<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-23764
KELLSTROM INDUSTRIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3753725
- -------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
14000 N.W. 4TH ST., SUNRISE, FLORIDA 33325
- ------------------------------------ -----
(Address of principal executive offices) (Zip Code)
(954) 845-0427
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date: 8,368,561 shares of
common stock, $.001 par value per share, were outstanding as of April 30, 1998.
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KELLSTROM INDUSTRIES, INC.
--------------------------
INDEX
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<TABLE>
<CAPTION>
Page
----
PART I
------
<S> <C>
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Earnings 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II
-------
Item 4 - Matters Submitted to a Vote of Security Holders 12
Item 5 - Other Information 12
Item 6 - Exhibits and Reports on Form 8-K 16
</TABLE>
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
KELLSTROM INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, 1998 December 31, 1997
-------------------- ------------------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 700,548 $ 462,676
Trade receivables, net of allowances for returns and
doubtful accounts of $350,796 and $335,786 in 1998
and 1997, respectively 14,808,120 10,189,082
Notes receivable -- 2,475,856
Inventories 48,530,789 35,965,376
Prepaid expenses and other current assets 1,246,379 2,646,629
Income tax receivable -- 531,762
Deferred tax assets 693,824 636,115
Investment in securities 162,740 425,759
-------------- ----------------
Total current assets 66,142,400 53,333,255
Equipment under operating leases, net 72,173,042 39,932,388
Preperty, plant and equipment, net 6,132,273 5,027,096
Goodwill, net 29,413,528 29,775,709
Other assets 6,350,586 6,293,050
-------------- ----------------
Total Assets $ 180,211,829 $ 134,361,498
============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term notes payable $ -- $ 6,759,013
Currrent maturities of long-term debt -- 1,079,787
Accounts payable 9,927,653 6,183,762
Accrued expenses 3,103,762 4,996,963
Income taxes payable 1,368,815 --
-------------- ----------------
Total current liabilities 14,400,230 19,019,525
Long-term debt, less current maturities 57,960,732 11,250,000
Convertible subordinated notes 54,000,000 54,000,000
Deferred tax liabilities 321,064 180,053
-------------- ----------------
Total Liabilities 126,682,026 84,449,578
Stockholders' Equity:
Preferred stock, $.001 par value; 1,000,000 shares authorized;
none issued -- --
Common stock, $.001 par value; 20,000,000 shares authorized;
8,185,255 and 7,879,356 shares issued and
outstanding in 1998 and 1997, respectively 8,185 7,879
Additional paid-in capital 39,376,323 39,027,053
Retained earnings 14,496,771 11,555,161
Loans receivable from directors and officers (339,311) (362,415)
Unrealized loss on investment securities, net (12,165) (315,758)
-------------- ----------------
Total Stockholders' Equity 53,529,803 49,911,920
-------------- ----------------
Total Liabilities and Stockholders' Equity $ 180,211,829 $ 134,361,498
============== ================
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
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KELLSTROM INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
Sales of aircraft and engine parts, net $ 25,335,696 $ 15,458,916
Rental revenues 3,754,875 1,007,157
------------ ------------
Total revenues 29,090,571 16,466,073
Cost of goods sold (16,668,164) (10,072,332)
Depreciation of equipment under operating leases (2,043,156) (654,653)
Selling, general and administrative expenses (3,433,955) (1,770,329)
Depreciation and amortization (593,223) (288,879)
------------ ------------
Total operating expenses (22,738,498) (12,786,193)
Operating income 6,352,073 3,679,880
Interest expense (1,714,723) (1,102,742)
Interest income 76,769 66,884
------------ ------------
Income before income taxes 4,714,119 2,644,022
Income taxes (1,772,509) (984,654)
------------ ------------
Net income $ 2,941,610 $ 1,659,368
============ ============
Earnings per common share - basic $ 0.36 $ 0.29
============ ============
Earnings per common share - diluted $ 0.29 $ 0.21
============ ============
Weighted average number of common shares outstanding - basic 8,118,711 5,725,255
============ ============
Weighted average number of common shares outstanding - diluted 11,739,791 7,922,924
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE> 5
KELLSTROM INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,941,610 $ 1,659,368
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization 593,223 288,879
Depreciation of equipment under operating leases 2,043,156 654,653
Amortization of deferred financing costs 284,700 246,838
Purchase of equipment under operating leases (39,635,531) --
Deferred income taxes (131,712) (752)
Loss on sales of investment securities 56,934 --
Changes in operating assets and liabilities:
Increase in trade receivables, net (4,619,038) (2,652,130)
Increase in inventory (7,213,692) (192,727)
Decrease in prepaid expenses and other current assets 3,876,106 303,743
Decrease in income tax receivable 531,762 --
Decrease in other assets 53,246 130,540
(Decrease) increase in accounts payable 3,735,854 (1,550,116)
Decrease in accrued expenses (1,893,201) (633,104)
Increase in income taxes payable 1,367,922 840,406
------------ ------------
Net cash used in operating activities (38,008,661) (904,402)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of IASI assets, net of cash acquired -- (25,053,141)
Proceeds from the sale of investment securities 692,856 --
Purchases of property, plant and equipment (1,234,519) (111,269)
Other (47,700) --
------------ ------------
Net cash used in investing activities (589,363) (25,164,410)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit agreements 41,560,342 --
Proceeds from the issuance of debt -- 32,618,696
Debt repayment, including capital lease obligations (2,688,410) (18,412,235)
Proceeds from the issuance of common stock 357,613 20,647,414
Net repayments for corporate loans 23,104 --
Payment of deferred financing costs (416,753) (1,299,784)
------------ ------------
Net cash provided by financing activities 38,835,896 33,554,091
------------ ------------
NET INCREASE IN CASH & CASH EQUIVALENTS 237,872 7,485,279
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD 462,676 154,254
------------ ------------
CASH & CASH EQUIVALENTS, END OF PERIOD $ 700,548 $ 7,639,533
============ ============
</TABLE>
(continued)
See accompanying notes to condensed consolidated financial statements
5
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KELLSTROM INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(continued)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Supplemental disclosures of non-cash investing and financing activities:
IASI assets acquired for warrants $ -- $ 1,173,134
=========== ===========
Deferred financing costs paid through the issuance of warrants $ -- $ 1,530,446
=========== ===========
Net transfer of equipment under operating leases to inventories $ 5,351,721 $ --
=========== ===========
Unrealized gain/(loss) on investment securities, net $ 303,593 $ (58,148)
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,072,093 $ 448,745
=========== ===========
Income taxes $ 200,750 $ 177,596
=========== ===========
Supplemental disclosures of purchase of IASI assets, net of liabilities:
Cash $ 36,709
Receivables 1,621,664
Inventory 27,275,861
Prepaid expenses and other current assets 1,132,400
Property, plant and equipment 74,865
Goodwill 14,055,172
Other assets 26,177
-----------
Total assets $44,222,848
===========
Accrued expenses $ 2,350,280
Accounts payable 1,530,786
Notes payable 14,078,798
-----------
Total liabilities $17,959,864
===========
Net acquisition cost 26,262,984
Less warrants issued to seller 1,173,134
-----------
Cash paid to seller at closing 25,089,850
Less cash acquired 36,709
-----------
Net cash used in acquisition $25,053,141
===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
6
<PAGE> 7
KELLSTROM INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Kellstrom Industries, Inc. and its subsidiaries (the
"Company") after elimination of intercompany accounts and transactions.
These statements have been prepared by the Company without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). The condensed consolidated balance sheet as of
December 31, 1997 has been derived from audited financial statements. In
order to prepare the financial statements in conformity with generally
accepted accounting principles, management has made a number of estimates
and assumptions relating to the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities. Actual
results could differ from those estimates. Certain information and
footnote disclosures, normally included in financial statements prepared
in accordance with generally accepted accounting principles, have been
condensed or omitted pursuant to such rules and regulations of the SEC.
These condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in
the Company's latest annual report on Form 10-K.
In the opinion of management of the Company, the condensed consolidated
financial statements reflect all adjustments (which consist only of
normal recurring adjustments) necessary to present fairly the condensed
consolidated financial position of Kellstrom Industries, Inc. and its
subsidiaries as of March 31, 1998, and the condensed consolidated results
of earnings for the three month periods ended March 31, 1998 and 1997 and
the condensed consolidated 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.
NOTE 2 - ACQUISITIONS
On April 1, 1998, the Company through a wholly-owned subsidiary,
Integrated Technology Holdings Corp. Inc., completed the acquisition of
substantially all of the assets and assumed certain liabilities of
privately held Integrated Technology Corp. ("ITC") for approximately
$20.2 million in cash plus an earn-out payable over a three-year period
based on certain specified criteria. In addition, the Company received a
three-year option to purchase a 49% interest in a related FAA-approved
overhaul facility. The Company funded the purchase from its current
banking facility.
NOTE 3 - EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 128, "Earnings per Share." All prior
period earnings per share data presented were restated to conform with
the provisions of SFAS No. 128. Basic and diluted earnings per share for
the three months ended March 31, 1998 and 1997 were calculated based on
the following:
7
<PAGE> 8
1998 1997
---- ----
BASIC EARNINGS PER COMMON SHARE:
Net income $ 2,941,610 $ 1,659,368
=========== ===========
Weighted average common shares outstanding 8,118,711 5,725,255
=========== ===========
Basic earnings per common share $ 0.36 $ 0.29
=========== ===========
DILUTED EARNINGS PER COMMON SHARE:
Net income $ 2,941,610 $ 1,659,368
Income adjustment relating to reduction of
debt based on the if converted method 484,380 --
----------- -----------
Net income available to common and common
equivalent shares $ 3,425,990 $ 1,659,368
=========== ===========
Weighted average common shares outstanding 8,118,711 5,725,255
Net effect of dilutive stock options and warrant
based on the treasury stock method 1,657,444 2,197,669
Net effect of dilutive convertible subordinated
notes based on the if converted method 1,963,636 --
----------- -----------
Weighted average common shares outstanding - diluted 11,739,791 7,922,924
=========== ===========
Diluted earnings per common share $ 0.29 $ 0.21
=========== ===========
NOTE 4 - COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires that all items recognized
under accounting standards as components of comprehensive income be
reported in an annual financial statement that is displayed with the same
prominence as other annual financial statements. The Company's total
comprehensive income, comprised of unrealized gain/(loss) on investment
securities, for the three months ended March 31, 1998 and 1997 was as
follows:
1998 1997
---- ----
Net income $ 2,941,610 $ 1,659,368
Other comprehensive income, net of taxes 360,527 (58,148)
----------- -----------
Total comprehensive income $ 3,302,137 $ 1,601,220
=========== ===========
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following should be read in conjunction with the Company's
consolidated financial statements and the related notes thereto included
elsewhere herein.
This Report contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 with respect to
the Company's business, financial condition and results of operations. The words
"estimate," "project," "intend," "expect," and similar expressions are intended
to identify forward-looking statements. These forward-looking statements are
subject to risks and uncertainties that could cause actual results to differ
materially from those contemplated in such forward-looking statements, including
those described below. Investors are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
On April 1, 1998, the Company through a wholly-owned subsidiary,
Integrated Technology Holdings Corp. Inc., completed the acquisition of
substantially all of the assets and assumed certain liabilities of privately
held Integrated Technology Corp. ("ITC") for approximately $20.2 million in cash
plus an earn-out payable over a three-year period based on certain specified
criteria. In addition, the Company received a three-year option to purchase a
49% interest in a related FAA-approved overhaul facility. The Company funded the
purchase from its current banking facility.
The Company has only a limited operating history upon which an
evaluation of the Company and its prospects can be based. Although the Company
has historically experienced increasing net sales and operating results, the
Company may experience significant fluctuations in its gross margins and
operating results in the future, both on an annual and a quarterly basis, caused
by various factors, including general economic conditions, specific economic
conditions in the commercial aviation industry, the availability, package size
and price of surplus aviation material, the size and timing of customer orders,
returns by and allowances to customers and the cost of capital to the Company.
In a strategic response to a changing, competitive environment, the Company may
elect from time to time to make certain pricing, product or marketing decisions,
and any such decisions could have a material adverse effect on the Company's
periodic results of operations, including net sales and net income from quarter
to quarter. A large portion of the Company's operating expenses are relatively
fixed. Since the Company typically does not obtain long-term purchase orders or
commitments from its customers with respect to the sale of engines or engine
parts, it must anticipate the future volume of orders based upon the historic
purchasing patterns of its customers and upon its discussions with its customers
as to their future requirements. Cancellations, reductions or delays in orders
by a customer or group of customers could have a material adverse effect on the
Company's business, consolidated financial condition, results of operations or
cash flows. Therefore, comparisons of recent net sales and operating results of
the Company should not be taken as indicative of the results of operations that
can be expected in the future. There can be no assurance that the net sales and
operating results of the Company will continue at their current levels or will
grow, or that the Company will be able to achieve sustained profitability on a
quarterly or annual basis.
RESULTS OF OPERATIONS.
Net sales of aircraft and engine parts increased by 64% to $25,335,696
for the three months ended March 31, 1998 as compared with $15,458,916 for the
three months ended March 31, 1997. The increase in net sales of aircraft and
engine parts was primarily due to (i) internal growth of sales of approximately
$4,320,000 primarily due to additional inventory availability as a result of the
Company's increased capital resources, and (ii) incremental sales of
approximately $5,557,000 related to the acquisition of the Aero Support
operations.
9
<PAGE> 10
Rental revenues increased by 273% to $3,754,875 for the three months
ended March 31, 1998 as compared with $1,007,157 for the three months ended
March 31, 1997. The increase in rental revenues was primarily due to the
Company's continued expansion into the short-term leasing business through
purchases of individual leased assets resulting in increased rental revenues.
Cost of goods sold increased by 65% to $16,668,164 for the three months
ended March 31, 1998 as compared to $10,072,332 for the three months ended March
31, 1997; the gross profit margin decreased to 34.2% in 1998 from 34.8% in 1997.
The increase in cost of goods sold was primarily due to increased sales volume
across all product lines.
Depreciation of equipment under operating leases increased by 212% to
$2,043,156 for the three months ended March 31, 1998 as compared with $654,653
for the three months ended March 31, 1997. The increase in depreciation of
equipment under operating leases was primarily due to the Company's continued
expansion into the short-term leasing business through purchases of individual
leased assets resulting in increased depreciation expense.
Selling, general and administrative expenses increased by 94% to
$3,433,955 for the three months ended March 31, 1998 as compared to $1,770,329
for the three months ended March 31, 1997 which resulted in an increase as a
percentage of total revenues to 11.8% in 1998 from 10.8% in 1997. The increase
in selling, general and administrative expenses was primarily the result of (i)
expenses of approximately $675,000 related to the continuing operations of Aero
Support, and (ii) expenses of approximately $989,000 from the continued
expansion of the Company's sales and warehouse operations in order to support a
higher level of revenue and a corresponding greater number of whole engine and
engine component transactions, and the continued addition of marketing and
management personnel necessary to achieve and administer the revenue growth
opportunities that are available due to the Company's expanded level of
inventory investment. The Company expects selling, general and administrative
expenses to continue to increase due to the Company's growth plans and need for
additional personnel and facilities to support the Company's operations.
Depreciation and amortization expense increased by 105% to $593,223 for
the three months ended March 31, 1998 as compared with $288,879 for the three
months ended March 31, 1997 which resulted in an increase as a percentage of
total revenues to 2.0% in 1998 from 1.8% in 1997. The increase in depreciation
and amortization expense is primarily the result of amortization of goodwill
related to the Aero Support acquisition.
Interest expense (net of interest income) increased by 58% to
$1,637,954 for the three months ended March 31, 1998 as compared to $1,035,858
for the three months ended March 31, 1997. The increase in interest expense was
primarily due to interest expense and related costs of approximately $350,000
from the $17,300,000 of debt related to the acquisition of Aero Support, as well
as increased borrowings by the Company during 1998 necessary to expand the
Company's inventory levels. The Company expects interest expense to continue to
increase as the Company continues to expand its inventory levels and facilities
to support future growth in operations and completes acquisitions funded by
debt. There can be no assurance, however, that the Company's operations will
expand or that it will complete any material acquisitions.
Net income increased by 77% to $2,941,610 for the three months ended
March 31, 1998 as compared to $1,659,368 for the three months ended March 31,
1997. Basic earnings per common share increased by 24% to $0.36 for the three
months ended March 31, 1998 as compared to $0.29 for the three months ended
March 31, 1997. Diluted earnings per common share increased by 38% to $0.29 for
the three months ended March 31, 1998 as compared to $0.21 for the three months
ended March 31, 1997.
10
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES.
As of March 31, 1998, the Company's liquidity and capital resources
included cash and cash equivalents of $700,548 and working capital of
$51,742,170. As of March 31, 1998, total outstanding debt was $111,960,732 as
compared to $73,088,800 as of December 31, 1997. As of March 31, 1998, the
outstanding principal balance on the 144A Notes was $54,000,000 and the Company
had contractual lines of credit totaling $100,000,000 of which $47,449,031 was
available.
Cash flows used in operating activities for the three months ended
March 31, 1998 was $38,008,661 as compared to $904,402 for the three months
ended March 31, 1997. The primary uses of cash for operating activities during
the three months ended March 31, 1998 was due to purchases of equipment under
operating leases of $39,635,531 and an increase in inventory and trade
receivables with a corresponding decrease in accrued expenses which amounted to
$13,725,931. The primary sources of cash for operating activities for the three
months ended March 31, 1998 was due to an increase in prepaid expenses and other
current assets and an increase in accounts payable and income taxes payable
which amounted to $8,979,882, coupled with net income of $2,941,610 and total
depreciation and amortization of $2,921,079.
Cash flows used in investing activities for the three months ended
March 31, 1998 was $589,363 compared to $25,164,410 for the three months ended
March 31, 1997. The primary uses of cash for investing activities for the three
months ended March 31, 1998 related to purchases of property, plant and
equipment of $1,234,519. The primary sources of cash for investing activities
for the three months ended March 31, 1998 related to proceeds from the sales of
investment securities of $692,856.
Cash flows provided by financing activities for the three months ended
March 31, 1998 was $38,835,896 compared to $33,554,091 for the three months
ended March 31, 1997. The primary uses of cash for financing activities for the
three months ended March 31, 1998 related to debt repayments of $2,688,410 and
payments of deferred financing costs of $416,753. The primary sources of cash
for financing activities for the three months ended March 31, 1998 related to
borrowings under the line of credit of $41,560,342 and proceeds from the
issuance of common stock of $357,613.
On March 11, 1998, in order to expand its current credit facility, the
Company entered into a three year $100,000,000 revolving loan agreement with
Barnett Bank, N.A., a wholly-owned subsidiary of NationsBank Corp. The loan
bears interest at 1/4% below Barnett Bank's prime rate (which was 8 1/4% at May
6, 1998), or at the Company's option, LIBOR plus 175 - 275 basis points. The
expanded credit facility is secured by substantially all of the Company's
assets.
During the three months ended March 31, 1998, the Company's highest
utilization of its Barnett Bank $100,000,000 line of credit was $46,710,732. The
outstanding balance at March 31, 1998 on the Barnett Bank revolving credit
facility was $46,710,732.
The Company plans to take advantage of growth opportunities that are
consistent with the Company's expansion and profit objectives. These growth
opportunities will require the investment of cash into inventories of jet
engines and jet engine parts. Greater availability of such inventories will
better enable the Company to continue to increase its revenues as well as to
encourage the development of strategic relationships with new customers. The
Company intends to finance its inventory expansion program through its credit
facilities, which were expanded in March 1998, and through the employment of its
cash flows along with the management of trade credits. In the future, the
Company may require additional sources of capital to continue to fund its
expansion.
The Company's management believes that cash flow from operations,
combined with the Company's borrowing facilities should be sufficient for the
Company's current level of operations. In addition, the Company continues to
evaluate the expansion of its credit facility and to increase inventory
purchases. However, the
11
<PAGE> 12
Company may elect to seek equity capital in the future depending upon market
conditions and the capital needs of the Company.
RECENT ACCOUNTING PRONOUNCEMENTS.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that these enterprises report
selected information about operating segments in interim financial reports to
shareholders. SFAS 131 is effective for financial statements for periods
beginning after December 15, 1997. Management does not anticipate a significant
impact of the adoption of SFAS 131 on the Company's consolidated financial
position, results of operations or cash flows.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS 132 standardizes the
disclosure requirements of SFAS 87 and SFAS 106 to the extent practicable and
recommends a parallel format for presenting information about pensions and
other postretirement benefits. SFAS 132 is effective for fiscal years
beginning after December 15, 1997. Management does not anticipate a
significant impact of the adoption of SFAS 132 on the Company's consolidated
financial position, results of operations or cash flows.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS - UNAUDITED
The condensed consolidated statement of earnings of the Company for the
three months ended March 31, 1998 are the Company's actual results, as
they reflect the operations of Aero Support Holdings, Inc. ("Aero
Support") for the entire period being presented. The pro forma
condensed consolidated statement of earnings of the Company for the
three months ended March 31, 1997 are based on historical financial
statements of the Company and have been adjusted to reflect the
acquisition of Aero Support USA, Inc. as though the companies had
combined at the beginning of the periods being reported.
The Company acquired substantially all of the assets and operations of
Aero Support USA, Inc. on September 10, 1997. The pro forma condensed
consolidated statement of earnings do not purport to be indicative of
results that would have occurred had the acquisition been in effect for
the periods presented, nor do they purport to be indicative of the
results that will be obtained in the future. The pro forma condensed
consolidated financial information is based on certain assumptions and
adjustments described in the notes hereto and should be read in
conjunction therewith.
12
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KELLSTROM INDUSTRIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
------------ ------------
Kellstrom Pro Forma
Actual Combined
------------ ------------
<S> <C> <C>
Sales of aircraft and engine parts, net $ 25,335,696 $ 20,439,827
Rental revenues 3,754,875 1,007,157
------------ ------------
Total revenues 29,090,571 21,446,984
Cost of goods sold (16,668,164) (13,285,670)
Depreciation of equipment under operating leases (2,043,156) (654,653)
Selling, general and administrative expenses (3,433,955) (2,908,483)
Depreciation and amortization (593,223) (458,020)
------------ ------------
Total operating expenses (22,738,498) (17,306,826)
Operating income 6,352,073 4,140,158
Interest expense, net of interest income (1,637,954) (1,368,684)
------------ ------------
Income before income taxes 4,714,119 2,771,474
Income taxes (1,772,509) (1,039,303)
------------ ------------
Net income $ 2,941,610 $ 1,732,171
============ ============
Earnings per common share - basic $ 0.36 $ 0.30
============ ============
Earnings per common share - diluted $ 0.29 $ 0.22
============ ============
Weighted average number of common shares outstanding - basic 8,118,711 5,725,255
============ ============
Weighted average number of common shares outstanding - diluted 11,739,791 7,922,924
============ ============
</TABLE>
Unaudited - See accompanying notes to pro forma condensed consolidated
statements of earnings
13
<PAGE> 14
KELLSTROM INDUSTRIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
THREE MONTHS ENDED MARCH 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Historical
---------------------------- Pro Forma Pro Forma
Kellstrom Aero Support Adjustments Combined
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales of aircraft and engine parts, net $ 15,458,916 $ 4,980,911 -- $ 20,439,827
Rental revenues 1,007,157 -- -- 1,007,157
------------ ------------ ------------ ------------
Total revenues 16,466,073 4,980,911 -- 21,446,984
Cost of goods sold (10,072,332) (3,213,338) -- (13,285,670)
Depreciation of equipment under operating leases (654,653) -- -- (654,653)
Selling, general and administrative expenses (1,770,329) (1,138,154) -- (2,908,483)
Depreciation and amortization (288,879) (20,366) (201,587) (458,020)
52,812
------------ ------------ ------------ ------------
Total operating expenses (12,786,193) (4,371,858) (148,775) (17,306,826)
Operating income 3,679,880 609,053 (148,775) 4,140,158
Interest expense, net of interest income (1,035,858) (69,351) 69,351 (1,368,684)
(332,826)
------------ ------------ ------------ ------------
Income before income taxes 2,644,022 539,702 (412,250) 2,771,474
Income taxes (984,654) -- (54,649) (1,039,303)
------------ ------------ ------------ ------------
Net income $ 1,659,368 $ 539,702 $ (466,899) $ 1,732,171
============ ============ ============ ============
Earnings per common share - basic $ 0.29 $ 0.30
============ ============
Earnings per common share - diluted $ 0.21 $ 0.22
============ ============
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>
14
<PAGE> 15
KELLSTROM INDUSTRIES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
(A) For purposes of presenting the pro forma consolidated combined statement
of earnings, the following adjustments have been made:
<TABLE>
<CAPTION>
Year 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>
15
<PAGE> 16
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 - Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K.
The Company filed a Report on Form 8-K dated April 14, 1998,
which included a copy of a press release regarding the purchase
of substantially all the assets and certain liabilities of
Integrated Technology Corp.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 13, 1998 KELLSTROM INDUSTRIES, INC.
(Registrant)
/s/ Michael W. Wallace
------------------------------
Michael W. Wallace
Chief Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
KELLSTROM INDUSTRIES, INC. BALANCE SHEET AND STATEMENT OF EARNINGS FOR THE
PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 701
<SECURITIES> 163
<RECEIVABLES> 14,808
<ALLOWANCES> 351
<INVENTORY> 48,531
<CURRENT-ASSETS> 66,142
<PP&E> 7,418
<DEPRECIATION> 1,286
<TOTAL-ASSETS> 180,212
<CURRENT-LIABILITIES> 14,400
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 53,522
<TOTAL-LIABILITY-AND-EQUITY> 180,212
<SALES> 29,091
<TOTAL-REVENUES> 29,091
<CGS> 16,668
<TOTAL-COSTS> 22,738
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,638
<INCOME-PRETAX> 4,714
<INCOME-TAX> 1,773
<INCOME-CONTINUING> 2,942
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,942
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.29
</TABLE>
