Page 9
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, 1997 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 [ ] NO [ ]
The number of shares of the Company's common stock outstanding on
October 31, 1997 was 869,934.
PART I - FINANCIAL INFORMATION
Condensed Financial Statements
Sabreliner Corporation
Consolidated Balance Sheets
(Dollars in Thousands)
Unaudited Audited
September 30, June 30, 1997
1997
Assets
Current assets:
Cash $ 9,431 $22,994
Accounts receivable (net
allowances of $688 and $550, 21,109 29,952
respectively)
Inventories 32,889 31,542
Contracts in process (net of
customer advances and progress
payments of $17,829 and 36,740 20,192
$15,143, respectively)
Prepaid and other current 6,351 4,697
assets
Total current assets 106,520 109,377
Property and equipment, (net of
depreciation of $21,674 and 39,787 37,882
$21,286, respectively)
Deferred financing costs and 9,479 9,641
other assets
Total assets $155,786 $156,900
Liabilities and stockholders'
equity
Current liabilities:
Accounts payable $23,032 $24,997
Accrued compensation 5,068 7,068
Other accrued liabilities 6,407 8,994
Accrued interest expense 4,743 1,946
Other current liabilities 7,216 6,338
Total current liabilities 46,466 49,343
Long-term debt and capital 94,768 94,863
leases
Other long-term liabilities 2,202 2,202
Stockholders' equity 12,350 10,492
Total liabilities and $155,786 $156,900
stockholders' equity
Sabreliner Corporation
Consolidated Statement of Operations
(Unaudited)
(Dollars in Thousands, Share and per Share Data as Stated)
Three Months Ended
September September
30, 1997 30, 1996
Net revenue $63,153 $50,969
Cost of revenue 49,523 41,847
Gross margin 13,630 9,122
Selling, general and administrative 7,549 6,746
expense
Operating income 6,081 2,376
Interest expense, net (2,992 ) (3,004 )
Other income (expense) (67 ) 3
Earnings (loss) before income 3,022 (625 )
taxes
Income tax (expense) benefit (1,149 ) 210
Net income (loss) $1,873 $ (415 )
Earnings per share data
Net earnings (loss) per common $ 2.14 $(0.48 )
share
Dividends paid per common share $ 0.00 $ 0.00
Average common and common 877,105 871,153
equivalent
shares outstanding
Sabreliner Corporation
Consolidated Statements of Cash flows
(Unaudited)
(Dollars in Thousands)
Three Months Ended
September September
30, 1997 30, 1996
Cash flows from operating activities:
Net income (loss) $1,873 $ (415 )
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 1,587 1,511
Amortization 322 285
Changes in assets and (14,201 ) (6,996 )
liabilities
Net cash used by operating activities (10,419 ) (5,615 )
Cash flows used in investing
activities:
Capitalized expenditures (2,989 ) (1,539 )
Net cash used in investing activities (2,989 ) (1,539 )
Cash flows used in financing
activities:
Principal payments on long-term debt
and capital leases (140 ) (284 )
Purchase of treasury stock (15 ) -
Net cash used in financing activities (155 ) (284 )
Net decrease in cash and cash (13,563 ) (7,438 )
equivalents
Cash and cash equivalents, beginning 22,994 12,254
of period
Cash and cash equivalents, end of $9,431 $4,816
period
Notes to Unaudited Condensed Financial Statements
Basis of Presentation
The information set forth in these interim financial
statements as of and for the three months ended September
30, 1997 and September 30, 1996 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.,
Dimension Aviation, Inc. and Turbotech Repairs, Inc. for the
periods indicated. Results of operations for the interim
period ended September 30, 1997 are not necessarily
indicative of the results of operations for the full fiscal
year.
Inventories
Components of inventories as of September 30, 1997 and June
30, 1997 were:
September June
Aircraft parts $29,938 $28,839
Raw materials 1,629 1,403
Pre-owned aircraft 1,322 1,300
Total $32,889 $31,542
Earnings Per Share
In February, 1997, the Financial Accounting Standards Board
issued Statement No. 128 "Earnings Per Share," which is
required to be adopted on December 31, 1997. At that time,
the Company will be required to change the method currently
used to compute earnings per share and to restate all prior
periods. The new requirements for calculating basic
earnings per share are not expected to change the dilutive
effect of current stock options. The adoption of Standard
128 calculation methods will have no effect to earnings per
share for the periods reported.
Contingencies
Refer to PART II - OTHER INFORMATION, Item 1. Legal
Proceedings.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Quarter Ended September 30, 1997 as Compared to Quarter
Ended September 30, 1996
Net revenue increased by $12.2 million or 24% during the
first quarter of fiscal 1997, versus the same period of the
previous year. Of this increase, $10.5 million is
attributable to growth in government business, reflecting
the performance on recently-awarded contracts and the
increased deliveries on existing contracts. Corporate
aviation revenues also grew $5.5 million when compared to
the first quarter of fiscal 1997 due to increased customer
demand for modifications and the Company's entrance into new
engine markets. The recently-formed Dimension Aviation,
Inc. subsidiary also provided $9.3 million in additional
revenues in its performance on the MD-10/MD-11 subcontracts
with Boeing. Other commercial aviation revenues reported
for the prior year included revenue for facilities no longer
in operation. This, coupled with reduced volume at Phoenix,
results in a drop in comparative revenue of $13.1 million.
Gross margin increased for the period by $4.5 million,
representing a growth of 49% from the first quarter of the
prior year. Government business provided $3.4 million of
this increase, largely generated through recent awards.
Gross margin reported for corporate aviation during the
period was $0.9 million higher than the first quarter of
fiscal 1997, reflecting increased customer demand,
particularly for interior modifications at the Company's
Midcoast Aviation subsidiary. Performance on the MD-10/MD-
11 subcontract with Boeing at the recently-formed Dimension
Aviation subsidiary provided $1.9 million in added gross
margin. Offsetting these increases was a decline in
remaining commercial aviation gross margin at the Company's
SabreTech subsidiary. The decline in SabreTech gross
margin, totaling $1.7 million during the first quarter of
fiscal 1997, as compared to the corresponding period of the
previous year, was due to reduced volume at Phoenix and
labor overruns on fixed price contracts.
Selling, general and administrative expenses for the three
months ended September 30, 1997, after excluding facilities
removed from operations and offsets of ValuJet related
expense (see Item 1. Legal Proceedings) in the prior year,
increased by $2.2 million, as compared to the first quarter
of the prior year. The expansion in administrative staff
associated with the recent formation of Dimension Aviation
and the effects of inflation and incremental marketing
expenses account for this increase.
Operating income for the first quarter of fiscal 1998 was
$3.7 million higher than the same period last year.
Operating income was increased over the prior year partially
due to the removal from operation of four commercial
aviation locations in fiscal 1997. During the first quarter
of fiscal 1997, these locations reported an operating loss
of $1.6 million, including over $0.8 million in legal fees
related to the ValuJet incident. Excluding the adverse
effect of these locations on prior year operating income
results in an increase to operating income of $2.1 million
or 53% for the first quarter of fiscal 1998, versus the same
period of the previous year. This same location increase in
earnings is largely attributable to performance in new
government and commercial aviation awards and increased
customer demand in corporate aviation, as discussed above.
Outlook
A comparison of backlog by business area as of September 30,
1997 and June 30, 1997 follows:
Outstanding Backlog
September June
(Dollars in Thousands)
Corporate Aviation $20,319 $17,832
Government Business 91,448 112,058
Commercial Aviation 92,330 122,655
$204,097 $252,545
Liquidity and Capital Resources
The Company's cash balance declined by $13.6 million during
the three months ended September 30, 1997, largely due to
investments made in the Company's existing business for
working capital and fixed assets. The facility enhancements
made at Dimension Aviation to enable the wide-body airline
passenger-to-freighter conversion and the working capital
investment in the MD-10/MD-11 subcontracts comprise the
largest portion of this investment, totaling $7.8 million.
Facility enhancements at Dimension will require an
additional $5.0 million during fiscal 1998. Midcoast
Aviation working capital and facility expenditures totaled
$4.8 in the first quarter of fiscal 1998. An additional
$1.7 million will be incurred in fiscal 1998 to complete a
new hangar.
Continuing investments are expected in working capital and
other capital expenditures to permit expansion within the
growing markets of corporate and commercial aviation and to
enable the capture of new government contracts. The Company
believes the remaining cash balance and its existing credit
facility, combined with cash flows generated by operations,
will be adequate to meet future cash requirements.
The Company may have provided certain "forward-looking"
information (as defined in the Private Securities Litigation
Report Act of 1995) which may involve risk or uncertainty,
including, but not limited to: future sales, earnings,
margins, production levels and costs, aircraft deliveries,
research and development, environmental and other
expenditures, and various business trends. Actual results
and trends in the future may differ materially from the
projections, depending on a variety of factors.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
ValuJet Related
On May 11, 1996, ValuJet Flight 592 from Miami, carrying 110
passengers and crew crashed into the Florida Everglades.
Prior to take-off, an employee of SabreTech's Miami facility
returned to ValuJet various company materials, including
five boxes containing oxygen generators. The ValuJet ramp
agent, after consultation with ValuJet's flight crew, loaded
the boxes into the cargo bay of Flight 592. On August 19,
1997, the National Transportation Safety Board (NTSB)
conducted its public meeting and issued an Abstract of Final
Report on ValuJet Flight 592 and determined the probable
causes of the accident to be (1) the failure of SabreTech to
properly prepare, package, identify and track unexpended
oxygen generators before presenting them to ValuJet for
carriage, (2) the failure of ValuJet to properly oversee its
contract maintenance program to ensure compliance with
maintenance, maintenance training and hazardous materials
requirements and practices and (3) failure of the Federal
Aviation Administration (FAA) to require smoke detection and
fire suspression systems in Class D cargo compartments. The
NTSB also found that other acts and omissions by ValuJet and
FAA contributed to the accident.
The 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.
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. 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 has filed a Complaint for Declaratory Judgment and
Other Relief against ValuJet in the U.S. District Court for
the Southern District of Florida. Among other things, that
suit seeks indemnification for damages incurred by SabreTech
in connection with the accident. ValuJet has filed an
Answer and Conditional Counterclaim in the case seeking
various damages. The Company's legal costs associated with
the Declaratory Judgment and counterclaim are funded by the
Company's insurance policies. Management believes that the
Company will be able to successfully defend against
ValuJet's counterclaim.
Costs associated with this accident, such as media
relations, incremental professional services, legal fees and
other costs related to the various investigations and other
lawsuits, of approximately $6.4 million have been incurred
since May, 1996. The ultimate outcome of the legal actions
related to the ValuJet Flight 592 crash and the length of
time necessary to resolve all the outstanding issues cannot
be determined at this time. The Company does not know
whether the continuing effects of the investigations and
related lawsuits will have a material adverse effect on the
results of operations or financial condition of the Company.
Environmental
The Company has been subject to government inquiry regarding
alleged environmental wrongdoing that may have occurred at
the Perryville facility. Several requests for documents
concerning this matter have been received since January,
1994, most recently July, 1997. All requests for documents
have been complied with or are in the process of resolution.
In addition, various current and former employees have
received subpoenas or notice letters identifying each as a
witness, subject or target. The Company believes it has
meritorious defenses to allegations of wrongdoing, if any,
that may result from the investigation.
Other
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, 1997.
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
Date: November 13, 1997 /s/ F. Holmes Lamoreux
F. Holmes Lamoreux
Chairman of the Board and
Chief Executive Officer
Date: November 13, 1997 /s/ Rodney E. Olson
Rodney E. Olson
Senior Vice President, Finance and
Corporate Development and Chief
Financial Officer
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