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 August 31, 1997 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ________________ to __________________.
Commission file number 0-18352
_______
INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
_________________________________________________
DELAWARE 59-2223025
_______________________________ _________________________________
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1954 AIRPORT ROAD, SUITE 200, ATLANTA, GA 30341
_________________________________________ ___________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 455-7575
_______________
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 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 __
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
The number of shares of the Company's common stock outstanding as
of September 23, 1997 was 2,447,095.
FORM 10-Q
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
May 31, 1997 and August 31, 1997
Condensed Consolidated Statements of Earnings 4
Three Months Ended August 31, 1996 and August 31, 1997
Condensed Consolidated Statements of Cash Flows 5
Three Months Ended August 31, 1996 and August 31, 1997
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis 8
of Financial Condition and Results of Operations
Part II OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
2
FORM 10-Q
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
August 31,
May 31, 1997
1997* (UNAUDITED)
---------- -----------
Current assets
Cash and cash equivalents $ 465,725 $ 219,215
Accounts receivable, net of allowance for
doubtful accounts of approximately $610,000 at
May 31, 1997 and $636,000 at August 31, 1997 1,354,030 1,661,424
Inventories 12,000,284 10,951,751
Deferred tax benefit - current, net of valuation
allowance of $772,000 at May 31, 1997 and
August 31, 1997 - -
Other current assets 98,285 478,701
---------- ----------
Total current assets 13,918,324 13,311,091
Property and equipment
Aircraft and engines held for lease 6,914,458 6,929,058
Leasehold improvements 21,567 43,609
Machinery and equipment 908,590 918,095
---------- ----------
7,844,615 7,890,762
Accumulated depreciation 1,186,444 1,439,847
---------- ----------
Property and equipment, net 6,658,171 6,450,915
Other assets
Deferred debt costs, net 638,012 700,837
Deferred tax benefit, net of valuation allowance of
$1,814,000 at May 31, 1997 and August 31, 1997 72,663 285,163
---------- ----------
Total other assets 710,675 986,000
---------- ----------
$ 21,287,170 $ 20,748,006
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term obligations $ 1,542,488 $ 1,503,827
Accounts payable 642,950 1,016,217
Accrued expenses 2,234,350 1,590,095
---------- ----------
Total current liabilities 4,419,788 4,110,139
Long-term obligations, less current maturities 12,207,113 10,858,111
Commitments and contingencies
Stockholders' equity
Preferred stock - $.001 par value; authorized
2,000,000 shares; 0 shares outstanding at
May 31, 1997 and August 31, 1997. - -
Common stock - $.001 par value; authorized
20,000,000 shares; issued and outstanding 2,395,095
shares at May 31, 1997 and 2,440,595 shares at
August 31, 1997. 2,395 2,440
Additional paid-in capital 13,003,686 13,137,891
Accumulated deficit (8,345,812) (7,360,575)
---------- ----------
Total stockholders' equity 4,660,269 5,779,756
---------- ----------
$ 21,287,170 $ 20,748,006
*Condensed from audited Financial Statements
The accompanying notes are an integral part of these
condensed financial statements.
3
FORM 10-Q
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended
August 31, August 31,
1996 1997
-------- ---------
Revenues
Net sales $ 4,038,671 $ 4,940,969
Lease revenue 120,000 626,057
--------- ---------
Total revenues 4,158,671 5,567,026
Cost of sales 2,317,141 3,140,020
Selling, general and administrative expenses 834,654 1,036,448
Provision (recovery) for doubtful accounts 41,157 (47,529)
Depreciation and amortization 165,812 253,744
--------- ---------
Total operating costs 3,358,764 4,382,683
--------- ---------
Earnings from operations 799,907 1,184,343
Interest expense 488,879 413,300
Interest and other income (33,040) (1,695)
--------- ---------
Earnings before income taxes 344,068 772,738
Benefit from income taxes - (212,499)
Net earnings $ 344,068 $ 985,237
========= =========
Per share data:
Earnings per common and common
equivalent share $ 2.30 $ 0.37
Weighted average shares outstanding used in
calculation 149,704 2,696,275
========= =========
The accompanying notes are an integral part of these
condensed financial statements.
4
FORM 10-Q
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended
August 31, August 31,
1996 1997
--------- ---------
Cash flows from operating activities:
Net earnings $ 344,068 $ 985,237
Adjustments to reconcile net earnings
to net cash provided by (used in) operating
activities:
Depreciation and amortization 211,622 253,404
Provision (recovery) for doubtful accounts 41,157 (47,529)
(Increase) decrease in inventory (83,711) 1,048,533
Changes in other assets and liabilities (747,075) (1,191,598)
--------- ----------
Total adjustments (578,007) 62,810
Net cash provided by (used in) operating
activities (233,939) 1,048,047
Cash flows from investing activities:
Capital equipment additions (3,448) (46,146)
--------- ----------
Net cash used in investing activities (3,448) (46,146)
Cash flows from financing activities:
Net decrease in debt obligations (10,073) (1,382,661)
Issuance of common stock - 134,250
Payment of deferred restructuring costs (233,687) -
Payment of deferred debt issue costs (95,000) -
--------- ---------
Net cash used in financing activities (338,760) (1,248,411)
Net decrease in cash (576,147) (246,510)
Cash and cash equivalents at beginning of period 940,274 465,725
--------- ---------
Cash and cash equivalents at end of period $ 364,127 $ 219,215
========= =========
The accompanying notes are an integral part of these
condensed financial statements.
5
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management, the accompanying unaudited
condensed consolidated financial statements contain adjustments
(consisting only of normal and recurring adjustments) necessary to
present fairly International Airline Support Group, Inc. and
Subsidiaries' condensed consolidated balance sheets as of May 31,
1997 and August 31, 1997, the condensed consolidated statements of
earnings for the three months ended August 31, 1996 and August 31,
1997, and the condensed consolidated statements of cash flows for
the three months ended August 31, 1996 and August 31, 1997.
The accounting policies followed by the Company are described
in the May 31, 1997 financial statements.
The results of operations for the three months ended August 31,
1997 are not necessarily indicative of the results to be expected
for the full year.
2. Inventories consisted of the following:
MAY 31,1997 AUGUST 31,1997
----------- --------------
Aircraft parts $11,113,867 $10,050,334
Aircraft and Engines
available for sale 886,417 901,417
----------- -----------
$12,000,284 $10,951,751
=========== ===========
3. On October 3, 1996, the Company completed a restructuring of
its capital structure (the "Restructuring"). Pursuant to the
Restructuring, the Company effected a 1-for-27 reverse split of its
common stock, $.001 par value per share (the "Common Stock"); issued
approximately 2,245,400 shares of its Common Stock, after giving
effect to the reverse split, in exchange for the entire $10,000,000
principal amount outstanding of, and related accrued interest on,
its 8% Convertible Debentures due November 30, 2003 (the
"Debentures"); and redeemed the entire $7,700,000 principal amount
outstanding of its 12% Senior Notes due July 17, 1997 (the "Senior
Notes") with the proceeds of an advance under a credit agreement
entered into on October 3 (the "Credit Agreement"). Consummation of
the Restructuring cured all defaults with respect to the Debentures
and the Senior Notes.
All references to the number of common shares and per common
share amounts throughout the financial statements have been restated
to reflect the reverse split.
6
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Earnings per Share
The Company's earnings per share for the three months ended
August 31, 1997 were calculated using the modified treasury stock
method. This method was used because the number of shares common
stock issuable on exercise of stock options, in the aggregate,
exceeded 20 percent of the number of shares of common stock
outstanding as of August 31, 1997.
In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share", which changes the method for reporting Earnings Per Share.
The statement is effective for financial statement periods ending
after December 15, 1997. The Company has not yet determined the
impact, if any, of adopting the new standard.
5. Credit Facility
On October 3, 1996, the Company entered into the Credit
Agreement, which provided for a $3 million term loan and up to an
$11 million revolving credit. During the fourth fiscal quarter of
1997, the Credit Agreement was amended to create a new term loan
facility of $3.75 million (collectively referred to as the "Credit
Facility") and the revolving credit was increased to $13 million.
The Credit Facility is secured by substantially all of
the assets of the Company and availability of amounts for borrowing
is subject to certain limitations and restrictions. Such
limitations and restrictions are discussed in the Company's Proxy
Statement/Prospectus filed with the Securities and Exchange
Commission on August 29, 1996.
6. Supplemental Cash Flow Disclosures:
Cash payments for interest were $255,000 and $413,000 for
the three months ended August 31, 1996 and August 31, 1997,
respectively. Cash and cash equivalents include $247,317 of
restricted cash at August 31, 1997. Restricted cash includes
customer receipts deposited into the Company's lockbox account,
which are applied the next business day against the outstanding
amount of the Credit Facility, and customer deposits on aircraft
and engines leases.
7
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following is management's discussion and analysis of certain
significant factors which have affected the Company's operating
results and financial position during the periods included in the
accompanying condensed consolidated financial statements.
RESULTS OF OPERATIONS:
REVENUES
Net parts sales (excluding the sale of aircraft and engines) for
the three months ended August 31, 1997 were $4.2 million compared to
$4.0 million during the three months ended August 31, 1996.
Aircraft and engine sales were $775,000 for the three months ended
August 31, 1997 compared to none for the three months ended August
31, 1996. Aircraft and engine sales are unpredictable transactions
and may fluctuate significantly from period to period, dependent, in
part, upon the Company's ability to purchase aircraft or engines at
attractive prices and resell them, as well as the overall market for
used aircraft and engines. Lease revenue increased to $626,000
during the three months ended August 31, 1997 compared to $120,000
during the three months ended August 31, 1996. The increase in
lease revenues was attributable to the lease of three B-727-100
aircraft during the fourth quarter of fiscal 1997. Total revenue
during the three months ended August 31, 1997 increased 33% to $5.6
million from $4.2 million during the three months ended August 31,
1996.
COST OF SALES
Cost of sales increased 22% from $2.3 million during the three
months ended August 31, 1996 to $2.8 million during the three months
ended August 31, 1997, primarily as a result of higher revenues. As
a percentage of total revenues, cost of sales for the three months
ended August 31, 1997 and August 31, 1996 was 56%. Excluding
aircraft and engine transactions, which transactions are
unpredictable and fluctuate from period to period, cost of sales as
a percentage of part sales during the three months ended August 31,
1996 was 56% compared to 58% during the three months ended August
31, 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased from
$800,000 during the three months ended August 31, 1996 to $1.1
million during the three months ended August 31, 1997. This
increase is due, in part, to higher levels of insurance costs,
American Stock Exchange and investor relations fees, rent and
certain relocation expenses associated with the move of the
Company's warehouse, and compensation associated with increased
sales.
8
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
PROVISION FOR (RECOVERY OF) DOUBTFUL ACCOUNTS
For the three months ended August 31, 1997, the Company had a
recovery of doubtful accounts of $47,529 compared to a provision for
doubtful accounts of $41,157 for the three months ended August 31,
1996. This decrease in expense was primarily related to the
recovery of a certain doubtful account during the first quarter of
fiscal 1998.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization for the three months ended August
31, 1996 increased from $166,000 to $254,000 for the three months
ended August 31, 1997. The increase in depreciation and
amortization was due primarily to the acquisition of three B-727-100
aircraft during the fourth quarter of fiscal 1997, while being
partially offset by the sale of the Company's headquarters during
the third quarter of fiscal 1997.
INTEREST EXPENSE
Interest expense for the three months ended August 31, 1996 was
$489,000 compared to $413,000 for the three months ended August 31,
1997. The decrease in interest expense was due to a net reduction
in total debt outstanding during this period from $18.1 million at
August 31, 1996 to $12.4 million at August 31, 1997.
INCOME TAXES
The Company's tax benefits (and related estimated tax rate)
result from 1) the utilization of its net operating loss
carryforward to eliminate the current tax that would otherwise be
payable and 2) the Company's reduction in the valuation allowance
applied against its deferred tax assets. The Company has reduced
the valuation allowance by $212,499 as a result of its continuing
profitability. Subject to its continuing profitability, the Company
expects to further reduce the valuation allowance in the future.
9
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
The Credit Agreement entered into by the Company in connection
with the Restrucuring provided for a $3 million term loan and up to
an $11 million revolving credit. During the fourth quarter of 1997
the Credit Agreement was amended to create a new term loan facility
of $3.75 million (collectively referred to as the "Credit
Facility") and the revolving credit was increased to $13 million.
The Credit Facility is secured by substantially all of
the assets of the Company and availability of amounts for borrowing
is subject to certain limitations and restrictions. Such
limitations and restrictions are discussed in the Company's Proxy
Statement/Prospectus filed with the Securities and Exchange
Commission on August 29, 1996.
Net cash provided by (used in) operating activities for the
three months ended August 31, 1997 and August 31, 1996 were $62,810
and ($578,007), respectively. The increase in cash provided by
operating activities was due, in part, to a decrease in inventory of
$1,049,000 for three months ended August 31, 1997 compared to an
increase in inventory of $84,000 for three months ended August 31,
1996.
Net cash used in financing activities for three months ended
August 31, 1997 amounted to $1,248,000. This net cash usage was
primarily the result of a net decrease in debt obligations of
$1,383,000.
At August 31, 1997, the Company was permitted to borrow up to an
additional $4.2 million pursuant to the revolving credit facility.
The Company believes that amounts available to be borrowed pursuant
to the Credit Agreement and its working capital will be sufficient
to meet the requirements of the Company's business for the
foreseeable future. The Company had no material commitments for
capital expenditures as of August 31, 1997. Subsequent to the end
of the quarter, the Company purchased one DC-9-50 aircraft that was
financed under a new term loan under the Credit Facility and has a
commitment to purchase an additional DC-9-50 aircraft during the
second quarter of fiscal 1998.
FORWARD LOOKING STATEMENTS
This Form 10-Q contains statements that may constitute
"forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Those statements
include statements regarding the capital spending and future
financing plans of the Company and reflect the intent, belief or
current expectations of the Company and members of its management
team. Prospective investors are cautioned that any such forward-
looking statements are not guarantees of future performance and
involve risks and uncertainties, and that actual results may differ
materially from those contemplated by such forward-looking
statements. The Company undertakes no obligation to update or
revise forward-looking statements to reflect changed assumptions,
the occurrence of unanticipated events or changes to future
operating results over time.
10
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is from time to time subject to legal proceedings
and claims that arise in the ordinary course of its business. On
the date hereof, no such proceedings are pending and no such claims
have been asserted.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit
Number Description Page Number or
------ ----------- Method of Filing
---------------------
2.4 Credit Agreement between BNY Incorporated by
Financial Corporation and the reference to Exhibit
Registrant, as amended. 2.4 to Amendment No. 2
to the Company's
Registration Statement
on Form
S-4 filed August 29,
1996 (File No. 333-
08065).
3.1 Amended and Restated Certificate Incorporated by
of Incorporation of the reference to Exhibit
Registrant. 3.1 to the Company's
Annual report on Form
10-K for the fiscal
year ended May 31,
1996 (the "1996 Form
10-K").
3.2 Restated and Amended Bylaws of Incorporated by
the Registrant, as amended. reference to Exhibit
3.2 to the 1996 Form
10-K.
4.1 Specimen Common Stock Certificate. Incorporated by
reference to Exhibit
4.1 to the 1996 Form
10-K.
11
Exhibit
Number Description Page Number or
------ ----------- Method of Filing
---------------------
10.1.1 Employment Agreement, dated as Incorporated by
of December 1, 1995, between the reference to Exhibit
Registrant and Alexius A. Dyer 10.1.1 to the to
III, as amended on October 3, Amendment No. 2 to the
1996. Company's Registration
Statement on Form S-4
filed August 29, 1996
(File No. 333-08065).
10.1.2 Employment Agreement, dated as Incorporated by
of October 3, 1996, between the reference to Exhibit
Registrant and George Murnane 10.1.2 to the
III. Company's Quarterly
Report for the quarter
ended February 28,
1997.
10.2.1 1996 Long-Term Incentive and Incorporated by
Share Award Plan. reference to Appendix
B to the Proxy
Statement/Prospectus
included in the
Company's Registration
Statement on Form S-4
(File No. 333-08065)
filed on July 12,
1996.
10.2.2 401(k) Plan. Incorporated by
reference to Exhibit
10-H to the Company's
Annual Report on
Form 10-K for the
fiscal year ended
May 31, 1992 (the
"1992 Form 10-K").
12
Exhibit
Number Description Page Number or
------ ----------- Method of Filing
---------------------
10.2.3 Bonus Plan. Incorporated by
reference to Exhibit
10.2.4 to the 1992
Form 10-K.
10.2.4 Cafeteria Plan. Incorporated by
reference to Exhibit
10.2.5 of the
Company's Annual
report on Form 10-K
for the fiscal year
ended May 31, 1993.
10.2.5 Form of Option Certificate Incorporated by
(Employee Non-Qualified Stock reference to Exhibit
Option). 10.2.5 to the 1996
Form 10-K.
10.2.6 Form of Option Certificate Incorporated by
(Director Non-Qualified Stock reference to Exhibit
Option). 10.2.6 to the 1996
Form 10-K.
10.2.7 Form of Option Certificate Incorporated by
(Incentive Stock Option). reference to Exhibit
10.2.7 to the 1996
Form 10-K.
10.14 Commission Agreement dated Incorporated by
December 1, 1995 between the reference to Exhibit
Registrant and J.M. Associates, 10.14 to the 1996 Form
Inc. 10-K.
10.15 Aircraft Parts Purchase Incorporated by
Agreement, dated May 16, 1996, reference to Exhibit
between Paxford Int'l, Inc. and 10.15 to the Company's
the Registrant. Registration Statement
on Form S-4 (File No.
333-08065) filed on
July 12, 1996.
13
Exhibit
Number Description Page Number or
------ ----------- Method of Filing
---------------------
11 Statement regarding computation Incorporated by
of per share earnings. reference to Exhibit
11 to the 1996 Form
10-K.
27 Financial Data Schedule. Page no. 19
(b) REPORTS ON FORM 8-K
None
14
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
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.
INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
- -----------------------------------------
(Registrant)
/S/GEORGE MURNANE III SEPTEMBER 24, 1997
- --------------------- ------------------
George Murnane III Date
Executive Vice President and
Chief Financial Officer
15