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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD ENDED
COMMISSION FILE NUMBER 1-12380
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AVIALL, INC.
(Exact name of Registrant as specified in its Charter)
DELAWARE 65-0433083
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2055 DIPLOMAT DRIVE
DALLAS, TEXAS 75234-8989
(Address of principal executive offices) (Zip Code)
(214) 956-5000
(Registrant's telephone number, including area code)
Indicate by check x 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
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The number of shares of Common Stock, par value $.01 per share, outstanding
at May 3, 1996 was 19,468,922.
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PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
AVIALL, INC.
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three months ended
March 31,
-----------------------------
1996 1995
- - -----------------------------------------------------------------------------------------------------------------
Net sales $92,168 86,896
Cost of sales 67,572 62,807
- - -----------------------------------------------------------------------------------------------------------------
Gross profit 24,596 24,089
Operating and other expenses:
Selling and administrative expenses 21,474 20,915
Nonrecurring charge 3,850 -
Interest expense 2,763 2,911
- - -----------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations before income taxes (3,491) 263
Provision for income taxes 236 291
- - -----------------------------------------------------------------------------------------------------------------
Loss from continuing operations (3,727) (28)
Earnings from discontinued operations (net of income tax expense of $1,009) - 1,716
- - -----------------------------------------------------------------------------------------------------------------
Net earnings (loss) $(3,727) 1,688
=================================================================================================================
Net earnings (loss) per share:
Net earnings (loss) per share from continuing operations $(0.19) (0.00)
- - -----------------------------------------------------------------------------------------------------------------
Net earnings (loss) per share $(0.19) 0.09
- - -----------------------------------------------------------------------------------------------------------------
Weighted average common and common equivalent shares 19,457,739 19,403,439
See accompanying notes to financial statements.
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AVIALL, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
March 31, December 31,
1996 1995
- - -------------------------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash $7,505 4,690
Receivables 50,608 55,725
Inventories 79,960 100,619
Prepaid expenses and other current assets 2,349 2,953
Deferred income taxes 45,961 45,961
Assets of business held for sale 21,018 -
Net assets of discontinued Commercial Engine Services 243,645 238,048
- - -------------------------------------------------------------------------------------------------------------------
Total current assets 451,046 447,996
- - -------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 12,594 12,129
Intangible assets 58,876 59,425
Deferred income taxes 4,442 3,249
Other assets 16,544 16,128
- - -------------------------------------------------------------------------------------------------------------------
Total assets $543,502 538,927
===================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $216,078 185,171
Accounts payable 37,557 48,176
Accrued expenses 85,963 86,218
Liabilities of business held for sale 4,768 -
- - -------------------------------------------------------------------------------------------------------------------
Total current liabilities 344,366 319,565
- - -------------------------------------------------------------------------------------------------------------------
Long-term debt 94,630 110,439
Other liabilities 25,597 26,391
Shareholders' equity (includes common stock of $.01 par value per share with
shares outstanding at March 31, 1996 - 19,457,895 and at December 31,
1995 - 19,443,712) 78,909 82,532
- - -------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $543,502 538,927
===================================================================================================================
See accompanying notes to financial statements.
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AVIALL, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Three months ended March 31,
-------------------------------
1996 1995
- - ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $(3,727) 1,688
Nonrecurring charge 3,850 -
Continuing operations depreciation and amortization 2,318 2,371
Discontinued operations depreciation and amortization - 4,909
Deferred income taxes (1,190) (72)
Changes in:
Receivables 1,055 (3,800)
Inventories 667 5,998
Accounts payable 9,252 2,816
Accrued expenses (2,206) (18,989)
Other, net (720) 1,385
Discontinued operations working capital changes (7,419) 15,761
- - ------------------------------------------------------------------------------------------------------------------
1,880 12,067
- - ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from businesses sold - 76,800
Continuing operations capital expenditures (378) (702)
Net change in discontinued operations property, plant and equipment (29) (4,307)
Sales of property, plant and equipment 23 428
Other, net - (1,664)
- - ------------------------------------------------------------------------------------------------------------------
(384) 70,555
- - ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in revolving credit facility 7,555 (12,987)
Debt repaid (6,318) (74,665)
Issuance of common stock 104 -
Dividends paid - (194)
- - ------------------------------------------------------------------------------------------------------------------
1,341 (87,846)
- - ------------------------------------------------------------------------------------------------------------------
Change in cash 2,837 (5,224)
Cash, beginning of period 4,690 11,486
- - ------------------------------------------------------------------------------------------------------------------
Cash, end of period $7,527 6,262
==================================================================================================================
CASH PAID FOR INTEREST AND INCOME TAXES:
Interest $7,864 8,844
Income taxes $84 13,154
See accompanying notes to financial statements.
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AVIALL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, these financial statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation have been included. Operating results for
the three-month period ended March 31, 1996 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1996. Certain
prior year amounts have been reclassified to conform to the current year
presentation. For further information, refer to the financial statements and
footnotes thereto included in Aviall, Inc.'s Form 10-K for the year ended
December 31, 1995.
NOTE 2 - DISCONTINUED OPERATIONS
In April 1996, Aviall and its wholly owned subsidiary, Aviall Services,
Inc., signed a definitive agreement with Greenwich Air Services, Inc. and its
wholly owned subsidiary, GASI Engine Services, Inc., for the sale of its engine
repair operations in Dallas/Fort Worth and Prestwick, Scotland and its
component repair facility in McAllen, Texas. Also in April 1996, Aviall signed
a definitive agreement with Curtiss-Wright Flight Systems, Inc. for the sale of
its Miami-based accessory services repair station. Both sales are expected to
be finalized in 1996.
NOTE 3 - NONRECURRING CHARGE
In April 1996, Aviall signed a letter of intent to sell its aerospace
fastener distribution business and recorded a $3.9 million first quarter pretax
charge in connection with the planned sale. Accordingly, the assets and
liabilities of this business have been segregated and are presented separately
on the accompanying March 31, 1996 balance sheet.
NOTE 4 - INVENTORIES
March 31, December 31,
(In thousands) 1996 1995
- - -----------------------------------------------------------------------------------------------------------------
(Unaudited)
Distribution parts $83,021 130,212
Reserves for excess and obsolete inventories (3,061) (29,593)
- - -----------------------------------------------------------------------------------------------------------------
$79,960 100,619
=================================================================================================================
The March 31, 1996 aerospace fastener inventory balance of $16.6 million,
net of a reserve for excess and obsolete inventories of $30.0 million, has been
reclassified as compared to December 31, 1995 and included in "Assets of
Business Held for Sale" on the accompanying balance sheet.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW. The following discussion and analysis should be read in conjunction
with the information set forth under Item 7: Management's Discussion and
Analysis of Financial Condition and Results of Operations on pages 11 through
16 of Aviall, Inc.'s (the "Company") Form 10-K for the year ended December 31,
1995.
RESULTS OF OPERATIONS. Net sales in the first quarter of 1996 were $92.2
million, up $5.3 million, or 6%, from the $86.9 million recorded in the same
1995 quarter. The increase was driven primarily by increased shipments to
domestic airline and international aviation customers, partially offset by a
$5.2 million decline in sales of turbine engine parts no longer distributed by
the Company. Rights to distribute these parts were associated with the
Company's business aviation and aircraft and terminal services operations which
were sold in March 1995.
Gross profit of $24.6 million was $0.5 million higher than the $24.1
million in the 1995 first quarter. This improvement stemmed from the higher
sales volume, but was partially offset by a 1.0 point decline in gross profit
as a percentage of sales. This decrease in gross profit percent, from 27.7% to
26.7% in the 1996 first quarter, was principally a result of low margins on the
disposal of excess inventory and the margin impact of other sales incentive
programs.
Selling and administrative expenses were up $0.6 million to $21.5 million
in the first three months of 1996. The increase principally consisted of legal
and accounting fees associated with amending the Company's bank credit
agreement and expenses related to the biennial Singapore Air Show.
The nonrecurring charge of $3.9 million in the 1996 first quarter comprised
the write-down of inventory and the accrual of estimated expenses related to
the expected sale of the aerospace fastener business.
FINANCIAL CONDITION. On March 25, 1996, the Company amended its senior secured
credit facilities (the "Credit Facilities") to provide for a maturity date of
April 30, 1997. The amended Credit Facilities contain various revised
covenants, including financial covenants, limitations on debt and limitations
on capital expenditures.
The Company believes that its expected cash flow from operations and
availability under its revolving lines of credit are sufficient to meet its
current working capital and operating needs. The Company also expects to
repay a substantial portion of the outstanding debt using the proceeds from the
sales of its discontinued commercial engine services business ("Commercial
Engine Services") and its aerospace fastener distribution business. The
amended Credit Facilities require pro rata reductions in the term loans and the
revolving line of credit primarily tied to anticipated proceeds from and the
expected closing dates of certain asset sales. After the completion of these
sales, the Company expects to refinance or restructure its remaining debt.
Cash flow from operations was $1.9 million in the first three months of
1996 and $12.1 million in the comparable 1995 period. Cash was generated in
first quarter 1996 from improvements in working capital for continuing
operations, but this improvement was partially offset by working capital
investments in the discontinued operations. In 1995, positive cash flow from
both continuing and discontinued operations, including working capital
improvements, was partially offset by a payment to Ryder System, Inc. for the
settlement of 1993 federal income taxes.
The business aviation and aircraft and terminal services operations were
sold on March 15, 1995 for cash proceeds of $76.8 million and a $12.0 million
unsecured, subordinated note, due 2002, with a stated interest rate of 12%.
The Company then used the proceeds, net of transaction and closing costs, to
prepay a portion of its secured term loan as required by the terms of the
Credit Facilities. The 1995 decline in the revolving Credit Facilities of
$13.0 million reflected cash provided from operations plus a decrease in
outstanding bank overdrafts.
OUTLOOK. In 1996, the Company continues to be in a state of transition.
Management expects to complete the sales of the non-strategic businesses during
the year and use the net proceeds to significantly reduce debt. The
culmination of these transactions is expected to improve the balance sheet and
reduce ongoing interest costs. Corporate functions will be reorganized and
streamlined through integration with distribution support functions. This will
necessitate additional charges later in 1996 for severance and other costs
associated with the planned reorganization.
As previously discussed, the amended Credit Facilities provide for a
maturity date of April 30, 1997. Accordingly, the amortization of debt
issuance costs included in interest expense will increase by approximately $1.5
million per quarter through April 1997. If debt is repaid prior to maturity,
amortization of the remaining debt issuance costs will be accelerated
correspondingly.
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In April 1996, Aviall signed a definitive agreement with Greenwich Air
Services, Inc. ("Greenwich") for the sale of its engine overhaul and repair
units. Also in April, the Company signed a definitive agreement with a
subsidiary of Curtiss-Wright Corporation for the sale of its Miami-based
accessory services repair station. Management expects to complete the sales of
these discontinued operations during 1996.
In April 1996, Aviall signed a letter of intent to sell its aerospace
fastener distribution business to a company to be formed by Quentin P.
Bourjeaurd, currently Aviall Aerospace's vice president and general manager.
This sale also is expected to be completed in 1996.
Aviall's new focus is on the distribution of aviation parts to the
aftermarket and providing inventory information services. Management believes
this narrowed focus will enable the Company to improve profitability through
participation in markets which offer significant growth opportunities. In
addition, the Company's estimated $160 million net operating loss carryforward
as of December 31, 1996 will obviate U.S. federal income tax payments for
several years.
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Agreement of Purchase and Sale among Aviall, Inc., Aviall
Services, Inc., Greenwich Air Services, Inc. and GASI Engine
Services, Inc., dated April 19, 1996, incorporated herein by
reference to Exhibit 2.1 to Aviall, Inc.'s Current Report on
Form 8-K, dated April 19, 1996. (In accordance with Item 601
of Regulation S-K, this copy of such Agreement does not
include the schedules or exhibits thereto, which schedules
and exhibits are listed in the table of contents to such
Agreement. Aviall, Inc. agrees to furnish supplementally to
the Securities and Exchange Commission a copy of such
schedules and exhibits.)
2.2 Asset Purchase Agreement between Aviall, Inc. and
Curtiss-Wright Flight Systems, Inc., dated April 25, 1996,
incorporated herein by reference to Exhibit 2.2 to Aviall,
Inc.'s Current Report on Form 8-K, dated April 19, 1996. (In
accordance with Item 601 of Regulation S-K, this copy of such
Agreement does not include the schedules or exhibits thereto,
which schedules and exhibits are listed in the exhibit index
to such Agreement. Aviall, Inc. agrees to furnish
supplementally to the Securities and Exchange Commission a
copy of such schedules and exhibits.)
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which
this report is filed.
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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.
AVIALL, INC.
May 13, 1996 By /s/ Mina Brown
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Mina Brown
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
May 13, 1996 By /s/ Jacqueline K. Collier
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Jacqueline K. Collier
Vice President and Controller
(Principal Accounting Officer)
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INDEX TO EXHIBITS
Exhibit
Number Description
- - ------- -----------
2.1 Agreement of Purchase and Sale among Aviall, Inc., Aviall
Services, Inc., Greenwich Air Services, Inc. and GASI Engine
Services, Inc., dated April 19, 1996, incorporated herein by
reference to Exhibit 2.1 to Aviall, Inc.'s Current Report on
Form 8-K, dated April 19, 1996. (In accordance with Item 601
of Regulation S-K, this copy of such Agreement does not
include the schedules or exhibits thereto, which schedules
and exhibits are listed in the table of contents to such
Agreement. Aviall, Inc. agrees to furnish supplementally to
the Securities and Exchange Commission a copy of such
schedules and exhibits.)
2.2 Asset Purchase Agreement between Aviall, Inc. and
Curtiss-Wright Flight Systems, Inc., dated April 25, 1996,
incorporated herein by reference to Exhibit 2.2 to Aviall,
Inc.'s Current Report on Form 8-K, dated April 19, 1996. (In
accordance with Item 601 of Regulation S-K, this copy of such
Agreement does not include the schedules or exhibits thereto,
which schedules and exhibits are listed in the exhibit index
to such Agreement. Aviall, Inc. agrees to furnish
supplementally to the Securities and Exchange Commission a
copy of such schedules and exhibits.)
27.1 Financial Data Schedule