1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File No.
SEPTEMBER 30, 1999 0-24275
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AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 52-2081515
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
587 GREENWAY INDUSTRIAL DRIVE
FORT MILL, SOUTH CAROLINA 29715
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(Address of principal executive offices) (Zip code)
(803) 548-2160
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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 [ ]
The number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Shares Outstanding at November 9, 1999
7,190,104
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AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS --SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(in thousands)
SEPTEMBER 30, DECEMBER 31,
ASSETS 1999 1998
------------- ------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 294 $ 2,150
Receivables - Trade and other, net of allowances of $295,592 at
September 30, 1999, and $255,592 at December 31, 1998, respectively 9,565 4,017
Unbilled accounts receivable 1,666 610
Inventories 47,886 22,220
Prepaid expenses 595 181
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Total current assets 60,006 29,178
PROPERTY AND EQUIPMENT, net 8,799 2,263
ASSETS HELD FOR LEASE 6,055 1,725
GOODWILL AND ACQUISITION COSTS, net of amortization 10,230 10,446
DEFERRED FINANCING FEES 1,677 --
OTHER ASSETS 1,190 566
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$87,957 $44,178
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit $45,886 $ 3,250
Current maturities of long-term debt -- 1,733
Accounts payable and accrued expenses 10,824 3,270
Accounts payable to related parties -- 54
Income taxes payable 471 1,128
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Total current liabilities 57,181 9,435
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LONG-TERM DEBT, NET OF CURRENT MATURITIES 2,756 11,267
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 2,000,000 shares authorized;
no shares issued or outstanding -- --
Common stock, $.001 par value; 20,000,000 shares authorized;
7,190,104 shares issued and outstanding at September 30, 1999 and
December 31, 1998, respectively 7 7
Additional paid-in capital 20,450 20,450
Retained earnings 7,563 3,019
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Total stockholders' equity 28,020 23,476
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$87,957 $44,178
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AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
(in thousands, except per share amounts)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
(Unaudited) (Unaudited)
NET REVENUES $ 17,722 $ 7,345 $ 47,038 $ 15,441
COST OF SALES AND SERVICE 11,159 4,366 30,018 8,718
-------- -------- -------- --------
Gross profit 6,563 2,979 17,020 6,723
-------- -------- -------- --------
OPERATING EXPENSES:
Selling and marketing 1,296 448 3,330 992
General and administrative 1,462 260 4,099 732
-------- -------- -------- --------
Total operating expenses 2,758 708 7,429 1,724
-------- -------- -------- --------
Income from operations 3,805 2,271 9,591 4,999
-------- -------- -------- --------
OTHER EXPENSE
Interest (expense) income, net (982) 21 (2,037) (110)
Write off of deferred financing fees -- -- (99) --
-------- -------- -------- --------
Income before income taxes 2,823 2,292 7,455 4,889
PROVISION FOR INCOME TAXES 1,102 917 2,911 1,183
-------- -------- -------- --------
Net income $ 1,721 $ 1,375 $ 4,544 $ 3,706
======== ======== ======== ========
PRO FORMA DATA:
Income before incomes taxes as reported $ -- $ -- $ -- $ 4,889
Pro forma income tax expense -- -- -- 1,956
-------- -------- -------- --------
Pro forma net income $ -- $ -- $ -- $ 2,933
======== ======== ======== ========
EARNINGS PER SHARE AND PRO FORMA
BASIC EARNINGS PER SHARE $ 0.24 $ 0.22 $ 0.63 $ 0.58
======== ======== ======== ========
EARNINGS PER SHARE AND PRO FORMA DILUTED
EARNINGS PER SHARE $ 0.24 $ 0.22 $ 0.62 $ 0.58
======== ======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING AND PRO
FORMA WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 7,190 6,312 7,190 5,087
======== ======== ======== ========
Diluted 7,308 6,312 7,333 5,087
======== ======== ======== ========
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AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(in thousands)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
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(Unaudited)
OPERATING ACTIVITIES:
Net income $ 4,544 $ 3,706
Adjustments to reconcile net income to cash used
in operating activities:
Depreciation and amortization 1,016 105
Increase in trade and other receivables (5,547) (1,060)
Increase in receivables from affiliate -- (9)
Increase in unbilled accounts receivable (1,056) --
Increase in inventories (25,666) (8,027)
Increase in prepaid expenses (415) (211)
Increase in other assets (744) --
Increase in accounts payable and accrued expenses 7,554 397
Increase in customer deposits -- 31
Decrease in payables to affiliates (54) --
(Decrease) increase in income taxes payable (656) 501
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Net cash used in operating activities (21,024) (4,567)
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INVESTING ACTIVITIES:
Investments -- (75)
Net assets held for lease (4,355) (496)
Acquisition costs (48) --
Capital expenditures (7,045) (415)
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Net cash used in investing activities (11,448) (986)
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FINANCING ACTIVITIES:
Net borrowings(repayments) on revolving line of credit 42,636 (1,000)
Repayment of long-term debt (10,244) (121)
Principal repayments on notes payable
to related parties, net (1,502)
Net increase in deferred financing fees (1,776) --
Net proceeds from initial public offering -- 11,630
Distribution to stockholders -- (3,101)
-------- --------
Net cash provided by financing activities 30,616 5,906
-------- --------
Net (decrease) increase in cash and cash equivalents (1,856) 353
Cash and cash equivalents, beginning of year 2,150 750
-------- --------
Cash and cash equivalents, end of period $ 294 $ 1,103
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AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
INTERIM FINANCIAL STATEMENTS
The accompanying consolidated interim financial statements include the accounts
of American Aircarriers Support, Incorporated, a Delaware corporation, and its
wholly-owned subsidiaries AAS Engine Services, Inc., AAS Landing Gear Services,
Inc., AAS Amjet, Inc., and AAS Complete Controls, Inc. (collectively "AAS" or
"the Company"). All significant intercompany accounts and transactions have been
eliminated in consolidation. These statements have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission and reflect all adjustments that, in management's opinion,
are necessary for fair presentation. All such adjustments are of a normal,
recurring nature. The balance sheet as of December 31, 1998, has been derived
from the audited consolidated financial statements of the Company as of that
date. Certain pro forma information has been provided in connection with the
initial public offering of securities (Note 3). Operating results for the three
and nine-month periods ended September 30, 1999, are not necessarily indicative
of the results that may be expected for the year ending December 31, 1999.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
here have been condensed or omitted pursuant to such rules and regulations,
although the Company believes the disclosures are adequate to make the
information presented not misleading. It is suggested that these consolidated
interim financial statements be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's Form 10-KSB
for the year ended December 31, 1998.
2. PRO FORMA FINANCIAL INFORMATION:
PRO FORMA STATEMENT OF OPERATIONS INFORMATION
In conjunction with the initial public offering on May 28, 1998, the Company
terminated its status as an S corporation. The pro forma data in the statement
of operations provides information as if the Company had been treated as a C
Corporation for income tax purposes for the periods presented. Pro forma net
income includes a provision for income taxes as if the Company was subject to
federal and state income taxes as described above at an effective tax rate of
approximately 40% for the nine months ended September 30, 1998.
PRO FORMA EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," which was required to be adopted for the fiscal years ending after
December 15, 1997. SFAS No. 128 supercedes APB Opinion No. 15, "Earnings Per
Share" and specifies the computation, presentation and disclosure requirements
for earnings per share ("EPS") for entities with publicly held common stock or
potential common stock. Essentially, this Statement replaces the primary EPS and
fully diluted EPS presentations under APB Opinion No. 15 with a basic EPS and a
diluted EPS.
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AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
2. PRO FORMA FINANCIAL INFORMATION (CONTINUED):
PRO FORMA EARNINGS PER SHARE (CONTINUED)
The provisions of SFAS No. 128 have been adopted in determining pro forma basic
and diluted EPS for the nine months ended September 30, 1999. The weighted
average number of shares outstanding has been retroactively restated to give
effect to the shares issued in the re-incorporation in Delaware.
The computation of pro forma basic earnings per common share is as follows - in
thousands, except per share amounts:
NINE MONTHS ENDED
SEPTEMBER 30, 1998
------------------
Pro forma net income $2,933
======
Pro forma weighted average shares outstanding 5,087
------
Pro forma basic earnings per share $ 0.58
======
Computation of pro forma diluted earnings per common share - in thousands,
except per share amounts:
NINE MONTHS ENDED
SEPTEMBER 30, 1998
------------------
Pro forma net income $2,933
======
Pro forma weighted average shares outstanding: 5,087
Pro forma dilutive common stock option at average market price --
------
Pro forma weighted average dilutive shares outstanding 5,087
------
Pro forma earnings per share $ 0.58
------
3. EARNINGS PER SHARE:
The computation of basic earnings per share in accordance with SFAS No. 128 is
as follows for all periods presented below - in thousands, except per share
amounts:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
------------------ ------------------
Net income as reported $1,721 $4,544
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Weighted average shares outstanding 7,190 7,190
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Basic earnings per share $ 0.24 $ 0.63
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AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
3. EARNINGS PER SHARE (CONTINUED):
THREE MONTHS ENDED
SEPTEMBER 30, 1998
------------------
Net income as reported $1,375
------
Weighted average shares outstanding 6,312
------
Basic earnings per share $ 0.22
------
The computation of diluted earnings per share in accordance with SFAS No. 128 is
as follows for all periods presented below - in thousands except per share
amounts:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
------------------ ------------------
Net income as reported $1,721 $4,544
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Weighted average shares outstanding 7,190 7,190
Effect of delutive securities 118 143
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Diluted weighted average shares outstanding 7,308 7,333
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Diluted earnings per share $ 0.24 $ 0.62
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THREE MONTHS ENDED
SEPTEMBER 30, 1998
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Net income as reported $1,375
------
Weighted average shares outstanding 6,312
Effect of delutive securities --
------
Diluted weighted average shares outstanding 6,312
------
Diluted earnings per share $ 0.22
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AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion may contain "forward-looking" statements, as that term
is defined by (i) the Private Securities Litigation Reform Act of 1995 (the
"Reform Act") and (ii) in releases made by the Securities and Exchange
Commission from time to time. Forward-looking statements are subject to risks
and uncertainties that may cause future results to differ materially from those
set forth in such forward-looking statements. The Company undertakes no
obligation to update forward-looking statements to reflect events or
circumstances after the date hereof. The Company's future operating results may
be affected by various trends and factors beyond the Company's control.
Accordingly, past results and trends should not be used by investors to
anticipate future results or trends. Future results of operations may vary due
to numerous factors, many of which are beyond the control of the company. The
factors are described in the Company's filing of the form 10-KSB and
incorporated by reference herein.
OVERVIEW
The Company is an international supplier of aviation services, which include
sales of aircraft components and spare parts in the redistribution market,
maintenance, repair and overhaul of those components and parts, and engine
management services, primarily to other maintenance and repair facilities, major
commercial passenger and cargo airlines and other redistributors located
throughout the world. Historically, revenues have been principally derived from
the redistribution of engine components and spare parts for the Pratt & Whitney
JT8D series of engines and, to a lesser extent, the General Electric CFM56, as
well as avionics, rotable, repairable and expendable airframe components and
spare parts for Boeing, Douglas and Airbus aircraft. The Company fulfills
customers' requirements for engine and airframe components and spare parts
through purchases of surplus aircraft for disassembly, bulk purchases of
aircraft components and spare parts from aircraft operators, purchases of
individual components and spare parts from other redistributors, consignments
from aircraft operators and others, and exchanges of inventoried aircraft
components and spare parts for components and spare parts that require service
or overhaul. In the last quarter of 1998, AAS began to implement an acquisition
strategy aimed primarily at integrating its aviation capabilities with related
products such as engine management services, maintenance, repair and overhaul
services and manufacturing capabilities, thereby becoming a full service "one
stop" supplier of both aviation products and services for customers.
RESULTS OF OPERATIONS
Comparison of Three Months Ended September 30, 1999 and 1998
Net revenues increased approximately $10.4 million, or 141.3%, to $17.7 million
in the three months ended September 30, 1999 from $7.3 million in the
corresponding period in 1998. Approximately $8.6 million of the increase in net
revenues for the third quarter of 1999 was derived from the companies acquired
during the fourth quarter of 1998 and the second quarter of 1999, and $1.8
million of the increase in net revenues was generated through internal growth.
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AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
RESULTS OF OPERATIONS - CONTINUED
Comparison of Three Months Ended September 30, 1999 and 1998 - continued
Cost of sales and service totaled approximately $11.2 million, or 63.0% of net
revenues, in the third quarter of 1999, compared with $4.4 million, or 59.4% of
net revenues, in the third quarter of 1998. Gross profit increased 120.3% to
$6.6 million for the three months ended September 30, 1999, compared with $3.0
million for the same period last year. As a percentage of net revenues, gross
profit was approximately 37.0% of net revenues in the three months ended
September 30, 1999, compared with approximately 40.6% in the three months ended
September 30, 1998. The decline in the gross profit margin percentage in 1999
was due to the change in product and service mix resulting from the inclusion of
the Maintenance, Repair and Overhaul ("MRO") operations that were acquired
during the fourth quarter of 1998.
Selling and marketing expenses increased $0.8 million, or 189.3%, to $1.3
million in the three months ended September 30, 1999 from $0.4 million in the
three months ended September 30, 1998. This increase primarily reflects
compensation expenses related to additional staffing, fees paid to outside
agents, sales related travel necessary to facilitate increased revenues and the
increase in expenses related to the recently acquired operations. As a
percentage of net revenues, selling and marketing expenses increased to 7.3% in
the three months ended September 30, 1999, compared to 6.1% of net revenues in
the three months ended September 30, 1998.
General and administrative expenses increased $1.2 million, or 462%, to $1.5
million in the three months ended September 30, 1999 from $0.3 million in the
comparable 1998 period. Approximately $0.6 million of the increase was
associated with the recently acquired operations, while the remaining
approximate $0.6 million of the increase reflects increases in business
insurance, amortization of deferred financing fees, professional fees associated
with being a public entity and compensation expenses related to the additional
staffing necessary to support the Company's growth. As a percentage of net
revenues for the three months ended September 30, 1999, general and
administrative expenses were 8.2%, compared with 3.5% of net revenues in the
three months ended September 30, 1998.
Net interest expense for the three months ended September 30, 1999 increased by
$1.0 million to approximately $1.0 million, compared to net interest income in
the three months ended September 30, 1998. This increase is due to the higher
levels of indebtedness outstanding used to finance inventory acquisitions and
equipment held for lease, the addition and expansion of our MRO operations and a
general increase interest rates.
As a result of the above, income before income taxes increased $0.5 million, or
23.2%, to $2.8 million in the third quarter of 1999 from $2.3 million in the
same period in 1998. Net income after provision for income tax expense of $1.1
million was $1.7 million ($0.24 per diluted share) for the three months ended
September 30, 1999. Net income after income tax provision of $0.9 million was
$1.4 million ($0.22 per diluted share) for the three months ended September 30,
1998. Weighted average diluted shares outstanding increased 1.0 million shares,
or 15.8%, to 7.3 million shares outstanding during the three month period ended
September 30, 1999 compared with weighted average shares outstanding of 6.3
million during the three month period ended September 30, 1998.
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AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
RESULTS OF OPERATIONS - CONTINUED
Comparison of Nine Months Ended September 30, 1999 and 1998
Net revenues increased $31.6 million or 204.6%, to $47.0 million in the nine
months ended September 30, 1999 from $15.4 million in the nine months ended
September 30, 1998. Approximately $19.3 million of the increase in net revenues
for the nine months ended September 30, 1999 was derived from companies acquired
during the fourth quarter of 1998 and the second quarter of 1999, and $12.3
million of the increase in net revenues was generated through internal growth.
Cost of sales and service totaled $30.0 million for the nine months ended
September 30, 1999, a $21.3 million or 244.3% increase from $8.7 million in the
nine months ended September 30, 1998. The increase in cost of sold is mostly
attributable to the increase in mix in sales of product and service (MRO). The
labor component of the cost of service revenues (MRO) attributes to a higher
cost of goods sold. Gross profit increased $10.3 million or 153.2%, to $17.0
million in the nine months ended September 30, 1999 from $6.7 million in the
nine months ended September 30, 1998. As a percentage of net revenues, gross
profit decreased to 36.2% in the nine months ended September 30, 1999, from
43.5% in the comparable 1998 period. The decline in gross profit margin
percentage in 1999 is due to the change in product mix resulting from the
inclusion of MRO operations that were acquired in the fourth quarter of 1998.
Selling and marketing expenses increased $2.3 million, or 235.7%, to $3.3
million in the nine months ended September 30, 1999 from $1.0 million in the
nine months ended September 30, 1998. This increase primarily consists of fees
paid to sales agents, higher compensation expense related to additional sales
personnel, sales related travel and advertising cost associated with the higher
sales volume, as well as the increase in expenses related to the recently
acquired operations. As a percentage of net revenues, selling and marketing
expenses increased to 7.1% in the nine months ended September 30, 1999 from 6.4%
in the comparable 1998 period.
General and administrative expenses increased $3.4 million, or 459.9%, to $4.1
million in the nine months ended September 30, 1999 from $0.7 million in the
comparable 1998 period. The majority of the increase in expenses is attributable
to the approximately $2.1 million of general and administrative expenses
associated with the recently acquired operations. Expenses such as rent and
depreciation associated with the relocation of the corporate offices and
warehouse and the additional rents required in the expansion of the MRO
operations, along with insurance and increased professional fees associated with
operating as a public entity, also increased during the comparative periods. As
a percentage of net revenues, general and administrative expenses increased to
8.7% in the nine months ended September 30, 1999 from 4.7% in the nine months
ended September 30, 1998.
Net interest expense increased to $2.0 million in the nine months ended
September 30, 1999, from net interest expense of $0.1 million in the nine months
ended September 30, 1998. The increase in net interest expense reflects interest
charges associated with higher levels of indebtedness outstanding under the
Credit Agreement (here in after defined) and a general increase in interest
rates.
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AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
RESULTS OF OPERATIONS - CONTINUED
Comparison of Nine Months Ended September 30, 1999 and 1998 - continued
During the nine months ended September 30, 1999, the Company wrote off
approximately $0.1 million of deferred financing fees. The one-time charge was a
result of the change in the Company's credit facility.
As a result of the above, income before income taxes increased $2.6 million, or
52.5%, to $7.5 million in the nine months ended September 30, 1999 from $4.9
million in the same period in 1998. Net income after the provision for income
tax expense of $2.9 million was $4.5 million ($0.62 per diluted share) for the
nine months ended September 30, 1999. AAS became subject to income taxes on May
28, 1998 when it terminated its election to be taxed as an S corporation in
connection with its initial public offering. However, to allow comparisons with
future periods, pro forma federal and state income taxes have been assumed.
Based on this assumption, pro forma net income after the pro forma income tax
provision of $2.0 million was $2.9 million ($0.58 per pro forma diluted share)
for the nine months ended September 30, 1998. Weighted average diluted shares
outstanding increased 2.2 million shares, or 44.2% to 7.3 million shares
outstanding during the nine month period ended September 30, 1999 compared with
pro forma weighted average shares outstanding of 5.1 million during the nine
month period ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of liquidity for AAS prior to completion of the May 1998
initial public offering were cash flows from operating activities, borrowings
under the prior credit facility and advances from its two founders. AAS requires
capital to purchase inventory, to fund product servicing and overhaul
facilities, for normal operating expenses and for general working capital
purposes.
In May 1999 the Company entered into a five-year revolving credit agreement and
capital expenditure loan facility ("Credit Agreement") which provides a line of
credit up to $100 million, of which $10 million is designated as the Capital
Expenditure Loan Facility. The Credit Agreement replaced an existing $35 million
revolving line of credit which was repaid using proceeds under the Credit
Facility. Principal amounts outstanding under the Credit Agreement bear interest
on a variable rate basis at various interest rates tied to either the London
Interbank Offered Rate ("LIBOR") or the prime rate, depending on the number of
loans outstanding and on certain indebtedness ratios. In conjunction with
entering into the new Credit Agreement, the Company also wrote off deferred
financing fees of $0.1 million associated with the previous line of credit.
The Credit Agreement, of which $45.9 million and $2.8 million were outstanding
under the revolver and capital expenditure loan facility, respectively, at
September 30, 1999, contains customary events of default and restrictive
covenants that, among other matters, require the Company to maintain certain
financial ratios. The amount of credit available to the Company under the
agreement at any given time is determined by an availability calculation, based
on the eligible borrowing base, as defined in the Credit Agreement, which
includes the Company's outstanding receivables and inventories, with certain
exclusions. The Credit Agreement is secured by substantially all of the assets
of the Company.
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AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
LIQUIDITY AND CAPITAL RESOURCES - CONTINUED
As of September 30, 1999, the Company's principal sources of liquidity included
cash and cash equivalents of $0.3 million, net accounts receivable of $9.6
million, $7.3 million of borrowings available under the Capital Expenditure Loan
Facility and additional borrowings (determined by an availability calculation
based on the eligible borrowing base) available under the Credit Agreement. The
Company had working capital of $2.8 million and long-term debt of $2.8 million
outstanding under the Capital Expenditure Loan Facility at September 30, 1999.
For the nine months ended September 30, 1999, operating activities used cash of
$21.0 million, primarily for increases in inventory and accounts receivable,
which were partially offset by increases in accounts payable and accrued
expenses. Net cash used in investing activities during the nine months ended
September 30, 1999 was $11.5 million, reflecting the purchase of fixed assets
and assets held for lease as well as increased acquisition costs that were
incurred in connection with the Company's purchase of Complete Controls, Inc.,
which closed on April 1, 1999. Net cash provided by financing activities during
the nine months ended September 30, 1999, was $30.6 million, which consisted of
borrowings under the Credit Agreement, offset by the repayment of previously
outstanding debt.
Capital expenditures were approximately $7.0 million for the nine months ended
September 30, 1999. The expenditures were primarily for equipment purchases and
leasehold improvements necessary for the expansion of the Company's maintenance,
repair and overhaul facilities.
At September 30, 1999, the Company had outstanding commitments to acquire
machinery and equipment of approximately $4.0 million that will be funded using
the Capital Expenditure Loan Facility under the Company's Credit Agreement.
Existing cash balances, accounts receivable and amounts available under the
Credit Facility are anticipated to be sufficient to meet future short-term
capital requirements. If the Company's capital requirements increase, the
Company could be required to secure additional sources of capital. There can be
no assurance the Company will be capable of securing additional capital or that
the terms upon which such capital may be available to the Company will be
acceptable.
RECENT DEVELOPMENTS
On July 1, 1999, the Company entered into a lease agreement with a related party
for additional space for expansion of one of our maintenance, repair and
overhaul facilities. The expansion is expected to be completed and operational
in the first quarter of 2000.
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AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
YEAR 2000 COMPLIANCE
The Company is cognizant of the issues associated with the programming code in
existing computer systems and devices that utilize microchip processors as the
year 2000 approaches. The "Year 2000" problem is pervasive and complex, as
virtually every computer operation will be affected in some way by the rollover
of the two-digit year value to "00". Computer systems that do not properly
recognize date-sensitive information when the year changes to 2000 could
generate erroneous data or fail.
In the ordinary course of business, AAS has replaced or is in the process of
replacing non-compliant hardware and software in all of its facilities as well
as those of the acquired companies with systems that are Year 2000 ready. The
Company has confirmed with the licensors of financial and operational
applications that have been licensed from outside vendors that those products
are Year 2000 compatible.
The information system used by the Company in tracking and processing inventory
currently is non-compliant. The Company has contracted for the development of a
proprietary system to replace the existing system. Testing and implementation of
the system was expected to be completed in the third quarter of 1999. Certain
necessary changes in the software development caused the testing and
implementation of the system to be delayed until the fourth quarter of 1999.
Testing and implementation are currently in process and the system is expected
to be operational by December 1, 1999. Should management assess that the new
system will not be implemented prior to the end of 1999, the Company can
purchase and install upgrades of the existing system that are or will be Year
2000 compatible at a cost approximating $50,000.
Year 2000 issues may also affect the computer systems of the customers, vendors
and financial institutions with which AAS and the acquired companies do
business. The Company has made inquiries of its significant customers, vendors
and financial institutions and has been advised that these customers expect to
be Year 2000 compatible in sufficient time to allow for testing and system
implementation before December 31, 1999.
Management of AAS believes all of its systems and those of the acquired
companies will be fully Year 2000 compatible by December 31, 1999, and that
amounts currently budgeted for hardware and software upgrades will be sufficient
to address expenses associated with any Year 2000 issues. Approximately $0.3
million was expended during 1998, approximately $0.3 million and $0.9 million
was expended in the three and nine months ended September 30, 1999,
respectively, and approximately $0.2 million is expected to be spent during the
remainder of 1999 for information systems acquisition and development. As many
of these expenditures are for the replacement of information and operational
systems, a significant portion of these expenditures will be capitalized.
Management does not anticipate that any other material expenditures will be
necessary to achieve Year 2000 compliance. Failure to achieve full Year 2000
compliance prior to December 31, 1999, could have a material adverse impact on
results of operations of AAS.
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14
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
RECENT ACCOUNTING PRONOUNCEMENTS
Please refer to Note 3 - Pro Forma Financial Information in the accompanying
interim financial statements regarding Statement of Financial Accounting
Standard No. 128.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131). This statement establishes
standards for reporting information of public companies about operating segments
in annual financial statements and requires reporting of selected information
about operating segments in interim financial reports issued to shareholders. It
also establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company operates in one business
segment, as a supplier of aviation services including the sale, maintenance,
repair and overhaul of spare parts and engines.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). This statement addresses the accounting
for derivative instruments, including certain derivative instruments imbedded in
other contracts, and hedging activities. The Statement is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999. In June 1999,
the FASB issued SFAS No. 137 which delayed the effective date of SFAS No. 133
until fiscal quarters of all fiscal years beginning after June 15, 2000.
Management does not anticipate the adoption of the provisions of SFAS No. 133
will significantly impact the Company's financial reporting
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15
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is involved in various claims and lawsuits incidental to its
business operations. In the opinion of management, the ultimate resolution of
these claims and lawsuits will not have a material adverse effect on the
financial condition, results of operations or cash flows of the Company.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable
(b) Not applicable
(c) Not applicable
(d) Not applicable
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 -EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
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16
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED 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.
American Aircarriers Support, Incorporated
(Registrant)
Date: November 15, 1999
By: /s/ Elaine T. Rudisill
Elaine T. Rudisill
(Principal Financial and Accounting Officer)
F-16