<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported) May 18, 1998
KELLSTROM INDUSTRIES, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
------------------
(State of other jurisdiction of incorporation)
0-23764 13-3753725
---------------- ------------------
(Commission (I.R.S. Employer
File Number) Identification No.)
14000 N.W. 4th Street
Sunrise, Florida 33325
---------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (954) 845-0427
N/A
------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
This Form 8-K/A amends the Form 8-K filed with the Commission on April
14, 1998 (the "Form 8-K") relating to the acquisition by Kellstrom Industries,
Inc. (the "Registrant") of substantially all of the assets, and the assumption
of certain liabilities, of Integrated Technology Corp. ("ITC"). This Form 8-K/A
contains the information referred to in Item 7 of the Form 8-K.
Item 7. Financial Statements, PRO FORMA Financial Information and Exhibits.
(a) FINANCIAL STATEMENTS OF ITC
Independent Auditors' Report
Balance Sheet as of December 31, 1997
Statement of Earnings for the Year Ended December 31, 1997
Statement of Stockholder's Equity for the year ended December
31, 1997
Statement of Cash Flows for the Year Ended December 31, 1997
Notes to Financial Statements
Condensed Balanced Sheets as of March 31, 1998 and 1997
(unaudited)
Condensed Statement of Earnings for the Three Months Ended
March 31, 1998 and 1997 (unaudited)
Condensed Statement of Cash Flows for the Three Months Ended
March 31, 1998 and 1997 (unaudited)
Notes to Condensed Financial Statements
(b) PRO FORMA FINANCIAL INFORMATION (unaudited)
Pro Forma Consolidated Combined Statement of Earnings for the
year ended December 31, 1997 (unaudited)
Pro Forma Consolidated Combined Balance Sheet as of December
31, 1997 (unaudited)
Pro Forma Consolidated Combined Statement of Earnings for the
three months ended March 31, 1998 (unaudited)
Pro Forma Consolidated Combined Statement of Earnings for the
three months ended March 31, 1997 (unaudited)
(c) Exhibits. The Exhibits to this Form 8-K are listed in the
Exhibit Index and are incorporated by reference herein.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
KELLSTROM INDUSTRIES, INC.
Date: May 18, 1998 By: /s/ Michael W. Wallace
----------------------------
Michael W. Wallace
Chief Financial Officer
2
<PAGE> 3
EXHIBIT INDEX
2.1 Asset Purchase Agreement dated as of February 27, 1998, by and among
Kellstrom Industries, Inc., Integrated Technology Holdings Corp.,
Integrated Technology Corp. and Gideon Vaisman (including schedule
2.03(a) only (relating to earnout))(1)
99.1 Press Release issued by Kellstrom Industries, Inc. on April 1, 1998 (1)
- ----------
(1) Previously filed with the Form 8-K filed on April 14, 1998
<PAGE> 4
INTEGRATED TECHNOLOGY CORP.
Financial Statements
December 31, 1997
(With Independent Auditors' Report Thereon)
<PAGE> 5
INDEPENDENT AUDITORS' REPORT
The Stockholder
Integrated Technology Corp.:
We have audited the accompanying balance sheet of Integrated Technology Corp. as
of December 31, 1997, and the related statements of earnings, stockholder's
equity and cash flows for the year ended December 31, 1997. 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 financial position of Integrated Technology Corp. as
of December 31, 1997 and the results of its operations and its cash flows for
the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
Ft. Lauderdale, Florida KPMG Peat Marwick LLP
May 12, 1998
<PAGE> 6
INTEGRATED TECHNOLOGY CORP.
BALANCE SHEET
December 31, 1997
<TABLE>
ASSETS
<S> <C>
Current assets:
Cash $ 426,457
Trade receivables, net of allowances for returns and
doubtful accounts of $2,555,451 851,516
Inventories 18,972,857
Prepaid expenses 1,699,491
----------
Total current assets 21,950,321
----------
Equipment under operating leases, net 3,592,773
Equipment, net 35,384
Other assets 19,171
-----------
Total assets $25,597,649
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Notes payable to bank $ 5,585,000
Accounts payable 6,279,775
Accrued expenses 1,246,932
Due to stockholder 467,902
-----------
Total liabilities 13,579,609
----------
Stockholder's equity:
Common stock, no par value; 1,500 shares authorized;
100 shares issued and outstanding 100,000
Retained earnings 11,918,040
----------
Total stockholder's equity 12,018,040
Commitments and contingencies ----------
Total liabilities and stockholder's equity $25,597,649
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 7
INTEGRATED TECHNOLOGY CORP.
STATEMENT OF EARNINGS
For the year ended December 31, 1997
Sales of engines and engine parts, net $28,214,141
Rental revenues 738,636
-----------
Total revenues 28,952,777
-----------
Cost of goods sold 17,034,996
Depreciation of equipment under operating leases 449,673
Selling, general and administrative expenses 5,615,848
Depreciation 12,758
-----------
Total operating expenses 23,113,275
----------
Operating income 5,839,502
Interest expense 481,812
-----------
Net income $ 5,357,690
===========
See accompanying notes to financial statements.
<PAGE> 8
INTEGRATED TECHNOLOGY CORP.
STATEMENT OF STOCKHOLDER'S EQUITY
For the year ended December 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------ RETAINED
SHARES AMOUNT EARNINGS TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balances, December 31, 1996 100 $ 100,000 9,012,083 9,112,083
Net income -- -- 5,357,690 5,357,690
Stockholder distributions -- -- (2,451,733) (2,451,733)
------------ ------------ ------------ ------------
Balances, December 31, 1997 100 $ 100,000 $ 11,918,040 $ 12,018,040
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 9
INTEGRATED TECHNOLOGY CORP.
STATEMENT OF CASH FLOWS
For the year ended December 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 5,357,690
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 12,758
Purchases of equipment under operating lease (2,529,492)
Depreciation of equipment under operating lease 449,673
Changes in operating assets and liabilities:
Decrease in trade receivables, net 3,478,138
Increase in inventories (5,174,090)
Increase in prepaid expenses (821,263)
Increase in other assets (5,100)
Decrease in accounts payable (1,167,531)
Increase in accrued expenses 613,749
-----------
Net cash provided by operating activities 214,532
-----------
Cash flows from investing activities:
Purchases of equipment (12,333)
-----------
Net cash used in investing activities (12,333)
Cash flows from financing activities:
Borrowings under line of credit with bank 3,100,000
Repayments under line of credit with bank (1,000,000)
Distributions to stockholder (2,451,733)
Increase in due to affiliate 464,971
-----------
Net cash provided by financing activities 113,238
Net increase in cash 315,437
Cash, beginning of period 111,020
Cash, end of period $ 426,457
===========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 587,293
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 10
INTEGRATED TECHNOLOGY CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
International Technology Corp. ("ITC" or the "Company") was
incorporated in New Jersey on March 18, 1994. The principal
business of the Company is the purchasing, refurbishing (through
subcontractors), reselling, and leasing of aircraft jet engines
and jet engine parts. The Company's customers are comprised of
both domestic and international commercial airlines, jet engine
repair facilities and brokers.
(b) REVENUE RECOGNITION
Revenue is recognized upon shipment of the product to the
customer net of an estimated allowance for sales returns.
Revenue from equipment under operating leases is recognized as
rental revenue on a straight-line basis over the lease term.
(c) CASH
The Company considers all highly liquid debt instruments with
original maturities of three months or less to be cash
equivalents.
(d) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
primarily determined using an average cost method. Inventories
are made up primarily of new, refurbished and as removed engines
and engine parts.
(e) EQUIPMENT UNDER OPERATING LEASES
The cost of the asset under lease is the original purchase price
plus overhaul costs. Depreciation of the cost is computed based
on a straight-line method. Maintenance and repair costs are
expensed as incurred.
(f) EQUIPMENT
Equipment is stated at cost. Depreciation on equipment is
calculated using the straight-line method over the following
estimated useful lives: office equipment-five years and
furniture and fixtures-five years.
(g) INCOME TAXES
The Company is taxed as an S corporation for income tax
purposes, whereby the Company's income is reported by the
Company's stockholder. Accordingly, no provision has been made
for federal income taxes.
(Continued)
<PAGE> 11
INTEGRATED TECHNOLOGY CORP.
NOTES TO FINANCIAL STATEMENTS
(h) PENSION PLAN
The Company has a defined benefit pension plan covering
substantially all of its employees. The benefits are based on
years of service and the employee's compensation during the five
years before retirement.
(i) FINANCIAL INSTRUMENTS
The fair value of financial instruments, including cash,
accounts receivable, accounts payable, accrued expenses, and
notes payable to bank approximate fair value due to the short
maturities of these instruments.
(j) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to
prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from
those estimates.
(k) IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE
DISPOSED OF
The Company adopted the provisions of SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" on January 1, 1996. SFAS No. 121
requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount
of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. Adoption
of this statement did not have a material effect on the
Company's financial position and results of operations.
(2) EQUIPMENT UNDER OPERATING LEASES, NET
Equipment under operating leases consists primarily of aircraft and
engines with typical lease terms of two years. At December 31, 1997,
equipment under operating leases consists of the following:
Equipment under operating leases $ 4,054,492
Accumulated depreciation (461,719)
-----------
$ 3,592,773
===========
(Continued)
-2-
<PAGE> 12
INTEGRATED TECHNOLOGY CORP.
NOTES TO FINANCIAL STATEMENTS
At December 31, 1997, future minimum rental revenue on equipment under
operating leases is as follows:
1998 $ 1,755,000
1999 1,389,935
2000 249,400
-----------
$ 3,394,335
===========
(3) EQUIPMENT, NET
Equipment, net at December 31, 1997 consists of the following:
Office equipment $ 52,502
Furniture and fixtures 17,444
Accumulated depreciation (34,562)
---------
$ 35,384
=========
(4) NOTES PAYABLE TO BANK
The Company has two short-term bank lines of credit. The borrowings
under the lines bear interest at 0.5 percent above prime and 1 percent
above prime payable monthly. Both obligations are collateralized by all
of the Company's assets. The Company is subject to certain financial
restrictions and the maintenance of certain minimum financial amounts
and ratios (see note 10).
(5) COMMITMENTS AND CONTINGENCIES
The Company has several operating leases for facilities that expire
over the next two years. These leases generally require the Company to
pay all executory costs such as maintenance and insurance and provide
for early termination at stipulated values. Future minimum lease
payments under operating lease agreements having an initial or
remaining non-cancelable term in excess of one year as of December 31,
1997 are as follows:
1998 $ 42,512
1999 12,650
--------
$ 55,162
========
Total rent expense for all operating leases for the year ended December
31, 1997 approximated $108,000.
The Company is involved in various claims and lawsuits incidental to
its business. In the opinion of management, these claims and lawsuits,
in the aggregate, will not have a material adverse effect on the
Company's financial condition, results of its operations or its cash
flows.
(Continued)
-3-
<PAGE> 13
INTEGRATED TECHNOLOGY CORP.
NOTES TO FINANCIAL STATEMENTS
(6) PENSION BENEFITS
The Company has a defined benefit pension plan covering substantially
all of its employees. The benefits are based on years of service and
the employee's compensation during the five years prior to termination
of employment. The following table sets forth the plan's funded status
and amounts recognized in the Company's balance sheet at December 31,
1997:
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $(353,484)
=========
Accumulated benefit obligation $(590,097)
=========
Projected benefit obligation $(914,033)
Plan assets at fair value 494,514
---------
Projected benefit obligation in excess of plan assets (419,519)
Unrecognized net loss 88,755
Prior service cost not yet recognized in net periodic pension cost 244,940
Additional minimum liability (9,759)
---------
Pension liability included in accrued expenses $ (95,583)
=========
</TABLE>
Approximately 56 percent of plan assets are invested in mutual funds.
The remainder of plan assets are invested in a money market fund.
Net pension cost for 1997 included the following components:
<TABLE>
<S> <C>
Service cost - benefits earned during the period $ 109,853
Interest cost on projected benefit obligation 56,106
Actual return on plan assets (52,361)
Net amortization and deferral 38,674
---------
Net pension cost $ 152,272
=========
</TABLE>
Assumptions used in accounting for the pension plan as of December 31,
1997 were:
Discount rates 7.5%
Rates of increase in compensation levels 5.0%
Expected long-term rate of return on assets 8.0%
(7) DUE TO STOCKHOLDER
Due to stockholder represents a loan from the Company's president. This
loan bears no interest and is payable upon demand.
-4-
<PAGE> 14
INTEGRATED TECHNOLOGY CORP.
NOTES TO FINANCIAL STATEMENTS
(8) RELATED PARTY TRANSACTIONS
The Company has entered into an inventory exchange program with Flight
Support, Inc. ("FSI"), owned 49 percent by the sole stockholder and
president of ITC. As of December 31, 1997, included in trade
receivables is an outstanding receivable balance from FSI of $743,365.
Sales to FSI in 1997 amounted to approximately $1,400,000.
The Company pays the premiums for a $10 million key man life insurance
policy for the president of the Company. The policy collateralizes the
borrowings on the Company's lines of credit and an affiliated company's
note payable, related by virtue of common ownership.
(9) BUSINESS AND CREDIT CONCENTRATIONS
The Company's business is impacted by the general economic conditions
of the commercial aviation industry. Airlines and other operators
recognize the need to cut costs, shift inventory requirements, and
conserve capital to sustain profitability. The Company's industry is
also subject to regulation by various governmental agencies with
responsibilities over civil aviation. Increased regulations imposed by
organizations such as the Federal Aviation Administration may
significantly affect industry operations. Accordingly, economic and
regulatory changes in the marketplace may significantly affect
management's estimates and future performance.
The financial instrument which potentially subjects the Company to
concentrations of credit risk is accounts receivable. At December 31,
1997, approximately 43 percent of the Company's accounts receivable,
net of allowances, were represented by five customers. The Company
estimates an allowance for doubtful accounts based on the
creditworthiness of its customers as well as general economic
conditions. For the year ended December 31, 1997, the five largest
customers collectively accounted for approximately 56 percent of the
Company's revenues. Sales to the four largest international customers
accounted for approximately 51 percent of the Company's 1997 revenues.
(10) SUBSEQUENT EVENT
In April 1998, substantially all of the assets of the Company were
acquired by Kellstrom Industries, Inc. ("Kellstrom"). Upon consummation
of this acquisition, the Company's notes payable to bank were assumed
by Kellstrom and immediately paid.
-5-
<PAGE> 15
INTEGRATED TECHNOLOGY CORP.
Condensed Financial Statements
March 31, 1998 and 1997
(Unaudited)
<PAGE> 16
INTEGRATED TECHNOLOGY CORP.
CONDENSED BALANCE SHEETS
March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 841,687 --
Trade receivables, net of allowances for returns and doubtful
accounts of $2,555,451 and $1,806,491, respectively 3,540,174 4,669,318
Inventories 16,815,078 16,169,132
Prepaid expenses 2,017,493 660,695
----------- -----------
Total current assets 23,214,432 21,499,145
----------- -----------
Equipment under operating leases, net 4,603,456 1,422,128
Equipment, net 33,121 35,002
Other assets 19,171 576,671
----------- -----------
Total assets $27,870,180 23,532,946
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Notes payable to bank $ 6,385,000 4,535,000
Accounts payable 5,110,492 8,988,888
Accrued expenses 2,332,762 522,396
Due to stockholder 451,756 2,731
----------- -----------
Total liabilities 14,280,010 14,049,015
----------- -----------
Stockholder's equity:
Common stock, no par value; 1,500 shares authorized; 100 shares
issued and outstanding 100,000 100,000
Retained earnings 13,490,170 9,383,931
----------- -----------
Total stockholder's equity 13,590,170 9,483,931
----------- -----------
Total liabilities and stockholder's equity $27,870,180 23,532,946
=========== ===========
</TABLE>
See accompanying notes to unaudited condensed financial statements.
<PAGE> 17
INTEGRATED TECHNOLOGY CORP.
CONDENSED STATEMENTS OF EARNINGS
For the three-month periods ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Sales of engines and engine parts, net $8,036,576 6,796,547
Rental revenues 538,306 134,020
---------- ----------
Total revenues 8,574,882 6,930,567
---------- ----------
Cost of goods sold 4,997,742 4,316,081
Depreciation of equipment under operating leases 289,317 90,826
Selling, general and administrative expenses 640,591 1,022,181
Depreciation and amortization 3,498 4,252
---------- ----------
Total operating expenses 5,931,148 5,433,340
---------- ----------
Operating income 2,643,734 1,497,227
Interest expense, net of interest income 160,492 96,218
---------- ----------
Net income $2,483,242 1,401,009
========== ==========
</TABLE>
See accompanying notes to unaudited condensed financial statements.
<PAGE> 18
INTEGRATED TECHNOLOGY CORP.
CONDENSED STATEMENTS OF CASH FLOWS
For the three-month periods ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,483,242 1,401,009
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 3,498 4,252
Depreciation of equipment under operating lease 289,317 90,826
Changes in operating assets and liabilities:
Increase in trade receivables, net (2,688,658) (339,664)
Decrease (increase) in inventories 857,779 (2,370,365)
Increase (decrease) in prepaid expenses (318,002) 217,533
Increase in other assets -- (12,600)
Decrease (increase) in accounts payable (1,169,283) 1,541,582
Increase (decrease) in accrued expenses 1,085,830 (110,787)
----------- -----------
Net cash provided by operating activities 543,723 421,786
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (1,235) (3,445)
----------- -----------
Net cash used in investing activities (1,235) (3,445)
----------- -----------
Cash flows used in financing activities:
Borrowings under line of credit with bank 800,000 500,000
Distributions to stockholder (911,112) (1,029,161)
Increase in due to affiliate (16,146) (200)
----------- -----------
Net cash used in financing activities (127,258) (529,361)
Net increase in cash and cash equivalents 415,230 (111,020)
Cash and cash equivalents, beginning of year 426,457 111,020
----------- -----------
Cash and cash equivalents, end of period $ 841,687 --
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 116,159 196,847
=========== ===========
</TABLE>
See accompanying notes to unaudited condensed financial statements.
<PAGE> 19
INTEGRATED TECHNOLOGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 1998 and 1997
(1) BASIS OF PRESENTATION
The accompanying condensed financial statements have been prepared by
Integrated Technology Corp. (the "Company") without audit, pursuant to
generally accepted accounting principles. Certain information and
footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles,
have been condensed or omitted. These condensed financial statements
should be read in conjunction with the financial statements and notes
thereto included in the Company's December 31, 1997 financial
statements.
In the opinion of management of the Company, the condensed financial
statements reflect all adjustments (which consist only of normal
recurring adjustments) necessary to present the condensed financial
position of Integrated Technology Corp. as of March 31, 1998 and 1997
and the condensed results of earnings for the three-month periods ended
March 31, 1998 and 1997 and the condensed statements of cash flows for
the three-month periods ended March 31, 1998 and 1997. The results of
operations for such interim periods are not necessarily indicative of
the results for the full year.
(2) ACQUISITION
In April 1998, substantially all of the assets of the Company were
acquired by Kellstrom Industries, Inc. ("Kellstrom"). Upon consummation
of this acquisition, the Company's notes payable to bank were assumed
by Kellstrom and immediately paid.
<PAGE> 20
KELLSTROM INDUSTRIES, INC.
PRO FORMA CONSOLIDATED COMBINED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
HISTORICAL
------------------------------------------- PRO FORMA PRO FORMA PRO FORMA
KELLSTROM AERO SUPPORT (A) ITC ADJUSTMENTS (B) ADJUSTMENTS (C) COMBINED
----------- ---------------- ----- --------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales of aircraft engine parts, net $ 71,534,539 $ 20,041,644 $ 28,214,141 $ (6,817,932) $ -- $ 112,972,392
Rental revenues 7,904,610 0 738,636 -- 8,643,246
------------- ------------- ------------- ------------- ------------- -------------
Total revenues 79,439,149 20,041,644 28,952,777 (6,817,932) -- 121,615,638
Cost of goods sold (46,800,589) (13,162,382) (17,034,996) 4,161,267 -- (72,836,700)
Depreciation of equipment under
operating leases (4,594,399) -- (449,673) -- -- (5,044,072)
Selling, general and administrative
expenses (8,877,598) (3,690,856) (5,615,848) 856,045 152,272 (17,175,985)
Depreciation and amortization (1,555,673) (68,583) (12,758) 16,500 (211,853) (2,333,448)
(659,517)
158,436
------------- ------------- ------------- ------------- ------------- -------------
Total operating expenses (61,828,259) (16,921,821) (23,113,275) 4,532,731 (59,581) (97,390,205)
Operating income 17,610,890 3,119,823 5,839,502 (2,285,201) (59,581) 24,225,433
Interest expense, net of
interest income (3,991,212) (197,011) (481,812) 197,011 481,812 (7,190,974)
(1,070,437) (2,129,325)
------------- ------------- ------------- ------------- ------------- -------------
Income before income taxes 13,619,678 2,922,812 5,357,690 (3,158,627) (1,707,094) 17,034,459
Income taxes (5,077,159) (196,401) -- 284,163 (1,398,526) (6,387,923)
------------- ------------- ------------- ------------- ------------- -------------
Net income $ 8,542,519 $ 2,726,411 $ 5,357,690 $ (2,874,464) $ (3,105,620) $ 10,646,536
============= ============= ============= ============= ============= =============
Earnings per common share - basic $ 1.18 $ 1.47
============= =============
Earnings per common share - diluted $ 0.95 $ 1.18
============= =============
Weighted avg number of common shares
outstanding - basic 7,266,534 7,266,534
============= ============
Weighted avg number of common shares
outstanding - diluted 9,394,439 9,394,439
============= ============
</TABLE>
See accompanying notes to pro forma consolidated combined statement of earnings.
<PAGE> 21
KELLSTROM INDUSTRIES, INC.
NOTES TO PRO FORMA CONSOLIDATED COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(A) The Registrant acquired substantially all of the assets, and assumed certain
of the liabilities, of Aero Support USA, Inc. ("Aero Support") in September 1997
(the "Aero Support Acquisition"). For complete financial statements of Aero
Support and certain pro forma financial information, see the Form 8-K filed by
the Registrant on September 24, 1997, as amended on November 24, 1997 and
February 27, 1998.
(B) For purposes of presenting the pro forma consolidated combined statement of
earnings, the following adjustments have been made for the Aero Support
acquisition:
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
-----------------
<S> <C>
Increase (decrease) in income:
Reversal of Aero Support revenues for the period
September 10, 1997 to December 31, 1997 $ (6,817,932)
Reversal of Aero Support cost of goods sold for the period
September 10, 1997 to December 31, 1997 4,161,267
Reversal of Aero Support selling, general and administrative expenses
for the period September 10, 1997 to December 31, 1997 856,045
Reversal of Aero Support depreciation and amortization for the period
September 10, 1997 to December 31, 1997 16,500
Amortization of goodwill and non-compete agreement related to Aero Support
Acquisition (659,517)
Elimination of leasehold amortization expense for assets not acquired 158,436
Reduction in interest expense due to pay-off of debt on Aero Support line of credit 197,011
Interest expense on acquisition debt and debt incurred to repay existing Aero
Support line of credit (1,070,437)
--------------
(3,158,627)
Tax effect of pro forma adjustments 284,163
--------------
Net adjustment $ (2,874,464)
==============
</TABLE>
(C) For purposes of presenting the pro forma consolidated combined statement of
earnings, the following adjustments have been made for the ITC acquisition:
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
-----------------
<S> <C>
Increase (decrease) in income:
Amortization of goodwill and non-compete agreement related to ITC acquisition $ (211,853)
Reduction in selling, general and administrative expense due to elimination of pension expense 152,272
Reduction in interest expense due to pay-off of debt on ITC line of credit 481,812
Interest expense on acquisition debt and debt incurred to repay existing ITC line of credit (2,129,325)
-------------
(1,707,094)
Tax effect of pro forma adjustments (1,398,526)
-------------
Net adjustment $ (3,105,620)
=============
Page 2
</TABLE>
<PAGE> 22
KELLSTROM INDUSTRIES, INC.
PRO FORMA CONSOLIDATED COMBINED BALANCE SHEET
DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
--------------------------------------------------------------
HISTORICAL
----------------------------- PRO FORMA PRO FORMA
KELLSTROM ITC ADJUSTMENTS (A) COMBINED
------------- ------------ --------------- ---------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 462,676 $ 426,457 $ -- $ 889,133
Trade receivables, net of allowances for
returns and doubtful accounts 10,189,082 851,516 2,555,451 13,596,049
Notes receivable 2,475,856 -- -- 2,475,856
Inventories 35,965,376 18,972,857 -- 54,938,233
Prepaid expenses 2,646,629 1,699,491 -- 4,346,120
Income tax receivable 531,762 -- -- 531,762
Deferred tax assets 636,115 -- -- 636,115
Investment in securities 425,759 -- -- 425,759
------------- ------------- ------------- -------------
Total current assets 53,333,255 21,950,321 2,555,451 77,839,027
Equipment under operating leases, net 39,932,388 3,592,773 -- 43,525,161
Property, plant and equipment, net 5,027,096 35,384 -- 5,062,480
Goodwill, net 29,775,709 -- 6,714,872 36,490,581
Other assets 6,293,050 19,171 100,000 6,412,221
------------- ------------- ------------- -------------
Total Assets $ 134,361,498 $ 25,597,649 $ 9,370,323 $ 169,329,470
============= ============= ============= =============
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term notes payable $ 6,759,013 $ 5,585,000 $ -- $ 12,344,013
Current maturities of long-term
debt and capital lease
obligations 1,079,787 -- -- 1,079,787
Accounts payable & accrued expenses 11,180,725 7,526,707 813,363 19,870,795
350,000
Due to affiliate -- 467,902 -- 467,902
------------- ------------- ------------- -------------
Total current liabilities 19,019,525 13,579,609 1,163,363 $ 33,762,497
Long-term debt and capital lease obligations,
less current maturities 11,250,000 -- 20,225,000 31,475,000
Convertible subordinated notes 54,000,000 -- -- 54,000,000
Deferred tax liabilities 180,053 -- -- 180,053
------------- ------------- ------------- -------------
Total Liabilities 84,449,578 13,579,609 21,388,363 119,417,550
Stockholders' Equity:
Preferred stock, $.001 par value;
1,000,000 shares authorized; none issued -- -- -- --
Common stock, $.001 par value;
20,000,000 shares authorized; 7,879,356
shares and 3,315,308 shares issued
and outstanding in 1997 and 1996,
respectively 7,879 -- -- 7,879
Common stock, $1 par value; 500 shares
authorized; 200 shares issued and
outstanding -- 100,000 (100,000) --
Additional paid-in-capital 39,027,053 -- -- 39,027,053
Retained earnings 11,555,161 11,918,040 (11,918,040) 11,555,161
Loans receivable from directors and officers (362,415) -- -- (362,415)
Unrealized (loss)/gain on investment securities, (315,758) -- -- (315,758)
------------- ------------- ------------- -------------
Total Stockholders' Equity 49,911,920 12,018,040 (12,018,040) 49,911,920
------------- ------------- ------------- -------------
Total Liabilities and Stockholders' Equity $ 134,361,498 $ 25,597,649 $ 9,370,323 $ 169,329,470
============= ============= ============= =============
</TABLE>
Page 3
See accompanying notes to pro forma consolidated combined balance sheet.
<PAGE> 23
KELLSTROM INDUSTRIES, INC.
NOTES TO PRO FORMA CONSOLIDATED COMBINED BALANCE SHEET
DECEMBER 31, 1997
(UNAUDITED)
(A) For purposes of presenting the pro forma consolidated combined balance
sheet, the following adjustments have been made for the ITC acquisition:
<TABLE>
<CAPTION>
December 31, 1997
-----------------
<S> <C>
Elimination of allowance for doubtful accounts $ 2,555,451
Acquisition related liabilities incurred 350,000
Excess purchase price over fair value of Net Assets Acquired 6,714,872
Non-Compete Agreement 100,000
Elimination of ITC Common Stock (100,000)
Elimination of ITC Accumulated Earnings (11,918,040)
Increase in Credit line 20,225,000
Acquisition related expenses 813,363
</TABLE>
Page 4
<PAGE> 24
KELLSTROM INDUSTRIES, INC.
PRO FORMA CONSOLIDATED COMBINED STATEMENT OF EARNINGS
THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
----------------------------------------------------------
HISTORICAL
---------------------------- PRO FORMA PRO FORMA
KELLSTROM ITC ADJUSTMENTS(A) COMBINED
------------ ------------ -------------- --------
<S> <C> <C> <C> <C>
Sales of aircraft and engine parts, net $ 25,335,696 $ 8,036,576 $ -- $ 33,372,272
Rental revenues 3,754,875 538,306 -- 4,293,181
------------ ------------ ------------ ------------
Total revenues 29,090,571 8,574,882 -- 37,665,453
Cost of goods sold (16,668,164) (4,997,742) -- (21,665,906)
Depreciation of equipment under operating leases (2,043,156) (289,317) -- (2,332,473)
Selling, general and administrative expenses (3,433,955) (640,591) 43,161 (4,031,385)
Depreciation and amortization (593,223) (3,498) (40,785) (637,506)
------------ ------------ ------------ ------------
Total operating expenses (22,738,498) (5,931,148) 2,376 (28,667,270)
Operating income 6,352,073 2,643,734 2,376 8,998,183
Interest expense, net of interest income (1,637,954) (160,492) 160,492 (2,186,805)
(548,851)
------------ ------------ ------------ ------------
Income before income taxes 4,714,119 2,483,242 (385,983) 6,811,378
Income taxes (1,772,509) -- (781,758) (2,554,267)
------------ ------------ ------------ ------------
Net income $ 2,941,610 $ 2,483,242 $ (1,167,741) $ 4,257,111
============ ============ ============ ============
Earnings per common share - basic $ 0.36 $ 0.52
============ ============
Earnings per common share - diluted $ 0.29 $ 0.40
============ ============
Weighted average number of common shares outstanding - basic 8,118,711 8,118,711
============ ============
Weighted average number of common shares outstanding - diluted 11,739,791 11,739,791
============ ============
</TABLE>
See accompanying notes to pro forma consolidated combined statement of earnings.
Page 5
<PAGE> 25
KELLSTROM INDUSTRIES, INC.
NOTES TO PRO FORMA CONSOLIDATED COMBINED STATEMENT OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(A) For purposes of presenting the pro forma consolidated combined statement of
earnings, the following adjustments have been made for the ITC acquisition:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1998
------------------
<S> <C>
Increase (decrease) in income:
Amortization of goodwill and non-compete agreement related to ITC acquisition $ (40,785)
Elimination of pension expense 43,161
Reduction in interest expense due to pay-off of debt on ITC line of credit 160,492
Interest expense on acquisition debt and debt incurred to repay existing ITC
line of credit (548,851)
------------
(385,983)
Tax effect of pro forma adjustments (781,758)
------------
Net adjustment $ (1,167,741)
============
</TABLE>
Page 6
<PAGE> 26
KELLSTROM INDUSTRIES, INC.
PRO FORMA CONSOLIDATED COMBINED STATEMENT OF EARNINGS
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
----------------------------------------------------------
HISTORICAL
----------------------------------- PRO FORMA PRO FORMA PRO FORMA
KELLSTROM AERO SUPPORT ITC ADJUSTMENTS (A) ADJUSTMENTS (B) COMBINED
----------- ------------- --------- --------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sales of aircraft and engine parts, net $ 15,458,916 $ 4,980,911 $ 6,796,547 $ -- $ -- $ 27,236,374
Rental revenues 1,007,157 -- 134,020 -- -- 1,141,177
------------ ------------ ----------- ----------- ----------- ------------
Total revenues 16,466,073 4,980,911 6,930,567 -- -- 28,377,551
Cost of goods sold (10,072,332) (3,213,338) (4,316,081) -- (17,601,751)
Depreciation of equipment under operating leases (654,653) -- (90,826) -- (745,479)
Selling, general and administrative expenses (1,770,329) (1,138,154) (1,022,181) 38,651 (3,892,013)
Depreciation and amortization (288,879) ( 20,366) (4,252) (201,587) (40,785) (503,057)
52,812
------------ ------------ ----------- ----------- ----------- ------------
Total operating expenses (12,786,193) (4,371,858) (5,433,340) (148,775) (2,134) (22,742,300)
Operating income 3,679,880 609,053 1,497,227 (148,775) (2,134) 5,635,251
Interest expense, net of interest income (1,035,858) (69,351) (96,218) 69,351 96,218 (1,917,535)
(332,826) (548,851)
------------ ------------ ----------- ----------- ----------- ------------
Income before income taxes 2,644,022 539,702 1,401,009 (412,250) (454,767) 3,717,716
Income taxes (984,654) -- (54,649) (361,695) (1,400,998)
------------ ------------ ----------- ----------- ----------- ------------
Net income $ 1,659,368 $ 539,702 $ 1,401,009 (466,899) $ (816,462) $ 2,316,718
============ ============ =========== =========== =========== ============
Earnings per common share - basic $ 0.29 $ 0.40
============ ============
Earnings per common share - diluted $ 0.21 $ 0.29
============ ============
Weighted average number of common shares
outstanding - basic 5,725,255 5,725,255
============ ============
Weighted average number of common shares
outstanding - diluted 7,922,924 7,922,924
============ ============
</TABLE>
See accompanying notes to pro forma consolidated combined statement of earnings.
Page 7
<PAGE> 27
KELLSTROM INDUSTRIES, INC.
NOTES TO PRO FORMA CONSOLIDATED COMBINED STATEMENT OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(A) For purposes of presenting the pro forma consolidated combined statement of
earnings, the following adjustments have been made for the Aero Support
acquisition:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1997
------------------
<S> <C>
Increase (decrease) in income:
Amortization of goodwill and non-compete agreement related to Aero Support acquisition $ (201,587)
Elimination of leasehold amortization expense for assets not acquired 52,812
Reduction in interest expense due to pay-off of debt on Aero Support line of credit 69,351
Interest expense on acquisition debt and debt incurred to repay existing Aero Support
line of credit (332,826)
-----------
(412,250)
Tax effect of pro forma adjustments (54,649)
-----------
Net adjustment $ (466,899)
===========
</TABLE>
(B) For purposes of presenting the pro forma consolidated combined statement of
earnings, the following adjustments have been made for the ITC acquisition:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1997
------------------
<S> <C>
Increase (decrease) in income:
Amortization of goodwill and non-compete agreement related to ITC acquisition $ (40,785)
Elimination of pension expense 38,651
Reduction in interest expense due to pay-off of debt on ITC line of credit 96,218
Interest expense on acquisition debt and debt incurred to repay existing ITC
line of credit (548,851)
-----------
(454,767)
Tax effect of pro forma adjustments (361,695)
-----------
Net adjustment $ (816,462)
===========
</TABLE>
Page 8
