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.
December 31, 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 [ X ] NO [ ]
The number of shares of the Company's common stock outstanding on
January 31, 1998 was 869,934.
PART I - FINANCIAL INFORMATION
Condensed Financial Statements
Sabreliner Corporation
Consolidated Balance Sheets
(Dollars in Thousands)
Unaudited Audited
December 31, 1997 June 30, 1997
Assets
Current assets:
Cash $ 2,169 $ 22,994
Accounts receivable (net of
allowances of $548 and $550, 26,881 29,952
respectively)
Inventories 40,753 31,542
Contracts in process (net of
customer advances and progress
payments of $20,361 and 43,971 20,192
$15,143, respectively)
Prepaid and other current 6,778 4,697
assets
Total current assets 120,552 109,377
Property and equipment, (net of
depreciation of $23,055 and 44,983 37,882
$21,286, respectively)
Deferred financing costs and 8,587 9,641
other assets
Total assets $174,122 $156,900
Liabilities and stockholders'
equity
Current liabilities:
Accounts payable $ 31,382 $ 24,997
Current portion of long-term
debt and capital leases 711 750
Customer advances 3,111 5,588
Accrued compensation 5,683 7,068
Accrued interest expense 2,034 1,946
Other accrued liabilities 5,915 8,994
Total current liabilities 48,836 49,343
Long-term debt and capital 93,971 94,863
leases
Revolving credit facility 15,144 -
Other long-term liabilities 2,201 2,202
Stockholders' equity 13,970 10,492
Total liabilities and $174,122 $156,900
stockholders' equity
Sabreliner Corporation
Consolidated Statements of Operations
(Unaudited)
(Dollars in Thousands, Share and per Share Data as Stated)
Three Months Ended Six Months Ended
December 31 December 31 December 31 December 31
1997 1996 1997 1996
Net revenue $69,159 $51,729 $132,312 $102,698
Cost of revenue 55,214 45,557 104,737 87,404
Gross margin 13,945 6,172 27,575 15,294
Selling, general
and administrative
expense 8,025 9,360 15,574 16,106
Operating income 5,920 (3,188) 12,001 (812)
loss
Interest expense, (3,320) (3,280) (6,312) (6,284)
net
Other income 10 (6) (57) (3)
(expense)
Earnings (loss) 2,610 (6,474) 5,632 (7,099)
before income
taxes
Income tax (990) 2,754 (2,139) 2,964
(expense) benefit
Net income (loss) $1,620 $(3,720) $3,493 $ (4,135)
earnings per share
Basic earnings $ 1.86 $(4.27) $4.01 $(4.75)
(loss) per share
Diluted earnings $ 1.85 $(4.25) $3.99 $(4.73)
(loss) per share
Dividends paid per
common share $ 0.00 $ 0.00 $0.00 $0.00
Sabreliner Corporation
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in Thousands)
Six Months Ended
December 31, December 31,
1996 1997
Cash flows from operating activities:
Net income (loss) $ 3,493 $ (4,135)
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 3,016 3,006
Amortization 646 601
Changes in assets and (34,857) (15,746)
liabilities
Net cash used by operating activities (27,702) (16,274)
Cash flows used in investing
activities:
Capitalized expenditures (10,121) (3,802)
Cash flows from financing activities:
Principal payments on long-term debt (381) (577)
and capital leases
Proceeds from revolving credit
facility and other short-term 17,394 9,550
borrowings
Purchase of treasury stock (15) -
Net cash provided by financing 16,998 8,973
activities
Net decrease in cash and cash (20,825) (11,103)
equivalents
Cash and cash equivalents, beginning 22,994 12,254
of period
Cash and cash equivalents, end of $ 2,169 $ 1,151
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 and six months ended
December 31, 1997 and December 31, 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.
(operating as part of Premier Turbines) for the periods
indicated. Results of operations for the interim period
ended December 31, 1997 are not necessarily indicative of
the results of operations for the full fiscal year.
Inventories
Components of inventories as of December 31, 1997 and June
30, 1997 were:
December June
Aircraft parts $36,766 $28,839
Raw materials 1,637 1,403
Pre-owned aircraft 2,350 1,300
Total $40,753 $31,542
Contracts in Process
Contracts in process represent accumulated contract cost and
estimated earnings thereon based upon the percentage of
completion of unbilled customer orders, net of applicable
customer advance or progress payments. In determining
balances of contracts in process, the Company follows all
the requirements of SOP81-1. Title to or a security
interest in certain items included in contracts in process
can be vested in the U.S. government and other customers by
reasons of progress payment provisions of related contracts.
Included in the contracts in process as of December 31, 1997
are the proportionate revenues earned on amounts subject to
claim settlement, representing less than $1.0 million. In
accordance with industry standards, contracts in process
relating to long-term contracts are classified as current
assets even though a portion may not be realized within one
year.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128,
Earnings per Share. Adoption of Statement 128 requires the
replacement of the previously-reported primary earnings per
share with a dual presentation of basic and diluted earnings
per share. Basic earnings per share is computed using
outstanding common stock only. Diluted earnings per share
includes the dilutive effects of options, warrants and
convertible securities. All earnings per share amounts for
all periods have been presented, and where necessary,
restated to conform to the Statement 128 requirements. The
following table sets forth the computation of basic and
diluted earnings per share:
Three Months Ended Six Months Ended
December 31 December 31 December 31 December 31
1997 1996 1997 1996
Numerator:
Numerator for basic
EPS - Net income $ 1,620 $(3,720) $ 3,493 $(4,135)
Effect of dilutive - - - -
securities
Numerator for
fully diluted $ 1,620 $(3,720) $ 3,493 $(4,135)
EPS
Denominator:
Denominator for
basic EPS - 869,934 870,934 870,434 870,884
weighted-average
shares
Employee stock 4,937 4,106 4,937 4,118
options
Denominator
diluted EPS -
weighted- 874,871 875,040 875,371 875,002
average shares
and assumed
conversions
EPS:
Basic earnings per $ 1.86 $(4.27) $4.01 $(4.75)
share
Diluted earnings per $ 1.85 $(4.25) $3.99 $(4.73)
share
Options to purchase 1,400 shares of common stock at $17.22
per share which were outstanding through August 19, 1996 and
4,000 shares of common stock at $15.00 per share which are
currently outstanding were not included in the computation
of diluted earnings per share because the options' exercise
price was greater than or equal to the average market price
of the common shares, and, therefore, the effect would be
antidilutive.
Contingencies
Refer to PART II - OTHER INFORMATION, Item 1. Legal
Proceedings.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
Operating income for the quarter ended December 31, 1997 was
$5.9 million. The Company reported an operating loss of
$3.2 million for the same period a year ago. A portion of
this $9.1 million increase can be attributed to losses
recognized by the Company in fiscal 1997 relating to the
ValuJet crash (see PART II - OTHER INFORMATION, Item l.
Legal Proceedings) totaling $5.2 million, representing the
increased cost of legal fees and other continuing expenses
and the operating loss recognized at the Miami facility
caused by declines in customer demand. Excluding the
effects of the ValuJet crash on fiscal 1997 earnings,
operating income for the quarter ended December 31, 1997 was
$3.9 million higher than the same period of the prior year,
reflecting increased profits on new government awards,
particularly engine contracts, and the increased customer
demand for corporate aviation, particularly in interior
modification.
Operating income for the six months ended December 31, 1997
was $12.0 million, versus a reported loss of $0.8 million
for the same period last year. After adjusting for the
effects of the ValuJet crash on fiscal 1997 earnings,
totaling $6.3 million, operating income for the most recent
six months ended is $6.5 million higher than the
corresponding period of the previous year, representing an
increase of over 115%. The performance on recently-awarded
government contracts provided $7.9 million in increased
operating income. Increased volume in corporate aviation
business accounted for another $2.2 million of this
increase. Offsetting such increases were reductions in
commercial aviation profits of $1.8 million, representing
the net effect of declines in volume at SabreTech, after the
addition of new business at Dimension Aviation. The
remaining reduction in comparable operating profit is
attributable to increased S,G&A expenses.
Quarter and Six Months Ended December 31, 1997 as Compared
to Quarter and Six Months Ended December 31, 1996
Revenues for the quarter and six months ended December 31,
1997 were $17.4 million and $29.6 million higher than the
corresponding periods of the prior year. During fiscal
1997, the Company closed commercial aviation facilities
which had provided $3.7 million and $11.2 million in revenue
for the quarter and six months ended December 31, 1996.
Excluding these facilities for comparison purposes results
in increases in revenue for the quarter and six months ended
of $21.1 million and $40.8 million, respectively.
Performance on recently awarded government contracts
provided for the majority of this increase, accounting for
$12.0 million and $23.0 million for the quarter and six
months, respectively. Corporate aviation revenues also
increased, reflecting a growth of $7.4 million for the
quarter and $12.7 million for the most recent six months
ended, as compared to the same periods of the previous year.
The increases experienced in corporate aviation were
generated through the Company's investment in new engine
product lines and through increased customer demand for
airframe interior modifications. The addition of Dimension
Aviation, Inc. to perform the MD-10/MD-11 program, which
converts airline aircraft to freighter configuration for
Boeing, increased the quarter and six months revenue by $9.1
million and $18.4 million, respectively. Partially
offsetting the growth in revenues in other business areas
were declines in volume at the SabreTech commercial aviation
subsidiary of $7.4 million for the quarter and $13.3 million
for the most recent six months, as compared to the
corresponding periods of the prior year.
The growth in gross margin for the quarter and six months
ended was $7.8 million and $12.3 million, respectively.
After adjustment for facilities closed during fiscal 1997,
comparative gross margins increased for both the quarter and
six months by $6.3 million and $10.3 million, respectively.
The majority of this increase was generated by government
business, representing $5.0 million and $7.9 million in
incremental gross margins for the quarter and six months
ended, primarily through engine contracts. Corporate
aviation gross margin also increased during the quarter and
first six months of fiscal 1998, as compared to the previous
year, by $1.1 million and $2.7 million, respectively,
reflecting increased customer demand, particularly for
interior modifications at the Company's Midcoast Aviation
subsidiary. Performance on the MD-10/MD-11 subcontracts
with Boeing at Dimension Aviation, Inc. provided additional
gross margin of $1.0 million and $2.9 million in the most
recent quarter and six months, respectively. Partially
offsetting such increases were declines at SabreTech of $0.8
million and $3.2 million, reflecting the drop in volume at
the Phoenix facility and labor overruns on fixed price
contracts.
Selling, general and administrative expenses for the quarter
and six months ended December 31, 1997, after excluding
facilities removed from operation and the effect of ValuJet-
related expense (see PART II - OTHER INFORMATION, Item 1.
Legal Proceedings) in the prior year, increased by $2.2
million and $4.4 million, respectively. The expansion in
administrative staff associated with Dimension Aviation and
incremental marketing expenses account for this increase.
Outlook
A comparison of backlog by business area as of December 31,
1997 and June 30, 1997 follows:
Outstanding Backlog
December June
(Dollars in Thousands)
Corporate Aviation $ 19,023 $ 17,832
Government Business 76,913 112,058
Commercial Aviation 101,151 122,655
$197,087 $252,545
Liquidity and Capital Resources
The Company's cash balance declined by $20.8 million during
the six months ended December 31, 1997. In addition to the
consumption of existing cash balances, the Company accessed
its revolving credit facility during this period:
outstanding revolving debt totaled $15.1 million at December
31, 1997. These capital resources, totaling $35.9 million,
were used to fund investments in the Company's existing
business for working capital and fixed assets. The largest
investment for the period was made at Dimension Aviation to
fund working capital growth and facility enhancements
necessary to perform the MD-10/MD-11 subcontracts with
Boeing. Total investments at Dimension Aviation as of
December 31, 1997 were $28.4 million. The Company expects
additional working capital resources to be required at
Dimension during the third and fourth quarters as the
contract reaches its peak investment requirements. Other
major investments include the construction of a new hangar
at Midcoast Aviation and the related working capital growth,
totaling $9.2 million.
The Company also considers making acquisitions of businesses
from time to time, although there is no outstanding
commitment to make any such acquisition. Other than the
continuing investments at Dimension and Midcoast, the
Company does not expect any significant commitment of
capital resources in the near future. The Company believes
its remaining credit facility, combined with cash flows
generated by operations, will be adequate to meet known
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. On
August 19, 1997, the National Transportation Safety Board
(NTSB) conducted its public hearing and issued an Abstract
of Final Report on ValuJet Flight 592 which listed 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.
SabreTech, ValuJet and others have been named as defendants
in numerous wrongful death actions that have been filed by
families of victims. 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. Airtran Airlines, Inc., formally known as
ValuJet, also has filed a petition against SabreTech and
Sabreliner in the Circuit Court of St. Louis County,
Missouri. The Petition essentially seeks damages based on
the same allegations that are in ValuJet's Conditional
Counterclaim. The Company's legal costs associated with the
Declaratory Judgment, the Counterclaim and the Petition are
funded by the Company's insurance policies. Management
believes that the Company will be able to successfully
defend against ValuJet's Counterclaim and Airtran's
Petition.
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.
Uninsured costs of approximately $6.4 million associated
with this accident (such as media relations, incremental
professional services, legal fees and other costs related to
the various investigations and other lawsuits) 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 before the flood of July, 1993.
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 December 31, 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: February 12, 1998 /s/ F. Holmes Lamoreux
F. Holmes Lamoreux
Chairman of the Board and
Chief Executive Officer
Date: February 12, 1998 /s/ Rodney E. Olson
Rodney E. Olson
Senior Vice President, Finance and
Corporate Development and Chief
Financial Officer
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