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Gold/Mining/Energy : Derlan (T.DRL)

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To: Stephen O who wrote (245)	6/15/1999 12:56:00 PM
From: Serge Collins	of 319

Stephen: Spar's Aviation division is an aftermarket overhaul and repair operation. They produce nothing that is proprietary like Derlan. The market has been lukewarm to this latest move by Spar because there is a US$135 million lawsuit pending against the company that goes to trial in the fall and there is a strong likelihood they will have to make reparations. Remember Loewen Group? If Spar's Aviation division is worth $160 million (and I have no reason to believe it isn't), then I would argue that Derlan should be able to fetch a lot more. Keep in mind that Spar's Aviation division will be sold minus the cash on Spar's balance sheet. That cash is the biggest reason for Spar having better earnings than Derlan. In Q1, Derlan had revenues of $51 million and EBITDA of $6.2 million vs. revenues of $34 million and EBITDA of $5.4 million for Spar. However, Spar had much higher earnings because their interest costs were much lower. Derlan is now addressing the balance sheet problems, so these interest costs should come down and that will help the bottom line. On the other hand, Spar Aviation is being sold outright minus the cash, so the earnings would be negatively impacted by this. Is anyone attending the annual meeting on June 29?

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