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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 16, 1997
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
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (703) 478-5790
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ITEM 2. ACQUISITION OF ASSETS
On January 16, 1997, Banner Aerospace, Inc., a Delaware corporation
(the "Company"), through its subsidiary, Dallas Aerospace, Inc., consummated the
acquisition of PB Herndon Company, a Missouri corporation ("PB Herndon") by
acquiring 100% of the outstanding stock of PB Herndon from the shareholders of
PB Herndon ("Sellers").
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 from RHI Holdings, Inc., which is a
wholly-owned subsidiary of The Fairchild Corporation.
PB Herndon, located in Earth City, Missouri, is a distributor of
specialty fastener lines and other aerospace related components. PB Herndon
sells its products to original equipment manufacturers ("OEMs"), commercial and
military customers in the aerospace industry and to the US Government.
The Company is a leading international supplier to the aerospace
industry as a distributor, providing a wide range of aircraft parts and related
support services. The Company, through its subsidiaries, sells its products in
the United States and abroad to most of the world's commercial airlines, as well
as to air cargo carriers, OEMs, other distributors, fixed-base operations,
corporate aircraft operators and other aerospace and non-aerospace companies.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The following financial statements, pro forma financial information and
exhibits are filed as a part of this report.
(a) Financial Statements of Business Acquired:
Audited Financial Statements of PB Herndon Company Pages
-------------------------------------------------- -----
Report of Independent Public Accountants 4
Balance Sheet as of June 30, 1996 5
Statement of Income and Retained Earnings for the
fiscal year ended June 30, 1996 6
Statement of Cash Flows for the fiscal year ended June 30, 1996 7
Notes to the Financial Statements 8 - 11
Unaudited Interim Financial Statements of PB Herndon Company
------------------------------------------------------------
Balance Sheet as of September 30, 1996 12
Statement of Income for the three months ended September 30, 1996 13
Statement of Cash Flows for the three months ended September 30, 1996 14
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(b) Unaudited Pro Forma Financial Information:
Banner Aerospace, Inc. and PB Herndon Company Unaudited Pro Forma
Condensed Consolidated Financial Information
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1996 16
Unaudited Pro Forma Condensed Consolidated Income Statements for the
fiscal year ended March 31, 1996 and six months ended September 30, 1996 17 - 18
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements 19
(c) Exhibits:
2.1 Stock purchase agreement between Dallas Aerospace, Inc., and
PB Herndon Company
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: January 24, 1997
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INDEPENDENT AUDITOR'S REPORT
Board of Directors
PB Herndon Company
Earth City, Missouri
We have audited the accompanying balance sheet of PB Herndon Company as of June
30, 1996, and the related statements of income, and retained earnings, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on the
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PB Herndon Company as of June
30, 1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
Peter C. Sharamitaro, Jr., CPA, P.C.
August 1, 1996
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PB HERNDON COMPANY
BALANCE SHEET
June 30, 1996
ASSETS
(In thousands) 1996
---------------------
Current Assets:
Cash $ 61
Accounts receivable 1,436
Current portion of notes receivable, officers 5
Inventory 12,361
Prepaid expenses 17
Deferred tax asset (Note 7) 22
---------------------
Total current assets 13,902
Equipment, net (Note 2) 388
Other assets (Note 3) 429
---------------------
Total assets $ 14,719
=====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable -- line of credit (Note 4) $ 6,780
Current portion of capital lease obligations (Note 5) 67
Accounts payable 3,811
Accrued expenses 102
Income taxes payable (Note 7) 327
---------------------
Total current liabilities 11,087
---------------------
Long-Term Liabilities:
Obligations under capital leases (Note 5) 219
Deferred income taxes (Note 7) 8
---------------------
Total long-term liabilities 227
---------------------
Total liabilities 11,314
---------------------
Stockholders' Equity:
Common stock, Class A, voting, $1 par value, Authorized--5,000 shares
Issued and outstanding -- 1,000 shares 1
Common stock, Class B, non-voting, $1 par value
Authorized--25,000 shares, Issued and outstanding--9,000 shares 9
Retained earnings 3,395
---------------------
Total stockholders' equity 3,405
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Total liabilities and stockholders' equity $ 14,719
=====================
The accompanying notes are an integral part
of the financial statements.
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PB HERNDON COMPANY
STATEMENT OF INCOME AND RETAINED EARNINGS
For the fiscal year ended June 30, 1996
(In thousands)
Sales $ 15,158
Cost of sales 10,775
-------------------
Gross profit 4,383
Selling, general and administrative expenses 3,107
-------------------
Income from operations 1,276
Interest expense, net 353
-------------------
Income before income taxes 923
Provisions for income taxes (Note 7) 356
-------------------
Net income 567
Retained earnings, beginning of year 2,828
-------------------
Retained earnings, end of year $ 3,395
===================
The accompanying notes are an integral part
of the financial statements.
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PB HERNDON COMPANY
STATEMENT OF CASH FLOWS
For the fiscal year ended June 30, 1996
(In thousands)
Cash flows used for operating activities:
Net income $ 567
Adjustment to reconcile net income
to net cash used for operating activities:
Depreciation and amortization 118
Loss on sale of assets 7
Change in accounts receivable (430)
Change in inventories (6,780)
Change in payables and accrued liabilities 2,798
Change in other current assets (29)
Change in other noncurrent items (32)
-------------------
Net cash used for operating activities (3,781)
-------------------
Cash flows used for investing activities:
Acquisition of property, plant and equipment, net (118)
Proceeds from sale of fixed assets 3
Payments received on notes receivable 5
-------------------
Net cash used for investing activities (110)
-------------------
Cash flows provided by financing activities:
Net borrowings of debt 3,970
Principal payments on capital lease (39)
-------------------
Net cash provided by financing activities 3,931
-------------------
Net increase in cash 40
Cash, beginning of year 21
-------------------
Cash, end of year $ 61
===================
Supplemental cash flow information:
Interest paid $ 353
Income taxes paid 65
The accompanying notes are an integral part
of the financial statements.
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PB HERNDON COMPANY
NOTES TO FINANCIAL STATEMENTS
(In thousands)
June 30, 1996
1. Summary of Significant Accounting Policies
This summary of accounting policies of PB Herndon Company (the Company)
is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of
the Company's management, who is responsible for their integrity and
objectivity. These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the
preparation of the financial statements.
Business Activity--The Company is a distributor and manufacturers'
representative of fastening products for the aerospace industry. The
Company grants credit to customers who are engaged in the commercial
aircraft, military aerospace and electronics industries.
Accounting Basis--The Company uses the accrual basis of accounting.
Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
Uncollectible Accounts--An allowance for uncollectible accounts has not
been provided as the Company historically has insignificant amounts of
bad debt and management believes no current allowance is needed.
Inventory--Inventory is stated at the lower of cost (using the moving
average method) or market.
Equipment--Equipment, stated at cost, is depreciated using
declining-balance methods over the estimated useful lives of the
related assets. Maintenance, repairs, and minor renewals are expensed
as incurred. Major renewals, replacements and improvements are
capitalized and depreciated over their estimated useful lives.
Income Taxes--Deferred tax assets and liabilities are determined based
on the difference between the financial statement and tax basis of
assets and liabilities, using enacted tax rates in effect for the year
in which the differences are expected to reverse. Current income taxes
are based on the income taxable for federal and state tax reporting
purposes including the utilization of the federal surtax exemption.
2. Equipment
Equipment, stated at cost, as of June 30, 1996, consists of the
following:
Furniture and fixtures $ 252
Warehouse equipment 269
Computer equipment 184
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705
Less accumulated depreciation 317
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$ 388
====================
For the year ended June 30, 1996, depreciation expense was $118.
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3. Other Assets
Other assets at June 30, 1996 consists of the following:
Unsecured notes receivable from officers dated June 6,
1995, due in 240 monthly installments of $2 including
interest at 7.27% $ 231
Current portion (5)
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226
Amortizable fees and licenses, net of accumulated
amortization of $1 14
Collateral interest in life insurance 189
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$ 429
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4. Line of Credit
A line of credit with a financial institution allows for an $8,000
limit with interest payable monthly at rates ranging from 6.25% to
11.0%, through November 30, 1997. The line is secured by accounts
receivable and inventories with personal guarantees from three
officers. Loan covenants include a maximum cash flow leverage of 5.0, a
minimum fixed charge ratio of 1.5 and a minimum net worth requirement.
The Company is in compliance with all restrictive covenants as of June
30, 1996.
5. Lease Commitments
Long-Term Capital Lease Obligations:
The Company has noncancellable capital lease obligations with assets
and liabilities recorded at the lower of the present value of the
minimum lease payments or the fair value of the assets. The assets are
included in equipment and depreciated over their estimated useful
lives.
As of June 30, 1996, capital lease obligations relate to:
Office furniture and equipment, expiring February, 2001 $ 128
Automated packaging and computer equipment, expiring
April, 2000 86
Imaging and scanning equipment, expiring March, 2000 64
Automated bagging equipment, expiring July, 1997 8
-----------------
286
Current portion of capital lease obligations (67)
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$ 219
=================
Operating Leases:
The Company's operating facility is leased from a related party under a
three-year net lease commencing December 1, 1995, with monthly lease
payments of $21. Rental expense of $288 includes $147 related to the
current leased facilities. All other amounts related to previous leases
not renewed.
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Three vehicles are leased under noncancellable agreements with
expirations to April of 1998 and monthly lease payments of $3.
Automobile expense includes $30 in lease payments on these vehicles for
the year ended June 30, 1996.
Future minimum rental payments required under noncancellable lease
agreements are as follows:
Operating Capital
Leases Leases
---------------- ------------------
Years ending June 30, 1997 $ 284 $ 85
1998 277 78
1999 105 77
2000 --- 66
2001 --- 18
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Total minimum lease payments $ 666 324
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Less amounts representing interest 38
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Net minimum lease payments $ 286
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6. Profit Sharing Plan
The Company has a defined contribution profit sharing plan with a
401(k) elective deferral provision. This plan covers substantially all
regular full-time employees. The plan allows annual contributions up to
15% of eligible wages at the discretion of the Board of Directors.
Company contributions for the year ended June 30, 1996 were $30 are as
follows:
Profit sharing contributions $ 30
401(k) matching funds 21
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$ 51
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7. Income Taxes
Deferred tax assets and liabilities as of June 30, 1996, consist of the
following:
Current deferred asset:
Federal $ 19
State 3
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$ 22
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Noncurrent deferred liability:
Federal $ 7
State 1
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$ 8
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Temporary differences consist of vacation accruals deductible for tax
purposes when paid, resulting in a deferred asset and depreciation
expensing provisions of the Internal Revenue Code resulting in a
deferred liability.
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The provisions for income taxes consists of the following for the year
ended June 30, 1996:
Taxes currently payable:
Federal $ 327
State 54
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381
Deferred income tax benefit:
Federal (22)
State (3)
----------------
(25)
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Total provision $ 356
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8. Related Party Transactions
The Company has made advances to its officers which have been converted
to notes receivable (see Note 3).
The operating facility of the Company is leased from a related party,
100% owned by the stockholders (see Note 5). In addition, the Company
is a guarantor on the mortgage of the related party.
9. Concentration of Risk
The Company has five major customers to whom sales for the year ended
June 30, 1996, totaled approximately $12,782 with related amounts
included in accounts receivable of approximately $921 at June 1996. The
Company has not experienced any losses from uncollectable accounts on
these customers.
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PB HERNDON COMPANY
BALANCE SHEET
(Unaudited)
As of September 30, 1996
ASSETS
(In thousands)
Current Assets:
Cash $ 112
Accounts receivable 1,777
Inventory 12,710
Other 28
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Total current assets 14,627
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Net fixed assets 381
Other assets 434
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Total assets $ 15,442
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable--line of credit $ 7,840
Accounts payable 3,243
Other accrued liabilities 410
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Total current liabilities 11,493
Non-Current Liabilities:
Notes payable 200
----------------------
Total noncurrent liabilities 200
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Total liabilities 11,693
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Stockholders' Equity:
Capital stock 10
Capital surplus 0
Retained earnings 3,739
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Total stockholders' equity 3,749
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Total liabilities and stockholders' equity $ 15,442
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PB HERNDON COMPANY
STATEMENT OF INCOME
(Unaudited)
For the three months ended September 30, 1996
(In thousands except per share data)
Net sales $ 3,897
Cost of goods sold 2,423
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Gross profit 1,474
Selling, general and administrative expenses 716
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Operating income 758
Interest expense, net 185
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Income from operations before taxes on income 573
Provision for taxes 229
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Net income $ 344
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PB HERNDON COMPANY
STATEMENT OF CASH FLOWS
(Unaudited)
For the three months ended September 30, 1996
(In thousands)
Cash flows used for operating activities
Net income $ 344
Adjustment to reconcile net income to net cash used for
operating activities:
Depreciation and amortization 24
Change in accounts receivable (341)
Change in inventories (349)
Change in payables and accrued liabilities (640)
Change in other current assets 16
Change in other noncurrent items (27)
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Net cash used for operating activities (973)
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Cash flows used for investing activities:
Acquisition of property, plant and equipment, net (17)
--------------------
Net cash used for investing activities (17)
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Cash flows provided by financing activities:
Net borrowings of debt 1,041
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Net cash provided by financing activities 1,041
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Net increase in cash 51
Cash, beginning of period 61
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Cash, end of period $ 112
====================
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Introduction
The following Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of September 30, 1996 and Income Statements for the fiscal year ended March
31, 1996 and for the six months ended September 30, 1996 give effect to the
acquisition of PB Herndon by the Company, using the purchase method of
accounting. The Unaudited Pro Forma Condensed Consolidated Financial Information
is presented for informational purposes only and is not necessarily indicative
of what combined earnings and results of operations would have been had the
Company acquired PB Herndon at the beginning of the periods presented, nor is
such information intended necessarily to be indicative of the future results of
operations that may occur. The Unaudited Pro Forma Condensed Consolidated
Financial Information should be read in conjunction with the historical
consolidated financial statements and other financial data of the Company and
historical financial statements of PB Herndon.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1996
ASSETS
(In thousands)
Banner Eliminations/
Aerospace PB Herndon Adjustments Pro Forma
--------------- --------------- --------------- ----------------
Current Assets:
Cash $ 0 $ 112 $ --- $ 112
Accounts receivable, net 56,958 1,777 --- 58,735
Inventory 227,185 12,710 --- 239,895
Other 13,763 28 --- 13,791
--------------- --------------- --------------- ----------------
Total current assets 297,906 14,627 --- 312,533
--------------- --------------- --------------- ----------------
Net fixed assets 13,540 381 --- 13,921
Investment in subsidiary --- --- 14,750 (2)
(14,750) (4) ---
Other Assets:
Cost in excess of net tangible
assets of purchased
businesses, net 28,004 --- 3,451 (4) 31,455
Other 4,996 434 --- 5,430
--------------- --------------- --------------- ----------------
Total other assets 33,000 434 3,451 36,885
--------------- --------------- --------------- ----------------
Total assets $ 344,446 $ 15,442 $ 3,451 $ 363,339
=============== =============== =============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Banner Eliminations/
Aerospace PB Herndon Adjustments Pro Forma
--------------- ---------------- --------------- ----------------
Total current liabilities $ 56,651 $ 11,493 $ (7,500) (3) $ 60,644
Non-Current Liabilities:
Long-term notes payable 141,711 200 14,700 (2) 156,611
Other 412 --- --- 412
--------------- ---------------- --------------- ----------------
Total non-current
liabilities 142,123 200 14,700 157,023
--------------- ---------------- --------------- ----------------
Total liabilities 198,774 11,693 7,200 217,667
--------------- ---------------- --------------- ----------------
Stockholders Equity:
Capital stock 23,410 10 (10) (4) 23,410
Capital surplus 113,194 --- 7,500 (3) 113,194
(7,500) (4)
Retained earnings 9,068 3,739 (3,739) (4) 9,068
--------------- ---------------- --------------- ----------------
Total stockholders' equity 145,672 3,749 (3,749) 145,672
--------------- ---------------- --------------- ----------------
Total liabilities &
stockholders' equity $ 344,446 $ 15,442 $ 3,451 $ 363,339
=============== ================ =============== ================
The accompanying notes to the Unaudited Pro Forma Condensed Consolidated
Financial Information are an integral part of these Unaudited Pro Forma
Condensed Consolidated Financial Statements.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the fiscal year ended March 31, 1996
(In thousands except per share data) Banner Eliminations/
Aerospace PB Herndon Adjustments Pro Forma
--------------- --------------- ----------------- ----------------
Net sales $ 287,880 $ 15,158 $ --- $ 303,038
Cost of goods sold 209,609 10,775 --- 220,384
--------------- --------------- ----------------- ----------------
Gross profit 78,271 4,383 --- 82,654
Selling, general and administrative 64,704 3,107 --- 67,811
--------------- --------------- ----------------- ----------------
Operating income 13,567 1,276 --- 14,843
Interest expense, net 10,972 353 670 (5) 11,995
--------------- --------------- ----------------- ----------------
Income from operations before
taxes on income 2,595 923 (670) 2,848
Provision for taxes 1,040 356 (268)(5) 1,128
--------------- --------------- ----------------- ----------------
Net income $ 1,555 $ 567 $ (402) $ 1,720
=============== =============== ================= ================
Earnings per common share $ 0.09 $ 0.09
=============== ================
Weighted average number of shares 18,283 18,283
=============== ================
The accompanying notes to the Unaudited Pro Forma Condensed Consolidated
Financial Information are an integral part of these Unaudited Pro Forma
Condensed Consolidated Financial Statements.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the six months ended September 30, 1996
Banner Eliminations/
(In thousands except per share data) Aerospace PB Herndon Adjustments Pro Froma
--------------- --------------- ----------------- ----------------
Net sales $ 178,383 $ 7,474 $ --- $ 185,857
Cost of goods sold 127,588 5,044 --- 132,632
--------------- --------------- ----------------- ----------------
Gross profit 50,795 2,430 --- 53,225
Selling, general and administrative 39,955 1,712 --- 41,667
--------------- --------------- ----------------- ----------------
Operating income 10,840 718 --- 11,558
Interest expense, net 5,869 301 328 (5) 6,498
--------------- --------------- ----------------- ----------------
Income from operations before
taxes on income 4,971 417 (328) 5,060
Provision for taxes 1,990 187 (131)(5) 2,046
--------------- --------------- ----------------- ----------------
Net income $ 2,981 $ 230 $ (197) $ 3,014
=============== =============== ================= ================
Earnings per common share $ 0.13 $ 0.13
=============== ================
Weighted average number of shares 23,405 23,405
=============== ================
The accompanying notes to the Unaudited Pro Forma Condensed Consolidated
Financial Information are an integral part of these Unaudited Pro Forma
Condensed Consolidated Financial Statements.
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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(1) There were no material intercompany transactions between the Company and
PB Herndon.
(2) The adjustments of $14,750 to investment in subsidiary and $14,700 to
long-term notes payable are to record the purchase price and other costs
relating to the acquisition and to record the increase in the debt balance
due to the acquisition.
(3) The adjustments of $7,500 to total current liabilities and capital surplus
are to record the paydown of existing debt of PB Herndon as a result of
the capital contributions from shareholders.
(4) The adjustment of $3,451 to cost in excess of net tangible assets of
purchased businesses, net is to record the excess of the purchase price
over the net tangible assets acquired which is the result of the
investment of $14,700 less the capital contribution of $7,500 and the book
value of PB Herndon of $3,749. The goodwill will be amortized over 40
years.
(5) The adjustments of $670 and $328 to interest expense and $268 and $131 to
provision for taxes for the twelve months ended March 31, 1996 and six
months ended September 30, 1996, respectively, are to record the increases
in the interest expense and related provision for taxes due to the
increase in debt balance of $14,700 as a result of the acquisition net of
the capital contribution less current debt outstanding of $7,500 received
by PB Herndon prior to the acquisition.
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