UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
FORM 10-Q
--------------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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
----------------------------------------
(Address of principal executive offices)
(Zip Code)
(703) 478-5800
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class December 31, 1995
- ----- -----------------
Class A Common Stock, $.10 Par Value 13,478,262
Class B Common Stock, $.10 Par Value 2,696,886
----------
16,175,148
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES*
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of December 31, 1995 (Unaudited)
and June 30, 1995 3
Consolidated Statements of Earnings
for the Three and Six Months Ended
December 31, 1995 and January 1, 1995
(Unaudited) 5
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended
December 31, 1995 and January 1, 1995
(Unaudited) 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 6. Exhibits and Reports on Form 8-K 23
*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>
December 31, June 30,
ASSETS 1995 1995
- ------ ----------- -----------
(Unaudited) (*)
<S> <C> <C>
Current Assets:
Cash and cash equivalents, $5,925 and $5,968
restricted................................. $ 42,967 $ 71,182
Short-term investments....................... 6,052 4,116
Accounts receivable-trade, less allowances
of $3,455 and $3,971....................... 70,241 65,446
Inventories:
Finished goods............................ 43,525 38,783
Work-in-process........................... 17,604 19,950
Raw materials............................. 17,320 19,531
--------- ---------
78,449 78,264
Prepaid expenses and other current assets.... 21,040 16,751
Net current assets of discontinued operations 34,609 34,626
--------- ---------
Total Current Assets......................... 253,358 270,385
Property, plant and equipment, net of
accumulated depreciation of $98,970 and
$89,374.................................... 129,269 132,940
Net assets held for sale..................... 52,239 51,573
Net noncurrent assets of discontinued
operations................................. 85,577 88,209
Cost in excess of net assets acquired,
(Goodwill) less accumulated amortization of
$28,498 and $26,120......................... 152,184 154,295
Investments and advances, affiliated
companies................................... 70,904 69,398
Prepaid pension assets....................... 59,191 59,567
Other assets................................. 25,975 23,927
--------- ---------
Total Assets................................. $ 828,697 $ 850,294
========= =========
*Condensed and restated for discontinued operations (see Note 3) 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>
December 31, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1995
- ------------------------------------- ----------- ----------
(Unaudited) (*)
<S> <C> <C>
Current Liabilities:
Bank notes payable and current maturities
of long-term debt........................... $ 100,288 $ 40,989
Accounts payable............................. 32,323 38,299
Other accrued liabilities.................... 75,816 78,503
--------- ---------
Total Current Liabilities.................... 208,427 157,791
Long-term debt, less current maturities...... 448,642 509,715
Other long-term liabilities.................. 18,534 19,435
Retiree health care liabilities.............. 44,158 44,710
Noncurrent income taxes...................... 38,981 38,004
Minority interest in subsidiaries............ 24,181 24,117
Redeemable preferred stock of subsidiary..... 15,311 16,342
--------- ---------
Total Liabilities............................ 798,234 810,114
Stockholders' Equity:
Class A common stock, 10 cents par value;
authorized 40,000,000 shares, 19,719,858
shares issued (19,647,705 in June) and
13,478,262 shares outstanding (13,406,109
in June)................................... 1,972 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.............................. 67,445 67,011
Retained earnings............................ 9,464 18,912
Cumulative translation adjustment............ 3,151 3,861
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................... 30,463 40,180
--------- ---------
Total Liabilities and Stockholders' Equity... $ 828,697 $ 850,294
========= =========
*Condensed and restated for discontinued operations (see Note 3) 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 Six Months Ended
December 31, January 1, December 31, January 1,
1995 1995 1995 1995
------------ ---------- ------------ ----------
(*) (*)
<S> <C> <C> <C> <C>
Revenue:
Net sales of products................... $ 76,814 $ 61,441 $157,633 $119,963
Revenues from services.................. 26,636 20,408 53,743 40,791
Other income (expense), net............. (9) 700 136 612
------- ------- ------- -------
103,441 82,549 211,512 161,366
Costs and Expenses:
Cost of goods sold...................... 60,432 53,268 122,964 99,112
Cost of services........................ 19,239 14,765 39,177 29,723
Selling, general & administrative....... 20,279 17,571 41,274 32,766
Research and development................ 23 288 44 584
Amortization of goodwill................ 1,168 1,139 2,378 2,260
Restructuring........................... 285 -- 285 --
------- ------- ------- -------
101,426 87,031 206,122 164,445
Operating income (loss)................... 2,015 (4,482) 5,390 (3,079)
Interest expense.......................... 17,720 17,401 36,047 35,156
Interest income........................... (401) (906) (1,279) (2,041)
------- ------- ------- -------
Net interest expense...................... 17,319 16,495 34,768 33,115
Investment income (loss), net............. (83) 2,293 1,912 2,635
Equity in earnings (loss) of affiliates... (169) (428) 1,889 1,748
Minority interest......................... (544) (584) (1,085) (1,208)
------- ------- ------- -------
Loss from continuing operations before
taxes................................... (16,100) (19,696) (26,662) (33,019)
Income tax benefit........................ (7,537) (5,838) (9,951) (9,504)
------- ------- ------- -------
Loss from continuing operations........... (8,563) (13,858) (16,711) (23,515)
Earnings from discontinued operations,
net..................................... 3,420 3,193 7,290 6,190
Loss on disposal of discontinued
operations, net......................... (7) (25) (27) (50)
Extraordinary items, net.................. -- (23) -- (23)
------- ------- ------- -------
Net loss.................................. $ (5,150) $(10,713) $ (9,448) $(17,398)
======= ======= ======= =======
Earnings Per Share
Primary and Fully Diluted:
Loss from continuing operations......... $ (.53) $ (.86) $ (1.04) $ (1.46)
Earnings from discontinued operations,
net................................... .21 .19 .45 .38
------- ------- ------- -------
Net loss................................ $ (.32) $ (.67) $ (.59) $ (1.08)
======= ======= ======= =======
Weighted average number of shares
used in computing earnings per share:
Primary............................... 16,130 16,103 16,122 16,103
Fully diluted......................... 16,130 16,103 16,122 16,103
*Condensed and restated for discontinued operations. (See Note 3).
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>
Six Months Ended
December 31, January 2,
1995 1994
----------- -----------
(*)
<S> <C> <C>
Cash flows provided by (used for)
Operations:
Net loss.................................. $ (9,448) $(17,398)
Depreciation and amortization............ 16,179 14,438
Accretion of discount on long-term
liabilities............................ 2,132 1,942
Minority interest........................ 1,085 1,273
Undistributed earnings of affiliates..... (1,106) (1,175)
Changes in assets and liabilities........ (25,436) (12,708)
Non-cash charges and working capital
changes of discontinued operations..... 3,524 6,998
------- -------
Net cash used for operations............. (13,070) (6,630)
Investments:
Purchase of property, plant and equipment (6,873) (6,964)
Acquisitions of subsidiaries, net of cash
acquired............................... -- (12,061)
Proceeds received from (used for)
investment securities, net............. (897) 6,467
Other, net............................... (1,304) (1,384)
Investing activities of discontinued
operations............................. (875) (1,233)
------- -------
Net cash used for investments............ (9,949) (15,175)
Financing:
Proceeds from issuance of debt........... 17,119 2,893
Debt repayments and repurchase of
debentures, net........................ (22,118) (14,301)
Issuance of Class A common stock......... 328 --
------- -------
Net cash used for financing.............. (4,671) (11,408)
Effect of exchange rate changes on cash...... (525) (586)
Net decrease in cash......................... (28,215) (33,799)
Cash and cash equivalents, beginning of
period..................................... 71,182 102,368
------- -------
Cash and cash equivalents, end of period..... $ 42,967 $ 68,569
======= =======
*Condensed and restated for discontinued operations. (See Note 3).
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Financial Statements
The consolidated balance sheet as of December 31, 1995 and the
consolidated statements of earnings and cash flows for the six months ended
December 31, 1995 and January 1, 1995 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 December 31, 1995 and for
all periods presented, have been made. All financial information has been
restated for discontinued operations. The balance sheet at June 30, 1995 was
condensed and restated 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 December 31, 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 - Merger Agreement
On November 9, 1995, the Company, RHI Holdings, Inc. ("RHI", the
Company's wholly-owned subsidiary), and Fairchild Industries, Inc. ("FII",
all of whose common stock is owned by RHI), entered into an Agreement and
Plan of a Merger with Shared Technologies Inc. ("STI"), pursuant to which STI
is to acquire FII's Fairchild Communications Services Company ("FCSC")
telecommunications systems and services business. The acquisition is to be
effected by a merger of FII into STI (the "Merger"), with STI being the
surviving corporation. Prior to the Merger, FII is to undergo a
restructuring pursuant to which FII will transfer all of its assets to, and
cause all of its liabilities to be assumed by RHI, except for (i) the assets
and liabilities of FCSC, (ii) the outstanding Series A and Series C Preferred
Stock of FII (having a liquidation value of $41,817,000 at December 31,
1995), (iii) the $125,000,000 principal amount outstanding 12 1/4% Senior
Notes due 1999 (the "Senior Notes") of FII, and (iv) an amount of bank and
other indebtedness of approximately $56,683,000 (the "Assumed Indebtedness").
Pursuant to the Merger, the Series A and Series C Preferred Stock of FII will
be cancelled and converted into the right to receive an amount of cash equal
to their liquidation value ($45.00 per share plus accrued and unpaid
dividends), and the Series B Preferred Stock of FII, all of which is owned by
RHI will be cancelled. Prior to the Merger, FII will make a cash tender
offer to purchase all of the outstanding Senior Notes and seek to obtain such
noteholders' consent to amend the indenture under which the Senior Notes were
issued to remove all covenants which can be amended or deleted by majority
vote (see Note 5). The amount of the Assumed Indebtedness will be reduced,
by (i) the extent the purchase price to be paid in such offering for the
Senior Notes exceeds par, and (ii) the amount of accrued and unpaid dividends
on the Series A and Series C Preferred Stock of FII on the date of the
Merger.
Upon the Merger, STI, as the surviving corporation, is required to (i)
purchase all Senior Notes tendered (and assume FII's obligations with
respect to any Senior Notes not so tendered), (ii) repay the Assumed
Indebtedness in full, and (iii) deposit in escrow the funds necessary to
redeem the Series A and Series C Preferred Stock. As a result of the Merger,
RHI is to receive (i) 6,000,000 shares of Common Stock of STI (representing
approximately 41% of the outstanding shares after giving effect to such
issuance), (ii) shares of 6% Cumulative Convertible Preferred Stock of STI
having an aggregate liquidation preference of $25,000,000 (subject to upward
adjustment) and which are convertible into Common Stock of STI at a
conversion price of $6.375 per share (which, if converted, would represent,
together with the other Common Stock issued to RHI, approximately 41% of the
Common Stock of STI on a fully diluted basis), and (iii) shares of a Special
Preferred Stock having an initial liquidation preference of $20,000,000
(which could accrue up to a maximum of $30,000,000 over a ten-year period if
not redeemed earlier). In connection with its stock ownership, the Company
and RHI has the right to elect up to four of the eleven members of the Board
of Directors of STI and have agreed, subject to certain exceptions, not to
sell any of STI's shares, other than the Special Preferred Stock, for a two-
year period.
The closing of the Merger is subject to a number of conditions,
including (i) the approval of the Merger by the shareholders of STI, and (ii)
holders of at least 51% of the outstanding principal amount of the Senior
Notes tendering their Senior Notes and consenting to the covenant changes
described above. The Company and STI are scheduled to complete this
transaction in Fiscal 1996. The Company expects a significant gain upon
consummation of this transaction.
Note 3 - Discontinued Operations
During the Fiscal 1996 second quarter, the Company resolved to sell the
D-M-E Company ("DME"), a mold equipment manufacturer, and the Fairchild Data
Corporation ("Data"), a satellite communications company. On January 26,
1996, the Company completed the sale of certain assets, liabilities and the
business of DME to Cincinnati Milacron Inc. ("Cincinnati Milacron") for
approximately $245,000,000 in cash and notes, subject to audit adjustment.
On January 27, 1996, the Company completed the sale of Data to SSE Telecom,
Inc. ("SSE") for book value of approximately $5,250,000 and 100,000 shares of
SSE's common stock valued at $9.0625 per share or $906,000 at January 26,
1996, and warrants to purchase an additional 50,000 shares of SSE's common
stock at $11.09 per share. In addition, the Company has an opportunity to
earn an additional 100,000 shares based on the future performance of SSE
during the twelve months following the date of sale. The sale of DME will
result in a significant gain to the Company in the third quarter ended March
31, 1996.
Accordingly, DME and Data have been accounted for as discontinued
operations and the prior periods' financial statements have been restated to
reflect the discontinuance of these companies. The combined net sales of
DME and Data totaled $45,475,000 and $44,080,000 for the second quarter of
Fiscal 1996 and 1995, respectively, and $91,342,000 and $86,568,000 for the
first six months of Fiscal 1996 and 1995, respectively. The combined net tax
provision recorded on earnings from discontinued operations amounted to
$2,673,000 and $2,471,000 for the second quarter of Fiscal 1996 and 1995,
respectively, and $5,050,000 and $4,829,000 for the first six months of
Fiscal 1996 and 1995, respectively. The components of net assets of
discontinued operations on the consolidated balance sheet are as follows:
<TABLE>
<CAPTION>
(In thousands)
December 31, June 30,
1995 1995
------------ --------
<S> <C> <C>
Accounts receivable................. $ 28,064 $ 28,161
Inventories......................... 26,732 26,645
Prepaid and other current assets.... 1,098 1,365
Accounts payable.................... (9,176) (9,801)
Other current liabilities........... (12,109) (11,744)
------- -------
Net current assets of discontinued
operations........................ $ 34,609 $ 34,626
======= =======
Property plant and equipment, net
of accumulated depreciation....... $ 36,175 $ 37,986
Goodwill, net of accumulated
amortization...................... 54,846 55,664
Other assets........................ 4,202 4,602
Retiree health care liabilities..... (4,756) (4,764)
Minority interest in subsidiaries.. (504) (416)
Cumulative translation adjustment... (4,386) (4,863)
------- -------
Net noncurrent assets of
discontinued operations........... $ 85,577 $ 88,209
======= =======
</TABLE>
Note 4 - Proposed Sale of Division
During the second quarter ended December 31, 1995, the Company entered
into preliminary discussions concerning the exchange of shares of common
stock of a new subsidiary (Harco, Inc.), into which the Company would
transfer substantially all assets of, and cause Harco, Inc. to assume all
liabilities of the Company's Harco Division, for shares of common stock of
Banner Aerospace, Inc. ("Banner").
The Company currently owns approximately 47% of Banner common shares,
and if the exchange is consummated would become the majority shareholder of
Banner. Harco is a distributor of precision fasteners to the aerospace
industry.
Note 5 - Tender Offer
On December 22, 1995, FII commenced an offer (the "Tender Offer") to
purchase for cash, upon terms and subject to conditions set forth in an Offer
to Purchase and Consent Solicitations and related Letter of Transmittal (the
"Offer to Purchase"), all $125,000,000 of its outstanding 12 1/4% Senior
Secured Notes Due 1999 (the "Senior Notes"). The Tender Offer, as amended
and restated, provides a purchase price per $1,000 principal amount of the
Senior Notes of (i) $1,066.60 if the Tender Offer is consummated on or prior
to February 28, 1996, or (ii) $1,063.90 if the Tender Offer is consummated
between February 29, 1996 and March 31, 1996, or (iii) $1,057.50 if the
Tender Offer is consummated after March 31, 1996, and in each case, accrued
and unpaid interest up to, but not including, the payment date. Concurrently
with the Tender Offer, FII solicited (the "Tender Offer Consent
Solicitation") consents of the holders of the Senior Notes to (i) the
adoption of the proposed amendments to the indenture pursuant to which the
Senior Notes were issued (the "Indenture"), and (ii) the release of the
collateral securing the FII's obligations under the Senior Notes and the
Indenture, upon terms set forth in the Offer to Purchase.
In addition, independent of the Tender Offer and the Tender Offer
Consent Solicitation, the company also solicited consents to the waiver of
any and all violations of the Indenture arising out of or relating to (i) the
transfer by VSI Corporation ("VSI"), a wholly-owned subsidiary of FII, of the
stock of Harco, Inc. to Banner (see Note 4), and (ii) the sale by VSI of DME
to Cincinnati Milacron (see Note 3).
FII will pay to holders of Senior Notes who validly tender Senior Notes
pursuant to the Tender Offer and Consent Solicitations a consent fee of
$25.00 per $1,000 principal amount of Senior Notes so tendered. The consent
fee will be paid to holders of Senior Notes after, and subject to, the
consummation of the Tender Offer. Additionally, FII will pay an early
consent fee of $5.00 per $1,000 principal amount to holders of Senior Notes
who on or prior to January 19, 1996, validly tender their notes, irrespective
of whether the Tender Offer is consummated. The Tender Offer and the Tender
Offer Consent Solicitations expire February 29, 1996.
FII is to recognize an extraordinary loss, net of any related tax
benefits, in the third quarter of Fiscal 1996, reflecting the contractual
commitment to repurchase the Senior Notes at a premium and pay the consent
fees.
Note 6 - 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, FCSC 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 7 - Restructuring Charges
During the second quarter ended December 31, 1995, the Company recorded
$285,000 in restructuring charges relating to the closing of a small
Aerospace Fasteners business located in Japan.
Note 8 - Restricted Cash
The Company had approximately $5,925,000 and $5,968,000 of restricted
cash on December 31, 1995 and June 30, 1995, respectively, all of which is
maintained as collateral for certain debt facilities.
Note 9 - Summarized Statement of Earnings Information
The following table presents summarized combined statement of earnings
information of Banner and Nacanco Paketleme ("Nacanco"), the Company's
principal investments, which are accounted for using the equity method.
<TABLE>
<CAPTION>
Six Months Ended
(In thousands) ---------------------------
December 31, January 1,
1995 1995
------------ ------------
<S> <C> <C>
Net sales................................. $189,684 $148,632
Gross profit.............................. 55,232 50,344
Earnings from continuing operations....... 7,228 7,168
Net earnings.............................. 7,228 7,168
</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 $375,000 and $970,000 from this investment for
the six months ended December 31, 1995 and January 1, 1995, respectively. At
the close of trading on December 29, 1995, Banner stock was quoted at $5.75
per share. Based on this price the Company's equity investment in Banner had
an approximate market value of $48,875,000 versus a carrying value of
$51,453,000. 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 $2,037,000 and $1,516,000 from this
investment for the six months ended December 31, 1995 and January 1, 1995,
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 $5,000,000, in escrow to
secure the Company's remaining indemnification of BTR against a contingent
liability. Once the contingent liability is resolved, the escrow will be
released.
Note 10 - Minority Interests in Consolidated Subsidiaries
The Company includes $23,804,000 of minority interest on its balance
sheet at December 31, 1995 and June 30, 1995, which is represented by the
Series C Preferred Stock of 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 December 31, 1995 and June 30, 1995.
Note 11 - 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 six months ended December 31,
1995, the Company repurchased 22,900 shares of FII's Series A Preferred
Stock. Effectively, there were 370,901 and 393,801 shares authorized, issued
and outstanding at December 31, 1995 and June 30, 1995, respectively.
Note 12 - Equity Securities
The Company had 13,478,262 shares of Class A Common Stock and 2,696,886
shares of Class B Common Stock outstanding at December 31, 1995. During the
first six months of Fiscal 1996, 72,153 shares of Class A Common Stock were
issued as a result of stock options exercised. Class A Common Stock is
traded on both the New York and Pacific Stock Exchanges 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 13 - Stock Warrants
On November 9, 1995, the Company issued warrants to purchase 500,000
shares of Class A Common Stock, at $9.00 per share, to Peregrine Direct
Investments Limited ("Peregrine") in exchange for the standby commitment it
received on November 8, 1995, from Peregrine to purchase (i) $75,000,000
principal amount of senior secured notes to be issued by a wholly-owned
subsidiary of the Company, and (ii) warrants to purchase 5,000,000 shares of
Class A Common Stock at $7.50 per share, if the Company elects to accept the
Peregrine commitment. The warrants issued to Peregrine are immediately
exercisable and will expire five years from the date of issuance.
Note 14 - 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
and six months ended December 31, 1995 and January 1, 1995, the conversion of
options and warrants was not assumed, as the effect was anti-dilutive.
Note 15 - 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.
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, results of operations, or net cash flows 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 December 31, 1995, the consolidated total recorded liabilities of
the Company for environmental matters totalled $12,354,000. As of December
31, 1995, the estimated probable exposures for these matters was $12,185,000.
It is reasonably possible that the Company's total exposure for these matters
could be approximately $21,137,000.
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 future results of operations or
net cash flows of the Company.
Note 16 - Subsequent Events
As of January 31, 1996, holders of approximately 93.6% of the aggregate
principal amount of Senior Notes have tendered their Senior Notes pursuant to
the Tender Offer, and have consented pursuant to the terms of the Tender
Offer Consent Solicitation. (See Note 5).
In connection with the sale of DME and Data, (see Note 3), the Company
negotiated an amendment to its bank credit agreement, effective January 22,
1996. Among other things, the amendment permits the sale of DME and Data and
amends certain financial covenants accordingly.
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").
RECENT DEVELOPMENTS
During the Fiscal 1996 second quarter, the Company resolved to sell the
D-M-E Company ("DME"), a mold equipment manufacturer, and the Fairchild Data
Corporation ("Data"), a satellite communications company. On January 26,
1996, the Company completed the sale of certain assets, liabilities and the
business of DME to Cincinnati Milacron Inc. ("Cincinnati Milacron") for
approximately $245.0 million in cash and notes, subject to audit adjustment.
On January 27, 1996, the Company completed the sale of Data to SSE Telecom,
Inc. ("SSE") for book value of approximately $5.3 million and 100,000 shares
of SSE's common stock valued at $9.0625 per share or $.9 million on January
26, 1996, and warrants to purchase an additional 50,000 shares of SSE's
common stock at $11.09 per share. In addition, the Company has an
opportunity to earn an additional 100,000 shares based on the future
performance of SSE during the twelve months following the date of sale. The
sale of DME will result in a significant gain to the Company in the third
quarter ended March 31, 1996.
DME and Data have been accounted for as discontinued operations and the
prior periods' financial statements have been restated to reflect the
discontinuance of these companies. The combined net sales of DME and Data
totaled $45.5 million and $44.1 million for the second quarter of Fiscal 1996
and 1995, respectively, and $91.3 million and $86.6 million for the first six
months of Fiscal 1996 and 1995, respectively.
On November 9, 1995, the Company, RHI and FII entered into an Agreement
and Plan of a Merger with Shared Technologies Inc. ("STI"), pursuant to which
STI is to acquire the FII's Fairchild Communications Services Company
("FCSC") telecommunications systems and services business. The acquisition
is to be effected by a merger of FII into STI (the "Merger"), with STI being
the surviving corporation. Prior to the Merger, FII is to undergo a
restructuring pursuant to which FII will transfer all of its assets to, and
cause all of its liabilities to be assumed by RHI, except for (i) the assets
and liabilities of FCSC, (ii) the outstanding Series A and Series C Preferred
Stock of FII (having a liquidation value of $41.8 million at December 31,
1995), (iii) the $125.0 million principal amount outstanding 12 1/4% Senior
Notes due 1999 (the "Senior Notes") of FII, and (iv) an amount of bank and
other indebtedness of approximately $56.7 million (the "Assumed
Indebtedness"). Pursuant to the Merger, the Series A and Series C Preferred
Stock of FII will be cancelled and converted into the right to receive an
amount of cash equal to their liquidation value ($45.00 per share plus
accrued and unpaid dividends). Prior to the Merger, FII will make a cash
tender offer to purchase all of the outstanding Senior Notes and seek to
obtain such noteholders' consent to amend the indenture under which the
Senior Notes were issued to remove all covenants which can be amended or
deleted by majority vote (see Note 5). The amount of the Assumed
Indebtedness will be reduced, by (i) the extent the purchase price to be paid
in such offering for the Senior Notes exceeds par, and (ii) the amount of
accrued and unpaid dividends on the Series A and Series C Preferred Stock of
FII on the date of the Merger.
Upon the Merger, STI, as the surviving corporation, is required to (i)
purchase all Senior Notes tendered (and assume FII's obligations with
respect to any Senior Notes not so tendered), (ii) repay the Assumed
Indebtedness in full, and (iii) deposit in escrow the funds necessary to
redeem the Series A and Series C Preferred Stock. As a result of the Merger,
RHI is to receive (i) 6,000,000 shares of Common Stock of STI (representing
approximately 41% of the outstanding shares after giving effect to such
issuance), (ii) shares of 6% Cumulative Convertible Preferred Stock of STI
having an aggregate liquidation preference of $25.0 million (subject to
upward adjustment) and which are convertible into Common Stock of STI at a
conversion price of $6.375 per share (which, if converted, would represent,
together with the other Common Stock issued to RHI, approximately 41% of the
Common Stock of STI on a fully diluted basis), and (iii) shares of a Special
Preferred Stock having an initial liquidation preference of $20.0 million
(which could accrue up to a maximum of $30.0 million over a ten-year period
if not redeemed earlier).
The closing of the Merger is subject to a number of conditions,
including (i) the approval of the Merger by the shareholders of STI, and (ii)
holders of at least 51% of the outstanding principal amount of the Senior
Notes tendering their Senior Notes and consenting to the covenant changes
described above. The Company and STI are scheduled to complete this
transaction in Fiscal 1996. The Company expects a significant gain upon
consummation of this transaction.
During the second quarter ended December 31, 1995, the Company entered
into preliminary discussions concerning the exchange of shares of common
stock of a new subsidiary (Harco, Inc.), into which the Company would
transfer substantially all assets of, and cause Harco, Inc. to assume all
liabilities of the Company's Harco Division, for shares of common stock of
Banner Aerospace, Inc. ("Banner").
The Company currently owns approximately 47% of Banner common shares,
and if the exchange is consummated would become the majority shareholder of
Banner. Harco is a distributor of precision fasteners to the aerospace
industry.
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 and six month periods ended
December 31, 1995 and January 1, 1995.
<TABLE>
<CAPTION>
(In thousands) Three Months Ended Six Months Ended
December 31, January 1, December 31, January 1,
1995 1995 1995 1995
----------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Sales by Business Segment:
Aerospace Fasteners....................... $ 55,794 $ 52,328 $107,990 $103,838
Industrial Products....................... 15,625 6,953 38,358 14,406
Communications Services................... 32,031 22,568 65,028 42,510
------- ------- ------- -------
Total........................................ $103,450 $ 81,849 $211,376 $160,754
======= ======= ======= =======
Operating Income (Loss) by Business Segment:
Aerospace Fasteners....................... $ 1,382 $ (2,160) $ 1,692 $ (755)
Industrial Products....................... (527) (2,601) 1,643 (3,104)
Communications Services................... 4,862 3,829 9,771 8,251
------- ------- ------- -------
Total........................................ 5,717 (932) 13,106 4,392
Corporate administrative expense.......... (3,395) (3,603) (7,252) (6,761)
Other corporate expense................... (307) 53 (464) (710)
------- ------- ------- -------
Operating income (loss)...................... 2,015 (4,482) 5,390 (3,079)
Net interest expense......................... (17,319) (16,495) (34,768) (33,115)
Investment income (loss), net................ (83) 2,293 1,912 2,635
Equity in earnings (loss) of affiliates...... (169) (428) 1,889 1,748
Minority interest............................ (544) (584) (1,085) (1,208)
------- ------- ------- -------
Loss from continuing operations before income
taxes...................................... (16,100) (19,696) (26,662) (33,019)
Income tax benefit........................... (7,537) (5,838) (9,951) (9,504)
------- ------- ------- -------
Loss from continuing operations.............. $ (8,563) $(13,858) $(16,711) $(23,515)
======= ======= ======= =======
* The Aerospace Fasteners and the Industrial Products segments were restated
for the transfer of the Gas Springs division from the Aerospace Fasteners
segment to the Industrial Products segment. The Industrial Products segment
was also restated for the sale of DME and Data, which are being reported as
discontinued operations.
</TABLE>
<PAGE>
General
- -------
Overall sales from continuing operations increased by 26.4% in the
second quarter and 31.5% for the Fiscal 1996 six month period, compared to
sales for the same periods in Fiscal 1995, which reflected stronger sales
performances from all three business segments.
Operating income from continuing operations increased $6.5 million in the
second quarter and $8.5 million in the Fiscal 1996 six month periods compared
to operating income for the same periods in Fiscal 1995. Net operating
income performance improved in all three business segments in both of the
Fiscal 1996 periods. (See discussion below).
Aerospace Fasteners
- -------------------
Sales in the Aerospace Fasteners segment increased $3.5 million or 6.6%
in the second quarter and $4.2 million or 4.0% in the Fiscal 1996 six month
period, compared to the corresponding Fiscal 1995 periods, reflecting
moderate growth in this industry. New orders have been strong in recent
months.
Operating income in the Aerospace Fasteners segment increased $3.5
million in the second quarter and $2.4 million in the Fiscal 1996 six month
period, compared to the Fiscal 1995 periods. The Fiscal 1995 periods
included income from business interruption insurance resulting from the loss
sustained in 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. A
$.3 million restructuring charge was recorded in the Fiscal 1996 quarter for
the close down of a small subsidiary located in Japan.
Industrial Products
- -------------------
Sales in the Industrial Products segment increased $8.7 million or 124.7%
in the second quarter and $24.0 million or 166.3% in the first six months of
Fiscal 1996, compared to the same periods in Fiscal 1995. $22.3 million of
the year-to-date sales increase is attributable to the performance of
Fairchild Technologies which includes Fairchild Convac, a semiconductor
equipment manufacturer which had a strong first six months performance
resulting from the shipment of orders included in the prior year end backlog.
This was compared to a very slow Fiscal 1995 first six months, which was the
first six months following the acquisition of Fairchild Convac.
Operating income in the Industrial Products segment increased $2.1
million in the second quarter and $4.7 million in the first six months of
Fiscal 1996, compared to the same periods in Fiscal 1995. $3.8 million of
this net increase was contributed by Fairchild Technologies, primarily the
result of the increase in sales.
Communications Services
- -----------------------
Sales in the Communications Services segment increased 41.9% in the
second quarter and 53.0% in the Fiscal 1996 first six month period, compared
with the same periods in Fiscal 1995. The increase is primarily due to the
inclusion of $12.2 million of sales in the second quarter and $25.3 million
in the first six months of Fiscal 1996 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 27.0%
in the second quarter and 18.4% during the six months period 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 15.0% in the Fiscal 1996 first six
months compared to 19.4% in the Fiscal 1995 first six months. 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 decreased 5.8% in the second quarter
and increased 7.3% for the six month period of Fiscal 1996, compared to the
same periods in Fiscal 1995. The Fiscal 1995 six month period expense was
lower, partially due to reversal of several accruals not required.
Other corporate expense increased $.4 million in the second quarter and
decreased $.2 million in the six month period ended December 31, 1995,
compared to the same periods in the prior year. The increase in the second
quarter is primarily due to higher carrying costs incurred on real estate
held for sale in Fiscal 1996.
Net interest expense increased 5.0% in the second quarter and 5.0% in
the six month period ended December 31, 1995, compared to the prior year
periods, due primarily to higher bank borrowings and lower interest income
earned during the Fiscal 1996 periods.
Investment income, net decreased $2.4 million in the second quarter and
$.7 million in the first six months of Fiscal 1996, principally as a result
of recording gains realized on the settlement and liquidation of investments
in the Fiscal 1995 periods.
Equity in earnings of affiliates increased $.3 million in the second
quarter and increased slightly in the six month period ended December 31,
1995.
Minority interest expense includes dividend expense on FII's Series C
Preferred Stock.
Income taxes - In the first six months of Fiscal 1996, the Company
recorded a tax benefit of $10.0 million on a pretax loss of $26.7 million.
The effective tax rate of 37.4% approximated the statutory rate, primarily as
a result of the Company's ability to recognize tax benefits on losses from
continuing operations due to overall taxable income to be recognized in
Fiscal 1996, which will include gains from the sale of DME and Data.
The net loss decreased $8.0 million in the first six months of Fiscal
1996, compared to the first six months of Fiscal 1995, primarily due to: (i)
the $8.5 million increase in operating income, and (ii) the $1.1 million
increase in earnings from discontinued operations. Partially offsetting the
decrease in net loss was a higher net interest expense of $1.7 million.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1995, was $44.9 million, which was $67.7
million lower than working capital at June 30, 1995. The principal reasons
for this decrease included a $59.3 million increase in current debt as a
result of long term bank debt, including revolver bank borrowings, becoming
current, and a net $26.3 million reduction in cash and short term
investments, primarily required to service debt and meet operating cash
requirements during the first six months. These decreases were partially
offset by: (i) a $4.8 million increase in accounts receivable, partially due
to an increase in Communications Services sales to local and state
governments, which have extended terms, (ii) a $4.3 million increase in
prepaid expenses and other assets for reclassification of income tax benefits
and (iii) a net reduction in accounts payable and other accrued liabilities
of $8.7 million. The decrease in accounts payable was primarily at Fairchild
Convac and Communications Services, both of which typically have higher
balances at Fiscal year end.
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 discontinued operations, certain
assets and liquidation of investments. Net assets held for sale at December
31, 1995 had a book value of $52.2 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 market conditions or, with
respect to certain of the parcels, the resolution of certain environmental
matters.
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 December 31, 1995, capital expenditures, including
the cost of acquisitions, were $6.9 million for continuing operations and
$1.0 million for discontinued operations. The Company anticipates that total
capital expenditures for the fiscal year ending June 30, 1996 will be
approximately $16.4 million.
Investments and advances in affiliated companies increased $1.5 million,
primarily reflecting equity earnings recorded during the first six months.
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. As of December 31,
1995, the Company was in compliance with the Credit Agreement, as amended. 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: $58.5 million for the third quarter of Fiscal
1996, $62.6 million for the fourth quarter of Fiscal 1996, $84.6 million for
the first quarter of Fiscal 1997, and $86.4 million for the second 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, as amended. Noncompliance with any of the financial covenants,
without cure or waiver, would constitute an event of default under the Credit
Agreement, as amended. 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. EBITDA is not a substitute for GAAP
income from operations or GAAP net cash flows from operating activities, and
is not prepared in accordance with generally accepted accounting principles,
even though it is used in a specific covenant of the Credit Agreement.
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 December 31, 1995, the
Company's consolidated net worth, as defined, was $27,312,000 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 $30,258,000 at December 31, 1995, which is the first quarter
its net worth is below the minimum. During the third quarter net worth is
expected to improve significantly, and be above the required minimum level,
as a result of the recently completed sales of DME and Data, which will
result in a large net gain in the third quarter.
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 amended. As of December
31, 1995, FII was unable to provide dividends to RHI. The Credit Agreement,
as amended, also restricts FII from additional borrowings under the Credit
Facilities for the payment of any dividends.
IMPACT OF FUTURE ACCOUNTING CHANGES
Accounting For The Impairment Of Long-Lived Assets
- --------------------------------------------------
And For Long-Lived Assets To Be Disposed Of
- -------------------------------------------
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 ("SFAS 121") "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
SFAS 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those
assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS 121 is required to be
implemented by the Company on, or before, July 1, 1996. The Company's
present policy is identical to the policy prescribed by SFAS 121; therefore
there will be no effect from implementation.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Note 15 of Notes to Consolidated Financial
Statements.
Item 6. Exhibits and Reports on Form 8-K
On November 14, 1995, the Company filed a Form 8-K to report on Item 1
and Item 2. The Company reported that on November 9, 1995, it had entered
into an Agreement and Plan of Merger with Shared Technologies Inc. ("STI")
pursuant to which STI will acquire the telecommunications systems and
services business operated by Fairchild Communications Services Company.
Additionally, the Company reported that, on November 13, 1995, it had entered
into a letter setting forth the basic terms and conditions of a transaction
with Cincinnati Milacron Inc. ("CM"), pursuant to which CM will acquire the
Company's DME business for $260 million, subject to adjustment based on the
closing date value of DME's net tangible assets. The Company filed the
following exhibits in conjunction with the Form 8-K:
Exhibits
- --------
10 (b)(g) Agreement and Plan of Merger dated as of November 9, 1995 by
and among the Company and STI.
10 (b)(h) Letter Agreement dated November 13, 1995 between the Company
and CM.
<PAGE>
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: February 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 42,967
<SECURITIES> 6,052
<RECEIVABLES> 73,696
<ALLOWANCES> (3,455)
<INVENTORY> 78,449
<CURRENT-ASSETS> 253,358
<PP&E> 228,239
<DEPRECIATION> 98,970
<TOTAL-ASSETS> 828,697
<CURRENT-LIABILITIES> 208,427
<BONDS> 448,642
15,311
0
<COMMON> 2,242
<OTHER-SE> 28,221
<TOTAL-LIABILITY-AND-EQUITY> 828,697
<SALES> 211,376
<TOTAL-REVENUES> 211,512
<CGS> 162,141
<TOTAL-COSTS> 206,122
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,768
<INCOME-PRETAX> (26,662)
<INCOME-TAX> (9,951)
<INCOME-CONTINUING> (16,711)
<DISCONTINUED> 7,263
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,448)
<EPS-PRIMARY> (0.59)
<EPS-DILUTED> (0.59)
</TABLE>
