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 1, 1995
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 1, 1995
- ----- ---------------
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 1, 1995 (Unaudited) and
June 30, 1995 3
Consolidated Statements of Earnings
for the Three Months Ended October 1,
1995 and October 2, 1994 (Unaudited) 5
Condensed Consolidated Statements of
Cash Flows for the Three Months Ended
October 1, 1995 and October 2, 1994
(Unaudited) 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial 10
Condition
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 1, June 30,
ASSETS 1995 1995
- ------ ------------ ------------
(Unaudited) (*)
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................... $ 6,614 $ 2,412
Accounts receivable-trade, less allowances
of $4,373 and $4,478....................... 87,228 84,927
Inventories:
Finished goods............................ 53,623 50,963
Work-in-process........................... 19,379 19,976
Raw materials............................. 17,114 17,866
------- -------
90,116 88,805
Prepaid expenses and other current assets.... 9,680 15,239
------- -------
Total Current Assets......................... 193,638 191,383
Property, plant and equipment, net of
accumulated depreciation of $115,319 and
$110,616................................... 155,312 158,191
Net assets held for sale..................... 35,463 34,811
Cost in excess of net assets acquired,
(Goodwill) less accumulated amortization of
$36,178 and $34,707........................ 194,625 195,986
Prepaid pension assets....................... 14,470 15,336
Other assets................................. 20,623 20,081
------- -------
Total Assets................................. $614,131 $615,788
======= =======
*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 1, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1995
- ------------------------------------ ------------ ------------
(Unaudited) (*)
<S> <C> <C>
Current Liabilities:
Bank notes payable and current
maturities of long-term debt........... $ 21,799 $ 15,352
Accounts payable......................... 36,875 39,124
Due to affiliated companies.............. 18,684 13,759
Accrued interest......................... 3,170 6,647
Other accrued liabilities................ 58,286 59,159
------- -------
Total Current Liabilities................ 138,814 134,041
Long-term debt, less current maturities.. 242,861 249,306
Other long-term liabilities.............. 12,852 13,179
Retiree health care liabilities.......... 47,141 47,567
Noncurrent income taxes.................. 18,078 18,049
------- -------
Total Liabilities........................ 459,746 462,142
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, 2,302
and 2,278 issued and outstanding;
liquidation value of $100,000 per share 230,200 227,800
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.......................... 2,575 2,523
Accumulated deficit...................... (128,697) (128,116)
Cumulative translation adjustment........ 7,040 8,172
------- -------
Total Stockholders' Equity............... 135,273 134,534
------- -------
Total Liabilities and Stockholders'
Equity................................. $614,131 $615,788
======= =======
*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 1, October 2,
1995 1994
------------ ------------
<S> <C> <C>
Revenue:
Sales.................................... $132,187 $114,562
Other income, net........................ 345 569
------- -------
132,532 115,131
Costs and Expenses:
Cost of sales............................ 98,229 84,386
Selling, general & administrative........ 21,908 18,334
Research and development................. 752 968
Amortization of goodwill................. 1,471 1,464
------- -------
122,360 105,152
Operating income............................ 10,172 9,979
Interest expense............................ 9,177 8,466
Interest income............................. (46) (26)
------- -------
Net interest expense........................ 9,131 8,440
Investment income........................... -- 278
Equity in earnings of affiliates............ 170 277
Minority interest........................... (38) (67)
------- -------
Earnings from continuing operations
before taxes............................... 1,173 2,027
Income tax provision........................ 779 1,720
------- -------
Net earnings................................ 394 307
Series A Preferred Dividends................ 382 382
Series C Preferred Dividends................ 593 593
------- -------
Net loss after Preferred Dividends.......... $ (581) $ (668)
======= =======
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 1, October 2,
1995 1994
------------ ------------
<S> <C> <C>
Cash flows provided by (used for)
Operations:
Net earnings............................ $ 394 $ 307
Adjustments to reconcile net earnings:
Depreciation and amortization........... 8,755 7,878
Accretion of discount on long-term
liabilities........................... 850 782
Minority interest....................... 38 67
Undistributed earnings of affiliates.... 33 (150)
Changes in assets and liabilities....... (7,504) (7,974)
------- -------
Net cash provided by operations......... 2,566 910
Investments:
Purchase of property, plant and equipment (3,508) (3,443)
Acquisitions, net of cash acquired...... -- (550)
Other, net.............................. (605) 131
------- -------
Net cash used for investments........... (4,113) (3,862)
Financing:
Proceeds from issuance of debt.......... 7,541 940
Debt repayments, net.................... (2,614) (9,364)
Issuance of Series B preferred stock.... 2,400 11,400
Payment of dividends.................... (975) (975)
Paid in capital contribution............ 53 --
------- -------
Net cash provided by financing.......... 6,405 2,001
Effect of exchange rate changes on cash..... (656) 684
Net increase (decrease) in cash............. 4,202 (267)
Cash and cash equivalents, beginning of
period.................................. 2,412 2,468
------- -------
Cash and cash equivalents, end of period.... $ 6,614 $ 2,201
======= =======
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 1, 1995, and the
consolidated statements of earnings and cash flows for the three months ended
October 1, 1995 and October 2, 1994 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 1, 1995, and for
all periods presented have been made. The balance sheet at June 30, 1995,
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, 1995, Form
10-K. The results of operations for the period ended October 1, 1995 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.
Note 2 - Acquisitions
On November 28, 1994, Fairchild Communications Services Company
("Fairchild Communications"), a partnership whose partners are indirect
subsidiaries of the Company, completed the acquisition of substantially all
of the telecommunications assets of JWP Telecom, Inc. ("JWP") for
approximately $11,000,000, plus the assumption of approximately $3,000,000 of
liabilities. The Company recorded $5,595,000 in goodwill as a result of this
acquisition. JWP is a telecommunications system integrator, specializing in
the distribution, installation and maintenance of voice and data
communications equipment. In the first quarter of Fiscal 1995, Fairchild
Communications acquired all the shared telecommunications assets of Eaton &
Lauth Co., Inc. for approximately $550,000. Approximately $300,000 of the
acquisition price was recorded as goodwill.
Proforma financial statements are not required for these acquisitions on
an individual basis.
Note 3 - 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 1, 1995 and June 30, 1995.
<PAGE>
Note 4 - Commitments and Contingencies
Government Claims
- -----------------
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 Federal Acquisition
Regulations and 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 held 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.
As of October 1, 1995, the consolidated total recorded liabilities of
the Company for environmental matters referred to above totalled $7,988,000.
As of October 1, 1995, the estimated probable exposures for these matters was
$7,967,000. It is reasonably possible that the Company's total exposure for
these matters could be approximately $15,165,000.
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.
Note 5 - Subsequent Events
On November 9, 1995, the Company announced it has entered into an
agreement to merge with Shared Technologies Inc. ("Shared Technologies").
The agreement provides that, upon consummation of the merger, Shared
Technologies will (1) assume and repay $180,000,000 of the Company's existing
debt, and may redeem its Series A and Series C preferred stock issues, and
(2) issue to the Company's parent 6,000,000 shares of common stock of Shared
Technologies (equal to approximately 41% of Shared Technologies shares
outstanding following the transaction) and $45,000,000 face amount of newly-
issued Shared Technologies preferred shares, part of which are convertible
into additional shares of Shared Technologies common stock which would
increase RHI Holdings, Inc. ("RHI"), the Company's parent, interest to
approximately 42%, on a fully diluted basis. None of the Company's assets
and liabilities other than those relating to the Communications Services
segment and $180,000,000 of the Company's existing debt will be transferred
to Shared Technologies pursuant to the merger. The Company and Shared
Technologies expect to complete this transaction in January, 1996.
On November 13, 1995, the Company signed a letter of intent with
Cincinnati Milacron Inc. ("Cincinnati Milacron") to sell the D-M-E Company
("D-M-E"), a mold equipment supplier, subject to satifactory completion of
due diligence and definitive documentation, and various approvals of,
including the Cincinnati Milcron Board of Directors, normal regulatory
agencies and debt holders of the Company. The sale price is approximately
$260,000,000 for the purchase of the D-M-E business including assets and
liabilities. The Company expects to complete this transaction early in 1996.
Both transactions will result in significant gains to the Company.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- -------------------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
Fairchild Industries, Inc. (the "Company") is incorporated under the
laws of the State of Delaware. The Company is a subsidiary of RHI Holdings,
Inc. ("RHI") which is in turn a wholly-owned subsidiary of The Fairchild
Corporation ("TFC"). The Company conducts its operations through its wholly-
owned subsidiary VSI Corporation ("VSI").
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 1, 1995 and October 2,
1994.
<TABLE>
<CAPTION>
(In thousands)
Three Months Ended
October 1, October 2,
1995 1994
---------- ----------
<S> <C> <C>
Sales by Business Segment:
Aerospace Fasteners..................... $ 52,196 $ 51,510*
Industrial Products..................... 46,994 43,110*
Communications Services................. 32,997 19,942
------- -------
Total...................................... $132,187 $114,562
======= =======
Operating Income by Business Segment:
Aerospace Fasteners..................... $ 310 $ 1,405*
Industrial Products..................... 6,024 4,946*
Communications Services................. 4,909 4,422
------- -------
Total...................................... 11,243 10,773
Corporate administrative expense........ (1,147) (824)
Other corporate income.................. 76 30
------- -------
Operating income........................... 10,172 9,979
Net interest expense....................... (9,131) (8,440)
Investment income.......................... -- 278
Equity in earnings of affiliates, net
of minority interest..................... 132 210
------- -------
Earnings from continuing operations
before income taxes....................... 1,173 2,027
Income tax provision....................... 779 1,720
------- -------
Earnings from continuing operations........ $ 394 $ 307
======= =======
* Restated for the transfer of the Gas Springs division from the Aerospace
Fasteners segment to the Industrial Products segment.
</TABLE>
<PAGE>
General
- -------
Overall sales increased by 15.4% in the first quarter of Fiscal 1996
compared to sales for the same period in Fiscal 1995, which reflected
stronger sales performances from the Industrial Products and the
Communications Services business segments.
Operating income increased $.2 million in the first quarter of Fiscal
1996 compared to operating income for the same period in Fiscal 1995.
Operating income was up in both the Industrial Products segment and the
Communications Services segment in the current period, offsetting a decline
in operating income from the Aerospace Fasteners segment. (See discussion
below.)
Aerospace Fasteners
- -------------------
Sales in the Aerospace Fasteners segment increased slightly in the
Fiscal 1996 first quarter, compared to the corresponding Fiscal 1995 quarter,
reflecting the continual slow growth in this industry.
Operating income in the Aerospace Fasteners segment decreased $1.1
million in the first quarter of Fiscal 1996 compared to the Fiscal 1995
period. The Fiscal 1995 quarter included income from business interruption
insurance resulting from the January 1994 earthquake. This segment continues
to be affected by soft demand, competitive pricing conditions and higher
quality control costs resulting from customers' requirements. Management
will continue to implement productivity improvements and reduce costs to
bring the breakeven point in line with demand, particularly in its U.S.
operations.
Industrial Products
- -------------------
Sales in the Industrial Products segment increased 9.0% in the first
quarter of Fiscal 1996 compared to the Fiscal 1995 first quarter. $2.1
million of the net increase was at D-M-E Company ("D-M-E"), which provides
tooling to the plastics industry, reflecting customer response to D-M-E fast
delivery programs, new products, and the continued growth of the domestic
economy. Domestic demand for tooling for plastics has been strong while
foreign demand has shown signs of improvement as a result of 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, which
improved $1.3 million in the Fiscal 1996 first quarter compared to the prior
year quarter.
Operating income in the Industrial Products segment increased 21.8% in
the first quarter of Fiscal 1996, compared to the same period in Fiscal 1995.
Operating income increased $0.3 million at D-M-E and $0.7 million at
Fairchild Data Corporation, which reported positive earnings in the first
quarter of Fiscal 1996 compared to a loss in Fiscal 1995. The improved
results at D-M-E resulted from a higher sales volume and improved operating
margins. In recent years D-M-E has implemented several cost savings steps,
including overhead reduction and improved inventory management programs,
which have contributed to the higher operating margins. In addition, D-M-E
has continued to implement improved manufacturing methods that have reduced
cycle time and costs.
Communications Services
- -----------------------
Sales in the Communications Services segment increased 65.5% in the
first quarter of Fiscal 1996 compared with the same period in Fiscal 1995,
primarily due to the inclusion of sales from the JWP Telecom, Inc. ("JWP")
acquisition made during the Fiscal 1995 second quarter, as well as sales 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 11.0%
in the first quarter of Fiscal 1996, compared to the same period in Fiscal
1995 primarily due to increased sales resulting from the reasons given above
and related economies of scale. Operating income as a percent of sales was
14.9% in the Fiscal 1996 first quarter compared to 22.2% in the Fiscal 1995
first quarter. This lower return on sales was anticipated as a result of the
JWP acquisition, which has lower gross margins due to the nature of the
business.
Other Expenses/Income
- ---------------------
Corporate administrative expense increased 39.2% in the Fiscal 1996
first quarter compared to the same period in Fiscal 1995. This increase in
Fiscal 1996 was primarily the result of a greater percentage of staff time
being spent on the Company's operations, therefore, less time was billed to
the parent companies, RHI and TFC. Also, costs were allocated from TFC to
the Company which was not done in the prior year quarter. Management
believes that the corporate administrative expense of the Company would be
higher if it operated as a separate independent entity.
Other corporate income increased slightly in the Fiscal 1996 first
quarter, primarily due to lower carrying costs incurred on real estate held
for sale during the quarter.
Net interest expense - In the first quarter ended October 1, 1995, net
interest expense increased $.7 million, compared to the prior year period,
primarily due to higher bank borrowings during the Fiscal 1996 first quarter
compared to the prior year quarter.
Investment income of $.3 million was recorded in the first quarter of
Fiscal 1995, resulting primarily from dividends realized on participating
annuity contracts.
Income taxes - In the first quarter of Fiscal 1996, the Company recorded
a tax provision of $.8 million. The effective tax rate of 66.4% was higher
than the statutory rate largely due to the amortization of goodwill, which is
not deductible for tax purposes.
Net earnings increased slightly in the first quarter of Fiscal 1996,
compared to the first quarter of Fiscal 1995, primarily due to increased
operating income and lower taxes partially offset by higher net interest
expense, lower investment income and lower equity earnings in the first
quarter of Fiscal 1996.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Working capital at October 1, 1995, was $54.8 million, which was $2.5
million lower than at June 30, 1995. This decrease was primarily attributed
to a $5.6 million reduction in prepaid expenses and other current assets,
reflecting current taxes being reclassified to noncurrent, a $11.4 million
increase in intercompany debt and current bank debt, resulting from long term
bank debt becoming current. This decrease was partially offset by an
increase in cash of $4.2 million, a $3.6 million increase in receivables and
inventory, primarily the result of slower customer payments and higher sales,
and a decrease in accounts payable and other accrued liabilities of $6.6
million.
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 1, 1995 had a book value of $35.5 million and included
two 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 and a limited partnership interest in a real estate
development joint venture in California.
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 1, 1995, capital
expenditures, including the cost of acquisitions, were $3.5 million. The
Company anticipates that total capital expenditures, including the cost of
acquisitions for the fiscal year ending June 30, 1996, will be approximately
$17.4 million.
Other liabilities that require the use of cash include post-employment
benefits for retirees, environmental investigation and remediation
obligations, and litigation settlements and related costs.
The Company expects that cash on hand, cash generated from operations,
borrowings, and asset sales 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. During the three months ended
October 1, 1995, RHI made equity contributions to the Company totaling $2.5
million. Management intends to take appropriate action to refinance portions
of its debt, if necessary, to meet cash requirements.
The Company's Credit Agreement, as amended, 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 amended, as of October 1, 1995. To
comply with the minimum EBITDA Covenant requirements, the Company's
subsidiary, VSI, must earn for the cumulative total of the trailing four
quarters, EBITDA as follows: $65.0 million for the second quarter of Fiscal
1996, $70.0 million for the third quarter of Fiscal 1996, $80.0 million for
the fourth quarter of Fiscal 1996, and $84.6 million for the first quarter of
Fiscal 1997. VSI's ability to meet the minimum requirements under the EBITDA
Covenant in Fiscal 1996 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. However, 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 1, 1995, 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.
IMPACT OF FUTURE ACCOUNTING CHANGES
Accounting For The Impairment Of Long-Lived Assets
- --------------------------------------------------
And For Long-Lived Assets To Be Disposed Of
- -------------------------------------------
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 ("SFAS 121") "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
SFAS 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those
assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS 121 is required to be
implemented by the Company on, or before, July 1, 1996. The Company's
present policy is identical to the policy prescribed by SFAS 121, therefore
there will be no effect from implementation.
<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, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> OCT-01-1995
<CASH> 6,614
<SECURITIES> 0
<RECEIVABLES> 91,601
<ALLOWANCES> 4,373
<INVENTORY> 90,116
<CURRENT-ASSETS> 193,638
<PP&E> 270,631
<DEPRECIATION> 115,319
<TOTAL-ASSETS> 614,131
<CURRENT-LIABILITIES> 138,814
<BONDS> 242,861
<COMMON> 140
19,112
254,215
<OTHER-SE> (119,082)
<TOTAL-LIABILITY-AND-EQUITY> 614,131
<SALES> 132,187
<TOTAL-REVENUES> 132,532
<CGS> 98,229
<TOTAL-COSTS> 122,360
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,131
<INCOME-PRETAX> 1,173
<INCOME-TAX> 779
<INCOME-CONTINUING> 394
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 394
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>