<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, 2000
[ ] 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.)
1100 INTERNATIONAL PARKWAY, SUNRISE, FLORIDA 33323
- -------------------------------------------- -----
(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: 11,910,981 shares of
common stock, $.001 par value per share, were outstanding as of April 30, 2000.
1
<PAGE> 2
KELLSTROM INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
PART I
<S> <C> <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............................................................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk ......................... 14
PART II
Item 1. Legal Proceedings................................................................... 15
Item 2. Changes in Securities and Use of Proceeds........................................... 15
Item 3. Defaults Upon Senior Securities..................................................... 15
Item 4. Submission of Matters to a Vote of Security Holders................................. 15
Item 5. Other Information................................................................... 15
Item 6. Exhibits and Reports on Form 8-K.................................................... 16
</TABLE>
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
KELLSTROM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, 2000 December 31, 1999
-------------- -----------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 672,987 $ 272,140
Trade receivables, net of allowances for returns and
doubtful accounts of $7,994,693 and $8,575,684
for 2000 and 1999, respectively 54,749,207 60,674,708
Inventories 208,047,098 194,490,995
Equipment under short-term operating leases, net 92,068,563 92,135,910
Prepaid expenses 8,906,284 5,199,429
Deferred tax assets 6,172,819 8,280,101
-------------- --------------
Total current assets 370,616,958 361,053,283
Equipment under long-term operating leases, net 47,351,822 58,001,190
Property, plant and equipment, net 25,750,258 25,339,940
Goodwill, net 86,389,434 87,825,058
Other assets 8,165,021 9,225,952
-------------- --------------
Total Assets $ 538,273,493 $ 541,445,423
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term notes payable $ 2,145,920 $ 2,145,920
Current maturities of long-term debt 200,000 200,000
Accounts payable 20,058,562 17,713,220
Accrued expenses 18,275,888 18,133,718
-------------- --------------
Total current liabilities 40,680,370 38,192,858
Long-term debt, less current maturities 177,735,399 183,493,805
Convertible subordinated notes 140,250,000 140,250,000
Deferred tax liabilities 7,778,739 8,295,682
-------------- --------------
Total Liabilities 366,444,508 370,232,345
Stockholders' Equity:
Common stock, $ .001 par value; 50,000,000 shares authorized;
11,910,981 shares issued and outstanding
in 2000 and 1999 11,911 11,911
Additional paid-in capital 121,103,652 121,103,653
Retained earnings 52,332,212 51,668,184
Loans receivable from directors and officers (1,615,022) (1,572,730)
Accumulated other comprehensive (loss) income (3,768) 2,060
-------------- --------------
Total Stockholders' Equity 171,828,985 171,213,078
-------------- --------------
Total Liabilities and Stockholders' Equity $ 538,273,493 $ 541,445,423
============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE> 4
KELLSTROM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Sales revenues, net $ 67,834,564 $ 68,712,095
Rental revenues 6,636,480 10,343,914
------------ ------------
Total revenues 74,471,044 79,056,009
Cost of goods sold 48,334,234 47,383,319
Depreciation of equipment under operating leases 5,637,583 6,296,419
Selling, general and administrative expenses 11,592,261 8,495,510
Depreciation and amortization 1,550,941 1,201,400
------------ ------------
Total operating expenses 67,115,019 63,376,648
Operating income 7,356,025 15,679,361
Interest expense, net of interest income 6,296,968 4,157,673
------------ ------------
Income before income taxes 1,059,057 11,521,688
Income taxes 395,029 4,373,360
------------ ------------
Net income $ 664,028 $ 7,148,328
============ ============
Earnings per common share - basic $ 0.06 $ 0.61
============ ============
Earnings per common share - diluted $ 0.06 $ 0.47
============ ============
Weighted average number of common shares
outstanding - basic 11,910,981 11,773,265
============ ============
Weighted average number of common shares
outstanding - diluted 11,973,228 17,820,915
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE> 5
KELLSTROM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 664,028 $ 7,148,328
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,550,941 1,201,400
Depreciation of equipment under operating leases 5,637,583 6,296,419
Amortization of deferred financing costs 519,159 485,619
Deferred income taxes 1,590,339 (2,358,461)
Changes in operating assets and liabilities:
Decrease (increase) in trade receivables, net 7,278,036 (6,099,026)
Increase in inventories (13,253,337) (7,020,536)
Decrease (increase) in equipment under operating leases 5,079,132 (15,636,051)
(Increase) decrease in prepaid expenses and other current assets (2,319,045) 349,976
Decrease (increase) in other assets 482,771 (1,045,092)
Increase in accounts payable 2,345,342 7,636,148
Increase (decrease) in accrued expenses 381,844 (1,008,263)
(Decrease) increase in income taxes payable (1,387,810) 5,547,207
-------------- --------------
Net cash provided by (used in) operating activities 8,568,983 (4,502,332)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition earn-out payments (1,333,332) (4,932,999)
Purchase of property, plant and equipment (1,034,106) (1,674,450)
-------------- --------------
Net cash used in investing activities (2,367,438) (6,607,449)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit agreement (5,758,406) 11,313,003
Debt repayment, including capital lease obligation -- (6,385)
Proceeds from the issuance of common stock -- 180,940
Loans to directors and officers (42,292) 18,103
Payment of deferred financing costs -- (403,221)
-------------- --------------
Net cash (used in) provided by financing activities (5,800,698) 11,102,440
-------------- --------------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS 400,847 (7,341)
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD 272,140 1,107,102
-------------- --------------
CASH & CASH EQUIVALENTS, END OF PERIOD $ 672,987 $ 1,099,761
============== ==============
</TABLE>
(continued)
See accompanying notes to condensed consolidated financial statements
5
<PAGE> 6
KELLSTROM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4,592,622 $ 1,822,696
============ ============
Income taxes $ -- $ 1,184,614
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
6
<PAGE> 7
KELLSTROM INDUSTRIES, INC. AND SUBSIDIARIES
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, 1999 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 the Company as
of March 31, 2000, the condensed consolidated results of operations
for the three month periods ended March 31, 2000 and 1999, and the
condensed consolidated statements of cash flows for the three month
periods ended March 31, 2000 and 1999. The results of operations for
such interim periods are not necessarily indicative of the results for
the full year.
NOTE 2 - ACQUISITIONS
On April 29, 1999, the Company acquired all of the outstanding capital
stock of Certified Aircraft Parts, Inc. ("Certified") for $16.7
million in cash, and assumed $2.7 million in debt.
NOTE 3 - EARNINGS PER SHARE
Diluted earnings per share for the three month periods ended March 31,
2000 and 1999 were calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net income $ 664,028 $ 7,148,328
Income adjustment relating to reduction of debt
based on the if converted method -- 1,216,557
------------ ------------
Net income available to common and
common equivalent shares $ 664,028 $ 8,364,885
============ ============
Weighted average number of common shares
outstanding - basic 11,910,981 11,773,265
Dilutive common stock equivalents from stock
options and warrants based on the treasury
stock method 62,247 1,430,168
Dilutive convertible subordinated notes based
on the if converted method -- 4,617,482
------------ ------------
Weighted average number of common shares
outstanding - diluted 11,973,228 17,820,915
============ ============
</TABLE>
7
<PAGE> 8
NOTE 4 - SEGMENT REPORTING
The Company is organized based on the products that it offers. Under
this organizational structure, the Company has four reportable
segments: (i) Commercial Engine Parts, (ii) Defense, (iii) Whole Engine
and Aircraft and (iv) Airframe Avionics and Rotables. The Commercial
Engine Parts segment is involved in the business of inventory
management through purchasing, overhauling (primarily through
subcontractors), reselling and leasing of engine parts for large
turbo-fan engines manufactured by CFM International, General Electric,
Pratt & Whitney and Rolls Royce. The Defense segment is an inventory
management business through after-market reselling of aircraft parts
and turbojet engines and engine parts for helicopters and large
transport aircraft. The segment's primary focus is on the Lockheed
Martin C-130 Hercules aircraft, a widely used military transport
aircraft, the Allison (Rolls Royce) T56/501 engine, which powers this
aircraft, and the Allison 250, with approximately 16,000 units actively
in use by helicopters. The Company entered the Defense segment in 1997
with the acquisition of Aero Support. The acquisition of Certified on
April 29, 1999 enhanced the Company's presence in this market segment.
The Whole Engine and Aircraft segment leases and resells whole engines
and aircraft. The Airframe Avionics and Rotables segment is engaged in
the sale of a wide variety of aircraft rotables and expendable
components including flight data recorders, electrical and mechanical
equipment and radar and navigation systems. The Company entered the
Airframe Avionics and Rotables segment in 1998 with the acquisition of
Solair.
The Company's reportable segments are managed separately because each
business requires different technology and marketing strategies. The
Company has not historically allocated selling, general and
administrative expenses, depreciation and amortization, interest
expense or income taxes to its business segments. Rather, the Company
evaluates performance of the business segments based on revenue and
gross margins. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies. The
following table sets forth the revenue and gross margins for each of
the Company's business segments for the three month periods ended March
31, 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Revenues
Commercial Engine Parts $ 20,284,551 $ 13,525,189
Defense 17,194,858 9,504,322
Airframe Avionics and Rotables 13,495,155 14,372,584
Whole Engine and Aircraft 23,496,480 41,653,914
------------ ------------
Total revenue $ 74,471,044 $ 79,056,009
============ ============
Gross margin
Commercial Engine Parts $ 6,913,849 $ 4,669,903
Defense 6,094,784 3,463,858
Airframe Avionics and Rotables 3,833,838 3,411,388
Whole Engine and Aircraft 3,656,756 13,831,122
------------ ------------
Total gross margin $ 20,499,227 $ 25,376,271
============ ============
</TABLE>
8
<PAGE> 9
NOTE 5 - COMPREHENSIVE INCOME
The Company's total comprehensive income, comprised of net income and
foreign currency translation adjustments, for the three month periods
ended March 31, 2000 and 1999 was as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net income $ 664,028 $ 7,148,328
Foreign currency translation adjustments (5,828) (32,065)
------------ ------------
Other comprehensive income, net of taxes (5,828) (32,065)
------------ ------------
Total Comprehensive income $ 658,200 $ 7,116,263
============ ============
</TABLE>
NOTE 6 - OTHER MATTERS
The Company is not aware of any material legal proceedings pending
against the Company or any of its property. However, the Company may
become party to various claims, legal actions and complaints arising
in the ordinary course of business or otherwise. The Company cannot
determine whether such actions would have a material impact on the
financial condition, results of operations or cash flows of the
Company.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with the Kellstrom
Industries, Inc. (the "Company") unaudited condensed consolidated financial
statements and the related notes thereto included elsewhere herein. In
addition, reference should be made to the Company's audited consolidated
financial statements and notes thereto and related Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's most recent Annual Report on Form 10-K.
This quarterly report on Form 10-Q contains or may contain 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.
GENERAL
The Company is a leader in the airborne equipment segments of the
international aviation services after-market. The Company's principal business
is inventory management through the purchasing, overhauling (primarily through
subcontractors), reselling and leasing of aircraft, avionics and aircraft
rotables, and aircraft engines and engine parts. The Company's historical growth
has resulted from a number of factors, including the following: the expansion of
the Company's product lines, customer base and market share; increases in the
Company's internal growth; cost controls and overall operating efficiencies;
acquisitions in existing and adjacent markets; and significant capital
investments.
On April 29, 1999 the Company acquired Certified. This acquisition was
accounted for using the purchase method of accounting for business combinations
and accordingly, Certified's operating results have been included in the
Company's results of operations since the date of acquisition. Consequently,
the results of operations for the three month period ended March 31, 2000 is
not comparable to the corresponding period of the prior year in certain
material respects.
RESULTS OF OPERATIONS
For the periods indicated, the following table sets forth the
percentage of certain income statement items to total revenues derived from the
Company's condensed consolidated statements of earnings.
10
<PAGE> 11
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
--------------------------------
THREE MONTHS ENDED MARCH 31,
--------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Revenues:
Sales revenues, net 91.1% 86.9%
Rental revenues 8.9% 13.1%
Total revenues 100.0% 100.0%
Operating expenses:
Cost of goods sold 64.9% 59.9%
Depreciation of equipment under operating leases 7.6% 8.0%
Selling, general and administrative expenses 15.6% 10.7%
Depreciation and amortization expense 2.1% 1.5%
Total operating expenses 90.1% 80.2%
Operating income 9.9% 19.8%
Interest expense (net of interest income) 8.5% 5.3%
Income before income taxes 1.4% 14.6%
Income taxes 0.5% 5.5%
Net income 0.9% 9.0%
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Consolidated sales revenues decreased by 1% to $67.8 million for the
three months ended March 31, 2000 as compared to $68.7 million for the three
months ended March 31, 1999. Sales revenues from the Company's commercial engine
parts segment increased to $20.3 million as compared with $13.5 million for the
three months ended March 31, 2000 and March 31, 1999, respectively. The increase
in sales of commercial engine parts was primarily due to higher levels of
inventory availability as a result of the Company's investment in inventory.
Sales revenues from the Company's defense segment increased to $17.2 million as
compared with $9.5 million for the three months ended March 31, 2000 and March
31, 1999, respectively, due to continued investments in marketing and higher
levels of inventory availability and the acquisition of Certified in April 1999.
Sales revenues from the Company's airframe avionics and rotables segment
decreased slightly to $13.5 million as compared with $14.4 million for the three
months ended March 31, 2000 and March 31, 1999, respectively. Sales revenues
from the Company's whole engine and aircraft segment decreased to $16.9 million
as compared with $31.3 million for the three months ended March 31, 2000 and
March 31, 1999, respectively. The decrease in revenues from the sale of whole
engines and aircraft reflect current market conditions and the Company's
decision to limit the growth of the portfolio and change its composition to
newer engine models.
Rental revenues decreased by 36% to $6.6 million for the three months
ended March 31, 2000 as compared to $10.3 million for the three months ended
March 31, 1999. The decrease in rental revenues was primarily due to a customer
unexpectedly ceasing operations during the fourth quarter, a reduction in fleet
utilization and a reduction in the size of the fleet.
Consolidated cost of goods sold increased by 2% to $48.3 million for
the three months ended March 31, 2000 as compared to $47.4 million for the
three months ended March 31, 1999. Consolidated gross profit margin on sales
was 28.7% for the three months ended March 31, 2000 as compared with 31.0% for
the three months ended March 31, 1999. Gross margin for the quarter for the
commercial engine parts and defense segments were 34.1% and 35.4%,
respectively, which is in line with historical amounts realized by those
divisions. Gross margin for the first quarter of 2000 at the airframe avionics
and rotables segment was 28.4%, as compared to 23.7% for the first quarter of
1999. Gross margins from the sale of whole engines and aircraft were 15.8% for
the first
11
<PAGE> 12
quarter of 2000 as compared to 31.2% for the first quarter of 1999, reflecting
our efforts to reposition our lease portfolio.
Depreciation of equipment under operating leases decreased by 10% to
$5.6 million for the three months ended March 31, 2000 as compared to $6.3
million for the three months ended March 31, 1999. Gross profit margin on
rental revenues decreased to 15.1% in 2000 from 39.1% in 1999. The decrease in
the gross profit margin was primarily due to the impact of depreciation expense
incurred as a result of higher levels of idle equipment.
Selling, general and administrative expenses increased by 36% to $11.6
million for the three months ended March 31, 2000 as compared to $8.5 million
for the three months ended March 31, 1999. The increase in selling, general and
administrative expenses was primarily due to (i) the acquisition of Certified
being combined into Kellstrom, (ii) the Company's continued investment in
personnel and facilities for the defense, commercial engine parts and airframe
avionics and rotables segments in order to support the Company's growth model
and (iii) an increase in bad debt expense as a result of the expansion of the
Company's customer base. The Company believes selling, general and
administrative expenses will 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 29% to $1.6 million
for the three months ended March 31, 2000 as compared to $1.2 million for the
three months ended March 31, 1999. The increase in depreciation and
amortization expense was primarily due to amortization of goodwill related to
the Certified acquisition in addition to depreciation on recent investments in
facilities to support the Company's growth plans.
Interest expense (net of interest income) increased by 51% to $6.3
million for the three months ended March 31, 2000 as compared to $4.2 million
for the three months ended March 31, 1999. The increase in interest expense was
primarily driven by an increase in the Company's average debt levels, resulting
from the acquisition of Certified and growth in inventories and trade
receivables.
The Company's effective tax rate for the three months ended March 31,
2000 was 37.3% as compared to 38.0% for the three months ended March 31, 1999.
Net income decreased by 91% to $.7 million for the three months ended
March 31, 2000 as compared to $7.1 million for the three months ended March 31,
1999. Basic earnings per common share decreased by 90% to $0.06 for the three
months ended March 31, 2000 as compared to $0.61 for the three months ended
March 31, 1999. Diluted earnings per common share decreased by 87% to $0.06 for
the three months ended March 31, 2000 as compared to $0.47 for the three months
ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company's liquidity and capital resources
included cash and cash equivalents of $.7 million and working capital of $329.9
million. At March 31, 2000, total outstanding debt was $320.3 million as
compared to $326.1 million as of December 31, 1999. As of March 31, 2000, the
outstanding principal balance on the Company's convertible subordinated notes
was $140.3 million and the Company had contractual lines of credit totaling
$256.7 million of which $166.7 million was outstanding and $26.2 million was
available.
Cash flow provided by operating activities for the three months ended
March 31, 2000 was $8.6 million compared with cash flow used in operating
activities of $4.5 million for the three months ended March 31, 1999. The
primary sources of cash for operating activities were a decrease in accounts
receivable of $7.3 million, a decrease in equipment under operating leases of
$5.1 million and net income of $.7 million, adjusted for non-cash expenses
related to depreciation and amortization of $7.2 million. The primary uses of
cash for operating activities was for increases in inventories of $13.3 million
to support the Company's growth.
12
<PAGE> 13
Cash flow used for investing activities for the three months ended
March 31, 2000 was $2.4 million compared with $6.6 million for the three months
ended March 31, 1999. The primary uses of cash for investing activities was
earn-out payments in connection with the acquisition of Aero Support of $1.3
million and purchases of property, plant and equipment of $1.0 million.
Cash flow used for financing activities for the three months ended
March 31, 2000 was $5.8 million compared with cash flow provided by financing
activities of $11.1 million for the three months ended March 31, 1999. The
primary uses of cash for financing activities was a decrease in borrowings
under the Company's line of credit agreement of $5.8 million.
The Company is evaluating the possibility of establishing partnerships
with financial/leasing organizations for the continued expansion of its
aircraft and engine sales and leasing business. Under the proposed initiative,
the Company expects that it would retain a minority ownership stake in the
proposed partnerships and continue to manage the operations of those
partnerships. Although there are no guarantees that it will happen, this
action, if consummated, could give the Company a cash infusion which it expects
would be used to pay down a substantial portion of its line of credit with its
commercial banks. The proposed initiative is expected to take place if and when
one or more appropriate financial/leasing organizations are identified and
transaction terms are finalized.
The Company believes that the proposed initiative, if implemented,
would have the effect of reducing debt and interest expense, improving cash
flow, and freeing up capital for strategic business initiatives. While the
Company would forego the revenues and some of the profits expected to be
generated by its existing lease portfolio, the Company would continue to
receive a pro-rata share of any partnership profits.
The Company intends to take advantage of growth opportunities that are
consistent with the Company's expansion and profit objectives. It is
anticipated that such growth opportunities will require the investment of cash
into inventories of aircraft and aircraft parts, engines and engine parts and
avionics and rotables. 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 cash flows and
through its syndicated credit facility. In the future, the Company may require
additional sources of capital to continue to fund its expansion.
The Company's management believes that free cash flow (net income plus
depreciation of property, plant and equipment and amortization of goodwill),
combined with the Company's syndicated credit facility should be sufficient for
the Company's current level of operations. However, the Company may elect to
seek equity capital or other debt financing in the future depending upon market
conditions and the capital needs of the Company.
13
<PAGE> 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk is limited primarily to the
fluctuating interest rates associated with variable rate indebtedness
outstanding under the Company's $256.7 million bank credit facility. The bank
credit facility, which expires in 2003, bears interest at the bank's prime rate
plus 0-50 basis points or, at the Company's option, LIBOR plus 150-250 basis
points. These variable interest rates are subject to interest rate changes in
the United States and Eurodollar markets. The Company does not currently use,
and has not historically used, derivative financial instruments to hedge
against such market interest rate risk. At March 31, 2000, the Company had
approximately $166.7 million in variable rate indebtedness outstanding under
the credit facility, representing approximately 52% of the Company's total debt
outstanding, at an average interest rate of 8.3%. An increase in interest rates
by 1% would not have a material impact on the financial condition, results of
operations or cash flows of the Company.
14
<PAGE> 15
PART II
ITEM 1. LEGAL PROCEEDINGS.
The Company is not aware of any material legal proceedings pending
against the Company or any of its property. However, the Company may
become party to various claims, legal actions and complaints arising
in the ordinary course of business or otherwise. The Company cannot
determine whether such actions would have a material impact on the
financial condition, results of operations or cash flows of the
Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
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 February 16,
2000, which included a copy of a press release announcing
that the Company's Chief Financial Officer, Michael Wallace,
will leave the Company and that Oscar Torres has been named
new Chief Financial Officer.
16
<PAGE> 17
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 15, 2000 KELLSTROM INDUSTRIES, INC.
(Registrant)
/s/ Oscar E. Torres
---------------------------------
Oscar E. Torres
Chief Financial Officer
(principal financial and
accounting officer)
17
<PAGE> 18
Exhibit Index
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
27 Financial Data Schedule
</TABLE>
18
<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, 2000 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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 673
<SECURITIES> 0
<RECEIVABLES> 54,749
<ALLOWANCES> 7,995
<INVENTORY> 208,047
<CURRENT-ASSETS> 370,617
<PP&E> 25,750
<DEPRECIATION> 5,026
<TOTAL-ASSETS> 538,273
<CURRENT-LIABILITIES> 40,680
<BONDS> 140,250
0
0
<COMMON> 12
<OTHER-SE> 171,817
<TOTAL-LIABILITY-AND-EQUITY> 538,273
<SALES> 74,471
<TOTAL-REVENUES> 74,471
<CGS> 53,972
<TOTAL-COSTS> 67,115
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,297
<INCOME-PRETAX> 1,059
<INCOME-TAX> 395
<INCOME-CONTINUING> 664
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 664
<EPS-BASIC> .06
<EPS-DILUTED> .06
</TABLE>
