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, 1996
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 12,471,080 shares
Common Shares Outstanding at March 31, 1996
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
PRECISION STANDARD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 354,040 $ 1,411,929
Accounts receivable, net 13,081,256 14,312,946
U.S. Government request for
equitable adjustment, net 8,144,522
Inventories 23,297,805 21,753,009
Prepaid expenses and other 2,447,894 981,197
Deferred taxes 5,038,205 5,038,205
Total current assets 44,219,200 51,641,808
Property, plant and equipment,
at cost:
Leasehold improvements 10,483,914 10,322,638
Machinery and equipment 18,044,877 17,933,717
Less accumulated depreciation (13,965,147) (13,298,748)
Net property and equipment 14,563,644 14,957,607
Other assets:
Intangible assets, net of
accumulated amortization 4,379,658 4,334,662
Related party receivable 269,824 269,824
Deposits and other 843,721 841,498
U.S. Government request for
equitable adjustment, net 4,929,000 4,100,000
Deferred taxes 4,825,131 4,825,129
15,247,334 14,371,113
Total assets $74,030,178 $80,970,528
<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,
1996 1995
(Unaudited)
<S> <C> <C>
Current liabilities:
Current maturities of long-term
debt $25,964,600 $ 955,155
Accounts payable and accrued
expenses 23,482,417 28,181,810
Accrued warranty expenses 1,112,547 1,178,636
Estimated losses on contracts
in progress 203,922 203,922
Total current liabilities 50,763,486 30,519,523
Long-term debt, net of current
maturities 642,888 25,787,030
Long-term portion of self-insured
workers' compensation reserve 3,717,703 3,717,703
Unfunded accumulated benefit
obligation 7,072,103 7,072,103
Total liabilities 62,196,180 67,096,359
Stockholders' equity:
Common stock, $.0001 par value,
300,000,000 shares authorized,
12,471,080 and 12,455,955
issued and outstanding at
March 31, 1996 and December 31,
1995, respectively. 1,281 1,280
Additional paid-in capital 4,598,460 4,584,394
Deferred compensation on
restricted shares (65,625) (87,500)
Retained earnings 14,204,956 16,246,824
Translation adjustments 151,756 146,202
Minimum pension liability adjustment (7,056,830) (7,017,031)
Total stockholder's equity 11,833,998 13,874,169
Total liabilities and stock-
holders' equity $74,030,178 $80,970,528
<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,
1996 1995
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $26,547,405 $41,146,180
Cost of sales (24,124,477) (33,815,436)
Gross profit 2,422,928 7,330,744
Selling, general and
administrative expenses (3,470,101) (4,407,118)
Bad debts expense (189,055)
Research and development expense (152,530) (216,785)
Income (loss) from operations (1,199,703) 2,517,786
Other expense:
Interest expense (870,503) (779,832)
Other, net 75,072 13,902
Income (loss) before income taxes (1,995,134) 1,751,856
Net income tax (expense) (46,734) (154,000)
Net income (loss) $(2,041,868) $ 1,597,856
Earnings (loss) per common share and
common equivalent share* Note (4):
Net income (loss) $(.16) $.10
Earnings (loss) per common share -
assuming full dilution* (Note 4):
Net income (loss) $(.16) $.10
Weighted average number of
common shares outstanding 12,464,177 16,492,952
<FN>
*See basis of computation in Note 4 to the
Consolidated Financial Statements.
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,
1996 1995
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,041,868) $ 1,597,856
Adjustments to reconcile
net income (loss) to net cash
provided from operating
activities:
Depreciation and amortization 711,916 639,226
Pension cost in excess of
funding (39,799) 257,246
Provision for losses on
receivables 189,055
Provision for warranty expense 50,000
Provision for losses on
work in process 293,924
Provision for losses on
contracts in progress 1,278,000
(Gain) loss on disposition
of equipment 4,514 (5,500)
Changes in assets and liabilities:
Accounts receivable 1,202,525 (36,650)
Inventories (1,867,195) (131,755)
Prepaid expenses and
other assets (1,471,871) (133,673)
Intangible assets (50,000)
U.S. Government request for
equitable adjustment, net 7,315,522
Deposits and other 1,159 29,987
Accounts payable and
accrued expenses (4,593,303) (948,913)
Accrued warranty expense (66,089) (99,000)
Estimated losses on
contracts in progress (200,000)
Self-insured workers'
compensation reserve 116,154
Total adjustments 1,441,303 1,004,177
Net cash provided (used) by
operating activities (600,565) 2,602,033
Cash flows from investing activities:
Capital expenditures (304,454) (753,468)
Insurance proceeds receivable (242,000)
Proceeds from sale of equipment 5,500
Net cash used in
investing activities $ (304,454) $ (989,968)
<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,
1996 1995
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of
common stock $ 1,734
Borrowings under revolving
credit facility -0- $12,600,000
Repayments under revolving
credit facility -0- (11,800,000)
Principal payments under
long-term obligations (134,698) (2,138,805)
Change in cash overdraft (176,119)
Net cash used in
financing activities (132,964) (1,514,924)
Effect of exchange rate changes
on cash and cash equivalents (19,906) (97,141)
Net increase (decrease) in cash
and cash equivalents (1,057,889) -0-
Cash and cash equivalents
beginning of period 1,411,929 -0-
Cash and cash equivalents
end of period $ 354,040 $ -0-
Supplemental disclosure of cash
flow information:
Cash paid during the period for:
Interest $ 20,430 $ 721,863
Income taxes 25,800 25,300
Supplemental disclosure of
non-cash investing activities:
Capital lease obligations incurred
for new equipment $ -0- $ 524,635
<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, 1996 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 1995
10-K. Certain reclassifications have been made to the 1995
financial statements included herein to conform with the
presentation used in 1996.
2. SIGNIFICANT ACCOUNTING POLICIES
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,
1996 1995
(Unaudited)
<S> <C> <C>
Work in-process $35,532,809 $31,050,937
Finished goods 3,934,219 3,858,325
Raw materials and supplies 5,975,573 5,019,629
Total $45,442,601 $39,928,891
Less progress payments (21,359,539) (16,901,206)
Less reserve for estimated
losses on contracts in
progress (785,257) (1,274,676)
$23,297,805 $21,753,009
</TABLE>
4. EARNINGS PER COMMON SHARE
The computation of loss per common share in 1996 is based on
the weighted average number of outstanding common shares. The
inclusion of stock options and stock warrants would be
antidilutive. The computation of earnings per common share in
1995 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 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.
5. CHANGES IN ACCOUNTING PRINCIPLES
In the first quarter of 1996, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 121, Accounting for
the Impairment of Long-lived Assets, which establishes
guidance for recognizing and measuring impairment losses and
requires that the carrying amount of impaired assets be
reduced to fair value. The adoption of SFAS No. 121 did not
have a material impact on the Company's financial statements
in the first quarter of 1996.
The Company also adopted Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, in the first quarter of 1996 which establishes
fair value-based financial accounting and reporting standards
for all arrangements by which employees receive shares of
stock or other equity instruments of the employer. The
Company will comply with the disclosure requirements set forth
in the statement. No stock options were granted in either the
first quarter of 1996 or 1995 and the Company recorded
approximately $34,000 and $22,000 of compensation cost in the
first quarter of 1996 and 1995 respectively, for stock-based
employee compensation awards.
6. NOTES PAYABLE
<TABLE>
March 31, December,31,
1996 1995
<S> <C> <C>
Short-term debt consists of
the following:
Term Credit facility $ 7,000,000
Senior Subordinated Loan 10,000,000
Revolving Credit facility 8,000,000
Note due to individual, bears 447,173 $ 447,173
interest at 10% collateralized
by a security interest in
certain equipment
Other obligations 517,427 507,982
collateralized by security
interests in certain
equipment
$25,964,600 $ 955,155
Long term debt consists of
the following:
Term Credit facility 7,000,000
Senior Subordinated Loan 10,000,000
Revolving Credit facility 8,000,000
Other obligations, 642,888 787,030
collateralized by security
interests in certain
equipment
$ 642,888 $25,787,030
Total short term and long term $26,607,488 $26,742,185
debt
</TABLE>
On April 15, 1996, the Company and its primary lender executed
the Eighth Amendment to the Amended and Restated Credit
Agreement and the Sixth Amendment to the Amended and Restated
Senior Subordinated Loan Agreement (the "Amendments"). The
Amendments provided for the maturity dates of the Revolving
Credit facility, the Term Credit facility and the Senior
Subordinated Loan to be extended until March 31, 1997 and a
waiver was given for all of the Company's covenant violations
through March 31, 1996. Additionally, the Amendments provided
that all interest accrued and unpaid as of April 1, 1996, less
$100,000 which was paid at the time the Amendments were
executed, be capitalized and added to the principal of the
Company's Term Credit facility. The amount of deferred
interest to be capitalized in April of 1996 is $2,207,799.
Also, the expiration date of the warrant, which was granted to
the Company's primary lender in conjunction with the original
making of the loans in 1988, was extended from September 9,
1998 to September 9, 2000.
The Company is continuing to actively investigate and consider
a variety of refinancing and strategic options with its
investment bankers. The Amendments provide for increases in
the rates of interest payable on the loans if the Company has
not obtained refinancing commitments by certain dates.
In accordance with the March 31, 1997 maturity date of the
Revolving Credit facility, the Term Credit facility and the
Senior Subordinated loan, the Company has re-classified $25.0
million of its long term debt at December 31, 1995 to short
term debt at March 31, 1996.
7. CONTINGENCIES
The Company's profitability under its KC-135 contract was
impacted primarily by the lower redeliveries of aircraft, the
adverse cost effect of an unprecedented number of major
structural problems on the aircraft and the lingering effect
of late receipt of GFM. The performance of major structural
repairs is far in excess of levels anticipated in government
contract solicitation documents at the time the new contract
was bid and is believed to be due to more extensive inspection
requirements imposed by the contract as well as to higher
utilization and aging of the aircraft. The Company has
obtained an opinion from outside legal counsel specializing in
government procurement law which documents that the Company is
entitled to compensation for the additional costs associated
with late receipt of GFM, excess major structural repairs and
other direct and constructive changes to the contract. The
Company's independent management consultant has determined a
preliminary rough order magnitude of the cost impact of the
late GFM and excess major structural repairs for aircraft that
redelivered under both the old and new KC-135 contracts.
Based on this assessment, the Company has recorded a total
long term unbilled receivable of $4.9 million, net of
reserves. The reserves are deemed necessary by the Company
due to uncertainties inherent in the process of receiving
equitable adjustments. The Company recorded approximately
$0.8 million of the $4.9 million in the first quarter of 1996
relating primarily to aircraft that redelivered in the first
quarter of 1996. The Company anticipates submitting one or
more requests for equitable adjustment in 1996 and is in the
process of compiling the data and completing the
quantification of the cost impact required therefor. The
Company firmly believes that the evidence in support of the
recorded revenue is objective and verifiable and the costs
associated with the recorded revenue are reasonable in view of
the work performed and are not the result of any deficiencies
in the Company's performance. However, should the Company not
ultimately receive an equitable adjustment from the U.S.
Government, which event the Company deems unlikely, the
Company would realize a pre-tax reduction of revenue of $4.9
million, including $0.8 million recorded in the first quarter
of 1996.
ITEM 2.
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, 1996
versus three months ended March 31, 1995
Revenues for the first quarter of 1996 decreased 35% from $41.1
million in 1995 to $26.5 million in 1996. Government sales
decreased 40% in 1996, from $26.3 million in 1995 to $15.8 million
in 1996. Commercial sales decreased 28% in 1996, from $14.8
million in 1995 to $10.7 million in 1996. The Company's mix of
business between government and commercial customers shifted from
36% commercial and 64% government in 1995 to 40% commercial and 60%
government in 1996.
The decrease in government sales in the first quarter of 1996 was
due primarily to a reduction in the number of KC-135 Programmed
Depot Maintenance (PDM) aircraft redeliveries. Eight aircraft were
redelivered in 1996 versus fourteen aircraft in 1995.
Approximately six aircraft that were scheduled to redeliver by the
end of the first quarter of 1996 were delayed, primarily due to an
unprecedented number of major structural problems on the aircraft
and the lingering effect of the late receipt of government
furnished material (GFM). In addition to the reduction in the
number of KC-135 PDM redeliveries in 1996, the Company has thus far
seen a decline in revenue of approximately $0.1 million for each
aircraft redelivered under the 1994 (or "new") KC-135 contract due
to a restructuring of the work package on the new contract versus
the 1990 (or "old") contract. All of the aircraft redelivered in
the first quarter of 1995 were worked under the old contract,
whereas those aircraft redelivered in 1996 were worked under the
new contract.
Government sales also decreased due to a reduction in the number of
redeliveries under the Company's C-130 contract. The Company
redelivered one PDM aircraft in 1996 versus four PDM aircraft and
two drop-in aircraft in 1995.
The Company's commercial sales decreased primarily due to a
reduction in the number of 737 cargo conversion redeliveries (no
redeliveries in 1996 versus two redeliveries in 1995) and 727 cargo
conversion redeliveries (one in 1996 versus two in 1995).
Partially offsetting this decline in sales was an increase in
volume of approximately $1.3 million at the Company's Pemco World
Air Services facility in Copenhagen, Denmark.
The ratio of cost of sales ($24.1 million in 1996; $33.8 million in
1995) to net sales ($26.5 million in 1996; $41.1 million in 1995)
increased from 82% in the first quarter of 1995 to 91% in 1996.
The resultant decrease in gross profit is attributable primarily to
a reduction in profit realized under the Company's KC-135 PDM
program and the aforementioned fewer redeliveries under the
Company's 737 and 727 cargo conversion programs. Partially
offsetting these unfavorable impacts on gross profit was an
improvement in the operating results at the Company's Copenhagen,
Denmark aircraft facility. Revenues at the Copenhagen aircraft
facility increased approximately 90% in the first quarter of 1996
as compared to 1995 and the Company reduced its operating losses at
the facility by approximately 67%. Additionally, the Company had
recorded a $1.3 million loss provision in the first quarter of 1995
for a 727 cargo conversion contract that was to be performed at
Copenhagen during 1995 versus no such provision in 1996.
The Company's profitability under its KC-135 contract was impacted
primarily by the lower redeliveries of aircraft, the adverse cost
effect of an unprecedented number of major structural problems on
the aircraft and the lingering effect of late receipt of GFM. The
performance of major structural repairs is far in excess of levels
anticipated in government contract solicitation documents at the
time the new contract was bid and is believed to be due to more
extensive inspection requirements imposed by the contract as well
as to higher utilization and aging of the aircraft. The Company
has obtained an opinion from outside legal counsel specializing in
government procurement law which documents that the Company is
entitled to compensation for the additional costs associated with
late receipt of GFM, excess major structural repairs and other
direct and constructive changes to the contract. The Company's
independent management consultant has determined a preliminary
rough order magnitude of the cost impact of the late GFM and excess
major structural repairs for aircraft that redelivered under both
the old and new KC-135 contracts. Based on this assessment, the
Company has recorded a long term unbilled receivable of $4.9
million, net of reserves. The reserves are deemed necessary by the
Company due to uncertainties inherent in the process of receiving
equitable adjustments. The Company recorded approximately $0.8
million of the $4.9 million in the first quarter of 1996 relating
primarily to aircraft that redelivered in the first quarter of
1996. The Company anticipates submitting one or more requests for
equitable adjustment in 1996 and is in the process of compiling the
data and completing the quantification of the cost impact required
therefor. The Company firmly believes that the evidence in support
of the recorded revenue is objective and verifiable and the costs
associated with the recorded revenue are reasonable in view of the
work performed and are not the result of any deficiencies in the
Company's performance. However, should the Company not ultimately
receive an equitable adjustment from the U.S. Government, which
event the Company deems unlikely, the Company would realize a pre-
tax reduction of revenue of $4.9 million, including $0.8 million
recorded in the first quarter of 1996.
Selling, general and administrative expense decreased from $4.4
million in the first quarter of 1995 to $3.5 million in 1996 but
increased as a percent of sales from 11% in 1995 to 13% in 1996.
Interest expense was $0.9 million in the first quarter of 1996
versus $0.8 million in 1995. From March of 1995 to March of 1996,
the Company paid $2.0 million in principal against its Term Credit
facility. However, the effective average interest rate in the
first quarter of 1996 on the Term Credit facility and the Revolving
Credit facility was 12.10% versus 8.65% in the first quarter of
1995. The effective interest rate is higher in 1996 partially due
to increased interest rates in the financial markets and partially
due to the additional interest charged by the Company's primary
lender as a result of the Company's failure to make certain of its
required debt payments in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company was under severe cash constraints during 1995 primarily
from the multiplicity of problems the Company encountered with its
KC-135 program and from the cost impact of the start-up and
operation of the Company's Copenhagen, Denmark facility. The
Company was substantially relieved of pressure from its strained
cash resources in February 1996, upon receiving $8.1 million as
settlement of its $10.3 million REA short-term receivable. The
Company used the proceeds of the REA settlement to reduce its
accounts payable and satisfy all outstanding federal payroll tax
obligations. The Company anticipates remitting payment for all
related payroll tax penalties upon verification of the amounts due.
The remainder of the proceeds from the REA were used to fund the
Company's operations.
On April 15, 1996, the Company and its primary lender executed the
Eighth Amendment to the Amended and Restated Credit Agreement and
the Sixth Amendment to the Amended and Restated Senior Subordinated
Loan Agreement (the "Amendments"). The Amendments provided for all
interest accrued and unpaid as of April 1, 1996, less $100,000
which was paid at the time the Amendments were executed, to be
capitalized and added to the principal of the Company's Term Credit
facility. The amount of deferred interest to be capitalized in
April of 1996 is $2,207,799. Additionally, the maturity dates of
the Revolving Credit facility, the Term Credit facility and the
Senior Subordinated Loan were extended until March 31, 1997 and a
waiver was given for all of the Company's covenant violations
through March 31, 1996. Also, the expiration date of the warrant,
which was granted to the Company's primary lender in conjunction
with the original making of the loans in 1988, was extended from
September 9, 1998 to September 9, 2000.
The Company is continuing to actively investigate and consider a
variety of refinancing and strategic options with its investment
bankers. The Amendments provide for increases in the rates of
interest payable on the loans if the Company has not obtained
refinancing commitments by certain dates.
While the Company's financial position was significantly bolstered
by the $8.1 million REA settlement and the Amendments, the
Company's cash resources continue to be strained primarily from
excessive costs on its KC-135 program due to the performance of
structural repairs far in excess of levels anticipated in
government solicitation documents at the time the new contract was
bid and the lingering effect of the late receipt of GFM. The
Company is currently in the process of compiling the necessary
documentation required to submit REAs for the cost impacts it has
experienced on the KC-135 program. The Company anticipates
submitting its next REA in the second quarter of 1996 but cannot
reasonably estimate the length of time before realization of the
REA or the amount which will be realized therefrom. Additionally,
the Company has proposed a significant contract price adjustment to
the U.S. Government for aircraft worked under the second and
subsequent years of the KC-135 contract which the Company
anticipates negotiating during 1996. The Company and the U.S.
Government have also amended certain payment provisions of the KC-
135 contract which will have favorable results on the timing of the
government's payments to the Company.
The Company also has arranged a standby financing commitment with
its principal shareholder which provides for the extension by the
principal shareholder of up to $2.0 million in short-term advances
upon demonstration of certain need factors by the Company. The
commitment, which contains cross default provisions to the
Company's principal loan agreements, expires in January 1997 and
bears a fee of two percentage points. Advances under the
commitment bear interest at prime plus three percentage points,
have maturities of six months and are secured by a subordinated
security interest in the Company's assets and the pledge of stock
issuance to the extent of ninety percent of the amount advanced.
To date no advances have been made under this commitment.
The following is a discussion of the significant items in the
Company's Consolidated Statement of Cash Flows for the years ending
March 31, 1996 and 1995.
The Company's pension expense as determined by its actuary for the
year 1996 is $1.0 million as compared to $2.3 million in 1995. The
Company intends to fund its pension at the same level in 1996 as
was funded in 1995, equal to $1.3 million. In the first quarter of
1996, the Company funded approximately $0.3 million and expensed
approximately $0.25 million. In the first quarter of 1995, the
Company funded approximately $0.3 million and expensed
approximately $0.6 million.
The Company recorded a provision for losses on work in process of
$0.3 million in the first quarter of 1996 for certain of its
commercial and government contracts which are being performed at
the Dothan facility. In the first quarter of 1995, the Company
recorded a $1.3 million provision for losses on contracts in
progress for a 727 cargo conversion contract that was to be
performed during 1995 at the Company's Copenhagen aircraft
maintenance facility.
Net inventories increased in the first quarter of 1996 primarily
due to an increase of $0.9 million for raw material and a decrease
of $0.5 million for reserves for estimated losses on contracts in
progress. Prepaid expense and other assets increased $1.5 million
in 1996, primarily due to a $1.0 million increase in the Company's
value added tax (VAT) receivable at its Copenhagen, Denmark
facility. The VAT receivable was liquidated early in the second
quarter of 1996.
The Company received $8.1 million in the first quarter of 1996 as
settlement of its $10.3 million REA for the direct and indirect
cost impact of the disruption of scheduled work flow which occurred
as a result of the late receipt of government furnished material on
its old KC-135 contract. The Company recorded $0.8 million of
revenue and a long term unbilled receivable in the first quarter of
1996 for additional costs associated with late receipt of GFM,
excess major structural repairs and other direct and constructive
changes to its contract, relating primarily to aircraft that
redelivered in the first quarter of 1996 under the new KC-135
contract.
The Company used the proceeds of the REA settlement to reduce its
accounts payable by $5.5 million, including $2.3 million of federal
payroll tax payments outstanding at December 31, 1995 which the
Company had been unable to timely remit. All outstanding federal
payroll tax obligations (which then approximated $4.2 million) were
satisfied upon receipt of the $8.1 million settlement in February
of 1966. Partially offsetting the Company's $5.5 million reduction
of its accounts payable during the first quarter of 1996 was an
approximate $0.8 million increase in interest payable to its
primary lender. All interest accrued and unpaid as of April 1,
1996, the amount of which is $2.2 million, will be capitalized in
April of 1996 and added to the Company's Term Credit facility in
accordance with the aforementioned Amendments.
The Company's cash balance at December 31, 1995 of $1.4 million
funded $0.6 million used in the Company's operations, $0.3 million
for capital improvements, and $0.1 million for payments on various
capital leases in the first quarter of 1996. In the first quarter
of 1995, the Company used $2.6 million of cash provided from
operating activities and $0.8 million from the Revolving Credit
facility to fund $0.8 million for capital improvements, a $2.0
million principal payment on its Term Credit facility and $0.1
million for payments on various capital leases.
BACKLOG
<TABLE>
The following table presents the Company's backlog (in thousands of
dollars) at March 31, 1996 and 1995:
1996 1995
<S> <C> <C>
U.S. Government $100,498 $ 86,791
Commercial 18,342 52,349
$118,840 $139,140
</TABLE>
As of March 31, 1996, 85% of the Company's backlog was for the
U.S. Government versus 62% for the period ending March 31, 1995.
The Company's U.S. Government backlog increased $7.3 million under
the Company's KC-135 contract primarily due to delayed redelivery
of aircraft resulting from the aforementioned late receipt of GFM
and an unprecedented number of major structural problems on the
aircraft. The Company's U. S. Government backlog also increased due
to additional work scheduled under the Company's Targets, Space
Vector and H-3 programs.
The Company's commercial backlog at March 31, 1996 changed from
prior year primarily due to a reduction of $30.2 million under the
Company's 737 cargo conversion program resulting principally from
the elimination of assumed option ships under contracts that have
expired. The Company believes at least some of these ships
eventually will be converted under new or renegotiated contracts.
Other changes in the Company's commercial backlog include an
increase of $1.1 million at the Company's Copenhagen facility,
offset by a $5.4 million decrease in 727 cargo conversion backlog.
Approximately $8.9 million of commercial backlog at March 31, 1996
may not be considered firm orders because it pertains to
maintenance and modification work to be performed under contracts
that are approaching their expiry. Additionally, the Company has
approximately $203 million of firm but unfunded backlog associated
with the five follow-on years of the KC-135 contract, which is not
included in the figures cited above.
CONTINGENCIES
As previously discussed above, a denial of the Company's
anticipated requests for equitable adjustment from the U.S.
Government for the cost impact of late delivery of GFM, excess
major structural repairs and other direct and constructive changes
to its KC-135 PDM contract, which event the Company deems unlikely,
would cause a pre-tax reduction of revenue of $4.9 million,
including $0.8 million recorded in the first quarter of 1996.
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.
FORWARD LOOKING STATEMENTS
Statements herein concerning anticipated results of operations and
the Company's intent to take certain actions in the future are
forward looking statements, the accuracy of which cannot be
guaranteed by the Company. These forward looking statements are
subject to a variety of business risks and other uncertainties,
including but not limited to the effect of economic conditions, the
impact of competitive products and pricing, new product
development, the actual performance of work under contract and the
results of financing efforts.
PRECISION STANDARD,INC.
OTHER INFORMATION
PART II.
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: 5/14/96 By: /s/ Matthew L. Gold
Matthew L. Gold
Chairman, President and
Chief Executive Officer
Date: 5/14/96 By: /s/ Walter M. Moede
Walter M. Moede
Executive Vice President
& Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 354,040
<SECURITIES> 0
<RECEIVABLES> 13,507,305
<ALLOWANCES> 426,049
<INVENTORY> 23,297,805
<CURRENT-ASSETS> 44,219,200
<PP&E> 28,528,791
<DEPRECIATION> 13,965,147
<TOTAL-ASSETS> 74,030,178
<CURRENT-LIABILITIES> 50,763,486
<BONDS> 0
0
0
<COMMON> 1,281
<OTHER-SE> 11,832,717
<TOTAL-LIABILITY-AND-EQUITY> 74,030,178
<SALES> 26,547,405
<TOTAL-REVENUES> 26,547,405
<CGS> 24,124,477
<TOTAL-COSTS> 27,747,108
<OTHER-EXPENSES> (75,072)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 870,503
<INCOME-PRETAX> (1,995,134)
<INCOME-TAX> 46,734
<INCOME-CONTINUING> (2,041,868)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,041,868)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
