---



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



---



FORM 10-Q



(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended March 31, 2005



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from  to



Commission file number 1-12380



AVIALL, INC.

(Exact name of registrant as specified in its charter)



|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|Delaware                                                      |  | 65-0433083                         
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification No.)
|                                                              | 
|2750 Regent BoulevardDFW Airport, Texas                       |  | 75261-9048                         
|(Address of principal executive offices)                      |  | (Zip Code)                         



(972) 586-1000

(Registrants telephone number, including area code)



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
    Yes  þ    No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).    Yes  þ    No ̈



The number of shares of common stock, par value $0.01 per share, outstanding
at April 25, 2005 was 33,461,987.



---



---

AVIALL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except share and per share data)

(Unaudited)



|                                                               |  |                              |            |      |           
|-------------------------------------------------------------- |  | ---------------------------- | ---------- | ---- | ----------
|                                                               |  | Three Months Ended March 31,
|                                                               |  | 2005                         |            | 2004
|Net sales                                                      |  | $                            | 291,448    |      | 283,532   
|Cost of sales                                                  |  |                              | 238,281    |      | 236,434   
|                                                               |  |                              |            |      |           
|Gross profit                                                   |  |                              | 53,167     |      | 47,098    
|Selling and administrative expense                             |  |                              | 28,086     |      | 27,599    
|                                                               |  |                              |            |      |           
|Operating income                                               |  |                              | 25,081     |      | 19,499    
|Interest expense, net                                          |  |                              | 5,103      |      | 4,345     
|                                                               |  |                              |            |      |           
|Earnings before income taxes                                   |  |                              | 19,978     |      | 15,154    
|Provision for income taxes                                     |  |                              | 6,978      |      | 5,177     
|                                                               |  |                              |            |      |           
|Net earnings                                                   |  | $                            | 13,000     |      | 9,977     
|                                                               |  |                              |            |      |           
|Basic net earnings per share                                   |  | $                            | 0.40       |      | 0.31      
|Weighted average common shares                                 |  |                              | 32,847,388 |      | 31,744,620
|                                                               |  |                              |            |      |           
|Diluted net earnings per share                                 |  | $                            | 0.38       |      | 0.30      
|Weighted average common and potentially dilutive common shares |  |                              | 34,605,983 |      | 33,242,755
|                                                               |  |                              |            |      |           



See accompanying
notes to consolidated financial statements.



2



---

AVIALL, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per share data)

(Unaudited)



|                                                                                                                                                                             |  |               |         |   |                  |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | ------- | -
|                                                                                                                                                                             |  | March 31,2005 |         |   | December 31,2004 |        
|Assets                                                                                                                                                                       |  |               |         |   |                  |         |  
|Current assets:                                                                                                                                                              |  |               |         |   |                  |         |  
|Cash and cash equivalents                                                                                                                                                    |  | $             | 10,741  |   |                  | 91,632  |  
|Receivables, net                                                                                                                                                             |  |               | 154,979 |   |                  | 144,087 |  
|Inventories                                                                                                                                                                  |  |               | 308,021 |   |                  | 328,129 |  
|Prepaid expenses and other current assets                                                                                                                                    |  |               | 5,330   |   |                  | 2,953   |  
|Deferred income taxes                                                                                                                                                        |  |               | 33,798  |   |                  | 40,432  |  
|                                                                                                                                                                             |  |               |         |   |                  |         |  
|Total current assets                                                                                                                                                         |  |               | 512,869 |   |                  | 607,233 |  
|                                                                                                                                                                             |  |               |         |   |                  |         |  
|Property and equipment                                                                                                                                                       |  |               | 34,179  |   |                  | 33,929  |  
|Goodwill                                                                                                                                                                     |  |               | 46,843  |   |                  | 46,843  |  
|Intangible assets                                                                                                                                                            |  |               | 200,886 |   |                  | 46,525  |  
|Deferred income taxes                                                                                                                                                        |  |               | 3,226   |   |                  | 3,229   |  
|Other assets                                                                                                                                                                 |  |               | 12,843  |   |                  | 11,717  |  
|                                                                                                                                                                             |  |               |         |   |                  |         |  
|Total assets                                                                                                                                                                 |  | $             | 810,846 |   |                  | 749,476 |  
|                                                                                                                                                                             |  |               |         |   |                  |         |  
|Liabilities and Shareholders Equity                                                                                                                                         |  |               |         |   |                  |         |  
|Current liabilities:                                                                                                                                                         |  |               |         |   |                  |         |  
|Current portion of long-term debt                                                                                                                                            |  | $             | 1,190   |   |                  | 1,440   |  
|Revolving line of credit                                                                                                                                                     |  |               | 82,218  |   |                  |        |  
|Cash overdrafts due to outstanding checks                                                                                                                                    |  |               | 23,602  |   |                  | 43,023  |  
|Accounts payable                                                                                                                                                             |  |               | 86,534  |   |                  | 98,629  |  
|Accrued expenses                                                                                                                                                             |  |               | 40,454  |   |                  | 46,741  |  
|                                                                                                                                                                             |  |               |         |   |                  |         |  
|Total current liabilities                                                                                                                                                    |  |               | 233,998 |   |                  | 189,833 |  
|                                                                                                                                                                             |  |               |         |   |                  |         |  
|Long-term debt                                                                                                                                                               |  |               | 200,449 |   |                  | 201,990 |  
|Other liabilities                                                                                                                                                            |  |               | 7,435   |   |                  | 8,652   |  
|Commitments and contingencies                                                                                                                                                |  |               |        |   |                  |        |  
|Shareholders equity:                                                                                                                                                        |  |               |         |   |                  |         |  
|Common stock ($0.01 par value per share, 80,000,000 shares authorized; 35,507,978 shares and 34,582,746 shares issued at March 31, 2005 and
December 31, 2004, respectively) |  |               | 355     |   |                  | 346     |  
|Additional paid-in capital                                                                                                                                                   |  |               | 454,152 |   |                  | 447,060 |  
|Accumulated deficit                                                                                                                                                          |  |               | (49,130 | ) |                  | (62,130 | )
|Treasury stock, at cost (2,050,411 shares and 2,035,124 shares at March 31, 2005 and December 31, 2004, respectively)                                                        |  |               | (28,589 | ) |                  | (28,218 | )
|Unearned compensation - restricted stock                                                                                                                                     |  |               | (1,446  | ) |                  | (1,679  | )
|Accumulated other comprehensive loss                                                                                                                                         |  |               | (6,378  | ) |                  | (6,378  | )
|                                                                                                                                                                             |  |               |         |   |                  |         |  
|Total shareholders equity                                                                                                                                                   |  |               | 368,964 |   |                  | 349,001 |  
|                                                                                                                                                                             |  |               |         |   |                  |         |  
|Total liabilities and shareholders equity                                                                                                                                   |  | $             | 810,846 |   |                  | 749,476 |  
|                                                                                                                                                                             |  |               |         |   |                  |         |  



See accompanying
notes to consolidated financial statements.



3



---

AVIALL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)



|                                                     |  |                              |          |   |      |         |  
|---------------------------------------------------- |  | ---------------------------- | -------- | - | ---- | ------- | -
|                                                     |  | Three Months Ended March 31, |         
|                                                     |  | 2005                         |          |   | 2004 |        
|Operating activities:                                |  |                              |          |   |      |         |  
|Net earnings                                         |  | $                            | 13,000   |   |      | 9,977   |  
|Depreciation and amortization                        |  |                              | 5,372    |   |      | 4,293   |  
|Deferred income taxes                                |  |                              | 6,634    |   |      | 4,328   |  
|Compensation expense on restricted stock awards      |  |                              | 233      |   |      | 183     |  
|Changes in:                                          |  |                              |          |   |      |         |  
|Receivables, net                                     |  |                              | (10,892  | ) |      | (10,328 | )
|Inventories                                          |  |                              | 20,108   |   |      | 6,418   |  
|Accounts payable                                     |  |                              | (12,095  | ) |      | 12,258  |  
|Accrued expenses                                     |  |                              | (6,287   | ) |      | 2,893   |  
|Other, net                                           |  |                              | (4,468   | ) |      | (1,625  | )
|                                                     |  |                              |          |   |      |         |  
|Net cash provided by operating activities            |  |                              | 11,605   |   |      | 28,397  |  
|                                                     |  |                              |          |   |      |         |  
|Investing activities:                                |  |                              |          |   |      |         |  
|Purchase of distribution rights                      |  |                              | (157,000 | ) |      | (800    | )
|Capital expenditures                                 |  |                              | (2,713   | ) |      | (1,432  | )
|Sales of property, plant and equipment               |  |                              | 300      |   |      | 6       |  
|                                                     |  |                              |          |   |      |         |  
|Net cash used for investing activities               |  |                              | (159,413 | ) |      | (2,226  | )
|                                                     |  |                              |          |   |      |         |  
|Financing activities:                                |  |                              |          |   |      |         |  
|Net change in revolving credit facility              |  |                              | 82,218   |   |      | (36     | )
|Cash overdrafts due to outstanding checks            |  |                              | (19,421  | ) |      | (37,990 | )
|Issuance of common stock                             |  |                              | 7,101    |   |      | 1,170   |  
|Debt issuance cost paid                              |  |                              | (1,898   | ) |      | (99     | )
|Debt repaid                                          |  |                              | (712     | ) |      | (860    | )
|Purchase of treasury stock                           |  |                              | (371     | ) |      | (351    | )
|                                                     |  |                              |          |   |      |         |  
|Net cash provided by (used for) financing activities |  |                              | 66,917   |   |      | (38,166 | )
|                                                     |  |                              |          |   |      |         |  
|Change in cash and cash equivalents                  |  |                              | (80,891  | ) |      | (11,995 | )
|Cash and cash equivalents, beginning of period       |  |                              | 91,632   |   |      | 23,424  |  
|                                                     |  |                              |          |   |      |         |  
|Cash and cash equivalents, end of period             |  | $                            | 10,741   |   |      | 11,429  |  
|                                                     |  |                              |          |   |      |         |  
|Cash paid (received) for interest and income taxes:  |  |                              |          |   |      |         |  
|Interest                                             |  | $                            | 7,902    |   |      | 431     |  
|Income taxes                                         |  | $                            | 597      |   |      | (266    | )



See accompanying
notes to consolidated financial statements.



4



---

AVIALL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - BASIS OF PRESENTATION



The
accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. For further
information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2004.



NOTE 2 - STOCK-BASED COMPENSATION



We account for our stock-based compensation plans in accordance with the recognition and measurement principles of Accounting Principles Board Opinion No.
25, or APB 25, Accounting for Stock Issued to Employees, and related interpretations. All options granted under our plans have an exercise price equal to the market value of the underlying common stock on the date of grant. Therefore, no
compensation cost related to these plans is included in net earnings. We also make the appropriate disclosures as required by Statement of Financial Accounting Standards No. 123, or SFAS 123, Accounting for Stock-Based Compensation, and
Statement of Financial Accounting Standards No. 148, or SFAS 148, Accounting for Stock-Based Compensation - Transition and Disclosure - an Amendment of FAS 123. Awards of restricted stock are valued at the market price of our common
stock on the date of grant and recorded as unearned compensation within shareholders equity. The unearned compensation is amortized to compensation expense over the vesting period of the restricted stock.



The following table illustrates the effect on net earnings and earnings per
share, or EPS, if we had applied the fair-value recognition provisions of SFAS 123 to stock-based employee compensation:



|                                                                                                                                   |  |                             |        |   |      |       |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | ----- | -
|                                                                                                                                   |  | Three Months EndedMarch 31, |       
|(In Thousands, Except Per Share Data)                                                                                              |  | 2005                        |        |   | 2004 |      
|Net earnings, as reported                                                                                                          |  | $                           | 13,000 |   |      | 9,977 |  
|Deduct: Total stock-based compensation expense determined under fair-value-based method for all awards, net of related tax
effects |  |                             | (663   | ) |      | (451  | )
|                                                                                                                                   |  |                             |        |   |      |       |  
|Pro forma net earnings for purposes of computing basic net EPS                                                                     |  | $                           | 12,337 |   |      | 9,526 |  
|                                                                                                                                   |  |                             |        |   |      |       |  
|Earnings per share:                                                                                                                |  |                             |        |   |      |       |  
|Basic - as reported                                                                                                                |  | $                           | 0.40   |   |      | 0.31  |  
|Basic - pro forma                                                                                                                  |  | $                           | 0.38   |   |      | 0.30  |  
|                                                                                                                                   |  |                            
|Diluted - as reported                                                                                                              |  | $                           | 0.38   |   |      | 0.30  |  
|Diluted - proforma                                                                                                                 |  | $                           | 0.36   |   |      | 0.29  |  



5



---

NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS



In December 2004, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards No.
123 (revised 2004), or SFAS 123R, Share-Based Payment, which replaces Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FAS 123. SFAS 123R addresses the
accounting for share-based payment transactions in which a company receives employee services in exchange for either equity instruments of the company or liabilities that are based on the fair value of the companys equity instruments or that
may be settled by the issuance of such equity instruments. SFAS 123R addresses all forms of share-based payment awards, including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. SFAS
123R eliminates the ability to account for share-based compensation transactions using the intrinsic method and generally would require that such transactions be accounted for using a fair-value-based method and recognized as expense over the period
during which an employee is required to provide services in exchange for the award. SFAS 123R is effective for annual periods beginning after June 15, 2005. As such, we will implement the provisions of SFAS 123R effective January 1, 2006. We are in
the process of evaluating the three allowable methods of transition to SFAS 123R but have not yet determined which method will be used. In 2006, we will incur compensation expense under SFAS 123R, as currently written, related to unvested options
granted prior to January 1, 2006.



NOTE 4 - SEGMENT INFORMATION



The following tables present information by operating
segment (in thousands):



|                             |  |                             |         |   |      |         |  
|---------------------------- |  | --------------------------- | ------- | - | ---- | ------- | -
|                             |  | Three Months EndedMarch 31, |        
|                             |  | 2005                        |         |   | 2004 |        
|Net Sales                    |  |                             |         |   |      |         |  
|Aviall Services              |  | $                           | 284,023 |   |      | 276,421 |  
|ILS                          |  |                             | 7,425   |   |      | 7,111   |  
|                             |  |                             |         |   |      |         |  
|Total net sales              |  | $                           | 291,448 |   |      | 283,532 |  
|                             |  |                             |         |   |      |         |  
|Profit                       |  |                             |         |   |      |         |  
|Aviall Services              |  | $                           | 26,417  |   |      | 20,266  |  
|ILS                          |  |                             | 2,811   |   |      | 2,548   |  
|                             |  |                             |         |   |      |         |  
|Reportable segment profit    |  |                             | 29,228  |   |      | 22,814  |  
|Corporate                    |  |                             | (4,147  | ) |      | (3,315  | )
|Interest expense, net        |  |                             | (5,103  | ) |      | (4,345  | )
|                             |  |                             |         |   |      |         |  
|Earnings before income taxes |  | $                           | 19,978  |   |      | 15,154  |  
|                             |  |                             |         |   |      |         |  



6



---

NOTE 5 - EARNINGS PER SHARE



A reconciliation of the denominator of the basic and diluted EPS calculations for net earnings follows:



|                                                             |  |                             |  |           
|------------------------------------------------------------ |  | --------------------------- |  | ----------
|                                                             |  | Three Months EndedMarch 31,
|                                                             |  | 2005                        |  | 2004      
|Denominator                                                  |  |                             |  |           
|Weighted average common shares                               |  | 32,847,388                  |  | 31,744,620
|Effect of dilutive securities:                               |  |                             |  |           
|Stock options                                                |  | 1,257,315                   |  | 931,338   
|Restricted stock rights                                      |  | 238,880                     |  | 304,467   
|Warrants                                                     |  | 262,400                     |  | 262,330   
|                                                             |  |                             |  |           
|Weighted average common and dilutive potential common shares |  | 34,605,983                  |  | 33,242,755
|                                                             |  |                             |  |           



Basic EPS is computed
by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net earnings by the weighted average number of common and dilutive potential common shares outstanding during
the period.



NOTE 6 - INCOME TAXES



Our effective tax rate increased from 27.6% at December 31, 2004 to 34.9% at
March 31, 2005. The lower effective rate at December 31, 2004 is primarily due to the release in 2004 of a $3.4 million valuation allowance for state tax net operating loss carryforwards.



NOTE 7 - INTANGIBLE ASSETS



In January 2005, we entered into a distribution agreement with GE Engine Services, LLC and General Electric, or GE, whereby GE has appointed us as the
exclusive worldwide distributor of unique parts for the GE CF6-50 and CF6-80A, or CF6, engines for as long as these engines remain in service. As a result of the GE CF6 agreement, we recorded $157.0 million for distribution rights.



NOTE 8 - DEBT



On January 28, 2005, we entered into an amendment to our senior secured credit facility, or the Credit Facility, to increase
the facility size, restructure the borrowing base, extend the termination date and change certain financial ratios and covenants. As of March 31, 2005, our amended Credit Facility consists of a $260.0 million revolving credit and letter of credit
facility due as a balloon payment in 2008. As of March 31, 2005, we had $82.2 million of borrowings outstanding under the Credit Facility.



NOTE 9 - PENSION PLANS AND POSTRETIREMENT BENEFITS



The following table sets forth the components of net pension expense for all our plans:



|                                   |  |                             |        |   |      |      |  
|---------------------------------- |  | --------------------------- | ------ | - | ---- | ---- | -
|                                   |  | Three Months EndedMarch 31, |       
|(In Thousands)                     |  | 2005                        |        |   | 2004 |     
|Service cost                       |  | $                           | 736    |   |      | 615  |  
|Interest cost                      |  |                             | 1,028  |   |      | 969  |  
|Expected return on plan assets     |  |                             | (1,086 | ) |      | (963 | )
|Transition obligation amortization |  |                             | 34     |   |      | 35   |  
|Prior service cost amortization    |  |                             | 1      |   |      | 1    |  
|Net loss recognition               |  |                             | 297    |   |      | 117  |  
|                                   |  |                             |        |   |      |      |  
|Net pension expense                |  | $                           | 1,010  |   |      | 774  |  
|                                   |  |                             |        |   |      |      |  



7



---

The following table sets forth the components of net postretirement benefit income for all our plans:



|                                  |  |                             |     |   |      |     |  
|--------------------------------- |  | --------------------------- | --- | - | ---- | --- | -
|                                  |  | Three Months EndedMarch 31, |    
|(In Thousands)                    |  | 2005                        |     |   | 2004 |    
|Service cost                      |  | $                           |    |   |      |    |  
|Interest cost                     |  |                             | 18  |   |      | 22  |  
|Net amortization and deferral     |  |                             | (35 | ) |      | (34 | )
|                                  |  |                             |     |   |      |     |  
|Net postretirement benefit income |  | $                           | (17 | ) |      | (12 | )
|                                  |  |                             |     |   |      |     |  



NOTE 10 - GUARANTOR AND
NONGUARANTOR FINANCIAL STATEMENTS



Our senior unsecured
notes, or the Senior Notes, are fully and unconditionally and jointly and severally guaranteed on a senior unsecured basis by each direct and indirect domestic subsidiary of Aviall, Inc., or Aviall, each a guarantor subsidiary. Each guarantor
subsidiary is directly or indirectly 100% owned by Aviall. The Senior Notes are not guaranteed by any direct or indirect foreign subsidiary of Aviall, each a nonguarantor subsidiary.



The unaudited consolidating financial information presents the consolidating balance sheets as of March 31, 2005 and
December 31, 2004 and the related statements of operations and cash flows for the three-month periods ended March 31, 2005 and 2004 with separate columns for:



| | a) | Aviall, the parent;
| | -- | -------------------



| | b) | the guarantor subsidiaries on a combined basis;
| | -- | -----------------------------------------------



| | c) | the nonguarantor subsidiaries on a combined basis; and
| | -- | ------------------------------------------------------



| | d) | total consolidated amounts.
| | -- | ---------------------------



The information includes elimination entries necessary to consolidate Aviall, the parent, with the guarantor and nonguarantor subsidiaries.



Investments in subsidiaries are accounted for by the parent using the equity
method of accounting. The guarantor and nonguarantor subsidiaries are presented on a combined basis. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. Separate financial statements
for the guarantor and nonguarantor subsidiaries are not presented because management believes such financial statements would not be meaningful to investors.



Pursuant to the terms of the Credit Facility, no subsidiary of Aviall other than Aviall Services, Inc., or Aviall Services, may pay cash dividends to
Aviall, other than to fund limited repurchases or redemptions of outstanding securities. In addition, Aviall Services may pay cash dividends to Aviall for the purpose of funding (i) ordinary operating expenses and scheduled debt service, (ii)
payments by Aviall of taxes in respect of Aviall and its subsidiaries, up to the amount that would be payable by Aviall Services, on a consolidated basis, if it were the taxpayer and (iii) any repurchase of the Senior Notes permitted under the terms
of the Credit Facility. Additionally, the Credit Facility restricts intercompany loans made to Aviall from its direct and indirect subsidiaries, with the exception of intercompany loans made to fund limited repurchases or redemptions of outstanding
securities and loans made by Aviall Services to fund required payments under the Senior Notes. The net assets of consolidating subsidiaries subject to these restrictions were $706.4 million and $714.8 million at March 31, 2005 and December 31, 2004,
respectively.



8



---

CONSOLIDATED STATEMENT OF OPERATIONS



|                                          |  |                                   |         |   |                       |         |   |                          |        |              |         |   |                   |        
|----------------------------------------- |  | --------------------------------- | ------- | - | --------------------- | ------- | - | ------------------------ | ------ | ------------ | ------- | - | ----------------- | -------
|                                          |  | Three Months Ended March 31, 2005
|(In Thousands)                            |  | Parent                            |         |   | GuarantorSubsidiaries |         |   | NonguarantorSubsidiaries |        | Eliminations |         |   | ConsolidatedTotal
|Net sales                                 |  | $                                 |        |   |                       | 272,297 |   |                          | 35,293 |              | (16,142 | ) |                   | 291,448
|Cost of sales                             |  |                                   |        |   |                       | 225,654 |   |                          | 28,769 |              | (16,142 | ) |                   | 238,281
|                                          |  |                                   |         |   |                       |         |   |                          |        |              |         |   |                   |        
|Gross profit                              |  |                                   |        |   |                       | 46,643  |   |                          | 6,524  |              |        |   |                   | 53,167 
|Selling and administrative expense        |  |                                   |        |   |                       | 23,846  |   |                          | 4,240  |              |        |   |                   | 28,086 
|                                          |  |                                   |         |   |                       |         |   |                          |        |              |         |   |                   |        
|Operating income                          |  |                                   |        |   |                       | 22,797  |   |                          | 2,284  |              |        |   |                   | 25,081 
|Interest expense (income)                 |  |                                   | (4,645  | ) |                       | 9,682   |   |                          | 66     |              |        |   |                   | 5,103  
|Equity in (earnings) loss of subsidiaries |  |                                   | (10,037 | ) |                       | (1,981  | ) |                          |       |              | 12,018  |   |                   |       
|                                          |  |                                   |         |   |                       |         |   |                          |        |              |         |   |                   |        
|Earnings (loss) before income taxes       |  |                                   | 14,682  |   |                       | 15,096  |   |                          | 2,218  |              | (12,018 | ) |                   | 19,978 
|Provision for income taxes                |  |                                   | 1,682   |   |                       | 5,059   |   |                          | 237    |              |        |   |                   | 6,978  
|                                          |  |                                   |         |   |                       |         |   |                          |        |              |         |   |                   |        
|Net earnings (loss)                       |  | $                                 | 13,000  |   |                       | 10,037  |   |                          | 1,981  |              | (12,018 | ) |                   | 13,000 
|                                          |  |                                   |         |   |                       |         |   |                          |        |              |         |   |                   |        



CONSOLIDATED STATEMENT OF
OPERATIONS



|                                          |  |                                   |        |   |                       |         |   |                          |        |              |         |   |                   |        
|----------------------------------------- |  | --------------------------------- | ------ | - | --------------------- | ------- | - | ------------------------ | ------ | ------------ | ------- | - | ----------------- | -------
|                                          |  | Three Months Ended March 31, 2004
|(In Thousands)                            |  | Parent                            |        |   | GuarantorSubsidiaries |         |   | NonguarantorSubsidiaries |        | Eliminations |         |   | ConsolidatedTotal
|Net sales                                 |  | $                                 |       |   |                       | 268,185 |   |                          | 31,554 |              | (16,207 | ) |                   | 283,532
|Cost of sales                             |  |                                   |       |   |                       | 227,260 |   |                          | 25,381 |              | (16,207 | ) |                   | 236,434
|                                          |  |                                   |        |   |                       |         |   |                          |        |              |         |   |                   |        
|Gross profit                              |  |                                   |       |   |                       | 40,925  |   |                          | 6,173  |              |        |   |                   | 47,098 
|Selling and administrative expense        |  |                                   |       |   |                       | 24,292  |   |                          | 3,307  |              |        |   |                   | 27,599 
|                                          |  |                                   |        |   |                       |         |   |                          |        |              |         |   |                   |        
|Operating income                          |  |                                   |       |   |                       | 16,633  |   |                          | 2,866  |              |        |   |                   | 19,499 
|Interest expense (income)                 |  |                                   | (4,243 | ) |                       | 8,497   |   |                          | 91     |              |        |   |                   | 4,345  
|Equity in (earnings) loss of subsidiaries |  |                                   | (7,270 | ) |                       | (2,037  | ) |                          |       |              | 9,307   |   |                   |       
|                                          |  |                                   |        |   |                       |         |   |                          |        |              |         |   |                   |        
|Earnings (loss) before income taxes       |  |                                   | 11,513 |   |                       | 10,173  |   |                          | 2,775  |              | (9,307  | ) |                   | 15,154 
|Provision for income taxes                |  |                                   | 1,536  |   |                       | 2,903   |   |                          | 738    |              |        |   |                   | 5,177  
|                                          |  |                                   |        |   |                       |         |   |                          |        |              |         |   |                   |        
|Net earnings (loss)                       |  | $                                 | 9,977  |   |                       | 7,270   |   |                          | 2,037  |              | (9,307  | ) |                   | 9,977  
|                                          |  |                                   |        |   |                       |         |   |                          |        |              |         |   |                   |        



9



---

CONSOLIDATED BALANCE SHEET



|                                           |  |                |         |   |                       |         |   |                          |        |              |          |   |                   |         |  
|------------------------------------------ |  | -------------- | ------- | - | --------------------- | ------- | - | ------------------------ | ------ | ------------ | -------- | - | ----------------- | ------- | -
|                                           |  | March 31, 2005 |        
|(In Thousands)                             |  | Parent         |         |   | GuarantorSubsidiaries |         |   | NonguarantorSubsidiaries |        | Eliminations |          |   | ConsolidatedTotal |        
|Assets                                     |  |                |         |   |                       |         |   |                          |        |              |          |   |                   |         |  
|Current assets:                            |  |                |         |   |                       |         |   |                          |        |              |          |   |                   |         |  
|Cash and cash equivalents                  |  | $              | (30     | ) |                       | 8,040   |   |                          | 2,731  |              |         |   |                   | 10,741  |  
|Receivables, net                           |  |                |        |   |                       | 128,768 |   |                          | 26,211 |              |         |   |                   | 154,979 |  
|Inventories                                |  |                |        |   |                       | 294,838 |   |                          | 13,183 |              |         |   |                   | 308,021 |  
|Prepaid expenses and other current assets  |  |                |        |   |                       | 5,159   |   |                          | 171    |              |         |   |                   | 5,330   |  
|Deferred income taxes                      |  |                |        |   |                       | 33,776  |   |                          | 22     |              |         |   |                   | 33,798  |  
|                                           |  |                |         |   |                       |         |   |                          |        |              |          |   |                   |         |  
|Total current assets                       |  |                | (30     | ) |                       | 470,581 |   |                          | 42,318 |              |         |   |                   | 512,869 |  
|                                           |  |                |         |   |                       |         |   |                          |        |              |          |   |                   |         |  
|Property and equipment                     |  |                |        |   |                       | 33,624  |   |                          | 555    |              |         |   |                   | 34,179  |  
|Investment in subsidiaries                 |  |                | 752,142 |   |                       | 36,265  |   |                          |       |              | (788,407 | ) |                   |        |  
|Intercompany receivables                   |  |                |        |   |                       | 204,046 |   |                          |       |              | (204,046 | ) |                   |        |  
|Goodwill                                   |  |                |        |   |                       | 44,904  |   |                          | 1,939  |              |         |   |                   | 46,843  |  
|Intangible assets                          |  |                |        |   |                       | 200,886 |   |                          |       |              |         |   |                   | 200,886 |  
|Deferred income taxes                      |  |                |        |   |                       | 2,816   |   |                          | 410    |              |         |   |                   | 3,226   |  
|Other assets                               |  |                | 6,248   |   |                       | 6,592   |   |                          | 3      |              |         |   |                   | 12,843  |  
|                                           |  |                |         |   |                       |         |   |                          |        |              |          |   |                   |         |  
|Total assets                               |  | $              | 758,360 |   |                       | 999,714 |   |                          | 45,225 |              | (992,453 | ) |                   | 810,846 |  
|                                           |  |                |         |   |                       |         |   |                          |        |              |          |   |                   |         |  
|                                           |  |                |         |   |                      
|Liabilities and Shareholders Equity       |  |                |         |   |                       |         |   |                          |        |              |          |   |                   |         |  
|Current liabilities:                       |  |                |         |   |                       |         |   |                          |        |              |          |   |                   |         |  
|Current portion of long-term debt          |  | $              |        |   |                       | 1,179   |   |                          | 11     |              |         |   |                   | 1,190   |  
|Revolving line of credit                   |  |                |        |   |                       | 82,218  |   |                          |       |              |         |   |                   | 82,218  |  
|Cash overdrafts due to outstanding checks  |  |                | 5       |   |                       | 23,597  |   |                          |       |              |         |   |                   | 23,602  |  
|Accounts payable                           |  |                |        |   |                       | 85,394  |   |                          | 1,140  |              |         |   |                   | 86,534  |  
|Accrued expenses                           |  |                | 3,845   |   |                       | 33,436  |   |                          | 3,173  |              |         |   |                   | 40,454  |  
|                                           |  |                |         |   |                       |         |   |                          |        |              |          |   |                   |         |  
|Total current liabilities                  |  |                | 3,850   |   |                       | 225,824 |   |                          | 4,324  |              |         |   |                   | 233,998 |  
|                                           |  |                |         |   |                       |         |   |                          |        |              |          |   |                   |         |  
|Long-term debt                             |  |                | 200,000 |   |                       | 442     |   |                          | 7      |              |         |   |                   | 200,449 |  
|Intercompany payables                      |  |                | 185,546 |   |                       |        |   |                          | 18,500 |              | (204,046 | ) |                   |        |  
|Other liabilities                          |  |                |        |   |                       | 7,435   |   |                          |       |              |         |   |                   | 7,435   |  
|Commitments and contingencies              |  |                |        |   |                       |        |   |                          |       |              |         |   |                   |        |  
|Shareholders equity                       |  |                |         |   |                       |         |   |                          |        |              |          |   |                   |         |  
|Common stock                               |  |                | 355     |   |                       | 33      |   |                          | 7,542  |              | (7,575   | ) |                   | 355     |  
|Additional paid-in capital                 |  |                | 454,152 |   |                       | 867,920 |   |                          | 9,919  |              | (877,839 | ) |                   | 454,152 |  
|Retained earnings (accumulated deficit)    |  |                | (49,130 | ) |                       | (95,562 | ) |                          | 4,933  |              | 90,629   |   |                   | (49,130 | )
|Treasury stock, at cost                    |  |                | (28,589 | ) |                       |        |   |                          |       |              |         |   |                   | (28,589 | )
|Unearned compensation - restricted stock   |  |                | (1,446  | ) |                       |        |   |                          |       |              |         |   |                   | (1,446  | )
|Accumulated other comprehensive income     |  |                | (6,378  | ) |                       | (6,378  | ) |                          |       |              | 6,378    |   |                   | (6,378  | )
|                                           |  |                |         |   |                       |         |   |                          |        |              |          |   |                   |         |  
|Total shareholders equity                 |  |                | 368,964 |   |                       | 766,013 |   |                          | 22,394 |              | (788,407 | ) |                   | 368,964 |  
|                                           |  |                |         |   |                       |         |   |                          |        |              |          |   |                   |         |  
|Total liabilities and shareholders equity |  | $              | 758,360 |   |                       | 999,714 |   |                          | 45,225 |              | (992,453 | ) |                   | 810,846 |  
|                                           |  |                |         |   |                       |         |   |                          |        |              |          |   |                   |         |  



10



---

CONSOLIDATED BALANCE SHEET



|                                              |  |                   |         |   |                       |         |   |                          |        |              |            |   |                   |         |  
|--------------------------------------------- |  | ----------------- | ------- | - | --------------------- | ------- | - | ------------------------ | ------ | ------------ | ---------- | - | ----------------- | ------- | -
|                                              |  | December 31, 2004 |        
|(In Thousands)                                |  | Parent            |         |   | GuarantorSubsidiaries |         |   | NonguarantorSubsidiaries |        | Eliminations |            |   | ConsolidatedTotal |        
|Assets                                        |  |                   |         |   |                       |         |   |                          |        |              |            |   |                   |         |  
|Current assets:                               |  |                   |         |   |                       |         |   |                          |        |              |            |   |                   |         |  
|Cash and cash equivalents                     |  | $                 | (35     | ) |                       | 83,002  |   |                          | 8,665  |              |           |   |                   | 91,632  |  
|Receivables, net                              |  |                   |        |   |                       | 116,938 |   |                          | 27,149 |              |           |   |                   | 144,087 |  
|Inventories                                   |  |                   |        |   |                       | 315,298 |   |                          | 12,831 |              |           |   |                   | 328,129 |  
|Prepaid expenses and other current assets     |  |                   |        |   |                       | 2,824   |   |                          | 129    |              |           |   |                   | 2,953   |  
|Deferred income taxes                         |  |                   |        |   |                       | 40,410  |   |                          | 22     |              |           |   |                   | 40,432  |  
|                                              |  |                   |         |   |                       |         |   |                          |        |              |            |   |                   |         |  
|Total current assets                          |  |                   | (35     | ) |                       | 558,472 |   |                          | 48,796 |              |           |   |                   | 607,233 |  
|                                              |  |                   |         |   |                       |         |   |                          |        |              |            |   |                   |         |  
|Property and equipment                        |  |                   |        |   |                       | 33,318  |   |                          | 611    |              |           |   |                   | 33,929  |  
|Investment in subsidiaries                    |  |                   | 764,005 |   |                       | 34,284  |   |                          |       |              | (798,289   | ) |                   |        |  
|Intercompany receivables                      |  |                   |        |   |                       | 235,007 |   |                          |       |              | (235,007   | ) |                   |        |  
|Goodwill                                      |  |                   |        |   |                       | 44,904  |   |                          | 1,939  |              |           |   |                   | 46,843  |  
|Intangible assets                             |  |                   |        |   |                       | 46,525  |   |                          |       |              |           |   |                   | 46,525  |  
|Deferred income taxes                         |  |                   |        |   |                       | 2,816   |   |                          | 413    |              |           |   |                   | 3,229   |  
|Other assets                                  |  |                   | 6,498   |   |                       | 5,214   |   |                          | 5      |              |           |   |                   | 11,717  |  
|                                              |  |                   |         |   |                       |         |   |                          |        |              |            |   |                   |         |  
|Total assets                                  |  | $                 | 770,468 |   |                       | 960,540 |   |                          | 51,764 |              | (1,033,296 | ) |                   | 749,476 |  
|                                              |  |                   |         |   |                       |         |   |                          |        |              |            |   |                   |         |  
|                                              |  |                   |         |   |                      
|Liabilities and Shareholders Equity          |  |                   |         |   |                       |         |   |                          |        |              |            |   |                   |         |  
|Current liabilities:                          |  |                   |         |   |                       |         |   |                          |        |              |            |   |                   |         |  
|Current portion of long-term debt             |  | $                 |        |   |                       | 1,429   |   |                          | 11     |              |           |   |                   | 1,440   |  
|Revolving line of credit                      |  |                   |        |   |                       |        |   |                          |       |              |           |   |                   |        |  
|Cash overdrafts due to outstanding checks     |  |                   | 4       |   |                       | 42,969  |   |                          | 50     |              |           |   |                   | 43,023  |  
|Accounts payable                              |  |                   |        |   |                       | 97,368  |   |                          | 1,261  |              |           |   |                   | 98,629  |  
|Accrued expenses                              |  |                   | 7,723   |   |                       | 35,827  |   |                          | 3,191  |              |           |   |                   | 46,741  |  
|                                              |  |                   |         |   |                       |         |   |                          |        |              |            |   |                   |         |  
|Total current liabilities                     |  |                   | 7,727   |   |                       | 177,593 |   |                          | 4,513  |              |           |   |                   | 189,833 |  
|                                              |  |                   |         |   |                       |         |   |                          |        |              |            |   |                   |         |  
|Long-term debt                                |  |                   | 200,000 |   |                       | 1,981   |   |                          | 9      |              |           |   |                   | 201,990 |  
|Intercompany payables                         |  |                   | 213,740 |   |                       |        |   |                          | 21,267 |              | (235,007   | ) |                   |        |  
|Other liabilities                             |  |                   |        |   |                       | 8,652   |   |                          |       |              |           |   |                   | 8,652   |  
|Commitments and contingencies                 |  |                   |        |   |                       |        |   |                          |       |              |           |   |                   |        |  
|Shareholders equity                          |  |                   |         |   |                       |         |   |                          |        |              |            |   |                   |         |  
|Common stock                                  |  |                   | 346     |   |                       | 33      |   |                          | 7,542  |              | (7,575     | ) |                   | 346     |  
|Additional paid-in capital                    |  |                   | 447,060 |   |                       | 862,357 |   |                          | 9,918  |              | (872,275   | ) |                   | 447,060 |  
|Retained earnings (accumulated deficit)       |  |                   | (62,130 | ) |                       | (83,698 | ) |                          | 8,515  |              | 75,183     |   |                   | (62,130 | )
|Treasury stock, at cost                       |  |                   | (28,218 | ) |                       |        |   |                          |       |              |           |   |                   | (28,218 | )
|Unearned compensation - restricted stock      |  |                   | (1,679  | ) |                       |        |   |                          |       |              |           |   |                   | (1,679  | )
|Accumulated other comprehensive (loss) income |  |                   | (6,378  | ) |                       | (6,378  | ) |                          |       |              | 6,378      |   |                   | (6,378  | )
|                                              |  |                   |         |   |                       |         |   |                          |        |              |            |   |                   |         |  
|Total shareholders equity                    |  |                   | 349,001 |   |                       | 772,314 |   |                          | 25,975 |              | (798,289   | ) |                   | 349,001 |  
|                                              |  |                   |         |   |                       |         |   |                          |        |              |            |   |                   |         |  
|Total liabilities and shareholders equity    |  | $                 | 770,468 |   |                       | 960,540 |   |                          | 51,764 |              | (1,033,296 | ) |                   | 749,476 |  
|                                              |  |                   |         |   |                       |         |   |                          |        |              |            |   |                   |         |  



11



---

CONSOLIDATED STATEMENT OF CASH FLOWS



|                                                     |  |                                   |         |   |                       |          |   |                          |        |   |              |         |   |                   |          |  
|---------------------------------------------------- |  | --------------------------------- | ------- | - | --------------------- | -------- | - | ------------------------ | ------ | - | ------------ | ------- | - | ----------------- | -------- | -
|                                                     |  | Three Months Ended March 31, 2005 |        
|(In Thousands)                                       |  | Parent                            |         |   | GuarantorSubsidiaries |          |   | NonguarantorSubsidiaries |        |   | Eliminations |         |   | ConsolidatedTotal |         
|Operating activities:                                |  |                                   |         |   |                       |          |   |                          |        |   |              |         |   |                   |          |  
|Net earnings (loss)                                  |  | $                                 | 13,000  |   |                       | 10,037   |   |                          | 1,981  |   |              | (12,018 | ) |                   | 13,000   |  
|Depreciation and amortization                        |  |                                   | 250     |   |                       | 5,064    |   |                          | 58     |   |              |        |   |                   | 5,372    |  
|Deferred income taxes                                |  |                                   |        |   |                       | 6,634    |   |                          |       |   |              |        |   |                   | 6,634    |  
|Compensation expense on restricted stock awards      |  |                                   | 233     |   |                       |         |   |                          |       |   |              |        |   |                   | 233      |  
|Changes in:                                          |  |                                   |         |   |                       |          |   |                          |        |   |              |         |   |                   |          |  
|Receivables, net                                     |  |                                   |        |   |                       | (11,830  | ) |                          | 938    |   |              |        |   |                   | (10,892  | )
|Inventories                                          |  |                                   |        |   |                       | 20,460   |   |                          | (352   | ) |              |        |   |                   | 20,108   |  
|Intercompany receivables and payables                |  |                                   | (6,294  | ) |                       | 14,625   |   |                          | (8,331 | ) |              |        |   |                   |         |  
|Accounts payable                                     |  |                                   |        |   |                       | (11,974  | ) |                          | (121   | ) |              |        |   |                   | (12,095  | )
|Accrued expenses                                     |  |                                   | (3,878  | ) |                       | (2,391   | ) |                          | (18    | ) |              |        |   |                   | (6,287   | )
|Other, net                                           |  |                                   |        |   |                       | (4,432   | ) |                          | (36    | ) |              |        |   |                   | (4,468   | )
|                                                     |  |                                   |         |   |                       |          |   |                          |        |   |              |         |   |                   |          |  
|Net cash provided by (used for) operating activities |  |                                   | 3,311   |   |                       | 26,193   |   |                          | (5,881 | ) |              | (12,018 | ) |                   | 11,605   |  
|                                                     |  |                                   |         |   |                       |          |   |                          |        |   |              |         |   |                   |          |  
|Investing activities:                                |  |                                   |         |   |                       |          |   |                          |        |   |              |         |   |                   |          |  
|Capital expenditures                                 |  |                                   |        |   |                       | (2,712   | ) |                          | (1     | ) |              |        |   |                   | (2,713   | )
|Purchase of distribution rights                      |  |                                   |        |   |                       | (157,000 | ) |                          |       |   |              |        |   |                   | (157,000 | )
|Investment in subsidiaries                           |  |                                   | (10,037 | ) |                       | (1,981   | ) |                          |       |   |              | 12,018  |   |                   |         |  
|Sales of property, plant and equipment               |  |                                   |        |   |                       | 300      |   |                          |       |   |              |        |   |                   | 300      |  
|                                                     |  |                                   |         |   |                       |          |   |                          |        |   |              |         |   |                   |          |  
|Net cash provided by (used for) investing activities |  |                                   | (10,037 | ) |                       | (161,393 | ) |                          | (1     | ) |              | 12,018  |   |                   | (159,413 | )
|                                                     |  |                                   |         |   |                       |          |   |                          |        |   |              |         |   |                   |          |  
|Financing activities:                                |  |                                   |         |   |                       |          |   |                          |        |   |              |         |   |                   |          |  
|Debt issue costs paid                                |  |                                   |        |   |                       | (1,898   | ) |                          |       |   |              |        |   |                   | (1,898   | )
|Issuance of common stock                             |  |                                   | 7,101   |   |                       |         |   |                          |       |   |              |        |   |                   | 7,101    |  
|Purchase of treasury stock                           |  |                                   | (371    | ) |                       |         |   |                          |       |   |              |        |   |                   | (371     | )
|Net change in revolving credit facility              |  |                                   |        |   |                       | 82,218   |   |                          |       |   |              |        |   |                   | 82,218   |  
|Cash overdrafts due to outstanding checks            |  |                                   | 1       |   |                       | (19,372  | ) |                          | (50    | ) |              |        |   |                   | (19,421  | )
|Debt repaid                                          |  |                                   |        |   |                       | (710     | ) |                          | (2     | ) |              |        |   |                   | (712     | )
|                                                     |  |                                   |         |   |                       |          |   |                          |        |   |              |         |   |                   |          |  
|Net cash provided by (used for) financing activities |  |                                   | 6,731   |   |                       | 60,238   |   |                          | (52    | ) |              |        |   |                   | 66,917   |  
|                                                     |  |                                   |         |   |                       |          |   |                          |        |   |              |         |   |                   |          |  
|Change in cash and cash equivalents                  |  |                                   | 5       |   |                       | (74,962  | ) |                          | (5,934 | ) |              |        |   |                   | (80,891  | )
|Cash and cash equivalents, beginning of period       |  |                                   | (35     | ) |                       | 83,002   |   |                          | 8,665  |   |              |        |   |                   | 91,632   |  
|                                                     |  |                                   |         |   |                       |          |   |                          |        |   |              |         |   |                   |          |  
|Cash and cash equivalents, end of period             |  | $                                 | (30     | ) |                       | 8,040    |   |                          | 2,731  |   |              |        |   |                   | 10,741   |  
|                                                     |  |                                   |         |   |                       |          |   |                          |        |   |              |         |   |                   |          |  



12



---

CONSOLIDATED STATEMENT OF CASH FLOWS



|                                                     |  |                                   |        |   |                       |         |   |                          |        |   |              |        |   |                   |         |  
|---------------------------------------------------- |  | --------------------------------- | ------ | - | --------------------- | ------- | - | ------------------------ | ------ | - | ------------ | ------ | - | ----------------- | ------- | -
|                                                     |  | Three Months Ended March 31, 2004 |       
|(In Thousands)                                       |  | Parent                            |        |   | GuarantorSubsidiaries |         |   | NonguarantorSubsidiaries |        |   | Eliminations |        |   | ConsolidatedTotal |        
|Operating activities:                                |  |                                   |        |   |                       |         |   |                          |        |   |              |        |   |                   |         |  
|Net earnings (loss)                                  |  | $                                 | 9,977  |   |                       | 7,270   |   |                          | 2,037  |   |              | (9,307 | ) |                   | 9,977   |  
|Depreciation and amortization                        |  |                                   | 255    |   |                       | 3,968   |   |                          | 70     |   |              |       |   |                   | 4,293   |  
|Deferred income taxes                                |  |                                   |       |   |                       | 4,337   |   |                          | (9     | ) |              |       |   |                   | 4,328   |  
|Compensation expense on restricted stock awards      |  |                                   | 183    |   |                       |        |   |                          |       |   |              |       |   |                   | 183     |  
|Changes in:                                          |  |                                   |        |   |                       |         |   |                          |        |   |              |        |   |                   |         |  
|Receivables                                          |  |                                   |       |   |                       | (6,366  | ) |                          | (3,962 | ) |              |       |   |                   | (10,328 | )
|Inventories                                          |  |                                   |       |   |                       | 7,262   |   |                          | (844   | ) |              |       |   |                   | 6,418   |  
|Intercompany receivables and payables                |  |                                   | (9,174 | ) |                       | 3,782   |   |                          | 5,392  |   |              |       |   |                   |        |  
|Accounts payable                                     |  |                                   | (33    | ) |                       | 12,122  |   |                          | 169    |   |              |       |   |                   | 12,258  |  
|Accrued expenses                                     |  |                                   | 3,812  |   |                       | (2,167  | ) |                          | 1,248  |   |              |       |   |                   | 2,893   |  
|Other, net                                           |  |                                   | 1,536  |   |                       | (3,130  | ) |                          | (31    | ) |              |       |   |                   | (1,625  | )
|                                                     |  |                                   |        |   |                       |         |   |                          |        |   |              |        |   |                   |         |  
|Net cash provided by (used for) operating activities |  |                                   | 6,556  |   |                       | 27,078  |   |                          | 4,070  |   |              | (9,307 | ) |                   | 28,397  |  
|                                                     |  |                                   |        |   |                       |         |   |                          |        |   |              |        |   |                   |         |  
|Investing activities:                                |  |                                   |        |   |                       |         |   |                          |        |   |              |        |   |                   |         |  
|Capital expenditures                                 |  |                                   |       |   |                       | (1,432  | ) |                          |       |   |              |       |   |                   | (1,432  | )
|Purchase of distribution rights                      |  |                                   |       |   |                       | (800    | ) |                          |       |   |              |       |   |                   | (800    | )
|Investment in subsidiaries                           |  |                                   | (7,270 | ) |                       | (2,037  | ) |                          |       |   |              | 9,307  |   |                   |        |  
|Sales of property, plant and equipment               |  |                                   |       |   |                       | 5       |   |                          | 1      |   |              |       |   |                   | 6       |  
|                                                     |  |                                   |        |   |                       |         |   |                          |        |   |              |        |   |                   |         |  
|Net cash provided by (used for) investing activities |  |                                   | (7,270 | ) |                       | (4,264  | ) |                          | 1      |   |              | 9,307  |   |                   | (2,226  | )
|                                                     |  |                                   |        |   |                       |         |   |                          |        |   |              |        |   |                   |         |  
|Financing activities:                                |  |                                   |        |   |                       |         |   |                          |        |   |              |        |   |                   |         |  
|Debt issue costs paid                                |  |                                   | (99    | ) |                       |        |   |                          |       |   |              |       |   |                   | (99     | )
|Issuance of common stock                             |  |                                   | 1,170  |   |                       |        |   |                          |       |   |              |       |   |                   | 1,170   |  
|Purchase of treasury stock                           |  |                                   | (351   | ) |                       |         |   |                          |        |   |              |        |   |                   | (351    | )
|Net change in revolving credit facility              |  |                                   |       |   |                       |        |   |                          | (36    | ) |              |       |   |                   | (36     | )
|Cash overdrafts                                      |  |                                   |       |   |                       | (37,999 | ) |                          | 9      |   |              |       |   |                   | (37,990 | )
|Debt repaid                                          |  |                                   |       |   |                       | (857    | ) |                          | (3     | ) |              |       |   |                   | (860    | )
|                                                     |  |                                   |        |   |                       |         |   |                          |        |   |              |        |   |                   |         |  
|Net cash provided by (used for) financing activities |  |                                   | 720    |   |                       | (38,856 | ) |                          | (30    | ) |              |       |   |                   | (38,166 | )
|                                                     |  |                                   |        |   |                       |         |   |                          |        |   |              |        |   |                   |         |  
|Change in cash and cash equivalents                  |  |                                   | 6      |   |                       | (16,042 | ) |                          | 4,041  |   |              |       |   |                   | (11,995 | )
|Cash and cash equivalents, beginning of period       |  |                                   |       |   |                       | 21,187  |   |                          | 2,237  |   |              |       |   |                   | 23,424  |  
|                                                     |  |                                   |        |   |                       |         |   |                          |        |   |              |        |   |                   |         |  
|Cash and cash equivalents, end of period             |  | $                                 | 6      |   |                       | 5,145   |   |                          | 6,278  |   |              |       |   |                   | 11,429  |  
|                                                     |  |                                   |        |   |                       |         |   |                          |        |   |              |        |   |                   |         |  



13



---

|Item 2: | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------



Executive Overview



We are the largest independent global provider of new parts, supply-chain management and other related value-added services to the aerospace aftermarket.
The aerospace aftermarket consists of parts needed for the scheduled and unscheduled maintenance, repair and modification of aircraft already in use but does not include parts used in the construction of new aircraft or engines. We serve this market
through our two wholly owned subsidiaries, Aviall Services, Inc., or Aviall Services, and Inventory Locator Service, LLC, or ILS. Aviall Services provides new parts and related supply-chain management services to the aerospace industry, and ILS
operates electronic marketplaces for buying and selling parts, equipment and services for the global aerospace, defense and marine industries.



Aviall Services purchases a broad range of new parts, components and supplies from over 220 original equipment manufacturers, or OEMs, including in some
cases several business units within such manufacturers, and resells them to over 18,500 government/military, general aviation/corporate and commercial airline customers, including over 300 airlines. Aviall Services also provides value-added services
to our customers and suppliers, such as repair and assembly services, supply-chain management services and information-gathering and delivery services.



ILS operates electronic marketplaces for buying and selling parts, equipment and services for the global aerospace, defense and marine industries. With
more than 14,000 users in more than 85 countries, ILSs electronic marketplaces contain more than 55 million line items representing over five billion parts for sale. ILS also maintains databases of over 119 million cross-referenced United
States, or U.S., government records, allowing users to research manufacturers and prices for specific parts, locate alternate parts, find additional uses and markets for parts and review U.S. government procurement histories.



Our first quarter 2005 net earnings of $13.0 million or $0.38 diluted
earnings per share increased 30.0% compared to net earnings of $10.0 million or $0.30 diluted earnings per share in the first quarter of 2004. Our operating income in the first quarter of 2005 was $25.1 million, an increase of $5.6 million or 28.7%
from the same quarter in 2004. These results were driven by the addition of commissions received for the sales of unique parts for General Electric, or GE, CF6-50 and CF6-80A, or CF6, engines which commenced in February 2005. During the GE
transition, only commissions on parts directly shipped by GE will be recorded until we commence shipping, which is estimated to begin in the third quarter of 2005. In addition, our selling and administrative expense increased only $0.5 million in
the first quarter of 2005 compared to the first quarter of 2004 largely due to year-over-year higher salary and benefit expenses offset by lower bad debt expense. This continues our leveraging of selling and administrative expense as a percentage of
sales. Accordingly, our first quarter 2005 selling and administrative expense as a percentage of sales was 9.6% compared to 9.7% in the first quarter of 2004.



Market conditions continue to be challenging during the first quarter of 2005. The combination of record high fuel costs, a slowing of growth in the
economies of many regions and the uncertain future being faced by many of our airline customers and some general aviation aircraft operators have combined to make our future performance and opportunities less certain. However, we believe that these
conditions also continue to support the need for the services offered by Aviall Services and ILS, which we believe is the principal reason for Avialls improved results in 2004 and into 2005.



Our future strategy will continue to focus on the acquisition of new
long-term supplier contracts as well as adding other traditional supplier relationships, delivering superior customer service and investing in technology and infrastructure to increase supplier and customer efficiencies. We will also continue to
evaluate potential strategic acquisitions and changes to our capital structure. We believe our ability to grow at a pace similar to that which we have experienced since 2000 will depend on the award of one or a series of new long-term supplier
contracts, the expansion of our traditional supplier base and product offerings and/or completion of a strategic acquisition. The timing and length of the process to procure new long-term agreements or relationships or a strategic acquisition is
unpredictable. We are currently actively pursuing a number of opportunities for additional growth, including possible significant, new long-term supplier agreements. No assurance can be given that we will be able to procure any such new
arrangements. To the extent we do secure any such relationship, the economies of scale derived from recent contracts may not be indicative of our future results, particularly in the early stages of new contract implementation. As an example of the
implementation of this strategy, we signed two additional exclusive distribution services agreements with Hamilton Sundstrand in April 2005, bolstering our relationship which began in 2004. The multi-product agreements award us exclusive worldwide
distribution rights for Hamilton Sundstrand-built spare parts that are unique to the 60kVA family of generators, the JT8D mechanical fuel controls, and the JT9D engine accessories. These parts are used on a wide range of aircraft, and we expect the
agreements to generate approximately $100 million of revenue over the next ten years.



14



---

We previously announced that net earnings from continuing operations in 2005 would be in the range of
approximately $55.0 million to $57.5 million or equivalent to approximately $1.60 to $1.66 per diluted share based upon the then-existing number of diluted shares. Aviall remains comfortable with the previous earnings estimate given in February
2005.



Critical Accounting Policies



For a discussion of our critical accounting policies, refer to Item 7:
Managements Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies included in our Annual Report on Form 10-K for the year ended December 31, 2004. There have been no material changes to
the critical accounting policies discussed in our Annual Report on Form 10-K for the year ended December 31, 2004.



Results of Operations-Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004



Net Sales. Net sales for Aviall Services were $284.0 million, an
increase of $7.6 million or 2.7% from the $276.4 million recorded in the first quarter of 2004.



The following table presents sales for Aviall Services in each of its geographic regions and in all market sectors (amounts in millions):



|                           |  |                               |      |   |                                 |      |   
|-------------------------- |  | ----------------------------- | ---- | - | ------------------------------- | ---- | --
|                           |  | Amount ofIncrease/ (Decrease) |      |   | Percentage Increase/ (Decrease) |     
|Geographic region:         |  |                               |      |   |                                 |      |   
|Europe                     |  | $                             | 5.5  |   |                                 | 27.9 | % 
|Asia-Pacific               |  | $                             | 2.8  |   |                                 | 10.3 | % 
|Americas                   |  | $                             | (0.7 | ) |                                 | (0.3 | )%
|                           |  |                              
|Market sector:             |  |                               |      |   |                                 |      |   
|Commercial airline         |  | $                             | 8.6  |   |                                 | 13.2 | % 
|General Aviation/corporate |  | $                             | 1.8  |   |                                 | 2.7  | % 
|Government/military        |  | $                             | (2.8 | ) |                                 | (1.9 | )%



Sales in the
commercial airline sector increased primarily due to stronger sales volumes in the sector as well as the addition of GE CF6 engine parts sales commissions, which commenced in February 2005. Sales in the general aviation/corporate sector increased
modestly because of increased flight activity tempered by the effect of fuel prices. Sales in the government/military sector decreased slightly primarily due to lower deliveries of military-related parts under the Rolls-Royce T-56, or RR T56,
distribution agreement. Sales of RR T56 products were $119.3 million in the first quarter of 2005 and $126.0 million in the first quarter of 2004. Aggregate sales of products supplied by Rolls-Royce and Honeywell were $180.3 million and $185.9
million in the first quarter of 2005 and 2004, respectively.



Net sales for ILS were $7.4 million, an increase of $0.3 million or 4.2% from the $7.1 million recorded in the first quarter of 2004.



Gross Profit. Gross profit of $53.2 million increased $6.1 million or 13.0% in the first quarter of 2005 compared to $47.1 million in the first
quarter of 2004. Gross profit as a percentage of net sales was 18.2% in the first quarter of 2005 as compared to 16.6% in the first quarter of 2004. The increased gross profit percentage was due to the addition of the GE CF6 engine parts sales
commissions, which commenced in February 2005. During the GE transition, only commissions on parts directly shipped by GE will be recorded until we commence shipping, which is estimated to begin in the third quarter of 2005.



Selling and Administrative Expense. Selling and administrative expense
increased $0.5 million to $28.1 million in the first quarter of 2005 but decreased as a percentage of net sales to 9.6% from 9.7% in the first quarter of 2004. Selling and administrative expense increased largely as a result of higher salary and
benefit expenses offset by lower bad debt expense.



Interest
Expense. Interest expense increased $0.7 million to $5.1 million in the first quarter of 2005 from $4.4 million in the first quarter of 2004. Noncash interest expense amounted to $0.4 million in both 2005 and 2004. Our net interest expense
increased primarily due to the initial funding of the GE CF6 agreement and the continued borrowings outstanding under our senior secured credit facility, or the Credit Facility, which had a balance of $82.2 million at March 31, 2005.



15



---

Provision for Income Taxes. Our income tax expense for the first quarter of 2005 was $7.0 million,
and our effective tax rate was 34.9%. Our income tax expense for the first quarter of 2004 was $5.2 million, and our effective tax rate was 34.2%. The increase in our effective tax rate from 34.2% in 2004 to 34.9% in 2005 resulted primarily from a
decrease in the allowable benefit for 2005 from the Extraterritorial Income exclusion.



Our effective tax rate increased from 27.6% at December 31, 2004 to 34.9% at March 31, 2005. The lower effective rate at December 31, 2004 is primarily due to the release in 2004 of a $3.4 million valuation allowance
for state tax net operating loss, or NOL, carryforwards.



Cash
payments made for federal, state and foreign income taxes were $0.6 million in the first quarter of 2005. Cash refunds received for federal, state and foreign income taxes were $0.3 million in the first quarter of 2004. Our cash income tax expense
is primarily comprised of Alternative Minimum Tax and foreign taxes on our foreign operations. Our cash income tax expense continues to be substantially lower than the U.S. federal statutory rate through the use of our U.S. federal NOL carryforward.



Liquidity and Capital Resources



Cash Flow. Net cash flow provided by operations was $11.6 million in
the first three months of 2005 compared to $28.4 million in the first three months of 2004. The $16.8 million decrease in cash provided by operating activities in 2005 compared to the same period in 2004 primarily resulted from a low March 31, 2005
ending accounts payable balance due to the timing of month end settlements with our suppliers and a decrease in accrued expenses related to interest payment timing on the $200 million of senior unsecured notes, or the Senior Notes, partially offset
by increased cash earnings in 2005 and lower inventory levels at March 31, 2005. Aviall Services inventory turns in March 2005 remained unchanged from December 2004 at 3.2 turns. The days sales outstanding for Avialls receivables
decreased from 51 days at December 31, 2004 to 47 days at March 31, 2005 due to increased sales volume.



Capital expenditures were $2.7 million in the first three months of 2005 compared to $1.4 million in the first three months of 2004. Capital spending in
both 2005 and 2004 was primarily for upgrades to Aviall Services enterprise resource planning software, computer hardware and operations infrastructure. Based on the capital projects approved by our board of directors, we expect to make
capital expenditures, including noncash capital amounts, totaling approximately $11.0 million in 2005. These projects include upgrades and enhancements associated with both our systems and operations infrastructure at Aviall Services and ILS. We
review our capital expenditure program periodically and modify it as required to meet current business needs. Under the Credit Facility, our capital expenditure limit is approximately $17.2 million, comprised of a $12.0 million limit for 2005 plus
$5.2 million of carryover amounts from prior years.



In January
2005, we entered into a distribution agreement with GE Engine Services, LLC and GE, whereby GE has appointed us as the exclusive worldwide distributor of unique parts for the CF6 engines for as long as these engines remain in service. As a result of
the GE CF6 agreement, we recorded $160.1 million for distribution rights and inventory.



Variable Working Capital (see definition below) increased $2.9 million in the first three months of 2005 as compared to a decrease of $8.3 million in the first three months of 2004. In 2005, we invested $159.4 million
in net capital expenditures and distribution rights as compared to $2.2 million in 2004. The combined cash used in the first three months of 2005 of $147.8 million by both operating and investing activities was funded by $7.1 million received for
common stock issued pursuant to the exercise of options, $82.2 million of net borrowings under the Credit Facility and a majority of the $91.6 million of cash on hand at the beginning of 2005. In addition, our cash overdraft position decreased $19.4
million in the first quarter of 2005. As a result, our cash balance decreased by $80.9 million.



By way of comparison, the combined cash provided in the first three months of 2004 of $26.2 million for both operating and investing activities together
with the $1.2 million received for common stock issued pursuant to the exercise of options and the use of $12.0 million of the cash on hand at the beginning of 2004 funded the $38.0 million decrease in our cash overdraft position last year.
Overdraft positions arise when we settle our accounts payable by issuing checks at month-end, and the recipients of these checks have not presented them to our banks for payment before our cut-off for accounting purposes. We classify these overdraft
positions as a separate current liability in our accompanying consolidated balance sheet because no right of offset existed against other cash accounts within the same bank. Generally accepted accounting principles, or GAAP, treat these amounts
similar to debt in the statement of cash flows by presenting cash overdrafts as a financing activity. We expect to continue large month-end settlements with our major suppliers, but the overdrafts will change in accordance with the variable amounts
of products shipped to us from time to time.



16



---

Assuming our current level of internal growth, profitability, and the present relationship between
increased revenues, Variable Working Capital requirements and our annual capital expenditures, we expect to generate strong positive cash flows from operations although these may be offset from time to time by overdraft obligations and increases in
Variable Working Capital, particularly when our business is growing. Assuming the foregoing, we project cash flow in 2005 for operating activities will exceed $50.0 million. Our cash flow from operating activities also depends on the timing of the
delivery and payment for inventory as discussed above. In some months, we receive much larger deliveries than the average of the preceding several months. These larger deliveries can significantly alter our cash flow for that month and on a
cumulative basis for both the quarter and the fiscal year to date.



In 2005, we expect to fund our internal growth and any related capital expenditures out of cash flow from operations and borrowings under the Credit Facility. If we are awarded one or more additional long-term supplier agreements in 2005
that require significant investments in distribution rights and inventory, we may be required to increase availability and borrow significant amounts under the Credit Facility or we may be required to sell debt, equity or other securities under our
shelf registration statement or otherwise to fund the costs associated with the investment. Likewise, if we enter into a strategic acquisition or if our current projections prove to be inaccurate in 2005, we may be required to borrow significant
amounts under the Credit Facility or to sell securities.



The
following table presents a reconciliation of our Variable Working Capital to working capital for the periods presented:



|                                          |  |                              |         |   |      |          |  
|----------------------------------------- |  | ---------------------------- | ------- | - | ---- | -------- | -
|                                          |  | Three Months Ended March 31, |        
|(In Thousands)                            |  | 2005                         |         |   | 2004 |         
|Receivables, net                          |  | $                            | 154,979 |   |      | 149,607  |  
|Plus: Inventories                         |  |                              | 308,021 |   |      | 321,442  |  
|Less: Accounts payable                    |  |                              | (86,534 | ) |      | (107,080 | )
|                                          |  |                              |         |   |      |          |  
|Variable Working Capital                  |  |                              | 376,466 |   |      | 363,969  |  
|                                          |  |                              |         |   |      |          |  
|Plus:                                     |  |                              |         |   |      |          |  
|Cash and cash equivalents                 |  |                              | 10,741  |   |      | 11,429   |  
|Prepaid expenses and other current assets |  |                              | 5,330   |   |      | 3,759    |  
|Deferred income taxes                     |  |                              | 33,798  |   |      | 19,075   |  
|Less:                                     |  |                              |         |   |      |          |  
|Current portion of long-term debt         |  |                              | (1,190  | ) |      | (2,920   | )
|Cash overdrafts due to outstanding checks |  |                              | (23,602 | ) |      | (5,625   | )
|Revolving line of credit                  |  |                              | (82,218 | ) |      | (473     | )
|Accrued expenses                          |  |                              | (40,454 | ) |      | (42,460  | )
|                                          |  |                              |         |   |      |          |  
|Working capital                           |  | $                            | 278,871 |   |      | 346,754  |  
|                                          |  |                              |         |   |      |          |  



We define Variable
Working Capital as receivables plus inventories less accounts payable. In no event should Variable Working Capital be considered as an alternative to working capital or any GAAP measure as an indicator of our performance, nor should Variable Working
Capital be considered as an alternative to working capital as an indicator of our relative liquidity to meet our obligations within an ordinary business cycle. We believe that Variable Working Capital is a useful measure, along with measurements
under GAAP, in evaluating our financial performance and our ability to leverage sales and earnings from our Variable Working Capital. In addition, we use Variable Working Capital as a financial measure to evaluate our management of working capital
and as a metric to measure contract and supplier performance.



Senior Unsecured Debt. We have $200.0 million of Senior Notes outstanding. The Senior Notes bear interest at 7.625% per annum and mature on July 1, 2011, unless previously redeemed at our option. We may redeem some or all of the
Senior Notes at specified redemption prices at any time after July 1, 2007. In addition, prior to July 1, 2006, we may redeem up to 35% of the Senior Notes from the proceeds of qualifying equity offerings.



The Senior Notes are our senior unsecured obligations and are equal in right
of payment to all of our senior indebtedness. The Senior Notes are guaranteed on a senior unsecured basis by each of our domestic subsidiaries.



In November 2003, we entered into an interest rate swap agreement to manage interest rate risk exposure on $50.0 million of the $200.0 million principal
amount of Senior Notes. Under this agreement which expires in 2011, we pay floating interest amounts in exchange for giving up the right to pay a fixed amount without an exchange of the underlying principal amount.



17



---

Senior SecuredDebt. On January 28, 2005, we entered into an amendment to the Credit
Facility in connection with the GE CF6 agreement. As amended, the Credit Facility consists of a $260.0 million revolving credit and letter of credit facility due as a balloon payment in 2008, with availability determined by reference to a borrowing
base calculated using our eligible accounts receivable and inventory and after deducting reserves required by the lenders. As of March 31, 2005, we had $82.2 million of borrowings outstanding under the Credit Facility and had issued letters of
credit for $0.9 million. In addition, we had $140.7 million available for additional borrowings under the Credit Facility and our borrowing base was $223.8 million. As of March 31, 2005, borrowings under the Credit Facility bear interest based upon
either: (1) a Eurodollar Rate plus an applicable margin ranging from 1.5% to 2.5% depending upon our financial ratios or (2) a Base Rate plus an applicable margin ranging from 0.5% to 1.5% depending upon the same financial ratios. We expect to
utilize both of these interest rate options during 2005. As of March 31, 2005, the weighted average interest rate on the Credit Facility was 4.90%. An annual commitment fee of 0.5% is payable monthly in arrears on the daily unused portion of the
Credit Facility. Obligations under the Credit Facility are collateralized by substantially all of our domestic assets and 65% of the stock of certain of our foreign subsidiaries. The Credit Facility also contains default clauses that permit the
acceleration of all amounts due following an event of default at the discretion of the lenders, and lock-box provisions that apply our cash collections to outstanding borrowings. Based on the terms of the Credit Facility and pursuant to EITF Issue
No. 95-22, Balance Sheet Classification of Revolving Credit Agreement Obligations Involving Lock-Box Arrangements, we classify amounts outstanding under the Credit Facility, if any, as current.



We also maintain a Canadian $6.0 million secured revolving credit facility,
or the Canadian Revolver. As of March 31, 2005, we had no borrowings outstanding under the Canadian Revolver.



Debt Covenants. The Credit Facility contains various restrictive operating and financial covenants, including several that are based on earnings
before interest, taxes, depreciation, amortization, extraordinary gains or losses, and one-time items, or Adjusted EBITDA. We must comply with a maximum leverage ratio covenant that measures the ratio of our outstanding debt to our Adjusted EBITDA
for the trailing four quarters. We must maintain a maximum leverage ratio of: 4.50 to 1 for the fiscal quarters ending on or before June 30, 2005; 4.00 to 1 for the fiscal quarter ending September 30, 2005; 3.50 to 1 for the fiscal quarter ending
December 31, 2005; and 3.25 to 1 for the fiscal quarters ending on or after March 31, 2006. This maximum leverage ratio covenant was 4.50 to 1 at March 31, 2005. We must also comply with a minimum interest coverage ratio covenant that measures the
ratio of our Adjusted EBITDA for the trailing four quarters to our interest expense during the trailing four quarters. The minimum interest coverage ratio covenant was 3.50 to 1 at March 31, 2005 and will remain at that level for all periods
thereafter. Furthermore, we must maintain a tangible net worth of not less than $205.8 million plus 75% of the cumulative consolidated net income for each fiscal quarter ending on or after June 30, 2004. As of March 31, 2005, the required tangible
net worth was $240.4 million. We are permitted to make capital expenditures under the Credit Facility in any fiscal year up to $12.0 million, plus any unused carryover of up to $10.0 million from prior years. As a result, we must limit our capital
expenditures in 2005 to no more than $17.2 million, which includes $5.2 million of allowed carryover spending from prior years.



The Senior Notes also contain various restrictive covenants. We may not incur additional indebtedness unless we maintain a consolidated interest coverage
ratio of at least 2.0 to 1.0 or unless the debt is otherwise permitted under the indenture. The consolidated interest coverage ratio measures the ratio of our EBITDA, as defined in the indenture relating to the Senior Notes, for the trailing four
quarters to our interest expense for such quarters. Subject to specified exceptions, we may not make payments on or redeem our capital stock, make certain investments or make other restricted payments unless we maintain a consolidated interest
coverage ratio of at least 2.0 to 1.0 and otherwise have available 50% of cumulative consolidated net income or capital stock sale proceeds from which such payments may be made. We are unable to incur liens unless expressly permitted under the
Senior Notes or unless the Senior Notes are equally and ratably secured. We may not sell or otherwise dispose of any of the capital stock of our subsidiaries unless specifically authorized. We must receive fair market value for any asset sales and
the consideration must be paid at least 75% in cash, cash equivalents or assumed liabilities. To the extent such proceeds are received, we must reinvest any proceeds exceeding $10 million in additional assets within a period of 365 days or
thereafter repay senior debt or repurchase Senior Notes. Additionally, we must repurchase the Senior Notes at a price equal to 101% of the principal amount of the Senior Notes upon a change of control. The indenture relating to the Senior Notes also
contains additional covenants.



We are currently, and expect to
remain, in compliance for at least the next twelve months in all material respects with the covenants in the Credit Facility and the Senior Notes.



18



---

The following table presents a reconciliation of our EBITDA and Adjusted EBITDA, as defined in the Credit
Facility, to net earnings for the trailing four quarters ended March 31, 2005:



|                                      |  |                   |        |                  |        |   |                   |        |   |                  |        |   |       |        |  
|------------------------------------- |  | ----------------- | ------ | ---------------- | ------ | - | ----------------- | ------ | - | ---------------- | ------ | - | ----- | ------ | -
|(In Thousands)                        |  | SecondQuarter2004 |        | ThirdQuarter2004 |        |   | FourthQuarter2004 |        |   | FirstQuarter2005 |        |   | Total |       
|Net earnings                          |  | $                 | 13,465 |                  | 10,021 |   |                   | 9,706  |   |                  | 13,000 |   |       | 46,192 |  
|Plus:                                 |  |                   |        |                  |        |   |                   |        |   |                  |        |   |       |        |  
|Income tax expense                    |  |                   | 2,819  |                  | 3,961  |   |                   | 4,472  |   |                  | 6,978  |   |       | 18,230 |  
|Interest expense                      |  |                   | 4,207  |                  | 4,169  |   |                   | 4,021  |   |                  | 5,103  |   |       | 17,500 |  
|Depreciation and amortization expense |  |                   | 3,914  |                  | 4,020  |   |                   | 3,736  |   |                  | 4,876  |   |       | 16,546 |  
|                                      |  |                   |        |                  |        |   |                   |        |   |                  |        |   |       |        |  
|EBITDA                                |  |                   | 24,405 |                  | 22,171 |   |                   | 21,935 |   |                  | 29,957 |   |       | 98,468 |  
|Noncash losses (gains)                |  |                   | 615    |                  | (490   | ) |                   | (110   | ) |                  | (78    | ) |       | (63    | )
|                                      |  |                   |        |                  |        |   |                   |        |   |                  |        |   |       |        |  
|Adjusted EBITDA                       |  | $                 | 25,020 |                  | 21,681 |   |                   | 21,825 |   |                  | 29,879 |   |       | 98,405 |  
|                                      |  |                   |        |                  |        |   |                   |        |   |                  |        |   |       |        |  



The Adjusted EBITDA
calculation above is prepared in accordance with the terms of the Credit Facility. The noncash gains and losses, which are included in the Adjusted EBITDA calculation in accordance with the terms of the Credit Facility, may occur again. The
depreciation and amortization expense above excludes debt issuance cost amortization. Adjusted EBITDA is presented solely to provide information on our debt covenants, and EBITDA and Adjusted EBITDA should not be considered an alternative to
operating results or cash flows calculated in accordance with GAAP.



Contractual Obligations. With the exception of the $82.2 million of new borrowings outstanding under the Credit Facility as of March 31, 2005, there have been no material changes in our contractual obligations as set forth in
Item 7: Managements Discussion and Analysis of Financial Condition and Results of OperationsContractual Obligations in our Annual Report on Form 10-K for the year ended December 31, 2004.



New Accounting Pronouncements. In December 2004, the Financial
Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards No. 123 (revised 2004), or SFAS 123R, Share-Based Payment, which replaces Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, and supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation -
Transition and Disclosure - an amendment of FAS 123. SFAS 123R addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for either equity instruments of the company or liabilities
that are based on the fair value of the companys equity instruments or that may be settled by the issuance of such equity instruments. SFAS 123R addresses all forms of share-based payment awards, including shares issued under employee stock
purchase plans, stock options, restricted stock and stock appreciation rights. SFAS 123R eliminates the ability to account for share-based compensation transactions using the intrinsic method and generally would require that such transactions be
accounted for using a fair-value-based method and recognized as expense over the period during which an employee is required to provide services in exchange for the award. SFAS 123R is effective for annual periods beginning after June 15, 2005. As
such, we will implement the provisions of SFAS 123R effective January 1, 2006. We are in the process of evaluating the three allowable methods of transition to SFAS 123R but have not yet determined which method will be used. In 2006, we will incur
compensation expense under SFAS 123R, as currently written, related to unvested options granted prior to January 1, 2006.



19



---

Forward-Looking Statements



This report contains certain forward-looking statements (as such term is defined in the Private Securities Litigation Reform
Act of 1995) that are based on the beliefs of our management, as well as assumptions and estimates made by, and information currently available to, our management. When used in this report, the words anticipate, believe,
estimate, expect, intend and similar expressions, as they relate to us or our management, identify forward-looking statements. Such statements reflect our current views with respect to future events and are
subject to risks, uncertainties and assumptions relating to our operations and results of operations as well as those of our customers and suppliers, including as a result of competitive factors and pricing pressures, shifts in market demand,
general economic conditions and other factors including, among others, those that effect flight activity in the commercial, business, government/military, and general/corporate aviation segments, the business activities of our customers and
suppliers and developments in information and communication technology. Additional risks are set forth in our Annual Report on Form 10-K for the year ended December 31, 2004. Should one or more of these risks or uncertainties materialize, or should
underlying assumptions or estimates prove incorrect, actual results may vary materially from those described in the forward-looking statements.



|Item 3: | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------



We are exposed to market risk from changes in interest rates and foreign exchange rates. From time to time, we have used financial instruments to offset
these risks. These financial instruments are not used for trading or speculative purposes. We did not experience any significant changes in market risk during the first three months of 2005. Our market risk is described in more detail in Item
7A: Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for the year ended December 31, 2004.



|Item 4: | Controls and Procedures
|------- | -----------------------



The term disclosure controls and procedures is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the
Exchange Act. This term refers to the controls and procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified by the Securities and Exchange Commission. Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this quarterly report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of
the period covered by this quarterly report.



There were no
changes to our internal control over financial reporting during our first quarter of 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



20



---



PART II - OTHER
INFORMATION



|Item 1: | Legal Proceedings
|------- | -----------------



Not applicable.



|Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------



The following table summarizes repurchases of our common stock in the quarter ended March 31, 2005:



|                                     |  |                                  |  |                            |       |                                                                              |   |                                                                                                           |  
|------------------------------------ |  | -------------------------------- |  | -------------------------- | ----- | ---------------------------------------------------------------------------- | - | --------------------------------------------------------------------------------------------------------- | -
|Period                               |  | TotalNumber ofSharesPurchased(1) |  | AveragePrice Paidper Share |       | Total Number ofShares Purchasedas Part of PubliclyAnnounced Plansor Programs |   | Maximum Number (orApproximate Dollar Value)of Shares that May Yet be Purchased Under thePlans or Programs
|January 1, 2005 - January 31, 2005   |  | 13,294                           |  | $                          | 23.70 |                                                                              |  |                                                                                                           | 
|February 1, 2005 - February 28, 2005 |  |                                 |  | $                          |      |                                                                              |  |                                                                                                           | 
|March 1, 2005 - March 31, 2005       |  | 1,993                            |  | $                          | 28.31 |                                                                              |  |                                                                                                           | 
|                                     |  |                                  |  |                            |       |                                                                              |   |                                                                                                           |  
|Total                                |  | 15,287                           |  | $                          | 24.30 |                                                                              |  |                                                                                                           | 
|                                     |  |                                  |  |                            |       |                                                                              |   |                                                                                                           |  



|(1) | The 15,287 total number of shares purchased were shares of restricted stock withheld for the payment of withholding taxes upon vesting of restricted stock.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 3: | Defaults Upon Senior Securities
|------- | -------------------------------



Not applicable.



|Item 4: | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------



Not applicable.



|Item 5: | Other Information
|------- | -----------------



Not applicable.



|Item 6: | Exhibits
|------- | --------



|     |  |                                                                                                                                                                                  
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934                                                                       
|     | 
|31.2 |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934                                                                       
|     | 
|32.1 |  | Certifications pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002



21



---



SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|               |  |  |  |              |  |                       |  |                                                  
|-------------- |  |  |  | ------------ |  | --------------------- |  | -------------------------------------------------
|               |  |  |  | AVIALL, INC.
|               |  |  | 
|April 28, 2005 |  |  |  | By:          |  | /s/    COLIN M. COHEN
|               |  |  |  |              |  |                       |  | Colin M. Cohen                                   
|               |  |  |  |              |  |                       |  | Senior Vice President and Chief Financial Officer
|               |  |  |  |              |  |                       |  | (Principal Financial Officer)                    



22



---



INDEX TO EXHIBITS



|            |  |                                                                                                                                                                                  
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                      
|31.1        |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934                                                                       
|            | 
|31.2        |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934                                                                       
|            | 
|32.1        |  | Certifications pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002



23