<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 June 30, 1997
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)
DELAWARE 95-2039311
- ---------------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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
--------------
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 July 31, 1997
-------------- -------------
<S> <C>
Common Stock, $1.00 Par Value 23,429,277
</TABLE>
<PAGE> 2
BANNER AEROSPACE, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Summarized Financial Information:
Consolidated Balance Sheets as of June 30, 1997 and March 31, 1997............................. 3-4
Consolidated Income Statements for the Three Months ended June 30, 1997 and 1996............... 5
Consolidated Statements of Cash Flows for the Three Months ended June 30, 1997 and 1996........ 6
Notes to Summarized Financial Information...................................................... 7-13
Management's Discussion and Analysis of the Financial Condition and Results of Operations...... 14-16
Part II. Other Information............................................................................. 17-20
</TABLE>
Page 2 of 20
<PAGE> 3
Part I
A. Summarized Financial Information
BANNER AEROSPACE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND MARCH 31, 1997
ASSETS
<TABLE>
<CAPTION>
(In thousands)
(unaudited)
June 30, March 31,
CURRENT ASSETS: 1997 1997
- -------------- ------------------ -------------------
<S> <C> <C>
Receivables, less allowances of $4,499 at June 30, 1997 and
$4,420 at March 31, 1997 $ 83,869 $ 64,382
Inventories 271,533 253,781
Future tax benefits 11,307 11,307
Other current assets 8,792 11,375
------------------ -------------------
375,501 340,845
------------------ -------------------
PROPERTY, PLANT AND EQUIPMENT (AT COST):
- ---------------------------------------
Land 453 453
Buildings and improvements 7,603 9,519
Machinery and equipment 18,176 19,408
------------------ -------------------
26,232 29,380
Accumulated depreciation (10,301) (14,046)
------------------ -------------------
15,931 15,334
------------------ -------------------
OTHER ASSETS:
- ------------
Cost in excess of net tangible assets of purchased 32,929 33,003
businesses, net
Other 4,075 4,719
------------------ -------------------
37,004 37,722
------------------ -------------------
TOTAL ASSETS $ 428,436 $ 393,901
================== ===================
</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
JUNE 30, 1997 AND MARCH 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(In thousands)
(unaudited)
June 30, March 31,
CURRENT LIABILITIES: 1997 1997
- ------------------- ------------------ -------------------
<S> <C> <C>
Current maturities of long-term debt $ 299 $ 301
Accounts payable 49,577 38,864
Accrued overhaul costs 11,192 6,845
Other 22,864 24,177
------------------ -------------------
83,932 70,187
------------------ -------------------
LONG-TERM LIABILITIES:
- ---------------------
Long-term debt, less current maturities 149,173 165,148
Other 7,991 8,371
------------------ -------------------
157,164 173,519
------------------ -------------------
TOTAL LIABILITIES 241,096 243,706
------------------ -------------------
STOCKHOLDERS' EQUITY:
- --------------------
Preferred stock, $.01 par value, 10,000 shares authorized,
3,711 shares issued and outstanding at June 30, 1997 and
no shares authorized, issued and outstanding at March 31,
1997 37 ---
Common stock, $1.00 par value, 50,000 shares authorized,
23,424 shares issued and outstanding at June 30, 1997 and
30,000 shares authorized, 23,420 shares issued and
outstanding at March 31, 1997
23,424 23,420
Paid-in capital 147,093 113,236
Retained earnings 16,786 13,539
------------------ -------------------
TOTAL STOCKHOLDERS' EQUITY 187,340 150,195
------------------ -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 428,436 $ 393,901
================== ===================
</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 THREE (3) MONTHS ENDED JUNE 30, 1997 AND 1996
The consolidated income statements for the three (3) months ended June 30, 1997
and 1996 are not necessarily indicative of the results to be expected for the
full year and are subject to audit at year end.
<TABLE>
<CAPTION>
(unaudited)
(In thousands, except per share data) For the Three Months
Ended June 30,
-------------------------------------
1997 1996
---------------- ---------------
<S> <C> <C>
Net sales $ 116,930 $ 94,276
Cost of goods sold 83,385 69,074
---------------- ---------------
GROSS PROFIT 33,545 25,202
Selling, general and administrative expenses 24,186 20,343
---------------- ---------------
OPERATING INCOME 9,359 4,859
Interest expense, net 4,032 2,672
---------------- ---------------
INCOME BEFORE TAXES 5,327 2,187
Provision for taxes 2,080 870
---------------- ---------------
NET INCOME $ 3,247 $ 1,317
================ ===============
Preferred stock dividends
49 ---
---------------- ---------------
NET INCOME AVAILABLE FOR COMMON SHAREHOLDERS $ 3,198 $ 1,317
================ ===============
Earnings per common share $ 0.14 $ 0.06
================ ===============
Weighted average number of common shares 23,424 23,400
================ ===============
</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 STATEMENTS OF CASH FLOWS
FOR THE THREE (3) MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
(unaudited) (unaudited)
(In thousands) 1997 1996
----------------- ----------------
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
- ------------------------------------------------------
<S> <C> <C>
Net income $ 3,247 $ 1,317
Adjustments to reconcile net income to net cash provided by
(used for) operating activities--
Depreciation and amortization 1,325 1,093
Change in receivables (19,487) (353)
Change in inventories (17,752) (10,538)
Change in payables and accrued liabilities 13,747 8,507
Change in other accounts 2,403 328
----------------- ----------------
Net cash provided by (used for) operating activities (16,517) 354
----------------- ----------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
- ----------------------------------------
Acquisition of property, plant and equipment (1,404) (1,041)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
- -------------------------------------------
Repayment of subordinated loan (28,000) ---
Net borrowings of revolver 12,100 600
Repayments on other debt (77) ---
Issuance of preferred stock 33,877 ---
Exercise of stock options 21 87
----------------- ----------------
Net cash provided by financing activities 17,921 687
----------------- ----------------
NET CHANGE IN CASH --- ---
CASH, BEGINNING OF PERIOD --- ---
----------------- ----------------
CASH, END OF PERIOD $ --- $ ---
================= ================
</TABLE>
The accompanying notes to summarized financial information are an integral
part of these consolidated statements of cash flows.
Page 6 of 20
<PAGE> 7
Part I
A. Notes to Summarized Financial Information
BANNER AEROSPACE, INC. AND SUBSIDIARIES
JUNE 30, 1997 AND 1996
(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, 1997.
1) Significant Accounting and Reporting Policies
Description of the Business
The Company is a leading international supplier to the aerospace industry.
The Company's products are divided into three product groups: hardware,
rotables and engines. Hardware 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, engine parts and engine leasing 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 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, distributes 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 operations,
corporate aircraft operators and other aerospace and non-aerospace companies.
Page 7 of 20
<PAGE> 8
2) Earnings Per Common Share
Earnings per common share is calculated based on net income available to
common shareholders divided by the weighted average number of shares
outstanding. Stock options are excluded from the calculation of earnings per
common shares as they would be non-dilutive (see Note 5 in the notes to
summarized financial information for detail on stock options).
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 ("Amended and Restated
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 eligible inventories and accounts receivables. On
December 12, 1996, the Company amended the Amended and Restated Credit
Agreement ("Second Amended and Restated Credit Agreement") to provide
additional financing and approve the incurrences of subordinated debt and
certain acquisitions. The facility under the Second Amended and Restated Credit
Agreement includes i) a $55,000 six-year term loan ("Term Loan"); ii) a $30,000
seven-year term loan ("Tranche B Loan"); iii) a $40,000 six-year term loan
("Tranche C Loan"); and iv) a $71,500 six-year revolving credit facility
("Revolver"). On March 31, 1997, the Company borrowed $40,000 under the Tranche
C Loan. The Term Loan, Tranche B Loan and Tranche C Loan require certain
semi-annual payments which occur on February 1 and August 1 of each year.
The Term Loan and Revolver bear interest at prime plus 1/4 % to 1 1/2% or
London Interbank Offered Rate ("LIBOR") plus 1 1/2% to 2 3/4% based upon
certain performance criteria. As a result of the Company's performance level
through March 31, 1997, borrowings under the Term Loan and Revolver bore
interest at prime plus 3/4% and LIBOR
Page 8 of 20
<PAGE> 9
plus 2% for the quarter ended June 30, 1997. The Tranche B Loan bears interest
at prime plus 1 3/4% or LIBOR plus 3.0%. The interest rate for the Tranche C
Loan is initially prime plus 1 1/2% or LIBOR plus 2 3/4%. The interest rate
under the Tranche C Loan may decrease, after September 30, 1997, by 1/4% if
the Company meets certain performance criteria. As a result of the Company's
performance level through June 30, 1997, borrowings under the Term Loan and
Revolver will bear interest at prime plus 3/4% and LIBOR plus 2% for the
quarter ending September 30, 1997. The Revolver was subject to a nonuse fee of
55 basis points of the unused availability for the quarter ended June 30, 1997
and is subject to a nonuse fee of 40 basis points of the unused availability
for the quarter ending September 30, 1997.
The Second Amended and Restated 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 and has restrictions on cash dividends and
distributions on the capital stock of the Company in that the aggregate amount
of such cash dividends and distributions may not exceed $150 in any fiscal
year. At June 30, 1997, the Company was in compliance with all covenants under
the Second Amended and Restated Credit Agreement. Substantially all of the
Company's assets are pledged as collateral under the Second Amended and
Restated 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 $60,000 of
debt for a period of five years. Effectively, the Hedge Agreements provide for
90 day LIBOR caps of 6.6% to 7.0%. If the 90 day LIBOR drops below the LIBOR
floors of 4.9% to 5.3%, the Company will be required to pay interest at floor
rates of 5.9% to 6.1%. The above rates exclude any spread above LIBOR. No cash
outlay was required as the cost of the cap was offset by the sale of the floor.
In November 1996, the Company entered into an additional hedge agreement
("Additional Hedge Agreement") with one of its major lenders to provide
interest rate protection on an additional $20,000 of debt for a period of three
years. Effectively, the Additional Hedge Agreement provides for a 90 day LIBOR
cap of 7.3%. If the 90 day LIBOR drops below 5.0%, the Company will be required
to pay interest at a floor rate of 5.8%. No cash outlay was required to obtain
the Additional Hedge Agreement as the cost of the cap was offset by the sale of
the floor.
Page 9 of 20
<PAGE> 10
The Company recognizes interest expense under the provisions of the Hedge
Agreements and Additional Hedge Agreement based on the fixed rate. The Company
is exposed to credit loss in the event of non-performance by the lenders,
however, such non-performance is not anticipated.
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 an amendment
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
compensation and 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.
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 compensation
and 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, options for 40,000
Page 10 of 20
<PAGE> 11
shares of Common Stock were granted to non-employee directors. In addition,
non-employee directors were granted options for 67,000 shares of Common Stock
prior to the approval of the NED Stock Option Plan.
Stock option activity under the 1990 Stock Option Plan, the NED Stock
Option Plan and non-employee director options granted prior to the approval
of the NED Stock Option Plan for fiscal year 1998 is as follows:
<TABLE>
<CAPTION>
Weighted
average
exercise
Shares price
--------- ----------
<S> <C> <C>
Outstanding at March 31, 1997 1,055,700 $5.82
Granted 298,000 $7.63
Exercised (4,000) $5.13
Terminated (500) $6.88
Expired --- ---
---------
Outstanding at June 30, 1997 1,349,200 $6.22
=========
</TABLE>
At June 30, 1997, 1,242,200 of the 1,349,200 options outstanding relate to
the 1990 Stock Option Plan and have exercise prices between $4.75 and $9.38 per
share. All fiscal 1998 activity relates to the 1990 Stock Option Plan. The
remaining 107,000 options relate to the NED Stock Option Plan and non-employee
director options granted prior to the approval of the NED Stock Plan and have
exercise prices between $4.63 and $8.13 per share.
6) Acquisitions
On January 16, 1997, the Company, through its subsidiary, Dallas Aerospace,
Inc., acquired 100.0% of the outstanding stock of PB Herndon Company ("PB
Herndon") from the shareholders of PB Herndon ("Sellers"). PB Herndon, located
near St. Louis, Missouri, is a distributor of specialty fastener lines and
other aerospace related components. At closing, the cash purchase price of
$14.7 million was paid to the Sellers. The purchase price was based upon PB
Herndon's net assets as of September 30, 1996 plus capital contributions made
by the Sellers after August 31, 1996. In addition, the Company paid $1.3
million to the Sellers to repay loans made from the Sellers to PB Herndon. To
finance the acquisition of PB Herndon, the Company borrowed $16.0 million under
a subordinated loan agreement (see Note 7 in the notes to summarized financial
information) with RHI Holdings, Inc., a wholly-owned subsidiary of The
Fairchild Corporation ("Fairchild"). This acquisition was accounted for using
the purchase method of accounting. The excess of the purchase price over the
net tangible assets acquired is being amortized over 40 years.
Page 11 of 20
<PAGE> 12
The supplemental pro forma information for the three months ended June 30,
1996 would have been net sales, $97.9 million; gross profit, $26.2 million;
income from operations before interest and taxes, $4.8 million; net income,
$1.1 million; earnings per common share, $0.05; and 23,400 weighted average
shares outstanding.
7) Related Party Transactions
The Company entered into a Stock Exchange Agreement with Fairchild,
effective May 12, 1997, pursuant to which the Company could acquire Fairchild
Scandinavian Bellyloading Company AB from Fairchild in exchange for 230,000
shares of Common Stock initially. This transaction was approved by a special
committee of the Board of Directors, and was approved by the Company's
stockholders at a meeting on June 18, 1997. Under the terms of the Stock
Exchange Agreement, Fairchild could terminate the agreement if it sold
Fairchild Scandinavian Bellyloading Company AB to a third party by reason of an
unsolicited offer, but Fairchild would be obligated to pay the Company a
reasonable termination fee and the Company's out-of-pocket expenses. On July 1,
1997, Fairchild exercised its option to terminate the Stock Exchange Agreement.
On December 20, 1996, the Company entered into an unsecured subordinated
loan agreement ("Subordinated Loan") with RHI Holdings, Inc. ("RHI"), which is
a wholly-owned subsidiary of Fairchild. The purpose of the Subordinated Loan
was to provide funds for acquisitions and any necessary future working capital
requirements of the acquired companies. The Subordinated Loan bore interest at
10.0% per annum for the period commencing on the date of the initial draw and
continuing for a period of six months from the initial draw date. Thereafter,
the Subordinated Loan bore interest at 11.2% per annum. The principal and
accrued interest were deferred until the maturity date of November 15, 2003,
subject to acceleration in certain events specified in the Subordinated Loan. A
commitment fee of 1.5% per annum for six months from the initial draw date,
and 3.0% per annum thereafter, was accrued and payable on the last day of each
month, based on the balance outstanding. As of March 31, 1997, the Company had
borrowed $28,000 under the Subordinated Loan, to fund the purchase of PB
Herndon and other working capital requirements. The Subordinated Loan was
repaid in June 1997 as a result of the preferred stock issuance. Interest paid
to RHI from December 1996 to June 1997 totaled $1,047.
On May 23, 1997, the Company granted all its stockholders certain rights to
purchase Series A Convertible Paid-in-Kind Preferred Stock, $.01 par value. On
June 19, 1997, the Company issued 3,085,885 shares of preferred
Page 12 of 20
<PAGE> 13
stock for $28,390,142. The total number of shares of preferred stock issued
was 3,710,955 for total net proceeds of $33,876,314.
Page 13 of 20
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE (3) MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996 Increase
------------------- ------------------- -----------------
(In thousands) $ % $ % $ %
------- ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Net sales 116,930 100.0 94,276 100.0 22,654 24.0
Cost of goods sold 83,385 71.3 69,074 73.3 14,311 20.7
------- ------ ------ ------- ------ -------
Gross profit 33,545 28.7 25,202 26.7 8,343 33.1
Selling, general & administrative
expenses 24,186 20.7 20,343 21.5 3,843 18.9
------- ------ ------ ------- ------ -------
Operating income 9,359 8.0 4,859 5.2 4,500 92.6
Interest expense, net 4,032 3.4 2,672 2.9 1,360 50.9
------- ------ ------ ------- ------ -------
Income before taxes 5,327 4.6 2,187 2.3 3,140 143.6
Provision for taxes 2,080 1.8 870 0.9 1,210 139.1
------- ------ ------ ------- ------ -------
Net income 3,247 2.8 1,317 1.4 1,930 146.5
======= ====== ====== ======= ====== =======
</TABLE>
Operating Results
Net sales for the three months ended June 30, 1997 increased $22,654 or
24.0% over the comparable prior period. This increase was primarily due to
higher sales recorded by the hardware group, attributable in part to sales of
$5.5 million recorded by PB Herndon which was acquired in January 1997 (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 OEMs. The sales of the engine group increased compared to the prior period,
primarily due to increased sales of turbine parts and engine management,
partially offset by lack of aircraft sales which had accounted for $6.0 million
in sales the prior period. In addition, the sales of the rotable group
increased compared to the prior period, primarily due to increased sales to
other distributors and incremental sales from a new product line.
The gross profit percentage for the three months ended June 30, 1997
increased to 28.7% compared to 26.7% for the prior period. This increase was
primarily attributable to higher gross margins earned by the hardware group,
due in part to the acquisition of PB Herndon and to the engine group, due to a
lack of aircraft sales in the current period, which have significantly lower
margins. In addition, the rotable group reported increased gross margins.
Page 14 of 20
<PAGE> 15
Selling, general and administrative ("SG&A") expenses as a percentage of
sales declined from 21.5% for the three months ended June 30, 1996 to 20.7% for
the current period. For the three months ended June 30, 1997, SG&A expenses
increased by $3.8 million or 18.9% over the comparable prior period. This
increase in SG&A expenses was primarily due to incremental SG&A expenses as a
result of the acquisition of PB Herndon, as well as an increase in SG&A
expenses due to increased sales.
Interest Expense
Interest expense for the three months ended June 30, 1997 increased $1.4
million or 50.9% compared to the prior period, resulting from an increase from
$116 million in the average outstanding debt balance during the prior period,
to $172 million in the current period. In addition, interest expense was
affected by a slight increase in the weighted average interest rate to 9.2% in
the current period compared to 8.9% in the prior period. 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 June 30, 1997 and 1996
amounted to $2.1 million and $0.9 million, respectively. The effective tax rate
for the three months ended June 30, 1997 and 1996 was 39.0% and 39.8%,
respectively.
Liquidity
The following table presents certain liquidity ratios of the Company at
June 30, 1997 and March 31, 1997.
<TABLE>
<CAPTION>
June 30, 1997 March 31, 1997
-------------------- --------------------
<S> <C> <C>
Current ratio 4.47:1 4.86:1
Debt to equity 0.80:1 1.10:1
</TABLE>
At June 30, 1997, the Company had total debt outstanding of $149.5 million,
the majority of which was under the Credit Agreement. As of June 30, 1997, the
Second Amended and Restated Credit Agreement provided for up to $185.9 million
of borrowings for working capital, capital expenditures and potential
acquisitions, subject to certain conditions and a borrowing base. Cash flow
from operations, along with funds available under the Second Amended
Page 15 of 20
<PAGE> 16
and Restated Credit Agreement, should be adequate to finance the Company's
operations in fiscal 1998 (refer to Note 4 in the notes to summarized financial
information). The Company had no other material capital commitments or planned
expenditures as of June 30, 1997.
Net cash used by operating activities for the three months ended June 30,
1997 amounted to $16.5 million; and net cash provided by operating activities
for the three months ended June 30, 1996 was $0.3 million. The primary use of
cash for operating activities for the three months ended June 30, 1997 was an
increase in receivables and inventories in the amount of $19.5 million and
$17.8 million, respectively. The primary source of cash from operating
activities for the three months ended June 30, 1997 was an increase in the
amount of $13.7 million in payables and accrued liabilities, along with
scheduled depreciation and amortization expense of $1.3 million. The increase
in receivables is due to increased sales through June 30, 1997. The increases
in inventories and payables and accrued liabilities are the result of an
increase in anticipated sales volume. The primary source of cash from operating
activities for the three months ended June 30, 1996 was an increase in the
amount of $8.5 million in payables and accrued liabilities, along with
scheduled depreciation and amortization expense of $1.1 million. The primary
use of cash for operating activities for the three months ended June 30, 1996
was an increase in inventories in the amount of $10.5 million.
Net cash used for investing activities for the three months ended June 30,
1997 and 1996 amounted to $1.4 million and $1.0 million, respectively. These
amounts represent capital expenditures, net of proceeds from the sale of fixed
assets.
Net cash provided by financing activities for the three months ended June
30, 1997 and 1996 amounted to $17.9 million and $0.7 million, respectively.
Net cash provided by financing activities for the three months ended June 30,
1997 are the result of proceeds received in the amount of $33.9 million from
the preferred stock rights offering, and net borrowings in the amount of $12.1
million on the revolver, partially offset by repayment of the subordinated loan
with RHI in the amount of $28.0 million (refer to Note 7 in the notes to
summarized financial information). Net cash provided by financing activities
for the three months ended June 30, 1996 is the result of net borrowings on the
revolver.
Page 16 of 20
<PAGE> 17
MANAGEMENT REPRESENTATION
The information furnished in this Form 10-Q for the interim period ended
June 30, 1997 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 2. Changes in Securities
In conjunction with the approval of the matter discussed in Item 4,
proposal 4 below, Banner Aerospace, Inc. issued to holders of
shares of its Common Stock, non-transferable rights (the "Rights") to
subscribe for shares of Series A Convertible Paid-in-Kind Preferred
Stock, par value $.01 per share (the "Preferred Stock"). The
Preferred Stock pays semi-annual dividends at the rate of 7.5% per
annum of the liquidation value of $9.20 per share. Dividends are
payable in additional shares of Preferred Stock except for fractional
interests which are payable in cash. The Preferred Stock is
convertible into Common Stock at the conversion price of $9.20 per
share, resulting in a one to one share conversion, at any time at the
election of the holder and, to the extent not previously converted,
will automatically be converted into Common Stock on June 23, 2002.
Each holder of Common Stock on May 23, 1997 received one Right for
every 4.5 shares of Common Stock held. The Rights expired on June 18,
1997. On June 19, 1997, Banner Aerospace, Inc. issued 3,710,955
shares of Preferred Stock for $33,876,314 of net proceeds.
Item 4. Submission of Matters to a Vote of Security Holders
On June 18, 1997, the Banner Aerospace, Inc. held a Special Meeting of
Stockholders of the Company to vote on the following four proposals:
Proposal 1 -- the acquisition by the Company from RHI Holdings, Inc.
of Fairchild Scandinavian Bellyloading Company AB and Scandinavian
Bellyloading International, Inc.; Proposal 2 -- the adoption of an
amendment to Article FOURTH of the Company's Restated Certificate of
Incorporation (the "Certificate of Incorporation") to increase the
total number of shares of capital stock which the Company has the
authority to issue from 30,000,000 to 60,000,000; Proposal 3 -- the
adoption of an amendment to Article FOURTH of the Certificate of
Incorporation to increase the number of authorized shares of Company
Common from 30,000,000 to 50,000,000; and Proposal 4 -- the adoption
of an amendment to Article FOURTH of the Certificate of Incorporation
to create a new class of Preferred Stock, par value $.01 per share,
and to give the Company the authority to issue 10,000,000 shares of
such Preferred Stock. All of the above proposals were approved, as
follows:
<TABLE>
<CAPTION>
Broker Total
Matter For Against Withheld Abstained Non-Votes Votes
- -------------- ----------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Proposal 1 20,680,042 511,020 7,069 --- --- 21,198,131
Proposal 2 18,813,342 2,378,834 5,955 --- --- 21,198,131
Proposal 3 20,346,037 846,134 5,960 --- --- 21,198,131
Proposal 4 18,708,063 2,482,903 7,165 --- --- 21,198,131
</TABLE>
Page 17 of 20
<PAGE> 18
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3 (h) Amendment to Article 4 of the Company's Restated
Certificate of Incorporation (creating a new class of
preferred stock), filed with the Delaware Secretary
of State on June 18, 1997, incorporated herein by
reference to Exhibit 3.2 of the Company's
Registration Statement No. 333-22275 on Form S-3
effective May 13, 1997.
4 (e) Certificate of Designations, Preferences, Rights and
Limitations of Series A Convertible Paid-in-Kind
Preferred Stock, filed with the Delaware Secretary of
State on June 18, 1997, incorporated herein by
reference to Exhibit 4.3 of the Company's
Registration Statement No. 333-22275 on Form S-3
effective May 13, 1997.
*27 Financial Data Schedule (For SEC Use Only)
(b) Reports on Form 8-K
There have been no reports on Form 8-K filed during the
quarter.
- -----------------------------
* Filed herewith
Page 18 of 20
<PAGE> 19
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: August 13, 1997
Page 19 of 20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 88,368
<ALLOWANCES> 4,499
<INVENTORY> 271,533
<CURRENT-ASSETS> 375,501
<PP&E> 26,232
<DEPRECIATION> 10,301
<TOTAL-ASSETS> 428,436
<CURRENT-LIABILITIES> 83,932
<BONDS> 149,173
0
37
<COMMON> 23,424
<OTHER-SE> 163,879
<TOTAL-LIABILITY-AND-EQUITY> 428,436
<SALES> 116,930
<TOTAL-REVENUES> 116,930
<CGS> 83,385
<TOTAL-COSTS> 83,385
<OTHER-EXPENSES> 24,186
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,032
<INCOME-PRETAX> 5,327
<INCOME-TAX> 2,080
<INCOME-CONTINUING> 3,247
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,247
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
