Appraisals, Liquidations, Auctions, and Consulting

The subject data shown as an example is a current borrower, “APSP”, which is an aircraft parts company. The original inventory data consisted of seven original Excel inventory data, sales, and identification files.

After each file was reviewed to address any obvious layout or content errors, each of the Excel files were imported into VRG’s proprietary inventory/profiling program. Each file was then restructured for conformity to these program layout standards.

When working with an aircraft parts inventory, it is standard for VRG to request an “application” field from the company. This field identifies what type/model of aircraft and/or engine the part is most commonly used on, which is an integral part of calculating recovery values. At the time of this appraisal, APSP could not provide the necessary information into a separate field, which is a common occurrence. Therefore, in order for VRG to identify the application of a part, we had to examine the structure of each part number with the information that was provided by the company.

This method of inventory identification is labor intensive, due to the variety of possible layouts and the need to verify the accuracy of all stages of tagging within the company.

During the course of this process, VRG identified two portions of APSP’s inventory that would have to be segregated. The first was the PMA (Parts Manufacturer Approval) inventory, which has a possibility for higher recovery than a more generic part and the second was a few pieces of equipment (compressors) that needed to be identified and segregated into a class outside of the aircraft parts inventory. This classification was not accomplished by APSP, as they did not have any prior reason for doing so. However, without these efforts by VRG, particularly segregation of the PMA classes, an accurate portrayal of this collateral would have been virtually impossible.

To facilitate the classification process, VRG requested and received an excel file from the company that contained a list of all PMA part numbers, which we then assigned, converted, and used to cross reference to the inventory file in order to tag these part numbers. The equipment inventory (compressors) was tagged based on the description field and put into a separate category.

Aircraft parts inventories also require a condition code that is applied to each part. VRG uses a set of industry standard abbreviations for these codes. APSP uses a combination of these same industry standard abbreviations, as well as their own internally created abbreviations. For this aspect, we evaluated the company’s internal abbreviations one‑by-one in order to convert them to their equivalent of the industry standard.

In addition to any company specific tagging, VRG also uses its program to identify particular segments of any inventory that could affect value, which includes but is not limited to packaging, supplies, obsolete items, soft costs, et al. We also tag for new product, which is defined as any part with an entry date that falls within the previous twelve months of the effective date of an appraisal. With APSP, we not only used the date entered, but also verified that the same part number was not listed in the inventory with a previous date. This is because new product is only defined as such if it has not been carried in the inventory prior to the twelve-month period preceding the appraisal.

To gain a company wide true turn analysis of this company we combined duplicate part numbers to get the total on-hand quantity for each part number. We also combined the sales quantity information in the same manner to get total sales quantities for each part number. The sales file was then cross referenced against the inventory file to post sales information to the inventory file. Once the information was posted and checked for errors, we then calculated turn using parameters based on inventory type, appraisers’ knowledge, and/or the lending company’s specific instructions. This overall turn was then posted back to the original tables and recalculated to reflect the true turn results on each part number listed separately. Then, the original file turn analysis was reconciled to the combined company wide turn analysis.

For ASPS, VRG used a twenty-four (24) month turn cut-off period for identifying slow‑moving inventory, which differs from the company’s standard, which was anything with an inventory entrance date older than thirty-six months. This, in our judgment, had nothing to with value and merely emphasized that a major shift to ASPS’s calculation of reserving for obsolescence was required, as it needed to be based on actual movement and not age.

When working with aircraft parts, the part with the highest recovery is not necessarily the newest part; conversely, the oldest part does not always have the lowest recovery, but rather recovery is based on whether or not the part itself is selling in the marketplace and the actual condition of that part. By using ASPS’s thirty-six month aging system, their slow-moving inventory was approximately 1.2 million. By using VRG’s parameters of turn on the inventory, two-million in slow-moving inventory was identified, which was approximately $800,000.00 more than what the company was reporting. This is obviously a significant amount and one that had not been considered by any of the company’s past lenders.

PART NO	DESCRIPTION	CATEGORY	W/H	LOC	QTY	UM	CC	RECEIVED DATE
2-200-070-23	TORQUEMETER KIT	TEXTRON	XX	G4-05-05	2	EA	OH	3/25/02
2-121-140-44	BLADE	TEXTRON	XX	G4-06-03	34	EA	NE	2/27/02
74911	PLATE & BRG ASSY		XX	D1-03-01	14	EA	NS	2/27/02
75866	COMPENSATING BELLOW	CECO FUEL	NO	G2-05-02	4	EA	NE	11/19/01
2-100-040-16	VANE ASSY	TEXTRON	NO	G2-05-08	1	EA	NE	11/19/01
1-030-192-04	GEARSHAFT	AVCO	NO	G2-05-02	1	EA	NE	11/19/01
75019	VALVE	CECO FUEL	NO	G2-05-05	1	EA	NE	11/19/01
23009386	VANE	GENERAL	8	M3-02-03	6	EA	OH	7/30/03
23058584	BEARING, ROLLER,	GENERAL	8	H2-02-01	1	EA	NE	6/2/03
T23055591	BEARING, ROLLER-CYL 55 X	GENERAL	8	L2-01-01	1	EA	FN	7/22/03
150-022-002	FUEL FLOW TRANSMITTER	F16 AIRCRAFT	5	INSP	1	EA	OH	6/9/04

PART NO	UNIT COST	EXT COST	DAYS SALES ON-HAND	ELIGIBLE QTY	ELIGIBLE EXTENDED COST	EXCESS QTY	EXCESS EXTENDED COST
2-200-070-23	$17,284.85	$34,569.70		0	$0.00	2	$34,569.70
2-121-140-44	$575.30	$19,560.20		0	$0.00	34	$19,560.20
74911	$1,026.81	$14,375.34	7,210	1	$1,026.81	13	$13,348.53
75866	$3,969.00	$15,876.00		0	$0.00	4	$15,876.00
2-100-040-16	$4,752.00	$4,752.00		0	$0.00	1	$4,752.00
1-030-192-04	$2,377.10	$2,377.10		0	$0.00	1	$2,377.10
75019	$1,963.86	$1,963.86		0	$0.00	1	$1,963.86
23009386	$1,400.00	$8,400.00	1,803	2	$2,800.00	4	$5,600.00
23058584	$2,400.00	$2,400.00		0	$0.00	1	$2,400.00
T23055591	$2,105.11	$2,105.11		0	$0.00	1	$2,105.11
150-022-002	$5,000.00	$5,000.00		0	$0.00	1	$5,000.00

Once turn was established, we created a slow-moving report for APSP’s review, which contained every part number where at least one unit was considered to be slow-moving based on the parameters set for turn by VRG. The company then reviewed the slow-moving report and identified any part numbers where they disagreed with the slow-moving report, with the basis for this determination. For example:

NOTE 6: Order for Directorate of Aeronautical Engineering (Royal Thai Air Force.)

NOTE 7: Will be used by Samsung in August. Samsung awaiting final Korean government approval on fuel control overhaul. They have notified us of pending order.

VRG’s appraisers reviewed APSP’s reasoning for changing the status of a part number from slow‑moving to current and, when in concurrence, amended the inventory file by making the necessary adjustments to the inventory turn using a series of scripts and query statements. A subsequent summary of inventory was created for the appraisers review and valuation. Once the appraiser provides his opinion of value for the inventory, the inventory staff proceeds with another series of scripts to apply the assigned values to the inventory. A “rough draft” summary of inventory is then issued to the appraiser for further review and consideration. After the appraiser has approved the final summary on an assignment, the necessary reports needed to produce the formal appraisal are created.

In the appraisal of APSP, VRG analyzed one (1) original inventory file, six (6) original sales files, and one (1) original reference file. Through a series of table restructuring, marriage, cross referencing, query statements, and scripts, approximately one hundred and twenty (120) additional working files were created in order to formulate the final summary and supporting reports that are clear, concise, and quick to review.

APSP SUMMARY OF INVENTORY
ORDERLY LIQUIDATION VALUE
Effective Date: May 31, 2004


	PRODUCT CATEGORY DESCRIPTION	EXTENDED COST	WEIGHTED PERCENT	EXTENDED VALUE	*SLOW-MOVING EXTENDED COST


	PARTS	$397,425.75	64.84%	$257,708.44	$1,089,971.19
	HIGH PROBABLITY SALES PARTS	$277,368.15	48.07%	$133,317.70
	CF6-CFM ENGINE PARTS	$25,217.02	66.23%	$16,700.00
	F100 ENGINE PARTS	$12,159.82	71.87%	$8,739.40	$139,280.31
	T53 ENGINE PARTS	$63,283.20	46.84%	$29,644.30	$171,971.27
	T55 ENGINE PARTS	$11,397.38	46.60%	$5,311.65	$107,898.12
	T56 ENGINE PARTS	$1,026,708.98	70.75%	$726,361.00	$354,332.98
	T56 HIGH PROBABILITY ENGINE PARTS	$28,512.76	68.39%	$19,500.00
	COMPRESSORS	$34,197.80	73.10%	$25,000.00
	SOLE SOURCE PMA'S	$234,626.23	84.48%	$198,221.25
	CF6/CFM SOLE SOURCE PMA'S	$187,942.59	87.71%	$164,838.75
	WRITTEN DOWN ON BOOKS				$70,703.09
	NON RECURRING EXPENSES				$27,825.00

	TOTAL ELIGIBLE:	$2,298,839.68


	GROSS RECOVERY:		68.96%	$1,585,342.49	$1,961,981.96


	Less Liquidation Expenses (Based on a Six-Month Period):			($251,748.50)


	NET RECOVERY:		58.01%	$1,333,593.99



	GRAND TOTAL COST:				$4,260,821.64


*EXEMPT INVENTORY SALVAGE VALUE ESTIMATED AT APPROXIMATELY 15% - 20% RECOVERY

At the time of the second appraisal of APSP, the company had added an application field to their inventory data reports. This made identification of aircraft/engine type more streamlined for both the APSP and VRG. It also made it possible for the examiner to portion out the inventory in a manner consistent with the summary requirements for inventory breakdown. This portioning is not always exact with that listed on the summary due to the multiplicity of applications an aircraft parts distributor uses. The summary of inventory is usually compressed to show only the main areas of inventory, while combining smaller portions of inventory under a general category, i.e., miscellaneous, general, etc. This field also identifies whether or not a part is PMA.

Once a company has been profiled by VRG, all information and programming used on a job to facilitate any subsequent profiling is kept in our master files for future reference by any of the parties involved. While there are portions of the inventory data, such as structuring, that needs to be accomplished each time we profile a company, other portions of the appraisal, such as scripts, are reviewed for applicability and conformity and can be re-used to streamline the process. Also, with multiple appraisals over a period of time, VRG can track the changes in inventory using graphing. This allows an examiner to see any changes that may affect the inventory either positive or negative with a single sheet.

In the case of APSP, we have appraised this company four times in the last two (2) years. Using VRG’s slow-moving parameters allows the company to see the portion of their inventory that is considered slow-moving and facilitates the release of these inventories to clean their shelves of dead inventory. This is demonstrated in the provided charts below.