SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File No. 0-13829
June 30, 1994
PRECISION STANDARD, INC.
(Exact Name of Registrant as Specified in its Charter)
Colorado 84-0985295
(State of Incorporation) (I.R.S. Employer Identification No.)
One Pemco Plaza
1943 50th Street North
Birmingham, Alabama 35212
(Address of Principal Executive Offices)
(205) 591-3009
(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 [X] No [ ]
The number of shares outstanding of each of the issuer's classes
of common shares, as of the close of the period covered by this
report:
Class of Securities Outstanding Securities
$.0001 Par Value 12,344,291 shares
Common Shares Outstanding at June 30, 1994
<TABLE>
PRECISION STANDARD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 115,762
Accounts receivable, net of
allowance for doubtful accounts 21,378,507 $19,751,858
Inventories 22,661,840 27,344,833
Prepaid expenses and other 1,396,634 568,117
Deferred tax asset, net 2,804,104 2,804,104
Total current assets 48,356,847 50,468,912
Property, plant and equipment, at cost:
Leasehold improvements 9,440,130 9,266,839
Machinery and equipment 13,949,778 12,930,976
23,389,908 22,197,815
Less accumulated depreciation and
amortization (9,677,578) (8,360,674)
Net property and equipment 13,712,330 13,837,141
Other assets:
Intangible assets, net of
accumulated amortization 5,530,629 5,358,364
Unbilled receivable 2,143,271
Related party receivables 269,824 269,824
Deposits and other 996,290 970,510
Total other assets 8,940,014 6,598,698
$71,009,191 $70,904,751
<FN>
The accompanying notes are an integral part of
these consolidated financial statements.
</TABLE>
<TABLE>
PRECISION STANDARD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
Current liabilities:
Bank overdrafts $ 798,185
Current maturities of long-term
debt $ 8,384,758 8,789,142
Accounts payable and accrued
expenses 19,389,618 16,596,177
Accrued warranty expense 578,000 575,000
Estimated losses on contracts
in progress 1,289,132 583,122
Total current liabilities 29,641,508 27,341,626
Long-term debt, net of current
maturities 26,129,321 28,567,327
Long-term portion of self-insured
workers' compensation reserve 2,871,892 3,404,684
Unfunded accumulated benefit
obligation 3,103,701 3,103,701
Total liabilities 61,746,422 62,417,338
Common stock purchase warrant 4,200,000 4,200,000
Stockholders' equity:
Common stock, $.0001 par value,
300,000,000 shares authorized,
12,681,551 and 12,677,380
shares issued, 12,344,291 and
12,340,120 outstanding at
June 30, 1994 and December 31,
1993, respectively 1,268 1,268
Additional paid-in capital 762,795 759,723
Retained earnings 9,554,071 8,830,671
Minimum pension liability adjustment (4,696,778) (4,745,662)
Total paid-in capital and
retained earnings 5,621,356 4,846,000
Less cost of treasury shares
(337,260 shares) (558,587) (558,587)
Total stockholder's equity 5,062,769 4,287,413
$71,009,191 $70,904,751
<FN>
The accompanying notes are an integral part of
these consolidated financial statements.
</TABLE>
<TABLE>
PRECISION STANDARD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Three
Months Ended Months Ended
June 30, June 30,
1994 1993
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $36,255,375 $41,925,073
Cost of sales 30,249,106 33,525,990
Gross profit 6,006,269 8,399,083
Selling, general and
administrative expenses (3,813,669) (3,792,952)
Bad debts recovery 15,845 20,731
Research and development expense (272,714) (106,905)
Income from operations 1,935,731 4,519,957
Other expense:
Interest expense (888,057) (1,500,311)
Other, net (15,004) (77,667)
Income before income taxes
and extraordinary item 1,032,670 2,941,979
Income tax expense (77,725) (125,000)
Income before extraordinary item 954,945 2,816,979
Extraordinary item - Litigation
settlement net of applicable
income taxes of $26,000 (1,274,000)
Net income $ 954,945 $ 1,542,979
Earnings per common share and
common equivalent share
Note (3):
Income before extraordinary item $.06 $.22
Extraordinary item (.10)
Net income .06 .12
Earnings per common share -
assuming full dilution (Note 3):
Income before extraordinary item $.06 $.22
Extraordinary item (.10)
Net income .06 .12
Weighted average number of
common shares outstanding:
Common and common equivalent share 16,606,895 12,661,088
Assuming full dilution 16,606,895 12,706,421
<FN>
The accompanying notes are an integral part of
these consolidated financial statements.
</TABLE>
<TABLE>
PRECISION STANDARD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Six Six
Months Ended Months Ended
June 30, June 30,
1994 1993
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $71,113,579 $86,470,551
Cost of sales 61,025,401 70,561,087
Gross profit 10,088,178 15,909,464
Selling, general and
administrative expenses (7,063,870) (7,696,613)
Bad debts recovery 82,892 29,025
Research and development expense (514,774) (222,030)
Income from operations 2,592,426 8,019,846
Other expense:
Interest expense (1,669,904) (3,025,906)
Other, net (82,357) (108,115)
Income before income taxes
and extraordinary item 840,165 4,885,825
Income tax expense (116,765) (241,000)
Income before
extraordinary item 723,400 4,644,825
Extraordinary Item - Litigation
settlement net of applicable
income taxes of $26,000 (1,274,000)
Net income $ 723,400 $ 3,370,825
Earnings per common share and common
equivalent share (Note 3):
Income before extraordinary item $.05 $.37
Extraordinary item (.10)
Net income .05 .27
Earnings per share - assuming
full dilution (Note 3):
Income before extraordinary item $.05 $.37
Extraordinary item (.10)
Net income .05 $.27
Weighted average number of
common shares outstanding:
Common and common equivalent shares 16,630,978 12,591,932
Assuming full dilution 16,630,978 12,700,976
<FN>
The accompanying notes are an integral part of
these consolidated financial statements.
</TABLE>
<TABLE>
PRECISION STANDARD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Six
Months Ended Months Ended
June 30, June 30,
1994 1993
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating
activities:
Net income $ 723,400 $ 3,370,825
Adjustments to reconcile
net income to net cash
provided from operating
activities:
Depreciation and amortization 1,413,086 1,866,966
Pension cost in excess of
funding 48,884 924,409
Provision for warranty expense 3,000
Provision for losses on
contracts in progress 978,052 1,331,456
Provision for losses on
receivables 29,944
Utilization of loss reserves (352,507) (1,550,726)
Increase in interest expense
due to increase in common
stock purchase warrant 1,000,000
Changes in assets and
liabilities:
Accounts receivable (1,626,649) (198,355)
Inventories 4,763,459 (5,834,572)
Prepaid expenses (623,587) (526,182)
Intangible assets (266,913) (9,369)
Unbilled receivable (2,143,271)
Deposits and other (25,780) 79,491
Accounts payable and
accrued expenses 2,793,441 (390,106)
Self-insured workers'
compensation reserve (532,792) 497,001
Total adjustments 4,428,423 (2,780,043)
Net cash provided by
operating activities 5,151,823 590,782
Cash flows from investing
activities:
Capital expenditures (1,066,301) (1,079,723)
Insurance proceeds receivable (204,930) 204,600
Net cash used in
investing activities $(1,271,231) $ (875,123)
<FN>
The accompanying notes are an integral part of
these consolidated financial statements.
</TABLE>
<TABLE>
PRECISION STANDARD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
Six Six
Months Ended Months Ended
June 30, June 30,
1994 1993
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from financing
activities:
Proceeds from issuance of
common stock $ 3,072 $ 9,187
Net repayments
under short-term obligations $ (5,178) (99,616)
Borrowings under revolving
credit facility $ 29,200,000 27,000,000
Repayments under revolving
credit facility $(28,000,000) (23,000,000)
Principal payments under
long-term obligations $ (4,164,539) (2,862,752)
Change in cash overdraft $ (798,185) (762,478)
Net cash provided by (used in)
financing activities $ (3,764,830) 284,341
Net increase in cash
and cash equivalents 115,762 -0-
Cash and cash equivalents
beginning of period -0- -0-
Cash and cash equivalents
end of period $ 115,762 $ -0-
Supplemental disclosure of cash
flow information:
Cash paid during the period for:
Interest $ 1,218,439 $ 1,398,709
Income taxes 230,800 361,750
Supplemental disclosure of
non-cash investing activities:
Capital lease obligations incurred
for new equipment $ 127,327 $ 145,200
<FN>
The accompanying notes are an integral part of
these consolidated financial statements.
</TABLE>
PRECISION STANDARD, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated interim financial statements included in
this report have been prepared by the Company without audit.
In the opinion of management, all adjustments necessary for
a fair presentation are reflected in the interim financial
statements. Such adjustments are of a normal and recurring
nature excepting as noted in Note 4 to the Consolidated
Financial Statements. The results of operations for the
period ended June 30, 1994 are not necessarily indicative of
the operating results for the full year. The interim
financial statements should be read in conjunction with the
audited financial statements and notes thereto included in
the Company's 1993 10-K. Certain reclassifications have
been made to the 1993 financial statements included herein
to conform with the presentation used in 1994.
2. INVENTORIES
<TABLE>
Inventories consist of the following:
June 30, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
Work in-process $20,156,327 $20,361,218
Finished goods 3,502,453 3,259,872
Raw materials and supplies 5,955,999 7,083,837
Total $29,614,779 $30,704,927
Less progress payments (6,208,658) (3,038,267)
Less reserve for estimated
losses on contracts in
progress (744,281) (321,827)
$22,661,840 $27,344,833
</TABLE>
3. EARNINGS PER COMMON SHARE
In 1994, the computation of primary and fully diluted
earnings per share is based on the weighted average number
of outstanding common shares assuming the exercise of stock
options and stock warrants. The stock warrants were granted
to Bank of America in connection with the Senior
Subordinated Loan and allow for the purchase of 4,215,753
shares of the Company's common stock at an exercise price of
approximately $.24 per share. In 1993, the computation of
primary and fully diluted earnings per share is based on the
weighted average number of outstanding common shares
assuming the exercise of stock options. The stock warrants
are treated as debt rather than equity, as this presentation
is most dilutive.
4. CONTINGENCIES
In the second quarter of 1994, the Company recorded revenue
and a long term unbilled receivable of $2.1 million in
anticipation of settlement of a contract claim involving the
KC-135 Programmed Depot Maintenance (PDM) contract. The
claim, which will be submitted to the U.S. Government in the
third quarter of 1994, is for equitable adjustment of the
cost effect of late delivery of government-furnished
materials (GFM). The disruption in scheduled work flow
which occurred as a result of the late delivery of GFM began
in the second quarter of 1993 and continues to impact work
in progress. The Company's position, supported by outside
legal counsel which specializes in government procurement
law and independent management consultants, is that the
grounds for the claim are legally supportable and that
recovery is substantially probable. The Company has
prepared its financial statements on the basis of a
conservative estimate of the settlement of the claim and
further, has not included the cost impact of twenty-four
ships which remain in work at June 30, 1994. At this time,
the Company can not reasonably estimate the length of time
that will be required to resolve the claim. In the event
the Company does not receive an equitable adjustment from
the claim, the Company could realize a pre-tax reduction of
revenue of $2.1 million.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion should be read in conjunction with the
Company's consolidated financial statements and notes thereto
included herein.
RESULTS OF OPERATIONS
Three months ended June 30, 1994
Versus three months ended June 30, 1993
Revenues for the second quarter of 1994 decreased 13%, from $41.9
million for 1993 to $36.3 million for 1994. Government sales
decreased 14% in the second quarter, from $29.8 million in 1993
to $25.6 million in 1994. Commercial sales decreased 12% in the
second quarter, from $12.1 million in 1993 to $10.7 million in
1994.
The decrease in government sales was due primarily to a decrease
in the redelivery of KC-135 aircraft and C-130 drop-in aircraft.
There were seventeen KC-135 redeliveries in the second quarter of
1993 versus thirteen redeliveries in 1994. Twelve C-130 drop-in
aircraft were redelivered in the second quarter of 1993 compared
with six redeliveries in the second quarter of 1994.
Additionally, government sales declined due to the conclusion of
the KC-135 boom contract in mid 1993 and reductions on the U.S.
Navy H-2 helicopter contract.
The above decrease in government sales was partially offset by
$2.1 million of revenue recorded in anticipation of settlement of
a contract claim (see Note 4 to the Consolidated Financial
Statements). The claim, which will be submitted to the U. S.
Government in the third quarter of 1994, is for equitable
adjustment of the cost effect of late delivery of government-
furnished materials (GFM) on the KC-135 PDM program. The
disruption in scheduled work flow which occurred as a result of
the late delivery of GFM began in the second quarter of 1993 and
continues to impact work in progress. The Company's position,
supported by outside legal counsel which specializes in
government procurement law and independent management
consultants, is that the grounds for the claim are legally
supportable and that recovery is substantially probable. The
Company has prepared its financial statements on the basis of a
conservative estimate of the settlement of the claim and further,
has not included the cost impact of twenty-four ships which
remain in work at June 30, 1994. At this time, the Company can
not reasonably estimate the length of time that will be required
to resolve the claim. In the event the Company does not receive
an equitable adjustment from the claim, the Company could realize
a pre-tax reduction of revenue of $2.1 million.
The decline in commercial sales was due primarily to a decrease
in the redelivery of 737 cargo conversion aircraft. There were
three redeliveries in the second quarter of 1993 compared with
one redelivery in the second quarter of 1994.
The ratio of cost of sales ($30.2 million in 1994; $33.5 million
in 1993) to net sales ($36.3 million in 1994; $41.9 million in
1993) increased from 80% in 1993 to 83% in 1994. The resultant
decrease in gross profit is attributable to the aforementioned
reduction in sales and an increase in overhead costs as a
percentage of sales. Further, the Company made a provision of
approximately $1.0 million for losses on commercial contracts in
process and has experienced increased material costs on its
commercial aircraft maintenance and modification programs and
increased labor costs on the KC-135 contract. The increase in
labor costs on the KC-135 contract was partially attributable to
the disruption of scheduled work flow which occurred as a result
of the lack of government furnished material.
Selling, general and administrative expense increased only
slightly from the second quarter of 1993 to the second quarter of
1994 but increased as a percentage of sales from 9.0% in 1993 to
10.5% in 1994.
Research and development expense increased approximately $0.2
million from the second quarter of 1993 to the second quarter of
1994 as efforts were increased on both the targets and aircraft
programs.
Interest expense decreased $0.6 million from $1.5 million in 1993
to $0.9 million in 1994. In 1993, the value of the common stock
purchase warrant held by Bank of America was deemed to have
increased $0.5 million in the second quarter which resulted in a
$0.5 million increase to interest expense. The deemed value of
the common stock purchase warrant remained constant in the second
quarter of 1994. Aside from the valuation of the stock warrant,
other interest expense declined $0.1 million as a result of the
pay down of outstanding debt, offset by an increase in interest
rates. The Company paid $2.0 million in principal against its
Term Credit facility in the second quarter of 1994. The
effective average interest rate in the second quarter of 1994 on
the Term Credit facility and the Revolving Credit facility was
7.12% versus 6.14% for the second quarter of 1993.
The Company booked $0.1 million of state and federal income tax
expense in both the second quarter of 1994 and 1993.
Six months ended June 30, 1994
Versus six months ended June 30, 1993
Revenues for the first six months of 1994 decreased 18%, from
$86.5 million for 1993 to $71.1 million for 1994. Government
sales decreased 13% in the first six months, from $56.8 million
in 1993 to $49.2 million in 1994. Commercial sales decreased 26%
in the first six months, from $29.7 million in 1993 to $21.9
million in 1994.
The decrease in government sales was due primarily to a decrease
in the redelivery of KC-135 aircraft and C-130 aircraft. There
were thirty-two KC-135 redeliveries in the first six months of
1993 versus twenty-eight redeliveries in 1994. Seven of the
twenty-eight redeliveries in 1994 were partial redeliveries and
they have been accounted for on a percentage of completion basis.
The aircraft were partially redelivered due to work stoppage
which occurred as a result of the lack of government furnished
material. The company has recorded $2.1 million of revenue in
the second quarter of 1994 in anticipation of settlement of a
contract claim to be submitted to the government for equitable
adjustment of costs incurred due to this late delivery of
government furnished material on the KC-135 PDM program (see Note
4 to the Consolidated Financial Statements).
The company expects to redeliver twenty-six KC-135 aircraft in
the last six months of 1994 versus thirty-eight such aircraft in
the last six months of 1993.
Nineteen C-130 drop-in aircraft and eight C-130 PDM aircraft were
redelivered in the first six months of 1993 compared with fifteen
drop-in aircraft and five PDM aircraft redeliveries in 1994.
Additionally, government sales declined due to the conclusion of
the KC-135 boom contract in mid 1993 and reductions on the U.S.
Navy H-2 helicopter contract and U.S. Government target
contracts.
The decline in commercial sales was due primarily to a decrease
in the redelivery of 737 cargo conversion aircraft. There were
nine redeliveries in the first six months of 1993 compared with
four redeliveries in the first six months of 1994.
The ratio of cost of sales ($61.0 million in 1994; $70.6 million
in 1993) to net sales ($71.1 million in 1994; $86.5 million in
1993) increased from 82% in 1993 to 86% in 1994. The resultant
decrease in gross profit is attributable to the aforementioned
reduction in sales and an increase in overhead costs as a
percentage of sales. Further, the Company made a provision of
approximately $1.0 million for losses on commercial contracts in
process and has experienced increased material costs on its
commercial aircraft maintenance and modification programs and
increased labor costs on the KC-135 contract. The increase in
labor costs on the KC-135 contract was partially attributable to
the disruption of scheduled work flow which occurred as a result
of the lack of government furnished material.
Selling, general and administrative expense decreased from the
first six months of 1993 to the first six months of 1994 but
increased as a percentage of sales from 8.9% in 1993 to 10.0% in
1994.
Research and development expense increased approximately $0.3
million from the first six months in 1993 to the first six months
in 1994 as efforts were increased on both the targets and
aircraft programs.
Interest expense decreased $1.3 million from $3.0 million in 1993
to $1.7 million in 1994. In 1993, the value of the common stock
purchase warrant held by Bank of America was deemed to have
increased $1.0 million which resulted in a $1.0 million increase
to interest expense. The deemed value of the common stock
purchase warrant remained constant in the first six months of
1994. Aside from the valuation of the stock warrant, other
interest expense declined $0.3 million as a result of the pay
down of outstanding debt, offset by an increase in interest
rates. The Company paid $4.0 million in principal against its
Term Credit facility in the first six months of 1994. The
effective average interest rate in 1994 on the Term Credit
facility and the Revolving Credit facility was 6.64% versus 6.28%
for 1993.
The Company booked $0.1 million of state and federal income tax
expense in the first six months of 1994 versus $0.2 million of
state and federal income tax expense in the first six months of
1993. A net deferred tax asset of $2.8 million was recorded in
the fourth quarter of 1993 as a result of the net change in the
valuation allowance related to benefits arising from loss
carryforwards. Approximately $8.2 million of future taxable
income will have to be generated to realize the deferred tax
asset. The Company believes that future levels of pretax
earnings for financial reporting purposes will be sufficient to
generate $8.2 million of future taxable income.
LIQUIDITY AND CAPITAL RESOURCES
Net working capital decreased $4.4 million in the first six
months of 1994, from $23.1 million at December 31, 1993 to $18.7
million at June 30, 1994. As a result, the current ratio
decreased from 1.85 at December 31, 1993 to 1.63 at June 30,
1994.
Net income decreased $2.6 million for the first six months of
1994 as compared to the first six months of 1993. However, net
cash provided from operating activities increased $4.6 million,
from a net cash provided position of $0.6 million in 1993 to a
net cash provided position of $5.2 million in 1994. This
disparity in net income versus net cash primarily resulted from
changes in inventory, accounts payable and accrued expenses for
each year. Inventory decreased $4.7 million in the first six
months of 1994 due to an increase of $3.2 million in customer
financed progress payment balances, a $0.2 million decrease in
work in process and a $1.1 million decrease in raw materials.
Inventory increased $5.8 million in the first six months of 1993
due to a reduction of $14.1 million in customer financed progress
payment balances offset by a $8.5 million reduction in work in
process. The progress payment balance decreased in the first six
months of 1993 due to the large number of aircraft redeliveries
on both government and commercial contracts. Accounts payable
and accrued expenses increased $2.8 million in the first six
months of 1994 primarily due to an increase in accrued wages and
vendor payables. The fluctuation in accrued wages is a function
of the relationship of the calendar and the Company's payroll
schedule. Accounts payable and accrued expenses decreased $0.4
million in the first six months of 1993 primarily due to a
decrease in unearned customer deposits of $3.7 million offset by
an increase in accrued wages and vendor payables.
The other principal components of cash flow from operating
activities in the first six months of 1994 that had a favorable
impact on cash flow are a $1.4 million charge for depreciation
and amortization and a net provision for loss reserves of $0.6
million. The charge for depreciation and amortization decreased
$0.4 million from the first six months of 1993 due to the $2.7
million reduction in intangibles that was recorded in the fourth
quarter of 1993 in accordance with SFAS No. 109 Accounting for
Income Taxes (see note 8, Income Taxes, in the Company's 1993
10-K).
The principal components of cash flow from operating activities
in the first six months of 1994 that had an unfavorable impact on
cash flow were a $1.6 million increase in accounts receivable, a
$0.5 million decrease in the long term portion of self-insured
workers' compensation reserves, a $0.6 million increase in
prepaid expenses and a $0.3 million increase in intangible
assets.
The Company fully utilized its $8.0 million Revolving Credit
facility at June 30,1994 versus $6.8 million at December 31,
1993. The Company used its cash provided from operating
activities and the $1.2 million from the Revolving Credit
facility to fund $4.0 million in principal payments on the Term
Credit facility in the first six months of 1994 as well as $0.2
million for payments on various capital leases. The Company also
expended $1.1 million for capital items and reduced its cash
overdraft by $0.8 million.
Consolidated indebtedness at June 30, 1994 was $34.5 million
versus $37.4 million at December 31, 1993. The Company is
highly-leveraged and its cash position has been further impacted
by the disruption of work flow which occurred due to the
aforementioned late delivery of GFM on the KC-135 program.
However, management believes that, due to its positive long-term
business outlook and expected cash flows, it will continue to
have sufficient internal and external resources to meet its
current and future obligations and to accommodate growth in its
business. The company has been successful in obtaining operating
and capital lease lines of credit and is currently seeking
renewal/replacement financing for the $8.0 million Revolving
Credit, $7.0 million Term Credit and $5.0 million Senior
Subordinated Credit facilities due in September of 1995.
BACKLOG
<TABLE>
The following table presents the backlog (in thousands of
dollars) at June 30, 1994 and 1993:
1994 1993
<S> <C> <C>
U. S. Government $ 84,225 $ 76,969
Commercial $ 53,213 $ 42,606
Total $137,438 $119,575
</TABLE>
Of the June 30, 1994 backlog, approximately 61% was for the U.S.
Government versus 64% at June 30, 1993. The backlog for the U.S.
Government increased $7.3 million from the first six months of
1993 to the first six months of 1994, primarily due to an
increase of $17.1 million in contracts for the Company's Space
Vector subsidiary, offset by an $7.0 million decline in KC-135
orders and reductions or termination of various other U.S.
Government contracts. Commercial backlog increased $10.6 million
primarily due to additional scheduling of 737 and 727 cargo
conversions. Approximately $23.4 million of the 1994 backlog and
$13.7 million of the 1993 backlog may not be considered firm as
it includes maintenance and modification work to be performed on
optional aircraft. Additionally, the Registrant has
approximately $20.0 to $25.0 million of un-funded backlog
associated with follow-on years of the C-130 contract which is
not included in the figures cited above.
On August 3, 1994, the company was confirmed as the successful
bidder on a new contract for the programmed depot maintenance of
the KC-135 aircraft. The contract is expected to run for seven
years and involve the maintenance of as many as 350 aircraft.
The first year value of the contract is approximately $52.0
million and the current estimate for the total value of the
contract, if fully funded, is over $263.0 million. The backlog
associated with the new KC-135 contract is not included in the
June 30, 1994 figures reported above.
While the Company considers its backlog position to be strong,
the Company continues to maintain its fight for market share.
Management believes that recent trends of declining air passenger
and cargo traffic volume have bottomed out and that the industry
is poised for positive growth in both passenger and cargo volume.
As cargo volume rises, and excess capacity is utilized,cargo
carriers will look for additional capacity which should have
positive implications for the Company's primary commercial
businesses. Recent negative financial results by commercial
carriers in the air passenger market are causing many carriers to
re-evaluate their in-house maintenance philosophy. Accordingly,
management believes that an opportunity exists to increase the
Company's share of this business.
The decline in defense spending by the U.S. Government is
expected to have mixed implications for the Company. Reduced
fleet size and new aircraft development projects will be offset
by the need to keep older aircraft in operation. Nevertheless,
the competitive nature of the Company's industry requires
constant evaluation of production efficiency and pricing in both
the government and commercial markets. The Company knows of no
current or foreseeable trend which will diminish its market share
for any of its principal products or services.
PART II - OTHER INFORMATION
Item I Legal Proceedings
None
Item 2 Changes in Securities
None
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
The Registrant's annual meeting of shareholders was
held on May 17, 1994. At the Meeting, Matthew L.
Gold, Donald C. Hannah, Admiral George E.R. Kinnear
II, Admiral Wesley L. McDonald, and Walter M. Moede
were elected as directors. Also approved at the
meeting was the ratification of the appointment of
Coopers & Lybrand as the independent public
accountants for the Registrant for the calendar year
ending December 31, 1994, the Amended and Restated
Nonqualified Stock Option Plan and the Amended and
Restated Incentive Stock Option and Appreciation
Rights Plan.
<TABLE>
The number of votes cast for or withheld for each
director nominee was as follows:
Nominee For Withheld
<S> <C> <C>
Matthew L. Gold 11,454,893 112,797
Donald C. Hannah 11,454,893 112,797
Adm. George E.R. Kinnear II 11,453,893 113,797
Adm. Wesley L. McDonald 11,453,893 113,797
Walter M. Moede 11,451,593 116,097
</TABLE>
The number of votes cast for, against and
abstentions for ratification of the selection of Coopers &
Lybrand as the Company's independent auditors for calendar year
ending December 31, 1994 was as follows:
<TABLE>
For Against Abstain
<S> <C> <C> <C>
Votes 11,546,390 8,000 13,000
</TABLE>
The number of votes cast for, against and
abstentions for approval of the Amended and Restated Nonqualified
<TABLE>
Stock Option Plan was as follows:
For Against Abstain
<S> <C> <C> <C>
Votes 9,880,426 234,386 18,494
</TABLE>
<TABLE>
The votes cast for, against and abstentions for
approval of the Amended and Restated Incentive Stock Option and
Appreciation Rights Plan was as follows:
For Against Abstain
<S> <C> <C> <C>
Votes 9,895,126 222,186 15,994
</TABLE>
Because the election of directors and retention of auditors were
considered routine under applicable stock exchange rules, all
proxy shares held in the names of brokers as nominees which were
not voted at the meeting by the beneficial holders thereof were
voted by the brokers in favor of the nominees for the Board of
Directors and the retention of the auditors. The two Stock
Option Plans were considered non-routine, and therefore, the
brokers did not vote 1,436,184 shares for either of the Plans.
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits - None.
(b) Reports on Form 8-K - None
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.
PRECISION STANDARD, INC.
Date: 8/12/94 By: /s/ Matthew L. Gold
Matthew L. Gold
Chairman, President and
Chief Executive Officer
Date: 8/12/94 By: /s/ Walter M. Moede
Walter M. Moede
Executive Vice President
& Chief Financial Officer
