UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
FORM 10-Q
--------------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 1994
Commission File Number: 1-3102
FAIRCHILD INDUSTRIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-0579835
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Washington Dulles International Airport
300 West Service Road, P.O. Box 10803
Chantilly, Virginia 22021
----------------------------------------
(Address of principal executive offices)
(Zip Code)
(703) 478-5800
----------------------------------------------------
(Registrant's telephone number, including area code)
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 reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class October 2, 1994
- ----- ---------------
Common Stock, $100.00 par value 1,400
<PAGE>
FAIRCHILD INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES*
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of October 2, 1994 (Unaudited) and
June 30, 1994 3
Consolidated Statements of Earnings
for the Three Months Ended October 2,
1994 and October 3, 1993 (Unaudited) 5
Condensed Consolidated Statements of
Cash Flows for the Three Months Ended
October 2, 1994 and October 3, 1993
(Unaudited) 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
*For purposes of Part I of this Form 10-Q, the term "Company" means
Fairchild Industries, Inc., and its subsidiaries, unless otherwise
indicated. For purposes of Part II, the term "Company" means Fairchild
Industries, Inc. unless otherwise indicated.
<PAGE>
PART 1. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
<TABLE>
FAIRCHILD INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
October 2, June 30,
ASSETS 1994 1994
- ------ ------------- ------------
(Unaudited) (*)
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................... $ 2,201 $ 2,468
Accounts receivable-trade, less allowances
of $2,160 and $2,135....................... 71,951 68,364
Inventories:
Finished goods............................ 50,360 46,358
Work-in-process........................... 28,869 28,418
Raw materials............................. 11,541 10,120
------- -------
90,770 84,896
Prepaid expenses and other current assets.... 14,366 29,353
------- -------
Total Current Assets......................... 179,288 185,081
Property, plant and equipment, net of
accumulated depreciation of $92,032 and
$85,563.................................... 154,495 157,301
Net assets held for sale..................... 34,999 34,515
Cost in excess of net assets acquired,
(Goodwill) less accumulated amortization of
$30,328 and $28,864........................ 194,818 195,929
Prepaid pension assets....................... 17,089 17,795
Other assets................................. 26,474 26,855
------- -------
Total Assets................................. $607,163 $617,476
======= =======
*Condensed from audited financial statements.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<TABLE>
FAIRCHILD INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
October 2, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1994
- ------------------------------------ ------------ ------------
(Unaudited) (*)
<S> <C> <C>
Current Liabilities:
Bank notes payable and current
maturities of long-term debt........... $ 12,847 $ 12,735
Accounts payable......................... 34,250 32,372
Due to affiliated companies.............. 45,313 52,250
Accrued interest......................... 3,040 6,836
Other accrued liabilities................ 55,301 57,515
------- -------
Total Current Liabilities................ 150,751 161,708
Long-term debt, less current maturities.. 222,533 224,132
Other long-term liabilities.............. 15,708 16,412
Retiree health care liabilities.......... 48,402 49,200
Noncurrent income taxes.................. 18,407 26,576
------- -------
Total Liabilities........................ 455,801 478,028
Redeemable Preferred Stock: $3.60
Cumulative Series A Convertible
Preferred Stock, without par value,
424,701 shares authorized, issued
and outstanding at redemption value
of $45.00 per share.................... 19,112 19,112
Stockholders' Equity:
Series B Preferred Stock, without par
value, 3,000 shares authorized, 2,139
and 2,025 issued and outstanding;
liquidation value of $100,000 per share 213,900 202,500
Series C Cumulative Preferred Stock,
without par value, 558,360 shares
authorized, issued and outstanding;
liquidation value of $45.00 per share.. 24,015 24,015
Common stock, par value of $100.00 per
share, 1,400 shares authorized,
issued, and outstanding................ 140 140
Paid-in capital.......................... 2,390 2,390
Accumulated deficit...................... (112,523) (111,855)
Cumulative translation adjustment........ 4,328 3,146
------- -------
Total Stockholders' Equity............... 132,250 120,336
------- -------
Total Liabilities and Stockholders'
Equity................................. $607,163 $617,476
======= =======
*Condensed from audited financial statements.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<TABLE>
FAIRCHILD INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(In thousands)
<CAPTION>
Three Months Ended
October 2, October 3,
1994 1993
---------- -----------
(*)
<S> <C> <C>
Revenue:
Sales...................................... $114,562 $110,491
Other income, net......................... 569 134
------- -------
115,131 110,625
Costs and Expenses:
Cost of sales............................. 84,386 87,529
Selling, general & administrative......... 18,334 18,634
Research and development.................. 968 1,066
Amortization of goodwill.................. 1,464 1,504
------- -------
105,152 108,733
Operating income............................. 9,979 1,892
Interest expense............................. 8,466 9,218
Interest income.............................. (26) (95)
------- -------
Net interest expense......................... 8,440 9,123
Investment income............................ 278 900
Equity in earnings of affiliates............. 277 106
Minority interest............................ (67) (12)
------- -------
Earnings (loss) from continuing
operations before taxes.................... 2,027 (6,237)
Income tax provision (benefit)............... 1,720 (1,709)
------- -------
Earnings (loss) from continuing
operations................................. 307 (4,528)
Cumulative effect of change in
accounting for postretirement
benefits, net.............................. -- (252)
Cumulative effect of change in
accounting for income taxes, net........... -- (11,486)
------- -------
Net earnings (loss).......................... 307 (16,266)
Series A Preferred Dividends................. 382 382
Series C Preferred Dividends................. 593 593
------- -------
Net loss after Preferred Dividends........... $ (668) $(17,241)
======= =======
* Restated for the inclusion of a division previously included in net assets
held for sale. (See Note 1).
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<TABLE>
FAIRCHILD INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<CAPTION>
Three Months Ended
October 2, October 3,
1994 1993
------------ ------------
(*)
<S> <C> <C>
Cash provided by (used for)
Operations:
Net earnings (loss)..................... $ 307 $(16,266)
Cumulative effect of accounting changes,
net................................... -- 11,738
Depreciation and amortization........... 7,878 8,065
Accretion of discount on long-term
liabilities........................... 782 778
Adjustments for other non-cash charges.. 67 12
Adjustments for non-cash credits........ (277) (106)
Loss on sale of fixed assets............ 15 44
Changes in assets and liabilities....... (7,862) (9,318)
------- -------
Cash provided by (used for) operations.. 910 (5,053)
Investments:
Capital expenditures.................... (3,443) (2,861)
Business acquisitions................... (550) --
Other, net.............................. 131 64
------- -------
Cash used for investments............... (3,862) (2,797)
Financing:
Issuance of debt........................ 940 47,716
Debt repayments, net.................... (9,364) (38,729)
Issuance of Series B preferred stock.... 11,400 4,000
Dividends............................... (975) (975)
Other, net.............................. -- 144
------- -------
Cash provided by financing.............. 2,001 12,156
Effect of exchange rate changes on cash..... 684 183
Net increase (decrease) in cash............. (267) 4,489
Cash, beginning of period................... 2,468 --
------- -------
Cash, end of period......................... $ 2,201 $ 4,489
======= =======
* Restated for the inclusion of a division previously included in net assets
held for sale. (See Note 1).
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
FAIRCHILD INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Financial Statements
The consolidated balance sheet as of October 2, 1994, and the
consolidated statements of earnings and cash flows for the three months ended
October 2, 1994 and October 3, 1993 have been prepared by the Company,
without audit. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows at October 2, 1994, and for
all periods presented have been made. The balance sheet at June 30, 1994,
was condensed from audited financial statements as of that date.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's June 30, 1994, Form
10-K. The results of operations for the period ended October 2, 1994 are not
necessarily indicative of the operating results for the full year. Certain
amounts in prior years' quarterly financial statements have been reclassified
to conform to the current presentation.
The Fiscal 1994 first quarter data presented vary from the amounts
previously reported in the Form 10-Q dated October 3, 1993, and have been
restated due to the Company's decision not to sell a division, which was
previously included in net assets held for sale, and not included in the
results of operations. Sales from the division were $4,141,000 in the first
quarter of Fiscal 1994. Earnings from the division had no material effect
during this period.
Note 2 - Redeemable Preferred Stock
The Company's Series A Preferred Stock has a mandatory redemption value
of $45.00 per share and an annual dividend requirement of $3.60 per share.
There were 424,701 shares of Series A Preferred Stock authorized, issued and
outstanding at October 2, 1994 and June 30, 1994.
Note 3 - Revolving Credit Facility
On August 18, 1994, the Company's revolving credit facility was reduced
by $9,250,000 to provide a total available facility of $50,250,000, all of
which was available on October 2, 1994. In addition, (1) the borrowing rate
was increased by 1.0% to generally bear interest at 3.75% over the London
Interbank Offer Rate and (2) the commitment fee charged on the unused portion
of the revolving credit facility was increased to 1.0%.
<PAGE>
Note 4 - Commitments and Contingencies
Lease Guaranties
- ----------------
In connection with the sale of Metro Credit Corporation, the Company
remained contingently liable as a guarantor of the payment and performance of
obligations of third party lessees under aircraft leases, which call for
aggregate annual base lease payments of approximately $3,454,000 in 1995, and
approximately $10,533,000 over the remaining 5-year guaranty period. In each
case, the Company has been indemnified by the purchasers and lessees from any
losses related to such guaranties.
Government Claims
- -----------------
Following an investigation by the Inspector General of NASA, the civil
division of the United States Department of Justice alleged improprieties in
years 1982 and 1984 through 1986, in indirect costs rates and labor charging
practices of a former subsidiary of the Company. The Company entered into
settlement discussions with the Department of Justice to attempt to resolve
these claims and has reached an agreement in principle with the government to
settle this matter for $5,000,000, payable in six equal semi-annual
installments, with interest at 6.0% per year. The unpaid balance will likely
be collateralized by certain excess real estate. If the settlement is not
consummated, the government may initiate suit under the False Claims Act,
seeking treble damages and penalties, and under the Truth in Negotiations
Act, seeking a price reduction on certain contracts and subcontracts.
The Corporate Administrative Contracting Officer (the "ACO"), based upon
the advice of the United States Defense Contract Audit Agency, has made a
determination that the Company did not comply with Cost Accounting Standards
in accounting for (i) the 1985 reversion to the Company of certain assets of
terminated defined benefit pension plans, and (ii) pension costs upon the
closing of segments of the Company's business. The ACO has directed the
Company to prepare cost impact proposals relating to such plan terminations
and segment closings and, following receipt of such cost impact proposals,
may seek adjustments to contract prices. The ACO alleges that substantial
amounts will be due if such adjustments are made. The Company believes it
has properly accounted for the asset reversions in accordance with applicable
accounting standards. The Company has entered into discussions with the
government to attempt to resolve these pension accounting issues.
Environmental Matters
- ---------------------
The Company and other aerospace fastener and industrial product
manufacturers are subject to stringent Federal, state and local environmental
laws and regulations concerning, among other things, the discharge of
materials into the environment and the generation, handling, storage,
transportation and disposal of waste and hazardous materials. To date, such
laws and regulations have not had a material effect on the financial
condition of the Company, although the Company has expended, and can be
expected to expend in the future, significant amounts for investigation of
environmental conditions and installation of environmental control
facilities, remediation of environmental conditions and other similar
matters, particularly in the Aerospace Fasteners segment.
In connection with its plans to dispose of certain real estate, the
Company must investigate environmental conditions and may be required to take
certain corrective action prior or pursuant to any such disposition. In
addition, management has identified several areas of potential contamination
at or from other facilities owned, or previously owned, by the Company, that
may require the Company either to take corrective action or to contribute to
a clean-up. The Company is also a defendant in certain lawsuits and
proceedings seeking to require the Company to pay for investigation or
remediation of environmental matters and has been alleged to be a potentially
responsible party at various "Superfund" sites. Management of the Company
believes that it has recorded adequate reserves in its financial statements
to complete such investigation and take any necessary corrective actions or
make any necessary contributions. No amounts have been recorded as due from
third parties including insurers, or set off against any liability of the
Company, unless such parties are contractually obligated to contribute and
are not disputing such liability.
Other Matters
- -------------
The Company is involved in various other claims and lawsuits incidental
to its business, some of which involve substantial amounts. The Company
either on its own or through its insurance carriers is contesting these
matters.
In the opinion of management, the ultimate resolution of the legal
proceedings, including those discussed above, will not have a material
adverse effect on the financial condition or the future operating results of
the Company.
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
- -------------------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
RESULTS OF OPERATIONS
The Company currently operates in three principal business segments:
Aerospace Fasteners, Industrial Products and Communications Services. Set
forth below is a comparison of the results from continuing operations of the
Company for the three month periods ended October 2, 1994 and October 3,
1993.
<TABLE>
<CAPTION>
(In thousands)
Three Months Ended
October 2, October 3,
1994 1993
---------- -----------
(*)
<S> <C> <C>
Sales by Business Segment:
Aerospace Fasteners................ $ 52,132 $ 51,578
Industrial Products................ 42,488 40,770
Communications Services............ 19,942 18,143
------- -------
Total................................. $114,562 $110,491
======= =======
Operating Income (loss) by
Business Segment:
Aerospace Fasteners................ $ 1,171 $ (6,377)
Industrial Products................ 5,180 4,994
Communications Services............ 4,422 3,931
------- -------
Total................................. 10,773 2,548
Corporate administrative expense... (824) (943)
Other corporate income............. 30 287
------- -------
Operating income...................... 9,979 1,892
Net interest expense.................. (8,440) (9,123)
Investment income..................... 278 900
Equity in earnings of affiliates, net
of minority interest................ 210 94
------- -------
Earnings (loss) from continuing
operations before income taxes...... 2,027 (6,237)
Income tax provision (benefit)........ 1,720 (1,709)
------- -------
Earnings (loss) from continuing
operations.......................... $ 307 $ (4,528)
======= =======
* Restated for the inclusion of a division previously included in net assets
held for sale. (See Note 1).
</TABLE>
General
- -------
Overall sales increased by 3.7% in the first quarter of Fiscal 1995
compared to sales for the same period in Fiscal 1994, due to sales increases
in all three business segments.
Operating income increased $8.1 million in the first quarter of Fiscal
1995 compared to operating income for the same period in Fiscal 1994.
Operating income increased significantly in the Aerospace Fasteners segment
and was up in the Industrial Products and Communication Services segments as
well.
Aerospace Fasteners
- -------------------
Sales in the Aerospace Fasteners segment increased 1.1% in the Fiscal
1995 quarter compared to Fiscal 1994 quarter, primarily resulting from the
very aggressive management efforts during the quarter to reduce backlog
previously delayed primarily due to quality problems and earthquake
disruption, which are diminishing.
Operating income in the Fiscal 1995 quarter increased $7.5 million over
the Fiscal 1994 quarter; however this segment continues to be affected by
reduced demand and price erosion and higher quality control costs resulting
from customers' intensified quality requirements.
On January 17, 1994, the Company's Chatsworth, California Aerospace
Fasteners manufacturing facility suffered extensive damage from the Southern
California Earthquake. This disruption caused increased costs and reduced
revenues in Fiscal 1994 and has negatively affected Fiscal 1995 as well.
While the Company carries insurance for both business interruption and
property damage caused by earthquakes, the policy has a 5% deductible. The
Company recorded an unusual pretax loss in Fiscal 1994 of $4.0 million to
cover the currently estimated net cost of the damages and business
interruption caused by the earthquake. Included in prepaids and other
current assets is an insurance claim receivable of $8.9 million for
recoverability of costs related to business interruption and property damage.
Industrial Products
- -------------------
Sales in the Industrial Products segment increased 4.2% in the Fiscal
1995 first quarter compared to the Fiscal 1994 first quarter. $3.3 million
of the increase in sales in the current quarter period was at the D-M-E
Company and reflects customer response to the fast delivery programs, new
products, and growth of the domestic economy. Domestic demand for tooling
for plastics has been strong while foreign demand has shown signs of
improvement principally reflecting the strengthening European economy.
Expansion into selected new foreign markets is being pursued and appears to
have potential. Also included in the Industrial Products segment were sales
from Fairchild Data Corporation.
Operating income in the Industrial Products segment increased 3.7% in
the first quarter of Fiscal 1995 compared to the same period in Fiscal 1994.
A 21.4% increase in operating income at the D-M-E Company was partially
offset by the inclusion of Fairchild Data Corporation, which reported
operating losses in the Fiscal 1995 quarter. The improved results at D-M-E
resulted from a higher sales volume and improved operating margins. In
recent years this operation has implemented several cost savings steps,
including overhead reduction and improved inventory management programs,
which have contributed to the higher operating margins. The improvements in
inventory management and delivery systems resulted in faster deliveries,
reduction in inventory, and higher inventory turnover. In addition, D-M-E
Company has continued to implement improved manufacturing methods that have
reduced cycle time and costs.
Communications Services
- -----------------------
Sales in the Communications Services segment increased 9.9% in the
Fiscal 1995 first quarter compared to the same period in Fiscal 1994,
primarily due to the inclusion of sales from a small acquisition and to new
customers, the addition of telecommunications franchises in new office
buildings, and growth at existing sites.
Operating income in the Communications Services segment increased 12.5%
in the Fiscal 1995 first quarter compared to the same period in Fiscal 1994,
primarily due to increased sales resulting from the reasons given above and
related economies of scale. Operating income as a percent of sales in the
first quarter of Fiscal 1995 was slightly higher than the return on sales in
the comparable period of Fiscal 1994.
Other Expenses/Income
- ---------------------
Corporate Administrative Expense - Corporate administrative expense
decreased 12.6% in the Fiscal 1995 first quarter compared to the prior year
partially due to a smaller corporate staff. The Company's corporate staff
performs work for several corporate entities including The Fairchild
Corporation ("TFC"), RHI Holdings, Inc. ("RHI"), and the Company. Corporate
administrative expense incurred by the Company is invoiced to RHI and to TFC
on a monthly basis and represents the estimated cost of services performed on
behalf of such companies by the Company. The estimated cost is based
primarily on estimated hours spent by corporate employees on functions
related to RHI and to TFC. Management believes that the corporate
administrative expense of the Company would be higher if it operated as a
separate independent entity.
Other Corporate Income - Other corporate income decreased $.3 million
in the first quarter primarily due to carrying costs incurred on real estate
held for sale at Corporate.
Net Interest Expense - In the first quarter ended October 2, 1994, net
interest expense decreased 7.5% compared to the prior year period primarily
due to lower interest rates on intercompany borrowings compared to the same
period last year.
Investment Income - Investment income of $.3 million and $.9 million was
recorded in the first quarter of Fiscal 1995 and 1994, respectively,
resulting primarily from dividends realized on participating annuity
contracts.
Income Taxes - In the first quarter of Fiscal 1995, the Company recorded
a tax provision of 84.9%. The tax rate was higher than the statutory rate,
largely due to the low level of pretax earnings and the amortization of
goodwill which is not deductible for tax purposes.
Accounting Changes: 1) Postretirement Benefits - Using the immediate
recognition method, the Fiscal 1994 first quarter charge to earnings
representing the cumulative effect of this accounting change was immaterial.
The unamortized portion of an overstated liability of $10.7 million for
discontinued operations substantially offset the transition obligation of
$10.9 million for active employees and retirees of continuing operations.
2) Accounting for Income Taxes - The Company elected the immediate
recognition method and recorded a $11.5 million charge in the first quarter
of Fiscal 1994, representing the cumulative effect on prior years. This
charge represents deferred taxes related primarily to differences between the
tax basis and book basis of fixed assets, prepaid pension expenses, and
inventory.
Net Earnings (Loss) - Net earnings increased $16.6 million in the first
quarter of Fiscal 1995 compared to the first quarter of Fiscal 1994,
primarily due to: (1) the $8.1 million increase in operating income in the
first quarter of Fiscal 1995, and (2) the $11.7 million charge, net of tax,
for the cumulative effect of accounting changes which was recorded in the
first quarter of Fiscal 1994.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Working capital at October 2, 1994, was $28.5 million, which was $5.2
million higher than at June 30, 1994. The primary reasons for this increase
included a $9.5 million increase in receivables and inventory, reflecting
efforts to reduce backlog, plus a $12.9 million reduction in intercompany
borrowings, accrued interest and other accrued liabilities. This was offset
partially by a $15.0 million reduction in prepaid expenses and other current
assets reflecting (1) current taxes being reclassified to noncurrent and (2)
funds advanced to the Company by RHI and TFC for prepayment of corporate
administrative expense to be incurred in the future by the Company on behalf
of RHI and TFC.
The Company's principal sources of liquidity are cash generated from
operations and borrowings under its credit agreement. The Company also
expects to generate cash from the sale of certain assets. Net assets held
for sale at October 2, 1994 had a book value of $35.0 million and included
three parcels of real estate in California and an 88 acre parcel of real
estate located in Farmingdale, New York, which the Company plans to sell,
lease or develop, subject to the resolution of certain environmental matters
and market conditions.
The Company's principal cash requirements include debt service, capital
expenditures, acquisitions, payment of other liabilities and payment of
dividends on preferred stock.
The level of the Company's capital expenditures varies from year to
year, depending upon the timing of capital spending for new production
equipment, periodic plant and facility expansion, acquisition of building
telecommunications assets, as well as cost reduction and labor efficiency
programs. For the three month period ended October 2, 1994, capital
expenditures including the cost of acquisitions were $4.0 million. The
Company anticipates that total capital expenditures including the cost of
acquisitions for the fiscal year ending June 30, 1995 will be approximately
$19.6 million.
Other liabilities that require the use of cash include post-employment
benefits for retirees, environmental investigation and remediation
obligations, litigation settlements and related costs.
The Company expects that cash on hand, cash generated from operations,
borrowings, asset sales and the ability to refinance portions of its long-
term debt will be adequate to satisfy cash requirements. If such sources are
not adequate, the Company believes that additional capital resources would be
available from RHI, via either new equity contributions or the assumption of
certain of the Company's obligations. However, there can be no assurance
that RHI would make these additional capital resources available to the
Company.
The Company's Credit Agreement requires the Company to comply with
certain financial covenants, including achieving cumulative earnings before
interest, taxes, depreciation and amortization, ("EBITDA Covenant"), and
maintaining certain coverage ratios. The Company was in compliance with the
Credit Agreement as of October 2, 1994. To comply with the minimum EBITDA
Covenant requirements (as amended), the Company's subsidiary, VSI Corporation
("VSI"), must earn for the cumulative total of the trailing four quarters,
EBITDA as follows: $70.4 million for the second quarter of Fiscal 1995,
$72.1 million for the third quarter of Fiscal 1995, $75.0 million for the
fourth quarter of Fiscal 1995, and $76.6 million for the first quarter of
Fiscal 1996. VSI's ability to meet the minimum requirements under the EBITDA
Covenant in Fiscal 1995 is uncertain, and there can be no assurance that the
Company will be able in the future to comply with the minimum requirements
under the EBITDA Covenant and other financial covenants under the Credit
Agreement. Noncompliance with any of the financial covenants, without cure,
or waiver would constitute an event of default under the Credit Agreement.
An event of default resulting from a breach of a financial covenant may
result, at the option of lenders holding a majority of the loans, in an
acceleration of the principal and interest outstanding, and a termination of
the revolving credit line. If necessary, management believes a waiver can be
obtained.
Any available cash may be paid as dividends to RHI if the purpose of
such dividends is to provide TFC with funds necessary to meet its debt
service requirements under specified notes and debentures. All other
dividends to RHI are subject to certain limitations under the Credit
Agreement. As of October 2, 1994, the Company was unable to provide
dividends to RHI. The Credit Agreement also restricts additional borrowings
under the Credit Facilities for the payment of any dividends.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Note 4 of Notes to Consolidated Financial
Statements (Unaudited).
Item 6. Exhibits and Reports on Form 8-K
None.
SIGNATURE
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 hereunto duly authorized.
For FAIRCHILD INDUSTRIES, INC.
(Registrant) and as its Chief
Financial Officer:
By: Christopher Colavito
Vice President, Controller
and Chief Accounting Officer
By: Michael T. Alcox
Vice President and Chief
Financial Officer
Date: November 14, 1994
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> OCT-02-1994
<CASH> 2,201
<SECURITIES> 0
<RECEIVABLES> 74,111
<ALLOWANCES> (2,160)
<INVENTORY> 90,770
<CURRENT-ASSETS> 179,288
<PP&E> 246,527
<DEPRECIATION> (92,032)
<TOTAL-ASSETS> 607,163
<CURRENT-LIABILITIES> 150,751
<BONDS> 222,533
<COMMON> 140
19,112
237,915
<OTHER-SE> (105,805)
<TOTAL-LIABILITY-AND-EQUITY> 607,163
<SALES> 114,562
<TOTAL-REVENUES> 115,131
<CGS> 84,386
<TOTAL-COSTS> 105,152
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,466
<INCOME-PRETAX> 2,027
<INCOME-TAX> 1,720
<INCOME-CONTINUING> 307
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 307
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
