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
March 31, 1995
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 March 31, 1995
<TABLE>
PRECISION STANDARD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1995 1994
(Unaudited)
<S> <C> <C>
Current assets:
Accounts receivable, net of
allowance for doubtful accounts $15,208,567 $15,266,539
Inventories 27,887,660 27,713,937
Prepaid expenses and other 979,323 814,548
Deferred tax 8,147,544 8,147,544
Total current assets 52,223,094 51,942,568
Property, plant and equipment,
at cost:
Leasehold improvements 10,106,957 9,784,364
Machinery and equipment 15,948,967 14,992,089
26,055,924 24,776,453
Less accumulated depreciation (11,405,676) (10,837,428)
Net property and equipment 14,650,248 13,939,025
Other assets:
Intangible assets, net of
accumulated amortization 5,008,943 5,053,837
Related party receivable 269,824 269,824
Deposits and other 974,595 1,004,501
Insurance proceeds receivable 371,930 129,930
U.S. Government request for
equitable adjustment, net 3,510,271 3,510,271
Deferred tax 4,926,250 4,926,250
15,061,813 14,894,613
Total assets $81,935,155 $80,776,206
<FN>
The accompanying notes are an integral part of
these consolidated financial statements.
</FN>
</TABLE>
<TABLE>
PRECISION STANDARD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1995 1994
(Unaudited)
<S> <C> <C>
Current liabilities:
Bank overdrafts $ 176,120
Current maturities of long-term
debt $21,959,988 13,889,790
Accounts payable and accrued
expenses 19,916,331 20,736,232
Accrued warranty expenses 1,469,679 1,518,679
Estimated losses on contracts
in progress 2,423,176 1,345,176
Total current liabilities 45,769,174 37,665,997
Long-term debt, net of current
maturities 6,040,231 14,924,602
Long-term portion of self-insured
workers' compensation reserve 3,807,656 3,642,384
Unfunded accumulated benefit
obligation 7,828,431 7,828,431
Total liabilities 63,445,492 64,061,414
Common stock purchase warrant 4,200,000 4,200,000
Stockholders' equity:
Common stock, $.0001 par value,
300,000,000 shares authorized,
12,787,208 and 12,787,208
shares issued, 12,344,291 and
12,344,291 outstanding at
March 31, 1995 and December 31,
1994, respectively. 1,279 1,279
Additional paid-in capital 937,784 937,784
Deferred compensation on
restricted shares (153,125) (175,000)
Retained earnings 21,656,022 20,058,166
Translation adjustments (102,106)
Minimum pension liability
adjustment (7,491,604) (7,748,850)
14,848,250 13,073,379
Less cost of treasury shares
(337,260) (558,587) (558,587)
Total stockholders' equity 14,289,663 12,514,792
Total liabilities and stock-
holders' equity $81,935,155 $80,776,206
<FN>
The accompanying notes are an integral part of
these consolidated financial statements.
</FN>
</TABLE>
<TABLE>
PRECISION STANDARD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Three
Months Ended Months Ended
March 31 March 31,
1995 1994
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $41,146,180 $34,858,204
Cost of sales 33,815,436 30,776,295
Gross profit 7,330,744 4,081,909
Selling, general and
administrative expenses (4,407,118) (3,250,200)
Bad debt recovery (expense) (189,055) 67,047
Research and development expense (216,785) (242,060)
Income from operations 2,517,786 656,696
Other income (expense):
Interest expense (779,832) (781,847)
Other, net 13,902 (67,354)
Income (loss) before
income taxes 1,751,856 (192,505)
Income tax expense (154,000) (39,040)
Net income (loss) $ 1,597,856 $ (231,545)
Earnings (loss) per common share:
Primary:
Before extraordinary item $ .10 $ (.02)
Extraordinary item
Total $ .10 $ (.02)
Fully diluted:
Before extraordinary item $ .10 $ (.02)
Extraordinary item
Total $ .10 $ (.02)
Weighted average number of common
shares outstanding 16,492,952 12,341,141
<FN>
The accompanying notes are an integral part of
these consolidated financial statements.
</FN>
</TABLE>
<TABLE>
PRECISION STANDARD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Three
Months Ended Months Ended
March 31 March 31,
1995 1994
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating
activities:
Net income (loss) $1,597,856 $ (231,545)
Adjustments to reconcile
net income (loss) to net
cash provided from operating
activities:
Depreciation and amortization 617,404 692,648
Pension cost in excess of
funding 257,246 13,572
Provision for losses on receivables 189,055
Provision for warranty expense 50,000 3,000
Provision for losses on
contracts in progress 1,278,000 134,020
Recognition of deferred compensation
on restricted shares 21,822
Gain on disposition of equipment (5,500)
Changes in assets and
liabilities:
Accounts receivable (36,650) (2,591,204)
Inventories (131,755) 4,538,674
Prepaid expenses (133,673) (251,586)
Deposits and other 29,987 (40,703)
Accounts payable and
accrued expenses (948,913) 1,088,262
Accrued warranty expense (99,000)
Estimated losses on contracts
in progress (200,000)
Self-insured workers'
compensation reserve 116,154 (249,215)
Total adjustments 1,004,177 3,337,468
Net cash provided by
operating activities 2,602,033 3,105,923
Cash flows from investing
activities:
Insurance proceeds receivable (242,000)
Capital expenditures (753,468) (757,916)
Proceeds from sale of equipment 5,500
Net cash used in
investing activities $ (989,968) $ (757,916)
<FN>
The accompanying notes are an integral part of
these consolidated financial statements.
</FN>
</TABLE>
<TABLE>
PRECISION STANDARD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
Three Three
Months Ended Months Ended
March 31, March 31,
1995 1994
<S> <C> <C>
Cash flows from financing
activities:
Proceeds from issuance of
common stock $ 718
Net repayments
under short-term obligations $ (25,302)
Borrowings under revolving
credit facility 12,600,000 14,600,000
Repayments under revolving
credit facility (11,800,000) (14,200,000)
Principal payments under
long-term obligations (2,113,503) (2,081,344)
Change in cash overdraft (176,119) (667,381)
Net cash used in
financing activities (1,514,924) (2,348,007)
Effect of exchange rate changes
on cash and cash equivalents (97,141)
Net increase in cash
and cash equivalents -0- -0-
Cash and cash equivalents
beginning of period -0- -0-
Cash and cash equivalents
end of period $ -0- $ -0-
Supplemental disclosure of cash
flow information:
Cash paid during the period for:
Interest $ 721,863 $ 461,336
Income taxes 25,300 124,500
Supplemental disclosure of
non-cash investing activities:
Capital lease obligations incurred
for new equipment $ 524,635 -0-
<FN>
The accompanying notes are an integral part of
these consolidated financial statements.
</FN>
</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. The results of operations for the period ended March
31, 1995 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 1994
10-K. Certain reclassifications have been made to the 1994
financial statements included herein to conform with the
presentation used in 1995.
2. SIGNIFICANT ACCOUNTING POLICIES
Cash - Under the Company's cash management system, certain
divisions' and subsidiaries' cash accounts reflect credit
balances to the extent checks written have not been presented
for payment. At March 31, 1995, these credit balances in the
amount of $347,579 are included in accounts payable. Such
credit balances were classified as Bank Overdrafts at December
31, 1994. In subsequent financial presentations, amounts will
be classified as Bank Overdrafts only to the extent that funds
are actually borrowed from the Company's financial
institutions which equates to the Company having insufficient
funds.
Translation of Non-U.S. Currency Amounts - Assets and
liabilities of non-U.S. subsidiaries that operate in a local
currency environment are translated to U.S. dollars at the
exchange rate for the end of the accounting period. Income
and expenses are translated at average rates of exchange.
Translation adjustments are accumulated in a separate
component of stockholders' equity.
3. INVENTORIES
<TABLE>
Inventories consist of the following:
March 31, December 31,
1995 1994
(Unaudited)
<S> <C> <C>
Work in-process $27,646,666 $26,018,727
Finished goods 3,531,241 3,012,119
Raw materials and supplies 5,478,952 5,038,428
Total $36,656,859 $34,069,274
Less progress payments (8,715,038) (6,194,184)
Less reserve for estimated
losses on contracts in
progress (54,161) (161,153)
$27,887,660 $27,713,937
</TABLE>
4. EARNINGS PER COMMON SHARE
In the first quarter of 1995, the computation of primary and
fully diluted earnings per share is based on the weighted
average number of outstanding common shares including
restricted shares and assumes the exercise of certain stock
options. Stock warrants are treated as equity rather than
debt, as this presentation is the most dilutive. The stock
warrants were granted to the Company's primary lender 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. The
computation of the loss per common share in the first quarter
of 1994 is based on the weighted average number of outstanding
common shares. The inclusion of stock options and stock
warrants would be antidilutive in the first quarter of 1994.
5. NOTES PAYABLE
<TABLE>
March 31, December 31,
1995 1994
<S> <C> <C>
Short term debt consists of
the following:
Term Credit facility $ 9,000,000 $ 8,000,000
Senior Subordinated Loan 5,000,000 5,000,000
Revolving Credit facility 7,000,000
Note due to individual, bears 447,173 447,173
interest at 10% collaterized
by a security interest in
certain equipment
Other obligations, collaterized 512,815 442,617
by security interests in certain
equipment
$21,959,988 $13,889,790
Long term debt consists of the
following:
Term Credit facility $ 3,000,000
Senior Subordinated Loan $ 5,000,000 5,000,000
Revolving Credit facility 6,200,000
Other obligations, 1,040,231 724,602
collaterized by security
interests in certain
equipment
$ 6,040,231 $14,924,602
</TABLE>
The Company reached an agreement in March 1994 with its
primary lender to extend the maturity date of both the
Revolving Credit facility and Term Credit facility. Both of
these instruments were previously due in September 1994. The
restated credit agreement provides that the maturity date of
the Revolving Credit facility is September 30, 1995. The
agreement also provides that the maturity date of the
Revolving Credit facility can be extended to March 31, 1996
pursuant to the payment of the extension fee specified in the
agreement.
The Term Credit facility provides for a quarterly installment
of $2.0 million at June 30, 1995, and a final payment of $7.0
million on September 30, 1995. The agreement provides that
the maturity date of the Term Credit facility can be extended
pursuant to the payment of the extension fee specified in the
agreement. This extension would allow the Company to repay
the balance in two installments of $2.0 million each on
September 30 and December 31, 1995 and a final payment equal
to the remaining unpaid balance on March 31, 1996.
The Senior Subordinated Loan is repayable in two principal
installments of $5.0 million each, due in September 1995 and
1996.
At December 31, 1994, the Company was in violation of both its
leverage ratio and fixed charge coverage ratio requirements
related to its Term Credit facility for the third and fourth
quarters of 1994. On April 14, 1995, the Company's primary
lender issued waivers regarding these covenants and modified
certain financial covenants for the first six months of 1995.
As one of the conditions to granting the waivers and modifying
the covenants, the Company's primary lender required that the
Company rescind its call of a warrant that was granted to the
primary lender in connection with the Company's Senior
Subordinated Loan. The warrant gives the Company's primary
lender the right to purchase 4,215,753 shares of the Company's
common stock at an exercise price of approximately $.24 per
share. The Company intends to continue to negotiate for the
purchase of the warrant and as such the warrant remains in the
mezzanine section of the balance sheet at $4.2 million. A
purchase of the warrant or a change in the Company's intent
with respect thereto, may have an impact on the Company's
financial position, earnings, and cash flows, depending on the
action taken.
In addition, the primary lender issued a Sixth Amendment to
the Amended and Restated Credit Agreement (the Amendment). The
Amendment states that eighty percent of any proceeds received
from the Request for Equitable Adjustment (Note 6) must first
be applied to the noncurrent portion of the Senior and Term
loans and, upon liquidation of those loans, be applied to the
Revolving Credit facility.
6. CONTINGENCIES
The Company recorded revenue and a long-term unbilled
receivable of approximately $3.5 million in the second and
third quarters of 1994 in anticipation of settlement of a
contract request for equitable adjustment (REA) involving the
KC-135 Programmed Depot Maintenance (PDM) contract.
The REA, which has been certified by the Company and submitted
to the U.S. Government, 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 ships in work at March
31, 1995. The Company has obtained an opinion from outside
legal counsel specializing in government procurement law and
from independent management consultants that there is a
reasonable basis to support the REA. The Company feels
strongly that the evidence in support of the REA is objective
and verifiable, and the costs associated with the REA are
reasonable in view of the work performed and are not the
result of any deficiencies in the Company's performance. The
Company has considered the cost impact of ships redeliverable
to the government through December 31, 1994, and has recorded
the claim net of reserves. The reserves are deemed necessary
by the Company due to uncertainties in the process of
receiving equitable adjustment related to such claims. At
this time, the Company cannot estimate the length of time that
will be required to resolve the claim. Should the Company not
ultimately receive an equitable adjustment from the claim,
which event the Company deems unlikely, the Company would
realize a pre-tax reduction of revenue of approximately $3.5
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 March 31, 1995
Versus three months ended March 31, 1994
Revenues for the first quarter of 1995 increased 18%, from $34.9
million for 1994 to $41.1 million for 1995. Government sales
increased 11% in the first quarter, from $23.7 million in 1994 to
$26.3 million in 1995. Commercial sales increased 33% in the first
quarter, from $11.2 million in 1994 to $14.8 million in 1995. The
Company's mix of business between government and commercial
customers remained relatively constant in the first quarter of 1995
as compared to the first quarter of 1994 (64% government in 1995
versus 68% in 1994; 36% commercial in 1995 versus 32% in 1994).
The increase in government sales was due primarily to an increase
in revenue on the KC-135 aircraft program and the space vehicle and
support system program. The Company redelivered fifteen KC-135
Programmed Depot Maintenance (PDM) aircraft in 1994 versus fourteen
in 1995. However, seven of the fifteen redeliveries in 1994 were
partial redeliveries and were accounted for on a percentage of
completion basis. The aircraft were partially redelivered due to
the disruption of scheduled work flow which occurred as a result of
the lack of government furnished material. Additionally, the
Company redelivered four KC-135 drop-in aircraft in the first
quarter of 1995 versus one aircraft in the first quarter of 1994.
First quarter 1995 sales for the space vehicle and support system
product line increased over sales in the first quarter of 1994 due
to the disruption of business caused by the January, 1994
earthquake in California.
The increase in commercial sales is due to (a) an increase in the
number of 727 cargo conversion redeliveries (two redeliveries in
1995 versus no redeliveries in 1994), (b) an increase in aircraft
maintenance and modification services, other than cargo conversion
aircraft, which includes revenue recognized under a contract with
a major airline, (c) an increase in sales from the Company's
aircraft cargo handling systems product line, and (d) revenue
generated at the Company's aircraft maintenance facility in
Copenhagen, Denmark, which began operations in May of 1994. The
above increases in commercial sales are partially offset by a
reduction in the number of 737 cargo conversion redeliveries (three
redeliveries in 1994 versus two redeliveries in 1995).
The ratio of cost of sales ($33.8 million in 1995; $30.8 million in
1994) to net sales ($41.1 million in 1995; $34.9 million in 1994)
decreased from 88% in 1994 to 82% in 1995. The resultant increase
in gross profit is attributable primarily to the increase in
revenue on the KC-135 aircraft program and to increased efficiency
on the Company's 737 cargo conversion program. Gross profits were
also favorably impacted by the increase in revenue from the
Company's aircraft cargo handling system and space vehicle and
support system product lines. Partially offsetting the above
favorable impacts on gross profit were recorded losses associated
with the aircraft maintenance facility in Copenhagen, Denmark and
an increase in contract loss reserves related to a 727 cargo
conversion contract to be performed at the Copenhagen facility.
Selling, general and administrative expense increased from $3.3
million in 1994 to $4.4 million in 1995 and increased as a
percentage of sales from 9.3% in 1994 to 10.7% in 1995.
The Company recorded bad debt expense of $0.2 million in 1995
versus a bad debt recovery of $.1 million in 1994. Research and
development expense remained at $0.2 million for both the first
quarter of 1995 and 1994.
Interest expense remained constant at $0.8 million for both the
first quarter of 1995 and 1994. From March of 1994 to March of
1995, the Company paid $8.0 million in principal against its Term
Credit facility. However, the effective average interest rate in
the first quarter of 1995 on the Term Credit facility and the
Revolving Credit facility was 8.65% versus 6.17% in the first
quarter of 1994. The average outstanding balance on the Revolving
Credit facility for the first quarter of each year remained
approximately the same.
The Company booked $0.2 million of state and federal income tax
expense in the first quarter of 1995 versus $0.04 million in the
first quarter of 1994.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated indebtedness at March 31, 1995 is $28.0 million versus
$28.8 million at December 31, 1994. The Company paid $2.0 million
in the first quarter of 1995 against its Term Credit facility but
utilized $7.0 million of its Revolving Credit facility at March 31,
1995 versus $6.2 million at December 31, 1994. The Company also
financed various purchases of equipment under capital lease
agreements in the first quarter of 1995, increasing its
indebtedness by approximately $0.5 million.
As discussed in Note 5 to the financial statements, both the
Revolving Credit facility and the Term Credit facility mature in
September of 1995, but can be extended to March 31, 1996, pursuant
to the payment of an extension fee. The Company intends to extend
both debt facilities to March of 1996. Under the extension, the
Term Credit facility provides for a payment of $2.0 million at June
30, 1995, September 30, 1995 and December 31, 1995 with the final
payment of $3.0 million at March 31, 1996. The Revolving Credit
facility is due in its entirety, under the extension, at March 31,
1996. The Company reclassed the outstanding balances of both the
Term Credit facility and the Revolving Credit facility to short-
term in the first quarter of 1995, in accordance with the
provisions above. The Company's Senior Subordinated Loan has a
$5.0 million principal payment due in September 1995 and 1996.
The Company is required to maintain various financial ratios and
minimum net worth amounts in conjunction with the debt facility
specified above. At December 31, 1994, the Company was in
violation of both the leverage ratio and fixed charge ratio
requirements of its Term Credit facility for the third and fourth
quarters of 1994. On April 14, 1995, the Company's primary lender
issued waivers regarding these covenants and modified certain
financial covenants for the first six months of 1995. In addition,
the primary lender issued a Sixth Amendment to the Amended and
Restated Credit Agreement which states that eighty percent of any
proceeds from the Request for Equitable Adjustment (Note 6) must
first be applied to the noncurrent portion of the Senior and Term
loans and, upon liquidation of those loans, be applied to the
Revolving Credit facility. The primary lender also required, as a
condition to the granting of the waivers, that the Company rescind
its call of the warrant that was issued in connection with the
Senior Subordinated Loan. The warrant grants to the primary lender
the right to purchase 4,215,753 shares of the Company's common
stock at an exercise price of $.24 per share.
The Company intends to continue to negotiate for the purchase of
the warrant and as such the warrant remains in the mezzanine
section of the balance sheet at $4.2 million. A purchase of the
warrant or a change in the Company's intent with respect thereto,
may have an impact on the Company's financial position, earnings
and cash flows, depending on the action taken. The Company also
anticipates restructuring or refinancing its existing credit
facilities during 1995.
Net working capital decreased $7.8 million in the first quarter of
1995, from $14.3 million at December 31, 1994 to $6.5 million at
March 31, 1995, principally due to the reclassification of the $7.0
million Revolving Credit facility balance and $1.0 million of the
Term Credit facility to short term.
Under the Company's cash management system, certain divisions' and
subsidiaries' cash accounts reflect credit balances to the extent
checks written have not been presented for payment. At March 31,
1995, these credit balances in the amount of $347,579 are included
in accounts payable. Such credit balances were classified as Bank
Overdrafts at December 31, 1994. In financial presentations
subsequent to December 31, 1994, amounts will be classified as Bank
Overdrafts only to the extent that funds are actually borrowed from
the Company's financial institutions which equates to the Company
having insufficient funds.
Following is a discussion of the significant items on the Company's
Consolidated Statement of Cash Flows for the period ended March 31,
1995 and March 31, 1994.
Pension cost in excess of funding increased from the first quarter
of 1994 to the first quarter of 1995 due to an increase in recorded
pension expense. The Company funded its pension obligation for the
same amount in both years.
A provision of $1.3 million for losses on contracts in progress was
recorded for the first 727 conversion contract to be worked at the
Company's Copenhagen aircraft maintenance facility. The provision
was required due to unfavorable movements in the kroner/dollar
exchange rate and an anticipated higher cost associated with the
facility's first aircraft conversions.
Inventory increased slightly in the first quarter of 1995 ($0.1
million) compared to a $4.5 million reduction in the first quarter
of 1994. In 1994, work in process decreased $2.4 million, customer
financed progress payment balances increased $2.7 million and raw
stock increased $0.3 million. In 1995, work in process increased
$1.6 million, customer financed progress payment balances increased
$2.5 million, raw stock increased $0.4 million and finished goods
increased $0.5 million. In 1994, the progress payment balance
increased mainly due to a reduction in the fully-completed
redelivery of KC-135 aircraft. Seven of the fifteen redeliveries
in the first quarter were partial redeliveries. In 1995, the
progress payment balance increased primarily due to commercial
customer progress payments on the Company's aircraft maintenance
and modification contracts.
Accounts payable and accrued expenses decreased $0.9 million in the
first quarter of 1995 primarily due to a $1.2 million decrease in
Unearned Customer Deposits. Accounts payable and accrued expenses
increased $1.1 million in the first quarter of 1994 primarily due
to an increase in accrued wages. The fluctuation in accrued wages
is a function of the relationship of the calendar and the Company's
payroll schedule.
The Company increased its insurance proceeds receivable and
recorded income of $0.2 million in the first quarter of 1995 due to
an additional anticipated insurance recovery for damages incurred
during the January, 1994 California earthquake.
The Company utilized $7.0 million of its Revolving Credit facility
at March 31, 1995 versus $6.2 million at December 31, 1994 and $7.2
million at March 31, 1994. In the first quarter of 1995, the
Company used its cash provided from operating activities and $0.8
million from the Revolving Credit facility to fund a $2.0 million
principal payment on the Term Credit facility as well as $0.1
million for payments on various capital leases. The Company also
expended $0.8 million for capital items. In the first quarter of
1994, the Company used its cash provided from operating activities
and $0.4 million from the Revolving Credit facility to fund a $2.0
million Term Credit facility principal payment, $0.1 million for
payments on various capital leases, and $0.8 million for capital
items.
The assets and liabilities of the Company's Denmark operations are
recorded in Danish kroner and are translated to U.S. dollars at the
exchange rates prevailing at the end of the accounting period.
Income and expenses are translated at the average of the exchange
rates during the period. Translation adjustments are accumulated
in a separate component of stockholders' equity. The translation
adjustment at March 31, 1955 was $0.1 million and the effect of the
exchange rate changes on cash equivalents during the first quarter
was a decrease of $0.1 million.
<TABLE>
BACKLOG
The following table presents the backlog (in thousands of dollars)
at March 31, 1995 and 1994:
1995 1994
<S> <C> <C>
U.S. Government $ 86,791 $104,246
Commercial 52,349 49,214
Total $139,140 $153,460
</TABLE>
For the period ending March 31, 1995, 62% of the Company's backlog
was for the U.S. Government versus 68% for the period ending March
31, 1994. The backlog for the U.S. Government decreased $17.5
million primarily due to performance of work over the past twelve
months under the Company's HERA contract. The HERA contract is the
Company's largest contract for its Space Vehicles and Support
Systems. The HERA contract backlog at March 31, 1994 was
approximately $27.9 million versus $15.0 million at March 31, 1995.
The Company's U.S. Government backlog also decreased due to the
completion of the Company's contract at the government-owned,
company operated facility at Bergstrom U.S. Air Force Base and due
to a $4.0 million reduction in C-130 orders. Commercial backlog
increased $3.1 million primarily due to the additional scheduling
of $8.4 million of 727 cargo conversion aircraft, offset by a
reduction of $5.0 million of 737 cargo conversion aircraft.
Approximately $24.7 million of the backlog at March 31, 1995
(compared to $25.6 million at March 31, 1994) included above may
not be considered firm as it includes maintenance and modification
work to be performed on optional aircraft. Approximately $15.5
million of the backlog at March 31, 1995 (compared to $26.9 million
at March 31, 1994) included above are firm orders that have not yet
been funded. Additionally, the Company has approximately $200
million of firm but unfunded backlog associated with the six
follow-on years of the KC-135 contract and $6.5 million associated
with the final year of the C-130 contract, neither of which is
included in the figures cited 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 anticipated general decline in defense spending by the U.S.
Government is expected to have mixed implications for the Company.
Reduced fleet size and fewer 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.
CONTINGENCIES
As previously discussed, a denial of the Company's request for
equitable adjustment from the U.S. Government for the cost impact
of late delivery of government furnished material on its KC-135 PDM
contract, which event the Company deems unlikely, would cause a
pre-tax reduction of revenue of $3.5 million.
The Company, as a U.S. Government contractor, is routinely subject
to audits, reviews and investigations by the government related to
its negotiation and performance of government contracts and its
accounting for such contracts. Under certain circumstances, a
contractor can be suspended or debarred from eligibility for
government contract awards. The government may, in certain cases,
also terminate existing contracts, recover damages and impose other
sanctions and penalties. The Company believes, based on all
available information, that the outcome of the U.S. Government's
audits, reviews and investigations will not have a materially
adverse effect on the Company's consolidated results of operation,
financial position or cash flows.
PRECISION STANDARD,INC.
OTHER INFORMATION
Item 1 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
None
Item 5 Other Information
None
Item 6 Exhibits and 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: 5-12-95 By: /s/Matthew L. Gold
Matthew L. Gold
Chairman, President and
Chief Executive Officer
Date: 5-12-95 By: /s/Matthew L. Gold
Walter M. Moede
Executive Vice President
& Chief Financial Officer
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