8
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Date of Report (date of earliest event reported): April 23, 1998 (March 2, 1998)
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 Identification No.)
Incorporation or organization)
45025 Aviation Drive, Suite 400
Dulles, VA 20166
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703) 478-5800
Washington Dulles International Airport
300 West Service Road, PO Box 10803
Chantilly, VA
(Former name or former address, if changed since last report)
AMENDMENT:
The purpose of this amendment is to provide the financial information
required under Item 7. "Financial Statements and Exhibits" as a result of the
Company's acquisition of Edwards & Lock Management Corp., dba Special-T
Fasteners, a California corporation ("Special-T") from the shareholders of
Special-T pursuant to an Agreement and Plan of Merger (the "Special-T
Acquisition") dated as of January 28, 1998 as amended on February 20, 1998, and
March 2, 1998.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS AQUIRED
The audited financial statements of Special-T are being filed as an exhibit
to this Form 8-K and are herein incorporated by reference.
(b) PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
On March 2, 1998, the Company consummated the Special-T Acquisition. The
Special-T Acquisition purchase price, subject to adjustment, was $46,500 of
which $23,500 was paid in shares of Class A Common Stock of the Company and the
remainder was paid in cash.
The unaudited pro forma consolidated statement of earnings for the year
ended June 30, 1997 and for the six months ended December 28, 1997 have been
prepared to give effect to the Special-T Acquisition as if the Special-T
Acquisition occurred on July 1, 1996 and July 1, 1997, respectively. The
unaudited pro forma consolidated balance sheet as of December 28, 1997 has been
prepared to give effect to the Special-T Acquisition as if it had occurred on
such date.
The unaudited pro forma consolidated financial statements are not
necessarily indicative of the results that would have been obtained had the
Special-T Acquisition been completed as of the dates presented or for any future
period. The unaudited pro forma consolidated financial statements should be read
in conjunction with the Company's Consolidated Financial Statements and notes
thereto included in the Company's Form 10-K/A dated June 30, 1997 and Form 10-Q
dated December 28, 1997.
<TABLE>
THE FAIRCHILD CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED JUNE 30, 1997
(In thousands, except per share data)
<CAPTION>
Historical Historical
Company Special-T Adjustmenet Pro Forma
as Restated (1) (2) Company
<S> <C> <C> <C> <C>
Sales $680,763 $ 52,921 $(30,796) $702,888
Costs and expenses:
Cost of sales 499,419 33,511 (26,084) 506,846
Selling, general &
administrative 142,931 10,299 153,230
Research and development 100 100
Amortization of goodwill 4,814 4,814
647,264 43,810 (26,084) 664,990
Operating income 33,499 9,111 (4,712) 37,898
Net interest expense (47,681) 59 (2,025) (49,647)
Investment income, net 6,651 6,651
Equity in earnings of
affiliates 4,598 4,598
Minority interest (3,514) (3,514)
Nonrecurring income 2,528 2,528
Earnings before taxes (3,919) 9,170 (6,737) (1,486)
Income tax provision (benefit) (5,735) 3,631 (2,622) (4,726)
Earnings from continuing $ 1,816 $ 5,539 $(4,115) $ 3,240
operations
Earnings per share from
continuing operations:
Basic $0.11 $0.18
Diluted 0.10 0.18
Weighted average shares
outstanding:
Basic 16,539 1,058 17,597
Diluted 17,321 1,058 18,379
</TABLE>
<TABLE>
THE FAIRCHILD CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED DECEMBER 28, 1997
(In thousands, except per share data)
<CAPTION>
Historical Historical
Company Special-T Adjustments Pro Forma
as Restated (1) (2) Company
<S> <C> <C> <C> <C>
Sales $402,978 $ 31,025 $ (15,708) $ 418,295
Costs and expenses:
Cost of sales 299,827 19,680 (11,671) 307,836
Selling, general &
administrative 74,267 5,399 - 79,666
Research and
development 97 - - 97
Amortization of
goodwill 2,606 - - 2,606
376,797 25,079 (11,671) 390,205
Operating income 26,181 5,946 (4,037) 28,090
Net interest expense (27,744) 76 (1,013) (28,681)
Investment income, net (5,180) - - (5,180)
Equity in earnings of
affiliates 2,121 - - 2,121
Minority interest (1,875) - - (1,875)
Earnings (loss) before
taxes (6,497) 6,022 (5,050) (5,525)
Income tax provision
(benefit) (3,121) 2,445 (1,994) (2,670)
Earnings (loss) from $(3,376) $ 3,577 $ (3,056) $ (2,855)
continuing operations
Loss per share from
continuing operations:
Basic $ (0.20) $ (0.16)
Diluted (0.20) (0.16)
Weighted average shares
outstanding:
Basic 16,864 1,058 17,922
Diluted 16,864 1,058 17,922
</TABLE>
<TABLE>
THE FAIRCHILD CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETAS OF DECEMBER 28, 1997
(In thousands)
<CAPTION>
Historical Special-T
Company Acquisition Pro Forma
(as Restated) (3) Company
<S> <C> <C> <C>
Cash $ 38,907 $(21,646) $17,261
Short-term investments 8,487 - 8,487
Accounts receivable, less
allowance 160,995 6,716 167,711
Inventory 361,966 18,465 380,431
Prepaid and other current
assets 81,037 1,561 82,598
Total current assets 651,392 5,096 656,488
Net fixed assets 126,198 1,434 127,632
Net assets held for sale 26,447 - 26,447
Net LT assets of discontinued
operations 12,069 - 12,069
Investment in affiliates 21,829 50 21,879
Goodwill 160,150 21,503 181,653
Deferred loan costs 11,742 - 11,742
Prepaid pension assets 59,282 - 59,282
Other assets 53,627 41 53,668
Total assets $1,122,736 $ 28,124 $1,150,860
Bank notes payable & current $ 92,348 $ 175 $ 92,523
maturities of debt
Accounts payable 70,739 3,464 74,203
Other accrued expenses 92,979 860 93,839
Total current liabilities 256,066 4,499 260,565
Long-term debt, less current
maturities 371,610 125 371,735
Other long-term liabilities 29,050 - 29,050
Retiree health care
liabilities 42,366 - 42,366
Noncurrent income taxes 47,388 - 47,388
Minority interest in
subsidiaries 70,327 - 70,327
Total liabilities 816,807 4,624 821,431
Total stockholders'
equity 305,929 23,500 329,429
Total liabilities & $1,122,736 $ 28,124 $1,150,860
stockholders' equity
</TABLE>
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS(In thousands)
(1) Represents the results of operations of Special-T Fasteners.
(2) Includes (i) the elimination of sales and gross margin on products sold
from the Company's aerospace fasteners segment to Special-T, and (ii) the
estimated increase in interest expense relating to cash borrowed to complete
the Special-T Acquisition.
(3) Represents the inclusion of the assets acquired and the liabilities assumed
in the acquisition of Special-T Fasteners including cash of $24,395 used for
the Special-T Acquisition and related acquisition expenses, recorded goodwill
of $21,503, and the $23,500 increase to stockholders' equity from the issuance
of Class A Common Stock.
EXHIBITS
99.1 Agreement and plan of Merger dated January 28, 1998, as amended on February
20, 1998, and March 2, 1998, between the Company and the shareholders' of
Special-T Fasteners (Incorporated by reference to Form 8-K dated as of March
2, 1998 filed by the Company on March 12, 1998).
99.2 Financial statements, related notes thereto and Auditors' Report of
Edwards And Lock Management Corporation for the periods ended December 31,
1997 and March 31, 1997.
99.3 Financial statements, related notes thereto and Auditors' Report of
Edwards And Lock Management Corporation for the years ended March 31, 1996,
1995 and 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to the 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: April 23, 1998
EDWARDS AND LOCK MANAGEMENT CORPORATION
FINANCIAL STATEMENTS
AS OF DECEMBER 31 AND MARCH 31, 1997
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Edwards and Lock Management Corporation:
We have audited the accompanying balance sheets of Edwards and
Lock Management Corporation, (a California Corporation) as of
December 31, 1997 and March 31, 1997, and the related statements
of operations and retained earnings and cash flows for the nine
months ended December 31, 1997 and the year ended March 31,
1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Edwards and Lock Management Corporation as of December 31,
1997 and March 31, 1997, and the results of its operations and
its cash flows for the nine months ended December 31, 1997 and
the year ended March 31, 1997, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
April 9, 1998
<TABLE>
EDWARDS AND LOCK MANAGEMENT CORPORATION
BALANCE SHEETS
ASSETS
(in thousands)
12/31/97 3/31/97
<CAPTION>
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,749 $ 2,170
Accounts receivable, net of
allowance for doubtful accounts
of $159 and $53 at December 31 and
March 31, 1997, respectively 6,716 6,263
Income taxes receivable 416 41
Other receivables 23 23
Inventories, net 18,465 14,259
Deferred tax asset 1,122 996
------- -------
Total current assets 29,491 23,752
PROPERTY AND EQUIPMENT:
Office equipment 958 866
Warehouse equipment 316 305
Leasehold improvements 372 327
Building 797 797
------- -------
2,443 2,295
Less--Accumulated depreciation (1,009) (849)
------- -------
Net property and equipment 1,434 1,446
Investment in affiliate 50 -
Other assets 41 41
------- -------
Total assets $31,016 $25,239
======= =======
The accompanying notes are an integral part of these balance
sheets.
</TABLE>
<TABLE>
EDWARDS AND LOCK MANAGEMENT CORPORATION
BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S EQUITY
(in thousands)
<CAPTION>
12/31/97 3/31/97
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 3,464 $ 2,306
Accrued expenses 635 884
Current portion of capital lease obligation 175 180
Dividends payable 225 -
------- -------
Total current liabilities 4,499 3,370
------- -------
CAPITAL LEASE OBLIGATION 125 243
COMMITMENTS & CONTINGENCIES
SHAREHOLDER'S EQUITY:
Capital stock, no par value;
authorized 100,000 shares;
outstanding 45,000 shares 9 9
Retained earnings 26,383 21,617
------- -------
Total shareholder's equity 26,392 21,626
------- -------
Total liabilities and shareholder's equity $31,016 $25,239
======= =======
The accompanying notes are an integral part of these balance
sheets
</TABLE>
<TABLE>
EDWARDS AND LOCK MANAGEMENT CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(in thousands)
<CAPTION>
9 MONTHS 12 MONTHS
ENDED ENDED
12/31/97 3/31/97
<S> <C> <C>
Net sales $46,125 $49,344
Cost of sales 29,628 31,317
------- -------
Gross profit 16,497 18,027
Selling, general and
administrative expenses 8,158 9,786
Equity in income(loss) of affiliate 50 (5)
------- -------
Income from operations 8,389 8,236
------- -------
Interest income 77 47
------- -------
Income before taxes 8,466 8,283
Income taxes 3,475 3,279
------- -------
Net income 4,991 5,004
RETAINED EARNINGS, beginning of year 21,617 16,838
Dividends (225) (225)
------- -------
RETAINED EARNINGS, end of year $26,383 $21,617
======= =======
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<TABLE>
EDWARDS AND LOCK MANAGEMENT CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
9 MONTHS 12 MONTHS
ENDED ENDED
12/31/97 3/31/97
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,991 $ 5,004
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 160 243
Equity in undistributed earnings of affiliate(50) -
Increase in accounts receivable (453) (848)
Decrease in taxes (375) (450)
Increase in other receivables - (23)
Increase in inventory (4,206) (1,343)
(Decrease) increase in deferred tax asset (126) 105
Decrease in other assets - 2
Increase (decrease) in accounts payable 1,158 (2,121)
(Decrease) Increase in accrued liabilities(249) 267
Decrease in capital lease obligation (123) (154)
------- -------
Net cash provided by operating
activities 727 682
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (148) (182)
Proceeds from sale of bonds - 1,560
------- -------
Net cash (used in) provided by
investing activities (148) 1,378
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid - (225)
------- -------
NET CHANGE IN CASH 579 1,835
CASH, beginning of year 2,170 335
------- -------
CASH, end of year $ 2,749 $ 2,170
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes during the nine months ending
December 31, 1997 and fiscal year 1997 was $3,975 and $3,355,
respectively. There was no cash paid for interest during any of
the aforementioned periods.
The accompanying notes are an integral part of these financial
statements.
</TABLE>
EDWARDS AND LOCK MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31 AND MARCH 31, 1997
(in thousands)
1. Organization
Edwards and Lock Management Corp. (the "Company"), a
California corporation doing business as Special-T
Fasteners ("Special-T"), was formed on April 20, 1977.
Special-T distributes precision fasteners, utilized
primarily in the aerospace industry, to both the government
and commercial manufacturers in the United States and
abroad. The Company is individually-owned by one of the
original shareholders of the Company (the "shareholder").
During January 1998, the Company entered into an agreement
and was acquired by The Fairchild Corporation
("Fairchild")(see Note 11).
2. Summary of Significant Accounting Policies
General
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period.
Accordingly, actual results could differ from estimated
amounts. Management believes that these estimates provide
a reasonable basis for the fair presentation of the
Company's financial position and results of operations.
Risks and uncertainties
Since Special-T's products are used primarily by
manufacturers in the aerospace industry, significant
changes in the aerospace industry could have a significant
impact on the Company's results of operations for any
particular year.
Cash and cash equivalents
The Company considers all highly liquid investments with
original maturities of three months or less at the time of
purchase to be cash equivalents.
2. Summary of Significant Accounting Policies (continued)
Accounts receivable
Accounts receivable are recorded at the time product is
shipped. Any amounts which are at least 12 months past due
and deemed uncollectable are written off in full. The
allowance for doubtful accounts is based on historical
experience and review of periodic aging of accounts.
Inventories
Inventories are priced at lower of cost or market (net
realizable value). Cost is determined primarily using the
weighed average cost method, which approximates the first-
in first-out (FIFO) method. Appropriate consideration is
given to price deterioration, excess and obsolescence and
other factors in evaluating net realizable value.
During the nine months ended December 31, 1997, the Company
purchased approximately $1,600 of product from a subsidiary
of Fairchild (see Note 4). This inventory was excluded from
management's analysis of potential excess or obsolete
inventory because the marketing lead time for this
inventory is longer than that of the Company's general
products. Management believes that the carrying value of
this inventory is fully realizable. Reserves for excess
and obsolete inventory, aggregated $3,126 and $2,675 at
December 31 and March 31, 1997, respectively.
Property and equipment
Property and equipment are stated at cost less accumulated
depreciation. Gains or losses on disposition of property
and equipment are credited or charged to income.
Depreciation is computed principally using accelerated tax
methods for both income tax and financial statement
purposes. The method used for financial statement purposes
approximates the double-declining balance method and is
determined by management to be a reasonable allocation of
the assets' cost to expense over the assets' useful lives
as detailed below:
<TABLE>
<CAPTION>
Years
<S> <C>
Office equipment 5 to 7
Warehouse equipment 5 to 7
Building and
Leasehold Improvements 15 to 31.5
Depreciation expense for the nine months and fiscal year
ended December 31 and March 31, 1997 was $160 and $243,
respectively.
</TABLE>
2. Summary of Significant Accounting Policies (continued)
Property and equipment (continued)
In March 1995, the FASB issued SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed of" ("SFAS 121") which requires
impairment losses to be recorded on long-lived assets used
in operations when indications of impairment are present
and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount.
The Company follows the provisions of SFAS 121 and no
adjustment to the fixed assets' carrying values was
required as of December 31 and March 31, 1997.
Other assets
Other assets consist of deposits on the Company's leased
facility, including a deposit towards the purchase of the
facility (see Note 5).
Revenue recognition
Revenues and related accounts receivable are recorded at
the time the products are shipped.
New Accounting Principles
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), which
establishes standards for reporting the components of
comprehensive income. The Company will adopt SFAS 130
effective fiscal 1999.
3. Investment in Joint Venture
During fiscal year ended March 31, 1997, the Company
entered into a joint venture, Tri-Fast, to further the
Company's sales overseas. The Company's 50% investment is
accounted for under the equity method of accounting. As
such, the Company's initial investment is adjusted at year
end for the proportionate share of the investee's net
income or loss.
At December 31, 1997 the Company's cumulative share of Tri-
Fast's earnings was $50. At March 31, 1997, the Company's
cumulative share of Tri-Fast's losses was $32, which
reduced their initial investment of $5 to zero. The
Company has provided for taxes on these undistributed
earnings in its provision for income taxes.
During the fiscal year ended March 31, 1997, the Company
forwarded $23 to Tri-Fast to fund start up expenses, which
was repaid during the nine months ended December 31, 1997.
The Company also paid commissions of $133 and $81 during
the nine months ended December 31, 1997 and fiscal year
ended March 31, 1997, respectively, to Tri-Fast for sales
obtained through their marketing efforts.
4. Significant Vendors and Purchase Commitments
Approximately 80% of the Company's sales are derived from
products purchased from three subsidiaries of The Fairchild
Corporation (the "Manufacturer"). The Company has entered
into three master distribution agreements with the
Manufacturer which appoint the Company as nonexclusive
"authorized distributor".
Furthermore, the Company has a contractual arrangement with
the Manufacturer whereby a total of approximately $1,020 of
product was purchased at 10% of the Manufacturer's cost.
When sold, the Company must remit 50% of the invoice price
less shipping and handling costs back to the Manufacturer.
The aforementioned contract expires in July 2001. Any
proceeds derived from the sale of product after the
contractual expiration date are retained by the Company.
Amounts due to the Manufacturer under the aforementioned
arrangement approximated $24 and $66 at December 31 and
March 31, 1997, respectively.
The Company entered into a second contract with the
Manufacturer whereby it purchased approximately $1,600 of
product on an extended one-year payment schedule. Under
the terms of this contract, the Company makes equal
quarterly payments with the final payment due June 1998.
Amounts due to the Manufacturer under the aforementioned
contract approximated $800 at December 31, 1997.
The Company also warehouses consignment inventory owned by
the Manufacturer. As the inventory is sold, the proceeds
from the sale are split equally between the Company and the
Manufacturer.
Sales to Fairchild and its subsidiaries were $588 and $830
for the nine months ended December 31, 1997 and fiscal year
ended March 31, 1997, respectively.
Accounts receivable includes $184 and $110 of amounts due
from Fairchild and its subsidiaries for the nine months
ended December 31, 1997 and fiscal year ended March 31,
1997.
Accounts payable includes $2,490 and $1,304 of amounts due
to Fairchild and its subsidiaries for the nine months ended
December 31, 1997 and fiscal year ended March 31, 1997.
5. Commitments and Contingencies
Leases
The Company leases its facility under a capital lease.
During fiscal 1995, the Company made a $25 deposit towards
the purchase of the facility. As set forth in the option
to purchase agreement, the Company can exercise the option
within six to twelve months of the close of the original
lease term on August 31, 1999, or any time during the
extension period, which expires August 31, 2004.
5. Commitments and Contingencies (continued)
Property and equipment includes the following amounts for
leases that have been capitalized:
<TABLE>
<CAPTION>
12/31/97 3/31/97
<S> <C> <C>
Buildings $797 $797
Less--Accumulated depreciation (84) (65)
---- ----
$713 $732
==== ====
</TABLE>
The future minimum payments related to this lease
commitment are as follows at December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Minimum
Lease
Period Ended March 31, Payments
1998 $ 48
1999 193
2000 80
2001 -
2002 -
Thereafter -
----
Total minimum lease payments 321
Amount representing interest 21
----
Total present value of minimum
lease payments 300
Current portion 175
----
Total non-current portion $125
====
</TABLE>
Rental expense for the fiscal year ended March 31, 1997 was
$1. There was no rent expense during the nine months ended
December 31, 1997.
6. Income Taxes
The Company follows the provisions of Financial Accounting
Standards Board's SFAS No. 109, Accounting for Income Taxes
("SFAS 109"). Under the asset and liability method of SFAS
109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to temporary
differences between the financial statement carrying
amounts of assets and liabilities and their respective tax
bases. A deferred benefit or expense is recognized for the
net change during the period in the deferred tax liability
or asset. Deferred tax assets and liabilities are measured
using the enacted tax rates expected to apply to taxable
income in the years in which those temporary differences
are expected to be recovered or settled. Under SFAS 109,
the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period
that includes the enactment date.
The reconciliations between the provision for income taxes
and the amounts computed by applying the federal statutory
rate of 34% to
pre-tax income consists of the following:
<TABLE>
<CAPTION>
12/31/97 3/31/97
<S> <C> <C>
Income tax expense at Federal
statutory rate $2,878 $2,816
State income taxes, net of
Federal tax benefit 496 503
Effect of permanent difference (2) (3)
Other 103 (37)
------ ------
$3,475 $3,279
====== ======
</TABLE>
The Company's provision for income taxes consists of the
following:
<TABLE>
<CAPTION>
12/31/97 3/31/97
<S> <C> <C>
Current federal $3,045 $2,647
Deferred federal (126) 105
Current state 556 527
------ ------
$3,475 $3,279
====== ======
</TABLE>
The components of the deferred tax asset consists of the
following:
<TABLE>
<CAPTION>
12/31/97 3/31/97
<S> <C> <C>
Operating reserves and accruals $1,071 $912
Other 51 84
------ ------
$1,122 $996
====== ======
</TABLE>
7. Common Stock
During fiscal year ended March 31, 1997, the Company paid
cash dividends of $225 to the shareholder. As of December
31, 1997, the company had declared dividends of $225.
8. Employee Benefit Plans
The Company has a defined contribution retirement plan (the
"Plan") for all employees who are at least 18 years of age
and who have completed at least one year of service. The
Company contributed and expensed $44 under the provisions
of the Plan for the nine months ended December 31, 1997 and
the fiscal year ended March 31, 1997, respectively.
The Company provides pension benefits for all its employees
through a profit-sharing plan under which annual
contributions of the Company's income are made at the
discretion of management. Such contributions approximated
$117 and $156 during the nine months ended December 31,
1997 and the fiscal year ended March 31, 1997,
respectively, and were funded by the Company.
9. Executive Compensation Plan
The Company has a discretionary executive compensation plan
(the "Executive Plan") whereby certain key executives of
the Company are paid bonuses which are based upon
achieving certain business performance measures. The
bonuses paid to key executives under the Executive
Plan during the nine months ended December 31, 1997 and the
fiscal year ended March 31, 1997 aggregated $453 and $616,
respectively.
10. Related Party Transactions
The Company paid $2,200 and $2,100 as executive
compensation to the shareholder during the nine months
ended December 31, 1997 and the fiscal year ended March 31,
1997, respectively.
Other receivables of $23 at March 31, 1997 represent
amounts due from Tri-Fast (see note 3).
11. Subsequent Events
During January 1998, the Company entered into an agreement
and was acquired by Fairchild. Under the terms of the
agreement, Fairchild acquired the Company effective January
1, 1998. The purchase price was payable in cash and common
stock of Fairchild and exceeded the carrying value of the
Company's net assets at December 31, 1997.
EDWARDS AND LOCK MANAGEMENT CORPORATION
FINANCIAL STATEMENTS AS OF
MARCH 31, 1996, 1995 AND
FOR THE FISCAL YEARS ENDED MARCH 31, 1996
1995, AND 1994 TOGETHER WITH
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of EDWARDS AND LOCK MANAGEMENT
CORPORATION:
We have audited the accompanying balance sheets of EDWARDS AND
LOCK MANAGEMENT CORPORATION (a California Corporation) as of
March 31, 1996, and 1995, and the related statements of
operations and retained earnings and cash flows for the fiscal
years ended March 31, 1996, 1995 and 1994. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of EDWARDS AND LOCK MANAGEMENT CORPORATION as of March 31, 1996
and 1995, and the results of its operations and its cash flows
for the fiscal years ended March 31, 1996, 1995, and 1994 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
February 7, 1997
<TABLE>
EDWARDS AND LOCK MANAGEMENT CORPORATION
BALANCE SHEETS - MARCH 31, 1996 AND 1995
ASSETS
(in thousands)
<CAPTION>
1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 335 $ 486
Investment in bond (see Note 2) 1,560 1,527
Accounts receivable, net of
allowance for doubtful accounts
of $53 at March 31, 1996 and 1995 5,415 3,500
Inventories, net 12,916 7,810
Deferred tax asset 1,101 910
-------- -------
Total current assets 21,327 14,233
PROPERTY AND EQUIPMENT:
Office equipment 751 656
Warehouse equipment 238 180
Leasehold improvements 327 327
Building 797 797
------- -------
2,113 1,960
Less--Accumulated depreciation (606) (464)
------- -------
Net property and equipment 1,507 1,496
Other assets 43 44
------- -------
$22,877 $15,773
Total assets ======= =======
The accompanying notes are an integral part of these balance
sheets.
</TABLE>
<TABLE>
EDWARDS AND LOCK MANAGEMENT CORPORATION
BALANCE SHEETS - MARCH 31, 1996 AND 1995
LIABILITIES AND SHAREHOLDER'S EQUITY
(in thousands)
<CAPTION>
1996 1995
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 4,427 $ 1,573
Accrued expenses 617 399
Income taxes payable 409 82
Current portion of capital lease obligation 167 155
---------------
Total current liabilities 5,620 2,209
---------------
CAPITAL LEASE OBLIGATION 410 564
---------------
COMMITMENTS & CONTINGENCIES
SHAREHOLDER'S EQUITY:
Capital stock, no par value;
authorized 100,000 shares;
outstanding 45,000 shares 9 9
Retained earnings 16,838 12,991
------- -------
Total shareholder's equity 16,847 13,000
------- -------
$22,877 $15,773
Total liabilities and shareholder's equity ======= =======
The accompanying notes are an integral part of these balance
sheets
</TABLE>
<TABLE>
EDWARDS AND LOCK MANAGEMENT CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE FISCAL YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(in thousands)
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net sales $37,698 $26,196 $21,841
Cost of sales 24,313 17,567 15,096
------- ------- -------
Gross profit 13,385 8,629 6,745
Selling, general and
administrative expenses 7,085 6,037 4,943
------- ------- -------
Income from operations 6,300 2,592 1,802
------- ------- -------
Interest income 123 63 198
Gain on legal settlement (see Note 6) - - 825
Other income - 18 242
------- ------- -------
Net income prior to income tax 6,423 2,673 3,067
Income taxes 2,576 1,065 1,167
------- ------- -------
Net income 3,847 1,608 1,900
RETAINED EARNINGS, beginning of year 12,991 11,833 13,693
Dividends paid - (450) (383)
Retirement of shares held by minority
shareholder - - (3,377)
------- ------- -------
RETAINED EARNINGS, end of year $16,838 $12,991 $11,833
======= ======= =======
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<TABLE>
EDWARDS AND LOCK MANAGEMENT CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(in thousands)
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,847 $ 1,608 $ 1,900
Adjustments to reconcile net income to net
cash (used) in operating activities-
Increase in inventory (5,106) (1,788) (410)
(Increase)decrease in other assets - (36) 2
Depreciation and amortization 195 101 77
(Increase) decrease in accounts
receivable (1,915) (972) 160
Increase in deferred tax asset (191) (127) (355)
Increase in accounts payable 2,855 725 90
Increase in accrued liabilities 218 37 148
Decrease in capital lease obligation(142) (77) -
Increase (decrease) in taxes 327 200 (231)
Gain on the sale of fixed assets - (18) -
Gain on sale of bond - - (234)
Gain on legal settlement - - (825)
------- ------- -------
Net cash provided by (used in)
operating activities 88 (347) 322
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (206) (623) (139)
Proceeds from the sale of fixed assets - 31 -
Purchase of bond(s) (33) (1,527) (3,022)
Proceeds from sale of bond(s) - 3,012 4,244
------- ------- -------
Net cash (used in) provided by
investing activities (239) 893 1,083
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid - (450) (383)
Net cash paid for retirement of
shares held by minority shareholder - - (2,552)
------- ------- -------
Net cash used in financing
activities - (450) (2,935)
------- ------- -------
NET CHANGE IN CASH (151) 96 (1,530)
CASH, beginning of year 486 390 1,920
------- ------- -------
CASH, end of year $ 335 $ 486 $ 390
======= ======= =======
</TABLE>
- 2 -
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes during fiscal year 1996, 1995, and
1994 was $2,441, $1,260, and $1,646, respectively. There was no
cash paid for interest during any of the aforementioned years.
SUPPLEMENTAL DISCLOSURE OF NON CASH FINANCING ACTIVITY:
During fiscal year 1994, a legal suit was settled and the
Company paid $2,552 to retire common shares held by a minority
shareholder with a fair value of $3,490. The difference between
the fair value of the shares retired and cash paid primarily
represents legal expenses paid by the Company that were
reimbursed by the minority shareholder as part of the legal
settlement.
The accompanying notes are an integral part of these financial
statements.
EDWARDS AND LOCK MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(in thousands)
1. Organization
Edwards and Lock Management Corp. (the "Company"), a
California corporation doing business as Special-T
Fasteners ("Special-T"), was formed on April 20, 1977.
Special-T distributes precision fasteners, utilized
primarily in the aerospace industry, to both the government
and commercial manufacturers in the United States and
abroad. The Company is individually-owned by one of the
original stockholders of the Company (the "sole
shareholder").
2. Summary of Significant Accounting Policies
General
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period.
Accordingly, actual results could differ from estimated
amounts. Management believes that these estimates provide
a reasonable basis for the fair presentation of the
Company's financial position and results of operations.
Risks and uncertainties
Since Special-T's products are used primarily by
manufacturers in the aerospace industry, significant
changes in the aerospace industry could have a significant
impact on the Company's results of operations for any
particular year.
Cash and cash equivalents
The Company considers all highly liquid investments with
original maturities of three months or less at the time of
purchase to be cash equivalents.
Accounts receivable
Accounts receivable are recorded at the time product is
shipped. Any amounts which are at least 12 months past due
and deemed uncollectable are written off in full. The
allowance for uncollectable accounts is based on historical
experience and review of periodic aging of accounts.
2. Summary of Significant Accounting Policies (continued)
Investment in bond
Investment in bond consists of an available-for-sale
municipal security and is stated at cost, which
approximates fair market value. This security matures in
April 1996.
Inventories
Inventories are priced at lower of cost or market (net
realizable value). Cost is determined primarily using the
weighed average cost method, which approximates the first-
in first-out (FIFO) method. Appropriate consideration is
given to price deterioration, obsolescence and other
factors in evaluating net realizable value. Reserves for
excess and obsolete inventory at March 31, 1996 and 1995,
aggregated approximately $2,244 and $2,067, respectively.
Property and equipment
Property and equipment are stated at cost less accumulated
depreciation. Gains or losses on disposition of property
and equipment are credited or charged to income.
Depreciation is computed principally using accelerated tax
methods for both income tax and financial statement
purposes. The method used for financial statement purposes
approximates the double-declining balance method and is
determined by management to be a reasonable allocation of
the assets' cost to expense over the assets' useful lives
as detailed below:
<TABLE>
<CAPTION>
Years
<S> <C>
Office equipment 5 to 7
Warehouse equipment 5 to 7
Leasehold Improvements 15 to 31.5
</TABLE>
Depreciation expense for the years ended March 31, 1996,
1995 and 1994 was $194, $101, and $78, respectively.
In March 1995, the FASB issued SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed of" ("SFAS 121") which requires
impairment losses to be recorded on long-lived assets used
in operations when indications of impairment are present
and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount.
The Company follows the provision of SFAS 121 and no
adjustment to the fixed assets' carrying values was
required as of March 31, 1996 and 1995.
Other assets
Other assets consist of deposits on the Company's leased
facility, including a deposit towards the purchase of the
facility (see Note 4).
Revenue recognition
Revenues and related accounts receivables are recorded at
the time the products are shipped.
3. Significant Vendors and Purchase Commitments
Approximately 80% of the Company's sales are derived from
products purchased from three subsidiaries of The Fairchild
Corporation (the "Manufacturer"). The Company has entered
into three master distribution agreements with the
Manufacturer which appoint the Company as nonexclusive
"authorized distributor".
Furthermore, the Company has various contractual
arrangements with the Manufacturer whereby a total of
approximately $3,200 of product was purchased at 7% of the
Manufacturer's cost. When sold, the Company must remit 50%
of the invoice price less shipping and handling costs back
to the Manufacturer. The expiration dates of the
aforementioned contracts range from July 1997 through July
2001. Any proceeds derived from the sale of product after
its respective contractual expiration date are retained by
the Company.
The Company also warehouses consignment inventory owned by
the Manufacturer. As the inventory is sold, the proceeds
from the sale are split equally between the Company and the
Manufacturer.
Amounts due to the Manufacturer under the aforementioned
arrangements approximated $65 and $0 at March 31, 1996 and
1995, respectively.
4. Commitments and Contingencies
Leases
The Company leases its facility under a capital lease.
During fiscal 1995, the Company made a $25 deposit towards
the purchase of the facility. As set forth in the option
to purchase agreement, the Company can exercise the option
within six to twelve months of the close of the original
lease term on August 31, 1999, or any time during the
extension period, which expires August 31, 2004. The
following is an analysis of the future lease commitment
related to this lease:
Minimum
Lease
Payments
(in thousands)
1997 $193
1998 193
1999 193
2000 80
2001 -
Thereafter -
----
$659
====
Rental expense for fiscal 1996, 1995 and 1994 totaled $14,
$51 and $100, respectively.
5. Income Taxes
The Company follows the provisions of Financial Accounting
Standards Board's SFAS No. 109, Accounting for Income Taxes
("SFAS 109"). Under the asset and liability method of SFAS
109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences
between the financial statement carrying amounts of
existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS 109, the
effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that
includes the enactment date.
A deferred tax liability or asset is recognized for the tax
consequences of temporary differences in the timing of the
recognition of revenues and expenses for financial and tax
reporting purposes. A deferred tax benefit or expense is
recognized for the net change during the year in the
deferred tax liability or asset.
The reconciliations between the provision for income taxes
and the amounts computed by applying the federal statutory
rate of 34% to
pre-tax income consists of the following:
1996 1995 1994
Income tax expense at Federal
statutory rate $2,196 $ 909 $1,043
State income taxes, net of
Federal tax benefit 417 192 238
Effect of permanent difference (46) (23) (76)
Other 9 (13) (38)
------ ------ ------
$2,576 $1,065 $1,167
====== ====== ======
The Company's provision for income taxes consists of the
following:
1996 1995 1994
Current federal $2,320 $ 998 $1,275
Deferred federal (191) (127) (354)
Current state 447 194 246
------ ------ ------
$2,576 $1,065 $1,167
====== ====== ======
5. Income Taxes (continued)
The components of the deferred tax asset consists of the
following at March 31:
1996 1995
Operating reserves and accruals $1,060 $890
Other 41 20
------ ----
$1,101 $910
====== ====
6. Lawsuits, Claims and Related Matters
During fiscal year ended March 31, 1991, the Company
entered into arbitration with a minority shareholder
regarding the price to be paid by the Company to retire the
minority shares. During fiscal year ended March 31, 1994,
the arbitrator ruled favorably on the Company's behalf, and
a settlement agreement was signed by which the Company was
to pay the minority shareholder $2,552 (which represents
the fair value of the retired shares of $3,490 plus
interest, offset by legal fees incurred by the Company of
$825 plus interest, and $113 due personally to the sole
shareholder). The amount due to the sole shareholder was
received by the Company and paid as a dividend during
fiscal year ended March 31, 1994.
7. Common Stock
During fiscal year ended March 31, 1995, the Company paid
cash dividends of $450 to the sole shareholder.
During fiscal year ended March 31, 1994, the Company
retired shares held by the minority shareholder worth
$3,490 for $2,552 (see Note 6). In addition, cash
dividends of $383 were paid to the sole shareholder (which
is inclusive of the cash dividend paid of $131 as discussed
in Note 6).
8. Employee Benefit Plans
The Company has a defined contribution retirement plan (the
"Plan") for all employees who are at least 18 years of age
and who have completed at least one year of service. The
Company contributed and expensed $39, $31 and $29 under the
provisions of the Plan for 1996, 1995, and 1994,
respectively.
The Company provides pension benefits for all its employees
through a profit-sharing plan under which annual
contributions of the Company's income are made at the
discretion of management. Such contributions approximated
$156, $156, and $190 in fiscal 1996, 1995, and 1994,
respectively, and were funded by the Company.
9. Executive Compensation Plan
The Company has a discretionary executive compensation plan
(the "Executive Plan") whereby certain key
executives of the Company are paid bonuses which are based upon
achieving certain business performance measures. The
bonuses paid to key executives under the Executive
Plan during fiscal 1996, 1995 and 1994 aggregated $531,
$302, and $259 respectively.
10. Related Party Transactions
The Company paid $1,040, $1,225 and $920 as executive
compensation to the sole shareholder during fiscal 1996, 1995
and 1994, respectively.
