UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
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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: 1-6560
THE FAIRCHILD CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 34-0728587
- ------------------------------- -------------------
(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
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(Address of principal executive offices)
(Zip Code)
(703) 478-5800
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(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
- ----- ---------------
Class A Common Stock, $.10 Par Value 13,406,109
Class B Common Stock, $.10 Par Value 2,696,886
----------
16,102,995
<PAGE>
THE FAIRCHILD CORPORATION 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
Condition 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18
*For purposes of Part I of this Form 10-Q, the term "Company" means The
Fairchild Corporation, and its subsidiaries, unless otherwise indicated. For
purposes of Part II, the term "Company" means The Fairchild Corporation
unless otherwise indicated.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
THE FAIRCHILD CORPORATION 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, $5,925 and $5,968
restricted................................. $ 50,479 $ 71,182
Short-term investments....................... 6,111 4,116
Accounts receivable-trade, less allowances
of $5,506 and $5,610....................... 103,366 93,607
Inventories:
Finished goods............................ 55,905 53,771
Work-in-process........................... 25,790 27,704
Raw materials............................. 21,160 23,434
--------- ---------
102,855 104,909
Prepaid expenses and other current assets.... 17,279 18,116
--------- ---------
Total Current Assets......................... 280,090 291,930
Property, plant and equipment, net of
accumulated depreciation of $120,747 and
$115,659................................... 168,030 170,926
Net assets held for sale..................... 51,822 51,573
Cost in excess of net assets acquired,
(Goodwill) less accumulated amortization of
$37,399 and $35,779......................... 208,447 209,959
Investments and advances - affiliated
companies................................... 76,096 73,670
Prepaid pension assets....................... 59,374 59,567
Other assets................................. 24,830 24,257
--------- ---------
Total Assets................................. $ 868,689 $ 881,882
========= =========
*Condensed from audited financial statements
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<TABLE>
THE FAIRCHILD CORPORATION 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........................... $ 47,444 $ 40,989
Accounts payable............................. 45,599 48,100
Accrued interest............................. 11,155 16,309
Other accrued liabilities.................... 74,392 73,938
--------- ---------
Total Current Liabilities.................... 178,590 179,336
Long-term debt, less current maturities...... 503,205 509,715
Other long-term liabilities.................. 19,418 19,435
Retiree health care liabilities.............. 48,955 49,474
Noncurrent income taxes...................... 38,768 38,004
Minority interest in subsidiaries............ 24,455 24,533
Redeemable preferred stock of subsidiary..... 15,550 16,342
--------- ---------
Total Liabilities............................ 828,941 836,839
Stockholders' Equity:
Class A common stock, 10 cents par value;
authorized 40,000,000 shares, 19,647,705
shares issued and 13,406,109 shares
outstanding................................ 1,965 1,965
Class B common stock, 10 cents par value;
authorized 20,000,000 shares, 2,696,886
shares issued and outstanding.............. 270 270
Paid-in capital.............................. 67,105 67,011
Retained earnings............................ 14,614 18,912
Cumulative translation adjustment............ 7,633 8,724
Net unrealized holding loss on available-for-
sale securities............................ (120) (120)
Treasury Stock, at cost, 6,241,596 shares of
Class A Common Stock....................... (51,719) (51,719)
--------- ---------
Total Stockholders' Equity................... 39,748 45,043
--------- ---------
Total Liabilities and Stockholders' Equity... $ 868,689 $ 881,882
========= =========
*Condensed from audited financial statements.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<TABLE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(In thousands, expect per share data)
<CAPTION>
Three Months Ended
October 1, October 2,
1995 1994
---------- ----------
<S> <C> <C>
Revenue:
Sales...................................... $153,793 $121,393
Other income (expense), net................ 184 (171)
------- -------
153,977 121,222
Costs and Expenses:
Cost of sales.............................. 112,554 89,140
Selling, general & administrative.......... 29,516 23,001
Research and development................... 752 968
Amortization of goodwill................... 1,619 1,530
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144,441 114,639
Operating income............................. 9,536 6,583
Interest expense............................. 18,359 17,754
Interest income.............................. (883) (1,139)
------- -------
Net interest expense......................... 17,476 16,615
Investment income, net....................... 1,995 342
Equity in earnings of affiliates............. 2,228 2,380
Minority interest............................ (598) (658)
------- -------
Loss from continuing operations before taxes. (4,315) (7,968)
Income tax benefit........................... 37 1,308
------- -------
Loss from continuing operations.............. (4,278) (6,660)
Loss on disposal of discontinued operations,
net........................................ (20) (25)
------- -------
Net loss..................................... $ (4,298) $ (6,685)
======= =======
Earnings Per Share
Primary and Fully Diluted:
Loss from continuing operations............ $ (.27) $ (.42)
------- -------
Net loss................................... $ (.27) $ (.42)
======= =======
Weighted average number of shares
used in computing earnings per share:
Primary.................................. 16,103 16,103
Fully diluted............................ 16,103 16,103
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<TABLE>
THE FAIRCHILD CORPORATION 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 loss................................. $ (4,298) $ (6,685)
Depreciation and amortization............ 9,704 8,927
Accretion of discount on long-term
liabilities............................ 1,135 800
Minority interest........................ 598 658
Undistributed earnings of affiliates..... (2,025) (2,380)
Changes in assets and liabilities........ (19,771) (18,897)
------- -------
Net cash used for operations............. (14,657) (17,577)
Investments:
Purchase of property, plant and equipment (3,903) (3,510)
Acquisitions of subsidiaries, net of cash
acquired............................... -- (550)
Other, net............................... (1,198) (337)
------- -------
Net cash used for investments............ (5,101) (4,397)
Financing:
Proceeds from issuance of debt........... 2,618 940
Debt repayments and repurchase of
debentures, net........................ (2,948) (2,915)
------- -------
Net cash used for financing.............. (330) (1,975)
Effect of exchange rate changes on cash...... (615) 137
Net decrease in cash......................... (20,703) (23,812)
Cash and cash equivalents, beginning of
period..................................... 71,182 102,368
------- -------
Cash and cash equivalents, end of period..... $ 50,479 $ 78,556
======= =======
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
THE FAIRCHILD CORPORATION 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 the 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 September 9, 1994, the Company acquired all of the outstanding Common
Stock of Scandinavian Bellyloading Company AB ("SBC"). SBC is the designer
and manufacturer of patented cargo loading systems, which are installed in
the cargo area of commercial aircraft. Several major airlines are expected
to equip existing fleets with the SBC system over the next three to four
years. The Company reports the results of SBC as part of its Industrial
Products segment.
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 - Restricted Cash
The Company had approximately $5,925,000 and $5,968,000 of restricted
cash on October 1, 1995 and June 30, 1995, respectively, all of which is
maintained as collateral for certain debt facilities.
Note 4 - Summarized Statement of Earnings Information
The following table presents summarized statement of earnings
information on a combined 100% basis of Banner Aerospace, Inc. ("Banner") and
Nacanco Paketleme ("Nacanco"), the Company's principal investments, which are
accounted for using the equity method.
<TABLE>
<CAPTION>
Three Months Ended
(In thousands) ---------------------------
October 1, October 2,
1995 1994
------------ ------------
<S> <C> <C>
Net sales................................. $ 98,654 $ 79,397
Gross profit.............................. 29,982 25,913
Earnings from continuing operations....... 6,511 7,822
Net earnings.............................. 6,511 7,822
</TABLE>
The Company owns approximately 47.2% of Banner common stock, which is
included in investments and advances-affiliated companies. The Company
recorded equity earnings of $346,000 and $253,000 from this investment for
the three months ended October 1, 1995 and October 2, 1994, respectively. At
the close of trading on September 29, 1995, Banner stock was quoted at $5.25
per share. Based on this price the Company's equity investment in Banner had
an approximate market value of $44,625,000 versus a carrying value of
$51,492,000. The Company does not believe that this decline in market value
is a permanent impairment.
The Company owns approximately 31.9% of Nacanco common stock. The
Company recorded equity earnings of $1,835,000 and $2,249,000 from this
investment for the three months ended October 1, 1995 and October 2, 1994,
respectively.
In connection with the Company's December 23, 1993 sale of its interest
in Rexnord Corporation to BTR Dunlop Holdings, Inc. ("BTR"), the Company has
placed shares of Banner, with a fair market value of $25,000,000, in escrow
to secure the Company's indemnification of BTR against a contingent
liability. Once the contingent liability is resolved, the escrow will be
released.
Note 5 - Minority Interests in Consolidated Subsidiaries
The Company includes $23,804,000 of minority interest on its balance
sheet at October 1, 1995 and June 30, 1995, which is represented by the
Series C Preferred Stock of Fairchild Industries, Inc. ("FII"), a majority
owned subsidiary. The Series C Preferred Stock has an annual dividend
requirement of $4.25 per share through July 21, 1999 and $7.00 per share
thereafter. There were 553,460, shares authorized, issued and outstanding at
October 1, 1995 and June 30, 1995.
Note 6 - Redeemable Preferred Stock of Subsidiary
The Company has classified the outstanding shares of Series A Preferred
Stock of FII as a long-term liability. The Series A Preferred Stock has a
mandatory redemption value of $45.00 per share and an annual dividend
requirement of $3.60 per share. During the three months ended October 1,
1995, the Company repurchased 17,600 shares of FII's Series A Preferred
Stock. Effectively, there were 376,201 and 393,801 shares authorized, issued
and outstanding at October 1, 1995 and June 30, 1995, respectively.
Note 7 - Equity Securities
The Company had 13,406,109 shares of Class A Common Stock and 2,696,886
shares of Class B Common Stock outstanding at October 1, 1995. Class A
Common Stock is traded on both the New York and Pacific Stock Exchange while
there is no public market for the Class B Common Stock. Shares of Class A
Common Stock are entitled to one vote per share and cannot be exchanged for
Class B Common Stock. Shares of Class B Common Stock are entitled to ten
votes per share and can be exchanged, at any time, for shares of Class A
Common Stock on a share for share basis.
Note 8 - Earnings Per Share
Primary and fully diluted earnings per share are computed by dividing
net income available to common stockholders by the weighted average number of
shares and share equivalents outstanding during the period. To compute the
incremental shares resulting from stock options and warrants for primary
earnings per share, the average market price of the Company's stock during
the period is used. To compute the incremental shares resulting from stock
options and warrants for fully diluted earnings per share, the greater of the
ending market price or the average market price of the Company's stock is
used.
In computing primary and fully diluted earnings per share for the three
months ended October 1, 1995 and October 2, 1994, the conversion of options
and warrants was not assumed, as the effect was anti-dilutive.
Note 9 - Commitments and Contingencies
CL Motor Freight ("CL") Litigation
- ----------------------------------
The Workers Compensation Bureau of the State of Ohio is seeking
reimbursement from the Company for up to $5,400,000 for CL workers
compensation claims which were insured under a self-insured program of CL.
The Company has contested a significant portion of this claim.
<PAGE>
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 FII did not comply with Federal Acquisition Regulations
and Cost Accounting Standards in accounting for (i) the 1985 reversion to FII
of certain assets of terminated defined benefit pension plans, and (ii)
pension costs upon the closing of segments of FII's business. The ACO has
directed FII 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 totalled $13,332,000. As of October 1,
1995, the estimated probable exposures for these matters was $13,163,000. It
is reasonably possible that the Company's total exposure for these matters
could be approximately $22,115,000.
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 10 - Subsequent Events
On November 9, 1995, the Company announced it has entered into an
agreement to merge its Fairchild Industires, Inc. subsidiary with Shared
Technologies Inc. ("Shared Technologies"). The agreement provides that, upon
consummation of the merger, Shared Technologies will (1) assume and repay
approximately $180,000,000 of the Company's existing debt, and may redeem
FII's Series A and Series C preferred stock issues, and (2) issue to the
Company 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 Technolgoies
preferred shares, part of which are convertible into additional shares of
Shared Technologies common stock which would increase the Company's interest
to approximately 42%, on a fully diluted basis. None of FII'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 FII. 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
---------------------------------------------
The Fairchild Corporation (the "Company") was incorporated in October,
1969, under the laws of the State of Delaware. On November, 15, 1990, the
Company changed its name from Banner Industries, Inc. to The Fairchild
Corporation. RHI Holdings, Inc. ("RHI") is a direct subsidiary of the
Company. RHI is the majority owner of Fairchild Industries, Inc. ("FII")
which, in turn, is the 100% owner of VSI Corporation ("VSI"). The Company's
operations are conducted through VSI and RHI. The Company also holds
significant equity interests in Banner Aerospace, Inc. and Nacanco Paketleme
("Nacanco").
RESULTS OF OPERATIONS
The Company currently operates in three principal business segments:
Aerospace Fasteners, Industrial Products and Communications Services. The
following table illustrates the historical sales and operating income of the
Company's continuing operations for the three month period 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....................... 68,600 49,941*
Communications Services................... 32,997 19,942
------- -------
Total........................................ $153,793 $121,393
======= =======
Operating Income by Business Segment:
Aerospace Fasteners....................... $ 310 $ 1,405*
Industrial Products....................... 8,331 4,677*
Communications Services................... 4,909 4,422
------- -------
Total........................................ 13,550 10,504
Corporate administrative expense.......... (3,857) (3,158)
Other corporate expense................... (157) (763)
------- -------
Operating income............................. 9,536 6,583
Net interest expense......................... (17,476) (16,615)
Investment income, net....................... 1,995 342
Equity in earnings of affiliates............. 2,228 2,380
Minority interest............................ (598) (658)
------- -------
Loss from continuing operations before income
taxes...................................... (4,315) (7,968)
Income tax benefit........................... 37 1,308
------- -------
Loss from continuing operations.............. $ (4,278) $ (6,660)
======= =======
*Restated for the transfer of the Gas Springs division from the Aerospace
Fasteners Segment to the Industrial Products Segment.
</TABLE>
General
- -------
Overall sales increased by 26.7% 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 Communications
Services business segments.
Operating income increased $3.0 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 year 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 $18.7 million or 37.4%
in the Fiscal 1996 first quarter compared to the Fiscal 1995 quarter. Over
$14.1 million of this sales increase is attributed to the excellent
performance of Fairchild Technologies which includes Fairchild Convac, a
semiconductor equipment business which had a strong first quarter performance
resulting from the shipment of a surge of orders included in the prior year
end backlog. This was compared to a very slow Fiscal 1995 first quarter,
which was the first quarter following the acquisition. Sales at D-M-E
increased $2.1 million or 5.3% underlining this operation's continued growth.
Fairchild Data sales rose $1.3 million or 50.5%.
Operating income in the Industrial Products segment increased $3.7
million. $2.7 million of this increase was contributed by Fairchild
Technologies as a result of the increase in sales. Fairchild Data
Corporation's operating income improved by $0.7 million from the prior year
on higher sales and improved gross margins and D-M-E was up by $0.3 million.
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 22.1% in the Fiscal 1996
first quarter compared to the same Fiscal 1995 quarter primarily due to
higher than usual legal fees incurred in connection with litigation. The
Fiscal 1995 expense was lower partially due to reversal of several accruals
not required.
Other corporate expense decreased $.6 million in the first quarter ended
October 1, 1995, compared to the same period in the prior year, primarily due
to lower carrying costs incurred on real estate held for sale in Fiscal 1996
and a currency loss recognized on a Canadian Pension Plan in Fiscal 1995.
Net interest expense increased 5.2% in the three month period ended
October 1, 1995, compared to the prior year period, due primarily to higher
bank borrowings and lower interest income earned during the Fiscal 1996 three
month period.
Investment income, net was up $1.7 million in the first quarter of
Fiscal 1996, principally as a result of recording unrealized holdings gains
related to trading securities in the current quarter.
Equity in earnings of affiliates decreased $.2 million in the three
month period ended October 1, 1995, compared to the same period of Fiscal
1995 primarily due to lower earnings on Nacanco in the Fiscal 1996 period.
Minority interest expense includes dividend expense on FII's Series C
Preferred Stock.
Income taxes - In the first quarter of Fiscal 1996, the Company recorded
a small benefit on a pretax loss of $4.3 million. A small tax benefit
resulted largely due to the amortization of goodwill, which is not deductible
for tax purposes.
The net loss decreased $2.4 million in the first three months of Fiscal
1996, compared to the first three months of Fiscal 1995, primarily due to:
(1) the $3.0 million increase in operating income, and (2) the $1.7 million
increase in investment income. Partially offsetting the decrease in net loss
was a higher net interest expense, lower equity earnings and a lower tax
benefit.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Working capital at October 1, 1995, was $101.5 million, which was $11.1
million lower than working capital at June 30, 1995. The principal reasons
for this decrease included a $20.7 million reduction in cash, primarily
required to service debt and meet operating cash requirements during the
first quarter, and a $6.5 million increase in current debt as a result of
long term bank debt becoming current. These decreases were partially offset
by a $9.8 million increase in accounts receivable, reflecting slower customer
payments and higher sales, and a reduction in accrued interest of $5.2
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 and liquidation of
investments. Net assets held for sale at October 1, 1995 had a book value of
$51.8 million and included two parcels of real estate in California, an 88
acre parcel of real estate located in Farmingdale, New York, two landfills in
Pennsylvania, a real estate joint venture in California, and several other
parcels elsewhere, which the Company plans to sell, lease or develop, subject
to the resolution of certain environmental matters and market conditions.
The Company's principal cash requirements include debt service, capital
expenditures, acquisitions, payment of other liabilities, and payment of
dividends on preferred stock.
The level of the Company's capital expenditures varies from year to
year, depending upon the timing of capital spending for new production
equipment, periodic plant and facility expansion, acquisition of high growth
companies, 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 $3.9 million. The Company anticipates that total
capital expenditures for the fiscal year ending June 30, 1996 will be
approximately $18.8 million.
Investments and advances in affiliated companies increased $2.4 million
reflecting equity earnings recorded during the quarter.
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.
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
acceleration of the principal and interest outstanding, and termination of
the revolving credit line. However, if necessary, management believes a
waiver can be obtained.
Under the most restrictive covenants of the Company's indentures, the
Company's consolidated net worth, as defined, must not be less than
$35,000,000 for two consecutive quarters. As of October 1, 1995, the
Company's consolidated net worth, as defined, was $32,115,000 after the
effect of changes in accounting principles. However, the Company believes
that computation of consolidated net worth under the indentures would be
undertaken in accordance with Generally Accepted Accounting Principles in
effect at the date of the execution and delivery of each indenture by the
Company. Such computation would yield approximately a $2,946,000 higher
consolidated net worth for the Company, as a result of changes in accounting
principles, primarily Statements of Financial Accounting Standards Nos. 106
and 109, which were adopted subsequent to the Company's execution and
delivery of the indentures. Accordingly, the Company believes its net worth,
as defined, is in excess of $35,000,000 at October 1, 1995.
The Company's subsidiaries may transfer available cash as dividends to
the Company if the purpose of such dividends is to provide the Company with
funds necessary to meet its debt service requirements under specified notes
and debentures. However, all other dividends from FII to RHI are subject to
certain limitations under the Credit Agreement. As of October 1, 1995, FII
was unable to provide dividends to RHI. The Credit Agreement also restricts
FII from additional borrowings under the Credit Facilities for the payment of
any dividends.
<PAGE>
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 9 of Notes to Consolidated Financial
Statements.
Item 6. Exhibits and Reports on Form 8-K
None
SIGNATURES
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 THE FAIRCHILD CORPORATION
(Registrant) and as its Chief
Financial Officer:
By: Michael T. Alcox
Senior Vice President and
Chief Financial Officer
By: Christopher Colavito
Vice President and
Controller
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> 50,479
<SECURITIES> 6,111
<RECEIVABLES> 108,872
<ALLOWANCES> 5,506
<INVENTORY> 102,855
<CURRENT-ASSETS> 280,090
<PP&E> 288,777
<DEPRECIATION> 120,747
<TOTAL-ASSETS> 868,689
<CURRENT-LIABILITIES> 178,590
<BONDS> 503,205
<COMMON> 2,235
15,550
0
<OTHER-SE> 37,513
<TOTAL-LIABILITY-AND-EQUITY> 868,689
<SALES> 153,793
<TOTAL-REVENUES> 153,977
<CGS> 112,554
<TOTAL-COSTS> 144,441
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,476
<INCOME-PRETAX> (4,315)
<INCOME-TAX> (37)
<INCOME-CONTINUING> (4,278)
<DISCONTINUED> (20)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,298)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
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