Fly by Night

[pic]

TOPIC: Financial Statement Analysis

CHAPTER LINK: Chapter 5

Fly-By-Night International Group: Can This Company Be Saved?

Douglas C. Mather, Founder, Chairman, and Chief Executive of Fly-By-Night International Group (FBN), lived the fast-paced, risk-seeking life that he tried to inject into his Company. Flying the Company's Learjets, he logged 28 world speed records. Once he throttled a company plane to the top of Mount Everest in 3 1/2 minutes.

These activities seemed perfectly appropriate at the time. Mather was a Navy fighter pilot in Vietnam and then flew commercial airlines. In the mid 1970s, he started FBN as a pilot training school. With the defense buildup beginning in the early 1980s, Mather branched out into government contracting. He equipped the Company's Learjets with radar jammers and other sophisticated electronic devices to mimic enemy aircraft. He then contracted his "rent-an-enemy" fleet to the Navy and Air Force for use in fighter-pilot training. The Pentagon liked the idea and FBN's revenues grew to $55 million in the fiscal year ending April 30, Year 14. Its common stock, issued to the public in Year 9 at $8.50 a share, reached a high of $16.50 in mid-Year 13. Mather and FBN received glowing writeups in Business Week and Fortune.

In mid-Year 14, however, FBN began a rapid descent. Although still growing rapidly, its cash flow was inadequate to service its debt. According to Mather, he was "just dumbfounded. There was never an inkling of a problem with cash."

In the fall of Year 14, the Board of Directors withdrew the Company's financial statements for the year ending April 30, Year 14, stating that there appeared to be material misstatements that needed investigation. In December of Year 14, Mather was asked to step aside as manager and director of the Company pending completion of an investigation of certain transactions between Mather and the Company. On December 29, Year 14, NASDAQ...