| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| Delaware | 90-0182158 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| 2677 Prosperity Avenue, Suite 300, | ||
| Fairfax, Virginia | 22031 | |
| (Address of principal executive offices) | (Zip Code) | |
| Forward-Looking Statements | 1 | |||||
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| PART I FINANCIAL INFORMATION | ||||||
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Item 1.
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Business | 1 | ||||
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Item 1A.
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Risk Factors | 5 | ||||
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Item 1B.
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Unresolved Staff Comments | 7 | ||||
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Item 2.
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Properties | 8 | ||||
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Item 3.
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Legal Proceedings | 8 | ||||
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Item 4.
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Submission of Matters to a Vote of Security Holders | 8 | ||||
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Item 5.
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Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 8 | ||||
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Item 6.
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Selected Financial Data | 9 | ||||
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Item 7.
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Managements Discussion and Analysis of Financial Condition and Results of Operations | 11 | ||||
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Item 7A.
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Quantitative and Qualitative Disclosures about Market Risk | 18 | ||||
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Item 8.
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Financial Statements and Supplementary Data | 18 | ||||
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Item 9.
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 47 | ||||
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Item 9A.
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Controls and Procedures | 47 | ||||
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Item 9B.
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Other Information | 47 | ||||
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Item 10.
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Directors and Executive Officers of the Registrant | 47 | ||||
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Item 11.
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Executive Compensation | 50 | ||||
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 56 | ||||
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Item 13.
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Certain Relationships and Related Transactions | 57 | ||||
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Item 14.
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Principal Accountant Fees and Services | 58 | ||||
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Item 15.
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Exhibits and Financial Statements Schedules | 58 | ||||
i
1
2
| 2007 | 2008 | 2009+ | ||||||||||
|
Security Solutions
|
$ | 979 | $ | | $ | | ||||||
|
Repair and Overhaul
|
| | | |||||||||
|
Services
|
5,920 | | | |||||||||
|
Total Funded Backlog
|
$ | 6,899 | $ | | $ | | ||||||
3
| | terminate existing contracts for convenience, which affords the U.S. government the right to terminate the contract in whole or in part anytime it wants for any reason or no reason, as well as for default; | ||
| | reduce or modify contracts or subcontracts, if its requirements or budgetary constraints change; | ||
| | cancel multi-year contracts and related orders, if funds for contract performance for any subsequent year become unavailable; | ||
| | claim rights in products and systems produced by its contractor; | ||
| | adjust contract costs and fees on the basis of audits completed by its agencies; | ||
| | suspend or debar a contractor from doing business with the U.S. government; and | ||
| | control or prohibit the export of products. |
4
5
| | Fluctuations in revenue earned on contracts; | ||
| | Commencement, completion, or termination of contracts during any particular quarter; | ||
| | Variable purchasing patterns under GSA schedule contracts and agency-specific indefinite delivery/indefinite quantity contracts; | ||
| | Provision of services under a share-in-savings or performance-based contract; | ||
| | Additions and departures of key personnel; | ||
| | Strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments, or changes in business strategy; | ||
| | Contract mix, the extent of use of subcontractors, and the level of third-party hardware and software purchases for customers; | ||
| | Changes in presidential administrations and senior federal government officials that affect the timing of procurements; and | ||
| | Changes in policy or budgetary measures that adversely affect government contracts in general. |
| | The Federal Acquisition Regulation, and agency regulations analogous or supplemental to the Federal Acquisition Regulation, which comprehensively regulate the formation, administration, and performance of government contracts, including provisions relating to the avoidance of conflicts of interest and intra-organizational conflicts of interest; | ||
| | The Truth in Negotiations Act, which requires certification and disclosure of all cost and pricing data in connection with some contract negotiations; |
6
| | The Procurement Integrity Act, which requires evaluation of ethical conflicts surrounding procurement activity and establishing certain employment restrictions for individuals who participate in the procurement process; | ||
| | The Cost Accounting Standards, which impose accounting requirements that govern our right and method to reimbursement under some cost-based government contracts; | ||
| | Laws, regulations, and executive orders restricting the use and dissemination of information classified for national security purposes and the exportation of specified products, technologies, and technical data; | ||
| | Laws surrounding lobbying activities a corporation may engage in to support corporate interests; and | ||
| | Compliance with anti-trust laws. |
7
| Segment | Location | Leased/Owned | Usage | |||
|
Security Solutions
|
Ft. Walton Beach, FL | Owned | Manufacturing | |||
|
|
Ft. Walton Beach, FL | Leased | Manufacturing | |||
|
Repair and Overhaul
|
Port Canaveral, FL | Leased | Fabrication |
| High | Low | |||||||
|
2005
|
||||||||
|
First Quarter
|
$ | 2.60 | $ | 1.44 | ||||
|
Second Quarter
|
$ | 2.37 | $ | 1.00 | ||||
|
Third Quarter
|
$ | 1.63 | $ | 0.91 | ||||
|
Fourth Quarter
|
$ | 1.17 | $ | 0.57 | ||||
|
|
||||||||
|
2006
|
||||||||
|
First Quarter
|
$ | 1.22 | $ | 0.65 | ||||
|
Second Quarter
|
$ | 1.15 | $ | 0.68 | ||||
|
Third Quarter
|
$ | 0.93 | $ | 0.42 | ||||
|
Fourth Quarter
|
$ | 0.60 | $ | 0.33 | ||||
8
| 2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
|
Revenue
|
$ | 28,256 | $ | 33,156 | $ | 11,134 | $ | 13,330 | $ | 12,261 | ||||||||||
|
Net
Operating Income (loss) from Continuing
Operations
|
(6,354 | ) | (5,227 | ) | (40,618 | ) | 381 | (79 | ) | |||||||||||
|
Per share of Common
Stock-basic & diluted
|
(0.15 | ) | (0.12 | ) | (1.21 | ) | 0.02 | (0.00 | ) | |||||||||||
|
Net Income (loss)
|
(8,594 | ) | (3,986 | ) | (40,307 | ) | 206 | (611 | ) | |||||||||||
|
Per share of Common
Stock-basic & diluted
|
(0.20 | ) | (0.09 | ) | (1.20 | ) | 0.01 | (0.03 | ) | |||||||||||
|
Total Assets
|
30,064 | 49,404 | 31,212 | 4,634 | 5,128 | |||||||||||||||
|
Long-term Debt
|
1,994 | 2,096 | | 2,456 | 2,006 | |||||||||||||||
|
Shareholder Equity
|
24,517 | 35,097 | 28,621 | (889 | ) | (1,176 | ) | |||||||||||||
|
EBITDA less stock option expense
|
(6,706 | ) | (1,885 | ) | (38,878 | ) | 732 | (158 | ) | |||||||||||
|
Adjusted EBITDA
|
$ | (4,012 | ) | $ | (2,536 | ) | $ | (38,878 | ) | $ | 732 | $ | 340 | |||||||
9
| 2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
|
Net Income (loss)
|
$ | (8,594 | ) | $ | (3,986 | ) | $ | (40,307 | ) | $ | 206 | $ | (611 | ) | ||||||
|
Depreciation/Amortization
|
1,813 | 464 | 176 | 139 | 149 | |||||||||||||||
|
Interest expense (income)
|
(125 | ) | 176 | (125 | ) | 295 | 304 | |||||||||||||
|
Tax expense (benefit)
|
26 | 62 | (21 | ) | 92 | | ||||||||||||||
|
Options issued to Employees/directors
|
174 | 1,399 | 1,399 | | | |||||||||||||||
|
|
||||||||||||||||||||
|
EBITDA less stock optioin expense
|
(6,706 | ) | (1,885 | ) | (38,878 | ) | 732 | (158 | ) | |||||||||||
|
Cumulative effect of accounting change
|
| | | | 91 | |||||||||||||||
|
Loss(gain) from discontinued operations
|
2,694 | (651 | ) | | | 407 | ||||||||||||||
|
Adjusted EBITDA
|
$ | (4,012 | ) | $ | (2,536 | ) | $ | (38,878 | ) | $ | 732 | $ | 340 | |||||||
| Q1 | Q2 | Q3 | Q4 | |||||||||||||
|
Revenue
|
$ | 12,746 | $ | 6,233 | $ | 4,789 | $ | 4,488 | ||||||||
|
Gross Profit
|
1,502 | 910 | 544 | 796 | ||||||||||||
|
Net Income
|
(507 | ) | (4,562 | ) | (1,532 | ) | (1,994 | ) | ||||||||
|
Basic & diluted earnings per share
|
$ | (0.01 | ) | $ | (0.10 | ) | $ | (0.04 | ) | $ | (0.05 | ) | ||||
| Q1 | Q2 | Q3 | Q4 | |||||||||||||
|
Revenue
|
$ | 1,762 | $ | 6,899 | $ | 9,055 | $ | 15,440 | ||||||||
|
Gross Profit
|
362 | 802 | 919 | 1,600 | ||||||||||||
|
Net Income
|
(1,745 | ) | (1,058 | ) | (57 | ) | (1,126 | ) | ||||||||
|
Basic & diluted earnings per share
|
$ | (0.04 | ) | $ | (0.03 | ) | $ | (0.00 | ) | $ | (0.03 | ) | ||||
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
(all dollars in 000s)
2006
2005
2004
$
28,256
100.0
%
$
33,156
100.0
%
$
11,134
100.0
%
24,504
86.7
%
29,473
88.9
%
11,188
100.5
%
3,752
13.3
%
3,683
11.1
%
(54
)
-0.5
%
$
(6,354
)
-22.5
%
$
(5,227
)
-15.8
%
$
(40,618
)
-364.8
%
(all dollars in 000s)
2006
2005
2004
$
3,886
100.0
%
$
4,502
100.0
%
$
9,656
100.0
%
4,922
126.7
%
5,488
121.9
%
10,413
107.8
%
(1,036
)
-26.7
%
(986
)
-21.9
%
(757
)
-7.8
%
$
(1,848
)
-47.6
%
$
(2,258
)
-50.2
%
$
(2,490
)
-25.8
%
(all dollars in 000s)
2006
2005
2004
$
2,711
100.0
%
$
1,921
100.0
%
N/A
1,745
64.4
%
1,186
61.7
%
N/A
966
35.6
%
735
38.3
%
N/A
$
443
16.3
%
$
345
18.0
%
N/A
(all dollars in 000s)
2006
2005
2004
$
21,659
100.0
%
$
26,733
100.0
%
$
1,478
100.0
%
17,837
82.4
%
22,799
85.3
%
775
52.4
%
3,822
17.6
%
3,934
14.7
%
703
47.6
%
$
1,291
6.0
%
$
1,656
6.2
%
$
678
45.9
%
(all dollars in 000s)
2006
2005
2004
$
6,240
$
4,970
$
38,806
(all dollars in 000s)
2006
2005
2004
$
(2,694
)
$
651
2007
2008
2009+
$
979
$
$
5,920
$
6,899
$
$
2007
2008
2009
2010
2011
2012+
$
506
$
566
$
505
$
518
$
349
$
24
26
28
15
44
48
53
57
62
1,637
$
574
$
640
$
586
$
590
$
411
$
1,637
[19]
[21]
[22]
[23]
[24]
[25]
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share data)
December
December
31, 2006
31, 2005
$
4,465
$
1,813
5,170
11,638
156
258
333
387
11,585
10,124
25,681
5,737
5,030
3,529
15,222
9,007
311
311
1,356
81
3,079
$
30,064
49,404
$
717
$
5,847
2,517
1,900
319
376
156
68
78
3,365
3,621
11,722
1,926
2,018
464
5,547
14,204
103
4
4
78,371
79,866
(53,858
)
(45,264
)
491
24,517
35,097
$
30,064
49,404
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Dollars in thousands except share amounts)
Twelve months ended
December 31,
2006
2005
2004
$
23,527
$
28,105
$
8,439
4,729
5,051
2,695
28,256
33,156
11,134
19,261
24,140
7,967
5,243
5,333
3,221
24,504
29,473
11,188
4,266
3,965
472
(514
)
(282
)
(526
)
3,752
3,683
(54
)
10,106
8,910
40,564
(6,354
)
(5,227
)
(40,618
)
480
652
290
(5,874
)
(4,575
)
(40,328
)
(26
)
(62
)
21
(5,900
)
(4,637
)
(40,307
)
(2,694
)
651
0
$
(8,594
)
$
(3,986
)
$
(40,307
)
42,814,118
42,250,363
33,616,188
$
(0.14
)
$
(0.11
)
$
(1.20
)
$
(0.06
)
$
0.02
$
0.00
$
(0.20
)
$
(0.09
)
$
(1.20
)
(8,594
)
(3,986
)
(40,307
)
0
491
0
0
(1
)
1
$
(8,594
)
$
(3,496
)
$
(40,306
)
Consolidated Statements of Stockholders Equity
(Dollars in thousands except share amounts)
Accumulated
Other
Comprehensive
Common Stock
Treasury
Accumulated
Income
Shares
Amount
APIC
Stock
Deficit
(Loss)
Total
18,851,000
1
$
79
$
$
(971
)
$
$
(891
)
32,945
32,945
20,078,300
2
35,281
35,283
1,399
1,399
125
125
40,000
66
66
1
1
(40,307
)
(40,307
)
38,969,300
3
69,895
(41,278
)
1
$
28,621
1,400
1,400
2,900
4
4
5,100,000
1
8,567
8,568
(1
)
(1
)
491
491
(3,986
)
(3,986
)
44,072,200
4
79,866
(45,264
)
491
35,097
(8,594
)
(8,594
)
174
174
(491
)
(491
)
(1,494
)
(1,494
)
705
(880
)
(175
)
(2,800,000
)
(2,374
)
2,374
41,272,200
4
$
78,371
$
$
(53,858
)
$
$
24,517
Consolidated Statements of Cash Flows
(Dollars in thousands)
2006
2005
2004
$
(5,900
)
$
(4,637
)
$
(40,307
)
174
1,399
1,399
32,945
125
2,763
1,813
464
176
148
11
(175
)
(5
)
(5
)
45
(1
)
12
7,367
(4,379
)
(1,032
)
103
(133
)
43
54
622
(831
)
(5,129
)
4,418
(246
)
(357
)
(587
)
(51
)
(148
)
148
(58
)
(291
)
192
(523
)
(1,166
)
(87
)
(2,636
)
(4,296
)
(4,695
)
(22,807
)
18,795
4,000
(12,276
)
6,190
(546
)
(574
)
(497
)
16
75
5,660
6,020
(19,304
)
(102
)
195
(2,782
)
(1,828
)
(278
)
(68
)
4
31,819
(102
)
(1,907
)
28,969
(270
)
(4,559
)
512
376
2,652
(3,854
)
4,970
1,813
5,667
697
$
4,465
$
1,813
$
5,667
Notes To Consolidated Financial Statements
Year Ended December 31,
2006
2005
2004
24.8
%
45.8
%
*
*
*
60.1
%
*
Less than 10% of consolidated revenue as of the end of each period.
Year Ended December 31,
2006
2005
2004
*
44.5
%
*
*
*
60.0
%
*
Less than 10% of consolidated accounts receivable and unbilled services as of the end of each
period.
Notes To Consolidated Financial Statements
Notes To Consolidated Financial Statements
Notes To Consolidated Financial Statements
Notes To Consolidated Financial Statements
2006
2005
$
3,019
$
20,542
$
(862
)
$
1,012
(2,133
)
295
(262
)
6
(99
)
$
(2,694
)
$
651
2005
$
5,839
5,321
425
$
11,585
$
2,567
435
77
$
3,079
$
2,579
106
426
254
$
3,365
$
464
$
464
Notes To Consolidated Financial Statements
Notes To Consolidated Financial Statements
Twelve months ended
December 31,
(Dollars in thousands except per share data)
2005
2004
$
56,185
$
38,565
(4,476
)
(39,127
)
$
(0.11
)
$
(1.16
)
Notes To Consolidated Financial Statements
CEECO
Horne
Engineering
40
117
4,081
29
65
372
311
28
198
279
4,962
(27
)
(1,835
)
(28
)
(2,641
)
(221
)
(55
)
(4,697
)
455
3,074
10,211
679
13,550
December
December
Accounts Receivable
31, 2006
31, 2005
$
3,779
$
9,538
1,197
1,871
194
184
45
$
5,170
$
11,638
Notes To Consolidated Financial Statements
December
December
Inventory
31, 2006
31, 2005
$
100
$
41
56
217
$
156
$
258
December
December
Property & Equipment
31, 2006
31, 2005
$
575
$
575
4,270
3,516
256
51
1,283
1,077
354
314
644
463
303
136
221
221
7,906
6,353
(2,169
)
(1,323
)
$
5,737
$
5,030
Intangible
Value
Useful Life
$
4,849
15 years
3,365
Indefinite
1,091
5 years
906
5 years
Notes To Consolidated Financial Statements
Intangible Amortization
2007
2008
2009
2010
$
323
$
323
$
323
$
323
218
218
218
218
181
181
181
181
$
722
$
722
$
722
$
722
December
December
Accrued Expenses
31, 2006
31, 2005
$
535
$
673
381
365
38
65
464
453
683
120
416
224
$
2,517
$
1,900
2007
2008
2009
2010
2011
2012+
$
24
$
26
$
28
$
15
$
$
44
48
53
57
62
1,637
$
68
$
74
$
81
$
72
$
62
$
1,637
Notes To Consolidated Financial Statements
Notes To Consolidated Financial Statements
$
81,492
$
81,492
$
27,164
Notes To Consolidated Financial Statements
Notes To Consolidated Financial Statements
Notes To Consolidated Financial Statements
Weighted
Number of shares
Option Price
Average Price
24,243,250
1.40 - 1.95
1.76
(20,118,300
)
1.65 - 1.95
1.74
4,124,950
1.40 - 1.95
1.83
4,215,750
1.28 - 2.50
2.19
(2,900
)
1.40
1.40
(2,500,000
)
2.50
2.50
5,837,800
1.28 - 1.95
1.80
1,759,704
0.50 - 1.55
1.44
(4,493,028
)
1.28 - 1.95
1.86
3,104,476
Options Exercisable & Outstanding
Exercise
Shares
Shares
Weighted Average
Price
Outstanding
Exercisable
Remaining Life (yrs)
75,000
25,000
9.6
150,000
2.5
4,500
4,500
1.5
448,450
448,450
0.9
1,081,526
1,081,526
1.1
1,343,000
1,343,000
0.8
2,000
2,000
1.3
3,104,476
2,904,476
Notes To Consolidated Financial Statements
Year Ended December 31
2006
2005
2004
$
26
$
$
(33
)
62
26
62
(33
)
12
12
$
26
$
62
$
(21
)
2006
2005
2004
34.0
%
34.0
%
34.0
%
3.8
%
4.0
%
3.6
%
0.4
%
-1.7
%
-0.1
%
-30.8
%
-32.2
%
-42.3
%
-6.7
%
-4.3
%
2.6
%
-0.1
%
-0.4
%
-1.4
%
0.0
%
2006
2005
$
175
$
151
20
(157
)
(3,406
)
(22
)
203
222
653
531
16,776
4,245
(15
)
56
(14,405
)
(5,026
)
$
$
Notes To Consolidated Financial Statements
2006
2005
2004
Income
$
228
$
228
$
206
101
349
290
361
298
(226
)
(173
)
(165
)
16
(50
)
(41
)
$
480
$
652
$
290
Supplemental disclosure of cash flow information:
2006
2005
2004
$
224
$
191
$
181
$
156
$
184
$
$
723
$
$
2,102
$
$
$
$
3,530
$
$
(1
)
$
1
Notes To Consolidated Financial Statements
2006
2005
2004
$
3,886
$
4,502
$
9,656
(1,036
)
(986
)
(757
)
(2,552
)
(2,258
)
(2,490
)
2,711
1,921
966
735
403
345
21,659
26,733
1,478
3,822
3,934
703
(673
)
1,656
678
(3,532
)
(4,970
)
(38,806
)
28,256
33,156
11,134
3,752
3,683
(54
)
(6,354
)
(5,227
)
(40,618
)
480
652
290
$
(5,874
)
$
(4,575
)
$
(40,328
)
Identifiable Assets (000s)
Fixed Asset Additions
Depreciation Expense
December 31,
12 months ended
12 months ended
2006
2005
2006
2005
2006
2005
2004
$
6,293
$
6,624
$
86
$
2,676
$
355
$
313
$
176
1,042
773
37
141
58
49
10,007
9,571
124
14
106
100
12,722
32,436
1,031
15
90
2
$
30,064
$
49,404
$
1,278
$
2,846
$
608
$
464
$
176
Notes To Consolidated Financial Statements
Repair &
Overhaul
Services
Total
$
$
$
62
62
13,285
13,285
200
200
262
13,285
13,547
(10,211
)
(10,211
)
200
200
(7
)
(7
)
$
455
$
3,074
$
3,529
Minimum Commitments