Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15d
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For Quarterly Period Ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-17366
SHARED TECHNOLOGIES FAIRCHILD INC.
(exact name of registrant as specified in its charter)
Delaware 87-0424558
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
100 Great Meadow Road, Suite 104
Wethersfield, CT 06109
(Address of principal executive offices)
(860) 258-2400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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 close of the latest practicable date.
Class Outstanding at August 14, 1996
Common Stock, $.004 par value 15,058,466 shares
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance
Sheets as of June 30,
1996 and December 31, 1995 3-4
Consolidated Statements of
Operations for the six months
ended June 30, 1996 and 1995 5
Consolidated Statements of
Operations for the three
months ended June 30,
1996 and 1995 6
Consolidated Statements of
Cash Flows for the six
months ended June 30,
1996 and 1995 7
Consolidated Statements of
Stockholders' Equity for
the six months ended
June 30, 1996 8
Notes to Consolidated
Financial Statements 9-11
Item 2 Management's Discussion and
Analysis of Results of
Operations and Financial
Condition 12-13
PART II OTHER INFORMATION 14
Signature Page 15
Item 1. Financial Statements
<TABLE>
<CAPTION>
Shared Technologies Fairchild Inc.
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995
(In thousands except per share data)
(unaudited)
June 30, 1996 December 31, 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 830 $ 476
Accounts receivable, less allowance
for doubtful accounts of $796
in 1996 and $410 in 1995 34,707 9,855
Advances to subsidiary 867 985
Inventories 1,262 -
Other current assets 2,416 754
----- ---
Total current assets 40,082 12,070
------ ------
Equipment:
Property & Equipment 90,191 34,953
Accumulated depreciation (22,984) (18,305)
-------- --------
67,207 16,648
------ ------
Other Assets:
Investment in subsidiaries 493 1,581
Intangible assets 271,618 11,543
Deferred income taxes 560 560
Other 468 461
--- ---
273,139 14,145
-----------
Total assets $ 380,428 $ 42,863
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Shared Technologies Fairchild Inc.
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995
(In thousands except per share data)
(unaudited)
June 30, December 31, 1995
1996
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long term debt and capital
lease obligations $ 21,226 $ 2,870
Accounts payable 22,144 9,035
Accrued expenses 10,422 2,221
Advanced billings 6,674 1,337
----- -----
Total current liabilities 60,466 15,463
------ ------
Long-Term Debt and Capital Lease Obligations
less current portion 228,379 4,128
------- -----
Redeemable Put Warrant 452 428
--- ---
Convertible preferred stock, $.01 par value,
authorized 250 shares, outstanding 250 shares
in 1996 and no shares in 1995 25,000 -
------ ---- -
Special preferred stock, $.01 par value,
authorized 200 shares, outstanding 200 shares in 1996 and no shares in
1995 20,000 -
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, authorized 25,000 shares:
Series C, outstanding 428 shares in 1996 and
907 shares in 1995 4 9
Series D, outstanding 457 shares in 1996 and
1995 5 5
Common Stock; $.004 par value, 50,000 shares
authorized, outstanding 15,055 shares in 1996
and 8,506 shares in 1995 60 34
Additional paid-in capital 72,860 44,777
Accumulated deficit (26,798) (21,981)
-------- --------
Total stockholders' equity 46,131 22,844
------ ------
Total liabilities and stockholders' equity $380,428 $42,863 The accompanying
notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Shared Technologies Fairchild Inc.
Consolidated Statements of Operations
(In thousands except per share data)
For the Six Months Ended June 30, 1996 and 1995
(unaudited)
June 30, 1996 June 30, 1995
<S> <C> <C>
Revenue:
Shared telecommunications services $ 41,926 $17,070
Telecommunications systems 21,846 5,350
Cellular services - 5,290
- -----
Total revenue 63,772 27,710
------ ------
Cost of revenue:
Shared telecommunications services 21,090 9,580
Telecommunications systems 13,718 4,250
Cellular services - 3,079
- -----
Total cost of revenue 34,808 16,909
------ ------
Gross Margin 28,964 10,801
------ ------
Selling, general & administrative
Expenses 22,856 10,094
------ ------
Operating Income 6,108 707
Other income (expense):
Gain on sale of subsidiary stock - 1,375
Equity in loss of subsidiary (1,699) -
Net interest expense (8,251) (259)
Minority interest in net (income) loss of subsidiaries
- 89
- --
(9,950) 1,205
------- -----
Income (loss) before income taxes and extraordinary item
(3,842) 1,912
Income tax (40) (30)
---- ----
Income (loss) before extraordinary item (3,882) 1,882
Extraordinary item, loss on early retirement of debt
(310) -
----- -
Net income (loss) (4,192) 1,882
Preferred stock dividends (601) (199)
----- -----
Net Income (loss) applicable to common stock $ (4,793) $ 1,683
============== ================
Income (loss) per common share
Income (loss) before extraordinary item $ (0.37) $ 0.19
Extraordinary item (0.02) -
-------- -------- -
Net income (loss) $ (0.39) $ 0.19
============= =================
Weighted average shares outstanding 12,433 8,772
====== =====
The accompanying notes are an integral part of these
financial statements.
</TABLE>
<TABLE>
<CAPTION>
Shared Technologies Fairchild Inc.
Consolidated Statements of Operations
For the Three Months Ended June 30, 1996 and 1995 (In thousands except per share
data) (unaudited)
June 30, 1996 June 30, 1995
<S> <C> <C>
Revenue:
Shared telecommunications services $ 28,696 $ 8,736
Telecommunications systems 16,894 2,867
Cellular services - 3,263
- -----
Total revenue 45,590 14,866
------ ------
Cost of revenue:
Shared telecommunications services 14,664 4,850
Telecommunications systems 9,707 2,295
Cellular services - 2,011
- -----
Total cost of revenue 24,371 9,156
------ -----
Gross margin 21,219 5,710
------ -----
Selling, general & administrative
Expenses 16,073 5,437
------ -----
Operating income 5,146 273
Other income (expense):
Gain on sale of subsidiary stock - 1,375
Equity in loss of subsidiary (741) -
Net interest expense (6,992) (114)
Minority interest in net (income) loss of subsidiaries
- 78
- --
(7,733) 1,339
------- -----
Income (loss) before income taxes (2,587) 1,612
Income tax (19) (15)
---- ----
Net income (loss) (2,606) 1,597
Preferred stock dividends (515) (99)
----- ----
Net income (loss) applicable to common stock $ (3,121) $ 1,498
============ ==================
Income (loss) per common share:
Net Income (loss) $ (0.21) $0.17
============ =====
Weighted average shares outstanding 14,900 8,831
====== =====
The accompanying notes are an integral part of these
financial statements.
</TABLE>
<TABLE>
<CAPTION>
Shared Technologies Fairchild Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended
June 30, 1996 and 1995
(In thousands except per share data)
(unaudited)
June 30, 1996 June 30, 1995
--------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net Income, (loss) $(4,192) $1,882
Adjustments:
Gain on sale of subsidiary stock - (1,375)
Depreciation & amortization 7,042 2,072
Loss on early retirement of debt 310 -
Accretion on 12 1/4% bonds 4,227 -
Provision for doubtful accounts 25 -
Equity in loss of subsidiary 1,699 -
Amortization of discount on note 14 -
Minority interest in net income of
subsidiaries - (89)
Change in assets and liabilities:
Accounts receivable 149 (1,665)
Other current assets (352) (370)
Other assets 1,158 (129)
Accounts payable 1,532 623
Accrued expenses 1,220 (89)
Advanced billings (765) (24)
--------------------------------------------
Net cash provided by operating activities 12,067 836
--------------------------------------------
Cash flows from investing activities:
Acquisitions (net of cash acquired) (3,766) (2,592)
Cash purchases of equipment (3,931) (1,849)
Investment in subsidiaries (493) -
--------------------------------------------
--------------------------------------------
Net cash used in investing activities (8,190) (4,441)
--------------------------------------------
Cash flows from financing activities:
Preferred stock dividends (601) (199)
Net proceeds from sale of subsidiary stock - 3,149
Proceeds from borrowings 244,999 2,294
Repayments of notes payable, long-term debt
and capital lease obligations (190,016) (1,195)
Payments to affiliate (8,407) -
Deferred finance costs (9,271) -
Repayment of FII preferred stock (40,581) -
Proceeds from issuance of common stock 354 1,163
--------------------------------------------
Net cash provided by (used in) financing (3,523) 5,212
activities
--------------------------------------------
Net increase (decrease) in cash 354 1,607
Cash, Beginning of Period 476 172
--------------------------------------------
Cash, End of Period $830 $1,779
============================================
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for -
Interest $2,419 $280
Income taxes 45 56
Supplemental Disclosures of Noncash Investing and Financing Activities:
Obligations to issue common stock in
connection with acquisitions $- $1,806
Issuance of common stock to acquire FII 27,750 -
Issuance of preferred stock to acquire FII 45,000 -
Dividend accretion on redeemable put warrant 24 22
</TABLE>
<TABLE>
<CAPTION>
Shared Technologies Fairchild Inc.
Consolidated Statement of Stockholders' Equity For the period ended June 30,
1996 (in thousands) (unaudited)
<S> <C> <C> <C> <C>
Series C Series D
Preferred Stock Preferred Stock
Shares Amount Shares Amount
Balance, January 1, 1996 907 $ 9 457 $ 5
Preferred stock dividends
Dividend accretion of
redeemable put warrant
Issuance of Common Stock
Conversions of Preferred Stock (479) (5)
Exercise of common stock
options and warrants
Net income
Balance, June 30, 1996 428 $ 4 457 $ 5
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Shared Technologies Fairchild Inc.
Consolidated Statement of Stockholders' Equity For the period ended June 30,
1996 (in thousands) (unaudited)
<S> <C> <C> <C>
Additional
Common Stock Paid-in
Shares Amount Capital
Balance, January 1, 1996 8,506 $ 34 $ 44,777
Preferred stock dividends
Dividend accretion of
redeemable put warrant
Issuance of Common Stock 6,000 24 27,726
Conversions of Preferred Stock 426 2 3
Exercise of common stock 123 - 354
options and warrants
Net income
Balance, June 30, 1996 15,055 $ 60 $72,860
The accompanying notes are an integral part of these
financial statements.
</TABLE>
<TABLE>
<CAPTION>
Shared Technologies Fairchild Inc.
Consolidated Statement of Stockholders' Equity For the period ended June 30,
1996 (in thousands) (unaudited)
<S> <C> <C>
Accumulated Total Stockholders'
Deficit Equity
Balance, January 1, 1996 $(21,981) $ 22,844
Preferred stock dividends (601) (601)
Dividend accretion of redeemable put warrant (24) (24)
Issuance of Common Stock 27,750
Conversions of Preferred Stock -
Exercise of common stock options and warrants 354
Net loss (4,192) (4,192)
Balance, June 30, 1996 $ (26,798) $ 46,131
The accompanying notes are an integral part of these financial statements.
</TABLE>
==========================================
Shared Technologies Fairchild Inc.
=========================================================
Notes to Consolidated Financial Statements June 30, 1996 (In thousands except
for per share data) (Unaudited)
1. Basis of Presentation: ------------------------- The consolidated
financial statements included herein have been prepared by Shared Technologies
Fairchild Inc. (the Company) pursuant to the rules and regulations of the
Securities and Exchange Commission and reflect all adjustments, consisting only
of normal recurring adjustments, which are, in the opinion of management,
necessary to present a fair statement of the results for interim periods.
Certain information and footnote disclosures have been omitted pursuant to such
rules and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. It is suggested that
these consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's December 31, 1995 report on Form 10-K. Certain reclassifications to
prior year financial statements were made in order to conform to the 1996
presentation.
2. Investment in Unconsolidated Subsidiary
The Company's investment in its Unconsolidated subsidiary, Shared
Technologies Cellular, Inc. (STC), is accounted for under the equity method.
Prior to December 1995, the majority owned subsidiary was included on a
consolidated basis. During December 1995, STC issued approximately $3,000 in
voting preferred stock to third parties. Although the Company's ownership
percentage of approximately 58% did not change, the voting rights assigned to
the preferred stock reduced the Company's voting interest in STC, resulting in
the Company's loss of voting control of STC. Accordingly, STC has been accounted
for on the equity method for 1996. At June 30, 1996 the Company had an ownership
interest of approximately 40% in STC. Summarized balance sheet and statement of
operations information for STC as of, and for the three and six months ended,
June 30, 1996 is as follows:
Summarized Balance Sheet
Current assets $ 2,492
Property and equipment, net 3,408
Other assets 9,779
Total assets $ 15,679
Current liabilities $ 10,970
Note payable 1,678
Total liabilities 12,648
Stockholders' equity 3,031
Total liabilities and stockholders' equity $ 15,679
Summarized Statement of Operations Three Six
months ended months ended
Revenues $ 5,068 9,374
Gross margin 1,852 3,381
Operating loss (1,308) (2,895)
Net loss (1,377) (3,025)
The Company has recently reached an agreement with STC to purchase $2,500
in STC preferred stock. This investment will be financed through the conversion
of existing advances owed by STC to the Company in the amount of $1,200 and cash
of $1,300.
3. Acquisitions:
On June 30, 1995, the Company purchased all of the outstanding capital
stock of Office Telephone Management("OTM"). OTM provides shared
telecommunication services primarily to businesses located in executive office
suites. The purchase price was $2,135 of which $1,335 was paid in cash and the
balance through the issuance of an $800 note, (discounted at 8.59%) payable
through June 30, 2005. The excess of cost over fair value of the net assets was
recorded as goodwill.
On March 13, 1996, the Company's stockholders approved and the Company
consummated its merger with Fairchild Industries, Inc.("FII"), following a
reorganization transferring all non-communication assets to its parent, RHI
Holding, Inc. ("RHI"). The Company changed its name to Shared Technologies
Fairchild Inc.("STFI"). Pursuant to the merger agreement, STFI issued to RHI,
6,000 shares of common stock, 250 shares of convertible preferred stock with a
$25,000 liquidation preference and 20 shares of special preferred stock with a
$20,000 initial liquidation preference. In addition the Company raised in the
capital market approximately $111,000 after offering expenses, through the
issuance of 12 1/4% Senior Subordinated Notes Due 2006 and approximately
$125,000 (of an available $145,000) in loans from a credit facility with
financial institutions. The funds were used primarily for the retirement of
certain liabilities assumed from FII in connection with the merger, and the
retirement of the Company's existing credit facility. In connection with the
merger, the Company entered into two year employment agreements with key
employees for annual compensation aggregating $1,250, and adopted the 1996
Equity Incentive Plan. The merger was accounted for using the purchase method of
accounting. The total purchase consideration of approximately $78,067 was
allocated to the net tangible and intangible assets of FII based upon their
respective fair market values. The allocation of the aggregate purchase price
included in the following pro forma financial statements is preliminary, and
does not reflect the immediate retirement of FII long-term debt, FII Series A
Preferred Stock, and FII Series C Preferred Stock. Allocation of purchase price:
Assets
Cash $ 1,551
Accounts receivable 22,435
Other current assets 2,572
Equipment 51,532
Goodwill 254,215
Total Assets 332,305
Liabilities and stockholders' equity
Capital lease obligations $ (262)
Accounts payable (13,474)
Accrued expenses (8,595)
Due to affiliated company (8,407)
Long term debt (182,919)
FII preferred stock (40,581)
Net purchase price $ 78,067
The following unaudited pro forma statements of operations for the six
months ended June 30, 1996 and 1995 give effect to the above acquisitions and
the change in reporting of STC to the equity method (Note 2) and the pro forma
effect of STC acquisitions, as if they occurred on January 1 in each year:
1996 1995
Revenues $ 91,055 $ 87,426
Cost of revenues 46,524 48,181
Gross margin 44,532 39,246
Selling, general and
administrative expenses 34,404 29,724
Operating income 10,128 9,522
Equity in loss of subsidiary (1,699) (502)
Interest expense, net (13,594) (13,232)
Loss before income tax expense
and extraordinary item (5,165) (2,837)
Income taxes (5) (5)
Extraordinary item, loss on early
retirement of debt (357) (450)
Net Loss (5,527) (3,292)
Preferred stock dividends (1,162) (1,949)
Loss applicable to common stock $ (6,689) $ (5,241)
Net loss per common share $ (.45) $ (.39)
Weighted average number of common
shares outstanding 14,741 13,567
4. Contingencies:
In December 1995, a suit was filed against the Company alleging a breach of
a letter agreement and seeking an amount in excess of $2,250 for a commission
allegedly owed in connection with the merger with FII (Note 3). The Company
denies that the claimant at any time was engaged in connection with the merger.
The Company filed an answer in January 1996, denying that any commission is
owed. This litigation is in the discovery process. While any litigation contains
an element of uncertainty, management is of the opinion that the ultimate
resolution of this matter should not have a material adverse effect upon results
of operations, cash flows or financial position of the Company.
The Company's sales and use tax returns in certain jurisdictions are
currently under examination. Management believes these examinations will not
result in a material change from liabilities provided.
In addition to the above matters, the Company is a party to various legal
actions, the outcome of which, in the opinion of management, will not have a
material adverse effect on results of operations, cash flows or financial
position of the Company.
5. Income Taxes:
The Company and its subsidiaries file a consolidated federal income tax
return but generally file separate state income tax returns. As of June 30, 1996
the Company recorded a deferred tax asset of $7,508 and a corresponding
valuation allowances of $ 6,948. SFAS No. 109 requires that the Company record a
valuation allowance when it is "more likely than not that some portion or all of
the deferred tax asset will not be realized". The ultimate realization of this
deferred tax asset depends on the ability to generate sufficient taxable income
in the future. While management believes that the total deferred tax asset will
be fully realized by future operating results, together with tax planning
opportunities, the uncertainty relating to the future tax effects of the merger
and a desire to be conservative make it appropriate to record a valuation
allowance.
At June 30, 1996, the Company's NOL carryforward for federal income tax
purposes was approximately $57,000, expiring between 2001 and 2007. NOL's
available for state income tax purposes are less than those for federal purposes
and generally expire earlier. Limitations apply to the use of NOL's due to
changes in Company ownership which occured in the merger with FII.
6. Extraordinary Item:
At June 30, 1996, the Company recorded an extraordinary loss of $310
relating to the early retirement of a $5,000 credit facility. The early
retirement took place as a result of requirements in the merger agreement with
FII (Note 3).
7. Consolidating Financial Statements (unaudited):
The following unaudited statements separately show Shared Technologies
Fairchild Inc. and the subsidiaries of Shared Technologies Fairchild Inc.
<TABLE>
<CAPTION>
Consolidating Balance Sheets as of June 30, 1996
<S> <C> <C> <C> <C> <C> <C>
BTC MTS OTM STI Int'l STFTI
------------------------------------------------------------------------------
Assets
Current Assets:
Cash $ 6 $ 3 $ - $ - $ 377
31,560
Accounts receivable 419 2,178 - -
Advances to subsidiaries
- - - - -
1,262
Inventories - - - -
Other current assets 2,291
13 112 - -
------------------------------------------------------------------------------
Total current assets 35,490
438 2,293 - -
------------------------------------------------------------------------------
Equipment:
74,568
Property & Equipment 5,333 10,290 - -
Accumulated depreciation (13,858)
(3,214) (5,912) - -
------------------------------------------------------------------------------
60,710
2,119 4,378 - -
------------------------------------------------------------------------------
Other Assets:
Investments in subsidiaries
- - - 215 -
271,618
Intangible assets - - - -
560
Deferred income taxes - - - -
468
Other - - - -
------------------------------------------------------------------------------
272,646
- - - 215
------------------------------------------------------------------------------
368,846
Total assets 2,557 6,671 - 215
==============================================================================
Liabilities and Stockholders' Equity
Current Liabilities:
Current portion of long term
debt and
capital lease obligations
- - - - -
21,084
Accounts payable 195 865 - -
9,785
Accrued expenses 10 159 - -
67,889
Due to affiliate 1,688 3,290 168 215
6,155
Advanced billings 81 438 - -
------------------------------------------------------------------------------
Total current liabilities 104,913
1,974 4,752 168 215
------------------------------------------------------------------------------
Long-term debt, less current
portion - - - - -
------------------------------------------------------------------------------
Redeemable put warrant - - - - -
------------------------------------------------------------------------------
Convertible preferred stock
- - - - -
------------------------------------------------------------------------------
Special preferred stock
- - - - -
------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock series C
- - - - -
Preferred stock series D
- - - - -
Common stock - - - - -
Additional paid-in capital
- - - - -
263,933
Accumulated deficit 583 1,919 (168) -
------------------------------------------------------------------------------
Total stockholders' equity 263,933
583 1,919 (168) -
------------------------------------------------------------------------------
Total liabilities and 368,846
stockholders' equity 2,557 6,671 - 215
==============================================================================
Eliminating Consolidated
STFCC STFI Entries STFI
----------------------------------------------------------------
Assets
Current Assets:
Cash $ - $ 444 $ - $ 830
34,707
Accounts receivable - 550 -
Advances to subsidiaries - 74,117 (73,250) 867
1,262
Inventories - - -
2,416
Other current assets - - -
----------------------------------------------------------------
40,082
Total current assets - 75,111 (73,250)
----------------------------------------------------------------
Equipment:
90,191
Property & Equipment - - -
(22,984)
Accumulated depreciation - - -
----------------------------------------------------------------
67,207
- - -
----------------------------------------------------------------
Other Assets:
(282,929)
Investments in subsidiaries 266,267 16,940 493
271,618
Intangible assets - - -
Deferred income taxes - - - 560
Other - - - 468
----------------------------------------------------------------
(282,929) 273,139
266,267 16,940
----------------------------------------------------------------
(356,179) 380,428
Total assets 266,267 92,051
================================================================
Liabilities and Stockholders' Equity
Current Liabilities:
Current portion of long term debt and
capital
lease obligations 21,226 - - 21,226
22,144
Accounts payable - - -
10,422
Accrued expenses - 468 -
Due to affiliate - - (73,250) -
6,674
Advanced billings - - -
----------------------------------------------------------------
60,466
Total current liabilities 21,226 468 (73,250)
----------------------------------------------------------------
Long-term debt, less current portion 228,379
228,379 - -
----------------------------------------------------------------
Redeemable put warrant - 452 - 452
----------------------------------------------------------------
25,000
Convertible preferred stock - 25,000 -
----------------------------------------------------------------
20,000
Special preferred stock - 20,000 -
----------------------------------------------------------------
Stockholders' equity:
Preferred stock series C - 4 - 4
Preferred stock series D - 5 - 5
Common stock - 60 - 60
72,860
Additional paid-in capital - 72,860 -
(282,929) (26,798)
Accumulated deficit 16,662 (26,798)
----------------------------------------------------------------
(282,929) 46,131
Total stockholders' equity 16,662 46,131
----------------------------------------------------------------
Total liabilities and (356,179) 380,428
stockholders' equity 266,267 92,051
================================================================
Consolidating Statements of Operations for the Six Months Ended June 30, 1996
BTC MTS OTM STI Int'l STFTI
--------------------------------------------------------------------
Revenue 3,455 7,861 888 - 51,068
Cost of Revenue 2,013 4,063 738 - 27,994
--------------------------------------------------------------------
3,798 150 -
Gross margin 1,442 23,074
--------------------------------------------------------------------
Selling, general & -
administrative expenses 859 1,879 318 19,800
--------------------------------------------------------------------
1,919 (168) -
Operating Income 583 3,274
Other income (expense):
- - -
Equity in loss of subsidiary - -
Net interest expense (8,251)
--------------------------------------------------------------------
- - (8,251)
- -
--------------------------------------------------------------------
Income (loss) before income
taxes and extraordinary item 583 1,919 (168) - (4,977)
- -
Income tax - - (40)
--------------------------------------------------------------------
Income (loss) before 1,919 (168) -
extraordinary item 583 (5,017)
Extraordinary item, loss on - (310)
early retirement of debt - - -
--------------------------------------------------------------------
Net income (loss) 583 1,919 (168) - (5,327)
Preferred stock dividends - - - - -
--------------------------------------------------------------------
Net income (loss) applicable to common - (5,327)
stock 583 1,919 (168)
====================================================================
Consolidating Statements of Operations for the Six Months
Ended June 30, 1996
Consolidated
Eliminating
STFCC STFI Entries STFI
------------------------------------------------------------------
500 -
Revenue - 63,772
-
Cost of Revenue - - 34,808
------------------------------------------------------------------
500 -
Gross margin - 28,964
------------------------------------------------------------------
Selling, general & -
administrative expenses - - 22,856
------------------------------------------------------------------
500 - 6,108
Operating Income -
Other income (expense):
Equity in loss of subsidiary (2,993) (4,692) 5,986 (1,699)
- (8,251)
Net interest expense - -
------------------------------------------------------------------
(2,993) (4,692) (9,950)
5,986
------------------------------------------------------------------
Income (loss) before income
taxes and extraordinary item (2,993) (4,192) (3,842)
5,986
Income tax - (40)
- -
------------------------------------------------------------------
Income (loss) before (2,993) (4,192) (3,882)
extraordinary item 5,986
Extraordinary item, loss on -
early retirement of debt - - (310)
------------------------------------------------------------------
(2,993) (4,192) (4,192)
Net income (loss) 5,986
Preferred stock dividends (601) - (601)
-
------------------------------------------------------------------
Net income (loss) applicable to
common stock
(2,993) (4,793) 5,986 (4,793)
==================================================================
Item 2.
- -------
Management's Discussion and Analysis of Results of Operations and
- -----------------------------------------------------------------
Financial Condition
- -------------------
Results of Operations:
- -----------------------
Six Months Ended June 30, 1996 compared to June 30, 1995
Revenues STFI's revenues rose to a record $63.8 million in 1996 an increase
of 130.3% over 1995 revenues of $27.7 million. This increase occurred mainly as
a result of the March 13, 1996 merger with Fairchild Industries Inc. ("FII").
Shared Telecommunications Service ("STS") revenue increased $24.8 million or
145.0% and Telecommunications Systems ("Systems") revenue increased $16.6
million or 313.2%.
Gross margin Gross margin increased to 45.4% of revenues for 1996 from
39.0% for 1995, an increase of 6.4%. The change in gross margin is mainly the
result of changes in sales mix. The following table sets forth the components of
the Company's overall gross margin ("GM") for the six months ended June 30, 1996
as a factor of sales percentage and gross margin percentage per line of
business:
Overall
Division Sales GM GM
- -----------------------------------------------------------------------------------------------
STS 65.7% 49.6% 32.6%
Systems 34.3% 37.4% 12.8%
----- ----- -----
Company Total 100.0% 45.4%
====================== ======================
As shown above, the 1996 gross margin was a mix of STS gross margin of
49.6% and Systems gross margin of 37.4%. In 1995 the Company's gross margin was
a combination of STS gross margin of 43.9%, Systems gross margin of 20.8% and
Cellular Services ("STC") gross margin of 41.5%. Changes in gross margin for STS
and Systems year to year were mainly the result of the acquisition of FII.
Selling, general and administrative expenses Selling, general and
administrative expenses ("SG&A") as a percentage of revenues decreased to 35.9%
for 1996 compared to 36.5% for 1995. SG&A improved slightly due to the merger
with FII which resulted in certain synergies. This was largely offset by
increased goodwill amortization expense.
Operating income Operating income increased to $6.1 million in 1996 from
$0.7 million in 1995. The increase was mainly the result of the FII acquisition
mentioned earlier.
Interest expense Interest expense net of interest income increased by $8.0
million for the six months ended June 30, 1996 over the six months ended June
30, 1995. This is attributable to the addition of approximately $245 million in
new debt on March 13, 1996.
Extraordinary Item. In connection with the acquisition of FII the Company
was required to repay all outstanding amounts on their existing credit facility.
This early repayment resulted in a loss of $0.3 million which was recorded as an
extraordinary item for the three months ended June 30, 1996.
Net income As a result of the factors listed above, a net loss for the six
months ended June 30, 1996 of $4.2 million was recorded compared to net income
of $1.9 million for the six months ended June 30, 1995.
Three Months Ended June 30, 1996 compared to June 30, 1995
Revenues STFI's revenues rose to a record $45.6 million in 1996 an increase
of 206.0% over 1995 revenues of $14.9 million. STS revenue increased $20.0
million or 229.9% and Systems revenue increased $14.0 million or 482.8%. The
majority of the increase was attributable to the March 13, 1996 acquisition of
FII.
Gross margin Gross margin increased to 46.5% of revenues for 1996 from
38.3% for 1995, an increase of 8.2%. The change in gross margin is mainly the
result of changes in sales mix. The following table sets forth the components of
the Company's overall gross margin ("GM") for the three months ended June 30,
1996 as a factor of sales percentage and gross margin percentage per line of
business:
Overall
Division Sales GM GM
- -----------------------------------------------------------------------------------------------
STS 62.9% 48.8% 30.7%
Systems 37.1% 42.6% 15.8%
----- ----- -----
Company Total 100.0% 46.5%
=============== ===============
As shown above, the 1996 gross margin was a mix of STS gross margin of
48.8% and Systems gross margin of 42.6%. In 1995 the Company's gross margin was
a combination of STS gross margin of 43.7%, Systems gross margin of 19.5% and
STC gross margin of 39.4%.
Selling, general and administrative expenses SG&A as a percentage of
revenues decreased to 35.3% for 1996 compared to 36.2% for 1995. SG&A improved
slightly due to the merger with FII which resulted in certain synergies. This
was largely offset by increased goodwill amortization expense.
Operating income Operating income increased to 5.1 million in 1996 from
$0.3 million in 1995. The increase was mainly the result of the FII acquisition
mentioned earlier.
Interest expense Interest expense net of interest income increased by $6.8
million for the three months ended June 30, 1996 over the three months ended
June 30, 1995. This is attributable to the addition of approximately $245
million in new debt on March 13, 1996.
Net income As a result of the factors listed above, a net loss for the
three months ended June 30, 1996 of $2.6 million was recorded compared to net
income of $1.6 million for the three months ended June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES ------------------------------- Due to the
acquisition of FII on March 13, 1996 and the associated borrowings of $245
million, the Company's liquidity and capital resources were significantly
changed. At June 30, 1996 the Company had $380 million in assets, $250 million
in various long term debt and capital lease obligations and $45 million in new
preferred stock. The balance sheet at June 30, 1996 shows a working capital
deficit of $20.4 million compared to a deficit of $1.5 million at June 30, 1995.
The Company has available for future borrowings approximately $13 million on a
credit facility at June 30, 1996. Cash provided by operations was $12.1 million
for the six months ended June 30, 1996 compared to $0.8 million for the six
months ended June 30, 1995.
The Company invested significant capital towards growth internally and
through acquisition. $3.9 million was spent on equipment purchases, $0.5 million
on subsidiaries, and $3.8 million to consummate the merger with FII during the
six months ended June 30, 1996.
Financing activities were focused primarily on raising capital to repay
$223,500 million in various debt and preferred stock obtained in the merger with
FII. The Company raised in the capital market approximately $115,000, through
the issuance of 12 1/4% Senior Subordinated Notes Due 2006 and approximately
$130,000 (of an available $145,000) in loans from a credit facility with
financial institutions. In addition the Company paid $9.3 million in fees and
costs to obtain this capital. $8.4 million was paid to an affiliate related to
the merger with FII.
Cash requirements for 1996 will be significant due to the new debt
mentioned earlier. The Company anticipates repaying these borrowings and
providing cash for capital expenditures with cash from operations. The Company
does not anticipate the need to utilize the available credit facility for the
remainder of 1996.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
None
(b) Reports on Form 8-K
==========================================
===============================================================
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SHARED TECHNOLOGIES FAIRCHILD INC.
By: /s/ Vincent DiVincenzo
Vincent DiVincenzo
Senior Vice President-Finance
and Administration, Treasurer,
Chief Financial Officer
Date: August 14, 1996
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