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, 1999
PRECISION STANDARD, INC.
(Exact Name of Registrant as Specified in its Charter)
Colorado 84-0985295
(State of Incorporation) (I.R.S. Employer Identification No.)
12000 East 47th Avenue
Suite 400
Denver, Colorado 80239
(Address of Principal Executive Offices)
(303) 371-6525
(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 3,978,131 shares
Common Shares Outstanding at May 5, 1999
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRECISION STANDARD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In Thousands)
March 31, December 31,
1999 1998
(Unaudited)
Current assets:
Cash and cash equivalents $ 1,080 $ 193
Accounts receivable, net 20,024 17,434
Inventories 18,171 15,286
Prepaid expenses and other 837 995
Total current assets 40,112 33,908
Property, plant and equipment,
at cost:
Leasehold improvements 11,297 11,242
Machinery and equipment 18,906 18,656
30,203 29,898
Less accumulated depreciation (19,680) (19,252)
Net property, plant
and equipment 10,523 10,646
Other non-current assets:
Prepaid pension costs 2,584 2,888
Intangible assets, net 478 483
Related party receivable 270 270
Deposits and other 495 1,274
3,827 4,915
Total assets $ 54,462 $ 49,469
The accompanying notes are an integral part of
these consolidated financial statements.
PRECISION STANDARD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
(In Thousands)
March 31, December 31,
1999 1998
(Unaudited)
Current liabilities:
Current portion of debt $ 1,140 $ 1,454
Accounts payable and accrued
expenses 29,499 29,168
Total current liabilities 30,639 30,622
Long-term debt 24,541 21,824
Other long-term liabilities 3,372 3,063
Total liabilities 58,552 55,509
Stockholders' equity (deficit):
Common stock, $.0001 par value,
300,000,000 shares authorized,
3,978,131 and 3,977,721 shares
issued and outstanding at
March 31, 1999 and December 31,
1998, respectively 1 1
Additional paid-in capital 4,768 4,768
Accumulated deficit (8,859) (10,809)
Total stockholder's deficit (4,090) (6,040)
Total liabilities and
stockholders' deficit $54,462 $ 49,469
The accompanying notes are an integral part of
these consolidated financial statements.
PRECISION STANDARD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
Three Three
Months Ended Months Ended
March 31, March 31,
1999 1998
(Unaudited) (Unaudited)
Net sales $39,885 $34,454
Cost of sales 30,547 27,814
Gross profit 9,338 6,640
Selling, general and
administrative expenses (5,917) (4,523)
Research and development expense 0 (125)
Income from operations 3,421 1,992
Other (income)expense:
Interest expense 962 667
Other, net 424 (3,238)
Income before income
taxes 2,035 4,563
Provision for income taxes 85 25
Net income $ 1,950 $ 4,538
Net income per common share:
Basic $0.49 $1.24
Diluted $0.49 $1.16
The accompanying notes are an integral part of
these consolidated financial statements.
PRECISION STANDARD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Three
Months Ended Months Ended
March 31, March 31,
1999 1998
Cash flows from operating
activities:
Net income $ 1,950 $ 4,538
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation and amortization 433 548
Pension cost in excess of
funding 305
Loss (gain) on sale of equipment (3,119)
Changes in assets and liabilities:
Accounts receivable, trade (2,590) (3,464)
Inventories (2,885) 825
Prepaid expenses and other 158 146
Deposits and other 779 1
Accounts payable and accrued
expenses 325 (1,458)
Total adjustments (3,475) (6,521)
Net cash used in operating
activities (1,525) (1,983)
Cash flows from investing
activities:
Proceeds from sale of division 4,790
Capital expenditures (305) (38)
Net cash provided by
(used in) investing
activities (305) 4,752
Cash flows from financing
activities:
Net borrowings (repayments)
under revolving credit
facility 2,717 (3,036)
Net cash provided by
(used in) financing
activities 2,717 (3,036)
Net increase in cash
and cash equivalents 887 (267)
Cash and cash equivalents,
beginning of period 193 369
Cash and cash equivalents,
end of period $ 1,080 $ 102
Supplemental disclosure of
cash flow information:
Cash paid during the year
for:
Interest $ 754 $ 769
Income taxes $ 85 $ 0
The accompanying notes are an integral part
of these consolidated statements.
PRECISION STANDARD, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated interim financial statements 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, 1999 are not
necessarily indicative of the operating results expected 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 1998 Form 10-K.
2. INVENTORIES
Inventories consist of the following:
March 31, December 31,
1999 1998
($ thousands) ($ thousands)
(Unaudited)
Work in-process $30,703 $30,185
Finished goods 3,396 3,324
Raw materials and supplies 2,664 2,967
Total $36,763 $36,476
Less progress payments
and customer deposits (18,109) (20,708)
Less allowance for
estimated losses on
work in process (483) (482)
18,171 15,286
3. NET INCOME PER SHARE
Basic EPS was computed by dividing net income by the weighted
average number of shares of common stock outstanding during
the periods. Diluted was computed by dividing net income by
the weighted average number of shares of common stock and the
dilutive effects of the shares awarded under the Stock Option
plan and stock warrants, based on the treasury stock method
using an average fair market value of the stock during the
respective periods.
The following table represents the net income per share
calculations for the three months ended March 31, 1999 and
1998:
For the three months ended March 31:
(All numbers in thousands except Income Per Share)
1999
Net Income $ 1,950
Weighted Average Shares 3,978
Basic Net Income Per Share .49
Dilutive securities:
*Options 31
*Warrants 0
Diluted Weighted Average Shares 4,009
Diluted Net Income Per Share .49
1998
Net income $ 4,537
Weighted Average Shares 3,666
Basic Net Income Per Share 1.24
Dilutive Securities:
Options 2
Warrants 243
Diluted Weighted Average shares 3,911
Diluted Net Income Per Share 1.16
Options to purchase approximately 437,000 and 167,000 shares
of common stock related to March 31, 1999 and 1998,
respectively were excluded from the computation of diluted
income per share because the option exercise price was greater
than the average market price of the shares.
4. NOTES PAYABLE
March 31, December,31,
1999 1998
($ Thousands) ($ Thousands)
(Unaudited)
Revolving credit facility $17,694 $15,548
Senior Subordinated Loan
interest at 13.5% 6,150 6,150
Other obligations: interest
from 6 to 18%, collateralized
by security interests in
certain equipment 1,837 1,580
Total debt $25,681 $23,278
Less portion reflected
as current 1,140 1,454
Long term debt, net of
current portion $24,541 $21,824
On August 8, 1997, the Company entered into a three-year
revolving credit facility with a lender. The amount of funds
available to borrow under the $20 million revolving credit
facility is tied to percentages of accounts receivables and
inventory and, as a result of certain subordination
provisions, may not exceed $17 million. Therefore, available
funds will fluctuate on a daily basis. Interest on the
revolving credit facility accrues at prime rate plus 1.5% with
provisions for both reductions in the interest rate based on
specific operating performance targets and increases related
to certain events of default. Interest is accrued and charged
to the loan balance on a monthly basis.
During the period the lender allowed the Company to exceed the
$17 million cap due to the Company having funds in excess of
the cap in its lockbox which had not been drawn down and
applied to the revolving credit facility by the lender.
All scheduled principal amortization for the Senior
Subordinated loan has been deferred for the three-year term of
the revolving credit facility. The Senior Subordinated loan
will be repaid over five installments commencing on August 31,
2000, due each subsequent quarter through June 30, 2001.
The above loans are collateralized by substantially all of the
assets of the Company and have various covenants which limit
or prohibit the Company from incurring additional
indebtedness, disposing of assets, merging with other
entities, declaring dividends, or making capital expenditures
in excess of certain amounts in any fiscal year.
Additionally, the Company is required to maintain various
financial ratios and minimum net worth amounts.
The Company's cash resources showed significant improvement
over the first quarter of 1998. In the first quarter of 1999
the Company used cash in operations primarily due to delays in
progress payments for amounts billed to the U.S. Government
and increased workloads under government contracts resulting
in an increase in both accounts receivable and work in
process. Some of the delays in progress payments were
corrected in the second quarter.
5. CONTINGENCIES
United States Government Contracts - The Company, as a U.S.
Government contractor, is subject to audits, reviews, and
investigations by the government related to its negotiation
and performance of government contracts and its accounting for
such contracts. Failure to comply with applicable U.S.
Government standards by a contractor may result in suspension
from eligibility for award of any new government contract and
a guilty plea or conviction may result in debarment from
eligibility for 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 operations, financial position, or cash flows.
Litigation - 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 ("UAW") union employees who were
terminated upon settlement of such strike. The complaint
alleges fraud, breach of contract, and civil conspiracy and
seeks both compensatory and punitive damages. The Company
believes the plaintiffs' claims have no factual basis and will
vigorously defend the case.
The Company's Pemco Aeroplex subsidiary, successor to Hayes
International, is a defendant in several suits seeking damages
and indemnity for claims arising from an Airworthiness
Directive issued by the FAA. That Directive restricts the
cargo capacity of Boeing 747 aircraft converted pursuant to an
STC for such conversions. Hayes International had performed
engineering for the development of the STC. Certain of the
suits also allege fraud, misrepresentation and violations of
the Racketeer Influenced and Corrupt Organization Act.
Management believes that Pemco has no liability under the
claims.
On November 3, 1997, a Jefferson County, Alabama jury returned
a verdict against the Company's Pemco Aeroplex subsidiary in
the amount of $1 million compensatory and $3 million punitive
damages. Various post-trial motions resulted in the trial
court reducing the verdict to $1 million in compensatory
damages. Pemco has appealed this decision. The Company
believes it will successfully reverse the decision upon appeal
as the supervisor was not found liable. However, an accrual
was established in the fourth quarter of 1997 for the
compensatory damage award pending outcome of the appeal.
On October 9, 1998, the Company was served with a complaint
filed by Sterling Airways A/S in bankruptcy ("Sterling") in
the District Court for the City and County of Denver, Colorado
alleging breach of contract. The complaint seeks payment for
parts and materials supplied to the Company's Danish
subsidiary Pemco World Air Services A/S, which was placed in
involuntary bankruptcy in November 1997. The complaint
alleges that the Company guaranteed certain obligations to
Sterling and seeks damages of approximately $1.4 million. On
November 2, 1998, the Company filed a motion to dismiss the
complaint which was denied by the court on January 13, 1999.
In May 1998, the Company's Pemco Aeroplex subsidiary was
served with a complaint filed by National Union Fire Insurance
Company, the Company's current insurer, seeking a declaration
that the policies issued by such insurer between 1987 and 1996
are not required to provide defense costs or indemnity
payments with respect to the litigation arising out of the
STCs for Boeing 747 cargo conversions owned by GATX and
others. The complaint filed in U.S. District Court of the
Northern District of California, also names American
International Airways, Inc., a plaintiff in one of the
underlying cases, as a defendant. Pemco Aeroplex has filed a
motion to stay the action pending resolution of the underlying
cases.
In November 1997, the Company's Danish subsidiary, Pemco World
Air Services A/S, was placed in involuntary bankruptcy in
Denmark. On September 30, 1998, the Company received notice
from the bankruptcy estate that the trustees would assert a
claim in the amount of approximately $2 million against the
Company for the alleged negative equity of the Danish
subsidiary. Based on preliminary information provided to the
Company in October 1998, additional claims have been filed by
creditors against the bankruptcy estate. Based on the
information currently available, the Company believes that
such claims may or may not be assertive against the Company.
The Company has not made any reserves related to these claims.
In addition to the above, the Company is involved in various
legal proceedings arising in the normal course of business.
Management does not believe the ultimate outcome of all such
litigation will have a material adverse effect on the
consolidated financial position or results of operations.
Year 2000 Compliance
Background
Some computers, software and other equipment include
programming code which abbreviates calendar year data using
only two digits. As a result, some equipment could fail to
operate or fail to produce correct results if "00" is
interpreted to mean 1900, rather than 2000. These problems
are widely expected to increase in frequency and severity as
the year 2000 approaches and are commonly referred to as the
"Millennium Bug" or "Year 2000 Problem."
Assessment
The Year 2000 Problem could affect computers, software and
other equipment used by the Company. Accordingly, the Company
is reviewing its internal computer programs and systems to
ensure that such programs and systems will be Year 2000
compliant. The Company presently believes that its computer
systems will be Year 2000 compliant in a timely manner.
Internal Infrastructure
The Company's assessment of existing computer systems has
revealed that a portion of its existing software programs and
hardware are not Year 2000 compliant. The Company believes
that it has identified most of the major computers, software
applications and related equipment used in connection with its
internal operations that must be modified, upgraded or
replaced to minimize the possibility of a material disruption
to its business.
Based on information gathered to date, the Company has taken
steps to address the potential impacts of year 2000 compliance
on its financial accounting, manufacturing, and production
systems. For most operating units the primary focus in
achieving year 2000 compliance will be relatively minor
upgrades to existing systems.
The Company has determined that one of its operating units
will require a major system replacement. A study has been
conducted and a replacement system chosen. Implementation was
begun during the first quarter of 1999 and is currently
scheduled for completion at the end of the third quarter, with
cut over to the new system during the first two weeks of the
fourth quarter. The new system is Oracle based and runs on a
Hewlett Packard server.
In addition to the Y2K issue, the system substantially
improves the Maintenance Repair & Overhaul (MRO) process and
the Company anticipates improved efficiencies.
The Company does not presently exchange data electronically
with outside entities and its production capability does not
rely on systems such as Just In Time Inventory. The Company
has determined that its production and manufacturing
operations could continue through the use of manual systems,
if necessary, and therefore, the impact, if any, of Year 2000
failures by outside entities should not be material to the
Company's operation or financial condition.
Systems Other Than Information Technology Systems ("Non-IT
Systems")
In addition to computers and related systems, the operation of
the Company's office and facilities equipment, such as fax
machines, photocopiers, telephone switches, security systems,
elevators and other common devices, may be affected by the
Year 2000 Problem. The Company has been assessing the
potential effect of the Year 2000 Problem on its office and
facilities equipment. The Company has relatively few date-
sensitive systems in place, and most major non-IT systems are
the responsibility of landlords and other service providers.
It is currently estimated that any requirements for
replacement or modification to non-IT systems will not have a
material effect on the Company's business, financial condition
or results of operations.
Customers and Suppliers
The Company does not foresee any serious Year 2000 Problems
occurring with its vendors and customers. Although the
Company has not yet received any written assurances of
compliance, it has requested statements of Year 2000
compliance from its vendors. While it is not possible to
predict all issues which could arise relating to a supplier,
the Company believes that it has multiple sources for most of
the materials and supplies it presently procures from vendors
or third party contractors. Unless a national or global
problem occurs, the Company believes it will be able to
continue production while it seeks to rectify any supplier
issues that may arise. Because the Company's primary
customers include the U.S. Government and large corporations
with substantial financial resources, the Company believes
that these customers are taking appropriate steps to protect
themselves, and indirectly, the Company from business losses
resulting from Year 2000 issues. Although it is not possible
to quantify the effects year 2000 compliance will have on the
Company's customers or suppliers, the Company does not
anticipate related material adverse effects on its financial
condition, liquidity or results of operations.
Most Likely Consequences of Year 2000 Problems
The Company expects to identify and resolve all Year 2000
Problems that could materially adversely affect its business,
financial condition or results of operations. However, the
Company believes that it is not possible to determine with
complete certainty that all Year 2000 Problems affecting the
Company have been identified or corrected. The number of
devices that could be affected, directly or indirectly, and
the interactions among these devices are simply too numerous
to ensure 100% compliance. Accordingly, the Company cannot
accurately predict how many failures related to the Year 2000
Problem will ultimately occur or the severity, duration or
financial consequences of such failures. As a result, the
Company expects that there is some risk of the following
consequences:
- A significant number of operational inconveniences
and inefficiencies for the Company and its customers that may
divert management's time and attention and financial and human
resources from its ordinary course of business activities; and
- A number of serious system failures that may require
significant efforts by the Company or its customers to prevent
or alleviate material business disruptions.
Contingency Plans
The Company is currently developing contingency plans to be
implemented as part of its efforts to identify and correct
Year 2000 Problems affecting its internal systems. Depending
on the systems affected, these plans could include (1)
accelerated replacement of affected equipment or software, (2)
short-to-medium-term use of backup equipment and software, (3)
increased work hours for Company personnel or the use of
contract personnel to correct any Year 2000 Problems which may
arise, (4) manual backup systems to forestall any interruption
of operations resulting from the failure of automated systems,
(5) and other similar approaches. If the Company is required
to implement any of these contingency plans, such plans could
have a material adverse effect on the Company's business,
financial condition or results of operations.
As noted above, however, the Company does not presently
believe that the Year 2000 Problem will have a material
adverse effect on the Company's business, financial condition
or results of operations.
Total hardware, software, networking, and implementation costs
for the Company's year 2000 compliance efforts are estimated
at approximately $4.5 million which will be incurred over a
one year period. The costs are being financed by various
vendors over periods of 36 to 42 months.
While there is no guarantee that the Company will reach Year
2000 compliance by such deadline, the Company believes that it
is applying the resources and effort sufficient to do so.
6. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130 on January 1, 1998, which
establishes standards for reporting and display of
comprehensive income and its components. Comprehensive income
is a measure of all nonowner changes in equity of an
enterprise that result from transactions and other economic
events of the period. The Company did not have any material
differences in net income and comprehensive income for the
quarters ended March 31, 1999 or 1998.
7. SEGMENT AND RELATED INFORMATION
The Company adopted SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information, at December 31, 1998
which changes the way the Company reports information about
its operating segments. The Company has provided this segment
information for the quarter ended March 31, 1999; however, the
Company has not provided such information for prior year as it
is not practical to capture the relevant information for the
prior year.
The Company has three reportable segments: Government Services
Group, Commercial Services Group, and Manufacturing and
Overhaul Group. The Government Services Group, located
primarily in Birmingham, Alabama, provides aircraft
maintenance and modification services for the government and
military customers through its Government Services Group. The
Commercial Services Group, located in Dothan, Alabama, and
Victorville, California provides commercial aircraft
maintenance and modification services on a contract basis to
the owners and operators of large commercial aircraft. The
Manufacturing and Overhaul Group, located in California,
Colorado and Florida, designs and manufactures a wide array of
proprietary aerospace products including various space
systems, such as guidance control systems and launching
vehicles; aircraft cargo-handling systems; and precision parts
and components for aircraft. For reporting purposes, segments
other than government, commercial and manufacturing and
overhead are combined as an other segment. These additional
segments perform engineering and support services for the
three main business segments.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies.
The Company evaluates performance based on total (external and
intersegment) revenues, gross profits and operating income.
The Company accounts for intersegment sales and transfers as
if the sales or transfers were to third parties, that is at
current market prices. The Company does not allocate income
taxes, interest income and interest expense to segments. The
amount of intercompany profit is not material.
The Company's reportable segments are strategic business units
that offer different products and services. They are managed
separately because each business requires different operating
and marketing strategies. However, the Commercial and
Manufacturing and Overhaul segments may generate sales to
Governmental entities and the Government segment may generate
sales to commercial entities.
The following table presents information about segment profit or loss:
(In $ Thousands)
Mfg. and Consoli-
Government Commercial Overhaul Other dated
Revenues from
external,
domestic
customers $22,422 $ 7,268 $ 7,173 $ 182 $ 37,045
Revenues from
external
foreign
customers 0 2,840 0 0 2,840
Intersegment
revenues 15 0 30 0 45
Total
Segment
Revenues $22,437 $10,108 $ 7,203 $ 182 $ 39,930
Elimination (45)
Total Revenues $ 39,885
Gross Profit 7,470 934 927 7 9,338
Segment Op
Inc. 3,691 325 400 (95) 4,321
Interest
Expense 962
Other 1,324
Benefit
for Income
Taxes 85
Net Income $ 1,950
Assets $31,015 $14,701 $ 6,487 $1,194 $ 53,397
Deprec/Amort 366 95 84 1 546
Cap. Additions 187 94 24 0 305
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.
During the first quarter of 1999, the Company reported operating
income of approximately $3.4 million. Total income before taxes
for the first quarter of 1999 was approximately $2.0 million.
RESULTS OF OPERATIONS
Three months ended March 31, 1999
versus three months ended March 31, 1998
Revenues from operations for the first quarter of 1999 grew from
the first quarter of 1998, increasing 15.8% from $34.5 million in
1998 to $39.9 million in 1999. Government sales increased
approximately 25% from $19.6 million in 1998 to $24.5 million in
1999. Commercial sales grew 3% from $14.9 million in 1998 to $15.4
million in 1999. The Company's mix of business between government
and commercial customers moved from 43% commercial and 57%
government in 1998 to 39% commercial and 61% government in 1999
during the same period.
Government sales in the first quarter of 1999 increased
approximately $4.9 million due primarily to increases in sales
under the Birmingham facility's KC-135 contract of $4.1 million and
$0.8 million at Space Vector.
Commercial sales increased $1.9 million under aircraft
maintenance/modification contracts at the Dothan and Victorville
facilities. This increase was partially offset by a $1.4 million
decrease in other commercial operations.
Cost of sales increased from $27.8 million in 1998 to $30.5 million
in the first quarter of 1999. The ratio of cost of sales to net
sales decreased from 81% in the first quarter of 1998 to 77% in
1999.
This decrease in the ratio of cost of sales to net sales is the
continuing result of process improvements implemented as part of
the restructuring efforts initiated in 1997.
Selling, general and administrative expenses increased from $4.5
million in the first quarter of 1998 to $5.9 million in 1999.
Interest expense was $1.0 million in first quarter 1999 versus $0.7
million in 1998. The average interest rate in the first quarter of
1999 on the Revolving Credit facility was 11.25% as compared to 10%
during the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash resources showed significant improvement over
the first quarter of 1998. In the first quarter of 1999 the
Company used cash in operations primarily due to delays in progress
payments for amounts billed to the U.S. Government and increased
workloads under government contracts resulting in an increase in
both accounts receivable and work in process. Some of the delays
in progress payments were corrected in the second quarter.
The following is a discussion of the significant items in the
Company's Consolidated Statement of Cash Flows for the quarters
ending March 31, 1999 and 1998.
The Company's pension expense as determined by its actuary for the
year 1999 is $1.1 million as compared to $1.2 million in 1998. In
the first quarter of 1999, the Company made no contributions to the
pension plan and expensed approximately $.3 million. In the first
quarter of 1998, the Company made no contributions to the pension
plan and expensed approximately $0.08 million.
Accounts payable and accrued expenses increased from $29.2 million
in the first quarter of 1998 to $29.5 million in 1999. Accrued
interest payments at March 31, 1999 were $0.2 million representing
no increase over that due at March 31, 1998.
Accounts receivable increased $2.6 million in the first quarter of
1999 due to an increase in progress payment billings and increased
additional billings on the KC-135 contract.
Net inventories increased $2.9 million in the first quarter of 1999
primarily due to an increase in the total work in process.
During the first quarter of 1998, the Company's operating
activities used $2.0 million in cash. In the first quarter of
1999, $1.5 million of cash was used for operating activities and
$0.3 million was used for investing activities.
During 1997, 1998 and 1999, 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 March 31, 1999 and 1998:
1999 1998
U.S. Government $172,644 $151,751
Commercial 28,691 25,755
$201,335 $177,506
As of March 31, 1999, 86% of the Company's backlog related to work
for the U.S. Government versus 85% for the period ending March 31,
1998. The Company's Government backlog increased $20.9 million
primarily related to additional aircraft input under the Company's
KC-135 contract and a contract for the painting of C-130 aircraft
awarded to the Birmingham facility.
1999 1998
Firm, unfunded Backlog $ 3.6 million $47.8 million
Estimated sales to be
derived from backlog
contracts $191.7 million $214 million
The $191.7 million of estimated backlog is associated with the
option periods for the KC-135 contract and the Space Vector CTTS
program.
CONTINGENCIES
See Note 6 to the Consolidated Financial Statements.
FORWARD LOOKING STATEMENTS
With the exception of historical facts, statements contained in
Management's Discussion and Analysis are forward looking
statements. Statements contained herein concerning anticipated
results of operations, award of contracts, the outcome of pending
and future litigation, the outcome of audits, reviews and
investigations by the U.S. Government, the outcome of claims filed
with the U.S. Government, estimates of backlog, the outcome of
claims related to the Danish subsidiary, the Company's intent to
take certain action in the future, the impact of Year 2000 issues
on the Company's operations, and the Company's ability to achieve
Year 2000 compliance 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, estimates of time and
money to assess and address Year 2000 issues, the continuing
availability of experienced personnel to deal with Year 2000
issues, the timely availability of software patches from existing
suppliers of software, the ability of third parties to complete
their own remediations of Year 2000 issues on a timely basis, the
ability to identify and implement contingency plans to deal with
Year 2000 issues, unanticipated problems identified in the
Company's ongoing Year 2000 compliance review, and actions with
respect to utilization and renewal of contracts.
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: 05/14/99 By: /s/ Matthew L. Gold
Matthew L. Gold
Chairman, President and
Chief Executive Officer
and Director
(Principal Executive Officer
and Principal Financial and
Accounting Officer)
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