<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---- EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---- EXCHANGE ACT OF 1934
Commission File Number 1-10561
BANNER AEROSPACE, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 95-2039311
- ------------------------------------ -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
300 WEST SERVICE ROAD, PO BOX 20260
WASHINGTON, DC 20041
- ------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703) 478-5790
---------------
</TABLE>
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 ninety (90) days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding at
Title of Class November 1, 1996
----------------------------- ----------------
<S> <C>
Common Stock, $1.00 Par Value 23,409,610
</TABLE>
<PAGE> 2
BANNER AEROSPACE, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>
Part I. Summarized Financial Information:
Consolidated Balance Sheets as of September 30, 1996 and March 31, 1996 .................... 3-4
Consolidated Income Statements for the Six Months Ended September 30, 1996 and 1995 ........ 5
Consolidated Income Statements for the Three Months Ended September 30, 1996 and 1995 ...... 6
Consolidated Statements of Cash Flow for the Six Months Ended September 30, 1996 and 1995 .. 7
Notes to Summarized Financial Information .................................................. 8-12
Management's Discussion and Analysis of the Financial Condition and Results of Operations .. 12-17
Part II. Other Information .......................................................................... 18-20
</TABLE>
Page 2 of 20
<PAGE> 3
Part I
A. Summarized Financial Information
BANNER AEROSPACE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND MARCH 31, 1996
ASSETS
(In thousands)
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
------------------- ----------------
<S> <C> <C>
CURRENT ASSETS:
- ---------------
Receivables, less allowances of $3,578
at September 30, 1996 and $3,257 at
March 31, 1996 $ 56,958 $ 57,006
Inventories 227,185 204,595
Other current assets 13,762 10,665
---------------- ------------
297,905 272,266
---------------- ------------
PROPERTY, PLANT AND EQUIPMENT (AT COST):
- ----------------------------------------
Land 453 453
Buildings and improvements 9,350 8,601
Machinery and equipment 15,901 14,975
---------------- ------------
25,704 24,029
Accumulated depreciation (12,163) (10,921)
---------------- ------------
13,541 13,108
---------------- ------------
OTHER ASSETS:
- -------------
Cost in excess of net tangible assets
of purchased businesses, net 28,004 28,239
Other 4,996 4,596
---------------- ------------
33,000 32,835
---------------- ------------
TOTAL ASSETS $ 344,446 $ 318,209
================ ============
</TABLE>
The accompanying notes to summarized financial information are an integral
part of these consolidated balance sheets.
Page 3 of 20
<PAGE> 4
Part I
A. Summarized Financial Information
BANNER AEROSPACE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND MARCH 31, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
---------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
- --------------------
Accounts payable $ 36,541 $ 42,233
Other 20,110 21,011
---------------- -------------
56,651 63,244
---------------- -------------
LONG-TERM LIABILITIES:
- ----------------------
Long-term debt, less current maturities 141,711 111,900
Other 412 462
---------------- -------------
142,123 112,362
---------------- -------------
TOTAL LIABILITIES 198,774 175,606
---------------- -------------
STOCKHOLDERS' EQUITY:
- ---------------------
Common stock, $1.00 par value, 30,000
shares authorized, 23,410 shares issued
and outstanding at September 30, 1996 and
23,393 shares issued and outstanding at
March 31, 1996 23,410 23,393
Paid-in capital 113,194 113,124
Retained earnings 9,068 6,086
---------------- -------------
TOTAL STOCKHOLDERS' EQUITY 145,672 142,603
---------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 344,446 $ 318,209
================ =============
</TABLE>
The accompanying notes to summarized financial information are an integral
part of these consolidated balance sheets.
Page 4 of 20
<PAGE> 5
Part I
A. Summarized Financial Information
BANNER AEROSPACE, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE SIX (6) MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
The consolidated income statements for the six (6) months ended September 30,
1996 and 1995 are not necessarily indicative of the results to be expected for
the full year and are subject to audit at year end.
<TABLE>
<CAPTION>
(In thousands, except per share data) For the Six Months
Ended September 30,
---------------------------
1996 1995
------------- ----------
<S> <C> <C>
Net sales $ 178,383 $ 127,123
Cost of goods sold 127,588 89,800
------------- ----------
GROSS PROFIT 50,795 37,323
Selling, general and administrative expenses 39,955 29,227
------------- ----------
OPERATING INCOME 10,840 8,096
Interest expense, net 5,869 5,692
------------- ----------
INCOME BEFORE TAXES 4,971 2,404
Provision for taxes 1,990 960
------------- ----------
NET INCOME $ 2,981 $ 1,444
============= ==========
Earnings per common share $ 0.13 $ 0.08
============= ==========
Weighted average number of shares 23,405 18,002
============= ==========
</TABLE>
The accompanying notes to summarized financial information are an integral
part of these consolidated income statements.
Page 5 of 20
<PAGE> 6
Part I
A. Summarized Financial Information
BANNER AEROSPACE, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE (3) MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
The consolidated income statements for the three (3) months ended September 30,
1996 and 1995 are not necessarily indicative of the results to be expected for
the full year and are subject to audit at year end.
<TABLE>
<CAPTION>
(In thousands, except per share data) For the Three Months
Ended September 30,
--------------------------
1996 1995
------------- ---------
<S> <C> <C>
Net sales $ 84,107 $ 66,490
Cost of goods sold 58,514 46,788
------------- ---------
GROSS PROFIT 25,593 19,702
Selling, general and administrative expenses 19,612 15,353
------------- ---------
OPERATING INCOME 5,981 4,349
Interest expense, net 3,197 3,127
------------- ---------
INCOME BEFORE TAXES 2,784 1,222
Provision for taxes 1,120 490
------------- ---------
NET INCOME $ 1,664 $ 732
============= =========
Earnings per common share $ 0.07 $ 0.04
============= =========
Weighted average number of shares 23,405 18,002
============= =========
</TABLE>
The accompanying notes to summarized financial information are an
integral part of these consolidated income statements.
Page 6 of 20
<PAGE> 7
Part I
A. Summarized Financial Information
BANNER AEROSPACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX (6) MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
(In thousands) 1996 1995
---------- ---------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR) OPERATING
- -------------------------------------------
ACTIVITIES:
- -----------
Net income $ 2,981 $ 1,444
Adjustments to reconcile net income to net cash
provided by (used for) operating activities--
Depreciation and amortization 2,237 1,995
Gain on disposal of fixed assets (13) (3)
Change in receivables 48 (4,301)
Change in inventories (22,590) (4,823)
Change in payables and accrued liabilities (6,842) 6,764
Change in other accounts (4,191) (2,083)
---------- ---------
Net cash used for operating activities (28,370) (1,007)
---------- ---------
CASH FLOWS PROVIDED BY (USED FOR) INVESTING
- -------------------------------------------
ACTIVITIES:
- -----------
Acquisition of property, plant and equipment (1,829) (426)
Proceeds from the sale of fixed assets 51 3
---------- ---------
Net cash used for investing activities (1,778) (423)
---------- ---------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING
- -------------------------------------------
ACTIVITIES:
- -----------
Borrowings on term loans 30,000 ---
Repayments of term loans (3,500) (8,000)
Net borrowings of revolver 3,561 3,050
Exercise of stock options 87 ---
---------- ---------
Net cash provided by (used for) financing activities 30,148 (4,950)
---------- ---------
NET DECREASE IN CASH --- (6,380)
CASH, BEGINNING OF PERIOD --- 1,950
---------- ---------
BANK OVERDRAFT, END OF PERIOD $ --- $ (4,430)
========== =========
</TABLE>
The accompanying notes to summarized financial information are an integral
part of these consolidated statements of cash flows.
Page 7 of 20
<PAGE> 8
Part I
A. Notes to Summarized Financial Information
BANNER AEROSPACE, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1996 AND 1995
(In thousands of dollars except per share data)
The condensed financial information included herein has been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures, normally included in financial statements prepared in accordance
with generally accepted accounting principles, have been condensed or omitted.
Although the Company believes that the following disclosures are adequate to
make the information presented not misleading, it is suggested that this
condensed financial information be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's Form 10-K
for the fiscal year ended March 31, 1996.
1) Significant Accounting and Reporting Policies
Description of the Business
The Company is a leading international supplier to the aerospace industry
as a distributor, providing a wide range of aircraft parts and related support
services. The Company's products are divided into three product groups:
hardware, rotables and engines. The hardware product group includes bearings,
nuts, bolts, screws, rivets and other types of fasteners. Rotables include
flight data recorders, radar and navigation systems, instruments, landing gear
and hydraulic and electrical components. Engines include jet engines and engine
parts for use on both narrow and wide body aircraft and smaller engines for
corporate and commuter aircraft. The Company provides a number of services such
as immediate shipment of parts in aircraft on ground ("AOG") situations. The
Company also provides products to original equipment manufacturers and
subcontractors ("OEMs") in the aerospace industry under just-in-time and
inventory management programs. The Company, through its subsidiaries, sells its
products in the United States and abroad to most of the world's commercial
airlines, and to air cargo carriers, as well as many OEMs, other distributors,
fixed-base operators, corporate aircraft operators and other aerospace and
non-aerospace companies.
Page 8 of 20
<PAGE> 9
2) Earnings Per Common Share
Earnings per common share are calculated based on net income divided by
the weighted average number of shares outstanding. Stock options are excluded
from the calculation of earnings per common share as they would be non-dilutive
(see Note 5 in the notes to summarized financial information).
3) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
4) Credit Agreement
On August 2, 1995, the Company entered into a credit agreement ("Credit
Agreement") that provides for working capital and potential acquisitions. On
July 1, 1996, the Company amended the Credit Agreement to provide additional
financing as well as require that loans made to the Company will not exceed a
defined borrowing base which is based upon a percentage of inventories and
accounts receivables. The facility under the Credit Agreement includes i) a
$55.0 million six-year term loan ("Term Loan"); ii) a $30.0 million seven-year
term loan ("Tranche B Loan"); and iii) a $71.5 million six-year revolving
credit facility ("Revolver"). As a result of obtaining the additional
financing, the total facility under the Credit Agreement increased to $149.5
million of which $138.8 million was outstanding as of September 30, 1996,
leaving total availability of $10.7 million. However, only $8.5 million was
available under the borrowing base formula. The Term Loan requires certain
semi-annual payments which commenced on February 1, 1996. The Tranche B Loan
requires certain semi-annual payments which commence on February 1, 1997. The
Term Loan and Revolver bear interest at prime plus 1 1/4% or London Interbank
Offered Rate ("LIBOR") plus 2 1/2%. The Tranche B Loan bears interest at prime
plus 1 3/4% or LIBOR plus 3%. Borrowings under the Term Loan and Revolver may
increase by 1/4% or decrease by up to 1% based upon certain performance
criteria. On September 30, 1996, the Company's performance level resulted in
borrowings under the Term Loan and Revolver being at an interest rate of prime
plus 1 1/4% and LIBOR plus 2 1/2% for the quarter ended December 31, 1996.
The Revolver is subject to a nonuse fee of 55 basis points
Page 9 of 20
<PAGE> 10
of the unused availability. The Credit Agreement contains certain financial and
nonfinancial covenants which the Company is required to meet on a quarterly
basis. The financial covenants include a minimum net worth, and minimum ratios
of interest coverage, fixed charges and debt to earnings before interest,
taxes, depreciation and amortization. The Company also has certain limitations
on the incurrence of additional debt. At September 30, 1996, the Company was in
compliance with all covenants under the Credit Agreement. Substantially all of
the Company's assets are pledged as collateral under the Credit Agreement.
In September 1995, the Company entered into several interest rate hedge
agreements ("Hedge Agreements") to manage its exposure to increases in interest
rates on its floating rate debt. The Company entered into the Hedge Agreements
with two of its major lenders to provide interest rate protection on $60.0
million of debt for a period of five years. Effectively, the Hedge Agreements
provide for a cap of 7% if the 90 day LIBOR exceeds 7%. If the 90 day LIBOR
drops below 5%, the Company will be required to pay interest at a floor rate of
approximately 6%. No cash outlay was required as the cost of the cap was offset
by the sale of the floor.
5) Stock Options
The Company's Non-Qualified and Incentive Stock Option Plan (the "1990
Stock Option Plan"), adopted in August 1990, authorizes the granting of options
at not less than the fair market value of the stock at the time of the granting
of the options. On September 13, 1996, the stockholders approved amendments to
the 1990 Stock Option Plan to increase the number of shares of its common stock
("Common Stock") authorized to be issued under the 1990 Stock Option Plan and
to extend the period under which options may be exercised. The Company has
reserved for issuance two million shares of Common Stock under the 1990 Stock
Option Plan. The option price is payable in cash or, with the approval of the
stock option committee of the Board of Directors, in shares of Common Stock,
valued at fair market value at the time of exercise. The 1990 Stock Option
Plan terminates in the year 2000; however, all stock options outstanding as of
August 2, 2000 shall continue to be exercisable pursuant to their terms. Under
the 1990 Stock Option Plan, all options granted are for a term of seven years.
Options granted on or before August 1, 1993 may be immediately exercisable and
options granted subsequent to August 1, 1993 vest over a period of three to
four years.
Page 10 of 20
<PAGE> 11
During fiscal 1997 and 1996, options for 307,250 and 275,000 shares,
respectively, were granted at prices ranging from $4.88 to $6.88 per share.
The number of options that expired during fiscal 1997 and 1996 were 7,417 and
461,400, respectively. At September 30, 1996, 932,700 stock options were
outstanding pursuant to the 1990 Stock Option Plan at prices ranging from $4.75
to $6.88 per share. In fiscal 1997 and 1996, 16,833 shares and 4,200 shares of
stock options were exercised, respectively.
On September 13, 1996, the stockholders approved the 1996 Non-Employee
Director Stock Option Plan (the "NED Stock Option Plan"). The Company has
reserved for issuance 150,000 shares of Common Stock under the NED Stock Option
Plan which terminates in the year 2006. However, all stock options outstanding
as of May 29, 2006 shall continue to be exercisable pursuant to their terms.
The option price is payable in cash or, with the approval of the stock option
committee of the Board of Directors, in shares of Common Stock, valued at fair
market value at the time of exercise. All options are for a term of five years
and vest immediately upon issuance of the grant. Each newly elected
non-employee director shall be granted an option for 5,000 shares of Common
Stock and on the date of each succeeding annual meeting, each non-employee
director elected at such meeting shall be granted an option for 1,000 shares of
Common Stock. On September 13, 1996, all eight non-employee directors were
each granted an option for 5,000 shares of Common Stock.
Stock options granted to non-employee directors prior to the approval of
the NED Stock Option Plan were not granted under any stock option plan. At
September 30, 1996, a total of 107,000 stock options to non-employee directors
were outstanding at prices ranging from $4.63 to $8.13 per share. During
fiscal 1997, 20,000 stock options were granted to non-employee directors
outside a formal plan and 40,000 were granted under the NED Stock Option Plan.
No options were exercised in fiscal 1997 or 1996.
6) Acquisition
In March 1996, the Company acquired Harco, Inc. ("Harco") from The
Fairchild Corporation ("Fairchild"). Harco is an authorized stocking
distributor of precision fasteners to the aerospace industry and is located in
El Segundo, California. The acquisition of Harco was effected through the
issuance of 5,386,477 shares of the Common Stock in exchange for 100% of the
outstanding shares of Harco. The issuance of the Common Stock was based on an
average price per share of $6.075 resulting in a total value of $32,723. This
acquisition was accounted
Page 11 of 20
<PAGE> 12
for using the purchase method of accounting as applied to simultaneous common
control mergers. The excess of the purchase price over the net tangible assets
acquired is being amortized over 40 years. The results of operations of Harco
have been included in the consolidated results as of March 1, 1996. As a
result of the transaction, Fairchild, which previously owned 47.2% of the
Common Stock, currently owns 59.4% of the Common Stock.
The supplemental pro forma information for the six months ended September
30, 1995 would have been net sales, $141,327; gross profit, $42,080; income
from operations before interest and taxes, $9,576; net income, $2,258; earnings
per common share, $0.10; and 23,389,000 weighted average shares outstanding.
Page 12 of 20
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX (6) MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995 Increase (Decrease)
-------------- -------------- -------------------
(In thousands) $ % $ % $ %
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales 178,383 100.0 127,123 100.0 51,260 40.3
Cost of goods sold 127,588 71.5 89,800 70.6 37,788 42.1
------- ----- ------- ----- ------- -----
Gross profit 50,795 28.5 37,323 29.4 13,472 36.1
Selling, general & administrative 39,955 22.4 29,227 23.0 10,728 36.7
------- ----- ------- ----- ------- -----
Operating income 10,840 6.1 8,096 6.4 2,744 33.9
Interest expense, net 5,869 3.3 5,692 4.5 177 3.1
------- ----- ------- ----- ------- -----
Income before taxes 4,971 2.8 2,404 1.9 2,567 N/A
Provision for taxes 1,990 1.1 960 0.8 1,030 N/A
------- ----- ------- ----- ------- -----
Net income 2,981 1.7 1,444 1.1 1,537 N/A
======= ===== ======= ===== ======= =====
</TABLE>
Operating Results
Net sales for the six months ended September 30, 1996 increased $51.3
million or 40.3% over the comparable prior period. This increase was primarily
due to higher sales recorded by the hardware group which was mainly
attributable to the acquisition of Harco, Inc. ("Harco") from The Fairchild
Corporation in March 1996 (see Note 6 in the notes to summarized financial
information). The sales of the hardware group also increased due to
incremental sales to commercial airlines and original equipment manufacturers.
The sales of the engine group increased significantly compared to the prior
period due to the increase in sales to other distributors and the sale of two
commercial aircraft for $6.6 million. In addition, the sales for the rotable
group increased compared to the prior period primarily due to increased sales
to commercial airlines and fixed-base operations.
The gross profit percentage for the six months ended September 30, 1996
decreased to 28.5% compared to 29.4% for the prior period. This decline was
attributable to the increase in sales of turbine engines which yield lower
gross profit margins compared to the other products and the sale of two
commercial aircraft at approximately a 10% gross margin compared to other
historical sales.
Page 13 of 20
<PAGE> 14
Selling, general and administrative ("SG&A") expenses as a percentage of
sales declined from 23.0% for the six months ended September 30, 1995 to 22.4%
for the current period. For the six months ended September 30, 1996, SG&A
expenses in total dollars increased by $10.7 million or 36.7% over the
comparable prior period. This increase in SG&A expenses was primarily due to
the acquisition of Harco and additional costs of $1.3 million associated with
the transfer of the warehouse operations of Burbank Aircraft Supply, Inc. to
the new distribution center in Salt Lake City, Utah. During the first half of
the fiscal year, the Company incurred additional costs associated with the new
distribution center as a result of the temporary duplication of warehousing and
systems expenses, severance costs and the expense of moving inventories to the
new distribution center. It is expected that only minimal costs will be
incurred for the remainder of the fiscal year.
Interest Expense
Interest expense for the six months ended September 30, 1996 increased
slightly compared to the prior period. This increase in interest expense was
the result of the increase in the average debt balance outstanding from $104.0
million in the prior period to $124.0 million in the current period which was
somewhat offset by a slight reduction in the weighted average interest rate.
For the six months ended September 30, 1996 and 1995, the weighted average
interest rates were 9.1% and 9.5%, respectively. In addition, the prior year's
expense includes the write-off of the deferred loan cost in the amount of $0.6
million relating to the previous credit agreement. Interest expense also
includes the amortization of deferred loan costs and charges for nonuse fees,
agency fees and compensating balances.
Provision for Taxes
The provision for taxes for the six months ended September 30, 1996 and
1995 amounted to $2.0 million and $1.0 million, respectively. The effective tax
rates for the six months ended September 30, 1996 and 1995 were 40.0% and
39.9%, respectively.
Page 14 of 20
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE (3) MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995 Increase (Decrease)
------------- ------------- -------------------
(In thousands) $ % $ % $ %
------- ----- ------- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Net sales 84,107 100.0 66,490 100.0 17,617 26.5
Cost of goods sold 58,514 69.6 46,788 70.4 11,726 25.1
------- ----- ------- ----- ------ -----
Gross profit 25,593 30.4 19,702 29.6 5,891 29.9
Selling, general & administrative 19,612 23.3 15,353 23.1 4,259 27.7
------- ----- ------- ----- ------ -----
Operating income 5,981 7.1 4,349 6.5 1,632 37.5
Interest expense, net 3,197 3.8 3,127 4.7 70 2.2
------- ----- ------- ----- ------ -----
Income before taxes 2,784 3.3 1,222 1.8 1,562 N/A
Provision for taxes 1,120 1.3 490 0.7 630 N/A
------- ----- ------- ----- ------ -----
Net income 1,664 2.0 732 1.1 932 N/A
======= ===== ======= ===== ====== =====
</TABLE>
Operating Results
Net sales for the three months ended September 30, 1996 increased $17.6
million or 26.5% over the comparable prior period. This increase was primarily
due to higher sales recorded by the hardware group which was mainly
attributable to the acquisition of Harco (see Note 6 in the notes to summarized
financial information). The sales of the rotable group increased significantly
compared to the prior period due to increased sales to commercial airlines and
fixed-base operations.
The gross profit percentage for the three months ended September 30, 1996
increased to 30.4% compared to 29.6% for the prior period. This increase was
attributable to the acquisition of Harco, which has a higher gross margin
percentage compared to the Company as a whole. In addition, the gross profit
percentage increased due to improved margins from the engine group as a result
of a change in product mix.
Selling, general and administrative ("SG&A") expenses as a percentage of
sales increased slightly from 23.1% for the three months ended September 30,
1995 to 23.3% for the current period. For the three months ended September 30,
1996, SG&A expenses in total dollars increased by $4.3 million or 27.7% over
the comparable prior period. This increase in SG&A expenses was primarily due
to the acquisition of Harco and additional costs of $0.3 million
Page 15 of 20
<PAGE> 16
associated with the transfer of the warehouse operations of Burbank Aircraft
Supply, Inc. to the new distribution center in Salt Lake City, Utah. It is
expected that only minimal costs will be incurred for the remainder of the
fiscal year. In addition, the increase in SG&A expenses was affected due to
the overall increase in sales volume.
Interest Expense
Interest expense for the three months ended September 30, 1996 increased
slightly compared to the prior period. This increase in interest expense was
the result of the increase in the average debt balance outstanding from $103.0
million in the prior period to $131.0 million in the current period which was
somewhat offset by a slight reduction in the weighted average interest rate.
For the three months ended September 30, 1996 and 1995, the weighted average
interest rates were 9.3% and 9.5%, respectively. In addition, the prior year's
expense includes the write-off of deferred loan cost in the amount of $0.6
million relating to the previous credit agreement. Interest expense also
includes the amortization of deferred loan costs and charges for nonuse fees,
agency fees and compensating balances.
Provision for Taxes
The provision for taxes for the three months ended September 30, 1996 and
1995 amounted to $1.1 million and $0.5 million, respectively. The effective tax
rates for the three months ended September 30, 1996 and 1995 were 40.2% and
40.1%, respectively.
Liquidity
The following table presents certain liquidity ratios of the Company at
September 30, 1996 and March 31, 1996.
<TABLE>
<CAPTION>
September 30, 1996 March 31, 1996
------------------ ---------------
<S> <C> <C>
Current ratio 5.26:1 4.31:1
Debt to equity 0.97:1 0.78:1
</TABLE>
At September 30, 1996, the Company had total debt outstanding of $141.9
million, the majority of which was under the Credit Agreement. As of September
30, 1996, the Credit Agreement provided for up to $149.5 million of borrowings
for working capital, capital expenditures and potential acquisitions subject to
certain conditions and a borrowing base. As of September 30, 1996, $8.5
million was available under the borrowing base formula. Cash flow
Page 16 of 20
<PAGE> 17
from operations, along with funds available under the Credit Agreement should
be adequate to finance the Company's operations in fiscal 1997 (refer to Note 4
in the notes to summarized financial information).
The Company had no other material capital commitments or planned
expenditures as of September 30, 1996.
Net cash used by operating activities for the six months ended September
30, 1996 and 1995, amounted to $28.4 million and $1.0 million, respectively.
The primary use of cash for operating activities for the six months ended
September 30, 1996 was an increase in inventories in the amount of $22.6
million. The primary use of cash for operating activities for the six months
ended September 30, 1995 was the increase in receivables and inventories in the
amount of $4.3 million and $4.8 million, respectively, which was offset by an
increase in other payables and accrued liabilities.
Net cash used for investing activities for the six months ended September
30, 1996 and 1995 amounted to $1.8 million and $0.4 million, respectively.
These amounts represent capital expenditures, net of proceeds from the sale of
fixed assets.
Net cash provided by financing activities for the six months ended
September 30, 1996 amounted to $30.1 million. Net cash used for financing
activities for the six months ended September 30, 1995 amounted to $5.0
million. The net cash provided by and used for financing activities for the six
months ended September 30, 1996 and 1995 related to net repayments to and
borrowings from outside sources, primarily the prior credit agreement and the
Credit Agreement.
Page 17 of 20
<PAGE> 18
MANAGEMENT REPRESENTATION
The information furnished in this Form 10-Q for the interim period ended
September 30, 1996 reflects all adjustments which are, in the opinion of
management, all of a normal recurring nature and are necessary to present a
fair statement of the results for the interim period.
Part II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on September
13, 1996. Five matters of business were held to vote: 1) the election of eleven
directors for the ensuing year; 2) the amendment of the 1990 Non-Qualified and
Incentive Stock Option Plan; 3) the approval to grant options to non-employee
directors; 4) the approval of the 1996 Non-Employee Director Stock Option Plan;
and 5) the approval of the Board of Director's selection of Arthur Andersen LLP
as independent auditors. Below is a table depicting the results of the
shareholder votes (in number of shares):
<TABLE>
<CAPTION> Broker
Matter For Against Withheld Abstained Non-Votes Total Votes
- ---------------------- ----------- ---------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
ELECTION OF DIRECTORS
Michael T. Alcox 21,531,032 --- 424,175 --- --- 21,955,207
Frederick W. Bradley, Jr. 21,528,832 --- 426,375 --- --- 21,955,207
Steven L. Gerard 21,528,832 --- 426,375 --- --- 21,955,207
Charles M. Haar 21,528,832 --- 426,375 --- --- 21,955,207
Philippe Hercot 21,530,832 --- 424,375 --- --- 21,955,207
Samuel J. Krasney 21,531,032 --- 424,175 --- --- 21,955,207
Warren D. Persavich 21,531,032 --- 424,175 --- --- 21,955,207
Eric I. Steiner 21,529,032 --- 426,175 --- --- 21,955,207
Jeffrey J. Steiner 21,530,932 --- 424,275 --- --- 21,955,207
Leonard Toboroff 21,528,832 --- 426,375 --- --- 21,955,207
John C. Wertz 21,531,132 --- 424,075 --- --- 21,955,207
<CAPTION>
1990 NON-QUALIFIED AND INCENTIVE STOCK OPTION PLAN
<S> <C> <C> <C> <C> <C> <C>
19,336,956 2,523,080 --- 26,065 69,106 21,955,207
<CAPTION>
GRANT OF OPTIONS TO NON-EMPLOYEE DIRECTORS
<S> <C> <C> <C> <C> <C> <C>
21,395,833 466,718 --- 23,550 69,106 21,955,207
<CAPTION>
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
<S> <C> <C> <C> <C> <C> <C>
21,409,533 459,018 --- 17,550 69,106 21,955,207
<CAPTION>
APPROVAL OF INDEPENDENT AUDITORS
<S> <C> <C> <C> <C> <C> <C>
Arthur Andersen LLP 21,780,351 43,231 --- 131,625 --- 21,955,207
</TABLE>
Page 18 of 20
<PAGE> 19
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(i) 1996 Stock Option Plan Amendments dated May 29, 1996 to
the 1990 Non-Qualified and Incentive Stock Option Plan is
incorporated herein by reference to the Definitive Proxy
Statement dated and filed on July 26, 1996 with respect to
the Annual Meeting of Stockholders to be held September 13,
1996.
(ii) 1996 Banner Aerospace, Inc. Non-Employee Directors'
Stock Option Plan dated May 29, 1996, is incorporated herein
by reference to the Definitive Proxy Statement dated and
filed on July 26, 1996 with respect to the Annual Meeting of
Stockholders to be held September 13, 1996.
(b) Reports on Form 8-K
There have been no reports on Form 8-K filed during the
quarter.
Page 19 of 20
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANNER AEROSPACE, INC.
By /s/ WARREN D. PERSAVICH
----------------------------------
Warren D. Persavich
Senior Vice President
Chief Financial Officer
By /s/ EUGENE W. JURIS
----------------------------------
Eugene W. Juris
Vice President
Finance & Secretary
Dated: November 12, 1996
Page 20 of 20
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 60,536
<ALLOWANCES> 3,578
<INVENTORY> 227,185
<CURRENT-ASSETS> 297,905
<PP&E> 25,704
<DEPRECIATION> 12,163
<TOTAL-ASSETS> 344,446
<CURRENT-LIABILITIES> 56,651
<BONDS> 141,711
0
0
<COMMON> 23,410
<OTHER-SE> 122,262
<TOTAL-LIABILITY-AND-EQUITY> 344,446
<SALES> 178,383
<TOTAL-REVENUES> 178,383
<CGS> 127,588
<TOTAL-COSTS> 127,588
<OTHER-EXPENSES> 39,634
<LOSS-PROVISION> 321
<INTEREST-EXPENSE> 5,869
<INCOME-PRETAX> 4,971
<INCOME-TAX> 1,990
<INCOME-CONTINUING> 2,981
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,981
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
