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, 2003
OR
o 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 Greensboro, North Carolina (Address of principal executive offices) |
27410 (Zip Code) |
Registrant’s telephone number, including area code: (336) 668-4410 (x3016)
Indicate by checkmark 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 o
Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o 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, 2003.
TIMCO AVIATION SERVICES, INC.
INDEX
Part I. Financial Information
| Page | ||||
| Item 1. | FINANCIAL STATEMENTS | |||
| Condensed Consolidated Balance Sheets at September 30, 2003 and December 31, 2002 (unaudited) | 3-4 | |||
| Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2003 and 2002 (unaudited) | 5-6 | |||
| Condensed Consolidated Statements of Stockholders’ Deficit and Comprehensive Income for the nine months ended September 30, 2003 (unaudited) | 7 | |||
| Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and 2002 (unaudited) | 8-9 | |||
| Notes to Condensed Consolidated Financial Statements | 10 | |||
| Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 22 | ||
| Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK | 32 | ||
| Item 4. | CONTROLS AND PROCEDURES | 32 | ||
| Part II. Other Information | ||||
| Item 1. | LEGAL PROCEEDINGS | 33 | ||
| Item 2. | CHANGES IN SECURITIES AND USE OF PROCEEDS | 33 | ||
| Item 3. | DEFAULTS UPON SENIOR SECURITIES | 33 | ||
| Item 4. | SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS | 33 | ||
| Item 5. | OTHER INFORMATION | 33 | ||
| Item 6. | EXHIBITS AND REPORTS ON FORM 8-K | 33 | ||
2
TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
(Unaudited)
| September 30, | December 31, | |||||||||
| 2003 | 2002 | |||||||||
| ASSETS | ||||||||||
Current Assets: |
||||||||||
Cash and cash equivalents |
$ | 131 | $ | 339 | ||||||
Accounts receivable, net |
29,874 | 17,762 | ||||||||
Inventories |
26,116 | 21,631 | ||||||||
Other current assets |
5,739 | 3,588 | ||||||||
Total current assets |
61,860 | 43,320 | ||||||||
| Fixed assets, net | ||||||||||
Capitalized lease asset, net |
24,365 | 24,794 | ||||||||
Property and equipment, net |
30,842 | 33,516 | ||||||||
| 55,207 | 58,310 | |||||||||
Goodwill |
26,124 | 26,124 | ||||||||
Deferred financing costs, net |
2,183 | 2,206 | ||||||||
Other |
327 | 1,066 | ||||||||
Total assets |
$ | 145,701 | $ | 131,026 | ||||||
| |
||||||||||
| LIABILITIES & STOCKHOLDERS’ DEFICIT | ||||||||||
| |
||||||||||
Current Liabilities: |
||||||||||
Accounts payable |
$ | 18,774 | $ | 14,564 | ||||||
Accrued expenses |
18,517 | 18,486 | ||||||||
Customer deposits |
15,329 | 12,739 | ||||||||
Current maturities of notes payable to financial
institutions |
8,500 | — | ||||||||
Revolving loan |
6,340 | 2,179 | ||||||||
Current maturities of capital lease obligations |
1,497 | 1,101 | ||||||||
Accrued interest |
583 | 854 | ||||||||
Liabilities of discontinued operations |
237 | 3,574 | ||||||||
Total current liabilities |
69,777 | 53,497 | ||||||||
Senior subordinated notes, net: |
||||||||||
New notes due 2006 |
115,800 | 115,800 | ||||||||
Old notes due 2008 |
16,247 | 16,247 | ||||||||
Capital lease obligations, net of current portion |
26,549 | 27,734 | ||||||||
Note payable to related party |
7,350 | 1,300 | ||||||||
Junior subordinated notes due 2007, net |
2,951 | 2,613 | ||||||||
Deferred income |
1,515 | 1,641 | ||||||||
Other long-term liabilities |
378 | 456 | ||||||||
Notes payable to financial institutions, net of
current portion |
— | 8,500 | ||||||||
Total long-term liabilities |
170,790 | 174,291 | ||||||||
3
| September 30, | December 31, | |||||||||
| 2003 | 2002 | |||||||||
Commitments and Contingencies (see notes) |
||||||||||
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, 31,640,994 shares issued and
outstanding |
32 | 32 | ||||||||
Additional paid-in capital |
182,088 | 180,830 | ||||||||
Accumulated deficit |
(276,986 | ) | (277,624 | ) | ||||||
Total stockholders’ deficit |
(94,866 | ) | (96,762 | ) | ||||||
Total liabilities and stockholders’ deficit |
$ | 145,701 | $ | 131,026 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share Data)
(Unaudited)
| For the Three Months | ||||||||||
| Ended September 30, | ||||||||||
| 2003 | 2002 | |||||||||
Operating revenue: |
||||||||||
Sales, net |
$ | 64,309 | $ | 33,799 | ||||||
Other |
— | 53 | ||||||||
| 64,309 | 33,852 | |||||||||
Cost of sales |
58,883 | 35,271 | ||||||||
Gross profit (loss) |
5,426 | (1,419 | ) | |||||||
Operating expenses |
3,239 | 903 | ||||||||
Income (loss) from operations |
2,187 | (2,322 | ) | |||||||
Interest expense |
2,768 | 2,268 | ||||||||
Gain on revaluation of charge for settlement of class
action litigation |
— | (1,715 | ) | |||||||
Other income — net |
(827 | ) | (1,677 | ) | ||||||
Income (loss) before income taxes and discontinued
operations |
246 | (1,198 | ) | |||||||
Income tax benefit |
— | — | ||||||||
Income (loss) from continuing operations before
discontinued operations |
246 | (1,198 | ) | |||||||
Income from discontinued operations, net of income taxes |
99 | 2,545 | ||||||||
Net income |
$ | 345 | $ | 1,347 | ||||||
Basic income per share: |
||||||||||
Income (loss) from continuing operations |
$ | 0.01 | $ | (0.04 | ) | |||||
Income from discontinued operations |
0.00 | 0.08 | ||||||||
Net income |
$ | 0.01 | $ | 0.04 | ||||||
Diluted income per share: |
||||||||||
Income (loss) from continuing operations |
$ | 0.00 | $ | (0.04 | ) | |||||
Income from discontinued operations |
$ | 0.00 | $ | 0.08 | ||||||
Net income |
$ | 0.00 | $ | 0.04 | ||||||
Weighted average shares outstanding: |
||||||||||
Basic |
31,640,994 | 30,526,864 | ||||||||
Diluted |
324,777,966 | 30,526,864 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share Data)
(Unaudited)
| For the Nine Months | ||||||||||
| Ended September 30, | ||||||||||
| 2003 | 2002 | |||||||||
Operating revenue: |
||||||||||
Sales, net |
$ | 167,617 | $ | 139,514 | ||||||
Other |
89 | 160 | ||||||||
| 167,706 | 139,674 | |||||||||
Cost of sales |
157,186 | 129,737 | ||||||||
Gross profit |
10,520 | 9,937 | ||||||||
Operating expenses |
10,138 | 8,777 | ||||||||
Income from operations |
382 | 1,160 | ||||||||
Interest expense |
6,904 | 11,973 | ||||||||
Charge for settlement of class action litigation |
— | 4,410 | ||||||||
Gain resulting from debt extinguishment |
— | (27,279 | ) | |||||||
Other income — net |
(3,088 | ) | (2,961 | ) | ||||||
(Loss) income before income taxes and discontinued
operations |
(3,434 | ) | 15,017 | |||||||
Income tax benefit |
(884 | ) | (3,800 | ) | ||||||
(Loss) income from continuing operations before
discontinued operations |
(2,550 | ) | 18,817 | |||||||
Income from discontinued operations, net of income taxes |
3,188 | 3,617 | ||||||||
Net income |
$ | 638 | $ | 22,434 | ||||||
Basic income per share: |
||||||||||
(Loss) income from continuing operations |
$ | (0.08 | ) | $ | 0.78 | |||||
Income from discontinued operations |
0.10 | 0.15 | ||||||||
Net income |
$ | 0.02 | $ | 0.93 | ||||||
Diluted income per share: |
||||||||||
(Loss) income from continuing operations |
$ | (0.08 | ) | $ | 0.08 | |||||
Income from discontinued operations |
0.10 | 0.01 | ||||||||
Net income |
$ | 0.02 | $ | 0.09 | ||||||
Weighted average shares outstanding: |
||||||||||
Basic |
31,640,994 | 24,119,351 | ||||||||
Diluted |
31,640,994 | 236,649,548 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT AND COMPREHENSIVE INCOME
(In Thousands, Except Share Data)
(Unaudited)
| Total | ||||||||||||||||||||||
| Stockholders' | ||||||||||||||||||||||
| Common Stock | Additional | Deficit and | ||||||||||||||||||||
| Paid-in | Accumulated | Comprehensive | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income | ||||||||||||||||||
Balance as of |
||||||||||||||||||||||
December 31, 2002 |
31,640,994 | $ | 32 | $ | 180,830 | $ | (277,624 | ) | $ | (96,762 | ) | |||||||||||
Net income and comprehensive
income |
— | — | — | 638 | 638 | |||||||||||||||||
Warrant issued to stockholder
for note payable origination |
— | — | 1,258 | — | 1,258 | |||||||||||||||||
Balance as of |
||||||||||||||||||||||
September 30, 2003 |
31,640,994 | $ | 32 | $ | 182,088 | $ | (276,986 | ) | $ | (94,866 | ) | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
| For the Nine | ||||||||||||
| Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2003 | 2002 | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
Net income |
$ | 638 | $ | 22,434 | ||||||||
Adjustments to reconcile net income to cash (used in)
provided by operating activities: |
||||||||||||
Income from discontinued operations |
(3,188 | ) | (3,617 | ) | ||||||||
Paid-in-kind interest note obligations |
716 | 13 | ||||||||||
Gain on Aerocell settlement, net of cash proceeds |
(455 | ) | — | |||||||||
Gain on restructuring of debt |
— | (27,279 | ) | |||||||||
Gain on Kellstrom settlement, net of cash proceeds |
— | (1,173 | ) | |||||||||
Gain on sale of subsidiary |
— | (279 | ) | |||||||||
Charge for | ||||||||||||