the holders of a
majority in aggregate principal amount of the Notes then outstanding will have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee or exercising any trust or power conferred
on the Trustee with respect to the Notes.
No holder of Notes will have any right to institute any proceeding with
respect to the Indenture, or for the appointment of a receiver or a trustee, or
for any other remedy thereunder, unless (i) such holder has previously given to
the Trustee written notice of a continuing Event of Default with respect to the
Notes, (ii) the holders of at least 25% in aggregate principal amount of the
Notes then outstanding have made written request, and such holder or holders
have offered reasonable indemnity, to the Trustee to institute
86
<PAGE>
such proceeding as trustee and (iii) the Trustee has failed to institute such
proceeding, and has not received from the holders of a majority in aggregate
principal amount of the Notes then outstanding a direction inconsistent with
such request, within 60 days after such notice, request and offer. However, such
limitations do not apply to a suit instituted by a holder of Notes for the
enforcement of payment of the principal of or any premium or interest on such
Notes on or after the applicable due date specified in such Notes.
MODIFICATION OF THE INDENTURE; WAIVER
The Indenture provides that modifications and amendments of the Indenture
may be made by the Company, the Subsidiary Guarantors and the Trustee without
the consent of any holders of Notes in certain limited circumstances, including
(a) to cure any ambiguity, omission, defect or inconsistency, (b) to provide for
the assumption of the obligations of the Company under the Indenture upon the
merger, consolidation or sale or other disposition of all or substantially all
of the assets of the Company, (c) to provide for uncertificated Notes in
addition to or in place of certificated Notes, (d) to comply with any
requirement of the Commission in order to effect or maintain the qualification
of the Indenture under the 1939 Act, (e) to reflect the release of any
Subsidiary Guarantor from its Subsidiary Guarantee or to add as a Subsidiary
Guarantor any Subsidiary of the Company in each case pursuant to the terms of
the Indenture or (f) to make any change that does not adversely affect the
rights of any holder of Notes in any material respect.
The Indenture contains provisions permitting the Company, the Subsidiary
Guarantors and the Trustee, with the written consent of the holders of not less
than a majority in aggregate principal amount of the Notes then outstanding, to
execute supplemental indentures, amendments or waiver adding any provisions to
or changing or eliminating any of the provisions of the Indenture or modifying
the rights of the holders of the Notes, except that no such supplemental
indenture, amendment or waiver may, without the consent of all the holders of
the Notes then outstanding, among other things, (a) reduce the principal amount
of Notes whose holders must consent to an amendment or waiver; (b) reduce the
rate of or change the time for payment of interest on any Notes; (c) change the
currency in which any amount due in respect of the Notes is payable; (d) reduce
the principal of or any premium on or change the Stated Maturity of any Notes or
alter the redemption or repurchase provisions with respect thereto; (e) modify
or eliminate any of the provisions of the Indenture relating to a Change of
Control or the obligation of the Company to offer to purchase the Notes as set
forth in the "Limitation on Asset Sales" covenant; (f) reduce the relative
ranking of any Notes or (g) release any security that may have been granted in
respect of the Notes.
The holders of a majority in aggregate principal amount of the Notes then
outstanding may waive compliance by the Company with certain restrictive
provisions of the Indenture. The holders of a majority in aggregate principal
amount of the Notes then outstanding may waive any past default under the
Indenture, except a default in the payment of principal, premium or interest and
a default under the other covenants and provisions of the Indenture which cannot
be amended without the consent of the holder of each Note then outstanding.
REPORTS
The Indenture provides that, whether or not the Company is subject to
Section 13(a) or 15(d) of the Exchange Act, or any successor provision thereto,
so long as any Notes are outstanding, the Company will file with the Commission
the annual reports, quarterly reports and other documents which the Company
would have been required to file with the Commission pursuant to such Section
13(a) or 15(d), or any successor provision thereto, if the Company were subject
thereto, on or prior to the respective dates (the "Required Filing Dates") by
which the Company would have been required to file them. The Company will also
(whether or not it is required to file reports with the Commission), within 30
days of each Required Filing Date, file with the Trustee, copies of the annual
reports, quarterly reports and other documents (without exhibits) which the
Company has filed or would have filed with the Commission
87
<PAGE>
pursuant to Section 13(a) or 15(d) of the Exchange Act, any successor provisions
thereto or the covenant described in this paragraph. The Company will not be
required to file any report with the Commission if the Commission does not
permit such filing.
NOTICES
Notices to holders of Notes will be given by mail to the addresses of such
holders as they may appear in the Security Register.
GOVERNING LAW
The Indenture and the Notes are governed by and construed in accordance with
the internal laws of the State of New York without reference to principles of
conflicts of law.
THE TRUSTEE
American Stock Transfer & Trust Company is the Trustee under the Indenture.
The Trustee maintains normal banking relationships with the Company and its
subsidiaries and may perform certain services for and transact other business
with the Company and its subsidiaries from time to time in the ordinary course
of business.
88
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement"), the Company has agreed to issue and sell to the
Underwriters listed below and each of the Underwriters has agreed to purchase,
the principal amount of Notes set forth opposite its name below.
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT OF NOTES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Salomon Brothers Inc....................................................... $
Oppenheimer & Co., Inc.....................................................
Dillon, Read & Co. Inc.....................................................
-----------------
Total..................................................................
$ 150,000,000
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions set forth therein. The Underwriters will be
obligated to purchase all the Notes offered hereby if any Notes are purchased.
The Underwriters have advised the Company that they propose initially to
offer the Notes to the public at the public offering prices set forth on the
cover page of this Prospectus and to certain dealers at such prices less a
concession not in excess of % of the principal amount of the Notes. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of % of such principal amount to certain other dealers. After the initial
public offering, the public offering price and such concession may be changed.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities and expenses, including liabilities
under the Securities Act, or contribute to payments the Underwriters may be
required to make in respect thereof.
The Company has been advised by the Underwriters that they presently intend
to make a market in the Notes, as permitted by applicable laws and regulations,
although they are under no obligation to do so. There is no existing market for
the Notes and there can be no assurance that a market will develop. See "Risk
Factors -- Absence of Active Trading Market."
Salomon Brothers Inc has from time to time rendered investment banking and
financial advisory services to Aviall and rendered financial advisory services
to Aviall in connection with the Aviall Acquisition. Oppenheimer & Co., Inc. has
rendered financial advisory services to Greenwich in connection with the Aviall
Acquisition.
LEGAL MATTERS
The validity of the Notes offered hereby is being passed upon for the
Company by Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., Miami,
Florida. Certain legal matters relating to the Note Offering will be passed upon
for the Underwriters by Morgan, Lewis & Bockius LLP, New York, New York.
EXPERTS
The consolidated financial statements of Greenwich Air Services, Inc. as of
September 30, 1994 and 1995 and for each of the three years in the period ended
September 30, 1995 included in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein.
Such financial statements have been included herein in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.
The combined financial statements of the Engine Services Division of Aviall,
Inc. as of December 31, 1994 and 1995 and for each of the years then ended
included in this Prospectus have been so included in reliance upon the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
89
<PAGE>
The combined financial statements of the Engine Services Division of Aviall,
Inc. for the year ended December 31, 1993 have been included herein in reliance
upon the report of KPMG Peat Marwick LLP and upon their authority as experts in
accounting and auditing. The report of KPMG Peat Marwick LLP refers to changes
in the methods of accounting for income taxes and postretirement benefits other
than pensions.
The consolidated financial statements of Aviall Limited as of November 30,
1994 and 1995 and for each of the years then ended included in this Prospectus
have been so included in reliance upon the report of Price Waterhouse, Glasgow,
Scotland, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and its Regional Offices located in the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and at 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of those filings can be obtained from the Commission's Public
Reference Section, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates.
A Registration Statement on Form S-1, including amendments thereto, relating
to the Notes offered hereby has been filed by the Company and the Subsidiary
Guarantors with the Commission. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Notes offered hereby, reference is made to such Registration Statement, exhibits
and schedules. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respect by such reference. A copy of the Registration Statement may be
inspected without charge at the Commission's principal offices in Washington,
D.C., and copies of all or any part thereof may be obtained from the Commission
upon the payment of certain fees prescribed by the Commission.
90
<PAGE>
INDEX TO FINANCIAL STATEMENTS
GREENWICH AIR SERVICES, INC. -- HISTORICAL
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of September 30, 1994 and
1995 and March 31, 1996 (Unaudited)........................ F-3
Consolidated Statements of Income for the years ended
September 30, 1993, 1994 and 1995 and for the six months
ended March 31, 1995 (Unaudited) and 1996 (Unaudited)...... F-4
Consolidated Statements of Stockholders' Equity for the
years ended September 30, 1993, 1994 and 1995 and for the
six months ended March 31, 1996 (Unaudited)................ F-5
Consolidated Statements of Cash Flows for the years ended
September 30, 1993, 1994 and 1995 and for the six months
ended March 31, 1995 (Unaudited) and 1996 (Unaudited)...... F-6
Notes to Consolidated Financial Statements.................. F-7
AVIALL, INC. ENGINE SERVICES DIVISION -- HISTORICAL
Combined Financial Statements for the years ended December
31, 1993, 1994 and 1995
Report of Independent Accountants......................... F-24
Independent Auditors' Report.............................. F-25
Combined Statements of Operations and Changes in Aviall
Investment for the years ended December 31, 1993, 1994,
and 1995................................................. F-26
Combined Balance Sheets as of December 31, 1994 and
1995..................................................... F-27
Combined Statements of Cash Flows for the years ended
December 31, 1993, 1994 and 1995......................... F-28
Notes to Combined Financial Statements.................... F-29
Unaudited Combined Financial Statements for the three months
ended March 31, 1995 and 1996
Combined Statements of Operations and Changes in Aviall
Investment for the three months ended March 31, 1995 and
1996..................................................... F-42
Combined Balance Sheets as of December 31, 1995 and March
31, 1996................................................. F-43
Combined Statements of Cash Flows for the three months
ended March 31, 1995 and 1996............................ F-44
Notes to Unaudited Combined Financial Statements.......... F-45
AVIALL LIMITED -- HISTORICAL
Report of Independent Accountants........................... F-46
Consolidated Statements of Operations for the years ended
November 30, 1994 and 1995................................. F-47
Consolidated Balance Sheets as of November 30, 1994 and
1995....................................................... F-48
Consolidated Statements of Shareholder's Equity for the
years ended November 30, 1994 and 1995..................... F-49
Consolidated Statements of Cash Flows for the years ended
November 30, 1994 and 1995................................. F-50
Notes to Consolidated Financial Statements.................. F-51
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Greenwich Air Services, Inc:
We have audited the accompanying consolidated balance sheets of Greenwich
Air Services, Inc. and subsidiaries (the "Company") as of September 30, 1994 and
1995, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended September 30,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of September 30,
1994 and 1995, and the results of its operations and its cash flows for each of
the three years in the period ended September 30, 1995 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Miami, Florida
December 18, 1995, except for Note 16
as to which the date is April 26, 1996
F-2
<PAGE>
GREENWICH AIR SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1994 AND 1995 AND MARCH 31, 1996 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------
1994 1995
---------------- ---------------- MARCH 31, 1996
----------------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash...................................................... $ 469,755 $ 179,521 $ 267,567
Accounts and notes receivable............................. 38,033,171 35,175,995 47,255,688
Inventories............................................... 70,118,843 120,933,107 111,673,536
Prepaid expenses and other current assets................. 702,207 1,267,214 1,256,470
---------------- ---------------- ----------------
Total current assets.................................... 109,323,976 157,555,837 160,453,261
---------------- ---------------- ----------------
Deferred financing costs.................................... 2,512,328 1,717,128 741,108
Property, plant and equipment............................... 24,747,508 25,657,656 26,375,701
Other assets................................................ 677,868 689,384 728,014
Notes receivable............................................ 1,161,544
---------------- ---------------- ----------------
Total Assets.......................................... $ 138,423,224 $ 185,620,005 $ 188,298,084
---------------- ---------------- ----------------
---------------- ---------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 15,647,426 $ 37,683,348 $ 36,001,215
Accrued expenses and current portion of long term
liabilities.............................................. 13,153,377 16,102,199 16,475,380
Customer deposits and deferred revenues................... 4,378,182 15,675,325 9,776,556
Income taxes payable...................................... 66,815 266,347 22,379
---------------- ---------------- ----------------
Total current liabilities............................... 33,245,800 69,727,219 62,275,530
---------------- ---------------- ----------------
Deferred income taxes....................................... 4,701,019 4,839,686 4,304,981
Other liabilities........................................... 1,043,357 9,821,678 8,371,679
Long term debt.............................................. 52,448,461 48,781,897 57,532,685
Long term debt -- WAL....................................... 2,022,683 1,604,494 1,378,839
8% Convertible subordinated debentures...................... 16,999,000 14,057,000 3,561,000
Stockholders' Equity:
Common stock.............................................. 50,780 53,384 125,596
Capital in excess of par value............................ 10,064,646 12,697,141 22,463,487
Retained earnings......................................... 17,847,478 24,048,966 28,284,622
Treasury stock, at cost (11,460) (335)
---------------- ---------------- ----------------
Total stockholders' equity.............................. 27,962,904 36,788,031 50,873,370
---------------- ---------------- ----------------
Total Liabilities and Stockholders' Equity............ $ 138,423,224 $ 185,620,005 $ 188,298,084
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
GREENWICH AIR SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995 AND FOR THE
SIX MONTHS ENDED MARCH 31, 1995 (UNAUDITED) AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
-------------------------------------------------- --------------------------------
1993 1994 1995 1995 1996
-------------- ---------------- ---------------- -------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................. $ 69,466,903 $ 105,233,461 $ 196,319,722 $ 83,146,538 $ 118,624,872
Cost of sales.............. 55,075,719 87,973,668 164,957,125 69,918,090 99,921,793
-------------- ---------------- ---------------- -------------- ----------------
Gross profit............... 14,391,184 17,259,793 31,362,597 13,228,448 18,703,079
Selling, general and
administrative expenses... 5,693,066 7,005,815 13,637,054 5,471,744 7,741,795
-------------- ---------------- ---------------- -------------- ----------------
Income from operations..... 8,698,118 10,253,978 17,725,543 7,756,704 10,961,284
-------------- ---------------- ---------------- -------------- ----------------
Nonoperating (income)
expense:
Interest expense......... 3,038,998 4,758,455 7,950,613 3,813,454 3,635,069
Other (income)/ expense,
net..................... (47,987) (71,096) (391,444) (44,263) (514)
-------------- ---------------- ---------------- -------------- ----------------
Total Nonoperating
(Income)Expense........... 2,991,011 4,687,359 7,559,169 3,769,191 3,634,555
-------------- ---------------- ---------------- -------------- ----------------
Income before provision for
income taxes.............. 5,707,107 5,566,619 10,166,374 3,987,513 7,326,729
Provision for income
taxes..................... 2,332,676 2,220,291 3,964,886 1,628,186 2,908,384
-------------- ---------------- ---------------- -------------- ----------------
Net income................. $ 3,374,431 $ 3,346,328 $ 6,201,488 $ 2,359,327 $ 4,418,345
-------------- ---------------- ---------------- -------------- ----------------
-------------- ---------------- ---------------- -------------- ----------------
Earnings per share:
Primary.................. $ 0.42 $ 0.34 $ 0.61 $ 0.23 $ 0.36
-------------- ---------------- ---------------- -------------- ----------------
-------------- ---------------- ---------------- -------------- ----------------
Fully diluted............ $ 0.42 $ 0.33 $ 0.54 $ 0.21 $ 0.35
-------------- ---------------- ---------------- -------------- ----------------
-------------- ---------------- ---------------- -------------- ----------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
GREENWICH AIR SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995 AND
FOR THE SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN
-------------------------- EXCESS OF PAR RETAINED TREASURY
SHARES AMOUNT VALUE EARNINGS STOCK TOTAL
------------- ----------- -------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
AT SEPTEMBER 30, 1992........... 4,000,000 $ 40,000 $ 1,410,000 $ 11,676,002 $ 13,126,002
Preferential distribution....... (549,283) (549,283)
Net income...................... 3,374,431 3,374,431
------------- ----------- -------------- -------------- ------------ --------------
AT SEPTEMBER 30, 1993........... 4,000,000 40,000 1,410,000 14,501,150 15,951,150
Issuance of common stock in
public offering................ 1,078,000 10,780 8,654,646 8,665,426
Net income...................... 3,346,328 3,346,328
------------- ----------- -------------- -------------- ------------ --------------
AT SEPTEMBER 30, 1994........... 5,078,000 50,780 10,064,646 17,847,478 27,962,904
Cost of treasury shares
purchased...................... $ (216,634) (216,634)
Issuance of treasury shares
under stock purchase plan...... (74,282) 205,174 130,892
Warrant transactions............ 9,000 90 (90)
Conversion of convertible
debentures..................... 251,445 2,514 2,706,867 2,709,381
Net income...................... 6,201,488 6,201,488
------------- ----------- -------------- -------------- ------------ --------------
AT SEPTEMBER 30, 1995........... 5,338,445 53,384 12,697,141 24,048,966 (11,460) 36,788,031
Cost of treasury shares
purchased...................... (108,981) (108,981)
Issuance of treasury shares
under stock purchase plan...... (20,023) 120,106 100,083
Warrant transactions............ 28,148 281 (281)
Options exercised............... 15,875 159 95,091 95,250
Cash dividends paid............. (119,891) (119,891)
GCL Merger...................... 310 3 7,127 7,130
Conversion of convertible
debentures..................... 897,063 8,971 9,684,432 9,693,403
One for one Class B stock
dividend declared April 1996... 6,279,841 62,798 (62,798)
Net income...................... 4,418,345 4,418,345
------------- ----------- -------------- -------------- ------------ --------------
AT MARCH 31, 1996 (UNAUDITED)... 12,559,682 $ 125,596 $ 22,463,487 $ 28,284,622 $ (335) $ 50,873,370
------------- ----------- -------------- -------------- ------------ --------------
------------- ----------- -------------- -------------- ------------ --------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
GREENWICH AIR SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995 AND FOR THE
SIX MONTHS ENDED MARCH 31, 1995 (UNAUDITED) AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31,
---------------
1995
YEARS ENDED SEPTEMBER 30, ---------------
------------------------------------------------
1993 1994 1995 (UNAUDITED)
-------------- --------------- ---------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 3,374,431 $ 3,346,328 $ 6,201,488 $ 2,359,327
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization.................... 1,199,152 1,761,892 2,452,546 1,223,788
Provision for doubtful accounts receivable....... 195,000 174,000 2,806,418
Loss on disposal of fixed assets................. 80,124
Changes in assets and liabilities:
Accounts and notes receivable.................. (1,807,751) (5,464,419) 50,758 (742,505)
Inventories.................................... (2,933,632) (8,497,103) (50,814,264) (21,436,860)
Prepaid expenses and other current assets...... 131,684 (90,767) (565,007) 57,377
Other assets................................... 185,369 (264,363) (11,516) (196,828)
Notes receivable............................... (1,161,544) 1,161,544
Accounts payable............................... (1,413,824) 3,736,379 22,035,921 4,829,260
Accrued expenses............................... (1,529,832) (1,459,802) 2,948,822 6,719,293
Customer deposits and deferred revenues........ (349,541) 2,874,531 11,297,143 3,234,834
Other non current liabilities.................. 1,043,357 8,778,321
Income taxes payable........................... 552,468 (485,653) 199,532 416,516
Deferred income taxes payable.................. 1,395,043 1,146,053 138,667 (253,830)
-------------- --------------- --------------- ---------------
Net cash provided (used) by operating
activities.................................. (921,309) (3,341,111) 6,680,373 (3,789,628)
Cash flows from investing activities:
Capital expenditures........................... (5,127,579) (1,691,028) (2,724,515) (586,025)
Acquisition of net assets...................... (41,071,615)
-------------- --------------- --------------- ---------------
Net cash used by investing activities........ (5,127,579) (42,762,643) (2,724,515) (586,025)
-------------- --------------- --------------- ---------------
Cash flows from financing activities:
Net change in revolving credit facility........ 2,460,403 17,350,126 (647,985) 6,292,296
Proceeds from issuance of long-term debt....... 12,000,000 8,000,000
Repayments of long-term debt................... (7,333,877) (2,049,904) (3,436,768) (1,810,640)
Issuance of common stock, net of expenses...... 8,665,426
Issuance of convertible subordinated debt...... 16,999,000
Purchase of treasury shares.................... (216,634)
Proceeds from sale of treasury shares.......... 130,892
Deferred financing costs....................... (267,786) (1,821,013) (75,597) (57,082)
Subordinated debt repaid....................... (1,000,000)
Preferential distribution...................... (549,283)
Options exercised..............................
GCL merger.....................................
Cash dividends paid............................
-------------- --------------- --------------- ---------------
Net cash provided (used) by financing
activities.................................. 6,309,457 46,143,635 (4,246,092) 4,424,574
-------------- --------------- --------------- ---------------
Net (decrease) increase in cash.................. 260,569 39,881 (290,234) 48,921
Cash, beginning of period........................ 169,305 429,874 469,755 469,755
-------------- --------------- --------------- ---------------
Cash, end of period.............................. $ 429,874 $ 469,755 $ 179,521 $ 518,676
-------------- --------------- --------------- ---------------
-------------- --------------- --------------- ---------------
<CAPTION>
1996
---------------
<S> <C>
Cash flows from operating activities:
Net income....................................... $ 4,418,345
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization.................... 1,192,420
Provision for doubtful accounts receivable.......
Loss on disposal of fixed assets.................
Changes in assets and liabilities:
Accounts and notes receivable.................. (12,079,693)
Inventories.................................... 9,259,571
Prepaid expenses and other current assets...... 10,744
Other assets................................... (38,630)
Notes receivable...............................
Accounts payable............................... (1,682,133)
Accrued expenses............................... 629,335
Customer deposits and deferred revenues........ (5,898,769)
Other non current liabilities.................. (1,449,999)
Income taxes payable........................... (243,968)
Deferred income taxes payable.................. (534,705)
---------------
Net cash provided (used) by operating
activities.................................. (6,417,482)
Cash flows from investing activities:
Capital expenditures........................... (1,737,042)
Acquisition of net assets......................
---------------
Net cash used by investing activities........ (1,737,042)
---------------
Cash flows from financing activities:
Net change in revolving credit facility........ 10,079,621
Proceeds from issuance of long-term debt.......
Repayments of long-term debt................... (1,810,642)
Issuance of common stock, net of expenses......
Issuance of convertible subordinated debt......
Purchase of treasury shares.................... (108,981)
Proceeds from sale of treasury shares.......... 100,083
Deferred financing costs.......................
Subordinated debt repaid.......................
Preferential distribution......................
Options exercised.............................. 95,250
GCL merger..................................... 7,130
Cash dividends paid............................ (119,891)
---------------
Net cash provided (used) by financing
activities.................................. 8,242,570
---------------
Net (decrease) increase in cash.................. 88,046
Cash, beginning of period........................ 179,521
---------------
Cash, end of period.............................. $ 267,567
---------------
---------------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
GREENWICH AIR SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE SIX MONTHS ENDED MARCH 31, 1995
AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
ORGANIZATION -- Greenwich Air Services, Inc. and its subsidiaries (the
"Company") overhauls, repairs and refurbishes gas turbine aircraft engines and
services aeroderivative gas turbine engines used in a variety of industrial and
marine applications including driving pumps and compressors on oil and gas
pipelines, generating electric power for electric utilities and powering naval
vessels. The Company also manages government and military service and
maintenance programs, and through its wholly owned subsidiary, Greenwich
Turbine, Inc. ("GTi"), provides management services for the sale, refurbishment,
and worldwide installation of complete gas turbine power plants with electrical
output of up to 120 megawatts. As of September 30, 1995, the Company was a 74.1%
owned subsidiary of The Greenwich Company, Ltd. ("GCL") (see note 14). The
Company's results of operations include all expenses on a stand-alone basis.
In April 1994, the Company, through its newly-formed, wholly-owned
subsidiary Gas Turbine Corporation, a Delaware corporation ("GTC"), purchased
for approximately $41 million, exclusive of acquisition cost, substantially all
of the assets of the Gas Turbine Corporation East Granby Division (the
"Division") of Chromalloy Gas Turbine Corporation (the "Seller"), and the
capital stock of Gas Turbine Test Corporation ("GTT") and the assumption by GTC
of certain liabilities of the Division and GTT.
The acquisition was accounted for using the purchase method of accounting.
The purchase price (including the approximate $1.5 million acquisition payable
discussed in note 8) was allocated based on the fair market value of assets
acquired and liabilities assumed. The following is a summary of assets and
liabilities acquired, taking into consideration the allocation of the purchase
acquisition costs and the related financing:
<TABLE>
<S> <C>
Accounts receivable................................................... $16,410,000
Inventories........................................................... 18,991,000
Property and equipment................................................ 17,365,000
Other assets.......................................................... 847,000
-----------
Total Assets...................................................... 53,613,000
Less: Current liabilities............................................. 12,541,000
-----------
Net assets acquired................................................... $41,072,000
-----------
-----------
</TABLE>
The following summarized, unaudited pro forma results of operations for the
years ended September 30, 1993 and 1994, assume the acquisition occurred as of
the beginning of the respective periods:
<TABLE>
<CAPTION>
1993 1994
---------------- ----------------
<S> <C> <C>
Net sales........................................................... $ 126,900,325 $ 141,135,869
Net income.......................................................... 2,309,823 3,520,028
Earnings per share.................................................. $ .29 $ .36
</TABLE>
These pro forma results are not indicative of either future financial
performance or actual results which would have occurred had the acquisition been
made as of those dates.
BASIS OF PRESENTATION -- Financial statements for the year ending September
30, 1994 and 1995 and the unaudited six months ended March 31, 1995 and 1996 are
presented on a consolidated basis, which include the Company and its
subsidiaries GTC, GTT and GTi. Financial statements for the year ended September
30, 1993, include only the Company because GTC, GTT and GTi were formed or
acquired subsequent to September 30, 1993. All significant inter-company
transactions and accounts have been eliminated.
F-7
<PAGE>
GREENWICH AIR SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE SIX MONTHS ENDED MARCH 31, 1995
AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION (CONTINUED)
UNAUDITED FINANCIAL STATEMENTS -- The consolidated financial statements as
of March 31, 1996 and for the six months ended March 31, 1995 and 1996 are
unaudited. In the opinion of management, the unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the balance sheet and statements
of income, stockholders' equity and cash flows for such interim periods
presented. The results of operations for the six months ended March 31, 1996 are
not necessarily indicative of the results which may be expected for the entire
fiscal year. The preparation of the 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 financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ALLOWANCE FOR DOUBTFUL ACCOUNTS -- The allowance for doubtful accounts is
established by charges to income through the provision for doubtful accounts
receivable. Trade accounts receivables which are considered by management to be
uncollectible are charged off to the allowance and recoveries of amounts
previously charged off are credited to the allowance. The provision for doubtful
accounts totaled approximately $195,000, $174,000 and $2,806,000 for the years
ended September 30, 1993, 1994 and 1995, respectively and trade accounts
receivables charged off, net of recoveries, totaled approximately $319,000,
$283,000 and $2,170,000 for the years ended September 30, 1993, 1994 and 1995,
respectively. The provision for doubtful accounts totaled approximately
$1,334,000 and $1,288,000 for the six months ended March 31, 1995 and 1996,
respectively, and trade accounts receivable recoveries, net of charge offs,
totaled approximately $75,000 and $55,000 for the six months ended March 31,
1995 and 1996, respectively.
INVENTORIES -- Inventories are stated at the lower of cost or market. Cost
of spare parts is determined by the moving weighted-average method. Reserves for
inventory obsolescence are recorded when, in the opinion of management, the
value of specific inventory items has been impaired.
DEFERRED FINANCING COSTS -- Debt issuance costs and transaction fees, which
are associated with the issuance of notes payable, are being amortized (and
charged to interest expense) over the term of the related loan (see Notes 3 and
7) on a method which approximates the level yield method.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment is carried at
cost. Depreciation and amortization is provided using the straight-line and
accelerated methods over the estimated useful lives of the assets (5 to 30
years). When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized for the period. The cost of maintenance and repairs is
charged to income as incurred, and significant renewals and betterments that
extend the lives of the assets are capitalized.
The technical library represents service manuals purchased from original
equipment manufacturers which provide detailed information on the repair and
maintenance of engines and components. Depreciation is computed over the
estimated useful life of 5 years.
REVENUE RECOGNITION -- Revenue from engine maintenance services which are
short-term in nature, is recognized at the time of performance test acceptance
of engines (completed contract method). Revenues from power plant installations
and from long-term contracts and programs are recognized under the percentage of
completion method. Revenue from part sales is recognized upon shipment of the
product to customers. Revenues billed but not earned are deferred, reflected as
a
F-8
<PAGE>
GREENWICH AIR SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE SIX MONTHS ENDED MARCH 31, 1995
AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION (CONTINUED)
current liability, and are recognized in the period the cost is incurred. At
September 30, 1994 and 1995, and March 31, 1996 such deferred revenues amounted
to $694,843, $1,853,123, and $552,873, respectively.
WARRANTY COSTS -- Warranty costs are accrued based on management's estimate
of such costs and historical sales percentages.
INCOME TAXES -- The Company is included in a consolidated tax return filed
by its parent GCL for the period ending November 6, 1993, after such date the
Company has filed a separate return. Provision for income taxes is computed on a
separate return basis limited by consolidated realizability factors, which
to-date have not had a material impact on the Company's provision for income
taxes.
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Under this method,
deferred tax assets and liabilities are determined based upon differences
between financial reporting and tax bases of assets and liabilities, and are
measured using the tax rates and laws that will be in effect when the
differences are expected to reverse. Additionally, deferred tax balances are
adjusted in periods that include the enactment of tax rate changes.
Prior to the adoption of Statement No. 109, income tax expense was
determined using the liability method prescribed by Statement of Financial
Accounting Standards No. 96, Accounting for Income Taxes. The adoption of
Statement 109 was made on a prospective basis and did not have a material impact
on the Company for the year ended September 30, 1994.
CAPITAL STOCK -- The Company is authorized to issue 25,000,000 shares of
Class A common stock, $.01 par value, 25,000,000 shares of Class B common stock,
$.01 par value, and 2,500,000 shares of preferred stock, $.01 par value. No
preferred stock has been issued to date. There were 2,116 and 32 treasury shares
as of September 30, 1995 and March 31, 1996, respectively.
On April 26, 1996, the Company declared a dividend to its Class A Common
Stock holders of record of one share of its Class B Common Stock for each
outstanding share of Class A Common Stock. Retained earnings was charged $62,798
in 1996 as a result of the issuance of the 6,279,841 shares of Class B Common
Stock (based on the number of shares of Class A Common Stock outstanding as of
March 31, 1996). All income per share, dividend per share, common shares
outstanding and price per share information has been retroactively restated to
reflect this stock dividend.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE -- Earnings per common and
common equivalent shares are computed by dividing net income by the weighted
average number of common shares and dilutive common share equivalents
outstanding for each period. Common share equivalents include the dilutive
effect of stock warrants and stock options using the treasury stock method, in
applicable periods. Fully diluted earnings per common share assumes, in addition
to the above, (i) that convertible debentures were converted at the beginning of
each period with earnings being increased for interest expense, net of taxes,
that would not have been incurred had conversion taken place at the beginning of
each period and (ii) the additional dilutive effect from the stock warrants and
stock options discussed above. Quarterly and year-to-date computations of per
share amounts are made independently; therefore, the sum of per share amounts
for the quarters may not equal per share amounts for the year.
F-9
<PAGE>
GREENWICH AIR SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE SIX MONTHS ENDED MARCH 31, 1995
AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION (CONTINUED)
Shares used to calculate earnings per share are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31,
---------------------------- ----------------------------
1994 1995 1995 1996
------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Weighted average shares outstanding.................. 9,934,302 10,153,452 10,156,000 11,843,133
Dilutive stock options and warrants.................. 13,498 79,782 25,748 262,335
------------- ------------- ------------- -------------
Shares for primary earnings per share................ 9,947,800 10,233,234 10,181,748 12,105,468
Assumed conversion of debentures..................... 2,626,854 2,402,906 2,905,812 608,718
Additional dilution of stock options and warrants.... -- 200,266 14,630 130,404
------------- ------------- ------------- -------------
Shares for fully diluted earnings per share.......... 12,574,654 12,836,406 13,102,190 12,844,590
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS -- In March 1995, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" (SFAS No. 121), effective for fiscal years
beginning after December 15, 1995. SFAS No. 121 establishes accounting standards
for the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used and for long-lived assets
and certain identifiable intangibles to be disposed of. SFAS No. 121 requires
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The adoption of this statement will apply to the Company as of the
fiscal year ended September 30, 1997. The Company has not assessed the impact of
adopting this pronouncement.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123). SFAS No. 123
does not rescind or interpret existing accounting rules for employee stock-based
arrangements. Under SFAS No. 123, the Company may continue to follow existing
rules to recognize and measure compensation, but they will now be required to
disclose the pro forma amounts of net income and earnings per share that would
have to be reported had the Company elected to follow the "fair value"
recognition provisions of SFAS No. 123. SFAS No. 123 will apply to the Company
for the year ended September 30, 1997. The Company has not determined whether it
will elect to recognize and measure compensation expense under SFAS No. 123 and
has not yet determined its effect on the Company's financial position or results
of operations.
2. ACCOUNTS AND NOTES RECEIVABLE AND INVENTORIES
Accounts and notes receivable consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1994 1995
-------------- -------------- MARCH 31, 1996
--------------
(UNAUDITED)
<S> <C> <C> <C>
Trade receivables............................................... $ 36,541,267 $ 36,049,970 $ 48,543,438
Current portion of notes receivable............................. 819,914 -- --
Long-term contracts and programs................................ 909,581 -- --
-------------- -------------- --------------
Trade receivables............................................... 38,270,762 36,049,970 48,543,438
Less: Allowance for doubtful accounts........................... 237,591 873,975 1,287,750
-------------- -------------- --------------
Accounts and notes receivable............................... $ 38,033,171 $ 35,175,995 $ 47,255,688
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
F-10
<PAGE>
GREENWICH AIR SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE SIX MONTHS ENDED MARCH 31, 1995
AND 1996 IS UNAUDITED)
2. ACCOUNTS AND NOTES RECEIVABLE AND INVENTORIES (CONTINUED)
As of September 30, 1994, the Company had notes receivable (denominated in
CFA and French Francs) outstanding of approximately $1.7 million related to the
installation of a 25 megawatt power station in Senegal, West Africa. During the
fiscal year ended September 30, 1995 the remaining balance of these notes
receivable (approximately $1.4 million) was sold, without recourse, and an
approximate $300,000 foreign exchange gain was realized on such sale.
Inventories consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------
1994 1995
-------------- ---------------- MARCH 31, 1996
----------------
(UNAUDITED)
<S> <C> <C> <C>
Parts......................................................... $ 35,395,019 $ 48,296,785 $ 60,498,792
Engines....................................................... 10,746,202 11,624,360 12,024,351
Work in process............................................... 23,400,841 46,662,602 37,433,972
Inventories substantially applicable to long-term programs.... 576,781 14,349,360 1,716,421
-------------- ---------------- ----------------
Total..................................................... $ 70,118,843 $ 120,933,107 $ 111,673,536
-------------- ---------------- ----------------
-------------- ---------------- ----------------
</TABLE>
As of September 30, 1995, inventories substantially applicable to long-term
programs consists primarily of inventories acquired from Continental Airlines,
Inc. (see note 8).
3. DEFERRED FINANCING COSTS
Deferred financing costs consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1994 1995
------------- ------------- MARCH 31,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Transaction fees.................................................... $ 1,385,000 $ 1,000,000 $ 1,000,000
Debentures issue costs.............................................. 1,821,013 1,505,852 381,470
Debt issuance costs................................................. 1,308,090 1,383,687 1,383,686
------------- ------------- -------------
Total............................................................. 4,514,103 3,889,539 2,765,156
Less accumulated amortization....................................... 2,001,775 2,172,411 2,024,048
------------- ------------- -------------
Deferred financing costs............................................ $ 2,512,328 $ 1,717,128 $ 741,108
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Amortization expense (charged to interest expense) for deferred financing
costs for the years ended September 30, 1993, 1994 and 1995, and the six months
ended March 31, 1995 and 1996, were $249,000, $477,000, $638,000, $348,000 and
$173,000, respectively.
F-11
<PAGE>
GREENWICH AIR SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE SIX MONTHS ENDED MARCH 31, 1995
AND 1996 IS UNAUDITED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1994 1995
-------------- -------------- MARCH 31, 1996
--------------
(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment......................................... $ 24,515,012 $ 26,316,716 $ 26,707,607
Furniture and fixtures.......................................... 626,841 712,089 740,283
Leasehold improvements.......................................... 1,499,144 2,297,768 3,615,725
Technical library............................................... 1,017,798 1,024,756 1,024,756
Land and building............................................... 2,574,734 2,595,757 2,595,757
-------------- -------------- --------------
Total......................................................... 30,233,529 32,947,086 34,684,128
Less accumulated depreciation and amortization.................. 5,486,021 7,289,430 8,308,427
-------------- -------------- --------------
Property, plant and equipment................................... $ 24,747,508 $ 25,657,656 $ 26,375,701
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
Depreciation and amortization expense for property, plant and equipment for
the years ended September 30, 1993, 1994 and 1995, and the six months ended
March 31, 1995 and 1996 approximated $975,000, $1,285,000, $1,814,000, $875,000
and $1,019,000, respectively.
5. ACCRUED EXPENSES AND CURRENT PORTION OF LONG TERM DEBT
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1994 1995
-------------- -------------- MARCH 31, 1996
--------------
(UNAUDITED)
<S> <C> <C> <C>
Accrued payroll and related expenses............................ $ 2,094,625 $ 4,236,787 $ 4,051,500
Estimated expenses accrued...................................... 1,747,241 1,353,496 1,281,342
Other accrued expenses.......................................... 1,754,847 3,712,399 5,819,223
Reserve for warranty costs...................................... 1,822,499 1,246,343 294,960
Accrued acquisition costs....................................... 1,697,667 1,594,726 1,516,594
Current portion of acquisition payable.......................... 521,679 521,679 331,146
Current portion of long term debt............................... 3,137,207 3,018,579 2,740,530
Current portion of long term debt to WAL........................ 377,612 418,190 440,085
-------------- -------------- --------------
Total....................................................... $ 13,153,377 $ 16,102,199 $ 16,475,380
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
6. INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31,
------------------------------------------- ----------------------------
INCOME TAX PROVISION 1993 1994 1995 1995 1996
- -------------------------------------- ------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CURRENT:
FEDERAL............................. $ 783,236 $ 634,655 $ 3,076,933 $ 1,263,547 $ 2,961,935
STATE............................... 39,291 239,192 749,286 307,695 481,155
------------- ------------- ------------- ------------- -------------
822,527 873,847 3,826,219 1,571,242 3,443,090
------------- ------------- ------------- ------------- -------------
DEFERRED:
FEDERAL............................. 1,296,597 1,116,536 48,623 19,967 (505,994)
STATE............................... 213,552 229,908 90,044 36,977 (28,712)
------------- ------------- ------------- ------------- -------------
1,510,149 1,346,444 138,667 56,944 (534,706)
------------- ------------- ------------- ------------- -------------
TOTAL............................. $ 2,332,676 $ 2,220,291 $ 3,964,886 $ 1,628,186 $ 2,908,384
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
F-12
<PAGE>
GREENWICH AIR SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE SIX MONTHS ENDED MARCH 31, 1995
AND 1996 IS UNAUDITED)
6. INCOME TAXES (CONTINUED)
The provision for income taxes differs from the amount obtained by applying
the statutory federal income tax rate to pretax income as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH
YEARS ENDED SEPTEMBER 30, 31,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income tax at statutory rate..................................... 34.0% 34.0% 34.0% 34.0% 35.0%
State taxes, net of federal income tax benefit................... 3.6% 5.6% 5.4% 5.4% 4.0%
Other............................................................ 3.2% 0.3% (0.4)% 1.4% 0.7%
--- --- --- --- ---
Provision for income taxes....................................... 40.8% 39.9% 39.0% 40.8% 39.7%
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
The tax effects of significant items comprising the Company's net deferred
tax liability consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1994 1995
-------------- -------------- MARCH 31, 1996
--------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts................................. $ 93,204 $ 251,830 $ 302,325
Accrued expenses................................................ 242,790 489,338 499,561
Property, plant and equipment................................... -- 94,206 94,962
Other........................................................... 63,392 3,871 2,411
-------------- -------------- --------------
Total deferred tax assets..................................... 399,386 839,245 899,259
-------------- -------------- --------------
Deferred tax liabilities:
Inventory....................................................... 2,777,555 2,929,252 2,201,817
Property, plant and equipment................................... 2,278,134 2,736,387 2,990,349
Other........................................................... 44,716 13,292 12,074
-------------- -------------- --------------
Total deferred tax liabilities................................ 5,100,405 5,678,931 5,204,240
-------------- -------------- --------------
Net deferred tax liability.................................... $ (4,701,019) $ (4,839,686) $ (4,304,981)
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
F-13
<PAGE>
GREENWICH AIR SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE SIX MONTHS ENDED MARCH 31, 1995
AND 1996 IS UNAUDITED)
7. DEBT
Loans payable consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1994 1995
-------------- -------------- MARCH 31, 1996
--------------
(UNAUDITED)
<S> <C> <C> <C>
Revolving credit facility....................................... $ 41,096,360 $ 40,448,375 $ 50,527,996
Term loan....................................................... 7,155,975 6,018,768 5,411,886
GTC term loan................................................... 7,333,333 5,333,333 4,333,333
Loan payable to WAL............................................. 2,400,295 2,022,684 1,818,924
-------------- -------------- --------------
Total........................................................... 57,985,963 53,823,160 62,092,139
Less current portion
-- Term loans................................................. 3,137,207 3,018,579 2,740,530
-- Loan payable to WAL........................................ 377,612 418,190 440,085
-------------- -------------- --------------
Total current portion (included in accrued expenses)............ 3,514,819 3,436,769 3,180,615
-------------- -------------- --------------
Long term debt -- net of current portion........................ $ 54,471,144 $ 50,386,391 $ 58,911,524
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
REVOLVING CREDIT FACILITY
In November 1992, the Company's revolving credit lender amended and extended
the terms of the then Revolving Credit Facility to a $25,000,000 maximum
borrowing capacity expiring in November 1995. Advances under the Revolving
Credit Facility were based on percentages of eligible accounts receivable and
inventories. Interest payable monthly, was calculated at the greater of (i) a
certain bank's prime rate of interest, plus 1.5%, or (ii) the federal funds
interest rate, plus 2.0%.
In April 1994, simultaneous with the closing of the acquisition of GTC, the
Company's Revolving Credit Facility was amended and extended to include GTC as a
borrower, and to include GTC's inventories and accounts receivable balances as
security. The Revolving Credit Facility now expires in April 1999. Maximum
borrowings under the Revolving Credit Facility were increased to $45,000,000,
and the interest rate calculation was amended to be calculated as (i) a certain
bank's prime rate of interest, plus 1.0%, or (ii) the federal funds interest
rate, plus 1.5%. In addition, the Company was granted the option to fund up to
50% of the loan borrowings at either 30, 60, or 90 day LIBOR plus 2.75%.
In March 1995, the Company's Revolving Credit Facility, which expires in
April 1999, was amended and restated to, among other things, increase maximum
borrowings from $45 to $55 million.
As of September 30, 1994 and 1995 and March 31, 1996, the prevailing prime
interest rate under the Revolving Credit Facility was 8.75%, 9.75% and 9.25%,
respectively. As of September 30, 1994 and 1995 and March 31, 1996, the
prevailing LIBOR interest rate under the Revolving Credit Facility was 7.75% ,
8.56% and 8.19%, respectively.
Revolving Credit Facility at September 30, 1995 and March 31, 1996, was
classified as long-term, as the Company had the intent and the ability,
supported by the terms of its existing Revolving Credit Facility, to maintain
through April 1997, principal amounts outstanding under the agreement.
PROTECTED INTEREST RATE AGREEMENTS
Because the Company's obligations under the Revolving Credit Facility bears
interest at floating rates, the Company is subject to changes in prevailing
interest rates. In September 1994, the Company entered into protected interest
rate agreements ("Cap Agreements") with a financial institution in order to
reduce the Company's exposure to interest rate fluctuations. Under the Cap
Agreements, which
F-14
<PAGE>
GREENWICH AIR SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE SIX MONTHS ENDED MARCH 31, 1995
AND 1996 IS UNAUDITED)
7. DEBT (CONTINUED)
expire in September 1997, the Company has $12,500,000 of prime rate coverage
protection, and $12,500,000 of 90 day LIBOR rate protection. If the prevailing
interest rate exceeds the contracted rate, the financial institution will pay to
the Company an amount equal to the excess. For the remainder period of coverage,
the Cap Agreements are structured as follows:
<TABLE>
<CAPTION>
PERIOD OF COVERAGE 90 DAY LIBOR RATE PRIME RATE
- --------------------------------------------------------------------- --------------------- -------------
<S> <C> <C>
September 1, 1995 - August 31, 1996.................................. 8.00% 10.75%
September 1, 1996 - August 31, 1997.................................. 9.00% 11.75%
</TABLE>
Transaction fees paid in connection with the Cap Agreements are being
amortized to interest expense over the life of the Cap Agreements on a method
which approximates the level yield method. Any payments by the financial
institution will reduce the interest costs associated with the borrowings
protected.
TERM LOANS
TERM LOAN. In November 1992, the Company entered into a loan and security
agreement with a commercial lender (the "Term Lender") for a five year, $9
million term loan expiring in November 1997 (the "Term Loan"). The Term Loan is
secured by the Company's equipment and tooling, and bears interest at 8.75% per
annum, payable in 59 monthly installments (including principal and interest) of
$143,205 each, and a final payment of approximately $3.3 million due on November
1, 1997.
GTC TERM LOAN. On May 26, 1994 the Company and GTC entered into a separate
loan and security agreement with the Term Lender for a five year, $8 million
term loan expiring on May 26, 1999 (the "GTC Term Loan"). The GTC Term Loan is
secured by substantially all of GTC's fixed assets (excluding real estate), and
bears interest at a rate of 8.99% per annum, payable monthly in arrears.
Principal repayments under this agreement are to be made in 24 consecutive
monthly installments of $166,667 each and an additional 36 consecutive monthly
installments of $111,111 each, with all such payments ending on May 26, 1999.
LOAN PAYABLE TO WAL. In November 1992, the Company entered into a loan and
security agreement with World Air Lease, Inc. ("WAL"), an affiliate of the
Company, for a five year, $3 million term loan expiring in November 1997 (the
"WAL Loan"). The WAL Loan is secured by the Company's equipment and tooling, and
bears interest at 10.25% per annum, payable in 59 monthly installments
(including principal and interest) of $50,519 each, and a final payment of
approximately $1.1 million due on November 1, 1997. On April 1, 1994, subject to
the terms and conditions of the GTC Term Loan, WAL agreed to grant a priority
lien position to the Term Lender on the Company's tooling and equipment. In
return, WAL was granted a priority lien position on specific tooling, and was
granted a first mortgage on certain real property that the Company owns in East
Granby, Connecticut.
RESTRICTIVE COVENANTS, COLLATERAL AND MATURITIES
The Company's credit agreements each contain various restrictive covenants
which include, among other things, minimum tangible net worth, maintenance of
minimum working capital, limitations on the payment of dividends, restrictions
on capital expenditures, restrictions on certain additional indebtedness and
requirements to maintain certain financial ratios.
Substantially all of the Company's assets are pledged as collateral under
the above credit agreements.
F-15
<PAGE>
GREENWICH AIR SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE SIX MONTHS ENDED MARCH 31, 1995
AND 1996 IS UNAUDITED)
7. DEBT (CONTINUED)
Scheduled debt maturities subsequent to September 30, 1995, are as follows:
<TABLE>
<CAPTION>
PERIOD ENDING SEPTEMBER 30, AMOUNT
- ------------------------------------------------------------------------------ --------------
<S> <C>
1996.......................................................................... $ 3,436,769
1997.......................................................................... 3,150,292
1998.......................................................................... 5,898,833
1999.......................................................................... 41,337,266
--------------
Total..................................................................... $ 53,823,160
--------------
--------------
</TABLE>
8. OTHER LIABILITIES
Other liabilities consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------
1994 1995
------------- -------------- MARCH 31, 1996
--------------
(UNAUDITED)
<S> <C> <C> <C>
Acquisition payable............................................... $ 1,565,036 $ 1,043,357 $ 852,825
Inventory purchase payable........................................ 13,300,000 11,850,000
------------- -------------- --------------
Total......................................................... $ 1,565,036 $ 14,343,357 $ 12,702,825
Less current portion.............................................. 521,679 4,521,679 4,331,146
------------- -------------- --------------
Other liabilities, net of current portion......................... $ 1,043,357 $ 9,821,678 $ 8,371,679
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
ACQUISITION PAYABLE
In connection with the Company's acquisition of GTC, the Company has agreed
to pay the Seller the remaining purchase price due of $1,565,036 in three equal
annual non-interest bearing installments of $521,679 each, starting in fiscal
year 1995. The current portion as of September 30, 1995 and March 31, 1996 of
$521,679 and $331,146, respectively, has been included in accrued expenses.
INVENTORY PURCHASE PAYABLE
On May 1, 1995, the Company purchased approximately $17.6 million of engine
parts inventories from Continental Airlines, Inc. (Continental Airlines), the
Company paid $2.5 million in cash and offsets against receivables and agreed to
pay Continental Airlines the balance due of $15.1 million in the form of service
credits applied against qualified invoices for services to be provided to
Continental Airlines under the terms of the engine service agreement entered
into on January 30, 1995. Management estimates that approximately $4,000,000 of
service credits will be utilized within one year and has therefore included
$4,000,000 in customer deposits as of September 30, 1995 and March 31, 1996.
9. SUBORDINATED DEBENTURES
The Company's $14,057,000 publicly-traded debentures (the "Debentures")
outstanding as of September 30, 1995, ($16,999,000 outstanding as of September
30, 1994) mature on November 15, 2000 and pay interest at 8% per annum, payable
on March 15 and September 15 every year until maturity. The Debentures are
convertible into shares of the Company's Common Stock at any time prior to
maturity, unless previously redeemed by the Company, at a conversion price of
$5.85 per share, subject to adjustment in certain events. The Debentures are not
redeemable by the Company prior to November 15, 1996. Thereafter, the Debentures
are redeemable at a redemption price equal to 100% of the principal amount
thereof plus accrued interest, provided that the Debentures may not be redeemed
unless the closing price of the Company's common stock has equaled or exceeded
$6.75 for 20 consecutive trading days.
F-16
<PAGE>
GREENWICH AIR SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE SIX MONTHS ENDED MARCH 31, 1995
AND 1996 IS UNAUDITED)
9. SUBORDINATED DEBENTURES (CONTINUED)
In 1995, $2,942,000 principal amount of debentures, were converted into
502,890 shares of the Company's common stock at $5.85 per share or approximately
171 common shares for each $1,000 face amount of debentures.
During the six months ended March 31, 1996, $10,496,000 principal amount of
debentures, were converted into 1,794,126 shares of the Company's common stock
at $5.85 per share. Had the additional conversions occurred as of October 1,
1995, primary earnings per share for the six months ended March 31, 1996 would
have been $0.35.
10. STOCK OPTION, STOCK WARRANTS, AND OTHER PLANS
1992 STOCK OPTION PLAN
In July 1992, the Company's Board of Directors and stockholders approved the
establishment by the Company of the 1992 Employee Incentive and Non-Qualified
Stock Option Plan (the "1992 Stock Option Plan"), pursuant to which officers and
other key employees of the Company can receive incentive options and
non-qualified options to purchase an aggregate of 600,000 shares of the
Company's Common Stock.
The exercise price for shares purchased upon the exercise of non-qualified
options granted under the 1992 Stock Option Plan is determined by the
Compensation Committee at the time of option grant. The exercise price of an
incentive stock option granted under the 1992 Stock Option Plan must be at least
equal to 100% of the fair market value of the Common Stock on the date such
option is granted (110% of the fair market value for stockholders who, at the
time the option is granted, own more than 10% of the total combined classes of
stock of the Company or any subsidiary). No employees may be granted incentive
stock options in any year for shares having a fair market value, determined as
of the date of grant, in excess of $100,000.
No incentive option granted under the 1992 Stock Option Plan may have a term
of more than 10 years (five years for 10% or greater stockholders). Options,
whether incentive or nonqualified options, generally may be exercised only if
the option holder remains continuously associated with the Company or a
subsidiary from the date of grant to the date of exercise. However, options may
be exercised upon termination of employment or upon the death or disability of
an employee within certain specified periods.
The Company may grant non-qualified options with exercise prices which are
less than the fair market value of the Common Stock on the date of grant. The
Company does not intend to grant non-qualified options at exercise prices which
are less than 85% of the fair market value of the Common Stock on the date of
grant.
On May 20, 1994, the Company granted certain officers and other key
employees the option to purchase an aggregate of 213,000 shares of the Company's
common stock. These incentive options were granted at an exercise price of $3.00
per share and are exercisable beginning one year after the date of grant for 25%
of the shares, with the balance to become exercisable cumulatively in two
installments each year thereafter of 25% and 50% in years two and three,
respectively. During fiscal 1995, the Company granted other key employees the
option to purchase an additional 36,000 shares of common stock at an option
price of $3.50 for 20,000 shares and $6.19 for 16,000 shares. During the six
months ended March 31, 1996, the Company granted the option to purchase an
additional 130,000 shares of common stock to key employees at an average option
price per share of $11.31.
F-17
<PAGE>
GREENWICH AIR SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE SIX MONTHS ENDED MARCH 31, 1995
AND 1996 IS UNAUDITED)
10. STOCK OPTION, STOCK WARRANTS, AND OTHER PLANS (CONTINUED)
1992 Stock Option Plan activity is shown below:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER
30,
--------------------
SHARES UNDER OPTION 1994 1995
- ------------------------------------------------------------------ --------- --------- SIX MONTHS
ENDED MARCH
31, 1996
------------
(UNAUDITED)
<S> <C> <C> <C>
Outstanding at beginning of period................................ -- 213,000 244,000
Granted........................................................... 213,000 36,000 130,000
Exercised......................................................... -- -- (31,750)
Canceled.......................................................... -- (5,000) (5,250)
--------- --------- ------------
Outstanding at end of period.................................. 213,000 244,000 337,000
--------- --------- ------------
--------- --------- ------------
</TABLE>
As of September 30, 1995, options for 52,000 shares were exercisable at an
option price of $3.00.
As of March 31, 1996, options for 50,250 shares were exercisable at an
option price of $3.00 and options for 5,000 shares were exercisable at an option
price of $3.50.
1994 STOCK OPTION PLAN
In August 1994, the Company's Board of Directors approved the establishment
of a stock option plan (the "1994 Stock Option Plan") pursuant to which outside
directors of the Company can receive incentive options and non-qualified options
to purchase an aggregate of 30,000 shares of the Company's common stock. As of
September 30, 1995 and March 31, 1996 all 30,000 options had been granted and
were outstanding, and as of September 30, 1995 and March 31, 1996, 26,000 and
28,000, respectively, were exercisable under this plan at an exercise price of
$2.69 per share.
STOCK WARRANTS
In connection with the Company's initial public offering in November 1993,
the Company agreed to sell to underwriters (or its assigns) warrants to purchase
up to $1,500,000 principal amount of debentures at 130% of their initial public
offering price and up to 200,000 shares of the Company's common stock at $5.85
per share. These warrants are exercisable through November 1998.
As of March 31, 1996, 74,296 shares of the Company common stock (18,000 as
of September 30, 1995) were issued in connection with the cashless exercise of
warrants to purchase $750,000 of debentures and 130,000 shares of common stock.
As of March 31, 1996, warrants to purchase of up to $750,000 in debentures and
up to 70,000 shares of common stock remain outstanding and exercisable.
1995 STOCK PURCHASE PLAN
In July 1992, the Company's Board of Directors authorized and directed the
Compensation Committee of the Board and the officers of the Company to develop a
stock purchase plan available to Company employees to serve as an additional
employment incentive.
During 1995, the Company's Board of Directors and stockholders approved the
adoption of the "1995 Stock Purchase Plan" as developed by Company's management.
Under this plan all full-time employees with at least one year of service may
purchase up to an aggregate of 200,000 shares of the Company's common stock. The
1995 Stock Purchase Plan allows participating employees to purchase, through
payroll deductions, shares of the Company's common stock at 85 percent of the
fair market value at specified times. During fiscal 1995, employees have
purchased a total of 37,884 shares at $3.46 per share and at September 30, 1995,
162,116 shares remained available for purchase through the plan. During the six
months ended March 31, 1996, employees have purchased an additional 24,000
shares at $9.27 per share and at March 31, 1996, 138,116 shares remain available
for purchase through the plan.
F-18
<PAGE>
GREENWICH AIR SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE SIX MONTHS ENDED MARCH 31, 1995
AND 1996 IS UNAUDITED)
10. STOCK OPTION, STOCK WARRANTS, AND OTHER PLANS (CONTINUED)
401(K) PLAN
During 1990, the Company adopted a 401(K) Plan (the "Plan") which allows
eligible employees to contribute to the Plan up to 25% of their compensation for
services rendered in any year, not to exceed amounts prescribed under statutory
limits. The Company may elect to make contributions to the Plan at its
discretion. The Company contributions to the Plan for the years ended September
30, 1993, 1994, and 1995 were approximately $18,000, $20,000 and $28,000
respectively. The Company has made no such contribution for the six months ended
March 31, 1996.
11. RELATED PARTY TRANSACTIONS
In connection with the acquisition of its assets in 1987, and the
refinancing of its loans in 1990, the Company paid to GCL transaction fees of
$385,000 and $1,000,000, respectively. Such amounts are included in deferred
financing costs in the accompanying balance sheets and are being amortized,
using a method which approximates the level yield method, over the life of the
assets (seven years) or the period the applicable financing is outstanding (not
to exceed three years), respectively.
The Company paid GCL management fees aggregating $840,000 and $120,000 for
the years ended September 30, 1993 and 1994, respectively. The Company's
management agreement with GCL terminated effective with the initial public
offering in November 1993, as such, no management fees were paid in fiscal year
ended September 30, 1995.
In April 1993, the Company entered into simultaneous lease agreements with
GCL and an unrelated third party, for the use of an aircraft engine. Under these
agreements, the Company leased the engine from GCL and sublet the engine to an
unrelated third party under an identical fee schedule. In accordance with the
lease terms, the Company both paid and received a monthly fee of approximately
$11,250, plus a fee based on engine usage of which a minimum of $5,000 a month
was required. This agreement terminated in August of 1993.
During fiscal 1994, 1995 and for the six months ended March 31, 1996 the
Company purchased engine parts from WAL totaling $136,691, $171,930 and $8,000
respectively. During 1994, the Company received brokerage commissions amounting
to $7,452 from WAL for the sale of an engine to an unrelated third party.
During fiscal 1994, 1995 and for the six months ended March 31, 1996, the
Company performed engine parts repair services for WAL and another company
affiliated through common ownership aggregating approximately $105,000, $103,000
and $150,000, respectively.
In March 1995, the Company purchased an aircraft engine from another company
affiliated through common ownership and concurrently entered into an agreement
to sell the engine to a customer under substantially the same terms. The Company
received a brokerage fee of $10,000 and was reimbursed for its costs and
expenses.
In June 1995, the Company entered into an aircraft engine lease agreement
with a company affiliated through common ownership to provide a replacement
engine while a customer's engine was being served by the Company. Concurrent to
entering into the lease, the Company and the customer entered into a sub-lease
under substantially the same terms.
In June 1995, the Company purchased an unserviceable engine at its
approximate fair market value of $550,000 from an affiliated company. This
engine was disassembled to provide parts for an engine being repaired by the
Company for an unaffiliated third party.
A director of the Company is a senior partner in a law firm which has
received legal fees from the Company in connection with professional services
provided to the Company.
F-19
<PAGE>
GREENWICH AIR SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE SIX MONTHS ENDED MARCH 31, 1995
AND 1996 IS UNAUDITED)
12. COMMITMENTS AND CONTINGENCIES
As security for performance and advances on long term contracts, the Company
is contingently liable as of September 30, 1995 and March 31, 1996, in the
amount of $4,079,960 and $3,031,550, respectively, under standby letter of
credits and bonds.
On January 14, 1992, the Company entered into a lease for office and
operating facilities. Under the terms of the lease, as amended: (1) the
Company's initial lease term would be for five years, commencing August 1, 1992;
(2) the Company has the option for five additional renewals of five years each;
and (3) rent phases in at approximately $1,135,000, $1,581,000, $2,027,000,
$2,710,000 and $3,126,000 in years 1992, 1993, 1994, 1995 and thereafter. This
lease is secured by a stand-by letter of credit with a financial institution
which is collateralized by a certificate of deposit in the amount of
approximately $523,000 which is included in other assets at September 30, 1995
and March 31, 1996.
The Company, through its GTC subsidiary, leases three (3) buildings
totalling approximately 60,000 square feet at a site adjacent to Bradley
International Airport in East Granby, Connecticut. These leases are each for a
five year term, with all three expiring between 1998 and 1999. Annual lease
payments for the facility currently approximates $350,000.
The Company, through its GTC subsidiary, leases from Westover Metropolitan
Development Corporation, as lessor, two (2) warehouses of approximately 30,000
square feet. Each lease is subject to successive one year renewable lease terms.
Current annual lease payments for these facilities total approximately $144,000.
The Company, through GTT, leases from the Port Authority of New York, as
lessor, an approximately 21,000 square foot test cell at John F. Kennedy
International Airport for a term of five years which commenced as of January 1,
1993. Current annual lease payments for the JFK test cell approximate $390,000.
Rent expense for the years ended September 30, 1993,1994 and 1995, under
these leases was approximately $2,176,000, $1,974,000 and $5,142,000,
respectively. Rent expense amounted to $2,458,000 and $2,891,000 for the six
months ended March 31, 1995 and 1996, respectively.
Aggregate future minimum lease payments under these noncancelable operating
leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30, AMOUNT
- ------------------------------------------------------------------------------ --------------
<S> <C>
1996.......................................................................... $ 4,773,000
1997.......................................................................... 4,356,000
1998.......................................................................... 797,000
1999.......................................................................... 335,000
--------------
Total..................................................................... $ 10,261,000
--------------
--------------
</TABLE>
The Company's existing and anticipated customers include passenger airlines,
air freight and package carriers, industrial and marine users, government and
leasing companies. Currently, economic and other factors may adversely affect
the airline industry, particularly the major passenger airlines. As a result,
certain of these customers may pose credit risks to the Company. To date, the
Company has not been significantly impacted by these factors. However, the
Company cannot predict whether these conditions will adversely affect the
Company's results of operations in the future.
The Company has entered into employment agreements with two of its officers
expiring on September 30, 1996. Under such agreements, as amended, the Company
will pay the officers base salaries of
F-20
<PAGE>
GREENWICH AIR SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE SIX MONTHS ENDED MARCH 31, 1995
AND 1996 IS UNAUDITED)
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
$400,000 and $200,000 per annum, plus deferred compensation of $80,000 and
$20,000, respectively. Additionally these officers are entitled to annual
bonuses, based on the Company achieving certain pre-determined base income. For
fiscal 1996 the bonuses are not to exceed an aggregate of $1,000,000 per annum.
The Company is a generator of hazardous waste and is therefore subject to
many Federal and State environmental laws and regulations. The Company believes
that its waste management practices have been and continue to be in compliance
with all applicable environmental laws and regulations and that this limits the
potential for releases of hazardous substances at each of its facilities.
Although unaware of any violations, the Company could be held liable as a former
operator for releases of hazardous substances at the location where the Company
formerly conducted all of its operations. In addition, at certain facilities the
Company may be operating without adequate permits or may have exceeded certain
permit limits. As a result, the Company may be subject to enforcement actions,
environmental remediation, installation of appropriate control technology and/or
penalties. The ultimate outcome of these matters are not certain and no
provision has been made in the accompanying financial statements.
It is anticipated that new regulations, or new interpretations of existing
environmental regulations, which the Company is subject to, may be promulgated
which may necessitate material capital expenditures on the part of the Company.
The Company is currently unable to estimate the extent of any capital
expenditures that may be required in the future to effect such compliance.
The Company is a defendant in a lawsuit with a previous customer in
connection with an aircraft maintenance service agreement, for the repair of an
aircraft and engine in which damages in excess of $1,000,000 against the Company
are claimed. Based upon legal proceedings, discovery to date, and the advice of
legal counsel management believes that the Company's liability, if any, will not
exceed $300,000 as a result of this action, and it is the Company's intention to
defend this suit vigorously.
13. MAJOR CUSTOMERS
Sales to one major unaffiliated customer during the year ended September 30,
1995, amounted to $34,779,000 representing approximately 18% of the Company's
net sales for such period. No one customer represented over 10% of sales for the
years ended September 30, 1993 and 1994 and for the six months ended March 31,
1995. Sales to two major unaffiliated customers during the six month period
ended March 31, 1996, amounted to $11,954,000 and $12,272,000, respectively,
representing approximately 10% each of the Company's net sales for such period.
Sales under government contracts and sub-contracts aggregated 21%, 20%, 14%,
13% and 13% of total net sales for the years ended September 30, 1993, 1994 and
1995 and for the six months ended March 31, 1995 and 1996, respectively.
Government contracts are customarily subject to cancellation or renegotiation at
the Government's election. However, the Company is not aware of any such actions
or pending actions that would have a material affect on the Company's financial
position or results of operations.
Sales to foreign customers aggregated 13%, 21%, 18%, 19% and 14% of total
net sales for the years ended September 30, 1993, 1994 and 1995 and for the six
months ended March 31, 1995 and 1996, respectively. The Company's customers are
located throughout the world, and those outside the United States are not
concentrated in any one geographic area.
F-21
<PAGE>
GREENWICH AIR SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE SIX MONTHS ENDED MARCH 31, 1995
AND 1996 IS UNAUDITED)
14. SUBSEQUENT EVENTS
On October 18, 1995, the Company filed with the Securities and Exchange
Commission a Registration Statement on Form S-3, registering the offering of
$1,050,000 principal amount of the Company's debentures and up to 341,138 shares
of Company common stock, by the holders of the Company's warrants (see note 10).
On November 7, 1995, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with GCL, the owner of 7,900,000 shares of the
Company's issued and outstanding capital stock. Such investment in the capital
stock of the Company constitutes substantially all the assets of GCL. The Merger
Agreement provides for the merger of GCL into the Company, with the Company
being the corporation surviving the Merger.
In the Merger, the Company will acquire and cancel 7,900,000 shares of its
common stock from GCL and, in turn, issue to GCL stockholders 7,900,620 new
shares (a net increase of 620 shares at payment for net other assets received)
from GCL.
Consummation of the Merger will require the approval of the stockholders of
the Company and GCL. The Board of Directors of the Company has set November 20,
1995 as the Record Date for a Special Meeting of the Stockholders of the Company
to be held on December 30, 1995 at the offices of the Company. Approval of the
Merger will require the affirmative vote of a majority of the Common Stock
outstanding. The merger will not have any significant impact on the Company's
financial position or results of operations.
On December 18, 1995, the Company's Board of Directors elected to declare a
cash dividend of $0.01 per share of common stock to stockholders of record as of
January 10, 1996, payable on January 30, 1996.
15. OTHER STATEMENT OF CASH FLOWS INFORMATION
Cash paid for interest was $2,819,769, $4,008,009, $7,072,199 , $2,162,672
and $3,571,135 in 1993, 1994 and 1995, and for the six months ended March 31,
1995 and 1996, respectively. Cash paid for income taxes was $115,000,
$1,576,000, $4,435,968, $928,982 and $3,687,056 in 1993, 1994 , 1995 and for the
six months ended March 31, 1995 and 1996, respectively.
In 1995 and for the six months ended March 31, 1996, $2,942,000 and
$10,496,000, respectively, of Convertible Subordinated Debentures were converted
into 502,890 and 1,794,126 shares of common stock, respectively. The related
unamortized deferred issue costs for the debentures converted of $(232,619) and
$(802,597) for 1995 and for the six months ended March 31, 1996, respectively,
were charged to additional paid in capital. The unamortized deferred issue costs
is determined as of the date of conversion.
In 1995 and during six months ended March 31, 1996, 18,000 and 56,296
shares, respectively, of the Company common stock were issued in connection with
the cashless exercise of warrants to purchase debentures and shares of common
stock (see note 10).
16. PROPOSED ACQUISITION AND STOCK DIVIDEND
On April 19, 1996, the Company signed a definitive purchase agreement to
acquire the engine service and engine components repair business of Aviall, Inc.
for $239 million, net of the value of certain liabilities to be assumed. The
transaction will be accounted for as purchase.
On April 26, 1996, the Company declared a dividend to its Class A Common
Stock holders of record of one share of its Class B Common Stock for each
outstanding share of Class A Common Stock. Retained earnings was charged $62,798
during the six months ended March 31, 1996 as a result of the
F-22
<PAGE>
GREENWICH AIR SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE SIX MONTHS ENDED MARCH 31, 1995
AND 1996 IS UNAUDITED)
16. PROPOSED ACQUISITION AND STOCK DIVIDEND (CONTINUED)
assumed issuance of the 6,279,841 shares of Class B Common Stock. All income per
share, dividend per share, common shares outstanding and price per share
information has been retroactively restated to reflect this stock dividend.
17. OTHER INFORMATION
The following information is being presented for (i) Greenwich Air Services,
Inc. ("GASI") on a stand-alone basis, (ii) its subsidiaries combined, and (iii)
the Company on a consolidated basis
<TABLE>
<CAPTION>
GASI SUBSIDIARIES CONSOLIDATED
---------------- ---------------- ----------------
<S> <C> <C> <C>
FOR THE YEAR ENDED SEPTEMBER 30, 1993:
Net sales................................................. $ 69,466,903 $ 69,466,903
Gross profit.............................................. 14,391,184 14,391,184
Income from operations.................................... 8,698,118 8,698,118
Net income................................................ 3,374,431 3,374,431
FOR THE YEAR ENDED SEPTEMBER 30, 1994:
Net sales................................................. 76,315,027 28,918,434 105,233,461
Gross profit.............................................. 11,302,306 5,957,487 17,259,793
Income from operations.................................... 5,767,322 4,486,656 10,253,978
Net income................................................ 1,433,006 1,913,322 3,346,328
Total assets (at period end).............................. 76,334,390 62,088,834 138,423,224
Total liabilities (at period end)......................... 50,284,807 60,175,513 110,460,320
FOR THE YEAR ENDED SEPTEMBER 30, 1995:
Net sales................................................. 120,692,808 75,626,914 196,319,722
Gross profit.............................................. 17,888,003 13,474,594 31,362,597
Income from operations.................................... 8,050,377 9,675,166 17,725,543
Net income................................................ 3,168,516 3,032,972 6,201,488
Total assets (at period end).............................. 119,255,188 66,364,817 185,620,005
Total liabilities (at period end)......................... 87,413,451 61,418,523 148,831,974
FOR THE SIX MONTHS ENDED MARCH 31, 1995 (UNAUDITED):
Net sales................................................. 52,265,701 30,880,837 83,146,538
Gross profit.............................................. 7,784,645 5,443,803 13,228,448
Income from operations.................................... 4,001,427 3,755,277 7,756,704
Net income................................................ 1,591,221 768,106 2,359,327
FOR THE SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED):
Net sales................................................. 81,893,574 36,731,298 118,624,872
Gross profit.............................................. 12,856,414 5,846,665 18,703,079
Income from operations.................................... 6,898,295 4,062,989 10,961,284
Net income................................................ 3,193,980 1,224,365 4,418,345
Total assets (at period end).............................. 139,141,200 49,156,884 188,298,084
Total liabilities (at period end)......................... 94,438,488 42,986,226 137,424,714
</TABLE>
F-23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of Aviall, Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations and changes in Aviall investment and of cash
flows present fairly, in all material respects, the financial position of the
Engine Services Division of Aviall, Inc. (the "Company") at December 31, 1994
and 1995, and the results of its operations and its cash flows for the years
then ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Dallas, Texas
April 10, 1996
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Aviall, Inc.:
We have audited the accompanying combined statements of operations and
changes in Aviall investment and cash flows of the Engine Services Division of
Aviall, Inc. (the "Company") for the year ended December 31, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of the Engine
Services Division of Aviall for the year ended December 31, 1993, in conformity
with generally accepted accounting principles.
As discussed in Notes 2 and 11 to the financial statements, the Company
changed its method of accounting for income taxes and postretirement benefits
other than pensions in 1993.
KPMG PEAT MARWICK LLP
Dallas, Texas
April 10, 1996
F-25
<PAGE>
AVIALL, INC.
ENGINE SERVICES DIVISION
COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN AVIALL INVESTMENT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales.................................................................. $ 482,938 $ 490,390 $ 504,755
Cost of sales.............................................................. 420,564 437,223 462,559
----------- ----------- -----------
Gross profit............................................................... 62,374 53,167 42,196
Operating and other expenses:
Selling and administrative expenses...................................... 30,006 35,391 30,046
Interest expense......................................................... 13,984 18,171 19,216
----------- ----------- -----------
43,990 53,562 49,262
----------- ----------- -----------
Earnings (loss) before income taxes and cumulative effect of change in
accounting................................................................ 18,384 (395) (7,066)
Provision for income taxes................................................. 8,928 4,012 2,714
----------- ----------- -----------
Earnings (loss) before cumulative effect of change in accounting........... 9,456 (4,407) (9,780)
Cumulative effect of change in accounting (net of income tax benefit of
$1,304)................................................................... 1,850 -- --
----------- ----------- -----------
Net earnings (loss)........................................................ $ 7,606 $ (4,407) $ (9,780)
----------- ----------- -----------
----------- ----------- -----------
Aviall investment:
Aviall investment at beginning of period................................. $ 347,383 $ 343,311 $ 390,888
Net earnings (loss)...................................................... 7,606 (4,407) (9,780)
Additional minimum pension liability..................................... -- -- (3,198)
Other changes in Aviall investment....................................... (11,678) 51,984 (30,124)
----------- ----------- -----------
Aviall investment at end of period....................................... $ 343,311 $ 390,888 $ 347,786
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to combined financial statements.
F-26
<PAGE>
AVIALL, INC.
ENGINE SERVICES DIVISION
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash.................................................................................. $ 1,369 $ 32
Receivables........................................................................... 117,824 96,082
Inventories........................................................................... 177,928 160,842
Prepaid expenses and other current assets............................................. 2,174 4,012
Deferred income taxes................................................................. 2,414 --
----------- -----------
Total current assets................................................................ 301,709 260,968
----------- -----------
Property, plant and equipment........................................................... 125,890 123,946
Intangible assets....................................................................... 67,621 66,712
Other assets............................................................................ 5,156 10,956
Deferred income taxes................................................................... -- 755
----------- -----------
Total assets........................................................................ $ 500,376 $ 463,337
----------- -----------
----------- -----------
LIABILITIES AND AVIALL INVESTMENT
Current liabilities:
Current portion of long-term debt..................................................... $ 6,596 $ 10,117
Accounts payable...................................................................... 49,876 50,713
Accrued expenses...................................................................... 19,237 23,942
Deferred income taxes................................................................. -- 760
----------- -----------
Total current liabilities........................................................... 75,709 85,532
----------- -----------
Long-term debt.......................................................................... 13,135 7,392
Other liabilities....................................................................... 7,107 10,741
Deferred income taxes................................................................... 13,537 11,886
Aviall investment....................................................................... 390,888 347,786
----------- -----------
Total liabilities and Aviall investment............................................. $ 500,376 $ 463,337
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to combined financial statements.
F-27
<PAGE>
AVIALL, INC.
ENGINE SERVICES DIVISION
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)....................................................... $ 7,606 $ (4,407) $ (9,780)
Depreciation and amortization............................................. 16,177 17,255 19,659
Deferred income taxes..................................................... (2,765) 2,949 (52)
Changes in:
Receivables............................................................. 1,419 (39,732) 21,234
Inventories............................................................. 30,189 10,572 9,354
Accounts payable........................................................ (29,539) 11,732 4,362
Accrued expenses........................................................ 2,022 (7,739) (48)
Other, net.............................................................. 948 (3,869) 271
---------- ---------- ----------
26,057 (13,239) 45,000
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................................... (14,501) (21,572) (13,246)
Sales of property, plant and equipment.................................... 1,274 1,499 1,004
Other, net................................................................ 2,510 (1,008) (1,702)
---------- ---------- ----------
(10,717) (21,081) (13,944)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in Aviall investment.............................. (14,994) 40,351 (30,171)
Net change in foreign revolving credit facility........................... (1,066) (527) 3,224
Debt repaid............................................................... (4,670) (5,041) (5,446)
---------- ---------- ----------
(20,730) 34,783 (32,393)
---------- ---------- ----------
Change in cash.............................................................. (5,390) 463 (1,337)
Cash, beginning of year..................................................... 6,296 906 1,369
---------- ---------- ----------
Cash, end of year........................................................... $ 906 $ 1,369 $ 32
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to combined financial statements.
F-28
<PAGE>
AVIALL, INC.
ENGINE SERVICES DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 -- BACKGROUND
Aviall, Inc.'s ("Aviall") engine services division (the "Division" or
"Engine Services") is engaged in the maintenance and overhaul of turbine engines
and components used primarily in commercial aviation and provides its services
on a worldwide basis through two major repair facilities in Dallas, Texas and
Prestwick, Scotland, supported by a components repair facility in McAllen,
Texas. The engine repair and components repair operations located in Dallas, Ft.
Worth and McAllen, Texas are U.S. divisions of Aviall Services, Inc., which is a
wholly owned subsidiary of Aviall. The Prestwick, Scotland engine repair
operation, or Aviall Limited ("Aviall Ltd"), is a wholly owned foreign
subsidiary of Aviall.
Based on a decision by the Aviall Board of Directors on January 24, 1996,
Aviall signed a letter of intent with Greenwich Air Services, Inc. ("GASI") for
the sale of the Division. Aviall expects to sign a definitive agreement in April
1996 and to complete the sale in 1996. In accordance with Accounting Principles
Board Opinion No. 30, Aviall recorded in its consolidated financial statements a
"discontinued operations" charge of $212.5 million as of December 31, 1995 to
reflect its estimate of the loss it will incur upon sale of the discontinued
operations, primarily related to the Division. These costs have not been
recorded in the separate Division 1995 financial statements since this
discontinued operations treatment is not appropriate at the Division level.
Direct costs approximating $55 million will be incurred by Aviall on behalf of
the Division and, accordingly, will be reflected in the Division's financial
statements in 1996. Upon completion of the sale, GASI will allocate its purchase
price in accordance with Accounting Principles Board Opinion No. 16 and thus
will establish different bases of certain assets and liabilities than are
reflected in these financial statements.
Aviall operated as a wholly owned subsidiary of Ryder System, Inc. ("Ryder")
until December 7, 1993 (the "Distribution Date"), when Ryder distributed Aviall
stock to Ryder shareholders (four shares to one share) as a tax free dividend
(the "Distribution"). The Distribution established Aviall as a publicly held
corporation separate from Ryder.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The accompanying combined financial statements
include the operations, assets and liabilities of the Division as a stand-alone
entity. The financial statements exclude Aviall's corporate assets and
liabilities not specifically identifiable to the Division, except for certain
prepaid expenses and accrued expenses which were allocated based on consistent
and reasonable allocation methods. All significant intercompany transactions and
accounts have been eliminated in combination. These financial statements are
presented on a combined rather than consolidated basis because the controlling
financial interest did not rest directly or indirectly in one of the businesses
included in these combined financial statements. Aviall Ltd has a fiscal year
end of November 30 to facilitate combination of its financial statements. The
fair value of current assets and liabilities approximates carrying value.
Principally due to the use of estimates and allocations, the financial
information included herein may not necessarily reflect the financial position
and results of operations of the Division in the future or what the financial
position and results of operations of the Division would have been had it been a
separate, stand-alone entity during the periods presented. Management does not
consider it practicable to estimate what the results of operations would have
been had the Division operated as a separate, stand-alone entity.
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement, actual results may
differ from estimated amounts.
F-29
<PAGE>
AVIALL, INC.
ENGINE SERVICES DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION. Income from engine maintenance services is recognized
at the time of performance test acceptance of engines (the "completed contract"
method). Revenue from long-term fixed-price contracts, such as
"power-by-the-hour" or "flat-rate" contracts, is recognized under the
"percentage-of-completion" method.
INVENTORIES. Inventories are valued at the lower of cost or market. Cost is
determined on the basis of average cost of materials and supplies and actual
cost for labor and overhead included in work-in-process. Provision is made for
estimated excess and obsolete inventories. All inventory available for sale
during the course of the normal business cycle has been included in current
assets.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are carried at
cost and depreciated over the estimated useful lives of the related assets using
the straight-line method. Lives assigned to asset categories are 10 to 20 years
for buildings and improvements and 5 to 12 years for machinery, equipment and
tooling.
INTANGIBLE ASSETS. Intangible assets, principally goodwill, are reported
net of accumulated amortization of $22.3 million in 1994 and $26.1 million in
1995. Goodwill represents the excess of the purchase price over the fair value
of the net assets acquired and is amortized using the straight-line method over
forty years.
The Division has reviewed the net realizable value of its intangible assets,
including goodwill, through an assessment of the estimated future cash flows
related to such assets and has concluded that there is no impairment of the net
carrying value.
ENVIRONMENTAL COSTS. A liability for environmental assessments and cleanup
is accrued when it is probable a loss has been incurred and is estimable.
Generally, the timing of these accruals coincides with the identification of an
environmental obligation through the Division's internal procedures or upon
notification from regulatory agencies.
FOREIGN EXCHANGE AND FORWARD EXCHANGE CONTRACTS. Aviall Ltd utilizes the
U.S. dollar as its functional currency. Translation gains and losses are
included in the Division's earnings. Aviall enters into forward exchange
contracts on behalf of the Division to hedge certain of its foreign currency
commitments. Gains and losses on forward contracts are recognized by the
Division concurrently with the related transaction gains and losses (see Note
3). Total translation and transaction gains or (losses) included in the
Division's earnings were $(3.4) million, $(0.5) million and $1.2 million in
1993, 1994 and 1995, respectively.
INCOME TAXES. The Division accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which was adopted effective January 1, 1993. The adoption was made on a
prospective basis and did not have a material impact on the Division for the
year ended December 31, 1993.
Prior to the Distribution Date, the Division was included in Ryder's
consolidated federal income tax return. Thereafter, the Division was included in
Aviall's consolidated federal income tax return. However, the income tax
provision of the Division was calculated as if the Division had filed a separate
consolidated federal income tax return (see Note 10).
IMPAIRMENT OF LONG-LIVED ASSETS. In March 1995, the Financial Accounting
Standards Board ("FASB") issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
effective for fiscal years beginning after December 15, 1995. FASB Statement No.
121 requires that long-lived assets be reviewed for impairment whenever events
or
F-30
<PAGE>
AVIALL, INC.
ENGINE SERVICES DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. The adoption of this statement in 1996 is not expected to have a
material effect on the Division's financial position or results of operations.
AVIALL INVESTMENT. Aviall investment represents Aviall's investment in the
Division and includes the Division's equity as well as its net payable to Aviall
resulting from cash and non-cash transfers and intercompany allocations.
NOTE 3 -- TRANSACTIONS WITH AVIALL
GENERAL AND ADMINISTRATIVE SERVICES. Aviall provided certain corporate
general and administrative services to the Division, including legal, treasury,
human resources and finance, among others. Prior to the Distribution, Ryder
provided certain corporate general and administrative services to Aviall. Costs
related to these services were allocated to the Division on a basis that
approximated either the proportional share of the Division's usage of the actual
services provided or a representative share of certain corporate fixed expenses.
Management believes these allocations are reasonable.
Total allocated expenses included in "Selling and Administrative Expenses"
in the accompanying Combined Statements of Operations were $10.9 million, $14.3
million and $16.0 million in 1993, 1994 and 1995, respectively. These historical
amounts are not necessarily representative of the costs that the Division would
have incurred as a stand-alone entity.
INTERCOMPANY FINANCING AND INTEREST EXPENSE. Aviall manages cash and
financing requirements of all its business segments. The accompanying Combined
Balance Sheets reflect Aviall's total investment in the Division, a portion of
which represents general corporate financing. Aviall has allocated its corporate
interest expense to the Division based on Aviall's average consolidated interest
rate applied to the debt portion of the "Aviall Investment" which was calculated
based on Aviall's consolidated debt to equity ratio. Information relating to
interest bearing advances from Aviall and related interest allocations is
presented below (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Interest-bearing advance at period end........................... $ 167,486 $ 196,743 $ 148,041
Average annual interest-bearing advance.......................... $ 168,796 $ 182,115 $ 172,392
Average annual interest rate..................................... 7.1% 8.9% 10.1%
</TABLE>
"Interest Expense" reflected in the Combined Statements of Operations does
not necessarily reflect the interest expense the Division would have incurred as
a stand-alone entity.
Because Aviall manages the cash and financing requirements of the Division,
it is not practicable to estimate cash paid for interest and income taxes.
CORPORATE INSURANCE AND EMPLOYEE BENEFIT PROGRAMS. The Division
participated in Aviall's combined risk management programs for property and
casualty insurance and certain employee health benefit programs, including
medical and dental benefits. The Division was charged amounts which primarily
represented an allocation of third party premiums and self-insured losses,
including estimates of claims incurred but not reported. Costs allocated under
these programs were $8.7 million, $7.8 million and $9.0 million in 1993, 1994
and 1995, respectively.
GUARANTEES OF DEBT BY AVIALL. "Long-Term Debt" reflected in the Combined
Balance Sheets is an obligation of Aviall Ltd. Aviall Ltd's debt with the
European Investment Bank ("EIB") is supported by letters of credit issued under
Aviall's credit facility. In addition, Aviall Ltd's L4.0 million (British
pounds) unsecured bank overdraft facility is guaranteed by Aviall.
F-31
<PAGE>
AVIALL, INC.
ENGINE SERVICES DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- TRANSACTIONS WITH AVIALL (CONTINUED)
SECURITY FOR AVIALL DEBT. On March 25, 1996, Aviall amended its credit
facilities to provide for a maturity date of April 30, 1997. The amended credit
facilities contain various covenants, including financial covenants, limitations
on debt and limitations on capital expenditures. In the absence of obtaining the
amended agreement, Aviall would have been in default of the financial covenants
of its previously outstanding credit facilities. Aviall's amended credit
facilities are secured by substantially all of the Division's domestic assets
and 65% of the stock of Aviall Ltd.
FORWARD EXCHANGE CONTRACTS. Aviall has forward exchange contracts in place
to minimize exposure from foreign exchange fluctuations for certain Aviall Ltd
British pound denominated expenditures and debt. Aviall does not use derivative
financial instruments for trading purposes. Aviall had foreign currency forward
contracts outstanding at December 31, 1994 and 1995 to purchase L21.4 million
and L11.9 million (British pounds), respectively, at various future dates
through September 1996. At December 31, 1994, contract exchange rates ranged
from U.S. $1.54/L1 to $1.60/L1 and at December 31, 1995, contract exchange rates
ranged from U.S. $1.53/L1 to $1.60/L1. At December 31, 1994 and 1995, the
estimated fair value of these contracts was $33.5 million and $18.4 million,
respectively, which approximates the contracts' nominal amounts. Although Aviall
is exposed to certain losses in the event of nonperformance by the financial
institutions which are counter parties to these forward exchange contracts, it
does not anticipate nonperformance.
NOTE 4 -- ACCOUNTS RECEIVABLE ALLOWANCES
The Division provides services to a wide variety of aviation-related
businesses, including several commercial airlines. Economic conditions within
the commercial airline industry have been weak over the past several years due
to a number of factors. Management believes that sufficient allowances for
doubtful accounts have been provided as of December 31, 1993, 1994 and 1995 in
relation to its total accounts receivable balance as of each date. However, the
Division would incur significant losses in the event of bankruptcy or
liquidation of one of its major customers. The following is a summary of the
accounts receivable allowances (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year.......................................... $ 2,854 $ 2,441 $ 3,917
Provision for doubtful accounts....................................... 2,707 3,504 1,265
Write-off of doubtful accounts, net of recoveries..................... (3,120) (2,028) (2,399)
--------- --------- ---------
Balance at end of year................................................ $ 2,441 $ 3,917 $ 2,783
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 5 -- INVENTORIES
<TABLE>
<CAPTION>
1994 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Repair parts.................................................................. $ 154,811 $ 134,099
Work-in-process............................................................... 36,534 34,068
----------- -----------
191,345 168,167
Reserves for excess and obsolete inventories.................................. (13,417) (7,325)
----------- -----------
$ 177,928 $ 160,842
----------- -----------
----------- -----------
</TABLE>
F-32
<PAGE>
AVIALL, INC.
ENGINE SERVICES DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- INVENTORIES (CONTINUED)
The following is a summary of the reserve for excess and obsolete
inventories (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year......................................... $ 12,176 $ 10,363 $ 13,417
Provision for excess and obsolete inventory.......................... 3,062 5,055 1,956
Write-off of excess and obsolete inventory........................... (4,875) (2,001) (8,048)
--------- --------- ---------
Balance at end of year............................................... $ 10,363 $ 13,417 $ 7,325
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 6 -- LONG-TERM ENGINE MAINTENANCE CONTRACTS
The Division is a party to several long-term engine maintenance contracts
with customers for specified engine fleets over specific periods of time. These
contracts, with remaining terms at December 31, 1995 of one to three years, use
long-term contract accounting which requires various estimates to predict the
contract profitability over the life of the contract. Revenues are recognized
upon test acceptance based on rates per hour (power-by-the-hour) applied to each
completed engine's hours flown since last shop visit. Customers are billed
monthly for fleet hours flown during the period. Costs are recognized for
completed engines based on an average gross margin assumption over the life of
the contract.
Estimates used include failure removal rates, productivity changes, overhaul
cost projections and customer and fleet specific variables. Changes to these
estimates and the resulting cumulative contract-to-date catchup adjustments may
result in material changes to profitability in any given time period. During
1995, negative operating results produced a cumulative contract-to-date catchup
adjustment of $5.9 million. The current estimates used represent management's
best estimate of expected future contract results based on available
information. Actual results could differ significantly (positive or negative)
from estimates currently used should operating performance or other factors
change.
The balance sheet components associated with these long-term contracts
include deferred receivables, costs, charges and revenues. Deferred receivable
is the contract-to-date cumulative variance between the amounts invoiced at
contract rates and the average rate over the contract's life. Deferred cost is
the cumulative difference between the costs projected to date based on the total
estimated contract profitability and the actual costs incurred to date. This
amount is classified according to the remaining term of the related contract.
Deferred charge (revenue) is the cumulative variance between the fleet hours
flown at the contract rate per hour and the revenue recognized to date.
The following table sets forth the balance sheet components of the
Division's long-term engine maintenance contracts:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Current deferred receivable....................................................... $ 1,051 $ 5,413
Current deferred cost............................................................. -- 506
Long-term deferred cost........................................................... 4,828 7,231
Current deferred charge........................................................... 51 848
Long-term deferred charge (revenue)............................................... (633) 3,323
--------- ---------
$ 5,297 $ 17,321
--------- ---------
--------- ---------
</TABLE>
F-33
<PAGE>
AVIALL, INC.
ENGINE SERVICES DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1994 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Land.......................................................................... $ 5,985 $ 5,985
Buildings and improvements.................................................... 49,724 50,836
Machinery and equipment....................................................... 124,524 135,257
Rental engines................................................................ 20,658 19,343
Capital projects in progress.................................................. 4,062 4,203
----------- -----------
204,953 215,624
Accumulated depreciation...................................................... (79,063) (91,678)
----------- -----------
$ 125,890 $ 123,946
----------- -----------
----------- -----------
</TABLE>
NOTE 8 -- ACCRUED EXPENSES
<TABLE>
<CAPTION>
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Salaries, wages and benefits..................................................... $ 5,592 $ 7,215
Ad valorem and other taxes....................................................... 2,790 5,269
Self-insurance reserve........................................................... 3,339 4,216
Current income taxes............................................................. 1,813 1,516
Other............................................................................ 5,703 5,726
--------- ---------
$ 19,237 $ 23,942
--------- ---------
--------- ---------
</TABLE>
Salaries, wages and benefits, ad valorem and other taxes, and the
self-insurance reserve were allocated to the Division based on headcount, which
management believes is a reasonable allocation method.
NOTE 9 -- DEBT
<TABLE>
<CAPTION>
1994 1995
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
Loan A.......................................................................... $ 2,624 $ 1,350
Loan B.......................................................................... 2,655 1,371
Loan C.......................................................................... 13,302 10,414
Overdraft Facility.............................................................. 1,150 4,374
--------- ----------
19,731 17,509
Less current portion............................................................ (6,596) (10,117)
--------- ----------
$ 13,135 $ 7,392
--------- ----------
--------- ----------
</TABLE>
The Division's financing is provided primarily by Aviall's credit
facilities. In addition, Aviall Ltd has borrowings directly from financial
institutions in the United Kingdom. Aviall Ltd's credit facilities consist of
(1) two ten-year amortizing unsecured term loans with the EIB payable
semiannually through 1996 ("Loan A and Loan B"); (2) a ten-year amortizing
unsecured term loan with the EIB payable semiannually through 1998 ("Loan C");
and (3) a L4.0 million unsecured overdraft facility with a bank payable on
demand (the "Overdraft Facility").
F-34
<PAGE>
AVIALL, INC.
ENGINE SERVICES DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- DEBT (CONTINUED)
The interest rates on Loan A and Loan B are 7% and 7.5%, respectively, and
the interest rate on Loan C is 9.3%. Borrowings under the Overdraft Facility
bear interest at the London Interbank Offering Rate plus 1.625%.
Scheduled debt maturities for years subsequent to December 31, 1995 are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
- ---------------------------------------------------------------------------------------------
<S> <C>
1996......................................................................................... $ 10,117
1997......................................................................................... 3,464
1998......................................................................................... 3,928
---------
$ 17,509
---------
---------
</TABLE>
If the transaction described in Note 1 is completed, it is likely the EIB
loans will be repaid in 1996. At December 31, 1994 and 1995, the estimated fair
value of the Division's debt approximated the outstanding net book value.
NOTE 10 -- INCOME TAXES
Prior to the Distribution Date, the Division was included in Ryder's
consolidated federal income tax return. Thereafter, the Division was included in
Aviall's consolidated federal income tax return.
For the periods presented, the income tax provision has been determined as
if the Division was a stand-alone entity filing a separate tax return, with the
exception of the treatment of Net Operating Losses (NOL's). In connection with
the Distribution, Ryder and Aviall entered into a tax sharing agreement which
provided for the payment of taxes and receipt of tax refunds for periods up
through the Distribution Date and provided for various administrative matters.
Because of the terms of this agreement, Aviall elected to carry forward its
subsequent NOL's. Similarly, the tax provision for the Division has been
determined assuming no carry back of the 1994 and 1995 NOL's.
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current tax expense:
Federal.............................................................. $ 7,622 $ -- $ --
State................................................................ 486 -- --
Foreign.............................................................. 2,281 1,063 2,766
--------- --------- ---------
10,389 1,063 2,766
--------- --------- ---------
Deferred tax expense (benefit):
Federal.............................................................. (2,928) 2,529 --
State................................................................ (200) (260) --
Foreign.............................................................. 363 680 (52)
--------- --------- ---------
(2,765) 2,949 (52)
--------- --------- ---------
Provision for income taxes............................................. $ 7,624 $ 4,012 $ 2,714
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-35
<PAGE>
AVIALL, INC.
ENGINE SERVICES DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- INCOME TAXES (CONTINUED)
A reconciliation of expected statutory tax expense (benefit) using the
federal statutory tax rate of 35% to actual tax expense follows:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Expected statutory tax expense (benefit)............................... $ 6,434 $ (138) $ (2,473)
Change in valuation allowance, principally U.S. losses not
benefitted............................................................ -- 3,924 4,355
Amortization and write-off of goodwill................................. 626 626 626
State income taxes, net of federal income tax benefit.................. 186 (168) (293)
Foreign rate differential.............................................. (205) (172) 99
Fuel tax credit........................................................ (37) (103) (95)
U.K. group relief adjustment........................................... -- (332) --
Transfer of stock in foreign subsidiary................................ 1,969 -- --
Change in accounting method............................................ (1,304) -- --
Miscellaneous items, net............................................... (45) 375 495
--------- --------- ---------
Actual tax expense..................................................... $ 7,624 $ 4,012 $ 2,714
--------- --------- ---------
--------- --------- ---------
</TABLE>
The effect of the increase in the federal income tax rate on the Division's
deferred income tax liability as of January 1, 1993 was not material to the
results of operations for the year ended December 31, 1993.
The significant temporary differences which gave rise to deferred income
taxes as of December 31, 1994 and 1995 were as follows:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax assets:
Loss carry forward........................................................... $ 7,288 $ 13,922
Inventory related items...................................................... 2,657 1,396
Accounts receivable allowances............................................... 389 125
Other items.................................................................. 7,177 7,574
---------- ----------
17,511 23,017
Valuation allowance............................................................ (3,924) (8,279)
---------- ----------
Net deferred income tax assets................................................. 13,587 14,738
---------- ----------
Deferred income tax liabilities:
Property and equipment basis differences..................................... (19,242) (18,620)
Other items.................................................................. (5,468) (8,009)
---------- ----------
Deferred income tax liabilities................................................ (24,710) (26,629)
---------- ----------
Net deferred income tax liability.............................................. $ (11,123) $ (11,891)
---------- ----------
---------- ----------
</TABLE>
Aviall has an NOL carryforward for U.S. income tax purposes related to the
Division of $41.1 million expiring in 2009 and 2010. Based on historical
earnings levels, the Division believes that near term taxable income may not be
sufficient to realize all deferred tax assets, including the NOL's. Accordingly,
a valuation allowance has been established to reflect the amount of deferred tax
assets considered realizable. The Division's NOL carryforward will not transfer
to the buyer.
F-36
<PAGE>
AVIALL, INC.
ENGINE SERVICES DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- INCOME TAXES (CONTINUED)
Deferred taxes have not been provided on temporary differences related to
the Division's investment in Aviall Ltd. These temporary differences consist
primarily of undistributed earnings of $31.7 million and $36.0 million at
December 31, 1994 and 1995, respectively. These earnings could become subject to
additional tax if they were remitted as dividends to the U.S. parent. It is not
practicable to estimate the amount of additional tax that might be payable on
the foreign earnings.
NOTE 11 -- PENSION PLANS AND POSTRETIREMENT BENEFITS
PENSION PLANS. Substantially all employees are covered by defined benefit
plans maintained by Aviall, or Ryder for the period prior to the Distribution.
Pension expense includes an allocation of amounts related to the plans
maintained by Aviall as well as, for 1993, amounts allocated and charged to
Aviall by Ryder for participants in the Ryder System, Inc. Retirement Plan
("Ryder Salaried Plan").
Aviall's primary plan ("Aviall Pension Plan") provides benefits for
domestic, non-union employees for services subsequent to the Distribution. These
employees of Aviall were given credit under the Aviall Pension Plan for prior
service in the Ryder Salaried Plan. Ryder retained the pension fund assets and
accumulated benefit obligation related to participants in the Ryder Salaried
Plan for services rendered through the Distribution Date.
In addition to the Aviall Pension Plan, Aviall maintains two defined benefit
pension plans directly attributable to the Division: a U.S. plan covering
certain union employees and a plan for employees of Aviall Ltd in the United
Kingdom. The benefits for these plans are based upon years of service for the
domestic plan and a final-pay benefit formula for the United Kingdom plan. The
funding policy for these plans is to contribute such amounts as are necessary on
an actuarial basis to provide the plans with sufficient assets to meet the
benefits payable to plan participants. The plans' assets are primarily invested
in equities and interest-bearing accounts.
The following tables reflect the components of net pension expense and the
funded status for the two plans directly attributable to the Division (in
thousands):
NET PENSION EXPENSE
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost -- benefits earned during the year................................. $ 1,937 $ 2,585 $ 1,724
Interest cost on projected benefit obligation................................... 1,605 1,863 2,465
Actual return on plan assets.................................................... (2,750) 223 (3,084)
Net amortization and deferral................................................... 637 (2,829) 1,379
--------- --------- ---------
Net pension expense............................................................. $ 1,429 $ 1,842 $ 2,484
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-37
<PAGE>
AVIALL, INC.
ENGINE SERVICES DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- PENSION PLANS AND POSTRETIREMENT BENEFITS (CONTINUED)
FUNDED STATUS
<TABLE>
<CAPTION>
1994 1995
-------------------- --------------------
ASSETS BENEFITS ASSETS BENEFITS
EXCEED EXCEED EXCEED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Plan assets at fair value.......................................... $ 19,030 $ 3,914 $ 23,607 $ 5,656
--------- --------- --------- ---------
Actuarial present value of benefit obligations:
Vested benefits.................................................. 12,953 6,469 16,819 11,909
Nonvested benefits............................................... 136 352 178 1,819
--------- --------- --------- ---------
Accumulated benefit obligation................................... 13,089 6,821 16,997 13,728
Additional benefits based on projected future salary increases... 4,979 -- 6,464 --
--------- --------- --------- ---------
Projected benefit obligation....................................... 18,068 6,821 23,461 13,728
--------- --------- --------- ---------
Plan assets greater (less) than projected benefit obligation....... 962 (2,907) 146 (8,072)
Unrecognized net (gains) losses.................................... (199) 241 876 3,209
Unrecognized prior service cost.................................... 23 1,681 20 4,318
Unrecognized transition amount..................................... -- 597 -- 498
--------- --------- --------- ---------
Prepaid (accrued) pension expense.................................. $ 786 $ (388) $ 1,042 $ (47)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Separate calculations of the components of net pension expense for employees
of the Division covered by the Aviall Pension Plan and the Ryder Salaried Plan,
as well as the Division's funded status within such plans, are not available.
Pension expense included in the Combined Statements of Operations includes
amounts allocated to the Division by both Aviall and Ryder, based on headcount,
of approximately $0.3 million, $0.7 million and $0.7 million in 1993, 1994 and
1995, respectively.
In accordance with the provisions of Statement of Financial Accounting
Standards No. 87, "Employers' Accounting for Pensions," the Division has
recorded an additional minimum liability at December 31, 1994 and 1995
representing the excess of the accumulated benefit obligation over the fair
value of plan assets and accrued pension liability. The additional liability has
been offset by intangible assets to the extent of previously unrecognized prior
service cost. Amounts in excess of previously unrecognized prior service cost
were recorded as a $3.2 million reduction in Aviall investment.
The following table sets forth the year end actuarial assumptions used in
the accounting for the two plans directly attributable to the Division:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Discount rate for determining projected benefit obligation:
Domestic........................................................................... 8.75% 7.00%
Foreign............................................................................ 9.00% 8.00%
Rate of increase in compensation levels:
Domestic........................................................................... 4.50% 4.50%
Foreign............................................................................ 6.50% 5.50%
Expected long-term rate of return on plan assets:
Domestic........................................................................... 7.75% 7.75%
Foreign............................................................................ 9.50% 9.50%
</TABLE>
F-38
<PAGE>
AVIALL, INC.
ENGINE SERVICES DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- PENSION PLANS AND POSTRETIREMENT BENEFITS (CONTINUED)
Actuarial gains and losses and plan amendments are amortized over the
average remaining service lives of participants expected to receive benefits and
transition amounts are amortized over 13 to 19 years.
Aviall also maintains a qualified defined contribution plan. Contribution
expense allocated to the Division by Aviall, based on headcount, amounted to
$0.2 million, $0.2 million and $0.2 million in 1993, 1994 and 1995,
respectively.
POSTRETIREMENT BENEFITS. Aviall maintains plans which provide retired
employees with certain health care and life insurance benefits. Substantially
all domestic employees are eligible for these benefits. Generally, these plans
require employee contributions, limit company contributions to $95 per month for
nonunion employees and provide for a $10,000 lifetime maximum benefit for union
employees. Effective January 1, 1993, Aviall adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." As a result, approximately $1.9 million, net of taxes, was
allocated to the Division and recorded as the cumulative effect of a change in
accounting principle to establish a liability for the present value of expected
future benefits attributed to employees' service rendered prior to January 1,
1993. Periodic postretirement benefit expense included in the Combined
Statements of Operations includes amounts allocated to the Division by Aviall,
based on headcount, of approximately $0.3 million, $0.4 million and $0.3 million
in 1993, 1994 and 1995, respectively. Separate calculations of the components of
net periodic postretirement benefit expense and the unfunded status for the
Division are not available.
NOTE 12 -- ENVIRONMENTAL MATTERS
The Division uses certain chemicals classified by various state and federal
agencies as hazardous substances. Aviall is involved in various stages of
investigation and cleanup to comply with state and federal regulations at
facilities operated by the Division. These financial statements have been
prepared on the basis of the Division operating as a stand-alone going concern
entity and accordingly do not reflect environmental exit costs expected to be
incurred by Aviall. Such costs will be accrued by the Division in 1996 to
reflect Aviall's decision to sell the Division.
Aviall has been named a potentially responsible party ("PRP") under the
Comprehensive Environmental Response, Compensation and Liability Act and the
Superfund Amendments and Reauthorization Act at four third-party disposal sites
to which wastes were allegedly sent by the previous owner of assets used by the
Division. Aviall did not use the identified disposal sites. Accordingly, the
previous owner has retained, and has been discharging, all liability associated
with the cleanup of these sites pursuant to the sales agreement. Although Aviall
could be potentially liable in the event of nonperformance by the previous
owner, it does not anticipate nonperformance. Based on this information, neither
Aviall nor the Division has accrued any costs associated with third party sites.
At December 31, 1994 and 1995, accrued environmental liabilities related to
the ongoing operations of the Division amounted to $1.1 million and $0.8
million, respectively. Total environmental expense included in earnings amounted
to $0.9 million and $0.7 million in 1993 and 1994, respectively and was
immaterial in 1995. The Division's probable environmental loss estimates are
based on information obtained from independent environmental engineers and from
Division experts regarding the nature and extent of environmental contamination,
remediation alternatives available, and the cleanup criteria required by
relevant governmental agencies. The estimated costs include anticipated site
testing, consulting, remediation, disposal, post-remediation monitoring and
legal fees as appropriate, based on available information. These amounts
represent the undiscounted costs to fully resolve the environmental matters in
accordance with prevailing federal, state and local requirements.
F-39
<PAGE>
AVIALL, INC.
ENGINE SERVICES DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- ENVIRONMENTAL MATTERS (CONTINUED)
Based on information presently available and Division programs to detect and
minimize contamination, management believes the ultimate disposition of these
matters, although potentially material to the results of operations in any one
year, will not have a material affect on the Division's financial condition or
cash flows.
NOTE 13 -- COMMITMENTS AND CONTINGENCIES
The Division leases certain facilities and equipment under agreements which
are classified as operating leases. Rental expense under these leases was $0.9
million, $1.1 million and $0.9 million in 1993, 1994 and 1995, respectively.
Future minimum payments under non-cancelable operating leases with initial or
remaining terms of one year or more at the end of 1995 are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING
- ------------------------------------------------------------------------------------
<S> <C>
1996................................................................................ $ 806
1997................................................................................ 824
1998................................................................................ 790
1999................................................................................ 673
2000................................................................................ 624
Thereafter.......................................................................... 1,963
---------
Total minimum lease payments.................................................... $ 5,680
---------
---------
</TABLE>
The Division is a party to various claims, legal actions and complaints
arising in the ordinary course of business. Management believes that the
disposition of these matters will not have a material impact on the financial
condition or cash flows of the Division.
NOTE 14 -- OTHER INFORMATION
The Division operates in the aviation industry and reports its activities as
one business segment. The Division's foreign sales and pretax earnings eminate
entirely from its repair facility in Prestwick, Scotland. Financial information
by geographic area follows (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales:
United States.................................................. $ 277,944 $ 289,586 $ 294,459
United Kingdom................................................. 204,994 200,804 210,296
----------- ----------- -----------
$ 482,938 $ 490,390 $ 504,755
----------- ----------- -----------
----------- ----------- -----------
Earnings (loss) before income taxes and cumulative effect of
change in accounting:
United States.................................................. $ 11,091 $ (9,346) $ (13,362)
United Kingdom................................................. 7,293 8,951 6,296
----------- ----------- -----------
$ 18,384 $ (395) $ (7,066)
----------- ----------- -----------
----------- ----------- -----------
Identifiable assets:
United States.................................................. $ 277,049 $ 293,245 $ 255,208
United Kingdom................................................. 205,206 207,131 208,129
----------- ----------- -----------
$ 482,255 $ 500,376 $ 463,337
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-40
<PAGE>
AVIALL, INC.
ENGINE SERVICES DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 -- OTHER INFORMATION (CONTINUED)
Sales to customers in excess of 10% of total net sales were as follows:
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
USAir............................................................ $ 76,872 $ 77,447 $ 98,063
Continental Airlines............................................. 133,298 112,282 83,952
Southwest Airlines............................................... 32,244 53,554 62,722
All others....................................................... 240,524 247,107 260,018
----------- ----------- -----------
$ 482,938 $ 490,390 $ 504,755
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-41
<PAGE>
AVIALL, INC.
ENGINE SERVICES DIVISION
COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN AVIALL INVESTMENT
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
Net sales............................................................................... $ 120,572 $ 134,745
Cost of sales........................................................................... 106,734 126,863
----------- -----------
Gross profit............................................................................ 13,838 7,882
Operating and other expenses:
Selling and administrative expenses................................................... 7,597 8,792
Restructuring costs................................................................... -- 39,567
Interest expense...................................................................... 5,415 4,283
----------- -----------
Earnings (loss) before income taxes..................................................... 826 (44,760)
Provision for income taxes.............................................................. 463 243
----------- -----------
Net earnings (loss)..................................................................... $ 363 $ (45,003)
----------- -----------
----------- -----------
Aviall investment:
Aviall investment at beginning of period.............................................. $ 390,888 $ 347,786
Net earnings (loss)................................................................... 363 (45,003)
Other changes in Aviall investment.................................................... (26,045) (1,954)
----------- -----------
Aviall investment at end of period.................................................... $ 365,206 $ 300,829
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to combined financial statements.
F-42
<PAGE>
AVIALL, INC.
ENGINE SERVICES DIVISION
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
1995
-------------- MARCH 31,
1996
------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash.............................................................................. $ 32 $ 30
Receivables....................................................................... 96,082 109,249
Inventories....................................................................... 160,842 151,739
Prepaid expenses and other current assets......................................... 4,012 3,729
-------------- ------------
Total current assets............................................................ 260,968 264,747
-------------- ------------
Property, plant and equipment....................................................... 123,946 120,040
Intangible assets................................................................... 66,712 65,454
Other assets........................................................................ 10,956 12,797
Deferred income taxes............................................................... 755 --
-------------- ------------
Total assets.................................................................... $ 463,337 $ 463,038
-------------- ------------
-------------- ------------
LIABILITIES AND AVIALL INVESTMENT
Current liabilities:
Current portion of long-term debt................................................. $ 10,117 $ 10,701
Accounts payable.................................................................. 50,713 58,529
Accrued expenses.................................................................. 23,942 23,619
Accrued restructuring costs....................................................... -- 39,567
Deferred income taxes............................................................. 760 --
-------------- ------------
Total current liabilities....................................................... 85,532 132,416
-------------- ------------
Long-term debt...................................................................... 7,392 7,253
Other liabilities................................................................... 10,741 10,649
Deferred income taxes............................................................... 11,886 11,891
Aviall investment................................................................... 347,786 300,829
-------------- ------------
Total liabilities and Aviall investment......................................... $ 463,337 $ 463,038
-------------- ------------
-------------- ------------
</TABLE>
See accompanying notes to combined financial statements.
F-43
<PAGE>
AVIALL, INC.
ENGINE SERVICES DIVISION
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss).................................................................... $ 363 $ (45,003)
Restructuring costs.................................................................... -- 39,567
Depreciation and amortization.......................................................... 4,741 5,123
Changes in:
Receivables.......................................................................... 14,947 (8,865)
Inventories.......................................................................... (198) 5,431
Accounts payable..................................................................... (4,400) (2,291)
Accrued expenses..................................................................... 4,198 (323)
Other, net........................................................................... (4,745) (1,647)
---------- ----------
14,906 (8,008)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................................... (4,093) (1,444)
Sales of property, plant and equipment................................................. 187 77
Other, net............................................................................. (294) (2)
---------- ----------
(4,200) (1,369)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in Aviall investment........................................... (10,328) 8,930
Net change in foreign revolving credit facility........................................ 3,330 445
---------- ----------
(6,998) 9,375
---------- ----------
Change in cash........................................................................... 3,708 (2)
Cash, beginning of period................................................................ 1,369 32
---------- ----------
Cash, end of period...................................................................... $ 5,077 $ 30
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to combined financial statements.
F-44
<PAGE>
AVIALL, INC.
ENGINE SERVICES DIVISION
NOTES TO UNAUDITED COMBINED 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 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 and
should be read in conjunction with Aviall, Inc. Engine Services Division
combined financial statements and notes thereto for the year ended December 31,
1995. 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, 1996 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1996.
NOTE 2 -- RESTRUCTURING COSTS
Based on a decision by the Aviall, Inc. ("Aviall") Board of Directors on
January 24, 1996, Aviall signed a definitive agreement on April 19, 1996 to sell
the engine services division ("Division") to Greenwich Air Services, Inc. and
expects to complete the sale in 1996. Accordingly, income taxes have been
calculated on a discrete period basis. In accordance with Accounting Principles
Board Opinion No. 30, Aviall recorded in its consolidated financial statements a
"discontinued operations" charge of $212.5 million as of December 31, 1995 to
reflect its estimate of the loss it will incur upon sale of the discontinued
operations, primarily related to the Division. These costs were not recorded in
the separate Division 1995 financial statements since this discontinued
operations treatment is not appropriate at the Division level. Restructuring
costs approximating $55 million, incurred by Aviall on behalf of the Division,
will be reflected in the Division's financial statements in 1996. The combined
financial statements for the three months ended March 31, 1996 include $39.6
million of such expenses.
NOTE 3 -- INVENTORIES
<TABLE>
<CAPTION>
DECEMBER
31, MARCH 31,
1995 1996
----------- -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Repair parts............................................... $ 134,099 $ 123,723
Work-in-process............................................ 34,068 37,121
----------- -----------
168,167 160,844
----------- -----------
Reserves for excess and obsolete inventories............... (7,325) (9,105)
----------- -----------
$ 160,842 $ 151,739
----------- -----------
----------- -----------
</TABLE>
F-45
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholder of Aviall Limited
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of shareholder's equity and of cash flows
present fairly, in all material respects, the financial position of Aviall
Limited and its subsidiaries (the "Company") at November 30, 1994 and 1995, and
the results of their operations and their cash flows for the years then ended,
in conformity with United States generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards in the United Kingdom and the United
States which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
Chartered Accountants
Glasgow, Scotland
May 14, 1996
F-46
<PAGE>
AVIALL LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Net sales............................................................................ $ 204,505 $ 217,120
Cost of sales........................................................................ 178,224 193,736
----------- -----------
Gross profit......................................................................... 26,281 23,384
Operating and other expenses:
Selling and administrative expenses................................................ 12,099 9,784
Interest expense................................................................... 6,080 7,143
----------- -----------
18,179 16,927
Earnings before income taxes......................................................... 8,102 6,457
Provision for income taxes........................................................... 2,825 2,714
----------- -----------
Net earnings......................................................................... $ 5,277 $ 3,743
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-47
<PAGE>
AVIALL LIMITED
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
NOVEMBER 30,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash.................................................................................. $ 1,755 $ 359
Receivables........................................................................... 49,069 63,815
Inventories........................................................................... 87,306 74,049
Prepaid expenses and other current assets............................................. 982 1,313
----------- -----------
Total current assets.................................................................... 139,112 139,536
Property, plant and equipment........................................................... 48,572 51,650
Intangible assets....................................................................... 21,310 20,649
----------- -----------
Total assets...................................................................... $ 208,994 $ 211,835
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt..................................................... $ 6,596 10,117
Accounts payable...................................................................... 33,971 46,198
Accrued expenses...................................................................... 6,782 6,866
----------- -----------
Total current liabilities......................................................... 47,349 63,181
----------- -----------
Long-term debt.......................................................................... 13,135 7,392
Due to Aviall........................................................................... 51,625 39,454
Deferred income taxes................................................................... 10,706 11,886
Shareholder's equity (includes A Ordinary Shares of L1.00 par value with shares
outstanding at November 30, 1994 and 1995 - 1,000,000 and B Ordinary Shares of $1.00
par value with shares outstanding at November 30, 1994 and 1995 - 22,069,272).......... 86,179 89,922
----------- -----------
Total liabilities and shareholder's equity........................................ $ 208,994 $ 211,835
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-48
<PAGE>
AVIALL LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
At November 30, 1993.............................................. $ 23,632 $ 30,399 $ 26,871 $ 80,902
Net earnings...................................................... -- -- 5,277 5,277
--------- ----------- --------- ---------
At November 30, 1994.............................................. 23,632 30,399 32,148 86,179
Net earnings...................................................... -- -- 3,743 3,743
--------- ----------- --------- ---------
At November 30, 1995.............................................. $ 23,632 $ 30,399 $ 35,891 $ 89,922
--------- ----------- --------- ---------
--------- ----------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-49
<PAGE>
AVIALL LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER
30,
---------------------
1994 1995
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings............................................................................ $ 5,277 $ 3,743
Depreciation and amortization........................................................... 5,435 5,634
Deferred income taxes................................................................... 240 (52)
Changes in:
Receivables........................................................................... (7,351) (14,746)
Inventories........................................................................... (7,233) 13,257
Accounts payable...................................................................... 5,331 12,228
Accrued expenses...................................................................... 5,231 1,568
Other, net............................................................................ 181 (661)
--------- ----------
7,111 20,971
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................................................... (6,821) (8,092)
Sales of property, plant and equipment.................................................. 148 150
Other, net.............................................................................. 44 (27)
--------- ----------
(6,629) (7,969)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in Due to Aviall................................................ 5,986 (12,176)
Net change in revolving credit facility................................................. (527) 3,224
Debt repaid............................................................................. (5,041) (5,446)
--------- ----------
418 (14,398)
--------- ----------
Change in cash............................................................................ 900 (1,396)
Cash, beginning of year................................................................... 855 1,755
--------- ----------
Cash, end of year......................................................................... $ 1,755 $ 359
--------- ----------
--------- ----------
CASH PAID FOR INTEREST AND INCOME TAXES:
Interest................................................................................ $ 2,740 $ 2,068
Income taxes............................................................................ $ 596 $ 1,665
</TABLE>
See accompanying notes to consolidated financial statements.
F-50
<PAGE>
AVIALL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BACKGROUND
Aviall Limited (the "Company") is engaged in the maintenance and overhaul of
turbine engines used primarily in commercial aviation and provides its services
on a worldwide basis. The engine repair operation located in Prestwick, Scotland
is a wholly owned United Kingdom foreign subsidiary of Aviall, Inc. ("Aviall").
Based on a decision by the Aviall Board of Directors on January 24, 1996,
Aviall signed a letter of intent with Greenwich Air Services, Inc. ("GASI") for
the sale of its commercial engine services business which includes the Company.
A definitive agreement was signed on April 19, 1996. The sale is expected to be
completed in 1996. In accordance with Accounting Principles Board Opinion No.
30, Aviall recorded in its consolidated financial statements a "discontinued
operations" charge of $212.5 million as of December 31, 1995 to reflect its
estimate of the loss it will incur upon the sale of the discontinued commercial
engine services operations. The Company has not recorded in its 1995 financial
statements any amounts included in the charge related to the Company since this
discontinued operations treatment is not appropriate at this level. Direct costs
approximating $3.7 million will be incurred by Aviall on behalf of the Company
and, accordingly, will be reflected in the Company's financial statements in
1996. Upon completion of the sale, GASI will allocate its purchase price in
accordance with Accounting Principles Board Opinion No. 16 and thus will
establish different bases of certain assets and liabilities than are reflected
in these financial statements.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation. The Company's
fiscal year ends on November 30. The accompanying financial statements are
prepared in U.S. dollars. The fair value of current assets and liabilities
approximates carrying value.
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement, actual results may
differ from estimated amounts.
REVENUE RECOGNITION. Income from engine maintenance services is recognized
at the time of performance test acceptance of engines (the "completed contract"
method). Revenue from long-term fixed-price contracts, such as
"power-by-the-hour" or "flat-rate" contracts, is recognized under the
"percentage-of-completion" method.
INVENTORIES. Inventories are valued at the lower of cost or market. Cost is
determined on the basis of average cost of materials and supplies and actual
cost for labor and overhead included in work-in-process. Provision is made for
estimated excess and obsolete inventories. All inventory available for sale
during the course of the normal business cycle has been included in current
assets.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are carried at
cost and depreciated over the estimated useful lives of the related assets using
the straight-line method. Lives assigned to asset categories are 40 years for
buildings and improvements and 4 to 15 years for machinery, equipment and
tooling.
INTANGIBLE ASSETS. Goodwill is reported net of accumulated amortization of
$5.2 million and $5.9 million as of November 30, 1994 and 1995, respectively.
Goodwill represents the excess of the purchase price over the fair value of the
net assets acquired and is amortized using the straight-line method over forty
years.
F-51
<PAGE>
AVIALL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company has reviewed the net realizable value of its goodwill through an
assessment of the estimated future cash flows related to such assets and has
concluded that there is no impairment of the net carrying value.
ENVIRONMENTAL COSTS. A liability for environmental assessments and cleanup
is accrued when it is probable a loss has been incurred and is estimable.
Generally, the timing of these accruals coincides with the identification of an
environmental obligation through the Company's internal procedures or upon
notification from regulatory agencies. The Company is not aware of any exposure
to environmental costs arising from its continuing operations and thus has not
accrued any such liability.
FOREIGN EXCHANGE AND FORWARD EXCHANGE CONTRACTS. The Company utilizes the
U.S. dollar as its functional currency. Translation gains and losses are
included in earnings. Aviall enters into forward exchange contracts on behalf of
the Company to hedge certain of its foreign currency commitments including loan
commitments with the European Investment Bank ("EIB") and certain labor costs.
Gains and losses on forward contracts are recognized by the Company concurrently
with the related transaction gains and losses. Total translation and transaction
gains or (losses) included in earnings were $(0.5) million and $1.2 million in
1994 and 1995, respectively.
INCOME TAXES. The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
IMPAIRMENT OF LONG-LIVED ASSETS. In March 1995, the Financial Accounting
Standards Board ("FASB") issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
effective for fiscal years beginning after December 15, 1995. FASB Statement No.
121 requires that long-lived assets be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of the asset may
not be recoverable. The adoption of this statement is not expected to have a
material effect on the Company's financial position or results of operations.
NOTE 3 -- TRANSACTIONS WITH AVIALL
GENERAL AND ADMINISTRATIVE SERVICES. Aviall provided certain corporate
general and administrative services to the Company, including legal, treasury,
human resources and finance, among others. Costs related to these services were
allocated to the Company on a basis that approximated either the proportional
share of the Company's usage of the actual services provided or a representative
share of certain corporate fixed expenses. Management believes these allocations
are reasonable.
Total allocated expenses included in "Selling and Administrative Expenses"
in the accompanying Consolidated Statements of Operations were $2.9 million and
$3.7 million in 1994 and 1995, respectively.
INTERCOMPANY FINANCING AND INTEREST EXPENSE. "Due to Aviall" reflected in
the Consolidated Balance Sheets represents Aviall's net advances to the Company
resulting from cash and non-cash transfers and intercompany allocations. The
intercompany advances by Aviall to the Company are evidenced by a promissory
note dated December 7, 1993 maturing on December 31, 2000. The annual interest
rate is agreed upon between the parties and was equal to the quarterly floating
London Interbank Offering Rate ("LIBOR") plus 3%. At November 30, 1994 and 1995,
the interest rate was 8.6% and 8.9%, respectively. Total intercompany interest
charged by Aviall to the Company in 1994 and 1995 was $3.4 million and $4.4
million, respectively. The note may be prepaid without penalty at the option of
the Company. If the transaction in Note 1 is completed, the note will be repaid
by GASI immediately after close.
F-52
<PAGE>
AVIALL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- TRANSACTIONS WITH AVIALL (CONTINUED)
CORPORATE INSURANCE PROGRAMS. The Company participated in Aviall's combined
risk management programs for property and casualty insurance, including aviation
products liability. The Company was charged $1.4 million and $1.6 million in
1994 and 1995, respectively, which represented an allocation of third party
premiums.
GUARANTEES OF DEBT BY AVIALL. The Company's debt with the EIB is supported
by letters of credit issued under Aviall's credit facility. In addition, the
Company's L4.0 million unsecured bank overdraft facility is guaranteed by
Aviall.
SECURITY FOR AVIALL DEBT. On March 25, 1996, Aviall amended its credit
facilities to provide for a maturity date of April 30, 1997. The amended credit
facilities contain various covenants, including financial covenants, limitations
on debt and limitations on capital expenditures. In the absence of obtaining the
amended agreement, Aviall would have been in default of the financial covenants
of its previously outstanding credit facilities. Aviall's amended credit
facilities are secured in part by a pledge of 65% of the stock of the Company.
NOTE 4 -- ACCOUNTS RECEIVABLE ALLOWANCES
The Company provides services to a wide variety of aviation-related
businesses, including several commercial airlines. Management believes that
sufficient allowances for doubtful accounts have been provided as of November
30, 1994 and 1995. In addition, a substantial portion of the Company's accounts
receivable balance is covered by credit insurance. The following is a summary of
the accounts receivable allowances (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Balance at beginning of year.......................................................... $ 677 $ 644
Provision for doubtful accounts....................................................... 125 168
Write-off of doubtful accounts, net of recoveries..................................... (158) (560)
--------- ---------
Balance at end of year................................................................ $ 644 $ 252
--------- ---------
--------- ---------
</TABLE>
NOTE 5 -- INVENTORIES
<TABLE>
<CAPTION>
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Repair parts..................................................................... $ 74,302 $ 64,353
Work-in-process.................................................................. 15,770 12,521
Distribution parts............................................................... 454 488
--------- ---------
90,526 77,362
--------- ---------
Reserves for excess and obsolete inventories..................................... (3,220) (3,313)
--------- ---------
$ 87,306 $ 74,049
--------- ---------
--------- ---------
</TABLE>
The following is a summary of the reserve for excess and obsolete
inventories (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Balance at beginning of year....................................................... $ 2,014 $ 3,220
Provision for excess and obsolete inventory........................................ 1,557 423
Write-off of excess and obsolete inventory......................................... (351) (330)
--------- ---------
Balance at end of year............................................................. $ 3,220 $ 3,313
--------- ---------
--------- ---------
</TABLE>
F-53
<PAGE>
AVIALL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1994 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................................... $ 461 $ 461
Buildings and improvements..................................................... 17,892 18,241
Machinery and equipment........................................................ 43,320 49,452
Rental engines................................................................. 10,418 11,320
Capital projects in progress................................................... 4,062 4,202
---------- ----------
76,153 83,676
Accumulated depreciation....................................................... (27,581) (32,026)
$ 48,572 $ 51,650
---------- ----------
---------- ----------
</TABLE>
NOTE 7 -- ACCRUED EXPENSES
<TABLE>
<CAPTION>
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Salaries, wages and benefits....................................................... $ 1,403 $ 1,187
Current income taxes............................................................... 1,373 1,516
Other.............................................................................. 4,006 4,163
--------- ---------
$ 6,782 $ 6,866
--------- ---------
--------- ---------
</TABLE>
NOTE 8 -- DEBT
The Company's financing is provided primarily by Aviall's credit facilities.
In addition, the Company has borrowings directly from financial institutions in
the United Kingdom. The Company's credit facilities consist of (1) two ten-year
amortizing unsecured term loans with the EIB payable semiannually through 1996
("Loans A and B"), (2) a ten-year amortizing unsecured term loan with the EIB
payable semiannually through 1998 ("Loan C"), and (3) a L4.0 million unsecured
overdraft facility with a bank payable on demand (the "Overdraft Facility").
<TABLE>
<CAPTION>
1994 1995
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
Loans A and B................................................................... $ 5,279 $ 2,721
Loan C.......................................................................... 13,302 10,414
Overdraft Facility.............................................................. 1,150 4,374
--------- ----------
19,731 17,509
Less current portion............................................................ (6,596) (10,117)
--------- ----------
$ 13,135 $ 7,392
--------- ----------
--------- ----------
</TABLE>
The interest rates on Loan A and Loan B are 7% and 7.5%, respectively, and
the interest rate on Loan C is 9.3%. Borrowings under the Overdraft Facility
bear interest at LIBOR plus 1.625%.
Scheduled debt maturities for years subsequent to November 30, 1995 are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
- ---------------------------------------------------------------------------------------------
<S> <C>
1996......................................................................................... $ 10,117
1997......................................................................................... 3,464
1998......................................................................................... 3,928
---------
$ 17,509
---------
---------
</TABLE>
F-54
<PAGE>
AVIALL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- DEBT (CONTINUED)
If the transaction described in Note 1 is completed, it is likely the EIB
loans will be repaid in 1996. At November 30, 1994 and 1995, the estimated fair
value of the Company's debt approximated the outstanding net book value.
NOTE 9 -- INCOME TAXES
<TABLE>
<CAPTION>
1994 1995
--------- ---------
(IN THOUSANDS)
--------------------
<S> <C> <C>
Current tax expense................................................................ $ 2,585 $ 2,766
Deferred tax expense (benefit)..................................................... 240 (52)
--------- ---------
Provision for income taxes......................................................... $ 2,825 $ 2,714
--------- ---------
</TABLE>
A reconciliation of expected statutory tax expense using the statutory tax
rate of 33% to actual tax expense follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Expected statutory tax expense..................................................... $ 2,674 $ 2,131
Amortization of goodwill........................................................... 218 218
Meals and entertainment............................................................ 97 116
Miscellaneous items, net........................................................... (164) 249
--------- ---------
Actual tax expense................................................................. $ 2,825 $ 2,714
--------- ---------
--------- ---------
</TABLE>
At November 30, 1994 and 1995, substantially all of the deferred tax
liability arises from temporary differences related to property and equipment
basis differences.
The Company's income tax returns are subject to review by Inland Revenue.
Returns through 1993 have been settled, and the 1994 return is currently under
discussion.
NOTE 10 -- PENSION PLANS
The Company maintains a defined benefit pension plan. The benefits for this
plan are based upon a final-pay benefit formula. The funding policy for the plan
is to contribute such amounts as are necessary on an actuarial basis to provide
the plan with sufficient assets to meet the benefits payable to plan
participants. The plan's assets are primarily invested in equities and
interest-bearing accounts.
F-55
<PAGE>
AVIALL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- PENSION PLANS (CONTINUED)
The following tables reflect the components of net pension expense and the
funded status for the plan (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
NET PENSION EXPENSE
Service cost -- benefits earned during the year............................................ $ 2,332 $ 1,203
Interest cost on projected benefit obligation.............................................. 1,344 1,585
Actual return on plan assets............................................................... 390 (2,993)
Net amortization and deferral.............................................................. (3,005) 1,131
--------- ---------
Net pension expense........................................................................ $ 1,061 $ 926
--------- ---------
--------- ---------
FUNDED STATUS
Plan assets at fair value.................................................................. $ 19,030 $ 23,607
--------- ---------
Actuarial present value of benefit obligations:
Vested benefits.......................................................................... 12,953 16,819
Nonvested benefits....................................................................... 136 178
--------- ---------
Accumulated benefit obligation........................................................... 13,089 16,997
Additional benefits based on projected future salary increases........................... 4,979 6,464
--------- ---------
Projected benefit obligation............................................................... 18,068 23,461
--------- ---------
Plan assets greater than projected benefit obligation...................................... 962 146
Unrecognized net (gains) losses............................................................ (199) 876
Unrecognized prior service cost............................................................ 23 20
--------- ---------
Prepaid pension expense.................................................................... $ 786 $ 1,042
--------- ---------
--------- ---------
</TABLE>
The following table sets forth the year end actuarial assumptions used in
the accounting for the plan:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Discount rate for determining projected benefit obligation........................... 9.00% 8.00%
Rate of increase in compensation levels.............................................. 6.50% 5.50%
Expected long-term rate of return on plan assets..................................... 9.50% 9.50%
</TABLE>
Actuarial gains and losses and plan amendments are amortized over the
average remaining service lives of active members expected to receive benefits,
and transition amounts are amortized over 19 years.
NOTE 11 -- COMMON STOCK
The Company is authorized to issue 1,000,000 L1 par value shares ("A
Ordinary Shares") and 36,000,000 $1 par value shares ("B Ordinary Shares"). Each
A Ordinary Share has 1.8 votes per share and each B Ordinary Share has 1 vote
per share. Dividends or other amounts payable to holders, whether on liquidation
or otherwise, are apportioned so that 1.8 times the amount payable in respect of
each B Ordinary Share is payable in respect of each A Ordinary Share. All
1,000,000 A Ordinary Shares are issued and outstanding and 22,069,272 B Ordinary
Shares are issued and outstanding.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
The Company is a party to various claims, legal actions and complaints
arising in the ordinary course of business. Management believes that the
disposition of these matters will not have a material impact on the financial
condition, results of operations or cash flows of the Company.
F-56
<PAGE>
AVIALL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 -- OTHER INFORMATION
The Company operates in the aviation industry and reports its activities as
one business segment. For the years ended November 30, 1994 and 1995, sales to
Continental Airlines amounted to 34% and 24%, respectively, of total net sales
and sales to Federal Express amounted to 19% and 15%, respectively, of total net
sales. Net sales by geographic area were as follows:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Export sales:
North America............................................................... $ 125,668 $ 111,889
Europe...................................................................... 15,546 23,620
Other....................................................................... 32,376 43,942
----------- -----------
173,590 179,451
United Kingdom................................................................ 30,915 37,669
----------- -----------
$ 204,505 $ 217,120
----------- -----------
----------- -----------
</TABLE>
F-57
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITER. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 12
The Aviall Acquisition......................... 17
Concurrent Transactions........................ 17
Use of Proceeds................................ 18
Capitalization................................. 19
Unaudited Pro Forma Combined Financial
Information................................... 20
Selected Historical Financial Data............. 28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 30
Industry Overview.............................. 37
Business....................................... 39
Management..................................... 52
Certain Transactions........................... 57
Principal Stockholders......................... 59
Description of Capital Stock................... 60
Shares Eligible for Future Sale................ 62
Description of Certain Indebtedness............ 63
Description of Notes........................... 65
Underwriting................................... 89
Legal Matters.................................. 89
Experts........................................ 89
Available Information.......................... 90
Index to Financial Statements.................. F-1
</TABLE>
--------------------------
UNTIL , 1996 (40 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THE
DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
$150,000,000
GREENWICH AIR
SERVICES, INC.
% SENIOR NOTES
DUE 2006
[LOGO]
SALOMON BROTHERS INC
OPPENHEIMER & CO., INC.
DILLON, READ & CO. INC.
PROSPECTUS
DATED , 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses (other than selling
commissions) which will be paid by the Registrant in connection with the
issuance and distribution of the securities being registered. With the exception
of the Registration fee and the NASD filing fee, all amounts shown are
estimates.
<TABLE>
<S> <C>
Registration fee................................................. $ 51,725
NASD filing Fee.................................................. 15,500
Printing and engraving expenses.................................. *
Legal fees and expenses.......................................... *
Accounting fees and expenses..................................... *
Registrar and Transfer Agent fees and expenses................... *
Fees and expenses (including legal fees) for qualifications under
state securities laws........................................... *
Miscellaneous expenses........................................... *
---------
Total...................................................... $ *
---------
---------
</TABLE>
- ------------------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Twelfth of the Amended and Restated Certificate of Incorporation of
Greenwich Air Services, Inc. (the "Registrant") eliminates the personal
liability of directors and/or officers to the Registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director; provided that such
elimination of the personal liability of a director and/or officer of the
Registrant does not apply to (i) any breach of such person's duty of loyalty to
the Registrant or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
actions prohibited under Section 174 of the Delaware General Corporation Law
(i.e., liabilities imposed upon directors who vote for or assent to the unlawful
payment of dividends, unlawful repurchases or redemption of stock, unlawful
distribution of assets of the Registrant to the stockholders without the prior
payment or discharge of the Registrant's debts or obligations, or unlawful
making or guaranteeing of loans to directors and/or officers), or (iv) any
transaction from which the director derived an improper personal benefit. In
addition, Article Thirteenth of the Registrant's Amended and Restated Articles
of Incorporation provides that the Registrant shall indemnify its corporate
personnel, directors and officers to the fullest extent permitted by the
Delaware General Corporation Law, as amended from time to time.
The Registrant has entered into separate but identical indemnity agreements
(the "Indemnity Agreements") with each director and executive officer of the
Registrant (the "Indemnities"). The Indemnity Agreements provide that the
Registrant will indemnify each Indemnitee against any amounts that he becomes
legally obligated to pay in connection with any claim against him based upon any
act, omission, neglect or breach of duty that he may commit, omit or suffer
while acting in his capacity as a director and/or officer of the Registrant;
provided, that such claim: (i) is not based upon the Indemnitee's gaining any
personal profit or advantage to which he is not legally entitled; (ii) is not
for an accounting of profits made from the purchase or sale by the Indemnitee of
securities of the Registrant within the meaning of Section 16(b) of the
Securities Exchange Act of 1934, as amended, or similar provisions of any state
law; and (iii) is not based upon the Indemnitee's knowingly fraudulent,
deliberately dishonest or willful misconduct. The Indemnity Agreements also
provide that all costs and expenses incurred by the Indemnitee in defending or
investigating such claim shall be paid by the Registrant in advance of the final
disposition thereof, unless the Registrant, independent legal counsel, the
stockholders of the Registrant or a court of competent jurisdiction determines
that: (x) the Indemnitee did not act in good faith and in a manner that he
reasonably believed to be in or not opposed to the best interests of the
Registrant; (y) in the case of any criminal action or proceeding, the Indemnitee
had reasonable cause to
II-1
<PAGE>
believe his conduct was unlawful; or (z) the Indemnitee intentionally breached
his duty to the Registrant or its stockholders. Each Indemnitee has undertaken
to repay the Registrant for any costs or expenses so advanced if it shall
ultimately be determined by a court of competent jurisdiction in a final,
nonappealable adjudication that he is not entitled to indemnification under an
Indemnity Agreement.
ITEM 15. EXHIBITS RECENT SALES OF UNREGISTERED SECURITIES.
No securities that were not registered under the Securities Act have been
issued or sold by the Registrant within the past three years.
ITEM 16. EXHIBITS
A. EXHIBITS.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement (7)
3.1 Amended and Restated Certificate of Incorporation of the Registrant (6)
3.2 Amended and Restated By-laws of the Registrant (2)
4.1 Indenture, dated , 1996, relating to the Notes (7)
4.2 Form of Subsidiary Guaranty (7)
4.3 Specimen Note (7)
5.1 Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. as to the validity of the Notes
being registered (7)
10.1 Air Agency Certificate No. RH2R135L issued by the Federal Aviation Administration to the Registrant and
related Repair Station Operations Specifications (1)
10.2 General Terms Agreement, dated as of April 23, 1992, between General Electric Company ("GE") and
Registrant relating to GE CF6 turbofan jet engines (1)
10.3 Maintenance and Support Agreement between GE and Registrant, dated February 21, 1992, relating to GE
LM1500 engines, components and accessories (1)
10.4 Maintenance and Support Agreement, between GE and Registrant, dated June 19, 1985, as amended June 21,
1990, and as further amended November 1, 1991, related to GE LM2500 engines, components and accessories
(1)
10.5 Agreement, dated as of July 15, 1992, between Registrant and Rolls-Royce, plc. and Rolls-Royce, Inc.
relative to the repair and overhaul of Rolls Royce RB211-22B engines (1)
10.6 Lease Agreement, dated January 14, 1992, between Registrant, as lessee, and Dade County, Florida, as
lessor, in respect of former Eastern Airlines engines service center (1)
10.7 Lease Agreement, dated as of March 15, 1988, as amended, between Dade County, Florida, as lessor, and
the predecessor to the Registrant, as Lessee, in respect of buildings 2146 and 2169 in the westside
cargo area of Miami International Airport (1)
10.8 1992 Stock Option Plan, including form of Stock Option Agreement (1)
10.9 Loan and Security Agreement, dated November 5, 1992, between the Registrant, World Air Leases, Inc. and
CIT Group/Equipment Financing, Inc. as agent (2)
10.10 Agreement between the Registrant and the United States Army Foreign Military Sales Program (2)
10.11 Form of Indenture between Registrant and American Stock Transfer & Trust Company, as Trustee (2)
10.12 Form of Employment Agreement, dated as of September 15, 1993, between Registrant and Eugene P. Conese
(3)
10.13 Form of Employment Agreement, dated as of November 15, 1993, between Registrant and Eugene P. Conese,
Jr. (3)
10.14 Form of Indemnity Agreement (3)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.15 Agreement of Purchase and Sale, dated March 21, 1994, by and among GTC, the Registrant and the Seller
(4)
10.16 Disclosure Package to Agreement of Purchase and Sale (4)
10.17 Supplemental Letter Agreement dated March 21, 1994 between the Registrant and the Seller (4)
10.18 Letter Agreement, Letter of Credit, and Escrow Agreement, all delivered on and as of April 22, 1994 (4)
10.19 Second Amended and Restated Revolving Credit and Security Agreement, dated as of April 21, 1994 (4)
10.20 Agreement and Plan of Merger dated November 7, 1995 by and between the Registrant and GCL (5)
10.21 Amendment to Employment Agreement with Eugene P. Conese dated December 18, 1995 (5)
10.22 Amendment to Employment Agreement with Eugene P. Conese, Jr., dated December 18, 1995 (5)
10.23 Third Amended and Restated Revolving Credit and Security Agreement dated as of March 14, 1995 by and
between Registrant, Gas Turbine Corporation and Greenwich Turbine, Inc. and the Bank of New York
Commercial Corporation (5)
10.24 Agreement of Purchase and Sale dated April 19, 1996 between GASI Engine Services Corporation and the
Registrant and Aviall Services, Inc. and Aviall, Inc. (6)
10.25 Form of New Credit Facility (7)
10.26 Form of Pledge and Security Agreement (7)
11.1 Statement re computation of per share earnings (8)
12.1 Statement re computation of ratios (8)
21.1 Subsidiaries of the Company (5)
23.1 Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. (included in its opinion filed as
Exhibit 5.1)
23.2 Consent of Deloitte & Touche LLP (8)
23.3 Consent of Price Waterhouse LLP (8)
23.4 Consent of KPMG Peat Marwick LLP (8)
23.5 Consent of Price Waterhouse (8)
25 Statement of Eligibility of Qualification of Trustee for the Notes under the Trust Indenture Act of 1939
(8)
</TABLE>
- ------------------------
(1) Incorporated by reference and filed as Exhibits to Registrant's Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on
September 10, 1992 (File No. 33-51854)
(2) Incorporated by reference and filed as Exhibits to Registrant's Amendment
No. 1 to Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on September 22, 1993 (File No. 33-51854)
(3) Incorporated by reference and filed as Exhibits to Registrant's Amendment
No. 2 to Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on October 28, 1993
(4) Incorporated by reference and filed as Exhibits to Registrant's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
September 22, 1993 (File No. 33-51854)
(5) Incorporated by reference and filed as Exhibits to Registrant's Form 10-K
filed with the Securities and Exchange Commission on December 27, 1995
(6) Previously filed
(7) To be filed by amendment
(8) Filed herewith
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
1. The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(1) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(2) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and
(3) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
2. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of the Registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
4. The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4), or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Miami,
State of Florida, on May 15, 1996.
GREENWICH AIR SERVICES, INC.
By: /s/ EUGENE P. CONESE*
-----------------------------------
Eugene P. Conese
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------------- ----------------
/s/ EUGENE P. CONESE*
------------------------------------------- Chairman, Chief Executive Office and May 15, 1996
Eugene P. Conese Director (principal executive officer)
/s/ EUGENE P. CONESE, JR.
------------------------------------------- President, Chief Operating Officer and May 15, 1996
Eugene P. Conese, Jr. Director
/s/ ROBERT J. VANARIA*
------------------------------------------- Senior Vice President of administration May 15, 1996
Robert J. Vanaria and Chief Financial Officer
/s/ ORLANDO M. MACHADO*
------------------------------------------- Vice President, Finance (principal May 15, 1996
Orlando M. Machado accounting officer)
/s/ GENERAL CHARLES A. GABRIEL*
------------------------------------------- Director May 15, 1996
General Charles A. Gabriel USAF (Ret.)
------------------------------------------- Director May , 1996
Charles J. Simons
------------------------------------------- Director May , 1996
Chesterfield Smith
*By: /s/ROBERT J. VANARIA
Rovert J. Vanaria
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Miami,
State of Florida, on May 15, 1996.
GAS TURBINE CORPORATION
By: /s/ EUGENE P. CONESE*
-----------------------------------
Eugene P. Conese
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------------- ----------------
/s/ EUGENE P. CONESE*
------------------------------------------- Chairman, Chief Executive Office and May 15, 1996
Eugene P. Conese Director (principal executive officer)
/s/ EUGENE P. CONESE, JR.
------------------------------------------- President, Chief Operating Officer and May 15, 1996
Eugene P. Conese, Jr. Director
/s/ ROBERT J. VANARIA*
------------------------------------------- Senior Vice President of administration May 15, 1996
Robert J. Vanaria and Chief Financial Officer
/s/ ORLANDO M. MACHADO*
------------------------------------------- Vice President, Finance (principal May 15, 1996
Orlando M. Machado accounting officer)
*By: /s/EUGENE P. CONESE, JR.
Eugene P. Conese, Jr.
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Miami,
State of Florida, on May 15, 1996.
GREENWICH TURBINE, INC.
By: /s/ EUGENE P. CONESE*
-----------------------------------
Eugene P. Conese
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------------- ----------------
/s/ EUGENE P. CONESE*
------------------------------------------- Chairman, Chief Executive Office and May 15, 1996
Eugene P. Conese Director (principal executive officer)
------------------------------------------- President and Director May 15, 1996
Robert Loffredo
/s/ EUGENE P. CONESE, JR.
------------------------------------------- Vice President and Director (principal May 15, 1996
Eugene P. Conese, Jr. accounting officer)
*By: /s/EUGENE P. CONESE, JR.
Eugene P. Conese, Jr.
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Miami,
State of Florida, on May 15, 1996.
GASI ENGINE SERVICES CORPORATION
By: /s/ EUGENE P. CONESE*
-----------------------------------
Eugene P. Conese
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------------- ----------------
/s/ EUGENE P. CONESE*
------------------------------------------- Chairman, Chief Executive Office and May 15, 1996
Eugene P. Conese Director (principal executive officer)
/s/ EUGENE P. CONESE, JR.
------------------------------------------- President, Chief Operating Officer and May 15, 1996
Eugene P. Conese, Jr. Director
Senior Vice President of
/s/ ROBERT J. VANARIA* administration, Chief Financial
------------------------------------------- Officer and Director (principal May 15, 1996
Robert J. Vanaria accounting officer)
*By: /s/EUGENE P. CONESE, JR.
Eugene P. Conese, Jr.
ATTORNEY-IN-FACT
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Miami,
State of Florida, on May 15, 1996.
GAS TURBINE TEST CORPORATION
By: /s/ EUGENE P. CONESE*
-----------------------------------
Eugene P. Conese
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------------- ----------------
/s/ EUGENE P. CONESE*
------------------------------------------- Chairman, Chief Executive Office and May 15, 1996
Eugene P. Conese Director (principal executive officer)
/s/ EUGENE P. CONESE, JR.
------------------------------------------- President, Chief Operating Officer and May 15, 1996
Eugene P. Conese, Jr. Director
Senior Vice President of
/s/ ROBERT J. VANARIA* administration, Chief Financial
------------------------------------------- Officer and Director (principal May 15, 1996
Robert J. Vanaria accounting officer)
/s/ ORLANDO M. MACHADO*
------------------------------------------- Vice President, Treasurer and Director May 15, 1996
Orlando M. Machado
*By: /s/EUGENE P. CONESE, JR.
Eugene P. Conese, Jr.
ATTORNEY-IN-FACT
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Miami,
State of Florida, on May 15, 1996.
GREENWICH FOREIGN SALES CORPORATION
By: /s/ EUGENE P. CONESE*
-----------------------------------
Eugene P. Conese
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------------- ----------------
/s/ EUGENE P. CONESE*
------------------------------------------- Chairman, Chief Executive Office and May 15, 1996
Eugene P. Conese Director (principal executive officer)
/s/ EUGENE P. CONESE, JR.
------------------------------------------- President, Chief Operating Officer and May 15, 1996
Eugene P. Conese, Jr. Director
/s/ ORLANDO M. MACHADO*
------------------------------------------- Vice President, Treasurer and Director May 15, 1996
Orlando M. Machado
*By: /s/EUGENE P. CONESE, JR.
Eugene P. Conese, Jr.
ATTORNEY-IN-FACT
</TABLE>
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ----------- ------------------------------------------------------------------------------------------------ -----
<S> <C> <C>
1.1 Form of Underwriting Agreement (7)
3.1 Amended and Restated Certificate of Incorporation of the Registrant (6)
3.2 Amended and Restated By-laws of the Registrant (2)
4.1 Indenture, dated , 1996, relating to the Notes (7)
4.2 Form of Subsidiary Guaranty (7)
4.3 Specimen Note (7)
5.1 Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. as to the validity of the
Notes being registered (7)
10.1 Air Agency Certificate No. RH2R135L issued by the Federal Aviation Administration to the
Registrant and related Repair Station Operations Specifications (1)
10.2 General Terms Agreement, dated as of April 23, 1992, between General Electric Company ("GE") and
Registrant relating to GE CF6 turbofan jet engines (1)
10.3 Maintenance and Support Agreement between GE and Registrant, dated February 21, 1992, relating
to GE LM1500 engines, components and accessories (1)
10.4 Maintenance and Support Agreement, between GE and Registrant, dated June 19, 1985, as amended
June 21, 1990, and as further amended November 1, 1991, related to GE LM2500 engines,
components and accessories (1)
10.5 Agreement, dated as of July 15, 1992, between Registrant and Rolls-Royce, plc. and Rolls-Royce,
Inc. relative to the repair and overhaul of Rolls Royce RB211-22B engines (1)
10.6 Lease Agreement, dated January 14, 1992, between Registrant, as lessee, and Dade County,
Florida, as lessor, in respect of former Eastern Airlines engines service center (1)
10.7 Lease Agreement, dated as of March 15, 1988, as amended, between Dade County, Florida, as
lessor, and the predecessor to the Registrant, as Lessee, in respect of buildings 2146 and 2169
in the westside cargo area of Miami International Airport (1)
10.8 1992 Stock Option Plan, including form of Stock Option Agreement (1)
10.9 Loan and Security Agreement, dated November 5, 1992, between the Registrant, World Air Leases,
Inc. and CIT Group/Equipment Financing, Inc. as agent (2)
10.10 Agreement between the Registrant and the United States Army Foreign Military Sales Program (2)
10.11 Form of Indenture between Registrant and American Stock Transfer & Trust Company, as Trustee (2)
10.12 Form of Employment Agreement, dated as of September 15, 1993, between Registrant and Eugene P.
Conese (3)
10.13 Form of Employment Agreement, dated as of November 15, 1993, between Registrant and Eugene P.
Conese, Jr. (3)
10.14 Form of Indemnity Agreement (3)
10.15 Agreement of Purchase and Sale, dated March 21, 1994, by and among GTC, the Registrant and the
Seller (4)
10.16 Disclosure Package to Agreement of Purchase and Sale (4)
10.17 Supplemental Letter Agreement dated March 21, 1994 between the Registrant and the Seller (4)
10.18 Letter Agreement, Letter of Credit, and Escrow Agreement, all delivered on and as of April 22,
1994 (4)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ----------- ------------------------------------------------------------------------------------------------ -----
<S> <C> <C>
10.19 Second Amended and Restated Revolving Credit and Security Agreement, dated as of April 21, 1994
(4)
10.20 Agreement and Plan of Merger dated November 7, 1995 by and between the Registrant and GCL (5)
10.21 Amendment to Employment Agreement with Eugene P. Conese dated December 18, 1995 (5)
10.22 Amendment to Employment Agreement with Eugene P. Conese, Jr., dated December 18, 1995 (5)
10.23 Third Amended and Restated Revolving Credit and Security Agreement dated as of March 14, 1995 by
and between Registrant, Gas Turbine Corporation and Greenwich Turbine, Inc. and the Bank of New
York Commercial Corporation (5)
10.24 Agreement of Purchase and Sale dated April 19, 1996 between GASI Engine Services Corporation and
the Registrant and Aviall Services, Inc. and Aviall, Inc. (6)
10.25 Form of New Credit Facility (7)
10.26 Form of Pledge and Security Agreement (7)
11.1 Statement re computation of per share earnings (8)
12.1 Statement re computation of ratios (8)
21.1 Subsidiaries of the Company (5)
23.1 Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. (included in its opinion
filed as Exhibit 5.1)
23.2 Consent of Deloitte & Touche LLP (8)
23.3 Consent of Price Waterhouse LLP (8)
23.4 Consent of KPMG Peat Marwick LLP (8)
23.5 Consent of Price Waterhouse (8)
25 Statement of Eligibility of Qualification of Trustee for the Notes under the Trust Indenture Act
of 1939 (8)
</TABLE>
- ------------------------
(1) Incorporated by reference and filed as Exhibits to Registrant's Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on
September 10, 1992 (File No. 33-51854)
(2) Incorporated by reference and filed as Exhibits to Registrant's Amendment
No. 1 to Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on September 22, 1993 (File No. 33-51854)
(3) Incorporated by reference and filed as Exhibits to Registrant's Amendment
No. 2 to Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on October 28, 1993
(4) Incorporated by reference and filed as Exhibits to Registrant's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
September 22, 1993 (File No. 33-51854)
(5) Incorporated by reference and filed as Exhibits to Registrant's Form 10-K
filed with the Securities and Exchange Commission on December 27, 1995
(6) Previously filed
(7) To be filed by amendment
(8) Filed herewith
<PAGE>
EXHIBIT 11.1
GREENWICH AIR SERVICES, INC.
COMPUTATION OF EARNINGS
PER COMMON SHARE
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------------------------------------------
1991 1992 1993 1994
(ALL AMOUNTS EXPRESSED IN ------------------------ ------------------------ ------------------------ ------------------------
THOUSANDS EXCEPT FOR PER FULLY FULLY FULLY FULLY
SHARE AMOUNTS) PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted average number
of common shares
outstanding............. 9,968 9,972 9,646 9,648 8,000 8,000 9,934 9,934
Additional shares
assuming conversion of:
Options and warrants 14 14
Subordinated debentures 2,627
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Weighted average number
of common shares
outstanding as adjusted 9,968 9,972 9,646 9,648 8,000 8,000 9,948 12,575
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income applicable to
common stock $ 3,469 $ 3,469 $ 2,506 $ 2,506 $ 3,374 $ 3,374 $ 3,346 $ 3,346
After-tax interest
savings from conversion
of subordinated
debentures 738
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income as adjusted $ 3,469 $ 3,469 $ 2,506 $ 2,506 $ 3,374 $ 3,374 $ 3,346 $ 4,084
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Earnings per common share $ 0.35 $ 0.35 $ 0.26 $ 0.26 $ 0.42 $ 0.42 $ 0.34 $ 0.33
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
SIX MONTHS ENDED MARCH 31,
--------------------------------------------------
1995 1995 1996
(ALL AMOUNTS EXPRESSED IN ------------------------ ------------------------ ------------------------
THOUSANDS EXCEPT FOR PER FULLY FULLY FULLY
SHARE AMOUNTS) PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Weighted average number
of common shares
outstanding............. 10,153 10,153 10,156 10,156 11,843 11,843
Additional shares
assuming conversion of:
Options and warrants 80 280 26 40 262 393
Subordinated debentures 2,403 2,906 609
----------- ----------- ----------- ----------- ----------- -----------
Weighted average number
of common shares
outstanding as adjusted 10,233 12,836 10,182 13,102 12,105 12,845
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Net income applicable to
common stock $ 6,201 $ 6,201 $ 2,359 $ 2,359 $ 4,418 $ 4,418
After-tax interest
savings from conversion
of subordinated
debentures 675 408 85
----------- ----------- ----------- ----------- ----------- -----------
Net income as adjusted $ 6,201 $ 6,876 $ 2,359 $ 2,767 $ 4,418 $ 4,503
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Earnings per common share $ 0.61 $ 0.54 $ 0.23 $ 0.21 $ 0.36 $ 0.35
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
<PAGE>
EXHIBIT 11.1
GREENWICH AIR SERVICES, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
PROFORMA
SIX MONTHS ENDED PROFORMA
MARCH 31, YEAR ENDED
1996 SEPTEMBER 30,
------------------------------ 1995
------------------------------
PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Weighted average number of common shares
outstanding 11,843,133 11,843,133 10,153,452 10,153,452
Addition shares assuming conversion of:
Options and warrants 262,335 392,739 79,782 280,048
Subordinated debentures 608,718 2,402,906
Issuance of new shares 3,400,000 3,400,000 3,400,000 3,400,000
-------------- -------------- -------------- --------------
Weighted average number of common shares
outstanding as adjusted 15,505,468 16,244,590 13,633,234 16,236,406
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Net income applicable to common stock $ 4,929,000 $ 4,929,000 $ 18,551,000 $ 18,551,000
After-tax interest savings from conversion of
subordinated debentures 85,464 674,376
-------------- -------------- -------------- --------------
Net income as adjusted $ 4,929,000 $ 5,014,464 $ 18,551,000 $ 19,225,376
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Earnings per common share $ 0.32 $ 0.31 $ 1.36 $ 1.18
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
<PAGE>
GREENWICH AIR SERVICES, INC.
RATIO OF EARNINGS TO FIXED CHARGES
EXHIBIT 12.1
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS:
Net Income......................... $ 3,469 $ 2,505 $ 3,374 $ 3,346 $ 6,201 $ 2,359 $ 4,418
Add provision for income taxes..... 2,114 1,540 2,333 2,220 3,965 1,628 2,908
Add fixed charges.................. 4,227 3,435 3,764 6,140 9,665 4,598 4,568
--------- --------- --------- --------- --------- --------- ---------
$ 9,810 $ 7,480 $ 9,471 $ 11,706 $ 19,831 $ 8,585 $ 11,894
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
FIXED CHARGES:
Interest........................... $ 3,174 $ 2,446 $ 2,790 $ 4,281 $ 7,302 $ 3,465 $ 3,455
Interest factor portion of
rentals........................... 549 485 725 1,382 1,714 784 933
Amortization on discount or premium
on indebtedness................... 504 504 249 477 649 349 180
--------- --------- --------- --------- --------- --------- ---------
$ 4,227 $ 3,435 $ 3,764 $ 6,140 $ 9,665 $ 4,598 $ 4,568
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
RATIO OF EARNINGS TO FIXED CHARGES... 2.3 2.2 2.5 1.9 2.1 1.9 2.6
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
<PAGE>
EXHIBIT 12.1
GREENWICH AIR SERVICES, INC.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
PROFORMA PROFORMA
FISCAL 6 MONTHS
1995 3/31/96
--------- ---------
<S> <C> <C>
EARNINGS:
Net Income............................................................................... $ 18,551 $ 4,929
Add provision for income taxes........................................................... 11,860 3,152
Add fixed charges........................................................................ 26,966 13,215
--------- ---------
$ 57,377 $ 21,296
--------- ---------
--------- ---------
FIXED CHARGES:
Interest................................................................................. $ 23,519 $ 11,563
Interest factor portion of rentals....................................................... 2,026 1,086
Amortization on discount or premium on indebtedness...................................... 1,421 566
--------- ---------
$ 26,966 $ 13,215
--------- ---------
--------- ---------
RATIO OF EARNINGS TO FIXED CHARGES 2.1 1.6
--------- ---------
--------- ---------
</TABLE>
<PAGE>
EXHIBIT 12.1
AVIALL, INC.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
EARNINGS:
Net Income............................................................ $ 9,456 $ (4,407) $ (9,780) $ 363 $ (5,436)(a)
Add provision for income taxes........................................ 7,624 4,012 2,714 463 243
Add fixed charges..................................................... 14,281 18,532 19,528 5,468 4,372
--------- --------- --------- --------- ---------
$ 31,361 $ 18,137 $ 12,462 $ 6,294 $ (821)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
FIXED CHARGE
Interest................................................................ $ 13,984 $ 18,171 $ 19,216 $ 5,415 $ 4,283
Interest factor portion of rentals.................................... 297 361 312 53 89
Amortization on discount or premium on indebtedness................... 0 0 0 0 0
--------- --------- --------- --------- ---------
$ 14,281 $ 18,532 $ 19,528 $ 5,468 $ 4,372
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
RATIO OF EARNINGS TO FIXED CHARGES 2.2 1.0 0.6 1.2 (0.2)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
---------------------
1995 1996
--------- ----------
<S> <C> <C>
EARNINGS:
Net Income.............................................................. $ 2,459 $ (16,652)(a)
Add provision for income taxes.......................................... 1,631 1,173
Add fixed charges....................................................... 10,065 9,240
--------- ----------
$ 14,155 $ (6,239)
--------- ----------
--------- ----------
FIXED CHARGES:
Interest................................................................ $ 9,958 $ 9,087
Interest factor portion of rentals...................................... 107 153
Amortization on discount or premium on indebtedness..................... 0 0
--------- ----------
$ 10,065 $ 9,240
--------- ----------
--------- ----------
RATIO OF EARNINGS TO FIXED CHARGES 1.4 (0.7)
--------- ----------
--------- ----------
</TABLE>
- ------------------------
(a) Before restructuring costs of $39,567
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-4164 on Form S-1 of Greenwich Air Services, Inc. of our report dated
December 18, 1995, except for Note 16 as to which the date is April 24, 1996,
appearing in the Prospectus, which is part of this Registration Statement,
and to the reference to us under the heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Miami, Florida
May 14, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated April 10, 1996
relating to the combined financial statements of Engine Services Division
of Aviall, Inc., which appears in such Prospectus. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Dallas, Texas
May 14, 1996
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
Aviall, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus. Our report refers to
changes in the method of accounting for income taxes and postretirement
benefits other than pensions.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Dallas, Texas
May 14, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated May 14, 1996 relating
to the consolidated financial statements of Aviall Limited, which appears in
such Prospectus. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/ Price Waterhouse
PRICE WATERHOUSE
Chartered Accountants
Glasgow, Scotland
May 14, 1996
