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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 JUNE 30, 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. Employee
incorporation or organization) Identification No.)
2075 DIPLOMAT DRIVE
DALLAS, TEXAS 75234-8989
(Address of principal executive offices) (Zip Code)
(214) 406-2000
(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
--- ---
The number of shares of Common Stock, par value $.01 per share, outstanding
at August 5, 1996 was 19,481,296.
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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 Six months ended
June 30, June 30,
-----------------------------------------------------
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
Net sales $ 93,594 87,834 185,762 174,730
Cost of sales 69,823 65,644 137,395 128,451
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Gross profit 23,771 22,190 48,367 46,279
Operating and other expenses:
Selling and administrative expenses 20,199 19,111 41,673 40,026
Nonrecurring charge - - 3,850 -
Interest expense 3,390 2,849 6,153 5,760
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Earnings (loss) from continuing operations before income taxes 182 230 (3,309) 493
Provision for income taxes 211 563 447 854
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Loss from continuing operations (29) (333) (3,756) (361)
Discontinued operations:
Earnings from operations (net of income tax expense of
$1,496 and $2,505 in 1995) - 2,675 - 4,391
Gain on disposal 10,500 - 10,500 -
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Earnings from discontinued operations 10,500 2,675 10,500 4,391
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Net earnings $ 10,471 2,342 6,744 4,030
=====================================================================================================================
Net earnings (loss) per share:
Net loss per share from continuing operations $ (0.00) (0.02) (0.19) (0.02)
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Net earnings per share $ 0.54 0.12 0.35 0.21
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Weighted average common and common equivalent shares 19,556,335 19,414,110 19,506,953 19,404,410
See accompanying notes to financial statements.
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AVIALL, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
June 30, December 31,
1996 1995
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(Unaudited)
ASSETS
Current assets:
Cash $ 3,680 4,690
Receivables 53,230 55,725
Inventories 77,665 100,619
Prepaid expenses and other current assets 18,796 2,953
Deferred income taxes 23,044 45,961
Assets of business held for sale 22,880 -
Net assets of discontinued Commercial Engine Services - 238,048
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Total current assets 199,295 447,996
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Property, plant and equipment 12,088 12,129
Intangible assets 60,608 59,425
Deferred income taxes 29,823 3,249
Other assets 15,919 16,128
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Total assets $317,733 538,927
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 72,235 185,171
Accounts payable 30,987 48,176
Accrued expenses 93,086 86,218
Liabilities of business held for sale 4,196 -
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Total current liabilities 200,504 319,565
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Long-term debt 2,367 110,439
Other liabilities 25,404 26,391
Shareholders' equity (includes common stock of $.01 par value per share with
shares outstanding at June 30, 1996 - 19,470,500 and at December 31,
1995 - 19,443,712) 89,458 82,532
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Total liabilities and shareholders' equity $317,733 538,927
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See accompanying notes to financial statements.
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AVIALL, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Six months ended June 30,
--------------------------
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 6,744 4,030
Gain on disposal of discontinued operations (10,500) -
Nonrecurring charge 3,850 -
Continuing operations depreciation and amortization 4,881 3,685
Discontinued operations depreciation and amortization - 11,006
Deferred income taxes (2,419) (360)
Changes in:
Receivables (1,307) (1,791)
Inventories 947 10,430
Accounts payable 8,491 1,387
Accrued expenses 5,727 (22,881)
Other, net (2,878) 571
Discontinued operations working capital changes 4,725 37,631
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18,261 43,708
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from businesses sold 232,565 76,800
Capital expenditures (895) (2,137)
Sales of property, plant and equipment 168 446
Other, net - (560)
Net change in discontinued operations property, plant and equipment 602 (8,155)
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232,440 66,394
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in revolving credit facility (149,932) (33,518)
Debt repaid (100,315) (77,555)
Debt issue costs paid (1,624) -
Issuance of common stock 182 -
Dividends paid - (388)
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(251,689) (111,461)
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Change in cash (988) (1,359)
Cash, beginning of period 4,690 11,486
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Cash, end of period $ 3,702 10,127
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CASH PAID FOR INTEREST AND INCOME TAXES:
Interest $ 15,437 17,311
Income taxes $ 367 14,030
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- and six-month periods ended June 30, 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.
("Greenwich") 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. The
accessory repair services sale was completed on May 20, 1996, and the engine
repair services sale was completed on June 10, 1996. The engine repair
services sale agreement provided Greenwich the unilateral option to pay a
portion of the purchase price in stock. Greenwich did not exercise this option
and paid the full purchase price in cash (or assumed liabilities). Included in
the $212.5 million estimated loss on disposal recorded in December 1995 was a
$10.5 million provision for loss on sale of the stock which was reversed in the
second quarter of 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 June 30, 1996 balance sheet.
NOTE 4 - INVENTORIES
June 30, December 31,
(In thousands) 1996 1995
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(Unaudited)
Distribution parts $81,025 130,212
Reserves for excess and obsolete inventories (3,360) (29,593)
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$77,665 100,619
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The June 30, 1996 aerospace fastener inventory balance of $18.6 million,
net of a reserve for excess and obsolete inventories of $30.2 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 10K for the year ended December 31,
1995.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE
MONTHS ENDED JUNE 30, 1995.
Net sales in the second quarter of 1996 were $93.6 million, up $5.8
million, or 7%, from the $87.8 million recorded in the same 1995 quarter. The
increase was driven primarily by increased shipments to domestic airline and
international aviation customers as well as volume increases on aerospace
fastener Just-In-Time (JIT) contracts partially offset by a $5.1 million
decline in sales of turbine engine parts. 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, but sales from the inventory
in stock have continued through the second quarter of 1996. Excluding the
discontinued turbine part sales from each period, sales in the continuing
operations increased 13%.
Gross profit of $23.8 million was $1.6 million higher than the $22.2
million in the 1995 second quarter. Gross profit as a percentage of sales
increased from 25.3% to 25.4%.
Selling and administrative expenses increased $1.1 million to $20.2 million
in the second quarter of 1996. The increase was due to severance expenses
associated with corporate staff reductions and legal and accounting fees
incurred in connection with the amended bank credit agreement.
Interest expense was higher than in the second quarter 1995, reflecting the
accelerated amortization of debt issuance costs.
The 1996 results include a $10.5 million gain from the disposal of
discontinued operations due to the receipt of cash rather than an anticipated
partial stock payment.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1995.
Net sales in the first half of 1996 were $185.8 million, an increase of
$11.1 million, or 6%, from the $174.7 million recorded in the comparable 1995
period. Sales of discontinued turbine parts decreased $10.3 million. Excluding
the discontinued turbine part sales from each period, sales in the continuing
operations increased $21.4 million, or 13%, on increased shipments to domestic
and international airline customers, higher volume in product repair services
and new JIT contracts for aerospace fasteners.
Gross profit of $48.4 million in the first six months of 1996 increased
$2.1 million, or 5%, from the first half of 1995. Gross profit as a percentage
of sales decreased from 26.5% in 1995 to 26.0% in 1996. This decrease stemmed
primarily from low margins on the disposal of excess inventory.
Selling and administrative expenses increased $1.7 million to $41.7 million
in the first six months of 1996. The increase was due to severance charges and
legal and accounting fees associated with amending the Company's bank credit
agreement.
The nonrecurring charge of $3.9 million, comprised of the write-down of
inventory and the accrual of estimated expenses, was incurred as a result of
the expected sale of the aerospace fastener business.
Interest expense was higher than in 1995, reflecting the accelerated
amortization of debt issuance costs.
The 1996 results include a $10.5 million gain from the disposal of
discontinued operations due to the receipt of cash rather than an anticipated
partial stock payment.
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FINANCIAL CONDITION. The following table sets forth cash flows for the
continuing businesses and the aerospace fastener business, which is held for
sale.
Six months ended June 30,
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(In thousands) 1996 1995
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(Unaudited)
Cash flows from operating activities:
Net loss $ (3,756) (361)
Nonrecurring charge 3,850 -
Depreciation and amortization 4,881 3,685
Change in working capital and other 8,561 (12,644)
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13,536 (9,320)
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Cash flows from investing activities:
Capital expenditures (895) (2,137)
Sales of property, plant and equipment 168 446
Other, net - (560)
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(727) (2,251)
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Net cash flows before financing $ 12,809 (11,571)
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Cash flows from operations were $13.5 million in the first six months of
1996 compared to $(9.3) million in the 1995 period. Working capital improved
during 1996 primarily as a result of higher accounts payable. Depreciation and
amortization expense increased due to the Company amending its senior secured
credit facilities (the "Credit Facilities") to provide for a maturity date of
April 30, 1997. The shorter maturity date required the related debt issuance
costs to be amortized over the shorter period causing an increase of $1.4
million over 1995. In 1995, the negative working capital change was due to a
payment to Ryder System, Inc. for the settlement of 1993 federal income taxes
pursuant to the tax-sharing agreement entered into in connection with the
spin-off in December 1993.
The Company completed the sales of its discontinued commercial engine
services businesses in the second quarter of 1996. The cash proceeds of $232.6
million, net of transaction and closing costs, were used to make pro rata
reductions in the term loans and revolving lines of credit as required by the
terms of the Credit Facilities. These cash proceeds represent approximately
95% of the anticipated sales proceeds. The Company continues to pursue
completion of the remaining outstanding issues in order to finalize these sales
transactions, including the post closing audits.
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 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 $33.5
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 has completed a major portion of the sales of non-strategic
businesses and used the net proceeds to significantly reduce debt. The
culmination of these transactions is expected to further improve the balance
sheet and reduce ongoing interest costs. Corporate functions are being
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.
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 needs and the funding of transaction expenses
associated with the sales of the non-strategic businesses. The Company expects
to refinance or restructure its remaining debt after the completion of the sale
of its aerospace fastener business. If debt is repaid prior to maturity,
amortization of the remaining debt issuance costs will accelerate
correspondingly.
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In April 1996, Aviall signed a letter of intent to sell its aerospace
fastener distribution business to a company to be formed by Aviall Aerospace's
vice president and general manager. This sale 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 minimize U.S. federal income tax payments for
several years.
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on June 3, 1996, at
which meeting the shareholders took action with respect to two proposals, (i)
the election of Henry Wendt to serve as director of the Company for a term
expiring at the Company's 1999 Annual Meeting of Shareholders, and (ii) the
ratification of the appointment of Price Waterhouse to serve as independent
auditors for the Company and its subsidiaries for the fiscal year ending
December 31, 1996.
The number of votes cast for, against or withheld, as well as the number of
abstentions as to each proposal is set forth below. There were no broker
non-votes with respect to any of the proposals.
Election of Directors
Total Votes For Total Votes Withheld
--------------- --------------------
Henry Wendt 15,939,246 53,486
Ratification of Appointment of Independent Auditors
For Against Abstain
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15,929,417 32,599 30,691
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter for which this Form 10-Q Report is filed, the
Company filed three Current Reports on Form 8-K. The first and
second, dated April 19, 1996 and May 14, 1996, respectively, covered
information reported under Item 5 - Other Events; the third, dated
June 10, 1996, covered information reported under Item 2 -
Acquisition or Disposition of Assets.
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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.
August 12, 1996 By /s/Jacqueline K Collier
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Jacqueline K. Collier
Vice President and Controller
(Authorized Officer/Chief
Accounting Officer)
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INDEX TO EXHIBITS
Exhibit
Number Description
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27.1 Financial Data Schedule