SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended Commission File No.
March 31, 1996 33-67422
SABRELINER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 43-1289921
(State of Incorporation) (I.R.S. Employer
Identification No.)
Pierre Laclede Center
Suite 1500
7733 Forsyth Blvd.
St. Louis Missouri 63105-1821
(314) 863-6880
(Name, address, including ZIP Code, and telephone number,
including area code, of registrant's principal executive offices)
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 report(s), and (2) has been subject to such filing
requirements for the past 90 days. YES [ X ] NO [ ]
<TABLE>
PART I - FINANCIAL INFORMATION
Condensed Financial Statements
Sabreliner Corporation
Consolidated Balance Sheets
(Dollars in Thousands)
<CAPTION>
Unaudited Audited
March 31, June 30,
1996 1995
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash $ 13,454 $ 9,879
Accounts receivable (net of allowances of
$1,136 and $1,089 respectively) 23,999 24,376
Inventories 24,903 25,769
Contracts in process (net of customer advances
and progress payments of $9,936 and $10,373
respectively) 15,034 9,474
Other current assets 5,436 4,781
----------- -----------
Total current assets 82,826 74,279
----------- -----------
Property and equipment, net of depreciation 44,690 54,042
Other assets 7,968 7,534
----------- -----------
Total assets $ 135,484 $ 135,855
=========== ===========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 13,449 $ 12,324
Accrued compensation 5,801 6,155
Other accrued liabilities 3,912 5,734
Accrued interest expense 4,751 1,976
Other current liabilities 769 2,690
----------- -----------
Total current liabilities 28,682 28,879
----------- -----------
Long-term debt and capital leases 92,369 92,766
Other long-term liabilities 4,337 4,357
Stockholders' equity
Common stock 10 10
Additional paid-in capital 2,056 2,056
Less: Treasury stock, at cost (1,007) (920)
Retained earnings 9,037 8,707
----------- -----------
Total stockholders' equity 10,096 9,853
----------- -----------
Total liabilities and stockholders' equity $ 135,484 $ 135,855
=========== ===========
</TABLE>
<TABLE>
Sabreliner Corporation
Consolidated Income Statement
(Unaudited)
(Dollars in Thousands, Share and Per Share Data as Stated)
<CAPTION>
Three Months Ended Nine Months Ended
---------------------- ------------------------
March 31, March 31, March 31, March 31,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net revenue $ 51,631 $ 31,699 $ 149,360 $ 84,299
Cost of revenue 42,353 24,186 124,140 63,948
---------- ---------- ---------- ----------
Gross margin 9,278 7,513 25,220 20,351
Selling, general and
administrative expense 5,847 4,518 16,638 11,002
---------- ---------- ---------- ----------
Operating income 3,431 2,995 8,582 9,349
Interest expense, net 2,908 2,817 8,804 8,289
Other income (expense) (81) (57) 754 7
---------- ---------- ---------- ----------
Earnings before
income taxes 442 121 532 1,067
Income tax expense (168) (46) (202) (405)
---------- ---------- ---------- ----------
Net income $ 274 $ 75 $ 330 $ 662
========== ========== ========== ==========
Earnings per share data
Net earnings per
common share $ 0.31 $ 0.09 $ 0.38 $ 0.75
---------- ---------- ---------- ----------
Dividends paid per
common share $ 0.00 $ 0.00 $ 0.00 $ 0.00
---------- ---------- ---------- ----------
Average common and
common equivalent shares 872,541 880,834 872,906 882,167
========== ========== ========== ==========
</TABLE>
<TABLE>
Sabreliner Corporation
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in Thousands)
<CAPTION>
Nine Months Ended
------------------------
March 31, March 31,
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 330 $ 662
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 10,370 17,780
Changes in assets and liabilities (3,074) (1,907)
---------- ----------
Net cash provided by operating activities 7,626 16,535
---------- ----------
Cash flows used in investing activities:
Capitalized expenditures (1,938) (2,578)
Acquisition, net of cash acquired (1,533) (15,485)
---------- ----------
Net cash used in investing activities (3,471) (18,063)
Cash flows used in financing activities:
Principal payments on long-term debt
and capital leases (493) (149)
Purchase of treasury stock (87) (36)
---------- ----------
Net cash used in financing activities (580) (185)
---------- ----------
Increase (decrease) in cash and cash equivalents 3,575 (1,713)
Cash and cash equivalents, beginning of period 9,879 22,276
---------- ----------
Cash and cash equivalents, end of period $ 13,454 $ 20,563
========== ==========
</TABLE>
Notes to Condensed Financial Statements
(Unaudited)
(Dollars in Thousands)
Basis of Presentation:
The information set forth in these interim financial statements
as of and for the three and nine months ended March 31, 1996 and
March 31, 1995 is unaudited. In the opinion of management, the
unaudited financial statements reflect all adjustments necessary
to present fairly the financial results of Sabreliner Corporation
for the periods indicated. Results of operations for the interim
period ended March 31, 1996 are not necessarily indicative of the
results of operations for the full fiscal year.
Inventories:
Components of inventories as of March 31, 1996 and June 30, 1995
were:
March June
________ ________
Aircraft parts $ 22,653 $ 21,515
Raw materials 1,050 1,130
Pre-owned aircraft 1,200 3,124
________ ________
Total $ 24,903 $ 25,769
======== ========
Property and Equipment:
Components of property and equipment as of March 31, 1996 and
June 30, 1995 were:
March June
________ ________
Service contract assets * $ 99,134 $ 98,801
Other 39,656 39,603
__________ _________
137,790 138,404
Less accumulated depreciation (95,369) (86,856)
_________ _________
42,421 51,548
Construction in progress 2,269 2,494
_________ _________
$ 44,690 $ 54,042
========= =========
<F1>
* Represents training system, aircraft and engines dedicated
to the Undergraduate Naval Flight Officers (UNFO) logistics
support contract.
Contingencies:
The Company has been subject to governmental inquiry regarding an
alleged environmental incident that may have occurred at the
Perryville facility prior to the flooding of the facility in July
1993. Supplemental requests for documents concerning this
matter were received during the three months ended March 31,
1996. All requests for documents have been complied with or are
in the process of resolution and no other significant actions or
developments have occurred this quarter.
In addition to the inquiry discussed above, the Company is
subject to other legal proceedings and claims arising in the
ordinary course of its business. Although there can be no
assurance as to the outcome of such litigation, it is the opinion
of management (after consultation with legal counsel) that all
such actions or proceeds are covered by insurance or will be
resolved without material effect on the Company's financial
position or results of operations.
Management's Discussion and Analysis of Financial
Condition and Results of Operations Overview
Overview
Operating profit increased by 15% in the third quarter of fiscal
1996, versus the same period of the prior year, reflecting the
Company's strategy to replace profits lost due to the conversion
of the Company's largest government contract, the UNFO logistics
support contract, from its base period to the contract's option
period, with profits from acquired businesses and new contract
awards. The expected decline in operating profit attributed to
the conversion of the UNFO contract, representing $2.7 million
per quarter, was offset by the operating profits generated by the
acquisition of the DynAir Companies (now known as SabreTech,
Inc.) on June 30,1995 and Midcoast Aviation on November 2, 1994.
These two acquisitions provided $2.2 million in operating profit
for the third quarter. In addition, new contract awards, such as
the U.S. Air Force C-20 logistics program and existing contract
settlements, also increased operating profit by $0.9 million.
Quarter Ended March 31, 1996 as Compared to Quarter Ended
March 31, 1995
Net revenue for the third quarter of fiscal 1996 was 63% higher
than the corresponding period of the previous year due to the
revenue generated by the recently-acquired SabreTech, Inc., which
provided additional revenue of $24.2 million during the period.
Excluding the effect of this acquisition, net revenue for the
quarter declined by $4.3 million from the same period of the
prior year, largely due to the conversion of the UNFO logistics
support contract from its base period to the contract's option
period, resulting in a $7.1 million reduction in third quarter
revenue. This reduction was partially offset by performance of
the recently-awarded C-20 logistics contract.
Gross margin also increased in the third quarter, by 24% or $1.8
million more than the Company reported for the same period a year
ago. The SabreTech acquisition generated $3.7 million in
additional gross margin for the period. The gross margin
attributable to the UNFO contract declined for the period, as
compared to the corresponding period of the prior year, by $2.7
million as a result of the transition to the option period. The
remaining $0.8 million in increased gross margin was primarily
due to the recently-awarded C-20 contract and the favorable
settlement of an outstanding government contract claim.
Although the dollar value of gross margins increased, gross
margin as a percent of net revenue declined for the period, when
compared to the corresponding period of the previous year. The
overall decline in gross margin percentage, from approximately
24% of net revenue in fiscal 1995 to 18% in fiscal 1996,
reflects the change in the Company's revenue mix, to lower-margin
commercial aviation business.
The SabreTech acquisition increased selling, general and
administrative expenses by $1.5 million for the period. Without
the SabreTech acquisition, selling, general and administrative
expenses would have declined in the third quarter, when compared
to the same period last year, by $0.2 million, reflecting cost
reductions achieved through consolidation and reorganization of
the remaining business areas.
Nine Months Ended March 31, 1996 as Compared to Nine Months Ended
March 31, 1995
The businesses acquired during fiscal 1995 have increased the net
revenue reported for the nine months ended March 31, 1996 by
$71.7 million from the same period of the prior year. Of this
increase, Midcoast Aviation, Inc. provided $15.3 million and
SabreTech, Inc. provided $56.4 million. Without these
acquisitions, net revenue declined by $6.6 million from the
corresponding period of the previous year. The conversion of the
UNFO contract from the base period to its option period revenues
resulted in a reduction in net revenue of $14.3 million for the
period. Completion of major government engine and airframe
modification contracts also reduced revenue by $7.5 million.
Offsetting these reductions were $8.8 million of revenue
generated on the recentlyawarded C-20 logistics contract, and
increased pre-owned aircraft sales and international engine
business, providing another $6.4 million in increased revenue.
Gross margin also increased during the first nine months of
fiscal 1996 when compared to the corresponding period of the
prior year, reflecting a growth of 24% or $4.9 million. The
Midcoast and SabreTech acquisitions provided $7.8 million in
increased gross margin for the period. Offsetting the increased
gross margin generated by acquisitions was a $4.7 million
decrease in gross margin earned on the UNFO contract, as
partially mitigated by the sale of pre-owned aircraft, the gross
margins generated on the C-20 logistics contract, and other new
government and commercial awards, increasing margin $1.8 million.
Although gross margin increased by $4.9 million in the nine
months ended March 31, 1996 when compared to the same period a
year ago, gross margin as a percent of revenue declined, from 24%
in fiscal 1995 to 17% in fiscal 1996. This decline reflects the
addition of the SabreTech commercial aviation activity, which has
provided increased revenues and gross margins, but has reduced
the Company's composite gross margin as a percent of revenue.
The increase in selling, general and administrative expense
reported for the nine months ended March 31, 1996 as compared to
the corresponding period of the prior year is due to the
expansion in marketing and administrative staff and resultant
responsibilities stemming from the acquisitions of Midcoast and
SabreTech.
The Company's net interest expense increased in the first nine
months of fiscal 1996 versus the corresponding period of the
previous year by $0.5 million, reflecting reductions of interest
income earned due to the deployment of cash balances to acquire
SabreTech, Inc. and Midcoast Aviation.
Backlog
A comparison of backlog by business area as of March 31, 1996 and
June 30, 1995 follows:
March June
________ _______
(Dollars in Thousands)
Government Business $ 86,311 $70,018
General Aviation 5,713 7,570
Commercial Aviation 35,753 17,995
________ _______
$115,155 $95,585
======== =======
The growth in government business backlog reflects the award of
two major contracts, the C-20 logistics contract and the T-2/A-4
aircraft maintenance contract, which have combined backlog value
of $42.6 million.
The backlog of commercial aviation business has nearly doubled
since June 30, 1995, reflecting the concerted effort to pursue
major contracts from aircraft manufacturers and airline operators
to perform airframe modifications and support new aircraft
production. The Company has captured several multi-aircraft
awards since June 30, increasing backlog with long-term
commitments.
Liquidity and Capital Resources
Cash generated by earnings before depreciation provided $10.7
million during the nine months ended March 31, 1996. Growth in
working capital accounts, reflecting the increased activity of
contracts in process, required $3.1 million in operating cash.
Of the resulting $7.6 million in cash generated by operations,
$1.5 million was used in a post-acquisition purchase price
adjustment for SabreTech and another $1.9 million was used for
capital expenditures to upgrade acquired assets and provide for
new contract awards and continuing facility requirements. The
remaining $3.6 million in operating cash, after consideration of
$0.6 million in financing activities, was added to existing cash
balances, resulting in actual cash balance at the end of the
third quarter of $13.5 million.
Future cash balances may be increased by the possible sale of the
Company's UNFO training system assets to the U.S. Government.
Funding in the amount of $45 million has been appropriated for
the Department of Defense for such a transaction; further
developments await conclusive legislative activities. If the
proposed sale occurs, the Company's cash balances would be
increased, after taxes, by approximately $35 million. In
accordance with its Indenture, the Company may use the resulting
cash proceeds to improve existing assets, purchase new assets or
business, or offer to repurchase outstanding Senior Notes.
Although the Company believes this transaction will occur within
the current government fiscal year ending September 30, 1996,
there can be no assurance that this transaction will occur within
this timeframe or that it will ever occur.
Exclusive of the possible UNFO asset sale, the Company expects
its chief source of liquidity to be derived from existing cash
balances, augmented by continuing cash flows from operations. In
addition to these sources, the Company has access to an unused,
secured credit facility, with a borrowing limit of $35 million.
The Company believes these capital resources will be adequate to
meet the funding needs of current business, including long-term
government contracts, and to provide funding to continue the
Company's acquisition strategy.
On April 23, 1996 the Company entered into an agreement to
acquire the TFE 731 heavy maintenance capability, including
specialty tooling, inventory and licensed OEM authority, from UNC
Airwork for approximately $2.0 million. The Company expects
continuing investments for working capital items on this product
line to require an additional $2.0 million in capital resources.
The transaction should close by the end of May.
The Company is currently holding discussions relating to several
small acquisition projects. Although there can be no assurance
that the Company will complete these potential acquisitions, the
Company will continue to pursue and evaluate acquisition
candidates.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company has been subject to governmental inquiry regarding an
alleged environmental incident that may have occurred at the
Perryville facility prior to the flooding of the facility in July
1993. Supplemental requests for documents concerning this matter
were received during the three months ended March 31, 1996. All
requests for documents have been complied with or are in the
process of resolution and no other significant actions or
developments have occurred this quarter.
In addition to the inquiry discussed above, the Company is
subject to other legal proceedings and claims arising in the
ordinary course of its business. Although there can be no
assurance as to the outcome of such litigation, it is the opinion
of management (after consultation with legal counsel) that all
such actions or proceeds are covered by insurance or will be
resolved without material effect on the Company's financial
position or results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Filed
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended March 31, 1996.
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.
SABRELINER CORPORATION
F. Holmes Lamoreux
Date: May 14, 1996 _______________________________
F. Holmes Lamoreux
Chairman of the Board and Chief
Executive Officer
Rodney E. Olson
Date: May 14, 1996 ______________________________
Rodney E. Olson
Senior Vice President, Finance
and Corporate Development and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 13,454
<SECURITIES> 0
<RECEIVABLES> 25,135
<ALLOWANCES> 1,136
<INVENTORY> 24,903
<CURRENT-ASSETS> 82,826
<PP&E> 140,059
<DEPRECIATION> 95,369
<TOTAL-ASSETS> 135,484
<CURRENT-LIABILITIES> 28,682
<BONDS> 92,369
0
0
<COMMON> 10
<OTHER-SE> 10,086
<TOTAL-LIABILITY-AND-EQUITY> 135,484
<SALES> 149,360
<TOTAL-REVENUES> 149,360
<CGS> 124,140
<TOTAL-COSTS> 140,778
<OTHER-EXPENSES> (754)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,804
<INCOME-PRETAX> 532
<INCOME-TAX> 202
<INCOME-CONTINUING> 330
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 330
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
</TABLE>
