UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 0-22706
GREENWICH AIR SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 58-1758941
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P.O. BOX 522187, MIAMI, FLORIDA 33152
4590 NW 36TH STREET, MIAMI, FLORIDA 33122
(Address of principal executive offices) (Zip Code)
(305) 526-7000
(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 class of the issuer's Common Stock as
of February 7, 1997 were:
Class A common stock, $0.01 par value (NASDAQ: GASIA) - 6,968,825 shares
Class B common stock, $0.01 par value (NASDAQ: GASIB) - 9,772,776 shares.
GREENWICH AIR SERVICES, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I FINANCIAL INFORMATION:
Consolidated Balance Sheets as of December 31, 1996 (unaudited)
and September 30, 1996 ....................................... 3
Consolidated Statements of Income for the three months
ended December 31, 1996 and 1995 (unaudited)................... 4
Consolidated Statements of Cash Flows for the three months
ended December 31, 1996 and 1995 (unaudited).................. 5
Notes to Consolidated Financial Statements (unaudited)........... 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations ..................................... 9
PART II OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K............... 11
2
PART I. FINANCIAL INFORMATION
GREENWICH AIR SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND SEPTEMBER 30, 1996
AMOUNTS IN THOUSANDS DECEMBER 31,
1996 SEPTEMBER 30,
ASSETS (UNAUDITED) 1996
----------- -------------
Current Assets:
Cash $497 $334
Accounts receivable, less allowance of
$5,149 in December 1996 and $5,033 in
September 1996 142,677 139,401
Inventories 346,411 318,013
Prepaid expenses and other current assets 14,127 20,004
-------- --------
Total current assets 503,712 477,752
-------- --------
Property, plant and equipment 149,759 147,403
Less accumulated depreciation (14,957) (12,518)
-------- --------
Property, plant and equipment, net 134,802 134,885
Deferred financing costs, net 7,991 8,416
Other assets 9,632 4,027
-------- --------
TOTAL ASSETS $656,137 $625,080
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $100,798 $106,556
Accrued expenses and other current liabilities 83,199 86,977
Current portion of long-term debt 7,277 3,150
Income taxes payable 7,903 7,474
-------- --------
Total current liabilities 199,177 204,157
-------- --------
Deferred income taxes 21,228 23,000
Other liabilities 25,160 25,510
Long term debt 103,612 69,710
Long term debt - WAL 0 1,141
Senior notes 160,000 160,000
Convertible subordinated debentures 10 2,515
Stockholders' Equity:
Common stock 167 163
Capital in excess of par value 106,565 104,271
Retained earnings 40,961 35,658
Treasury stock, at cost (743) (1,045)
-------- --------
Total stockholders' equity 146,950 139,047
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $656,137 $625,080
======== ========
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3
GREENWICH AIR SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
THREE MONTHS ENDED
DECEMBER 31,
------------------
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1996 1995
-------- -------
Net sales $187,547 $58,595
Cost of sales 162,982 49,234
------- -------
Gross profit 24,565 9,361
Selling, general and administrative expense 8,564 3,822
------- -------
Income from operations 16,001 5,539
------- -------
Non-operating (income) expense:
Interest expense 6,615 2,034
Other (income) expense 339 15
------- -------
Total non-operating expense 6,954 2,049
------- -------
Income before provision for income taxes 9,047 3,490
Provision for income taxes 3,573 1,396
------- -------
Net Income $5,474 $2,094
======= =======
Earnings per share:
Primary $0.32 $0.18
Fully diluted $0.32 $0.17
Weighted average number of common shares and
common share equivalents:
Primary 16,859 11,866
Fully diluted 16,889 13,069
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4
GREENWICH AIR SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
AMOUNTS IN THOUSANDS THREE MONTHS ENDED DECEMBER 31,
-------------------------------
1996 1995
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $5,474 $2,094
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,707 612
Changes in assets and liabilities:
Accounts receivable (3,276) (9,206)
Inventories (28,398) 13,947
Prepaid expenses and other current assets 5,877 (7)
Other assets (5,604) 71
Accounts payable (5,758) (9,305)
Accrued expenses and other current liabilities (3,779) 1,371
Income taxes payable 429 1,027
Deferred income taxes (1,772) 0
Other non-current liabilities (350) (400)
-------- -------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (34,450) 204
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,355) (666)
-------- -------
NET CASH USED BY INVESTING ACTIVITIES (2,355) (666)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net changes in revolving credit facility 37,659 1,696
Repayments of long term debt (771) (734)
Proceeds from sale of treasury shares 189 0
Purchase of treasury shares (113) 0
Exercise of options and warrants 4 0
-------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 36,968 962
-------- -------
NET INCREASE IN CASH 163 500
Cash, beginning of periods 334 180
-------- -------
Cash, end of periods $497 $680
======== =======
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5
GREENWICH AIR SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
DECEMBER 31, 1996
1. STATEMENT OF INFORMATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do
not include all information and footnotes normally included in annual
financial statements and should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's latest
Annual Report on Form 10-K for the year ended September 30, 1996. In the
opinion of management, the unaudited consolidated financial statements
contain all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the balance sheets and statements of
income and of cash flows for such interim periods presented. The results of
operations for the three months ended December 31, 1996 are not necessarily
indicative of the results which may be expected for the entire fiscal year.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ORGANIZATION
Greenwich Air Services, Inc. ("GASI") and its subsidiaries (collectively,
the "Company") overhauls, repairs, and refurbishes gas turbine engines and
components used in aviation, marine and industrial applications. The Company
also manages government and military service and maintenance programs, and
provides management services for the sale, refurbishment and installation of
complete gas turbine power plants.
On June 10, 1996, the Company, through its newly-formed, wholly-owned
subsidiary GASI Engine Services Corporation, purchased (a) substantially all
of the assets and business of the commercial engine services divisions (the
"CES Divisions") of Aviall, Inc. ("Aviall"), and (b) all of the issued and
outstanding shares of Aviall Limited, a subsidiary of Aviall (collectively,
the "Former Aviall Operations"). The CES Divisions included (i) all of the
engine repair and overhaul operations of Aviall located in Dallas and Fort
Worth, Texas and (ii) the components and parts repair business of Aviall
located in McAllen, Texas. Aviall Limited, which has been renamed Greenwich
Caledonian Limited ("Greenwich Caledonian") operated an engine repair and
overhaul facility in Prestwick, Scotland.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF
("SFAS No. 121"). SFAS No. 121 was adopted by to the Company as of October
1, 1996 without any impact.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS No. 123). The Company
intends to adopt the pro forma disclosure features of SFAS No. 123, which
are effective for fiscal year 1997. The adoption of these pro forma
disclosure features will not have any impact on the Company's present
accounting for stock-based compensation.
6
2. INVENTORIES
Inventories are comprised of the following: December 31, September 30,
Amounts in thousands 1996 1996
---- ----
Parts $146,864 $136,424
Engines 20,938 21,393
Work in process 163,012 144,116
Inventories substantially applicable
to long-term programs 15,597 16,080
--------- ------------
TOTAL $346,411 $318,013
========= ============
3. EARNINGS PER SHARE
Primary earnings per share are based on the weighted average number of
common shares and common share equivalents outstanding. Common share
equivalents include dilutive stock options and stock warrants using the
treasury stock method.
Fully diluted earnings per share assumes, in addition to the above, (a) that
convertible debentures and debenture warrants were converted at the
beginning of each period with earnings being increased for interest expense,
net of taxes, that would not have been incurred had conversion taken place
and (b) the additional dilutive effect of stock options.
4. CAPITAL STOCK AND STOCKHOLDERS' EQUITY
The Company is authorized to issue 25,000,000 shares of Class A common
stock, $.01 par value; 25,000,000 shares of Class B non-voting common stock,
$.01 par value; and 2,500,000 shares of preferred stock, $.01 par value.
On October 2, 1996, Greenwich's Board of Directors authorized the redemption
of all of the Company's outstanding 8% Convertible Subordinated Debentures,
due 2000 (the "Debentures"). The redemption date was November 25, 1996. The
redemption price was 100% of the principal amount plus any unpaid interest
accrued to that date. The Debentures are convertible into Class A Common
Stock at a conversion price of $5.85 per share. Prior to the redemption,
during the three months ended December 31, 1996, a total of $2,505,000 of
the Debentures were converted into 428,195 shares of Class A common stock.
On November 25, 1996, Greenwich's Board of Directors elected to declare a
$.012 per share cash dividend to shareholders of record as of January 10,
1997. The cash dividend is payable on shares of both Class A and Class B
Common Stock and will be paid on January 30, 1997.
5. OTHER STATEMENT OF CASH FLOWS INFORMATION
Cash paid for interest was $10,082,000 and $1,525,000 for the three months
ended December 31, 1996 and 1995, respectively. Cash paid for income taxes
was $2,784,000 and $48,000 for the three months ended December 31, 1996 and
1995, respectively.
During the three months ended December 31, 1996, $2,505,000 of the Company's
8% Convertible Subordinated Debentures due 2000 were converted into 428,915
shares of Common Stock. Unamortized deferred issue costs of $155,947
applicable to the Debentures converted were charged to additional paid in
capital. The unamortized deferred issue costs are determined at the date of
conversion.
7
6. RELATED PARTY TRANSACTIONS
During the three months ended December 31, 1996, the Company purchased
engine parts totaling $7,000 from a company affiliated through common
ownership. Also during the three months ended December 31, 1996, the Company
performed engine repair services totaling $59,125 for this same affiliate,
and $41,470 for another company affiliated through common ownership.
A director of the Company is a senior partner in a law firm which has
received legal fees from the Company in connection with professional
services provided to the Company.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED WITH THREE MONTHS ENDED DECEMBER
31, 1995
Net sales for the first quarter of fiscal 1997 increased 120% to $187.6 million
from first quarter 1996 sales of $58.6 million. The increase in net sales was
attributable to the inclusion of the operations of the commercial engine
services operations in Texas and Scotland acquired from Aviall, Inc. on June 10,
1996. As a result of this acquisition, revenues from both commercial aviation
engine services and government programs work were higher in the first quarter of
fiscal 1997 than in the first quarter of fiscal 1996. Revenues from
aeroderivative engine services, which includes power station installations, were
also higher for the first quarter of 1997 when compared to the first quarter of
fiscal 1996, although these revenues were not affected by the acquisition.
Gross profit for the first quarter of fiscal 1997 increased to $24.6 million, or
13.1% of net sales, from $9.4 million, or 16.0% of net sales, for the same
period last year, primarily as a result of the increase in net sales for the
period. The decline in gross profit as a percentage of sales is primarily the
result of work performed under certain long-term contracts assumed from Aviall
that have not been generating margins as high as the Company's pre-acquisition
operations. Gross profit margins for the former Aviall operations in Texas and
Scotland have been, and are expected to continue improving as the Company
completes its integration plan, which is engineered to increase productivity,
reduce turnaround times and eliminate duplicative expenses.
Selling, general and administrative expenses for the first quarter of fiscal
1997 increased to $8.6 million, or 4.6% of net sales, from $3.8 million, or 6.5%
of net sales for the first quarter of fiscal 1996. The reduction in selling,
general, and administrative expense as a percentage of net sales is primarily
attributed to savings realized from the elimination of duplicative expenses as a
result of the integration plan.
Interest expense for the first quarter of fiscal 1997 increased to $6.6 million,
or 3.5% of net sales, from $2.0 million, or 3.5% of net sales for the first
quarter of fiscal 1996, primarily due to the increase in outstanding borrowings
related to the New Credit Facility and the issuance of the Senior Notes.
Partially offsetting this increase in long term debt was a $9.0 million decrease
in the average outstanding balance of Convertible Subordinated Debentures as
compared to the first quarter of 1996.
Other non-operating expenses increased to $0.3 million, or 0.2% of net sales, as
a result of foreign currency translation adjustments related to the Company's
holdings in Scotland.
As a result of the above factors, net income increased 161% to $5.5 million, or
2.9% of net sales for the first quarter of fiscal 1997, from $2.1 million, or
3.6% of net sales for the first quarter of fiscal 1996. First quarter fiscal
1997 primary earnings per share increased to $0.32, as compared to $0.18 for the
first quarter of fiscal 1996; and fully diluted earnings per share increased to
$0.32 per share versus $0.17 per share for the first quarter of fiscal 1996. The
number of primary and fully diluted shares outstanding in the first quarter of
fiscal 1997 increased by 43% and 30%, respectively, as compared to the first
quarter of fiscal 1996.
9
FINANCIAL POSITION
Total assets at December 31, 1996 were $656.1 million, a $31.0 million net
increase from the September 30, 1996 total of $625.1 million. The major
components of this net increase were (a) a $28.4 million increase in inventories
and (b) a $3.3 million increase in accounts receivable balances. The increase in
inventory levels was primarily due to (a) an $18.9 million increase in work in
process as a result of engines placed in work at the end of the quarter, and (b)
a $10.5 million increase in parts inventories, primarily related to provisioning
for government engine work, while the increase in accounts receivable was
primarily attributable to higher sales in the quarter.
Total liabilities at December 31, 1996 were $509.2 million, a $23.2 million net
increase from the September 30, 1996 total of $486.0 million. The major
components of this net increase were a $37.7 million increase in borrowings
under the Company's New Credit Facility; offset by (a) a $5.8 million reduction
in accounts payable; (b) a $3.8 million decrease in accrued expenses, customer
deposits and deferred revenue; (c) a $2.5 million reduction in the outstanding
balance of the Company's Debentures, resulting from the conversion of these
debentures into approximately 428,000 shares of the Company's Class A common
stock; and (d) a $1.8 million reduction in deferred income taxes.
Total stockholders' equity at December 31, 1996 was $147.0 million, an $8
million increase from the September 30, 1996 total of $139.0 million. This
increase was primarily due to the conversion of $2.5 million of the Company's
Debentures into Class A common stock since September 30, 1996, along with net
income of $5.5 million.
LIQUIDITY AND CAPITAL RESOURCES
Since the consummation of the Aviall Acquisition, the Company's primary sources
of liquidity have been cash flow from operations and borrowings under the New
Credit Facility. In addition, other sources of liquidity have been advance
payments for power station installations and other customer progress payments.
Since September 30, 1996, the Company has borrowed approximately $37.7 million
additional under the New Credit Facility in order to support work in process
inventories, purchase additional parts inventory and aircraft engines required
to service certain customers under new and existing contracts, and to fund
expenditures related to the integration of the former Aviall Business with the
Company's operations. As of December 31, 1996 there was approximately $87.2
million outstanding under the New Credit Facility, and the Company may be
required to borrow additional amounts under the New Credit Facility in the near
future in order to fund current asset increases in support of business growth,
fund further integration expenses, and satisfy interest payment and debt service
obligations under the Senior Notes and other long term debt agreements.
Based upon current and anticipated levels of operations and plans for
integrating the Aviall Business, the Company believes that its cash flow from
operations, combined with borrowings available under the New Credit Facility,
will be sufficient to enable the Company to meet its current and anticipated
cash operating requirements, including scheduled interest and principal
payments, integration expenses, capital expenditures and working capital needs.
Working capital was $304.5 million at December 31, 1996, as compared with $273.6
million at September 30, 1996.
10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 - Computation of Earnings per Share.
(b) Exhibit 27 - Financial Data Schedule.
(c) On October 3, 1996, the Company filed with the Commission a Current Report
on Form 8-K with respect to USAir's election not to renew its five-year
agreement with the Company for the servicing of CFM56-3 engines.
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.
GREENWICH AIR SERVICES, INC.
----------------------------
(Registrant)
FEBRUARY 13, 1997 s/b ROBERT J. VANARIA
- - ----------------- -------------------------------------------------
(Date) Robert J. Vanaria
Senior Vice President of Administration and Chief
Financial Officer
11
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBER
NUMBER DESCRIPTION PAGE
- - ------ ----------- ----
11 Computation of Earnings per Common Share
27 Financial Data Schedule