UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
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 1-5483
WHITEHALL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 41-0838460
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
2659 Nova Drive, Dallas, Texas
Mailing Address: P.O. Box 29709, Dallas, Texas 75229
(Address of Principal Executive Offices) (Zip Code)
972-247-8747
Registrant's Telephone Number, Including Area Code
N/A
(Former Name, Former Address and Former
Fiscal Year, If Changed since Last Report)
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 X No
Indicate the number of shares outstanding
of each of the issuer's classes of common
stock, as of the close of the latest
practicable date.
Class Outstanding at July 30, 1998
Common Stock, $0.10 par value 5,530,000 Shares
INDEX
QUARTERLY REPORT ON FORM 10-Q
For Quarter Ended June, 1998
WHITEHALL CORPORATION AND SUBSIDIARIES
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
June 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of
Operations Three and six months ended June 30, 1998
and 1997 4
Consolidated Statements of Cash Flows
Six months ended June 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial
Statements June 30, 1998 6
Item 2. Management's Discussion and
Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
PART I - FINANCIAL INFORMATION
WHITEHALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - (UNAUDITED)
<TABLE>
<S> <C> <C>
June 30, December 31,
ASSETS 1998 1997
CURRENT ASSETS
Cash and cash equivalents $ 1,933,000 $ 1,251,000
Accounts receivable, net 16,280,000 16,234,000
Income taxes receivable 2,590,000 2,590,000
Inventories 6,549,000 6,029,000
Prepaid expenses and other 987,000 636,000
Current deferred income tax 1,053,000 1,053,000
Notes receivable 3,147,000 516,000
TOTAL CURRENT ASSETS 32,539,000 28,309,000
INVESTMENTS 1,150,000 -
PROPERTY, PLANT AND EQUIPMENT 30,236,000 29,767,000
Less allowances for depreciation (13,105,000) (12,200,000)
17,131,000 17,567,000
NOTES RECEIVABLE - 2,723,000
$ 50,820,000 $ 48,599,000
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 6,330,000 $ 6,618,000
Bank line of credit 11,886,000 9,713,000
Current portion of Long term debt 280,000 283,000
Current portion of obligations under capital lease 84,000 84,000
Accrued environmental costs 3,705,000 3,954,000
TOTAL CURRENT LIABILITIES 22,285,000 20,652,000
NON-CURRENT LIABILITIES 4,614,000 4,645,000
LONG TERM DEBT, net of current portion 121,000 263,000
SHAREHOLDERS' EQUITY
Common stock, $.10 par value:
Authorized shares - 20,000,000
Issued shares (1998 and 1997 - 7,691,312) 770,000 770,000
Additional paid-in capital 1,914,000 1,914,000
Retained earnings 37,261,000 36,500,000
39,945,000 39,184,000
Less treasury shares at cost
(1998 and 1997 - 2,161,312) (16,145,000) (16,145,000)
23,800,000 23,039,000
$ 50,820,000 $ 48,599,000
See notes to condensed consolidated financial statements
</TABLE>
WHITEHALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - (UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
For the Three Months Ended For the Six Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
Net Sales
Services $ 18,086,000 $ 19,035,000 $ 37,852,000 $ 31,914,000
Products - - - 672,000
18,086,000 19,035,000 37,852,000 32,586,000
Cost of Sales
Services 15,852,000 15,511,000 34,940,000 26,091,000
Products - - - 411,000
15,852,000 15,511,000 34,940,000 26,502,000
GROSS PROFIT 2,234,000 3,524,000 2,912,000 6,084,000
Operating expenses:
Selling, general and
administrative 1,270,000 1,365,000 2,204,000 2,864,000
Total operating expenses 1,270,000 1,365,000 2,204,000 2,864,000
INCOME FROM OPERATIONS 964,000 2,159,000 708,000 3,220,000
Other income, net 308,000 57,000 557,000 887,000
INCOME BEFORE INCOME TAXES 1,272,000 2,216,000 1,265,000 4,107,000
Income tax 509,000 887,000 506,000 1,643,000
NET INCOME $ 763,000 $ 1,329,000 $ 759,000 $ 2,464,000
NET INCOME PER SHARE - BASIC $ 0.14 $ 0.24 $ 0.14 $ 0.45
NET INCOME PER SHARE - DILUTED $ 0.13 0.23 $ 0.13 0.43
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC 5,530,000 5,509,969 5,530,000 5,509,185
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED 5,794,653 5,757,105 5,797,984 5,746,356
See notes to condensed consolidated financial statements
</TABLE>
WHITEHALL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
<TABLE>
<S> <C> <C>
For the Six Months Ended
June 30, June 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 759,000 $ 2,464,000
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization 905,000 610,000
Gain on sale of Electronics segment - (727,000)
Equity in earnings of equity investment (1,150,000) (204,000)
Changes in assets and liabilities net of sale of Electronics:
segment
Accounts receivable, net (46,000) (12,717,000)
Income taxes receivable - 1,136,000
Inventories (520,000) (1,310,000)
Prepaid expenses and other (351,000) 102,000
Accounts payable and other accrued liabilities (288,000) 2,673,000
Accrued environmental costs (249,000) (102,000)
Other assets and liabilities 61,000 (40,000)
Net cash used in operating activities (879,000) (8,115,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (469,000) (2,328,000)
Proceeds from sale of Electronics segment - 1,720,000
Net cash used in investing activities (469,000) (608,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in bank line of credit loan, net of repayments 2,175,000 6,817,000
Payments on long-term debt (145,000) (141,000)
Net proceeds from the exercise of stock options - 100,000
Net cash provided by financing activities 2,030,000 6,776,000
NET DECREASE IN CASH AND CASH EQUIVALENTS 682,000 (1,947,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,251,000 2,656,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,933,000 $ 709,000
See notes to condensed consolidated financial statements
</TABLE>
PART I - FINANCIAL INFORMATION
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
June 30, 1998
1. Basis of Presentation
The accompanying unaudited condensed
consolidated financial statements
include the accounts of Whitehall
Corporation and those of all of its
majority-owned subsidiaries
("Whitehall" or the "Company") and
have been prepared in accordance with
Form 10-Q instructions and thus do
not include all of the information
and footnotes required by generally
accepted accounting principles for
complete financial statements. In the
opinion of management, all
adjustments considered necessary for
a fair presentation have been
included.
Operating results for the three and
six month periods ending June 30,
1998, are not necessarily indicative
of the results that may be expected
for the entire year.
During February of 1997, the
Financial Accounting Standards Board
issued SFAS No. 128, Earnings per
Share, which became effective for all
financial statements issued for
periods ending after December 15,
1997, including interim periods.
SFAS No. 128 provides for the
presentation of basic and diluted
earnings per share on the face of the
financial statements and supersedes
Accounting Principles Board (APB)
Opinion No. 15, Earnings per Share.
SFAS No. 128 requires the
restatement of earnings per share for
prior periods presented after its
effective date. Earnings per share
for the three and six month periods
ended June 30, 1998 and 1997 have
been computed under SFAS No. 128.
For further information, refer to the
consolidated financial statements and
footnotes thereto included in the
Company's Annual Report on Form 10-K
for the year ended December 31, 1997
and in the Company's Proxy Statement
dated June 29, 1998.
2. Joint Venture
In 1994, the Company obtained a 40%
ownership in AvAero Noise Reduction
Joint Venture ("AvAero"), a joint
venture involved in the development
of aircraft-related technology for an
initial investment of $1,000. The
Company accounts for its investment
in AvAero under the equity method.
In 1994, the Company obtained a
promissory note for an advance of
$2,000,000 to the joint venture. The
principal balance of the promissory
note accrues interest at a maximum
rate of 5%, and the principal balance
together with accrued interest are
due January 5, 1999. The note is
secured by certain assets of AvAero.
During 1997 and 1996 the Company
advanced an additional $815,000 and
$75,000 to AvAero, net of repayments.
The Company has made no further
advances since 1997. These advances
are included in accounts receivable.
3. Commitments and Contingencies
On May 10, 1991, an action was filed
in the District Court of Dallas
County, Texas, by Lee D. Webster,
former Chairman, Chief Executive
Officer and President of Whitehall,
against the Company, each of its
directors (other than Mr. Webster)
and Cambridge Capital Fund, L.P.,
alleging, among other things, that (
i) the defendants' actions, both
individually and in concert,
constituted willful interference with
Mr. Webster's employment relationship
with the Company and were the direct
cause of Mr. Webster's termination as
its President and Chairman of the
Board, and (ii) the defendants'
actions forced Mr. Webster into
retirement without providing Mr.
Webster with retirement benefits
which Mr. Webster was purportedly
promised. On August 17, 1994, the
defendants were granted a partial
summary judgment. On October 24,
1994, Mr. Webster filed a third
amended petition and alleged the
following causes of action: tortious
interference with contractual
relations against Cambridge Capital
Fund, L.P., and directors George F.
Baker
PART I - FINANCIAL INFORMATION
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
June 30, 1998
3. Commitments and Contingencies - Continued
and John J. McAtee; intentional
infliction of emotional distress; and
breach of oral contracts. The third
amended petition sought compensatory
and punitive damages in excess of $35
million. On January 12, 1995, the
Court entered an abatement on one of
the breach of oral contract claims
against the Company and entered a
summary judgment in the defendants'
favor on all remaining claims alleged
by Mr. Webster. On February 26,
1996, the Court granted a summary
judgment in favor of the defendants
on Mr. Webster's remaining claim and
entered a take nothing final judgment
which dismissed all of Mr. Webster's
claims with prejudice to refiling. On
March 26, 1996, Mr. Webster appealed
the final judgment to the Dallas,
Texas Court of Appeals. On April 10,
1998 the Texas Court of Appeals
affirmed the trial court's summary
judgement ruling in favor of the
defendants on each of Mr. Webster's
claims. All time periods for filing
further appeals have expired.
A subsidiary of the Company, Aero
Corporation ("Aero"), is taking
remedial action pursuant to
Environmental Protection Agency
("EPA") regulations at the Lake City,
Florida facility. In addition, the
Company was required to perform an
environmental site assessment at the
facility of a subsidiary in
connection with the sale of the
facility during the first quarter of
1997. The Company does not
anticipate any material direct
effects upon the capital
expenditures, earnings and
competitive position of the Company
from compliance with present Federal,
State and local provisions which have
been enacted or adopted regulating
the discharge of materials into the
environment, or otherwise relating to
the protection of the environment in
excess of the Company's reserves.
The Company does expect, however,
that compliance with such regulations
will require, from time to time, both
increased operating costs and capital
expenditures which may be
substantial. As of June 30, 1998 and
December 31, 1997, the Company had
reserved ,in the aggregate,
approximately $3.70 million and $3.95
million, respectively for anticipated
environmental remediation costs.
Included among the remaining costs to
be incurred are anticipated
expenditures for testing and
monitoring to be performed over a 20
to 30 year period. Actual costs to
be incurred in future periods may
vary from the estimate, given the
inherent uncertainties in evaluating
environmental exposures. These
uncertainties include the extent of
required remediation based on testing
and evaluation not yet completed and
the varying costs and effectiveness
of remediation methods.*
On June 24, 1998, an action captioned
Zantop International Airlines, Inc.
vs. Aero Corp. Macon, Inc. was filed
in the Superior Court of Bibb County,
Macon, Georgia. The suit seeks an
unspecified amount of damages and
certain equitable relief arising out
of the July 1997 sale to the
defendant (a subsidiary of the
Company) of certain assets used in
connection with the operation of the
plaintiff's aircraft maintenance
business located in Macon, Georgia.
See Item 4. The nature of the action
involves a contractual dispute
relative to certain purchase price
adjustments and inventory purchases.
The Company intends to vigorously
defend this action. Based upon the
available facts, management believes
that although no assurance can be
given as to the outcome of this
action, the ultimate disposition
should not have a material adverse
effect upon the financial condition
of the Company.
The Company is also involved in
certain legal proceedings in the
normal course of its business. After
consultation with counsel, management
is of the opinion that the outcome of
the above-mentioned proceedings will
not have a material effect on the
financial position or results of
operations of the Company beyond the
amounts currently reserved.*
* See "Safe Harbor" statement
located on page 12
PART I - FINANCIAL INFORMATION
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
June 30, 1998
4. Acquisitions and Mergers
In March of 1998, the Company entered
into a definitive merger agreement
(the "Merger Agreement") with
Aviation Sales Company ("AVS")
pursuant to which a wholly-owned
subsidiary of AVS will merge (the
"Merger") with and into the Company.
As a result of the Merger, the
Company will become a wholly owned
subsidiary of AVS. The Merger is
expected to be accounted for as a
pooling of interests. Under the terms
of the Merger Agreement, each share
of the Company's common stock
outstanding at the effective time of
the Merger will be converted into the
right to receive .5143 shares of
common stock of AVS. Consummation of
the Merger, which is expected occur
in the third quarter of 1998, is
subject to customary closing
conditions, including, without
limitation, approval of the Company's
and AVS's stockholders. A special
meeting of stockholders of the
Company has been called to consider
and vote upon the Merger and is
scheduled to take place on July 31,
1998. No assurance can be given that
the Merger will ultimately be
consummated or that it will be
consummated on the terms set forth in
the Merger Agreement.
In July 1997, Whitehall purchased
from Zantop International Airlines,
Inc. ("Zantop") certain assets (the
"Acquired Assets") used in connection
with the operation of Zantop's third
party aircraft maintenance business
located in Macon, Georgia. Among the
Acquired Assets were all of Zantop's
leasehold interest in the properties
located at its Macon facility (the
"Leased Facilities"). The purchase
price for the Acquired Assets was
$1.5 million in cash plus assumption
of certain liabilities, including
approximately $4.3 million in future
lease obligations relating to the
Leased Facilities.
* See "Safe Harbor" statement
located on page 12
PART I - FINANCIAL INFORMATION
WHITEHALL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 1998
General
The Company is an independent provider of
maintenance and modification services for
commercial, military and freighter aircraft
and provides these services through two
subsidiaries: Aero Corporation located in
Lake City, Florida and Aero Corp Macon,
Inc. located in Macon, Georgia. The Company
focuses primarily on two categories of
commercial customers: established
traditional commercial carriers that view
outsourcing as a way to reduce operating
expenses and increase their
competitiveness, and new entrant, low-cost
air carriers that rely on outsourcing for
scheduled heavy maintenance. The Company's
two facilities are United States Federal
Aviation Administration ("FAA") and Joint
Aviation Authority of the European Economic
Community certified repair stations that
specialize in heavy maintenance and
modification of Boeing 707, 727, 737,
McDonnell Douglas DC-8, DC-9, DC-10 and
Lockheed L-100, L-188 and C-130 aircraft.
The Company offers its customers a
comprehensive range of aviation services,
including scheduled "A," "B," "C" and "D"
level inspections, block overhauls and
repairs, corrosion prevention and control
programs and exterior stripping and
painting. Modification services provided by
the Company include interior
reconfiguration, cargo conversions and
avionics installations. Through its 40%
interest in a joint venture, the Company
also designs, and markets hushkits designed
to reduce the noise created by Boeing 737-
100 and 737-200 series aircraft to levels
which comply with FAA-mandated Stage 3
noise reduction standards. The Company was
incorporated under the laws of Delaware in
1963 as a successor to a Minnesota
corporation organized in 1960.
Results of Operations
The following tables set forth, for the
periods and dates indicated, certain
financial data including, as applicable,
the percentage of net sales:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
SUMMARY STATEMENT OF INCOME
For the Quarter Ended
June 30, 1998 June 30, 1997 Change from Prior Period
(in thousands)
Net Sales 18,086 100.0% 19,035 100.0% (949) (5.0%)
Cost of Sales 15,852 87.6% 15,511 81.5% 341 2.2%
Gross Profit on Sales 2,234 12.4% 3,524 18.5% (1,290) (36.6%)
Selling, General and Administrative 1,267 7.0% 1,365 7.2% (98) (7.2%)
Income from Operations 964 5.3% 2,159 11.3% (1,195) (55.3%)
Other Income, Net 308 1.7% 57 0.3% 251 440.4%
Net Income 763 4.2% 1,329 7.0% (566) (42.6%)
For the Six Months Ended
June 30, 1998 June 30, 1997 Change from Prior Period
(in thousands)
Net Sales 37,852 100.0% 32,586 100.0% 5,266 16.2%
Cost of Sales 34,940 92.3% 26,502 81.3% 8,438 31.8%
Gross Profit on Sales 2,912 7.7% 6,084 18.7% (3,172) (52.1%)
Selling, General and Administrative 2,204 5.8% 2,864 8.8% (660) (23.0%)
Income from Operations 708 1.9% 3,220 9.9% (2,512) (78.0%)
Other Income, Net 557 1.5% 887 2.7% (330) (37.2%)
Net Income 759 2.0% 2,464 7.6% (1,705) (69.2%)
</TABLE>
PART I - FINANCIAL INFORMATION
WHITEHALL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 1998
Net Sales: The Company's net sales for the
six months ended June 30, 1998 increased
16.2% to $37.9 million, compared with $32.6
million for the same period last year.
Second quarter sales declined 5.0% to $18.1
million, compared with $19.0 million for
the second quarter of 1997. The increase
in sales for the six months ended June 30,
1998 is primarily attributable to revenues
derived from the Company's Macon, Georgia
facility acquired in July 1997. Sales at
the Macon facility were $4.7 million for
the second quarter of 1998 and $11.1
million year-to-date. Sales for the first
half of 1997 were adversely impacted as a
result of hanger space that was reserved
during 1997 in anticipation of services to
be rendered under a U.S. Air Force C-130
maintenance contract which was awarded to
the Company in April 1997. The C-130
contract was subsequently canceled at the
convenience of the government in June 1997.
The C-130 contract provides for
reimbursement by the U.S. Air Force of
costs incurred during its operation and
during the second quarter of 1997, the
Company recorded a $3.5 million receivable
from the government relating to these
costs. The Company is currently
negotiating a termination settlement with
the government. Net sales at the Company's
Lake City facility (excluding the above-
described revenues from the C-130) contract
were down 14% and 8.3%, respectively, for
the three and six month 1998 periods,
compared to the comparable period in 1997
due to the Company's lack of substantial
marketing during the first and second
quarters of 1997 which would have resulted
in revenues during the first half of 1998.
Gross Profit on Sales. Gross profit on
sales (derived by deducting cost of sales
from sales) during the three and six month
periods ended June 30, 1998 of $2.2 million
and $2.9 million, respectively, were lower
than the $3.5 million and $6.1 million
respectively, earned during the comparable
periods in the previous year. The decline
is primarily attributable to the
capitalizing of certain cost of sales
overhead costs relating to the C-130
contract awarded during the comparable
periods of 1997 and the recording of a $3.5
million termination claim during the second
quarter of 1997. The C-130 contract
contributes net gross profit of $2.6
million and $3.6 million, respectively, for
the three and six month periods ended June
30 1997. A portion of these capitalized
costs were subsequently expensed during the
third and fourth quarter of 1997 upon
cancellation of the C-130 contract and the
Company recorded a net margin of $2.8
million for the year ended December 31,
1997 in connection with the cancellation of
the C-130 contract.
Gross profit (excluding the C-130 contract)
for the quarter ended June 30, 1998
increased 134% to $2.2 million compared
with $1.0 for the second quarter of 1997.
Gross profit increased 17.7% to $2.9
million for the six months ended June 30,
1998 compared with $2.5 million for the
comparable period in the prior year. The
increase in gross profits is primarily
attributable to a reduction in overhead
costs and improved operating efficiencies
at the Company's Lake City facility.
Selling, General and Administrative. The
decrease in selling, general and
administrative expenses during the current
three and six month periods of 7.0% and
23.0% respectively, over the comparable
periods during the previous year was
primarily due to efficiencies achieved by
the Company as a result of its efforts
during the first half of 1998 to streamline
its operations. During the quarter ended
June 30, 1998, the Company recorded merger
related expenses of $500,000. See Note 4 to
the notes to the Condensed Consolidated
Financial Statements. Without such
expenses, the reduction in SG&A for the
three and six month periods would have been
43.6% and 40.5% respectively.
Other Income(Net). The current three and
six month other income(net) of $308,000 and
$557,000, respectively, compared to the
Company's other income net of $57,000 and
$887,000 during the comparable periods in
1997, respectively, is primarily
attributable to increased equity earnings
derived from the Company's 40% interest in
the AvAero hushkit joint venture from
period to period, which were offset by
increased interest expenses during the
comparable 1998 three and six month
periods.
Net Income. The Company's net income during
the three and six month periods ended June
30, 1998 of $763,000 and $759,000,
respectively is primarily attributable to
the factors enumerated above.
Financial Condition
During the six months ended June 30, 1998,
cash used in operations totaled $879,000,
compared to cash used in operations of
$8.12 million in the same period of 1997.
The decrease in cash used in operations
was primarily a result of more rapid
collection in trade accounts receivable net
of decreases in accounts payable and other
accrued liabilities. The Company's capital
expenditures totaled $469,000 during the
first six months of 1998 compared to $2.3
million during the same period of 1997. The
capital expenditures are a part of the
continuing program to maintain the
Company's aircraft maintenance facilities.
PART I - FINANCIAL INFORMATION
WHITEHALL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 1998
The Company believes that its current cash
balances and line of credit facility are
sufficient to meet its short and long-term
capital and liquidity requirements over the
next twelve months *. If the Company's
proposed merger with Aviation Sales Company
is not completed, the Company may consider
and seek additional short and long-term
bank financing and/or may issue, in public
or private transactions, additional equity
and/or debt securities, the availability
and terms of which will depend upon market
and other conditions. There can be no
assurance that such possible additional
financing will be available on terms
acceptable to the Company.
* See "Safe Harbor" statement located on
page 12.
PART I - FINANCIAL INFORMATION
WHITEHALL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 1998
"Safe Harbor" Statement under the Private
Securities Litigation Reform Act of 1995
With the exception of historical factual
information, the matters and statements
discussed, made or incorporated by
reference in this Quarterly Report on Form
10-Q (including statements regarding trends
in the industry and the business and growth
and financing strategies of the Company, as
well as those statements specifically
designated with an asterisk ("*")),
constitute forward-looking statements are
based upon current expectations and are
made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform
Act of 1995. Such forward-looking
statements and words involve known and
unknown assumptions, risks, uncertainties
and other factors which may cause the
actual results, performance or achievements
of the Company to be materially different
from any future results, performance, or
achievements expressed or implied by such
forward-looking statements or words. Such
assumptions, risks, uncertainties and
factors include those associated with
general economic and business conditions;
aircraft and aerospace industry trends,
cyclicality and/or seasonality;
availability of financing; changes and
volatility in interest rates; warranty,
product liability or other litigation
arising in the course of the Company's
aircraft repair and maintenance services
business; dependence on key personnel;
demographic changes; competition; material
and labor costs and availability;
relationships with and dependence on
customers; changes in the business strategy
or development plans of the Company; the
availability, terms and deployment of
capital; changes in or the failure to
comply with government regulations; and the
inability or failure to identify or
consummate successful acquisitions or to
assimilate the operations of any acquired
businesses with those of the Company. The
Company expressly disclaims any obligation
to update any forward-looking statements as
a result of developments occurring after
the filing of this report.
PART II - OTHER INFORMATION
WHITEHALL CORPORATION AND SUBSIDIARIES
June 30, 1998
Item 1. Legal Proceedings
The information contained in Item 3
of the Registrant's Annual Report on
Form 10-K for the year ended December
31, 1997, is incorporated herein by
reference.
On May 10, 1991, an action was filed
in the District Court of Dallas
County, Texas, by Lee D. Webster,
former Chairman, Chief Executive
Officer and President of Whitehall,
against the Company, each of its
directors (other than Mr. Webster)
and Cambridge Capital Fund, L.P.,
alleging, among other things, that (
i) the defendants' actions, both
individually and in concert,
constituted willful interference with
Mr. Webster's employment relationship
with the Company and were the direct
cause of Mr. Webster's termination as
its President and Chairman of the
Board, and (ii) the defendants'
actions forced Mr. Webster into
retirement without providing Mr.
Webster with retirement benefits
which Mr. Webster was purportedly
promised. On August 17, 1994, the
defendants were granted a partial
summary judgment. On October 24,
1994, Mr. Webster filed a third
amended petition and alleged the
following causes of action: tortious
interference with contractual
relations against Cambridge Capital
Fund, L.P., and directors George F.
Baker and John J. McAtee; intentional
infliction of emotional distress; and
breach of oral contracts. The third
amended petition sought compensatory
and punitive damages in excess of $35
million. On January 12, 1995, the
Court entered an abatement on one of
the breach of oral contract claims
against the Company and entered a
summary judgment in the defendants'
favor on all remaining claims alleged
by Mr. Webster. On February 26,
1996, the Court granted a summary
judgment in favor of the defendants
on Mr. Webster's remaining claim and
entered a take nothing final judgment
which dismissed all of Mr. Webster's
claims with prejudice to refiling. On
March 26, 1996, Mr. Webster appealed
the final judgment to the Dallas,
Texas Court of Appeals. On April 10,
1998 the Texas Court of Appeals
affirmed the trial court's summary
judgement ruling in favor of the
defendants on each of Mr. Webster's
claims. All time periods for filing
further appeals have expired.
On June 24, 1998, an action captioned
Zantop International Airlines, Inc.
vs. Aero Corp. Macon, Inc. was filed
in the Superior Court of Bibb County,
Macon, Georgia. The suit seeks an
unspecified amount of damages and
certain equitable relief arising out
of the July 1997 sale to the
defendant (a subsidiary of the
Company) of certain assets used in
connection with the operation of the
plaintiff's aircraft maintenance
business located in Macon, Georgia.
See Item 4. The nature of the action
involves a contractual dispute
relating to certain purchase price
adjustments and inventory purchases.
The Company intends to vigorously
defend this action. Based upon the
available facts, management believes
that although no assurance can be
given as to the outcome of this
action, the ultimate disposition
should not have a material adverse
effect upon the financial condition
of the Company.
Item 6. Exhibits and Reports on Form 8-K
The following Exhibits are included
herein:
(a)
(11) Computation of Net Income per Common Share.
(27) Article 5 - Financial Data Schedule for Form
10-Q submitted as exhibit 27 as an EDGAR
filing only.
(b) The Company did not file a Current Report on Form 8-K
during the quarter ended June 30, 1998.
PART II - OTHER INFORMATION
WHITEHALL CORPORATION AND SUBSIDIARIES
June 30, 1998
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.
WHITEHALL CORPORATION
Registrant
Date July 30, 1998 By /s/ John H. Wilson
John H. Wilson
President
Date July 30, 1998 By /s/ Garlan Braithwaite
Garlan Braithwaite
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Exhibit 11 - Computation of Net Income per Common Share
WHITEHALL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE - UNAUDITED
<TABLE>
<S> <C> <C> <C> <C>
For the Three Months Ended For the Six Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
BASIC AND FULLY DILUTED
Net Income $ 763,000 $ 1,329,000 $ 759,000 $ 2,464,000
SHARES:
Basic
Average common shares
outstanding 5,530,000 5,509,969 5,530,000 5,509,185
Dilutive effect if stock
options were exercised 264,653 247,136 267,984 237,171
Diluted 5,794,653 5,757,105 5,797,984 5,746,356
Net Income per Common Share - Basic $ 0.14 $ 0.24 $ 0.14 $ 0.45
Net Income per Common Share - Diluted $ 0.13 $ 0.23 $ 0.13 $ 0.43
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<CIK> 0000106827
<NAME> WHITEHALL CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 1,933,000
<SECURITIES> 0
<RECEIVABLES> 16,280,000
<ALLOWANCES> 0
<INVENTORY> 6,549,000
<CURRENT-ASSETS> 29,816,000
<PP&E> 32,539,000
<DEPRECIATION> 13,105,000
<TOTAL-ASSETS> 50,820,000
<CURRENT-LIABILITIES> 22,285,000
<BONDS> 0
0
0
<COMMON> 770,000
<OTHER-SE> 23,303,000
<TOTAL-LIABILITY-AND-EQUITY> 50,820,000
<SALES> 18,086,000
<TOTAL-REVENUES> 18,086,000
<CGS> 15,852,000
<TOTAL-COSTS> 15,852,000
<OTHER-EXPENSES> 1,270,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,272,000
<INCOME-TAX> 509,000
<INCOME-CONTINUING> 763,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 763,000
<EPS-PRIMARY> 0.140
<EPS-DILUTED> 0.130
</TABLE>
