UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[Mark one]
[ x ]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended September 30, 2002
OR
[ ]
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission File No. 1-11775
TIMCO AVIATION SERVICES, INC.
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) |
65-0665658 (IRS Employer Identification No.) |
|
| 623 Radar Road | 27410 | |
| Greensboro, North Carolina (Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (336) 668-4410 (x3016)
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 report(s), and (2) has been subject to such filing requirements for the past 90 days. Yes [ x ] No [ ]
Indicate by check mark whether the registrant is an
accelerated filer (as defined in Rule 12b-2 of the Exchange
Act).
Yes [ ]
No [ x ]
Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 31,640,994 shares of common stock, $.001 par value per share, were outstanding as of November 14, 2002.
TIMCO AVIATION SERVICES, INC.
INDEX
Part I. Financial Information
| Page | |||||
Item 1. FINANCIAL STATEMENTS |
|||||
Condensed Consolidated Balance Sheets at December 31, 2001
and September 30, 2002 (unaudited) |
3-4 | ||||
Condensed Consolidated Statements of Operations for the
three months and nine months ended September 30, 2002 and
2001 (unaudited) |
5-6 | ||||
Condensed Consolidated Statements of Stockholders’ Deficit
for the nine months ended September 30, 2002 (unaudited) |
7 | ||||
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 2002 and 2001 (unaudited)
|
8-9 | ||||
Notes to Condensed Consolidated Financial Statements |
10 | ||||
| |
|||||
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS |
27 | ||||
| |
|||||
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
42 | ||||
| |
|||||
Item 4. CONTROLS AND PROCEDURES |
42 | ||||
| |
|||||
| Part II. Other Information | |||||
| |
|||||
Item 1. LEGAL PROCEEDINGS |
43 | ||||
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS |
43 | ||||
Item 3. DEFAULTS UPON SENIOR SECURITIES |
43 | ||||
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS |
43 | ||||
Item 5. OTHER INFORMATION |
43 | ||||
Item 6. EXHIBITS AND REPORTS ON FORM 8-K |
43 | ||||
2
TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
| December 31, | September 30, | |||||||||
| 2001 | 2002 | |||||||||
| ASSETS | ||||||||||
Current Assets: |
||||||||||
Cash and cash equivalents |
$ | — | $ | — | ||||||
Accounts receivable, net |
26,936 | 16,309 | ||||||||
Inventories |
42,926 | 29,959 | ||||||||
Income tax receivable |
6,236 | — | ||||||||
Capitalized lease asset held for sale |
25,240 | — | ||||||||
Other current assets |
4,002 | 4,809 | ||||||||
Total current assets |
105,340 | 51,077 | ||||||||
| |
||||||||||
Equipment on lease, net |
360 | — | ||||||||
| |
||||||||||
Fixed assets, net: |
||||||||||
Capitalized
lease asset previously held for sale |
— | 24,821 | ||||||||
Property
and equipment, net |
38,471 | 32,935 | ||||||||
| 38,471 | 57,756 | |||||||||
| |
||||||||||
Goodwill, net |
26,124 | 26,124 | ||||||||
Assets of discontinued operations held for sale |
1,618 | — | ||||||||
Deferred financing costs, net |
6,637 | 2,608 | ||||||||
Other |
4,242 | 1,512 | ||||||||
Total assets |
$ | 182,792 | $ | 139,077 | ||||||
| LIABILITIES & STOCKHOLDERS’ DEFICIT | ||||||||||
Current Liabilities: |
||||||||||
Accounts payable |
$ | 25,969 | $ | 10,848 | ||||||
Accrued expenses |
26,357 | 16,252 | ||||||||
Customer deposits |
14,820 | 13,004 | ||||||||
Current maturities of notes payable |
22,000 | — | ||||||||
Liabilities of discontinued operations |
7,013 | 3,955 | ||||||||
Revolving loan |
12,074 | 3,770 | ||||||||
Current
maturities of capital lease obligations |
25,450 | 919 | ||||||||
Accrued interest |
12,113 | 493 | ||||||||
Total current liabilities |
145,796 | 49,241 | ||||||||
| |
||||||||||
Senior subordinated notes, net: |
||||||||||
Old notes due 2008 |
164,437 | 16,246 | ||||||||
New notes due 2006 |
— | 115,800 | ||||||||
Junior subordinated notes due 2007, net |
— | 2,500 | ||||||||
Capital lease obligations, net of current portion |
3,890 | 28,104 | ||||||||
Long-term notes payable |
— | 8,500 | ||||||||
Other long-term liabilities |
36 | 36 | ||||||||
Total long-term liabilities |
168,363 | 171,186 | ||||||||
3
Commitments and Contingencies (see footnotes) |
||||||||||
Stockholders’ Deficit: |
||||||||||
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none outstanding, 15,000 shares
designated Series A Junior Participating |
— | — | ||||||||
Common stock, $.001 par value, 500,000,000 shares
authorized, 1,501,532 and 31,640,994 shares
Issued and outstanding at September 30, 2002
and December 31, 2001, respectively |
2 | 32 | ||||||||
Additional paid-in capital |
153,277 | 180,830 | ||||||||
Accumulated deficit |
(284,646 | ) | (262,212 | ) | ||||||
Total stockholders’ deficit |
(131,367 | ) | (81,350 | ) | ||||||
Total liabilities and stockholders’ deficit |
$ | 182,792 | $ | 139,077 | ||||||
The accompanying notes are an integral part of these condensed consolidated balance sheets.
4
TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
| For the Nine Months | ||||||||||
| Ended September 30, | ||||||||||
| 2001 | 2002 | |||||||||
Operating revenue: |
||||||||||
Sales, net |
$ | 211,953 | $ | 139,514 | ||||||
Other |
1,783 | 160 | ||||||||
| 213,736 | 139,674 | |||||||||
Cost of sales |
214,361 | 129,737 | ||||||||
Gross (loss) profit |
(625 | ) | 9,937 | |||||||
Operating expenses |
37,653 | 8,777 | ||||||||
(Loss) income from operations |
(38,278 | ) | 1,160 | |||||||
| |
||||||||||
Interest expense |
18,876 | 11,973 | ||||||||
Charge for settlement of class action litigation |
— | 4,410 | ||||||||
Charge to reserve notes receivable from KAV Inventory, LLC |
37,900 | — | ||||||||
Other expense (income) — net |
8,139 | (2,961 | ) | |||||||
Loss before income taxes, discontinued
operations and extraordinary gain |
(103,193 | ) | (12,262 | ) | ||||||
Income tax benefit |
(141 | ) | (3,800 | ) | ||||||
Loss from continuing operations before
discontinued operations and extraordinary gain |
(103,052 | ) | (8,462 | ) | ||||||
(Loss) income from discontinued operations, net of income
taxes |
(6,645 | ) | 3,617 | |||||||
Loss before extraordinary gain |
(109,697 | ) | (4,845 | ) | ||||||
Extraordinary gain resulting from debt restructuring,
net of income taxes of $0 |
— | 27,279 | ||||||||
Net (loss) income |
$ | (109,697 | ) | $ | 22,434 | |||||
Basic and diluted (loss) income per share: |
||||||||||
Loss from continuing operations |
$ | (68.63 | ) | $ | (0.35 | ) | ||||
(Loss) income from discontinued operations |
(4.43 | ) | 0.15 | |||||||
Extraordinary gain |
— | 1.13 | ||||||||
Net (loss) income |
$ | (73.06 | ) | $ | 0.93 | |||||
Weighted average shares outstanding: |
||||||||||
Basic and diluted |
1,501,532 | 24,119,351 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
| For the Three Months | ||||||||||
| Ended September 30, | ||||||||||
| 2001 | 2002 | |||||||||
Operating revenue: |
||||||||||
Sales, net |
$ | 61,219 | $ | 33,799 | ||||||
Other |
55 | 53 | ||||||||
| 61,274 | 33,852 | |||||||||
Cost of sales |
61,819 | 35,271 | ||||||||
Gross loss |
(545 | ) | (1,419 | ) | ||||||
Operating expenses |
8,748 | 903 | ||||||||
Loss from operations |
(9,293 | ) | (2,322 | ) | ||||||
| |
||||||||||
Interest expense |
5,765 | 2,268 | ||||||||
Gain on revaluation of class action litigation |
— | (1,715 | ) | |||||||
Charge to reserve notes receivable from KAV Inventory, LLC |
8,500 | — | ||||||||
Other expense (income) — net |
14,740 | (1,677 | ) | |||||||
Loss before income taxes and discontinued
operations |
(38,298 | ) | (1,198 | ) | ||||||
Income tax benefit |
(189 | ) | — | |||||||
Loss from continuing operations before
discontinued operations |
(38,109 | ) | (1,198 | ) | ||||||
(Loss) income from discontinued operations, net of income
taxes |
(2,303 | ) | 2,545 | |||||||
Net (loss) income |
$ | (40,412 | ) | $ | 1,347 | |||||
Basic and diluted (loss) income per share: |
||||||||||
Loss from continuing operations |
$ | (25.38 | ) | $ | (0.04 | ) | ||||
(Loss) income from discontinued operations |
(1.53 | ) | 0.08 | |||||||
Net (loss) income |
$ | (26.91 | ) | $ | 0.04 | |||||
Weighted average shares outstanding: |
||||||||||
Basic and diluted |
1,501,532 | 30,526,864 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
| Common Stock | Additional | Total | |||||||||||||||||||
| Paid-in | Accumulated | Stockholders' | |||||||||||||||||||
| Shares | Amount | Capital | Deficit | Deficit | |||||||||||||||||
Balance as of
December 31, 2001 |
1,501,532 | $ | 2 | $ | 153,277 | $ | (284,646 | ) | $ | (131,367 | ) | ||||||||||
Net income |
— | — | — | 22,434 | 22,434 | ||||||||||||||||
Net proceeds from
issuance of common
stock to stockholders
in connection with
rights offering |
24,024,507 | 24 | 19,782 | — | 19,806 | ||||||||||||||||
Common stock issued to
senior subordinated
noteholders in
connection with note
exchange offer |
4,504,595 | 5 | 3,744 | — | 3,749 | ||||||||||||||||
Warrants issued to
senior subordinated
noteholders in
connection with note
exchange offer |
— | — | 785 | — | 785 | ||||||||||||||||
Common stock issued to
third party for services |
360,360 | — | 631 | — | 631 | ||||||||||||||||
Common stock issued in settlement
of class action litigation |
1,250,000 | 1 | 1,149 | — | 1,150 | ||||||||||||||||
Warrants issued in settlement of
class action litigation |
— | — | 760 | — | 760 | ||||||||||||||||
Warrants issued to shareholders
for credit support |
— | — | 702 | — | 702 | ||||||||||||||||
Balance as of
September 30, 2002 |
31,640,994 | $ | 32 | $ | 180,830 | $ | (262,212 | ) | $ | (81,350 | ) | ||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
| For the Nine | |||||||||||
| Months Ended | |||||||||||
| September 30, | |||||||||||
| 2001 | 2002 | ||||||||||
CASH FLOW FROM OPERATING ACTIVITIES: |
|||||||||||
Net (loss) income |
$ | (109,697 | ) | $ | 22,434 | ||||||
Adjustments to reconcile net (loss) income to cash
provided by operating activities: |
|||||||||||
Loss (income) from discontinued operations |
6,645 | (3,617 | ) | ||||||||
Extraordinary gain on restructuring of debt |
— | (27,279 | ) | ||||||||
Charge for class action settlement |
— | 4,410 | |||||||||
Gain on Kellstrom settlement, net of cash proceeds |
— | (1,173 | ) | ||||||||
Gain on sale of subsidiary |
(5,664 | ) | (279 | ) | |||||||
Depreciation and amortization |
7,912 | 4,135 | |||||||||
Amortization of deferred financing costs |
4,196 | 4,991 | |||||||||
Provision for (recovery of) doubtful accounts |
4,804 | (1,127 | ) | ||||||||
Charge to reserve notes from KAV Inventory, LLC |
37,900 | — | |||||||||
Write down of long lived assets |
21,738 | — | |||||||||
Equity in loss of affiliate, net of taxes |
6,573 | — | |||||||||
Proceeds from sale of equipment on lease, net of gain |
3,282 | — | |||||||||
Income on non-refundable lease deposit |
(2,204 | ) | — | ||||||||
Expense from warrants issued to third parties |
440 | — | |||||||||
Decrease in accounts receivable |
24,291 | 10,478 | |||||||||
(Increase) decrease in inventories |
(759 | ) | 8,654 | ||||||||
Decrease in other assets |
5,312 | 8,159 | |||||||||
Decrease in accounts payable |
(5,016 | ) | (14,387 | ) | |||||||
Increase (decrease) in customer deposits |
6,127 | ||||||||||