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.
September 30, 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 [ ]
PART I - FINANCIAL INFORMATION
Condensed Financial Statements
Sabreliner Corporation
Consolidated Balance Sheets
(Dollars in Thousands)
Unaudited Audited
September 30, June 30,
1996 1996
Assets
Current assets:
Cash $ 4,816 $ 12,254
Accounts receivable (net
allowances of $985 and $962, 27,612 29,352
respectively)
Inventories 25,747 24,669
Contracts in process (net of
customer advances and progress
payments of $15,253 and 14,188 11,917
$10,940, respectively
Prepaid and other current 8,020 7,134
assets
Total current assets 80,383 85,326
Property and equipment, net of 48,550 48,311
depreciation
Goodwill (net of amortization of
$312 and $239, respectively) 4,911 4,984
Deferred financing costs and 7,031 5,997
other assets
Total assets $140,875 $144,618
Liabilities and stockholders'
equity
Current liabilities:
Accounts payable $ 15,335 $ 20,152
Accrued compensation 5,563 6,389
Other accrued liabilities 4,607 4,706
Royalties payable 2,300 2,300
Accrued interest expense 4,703 1,959
Other current liabilities 932 1,154
Total current liabilities 33,440 36,660
Long-term debt and capital 93,894 93,999
leases
Other long-term liabilities 1,997 2,000
Deferred income taxes 1,823 1,823
Stockholders' equity
Common stock 10 10
Additional paid-in capital 2,056 2,056
Less: Treasury stock, at (1,007) (1,007)
cost
Retained earnings 8,662 9,077
Total stockholders' equity 9,721 10,136
Total liabilities and $140,875 $144,618
stockholders' equity
Sabreliner Corporation
Consolidated Statement of Operations
(Unaudited)
(Dollars in Thousands, Share and per Share Data as Stated)
Three Months Ended
September 30 September 30,
1996 1995
Net revenue $50,969 $48,944
Cost of revenue 41,847 40,042
Gross margin 9,122 8,902
Selling, general and administrative 6,746 5,265
expense
Operating income 2,376 3,637
Interest expense, net (3,004) (2,966)
Other income (expense) 3 85
Earnings (loss) before income (625) 756
taxes
Income tax (expense) benefit 210 (288)
Net income (loss) $ (415) $ 468
Earnings per share data
Net earnings (loss) per common $ (0.48) $0.54
share
Dividends paid per common share $ 0.00 $0.00
Average common and common 871,153 872,834
equivalent shares
Sabreliner Corporation
Consolidated Statements of Cash flows
(Unaudited)
(Dollars in Thousands)
Three Months Ended
September 30, September 30,
1996 1995
Cash flows from operating activities:
Net income (loss) $ (415) $ 468
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 1,796 6,375
Changes in assets and (6,996) 1,480
liabilities
Net cash provided (used) by operating (5,615) 8,323
activities
Cash flows used in investing
activities:
Capitalized expenditures (1,539) (507)
Net cash used in investing activities (1,539) (507)
Cash flows used in financing
activities:
Principal payments on long-term debt (229) (75)
and capital leases
Purchase of treasury stock - (63)
Net cash used in financing activities (284) (153)
Net increase (decrease) in cash and (7,438) 7,663
cash equivalents
Cash and cash equivalents, beginning 12,254 9,879
of period
Cash and cash equivalents, end of $ 4,816 $17,542
period
Basis of Presentation:
The information set forth in these interim financial
statements as of and for the three months ended Sepetmber
30, 1996 and September 30, 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 and its
subsidiaries Midcoast Aviation, Inc., SabreTech, Inc. and
Turbotech Repairs, Inc. for the periods indicated. Results
of operations for the interim period ended September 30,
1996 are not necessarily indicative of the results of
operations for the full fiscal year.
Inventories:
Components of inventories as of September 30, 1996 and June
30, 1996 were:
September June
Aircraft parts $ 23,327 $ 21,105
Raw materials 1,048 1,419
Pre-owned aircraft 1,372 1,145
Total $ 25,747 $ 24,669
Property and Equipment:
Components of property and equipment as of September 30,
1996 and June 30, 1996 were:
September June
Service contract assets * $ 99,515 $ 98,118
Other 42,602 41,931
142,117 141,049
Less accumulated depreciation (97,656) (96,235)
44,461 44,814
Construction in progress 4,089 3,497
$ 48,550 $ 48,311
* Represents training system, aircraft and engines
dedicated to the Undergraduate Naval Flight Officers
(UNFO) logistics support contract.
Contingencies:
On May 11, 1996, ValuJet Flight 592 from Miami, carrying 110
passengers and crew crashed into the Florida Everglades.
Prior to take-off, employees of SabreTech's Miami facility
returned to ValuJet various company materials, including
five boxes containing oxygen generators, which, after
consultation with ValuJet's flight crew, were loaded into
the cargo bay of Flight 592 by ValuJet employees. Although
the cause of the crash has not been officially determined by
the National Transportation Safety Board (NTSB), SabreTech's
actions associated with Flight 592 have been included in the
NTSB investigation. The Federal Aviation Administration
(FAA) is also conducting an investigation into the
circumstances surrounding the ValuJet crash and has sought
information from SabreTech and various of its employees and
contract workers in connection therewith. In addition,
SabreTech is one of several subjects of an investigation
being conducted by a federal grand jury in conjunction with
the United States Attorney for the Southern District of
Florida. The Company has cooperated fully throughout these
investigations and is continuing to do so. Public hearings
concerning the crash of Flight 592 will be held beginning in
late November, 1996.
SabreTech, ValuJet and others have been named as defendants
in numerous wrongful death actions that have been filed by
families of victims. Additional wrongful death actions are
expected to be filed, naming SabreTech, ValuJet and others.
The Company's legal costs of defending against these civil
actions and any possible claim settlements are funded by the
Company's insurance policies. Management believes coverage
is adequate to provide for such legal actions.
SabreTech, ValuJet and others also have been named as
defendants in two class action lawsuits brought by
stockholders of ValuJet. On October 25, 1996, these actions
against SabreTech were dismissed with prejudice.
The Company has incurred expenses associated with this
incident, such as media relations, incremental professional
services, legal fees and other costs related to the various
investigations and other lawsuits not covered by insurance
of approximately $1.6 million; of which $0.9 million were
incurred during the first quarter of fiscal 1997.
Additional costs incurred in subsequent periods will be
recognized as incurred. Although the ultimate outcome of
the legal actions related to the ValuJet Flight 592 crash
and the length of time necessary to resolve all outstanding
issues cannot be determined at this time, the Company
believes the continuing effects of the investigations and
related lawsuits will not have a material adverse effect
upon the future results of operations or financial
conditions of the Company.
The Company has been subject to government 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 fiscal 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 during the quarter ended
September 30, 1996.
In addition to the litigation 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 litigation, it is the
opinion of management (based upon the advice of legal
counsel) that all such actions or proceedings 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
Operating profit for the first quarter of fiscal 1997
declined by $1.3 million or 35% from the same period of the
previous year, due to the continuing effects of the ValuJet
crash (see PART II - OTHER INFORMATION, Item 1. Legal
Proceedings). Legal fees, professional services, increased
insurance premiums and other costs incurred in relation to
the ValuJet incident increased selling, general and
administrative expenses by $1.2 million during the first
quarter of 1997. Customer demand at the Company's Miami
facility has also been adversely affected by the ValuJet
crash, resulting in an operating loss for the Miami facility
before incremental operating expenses of $0.8 million during
the first quarter of fiscal 1997. Without the effects of
the ValuJet crash, operating profit for the first quarter of
1997 would have been $0.7 million higher than the first
quarter of the prior year, reflecting the Company's strategy
to replace the expected decline in profit associated with
the Company's largest contract, the Undergraduate Naval
Flight Officers (UNFO) contract with earnings from recent
acquisitions in corporate and commercial aviation and the
award of new contracts.
Quarter Ended September 30, 1996 as Compared to Quarter
Ended September 30, 1995
The 4% increase in net revenue for the quarter ended
September 30, 1996 versus the corresponding period of the
previous year represents the substitution of declining
government revenues with growth in commercial aviation and
corporate aviation areas. The conversion of the Company's
largest government contract, the Undergraduate Naval Flight
Officers (UNFO) logistics program, from its base contract
period ended September 30, 1995 to its three-year option
period reduced quarterly revenues by $7.1 million. Other
government revenue reductions associated with declining
orders and completed contracts were offset with revenue
generated by new awards, resulting in a net overall decline
in government revenue, of $4.6 million for the three months
ended September 30, 1996, as compared to the same period a
year ago. Offsetting this decline in government revenue was
growth in commercial and corporate aviation revenue totaling
$6.6 million. This growth was achieved through the
increased activity generated by the expanded sales and
marketing efforts of the respective areas.
Gross margin reported for the first quarter of fiscal 1997
reflected a slight increase over the first quarter of last
year, despite a loss in gross margin reported for the Miami
facility during the quarter of $0.4 million caused by the
continuing effects of the ValuJet crash. Without this loss,
gross margin for the three months ended September 30, 1996,
would have been 7% higher than the same period of the prior
year.
Selling, general and administrative expenses for the first
quarter of fiscal 1997 were significantly increased by the
legal fees, professional service costs and increased
insurance premiums incurred in relation to the ValuJet crash
(see PART II - OTHER INFORMATION, Item 1. Legal
Proceedings). Without these additional costs, totaling $1.2
million for the quarter, selling, general and administrative
expenses would have increased from the prior year by $0.3
million, due to acquisitions completed in the fourth quarter
of fiscal 1996.
Backlog
A comparison of backlog by business area as of September 30,
1996 and June 30, 1996 follows:
Outstanding Backlog
September June
(Dollars in Thousands)
Government Business $67,592 $77,404
Corporate Aviation 11,712 5,807
Commercial Aviation 17,926 24,880
$97,231 $108,091
Not included in backlog is the possible sale of the UNFO
training system assets to the U.S. Navy, funded by Congress
for $45 million but not yet ordered.
Outlook
The Company believes the results of operations in the next
quarter will continue to be affected by the losses of the
Miami facility and the legal actions related to the ValuJet
crash. However, the Company has entered into discussions
with interested parties concerning the possible sale of
tooling, equipment and leasehold interests associated with
its Miami facility. Discussions are in preliminary stages
and no assurance can be made as to the outcome or timing of
such discussions.
Third quarter results are expected to rebound with the
possible sale of the UNFO assets. Funding for such a
transaction in the amount of $45 million has been authorized
and appropriated by Congress and signed into law by the
President of the United States. The Company is scheduled to
begin discussions with the U.S. Navy in late November to
negotiate an agreement which results in the Navy owning the
UNFO training assets. Although the Company believes this
transaction will occur during this fiscal year, there can be
no assurance that this transaction will occur within this
timeframe or that it will ever occur.
Liquidity and Capital Resources
The Company's cash balance declined by $7.4 million during
the three months ended September 30, 1996, largely due to
investments made in the Company's existing business for
working capital and fixed assets. The expansion of the
Company's capabilities in engine maintenance and the
establishment of a new commercial aviation facility at
Orlando, Florida are the primary investments of this period.
Future cash balances may be increased by the possible sale
of the Company's UNFO training system assets to the U.S.
government as discussed above. If the proposed sale occurs,
the Company's cash balances will be increased, after taxes,
by approximately $35 million. Although the Company believes
this transaction will occur during this fiscal year, there
can be no assurance that this transaction will occur within
this timeframe or that it will ever occur.
During the second quarter, the Company expects to use a
portion of its existing credit facility with Star Bank for
operating cash flow needs. The Company believes the
remaining balance of its credit facility, combined with the
cash flows generated by operations, will be adequate to meet
future cash requirements.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On May 11, 1996, ValuJet Flight 592 from Miami, carrying 110
passengers and crew crashed into the Florida Everglades.
Prior to take-off, employees of SabreTech's Miami facility
returned to ValuJet various company materials, including
five boxes containing oxygen generators, which, after
consultation with ValuJet's flight crew, were loaded into
the cargo bay of Flight 592 by ValuJet employees. Although
the cause of the crash has not been officially determined by
the National Transportation Safety Board (NTSB), SabreTech's
actions associated with Flight 592 have been included in the
NTSB investigation. The Federal Aviation Administration
(FAA) is also conducting an investigation into the
circumstances surrounding the ValuJet crash and has sought
information from SabreTech and various of its employees and
contract workers in connection therewith. In addition,
SabreTech is one of several subjects of an investigation
being conducted by a federal grand jury in conjunction with
the United States Attorney for the Southern District of
Florida. The Company has cooperated fully throughout these
investigations and is continuing to do so. Public hearings
concerning the crash of Flight 592 will be held beginning in
late November, 1996.
SabreTech, ValuJet and others have been named as defendants
in numerous wrongful death actions that have been filed by
families of victims. Additional wrongful death actions are
expected to be filed, naming SabreTech, ValuJet and others.
The Company's legal costs of defending against these civil
actions and any possible claim settlements are funded by the
Company's insurance policies. Management believes coverage
is adequate to provide for such legal actions.
SabreTech, ValuJet and others also have been named as
defendants in two class action lawsuits brought by
stockholders of ValuJet. On October 25, 1996, these actions
against SabreTech were dismissed with prejudice.
The Company has incurred expenses associated with this
incident, such as media relations, incremental professional
services, legal fees and other costs related to the various
investigations and other lawsuits not covered by insurance
of approximately $1.6 million; of which $0.9 million were
incurred during the first quarter of fiscal 1997.
Additional costs incurred in subsequent periods will be
recognized as incurred. Although the ultimate outcome of
the legal actions related to the ValuJet Flight 592 crash
and the length of time necessary to resolve all outstanding
issues cannot be determined at this time, the Company
believes the continuing effects of the investigations and
related lawsuits will not have a material adverse effect
upon the future results of operations or financial
conditions of the Company.
The Company has been subject to government 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 fiscal 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 during the quarter ended
September 30, 1996.
In addition to the litigation 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 litigation, it is the
opinion of management (based upon the advice of legal
counsel) that all such actions or proceedings 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 September 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registration has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
SABRELINER CORPORATION
/s/ F. Holmes Lamoreux
Date: November 14, 1996
F. Holmes Lamoreux
Chairman of the Board and
Chief Executive Officer
/s/ Rodney E. Olson
Date: November 14, 1996
Rodney E. Olson
Senior Vice President, Finance and
Corporate Development and Chief
Financial Officer
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