LAW\45828\267775.01
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q/A
AMENDMENT NO. 2 TO 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, 1997
PRECISION STANDARD, INC.
(Exact Name of Registrant as Specified in its Charter)
Colorado 84-0985295
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(State of Incorporation) (I.R.S. Employer Identification No.)
1225 17th Street
Suite 1800
Denver, Colorado 80202
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(Address of Principal Executive Offices)
(303) 292-6565
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(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
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$.0001 Par Value 12,587,872 shares
Common Shares Outstanding at June 30, 1997
The undersigned Registrant hereby amends the following items,
financial statements, exhibits or other portions of its Form 10-Q for the
period ended June 30, 1997 as set forth below:
PART I. FINANCIAL INFORMATION
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 June 30, 1997
versus three months ended June 30, 1996
Revenues for the second quarter of 1997 were essentially unchanged from
$35.8 million in 1996 to $35.7 million in 1997. Government sales
decreased 20% in 1997, from $22.8 million in 1996 to $18.2 million in
1997. Commercial sales increased 34% in 1997, from $13.0 million in 1996
to $17.5 million in 1997. The Company's mix of business between
government and commercial customers shifted from 36% commercial and 64%
government in 1996 to 49% commercial and 51% government in 1997.
As a result of the amendment of certain contract provisions in the KC-135
contract during the last quarter of 1996, the Company is allowed to bill
the government for over-and-above costs under such contract as incurred,
which accelerates the receipt of payments. Such accelerated payments
received in the second quarter of 1997 offset the impact of the $4.9
million in revenue recognized during the second quarter of 1996 in
anticipation of the negotiation and settlement with the U.S. Government of
the Company's outstanding Requests for Equitable Adjustment (REAs). Thus,
primarily due to this contract change, Government sales for the second
quarter of 1997 showed a net decrease of approximately $0.5 million under
the Company's KC-135 contract. KC-135 contract revenues also decreased
during the first six months of 1997 due to a decrease in the number of KC-
135 Programmed Depot Maintenance (PDM) aircraft redeliveries. Eight such
aircraft were redelivered in the second quarter of 1997 versus nine in the
second quarter of 1996.
Government sales decreased an additional $0.8 million due to a decrease in
the number of redeliveries under the Company's C-130 contract. The
Company redelivered one C-130 PDM aircraft in the second quarter of 1997
versus two PDM aircraft in the second quarter of 1996.
Also reducing government sales were decreases in government sales volume
at the Company's Targets division of approximately $1.0 million and the
Company's Dothan facility under the Navy H-3 contract of approximately
$1.4 million.
The Company's commercial sales increased primarily due to an increase in
sales of approximately $3.9 million under aircraft maintenance contracts
at the Dothan facility. Adding to this increase in sales was an increase
in sales volume of approximately $0.8 million at the Company's Clearwater
facility. Partially offsetting the increase was a decrease in commercial
sales of approximately $0.3 million at the Company's Copenhagen, Denmark
facility.
The ratio of cost of sales ($34.4 million in 1997; $31.8 million in 1996)
to net sales ($35.7 million in 1997; $35.8 million in 1996) increased from
89% in the second quarter of 1996 to 96% in 1997. The resultant decrease
in gross profit was due primarily to $1.4 million of increased costs
recognized during the second quarter of 1997 from the Company's Birmingham
facility due to the UAW work stoppage.
The Company incurred more than $6.6 million in incremental strike related
costs during the UAW work stoppage. While the majority of those costs
were incurred in 1996, approximately $4.9 million will be accounted for
throughout 1997 as aircraft incurring those costs are redelivered and
booked into revenue. These amounts are primarily attributable to the high
cost of contract labor, training, housing and transportation costs for
replacement workers, as well as increased security costs during the strike
period.
Selling, general and administrative expense (SG&A) increased from $4.5
million in the second quarter of 1996 to $5.4 million in 1997 and
increased as a percentage of sales from 12% in 1996 to 15% in 1997. SG&A
increased primarily due to an increase in outside legal/consultant fees
associated with debt refinancing and labor negotiations as well as the
amount of commercial work in process. Under Generally Accepted Accounting
Principles, SG&A incurred for commercial contracts must be accrued and
recognized in the current period, whereas SG&A related to government
contracts are inventoried until redelivery of the aircraft or shipment of
the product.
Interest expense decreased from $0.8 million in the second quarter of 1996
to $0.3 million in 1997, primarily due to reductions of notes payable.
From June of 1996 to June of 1997, the Company repaid its $8.0 million
Revolving Credit facility, $4.2 million of its Term Credit facility and
$2.8 million of its Senior Subordinated Loan. The effective average
interest rate in the second quarter of 1997 on the Term Credit facility
was 10% versus 10.05% in the second quarter of 1996.
Six months ended June 30, 1997
versus six months ended June 30, 1996
Revenues for the first six months of 1997 increased 13% from $62.4 million
in 1996 to $70.7 million in 1997. Government sales decreased 0.5% from
$38.6 million in 1996 to $38.4 million in 1997. Commercial sales
increased 36% from $23.7 million in 1996 to $32.3 million in 1997. The
Company's mix of business between government and commercial customers
shifted from 42% commercial and 58% government in 1996 to 46% commercial
and 54% government in 1997.
As a result of the amendment of certain contract provisions in the KC-135
contract during the last quarter of 1996, the Company is allowed to bill
the government for over-and-above costs under such contract as incurred,
which accelerates the receipt of payments. Such accelerated payments
received in 1997 offset the impact of the $5.7 million in revenue
recognized during the first six months of 1996 in anticipation of the
negotiation and settlement with the U.S. Government of the Company's
outstanding Requests for Equitable Adjust (REAs). Thus, primarily due to
this contract change, Government sales for the first six months of 1997
showed a net increase of approximately $1.9 million under the Company's KC-
135 contract. KC-135 contract revenues also increased during the first
six months of 1997 due to an increase in the number of KC-135 Programmed
Depot Maintenance (PDM) aircraft redeliveries. Seventeen such aircraft
were redelivered in 1997 versus sixteen in the first six months of 1996.
Government sales increased an additional $0.4 million due to an increase
in the number of redeliveries under the Company's C-130 contract. The
Company redelivered three C-130 PDM aircraft and four drop-ins in 1997
versus three PDM aircraft and no drop-in aircraft in the first six months
of 1996.
Offsetting these increases in government sales were decreases in
government sales volume at the Company's Targets division of approximately
$1.3 million and at the Company's Dothan facility under the Navy H-3
contract of approximately $1.0 million.
The increase in the Company's commercial sales is primarily due to an
increase of approximately $7.3 million in revenues from redeliveries under
aircraft maintenance contracts at the Dothan facility. Adding to this
increase in sales was an increase in volume of approximately $1.2 million
at the Company's Clearwater location.
The ratio of cost of sales ($66.2 million in 1997; $55.9 million in 1996)
to net sales ($70.7 million in 1997; $62.4 million in 1996) increased from
90% in 1996 to 94% in 1997. The resultant decrease in gross profit was
due primarily to $3.6 million of increased costs recognized during the
first six months of 1997 due to the UAW work stoppage at the Company's
Birmingham facility.
The Company incurred more than $6.6 million in incremental strike related
costs during the UAW work stoppage. While the majority of those costs
were incurred in 1996, approximately $4.9 million will be accounted for
throughout 1997 as aircraft incurring those costs are redelivered and
booked into revenue. These amounts are primarily attributable to the high
cost of contract labor, training, housing and transportation costs for
replacement workers, as well as increased security costs during the strike
period.
Selling, general and administrative expense (SG&A) increased from $7.9
million in the first six months of 1996 to $10.4 million in 1997 and
increased as a percentage of sales from 13% in 1996 to 15% in 1997. SG&A
increased primarily due to outside legal/consultant fees associated with
refinancing of debt, labor negotiations and other matters.
Interest expense decreased from $1.7 million in the first six months of
1996 to $0.7 million in 1997, primarily due to reductions of notes
payable. From June of 1996 to June of 1997, the Company repaid its $8.0
million Revolving Credit facility, $4.2 million of its Term Credit
facility and $2.8 million of its Senior Subordinated Loan. The effective
average interest rate in the first six months of 1997 on the Term Credit
facility was 10% versus 11.2% in the first six months of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash resources continued to be strained in 1997 primarily
due to additional costs incurred in connection with the work stoppage of
the Company's United Auto Worker (UAW) employees at the Birmingham
facility which ended on March 31, 1997, excessive costs on its KC-135
program, delayed redelivery of KC-135 aircraft, and losses incurred on
various commercial aircraft maintenance contracts performed at the
Company's Dothan, Alabama and Copenhagen, Denmark facilities.
The Company initially borrowed funds from its primary lender, Bank of
America National Trust and Saving Association ("Bank of America"),
beginning in 1988 pursuant to a Credit Agreement that provides for a term
credit facility and a revolving credit facility (the "Credit Agreement"),
and a Senior Subordinated Loan Agreement (the "Subordinated Agreement").
In connection with these agreements, the Company issued to Bank of America
a warrant to purchase shares of the Company's Common Stock (the
"Warrant"). On August 8, 1997, the Company executed an agreement with a
new primary lender for a revolving credit facility that is expected to
provide the Company with greater flexibility. As part of this
transaction, the Company repaid the term credit facility under the Credit
Agreement and a portion of the Subordinated Agreement. The Subordinated
Agreement was amended on August 8, 1997 to provide that all scheduled
principal amortization for the portion of the Subordinated Loan that
remains in place has been deferred for the three -year term of the new
revolving credit facility. The Subordinated Loan will be repaid over five
installments commencing on August 31, 2000, due each subsequent quarter
through June 30, 2001.
In October of 1996, the Company paid $15.0 million of principal to Bank of
America from the proceeds of the settlement with the U.S. Government, with
$2.8 million applied to the Subordinated Agreement, $4.2 million to the
term credit facility and $8.0 million to fully repay the revolving credit
facility. In March of 1997, the Credit Agreement, the Subordinated
Agreement and the Warrant were each amended, effective as of December 31,
1996. At the time of such amendments, no funds were outstanding under the
revolving credit facility and $5.0 million of principal was outstanding
under the term loan facility. As amended, the Credit Agreement provided
for 6 installments of $100,000 to be paid against the principal amount
during 1997 with the $4.4 million balance due January 31, 1998. The rates
of interest on the Credit Agreement were variable, depending upon the
general level of interest rates and the timing and nature of elections
which the Company is entitled to make in respect to renewals of
outstanding debts or increments of additional debt. For the years ended
December 31, 1996 and 1995, the effective interest rates for the term
credit facility were 10.52% and 9.88%, respectively. The Subordinated
Agreement, as amended, provided that the $7.2 million principal balance be
repaid in sixteen equal quarterly installments commencing September 30,
1997 and ending on June 30, 2001. The Credit Agreement and the
Subordinated Agreement also provided for the forgiveness of approximately
$1.3 million of accrued but unpaid interest in 1996. The Company
recognized approximately $0.6 million of the forgiven interest in 1996 and
anticipates recognizing the remaining $0.7 million over the years 1998
through 2001. During 1997, the Company will recognize $.3 million
allocated equally to each quarter. The balance of the $.4 million will be
taken pro -rata over the period 1998 through 2001.
The Warrant, as amended, permits Bank of America to purchase from the
Company 4,215,753 shares of the Company's Common Stock at an aggregate
purchase price of $0.237205492 per share, subject to certain adjustments
for changes in the Company's Common Stock and for dilutive issuances
dating back to 1988, any time before September 9, 2000. The Company
believes that no events that would trigger a material adjustment in the
number of shares issuable upon exercise of the Warrant have occurred.
The Company is required to repurchase the Warrant over a period of six
quarters beginning August 31, 1997 with cash or by the issuance of Common
Stock with a value equal to the redemption price. The redemption price
for three-eighths of the total Shares which was due on August 31, 1997 and
all future installments is the higher of (i) $1.1135 per Share, such
amount being equal to the difference between the average market price of
the Common Stock for the 30 trading days following the date which was 15
trading days prior to the date the Company filed its financial results for
the third quarter of 1996 and the exercise price, or (ii) the difference
between the average market price of the Common Stock for the 25 trading
days preceding the date which is five trading days prior to the date on
which the redemption is actually paid. In addition, interest accrues on
the unpaid installments in the form of cash and shares of Common Stock.
The amount of interest is equal to the sum of (i) $75,000 in cash (or the
number of shares which is the result of dividing $75,000 by the average
market price of the Common Stock for the 25 trading days immediately
preceding the date which is five trading days prior to August 31, 1997, or
$1.4537 per share), payable immediately, plus (ii) .0004 of a share of
Common Stock per unredeemed Warrant share per day from the respective
installment date until the redemption is made. Such interest is paid
quarterly 10 days after the last day of each calendar quarter. Such
interest may be paid in the form of Common Stock only if such stock is
then registered and freely tradable; otherwise, the cash equivalent must
be paid, calculated as the market value of the stock as of the last day of
the calendar quarter. The Company may exercise its right to repurchase
the Warrant with shares of Common Stock, only if the Shares when issued
are the subject of an effective registration statement and immediately
publicly tradeable. While the Company presently intends to exercise its
right to repurchase the warrant with shares of common stock, it may elect
to repurchase all or a portion of the Warrant with cash. The first
installment of the repurchase due August 31, 1997 has not yet been paid.
Matthew L. Gold has been Chairman of the Board, President and Chief
Executive Officer of the Company since January 1987. In connection with
the Warrant, Mr. Gold agreed that he would not sell any Shares or other
securities of the Company held by him or any affiliate during any of the
periods beginning 35 trading days prior to each installment date and
ending on each installment date unless such transaction does not exceed
1,000 Shares or an equivalent number of other securities of the Company on
each trading day.
The Company intends to replace its outdated, multi-type financial
information systems with enterprise-wide systems from Oracle. The
hardware, software and implementation costs will be approximately $2.5
million to be incurred over a two year period. The costs of the system
are being financed by various vendors over periods of three to five years.
The Company does not anticipate making any other capital expenditures in
the foreseeable future.
The following is a discussion of the significant items in the Company's
Consolidated Statement of Cash Flows for the six months ending June 30,
1997 and 1996.
Cash available at January 1, 1997 was used to fund $0.6 million for the
Company's operations, $0.3 million for capital improvements, and $0.2
million for payments on various capital leases in the first six months of
1997. Additionally, the Company paid $0.6 million in interest and $0.2
million in taxes. In the first six months of 1996, the Company used $0.6
million of cash for operating activities, $0.5 million for capital
improvements, and $0.3 million for payments on various capital leases.
The Company's accounts receivable increased in the first six months of
1997 primarily due to the greater volume of commercial sector aircraft
redeliveries and the timing of the billing of those redeliveries.
Net inventories increased $2.5 million in the first six months of 1997 due
to the utilization of the reserve for estimated losses recorded in 1996 on
contracts in progress of $1.3 million and an increase in raw materials
inventory due to the Company's increased workload.
Accounts payable and accrued expenses increased in the first six months of
1997 due to continued cash constraints and the increase in workload at the
Company's various facilities. Accrued interest at June 30, 1997 was $1.0
million, representing a $0.4 million increase over that due at June 30,
1996. This increase is due to timing of payments.
Deposits decreased approximately $1.2 million during the first six months
of 1997. The decrease was partially due to a reduction of the Company's
Workers Compensation deposit requirement. The Company also reclaimed a
deposit made pursuant to a contract under which temporary labor services
were provided to the Company during the UAW strike period.
During 1995, 1996 and 1997, inflation and changing prices have had no
significant impact on the Company's net sales or revenues or on income
from continuing operations.
BACKLOG
The following table presents the Company's backlog (in thousands of
dollars) at June 30, 1997 and 1996:
1997 1996
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U.S. Government $123,379 $87,065
Commercial 26,588 12,721
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$149,967 $99,786
As of June 30, 1997, 83% of the Company's backlog related to work for the
U.S. Government versus 87% for the period ending June 30, 1996. The
Company's Government backlog increased $35 million primarily related to a
contract for sounding rocket launches awarded to its Space Vector
subsidiary and increased government orders at the Company's Dothan
facility.
The Company's commercial backlog at June 30, 1997 increased $13 million
from the prior year primarily due to increased orders at the Company's
Dothan, Copenhagen, and Clearwater facilities.
Approximately $40.1 million of the 1997 backlog and $15.6 million of the
1996 backlog reported above is firm but unfunded. Additionally, the
Company has an estimated $211 million of backlog associated with the
option periods for the KC-135 contract which is not reflected above. The
Company also currently estimates it will receive orders for approximately
$15.4 million for additional work related to existing contracts; this
amount is not included in the numbers above.
CONTINGENCIES
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
With the exception of historical facts, statements contained in
Management's Discussion and Analysis of Financial Conditions and Results
of Operations are forward looking statements. Statements contained herein
concerning anticipated results of operations, the outcome of pending and
future litigation, the outcome of audits, reviews and investigations by
the U.S. Government, the outcome of REAs filed with the U.S. Government,
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, customer contract awards and actions with respect to utilization
and renewal of contracts.
OTHER INFORMATION
PART II.
ITEM 1 LEGAL PROCEEDINGS
On June 27, 1997, the Company's Pemco Aeroplex subsidiary was served with
a civil complaint filed by the United States of America in US District
Court for the Middle District of Alabama, Northern Division. The
complaint alleged violation of the False Claims Act ("FCA") and contract
claims based on mistake of fact and unjust enrichment with respect to the
1991 sale of certain C-130 aircraft wings by the U.S. Government to Pemco,
and sought $1.5 million as the alleged value of the wings and treble
damages under the FCA. On July 25, 1997, Pemco filed a motion to dismiss
the complaint based on failure to allege facts which establish a cause of
action, and other grounds. The case was dismissed on September 3, 1997
for failure to state a claim under the FCA and lack of jurisdiction. The
Government has filed a notice of appeal. If the appeal is in fact
prosecuted, the Company intends to vigorously defend the district court's
judgment.
A purported class action was brought against the Company and its Pemco
Aeroplex subsidiary on behalf of those persons hired as replacement
workers during the strike by Pemco's United Auto Worker union employees
and who were terminated upon settlement of suck strike. On June 3, 1997,
Pemco was served with the complaint in BRADLEY v. PEMCO AEROPLEX, INC.
filed in the Circuit Court of Jefferson County, Alabama. On July 9, 1997,
the plaintiff filed an amended complaint alleging fraud, breach of
contract, and civil conspiracy seeking damages and equitable relief
against Pemco and adding the Company as a defendant. The Company was
served with the amended complaint on July 16, 1997. Pemco and the Company
have filed their answers denying all allegations. The Company believes
the plaintiffs' claims have no factual basis and will vigorously defend
the case.
In GATX/AIRLOG COMPANY, et al. v. PEMCO AEROPLEX, INC., the owners of a
Supplementary Type Certificate ("STC") for Boeing 747 cargo conversion
sued the Company's Pemco Aeroplex subsidiary, successor to Hayes
International which had performed engineering for the STC development and
the FAA application for GATX/Airlog, seeking damages and indemnity for
claims arising from an Airworthiness Directive issued by the FAA in
January 1996 restricting the amounts of cargo aircraft converted pursuant
to the STC could carry. The complaint which was filed in US District
Court for the Northern District of California and served on July 14, 1997,
alleges fraudulent and negligent misrepresentation, professional
negligence, breach of contract, implied indemnity, equitable indemnity,
and contribution by Pemco Aeroplex with respect to GATX/Airlog's alleged
liability to owners of converted aircraft. The Company believes it has no
liability to the plaintiffs and that it will ultimately prevail.
On August 8, 1997, the Company's Pemco Aeroplex subsidiary was served as a
defendant in TOWER AIR, INC v. GATX CAPITAL CORPORATION, et al. The
action, which was brought by the owner of a Boeing 747 aircraft converted
under a STC for 747 cargo conversion, owned by GATX and others, sued a
number of defendants seeking damages. As a result of an Airworthiness
Directive issued by the FAA in January 1996, aircraft which had been so
converted were restricted to carrying reduced amounts of cargo. The
Company's Pemco Aeroplex subsidiary has been named as a defendant in the
case because of engineering work performed in the late 1980's by its
predecessor, Hayes International, and because the aircraft was allegedly
converted under the STC by Pemco. The complaint, which was filed in the
Supreme Court of the State of New York, County of New York, alleges fraud
and deceit, negligent misrepresentation, and negligence against Pemco and
seeks payment of damages. On September 29, 1997, Pemco failed a motion to
dismiss the case based on lack of jurisdiction and forum non conveniens.
Pemco also filed in U.S. District Court for the Northern District of
California a declaratory relief action seeking a declaration that Pemco
has no liability to Tower Air.
In AMERICAN INTERNATIONAL AIRWAY, INC. v. GATX CAPITAL CORPORATION,
et al., U.S.D.C., N.D. Cal., the owner of two aircraft converted under a
STC for 747 cargo conversions owned by GATX and others, sued GATX and
various other defendants seeking damages. As a result of an Airworthiness
Directive issued by the FAA in January 1996, aircraft which had been so
converted were restricted to carrying reduced payloads. The Company's
Pemco Aeroplex subsidiary has been named as one of seven defendants in the
case because of allegedly improper engineering work performed in the
1980's by its predecessor, Hayes International. The complaint, which was
served on Pemco on February 5, 1997, alleges violations of the Racketeer
Influenced and Corrupt Organization Act (RICO), conspiracy, and negligence
against Pemco. Pemco has filed a motion to dismiss the complaint which
was denied in part and granted in part by the U.S. District Court,
Northern District of California on October 15, 1997. The Court granted
the motion with respect to the claim for civil conspiracy, but granted the
plaintiff leave to amend the complaint. Pemco believes the allegations
made against have no factual basis and intends to vigorously defend this
claim.
In Birmingham Airport Authority v. Pemco Aeroplex, Inc., filed October 7,
1997 in Circuit Court, Jefferson County, Alabama, the Birmingham Airport
Authority ("BAA") is seeking a declaratory judgment. (In its complaint,
BAA seeks a declaratory judgment that no agreement regarding the extension
of the lease has been reached by the parties.) Pemco operates an aircraft
service facility at the Birmingham Airport on land leased from BAA. It is
the Company's position that Pemco and BAA have negotiated a 20-year
extension of the lease which otherwise would expire on September 30, 2000
and agreed to by both parties. The Company believes that the lease has
been extended and will vigorously defend the case.
On October 28, 1997, the Company was served with a complaint filed by the
Birmingham Airport Authority in the Probate Court of Jefferson County,
Alabama seeking condemnation of a portion of the Pemco Aeroplex leasehold
in Birmingham, Alabama. The property involved in such condemnation
proceeding is approximately 4 acres. The Airport Authority has
commissioned an appraisal of the property at issue. Prior to actual
inspection of the property, the Airport Authority offered Pemco
approximately $20,000 in compensation for the impacts due to condemnation.
Pemco estimates that the impact to its operation resulting from
condemnation of such property would be substantially in excess of $20,000
and is in the process of determining the cost to Pemco.
On November 3, 1997, the jury in Stevenson v. Pemco Aeroplex, Inc. and
Rick Windsor returned a verdict against the Company's Pemco Aeroplex
subsidiary in the amount of $1 million compensatory and $3 million
punitive damages. The case was filed in the Circuit Court of Jefferson
County, Alabama by an employee who alleged a supervisor had engaged in
tortious conduct under Alabama law by making sexual advances against her.
Pemco was sued under the theory of respondeat superior which holds an
employer liable for the actions of its employees undertaken in the course
of employment and theories of negligent supervision and training.
However, the jury found in favor of the supervisor and discharged him from
any liability. It is the Company's position that Pemco's liability is
derivative of the supervisor's and thus if he is not liable to the
plaintiff, Pemco likewise has no liability. Post-trial motions seeking to
vacate the verdict or, alternatively, to obtain a new trial will be filed.
On November 11, 1997, a supplier filed a request for bankruptcy against
Pemco World Air Services A/S (PWAS), the Company's Danish subsidiary. The
Maritime and Commercial Court in Copenhagen, Denmark heard the request on
November 20, 1997 and the petition was granted. Trustees have been
appointed to operate the facility. The Company has guaranteed certain
obligations of PWAS.
Various other claims alleging employment discrimination, including race,
sex, age and disability, have been made against the company and its
subsidiary, Pemco Aeroplex, Inc., by current and former employees at its
Birmingham and Dothan, Alabama facilities in proceedings before the Equal
Employment Opportunity Commission and before state and federal courts in
Alabama. Workers' compensation claims brought by employees of Pemco
Aeroplex, Inc. are also pending in Alabama state court. The Company
believes that no one of these claims is material to the Company as a whole
and that such claims are more reflective of the general increase in
employment-related litigation in the U.S. and Alabama than of any actual
discriminatory employment practices by the Company or any subsidiary.
Except for workers' compensation benefits as provided by statute, the
Company believes these claims have no factual basis and intends to
vigorously defend itself in all litigation arising therefrom.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a) Exhibits
4.1 First Amendment to Second Amended and Restated
Senior Subordinated Loan Agreement between
Precision Standard, Inc. and Bank of America
National Trust and Saving Association entered
into as of August 8, 1997.
4.2 Accounts Receivable Management and Security
Agreement between Precision Standard, Inc. and
BNY of the Americas entered into as of August
8, 1997.
10 Guarantee between PSI and Pemco World Air Services A/S
dated May 29, 1997
27 Financial Data Schedule
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: November 24, 1997 By:/s/Matthew L. Gold
Matthew L. Gold,
Chairman, President and
Chief Executive Officer
Date: November 24, 1997 By:/s/Richard J. Hendricks
Richard J. Hendricks
Vice President-Finance
(Principal Financial
and Accounting Officer)
EXHIBIT INDEX
NO. METHOD OF FILING
- --- ----------------
10 Guarantee between PSI and
Pemco World Air Services A/S
dated May 29, 1997 Filed herewith electronically
WHEREAS Precision Standard, Inc., 1225 17th Street, Suite 1800, Denver,
Colorado 80202, USA owns all shares in Pemco World Air Services A/S (reg.
no. 215.372),
WHEREAS, there exists a current account between Precision Standard, Inc.
and Pemco World Air Services which at present shows that Pemco World Air
Services A/S is indebted to Precision Standard, Inc. in the amount of
approximately USD 1.4 mio,
WHEREAS the paid-up share capital of Pemco World Air Services A/S is DKK
600.000,00,
WHEREAS Precision Standard, Inc. has extended the above mentioned credit
to Pemco World Air Services A/S in order that it should be able to
continue its operations,
IT HAS BEEN AGREED AS FOLLOWS:
1.
In respect of the account current between Precision Standard, Inc. (incl.
affiliated companies) and Pemco World Air Services A/S, Precision
Standard, Inc. hereby agrees that the account current outstanding in
Precision Standard, Inc.'s favour at anyone time shall be subordinated to
all other creditors of Pemco World Air Services A/S.
2.
Precision Standard, Inc. hereby guarantees a capitalization of Pemco World
Air Services A/S up to, but not exceeding the registered share capital of
DKK 600.000,00.
3.
Precision Standard, Inc. hereby undertakes to provide Pemco World Air
Services A/S with sufficient funds to enable Pemco World Air Services A/S
to conduct its business.
4.
This agreement shall be governed by and construed in accordance with
Danish Law. Any dispute arising out of or in connection with this
agreement shall be referred to the Maritime and Commercial Court in
Copenhagen.
Date: 29/5 1997
/s/Matthew L. Gold
Precision Standard, Inc.
Matthew L. Gold
