TIMCO Aviation Services, Inc.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[Mark One]
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For the Quarterly Period Ended June 30, 2006
OR
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o |
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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)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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65-0665658
(IRS Employer
Identification No.) |
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623 Radar Road
Greensboro, North Carolina
(Address of principal executive offices)
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27410
(Zip Code) |
Registrants telephone number, including area code: (336) 668-4410
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 þ No o
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or
a non-accelerated filer. See definition of large accelerated filer, accelerated filer and
non-accelerated filer in Rule 12b-2 of the Exchange Act).
Large Accelerated Filer o Accelerated Filer o Non-accelerated Filer þ
Indicate by check mark whether the registrant is a Shell Company (as defined in Rule 12b-2 of the
Exchange Act) o Yes þ No
Indicate the number of shares outstanding of each of the issuers classes of common equity, as of
the latest practicable date: 21,441,040 shares of common stock, $.001 par value per share, were
outstanding as of August 14, 2006.
TIMCO AVIATION SERVICES, INC.
INDEX
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Page |
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Part I. Financial Information |
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Item 1. |
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FINANCIAL STATEMENTS |
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Condensed Consolidated Balance Sheets at June 30, 2006 and December 31, 2005 (unaudited) |
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3-4 |
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Condensed Consolidated Statements of Operations for the three months and six months ended June 30, 2006 and 2005 (unaudited) |
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5-6 |
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Condensed Consolidated Statements of Stockholders Equity for the six months ended June 30, 2006 (unaudited) |
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7 |
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Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2005 (unaudited) |
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8-9 |
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Notes to Condensed Consolidated Financial Statements |
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10 |
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Item 2. |
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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24 |
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Item 3. |
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QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
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35 |
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Item 4. |
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CONTROLS AND PROCEDURES |
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35 |
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Part II. Other Information |
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Item 1. |
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LEGAL PROCEEDINGS |
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36 |
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Item 2. |
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CHANGES IN SECURITIES AND USE OF PROCEEDS |
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36 |
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Item 3. |
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DEFAULTS UPON SENIOR SECURITIES |
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36 |
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Item 4. |
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SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS |
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36 |
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Item 5. |
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OTHER INFORMATION |
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36-38 |
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Item 6. |
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EXHIBITS AND REPORTS ON FORM 8-K |
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38 |
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2
TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
(Unaudited)
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June 30, |
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December 31, |
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2006 |
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2005 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
364 |
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$ |
1,318 |
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Marketable securities |
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32 |
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13,978 |
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Accounts receivable, net of allowances of $6,183 at
June 30, 2006 and $7,446 at December 31, 2005 |
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49,226 |
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48,643 |
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Inventories |
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28,476 |
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28,681 |
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Other current assets |
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6,976 |
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7,082 |
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Net assets of discontinued operations |
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462 |
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Total current assets |
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85,074 |
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100,164 |
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Fixed assets: |
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Fixed assets at cost |
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84,263 |
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82,676 |
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Less accumulated depreciation |
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55,451 |
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52,585 |
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Fixed assets, net |
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28,812 |
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30,091 |
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Other Assets: |
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Goodwill, net |
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26,124 |
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26,124 |
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Collateral deposit for debt obligation |
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5,000 |
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Deferred financing costs, net |
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1,661 |
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2,251 |
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Other |
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1,493 |
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1,498 |
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Total other assets |
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34,278 |
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29,873 |
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Total assets |
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$ |
148,164 |
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$ |
160,128 |
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LIABILITIES & STOCKHOLDERS EQUITY |
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Current Liabilities: |
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Accounts payable |
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$ |
18,468 |
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$ |
21,696 |
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Accrued expenses |
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17,247 |
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13,087 |
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Accrued interest |
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812 |
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1,127 |
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Customer deposits |
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16,685 |
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21,446 |
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Revolving loan |
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5,476 |
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8,320 |
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New Senior Notes due 2006 |
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1,221 |
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1,221 |
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Junior subordinated notes due 2007, net |
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686 |
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Current maturities of capital lease obligations |
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320 |
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786 |
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Current maturities of notes payable to financial
institutions |
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1,562 |
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Other |
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2,713 |
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3,416 |
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Total current liabilities |
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63,628 |
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72,661 |
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3
TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(In Thousands, Except Share Data)
(Unaudited)
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June 30, |
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December 31, |
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2006 |
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2005 |
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Long-term Liabilities: |
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Term loan with related parties |
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25,002 |
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Old Senior Notes due 2008 |
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16,247 |
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16,247 |
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Capital lease obligations, net of current portion |
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3,108 |
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3,187 |
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Notes payable to financial institutions, net of
current portion |
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21,197 |
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Junior subordinated notes due 2007, net |
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639 |
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Total long-term liabilities |
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44,357 |
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41,270 |
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Commitments and Contingencies (See notes) |
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Stockholders Equity: |
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Preferred stock, $.01 par value, 1,000,000 shares
authorized, none outstanding, 15,000 shares
designated Series A Junior Participating |
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Common stock, $.001 par value, 100,000,000 shares
authorized, 21,441,040 voting shares issued and
outstanding at June 30, 2006 and December 31, 2005 |
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21 |
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21 |
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Additional paid-in capital |
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344,877 |
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344,864 |
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Accumulated deficit |
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(304,719 |
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(298,688 |
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Total stockholders equity |
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40,179 |
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46,197 |
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Total liabilities and stockholders equity |
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$ |
148,164 |
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$ |
160,128 |
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The accompanying notes are an integral part of these consolidated financial statements.
4
TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share Data)
(Unaudited)
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For the Three Months |
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Ended June 30, |
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2006 |
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2005 |
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Revenues, net |
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$ |
88,669 |
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$ |
81,114 |
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Cost of sales |
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81,890 |
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73,587 |
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Gross profit |
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6,779 |
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7,527 |
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Operating expenses |
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8,056 |
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5,914 |
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(Loss) income from operations |
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(1,277 |
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1,613 |
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Interest expense |
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2,088 |
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2,148 |
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Gain on settlement of bankruptcy claim |
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(1,773 |
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Other income net |
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(31 |
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(11 |
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(Loss) income from continuing operations before income taxes |
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(3,334 |
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1,249 |
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Income tax benefit |
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31 |
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(Loss) income from continuing operations |
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(3,334 |
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1,280 |
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Income from discontinued operations, net of income taxes |
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92 |
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44 |
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Net (loss) income |
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$ |
(3,242 |
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$ |
1,324 |
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Basic (loss) income per share: |
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(Loss) income from continuing operations |
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$ |
(0.15 |
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$ |
0.20 |
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Income from discontinued operations |
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0.01 |
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Net (loss) income |
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$ |
(0.15 |
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$ |
0.21 |
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Diluted (loss) income per share: |
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(Loss) income from continuing operations |
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$ |
(0.15 |
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$ |
0.11 |
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Income from discontinued operations |
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Net (loss) income |
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$ |
(0.15 |
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$ |
0.11 |
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Weighted average shares outstanding: |
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Basic |
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21,441,040 |
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6,413,979 |
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Diluted |
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21,441,040 |
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11,607,592 |
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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)
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For the Six Months |
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Ended June 30, |
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2006 |
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2005 |
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Revenues, net |
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$ |
173,761 |
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$ |
171,796 |
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Cost of sales |
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162,802 |
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154,840 |
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Gross profit |
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10,959 |
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16,956 |
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Operating expenses |
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13,631 |
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12,337 |
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(Loss) income from operations |
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(2,672 |
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4,619 |
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Interest expense |
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3,737 |
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4,279 |
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Gain on settlement of bankruptcy claim |
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(1,773 |
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Charge for early conversion of notes |
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400 |
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Other income net |
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(233 |
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(350 |
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(Loss) income from continuing operations before income taxes |
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(6,176 |
) |
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2,063 |
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Income tax benefit |
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31 |
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368 |
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(Loss) income from continuing operations |
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(6,145 |
) |
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2,431 |
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Income from discontinued operations, net of income taxes |
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114 |
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99 |
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Net (loss) income |
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$ |
(6,031 |
) |
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$ |
2,530 |
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Basic (loss) income per share: |
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(Loss) income from continuing operations |
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$ |
(0.29 |
) |
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$ |
0.61 |
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Income from discontinued operations |
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0.01 |
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0.03 |
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Net (loss) income |
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$ |
(0.28 |
) |
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$ |
0.64 |
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Diluted (loss) income per share: |
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(Loss) income from continuing operations |
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$ |
(0.29 |
) |
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$ |
0.27 |
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Income from discontinued operations |
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0.01 |
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0.01 |
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Net (loss) income |
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$ |
(0.28 |
) |
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$ |
0.28 |
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Weighted average shares outstanding: |
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Basic |
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21,441,040 |
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3,959,757 |
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Diluted |
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21,441,040 |
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9,154,013 |
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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 EQUITY
(In Thousands, Except Share Data)
(Unaudited)
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Common Stock |
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Additional |
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Total |
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Paid-in |
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Accumulated |
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Stockholders |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
|
Balance as of
December 31, 2005 |
|
|
21,441,040 |
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|
$ |
21 |
|
|
$ |
344,864 |
|
|
$ |
(298,688 |
) |
|
$ |
46,197 |
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Stock compensation expense |
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|
13 |
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|
13 |
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Net loss and comprehensive
loss |
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(6,031 |
) |
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(6,031 |
) |
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Balance as of
June 30, 2006 |
|
|
21,441,040 |
|
|
$ |
21 |
|
|
$ |
344,877 |
|
|
$ |
(304,719 |
) |
|
$ |
40,179 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
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)
|
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For the Six |
|
|
|
Months Ended |
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(6,031 |
) |
|
$ |
2,530 |
|
Adjustments to reconcile net (loss) income to cash
provided by operating activities: |
|
|
|
|
|
|
|
|
Paid-in-kind interest note obligations |
|
|
901 |
|
|
|
1,121 |
|
Write-off of deferred financing fees |
|
|
289 |
|
|
|
|
|
Impairment charge for fixed assets |
|
|
277 |
|
|
|
|
|
Non-cash stock compensation expense |
|
|
13 |
|
|
|
|
|
Gain on settlement of bankruptcy claim |
|
|
|
|
|
|
(1,773 |
) |
Non-cash inducement charge for conversion of notes |
|
|
|
|
|
|
160 |
|
Depreciation and amortization |
|
|
2,582 |
|
|
|
2,726 |
|
Amortization of deferred financing costs |
|
|
560 |
|
|
|
663 |
|
(Recovery of) provision for doubtful accounts |
|
|
(616 |
) |
|
|
11 |
|
Sale of marketable securities, net |
|
|
13,946 |
|
|
|
|
|
Change in working capital: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
33 |
|
|
|
1,243 |
|
Inventories |
|
|
205 |
|
|
|
(4,660 |
) |
Other assets |
|
|
(4,889 |
) |
|
|
(1,521 |
) |
Accounts payable |
|
|
(3,228 |
) |
|
|
412 |
|
Customer deposits |
|
|
(4,761 |
) |
|
|
6,096 |
|
Other liabilities |
|
|
3,477 |
|
|
|
(2,831 |
) |
|
|
|
|
|
|
|
Cash provided by activities from continuing operations |
|
|
2,758 |
|
|
|
4,177 |
|
Cash provided by activities from discontinued
operations |
|
|
462 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
3,220 |
|
|
|
4,177 |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchases of fixed assets |
|
|
(1,580 |
) |
|
|
(1,887 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(1,580 |
) |
|
|
(1,887 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Borrowings under senior debt facilities |
|
|
170,893 |
|
|
|
177,936 |
|
Payments under senior debt facilities |
|
|
(173,737 |
) |
|
|
(186,354 |
) |
Proceeds of term loan with related parties |
|
|
6,000 |
|
|
|
|
|
Payments on term loan with financial institution |
|
|
(4,946 |
) |
|
|
(581 |
) |
Payments on capital leases |
|
|
(545 |
) |
|
|
(545 |
) |
Payments of deferred financing costs |
|
|
(259 |
) |
|
|
(990 |
) |
Proceeds of term loan with financial institutions, net |
|
|
|
|
|
|
8,155 |
|
Partial exercise of LJH Warrant |
|
|
|
|
|
|
71 |
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(2,594 |
) |
|
|
(2,308 |
) |
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(954 |
) |
|
|
(18 |
) |
Cash and cash equivalents, beginning of period |
|
|
1,318 |
|
|
|
293 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
364 |
|
|
$ |
275 |
|
|
|
|
|
|
|
|
8
TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
For the Six |
|
|
|
Months Ended |
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
(1,693 |
) |
|
$ |
(2,126 |
) |
|
|
|
|
|
|
|
Income taxes refunded |
|
$ |
31 |
|
|
$ |
368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in connection with
conversion of New Senior Notes |
|
$ |
|
|
|
$ |
54,363 |
|
|
|
|
|
|
|
|
Common stock issued in connection with
conversion of Junior Notes |
|
$ |
|
|
|
$ |
2,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale investment equity change |
|
$ |
|
|
|
$ |
(286 |
) |
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
(Amounts and Shares in Thousands, Except Per Share Data)
1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION and LIQUIDITY
DESCRIPTION OF BUSINESS
TIMCO Aviation Services, Inc. (the Company), a Delaware corporation, is among the worlds largest
independent providers of aviation maintenance, repair and overhaul (MRO) services for major
commercial airlines, regional air carriers, aircraft leasing companies, government and military
units and air cargo carriers. The Company provides MRO services through its subsidiaries: (i)
Triad International Maintenance Corporation (known in the industry as TIMCO), which, with its three
active locations, is one of the largest independent providers of aircraft heavy maintenance
services in the world and also provides line maintenance services; (ii) Brice Manufacturing, which
specializes in the manufacturing and sale of new aircraft seats and aftermarket parts and in the
refurbishment of aircraft interior components; (iii) TIMCO Engineered Systems, which provides
engineering services both to the Companys MRO operations and its customers; and (iv) TIMCO Engine
Center, which refurbishes JT8D engines and performs on-wing repairs for both JT8D and CFM-56 series
engines. In June 2005, the Company made the decision to integrate its refurbishment of aircraft
interior components operations within its other MRO facilities. As a result of this decision, the
Company has shut-down its Aircraft Interior Design operations located in Dallas, Texas. Also,
subsequent to June 30, 2006, the Company entered into an agreement to sell substantially all of its
fixed assets within its Goodyear, Arizona, MRO facility and to terminate its sublease obligation
for this facility. As a result of this decision, the Company plans to completely shutdown its
operations at this location during the third quarter of 2006 and to integrate certain customer
aircraft heavy maintenance services into its three other MRO facilities. See Note 17.
During 2005, the Company completed a significant restructuring of its capital and equity, including
a conversion of a majority of its outstanding New Senior Notes and Junior Notes to common stock and
the completion of a rights offering. See Notes 12 and 13 for further discussion. Concurrent with
the completion of the rights offering, the Company changed its capitalization by reducing the
number of authorized shares of common stock from 500,000 to 100,000 and by reducing the number of
its issued and outstanding shares of common stock by converting every forty shares of its issued
and outstanding common stock into one share of new common stock. All shares and per share data
contained herein reflects completion of the one-new-share-for-forty-old-shares reverse stock split.
On February 6, 2006, LJH, Ltd. (LJH), an entity controlled by the Companys principal
stockholder, acquired an aggregate of 5,808 shares of the Companys outstanding common stock,
consisting of 3,029 shares acquired from Loeb Partners Corporation and affiliated entities and
2,779 shares acquired from LC Capital Master Fund, Ltd. Subsequent to this transaction, LJH
currently owns 15,386 shares, or 71.8%, of the Companys outstanding common stock. Also, as of
June 30, 2006, Owl Creek Capital Management (Owl Creek) owns 3,722 shares, or 17.4%, of the
Companys outstanding common stock.
Effective July 31, 2006, the Company entered into a merger agreement with TAS Holding, Inc.
(TAS), an entity organized and owned by LJH and Owl Creek to merge the Company into TAS in a
transaction which the Companys stockholders, other than LJH and Owl Creek, will receive cash
consideration of $4.00 per share in exchange for their outstanding shares. As part of the merger
agreement, the Company also agreed to sell TAS 2,400 shares of its common stock at $2.50 per share
under certain circumstances. The merger is subject to various closing conditions and there can be
no assurance the merger will be completed. See Note 17.
See Liquidity below for a description of a recently completed refinancing of the Companys senior
debt.
BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on
Form 10-Q. Pursuant to such rules and regulations, certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting principles
generally accepted in the United States have been condensed or omitted. The accompanying unaudited
interim
10
condensed consolidated financial statements should be read in conjunction with the
Companys consolidated financial statements and the notes thereto included in the Companys Annual
Report on Form 10-K for the fiscal year ended December 31, 2005, File No. 001-11775 (the Form
10-K).
In the opinion of management, the accompanying unaudited interim condensed consolidated financial
statements of the Company contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial position of the Company as of June 30, 2006, the results
of its operations for the three and six month periods ended June 30, 2006 and 2005 and its cash
flows for the six month periods ended June 30, 2006 and 2005. The results of operations and cash
flows for the six month period ended June 30, 2006 are not necessarily indicative of the results of
operations or cash flows which may be reported for the year ending December 31, 2006.
LIQUIDITY
In April 2006, the Company closed on a series of transactions with its principal stockholders
relating to its senior debt. First, on April 10, 2006, LJH acquired the $18,313 Monroe Capital
Loans, with affiliates of Owl Creek simultaneously acquiring a 20% participation interest in those
loans. Additionally, on April 20, 2006, in conjunction with the refinancing of the CIT Group
Credit Facility (see below), the Company obtained a new $6,000 senior secured term loan from LJH
(collectively with the Monroe Capital Loans, the LJH Term Loans). The LJH Term Loans all mature
on December 31, 2007, bear interest at LIBOR plus 1.75% per annum and are secured by a lien on
substantially all of the Companys assets. Also, in conjunction with the closing of the LJH Term
Loans, the Company paid in full the CIT Term Loan (from the proceeds of the new term loan obtained
from LJH) and entered into other modifications, including amendments and waivers to debt covenant
violations as of December 31, 2005 and March, 31, 2006, to the CIT Group Credit Facility. The
Company also obtained waivers of all defaults and events of defaults from LJH under the LJH Term
Loans. See Notes 7 and 8 for additional information about these financing transactions.
For the year ended December 31, 2005 and the six month period ended June 30, 2006, the Company
incurred losses from continuing operations of $22,350 and $6,145, respectively. Also, for the year
ended December 31, 2005, the Company continued to require additional cash flow above amounts
provided from operations to meet its working capital requirements. Further, while cash flow from
operations was $3,220 for the first six months of 2006, it included $13,946 from the sale of
marketable securities (relating to the proceeds of the Companys November 2005 rights offering).
Additionally, at certain times during 2005 and in the first quarter of 2006, the Company was not in
compliance with certain financial covenants contained in its CIT Group Credit Facility and Monroe
Capital Loans. The senior lenders, however, waived, and in some instances, amended all such events
of non-compliance and as of December 31, 2005 and June 30, 2006 the Company was in compliance with
all covenant requirements, as amended, for these financing arrangements.
The Companys ability to service its debt obligations as they come due, including maintaining
compliance with the covenants and provisions of all of its debt obligations is dependent upon the
Companys future financial and operating performance. That performance, in turn, is subject to
various factors, including certain factors beyond the Companys control, such as changes in
conditions affecting the airline industry and changes in the overall economy. See the Form 10-K and
this Form 10-Q for information about factors that affect the Companys performance.
The Company has significant obligations under its outstanding debt and lease agreements. As a
result, a significant amount of cash flow from operations is needed to make required payments of
the Companys debt and lease obligations, thereby reducing funds available for other purposes. Even
if the Company is able to meet its debt service and other obligations when due, the Company may not
be able to comply with the covenants and other provisions under its debt agreements. A failure to
comply, unless waived by the lenders, would be an event of default and would permit the lenders to
accelerate the maturity of these debt obligations. It would also permit the lenders to terminate
their commitments to extend additional credit under their financing agreements. Additionally, the
Companys senior credit facilities provide for the termination of the financing agreements and
repayment of all obligations in the event of a material adverse change in the Companys business,
as defined in the various loan agreements. If the Company is unable to meet its obligations under
its debt agreements, or if the Company can not obtain waivers of defaults under any such agreements
(including defaults caused by the failure to meet financial covenants), the lenders could proceed
against the collateral securing these financing obligations and exercise all other rights available
to them. While the Company currently expects that it will be able to make all required debt
payments and meet all financial covenants in 2006, there can be no assurance that it will be able
to do so.
11
2. STOCK COMPENSATION PLANS
In January 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123R,
Share-Based Payment, (SFAS 123R) which revises SFAS No. 123, Accounting for Stock-Based
Compensation and supersedes Accounting Principles Board Opinion (APB) No. 25, Accounting for
Stock Issued to Employees for our stock-based employee and director compensation plans. SFAS 123R
requires recognition of the cost of employee services received in exchange for an award of equity
instruments in the financial statements over the period the employee is required to perform the
services in exchange for the award (presumptively the vesting period). Prior to the adoption of
SFAS No. 123R, as permitted by SFAS No. 123, the Company accounted for similar transactions in
accordance with APB No. 25 which employed the intrinsic value method of measuring compensation
cost. Accordingly, no compensation expense was recognized in the statements of operations for
options granted with exercise prices equal to the fair value of the Companys common stock on the
date of grant.
Effective for the first quarter of fiscal 2006, the Company adopted the fair value recognition
provisions of SFAS No. 123R, using the modified prospective approach to transition. Accordingly,
prior year amounts have not been restated. Under the modified prospective approach, the provisions
of SFAS No. 123R are to be applied to new awards granted after December 31, 2005, and the Company
is required to recognize compensation expense for stock options granted prior to the adoption of
SFAS No. 123R under the fair value method and recognize those amounts over the remaining vesting
period of the stock options.
For the three month period ended June 30, 2006, the Company recorded compensation expense related
to stock options that increased the loss from operations and the net loss by $4 with a $0.00 per
share impact on basic and diluted earnings per share. For the six month period ended June 30,
2006, the Company recorded compensation expense related to stock options that increased the loss
from operations and the net loss by $13 with a $0.00 per share impact on basic and diluted earnings
per share. This stock option compensation expense is included within operating expenses within the
accompanying condensed consolidated statements of operations. As of June 30, 2006, unrecognized
compensation costs related to stock options totaled approximately $9, which will be expensed during
the remainder of fiscal 2006.
As the Company adopted SFAS 123R using the modified prospective method, information for periods
prior to January 1, 2006 have not been restated to reflect the impact of applying the provisions of
SFAS 123R. The following summary presents the Companys net income and per share earnings that
would have been reported had the Company recorded stock-based employee compensation cost using the
fair value method of accounting set forth under SFAS 123.
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
June 30, 2005 |
|
|
June 30, 2005 |
|
Net income as reported |
|
$ |
1,324 |
|
|
$ |
2,530 |
|
Additional
expense |
|
|
(19 |
) |
|
|
(39 |
) |
|
|
|
|
|
|
|
Net income pro forma |
|
$ |
1,305 |
|
|
$ |
2,491 |
|
Net income per share, basic as reported |
|
$ |
0.21 |
|
|
$ |
0.64 |
|
Net income per share, diluted as reported |
|
|
0.11 |
|
|
|
0.28 |
|
Net income per share, basic pro forma |
|
|
0.20 |
|
|
|
0.63 |
|
Net income per share, diluted pro forma |
|
|
0.11 |
|
|
|
0.27 |
|
The fair value of each option grant was estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions and related fair values:
|
|
|
|
|
|
|
|
|
|
|
2006 Grants |
|
2005 Grants |
Expected life |
|
5 |
Years |
|
5 |
Years |
Expected volatility |
|
|
70 |
% |
|
|
70 |
% |
Risk-free interest rate |
|
|
4.83 |
% |
|
|
3.99 |
% |
Dividend yield |
|
|
|
|
|
|
|
|
Fair values |
|
$ |
3.05 |
|
|
$ |
6.40 |
|
12
The expected life of stock options represents the period of time that the stock options granted are
expected to be outstanding and was based on the shortcut method allowed under SAB 107 for 2006 and
based upon historical trends for 2005. The expected volatility is based on the historical price
volatility of the Companys common stock. The risk free interest rate represents the U.S. Treasury
bill rate for the expected life of the related stock options. No factor for dividend yield was
incorporated in the calculation of fair value, as the Company has historically not paid dividends.
Pursuant to the Companys 2003 Stock Incentive Plan (the Plan), unless otherwise determined by
the Compensation Committee of the Companys Board of Directors, one-third of the options granted
under the Plan are exercisable upon grant, one-third are exercisable on the first anniversary of
such grant and the final one-third are exercisable on the second anniversary of such grant.
A summary of the Companys stock option activity and related information for the six months ended
June 30, 2006 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Remaining |
|
|
|
Options |
|
|
Exercise Price |
|
|
Contractual Life |
|
Options outstanding at December 31, 2005 |
|
|
56 |
|
|
$ |
938.44 |
|
|
|
|
|
Options granted at market price |
|
|
1 |
|
|
|
3.05 |
|
|
|
|
|
Options forfeited |
|
|
(4 |
) |
|
|
(33.73 |
) |
|
|
|
|
Options exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at June 30, 2006 |
|
|
53 |
|
|
$ |
967.52 |
|
|
1.84 Years |
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at June 30, 2006 |
|
|
49 |
|
|
$ |
833.78 |
|
|
1.84 Years |
|
|
|
|
|
|
|
|
|
|
|
|
3. MARKETABLE SECURITIES
The Company accounts for investments in marketable securities in accordance with SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities. In accordance with SFAS No.
115, the Company has designated all marketable securities as trading securities. Trading
securities, which consisted of commercial paper at June 30, 2006 and December 31, 2005, are carried
at fair value, with unrealized gains and losses included in earnings on a current basis. The
Company determines cost on a specific identification basis.
At June 30, 2006 and December 31, 2005, marketable securities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
|
|
Cost |
|
Trading securities |
|
$ |
32 |
|
|
$ |
32 |
|
|
$ |
13,978 |
|
|
$ |
13,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. INVENTORIES
Inventories are stated at the lower of cost or market value. At June 30, 2006 and December 31,
2005, inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Finished goods |
|
$ |
16,283 |
|
|
$ |
16,374 |
|
Work in progress |
|
|
9,862 |
|
|
|
10,778 |
|
Raw materials |
|
|
2,331 |
|
|
|
1,529 |
|
|
|
|
|
|
|
|
|
|
$ |
28,476 |
|
|
$ |
28,681 |
|
|
|
|
|
|
|
|
13
5. DEFERRED FINANCING COSTS
Costs associated with obtaining financing are included in the accompanying condensed consolidated
balance sheets as deferred financing costs and are being amortized over the terms of the loans to
which such costs relate. The cost and accumulated amortization of deferred financing costs as of
June 30, 2006 and December 31, 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Original basis |
|
$ |
8,802 |
|
|
$ |
8,543 |
|
Accumulated amortization |
|
|
(7,141 |
) |
|
|
(6,292 |
) |
|
|
|
|
|
|
|
|
|
$ |
1,661 |
|
|
$ |
2,251 |
|
|
|
|
|
|
|
|
On April 20, 2006, the Company paid in full the CIT Term Loan and entered into other modifications
to the CIT Group Revolving Line of Credit (see Note 7). As a part of this refinancing arrangement,
the Company wrote-off $289 of deferred financing costs related to the CIT Term Loan and to a
portion of the CIT Group Revolving Line of Credit. This charge is included within interest expense
within the accompanying condensed consolidated statements of operations for the three and six month
periods ended June 30, 2006.
6. DISCONTINUED OPERATIONS
In December 2005, the Company received notice of a payment from the liquidating trust of a former
customer of its distribution operations (which were sold in fiscal 2000). The payment related to a
previously written off accounts receivable from a customer that filed for bankruptcy protection.
The payment, which approximated $462, was received in April 2006. The Company has reflected this
amount within net assets of discontinued operations within the accompanying condensed consolidated
balance sheet for the period ended December 31, 2005.
7. SENIOR CREDIT FACILITIES
In April 2006, the Company closed on a series of transactions with its principal stockholders
relating to its senior debt. See Note 8 for particulars of these related party debt transactions.
In conjunction with the closing of the LJH Term Loans, the Company paid the CIT Term Loan in full
and amended the CIT Group Revolving Line of Credit (the Amended CIT Group Revolving Line of
Credit). The Amended CIT Group Revolving Line of Credit is now a $30,000 senior secured revolving
line of credit, is due December 31, 2007, and bears interest, at the Companys option, at either
(a) Prime, or (b) LIBOR plus 2.50%. The Company has elected the Prime option for the outstanding
revolving line of credit at the present time. Also, in accordance with the requirements of EITF
95-22, the Company has presented the revolving line of credit as a short-term obligation. In
addition, the Amended CIT Group Revolving Line of Credit contains certain financial covenants
regarding the Companys financial performance and certain other covenants, including limitations on
the incurrence of additional debt and restrictions on the payment of dividends, and provides for
the termination of the Amended CIT Group Revolving Line of Credit and repayment of all debt in the
event of a change in control, as defined. Also, an event of default under the LJH Term Loans will
also result in a default under the Amended CIT Group Revolving Line of Credit.
Borrowings under the Amended CIT Group Revolving Line of Credit are secured by a lien on
substantially all of the Companys assets. Borrowings under the revolving line of credit are based
on a borrowing base formula that takes into account the level of the Companys receivables and
inventory. Further, the amounts that the Company can borrow under the Amended CIT Group Revolving
Line of Credit are affected by various availability reserves and collateral reserves that can be
established by the lenders under the financing agreement. In that regard, as a part of the closing
of the Amended CIT Group Revolving Line of Credit, the Company provided a collateral deposit of
$5,000, which is included within the accompanying condensed consolidated balance sheet at June 30,
2006 as a non-current asset. Finally, the agreement relating to the Amended CIT Group Revolving
Line of Credit requires that at the time of each additional borrowing, the Company must make
various representations and warranties to its lenders regarding its business (including several
reaffirming that there have been no changes in the status of specific aspects of the Companys
business that could reasonably be expected to have a material adverse effect upon the business
operation, assets, financial condition or collateral of the Company and its subsidiaries taken as a
whole), and be in compliance with various affirmative and negative covenants, all as more
particularly set forth in the agreement. As a part of the Amended CIT Group Revolving Line of
Credit, the Companys senior lender waived and in certain
14
instances, amended certain financial covenant defaults and as of December 31, 2005 and June 30, 2006 the Company was in compliance with
all covenant requirements, as amended.
As of June 30, 2006, the outstanding aggregate amount borrowed under the Amended CIT Group
Revolving Line of Credit was $5,476, the amount of outstanding letters of credit under the Amended
CIT Group Revolving Line of Credit was $8,804, and $11,489 was available for additional borrowing
under the Amended CIT Group Revolving Line of Credit.
8. TERM LOAN FROM A RELATED PARTY
On April 10, 2006, LJH acquired the $18,313 Monroe Capital Loans, with affiliates of Owl Creek
simultaneously acquiring a 20% participation interest in that loan. Additionally, effective on
April 20, 2006, in conjunction with the refinancing of the CIT Group Credit Facility (see Note 7),
the Company obtained a new $6,000 senior secured term loan from LJH (collectively with the Monroe
Capital Loans, the LJH Term Loans). The LJH Term Loans all mature on December 31, 2007, bear
interest at LIBOR plus 1.75% per annum and are secured by a lien on substantially all of the
Companys assets. In addition, an event of default under the Amended CIT Revolving Line of Credit
(described in Note 7) will also result in a default under the LJH Term Loans. The Company also
obtained waivers of all defaults and events of default from LJH under the LJH Term Loans.
In April 2004, the Company entered into an agreement with its principal stockholder pursuant to
which it combined all of its previously outstanding debt (principal plus accrued and unpaid
interest) with its principal stockholder into a related party term loan due on January 31, 2008
(the LJH Original Term Loan). The LJH Original Term Loan bore interest at 18% per annum, 6% of
which was payable in cash (or at the Companys option, payable-in-kind) and the balance of which
was payable-in-kind (PIK). Additionally, the PIK interest balance compounded into principal debt
semi-annually in January and August. In October 2005, the Companys registration statement on Form
S-1 with respect to a rights offering became effective. As a part of the rights offering, the
Company agreed to allow its principal stockholder the use of the LJH Original Term Loan as
consideration (on a dollar-for-dollar basis) for the purchase of a portion of the shares that it
was permitted to purchase in the rights offering. On November 22, 2005, the Company closed its
rights offering and as a part of such closing accepted a subscription from its principal
stockholder to purchase 3,960 shares of the Companys common stock for an aggregate purchase price
of $19,007 (the then current balance of the LJH Original Term Loan) using the proceeds of the LJH
Original Term Loan. See Note 13 for further details of the rights offering.
9. SUBORDINATED NOTES
8% SENIOR SUBORDINATED PIK NOTES DUE 2006
In February 2002, in connection with a capital and debt restructuring, the Company issued $100,000
face value, in aggregate, principal amount of 8.0% senior subordinated convertible paid-in-kind
(PIK) notes (New Senior Notes), which mature on December 31, 2006. On March 8, 2005, in
conjunction with the Companys January 2005 offering and consent solicitation (see Note 12), the
Company received tenders and related consents from holders of 47.0% in aggregate principal amount
of the New Senior Notes. Additionally, on October 12, 2005, in conjunction with the Companys
August 2005 offering and consent solicitation (see Note 12), the Company received tenders and
related consents from holders of 98% in aggregate principal amount of the then remaining New Senior
Notes. After consummation of the tender offers and as of June 30, 2006, $1,221 of New Senior Notes
remained outstanding.
The remaining New Senior Notes bear interest from the date of issuance and are payable at the
Companys option either in cash or PIK through the issuance of additional New Senior Notes
semiannually on June 30 and December 31 of each year. The New Senior Notes are redeemable for cash
at the Companys option during 2006 at 77.5% of par value, plus accrued interest through the date
of redemption. The New Senior Notes also provide that the holders will receive a fixed number of
shares of common stock if the New Senior Notes are redeemed in 2006.
If the remaining New Senior Notes have not already been redeemed or repurchased, the New Senior
Notes, including those New Senior Notes previously issued as paid-in-kind interest and all accrued
but unpaid interest, will automatically convert on December 31, 2006 into 71 shares of common
stock. Holders of New Senior Notes will not receive any cash payment representing principal or
accrued and unpaid interest upon conversion; instead, holders will receive a fixed number of shares
of common stock and a cash payment to account for any fractional shares.
15
8 1/8% SENIOR SUBORDINATED NOTES DUE 2008
In 1998, the Company sold $165,000 of senior subordinated notes (Old Notes) with a coupon rate of
8.125% at a price of 99.395%, which mature on February 15, 2008. On February 28, 2002, $149,000
face value of these notes were cancelled as part of a note exchange in exchange for cash and
securities, and substantially all of the covenants contained in the indenture relating to the
remaining Old Notes were extinguished. As a result of the 2002 exchange offer and consent
solicitation, $16,247 in aggregate principal amount, net of unamortized discount, of Old Notes
remain outstanding at June 30, 2006. Interest on the Old Notes is payable on February 15 and
August 15 of each year. The Old Senior Notes are general unsecured obligations, subordinated in
right of payment to all existing and future senior debt, including indebtedness outstanding under
the Amended CIT Group Revolving Line of Credit and the LJH Term Loans, and under senior credit
facilities which may replace these facilities in the future, and the New Senior Notes. In addition,
the Old Senior Notes are effectively subordinated to all secured obligations to the extent of the
assets securing such obligations, including the Amended CIT Group Revolving Line of Credit and the
LJH Term Loans. The Old Notes are redeemable, at the Companys option, in whole or in part, for
100% of the redemption price, plus accrued and unpaid interest and liquidated damages, if any.
8% JUNIOR SUBORDINATED PIK NOTES DUE 2007
In September 2002, the Company issued $4,000 face value, in aggregate, junior subordinated
convertible PIK notes (Junior Notes). On March 8, 2005, in conjunction with the Companys
January 2005 offering and consent solicitation (see Note 12), the Company received tenders and
related consents from holders of 75.2% in aggregate principal amount of the Junior Notes.
Additionally, on October 12, 2005, in conjunction with the Companys August 2005 offering (see Note
12), the Company received tenders from holder of 33% in aggregate principal amount of the then
remaining Junior Notes.
The remaining Junior Notes bear interest at 8% and mature on January 2, 2007. Interest on the
Junior Notes is payable, at the Companys option, either in cash or paid-in-kind through the
issuance of additional notes semiannually on June 30 and December 31 of each year. The Junior
Notes were recorded as of September 20, 2002 (the effective date) at the then current fair value of
$2,500. As a result of the Companys tender offers, the current fair value (as of June 30, 2006)
approximates $686. The discount on these Junior Notes is being accreted to the redemption value of
the Junior Notes at maturity in January 2007.
The remaining Junior Notes are redeemable for cash at the Companys option at 77.5% of par value,
plus accrued interest through the date of redemption. The Junior Notes also provide that the
holders will receive a fixed number of shares of common stock if the Junior Notes are redeemed in
2006.
If the remaining Junior Notes have not already been redeemed or repurchased, the Junior Notes,
including those Junior Notes previously issued as paid-in-kind interest and all accrued but unpaid
interest, will automatically convert on January 2, 2007 into 39 shares of common stock. Holders of
Junior Notes will not receive any cash payment representing principal or accrued and unpaid
interest upon conversion; instead, holders will receive a fixed number of shares of common stock
and a cash payment to account for any fractional shares.
10. COMMITMENTS AND CONTINGENCIES
LITIGATION AND CLAIMS
The Company is involved in various lawsuits and contingencies arising out of its operations in the
normal course of business. In the opinion of management, the ultimate resolution of these claims
and lawsuits will not have a material adverse effect upon the financial condition or results of
operations of the Company.
In November 2005, the Company was named as the defendant in a lawsuit which alleges that the
Company breached a purported verbal agreement for indemnification. The suit seeks damages of
$6,600, plus interest, costs and attorneys fees. While the Company does not believe that any such
indemnification agreement exists, believes that it has meritorious defenses to the claim and
intends to vigorously defend the lawsuit, there can be no assurance as to its outcome. As of June
30, 2006, no reserves related to this lawsuit have been recorded within the accompanying condensed
consolidated financial statements.
16
In January 2006, the Company was sued by its former President and Chief Operating Officer for
breach of his employment agreement and for related claims under North Carolina employment law.
This lawsuit sought unspecified monetary damages and declaratory relief regarding the scope and
applicability of the non-compete contained in the former employees employment agreement. In
addition, the Company filed a countersuit against the former employee for, among other matters,
misrepresentation and breach of contract. In June 2006, the Company entered into a settlement
agreement with this former employee in which the Company, among other matters, agreed to pay 18
months of severance. This severance obligation, netted with payments previously paid to this
former employee, is included within accrued expenses within the accompanying condensed consolidated
balance sheet for the period ended June 30, 2006.
ENVIRONMENTAL MATTERS
The Company is taking remedial action pursuant to Environmental Protection Agency and Florida
Department of Environmental Protection (FDEP) regulations at TIMCO-Lake City. Ongoing testing is
being performed and new information is being gathered to continually assess the impact and
magnitude of the required remediation efforts on the Company. During 2003, based upon the most
recent cost estimates provided by environmental consultants, it was estimated that the total
remaining testing, remediation and compliance costs for this facility was approximately $810.
Additionally, during 2003 the Company secured an insurance policy to comply with the financial
assurances required by the FDEP. Subsequent to 2003, the Company has proceeded with its
remediation plan with no significant change in the estimated compliance costs and has maintained
its insurance policy to comply with the financial assurances required by the FDEP.
Testing and evaluation for all known sites on TIMCO-Lake Citys property is completed and the
Company has commenced a remediation program. The Company is currently monitoring the remediation,
which will extend into the future. Based on current testing, technology, environmental law and
clean-up experience to date, the Company believes that it has established an accrual for the
estimated costs associated with its current remediation strategies. Additionally, there are other
areas adjacent to TIMCO-Lake Citys facility that could also require remediation. The Company does
not believe that it is responsible for these areas; however, it may be asserted that the Company
and other parties are jointly and severally liable and are responsible for the remediation of those
properties.
Accrued expenses in the accompanying June 30, 2006 and December 31, 2005 condensed consolidated
balance sheets include $670 and $650, respectively, related to obligations to remediate the
environmental matters described above. As of June 30, 2006 and December 31, 2005, the Company has
no receivables from the insurance provider for these exposures. Future information and
developments will require the Company to continually reassess the expected impact of the
environmental matters discussed above. Actual costs to be incurred in future periods may vary from
the estimates, given the inherent uncertainties in evaluating environmental exposures. These
uncertainties include the extent of required remediation based on testing and evaluation not yet
completed and the varying costs and effectiveness of remediation methods. In the opinion of
management, the ultimate resolution of these environmental exposures will not have a material
adverse effect upon the financial condition or results of operations of the Company.
OTHER MATTERS
In February 2006, a settlement agreement for unsecured claims was reached with a current customer
of the Company (UAL Corporation) relating to their filing for protection under Chapter 11 of the
United States Bankruptcy Code in fiscal 2002. Pursuant to the UAL Corporation plan of
reorganization, the Company received 5 shares of common stock in the reorganized company based on
the Companys unsecured claim as compared to the total of all unsecured claims. Based on the stock
price of the reorganized company on February 2, 2006, which approximated $35.89 per share, the
Company recorded an offset to operating expenses of $164 within the accompanying condensed
consolidated statement of operation for the six month period ended June 30, 2006. In June 2006,
the Company sold these shares in UAL Corporation and recorded a loss of $31 to other income, net
within the accompanying condensed consolidated statements of operations for the three and six month
periods ended June 30, 2006.
The Company has employment agreements with all of its executive officers and certain of its key
employees. The employment agreements provide that such officers and key employees may earn
bonuses, based upon a sliding percentage scale of their base salaries, provided the Company
achieves certain financial operating results, as defined. Further, certain of these employment
agreements provide for severance benefits in the event of a change of control. In December 2005,
the Company terminated several executive officers and key employees and in April 2006, the Company
entered into a retirement arrangement with its former Chief Executive Officer. Also, in June 2006,
the Company settled with certain former executive officers and senior members of management
disputed claims regarding severance obligations. As a result of these settlements, the Company
reversed approximately $325 of severance accruals that were established as of December 31, 2005.
Accrued expenses in the
17
accompanying June 30, 2006 and December 31, 2005 condensed consolidated
balance sheets include $2,700 and $2,100, respectively, related to aggregate severance and
retirement obligations due to these individuals. Further, the charges for these severance and
retirement benefits was recorded in operating expenses on the condensed consolidated statements of
operations for the second quarter of 2006 and the fourth quarter of 2005, respectively.
On November 1, 2005, the Company entered into an operating lease agreement with the Allegheny
County Airport Authority (Pittsburgh, PA) for an engine test cell facility to be used for the
repair and overhaul of CFM-56 engines. The initial term of the lease is 10 years with a
cancellation option after 5 years. The lease arrangement also maintains two 5-year renewal
options. Rental payments are contingent upon revenues generated by the Company within this
facility and range from $0.50 per square foot to $7.00 per square foot annually.
On April 15, 2005, the Company entered into an operating lease agreement with Maxus Leasing Group
for tooling and other equipment to be used for the repair and overhaul of CFM-56 engines. The
initial term of the lease is 48 months with a cancellation option, contingent upon the payment of a
cancellation fee, after the first 12 months, and purchase options available to the Company at the
end of each 12-month period. Rental payments approximate $1,320 per year, with the Company also
responsible for insurance, taxes, and other upfront expenditures.
11. RELATED PARTY TRANSACTIONS
As partial consideration for the funding of a $6,050 term loan with the Companys principal
stockholder in 2003, the Company issued a warrant (the LJH Warrant) to LJH to acquire, for
nominal consideration, 30% of the Companys outstanding common stock (on a fully-diluted basis) as
of the day the warrant is exercised. The warrant is exercisable on or before January 31, 2007.
The warrant valuation, as determined by an independent business valuation specialist through a fair
market value assessment of the Company, was recorded at $1,258 in 2003. The Company recorded the
value of this warrant as deferred financing costs and was amortizing this amount to expense over a
three-year period (the original period of this loan). In conjunction with the Companys rights
offering (see Note 13), and as a result of the use by its principal stockholder of the entire
balance of the LJH Original Term Loan as consideration for its purchase of shares in the rights
offering, the Company wrote-off the unamortized deferred financing balance (approximately $710) at
the closing of the rights offering.
In January 2005 and August 2005, the Company extended offers for early conversion of its New Senior
Notes and Junior Notes. As part of these offers, LJH agreed to certain amended terms with respect
to the LJH Warrant. Upon the completion of the Companys tender offers, LJH partially exercised
the LJH Warrant. As a result of these partial exercises, the Companys principal stockholder
received 1,774 shares and 1,514 shares, during the January 2005 and August 2005 tender offers,
respectively, of the Companys authorized but unissued common stock. Additionally, upon the
maturity of the remaining untendered New Senior Notes and Junior Notes, which is to occur on
December 31, 2006 and January 2, 2007, respectively, and the automatic conversion of these notes
into common stock, LJH will have the right to exercise the remainder of the LJH Warrant to receive
an additional 47 shares of common stock. See Note 12 for specifics of these tender offers.
During 2006 and 2005, the Company has obtained some of its contract labor through Aviation
Partners, a contract labor firm owned by an immediate family member of the Companys former Chief
Executive Officer. Management believes that the fees charged by Aviation Partners are not less
favorable to the Company than those generally made available by unrelated third party contract
labor firms. Total contract labor fees paid to Aviation Partners through June 30, 2006 and 2005
were $1,580 and $163, respectively, and as of June 30, 2006, the Company owed Aviation Partners
approximately $146, which is included within accounts payable within the accompanying condensed
consolidated balance sheet.
The Companys President and Chief Operating Officer serves as an officer and director and is a
stockholder of Human Performance & Safety Consultants, Inc. (HPSC). HPSC has in the past and
continues to provide advisory services to the Company. During the first half of 2006, the Company
was billed $148 for services rendered by HPSC. Management believes that the fees paid for these
advisory services were no greater then those that would be charged by an unrelated third party and
the Companys President and COO received no direct compensation for amounts paid to HPSC for
performing services on the Companys behalf.
A member
of the Companys board of directors is a shareholder in Akerman Senterfitt, which has in
the past and continues to perform legal services for the Company. Management believes that the
fees paid to Akerman Senterfitt were no greater then those that would be charged by an unrelated
third party. The Company was billed $237 and $219, respectively, for the services rendered by
Akerman Senterfitt in the first half of 2006 and 2005. The Companys board member received no
direct compensation from amounts paid to Akerman Senterfitt for performing services on the
Companys behalf.
18
An entity in which the Companys principal stockholder and the Companys former Chairman and Chief Executive Officer have been involved, purchases aircraft for resale and
lease, and the Company has provided aircraft maintenance service work to that entity. Services
provided to that entity were charged at not less than the rates that would be charged for such
services to an unaffiliated third party. During the six month period ended June 30, 2005, the
billings related to the services that were provided to such entity were approximately $960. During
2006, the Company has not provided any aircraft maintenance service work to this entity.
In 2002, an entity controlled by the Companys principal stockholder acquired the operating assets
of Aviation Management Systems, Inc. (AMS) located in Phoenix, Arizona. Additionally, this entity
assumed a lease with the City of Phoenix for facilities previously leased by AMS at the Goodyear
Airport. In 2003, the Company entered into an operating sublease agreement with its principal
stockholder to operate its business in these facilities. This sublease expired in April 2006, and
the Company continues to lease this facility on a month-to-month lease arrangement. The sublease
requires rental payments of $432 annually. Under the sublease agreement, the Company is also
responsible for insurance, taxes and charges levied by the City of Phoenix. Management believes
that the facility lease is on terms not less favorable to the Company than could be obtained from
an unaffiliated third party. Subsequent to June 30, 2006, the Company entered into an agreement to
sell substantially all of the fixed assets located at the Companys Goodyear facility and to
terminate this sublease agreement. See Note 17 for further particulars of these activities.
During 2002, the Company sold certain real estate and fixtures located in Dallas, Texas, to the
Companys principal stockholder. The gross sales price for these assets was approximately $2,400,
which was the estimated fair market value, based on a third party appraisal, on the sale date.
Simultaneous with this sale, the Company entered into a lease agreement with the principal
stockholder for substantially all of these assets. The term of this lease was ten years. Annual
rental payments were approximately $300 per year, with the Company being responsible for, among
other things, taxes, insurance and utilities. The sale and resulting leaseback qualified for sale
leaseback accounting pursuant to SFAS No. 98, Accounting for Leases. The Company initially
deferred the gain on sale of approximately $1,700 and was amortizing this gain to income over the
term of the lease agreement as an offset to rent expense. In September 2005, the Company entered
into an amendment to this operating lease which, among other matters, converted the lease
arrangement to a month-to-month commitment and the Company recognized all of the remaining
unamortized deferred gain on this sale leaseback transaction.
12. OFFERING AND CONSENT SOLICITATION
JANUARY 2005 TENDER OFFER
In January 2005, the Company extended an offering and consent solicitation relating to the New
Senior Notes and the Junior Notes. Under the contractual terms of the New Senior Notes and the
Junior Notes (collectively, the Notes), the Notes will automatically convert at their maturity
into a fixed number of shares of the Companys authorized but unissued common stock unless, prior
to their maturity, the Notes are redeemed in accordance with their terms for cash and additional
shares of common stock.
In the offering and consent solicitation, the Company offered holders of the Notes the right to
receive a 15% premium payable in shares of its common stock if the holders agreed to an early
conversion of their Notes into common stock during the conversion period, which expired on March 8,
2005. The Company also solicited consents from the holders of its New Senior Notes and Junior Notes
to remove all material covenants contained in the indentures, including the covenant restricting
the amount of senior debt that the Company may incur and the covenant requiring the Company to
redeem the Notes upon a change of control. If the holders tendered their Notes, they automatically
consented to the proposed amendments to the indentures. To become effective for each class of
Notes, the amendments required the consent of a majority of the holders of the Notes (excluding
from this computation the Notes held by the Companys principal stockholder).
In accordance with the terms of the offer, all Notes that were properly tendered were accepted for
early conversion. The Company received consents representing a majority in aggregate principal
amount of the outstanding Junior Notes, and accordingly, the proposed amendments to the indenture
governing the Junior Notes became effective. Since the Company did not receive consents
representing a majority in aggregate principal amount of the outstanding New Senior Notes in this
consent solicitation, the indenture governing the New Senior Notes was not amended at the closing
of the January 2005 tender offer (see, however, the August 2005 tender offer below).
The Company received tenders and related consents from holders of 47.0% in aggregate principal
amount of the New Senior Notes and tenders and related consents from holders of 75.2% in aggregate
principal amount of the Junior Notes. Based on the level of premium shares that have been issued
(see below), for this offering and consent solicitation, the Company recorded an inducement charge
of $160 and incurred related transaction expenses of $240. The aggregate inducement charge of $400
is
19
included in charge for early conversion of notes within the accompanying condensed
consolidated statements of operations for the six month period ended June 30, 2005.
At the closing of the offer, the Company issued 3,648 shares of its authorized but unissued common
stock to the holders of the New Senior Notes who tendered in the offer (including 476 premium
shares), 201 shares of its authorized but unissued common stock to the holders of the Junior Notes
who tendered in the offer (including 26 premium shares), and 1,774 shares to LJH in connection with
its partial exercise of the LJH Warrant. See Note 11 for information about the LJH Warrant.
AUGUST 2005 TENDER OFFER
In August 2005, the Company announced an offering to the holders of its remaining New Senior Notes
and Junior Notes, and solicited consents from the holders of the remaining New Senior Notes to
proposed amendments governing the New Senior Note indenture. If the holders of the New Senior
Notes tendered their notes, they were automatically consenting to the proposed amendments to the
indenture, which included the removal of all material covenants contained in the indenture,
including the covenant restricting the amount of senior debt that the Company may incur and the
covenant requiring the Company to redeem the New Senior Notes upon a change of control. No such
consent was sought from the holders of the outstanding Junior Notes since the covenant protections
related to the Junior Notes were previously eliminated as a result of the Companys January 2005
tender offer (see above). This offering and consent solicitation, which was amended in September
2005, offered the remaining holders of its New Senior Notes and Junior Notes the right to receive a
15% premium for agreeing to an early conversion of their Notes into shares of the Companys
authorized but unissued common stock.
The Company received tenders and related consents from holders of 98% in aggregate principal amount
of its outstanding New Senior Notes and tenders from the holders of 33% in aggregate principal
amount of its outstanding Junior Notes. Based on the level of premium shares that have been issued
(see below), for this offering and consent solicitation, the Company recorded an inducement charge
of $155 and incurred related transaction expenses of $64. The aggregate inducement charge of $219
was included as a charge for early conversion of notes for the year ended December 31, 2005.
At the closing of the offer, the Company issued 4,041 shares of its authorized but unissued common
stock to the holders of the New Senior Notes who tendered in the offer (including 527 premium
shares), 22 shares of its authorized but unissued common stock to the holders of the Junior Notes
who tendered in the offer (including 3 premium shares), and 1,514 shares to LJH in connection with
the partial exercise of the LJH Warrant. See Note 11 for information about the LJH Warrant.
In accordance with the terms of the offer, all Notes that were properly tendered were accepted for
early conversion. The Company received consents representing a majority in aggregate principal
amount of the outstanding New Senior Notes in the consent solicitation, and accordingly, the
proposed amendments to the indenture governing the New Senior Notes became effective at the closing
of the August 2005 tender offer.
After consummation of the January 2005 and August 2005 offers and consent solicitations,
approximately $1,221 of the New Senior Notes and $686 of the Junior Notes remain outstanding. Upon
maturity of such notes in 2006 and 2007, respectively, the New Senior Notes will automatically
convert into 71 shares of the Companys authorized, but unissued common stock and the Junior Notes
will automatically convert into 39 shares of the Companys authorized, but unissued common stock.
At such time, LJH will be able to complete the full exercise of the LJH Warrant and receive 47
shares of the Companys common stock.
13. RIGHTS OFFERING
In October 2005, the Companys registration statement on Form S-1 with respect to a rights offering
became effective. In the rights offering, stockholders holding shares of the Companys common
stock as of October 19, 2005 (the record date) had the right to purchase additional shares of the
Companys post-reverse split common stock for a subscription price of $4.80 per share ($0.12 per
pre-reverse split share). For every 40 pre-reverse split shares (one post-reverse split share) of
common stock held on the record date, stockholders were granted 1.50 subscription rights. Also,
the Company agreed to allow LJH to use amounts due to it under the LJH Original Term Loan (see Note
8 for a description of the LJH Original Term Loan) as consideration (on a dollar-for-dollar basis)
for the purchase of a portion of the shares that LJH was permitted to purchase in the rights
offering. Finally, the Company effected, simultaneously with the closing of the rights offering, a
reverse split of its common stock on a one-new-share-for-forty-old-shares basis. In conjunction
with the reverse split, the Company amended its certificate of incorporation to reduce its
authorized common stock, $0.001 par value, from 500,000 (on a pre-reverse split basis) to a 100,000
(on a post-reverse split basis) shares.
20
On November 22, 2005, the Company closed on cash subscriptions to purchase 5,491 shares of the
Companys common stock for an aggregate purchase price of $26,358 and a subscription from LJH to
purchase 3,960 shares of the Companys common stock for an aggregate purchase price of $19,007
using the proceeds of the LJH Original Term Loan. Additionally, the Company incurred $580 of
transaction expenses related to the completion of the rights offering. These expenses, which
related to professional fees, advisory fees and document production fees, were offset against the
cash proceeds received. At the closing of the rights offering, the Company issued an aggregate of
9,451 shares.
On September 20, 2005, the Company entered into a letter agreement relating to the rights offering
and tender offer with Owl Creek, which beneficially owned at the time approximately $24,900 in
aggregate principal amount of the New Senior Notes. In the letter agreement, Owl Creek agreed to
tender the New Senior Notes that it owned in the August 2005 tender offer and to participate in the
rights offering to the full extent of its basic subscription privilege. In October 2005, the
Company issued 1,489 shares of its common stock to Owl Creek in the August 2005 tender offer, which
gave Owl Creek the right to purchase 2,233 shares of the Companys common stock in the rights
offering. Owl Creek also agreed in the letter agreement to lock up the shares that it received in
the August 2005 tender offer for 180 days, which lockup has now expired. See Notes 9 and 12 for a
description of the Companys New Senior Notes and for a description of the Companys tender offers.
14. WEIGHTED AVERAGE SHARES
Basic income per share is computed using the weighted-average number of shares outstanding during
the period. Diluted income per share uses the weighted-average number of shares outstanding during
the period plus the dilutive effect of stock options, convertible debt instruments and stock
warrants calculated using the treasury stock method. Also, the potential effect of diluted
securities during periods when the Company is in a loss position for continuing operations are not
included as the impact would be anti-dilutive. Weighted average shares used in the computation of
basic and diluted income per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three |
|
For the Six |
|
|
Months Ended |
|
Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
Weighted average common and common
equivalent shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
21,441,040 |
|
|
|
6,413,979 |
|
|
|
21,441,040 |
|
|
|
3,959,757 |
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debt |
|
|
|
|
|
|
3,642,572 |
|
|
|
|
|
|
|
3,642,572 |
|
Stock warrants and options |
|
|
|
|
|
|
1,551,041 |
|
|
|
|
|
|
|
1,551,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
21,441,040 |
|
|
|
11,607,592 |
|
|
|
21,441,040 |
|
|
|
9,154,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock equivalents outstanding
which are not included in the
calculation of diluted earnings
per share because their impact
is antidilutive |
|
|
499,244 |
|
|
|
388,325 |
|
|
|
499,350 |
|
|
|
388,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15. SEGMENT INFORMATION
The Companys operations are classified into three business segments: aircraft maintenance, repair
and overhaul (MRO), aircraft interiors and engineering services, and other. The MRO segment
performs maintenance, repair and modification services on aircraft and aircraft engines at four
separate operating facilities. The aircraft interiors segment performs the refurbishment of
aircraft interior components and the manufacturing and sale of aftermarket parts and new aircraft
seats, and provides aircraft engineering services, modification design, certification, and
installation of interior reconfigurations within two separate operating facilities. The other
segment consists of corporate selling, general and administrative expenses, interest expense
related to the Companys debt obligations (excluding capital lease obligations which are allocated
to the particular segment to which they relate) and results from discontinued operations, which are
included to reconcile segment information to the consolidated financial statements.
21
Operating income (loss) is defined as sales less direct operating costs and expenses, excluding
allocation of corporate expenses. Identifiable assets include assets used in the operation of each
segment and consists of current assets, property, plant, and equipment, and goodwill.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2006 |
|
MRO |
|
Interiors |
|
Other |
|
Consolidated |
Net sales |
|
$ |
65,324 |
|
|
$ |
23,345 |
|
|
$ |
|
|
|
$ |
88,669 |
|
Operating income (loss) |
|
|
1,042 |
|
|
|
3,010 |
|
|
|
(5,329 |
) |
|
|
(1,277 |
) |
Identifiable assets |
|
|
115,308 |
|
|
|
16,434 |
|
|
|
16,422 |
|
|
|
148,164 |
|
Depreciation and amortization |
|
|
1,288 |
|
|
|
39 |
|
|
|
|
|
|
|
1,327 |
|
Capital expenditures |
|
|
666 |
|
|
|
19 |
|
|
|
|
|
|
|
685 |
|
Interest expense, net |
|
|
70 |
|
|
|
|
|
|
|
2,018 |
|
|
|
2,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2005 |
|
MRO |
|
Interiors |
|
Other |
|
Consolidated |
Net sales |
|
$ |
73,397 |
|
|
$ |
7,717 |
|
|
$ |
|
|
|
$ |
81,114 |
|
Operating income (loss) |
|
|
4,642 |
|
|
|
331 |
|
|
|
(3,360 |
) |
|
|
1,613 |
|
Identifiable assets |
|
|
107,320 |
|
|
|
19,817 |
|
|
|
16,115 |
|
|
|
143,252 |
|
Depreciation and amortization |
|
|
1,400 |
|
|
|
43 |
|
|
|
|
|
|
|
1,443 |
|
Capital expenditures |
|
|
960 |
|
|
|
223 |
|
|
|
5 |
|
|
|
1,188 |
|
Interest expense, net |
|
|
83 |
|
|
|
|
|
|
|
2,065 |
|
|
|
2,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2006 |
|
MRO |
|
Interiors |
|
Other |
|
Consolidated |
Net sales |
|
$ |
136,894 |
|
|
$ |
36,867 |
|
|
$ |
|
|
|
$ |
173,761 |
|
Operating income (loss) |
|
|
1,687 |
|
|
|
4,216 |
|
|
|
(8,575 |
) |
|
|
(2,672 |
) |
Identifiable assets |
|
|
115,308 |
|
|
|
16,434 |
|
|
|
16,422 |
|
|
|
148,164 |
|
Depreciation and amortization |
|
|
2,503 |
|
|
|
79 |
|
|
|
|
|
|
|
2,582 |
|
Capital expenditures |
|
|
1,554 |
|
|
|
26 |
|
|
|
|
|
|
|
1,580 |
|
Interest expense, net |
|
|
142 |
|
|
|
|
|
|
|
3,595 |
|
|
|
3,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2005 |
|
MRO |
|
Interiors |
|
Other |
|
Consolidated |
Net sales |
|
$ |
153,032 |
|
|
$ |
18,764 |
|
|
$ |
|
|
|
$ |
171,796 |
|
Operating income (loss) |
|
|
10,602 |
|
|
|
1,083 |
|
|
|
(7,066 |
) |
|
|
4,619 |
|
Identifiable assets |
|
|
107,320 |
|
|
|
19,817 |
|
|
|
16,115 |
|
|
|
143,252 |
|
Depreciation and amortization |
|
|
2,645 |
|
|
|
81 |
|
|
|
|
|
|
|
2,726 |
|
Capital expenditures |
|
|
1,605 |
|
|
|
249 |
|
|
|
33 |
|
|
|
1,887 |
|
Interest expense, net |
|
|
169 |
|
|
|
|
|
|
|
4,110 |
|
|
|
4,279 |
|
16. NEW
ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In June 2006, the FASB issued FASB Interpretation No. 48 Accounting for Uncertainty in Income
Taxes (FIN 48), which is an interpretation of SFAS 109 Accounting for Income Taxes. This
interpretation prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax
return and also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. This Interpretation is effective for
fiscal years beginning after December 15, 2006 and as such, the Company will adopt this
interpretation starting January 1, 2007. The Company is currently evaluating the impact of
adopting FIN 48 on its consolidated financial statements.
17. SUBSEQUENT EVENTS
Effective July 1, 2006, the Company entered into an asset sale agreement in which the Company
agreed to sell substantially all of the fixed assets located at the Companys Goodyear, Arizona MRO
facility to an unrelated party. The net sales price for these assets
is $1,400 plus the transition period loss (defined below), of which $1,138 plus the transition period
loss has been paid in cash and the residual has been fulfilled through the termination of outstanding
obligations due from the Company. As of the closing date, approximately $655 of the cash proceeds
owed to the Company was placed in escrow until the Company completes
certain repairs to the Goodyear facility that are obligations of the
Company. The transition period loss will be equal to the difference between the
Companys business revenues and certain expenses during the period from July 1, 2006 and the
closing date of this transaction (which was August 4, 2006). In addition, the Company has entered
into certain other agreements with the purchaser for the consignment of certain inventories and to
provide certain transition services. Also, effective as of the closing date, the purchaser has
entered into a sublease arrangement with LJH with respect to the Goodyear
facility and the Company has terminated its current month-to-month sublease arrangement with LJH.
Finally, the Company intends to relocate certain fixed assets and inventories to its other MRO
facilities and to integrate certain customer aircraft heavy maintenance services into its three
other airframe heavy maintenance MRO facilities.
22
For the three and six month periods ended June 30, 2006, the Company recorded charges, within cost
of sales in the accompanying condensed consolidated statements of operations, of $277 related to
the impairment of certain fixed assets at the Goodyear facility that are either not being acquired
or not being relocated to other MRO facilities. Also, the Company has recorded charges, within
costs of sales and operating expenses in the accompanying condensed consolidated statements of
operations, of $199 related to severance obligations for certain terminated employees at the
Goodyear facility. Additionally, the Company anticipates charges of approximately $750 during the
third quarter of 2006 related to the shutdown of and exit from the Goodyear facility and related to
additional severance charges to be recorded in conjunction with SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. These charges will be partially offset by a gain,
which will approximate $330, on the sale of assets related to this transaction.
Also, effective as of July 31, 2006, the Company entered into an Agreement and Plan of Merger (the
Merger Agreement) with TAS Holding, Inc., a Delaware Corporation (TAS) under which TAS will be
merged (the Merger) with and into the Company and the stockholders of the Company (other than LJH
and Owl Creek) will receive $4.00 per share in cash for their shares, without interest. TAS is a
Delaware corporation. The stockholders of TAS are LJH, which owns approximately 71% of the
Companys outstanding common stock, and Owl Creek, which own approximately 18% of the Companys
outstanding common stock, and the President of TAS is John R. Cawthron, the Companys Chairman and
Chief Executive Officer.
Simultaneous with entering into the Merger Agreement, the Company entered into two additional
agreements with respect to the Merger:
|
|
|
A Conversion, Support and Release Agreement, dated as of July 31, 2006, in which, among
other matters: (i) the Company agreed (under certain conditions) to sell to LJH and Owl
Creek an additional 2,400 shares of the Companys authorized but unissued common stock at
an exercise price of $2.50 per share through the conversion of debt owed by the Company to
LJH (the Option), and (ii) TASs stockholders agreed to support the Merger at any meeting
of the Companys stockholders called to consider and vote upon the Merger; and |
|
|
|
|
An Escrow Agreement, dated as of July 31, 2006, between the Company, TAS and American
Bank of Texas, under which TAS has deposited all of the funds required to pay public
stockholders the $4.00 per share cash Merger consideration. American Bank of Texas is
wholly-owned by Lacy Harber, the principal stockholder of LJH. |
The Merger is subject to customary closing conditions and the receipt of required regulatory
approvals. The Company expects to complete the Merger by the end of the 2006 fiscal year, although
there can be no assurance that the Merger will be completed.
23
ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context otherwise requires, references to TIMCO, we, our, and us, in this
Quarterly Report on Form 10-Q (Form 10-Q) includes TIMCO Aviation Services, Inc. and its
subsidiaries. This Form 10-Q contains, or may contain, forward-looking statements, such as
statements regarding our prospects, strategy and anticipated trends in the industry in which we
operate. These forward-looking statements are based on our current expectations and are subject to
a number of risks, uncertainties and assumptions relating to our operations and results of
operations, competitive factors, shifts in market demand, and other risks and uncertainties,
including, in addition to those described below and elsewhere in this Form 10-Q and in our Annual
Report on Form 10-K for the year ended December 31, 2005 (the Form 10-K), our ability to continue
to generate sufficient working capital to meet our operating requirements and service our
indebtedness, our ability to meet the financial covenants contained in our credit agreements, our
ability to obtain additional working capital as may be required in connection with the operation of
our business, our maintaining good working relationships with our vendors and customers,
competitive pricing for our products and services, our ability to achieve gross profit margins at
which we can be profitable, including margins on services we perform on a fixed price basis,
competition in the aircraft maintenance, repair and overhaul market and the impact on that market
and on us of the ongoing global war on terrorism, the state of the domestic passenger airline
industry and the financial condition of our airline customers, our ability to attract and retain
qualified personnel in our businesses, utilization rates for our MRO facilities, our ability to
effectively integrate future acquisitions, our ability to effectively manage our business, economic
factors which affect the airline industry, generally including the amount of aircraft maintenance
outsourced by various airlines, and future changes in government regulations. Should one or more
of these risks or uncertainties materialize, or should the assumptions underlying our
forward-looking statements prove incorrect, actual results may differ significantly from results
expressed or implied in any forward-looking statements made by us in this Form 10-Q. We do not
undertake any obligation to revise these forward-looking statements to reflect future events or
circumstances.
The following discussion and analysis should be read in conjunction with the information set forth
under Managements Discussion and Analysis of Financial Condition and Results of Operations in
the Form 10-K.
GENERAL
TIMCO Aviation Services, Inc. is among the worlds largest independent providers of aviation
maintenance, repair and overhaul (MRO) services for major commercial airlines, regional air
carriers, aircraft leasing companies, government and military units and air cargo carriers. We
provide MRO services through our subsidiaries: (i) Triad International Maintenance Corporation
(known in the industry as TIMCO), which, with its three active locations, is one of the largest
independent providers of aircraft heavy maintenance services in the world and also provides line
maintenance services; (ii) Brice Manufacturing, which specializes in the manufacturing and sale of
new aircraft seats and aftermarket parts and in the refurbishment of aircraft interior components;
(iii) TIMCO Engineered Systems, which provides engineering services both to our MRO operations and
our customers; and (iv) TIMCO Engine Center, which refurbishes JT8D engines and performs on-wing
repairs for both JT8D and CFM-56 series engines. Visit TIMCO online at www.timco.aero.
Effective July 1, 2006, we entered into an asset sale agreement in which we agreed to sell
substantially all of the fixed assets located at our Goodyear, Arizona MRO facility to an unrelated
party. The net sales price for these assets was $1,400 plus the transition
period loss (defined below), of which $1,138 plus the transition
period loss was paid in cash
and the residual was fulfilled through the termination of our outstanding obligations to the
purchaser. As of the closing date, approximately $650 was held in
escrow pending our completion of certain repairs to the Goodyear
facility that are our obligation. The transition period loss will be equal
to the difference between our business revenues and certain expenses during the period from July 1,
2006 and the closing date of this transaction (which was August 4, 2006). In addition, we have
entered into certain other agreements with the purchaser for the consignment of certain inventories
and to provide certain transition services. Also, effective as of the closing date, the purchaser
has entered into a sublease arrangement with LJH with respect to the Goodyear facility and we have
terminated our current month-to-month sublease arrangement with LJH. We intend to relocate certain
fixed assets and inventories to our other MRO facilities and to integrate certain customer aircraft
heavy maintenance services into our three other MRO facilities. See Note 17 of Notes to Condensed
Consolidated Financial Statements for further details.
Our strategy is to be the vendor of choice to our customers, providing aircraft maintenance
solutions to meet our customers MRO requirements. The services that we offer allow our customers
to reduce their costs by outsourcing some of their MRO functions.
24
At present, approximately 80% of our business is airframe heavy maintenance, and we are one of the
largest independent providers of these services in the world. While most of our current MRO
business comes from commercial airlines and air freight carriers, we have begun to receive military
MRO business, and we hope to expand our military MRO business in the future. We are rapidly
expanding our TIMCO Engineered Systems operations. We have also been seeking to expand our line
maintenance operations. We hope to significantly expand that business, believing it to be a
service that airlines will seriously consider outsourcing in the future. Further, we continue to
operate our Brice seat manufacturing operation and our JT8D engine operation. There can be no
assurance we can successfully expand our business.
Our principal executive offices are at 623 Radar Road, Greensboro, North Carolina 27410, and our
telephone number is (336) 668-4410.
RESULTS OF OPERATIONS
GENERAL
Operating revenues consist primarily of service revenues and sales of materials consumed while
providing services, net of allowances for any reworks, discounts, or returns. Cost of sales
consists primarily of labor, materials, overhead, and freight charges.
These forward looking statements are based on our current expectations and are subject to a number
of risks, uncertainties and assumptions relating to our operations and results of operations,
including, among others:
|
|
|
the financial health of the U.S. passenger and freight airline industry, and the impact
of the financial health of that industry on the maintenance, repair, and overhaul (MRO)
industry generally and our business specifically, |
|
|
|
|
the amount of MRO business being outsourced by the airline industry in general and our
airline customers in particular, |
|
|
|
|
factors that affect the financial health and well-being of our airline customers, such
as the September 11, 2001 terrorist attacks, the global war on terrorism, and fluctuations
in the price of jet fuel, |
|
|
|
|
the effect of competition on our business, including the effects of competition on the
pricing of the services and goods that we provide, |
|
|
|
|
our ability to achieve gross profit margins at which we can be profitable, including
margins on services that we perform on a fixed price basis and our ability to accurately
project our costs in a dynamic environment, |
|
|
|
|
our ability to generate sufficient working capital from our operations and from our
available credit facilities to meet our operating requirements, capital expenditure
requirements and service our indebtedness, |
|
|
|
|
our maintaining good relations with our customers and vendors, |
|
|
|
|
our ability to fully utilize our hangar space dedicated to maintenance and repair services, |
|
|
|
|
our ability to manage our business efficiently and achieve both positive income and cash flow from our operations, |
|
|
|
|
our ability to attract and retain the services of our executive officers and key employees, |
|
|
|
|
our ability to attract and retain a sufficient number of mechanics to perform the
maintenance, overhaul and repair services requested by our customers, |
|
|
|
|
our ability to integrate future acquisitions, and |
|
|
|
|
future changes in government regulations. |
A portion of our operating expenses are relatively fixed. Since we typically do not obtain
long-term commitments from our customers, we must anticipate the future volume of orders based upon
the historic patterns of our customers and upon discussions with our customers as to their future
requirements. Cancellations, reductions or delays in orders by a customer or group of customers
have in the past and could in the future have a material adverse effect on our business, financial
condition and results of operations.
OPERATING SEGMENTS
Our operations are classified into two reportable segments: aircraft and engine maintenance, repair
and overhaul (MRO) and aircraft interiors, including engineering services (interiors). Our MRO
segment performs maintenance, repair and modification services on aircraft and aircraft engines at
five separate operating facilities. These operating facilities provide the capabilities to service
both wide body and narrow body aircraft with servicing capabilities for older generation aircraft
and newly developed capabilities to support the needs of todays newer generation aircrafts.
Additionally, we provide complete repair and overhaul capabilities for the JT8D and JT8D-200 series
engine, on-wing services to complement these engine types, and are expanding our service
capabilities to include CFM-56 engines. Through these facilities, we provide MRO services for
25
major commercial airlines, regional air carriers, aircraft leasing companies, government and
military units and air cargo carriers.
Our aircraft interiors segment performs the refurbishment of aircraft interior components and the
manufacturing and sale of aftermarket parts and new aircraft seats, and provides aircraft
engineering, modification design, certification, and installation of interior reconfigurations
within two separate operating facilities. These operating facilities provide the capabilities for
passenger-to-freighter conversions, aircraft modifications for in-flight entertainment, avionics
upgrades and major structural modification programs. Additionally, our interiors segment provides
the manufacturing for new aircraft seats, ranging from basic coach to business class and first
class seat capabilities. These services are provided to both foreign and domestic commercial
airlines and to aerospace original equipment manufacturers.
THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005
Consolidated operating revenue for the six month period ended June 30, 2006 increased $1,965, or
1.1% to $173,761, from $171,796 for the same period in 2005. Operating revenue for our MRO
operations decreased to $136,894 for the six month period ended June 30, 2006, compared to $153,032
for the same period in 2005 (a $16,138, or 10.5%, decrease period-over-period). Operating revenue
for our interior operations increased to $36,867 for the six month period ended June 30, 2006,
compared to $18,764 for the same period in 2005 (an $18,103, or 96.5%, increase
period-over-period).
Consolidated operating revenue for the three month period ended June 30, 2006 increased $7,555, or
9.3% to $88,669, from $81,114 for the same period in 2005. Operating revenue for our MRO
operations decreased to $65,324 for the quarter ended June 30, 2006, compared to $73,397 for the
same period in 2005 (an $8,073, or 11.0%, decrease quarter-over-quarter). Operating revenue for
our interior operations increased to $23,345 for the quarter ended June 30, 2006, compared to
$7,717 for the same period in 2005 (a $15,628, or 202.5%, increase quarter-over-quarter).
During the three and six month periods ended June 30, 2006, our revenue from our MRO operations
declined as compared to the same periods of 2005 as a result of aircraft mix, which included a
larger number of smaller aircraft for which we receive a lower hourly rate, a change in the mix of
maintenance services requested by our customers during 2006 as compared to 2005 (from more heavy
maintenance service checks to less intensive and lower hour maintenance checks), and from the
wind-down of maintenance services being offered at our Goodyear, Arizona facility. Our revenues
from our Goodyear facility were $12,406 and $17,052, respectively, for the first half of 2006 and
2005, and $3,558 and $7,634, respectively, for the three months ended June 30, 2006 and 2005.
Also, our MRO operations have tried to better evaluate the pricing points in which we will bid and
accept heavy maintenance service work, with the goal of improving gross margin results. This more
stringent evaluation has resulted in our not accepting certain customer aircraft and/or programs
where we would be unable to achieve levels of gross profit sufficient to take on
such business. A part of this revenue decline within the MRO operations was partially offset by
the induction, in late December 2005, of our first aircraft under a significant U.S. military MRO
program. This program is anticipated to benefit the full year of fiscal 2006.
Within our interior operations, our six month and second quarter 2006 revenues have exceeded those
of the same period of 2005 as we have commenced shipments for several large customer structural
modification programs. These customer programs, which are a part of our engineering services
business, have resulted in increased revenues for the six month period ended June 30, 2006 over the
same period of 2005 of $21,150, or 312%, and for the three month period ended June 30, 2006 over
the same period of 2005 of $17,201, or 1000%. This revenue increase for the three and six month
periods ended June 30, 2006 has been partially offset by lower sales volume within our seat
manufacturing and overhaul operations. In that regard, in June 2005 we closed our Aircraft
Interior Design operations in Dallas, TX and integrated that business within our other MRO
operations.
Our consolidated revenues and gross profit for the first half and second quarter of 2006 continued
to be unfavorably impacted by general economic conditions affecting the airline industry, which has
continued to put pricing pressures on our business, and by continued overcapacity in the MRO
markets in which we operate. Also, delays and changes in customer maintenance schedules have
impacted us in the past and are likely to impact us in the future. In addition, as discussed below,
we have recorded certain charges during 2006 related to the shut-down of our Goodyear, Arizona MRO
facility. Finally, changes in customers and the addition of new customers and new fleet types
within several of our airframe maintenance facilities have resulted in ramp up and learning curve
issues that have driven inefficiencies and caused a significant deterioration of gross profit
margins.
26
In September 2005, America West Airlines, a primary customer of our Macon, Georgia MRO facility and
a substantial customer of our Lake City, Florida and Goodyear, Arizona MRO facilities, merged with
US Airways. In the near term we do not believe that this merger will adversely affect our business
with America West. However, in the long term we are unable to predict the impact of this merger on
our business. Additionally, on September 14, 2005, one of our largest customers, Delta Airlines,
Inc., filed a petition for reorganization under Chapter 11 of the United States Bankruptcy Code.
Based on currently available information, we do not expect the bankruptcy filing of Delta Airlines,
Inc. to have a material adverse effect on our results of operations or financial position.
Consolidated gross profit decreased to $10,959 for the first half of 2006, compared with a gross
profit of $16,956 for the first half of 2005. Consolidated gross profit as a percentage of revenue
decreased to 6.3% for first half of 2006 compared with 9.9% for first half of 2005. Consolidated
gross profit decreased to $6,779 for the second quarter of 2006 compared with a gross profit of
$7,527 for the second quarter of 2005. Consolidated gross profit as a percentage of revenue
decreased to 7.6% for second quarter of 2006 compared with 9.3% for second quarter of 2005. Gross
margins during any particular period are dependent upon the number and type of aircraft serviced,
the contract terms under which services are performed, the efficiencies that can be obtained in the
performance of such services and the timing of shipments related to modification programs that are
a part of our engineering services business. Significant changes in any one of these factors could
have a material impact on the amount and percentage of gross profits in any particular period and
from period to period. Additionally, gross profit could be impacted in the future by our
evaluation of the value of our inventory. During the first six months of 2006, we continued to
evaluate market and industry exposures in connection with the establishment of appropriate reserves
for inventory obsolescence. While we believe that we have appropriately valued our inventory at
the lower of cost or market, additional allowances may be required in the future, depending on the
market for aircraft parts during any particular period and the applicability of the parts in our
inventory compared to the types of aircraft for which we are performing maintenance procedures.
Gross profit for our MRO operations declined to $5,015 for the six months ended June 30, 2006,
compared to $14,057 for the six months ended June 30, 2005. MRO gross profit as a percentage of
revenue decreased to 3.7% for the first half of 2006 compared with 9.2% for the first half of 2005.
Gross profit for our MRO operations declined to $2,934 for the three months ended June 30, 2006,
compared to $6,218 for the three months ended June 30, 2005. MRO gross profit as a percentage of
revenue decreased to 4.5% for the second quarter of 2006 compared with 8.5% for the second quarter
of 2005. The quarter-over-quarter and period-over-period decline has resulted from lower levels of
nose-to-tail lines, where greater efficiencies can be achieved, the timing and type of engine sales
performed during the first half of 2006 compared to the first half of 2005 within our engine
center, a transition in the aircraft fleet type and/or customers that we are servicing, and overall
lower revenue. The transition in aircraft fleet types and/or customers has resulted in additional
training requirements, learning curve and ramp up issues and operational inefficiencies, thereby
adversely impacting gross profit.
Additionally, during the second quarter of 2006, we made the decision to wind-down our heavy
airframe maintenance operations located in Goodyear, Arizona, and subsequent to June 30, 2006, we
have entered into an asset sales agreement to sell substantially all of the fixed assets located at
this facility to an unrelated third party (see Note 17 of Notes to Condensed Consolidated Financial
Statements for further details of this agreement). As a result of this decision, we have recorded
asset impairment charges related to fixed assets that are either not being acquired or that are not
being relocated to other TIMCO facilities of $277 and we have recorded severance charges of $199
related to certain employees. These aggregate charges of $476 have been recorded within cost of
sales ($458) and operating expenses ($18) within the accompanying condensed consolidated financial
statements for the three and six month periods ended June 30, 2006.
Gross profit for our interiors operations increased to $5,944 for the six months ended June 30,
2006, compared to $2,899 for the same period of 2005. Gross profit as a percentage of revenue
increased to 16.1% for the first half of 2006 compared to 15.4% for the first half of 2005. Gross
profit increased to $3,845 for the three months ended June 30, 2006, compared to $1,309 for the
same period of 2005. Gross profit as a percentage of revenue remained relatively flat at 16.5% for
the second quarter of 2006 compared to 17.0% for the second quarter of 2005. The improvement
within our interiors operation resulted from a 96.5% period-over-period increase in revenue noted
above and a change in mix of active programs for our engineering services business.
Consolidated operating expenses for the six months ended June 30, 2006 were $13,631, compared to
$12,337 for the six months ended June 30, 2005. As a percentage of revenues, consolidated
operating expenses were 7.8% and 7.2% for the first half of 2006 and 2005, respectively.
Consolidated operating expenses for the three months ended June 30, 2006 were $8,056, compared to
$5,914 for the three months ended June 30, 2005. As a percentage of revenues, consolidated
operating expenses were 9.1% and 7.3% for the second quarter of 2006 and 2005, respectively.
Consolidated operating expenses during the three and six month periods ended June 30, 2006 were
unfavorably impacted by an aggregate severance charge of $1,770 related to
27
the retirement of our former Chief Executive Officer, the employment separation of certain members
of management during 2006, and the employment separation of certain employees located in our
Goodyear, Arizona facility due to our decision to wind-down operations at this location.
Consolidated operating expense during the first half of 2006, however, were partially offset by the
collection of $616 of accounts receivable that were either previously fully reserved or written
off, including the receipt of common stock in a settlement relating to an unsecured claim which we
held in a customers bankruptcy proceeding (see Note 10 of Notes to Condensed Consolidated
Financial Statements) and by the partial reversal of severance accruals ($325) that were
established as of December 31, 2005 and reduced during 2006 due to the terms of the settlement that
was reached with our former President and Chief Operating Officer (see Note 10 of Notes to
Condensed Consolidated Financial Statements) and the finalization of separation agreement with
other members of senior management terminated in 2005.
As a result of these factors, our loss from operations was $2,672 for the first half of 2006,
compared to income from operations of $4,619 for the first half of 2005, and our loss from
operations was $1,277 for the second quarter of 2006, compared to income from operations of $1,613
for the second quarter of 2005.
Interest expense (excluding amortization of deferred financing fees) for the six month period ended
June 30, 2006 decreased by $718 to $2,898, from $3,616 for the six month period ended June 30,
2005. Interest expense (excluding amortization of deferred financing fees) for the three month
period ended June 30, 2006 decreased by $257 to $1,529, from $1,784 for the same period of 2005.
The decrease during 2006 compared to 2005 is primarily attributable to the elimination of interest
expense on our Original LJH Term Loan (which was used by LJH to participate in the rights offering
in November 2005; see Note 13 of Notes to Condensed Consolidated Financial Statements) and by the
assignment of the Monroe Capital Loans to LJH during April 2006 (see Note 8 of Notes to Condensed
Consolidated Financial Statements), which are being extended to us at more favorable interest rates
as compared to the Monroe Capital Loans. The reduction in interest expense through the elimination
of the LJH Original Term Loan and the assignment of the Monroe Capital Loans was partially offset
by higher borrowing levels, in particular the net increase in our overall term loan obligations
(see Notes 7 and 8 of Notes to Condensed Consolidated Financial Statements for particulars of the
LJH Term Loans and the pay-off of our previously outstanding CIT Term Loan).
Amortization of deferred financing costs for the first half of 2006 was $839, compared to $663 for
the first half of 2005. Amortization of deferred financing costs for the second quarter of 2006
was $559, compared to $364 for the second quarter of 2005. The increase in amortization of
deferred financing costs for the three and six month periods ended June 30, 2006 over prior year
same periods relates to the write-off, as a result of our refinancing activities in April 2006 (see
Notes 7 and 8 of Notes to Condensed Consolidated Financial Statements for particulars of these
refinancing activities) of $289 of deferred financing costs related to the CIT Term Loan and to a
portion of the CIT Group Revolving Line of Credit.
In August 2004, we entered into a settlement agreement with the entity from which we acquired our
Oscoda, Michigan engine and airframe maintenance facilities in 1999. Pursuant to that entitys
plan of reorganization under Chapter 11 of the United States Bankruptcy Code, we were to receive a
pro rata portion of 7,000 shares of common stock in the reorganized company based on our unsecured
claim as compared to the total of all unsecured claims. In April 2005, we received 1,364 shares of
new common stock in the reorganized company in settlement of our claim against that entitys
bankruptcy estate. Based on the stock price of the reorganized company on April 21, 2005, which
was $1.30 per share, we recorded a gain of $1,773 for the three and six month periods ended June
30, 2005.
During the first half of 2005, we completed an offering and consent solicitation (the January 2005
tender offer) relating to our New Senior Notes and our Junior Notes. As a result of this tender
offer, we recognized an inducement charge of $160 relating to the value of the premium shares
issued as a part of the offering. Additionally, we incurred transaction fees related to the
offering of $240. See Note 12 of Notes to Condensed Consolidated Financial Statements for
specifics regarding this tender offer.
Other income net was $233 and $350 for the first half of 2006 and 2005, respectively. Other
income net was $31 and $11 for the second quarter of 2006 and 2005, respectively. Other income
net for the first half of 2006 included investment income of $130 related to short-term investment
activities performed during 2006. Other income net for the first half of 2005 included a $250
gain from the receipt of life insurance proceeds on a former key employee.
As a result of the above factors, our loss from continuing operations before income taxes and
discontinued operations for the six month period ended June 30, 2006 was $6,176 compared to our
income from continuing operations before income taxes and discontinued operations of $2,063 for the
six month period ended June 30, 2005. Our loss from continuing operations before income taxes and
discontinued operations for the three month period ended June 30, 2006 was $3,343 compared to our
income from continuing operations before income taxes and discontinued operations of $1,249 for the
three month period
28
ended June 30, 2005.
During the first half of 2006 and 2005, we recognized an income tax benefit of $31 and $368,
respectively. These income tax benefits are primarily the result of income tax refunds for the
overpayment of state taxes for our Oscoda, Michigan operations.
For the reasons set forth above, our loss from continuing operations for the six month period ended
June 30, 2006 was $6,145, or $0.29 per basic share and diluted share, compared to income from
continuing operations for the six month period ended June 30, 2005 of $2,431, or $0.61 per basic
share and $0.27 per diluted share. Our loss from continuing operations for the three month period
ended June 30, 2006 was $3,343 or $0.15 per basic share and diluted share, compared to income from
continuing operations for the three month period ended June 30, 2005 of $1,280 or $0.20 per basic
share and $0.11 per diluted share.
Income from discontinued operations for the first half of 2006 was $114, or $0.01 per basic share
and diluted share, compared to income of $99, or $0.03 per basic share and $0.01 per diluted share,
for the first half of 2005. Income from discontinued operations for the second quarter of 2006 was
$92, or $0.00 per basic share and diluted share, compared to income of $44, or $0.01 per basic
share and $0.00 per diluted share, for the second quarter of 2005. Results for both the first half
of 2006 and 2005 include collections on receivables and the sale of residual inventory that remain
after the sale of our redistribution operation and new parts bearings operation, all of which is
fully reserved. Since our collections on assets from discontinued operations are winding down, we
do not expect that our income from discontinued operations will be significant in future periods.
For the reasons set fourth above, our net loss for the first six months of 2006 was $6,031 ($0.28
per basic share and diluted share), compared to net income of $2,530 for the first six months of
2005 ($0.64 per basic share and $0.28 per diluted share). Our net loss for the second quarter of
2006 was $3,242 ($0.15 per basic share and diluted share), compared to net income of $1,324 for the
second quarter of 2005 ($0.21 per basic share and $0.11 per diluted share).
29
LIQUIDITY AND CAPITAL RESOURCES
DEVELOPMENTS CONCERNING THE AVIATION INDUSTRY AND OUR OPERATIONS
The condition of the airline industry has a substantial effect on our business, since our customers
consist of passenger airlines and freight carriers, aircraft leasing companies, maintenance and
repair facilities that service airlines, and original equipment manufacturers. Generally, when
economic factors adversely affect the airline industry, they tend to reduce the overall demand for
maintenance and repair services, causing downward pressure on pricing and increasing the credit
risks associated with doing business with airlines. Additionally, the price of jet fuel affects the
maintenance and repair markets, since older aircraft, which consume more fuel and which currently
account for a significant portion of our maintenance and repair services business, become less
viable as the price of fuel increases.
The September 11, 2001 terrorist attacks against the United States of America and the resulting
increase in airline insurance costs, additional government mandated passenger taxes and fees, and
increased airport security costs, have had a severe impact on the aviation industry. These
factors, in conjunction with an overall slowdown in the U.S. economy, a reduction in passenger
levels from fiscal 2001 through fiscal 2003, and the overall instability in the Middle East
(including the war on terrorism and the war in Iraq) have resulted in operating losses for U.S.
airline carriers in excess of $10.3 billion for 2001, $8.6 billion for 2002, $3.6 billion for 2003,
$5.0 billion for 2004, and $4.8 billion for 2005. In addition to these adverse factors, fiscal
2003 was further impacted by the outbreak of the SARS virus in Asia and fiscal years 2004 and 2005
were impacted by significantly increased fuel costs due to the high price of oil. As a result of
these factors, many commercial passenger airlines and air cargo carriers reported significant
reductions in their capacity. This reduction in capacity has lessened the aircraft maintenance
required by such airlines (and thereby the amount of maintenance being outsourced to companies like
TIMCO). These factors have also caused several carriers to file for bankruptcy protection under
Chapter 11 of the United States Bankruptcy Code. The two most notable for us has been the filing
for protection from creditors under Chapter 11 by United Air Lines on December 9, 2002 (United has
been our largest customer during the last three fiscal years) and by Delta Airlines on September
14, 2005 (our fourth largest customer during fiscal 2005 and traditionally one of our top 10
largest customers year-over-year). As of the date of this report, United Air Lines has emerged
from protection under the Bankruptcy Code, while Delta Airlines has not. In addition to those that
have already filed, other carriers have publicly discussed the potential of seeking protection from
creditors through a voluntary bankruptcy filing. As related to us, current exposures to carriers
that are at risk of filing for protection are being continuously evaluated and monitored, though we
have in the past, and may in the future, experience losses relating to these credit exposures.
Additionally, the Company is positioning itself for potential favorable implications of these
Chapter 11 filings and resurgence of the airlines as it is anticipated that additional maintenance
outsourcing opportunities could result as these airlines look for cost reduction solutions.
We believe that all of the above factors could continue to have a negative impact on our business
in the foreseeable future. These events, which have adversely affected our business, have also
impacted our competition, with several of our competitors exiting the MRO business.
30
CONTRACTUAL PAYMENT OBLIGATION AND OTHER COMMERCIAL COMMITMENTS
Below is a table setting forth our contractual payment obligations and other commercial commitments
as of June 30, 2006, which have been aggregated in order to facilitate a basic understanding of our
liquidity (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual |
|
|
|
|
|
Less than |
|
|
Payments due by period |
|
Obligations |
|
Total |
|
|
One Year |
|
|
1-3 years |
|
|
4-5 years |
|
|
After 5 years |
|
Revolving Credit
Facility |
|
$ |
5,476 |
|
|
$ |
5,476 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Long-Term Debt |
|
|
43,156 |
|
|
|
1,907 |
(a) |
|
|
41,249 |
|
|
|
|
|
|
|
|
|
Capital Leases |
|
|
3,428 |
|
|
|
320 |
|
|
|
365 |
|
|
|
431 |
|
|
|
2,312 |
|
Operating (b) Leases |
|
|
19,112 |
|
|
|
4,327 |
|
|
|
6,466 |
|
|
|
2,924 |
|
|
|
5,395 |
|
Estimated
Interest
Obligation (c) |
|
|
4,875 |
|
|
|
3,520 |
|
|
|
1,355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
contractual
cash
obligations |
|
$ |
76,047 |
|
|
$ |
15,550 |
|
|
$ |
49,435 |
|
|
$ |
3,355 |
|
|
$ |
7,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
Less than |
|
|
Payments due by period |
|
Commitments |
|
Total |
|
|
One Year |
|
|
1-3 years |
|
|
4-5 years |
|
|
After 5 years |
|
Letters of
Credit (b) |
|
|
8,804 |
|
|
|
8,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other
Commercial
Commitments |
|
$ |
8,804 |
|
|
$ |
8,804 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
This amount reflects $1,221 of our New Senior Notes due 2006 and $686 of our
Junior Notes due January 2007. If not redeemed or repurchased by us prior to the
maturity dates of these obligations, these notes automatically convert to 71 shares and
39 shares, respectively, of our authorized but unissued common stock. See Note 9 of
Notes to Condensed Consolidated Financial Statements for discussion regarding our New
Senior Notes and Junior Notes. |
|
(b) |
|
Outstanding letters of credit primarily relate to security for our obligations
to make payments on an operating lease requiring future aggregate principal payments of
approximately $7,800. This amount is removed from the operating lease and total
contractual cash obligations line because it is included within the letters of credit. |
|
(c) |
|
The estimated interest obligations were calculated using the actual balance of the revolving
credit facility at June 30, 2006 and the expected outstanding balances on the short-term and
long-term debt obligations, in accordance with payment obligations as detailed in the schedule
above. For each debt obligation, we used the individual interest rate that was applicable as of
June 30, 2006, which ranged from 6.88% to 8.25%. |
We are also committed under employment agreements with all of our executive officers and several of
our key employees.
31
LIQUIDITY
For the year ended December 31, 2005 and the six month period ended June 30, 2006, we incurred a
loss from continuing operations of $22,350 and $6,145, respectively. Also, for the year ended
December 31, 2005, we continued to require additional cash flow above amounts currently being
provided from operations to meet our working capital requirements. Further, while cash flow from
operations was $3,220 for the first six months of 2006, it included $13,946 from the sale of
marketable securities (relating to the proceeds of the Companys November 2005 rights offering).
Additionally, at certain times during 2005 and the first quarter of 2006, we were not in compliance
with certain financial covenants contained in our CIT Group Credit Facility and Monroe Capital
Loans. The senior lenders, however, waived, and in some instances, amended all such events of
non-compliance and as of December 31, 2005 and June 30, 2006, we were in compliance with all
covenant requirements, as amended, for these financing arrangements. See below and Notes 7 and 8
of Notes to Condensed Consolidated Financial Statements for particulars.
Our ability to service our debt and note obligations, as they come due, including maintaining
compliance with the covenants and provisions under our debt instruments, is and will be dependent
upon our future financial and operating performance. This performance, in turn, is subject to
various factors, including certain factors beyond our control, such as changes in conditions
affecting the airline industry and changes in the overall economy. Additionally, our customer base
has been adversely impacted in the past by various factors, such as the state of the general
economy, fluctuations in the price of jet fuel, the war on terrorism, the war in Iraq, and
competitive price reductions in airfare prices. These and other factors may adversely affect our
customers in the future.
Cash flow from operations is used to service our debt and note obligations, thereby reducing funds
available for other purposes. Even if we are able to meet our debt service and other obligations
when due, we may not be able to comply with the covenants and other provisions under our debt
obligations. A failure to comply, unless waived by the lenders, would be an event of default and
would permit the lenders to accelerate the maturity of our debt obligations. It would also permit
them to terminate their commitments to extend credit under their financing agreements. If we were
unable to repay the debt to the lenders, or otherwise obtain a waiver, the lenders could proceed
against the collateral securing the financing obligations, and exercise all other rights available
to them. While we expect to be in a position to continue to meet our obligations in future periods,
there can be no assurance we will be able to do so.
In April 2006, we closed on a series of transactions related to our senior debt. First, on April
10, 2006, LJH acquired the $18,313 Monroe Capital Loans, with Owl Creek acquiring an approximate
20% participation in those loans. Additionally, effective April 20, 2006, LJH extended to us a new
$6,000 senior secured term loan (collectively with the Monroe Capital Loans, the LJH Term Loans)
and we modified the terms of all of the LJH Term Loans. The LJH Term Loans all mature on December
31, 2007, bear interest at LIBOR plus 1.75% per annum and are secured by a lien on substantially
all of our assets. In addition, an event of default under the Amended CIT Revolving Line of Credit
(described below) will also result in a default under the LJH Term Loans. As a part of these
refinancing activities, LJH waived all defaults and events of defaults with respect to the LJH Term
Loans.
In connection with the closing of the LJH Term Loans (described above), we paid in full the CIT
Term Loan and amended the CIT Group Revolving Line of Credit (the Amended CIT Group Revolving Line
of Credit). The Amended CIT Group Revolving Line of Credit is now a $30,000 senior secured
revolving line of credit, is due December 31, 2007, and bears interest, at our option, at (a)
Prime, or (b) LIBOR plus 2.50%. Also, the Amended CIT Group Revolving Line of Credit contains
certain financial covenants regarding our financial performance and certain other covenants,
including limitations on the incurrence of additional debt and restrictions on the payment of
dividends, and provides for the termination of the Amended CIT Group Revolving Line of Credit and
repayment of all debt in the event of a change in control, as defined. In addition, an event of
default under the LJH Term Loans (described above) will also result in a default under the Amended
CIT Group Revolving Line of Credit. Borrowings under the Amended CIT Group Revolving Line of
Credit are secured by a lien on substantially all of our assets. Borrowings under the Amended CIT
Group Revolving Line of Credit are based on a borrowing base formula that takes into account the
level of our receivables and inventory. Further, the amounts that we can borrow under the Amended
CIT Group Revolving Line of Credit are affected by various availability reserves and collateral
reserves that can be established by the lenders under the financing agreement. In that regard, as
a part of the closing of the Amended CIT Revolving Line of Credit, we provided a collateral deposit
of $5,000, which is included within the accompanying condensed consolidated balance sheet at June
30, 2006 as a non-current asset. Finally, the agreement relating to the Amended CIT Group
Revolving Line of Credit requires that at the time of each additional borrowing, we must make
various representations and warranties to our lenders regarding our business (including several
reaffirming that there have been no changes in the status of specific aspects of our business that
could reasonably be expected to have a material adverse effect upon the business operation, assets,
financial condition or collateral of us and our subsidiaries taken as a whole), and be in
compliance with
32
various affirmative and negative covenants, all as more particularly set forth in the agreement.
As a part of the Amended CIT Group Revolving Line of Credit, our senior lender waived and amended
certain financial covenant defaults and as of December 31, 2005 and June 30, 2006, we were in
compliance with all covenant requirements, as amended, for this financing arrangement.
At August 9, 2006, the outstanding aggregate borrowed on the Amended CIT Group Revolving Line of
Credit was $1,607, outstanding letters of credit under the Amended CIT Group Revolving Line of
Credit was $8,804 and $11,999 was available for additional borrowing under the Amended CIT Group
Revolving Line of Credit.
Additionally, the degree to which we are leveraged could have important consequences to us,
including:
|
- |
|
our vulnerability to adverse general economic and industry conditions; |
|
|
- |
|
our ability to obtain additional financing for future working capital expenditures, general
corporate or other purposes, particularly where our current lenders have a lien on all of our assets; |
|
|
- |
|
the requirement that we obtain the consent from our lenders if we wish to borrow additional
amounts; and |
|
|
- |
|
the dedication of a significant portion of our cash flow from operations to the payment of
principal and interest on
indebtedness, thereby reducing the funds available for operations. |
In addition, we and our subsidiaries may incur substantial amounts of additional indebtedness.
Finally, our senior credit facilities are secured by a lien on substantially all of our assets.
We believe that we will meet our working capital requirements during 2006 from funds available
under our revolving credit agreement and from our operations. We may also sell assets or our
equity securities, or borrow additional funds, to the extent required and available. While we
expect that required financing will be available to meet our working capital requirements, there
can be no assurance of this expectation.
SOURCE AND USE OF CASH
Net cash provided by our continuing operating activities during the six month period ended June 30,
2006 was $2,758, compared to net cash provided by continuing operating activities during the same
period of 2005 of $4,177. Decreases in accounts receivable and inventory of $33 and $205,
respectively, increases in other liabilities of $3,477, the receipt of a $6,000 term loan from LJH,
and the proceeds from the net sale of marketable securities of $13,946 were used to fund our
operations, to fund increases in other assets of $4,889, to fund decreases in accounts payable and
customer deposits of $3,228 and $4,761, respectively, and to reduce our borrowings under our senior
credit facilities by $2,844, to purchase fixed assets of $1,580, to repay $4,946 of our CIT Term
Loan, to pay capital lease obligations by $545 and to pay transaction fees related to our debt
refinancing of $259.
SENIOR CREDIT FACILITIES
See discussion of our senior credit facilities in Note 7 to Notes to Condensed Consolidated
Financial Statements.
SUBORDINATED NOTES
See discussion of our subordinated notes in Note 9 to Notes to Condensed Consolidated Financial
Statements.
RIGHTS OFFERING
See discussion of our rights offering in Note 13 to Notes to Condensed Consolidated Financial
Statements.
33
CONTINGENCIES
We are involved in various litigation and environmental matters arising in the ordinary course of
business. These are discussed in Note 10 of Notes to Condensed Consolidated Financial Statements.
We maintain insurance coverage against certain potential claims in amounts that we believe to be
adequate. Although the final outcome of these legal and environmental matters cannot be
determined, based on the facts presently known, it is managements opinion that the final
resolution of these matters will not have a material adverse effect on our financial position or
future results of operations.
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
Financial Reporting Release No. 60 requires all companies to include a discussion of critical
accounting policies or methods used in the preparation of its financial statements. Our
consolidated financial statements include a summary of the significant accounting policies and
methods used in the preparation of our consolidated financial statements.
See our Form 10-K for a discussion of our critical accounting policies and use of estimates.
During the six month period ended June 30, 2006, except for the item noted below, there have been
no material changes to our critical accounting policies and use of estimates. As of January 1,
2006, we have become self-insured for health and prescription claims under a group health insurance
plan. For this plan, we maintain an insurance reserve for both unpaid claims and an estimate of
claims incurred but not reported, based on historical claims information. While we believe our
reserve for claims to be adequate, there can be no assurance of this.
34
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to market risk for changes in interest rates. We have no exposure to foreign
currency exchange rates or to commodity price risk. We do not hold or issue any financial
instruments for trading or other speculative purposes.
Our obligations under our Amended CIT Group Revolving Line of Credit and our LJH Term Loans bear
interest at floating rates and therefore, we are impacted by changes in prevailing interest rates.
However, our New Senior Notes, Old Senior Notes, and Junior Notes all bear fixed interest rates and
therefore we are not subject to the risk of interest rate fluctuations. A 10% change in market
interest rates that affect our financial instruments would impact earnings during 2006 by
approximately $217 before taxes and would change the fair value of our financial instruments by
approximately $6,316.
ITEM 4: CONTROLS AND PROCEDURES
(a) |
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Our Chief Financial Officer and Chief Executive Officer evaluated our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities
Exchange Act of 1934, as amended (the Exchange Act)). Based on that evaluation, these officers
have concluded that as of June 30, 2006 our disclosure controls and procedures were effective in
timely alerting them to material information relating to our Company (including our consolidated
subsidiaries) required to be included in our reports filed or submitted by us under the Exchange
Act. |
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As of June 30, 2006, we have carried out an evaluation, under the supervision and with the
participation of our management, including our principal executive officer and principal financial
officer, of the effectiveness of the design and operation of our disclosure controls and
procedures. Based on such evaluation, our principal executive officer and principal financial
officer concluded that our Companys disclosure controls and procedures are effective. |
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(b) |
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There have been no changes in our internal controls or in other factors that could have a
material affect, or are reasonably likely to have a material affect to the internal controls
subsequent to the date of their evaluation in connection with the preparation of this quarterly
report on Form 10-Q. |
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Effective April 27, 2006, Fritz Baumgartner is no longer serving as our Vice President, Corporate
Controller and Chief Accounting Officer. Just subsequent to this date, we appointed Jason Yaudes
as our Corporate Controller and Chief Accounting Officer. The full transition and performance of
our internal controls as related to our Chief Accounting Officer has been completed with no impact
to the effectiveness of the design and operation of our disclosure controls and procedures. |
35
PART II. OTHER INFORMATION
(Amounts and Shares in Thousands, Except Per Share Data)
ITEM 1. LEGAL PROCEEDINGS
See Note 10 to the Companys Unaudited Condensed Consolidated Financial Statements included in this
filing.
ITEM 1A. RISK FACTORS
None
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
ITEM 5. OTHER INFORMATION
Changes in Executive Officers of the Company
Effective May 31, 2006, Roy T. Rimmer, Jr. retired as the Companys Chairman and Chief Marketing
Officer.
Effective June 1, 2006, John R. Cawthron, the Companys Chief Executive Officer, became the
Chairman of the Board. From April 24, 2006 until June 1, 2006, Mr. Cawthron served as Vice
Chairman of the Board and Chief Executive Officer.
Effective June 1, 2006, Gene House was appointed to serve as Executive Vice President and Chief
Marketing Officer of the Company. Mr. House joins the Company after 40 years with United Airlines,
where he served in various capacities including engineering, finance, purchasing, planning and
sales leadership positions. Most recently, from 1998 to 2005, Mr. House was Managing Director
Sales and Marketing for United Airlines MRO businesses.
Employment Agreements with John R. Cawthron and Gene House
On June 8, 2006, effective April 22, 2006, the Company entered into a two-year employment agreement
with its Chairman and Chief Executive Officer, John R. Cawthron. Pursuant to the employment
agreement, Mr. Cawthron will be paid a base salary of $400 per annum. Mr. Cawthron will also have
the opportunity to earn an annual bonus equal to 100% of his base salary if the Company achieves
goals and objectives set by the Compensation Committee of the Board of Directors. Further, the
employment agreement contains a change of control severance arrangement if the employee is not
retained by the Company after a change of control, as defined in the employment agreement.
On June 8, 2006, effective June 1, 2006, the Company entered into a two-year employment agreement
with Gene House, the Companys Executive Vice President and Chief Marketing Officer. Pursuant to
the employment agreement, Mr. House will be paid a base salary of $260 per annum. Mr. House will
also have the opportunity to earn an annual bonus equal to 100% of his base salary if the Company
achieves goals and objectives set by the Compensation Committee of the Board of Directors. The
employment agreement also contains a change of control severance arrangement if the employee is
not retained by the Company after a change of control, as defined in the employment agreement.
The foregoing description of the employment agreements between the Company and John R. Cawthron and
the Company and Gene House are not complete and are qualified in their entirety by reference to
such agreements, copies of which are attached hereto as Exhibits 10.1 and 10.2, respectively, and
are incorporated herein by reference.
36
Retirement of Roy T. Rimmer, Jr.
Effective May 31, 2006, Roy T. Rimmer, Jr. retired as Chairman and Chief Marketing Officer of the
Company. Mr. Rimmer had previously served as Chief Executive Officer of the Company from June 2001
until April 24, 2006, when he became Chief Marketing Officer of the Company. In connection with his
retirement, the Company entered into a retirement agreement with Mr. Rimmer pursuant to which Mr.
Rimmer resigned as an officer and director of the Company and his employment agreement with the
Company was terminated. Further, as part of the retirement agreement, the Company agreed to pay Mr.
Rimmer an aggregate retirement payment of $1,425, which is equal to three years of base salary
($475 per annum) under his previous employment agreement with the Company. As part of the
retirement agreement, Mr. Rimmer agreed to certain restrictive covenants and the Company and Mr.
Rimmer entered into mutual general releases.
Sale of Assets of the Goodyear, Arizona Facility
On August 4, 2006, the Company completed the sale of substantially all of the fixed assets of its Goodyear, Arizona to
Aeroturbine, Inc. (Aeroturbine) pursuant to the terms of
an Asset Purchase Agreement, (the APA), executed on
July 24, 2006 effective July 1, 2006, between Triad International Maintenance Corporation, as
seller, and Aeroturbine, as buyer.
Under the APA, the Company sold the furniture, fixtures, equipment and selected inventory of its
Goodyear, Arizona MRO facility to Aeroturbine for a purchase price of $1,400. Additionally,
Aeroturbine assumed certain of the losses relating to the operation of the Goodyear facility for
July 2006 and agreed to employ most of the Companys employees at the Goodyear facility. Further,
the Company and Aeroturbine entered into a consignment agreement with respect to certain inventory
at the Goodyear facility and a transition services agreement under which the Company will provide
certain transition services to Aeroturbine.
The purchase price was paid as follows:
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$1,138 was paid in cash at closing; and |
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$262 was paid by cancellation of Sellers outstanding indebtedness to Aeroturbine
relating to an engine purchased by the Company from Aeroturbine in March 2006. |
Of the
funds paid at closing, $655 is being held in escrow to fund certain repairs to the
Goodyear facility that are obligations of the Company.
Additionally, as part of the sale of the Goodyear facility, Aeroturbine entered into a sublease
with LJH, Ltd. (LJH) for the Goodyear facility. Simultaneously, the Companys month-to-month sublease for the Goodyear facility
was terminated.
The foregoing description of the APA is not complete and is qualified in its entirety by reference
to such agreement, a copy of which is attached hereto as Exhibit 10.3 and is incorporated herein by
reference.
Agreement and Plan of Merger between the Company and TAS Holding, Inc.
Effective
as of July 31, 2006, the Company has entered into an
Agreement and Plan of Merger (the Merger Agreement) with TAS Holding, Inc., a Delaware
Corporation (TAS) under which TAS will be merged (the Merger) with and into the Company and the
stockholders of the Company (other than LJH and Owl Creek, which are defined below) will receive
$4.00 per share in cash for their shares, without interest.
TAS is a Delaware corporation. The stockholders of TAS are LJH, Ltd. (LJH), which owns
approximately 71% of the Companys outstanding common stock, and affiliates of Owl Creek Asset
Management, LP (Owl Creek), which own approximately 18% of the Companys outstanding common
stock, and the President of TAS is John R. Cawthron, the Companys Chairman and Chief Executive
Officer.
The Merger was approved by the Companys Board of Directors based upon the recommendation of a
Special Committee of independent directors that negotiated the terms of the Merger with TAS on the
Companys behalf. The Special Committee was advised by the investment banking firm of Houlihan
Lokey Howard & Zukin, which provided an opinion to the Special Committee with respect to the
fairness (from a financial point of view) of the proposed $4.00 per share cash Merger consideration
to the public holders of the Companys common stock.
37
If the Merger is consummated, TAS will be merged with and into the Company and LJH and Owl Creek
will own 100% of the Companys outstanding common stock. Furthermore, the Company will become
eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act, the
composition of the Companys board of directors may be changed to include individuals designated by
LJH and Owl Creek and the Companys common stock will no longer be traded or quoted. The Merger is
subject to customary closing conditions and the receipt of required regulatory approvals. The
Company expects to complete the Merger by the end of the 2006 fiscal year, although there can be no
assurance that the Merger will be completed.
Simultaneous with entering into the Merger Agreement, the Company entered into two additional
agreements with respect to the Merger:
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A Conversion, Support and Release Agreement, dated as of July 31, 2006, in which, among
other matters: (i) the Company agreed (under certain conditions) to sell to LJH and Owl
Creek an additional 2,400 shares of the Companys authorized but unissued common stock at
an exercise price of $2.50 per share through the conversion of debt owed by the Company to
LJH (the Option), and (ii) TASs stockholders agreed to support the Merger at any meeting
of the Companys stockholders called to consider and vote upon the Merger; and |
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An Escrow Agreement, dated as of July 31, 2006, between the Company, TAS and American
Bank of Texas, under which TAS has deposited all of the funds required to pay public
stockholders the $4.00 per share cash Merger consideration. American Bank of Texas is
wholly-owned by Lacy Harber, the principal stockholder of LJH. |
The foregoing description of the Merger, the Merger Agreement, the Conversion, Support and Release
Agreement and the Escrow Agreement, are not complete and are qualified in their entirety by
reference to the Merger Agreement, the Conversion, Support and Release Agreement and the Escrow
Agreement, copies of which are Exhibits 10.4, 10.5 and 10.6, respectively, to this Quarterly Report
on Form 10-Q and are incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORMS 8-K
(a) Exhibits
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10.1
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Employment Agreement between the Company and John R. Cawthron |
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10.2
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Employment Agreement between the Company and Gene House |
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10.3
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Asset Sale Agreement between the Company and Aeroturbine related to the Goodyear
facility |
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10.4
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Agreement and Plan of Merger between the Company and TAS (1) |
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10.5
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Conversion, Support and Release Agreement between the Company, TAS, LJH and the
affiliates
of Owl Creek (1) |
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10.6
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Escrow Agreement between the Company, TAS and American Bank of Texas (1) |
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31.1
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Certification of CEO and CFO under Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1
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Certification of CEO and CFO under Section 906 the Sarbanes-Oxley Act of 2002 |
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(1) |
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Filed as exhibits to the Form 8-K filed by the Company under
Item 1.01 on August 3, 2006. |
(b) Reports on Form 8-K
During the quarter ended June 30, 2006, the Company filed (i) a Current Report on Form 8-K
reporting under Item 8.01 the assignment of the Monroe Capital Term Loans to LJH, Ltd., (ii) a
Current Report on Form 8-K reporting under Item 8.01 the Companys financial results for the
twelve month period ended December 31, 2005 and certain other matters, (iii) a Current Report
on Form 8-K reporting under Item 1.01 the Companys refinancing arrangements with its senior
lenders, (iv) a Current Report on Form 8-K reporting under Item 5.02 the appointment of John R.
Cawthron as the Companys Vice Chairman of the Board of Directors and Chief Executive Officer
and certain other matters, and (v) a Current Report on Form 8-K reporting under Item 5.02 the
appointment of Jason Yaudes as the Companys Corporate Controller and Chief Accounting Officer.
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
TIMCO Aviation Services, Inc.
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By: |
/s/ James H. Tate
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Chief Financial Officer |
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(Principal Financial Officer) |
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Dated: August 14, 2006
39
Exhibit Index
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Exhibit |
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Number |
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Description |
10.1
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Employment Agreement between the Company and John R. Cawthron |
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10.2
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Employment Agreement between the Company and Gene House |
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10.3
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Asset Sale Agreement between the Company and Aero Turbine related to the Goodyear
facility |
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10.4
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Agreement and Plan of Merger between the Company and TAS (1) |
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10.5
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Conversion, Support and Release Agreement between the Company, TAS, LJH and affiliates
of Owl Creek (1) |
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10.6
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Escrow Agreement between the Company, TAS and American Bank of Texas (1) |
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31.1
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Certification of CEO and CFO under Section 302 the Sarbanes-Oxley Act of 2002 |
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32.1
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Certification of CEO and CFO under Section 906 the Sarbanes-Oxley Act of 2002 |
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(1) |
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Filed as exhibits to the Form 8-K filed by the Company under Item 1.01 on August 3,
2006. |
40