UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 March 30, 1997
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 20153
----------------------------------------
(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 March 30,
1997
- -----
- --------------
Class A Common Stock, $.10 Par Value
13,949,360
Class B Common Stock, $.10 Par Value
2,632,690
- ----------
16,582,050
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES*
INDEX
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of March 30, 1997 (Unaudited)
and June 30, 1996
3
Consolidated Statements of Earnings
for the Three and Nine Months Ended
March 30, 1997 and March 31, 1996
(Unaudited)
5
Condensed Consolidated Statements of Cash
Flows for the Nine Months Ended
March 30, 1997 and March 31, 1996
(Unaudited)
7
Notes to Condensed Consolidated Financial
Statements (Unaudited)
8
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition
17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
25
Item 5. Other Information
25
Item 6. Exhibits and Reports on Form 8-K
25
*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>
March 30,
June 30,
ASSETS 1997
1996
- ------ -----------
- -----------
(Unaudited)
(*)
<S> <C> <C>
Current Assets:
Cash and cash equivalents, $7,273 and $8,224
restricted................................. $ 26,174 $
39,649
Short-term investments....................... 21,912
10,498
Accounts receivable-trade, less allowances
of $7,807 and $6,327....................... 127,482
98,694
Notes receivable............................. --
170,384
Inventories:
Finished goods............................ 280,869
236,263
Work-in-process........................... 34,592
16,294
Raw materials............................. 19,502
18,586
---------
- ---------
334,963
271,143
Prepaid expenses and other current assets.... 36,801
19,275
---------
- ---------
Total Current Assets......................... 547,332
609,643
Property, plant and equipment, net of
accumulated depreciation of $127,369 and
$79,273.................................... 122,548
87,956
Net assets held for sale..................... 48,512
45,405
Cost in excess of net assets acquired,
(Goodwill) less accumulated amortization of
$35,385 and $31,912......................... 158,167
140,201
Investments and advances, affiliated
companies................................... 54,207
53,471
Prepaid pension assets....................... 57,837
57,660
Deferred loan costs.......................... 9,470
7,825
Other assets................................. 9,170
7,777
---------
- ---------
Total Assets................................. $1,007,243
$1,009,938
=========
=========
*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>
March 30,
June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997
1996
- ------------------------------------- -----------
- -----------
(Unaudited)
(*)
<S> <C> <C>
Current Liabilities:
Bank notes payable and current maturities
of long-term debt........................... $ 66,932 $
84,892
Accounts payable............................. 76,702
65,478
Other accrued liabilities.................... 101,453
81,757
Income taxes................................. 4,921
24,635
---------
- ---------
Total Current Liabilities.................... 250,008
256,762
Long-term debt, less current maturities...... 376,263
368,589
Other long-term liabilities.................. 20,051
18,605
Retiree health care liabilities.............. 41,503
44,452
Noncurrent income taxes...................... 32,474
31,737
Minority interest in subsidiaries............ 65,713
58,625
---------
- ---------
Total Liabilities............................ 786,012
778,770
Stockholders' Equity:
Class A common stock, 10 cents par value;
authorized 40,000 shares, 20,191 shares
issued (19,998 in June) and 13,949 shares
outstanding (13,756 in June)............... 2,020
2,000
Class B common stock, 10 cents par value;
authorized 20,000 shares, 2,633 shares
issued and outstanding (2,634 in June)..... 263
263
Paid-in capital.............................. 70,251
69,366
Retained earnings............................ 201,064
208,618
Cumulative translation adjustment............ (528)
2,760
Net unrealized holding loss on available-for-
sale securities............................ (120)
(120)
Treasury Stock, at cost, 6,242 shares of
Class A Common Stock....................... (51,719)
(51,719)
---------
- ---------
Total Stockholders' Equity................... 221,231
231,168
---------
- ---------
Total Liabilities and Stockholders' Equity... $1,007,243
$1,009,938
=========
=========
*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, except per share data)
<CAPTION>
Three Months Ended
Nine Months Ended
March 30, March 31,
March 30, March 31,
1997 1996
1997 1996
----------- -----------
- ----------- -----------
<S> <C> <C> <C>
<C>
Revenue:
Net sales of products............. $190,782 $120,388
$496,784 $292,007
Revenues from services............ -- 15,063
-- 54,820
Other income, net................. 428 369
1,076 505
------- -------
- ------- -------
191,210 135,820
497,860 347,332
Costs and Expenses:
Cost of goods sold................ 137,994 94,440
365,411 231,315
Cost of services.................. -- 11,165
-- 39,039
Selling, general & administrative. 42,873 25,556
115,125 66,830
Research and development.......... 24 24
69 68
Amortization of goodwill.......... 1,244 1,287
3,473 3,665
Restructuring..................... -- 959
-- 1,244
------- -------
- ------- -------
182,135 133,431
484,078 342,161
Operating income.................... 9,075 2,389
13,782 5,171
Interest expense.................... 13,505 17,007
39,645 53,054
Interest income..................... (778) (2,775)
(4,549) (4,054)
------- -------
- ------- -------
Net interest expense................ 12,727 14,232
35,096 49,000
Investment income, net.............. 741 1,150
2,202 3,062
Equity in earnings of affiliates.... 1,765 864
4,474 2,753
Minority interest................... (1,076) (329)
(2,637) (1,414)
------- -------
- ------- -------
Loss from continuing operations
before non-recurring income and
taxes.............................. (2,222) (10,158)
(17,275) (39,428)
Non-recurring income (See Note 2)... -- 161,480
-- 161,480
------- -------
- ------- -------
Earnings (loss) from continuing
operations before taxes............ (2,222) 151,322
(17,275) 122,052
Income tax benefit.................. 2,262 3,773
9,720 14,741
------- -------
- ------- -------
Earnings (loss) from continuing
operations......................... 40 155,095
(7,555) 136,793
Earnings from discontinued
operations, net.................... -- 1,769
-- 9,059
Gain on disposal of discontinued
operations, net................... -- 61,286
-- 61,259
Extraordinary items, net............ -- (10,436)
-- (10,436)
------- -------
- ------- -------
Net earnings (loss)................. $ 40 $207,714
$ (7,555) $196,675
======= =======
======= =======
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, except per share data)
<CAPTION>
Three Months Ended
Nine Months Ended
March 30, March 31,
March 30, March 31,
1997 1996
1997 1996
--------- ---------
- --------- ---------
<S> <C> <C>
<C> <C>
Primary Earnings Per Share:
Earnings (loss) from continuing
operations........................... $ .00 $ 9.27
$ (.46) $ 8.28
Earnings from discontinued operations,
net.................................. -- .11
-- .55
Gain on disposal of discontinued
operations, net...................... -- 3.66
-- 3.71
Extraordinary items, net............... -- (.62)
-- (.63)
------- -------
------- -------
Net earnings (loss)................... $ .00 $ 12.42
$ (.46) $ 11.91
======= =======
======= =======
Fully Diluted Earnings Per Share:
Earnings (loss) from continuing
operations............................. $ .00 $ 9.25
$ (.46) $ 8.16
Earnings from discontinued operations,
net.................................. -- .10
-- .54
Gain on disposal of discontinued
operations, net...................... -- 3.65
-- 3.65
Extraordinary items, net............... -- (.62)
-- (.62)
------- -------
------- -------
Net earnings (loss)................... $ .00 $ 12.38
$ (.46) $ 11.74
======= =======
======= =======
Weighted average number of shares used
in computing earnings per share:
Primary............................ 17,284 16,727
16,518 16,513
Fully diluted...................... 17,284 16,774
16,518 16,754
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>
Nine
Months Ended
March 30,
March 31,
1997
1996
----------
----------
<S> <C>
<C>
Cash flows provided by (used for)
Operations:
Net earnings (loss)................................. $ (7,555)
$196,675
Depreciation and amortization...................... 15,903
23,723
Accretion of discount on long-term liabilities..... 3,702
3,637
Gain on the merger of subsidiaries (See Note 2).... --
(162,859)
Gain on the sale of discontinued operations
(See Note 3)..................................... --
(117,573)
Distributed (undistributed) earnings of
affiliates, net.................................. 516
(1,817)
Minority interest.................................. 2,637
1,414
Changes in assets and liabilities.................. (97,655)
14,458
-------
-------
Net cash used for operations....................... (82,452)
(42,342)
Investments:
Proceeds received from the sale of discontinued
operations....................................... 173,719
78,400
Acquisition of subsidiaries, net of cash acquired.. (52,555)
--
Purchase of property, plant and equipment.......... (8,844)
(12,263)
Changes in investments............................. (14,009)
(1,015)
Changes in net assets held for sale................ (3,544)
5,670
Other, net......................................... 34
(527)
-------
-------
Net cash provided by (used for) investments........ 94,801
70,265
Financing:
Proceeds from issuance of debt..................... 108,383
58,240
Debt repayments and repurchase of debentures, net.. (132,950)
(100,098)
Issuance of Class A common stock................... 861
948
-------
-------
Net cash used for financing........................ (23,706)
(40,910)
Effect of exchange rate changes on cash................ (2,118)
447
Net decrease in cash and cash equivalents.............. (13,475)
(12,540)
Cash and cash equivalents, beginning of period......... 39,649
71,182
-------
-------
Cash and cash equivalents, end of period............... $ 26,174
$ 58,642
=======
=======
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)
(In thousands, except per share data)
Note 1 - Financial Statements
The consolidated balance sheet as of March 30, 1997 and the
consolidated
statements of earnings and cash flows for the nine months ended
March 30,
1997 and March 31, 1996 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 March 30, 1997 and for all periods
presented,
have been made. The balance sheet at June 30, 1996 was also
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,
1996 Form
10-K and Banner Aerospace, Inc.'s March 31, 1996 Form 10-K. The
results of
operations for the period ended March 30, 1997 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
The Company, RHI Holdings, Inc. ("RHI"), a wholly owned
subsidiary of
the Company, and Fairchild Industries, Inc. ("FII"), RHI's
subsidiary,
entered into an Agreement and Plan of Merger dated as of November
9, 1995 (as
amended, the "Merger Agreement") with Shared Technologies Inc.
("STI"). On
March 13, 1996, in accordance with the Merger Agreement, STI
succeeded to the
telecommunications systems and services business operated by the
Company's
Fairchild Communications Services Company ("FCSC").
The transaction was effected by a merger of FII with and into
STI (the
"Merger") with the surviving company renamed Shared Technologies
Fairchild
Inc. ("STFI"). Prior to the Merger, FII transferred all of its
assets to,
and all of its liabilities were assumed by Fairchild Holding Corp.
("FHC"),
a wholly owned subsidiary of RHI, except for the assets and
liabilities of
FCSC, and $223,500 of the FII's existing debt and preferred stock.
As a
result of the Merger, the Company received shares of Common Stock
and
Preferred Stock of STFI, representing approximately a 41% ownership
interest
in STFI.
The Merger was structured as a reorganization under section
386(a)(1)(A)
of the Internal Revenue Code of 1986, as amended. The Company
recorded a
$162,859 non-recurring gain from this transaction, in the third
quarter ended
March 31, 1996.
Note 3 - Discontinued Operations
On February 22, 1996, pursuant to an Asset Purchase Agreement
dated
January 26, 1996, the Company, through one of its subsidiaries,
completed the
sale of certain assets, liabilities and the business of the D-M-E
Company
("DME") to Cincinnati Milacron Inc. ("CMI"), for a sales price of
approximately $244,331, as adjusted. The sales price consisted of
$74,000
in cash, and two 8% promissory notes in the aggregate principal
amount of
$170,331 (together, the "8% CMI Notes"). On July 29, 1996, CMI
paid in full
the 8% CMI Notes.
As a result of the sale of DME, the Company recorded a gain on
disposal
of discontinued operations of approximately $61,338, net of a
$56,235 tax
provision, in the quarter ended March 31, 1996.
On January 27, 1996, FII completed the sale of Fairchild Data
Corporation ("Data") to SSE Telecom, Inc. ("SSE") for (i) cash of
approximately $4,400, (ii) 100,000 shares of SSE's common stock
valued at
$9.06 per share, or $906, at January 26, 1996, and (iii) warrants
to purchase
an additional 50,000 shares of SSE's common stock at $11.09 per
share.
Accordingly, DME and Data have been accounted for as
discontinued
operations. The combined net sales of DME and Data totaled $16,789
and
$108,131 for the third quarter and first nine months of Fiscal
1996,
respectively. Net earnings from discontinued operations was $1,769
in the
third quarter of Fiscal 1996, and $9,059 for the nine months ended
March 30,
1996.
Note 4 - Majority Interest Business Combination
Effective February 25, 1996, the Company completed a transfer
of the
Company's Harco Division ("Harco") to Banner Aerospace, Inc.
("Banner") in
exchange for 5,386,477 shares of Banner common stock. The exchange
has
increased the Company's ownership of Banner common stock from
approximately
47.2% to 59.3%, resulting in the Company becoming the majority
shareholder
of Banner. Accordingly, the Company consolidated Banner on
February 25,
1996. Banner is a leading international supplier to the aerospace
industry
as a distributor, providing a wide range of aircraft parts and
related
support services.
Note 5 - Pro forma Financial Statements
The following unaudited pro forma information for the nine
months ended
March 30, 1996, provides the results of the Company's operations as
though
(i) the disposition of DME and Data, (ii) the Merger of FCSC, and
(iii) the
transfer of Harco to Banner, resulting in the consolidation of
Banner, had
been in effect since the beginning of the period. The pro forma
information
is based on the historical financial statements of the Company,
DME, Data,
FCSC and Banner, giving effect to the aforementioned transactions.
In
preparing the pro forma data, certain assumptions and adjustments
have been
made, which (i) reduce interest expense for revised debt
structures, (ii)
increase interest income for notes receivable, (iii) reduce
minority interest
to exclude Series C Preferred Stock of FII redeemed, and (iv)
adjust equity
in earnings of affiliates to include the estimated results of STFI.
The following unaudited pro forma financial information is not
necessarily indicative of the results of operations that actually
would have
occurred if the transactions had been in effect since the beginning
of the
Fiscal 1996 period, nor is it necessarily indicative of future
results of the
Company.
<TABLE>
<CAPTION>
Nine Months Ended
March 31, 1996
------------------
<S> <C>
Sales................................... $ 447,086
Loss from continuing operations......... (17,367)
Loss from continuing operations
per share........................... (1.05)
Net loss................................ (17,595)
Net loss per share.................... (1.07)
</TABLE>
The pro forma financial information has not been adjusted for
non-
recurring income or expense and gains from disposal of discontinued
operations that have been or are expected to be incurred from these
transactions, within the ensuing year.
Note 6 - Acquisitions
The following acquisitions by the Company have been accounted
for using
the purchase method. The purchase prices assigned to the net
assets acquired
were based on the fair value of such assets and liabilities at the
respective
acquisition dates. The Company included the results of operations
of the
acquired companies as of the date of acquisition.
On January 16, 1997, Banner, through its subsidiary, Dallas
Aerospace,
Inc., consummated the acquisition of 100% of the outstanding stock
of PB
Herndon Company ("PB Herndon") for approximately $14,700. In
addition,
Banner paid approximately $1,300 to repay certain loans of PB
Herndon.
Banner recorded approximately $4,500 of goodwill as a result of
this
acquisition. Banner financed this transaction by borrowing $16,000
from RHI.
PB Herndon is a distributor of aerospace fasteners and other
aerospace
related components.
On February 4, 1997, Banner, through its subsidiary,
Professional
Aviation Associates, acquired the assets of Air Marine and Air
Marine
Accessories for $1,200. Banner recorded approximately $585 in
goodwill as
a result of this acquisition.
On February 26, 1997, the Company completed a transaction
pursuant to
which the Company acquired from Mines de Kali Sainte-Therese S.A.
("KST")
common shares and convertible debt representing an 84.2% interest,
on a fully
diluted basis, of Simmonds S.A. ("Simmonds"), for approximately
$21,000.
Additionally, the Company paid approximately $14,000 to repay
certain loans
of Simmonds. The Company has initiated a tender offer to purchase
the
remaining shares of common stock and convertible debt of Simmonds
held by the
public (together with the purchase from KST and the repayment of
debt, the
"Simmonds Acquisition"). Management estimates that the total cost
of the
Simmonds Acquisition, including debt assumed, will be approximately
$56,500.
The Company recorded approximately $15,800 in goodwill as a result
of this
acquisition. The Company funded the Simmonds Acquisition with
available cash
and borrowings. Simmonds is one of Europe's leading manufacturers
and
distributors of aerospace and automotive fasteners.
Proforma financial statements are not required for these
acquisitions.
Note 7 - Summarized Statement of Earnings Information
The following table presents summarized historical financial
information,
on a combined 100% basis, of the Company's principal investments,
which are
accounted for using the equity method.
<TABLE>
<CAPTION>
Nine Months
Ended
- -------------------------
March 30,
March 31,
1997
1996
----------
- ----------
<S> <C> <C>
Net sales................................. $209,153 $
78,310
Gross profit.............................. 95,967
25,705
Earnings from continuing operations....... 5,813
9,471
Net earnings.............................. 5,812
9,471
</TABLE>
The Company owns approximately 31.9% of Nacanco common stock.
The
Company recorded equity earnings of $2,975 and $3,157 from this
investment
for the nine months ended March 30, 1997 and March 31, 1996,
respectively.
Since March 13, 1996, as a result of the Merger in which the
Company
received an ownership interest of approximately 41% in STFI, the
Company has
accounted for its investment in STFI using the equity method.
Prior to March
13, 1996, the Company consolidated the results of FCSC, which was
merged into
STFI (see Note 2). The Company recorded equity earnings (loss) of
$1,490 and
$(60) from this investment during the nine months ended March 30,
1997 and
March 31, 1996, respectively.
On March 30, 1997, the Company's investments in STFI consisted
of (i)
$21,267 carrying value for the $25,000 face value 6% Cumulative
Convertible
Preferred Stock, (ii) $10,646 carrying value for the $20,000 face
value
Special Preferred Stock, and (iii) $(989) carrying value for
6,200,000 shares
of common stock of STFI. At the close of trading on March 27,
1997, STFI's
common stock was quoted at $6.125 per share. Based on this price,
the
Company's investment in STFI common stock had an approximate market
value of
$37,975.
Effective February 25, 1996, the Company increased its
percentage of
ownership of Banner Common Stock from 47.2% to approximately 59.3%.
Since
February 25, 1996, the Company has consolidated Banner's results.
Prior to
February 25, 1996, the Company accounted for its investment in
Banner using
the equity method and held its investment in Banner as part of
investments
and advances, affiliated companies. The Company recorded equity
earnings of
$430 from this investment during the nine months ended March 31,
1996.
In connection with the Company's December 23, 1993 sale of its
interest
in Rexnord Corporation to BTR Dunlop Holdings, Inc. ("BTR"), the
Company
placed shares of Banner, with a fair market value of $5,000, 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 8 - Restricted Cash
The Company had approximately $7,273 and $8,224 of restricted
cash on
March 30, 1997 and June 30, 1996, respectively, all of which is
maintained
as collateral for certain debt facilities.
Note 9 - Credit Agreements
Prior to July 29, 1996, the Company through RHI's subsidiary
Fairchild
Holding Corp. ("FHC"), borrowed under an Interim Credit Agreement
(the
"Interim Credit Agreement") with a consortium of banks. The
Interim Credit
Agreement at FHC matured on July 29, 1996, at which time the
Company repaid
in full the loans made under the Interim Credit Agreement. On July
26, 1996,
the Company amended and restated the terms and provisions of the
Interim
Credit Agreement, in their entirety (the "Restated Credit
Agreement"). The
Restated Credit Agreement extends to July 28, 2000, the maturity of
FHC's
revolving credit facility (the "FHC Revolver"). The FHC Revolver
has a
borrowing limit of $52,000 and requires a borrowing base to
determine
availability under the limit. The borrowing base is determined
monthly based
upon specified percentages of FHC's accounts receivable,
inventories and the
appraised value of equipment and real property. The FHC Revolver
generally
bears interest at a base rate of 1 1/2% over the greater of (i)
Citibank New
York's base rate, or (ii) the Federal Funds Rate plus 1 1/2% for
domestic
borrowings and at 2 1/2% over Citibank London's base rate for
foreign
borrowings. The Restated Credit Agreement was further amended on
February
21, 1997 to permit the Simmonds Acquisition. Terms modified by the
February
21, 1997 amendment included a provision in which the interest rate
on the FHC
Revolver will increase by 1/4% on each of September 30, 1997 and
December 31,
1997, in the event that the Restated Credit Agreement is not
restructured or
refinanced by such dates. FHC's Revolver is subject to a non-use
commitment
fee of 1/2% on the average unused availability; and outstanding
letters of
credit are subject to fees of 2 3/4% per annum.
The Restated Credit Agreement requires FHC to comply with
certain
financial and non-financial loan covenants, including maintaining
a minimum
net worth of $150,000 and maintaining certain interest and fixed
charge
coverage ratios at the end of each Fiscal Quarter. Additionally,
the
Restated Credit Agreement restricts the FHC's annual capital
expenditures to
$12,000. Substantially all of FHC's assets are pledged as
collateral under
the Restated Credit Agreement. At March 30, 1997, FHC was in
compliance with
all the covenants under the Restated Credit Agreement. FHC may
transfer
available cash as dividends to the Company.
On July 1, 1996 and again on December 12, 1996, Banner amended
its
credit agreement (the "Banner Credit Agreement"), which provides
Banner and
its subsidiaries with funds for working capital and potential
acquisitions.
The facilities under the Banner Credit Agreement consist of (i) a
$55,000
term loan, (ii) a $71,000 revolving credit facility, both of which
initially
bear interest at prime plus 1 1/4% or London Interbank Offered Rate
("LIBOR")
plus 2 1/2%, and require that loans made to Banner do not exceed a
defined
borrowing base, which is based upon a percentage of inventories and
accounts
receivable, (iii) a $30,000 seven-year term loan ("Tranche B
Loan"), which
bears interest at Prime plus 1 3/4% or LIBOR plus 3%, and (iv) a
$40,000 six-
year term loan ("Tranche C Loan"), which initially bears interest
at prime
plus 1 1/2% or LIBOR 2 3/4%. Banner's term loans require certain
semiannual
loan payments. Interest rates on Banner's borrowings, whether
computed at
the prime rate or LIBOR, may increase by 1/4% or decrease by up to
1% based
upon certain performance criteria. Banner's performance level
resulted in
borrowings under the $55,000 term loan and the $71,000 revolving
credit
facility being at an interest rate of prime plus 1% and LIBOR plus
2 1/4% for
the quarter ended March 30, 1997. Banner's revolving credit
facility is
subject to a non-use fee of 1/2% of the unused availability.
Substantially
all of Banner's assets are pledged as collateral under the Banner
Credit
Agreement.
The Banner Credit Agreement requires quarterly compliance with
various
financial and non-financial loan covenants, including maintenance
of minimum
net worth, and minimum ratios of interest coverage, fixed charge
coverage,
and debt to earnings before interest, taxes, depreciation and
amortization.
Banner also has certain limitations on the incurrence of additional
debt. As
of March 30, 1997, Banner was in compliance with all covenants
under the
Banner Credit Agreement.
Banner has several interest rate hedge agreements ("Hedge
Agreements")
to manage its exposure to increases in interest rates on its
variable rate
debt. The Hedge Agreements provide interest rate protection on
$60,000 of
debt through September 2000, by providing a cap of 7% if the 90-day
LIBOR
rate exceeds 7%. If the 90-day LIBOR rate drops below 5%, Banner
will be
required to pay a floor rate of approximately 6%.
In November 1996, Banner entered into an additional hedge
agreement
("Additional Hedge Agreement") with one of its major lenders to
provide
interest rate protection on $20,000 of debt for a period of three
years.
Effectively, the Additional Hedge Agreement provides for a cap of
7 1/4% if
the 90-day LIBOR exceeds 7 1/4%. If the 90-day LIBOR drops below
5%, Banner
will be required to pay interest at a floor rate of approximately
6%. No
cash outlay was required to obtain the Additional Hedge Agreement
as the cost
of the cap was offset by the sale of the floor.
Note 10 - Minority Interests in Consolidated Subsidiaries
Included in the Company's $65,713 of minority interest at
March 30,
1997, is $61,252 representing approximately 40.7% of Banner's
common stock
effectively outstanding on a consolidated basis.
Note 11 - Restructuring Charges
During the nine months ended March 31, 1996, the Company"s
Aerospace
Fasteners Segment recorded restructuring charges of $965 for
severance pay
to employees terminated, and $279 relating to the closing of a
small
subsidiary located in Japan.
Note 12 - Equity Securities
The Company had 13,949,360 shares of Class A Common Stock and
2,632,690
shares of Class B Common Stock outstanding at March 30, 1997.
During the
first nine months of Fiscal 1997, 192,186 shares of Class A Common
Stock were
issued as a result of the exercise of stock options. 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. During the nine months ended March 30,
1997, 1,014
shares of Class B Common Stock were exchanged for Class A Common
Stock.
On February 21, 1997, the Company's Board of Directors
approved an
amendment of a warrant to purchase 375,000 shares of the Company's
Class A
or Class B Common Stock at $7.67 per share. The warrant was
amended to
extend the exercise period from March 13, 1997 to September 16,
1997, and to
increase the exercise price per share by $.002 for each day
subsequent to
March 13, 1997, until exercised.
Note 13 - Earnings Per Share
Primary and fully diluted earnings per share are computed by
dividing
net income 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
March 30,
1997 and March 31, 1996, the conversion of options and warrants was
assumed,
as the effect was dilutive. In computing primary and fully diluted
earnings
per share for the nine months ended March 30, 1997, the conversion
of options
and warrants was not assumed, as the effect was antidilutive. In
computing
primary earnings per share for the nine months ended March 31,
1996, only the
dilutive effect from the conversion of options was assumed, as the
effect
from the conversion of warrants alone was antidilutive. In
computing fully
diluted earnings per share for the nine months ended March 31,
1996, the
conversion of options and warrants was assumed, as the effect was
dilutive.
Note 14 - 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 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 cleanup. 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 March 30, 1997, the consolidated total recorded
liabilities of the
Company for environmental matters approximated $9,059, which
represented the
estimated probable exposures for these matters. It is reasonably
possible
that the Company's total exposure for these matters could be
approximately
$16,890.
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.
<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 100% owner of Fairchild Holding Corp. ("FHC")
and the
majority owner of Banner Aerospace, Inc. ("Banner"). The Company's
principal
operations are conducted through RHI and FHC. The Company also
holds
significant equity interests in Shared Technologies Fairchild Inc.
("STFI")
and Nacanco Paketleme ("Nacanco").
The following discussion and analysis provide information
which
management believes is relevant to assessment and understanding of
the
Company's consolidated results of operations and financial
condition. The
discussion should be read in conjunction with the consolidated
financial
statements and notes thereto.
CAUTIONARY STATEMENT
Certain statements in the financial discussion and analysis by
management contain "forward-looking" information that involves risk
and
uncertainty, including current trend information, projections for
deliveries,
backlog, and other trend projections. Actual future results may
differ
materially depending on a variety of factors, including product
demand;
performance issues with key suppliers; customer satisfaction and
qualification issues; labor disputes; governmental export and
import
policies; worldwide political stability and economic growth; and
legal
proceedings.
RECENT DEVELOPMENTS
On January 16, 1997, Banner, through its subsidiary, Dallas
Aerospace,
Inc., consummated the acquisition of 100% of the outstanding stock
of PB
Herndon Company ("PB Herndon") for approximately $14.7 million. In
addition,
Banner paid approximately $1.3 million to repay certain loans of PB
Herndon.
Banner recorded approximately $4.5 million of goodwill as a result
of this
acquisition. Banner financed this transaction by borrowing $16.0
million
from RHI. PB Herndon is a distributor of aerospace fasteners and
other
aerospace related components.
On February 4, 1997, Banner, through its subsidiary,
Professional
Aviation Associates, acquired the assets of Air Marine and Air
Marine
Accessories for $1.2 million. Banner recorded approximately $.6
million in
goodwill as a result of this acquisition.
On February 26, 1997, the Company completed a transaction
pursuant to
which the Company acquired from Mines de Kali Sainte-Therese S.A.
("KST")
common shares and convertible debt representing an 84.2% interest,
on a fully
diluted basis, of Simmonds S.A. ("Simmonds"), for approximately
$21.0
million. Additionally, the Company paid approximately $14.0
million to repay
certain loans of Simmonds. The Company has initiated a tender
offer to
purchase the remaining shares of common stock and convertible debt
of
Simmonds, held by the public (together with the purchase from KST
and the
repayment of debt, the "Simmonds Acquisition"). Management
estimates that
the total cost of the Simmonds Acquisition, including debt assumed,
will be
approximately $56.5 million. The Company recorded approximately
$15.8
million in goodwill as a result of this acquisition. The Company
funded the
Simmonds Acquisition with available cash and borrowings. Simmonds
is one of
Europe's leading manufacturers and distributors of aerospace and
automotive
fasteners.
FISCAL 1996 SIGNIFICANT TRANSACTIONS
The Company, RHI and Fairchild Industries, Inc. ("FII"), the
Company's
former subsidiary, entered into an Agreement and Plan of Merger
dated as of
November 9, 1995 (as amended, the "Merger Agreement") with Shared
Technologies Inc. ("STI"). On March 13, 1996, in accordance with
the Merger
Agreement, STI succeeded to the telecommunications systems and
services
business operated by the Company's Fairchild Communications
Services Company
("FCSC").
The transaction was effected by a Merger of FII with and into
STI (the
"Merger") with the surviving company renamed STFI. Prior to the
Merger, FII
transferred all of its assets to, and all of its liabilities were
assumed by
FHC, except for the assets and liabilities of FCSC, and $223.5
million of the
FII's existing debt and preferred stock. As a result of the
Merger, the
Company received shares of Common Stock and Preferred Stock of
STFI,
representing approximately a 41% ownership interest in STFI.
On February 22, 1996, pursuant to the Asset Purchase Agreement
dated
January 26, 1996, the Company, through its subsidiaries, completed
the sale
of certain assets, liabilities and the business of the D-M-E
Company ("DME")
to Cincinnati Milacron Inc. ("CMI"), for a sales price of
approximately
$244.3 million, as adjusted. The sales price consisted of $74.0
million in
cash, and two 8% promissory notes in the aggregate principal amount
of $170.3
million (together, the "8% CMI Notes"). On July 29, 1996, CMI paid
in full
the 8% CMI Notes.
On January 27, 1996, FII completed the sale of Fairchild Data
Corporation ("Data") to SSE Telecom, Inc. ("SSE") for (i) cash of
approximately $4.4 million, (ii) 100,000 shares of SSE's common
stock valued
at $9.06 per share, or $.9 million, at January 26, 1996, and (iii)
warrants
to purchase an additional 50,000 shares of SSE's common stock at
$11.09 per
share.
Accordingly, DME and Data have been accounted for as
discontinued
operations. The combined net sales of DME and Data totaled $16.8
million
and $108.1 million for the third quarter and first nine months of
Fiscal
1996, respectively. Net earnings from discontinued operations was
$1.7
million in the third quarter of Fiscal 1996 and $9.1 million for
the nine
months ended March 30, 1996.
Effective February 25, 1996, the Company completed the
transfer of Harco
to Banner in exchange for 5,386,477 shares of Banner common stock.
The
exchange has increased the Company's ownership of Banner common
stock from
approximately 47.2% to 59.3%, resulting in the Company becoming the
majority
shareholder of Banner. Accordingly, the Company consolidated
Banner on
February 25, 1996. Banner is a leading international supplier to
the
aerospace industry as a distributor, providing a wide range of
aircraft parts
and related support services.
RESULTS OF OPERATIONS
The Company currently operates in three principal business
segments:
Aerospace Fasteners, Aerospace Distribution (Banner) and Technology
Products
(formerly Industrial Products). In the nine months ended March 30,
1996, the
Company consolidated pre March 13, 1996 operating results from the
Communications Services segment, and, effective February 25, 1996,
began to
consolidate the operating results of the Aerospace Distribution
segment. The
following table illustrates the historical sales and operating
income of the
Company's continuing operations for the three and nine month
periods ended
March 30, 1997 and March 30, 1996.
<PAGE>
<TABLE>
<CAPTION>
(In thousands) Three Months Ended
Nine Months Ended
March 30, March 31,
March 30, March 31,
1997 1996
1997 1996
-------- --------
-------- --------
<S> <C> <C>
<C> <C>
Sales by Business Segment:
Aerospace Fasteners................... $ 64,073 $ 57,885
$175,614 $165,875
Aerospace Distribution (a)............ 113,743 35,698
294,835 35,698
Technology Products................... 16,084 15,606
36,028 53,964
Communications Services (b)........... -- 26,262
-- 91,290
Eliminations (c)...................... (3,118) --
(9,693) --
------- -------
------- -------
Total.................................... $190,782 $135,451
$496,784 $346,827
======= =======
======= =======
Operating Income (Loss) by Business
Segment:
Aerospace Fasteners................... $ 3,563 $ 828
$ 7,827 $ (88)
Aerospace Distribution (a)............ 9,061 742
21,114 742
Technology Products................... 1,322 (87)
(3,112) 1,556
Communications Services (b)........... -- 4,773
-- 14,544
------- -------
------- -------
Total.................................... 13,946 6,256
25,829 16,754
Corporate administrative expense...... (3,527) (3,783)
(10,524) (11,035)
Other corporate expense............... (1,344) (84)
(1,523) (548)
------- -------
------- -------
Operating income......................... 9,075 2,389
13,782 5,171
Net interest expense..................... (12,727) (14,232)
(35,096) (49,000)
Investment income, net................... 741 1,150
2,202 3,062
Equity in earnings of affiliates......... 1,765 864
4,474 2,753
Minority interest........................ (1,076) (329)
(2,637) (1,414)
------- -------
------- -------
Loss from continuing operations before
non-recurring income and taxes.......... (2,222) (10,158)
(17,275) (39,428)
Non-recurring income..................... -- 161,480
-- 161,480
------- -------
------- -------
Earnings (loss) from continuing
operations before income taxes........ (2,222) 151,322
(17,275) 122,052
Income tax benefit....................... 2,262 3,773
9,720 14,741
------- -------
------- -------
Earnings (loss) from continuing
operations............................ $ 40 $155,095
$ (7,555) $136,793
======= =======
======= =======
(a) Effective February 25, 1996, the Company became the majority
shareholder
of Banner Aerospace, Inc. in and accordingly, began consolidating
their
results.
(b) Effective March 13, 1996, the Company's investment in the
Communications
Services segment was recorded using the equity method.
(c) Represents intersegment sales from the Aerospace Fasteners
segment to the
Aerospace Distribution segment.
</TABLE>
<PAGE>
Consolidated Results
- --------------------
Sales of $190.8 million for the third quarter and $496.8
million for the
nine months ended March 30, 1997, improved by $55.3 million, or
40.8%, and
$150.0 million, or 43.2%, over comparable periods of the prior
year.
Operating income increased $6.7 million in the third quarter and
$8.6 million
in the Fiscal 1997 nine-month period, compared to operating income
for the
same periods in Fiscal 1996. The improvements reflected strong
performance
increases contributed by the Aerospace Fasteners and Aerospace
Distribution
segments reflecting the recent turnaround of the commercial
aerospace
industry. The first nine months of Fiscal 1997 include sales and
operating
income from the Aerospace Distribution segment, offset partially by
the
exclusion of sales and operating income from the Communications
Services
segment which was unconsolidated effective March 13, 1996, as a
result of the
Merger into STI. (See discussion above).
Aerospace Fasteners
- -------------------
Sales in the Aerospace Fasteners segment increased $6.2
million or
10.7%, in the third quarter, and $9.7 million, or 5.9%, in the
Fiscal 1997
nine-month period, compared to the corresponding Fiscal 1996
periods,
reflecting growth within the commercial aerospace industry. New
orders have
been strong in recent months, resulting in a backlog of $158.4
million at
March 30, 1997, up from $109.9 million at June 30, 1996. On
February 26,
1997, the Company purchased an 84.2% interest in Simmonds and began
consolidating the results of Simmonds. The Harco division was
transferred to
the Aerospace Distribution segment on February 25, 1996. Excluding
Simmonds
sales in the first nine months of Fiscal 1997, and Harco's sales in
the first
nine months of Fiscal 1996, sales improved 17.3% in the Fiscal 1997
nine-
month period.
Operating income in the Aerospace Fasteners segment increased
$2.7
million in the third quarter and $7.9 million in the Fiscal 1997
nine-month
period, compared to the Fiscal 1996 periods. The prior year nine
month
period was adversely affected by $1.2 million in restructuring
charges,
resulting from severance pay provided to employees and the closing
of a small
subsidiary. Excluding Simmonds, results in the current year nine
months, and
Harco's results and restructuring charges in the prior year nine
months,
operating income improved by $9.1 million in the Fiscal 1997
nine-month
period. Management intends to continue to implement productivity
improvements and reduce costs.
Aerospace Distribution
- ----------------------
The Aerospace Distribution segment continued its record growth
reporting
sales of $113.7 million in the third quarter and $294.8 million for
the nine-
month period ended March 30, 1997, reflecting the recent resurgence
of the
commercial aerospace industry. Operating income was $9.1 million
in the
third quarter and $21.1 million for the nine-month period ended
March 30,
1997. The prior year periods include results from this segment
only for
five weeks of operations which began on February 25, 1996, when the
Company
acquired a majority interest in Banner.
Since February 25, 1996, Harco's results were reported as part
of the
Aerospace Distribution segment. Previously, Harco's results were
reported as
part of the Aerospace Fasteners segment.
Technology Products
- -------------------
Sales in the Technology Products segment, which primarily
includes
Fairchild Technologies ("FT"), increased $.5 million in the third
quarter and
decreased $17.9 million in the first nine months of Fiscal 1997,
compared to
the Fiscal 1996 periods. The decrease in the current nine month
period is
primarily attributable to the temporary slowdown in the growth of
DRAM chip
demand which negatively affected FT's semiconductor production
equipment
line. However, this is expected to be a temporary decrease, as
evidenced by
several multimillion dollar orders recently received and which are
scheduled
to be shipped over the next six months. During the first nine
months of
Fiscal 1997, FT received new orders totaling approximately $64.8
million.
The sales increase in the current third quarter period reflected
record
growth achieved by the Fairchild Scandinavian Bellyloading Company
("SBC"),
a start-up company whose sales increased by $2.6 million, or 428%,
compared
to the prior year third quarter.
FT reported operating income of $.4 million in the third
quarter and an
operating loss of $3.5 million for the nine months ended March 30,
1997,
which was recorded in the Technology Products segment. FT's nine
month
period loss was partially due to the low level of sales, but also
due to
expansion of the sales staff into the Pacific Rim. SBC had a
nine-month
operating income of $.3 million, a $1.2 million improvement over
the prior
year nine month loss, reflecting the record growth mentioned above.
The
Technology Products segment reported an operating loss of $.1
million in the
Fiscal 1996 third quarter and operating income of $1.6 million in
the Fiscal
1996 nine months.
Communications Services
- -----------------------
As a result of the Merger of the Communications Services
segment into
STI on March 13, 1996, the Company is accounting for its current
investment
in STFI, the merged company, using the equity method. For the
three and nine
months ended March 31, 1996, this segment reported sales of $26.3
million and
$91.3 million, respectively, and operating profit of $4.8 million
and $14.5
million, respectively.
<PAGE>
Other Expenses/Income
- ---------------------
Corporate administrative expense decreased 4.6% in the first
nine-month
period of Fiscal 1997, compared to the same period in Fiscal 1996.
The
decrease in the current nine-month period was due primarily to a
reduction in
legal expenses.
Net interest expense decreased 10.6% in the third quarter and
28.4% in
the nine-month period ended March 30, 1997, compared to the prior
year
periods, due primarily to lower debt outstanding, as a result of
the sale of
DME and the Merger, and higher interest income earned on higher
weighted
average cash balances during the first nine months of Fiscal 1997.
Non-recurring income in the Fiscal 1996 periods includes a
$162.9
million nontaxable gain resulting from the Merger. Expenses
relating to
other potential transactions which did not take place partially
offset the
above gain.
In the first nine months of Fiscal 1997, the Company recorded
a tax
benefit of $9.7 million on a pretax loss of $17.3 million. A tax
benefit of
$14.7 million was recorded from the continuing operations loss,
excluding the
nontaxable non-recurring gain, incurred in the prior year's nine
months.
Earnings from discontinued operations, net, of $1.8 million in
the
Fiscal 1996 third quarter and $9.1 million for the nine months
ended March
30, 1996, include the earnings, net of tax, provided by DME and
Data.
The $61.3 million net gain on disposal of discontinued
operations
recorded in the prior year period resulted primarily from the sale
of DME.
The prior year's extraordinary items totaled $10.4 million,
net of
taxes, and resulted from the write-off of deferred fees and the
premium costs
associated with the early extinguishment of FII's senior notes and
bank debt.
The $7.6 million net loss from continuing operations for the
nine months
ended March 30, 1997 was a $17.1 million improvement over the
Fiscal 1996
nine-month period $24.7 million net loss from continuing
operations,
excluding non-recurring income. The improvement resulted primarily
from: (i)
an $8.6 million increase in operating income, and (ii) a $13.9
million
decrease in net interest expense, partially offset by a $5.0
million decrease
in the tax benefit.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of March 30, 1997, the Company's current ratio was 2.19:1,
down from
2.37:1 at June 30, 1996.
Working capital at March 30, 1997, was $297.3 million, which
was $55.6
million lower than at June 30, 1996. The principal reasons for
this change
included a $13.5 million decrease in cash, a $170.4 million
decrease in notes
receivable, and a $11.2 million net increase in accounts payable
and other
accrued liabilities, including income taxes. These uses of working
capital
were partially offset by a $63.8 million increase in inventory, a
$28.8
million increase in accounts receivable, a $17.5 million increase
in Prepaid
and other current assets, a $11.4 million increase in short-term
investments,
and a $18.0 million reduction in short-term notes payable.
The Company's principal sources of liquidity are cash on hand,
cash
generated from operations and borrowings under its credit
agreement. At
March 31, 1997, $69.1 million was available to be borrowed from the
Company's
credit agreements (see Note 9 in the notes to the condensed
consolidated
financial statements), of which $51.6 million is available only to
Banner.
The Company also expects to generate cash from the sale of
certain
assets and liquidation of investments. Net assets held for sale at
March 30,
1997, had a book value of $48.5 million and included two parcels of
real
estate in California, a 68-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 environmental matters.
The Company's principal cash requirements include debt
service, capital
expenditures, acquisitions, and payment of other liabilities.
Other
liabilities that require the use of cash include post-employment
benefits for
retirees, environmental investigation and remediation obligations,
litigation
settlements and related costs.
Property, plant and equipment increased $34.6 million from
June 30,
1996, primarily as a result of the Simmonds Acquisition. Goodwill
increased
by $18.0 million as a result of the Company's acquisitions in the
current
fiscal year.
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.
EFFECT OF FUTURE ACCOUNTING CHANGES
Earnings per Share
- ------------------
In February 1997, the Financial Accounting Standards Board
issued
statement of Financial Accounting Standards No. 128 ("SFAS 128")
"Earnings
per Share". SFAS 128 establishes accounting standards for
computing and
presenting earnings per share ("EPS"). SFAS 128 is effective for
periods
ending after December 15, 1997, including interim periods, and
requires
restatement of all prior-period EPS data presented. Results from
the
calculation of simple and diluted earnings per share, as prescribed
by SFAS
128, would not be materially different from the calculations for
primary and
fully diluted earnings per share for the three and nine months
ended March
30, 1997.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Note 14 of Notes to Consolidated
Financial
Statements.
Item 5. Other Information
Articles have appeared in the French press reporting an
investigation by
a French magistrate into certain allegedly improper business
transactions
involving Elf Acquitaine, its former chairman and various third
parties,
including Maurice Bidermann. In connection with this
investigation, the
magistrate has made inquiry into allegedly improper transactions
between
Jeffrey Steiner and that petroleum company. In response to the
magistrate's
request that Mr. Steiner appear in France as a witness, Mr. Steiner
submitted
a written statement concerning the transactions and has offered to
appear in
person if certain arrangements were made. According to the French
press, the
magistrate also has requested permission to investigate other
allegedly
improper transactions involving another French petroleum company
and, if
granted, inquiry into transactions between Mr. Steiner and such
company,
could ensue. The Board of Directors of the Company has formed a
special
committee of outside directors to advise it with respect to these
matters,
and the special committee has retained counsel.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
(i) Amendment No. 1, dated as of January 21, 1997, to the
Restated
and Amended Credit Agreement dated as of July 26, 1996.
(ii) Amendment No. 2 and Consent, dated as of February 21,
1997, to
the Restated and Amended Credit Agreement dated as of
July 26,
1996.
(iii) Financial Data Schedules
(b) Reports on Form 8-K
-------------------
On February 26, 1997, the Company filed a Form 8-K to
report on Item
5. The Company reported that it had completed a transaction
pursuant to
which the company acquired from KST common shares and convertible
debt
representing 84.2% of Simmonds S.A. and that the Company intends to
initiate
a tender offer for the remaining shares and convertible debt held
by the
public.<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: Colin M. Cohen
Senior Vice President and
Chief Financial Officer
Date: May 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-30-1997
<CASH> 26,174
<SECURITIES> 21,912
<RECEIVABLES> 135,289
<ALLOWANCES> (7,807)
<INVENTORY> 334,963
<CURRENT-ASSETS> 547,332
<PP&E> 249,917
<DEPRECIATION> 127,369
<TOTAL-ASSETS> 1,007,243
<CURRENT-LIABILITIES> 250,008
<BONDS> 376,263
0
0
<COMMON> 2,283
<OTHER-SE> 218,948
<TOTAL-LIABILITY-AND-EQUITY> 1,007,243
<SALES> 496,784
<TOTAL-REVENUES> 497,860
<CGS> 365,411
<TOTAL-COSTS> 484,078
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,096
<INCOME-PRETAX> (17,275)
<INCOME-TAX> (9,720)
<INCOME-CONTINUING> (7,555)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,555)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.46)
</TABLE>
AMENDMENT NO. 1
to
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of July 26, 1996
THIS AMENDMENT NO. 1 ("Amendment") is entered into as of
January 21, 1997 by and among Fairchild Holding Corp., a Delaware
corporation (the "U.S. Borrower"), Kaysel, a private unlimited
liability company formed under the laws of The Republic of Ireland
d/b/a/ Fairchild Finance Company (the "U.K. Borrower"), and the
institutions identified on the signature pages hereof as Lenders.
Capitalized terms used herein but not defined herein shall have the
meanings provided in the Credit Agreement (as defined below).
W I T N E S S E T H:
WHEREAS, the U.S. Borrower, the U.K. Borrower, and the Lenders
are parties to that certain Amended and Restated Credit Agreement
dated as of July 26, 1996 (together with the Exhibits and Schedules
thereto, the "Credit Agreement"), pursuant to which the Lenders have
agreed to provide certain financial accommodations to the Borrowers;
and
WHEREAS, the U.S. Borrower has requested an amendment of
Section 10.01 of the Credit Agreement to permit the incurrence of
certain intercompany Indebtedness in addition to that heretofore
permitted thereunder and the waiver of Lenders' rights and remedies
arising due to the amendment of the Tax Allocation Agreement
pursuant to a Tenth Amended and Restated Tax Allocation Agreement
dated as of December 23, 1996 attached hereto as Exhibit 1 and made
a part hereof (the "Tenth Amended Tax Allocation Agreement");
NOW, THEREFORE, in consideration of the premises set forth
above, the terms and conditions contained herein, and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Amendment to Credit Agreement; Waiver. Effective as of
January 21, 1997, upon satisfaction of the conditions precedent set
forth in Section 2 below, (a) the Credit Agreement is hereby amended
to delete the provisions of Section 10.01(g) in their entirety and
substitute the following therefor:
(g) Indebtedness arising from intercompany loans (i) from the
U.S. Borrower to any of its Subsidiaries which is a Guarantor or
from any such Subsidiary to the U.S. Borrower or any other such
Subsidiary, (ii) from the U.K. Borrower to any of the European
Subsidiary Borrowers, (iii) from the U.K. Borrower to the U.S.
Borrower in the amount of $1,450,000 evidenced by a promissory note
in form and substance satisfactory to the Administrative Agent, (iv)
from RHI to the U.S. Borrower provided that such loans are
subordinated to the payment and performance of the Obligations and
are evidenced by a promissory note in form and substance
satisfactory to the Administrative Agent, (v) in an aggregate amount
outstanding at any time not to exceed $10,000,000 from the U.S.
Borrower to Subsidiaries not described in clauses (i) through (iii)
above or from such Subsidiaries to the U.S. Borrower, and (vi) from
the U.S. Borrower to Technologies in an aggregate amount outstanding
at any time not to exceed the amount which is equal to (a)
$25,000,000 minus (b) the amount of Indebtedness outstanding under
clause (v) above;
and (b) the rights and remedies of the Lenders arising due to the
execution of the Tenth Amended Tax Allocation Agreement are hereby
waived.
2. Conditions to Effectiveness. This Amendment shall become
effective as of January 21, 1997 upon receipt by the Administrative
Agent, by no later than January 21, 1997, of executed counterparts
of this Amendment signed on behalf of the Borrower and the Requisite
Lenders.
3. Representations, Warranties and Covenants.
3.1 The Borrowers hereby represent and warrant that this
Amendment and the Credit Agreement, as amended hereby, constitute
the legal, valid and binding obligations of the Borrowers and are
enforceable against the Borrowers in accordance with their terms.
3.2 The Borrowers hereby represent and warrant that, before
and after giving effect to this Amendment, no Event of Default or
Potential Event of Default has occurred and is continuing except
under Section 9.13 with respect to execution of the Tenth Amended
Tax Allocation Agreement.
3.3 Each Borrower hereby reaffirms all agreements, covenants,
representations and warranties made in the Credit Agreement, to the
extent the same are not amended hereby, and made in the other Loan
Documents to which it is a party; and agrees that all such
agreements, covenants, representations and warranties shall be
deemed to have been remade as of the effective date of this
Amendment. To the extent the Credit Agreement is amended hereby to
modify or add agreements, covenants and/or representations and
warranties, such agreements, covenants and/or representations and
warranties are made as of the date on which this Amendment becomes
effective with respect thereto.
4. Reference to and Effect on the Credit Agreement.
4.1 Upon the effectiveness of this Amendment, each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof",
"herein" or words of like import shall mean and be a reference to
the Credit Agreement as amended hereby.
4.2 Except as specifically amended above, the Credit Agreement
shall remain in full force and effect, and is hereby ratified and
confirmed.
4.3 The execution, delivery, and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as
a waiver of any right, power or remedy of the Administrative Agent
or Lenders, or constitute a waiver of any provision of any of the
Loan Documents.
5. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
6. Headings. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose.
7. Counterparts. This Amendment may be executed by one or
more of the parties hereto on any number of separate counterparts,
each of which shall be deemed an original and all of which, taken
together, shall be deemed to constitute one and the same instrument.
Delivery of an executed counterpart of this Amendment by facsimile
transmission shall be effective as delivery of a manually executed
counterpart hereof.
IN WITNESS WHEREOF, this Amendment has been duly executed as of
the day and year first above written.
FAIRCHILD HOLDING CORP.
Karen L. Schneckenburger
Vice President & Treasurer
KAYSEL
Karen L. Schneckenburger
Attorney
CITICORP USA, INC.
Timothy L. Freeman
Attorney-in-Fact
NATIONSBANK, N.A.
Michael R. Heredia
Vice President
CAISSE NATIONALE DE CREDIT AGRICOLE
David Bouhl F.V.P.
Head of Corporate Banking, Chicago
UNION BANK OF CALIFORNIA
Cedric M. Henly
Credit Officer
Cary Moore
Vice President
AMENDMENT NO. 2
and CONSENT
to
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of July 26, 1996
THIS AMENDMENT NO. 2 and CONSENT ("Amendment") is entered into
as of February 21, 1997 by and among Fairchild Holding Corp., a
Delaware corporation (the "U.S. Borrower"), Fairchild Finance
Company (f/k/a Kaysel), a private unlimited liability company formed
under the laws of The Republic of Ireland (the "U.K. Borrower"), and
the institutions identified on the signature pages hereof as
Lenders. Capitalized terms used herein but not defined herein shall
have the meanings provided in the Credit Agreement (as defined
below).
W I T N E S S E T H:
WHEREAS, the U.S. Borrower, the U.K. Borrower, and the Lenders
are parties to that certain Amended and Restated Credit Agreement
dated as of July 26, 1996 (together with the Exhibits and Schedules
thereto, the "Credit Agreement"), pursuant to which the Lenders have
agreed to provide certain financial accommodations to the Borrowers;
WHEREAS, the U.S. Borrower has informed the Administrative
Agent and Lenders of its desire to acquire 100% of the Capital Stock
of Simmonds S.A., a corporation formed under the laws of France, and
in connection therewith, to form a new Subsidiary under the laws of
France which would be owned in partnership by two Wholly-Owned
Subsidiaries of the U.S. Borrower, Meow, Inc., a Delaware
corporation, and Fairchild Fasteners Corp., a Delaware corporation,
with Meow, Inc. having a 90% interest and Fairchild Fasteners Corp.
having a 10% interest; and
WHEREAS, the U.S. Borrower has requested certain consents in
connection with the aforesaid proposed acquisition and a further
amendment of Section 10.01 of the Credit Agreement and an amendment
of the Borrowing Base Certificate with respect to calculation of the
EBITDA Borrowing Base;
NOW, THEREFORE, in consideration of the premises set forth
above, the terms and conditions contained herein, and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Amendment to Credit Agreement. Effective as of February
21, 1997, upon satisfaction of the conditions precedent set forth in
Section 3 below, the Credit Agreement is hereby amended as follows:
1.1 Article I is amended to (a) delete the definitions of
"Base Rate Margin" and "Eurocurrency Rate Margin" in their entirety
and substitute the following therefor:
"Base Rate Margin" means (i) with respect to Obligations of the
U.S. Borrower, a rate equal to one and one-half percent (1.50%) per
annum and (ii) with respect to Obligations of the U.K. Borrower, a
rate equal to two and one-half percent (2.50%) per annum; provided,
however, that in the event the Loans and other financial
accommodations provided for in this Agreement are not restructured
or refinanced by September 30, 1997, the aforesaid per annum rates
shall be increased, effective as of September 30, 1997, by one-
quarter of one percent (0.25%) per annum and provided further that
in the event the Loans and other financial accommodations provided
for in this Agreement are not restructured or refinanced by December
31, 1997, the aforesaid per annum rates shall be further increased,
effective as of December 31, 1997, by an additional one-quarter of
one percent (0.25%) per annum.
"Eurocurrency Rate Margin" means (i) with respect to
Obligations of the U.S. Borrower, a rate equal to two and three-
quarters percent (2.75%) per annum and (ii) with respect to
Obligations of the U.K. Borrower, a rate equal to two and one-half
percent (2.50%) per annum; provided, however, that in the event the
Loans and other financial accommodation provided for in this
Agreement are not restructured or refinanced by September 30, 1997,
the aforesaid per annum rates shall be increased, effective as of
September 30, 1997, by one-quarter of one percent (0.25%) per annum
and provided further that in the event the Loans and other financial
accommodations provided for in this Agreement are not restructured
or refinanced by December 31, 1997, the aforesaid per annum rates
shall be further increased, effective as of December 31, 1997, by an
additional one-quarter of one percent (0.25%) per annum.
and (b) add the following definitions:
"Simmonds S.A." means Simmonds S.A., a corporation formed under
the laws of France.
"Support Agreement" means the written agreement executed and
delivered to the Administrative Agent for the benefit of the Holders
by RHI described in Section 3 of that certain Amendment No. 2 and
Consent dated as of February 21, 1997 and delivered with respect to
this Agreement.
1.2 Section 10.01 is amended to delete the provisions of
Section 10.01(g) in their entirety and substitute the following
therefor:
(g) Indebtedness arising from (i) intercompany loans from the
U.S. Borrower to any of its Subsidiaries which is a Guarantor (other
than Fairchild Technologies USA, Inc.) or from any such Subsidiary
to the U.S. Borrower or any other such Subsidiary, (ii) those
certain intercompany loans identified on Schedule 10.01-G attached
hereto and made a part hereof incurred on or before February 21,
1997 or under promissory notes identified on Schedule 10.01-G
evidencing Indebtedness owing (A) between the U.S. Borrower and
Fairchild Retiree Medical Services, Inc. and (B) by the U.K.
Borrower to the U.S. Borrower upon the assignment by the U.S.
Borrower of the promissory note executed on February 20, 1997 by
Simmonds Holding to the U.K. Borrower as referenced on Schedule
10.01-G, (iii) Indebtedness incurred after February 21, 1997 in
addition to that permitted under clause (i) above, in an amount not
to exceed $12,000,000 in the aggregate, exclusive of fees and
interest with respect thereto, arising from intercompany loans (A)
from the U.S. Borrower to Fairchild Technologies USA, Inc. and any
of the U.S. Borrower's Subsidiaries which are not Guarantors or from
any such Subsidiary of the U.S. Borrower to the U.S. Borrower or any
other such Subsidiary, (B) from the U.K. Borrower to any Subsidiary
of the U.S. Borrower, and (iv) from RHI to the U.S. Borrower;
provided that such loans are subordinated to the payment and
performance of the Obligations and are evidenced by promissory notes
in form and substance satisfactory to the Administrative Agent,
which terms of such promissory notes executed with respect to loans
from RHI to the U.S. Borrower on or after February 21, 1997, the
proceeds of which are used, directly or indirectly, to effect the
acquisition of Capital Stock and convertible bonds of Simmonds, S.A.
and compliance with the requirements of the Support Agreement, shall
include, without limitation, provisions stating that such loans are
not payable until the Obligations are satisfied in full, in cash,
and that interest payable with respect thereto shall not be payable
in cash, but only in kind, and provided further that the amount of
Indebtedness permitted in clause (iii) hereof shall be in addition
to the amount of proceeds of loans permitted in clause (iv) hereof
which are in turn loaned by the U.S. Borrower to a Subsidiary of the
U.S. Borrower or by such a Subsidiary to another such Subsidiary;
1.3 Exhibit B is amended, under the heading "II. Calculation
of EBITDA Borrowing Base", at line 14 to read as follows:
14. EBITDA for most recent four fiscal quarters $______
x 3.5
2. Consents. The Lenders signatory hereto hereby consent to:
2.1 the formation by Meow, Inc. and Fairchild Fasteners Corp.,
Wholly-Owned Subsidiaries of the U.S. Borrower, under the laws of
France, of a new Subsidiary to be named Fairchild Fasteners Europe -
Simmonds S.A.R.L. ("Simmonds Holding Corp.") solely for the purpose
of acquiring 100% of the Capital Stock of Simmonds S.A., a
corporation organized under the laws of France ("Simmonds S.A."),
provided that 65% of the Capital Stock of Simmonds Holding Corp. is
pledged to the Administrative Agent on terms and conditions and
subject to agreements satisfactory to the Administrative Agent;
2.2 the exercise by Simmonds Holding Corp., as assignee of
Fairchild France, Inc., of the option to purchase Capital Stock and
convertible bonds of Simmonds S.A. evidenced by that certain Call
Option dated January 23, 1997 executed by Fairchild France, Inc., a
Subsidiary of RHI and Mines de Kali Sainte Therese S.A.("KST"), a
translation of which is attached hereto as Exhibit 1 (the "Call
Option") in accordance with the terms of the Call Option;
2.3 the consummation of the acquisition, by Simmonds Holding
Corp., of (a) the Capital Stock of Simmonds S.A. and, indirectly,
the Subsidiaries and Investments of Simmonds S.A. identified on
Exhibit 2 attached hereto and made a part hereof, and (b)
Indebtedness in the form of bonds convertible into Capital Stock of
Simmonds S.A., in each instance, on the terms and conditions set
forth in the Call Option; provided that
(i) proceeds of Loans under the Credit Agreement and cash from
operations of the U.S. Borrower and its Subsidiaries used, directly
or indirectly, to effect such acquisition do not exceed $30,000,000
in the aggregate;
(ii) the sources and uses with respect to the aforesaid
acquisition consist of:
Sources
U.S. Borrower Cash FF165,000,000
Borrowing from RHI 64,456,080
Indebtedness on Books 101,890,218
of Simmonds S.A. &
its Subsidiaries
Total FF 331,346,298
Uses
Purchase of 87.58% of FF 69,364,000
Simmonds S.A. Capital
Stock from Related Parties
Purchase of 12.42% of 9,836,000
Simmonds S.A. Capital
Stock from Public
Purchase of Convertible 47,301,000
Bonds from Related Parties
Purchase of Convertible 12,099,000
Bonds from Public
Repayment of Indebtedness 45,149,730
to KST
Repayment of Indebtedness 40,706,350
to Bank Rivaud
Indebtedness on Books 101,890,218
of Simmonds S.A. &
its Subsidiaries
Transaction Costs 5,000,000
Total FF 331,346,298
(iii) there shall exist no contractual restriction of any kind
on the ability of Simmonds S.A. to pay dividends to Simmonds Holding
Corp. or for Simmonds Holding Corp. to pay dividends to Meow, Inc.
or Fairchild Fasteners Corp.
2.4 the continuation, from and after the consummation of the
acquisition described in Section 2.3 above, of Indebtedness in the
aggregate amount of Fr 101,890,218 owing by Simmonds S.A. and its
Subsidiaries to the Persons identified on Exhibit 3 attached hereto
and made a part hereof, approximately FF 11,250,000 of which is
owing to Credit Nationale and secured by a Lien against 29,000
shares of the Capital Stock of Transfix S.A.;
2.5 incurrence by Simmonds Holding Corp. of Indebtedness to
the U.S. Borrower or U.K. Borrower (directly or by assignment of the
promissory note evidencing the same originally payable to the U.S.
Borrower) in the aggregate principal amount of approximately FF
85,856,080 subject to agreements in form and substance satisfactory
to the Administrative Agent to refinance Indebtedness in the amount
of FF 45,149,730 owing by Simmonds S.A. and Mecaero S.A. to KST and
Indebtedness in the amount of approximately FF 40,706,350 owing by
Simmonds S.A. to Bank Rivaud, which Indebtedness shall be in
addition to that permitted under Section 10.01(g)(iii), as amended
by this Amendment;
2.6 in the event the assignment referenced in Section 2.5
above is effected, incurrence by the U.K. Borrower of Indebtedness
to the U.S. Borrower in the aggregate principal amount of the
Indebtedness referenced in Section 2.5 above subject to a
promissory note in form and substance satisfactory to the
Administrative Agent representing the consideration paid for such
assignment, which Indebtedness shall be in addition to that
permitted under Section 10.01(g)(iii), as amended by this Amendment;
2.7 the acquisition by the U.S. Borrower of 99.99% of the
Capital Stock of Simmonds Mecaero Fasteners, Inc., a Delaware
corporation ("Mecaero US"), from Simmonds S.A. for an amount equal
to the book value thereof approximating $1,500,000 and the
subsequent liquidation of Mecaero US into the U.S. Borrower,
provided that promptly following such acquisition and liquidation,
the U.S. Borrower executes and delivers to the Administrative Agent
such Loan Documents as are requested by the Administrative Agent to
perfect Liens on the assets theretofore owned by Mecaero US as part
of the Collateral and, in the event the purchase price is paid by
promissory note rather than in cash, such promissory note shall be
on terms and conditions satisfactory in form and substance to the
Administrative Agent;
2.8 the incurrence by Simmonds Holding Corp. of Indebtedness
to the U.S. Borrower in the amount of FF 143,550,000 in connection
with the capitalization of Simmonds Holding Corp.; provided that (i)
the U.S. Borrower's claims with respect to such Indebtedness may be
assigned to the U.K. Borrower in exchange for a promissory note in
the amount of FF 143,550,000 and (ii) the terms and conditions of
such Indebtedness of Simmonds Holding Corp. and the U.K. Borrower
are subject to agreements in form and substance satisfactory to the
Administrative Agent, which Indebtedness, in each case, shall be in
addition to that permitted under Section 10.01(g)(iii), as amended
by this Amendment;
2.9 dissolution of Mecair, a Canadian Subsidiary of Mecaero,
S.A.;
2.10 further amendment of the Tax Allocation Agreement, in a
manner consistent with substantially similar amendments previously
made, solely to reflect the acquisition of Simmonds S.A. and its
Subsidiaries; and
2.11 maintenance by Simmonds Holding Corp. and Simmonds S.A.
of a fiscal year end as September 30.
3. Conditions to Effectiveness.
3.1 The provisions of this Amendment set forth in Section 2.1
and Section 2.2 shall become effective as of February 21, 1997 upon
receipt by the Administrative Agent, by no later than 5:00 p.m. (New
York time) on February 21, 1997, of (a) executed counterparts of
this Amendment signed on behalf of the Borrowers and the Requisite
Lenders, (b) the written agreement of RHI in the form attached
hereto as Exhibit 4 to provide (i) Technologies and Fairchild
Technologies USA, Inc., directly, with all financial support
required in excess of that permitted under Section 10.01(g)(iii) of
the Credit Agreement, as amended hereby, and (ii) the Administrative
Agent and the Lenders with written notice of the provision of such
support contemporaneously with such provision of support to
Technologies and Fairchild Technologies USA, Inc., and (c) payment,
for the account of the Lenders executing and delivering a
counterpart of this Amendment by February 21, 1997, of an amendment
fee in the amount of one-quarter of one percent (0.25%) of the
Commitments of such Lenders.
3.2 Provided that the conditions set forth in Section 3.1
above are satisfied as and when specified therein, all other
provisions of this Amendment shall be become effective as of
February 21, 1997 upon receipt by the Administrative Agent of a
certificate of the U.S. Borrower that the exercise of the option
described in Section 2.2 above has been effected by Simmonds Holding
Corp. in conformance with the provisions of the Call Option.
4. Representations, Warranties and Covenants.
4.1 The Borrowers hereby represent and warrant that this
Amendment and the Credit Agreement, as amended hereby, constitute
the legal, valid and binding obligations of the Borrowers and are
enforceable against the Borrowers in accordance with their terms.
4.2 The Borrowers hereby represent and warrant that, before
and after giving effect to this Amendment, no Event of Default or
Potential Event of Default has occurred and is continuing except
under Section 9.13 with respect to execution of the Tenth Amended
Tax Allocation Agreement the Lenders' rights and remedies with
respect to which were waived as of January 21, 1997.
4.3 Each Borrower hereby reaffirms all agreements, covenants,
representations and warranties made in the Credit Agreement, to the
extent the same are not amended hereby, and made in the other Loan
Documents to which it is a party; and agrees that all such
agreements, covenants, representations and warranties shall be
deemed to have been remade as of the effective date of this
Amendment. To the extent the Credit Agreement is amended hereby to
modify or add agreements, covenants and/or representations and
warranties, such agreements, covenants and/or representations and
warranties are made as of the date on which this Amendment becomes
effective with respect thereto.
5. Reference to and Effect on the Credit Agreement.
5.1 Upon the effectiveness of this Amendment, each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof",
"herein" or words of like import shall mean and be a reference to
the Credit Agreement as amended hereby.
5.2 Except as specifically amended above, the Credit Agreement
shall remain in full force and effect, and is hereby ratified and
confirmed.
5.3 The execution, delivery, and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as
a waiver of any right, power or remedy of the Administrative Agent
or Lenders, or constitute a waiver of any provision of any of the
Loan Documents.
6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
7. Headings. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose.
8. Counterparts. This Amendment may be executed by one or
more of the parties hereto on any number of separate counterparts,
each of which shall be deemed an original and all of which, taken
together, shall be deemed to constitute one and the same instrument.
Delivery of an executed counterpart of this Amendment by facsimile
transmission shall be effective as delivery of a manually executed
counterpart hereof.
IN WITNESS WHEREOF, this Amendment has been duly executed as of
the day and year first above written.
FAIRCHILD HOLDING CORP.
Karen L. Schneckenburger
Vice President & Treasurer
FAIRCHILD FINANCE COMPANY (f/k/a
KAYSEL)
Karen L. Schneckenburger
Attorney
CITICORP USA, INC.
Timothy L. Freeman
Attorney-in-Fact
NATIONSBANK, N.A.
Michael R. Heredia
Senior Vice President
CAISSE NATIONALE DE CREDIT AGRICOLE
David Bouhl, F.V.P.
Head of Corporate Banking, Chicago
UNION BANK OF CALIFORNIA
Cedric M. Henley
Credit Officer
Cary Moore
Vice President
<PAGE>
SCHEDULE 10.01-G
to
Amended and Restated Credit Agreement
Dated as of July 26, 1996
Intercompany Indebtedness Outstanding as of February 21,
1997
Indebtedness Owing by U.S. Borrower to a Subsidiary of U.S.
Borrower:
Principal
Subsidiary Amount Evidenced By
U.K. Borrower $1,450,000 Promissory Note dated
February 12, 1997
Fairchild Retiree $1,500,000 Promissory Note dated
Medical Services, December 31, 1996
Inc.
Fairchild $2,000,000 Promissory Note dated
Retiree Medical December 31, 1996
Services, Inc.
Indebtedness Owing by Subsidiaries of U.S. Borrower to U.S.
Borrower:
Principal
Subsidiary Amount Evidenced By
Fairchild Tech- DM15,370,956.69 Books & records
nologies GmbH
Fairchild Tech- $1,485,512 Books & records
nologies GmbH
Fairchild Retiree $2,000,000 Promissory Note dated
Medical Services, December 31, 1996
Inc.
Fairchild Fasteners Fr45,100,000 Promissory Note dated
Europe-Simmonds February 20, 1997
S.A.R.L.
Indebtedness Owing by a Subsidiary of the U.S. Borrower to Another
Subsidiary of the U.S. Borrower:
Principal
Obligor Obligee Amount Evidenced By
VSI Holdings, Fairchild $35,600,000 Promissory
Note
Inc. Retiree Medical dated
December 31,
Services, Inc. 1996
Fairchild Camloc DM13,569,000 Share
Purchase
Technologies Holdings, Inc. Agreement
dated
GmbH July 1, 1992
Fairchild Fairchild DM716,684 Books and
records
Technologies Technologies
USA, Inc. GmbH
Voi-Shan VSI Holdings, DM1,860,000 Promissory
Note
Diessel GmbH Inc. dated March
1, 1994
Voi-Shan Fairchild DM231,428 Promissory
Note
Diessel GmbH Technologies dated March
1, 1994
GmbH
Voi-Shan Fairchild $281,814.01 Promissory
Note
Diessel GmbH Technologies dated October
30,
GmbH 1996<PAGE>
Voi-Shan
Camloc GmbH DM1,800,000 Loan
Agreement dated
Diessel GmbH May 24, 1996
Voi-Shan Fairchild DM738,397.90 Promissory
Note
Diessel GmbH Fasteners dated
December 9,
France S.A.R.L. 1996
Camloc GmbH Fairchild DM300,000 Loan
Agreement dated
Fasteners May 29, 1996
France S.A.R.L.
Banner JJS Limited GBP2,070,314 Books and
records
Investments
(UK) PLC<PAGE>
EXHIBIT 1
to
Amendment No. 2 and Consent
dated as of February 21, 1997
Call Option Agreement
Translation Attached
<PAGE>
EXHIBIT 2
to
Amendment No. 2 and Consent
dated as of February 21, 1997
Subsidiaries and Investments of Simmonds S.A.
Subsidiaries:
Simmonds Mecaero Fasteners Inc., a Delaware corporation, 99.9%
owned by Simmonds S.A.
Mecaero S.A., a French corporation, 59.5% owned by Simmonds
S.A., 36.5% owned by Transfix S.A., and 4% owned by Tofinso S.A. (a
bank)
Transfix S.A., a French corporation, 99.98% owned by Simmonds
S.A.
Euroism, a Portuguese corporation, 99.98% owned by Simmonds
S.A.
Other Equity Investments:
Conforma SRL, an Italian corporation, 50% owned by Simmonds
S.A. (inactive)
0.185% in S.E.M. Circuit 24h du Mans, a Societe d'Economie
Mixte incorporated under the laws of France (inactive)
13.16% interest in G.I.E. Mecafaster, a Groupement d'Interet
Economique incorporated under the laws of France
<PAGE>
EXHIBIT 3
to
Amendment No. 2 and Consent
dated as of February 21, 1997
Debt of Simmonds S.A. and its Subsidiaries
Attached<PAGE>
EXHIBIT 4
to
Amendment No. 2 and Consent
dated as of February 21, 1997
Form of Support Agreement
Attached
