-1-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
[ X ] QUARTERLY REPORT UNDER SECTION 13 or 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File No.: 33-62598
Fairfield Manufacturing Company, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 63-0500160
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
U. S. 52 South, Lafayette, IN 47905
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (765) 474-3474
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
The number of shares outstanding of each of the issuer's classes of common
stock as of September 30, 1997 is as follows:
7,910,000 shares of Common Stock
FAIRFIELD MANUFACTURING COMPANY, INC.
Form 10-Q
September 30, 1997
PART I - FINANCIAL INFORMATION
Page
Number
Item 1 - Financial Statements:
Consolidated Balance Sheets, September 30, 1997 (Unaudited) 3
and December 31, 1996
Consolidated Statements of Operations for the three and 4
nine months ended September 30, 1997 and 1996
(Unaudited)
Consolidated Statements of Cash Flows for the nine months 5
ended September 30, 1997 and 1996 (Unaudited)
Consolidated Statement of Stockholder's Equity (Deficit) 6
for the nine months ended September 30, 1997
(Unaudited)
Notes to Consolidated Financial Statements 7-8
Item 2 - Management's Discussion and Analysis of Financial 9-10
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 5 - Other Information 10
Item 6 - Exhibits and Reports on Form 8-K. 10
SIGNATURE 10
EXHIBIT INDEX 11-16
FAIRFIELD MANUFACTURING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
1997 1996
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,042 $ 6,185
Trade receivables, less allowance of $600 23,177 24,696
in 1997 and 1996
Inventory 20,495 18,918
Due from parent 325 --
Prepaid expenses 645 853
Total current assets 46,684 50,652
PROPERTY, PLANT AND EQUIPMENT, NET 69,391 70,211
OTHER ASSETS:
Excess of investment over net assets 51,287 52,491
acquired, less accumulated
amortization of $13,072 in 1997 and
11,868 in 1996
Deferred financing costs, less 2,502 3,016
accumulated amortization of $2,869
in 1997 and $2,355 in 1996
Total other assets 53,789 55,507
Total assets $169,864 $176,370
LIABILITIES AND STOCKHOLDER'S EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 3,750 $ 3,000
Accounts payable 10,397 13,260
Due to parent -- 287
Accrued liabilities 18,076 18,182
Deferred income taxes 3,800 3,800
Total current liabilities 36,023 38,529
ACCRUED RETIREMENT COSTS 15,473 15,423
DEFERRED INCOME TAXES 12,116 11,988
LONG-TERM DEBT, NET OF CURRENT 112,000 115,000
MATURITIES
11 1/4% CUMULATIVE EXCHANGEABLE PREFERRED 47,805 --
STOCK
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock: par value $.01 per share, 79 78
10,000,000 shares authorized,
7,910,000 and 7,805,000 issued and
outstanding in 1997 and 1996,
respectively
Additional paid-in capital 37,476 36,788
Accumulated deficit (91,108) (41,436)
Total stockholder's equity (53,553) (4,570)
(deficit)
Total liabilities and stockholder's $169,864 $176,370
equity (deficit)
The accompanying notes to consolidated financial statements
are an integral part of these statements.
FAIRFIELD MANUFACTURING COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
Net sales $ 44,880 $ 45,864 $144,869 $146,789
Cost of sales 38,353 38,218 119,079 120,731
Selling, general and 4,573 4,222 13,228 12,821
administrative
expenses
OPERATING INCOME 1,954 3,424 12,562 13,237
Interest expense, net 3,161 2,931 9,503 8,991
Other expense, net 38 32 84 65
(LOSS)/INCOME BEFORE INCOME (1,245) 461 2,975 4,181
TAXES AND PREFERRED
STOCK DIVIDENDS AND
DISCOUNT ACCRETION
Benefit/provision for
income taxes (400) 248 1,670 2,003
(LOSS)/INCOME BEFORE (845) 213 1,305 2,178
PREFERRED STOCK
DIVIDENDS AND DISCOUNT
ACCRETION
Dividends and discount
accretion on (1,471) -- (3,234) --
cumulative
exchangeable preferred
stock
NET (LOSS)/INCOME $(2,316) $213 $(1,929) $2,178
(LOSS)/INCOME PER SHARE
DATA:
Net (loss)/income per
common share $(0.29) $0.03 $(0.25) $0.28
Weighted average 7,910,000 7,752,250 7,857,920 7,701,590
common shares
outstanding
The accompanying notes to consolidated financial statements
are an integral part of these statements.
FAIRFIELD MANUFACTURING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the For the
nine nine
months months
ended ended
Sept. 30, Sept. 30,
1997 1996
OPERATING ACTIVITIES:
Net (loss)/income $(1,929) $ 2,178
Adjustments to reconcile net income to net
cash provided by operating activities:
Preferred stock discount accretion 105 --
Depreciation and amortization 10,127 9,993
Deferred income tax benefit 128 (1,460)
(Decrease) increase in accrued retirement 50 --
costs
(Increase) decrease in current assets:
Trade receivables 1,519 319
Inventory (1,577) 6,301
Due from parent (325) --
Prepaids 208 92
Increase (decrease) in current liabilities:
Accounts payable (3,508) (1,292)
Due to parent (287) (588)
Accrued liabilities (106) (1,246)
Net cash provided by operating activities 4,405 16,881
INVESTING ACTIVITIES:
Additions to plant and equipment, net (6,934) (7,117)
Net cash used in investing activities (6,934) (7,117)
FINANCING ACTIVITIES:
Proceeds from additional capital contribution 679 1,318
Payment of dividends (50,770) --
Advance to parent 3,027 --
Proceeds of long-term debt 7,000 5,000
Payment of long-term debt (9,250) (15,000)
Proceeds of preferred stock offering 50,000 --
Payment of preferred stock issuance costs (2,300) --
Net cash used in financing activities (1,614) (8,682)
(DECREASE)/INCREASE IN CASH AND CASH (4,143) 1,082
EQUIVALENTS
CASH AND CASH EQUIVALENTS:
Beginning of period 6,185 4,324
End of period $2,042 $5,406
Supplemental Disclosures:
Cash paid for:
Interest $11,424 $11,270
Taxes to parent $1,400 $2,200
Non-cash activities:
Additions to plant and equipment included in accounts payable at
September 30, 1997 and 1996 of $645 and $1,804, respectively, are
excluded from operating activities above.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
FAIRFIELD MANUFACTURING COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
(In thousands)
(Unaudited)
Additional Stock-
Common Paid-in Accumulat holder's
Stock Capital ed Equity
Deficit (Deficit)
Balance, January 1, $ 78 $36,788 $(41,436) $ (4,570)
1997
Issuance of common 1 (1) -- --
stock
Capital contribution -- 679 -- 679
Common stock dividends -- -- (50,770) (50,770)
Advance to parent -- -- 3,027 3,027
Merger with First -- 10 -- 10
Colony Farms, Inc.
Net (loss)/income -- -- (1,929) (1,929)
Balance, September 30, $ 79 $37,476 $(91,108) $(53,553)
1997
The accompanying notes to consolidated financial statements
are an integral part of this statement.
FAIRFIELD MANUFACTURING COMPANY, INC.
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Interim Financial Information:
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-
X. Accordingly, certain information and footnote disclosures normally included
in financial statements prepared under generally accepted accounting principles
have been condensed or omitted pursuant to such regulations. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation of Fairfield Manufacturing Company, Inc.'s
(the "Company's") financial position, results of operations and cash flows have
been included. The results for the three and nine months ended September 30,
1997 and 1996 are not necessarily indicative of the results to be expected for
the full year or for any interim period.
2. Parent Company of Registrant:
The Company is wholly-owned by Lancer Industries Inc. ("Lancer").
On March 27, 1997, First Colony Farms, Inc., a Delaware corporation and
wholly-owned subsidiary of Lancer ("First Colony"), merged with and into the
Company, with the Company being the surviving corporation of the merger.
Immediately prior to the merger, First Colony had (i) no known liabilities
(including contingent liabilities) and (ii) assets consisting of approximately
$10 thousand in cash and certain net operating loss carry forwards.
3. Sale of Preferred Stock:
On March 12, 1997, the Company completed an offering of 50,000 shares of
11 1/4% Cumulative Exchangeable Preferred Stock ("Old Preferred Stock"). The
net proceeds from this offering ($47.7 million) were used to fund a dividend to
Lancer, and used by Lancer to redeem approximately $47.7 million of its Series C
Preferred Stock. In July 1997, the Company completed an exchange offer pursuant
to which each share of the Old Preferred Stock was exchanged for a new share of
11 1/4% Cumulative Exchangeable Preferred Stock (the "New Preferred Stock"). The
terms of the New Preferred Stock are substantially identical to the terms of the
Old Preferred Stock, except that the New Preferred Stock is registered under the
Securities Act of 1933, as amended. Each share of New Preferred Stock has a
liquidation preference of $1,000, plus accumulated and unpaid dividends. The
Company is required, subject to certain conditions, to redeem all of the
Preferred Stock outstanding on March 15, 2009 at a redemption price equal to
100% of the liquidation preference. Dividends are payable semi-annually at an
annual rate of 11 1/4%, and may (prior to March 15, 2002) be paid, at the
Company's option, either in cash or in additional shares of New Preferred
Stock. On September 15, 1997, the Company made the semi-annual dividend
payment of $2.9 million in cash.
4. Inventory:
Inventory consists of the following:
(In thousands) September 30, December 31,
1997 1996
Raw materials $ 3,763 $ 4,178
Work in process 8,700 8,070
Finished goods 8,225 7,490
20,688 19,738
Less: excess of FIFO cost over (193) (820)
LIFO cost
$ 20,495 $ 18,918
5. (Loss)/Income per Common Share:
Net (loss)/income per common share is computed by dividing net
(loss)/income by the weighted average number of common shares outstanding during
the period, which, for the three and nine months ended September 30, 1997 was
7,910,000 and 7,857,920, respectively, and for the three and nine months ended
September 30, 1996 was 7,752,250 and 7,701,590, respectively. The increase in
the weighted average common shares outstanding is due to the Company issuing
additional shares of its common stock to Lancer in consideration of certain
capital contributions made by Lancer to the Company primarily pursuant to the
Tax Sharing Agreement.
6. Debt:
In connection with the sale of Preferred Stock, the Company amended its
loan agreement (which provides for a Revolving Credit Facility and a Term Loan)
with a senior lending institution. The amendment allowed for the sale of the
Preferred Stock (see note 3) and the approximately $47.7 million dividend to
Lancer.
7 Related Parties
Effective July 31, 1997, Wolodymyr B. Lechman resigned as Chairman of the
Company's Board of Directors (the "Board") but will continue as a member of the
Board.
Effective August 1, 1997, Mr. Lechman entered into a consulting agreement
(the "Agreement") with the Company. In consideration for services to be
rendered under the Agreement, Mr. Lechman will receive quarterly payments
through July 31, 2001 ("the consulting period") totaling $1.0 million. In the
event that Mr. Lechman dies prior to the end of the consulting period or is
unable to perform the services requested due to mental or physical disabilities,
the Company shall pay to his legal representatives or beneficiaries the
remaining unpaid balance under the Agreement which would have been due under the
agreement had Mr. Lechman continued to provide such services for the term of the
Agreement. Due to the provisions of the agreement, the Company has recognized
the entire $1.0 million as expense in the third quarter of 1997.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company's net sales for the three months ended September 30, 1997 were
$44.9 million, a decrease of $1.0 million, or 2.1%, compared to the three months
ended September 30, 1996. For the nine months ended September 30, 1997, the
Company's net sales were $144.9 million, a decrease of $1.9 million, or 1.3%,
compared to the same period in 1996.
Cost of sales for the three months ended September 30, 1997 increased by
$0.1 million, or 0.3%, to $38.4 million, or 85.5% of net sales, compared to
$38.2 million, or 83.3% of net sales, for the three months ended September 30,
1997. For the first nine months of 1997, cost of sales were $119.1 million, or
82.2% of net sales, compared to $120.7 million, or 82.2% of net sales, for the
first nine months of 1996.
Selling, general and administrative expense ("SG&A") was $4.6 million, or
10.2% of net sales, for the three months ended September 30, 1997, compared to
$4.2 million, or 9.2% of net sales, in the comparable 1996 period. SG&A expense
for the three months ended September 30, 1997 included a one-time charge of $1.0
million in connection with a consulting agreement (see footnote 7 to the
financial statements). For the nine months ended September 30, 1997, the
Company's SG&A was $13.2 million, or 9.1% of net sales, versus $12.8 million, or
8.7% of net sales for the first nine months of 1995.
Earnings from operations for the three months ended September 30, 1997 were
$2.0 million, or 4.4% of net sales, compared to $3.4 million, or 7.5% of net
sales, for the comparable 1996 period. For the nine months ended September 30,
1997, the Company's earnings from operations were $12.6 million, or 8.7% of net
sales, compared to $13.2 million, or 9.0% of net sales for the first nine months
of 1996.
Interest expense in the third quarters of 1997 and 1996 was $3.2 million
and $2.9 million, respectively. For the first nine months of 1997 and 1996,
interest expense was $9.5 million and $9.0 million, respectively. Interest
expense increased due to a higher average debt balance during both the three and
nine months ended September 30, 1997 versus the comparable 1996 periods.
The Company's loss before income taxes and preferred stock dividends and
discount accretion was $1.2 million for the third quarter of 1997, compared to
income of $0.5 million for the comparable 1996 period. For the nine months
ended September 30, 1997, the Company's income before income taxes and preferred
stock dividends and discount accretion was $3.0 million compared to $4.2 million
for the comparable 1996 period.
The Company's net loss was $2.3 million for the third quarter of 1997 as
compared to income of $0.2 million for the comparable 1996 period. For the
first nine months of 1997, net loss was $1.9 million compared to $2.2 million
for the first nine months of 1996. Net loss for the three and nine months ended
September 31, 1997, include dividends and discount accretion on cumulative
exchangeable preferred stock of $1.5 million and $3.2 million, respectively. As
the preferred stock offering was completed on March 12, 1997, there were no
dividends or discount accretion on cumulative exchangeable preferred stock
during 1996.
Liquidity and Capital Resources
The Company's liquidity requirements have been met by funds provided by
operations and short-term borrowings under its Loan Agreement.
Net cash provided by operations for the nine months ended September 30,
1997 was $7.3 million, a decrease of $9.5 million compared with net cash
provided by operations of $16.9 million in the comparable 1996 period. The
unfavorable comparison to the prior-year period was due to the prior year
including a one-time improvement in cash availability from working capital
changes, primarily a $13.4 million reduction in inventory from September 30,
1995 to September 30, 1996 due to improved manufacturing cycle times.
Capital expenditures for various machine tools, equipment and building
improvement items totaled $7.6 million and $8.9 million during the first nine
months of 1997 and 1996, respectively. Of the $7.6 million in 1997, $0.6
million has been funded by an increase in accounts payable in the balance sheet
versus $1.8 million of the $8.9 million of capital expenditures in 1996. The
capital expenditures for both 1997 and 1996 were principally targeted at
increasing capacity and productivity to meet heightened customer demand.
The Company believes that the amounts available under the existing credit
facilities and cash flow from operations will provide adequate liquidity for the
foreseeable future.
PART II - OTHER INFORMATION
Item 5. Other Information
Effective July 31, 1997, Wolodymyr B. Lechman resigned as Chairman of the Board
of Directors of Fairfield. Mr. Lechman remains a member of the Company's Board
of Directors.
Effective August, 1, 1997, Kenneth A. Burns was appointed Chairman of the Board
of Directors of the Company.
Item 6. Exhibits and Reports on Form 8K
(a) See Exhibit Index.
(b) No reports on form 8-K have been filed during the last quarter of the
period covered by this report.
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 thereunto duly authorized.
FAIRFIELD MANUFACTURING
COMPANY, INC.
Dated: November 12, 1997 By: /s/ RICHARD A. BUSH
Richard A. Bush
Vice President Finance
EXHIBIT INDEX
Exhibit No. Description
(2) (a) Merger Agreement under the State of Delaware between
First Colony Farms, Inc. ("First Colony") and
Fairfield dated as of March 24, 1997, incorporated by
reference from Exhibit 2(c) to Fairfield's Form S-4
as filed with the Securities and Exchange Commission
on April 9, 1997 (the "1997 Form S-4").
(2) (b) Certificate of Merger, merging First Colony with and
into Fairfield, incorporated by reference from
exhibit 2(d) to the 1997 Form S-4.
(3) (a) Restated Certificate of Incorporation of Fairfield,
together with the Certificate of Amendment, dated
March 7, 1997, and filed on March 11, 1997,
incorporated by reference from Exhibit 3(a) to the
1997 Form S-4.
(3) (b) By-Laws of Fairfield, incorporated by reference from
Exhibit 3(c) to the 1994 Form 10-K.
(4) (a) Indenture, dated as of July 7, 1993, between
Fairfield and First Fidelity Bank, National
Association, New York, as trustee, incorporated by
reference from Exhibit 4(a) to Fairfield's Form 10-Q
as filed with the Securities and Exchange Commission
on August 16, 1993 (the "Second Quarter 1993 Form 10-
Q").
(4) (b) Supplemental Indenture No. 1, dated as of March 31,
1995, between CAG as successor-in-interest to
Fairfield and First Fidelity Bank, National
Association, as trustee, incorporated by reference
from Exhibit 4(b) to the 1994 Form 10-K.
(4) (c) Indenture, dated as of March 12, 1997, between
Fairfield and United States Trust Company of New York
as Trustee, incorporated by reference from Exhibit
4(c) to the 1997 Form S-4.
(4) (d) Certificate of Designation, dated March 12, 1997, for
the Existing Preferred Stock, incorporated by
reference from Exhibit 4(d) to the 1997 Form S-4.
(9) Voting Trust Agreement
Not Applicable.
(10) (a) Loan Agreement, dated as of July 7, 1993, among
Fairfield, the lenders named therein and General
Electric Capital Corporation ("GECC"), as agent,
incorporated by reference from Exhibit 10(a) to the
Second Quarter 1993 Form 10-Q.
(10) (b) Amended and Restated Warrant Agreement, dated as of
July 7, 1993, among Fairfield, Mitsui Nevitt Capital
Corporation and Principal Mutual Life Insurance
Company, incorporated by reference from Exhibit 10(b)
to the Second Quarter 1993 Form 10-Q.
(10) (c) Security Agreement, dated as of July 7, 1993, between
Fairfield and GECC, as agent, incorporated by
reference from Exhibit 10(c) to the Second Quarter
1993 Form 10-Q.
(10) (d) Security Agreement, dated as of July 7, 1993, between
T-H Licensing, Inc. ("T-H Licensing") and GECC, as
agent, incorporated by reference from Exhibit 10(d)
to the Second Quarter 1993 Form 10-Q.
(10) (e) Stock Pledge Agreement, dated as of July 7, 1993,
between Fairfield and GECC, as agent, incorporated by
reference from Exhibit 10(e) to the Second Quarter
1993 Form 10-Q.
(10) (f) Trademark Security Agreement, dated as of July 7,
1993, between Fairfield and GECC, as agent,
incorporated by reference from Exhibit 10(g) to the
Second Quarter 1993 Form 10-Q.
(10) (g) Trademark Security Agreement, dated as of July 7,
1993, between T-H Licensing and GECC, as agent,
incorporated by reference from Exhibit 10(h) to the
Second Quarter 1993 Form 10-Q.
(10) (h) Patent Security Agreement, dated as of July 7, 1993,
between Fairfield and GECC, as agent, incorporated
by reference from Exhibit 10(i) to the Second Quarter
1993 Form 10-Q.
(10) (i) Patent Security Agreement, dated as of July 7, 1993,
between T-H Licensing and GECC, as agent,
incorporated by reference from Exhibit 10(j) to the
Second Quarter 1993 Form 10-Q.
(10) (j) Subsidiary Guaranty, dated as of July 7, 1993,
between T-H Licensing and GECC, as agent,
incorporated by reference from Exhibit 10(k) to the
Second Quarter 1993 Form 10-Q.
(10) (k) Mortgage, Assignment of Leases, Rents and Profits,
Security Agreement and Fixture Filing, dated as of
July 7, 1993, between Fairfield and GECC, as agent,
incorporated by reference from Exhibit 10(l) to the
Second Quarter 1993 Form 10-Q.
(10) (l) Collection Account Agreement, dated as of July 7,
1993, among Fairfield and GECC, and acknowledged by
Bank One, Lafayette, N.A., incorporated by reference
from Exhibit 10(m) to the Second Quarter 1993 Form 10-
Q.
(10) (m) Used Machinery Account Agreement, dated as of July 7,
1993, among Fairfield and GECC, and acknowledged by
Bank One, Lafayette, N.A., incorporated by reference
from Exhibit 10(n) to the Second Quarter 1993 Form 10-
Q.
(10) (n) Quitclaim Grant of Security Interest, dated as of
July 7, 1993, between Fairfield and GECC, as agent,
incorporated by reference from Exhibit 10(o) to the
Second Quarter 1993 Form 10-Q.
(10) (o) Supplemental Quitclaim Grant of Security Interest
(Patents only), dated as of July 7, 1993, between
Fairfield and GECC, as agent, incorporated by
reference from Exhibit 10(p) to the Second Quarter
1993 Form 10-Q.
(10) (p) First Amendment to Loan Agreement, dated as of
September 30, 1994, among Fairfield, the lenders
named therein and GECC, as agent, incorporated by
reference from Exhibit 10(q) as filed with the
Securities and Exchange Commission on November 14,
1994.
(10) (q) Second Amendment to Loan Agreement, dated as of March
30, 1995, among Fairfield, the lenders named therein
and GECC, as agent, incorporated by reference from
Exhibit 10(r) to the 1994 Form 10-K.
(10) (r) Third Amendment to Loan Agreement, dated as of March
31, 1995, among Fairfield, the lenders named therein
and GECC, as agent, incorporated by reference from
Exhibit 10(s) to the 1994 Form 10-K.
(10) (s) First Amendment to Mortgage Assignment of Leases,
Rents and Profits, Security Agreement and Fixture
Filing, dated as of March 31, 1995, between Fairfield
and GECC, as agent, incorporated by reference from
Exhibit 10(t) to the 1994 Form 10-K.
(10) (t) Stock Pledge Agreement, dated as of March 31, 1995,
between Lancer Industries Inc. ("Lancer") and GECC,
as agent, incorporated by reference from Exhibit
10(u) to the 1994 Form 10-K.
(10) (u) Amended and Restated Security Agreement, dated as of
March 31, 1995, between Fairfield and GECC, as agent,
incorporated by reference from Exhibit 10(v) to the
1994 Form 10-K.
(10) (v) The Fairfield Manufacturing Company, Inc. Equity
Participation Plan, dated August 21, 1989
incorporated by reference from Exhibit 10(x) to the
1995 Form 10-K.
(10) (w) The Collective Bargaining Agreement, ratified October
28, 1995, between Fairfield and United Auto Workers'
Local 2317 incorporated by reference from Exhibit
10(y) to the 1995 Form 10-K.
(10) (x) The Tax Sharing Agreement, dated as of July 18, 1990,
between Fairfield and Lancer, incorporated by
reference from Exhibit 10(z) to the 1995 Form 10-K.
(10) (y) The Fairfield Manufacturing Company, Inc. (1992)
Supplemental Executive Retirement Plan incorporated
by reference from Exhibit 10(aa) to the 1995 Form 10-
K.
(10) (z) Letter Agreement, dated December 29, 1989, granting
exclusive license from T-H Licensing to Fairfield
incorporated by reference from Exhibit 10(bb) to the
1995 Form 10-K.
(10) (aa) Fourth Amendment to Loan Agreement, dated as of
December 5, 1996, among Fairfield, the lenders named
therein and GECC, as agent, incorporated by reference
from Exhibit 10(cc) to Fairfield's Form 10-K as filed
with the Securities and Exchange Commission on
February 25, 1997 (the "1996 Form 10-K").
(10) (bb) Second Amendment to Mortgage Assignment of Leases,
Rents and Profits, Security Agreement and Fixture
Filing, dated as of December 5, 1996, between
Fairfield and GECC, as agent, incorporated by
reference from Exhibit 10(dd) to the 1996 Form 10-K.
(10) (cc) Fifth Amendment to the Loan Agreement, dated as of
February 26, 1997, among Fairfield, the lenders named
therein and GECC, as agent, incorporated by reference
from Exhibit 10(ee) to the 1997 Form S-4.
(10) (dd) The Employment Agreement, dated as of June 1, 1996,
between Fairfield and K. A. Burns, incorporated by
reference from Exhibit 10(ee) to the 1996 Form 10-K.
(10) (ee) Consent and Amendment, dated as of March 27, 1997,
among Fairfield and GECC, as sole lender and agent,
incorporated by reference from Exhibit 10(gg) to the
1997 Form S-4.
(10) (ff) Securities Purchase Agreement, dated March 7, 1997,
between Fairfield and the Initial Purchaser,
incorporated by reference from Exhibit 10(hh) to the
1997 Form S-4.
(10) (gg) Share Registration Rights Agreement, dated March 12,
1997, between Fairfield and the Initial Purchaser,
incorporated by reference from Exhibit 10(ii) to the
1997 Form S-4.
(10) (hh) Consulting Agreement, dated August 1, 1997, between
Fairfield and Wolodymyr B. Lechman.
(11) Statement re computation of per share earnings.
Not Applicable.
(12) Statement re Computation of ratios.
Not Applicable.
(13) Annual Report to Security Holders, Form 10-Q or
Quarterly Report to Security Holders.
Not Applicable.
(16) Letter re Change in Certifying Accountant.
Not Applicable.
(18) Letter re change in accounting principles.
Not Applicable.
(21) Subsidiaries of Fairfield Manufacturing Company, Inc.
T-H Licensing, Inc.
(22) Published report regarding matters submitted to vote
of security holders.
Not Applicable.
(23) Consents of experts and counsel.
Not Applicable.
(24) Power of attorney.
Not Applicable.
(28) Information from Reports Furnished to State Insurance
Regulatory Authorities.
Not Applicable.
(99) Additional exhibits.
Not Applicable.
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This schedule contains summary financial information extracted from SEC Form
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</LEGEND>
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<S> <C> <C>
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<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 2042 2042
<SECURITIES> 0 0
<RECEIVABLES> 23777 23777
<ALLOWANCES> (600) (600)
<INVENTORY> 20495 20495
<CURRENT-ASSETS> 46684 46684
<PP&E> 69391 69391
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 169864 169864
<CURRENT-LIABILITIES> 36023 36023
<BONDS> 0 0
0 0
47805 47805
<COMMON> 79 79
<OTHER-SE> (53632) (53632)
<TOTAL-LIABILITY-AND-EQUITY> 169864 169864
<SALES> 44880 144869
<TOTAL-REVENUES> 44880 144869
<CGS> 6527 25790
<TOTAL-COSTS> 42926 132307
<OTHER-EXPENSES> 38 84
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3161 9503
<INCOME-PRETAX> (1245) 2975
<INCOME-TAX> (400) 1670
<INCOME-CONTINUING> (2316) (1929)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2316) (1929)
<EPS-PRIMARY> (.29) (.25)
<EPS-DILUTED> (.29) (.25)
</TABLE>
CONSULTING AGREEMENT, dated as of July 31, 1997, between Fairfield
Manufacturing Company, Inc. (the "Company"), and Wolodymyr B. Lechman, an
individual residing at 1636 Cottonwood Circle, Lafayette, IN (the "Consultant").
The parties hereto agree as follows:
1. Retention of Consultant. On the terms and subject to the conditions
set forth herein, the Company hereby retains the Consultant to provide the
consulting services described in section 2, and the Consultant hereby agrees to
provide such consulting services to the Company or, if requested by the Company,
to any affiliate(s) of the Company.
2. Services. During the period commencing (on the date of this
Agreement) and ending on the fourth anniversary thereof (the "Consulting
Period"), Consultant shall provide to the Company consulting services
commensurate with his status and experience, including, but not limited to, such
assistance as the Company shall reasonably request as to significant corporate
transactions involving the Company (e.g., financing, acquisitions and
divestitures), and providing continuity with respect to important customers of
or vendors to the Company.
3. Compensation: Expenses. In consideration for the services to be
provided by the Consultant hereunder, the Company will pay to the Consultant a
consulting fee at a rate of $250,000 per annum during the Consulting Period,
payable in quarterly installments of $62,500 in advance, for an aggregate total
during the Consulting Period of $1,000,000. The Company will reimburse the
Consultant for all reasonable out-of-pocket expenses incurred by the Consultant
in connection with the performance by the Consultant of his services under this
Agreement.
4. Independent Contractor Status. The Consultant shall not, solely by
virtue of the consulting services provided hereunder, be considered to be an
officer, employee or part-time employee of the Company during the Consulting
Period, and shall not have the power or authority to contract in the name of or
bind the Company, except as may be expressly stated in a written delegation of
such authority from the Board. The Consultant will be responsible for all
applicable taxes and other matters, if any, required of self-employed
individuals by any government authority; provided that if the Company shall
determine that the Consultant should properly be treated as an employee of the
Company for tax purposes, the Company shall be entitled to withhold any
applicable employment-related withholding taxes or other similar taxes.
5. Non-Competition; Confidential Information; Non-Solicitation.
(a) During the Consulting Period the Consultant will not, directly or
indirectly, either individually or as owner, partner, agent, employee,
consultant or otherwise, engage in any activity in material competition with the
business of the Company.
(b) During, and at all times after the expiration of, the Consulting
Period, the Consultant will keep confidential any trade secrets or confidential
or proprietary information of the Company which are now known to the Consultant
or which hereafter may become known to the Consultant as a result of his
employment or association with the Company and shall not directly or indirectly
disclose any such information to any person, firm or corporation, or use the
same in any way other than in connection with the business of the Company.
(c) During the Consulting Period, the Consultant will not, directly or
indirectly, induce any employee of the Company who is a member of management to
engage in any activity in which the Consultant is prohibited from engaging under
this Section, and will not directly or indirectly, either individually or as
owner, agent, employee, consultant or otherwise, employ or offer employment to
any such person who is or was employed by the Company unless such person shall
have ceased to be employed by the Company or its subsidiaries for a period of at
least 6 months.
(d) During the Consulting Period, the Consultant shall not solicit or
otherwise attempt to establish for the Consultant or any other person, firm or
entity, any business relationship with any person, firm or corporation which
during the Consulting Period is a customer of the Company or a prospective
customer.
6. Death of Executive. If the Consultant dies prior to the end of the
Consulting Period or is unable to perform the services requested of him
hereunder due to physical or mental disabilities, as determined by a doctor
mutually acceptable to the Company and the Consultant (or his legal
representatives), the Company shall pay to the Consultant's legal
representatives or beneficiaries such amounts as would have been paid or
provided by the Company to the Consultant under this Agreement had the
Consultant continued to provide such services for the term of this Agreement.
7. Successors and Assigns. This Agreement and all of the provisions
hereof shall be binding upon, inure to the benefit of, and be enforceable by and
against the parties hereto and their respective successors and assigns. The
rights, interests and obligations hereunder shall not be assigned or delegated
in whole or in part by either party, except as provided in Section 6 hereof and
except that the Company may assign any of its rights, interests and obligations
hereunder to any of its affiliates.
8. Governing Law. This Agreement shall be deemed to be a contract made
under, and is to be governed and construed in accordance with, the laws of the
State of New York, without regard to the conflict of laws principles or rules
thereof.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
FAIRFIELD MANUFACTURING COMPANY, INC.
By: ____________________________
Name: Kenneth A. Burns
Title: President & CEO
____________________________
Wolodymyr B. Lechman
