65
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 January 2, 2000
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
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 ninety (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
Title of Class January 2, 2000
Class A Common Stock, $0.10 Par Value 22,270,316
Class B Common Stock, $0.10 Par Value 2,621,652
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX
Page
PART I.FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets as of January 2, 2000
(Unaudited) and June 30, 1999 3
Consolidated Statements of Earnings (Unaudited) for the Three
and Six Months ended January 2, 2000 and December 27, 1998 5
Condensed Consolidated Statements of Cash Flows (Unaudited) for
the Six Months ended January 2, 2000 and December 27, 1998 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7
Iem 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition 17
Item 3. Quantitative and Qualitative Disclosure About Market Risk 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 2. Changes in Securities and Use of Proceeds 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 27
Item 6. Exhibits and Reports on Form 8-K 27
All references in this Quarterly Report on Form 10-Q to the terms ``we,''
``our,'' ``us,'' the ``Company'' and ``Fairchild'' refer to The Fairchild
Corporation and its subsidiaries. All references to ``fiscal'' in connection
with a year shall mean the 12 months ended June 30.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
January 2, 2000 (Unaudited) and June 30, 1999
(In thousands)
ASSETS
January 2, June 30,
2000 1999
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents, $57,409 and $ 83,812 $ 54,860
$15,752 restricted
Short-term investments 7,824 13,094
Accounts receivable-trade, less allowances 115,165 130,121
of $4,501 and $6,442
Inventories:
Finished goods 134,503 137,807
Work-in-process 31,355 38,316
Raw materials 10,676 14,116
176,534 190,239
Prepaid expenses and other current assets 75,024 73,926
Total Current Assets 458,359 462,240
Property, plant and equipment, net of
accumulated
depreciation of $115,868 and $103,556 184,914 184,065
Net assets held for sale 19,969 21,245
Cost in excess of net assets acquired
(goodwill), less accumulated amortization of
$46,415 and $40,307
424,916 447,722
Investments and advances, affiliated 12,567 31,791
companies
Prepaid pension assets 64,103 63,958
Deferred loan costs 14,228 13,077
Real estate investment 96,043 83,791
Long-term investments 27,129 15,844
Other assets 4,895 5,053
TOTAL ASSETS $ 1,307,123 $ 1,328,786
*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
January 2, 2000 (Unaudited) and June 30, 1999
(In thousands)
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
January 2, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
CURRENT LIABILITIES:
<S> <C> <C>
Bank notes payable and current maturities of $ 28,096 $ 28,860
long-term debt
Accounts payable 37,762 72,271
Accrued liabilities:
Salaries, wages and commissions 39,455 43,095
Employee benefit plan costs 4,413 5,204
Insurance 9,867 14,216
Interest 7,021 7,637
Other accrued liabilities 64,593 50,984
125,349 121,136
Net current liabilites of discontinued
operations 7,181 10,999
Total Current Liabilities 198,388 233,266
LONG-TERM LIABILITES:
Long-term debt, less current maturities 496,084 495,283
Other long-term liabilities 24,579 25,904
Retiree health care liabilities 45,928 44,813
Noncurrent income taxes 124,566 121,961
Minority interest in subsidiaries 58 59
TOTAL LIABILITIES 889,603 921,286
STOCKHOLDERS' EQUITY:
Class A common stock, $0.10 par value;
authorized 40,000 shares, 29,923 (29,754
in June) shares issued and 22,270 (22,259
in June) shares outstanding
2,983 2,975
Class B common stock, $0.10 par value;
authorized 20,000 shares, 2,622 shares
issued and outstanding
262 262
Paid-in capital 230,712 229,038
Retained earnings 263,060 252,030
Cumulative other comprehensive income (3,946) (2,703)
Treasury stock, at cost, 7,653 (7,496 in (75,551) (74,102)
June) shares of Class A common stock
TOTAL STOCKHOLDERS' EQUITY 417,520 407,500
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,307,123 $1,328,786
*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 STATEMENTS OF EARNINGS (Unaudited)
For The Three (3) and Six (6) Months Ended January 2, 2000 and December 27, 1998
<CAPTION>
(In thousands, except per share data)
Three Six Months Ended
Months
Ended
01/02/00 12/27/98 01/02/00 12/27/98
<S> <C> <C> <C> <C>
REVENUE:
Net sales $152,244 $151,181 $316,753 $299,720
Other income, net
2,782 350 7,610 769
155,026 151,531 324,363 300,489
COSTS AND EXPENSES:
Cost of goods sold
114,372 133,119 235,734 246,986
Selling, general & administrative
35,377 27,272 67,205 55,446
Amortization of goodwill
3,012 1,360 6,108 2,638
Restructuring --
3,040 - 6,057
155,801 161,751 315,104 305,070
OPERATING INCOME (LOSS)
(775) (10,220) 9,259 (4,581)
Interest expense
12,119 7,770 24,328 15,206
Interest income
(822) (476) (1,557) (1,059)
Net interest expense
11,297 7,294 22,771 14,147
Investment income
1,998 (1,027) 2,878 834
Nonrecurring gain
- - 28,003 -
Earnings (loss) from continuing (10,074) (17,894)
operations before taxes (18,541) 17,369
Income tax (provision) benefit
3,866 6,724 (5,266) 6,433
Equity in earnings (loss) of (872)
affiliates, net 652 (1,073) 1,689
Minority interest, net
- 2,338 - 2,135
Earnings (loss) from continuing
operations (7,080) (8,827) 11,030 (7,637)
Gain (loss) on disposal of
discontinued operations, net - (9,180) - (9,180)
NET EARNINGS (LOSS) $(7,080) $(18,007) $ 11,030 $(16,817)
Other comprehensive income (loss),
net of tax:
Foreign currency translation
adjustments (1,434) 2,306 (3,082) 7,552
Unrealized holding changes on
securities arising during the period 6,845 27,633 1,839 (2,755)
Other comprehensive income (loss)
5,411 29,939 (1,243) 4,797
COMPREHENSIVE INCOME (LOSS) $(1,669) $ 11,932 $ 9,787 $ (12,020)
BASIC AND DILUTED EARNINGS PER SHARE:
Earnings (loss) from continuing $ (0.28) $ (0.40) $ 0.44 $ (0.35)
operations
Gain (loss) on disposal of
discontinued operations, net - (0.42) - (0.41)
NET EARNINGS $ (0.28) $ (0.82) $ 0.44 $ (0.76)
Other comprehensive income (loss),
net of tax:
Foreign currency translation $ (0.06) $ 0.11 $ (0.12) $ 0.34
adjustments
Unrealized holding changes on
securities arising during the period 0.28 1.26 0.07 (0.12)
Other comprehensive income (loss)
0.22 1.37 (0.05) 0.22
COMPREHENSIVE INCOME (LOSS) $ (0.06) $ 0.55 $ 0.39 $ (0.54)
Weighted average shares outstanding:
Basic 24,889 21,872 24,882 22,129
Diluted 24,889 21,872 24,977 22,129
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)
For The Six (6) Months Ended January 2, 2000 and December 27, 1998
(In thousands)
<CAPTION>
For the
Six Months
Ended
01/02/00 12/27/98
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 11,030 $(16,817)
Depreciation and amortization 19,738 11,476
Accretion of discount on long-term
liabilities 1,923 2,578
Deferred loan fee amortization 577 388
Net gain on divestiture of investment in
affiliate (25,747) -
Net gain on divestiture of subsidiary (2,256) -
Gain on sale of investments (2,851) -
Undistributed loss (earnings) of
affiliates, net 1,651 (777)
Minority interest - (2,135)
Change in assets and liabilities (50,810) (6,808)
Non-cash charges and working capital
changes of discontinued operations (12,049) (8,559)
Net cash (used for) operating activities (58,794) (20,654)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds received from (used for)
investments 1,351 (15,648)
Purchase of property, plant and equipment (16,575) (13,574)
Net proceeds from divestiture of
subsidiaries 61,906 60,397
Net proceeds from sale of affiliate
investment 43,103 -
Changes in net assets held for sale 4,419 3,335
Real estate investment (11,087) (16,163)
Equity investment in affiliates (2,441) -
Other, net - 238
Investing activities of discontinued
operations 7,100 (223)
Net cash provided by investing activities 87,776 18,362
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 161,846 55,777
Debt repayments (161,178) (69,375)
Issuance of Class A common stock 168 182
Purchase of treasury stock (622) (22,101)
Financing activities of discontinued
operations - 121
Net cash (used for) provided by financing
activities 214 (35,396)
Effect of exchange rate changes on cash (244) 4,150
Net change in cash and cash equivalents 28,952 (33,538)
Cash and cash equivalents, beginning of
the year 54,860 49,601
Cash and cash equivalents, end of the $ 83,812 $ 16,063
period
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 share data)
1.FINANCIAL STATEMENTS
The consolidated balance sheet as of January 2, 2000 and the consolidated
statements of earnings and cash flows for the six months ended January 2, 2000
and December 27, 1998 have been prepared by us, 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 January 2, 2000, and for all periods presented, have been made.
The balance sheet at June 30, 1999 was condensed from the audited financial
statements as of that date.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These consolidated financial statements should
be read in conjunction with the financial statements and notes thereto included
in our June 30, 1999 Annual Report on Form 10-K. The results of operations for
the period ended January 2, 2000 are not necessarily indicative of the operating
results for the full year. Certain amounts in the prior year's quarterly
financial statements have been reclassified to conform to the current
presentation.
2.DIVESTITURES
On December 1, 1999, we disposed of substantially all of the assets and
certain liabilities of our Dallas Aerospace subsidiary to United Technologies
Inc. for approximately $57.0 million. No gain or loss was recognized from this
transaction, as the proceeds received approximated the net carrying value of the
assets. Approximately $37.0 million of the proceeds from this disposition is
required to be used to reduce indebtedness, unless our senior lenders approve
and we otherwise determine.
On September 3, 1999, we completed the disposal of our Camloc Gas Springs
division to a subsidiary of Arvin Industries Inc. for approximately $2.7
million. In addition, we received $2.4 million from Arvin Industries for a
covenant not to compete. We recognized a $2.3 million nonrecurring gain from
this disposition.
On July 29, 1999, we sold our 31.9% interest in Nacanco Paketleme to
American National Can Group, Inc. for approximately $48.2 million. In the six
months ended January 2, 2000, we recognized a $25.7 million nonrecurring gain
from this divestiture. We also agreed to provide consulting services over a
three-year period, at an annual fee of approximately $1.5 million. We used the
net proceeds from the disposition to reduce our indebtedness.
3.DISCONTINUED OPERATIONS
In 1998, we adopted a formal plan to dispose of Fairchild Technologies.
Based on this plan, we have sold a majority of Fairchild Technologies'
businesses, including most of its intellectual property, through a series of
transactions. On April 14, 1999, we disposed of Fairchild Technologies
photoresist deep-ultraviolet track equipment machines, spare parts and testing
equipment to Apex Co., Ltd. in exchange for 1,250,000 shares of Apex stock
valued at approximately $5.1 million. On June 15, 1999, we received $7.9
million from Suess Microtec AG and the right to receive 350,000 shares of Suess
Microtec stock (or at least approximately $3.5 million) by September 2000 in
exchange for certain inventory, fixed assets, and intellectual property of
Fairchild Technologies' semiconductor equipment group. On May 1, 1999, we sold
Fairchild CDI for a nominal amount. In July 1999, we received approximately $7.1
million from Novellus Systems, Inc. in exchange for Fairchild Technologies' Low-
K dielectric product line and certain intellectual property. We have been
exploring several alternative transactions regarding the disposition of
Fairchild Technologies' optical disc equipment group and we expect to dispose of
this unit prior to April 2000.
As of January 2, 2000, we have a remaining accrual of $4.5 million, net of
an income tax benefit of $3.3 million, for our current estimate of the remaining
losses in connection with the disposition of Fairchild Technologies. While we
believe that $4.5 million is a reasonable estimate for the remaining losses to
be incurred from Fairchild Technologies, there can be no assurance that this
estimate is adequate.
4.PRO FORMA FINANCIAL STATEMENTS
The following table sets forth the derivation of the unaudited pro forma
results, representing the impact of our acquisition of Kaynar Technologies
(April 1999), our merger with Banner Aerospace (April 1999), and our
dispositions of Dallas Aerospace (December 1999), Solair (December 1998) and the
investment in Nacanco (July 1999), as if these transactions had occurred at the
beginning of each of our fiscal periods. The pro forma information is based on
the historical financial statements of these companies, giving effect to the
aforementioned transactions. In preparing the pro forma data, certain
assumptions and adjustments have been made which increase interest expense based
on revised debt structures; increase goodwill amortization expense for the
acquisition of Kaynar Technologies; and reduce minority interest as a result of
our merger with Banner Aerospace. The unaudited pro forma information is not
intended to be indicative of either future results of our operations or results
that might have been achieved if these transactions had been in effect since the
beginning of these fiscal periods.
For the six months ended: Jan. 2, Dec. 27,
2000 1998
Net sales $ 295,059 $ 340,391
Gross profit 76.963 91,386
Net earnings (loss) (7,039) 70
Net earnings, per basic and diluted share $ (0.28) $ 0.00
5.EQUITY SECURITIES
We had 22,270,316 shares of Class A common stock and 2,621,652 shares of
Class B common stock outstanding at January 2, 2000. Class A common stock is
traded on both the New York and Pacific Stock Exchanges. There is no public
market for the Class B common stock. The shares of Class A common stock are
entitled to one vote per share and cannot be exchanged for shares of Class B
common stock. The 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. For the six months ended January 2, 2000, 34,657 shares
of Class A common stock were issued as a result of the exercise of stock
options. In accordance with the terms of our acquisition of Special-T, as
amended, we issued 44,079 restricted shares of our Class A common stock during
the six months ended January 2, 2000, as additional merger consideration. In
addition, our Class A common stock outstanding was reduced as a result of 67,000
shares purchased during the first six months of fiscal 2000, which are
considered as treasury stock for accounting purposes.
During the six months ended January 2, 2000, we issued 96,027 deferred
compensation units pursuant to our stock option deferral plan, as a result of
the exercise of 214,891 stock options. Each deferred compensation unit is
represented by one share of our treasury stock and is convertible into one share
of Class A common stock after a specified period of time.
6.RESTRICTED CASH
On January 2, 2000 and June 30, 1999, we had restricted cash of $57,409 and
$15,752, respectively, all of which is maintained as collateral for certain debt
facilities and escrow arrangements.
7.EARNINGS PER SHARE
The following table illustrates the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
01/02/2000 12/27/1998 01/02/2000 12/27/1998
<S> <C> <C> <C> <C>
Basic earnings per share:
Earnings from continuing $ (7,080) $ (8,827) $ 11,030 $ (7,637)
operations
Common shares outstanding 24,889 21,872 24,882 22,129
Basic earnings from $ (0.28) $ (0.40) $ 0.44 $ (0.35)
continuing operations per share
Diluted earnings per share:
Earnings from continuing $ (7,080) $ (8,827) $ 11,030 $ (7,637)
operations
Common shares outstanding 24,889 21,872 24,882 22,129
Options antidilutive antidilutive 2 antidilutive
Warrants antidilutive antidilutive 93 antidilutive
Total shares outstanding 24,889 21,872 24,977 22,129
Diluted earnings from $ (0.28) $ (0.40) $ 0.44 $ (0.35)
continuing operations per share
</TABLE>
Stock options entitled to purchase 1,855,960 shares of Class A common stock
were antidilutive and not included in the earnings per share calculation for the
six months ended January 2, 2000. These shares could be dilutive in subsequent
periods. For the three-months ended January 2, 2000, and the periods ended
December 27, 1998, the computation of diluted loss from continuing operations
per share excluded the effect of incremental common shares attributable to the
potential exercise of common stock options outstanding and warrants outstanding,
because its effect was antidilutive.
8.RESTRUCTURING CHARGES
In the six months ended January 2, 2000, we recorded $6.1 million of
restructuring charges as a result of the continued integration of Kaynar
Technologies into our aerospace fasteners segment. All of the charges recorded
during the current six months were a direct result of product and plant
integration costs incurred as of January 2, 2000. These costs were classified as
restructuring and were the direct result of formal plans to move equipment,
close plants and to terminate employees. Such costs are nonrecurring in nature.
Other than a reduction in our existing cost structure, none of the restructuring
charges resulted in future increases in earnings or represented an accrual of
future costs. As of January 2, 2000, the majority of the integration plans have
been executed. During the next six months, we expect to incur additional
restructuring charges for product integration costs at our aerospace fasteners
segment. We anticipate that our integration process will be substantially
complete by the end of fiscal 2000.
9.CONTINGENCIES
Government Claims
The Corporate Administrative Contracting Officer, based upon the advice of
the United States Defense Contract Audit Agency, alleged that a former
subsidiary of ours did not comply with Federal Acquisition Regulations and Cost
Accounting Standards in accounting for (i) the 1985 reversion of certain assets
of terminated defined benefit pension plans, and (ii) pension costs upon the
closing of segments of our former subsidiaries business. In January, we paid the
government $1.1 million to settle these pension accounting issues.
Environmental Matters
Our operations are subject to stringent government imposed 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 our financial condition, results of
operations, or net cash flows, although we have expended, and can be expected to
expend in the future, significant amounts for the investigation of environmental
conditions and installation of environmental control facilities, remediation of
environmental conditions and other similar matters, particularly in our
aerospace fasteners segment.
In connection with our plans to dispose of certain real estate, we must
investigate environmental conditions and we may be required to take certain
corrective action prior or pursuant to any such disposition. In addition, we
have identified several areas of potential contamination at or from other
facilities owned, or previously owned, by us, that may require us either to take
corrective action or to contribute to a clean-up. We are also a defendant in
certain lawsuits and proceedings seeking to require us to pay for investigation
or remediation of environmental matters and we have been alleged to be a
potentially responsible party at various "superfund" sites. We believe that we
have recorded adequate reserves in our 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 environmental liability, unless such
parties are contractually obligated to contribute and are not disputing such
liability.
As of January 2, 2000, the consolidated total of our recorded liabilities
for environmental matters was approximately $9.1 million, which represented the
estimated probable exposure for these matters. It is reasonably possible that
our total exposure for these matters could be approximately $16.3 million.
Other Matters
On January 12, 1999, AlliedSignal made indemnification claims against us
for $18.9 million, arising from the disposition to AlliedSignal of Banner
Aerospace's hardware business. We believe that the amount of the claim is far in
excess of any amount that AlliedSignal is entitled to recover from us.
We are involved in various other claims and lawsuits incidental to our
business. We, either on our own or through our insurance carriers, are
contesting these matters. In the opinion of management, the ultimate resolution
of the legal proceedings, including those mentioned above, will not have a
material adverse effect on our financial condition, future results of operations
or net cash flows.
10.CONSOLIDATING FINANCIAL STATEMENTS
The following unaudited financial statements separately show The Fairchild
Corporation and the subsidiaries of The Fairchild Corporation. These financial
statements are provided to fulfill public reporting requirements and separately
present guarantors of the 10 3/4% senior subordinated notes due 2009 issued by
The Fairchild Corporation (the "Parent Company"). The guarantors are composed
primarily of our domestic subsidiaries, excluding Fairchild Technologies, a real
estate development venture, and certain other subsidiaries.
<TABLE>
<CAPTION>
COnsolidating Balance Sheet
January 2, 2000
Parent Non Fairchild
Company Guarantors Guarantors Eliminations Historical
<S> <C> <C> <C> <C> <C>
Cash $ 66 $ 73,693 10,053 - $ 83,812
Market securities 71 7,753 - - 7,824
Accounts Receivable (including
intercompany)
less allowances 3,283 67,473 44,409 - 115,165
Inventory, net - 129,434 47,100 - 176,534
Prepaid and other current
assets 511 68,827 5,686 - 75,024
Total current assets 3,931 347,180 107,248 - 458,359
Inventory in Subsidiaries 965,362 - - (965,362) -
Net fixed assets 554 138,755 45,605 - 184,914
Net assets held for sale - 19,969 - - 19,969
Investment in affiliates 1,300 11,267 - - 12,567
Goodwill 5,303 384,837 34,776 - 424,916
Deferred loan costs 13,652 25 551 - 14,228
Prepaid pension assets - 64,103 - - 64,103
Real estate investment - - 96,043 - 96,043
Long-term investments - 27,129 - - 27,129
Other assets 16,818 (12,279) 356 - 4,895
Total assets $1,006,920 $ 980,986 $ 284,579 $ (965,362) $ 1,307,123
Bank notes payable &
current maturities of debt $ 2,250 $ 2,229 $ 23,617 $ - $ 28,096
Accounts payable (including
intercmopany) 97 20,164 17,501 - 37,762
Other accrued expense (18,352) 122,634 21,067 - 125,349
Net current liabilities of
discontinued operations - - 7,181 - 7,181
Total current liabilities (16,005) 145,027 69,366 - 198,388
Long-term debt, less current
maturities 481,893 8,761 5,430 - 496,084
Other long-term liabilities 405 16,526 7,648 - 24,579
Noncurrent intome taxes 123,107 1,226 233 - 124,566
Retiree health care liabilities - 41,250 4,678 - 45,928
Minority interest in
subsidiaries - 9 49 - 58
Total liabilities 589,400 212,799 87,404 - 889,603
Class A common stock 2,783 200 5,084 (5,084) 2,983
Class B common stock 262 - - - 262
Paid-in-capital 3,813 226,899 243,405 (243,405) 230,712
Retained earnings 486,353 540,567 (46,987) (716,873) 263,060
Cumulative other comprehensive
income (764) 1,145 (4,327) - (3,946)
Treasury stock, at cost (74,927) (624) - - (75,551)
Total stockholders' 417,520 768,187 197,175 (965,362) 417,520
equity
Total liaabilities &
stockholders' equity $1,006,920 $ 980,986 $ 284,579 $ (965,362) $ 1,307,123
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF EARNINGS
For the Six Months Ended
January 2, 2000
Parent Non Fairchild
Company Guarantors Guarantors Eliminations Historical
<S> <C> <C> <C> <C> <C>
Net Sales $ $ 234,852 $ 83,451 $ (1,550) $ 316,753
Cost and expenses
Cost of sales - 175,728 61,556 (1,550) 235,734
Selling, general &
administrative 2,380 45,577 11,638 - 59,595
Restructuring - 6,057 - - 6,057
Amortization of goodwill 257 5,345 506 - 6,108
2,637 232,707 73,700 (1,550) 307,494
Operating income (loss) (2,637) 2,145 9,751 - 9,259
Net interest expense 24,888 (5,907) 3,790 - 22,771
Investment (income) loss, net - (2,878) - - (2,878)
Intercompany dividends - - 714 (714) -
Nonreucrring income on
disposition of subsidiary - - (28,003) - (28,003)
Earnings (loss) before taxes (27,525) 10,930 33,250 714 17,369
Income tax (provision)
benefit (4,644) (120) (502) - (5,266)
Equity in earnings of
affiliates and subsidiaries 43,199 (1,073) - (43,199) (1,073)
Earnings (loss) from
continuing operations 11,030 9,737 32,748 (42,485) 11,030
Earnings (loss) from
disposal of discontinued
operations - - 374 (374) -
Net earnings (loss) $ 11,030 $ 9,737 $ 33,122 $ (42,859) $ 11,030
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Six Months Ended
January 2, 2000
Parent Non Fairchild
Company Guarantors Guarantors Eliminations Historical
Cash Flows from Operating
Activities:
<S> <C> <C> <C> <C> <C>
Net earnings (loss) $ 11,030 $ 9,737 $ 33,122 $ (42,859) $ 11,030
Depreciation and
amortization 349 15,175 4,214 - 19,738
Amortization of deferred
loan fees 577 - - - 577
Accretion of discount
on long-term liabilities 1,923 - - - 1,923
(Gain) on sale of affiliate
investment and divestiture of
subsidiary - - (28,003) - (28,003)
(Gain) on sale of investments - (2,851) - - (2,851)
Undistributed loss (earnings)
of affiliates - 1,651 - - 1,651
Change in assets and
liabilities (15,046) (72,871) (5,752) 42,859 (50,810)
Non-cash charges and working
capital changes of
discontinued operations - - (12,049) - (12,049)
Net cash (used for) provided
by operating activities (1,167) (49,159) (8,468) - (58,794)
Cash Flows from Investing
Activities:
Net proveeds from (used for)
investments - 1,351 - - 1,351
Purchase of property, plant
and equipment (5) (11,932) (4,638) - (16,575)
Equity investment in
affiliates - (2,441) - - (2,441)
Net proceeds from sale
of affiliate investment and
divestiture of subsidiaries - 57,000 48,009 - 105,009
Real estate investment - - (11,087) - (11,087)
Change in net assets held
for sale - 4,419 - - 4,419
Investing activities of
discontinued operations - - 7,100 - 7,100
Net cash (used for) provided
by investing activities (5) 48,397 39,384 - 87,776
Cash Flows from Financing Activities:
Proceeds from issuance
of debt 45,600 110,459 5,787 - 161,846
Debt repayment and
repurchase of debentures
(including intercompany),
net (44,557) (77,208) (39,413) - (161,178)
Issuance of Class A
common stock 168 - - - 168
Purchase of treasury
stock - (622) - - (622)
Net cash (used for) provided by
financing activities 1,211 32,629 (33,626) - 214
Effect of exchange rate
changes on cash - 33 (277) - (244)
Net change in cash and
cash equivalents 39 31,900 (2,987) - 28,952
Cash and cash equivalents,
beginning of the year 27 41,793 13,040 - 54,860
Cash and cash equivalents,
end of the year $ 66 $ 73,693 $ 10,053 $ - $ 83,812
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATING BALANCE SHEET
June 30, 1999
Parent Non Fairchild
Company GuarantorsGuarantors Eliminations Historical
<S> <C> <C> <C> <C> <C>
Cash $ 27 $ 41,793 $ 13,040 $ - $ 54,860
Market securities 71 13,023 - - 13,094
Accounts Receivable
(including intercompany), 549 52,929 76,643 - 130,121
less allowances
Inventory, net (182) 145,080 45,341 - 190,239
Prepaid and other current
assets 1,297 69,000 3,629 - 73,926
Total current assets 1,762 321,825 138,653 - 462,240
Investment in Subsidiaries 841,744 - - (841,744) -
Net fixed assets 611 137,852 45,602 - 184,065
Net assets held for sale - 21,245 - - 21,245
Investments in affiliates 1,300 13,135 17,356 - 31,791
Goodwill 5,533 402,595 39,594 - 447,722
Deferred loan costs 13,029 26 22 - 13,077
Prepaid pension assets - 63,958 - - 63,958
Real estate investment - - 83,791 - 83,791
Long-term investment - 15,844 - - 15,844
Other assets 16,244 (11,865) 674 - 5,053
Total assets $880,223 $ 964,615 $ 325,692 $ (841,744) $ 1,328,786
Bank notes payable & current
maturities of debt $ 2,250 $ 2,548 $ 24,062 $ - $ 28,860
Accounts payable
(including intercompany) 972 12,824 58,475 - 72,271
Other accrued expenses 7,272 99,669 14,195 - 121,136
Net current liabilities
of discontinued operations - - 10,999 - 10,999
Total current liabilities 10,494 115,041 107,731 - 233,266
Long-term debt, less current
maturities 480,850 9,908 4,525 - 495,283
Other long-term liabilities 405 18,138 7,361 - 25,904
Noncurrent income taxes (19,026) 140,749 238 - 121,961
Retiree health care
liabilities - 40,189 4,624 - 44,813
Minority interest in
subsidiaries - 9 50 - 59
Total liabilities 472,723 324,034 124,529 - 921,286
Class A common stock 2,775 200 5,085 (5,085) 2,975
Class B common stock 262 - - - 262
Paid-in-capital 2,138 226,900 263,058 (263,058) 229,038
Retained earnings 477,191 413,483 (65,043) (573,601) 252,030
Cumulative other comprehensive
income (764) (2) (1,937) - (2,703)
Treasury stock, at cost (74,102) - - - (74,102)
Total stockholders'
equity 407,500 640,581 201,163 (841,744) 407,500
Total liabilities & stockholders'
equity $880,223 $ 964,615 $ 325,692 $ (841,744) $ 1,328,786
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF EARNINGS
For the Six Months Ended
December 27, 1998
Parent Non Fairchild
Company Guarantors Guarantors Eliminations Historical
<S> <C> <C> <C> <C> <C>
Net Sales $ - $ 222,755 $ 77,707 $ (742) $ 299,720
Costs and expenses
Cost of sales - 190,352 57,376 (742) 246,986
Selling, general &
administrative 2,009 39,299 13,369 - 54,677
Amortization of goodwill 120 2,022 496 - 2,638
2,129 231,673 71,241 (742) 304,301
Operating income (loss) (2,129) (8,918) 6,466 - (4,581)
Net interest expense 10,672 2,519 956 - 14,147
Investment (income) loss,
net - (834) - - (834)
Nonreucrring income on
disposition of subsidiary - - - - -
Earnings (loss) before taxes (12,801) (10,603) 5,510 - (17,894)
Income tax (provision)
benefit 3,033 3,692 (292) - 6,433
Equity in earnings of
affiliates and subsidiaries (6,419) (919) 2,608 6,419 1,689
Minority interest - 2,135 - - 2,135
Earnings (loss) from
continuing operation (16,187) (5,695) 7,826 6,419 (7,637)
Earnings (loss) from disposal
of discontinued operations - 2,316 (11,496) - (9,180)
Extraordinary items - - - - -
Net earnings (loss) $(16,187) $ (3,379) $ (3,670) $ 6,419 $ (16,817)
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Six Months Ended
December 27, 1998
Parent Non Fairchild
Company Guarantors Guarantors Eliminations Historical
Cash Flows from Operating Activities:
<S> <C> <C> <C> <C> <C>
Net earnings (loss) $(16,187) $(3,379) $ (3,670) $ 6,419 $ (16,817)
Depreciation and
amortization 151 6,612 4,713 - 11,476
Amortizatin of deferred loan
fees 388 - - - 388
Accretion of discount on
long-term liabilities 2,578 - - - 2,578
Undistributed loss (earnings)
of affiliates - (777) - - (777)
Minority interest - (2,135) - - (2,135)
Change in assets and liabilities 15,294 (36,503) 20,820 (6,419) (6,808)
Non-cash charges and working
capital changes
of discontinued operations - - (8,559) - (8,559)
Net cash (used for) provided by
operating activities 2,224 (36,182) 13,304 - (20,654)
Cash Flows from Investing Activities:
Net proceeds received from
(used for) investments - (15,648) - - (15,648)
Purchase of property, plane
and equipment (27) (9,122) (4,425) - (13,574)
Net proceeds from divestiture
of subsidiary - 60,397 - - 60,397
Real estate investment - - (16,163) - (16,163)
Change in net assets held
for sale - 3,335 - - 3,335
Other changes, net - 238 - - 238
Investing activities of
discontinued operations - - (223) - (223)
Net cash (used for) provided
by investing activities (27) 39,200 (20,811) - 18,362
Cash Flows from Financing Activities:
Proceeds from issuance of debt - 44,600 11,177 - 55,777
Debt repayment and repurchase
of debentures(including
intercompany), net (2,250) (59,800) (7,325) - (69,375)
Issuance of Class A common
stock 53 129 - - 182
Purchase of treasury stock - (22,101) - - (22,101)
Financing activities of
discontinued operations - - 121 - 121
Net cash (used for) provided by
financing activities (2,197) (37,172) 3,973 - (35,396)
Effect of exchange rate changes
on cash - - 4,150 - 4,150
Net change in cash - (34,154) 616 - (33,538)
Cash and cash equivalents,
beginning of the year - 42,175 7,426 - 49,601
Cash and cash equivalents,
end of year $ - $ 8,021 $ 8,042 $ - $ 16,063
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Fairchild Corporation was incorporated in October 1969, under the laws
of the State of Delaware, under the name of Banner Industries, Inc. On November
15, 1990, we changed our name from Banner Industries, Inc. to The Fairchild
Corporation. We are the owner of 100% of RHI Holdings, Inc. and Banner
Aerospace, Inc. RHI is the owner of 100% of Fairchild Holding Corp. Our
principal operations are conducted through Fairchild Holding and Banner
Aerospace.
The following discussion and analysis provide information which management
believes is relevant to assessment and understanding of our consolidated results
of operations and financial condition. The discussion should be read in
conjunction with the consolidated financial statements and notes thereto.
GENERAL
We are a leading worldwide aerospace and industrial fastener manufacturer
and distribution logistics manager and, through Banner Aerospace, an
international supplier to airlines and general aviation businesses, distributing
a wide range of aircraft parts and related support services. Through internal
growth and strategic acquisitions, we have become one of the leading suppliers
of fasteners to aircraft OEMs, such as Boeing, Lockheed Martin, Northrop
Grumman, and the Airbus consortium of Aerospatiale, DaimlerChrysler Aerospace,
British Aerospace and CASA.
Our aerospace business consists of two segments: aerospace fasteners and
aerospace distribution. The aerospace fasteners segment manufactures and markets
high performance fastening systems used in the manufacture and maintenance of
commercial and military aircraft. The aerospace distribution segment stocks and
distributes a wide variety of aircraft parts to commercial airlines and air
cargo carriers, fixed-base operators, corporate aircraft operators and other
aerospace companies.
CAUTIONARY STATEMENT
Certain statements in this financial discussion and analysis by management
contain certain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 with respect to our financial
condition, results of operation and business. These statements relate to
analyses and other information which are based on forecasts of future results
and estimates of amounts not yet determinable. These statements also relate to
our future prospects, developments and business strategies. These forward-
looking statements are identified by their use of terms and phrases such as
``anticipate,'' ``believe,'' ``could,'' ``estimate,'' ``expect,'' ``intend,''
``may,'' ``plan,'' ``predict,'' ``project,'' ``will'' and similar terms and
phrases, including references to assumptions. These forward-looking statements
involve risks and uncertainties, including current trend information,
projections for deliveries, backlog and other trend projections, that may cause
our actual future activities and results of operations to be materially
different from those suggested or described in this Quarterly Report on Form 10-
Q. These risks include: product demand; our dependence on the aerospace
industry; reliance on Boeing and the Airbus consortium of companies; customer
satisfaction and quality issues; labor disputes; competition, including recent
intense price competition; our ability to integrate and realize anticipated
synergies relating to the acquisition of Kaynar Technologies Inc.; our ability
to achieve and execute internal business plans; worldwide political instability
and economic growth; and the impact of any economic downturns and inflation,
including recent weaknesses in the currency, banking and equity markets of
countries in South America and in the Asia/Pacific region.
If one or more of these risks or uncertainties materializes, or if
underlying assumptions prove incorrect, our actual results may vary materially
from those expected, estimated or projected. Given these uncertainties, users of
the information included in this financial discussion and analysis by
management, including investors and prospective investors are cautioned not to
place undue reliance on such forward-looking statements. We do not intend to
update the forward-looking statements contained in this Quarterly Report, even
if new information, future events or other circumstances have made them
incorrect or misleading.
RESULTS OF OPERATIONS
Business Transactions
The following summarizes certain business combinations and transactions
which significantly affect the comparability of the period to period results
presented in this Management's Discussion and Analysis of Results of Operations
and Financial Condition.
Fiscal 2000 Transactions
On December 1, 1999, we disposed of substantially all of the assets and
certain liabilities of our Dallas Aerospace subsidiary to United Technologies
Inc. for approximately $57.0 million. No gain or loss was recognized from this
transaction, as the proceeds received approximated the net carrying value of
these assets. Approximately $37.0 million of the proceeds from this disposition
is required to be used to reduce indebtedness, unless our senior lenders approve
and we otherwise determine.
On July 29, 1999, we sold our 31.9% interest in Nacanco Paketleme to
American National Can Group, Inc. for approximately $48.2 million. In the six
months ended January 2, 2000, we recognized a $25.7 million nonrecurring gain
from this divestiture. We also agreed to provide consulting services over a
three-year period, at an annual fee of approximately $1.5 million. We used the
net proceeds from the disposition to reduce our indebtedness.
On September 3, 1999, we completed the disposal of our Camloc Gas Springs
division to a subsidiary of Arvin Industries Inc. for approximately $2.7
million. In addition, we received $2.4 million from Arvin Industries for a
covenant not to compete. We recognized a $2.3 million nonrecurring gain from
this disposition.
Fiscal 1999 Transactions
On December 31, 1998, Banner Aerospace consummated the sale of Solair,
Inc., its largest subsidiary in the rotables group of the aerospace distribution
segment, to Kellstrom Industries, Inc., in exchange for approximately $60.4
million in cash and a warrant to purchase 300,000 shares of common stock of
Kellstrom. In December 1998, Banner Aerospace recorded a $19.3 million pre-tax
loss from the sale of Solair. This loss was included in cost of goods sold, as
it was primarily attributable to the bulk sale of inventory at prices below its
carrying amount.
On February 22, 1999, we used available cash to acquire 77.3% of SNEP S.A.
By June 30, 1999, we had purchased significantly all of the remaining shares of
SNEP. The total amount paid was approximately $8.0 million, including $1.1
million of debt assumed, in a business combination accounted for as a purchase.
The total cost of the acquisition exceeded the fair value of the net assets of
SNEP by approximately $4.3 million, which is preliminarily being allocated as
goodwill, and amortized over 40 years using the straight-line method. SNEP is a
French manufacturer of precision machined self-locking nuts and special threaded
fasteners serving the European industrial, aerospace and automotive markets.
On April 8, 1999, we acquired the remaining 15% of the outstanding common
and preferred stock of Banner Aerospace, Inc. not already owned by us, through
the merger of Banner Aerospace with one of our subsidiaries. Under the terms of
the merger with Banner Aerospace, we issued 2,981,412 shares of our Class A
common stock to acquire all of Banner Aerospace's common and preferred stock
(other than those already owned by us). Banner Aerospace is now our wholly-owned
subsidiary.
On April 20, 1999, we completed the acquisition of all the capital stock of
Kaynar Technologies Inc. for approximately $222 million and assumed
approximately $103 million of Kaynar Technologies debt, the majority of which
was refinanced at closing. In addition, we paid $28 million for a covenant not
to compete from the largest preferred shareholder of Kaynar Technologies. The
total cost of the acquisition exceeded the fair value of the net assets of
Kaynar Technologies by approximately $269.7 million, which is preliminarily
being allocated as goodwill, and amortized over 40 years using the straight-line
method. The acquisition was financed with existing cash, the sale of $225
million of 10 3/4% senior subordinated notes due 2009 and proceeds from a new
bank credit facility.
On June 18, 1999, we completed the acquisition of Technico S.A. for
approximately $4.1 million and assumed approximately $2.2 million of Technico's
existing debt. The total cost of the acquisition exceeded the fair value of the
net assets of Technico by approximately $2.9 million, which is preliminarily
being allocated as goodwill, and amortized over 40 years using the straight-line
method. The acquisition was financed with additional borrowings from our credit
facility.
Consolidated Results
We currently report in two principal business segments: aerospace fasteners
and aerospace distribution. The results of the Gas Springs division, prior to
its disposition, were included in the Corporate and Other classification. The
following table illustrates the historical sales and operating income of our
operations for the three and six months ended January 2, 2000 and December 27,
1998, respectively.
<TABLE>
<CAPTION>
Actual Segment Results
(In thousands) Three Six Months Ended
Months
Ended
1/2/2000 12/27/1998 1/2/2000 12/27/1998
<S> <C> <C> <C> <C>
Sales by Segment:
Aerospace Fasteners $124,143 $102,764 $258,563 $199,322
Aerospace Distribution 28,101 46,838 57,451 97,366
Corporate and Other - 1,579 739 3,032
TOTAL SALES $152,244 $151,181 $316,753 $299,720
Operating Results by
Segment:
Aerospace Fasteners (a) $ 2,915 $ 10,647 $ 11,790 $ 18,477
Aerospace Distribution 2,082 (17,285) 4,339 (15,567)
Corporate and Other (5,772) (3,582) (6,870) (7,491)
OPERATING INCOME (LOSS) $ (775) $(10,220) $ 9,259 $(4,581)
(a) - Includes restructuring charges of $3.0 million and $6.1 million in the
three and six months ended January 2, 2000, respectively.
</TABLE>
The following table illustrates sales and operating income of our
operations by segment, on an unaudited pro forma basis, for the three and six
months ended January 2, 2000 and December 27, 1998, respectively, as if we had
operated in a consistent manner in each of the reported periods. The pro forma
results represent the impact of our acquisition of Kaynar Technologies (April
1999), our merger with Banner Aerospace (April 1999), and our dispositions of
Dallas Aerospace (December 1999) and Solair (December 1998), as if these
transactions had occurred at the beginning of each of our fiscal periods. The
pro forma information is based on the historical financial statements of these
companies, giving effect to the aforementioned transactions. The pro forma
information is not necessarily indicative of the results of operations, that
would actually have occurred if the transactions had been in effect since the
beginning of fiscal 1999, nor are they necessarily indicative of our future
results.
<TABLE>
<CAPTION>
Pro Forma Segment Results
(In thousands) Three Six
Months Months
Ended Ended
1/2/2000 12/27/1998 1/2/200012/27/1998
<S> <C> <C> <C> <C>
Sales by Segment:
Aerospace Fasteners $124,143 $152,531 $258,563 $ 303,199
Aerospace Distribution 17,551 16,805 35,757 34,160
Corporate and Other - 1,579 739 3,032
TOTAL SALES $141,694 $ 170,915 $295,059 $ 340,391
Operating Results by
Segment:
Aerospace Fasteners $ 2,915 $ 15,641 $ 11,790 $ 29,745
Aerospace Distribution 923 746 2,261 1,523
Corporate and Other (5,759) (3,582) (6,843) (7,491)
OPERATING INCOME (LOSS) $(1,921) $ 12,805 $ 7,208 $ 23,777
</TABLE>
Net sales of $152.2 million in the second quarter of fiscal 2000 increased
by $1.1 million compared to sales of $151.2 million in the second quarter of
fiscal 1999. Net sales of $316.8 million in the first six months of fiscal 2000
increased by $17.0 million, or 5.7%, compared to sales of $299.7 million in the
first six months of fiscal 1999. The improvement is attributable primarily to
the increase in revenues provided by the acquisition of Kaynar Technologies,
offset partially from the dispositions of Solair and Dallas Aerospace. On a pro
forma basis, net sales decreased 17.1% and 13.3% for the three and six months
ended January 2, 2000, respectively, compared to the same periods ended December
27, 1998, reflecting weakening demand for our products by the domestic aerospace
manufacturers and distributors.
Gross margin as a percentage of sales was 24.9% and 11.9% in the second
quarter of fiscal 2000 and fiscal 1999 and 25.6% and 17.6% for the first six
months of fiscal 2000 and fiscal 1999, respectively. Included in cost of goods
in the periods ended December 27, 1998, was a charge of $19.3 million that was
recognized in the aerospace distribution segment from the bulk sale of inventory
at prices below its carrying amount. Excluding this charge, gross margin as a
percentage of sales would have been 24.7% and 24.0% in the three and six months
ended December 1998, respectively. The higher margins in the fiscal 2000 period
are attributable to cost improvement initiatives, offset partially by lower
prices. In addition, our aerospace fasteners segment also benefited as a result
of the acquisition of Kaynar Technologies and efficiencies achieved from the
integration process of facilities.
Selling, general & administrative expense as a percentage of sales was
23.2% and 18.0% in the second quarter of fiscal 2000 and 1999, respectively, and
21.2% and 18.5% in the first six months of fiscal 2000 and 1999, respectively.
The increase is due primarily to our decision to maintain our sales and
marketing infrastructure on lower sales volume.
Other income increased $6.8 million in the first six months of fiscal 2000,
compared to the first six months of fiscal 1999. The increase is due primarily
to $3.1 million of income recognized from the disposition of non-core property
during the current period and a $0.8 million increase in rental income.
In the six months ended January 2, 2000, we recorded $6.1 million of
restructuring charges as a result of the continued integration of Kaynar
Technologies into our aerospace fasteners segment. All of the charges recorded
during the current six months were a direct result of product and plant
integration costs incurred as of January 2, 2000. These costs were classified as
restructuring and were the direct result of formal plans to move equipment,
close plants and to terminate employees. Such costs are nonrecurring in nature.
Other than a reduction in our existing cost structure, none of the restructuring
charges resulted in future increases in earnings or represented an accrual of
future costs. As of January 2, 2000, the majority of the integration plans have
been executed. During the next six months, we expect to incur additional
restructuring charges for product integration costs at our aerospace fasteners
segment. We anticipate that our integration process will be substantially
complete by the end of fiscal 2000.
Operating income for the three and six months ended January 2, 2000
improved by $9.4 million and $13.8 million, respectively, as compared to the
same periods of the prior year. The increase in the current periods is due
primarily to a charge of $19.3 million that was recognized in December 1998,
from the bulk sale of inventory at prices below carrying amount, offset
partially by $6.1 million of restructuring charges recognized through January 2,
2000.
Net interest expense increased $8.6 million in the first six months of
fiscal 2000, compared to the first six months of fiscal 1999. We expect the
trend of reporting increased interest expense to continue throughout fiscal
2000, as a result of additional debt we incurred to finance the acquisition of
Kaynar Technologies.
Nonrecurring income of $28.0 million in the six months ended January 2,
2000 resulted from the disposition of our investment in Nacanco Paketleme and
the disposition of our Camloc Gas Springs division.
An income tax provision of $5.3 million in the first six months of fiscal
2000 represented a 30.3% effective tax rate on pre-tax earnings from continuing
operations. The tax provision was slightly lower than the statutory rate because
of lower tax rates at some of our foreign operations.
Comprehensive income (loss) includes foreign currency translation
adjustments and unrealized holding changes in the fair market value of available
for-sale investment securities. Since June 30, 1999, foreign currency
translation adjustments decreased by $3.1 million in the six months ended
January 2, 2000. The fair market value of unrealized holding gains on investment
securities we own increased by $1.8 million in the six months ended January 2,
2000.
Segment Results
Aerospace Fasteners Segment
Sales in our Aerospace Fasteners segment increased by $21.4 million in the
second quarter of fiscal 2000 and $59.2 million in the first six months of
fiscal 2000, as compared to the same periods of fiscal 1999, reflecting growth
from acquisitions, offset partially by weakened demand for our products in the
commercial aerospace industry. On January 2, 2000, backlog was $201 million
compared to $220 million at June 30, 1999. On a pro forma basis, sales decreased
by 14.7% in the first six months of fiscal 2000, as compared to the same period
of the prior year. Our operations in the United States continue to be negatively
impacted by reduced bookings caused by inventory reduction efforts at Boeing and
its rippling effect on pricing created by excess capacity in the marketplace.
Operating income decreased by $7.7 million and $6.7 million in the second
quarter and first six months of fiscal 2000, respectively, compared to the
fiscal 1999 periods. Included in our current quarter and six months results are
restructuring charges of $3.0 million and $6.1 million, respectively, incurred
due to the integration of Kaynar Technologies into our Aerospace Fasteners
business. Excluding restructuring charges, operating income decreased by $4.7
million and $0.6 million in the second quarter and first six months of fiscal
2000, respectively, compared to the fiscal 1999 periods, reflecting reduced
margins due to pricing pressures, offset partially by cost improvement
initiatives and acquisitions made during fiscal 1999. Operating expenses
continue to be reviewed at all operations as management attempts to reduce
operating costs to improve margins in the short term, without being detrimental
to operating income on a long term basis. On a pro forma basis and excluding
restructuring charges, operating income decreased by $11.9 million for the six
months ended January 2, 2000, compared to the six months ended December 27,
1998, due to lower sales levels associated with the weak commercial aerospace
industry.
We believe the demand for aerospace fasteners in fiscal 2000 will remain
stable in Europe and will continue to be soft in the United States commercial
aerospace market. We anticipate that the negative impact on us of Boeing's
inventory reduction program will diminish in the latter part of calendar 2000.
We believe that our merger integration savings and production efficiency
improvements will partially offset the weakening demand for our products.
Aerospace Distribution Segment
Sales in our aerospace distribution segment decreased by $18.7 million, or
40.0%, in the second quarter and $39.9 million, or 41.0%, in the first six
months of fiscal 2000, compared to the fiscal 1998 periods. The decrease was due
to the loss of revenues as a result of the disposition of Solair and Dallas
Aerospace. On a pro forma basis, sales increased $1.5 million, or 4.7%, in the
current six-month period.
Operating income increased by $19.4 million in the second quarter and $19.9
million in the fiscal 2000 six-month period, compared to the fiscal 1999
periods. Included in the prior year periods, was a charge of $19.3 million
attributable to the bulk sale of Solair inventory at prices below the carrying
amount of inventory. On a pro forma basis, operating income increased 48.5% in
the first six months ended January 2, 2000, compared to the first six months
ended December 27, 1998, reflecting increases in margins and a reduction in
corporate overhead.
Corporate and Other
The Corporate and Other classification included the Camloc Gas Springs
division, prior to its disposition, and corporate activities. The group reported
a decrease in sales in the second quarter and first six months of fiscal 2000,
compared to the fiscal 1999 periods, as a result of the disposition of the
Camloc Gas Springs division in September 1999. An operating loss of $6.9 million
in the first six months of fiscal 2000 was a $0.6 million improvement, compared
to the operating loss of $7.5 million reported in the first six months of fiscal
1999. The current period included other income of $6.9 million due primarily to
income recognized from the disposition of non-core property.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Total capitalization as of January 2, 2000 and June 30, 1999 amounted to
$941.7 million and $931.6 million, respectively. The changes in capitalization
included an increase of $10.0 million in equity due primarily to our reported
net earnings, offset partially by a reduction in comprehensive income. Debt
remained the same and reflected a $31.7 million decrease in term loan borrowing,
as a result of the proceeds received from the divestiture of Nacanco, offset by
an increase in revolving loan facilities used to support our operations.
We maintain a portfolio of investments classified primarily as
available-for-sale securities, which had a fair market value of $27.6 million at
January 2, 2000. The market value of these investments increased $1.8 million in
the six months ended January 2, 2000. While there is risk associated with market
fluctuations inherent in stock investments, and because our portfolio is not
diversified, large swings in its value should be expected.
We have an 88-acre site in Farmingdale, New York, which we are developing
as a shopping center. We invested approximately $11.1 million into this project
in the six months ended January 2, 2000. We estimate funding of approximately
$11.2 million is needed to complete construction on the portions of the property
currently under development.
Net cash used by operating activities for the six months ended January 2,
2000 and December 27, 1998 was $58.8 million and $20.7 million, respectively.
The primary use of cash for operating activities in the first six months of
fiscal 2000 was a $43.3 million increase in inventories and a $22.9 million
decrease in accounts payable and other accrued liabilities, offset partially by
a $15.0 million decrease in accounts receivable. The primary use of cash for
operating activities in the first six months of fiscal 1999 was a $47.5 million
decrease in accounts payable and accrued liabilities, and increases in
inventories of $20.1 million, offset partially by a $13.6 million decrease in
accounts receivable and a $30.2 million increase in other non-current
liabilities.
Net cash provided by investing activities for the six months ended January
2, 2000 and December 27, 1998, amounted to $87.8 million and $18.4 million,
respectively. In the first six months of fiscal 2000, the primary source of cash
from investing activities was $105.0 million of net proceeds received from the
dispositions of Dallas Aerospace, Nacanco and the Camloc Gas Springs division,
offset partially by capital expenditures of $16.5 million. In the first six
months of fiscal 1999, the primary source of cash from investing activities was
$57.0 million of net proceeds received from the disposition of Solair, offset
partially by $16.0 million used for capital expenditures.
Net cash provided by (used for) financing activities for the six months
ended January 2, 2000 and December 27, 1998, amounted to $0.2 million and
$(35.4) million, respectively. Cash provided by financing activities in the
first six months of fiscal 2000 included $161.9 million of proceeds from the
issuance of debt and $0.2 million from the issuance of stock, offset by $161.2
million repayment of debt and a $0.6 million purchase of treasury stock. Cash
used for financing activities in the first six months of fiscal 1999 included a
$69.4 million repayment of debt and a $22.1 million purchase of treasury stock,
offset partially by a $55.8 million net increase of additional debt.
Our principal cash requirements include debt service, capital expenditures,
acquisitions, real estate development, and payment of other liabilities. Other
liabilities that require the use of cash include postretirement benefits,
environmental investigation and remediation obligations, and litigation
settlements and related costs. We expect that cash on hand, cash generated from
operations, cash from borrowings and additional financing and asset sales will
be adequate to satisfy our cash requirements in fiscal 2000.
Our credit agreement requires us to comply with financial covenants at the
end of each quarter, including:
Maintaining an interest coverage ratio
Maintaining a minimum consolidated fixed charge coverage ratio
Maintaining a ratio of consolidated debt to earnings before interest,
taxes, depreciation and amortization
Maintaining a ratio of senior debt to earnings before interest, taxes,
depreciation and amortization
On January 2, 2000, we were in compliance with the credit agreement.
Because of the recent downturn in the aerospace industry, our ability to meet
these covenants is uncertain and there can be no assurance that we will be able
to comply with these covenants in our next fiscal quarter ending April 2, 2000
or the future. Noncompliance with any of the financial covenants without cure or
waiver would constitute an event of default under the credit agreement. An event
of default resulting from a breach of a financial covenant can result, at the
option of lenders holding a majority of the loans, in an acceleration of the
principal and interest outstanding, and a termination of the revolving credit
line. We are having ongoing conversations with our bankers to determine if they
will be willing to grant a waiver or amendment in the event of default. We are
uncertain if our bankers are willing to grant a waiver or amendment in the event
of default.
Discontinued Operations
In 1998, we adopted a formal plan to dispose of Fairchild Technologies.
Based on this plan, we have sold a majority of Fairchild Technologies'
businesses, including most of its intellectual property, through a series of
transactions. On April 14, 1999, we disposed of Fairchild Technologies
photoresist deep-ultraviolet track equipment machines, spare parts and testing
equipment to Apex Co., Ltd. in exchange for 1,250,000 shares of Apex stock
valued at approximately $5.1 million. On June 15, 1999, we received $7.9
million from Suess Microtec AG and the right to receive 350,000 shares of Suess
Microtec stock (or at least approximately $3.5 million) by September 2000 in
exchange for certain inventory, fixed assets, and intellectual property of
Fairchild Technologies' semiconductor equipment group. On May 1, 1999, we sold
Fairchild CDI for a nominal amount. In July 1999, we received approximately $7.1
million from Novellus Systems, Inc. in exchange for Fairchild Technologies' Low-
K dielectric product line and certain intellectual property. We have been
exploring several alternative transactions regarding the disposition of
Fairchild Technologies' optical disc equipment group and we expect to dispose of
this unit prior to April 2000.
As of January 2, 2000, we have a remaining accrual of $4.5 million, net of
an income tax benefit of $3.3 million, for our current estimate of the remaining
losses in connection with the disposition of Fairchild Technologies. While we
believe that $4.5 million is a reasonable estimate for the remaining losses to
be incurred from Fairchild Technologies, there can be no assurance that this
estimate is adequate.
Uncertainty of the Spin-Off
In order to focus our operations on the aerospace industry, we have been
considering for some time distributing to our stockholders certain of our assets
via distribution of all of the stock of a new entity, which may own all or a
part of our non-aerospace operations. Depending upon the composition of the
assets and liabilities to be included in the spin-off, our ability to consummate
the spin-off, if we should choose to do so, may be contingent, among other
things, on attaining certain milestones under our credit facility, or waivers
thereof, and all necessary governmental and third party approvals. There is no
assurance that we will be able to reach such milestones or obtain the necessary
waivers from our lenders. In addition, we may encounter unexpected delays in
effecting the spin-off, and we can make no assurance as to the timing thereof,
or as to whether the spin-off will ever occur.
Depending on the ultimate structure and timing of the spin-off, it may be a
taxable transaction to our stockholders and could result in a material tax
liability to us as well as our stockholders. The amount of the tax to us is
uncertain, and if the tax is material to us, we may elect not to consummate the
spin-off. Because circumstances may change and provisions of the Internal
Revenue Code of 1986, as amended, may be further amended from time to time, we
may, depending on various factors, restructure or delay the timing of the spin-
off to minimize the tax consequences to us and our stockholders, or elect not to
consummate the spin-off. Under the spin-off, the newly created entity may
assume certain of our liabilities, including contingent liabilities, and may
indemnify us for such liabilities. If this entity is unable to satisfy
liabilities assumed in connection with the spin-off, we may have to satisfy such
liabilities.
Year 2000
To date, we have not experienced any material problems as a result of the
Year 2000 turnover. We do not anticipate that we will have any operating or
system problems in connection with the leap year date of February 29, 2000.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes a new model for accounting for derivatives and hedging activities
and supersedes and amends a number of existing accounting standards. It
requires that all derivatives be recognized as assets and liabilities on the
balance sheet and measured at fair value. The corresponding derivative gains or
losses are reported based on the hedge relationship that exists, if any.
Changes in the fair value of derivative instruments that are not designated as
hedges or that do not meet the hedge accounting criteria in SFAS 133, are
required to be reported in earnings. Most of the general qualifying criteria
for hedge accounting under SFAS 133 were derived from, and are similar to, the
existing qualifying criteria in SFAS 80 "Accounting for Futures Contracts."
SFAS 133 describes three primary types of hedge relationships: fair value hedge,
cash flow hedge, and foreign currency hedge. In June 1999, the FASB issued
Statement of Financial Accounting Standards No. 137 to defer the required
effective date of implementing SFAS 133, from fiscal years beginning after June
15, 1999 to fiscal years beginning after June 15, 2000. We will adopt SFAS 133
in fiscal 2001, and are currently evaluating the financial statement impact.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The table below provides information about our derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates, which include interest rate swaps. For interest rate swaps, the
table presents notional amounts and weighted average interest rates by expected
(contractual) maturity dates. Notional amounts are used to calculate the
contractual payments to be exchanged under the contract. Weighted average
variable rates are based on implied forward rates in the yield curve at the
reporting date.
Expected Fiscal Year 2008 (a)
Maturity Date
Interest Rate Swaps:
Variable to Fixed 100,000
Average cap rate 6.49%
Average floor rate 6.24%
Weighted average rate 6.95%
Fair Market Value (777)
(a) - On February 17, 2003, the bank with which we entered into the interest
rate swap agreement will have a one-time option to elect to cancel this
agreement.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The information required to be disclosed under this Item is set forth in
Footnote 9 (Contingencies) of the Consolidated Financial Statements (Unaudited)
included in this Report.
Item 2. Changes in Securities and Use of Proceeds
Our stock option deferral plan allows officers and directors who are
accredited investors to defer the gain upon exercise of stock options by
receiving deferred compensation units instead of shares of stock. The deferred
compensation units may be deemed securities issued by the company. The shares
issued to an officer or director upon expiration of the deferral period (in
exchange for deferred compensation units) have been registered pursuant to a
registration statement on form S-8. Under our stock option deferral plan, an
aggregate of 50,310 deferred compensation units were issued in November 1999 to
the following directors: Phillip David (15,862 deferred compensation units),
Harold Harris (15,762 deferred compensation units), and Herbert Richey (18,666
deferred compensation units).
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of our Stockholders was held on November 18, 1999. Five
matters of business were held to vote for the following purposes:
Proposal 1 - to elect ten directors for the ensuing year;
Proposal 2 - to amend the Director Stock Option Plan, to permit deferment of
compensation;
Proposal 3 - to approve the material terms of the performance goal for the
fiscal 2000 incentive compensation award for the President and Chief Operating
Officer;
Proposal 4 - to approve the material terms of the performance goal for the
fiscal 2000 incentive compensation award for the Chief Executive Officer;
Proposal 5 to approve an amendment to the material terms of the performance goal
for the fiscal 2000 incentive compensation awards for the Chief Executive
Officer and for the President and Chief Operating Officer, by restricting the
payment of certain "extraordinary transaction" bonuses in fiscal 2000.
The following tables provide the results of shareholder voting on each
proposal, expressed in number of shares:
Proposal 1
Directors: Votes For Votes
Withheld
Melville R. Barlow
42,128,852 3,829,236
Mortimer M. Caplin
42,124,877 3,833,211
Philip David
42,128,132 3,829,956
Robert E. Edwards
42,126,904 3,831,184
Steven L. Gerard
42,130,352 3,827,736
Harold J. Harris
42,125,632 3,832,456
Daniel Lebard
42,130,582 3,827,506
Herbert S. Richey
42,123,022 3,835,066
Eric I. Steiner
42,087,141 3,870,947
Jeffrey J. Steiner
41,155,407 4,802,681
Votes For Votes Abstain Non-Vote
Against
Proposal 2
40,188,631 5,739,984 29,473 -
Proposal 3
33,388,235 8,383,989 1,178,361 3,007,503
Proposal 4
33,381,145 8,388,543 1,180,897 3,007,503
Proposal 5
30,329,423 - - 15,628,665
Item 5. Other Information
Articles have appeared in the French press reporting an inquiry by a French
magistrate into certain allegedly improper business transactions involving Elf
Acquitaine, a French petroleum company, its former chairman and various third
parties, including Maurice Bidermann. In connection with this inquiry, the
magistrate has made inquiry into allegedly improper transactions between Mr.
Steiner and that petroleum company. In response to the magistrate's request that
Mr. Steiner appear in France as a witness, Mr. Steiner submitted written
statements concerning the transactions and appeared in person before the
magistrate and others. The magistrate has put Mr. Steiner under examination (mis
en examen) with respect to this matter and imposed a surety (caution) of ten
million French francs which has been paid. Mr. Steiner has not been charged.
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibits:
*10.1 Amendment No. 1, dated as of November 29, 1999 to the Credit Agreement
dated as of April 20, 1999.
10.2 Asset Purchase Agreement dated as of October 22, 1999, among The
Fairchild Corporation, Banner Aerospace, Inc., Dallas Aerospace, Inc.,
and United Technologies Corporation, acting through its Pratt & Whitney
Division (incorporated by reference to the Registrant's Report on Form 8-
K dated December 13, 1999).
*27 Financial Data Schedules.
* - Filed herewith
(b)Reports on Form 8-K:
On October 26, 1999, and on December 13, 1999, as amended, we filed a
Form 8-K to report on Item 5 and Item 7 regarding the disposition of Dallas
Aerospace, Inc. The December 13, 1999 Form 8-K includes unaudited pro forma
consolidated statements of earnings for the year ended June 30, 1999 and for
the three months ended October 3, 1999, and unaudited pro forma consolidated
balance sheet as of October 3, 1999, giving effect to the disposition of
Dallas Aerospace.
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:February 16, 2000
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<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> JAN-02-2000
<CASH> 83,812
<SECURITIES> 7,824
<RECEIVABLES> 119,666
<ALLOWANCES> 4,501
<INVENTORY> 176,534
<CURRENT-ASSETS> 458,359
<PP&E> 300,782
<DEPRECIATION> 115,868
<TOTAL-ASSETS> 1,307,123
<CURRENT-LIABILITIES> 198,388
<BONDS> 496,084
0
0
<COMMON> 3,245
<OTHER-SE> 414,275
<TOTAL-LIABILITY-AND-EQUITY> 1,307,123
<SALES> 316,753
<TOTAL-REVENUES> 324,363
<CGS> 235,734
<TOTAL-COSTS> 315,104
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,771
<INCOME-PRETAX> 17,369
<INCOME-TAX> 5,266
<INCOME-CONTINUING> 11,030
<DISCONTINUED> 0
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AMENDMENT NO. 1
dated as of November 29, 1999
to
CREDIT AGREEMENT
Dated as of April 20, 1999
THIS AMENDMENT NO. 1 ("Amendment") is entered
into as of November 29, 1999 by and among The Fairchild
Corporation, a Delaware corporation (the "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 Borrower and the Lenders and
Issuing Banks are parties to that certain Credit
Agreement dated as of April 20, 1999 (together with the
Exhibits and Schedules thereto, the "Credit
Agreement"), pursuant to which the Lenders and Issuing
Banks have agreed to provide certain financial
accommodations to the Borrower; and
WHEREAS, the Borrower has requested the
consent of the Collateral Agent to certain actions not
otherwise permitted under Article X of the Credit
Agreement and certain amendments to Article X of the
Credit Agreement and the Collateral Agent has
identified certain provisions of the Credit Agreement
which require clarification and amendment;
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 November 29, 1999, upon satisfaction of the
conditions precedent set forth in Section 3 below, the
Credit Agreement is hereby amended as follows:
1.1 Section 1.01 is amended to delete the
definitions
of "Banner Companies", "Net Cash Proceeds of Sale", and
"Net Cash Proceeds of Sale of Banner Companies" in
their entirety and substitute the following therefor:
"Banner Companies" means , collectively, Banner
and those Persons and investments in Persons
identified on Schedule 1.01.5 under the heading
"Banner Aerospace, Inc." and their respective
Capital Stock and assets; and "Banner Company"
means any of the Banner Companies, individually.
"Net Cash Proceeds of Sale" means:
i) cash proceeds (including cash, equivalents
readily convertible into cash, and such proceeds
of any notes received as consideration or any
other non-cash consideration) from the sale,
assignment or other disposition of (but not the
lease or license of) any
Property other than sales of property permitted under
Sections 10.02(d) and 10.09, net of
(a) the costs of sale, assignment or other
disposition,
(b) any income, franchise, transfer or other tax
liability
arising from such transaction and (c) amounts
applied to the repayment of Indebtedness (other
than the Obligations) secured by a Lien permitted
by Section 10.03 on the asset disposed of,
whether such net proceeds arise from any individual
sale, assignment or other disposition or from any group
of related sales, assignments or other dispositions
received by:
(1) the Borrower or any Restricted
Subsidiary other than proceeds of sales of
Permitted Dispositions, provided however that
sales of Technologies Companies and Banner
Companies shall be subject to the provisions of
clauses (2) and (3) below;
(2) the Borrower, any Restricted Subsidiary,
or the Technologies Companies upon the completion
of full liquidation of all Technologies Companies;
and
(3) the Borrower, any Restricted Subsidiary or
any Banner Company (whether or not a Restricted
Subsidiary) as Net Cash Proceeds of Sale of Banner
Companies net of the amount of Net Cash Proceeds
of Sale of Banner Companies required to be paid
under Section 4.01(b)(i)(B); and
(ii) to the extent provided in Section 9.07(b),
proceeds of insurance on account of the loss of or
damage to any such Property or Properties, and payments
of compensation for any such Property or Properties
taken by condemnation or eminent domain.
"Net Cash Proceeds of Sale of Banner Companies" means
cash proceeds (including cash, equivalents readily
convertible into cash, and such proceeds of any notes
received as consideration or any other non-cash
consideration) from the sale, assignment or other
disposition of (but not the lease or license of) any
Property or Capital Stock of the Banner Companies, or
any of them, other than sales of property permitted
under Sections 10.02(d) and 10.09, net of (a) the costs
of sale, assignment or other disposition, (b) any
income, franchise, transfer or other tax liability
arising from such transaction and (c) amounts applied
to the repayment of Indebtedness (other than the
Obligations) secured by a Lien permitted by Section
10.03 on the asset disposed of, whether such net
proceeds arise from any individual sale, assignment or
other disposition or from any group of related sales,
assignments or other dispositions.
and to add the following definitions thereto:
"Farmingdale Guaranty"means that certain Guaranty
executed and delivered by the Borrower in favor of
Morgan Guaranty Trust Company of New York in connection
with the Indebtedness incurred by Warthog, Inc., as the
owner of the Farmingdale Property, and permitted under
Section 10.01(f).
"Farmingdale Security Instrument"means that certain
Mortgage and Security Agreement of even date with the
Farmingdale Guaranty executed and delivered by Warthog,
Inc., as the owner of the Farmingdale Property, in
connection with the
Indebtedness permitted under Section 10.01(f) in
favor of
Morgan Guaranty Trust Company of New York.
1.2 Section 4.01(b)(i)(B) and (C) are amended to
delete the provisions thereof in their entirety and
substitute the following therefor:
(B) The Borrower shall make or cause to be made a
mandatory prepayment of the Obligations upon the
Borrower's or any Subsidiary of the Borrower's
receipt of Net Cash Proceeds of Sale of Permitted
Dispositions and Net Cash Proceeds of Sale of
Banner Companies in an amount equal to (1) one
hundred percent (100%) of the first $25,000,000 of
Net Cash Proceeds of Sale of Permitted
Dispositions and Net Cash Proceeds of Sale of
Banner Companies received and (2) fifty percent
(50%) of the next $50,000,000 of Net Cash Proceeds
of Sale of Permitted Dispositions and Net Cash
Proceeds of Sale of Banner Companies received.
(C) Notwithstanding the foregoing, upon the
written request of the Borrower to the Collateral
Agent that the mandatory prepayment with respect
to Net Cash Proceeds of Sale of Banner Companies
otherwise required under Section 4.01(b)(i)(A) and
(B) be waived, an amount equal to such Net Cash
Proceeds of Sale of Banner Companies so received
shall be remitted to the Collateral Agent for
deposit in the Cash Collateral Account and the
Collateral Agent shall hold the same in such Cash
Collateral Account (absent the occurrence of any
Event of Default) until the earlier to occur of
(Y) the date which is 225 days after the
Borrower's or any of its Subsidiaries' receipt of
such Net Cash Proceeds of Sale of Banner Companies
or (Z) the date on which the Requisite Lenders
shall have authorized the release of the amount so
deposited (or a portion thereof) to the Borrower.
In the event the amount so deposited to the Cash
Collateral Account has not been released to the
Borrower as referenced in clause (Z) above, the
Collateral Agent shall withdraw such amount from
the Cash Collateral Account on the date specified
in clause (Y) above and apply the same as set
forth in Section 4.01(b)(vii).
1.3 Section 8.01(c) is amended to delete the reference
therein to "Exhibit I" and substitute therefore a reference
to "Exhibit J".
1.4 Section 10.01(c) is amended to delete the language
"Indebtedness arising from the following intercompany
loans:" in its entirety and substitute therefor the language
"Indebtedness arising from the following intercompany loans
and other actions:", to delete the word "and" at the end of
clause (iv) thereof, and add the following as clause (vi)
and clause (vii) thereof:
(vi) intercompany loans made after the Closing Date to
Banner Capital Ventures, Inc., a Delaware corporation
and Wholly-Owned Subsidiary of RHI, in addition to
Permitted Existing Investments in Banner Capital
Ventures, Inc., in an aggregate amount not to exceed
$1,000,000; and
(vii) the payment by any Subsidiary of the Borrower of
dividends or other distributions on its Capital Stock
which are permitted under Section 10.05(a);
1.5 Section 10.01(f) is amended to delete the
reference therein to "October 3, 1999" and substitute
therefor "January 31, 2000".
1.6 Section 10.04 is amended to (i) delete the
provisions of clause (d) thereof in their entirety and
substitute the following therefor:
(d) Investments made by the Borrower and Restricted
Subsidiaries in connection with acquisitions of assets
or equity Securities of any Person (other than the
Technologies Companies) in an aggregate amount not to
exceed:
(i) $17,500,000 in cash or assumed Indebtedness until
such time as the outstanding principal balance of the
Term Loans has been reduced by $25,000,000 in the
aggregate under Section 4.01(b)(vii) from Net Cash
Proceeds of Sale of Permitted Dispositions and Net Cash
Proceeds of Sale of Banner Companies or
(ii) thereafter (and when combined with Investments
made as permitted under the foregoing clause (i),
Investments made as permitted under clauses (j) and (k)
below, and Indebtedness incurred as permitted under
Section 10.01(c)(vi)), $35,000,000 in cash or assumed
Indebtedness;
provided that :
(A) no Event of Default or Potential Event of Default
has occurred and is continuing unwaived or, after
giving effect to the making of any such Investment, no
Potential Event of Default or Event of Default would
occur and
(B) on a pro forma basis, determined for the four (4)
Fiscal Quarters immediately preceding any such
Investment, giving effect to such Investment as though
it occurred at the commencement of such four (4) Fiscal
Quarter period, no breach of any covenant included in
Article XI would have occurred;
and provided further that the aforesaid limitations
specified in clauses (i) and (ii) above shall:
(1) be increased by the amount of the Net Cash
Proceeds of Sale of Permitted Dispositions (other
than Net Cash Proceeds of Sale received in
connection with the sale or other disposition of
Capital Stock of WatkinsJohnson Company held by
the Borrower or any Subsidiary of the Borrower)
net of the amount of such Net Cash Proceeds of
Sale of Permitted Dispositions applied to the
Obligations as provided under Section 4.01(b)(vii)
and
(2) include payments of cash made to Robert
Edwards in accordance with the Third Amendment and
Plan of Merger dated as of September 17, 1998 by
and among the Borrower, Special-T Fasteners, Inc.,
and Robert Edwards, executed and delivered in
connection with the Borrower's acquisition of
Special-T Fasteners, Inc., and any related
agreement entered into after the Closing Date,
only to the extent the same exceed $2,000,000 in
the aggregate;
(ii) delete the word "and" at the end of clause (h) thereof,
(iii) delete the "." at the end of clause (i) thereof and
substitute a ";" therefor, and (iv) add the following
clauses
(j),(k), and (l) thereto:
(j) Investments by the Borrower or Subsidiaries of
the
Borrower in the form of loans or advances to employees of
the
Borrower and its Subsidiaries in an aggregate amount
not to exceed $750,000 at any time outstanding;
provided that the same are evidenced by promissory
notes delivered to the Collateral Agent as part of the
Collateral;
(k) Investments in the form of capital contributions
by
the Borrower, directly or through Wholly-Owned
Subsidiaries of the Borrower, in Banner Investments UK
in an amount not to exceed $3,000,000 in the
aggregate; provided that no Event of Default shall
have occurred and be continuing unwaived;
(l) Investments in the form of intercompany loans
permitted under Section 10.01 and not otherwise
prohibited by this Section 10.04.
1.7 Section 10.05(a) is amended to insert after
the
words "dividends or distributions" therein the phrase ",
whether in cash or evidenced by a promissory note,".
1.8 Section 10.06(a)(ii) is amended to delete the word
"and" before clause (D) thereof and delete the provisions of
clause (D) thereof in their entirety and substitute the
following therefor:
(D) any Technologies Company with or into any other
Technologies Company or any Person which is not an
Affiliate of the Borrower; and (E) any Subsidiary of
the Borrower not described in clauses (A), (B), (C) or
(D) above with and into any other such Subsidiary of
the Borrower; provided that the prior written consent
thereto of the Collateral Agent has been obtained; and
1.9 Section 10.14 is amended to delete the references
therein to "Subsidiaries" and substitute therefor references
to "Restricted Subsidiaries".
1.10 Section 12.01 is amended to add the following
provision thereto as clause (o):
(o) Farmingdale Guaranty. A demand shall have been made on
the
Borrower under the Farmingdale Guaranty or the
obligations guaranteed under the Farmingdale Guaranty
shall, as a result of a breach or default under clauses
(a), (b), (c), (d), (e), (f), (g), (i), (k), (m), (o),
(p) or (t) of Section 4.3 of the Farmingdale
Security Instrument or of Section 8.2 of the
Farmingdale Security Instrument or a breach or default
under clause (h), (j), (l), (n), (q), (r) or (v) of
Section 4.3 of the Farmingdale Security Instrument or
the Farmingdale Property, or any part thereof,
becoming an asset in a voluntary bankruptcy or
insolvency proceeding, include the unpaid balance of
the "Debt" as defined in the Farmingdale Security
Instrument.
1.11 Schedules 1.01.4, 1.01.5 and 1.01.8 are deleted
in their entirety and Schedules 1.01.4, 1.01.5 and 1.01.8
attached hereto and made a part hereof substituted
therefor. The Borrower is hereby authorized and directed to
update Schedule 1.01.4 as and when Investments or transfers
are made in accordance with the terms of the Credit
Agreement which would render such Schedule incomplete or
inaccurate in any respect and to deliver copies of such
updates of Schedule 1.01.4 to the
Collateral Agent and Lenders promptly after the making of
any such Investments or transfers, whereupon the updated
Schedule will be substituted for the prior Schedule as part
of the Credit Agreement.
2. Collateral Agent Consents. The Collateral
Agent hereby consents to the following:
a. As required by Section 10.02(b)(ii), the
transfer of Kaynar Technologies Ltd., a U.K.
company ("Kaynar UK") or its Subsidiary, Recoil
(Europe) Ltd., a U.K. company ("Recoil"), to
Camloc (U.K.) or liquidation or dissolution of
Kaynar UK and/or Recoil into Camloc (U.K.);
b. As required by Section 10.04, the
formation of a new Wholly-Owned Subsidiary of
Banner Energy Corporation of Kentucky, Inc.
under the laws of Delaware and the name
Fairchild Environmental Liability Management,
Inc. ("ELMI"), the Capital Stock of which will
consist of 1,000 authorized, issued and
outstanding shares of common stock and 1,000
authorized, issued and outstanding shares of
preferred stock subject to the terms described
on Schedule 2-B attached hereto and made a part
hereof ; provided that such Capital Stock held
by the Borrower or any Restricted Subsidiary is
pledged as part of the Collateral and ELMI
becomes a Guarantor, whereupon the Borrower
causes the same to execute and deliver the Loan
Documents required under Section 9.14;
c. As required by Section 10.02(b)(ii), the
transfer of the Property described on Schedule
2-C attached hereto and made a part hereof by
Banner Energy Corporation of Kentucky, Inc., a
Subsidiary of the Borrower, to ELMI;
d. As required by Section 10.04, the formation
under the laws of Delaware by FHC of two new
WhollyOwned Subsidiaries; provided that,
promptly upon formation of the same, they
become Guarantors, whereupon the Borrower
causes the same to execute and deliver the Loan
Documents required under Section 9.14 and
provided further that such Subsidiaries
otherwise comply with all applicable provisions
of the Credit Agreement;
e. As required by Section 10.06(a)(ii), the
merger of Technico S.A. with and into Societe
Nouvelle DEB SA.
3. Conditions to Effectiveness. The provisions
of this Amendment shall become effective as of November 29,
1999, upon receipt by the Collateral Agent, by no later than
5:00 p.m. (New York time) on December 1, 1999, of executed
counterparts of this Amendment signed on behalf of the
Borrower, the Requisite Lenders, and the Collateral Agent.
4. Representations, Warranties and Covenants.
4.1 The Borrower hereby represents and warrants
that this Amendment and the Credit Agreement, as amended
hereby, constitute the legal, valid and binding obligations
of the Borrower and are enforceable against the Borrower in
accordance with their terms.
4.2 The Borrower hereby represents and warrants
that, before
and after giving effect to this Amendment, no Event of
Default or Potential Event of Default has occurred and is
continuing.
4.3 The 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
Collateral 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.
THE FAIRCHILD CORPORATION CITICORP USA, INC.,
as
Collateral Agent
By: Karen L. Schneckenburger By: Suzanne Crymes
Vice President & Treasurer Vice
President
Lenders:
ALLIANCE INVESTMENT AVALON CAPITAL LTD.
OPPORTUNITIES FUND, L.L.C.
By_________________________
By_____________________
BANK OF AMERICA, N.A. BOEING CAPITAL
CORPORATION
By: Michael R. Heredia By: Daniel
O. Anderson
Senior Vice President
Vice-
President-Commercial
CIBC, INC.
CITIBANK, N.A.
By: Koren Volk By:
Claudio Phillips
Authorized Signatory
Vice
President/Managing Director
CITICORP, USA, INC. COMPAGNIE
FINANCIERE
DE
CIC ET DE
L'UNION
EUROPEENNE
By: Suzanne Crymes By: Brian
O'Leary
Vice President Vice
President
By: Sean
Mounier
First
Vice President
CREDIT AGRICOLE INDOSUEZ CREDIT SUISSE
FIRST BOSTON
By: Raymond A. Feelkenberg By: Bill
O'Daly
Vice President Vice
President
Senior Relationship Manager
By: Gerard M. Russell By: Joel
Glodowski
Vice President, Manager
Managing Director
CRESCENT/MACH I PARTNERS, L.P. FLOATING
RATE
PORTFOLIO
By__________________________
By____________________________
Name: Name:
Title: Title:
HIGHLAND CLO 1999-1 LTD. HIGHLAND
LEGACY
LIMITED
By___________________________ By:
James
Bondero
Name:
President
Title:
KZH SHOSHONE LLC KZH
WATERSIDE LLC
By: Peter Ching By: Peter
Chin
Authorized Agent
Authorized Agent
MERRILL LYNCH PRIME RATE MERRILL
LYNCH SENIOR
FLOATING
PORTFOLIO RATE
FUND, INC.
By___________________________
By____________________________
Name: Name:
Title: Title:
MERILL LYNCH SENIOR FLOATING ML CBO IV
(CAYMAN) LTD.
RAE FUND II, INC. By
Highland Capital
Management Company
as Collateral
Manager
By___________________________ By:
James Bondero
Name:
President
Title:
MORGAN STANLEY DEAN WITTER NATEXIS BANK
By: Sheila Finnerty By: Peter
J. van Tulder
Vice President
President and
Manager
Multinational Group
By: Christine
Dirringer
Assistant
Treasurer
NUVEEN SENIOR FLOATING RATE OAK MOUNTAIN
LIMITED
FUND
By: Lisa M. Mincheski
By_____________________________
Managing Director Name:
Title:
PROVIDENT BANK OF MARYLAND
RIGGS BANK
By: Robert L. Smith By: Douglas
H. Klamfoth
Vice President Vice
President
SENIOR DEBT PORTFOLIO SRV-HIGHLAND,
INC.
By Boston Management and Research By
Highland Capital
Management, as
as Investment Adviser
Investment Advisor
By___________________________ By:
Kelly C. Walker
Name: Vice
President
Title:
THE FIRST NATIONAL BANK OF TYLER
TRADING, INC.
CHICAGO
By___________________________ By_____________________________
Name: Name:
Title: Title:
VAN KAMPEN FLOATING RATE VAN KAMPEN PRIME RATE INCOME
PORTOFOLIO TRUST
By: Darvin D. Pierce By: Darvin D. Pierce
Vice President Vice President
SEQUILS I, LTD.
By__________________________
Name:
Title:
CERTIFICATE OF INCORPORATION OF
FAIRCHILD ENVIRONMENTAL LIABILITY MANAGEMENT, INC.
FIRST. The name of the Corporation is Fairchild
Environmental Liability Management, Inc.
SECOND. The address of the registered office of the Corporation
in the State of Delaware is Corporation Trust Center, 1209 Orange
Street, Wilmington, New Castle County, Delaware 19801. The name
of its registered agent at such address is The Corporation Trust
Company.
THIRD. The nature of the business or purpose to be conducted
or promoted by the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
FOURTH. The total number of shares of all classes of capital
stock which the Corporation shall have authority to issue is
1,100 shares, consisting of 1,000 shares of Common Stock, par
value $1.00 per share, and 100 shares of Preferred Stock, par
value $1.00 per share.
The following is a statement of the designations, preferences,
voting powers, qualifications, and special or relative rights or
privileges in respect of each class of capital stock of the
Corporation.
A. COMMON STOCK
1. General. There shall be one class of common stock
of the Corporation (the "Common Stock"). The voting dividend and
liquidation rights of the holders of the Common Stock are subject
to and qualified by the rights of the holders of outstanding
shares of Preferred Stock of any class or series as may be
designated herein or by the Board of Directors of the
Corporation.
2. Voting. The Common Stock shall have one vote per
share, and, except as may be otherwise provided in this Article
FOURTH or by law, the Common Stock shall vote as a single class
on all actions to be taken by the stockholders of the
Corporation.
3. Dividends. Dividends may be declared and paid on
the Common Stock from funds lawfully available therefor as and
when determined by the Board of Directors and subject to any
preferential dividend rights of any then outstanding Preferred
Stock.
4. Liquidation. Upon the dissolution or liquidation
of the Corporation, whether voluntary or involuntary, holders of
Common Stock will be entitled to receive all assets of the
Corporation available for distribution to its stockholders,
subject to any preferential, and participation rights of any then
outstanding Preferred Stock.
B. PREFERRED STOCK
1. Number of Shares. There shall be one class of
Preferred Stock of the Corporation (the "Preferred Stock").
2. Voting. Except as may be otherwise provided by
law, the Preferred Stock shall be non-voting stock.
3. Dividends. The holders of Preferred Stock shall be
entitled to receive a cumulative dividend at the rate of eight
percent (8%) of the issue price per annum. The Corporation shall
not declare or pay any dividend or distribution on the Common
Stock, or redeem or purchase any shares of Common Stock (except
dividends or other distributions payable solely in Common Stock),
unless and until all cumulative dividends on the Preferred
accrued to the date of such payment or distribution to holders of
Common Stock have been declared and paid in full.
4. Liquidation. (a) Upon any liquidation, dissolution
or winding up of the Corporation, whether voluntary or
involuntary, the holders of the shares of Preferred Stock shall
be entitled, before any distribution or payment is made upon any
stock ranking on liquidation junior to the Preferred Stock, to be
paid any amount equal to the fair market value of such Preferred
Stock, but not, in any event, more than $300 per share or less
than 1.00 per share, plus any other dividends accrued but unpaid
thereon, computed to the date payment thereof, such amount
payable with respect to one share of Preferred Stock being
sometimes referred to as the "Liquidation Preference Payment" and
with respect to all shares of Preferred Stock being sometimes
referred to as the "Liquidation Preference Payments." The
Liquidation Preference Payment shall equal the book value for
each share of Preferred Stock on the date of the liquidation,
dissolution or winding up of the Corporation. The book value of
each share of Preferred Stock shall be equal to the net assets of
the Corporation divided by the number of shares of capital stock,
all of which shall be deemed to be a single class of stock. Such
book value shall be determined from the books of the Corporation
in accordance with generally accepted accounting principles,
consistently applied, and adjusted upward or downward, as the
case may be, to the extent necessary to:
(i) value any debt obligations of affiliated
corporations to the Corporation at an amount equal to the unpaid
principal amount of such obligations;
(ii) provide an accrual and reserve for the
Corporation's Liability assigned from affiliated corporations and
assumed by the Corporation at an amount determined by the
Corporation;
(iii) provide appropriate accruals and
reserves for all taxes (including, but not limited to, all taxes
based on income); bonuses and other employee compensation
(including, but not limited to, compensation payable after the
end of the then-current fiscal year); reserves for contingent
liability and such other reserves as the Board of Directors may
deem proper; and such other items of income and expense
attributable to any period prior to the date as of which the
determination is made as the Board of Directors may deem proper;
(iv) exclude any value for goodwill relating to
the business of the Corporation or any of its subsidiaries or
affiliates;
(v) reflect the book value (as adjusted in the
manner set forth in this subparagraph) of any subsidiary of the
Corporation;
(vi) provide for the effect on book value of the
exercise of outstanding options, warrants or other rights to
acquire any capital stock of the Corporation;
(v) reflect corrections or errors.
If, upon such liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, the assets to be
distributed amount the holders of Preferred Stock shall be
insufficient to permit payment to the holders of such Preferred
Stock of the amount distributable as aforesaid, then the entire
assets of the Corporation to be so distributed shall be
distributed ratably among the holders of Preferred Stock.
(b) Written notice of such liquidation, dissolution or
winding up, stating a payment date, the amount of the Liquidation
Preference Payments, and the place where such payments shall be
payable, shall be delivered in person, mailed by certified or
registered mail, return receipt requested, or sent by telecopier
of telex, not less than 20 days prior to the payment date stated
therein, to the holders of record of Preferred Stock, such notice
to be addressed to each such holder at its address as shown on
the books of the Corporation. The consolidation or merger of the
Corporation into or with any other entity or entities which
results in the exchange of outstanding shares of the Corporation
for securities or other consideration issued or paid or caused to
be issued or paid by any such entity or affiliate thereof (other
than a merger to reincorporate the Corporation in a different
jurisdiction), and the sale, lease, abandonment, transfer, or
other disposition by the Corporation of all or substantially all
its assets, shall be deemed to be a liquidation, dissolution, or
winding up of the Corporation within the meaning of the
provisions of this paragraph 4.
FIFTH. The Corporation is to have perpetual existence.
SIXTH. In furtherance and not in limitation of the
powers conferred by the laws of the State of Delaware:
A. The Board of Directors of the Corporation is expressly
authorized to adopt, amend, or repeal the By-Laws of the
Corporation.
B. Election of Directors need not be by written ballot
unless the By-Laws of the Corporation shall so provide.
C. The books of the Corporation may be kept at such place
within or without the State of Delaware as the By-Laws of the
Corporation may provide or as may be designated from time to time
by the Board of Directors of the Corporation.
SEVENTH. The Corporation eliminates the personal liability of
each member of its Board of Directors to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as
a director, provided, however, that, to the extent provided by
applicable law, the foregoing shall not eliminate the liability
of a director (i) for any breach of such director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts and
omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174
of Title 8 of the Delaware Code or (iv) for any transaction from
which such director derived an improper personal benefit. No
amendment to or repeal of this provision shall apply to or have
any effect on the liability or alleged liability of any director
for or with respect to any acts or omissions of such director
prior to such amendment or repeal.
EIGHTH: The Corporation reserves the right to amend or repeal
any provision contained in this Certificate of Incorporation, in
any manner now or hereafter prescribed by statute, and all rights
conferred upon a stockholder herein are granted subject to this
reservation.
NINTH: Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class of them
and/or between this Corporation and its stockholders or any class
of them, any court of equitable jurisdiction within the State of
Delaware may, upon the application of this Corporation or of any
creditor or stockholder thereof or on the application of any
receiver or receivers appointed for this Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on
the application of trustees in dissolution or of any receiver or
receivers appointed for this Corporation under the provisions of
Section 279 of Title 8 of the Delaware Code, order a meeting of
the creditors or class of creditors, and/or the stockholders or
class of stockholders of this Corporation, as the case may be, to
be summoned in such manner as said court directs. If a majority
in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to
any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement ,
the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of
creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as
the case may be, and also on this Corporation.
IN WITNESS WHEREOF, the undersigned have executed this
Certificate this 2nd day of December, 1999.
By: Donald E. Miller
Sole Incorporator
Schedule 1.01.4 to Credit Agreement Dated as of April 20, 1999
OPERATING UNITS
Fairchild Fasteners Group
Special-T Fasteners, Inc., a Delaware corporation Kaynar
Technologies Inc., a Delaware corproation
Kaynar Technologies Ltd., a U.K. corporation Recoil (Europe)
Ltd., a U.K. corporation
KTI Femipari Kft, a Hungarian corporation
M&M Machine & Tool Co., a Delaware corporation
KTI International Sales Corp., a Barbados corporation Marcliff
Corporation, a Delaware corporation
Marson Creative Fastener, Inc., a Delaware corporation
Recoil Holdings, Inc., a Delaware corporation
Recoil PTY, an Australian corporation
Recoil Inc., a Delaware corporation
Recoil Australia Holdings, Inc., a Delaware corporation Recoil
Pte Ltd., a Singapore corporation
Recoil Marketing BVBA, a Belgium corporation
Recoil Thailand, a Thai corporation
Fairchild Holding Corp., a Delaware corporation, manufacturing
plants in California and sales offices throughout the U.S.
Mairoll, Inc., a Delaware corporation, manufacturing plant in
California until it is dividended up to Fairchild Holding Corp.
Fairchild Fasteners Europe - Camloc GmbH, a German corporation
Camloc (U.K.) Ltd., a U.K. corporation, U.K. customer team
located in sales office in Leicester, England
Fairchild Fasteners Europe - VSD GmbH, a German corporation
Fairchild Fasteners Europe - Simmonds S.A.R.L., a French
corporation
SNEP SA, a French corporation
Simmonds S.A., a French corporation Mecaero SNC, a French
corporation
Transfix S.A., a French corporation
Eurosim Componentes Mecanicos de Seguranca, Lda., a Portugese
corporation
Simmonds Mecaero Fasteners, Inc., a Delaware corporation
Fairchild AS+C oHG Aviation Supply + Consulting (GmbH & Co.), a
German partnership
Fairchild Technologies Optical Disc Equipment Group GmbH, a
German corporation, after the Optical Disc assets are transferred
and sold (see footnote 1 below)
Fairchild Fasteners Corp.
Technico SA
Societe Nouvelle DEB SA
SCI de La Praz
Gas Spring Division
Camloc (U.K.) Ltd., a U.K. corporation, Gas Spring Division
Fairchild Technologies Group
Fairchild Technologies USA, Inc., a California corporation
Fairchild Technologies Optical Disc Equipment Group GmbH, a
German corporation1
Convac France S.A., a French corporation
Fairchild Technologies Europe Limited, a U.K. corporation
Fairchild Technologies Korea Limited, a Korean corporation
Fairchild Technologies Semiconductor Equipment Group GmbH, a German corporation
Fairchild Germany, Inc., a Delaware corporation
Snails, Inc., a Delaware corporation
Fairchild CDI S.A., a French corporation
MediaDisc SA, a French corporation, 41% investment Cutek Research, Inc., a
California
corporation, 20.77% investment-fully diluted
Banner Aerospace, Inc.
Aero International, Inc., an Ohio corporation
Banner Aero (Australia) Pty. Ltd., an Australian corporation
Banner Aerosoace Foreign Sales Corporation, U.S. Virgin Islands
Banner Aerospace Services, Inc., an Ohio corporation
Banner Aerospace-Singapore, Inc., a Delaware corporation BAR DE,
Inc., a Delaware corporation
D A C International, Inc., a Texas corporation Discontinued
Aircraft, Inc., a Texas corporation Discontinued Services, Inc.,
a Delaware corporation GCCUS, Inc., a California corporation
Georgetown Jet Center, Inc., a Delaware corporation Harco
Northern Ireland Limited, a N. Ireland corporation Matrix
Aviation, a Kansas corporation
Nasam Incorporated, a California corporation
Dallas Aerospace, Inc., a Texas corporation
PB Herndon Aerospace, Inc., a Missouri corporation
Professional Aviation Associates, Inc., a Georgia corporation
Professional Aircraft Accessories, Inc., a Florida
corporation
_______________________________
1The Optical Disc business will be transferred to a new
subsidiary yet to be formed and sold to Fairchild Technologies
USA. The remaining entity will become part of the Fairchild
Fasteners Group Operating Unit and may be renamed.
SCHEDULE 1.01.5
to
Credit Agreement
Dated as of April 20, 1999
as amended by Amendment No. 1 and Consent Dated as of
November 29, 1999
PERMITTED DISPOSITIONS
I Technologies Companies:
Fairchild Technologies Semiconductor Equipment Group GmbH
Convac France S.A.
Fairchild Technologies Europe Limited
Fairchild Technologies Optical Disc Equipment Group GmbH1
Fairchild Germany, Inc.
Fairchild Technologies Korea Limited
Fairchild Technologies USA, Inc. Fairchild CDI S.A.
Mediadisc S.A.2
CuTek Research, Inc.3
Snails, Inc.
II Nacanco Paketleme Sanayi Ve Ticaret A.S.
III Eagle Environmental4:
Banner Capital Ventures, Inc., a Subsidiary of RHI
Note Receivable ($9,371,909 as of 3/28/99) held by Banner
Capital Ventures, Inc. and payable by Eagle Environmental,
L.P.
Recycling Investments, Inc., a Subsidiary of RHI
Equity Investment in Eagle Environmental, L.P. held by
Recycling Investments, Inc.
Recycling Investments II, Inc., a Subsidiary of RHI which
holds an investment in "Eagle Environmental" for Royal Oaks
Landfill
IV Investments:
Holder Investment
TFC Billecart Expansion
Euroactividade
State of Israel - 12 year Variable
Rate Bonds
Teuza Fund
Rotlex
Nevatim Triangle Venture
Oramir Semiconductor Equipment Ltd.5
Technical Devices Note Receivable
($863,363 as of 3/28/99) Stelfast
Fasteners Note Receivable
($137,923 as of 3/28/99)
Banner Industrial Products, Inc.6 Plymouth
Leasing Company7
Banner Energy Corporation of Kentucky,Inc.
("BECK")8
Faircraft Sales Ltd.9
Fairchild Export Sales Corporation Aircraft
Tire Corporation
Fairchild Titanium Technologies, Inc.10
RHI Medical Resources, Inc.
S.A.R.L. Soustiel 2000
Bolshoi Fund (Antiques)
Celtronix Ltd.
Visionix Ltd.
Fairchild Scandinavian Bellyloading Company -
Royalty Agreement with Teleflex
Gobble Gobble, Inc.
MISAT Ltd.11
Northking Insurance Company Limited, a
Bermuda corporation (re-insurance
collateral and guaranty)
Tutor Time Learning Systems, Inc.
Turkiye Is Bankasi GDRs
Recycling Investments, Inc. ("RII") Recycling
Investments II, Inc. ("R-II") Banner Capital
Ventures, Inc.
Sovereign Air Limited - Bristol Holdings
Banner Industrial Distribution, Inc.
F.F. Handels GmbH
Aero International, Inc.
FHC S.S.E. Telecom, Inc. common stock & warrants
Colt Royalty Agreement
Teuza Management and Development (1991)
Limited12
A10 Inc.13
Mairoll, Inc. (exclusive of Fastener Business
assets/liabilities)
Fairchild Arms International Ltd.
Suchomimous Terensis, Inc. Fairchild Data
Corporation D-M-E Iberica S.A.
Quack Quack, Inc.
Banner Investments (UK) Limited JJS Limited
StarLine Communications Fairchild Fastener
Group Ltd.
Mairoll, Inc. (FHC) V&V Redondo Beach Limited Partnership, a
California partnership (49%
interest)14
Hartz-Rex Associates, a New Jersey
partnership (49% interest)15
Warthog, Inc.
A10 Inc. (FHC) Fairchild Retiree Medical Services, Inc.
Camloc (U.K.) (FHC) Camloc (U.K.) Gas Spring Division
RII (RHI) Eagle Environmental, Limited Partnership, a
Delaware partnership (49.9% limited
partnership interest)16
R-II (RHI) Eagle Environmental II, Limited
Partnership (49.9% limited partnership
interest)17
BECK (TFC) Jenkins Coal Dock Company, Inc. (shell
corporation; 80% owned)18
KenCoal Associates, an Ohio partnership (80%
interest; inactive entity with no
assets or liabilities)19
Snails, Inc. Fairchild CDI S.A.
Mediadisc S.A.
CuTek Research, Inc. Boussugue
Note Receivable (FF
2,799,400)
Banner Companies Kellstrom Warrants (Banner)
Shared Technologies Cellular,
Inc. (BAR DE, Inc.)
CICI Preferred B Stock (BAR
DE, Inc.)
Net Holdings, Inc. Note in
principal amount of $5,000,000
V Farmingdale Property:
See attached description by parcel.
VI Other Real Estate:
Owner Real Estate Location
Mairoll, Inc. (FHC) Sloane Street Real Property (London)
Chatsworth, California Real Property
Temple City, California Real Property
RHI (TFC) West Milwaukee Real Property (Wisconsin)
Corporate Office Building (Virginia)
Watermann St. Real Property (Rhode Island)
Plymouth Leasing Company20
Trucking terminals located in Huron,Ohio
(leased to Conway Freight) and
Mansfield, Ohio (unoccupied)
BECK (TFC) 700 acres of unimproved land in Kentucky
Faircraft Sales 50 acres including a coal mine in
Vincennes, Indiana
Ltd. (TFC)
V&V Redondo Beach
Partnership (FHC) Real Property located in Redondo Beach,
California
Hartz-Rex Associates Hasbrouck Heights
Real Property (NJ)
(FHC)
Bristol Holdings (RHI) Rhode Island Real Property
VII Fairchild Finance Company
VIII Banner Aerospace, Inc.
Investments in: Watkins-Johnson Company (Banner)
Subsidiaries21: Dallas Aerospace, Inc.
Aero International, Inc.
Banner Aero (Australia) Pty Ltd.
Banner Aerospace Foreign Sales
Corporation
Banner Aerospace-Singapore, Inc.
Discontinued Aircraft, Inc.
Discontinued Services, Inc. Harco
Northern Ireland Limited Banner
Aerospace Services, Inc. BAR DE,
Inc.
DAC International, Inc.
GCCUS, Inc.
Georgetown Jet Center, Inc. Matrix
Aviation, Inc.
NASAM Incorporated
PB Herndon Aerospace, Inc.
Professional Aviation Associates,
Inc.
Professional Aircraft Accessories,
Inc.
IX Other Non-Fasteners Businesses
Investments in non-fasteners businesses received in exchange for
any Permitted Disposition
_______________________________
1 Until optical disc business transferred out
2 Equity interest of 41% held by Snails, Inc.
3 20.77% equity interest, on a fully diluted basis, held by
Snails, Inc.
4 Individual items reflected below are also reflected
elsewhere in this Schedule, but grouped here to encompass all of
"Eagle Environmental" as well
5 Israel corporation; 28.26% interest held by TFC
6 Wholly-owned subsidiary of TFC required to continue in
existence for 7 years; held assets of Roanoke Locomotive, Inc.
7 See entry under Real Estate below
8 Wholly-owned subsidiary of TFC
9 Wholly-owned subsidiary of TFC
10 Holds 50% interest in Normvest, a Russian venture
11 Israel corporation; 43.78% interest held by RHI
12 Israel corporation; 40% interest held by FHC
13 Wholly-owned subsidiary of FHC
14 51% interest held by Vestar California II Limited
15 49% interest held by Hartz Hasbrouck Limited Partnership;
2%
interest held by Dudley Godfrey
16 50.1% interest held by Khodara Environmental, Inc.
17 50.1% interest held by Khodara Environmental II, Inc.
18 20% interest held by Kinemotive Energy Corporation
19 20% interest held by Kinemotive Energy Corporation
20 Wholly-owned subsidiary of TFC
21 Capital Stock and Assets of the Subsidiaries are Permitted
Dispositions
Schedule 1.01.8
to
Credit Agreement
Dated as of April 20, 1999
PERMITTED EXISTING INVESTMENTS
Fairchild Holding Corp.
D-M-E Iberica S.A. (Spain) (46%)
Teuza Management & Development Ltd. (Israel) (40%) Fairchild Arms
International Ltd. (Canada) Simmonds Mecaero Fasteners, Inc.
Fairchild Finance Company (Republic of Ireland) Fairchild Data
Corporation
Quack Quack, Inc.
A10, Inc.
Fairchild Retiree Medical Services, Inc.
Mairoll, Inc.
V&V Redondo Beach Limited Partnership (49%)
Hartz-Rex Associates (49%)
Warthog, Inc.
Banner Investments (U.K.) Limited (United Kingdom)
JJS Ltd. (United Kingdom)
Fairchild Fastener Group Limited (United Kingdom) Camloc
(U.K.) Limited (United Kingdom)
Fairchild Germany, Inc.
Fairchild Technologies Korea Limited (Korea) (50%) Fairchild
Technologies USA, Inc.
Fairchild Technologies Europe Limited (United Kingdom)
Fairchild Technologies Korea Limited (Korea) (50%)
Fairchild Technologies Semiconductor Equipment Group
GmbH (Germany)
Convac France SA (France)
Snails, Inc.
Fairchild CDI S.A. (France)
MediaDisc S.A. (France) (41%)
Cutek Research, Inc. (California) (20.77% on a fully
diluted basis, Preferred A and B Stock)
Loan to Roger Boussugue et.al. FF 2,799,400
Suchomimous Terensis, Inc.
VSI Holdings, Inc.
Fairchild Fasteners Europe - VSD GmbH (Germany) (1%)
Camloc Holdings
Fairchild Fasteners Europe - Camloc GmbH (1%) Fairchild
Technologies Optical Disc Equipment Group GmbH
(Germany)
Fairchild Fasteners Europe - VSD GmbH (99%)
Fairchild AS+C oHG Aviation Supply + Consulting
(GmbH & Co.) (Germany) (50%)
Aviation Full Service (Hong Kong) Limited
(Hong Kong) (99.9%)
Fairchild Fasteners Europe - Camloc GmbH (99%)
Fairchild AS+C oHG Aviation Supply + Consulting
(GmbH & Co.) (Germany) (50%)
Aviation Full Service (Hong Kong) Limited
(Hong Kong) (99.9%)
Fairchild Fasteners Corp.
Fairchild Fasteners Europe - Simmonds S.A.R.L. (10%)
Meow, Inc.
Fairchild Fasteners Europe - Simmonds S.A.R.L. (90%)
SNEP S.A. (France)
Simmonds S.A. (France)
Mecaero SNC (France)
Eurosim Componentes Mecanicos de Seguranca, Lda.
(Portugal) (99.85%)
Transfix S.A. (France) (99.98%)
Kaynar Technologies Inc.
Fairchild Technologies GmbH Investment
in Fairchild Technologies USA, Inc. -
Preferred Stock DM 5,000,000
Officer Loan Program designed to encourage
officer stock ownership in the Company $ 173,938
Officer Loan Program designed to encourage
officer stock ownership in the Company $ 750,000
Loan to Robert Sharpe $ 200,000
Loan to Mel Borer $ 300,000
S.S.E. Telecom, Inc. Common Stock & Warrants $ 1,047,735
Starline Communications FF 999,272
RHI Holdings, Inc.
Banner Industrial Distribution, Inc.
F.F. Handels GmbH (Germany)
Fairchild France, Inc.
Northking Insurance Company Limited (Bermuda)
Sovereign Air Limited
Fairchild Holding Corp.
Aero International, Inc. (19%)
Gobble Gobble, Inc.
Nacanco Paketleme Sanayi Ve Ticaret A.S. (Turkey) (31.86%)
MISAT Ltd. (Israel) (43.78%)
Banner Capital Ventures, Inc., plus an estimated future
commitment to fund Eagle Environmental for $1,000,000
Recycling Investments, Inc.
Eagle Environmental, L.P. (49.9%)
Recycling Investments II, Inc.
Eagle Environmental II, L.P. (49.9%) Visionix Ltd. (Israel)
(22 to 23%) Medical Resources, Inc.
S.A.R.L. Soustiel 2000 Turkiye IS Bankasi Celtronix Ltd.
Bolshoi Fund (Antiques) Loan to Peter Levine
Tutor Time Learning Systems, Inc.
Investment in Stock of The Fairchild Corporation
The Fairchild Corporation
Faircraft Sales Ltd.
Banner Industrial Products, Inc.
Banner Aerospace Holding Company I, Inc.
Banner Aerospace Holding Company II, Inc.
Banner Energy Corporation of Kentucky, Inc. Jenkins Coal Dock
Company, Inc.
KenCoal Associates (Ohio) (Partnership)
Fairchild Export Sales Corporation (Barbados)
Aircraft Tire Corporation
Fairchild Titanium Technologies, Inc.
Normvest (USSR)(50%)
Plymouth Leasing Company
Special-T Fasteners, Inc., plus contingent cash purchase price
adjustments to be paid to Robert E. Edwards up to $2,000,000 RHI
Holdings, Inc.
Banner Aerospace, Inc.
Billecart Expansion
Euroactividade
State of Israel - 12 year Variable Rate Bonds Teuza Fund
Rotlex
Oramir Semiconductor Equipment Ltd.
Nevatim Triangle Venture
Note Receivable - Technical Devices Note Receivable - Stelfast
Fasteners
Banner Aerospace, Inc.
Aero International, Inc. (Ohio) (81%)
Banner Aero (Australia) Pty. Ltd. (Australia)
Banner Aerospace Foreign Sales Corporation (U.S. Virgin Islands)
Banner Aerospace Services, Inc. (Ohio)
BAR DE, Inc. (0.9%)
Banner Aerospace-Singapore, Inc. BAR DE, Inc. (98.6%)
D A C International, Inc. (Texas) Discontinued Aircraft, Inc.
(Texas) Discontinued Services, Inc.
GCCUS, Inc. (California) Georgetown Jet Center, Inc.
Harco Northern Ireland Limited (N. Ireland - U.K.) Matrix
Aviation, Inc. (Kansas)
Nasam Incorporated (California)
Dallas Aerospace, Inc. (Texas)
PB Herndon Aeropace, Inc. (Missouri)
BAR DE, Inc. (0.5%)
Professional Aviation Associates, Inc. (Georgia) Professional
Aircraft Accessories, Inc. (Florida)
Kellstrom Warrants
Watkins-Johnson Company
Shared Technologies Cellular, Inc. Common Stock Investment in
CICI Preferred B Stock
Note Receivable - Net Holdings, Inc.
Kaynar Technologies Inc.
Kaynar Technologies Ltd. (United Kingdom) Recoil (Europe) Ltd.
(United Kingdom)
K.T.I. Fempari Kft (Hungary)
KTI International Sales Corporation (Barbados)
Marcliff Corporation
Marson Creative Fastener, Inc.
Edson Manufacturing, Inc. note payable to Marson
Creative Fastener, Inc. $231,237.26
M&M Machine & Tool Co.
Recoil Holdings, Inc.
Recoil PTY (Australia) (99%)
Recoil Marketing BVBA (Belgium) (0.13%)
Recoil Pte Ltd. (Singapore) (50%) Recoil Thailand (Thailand)
(0.1%)
Recoil Inc.
Recoil Thailand (Thailand) (0.1%)
Recoil Australia Holdings, Inc.
Recoil PTY (Australia) (1%)
Recoil Pte Ltd. (Singapore) (50%) Recoil Thailand
(Thailand) (0.1%)
Recoil Marketing BVBA (Belgium) (99.87%)
Recoil Thailand (Thailand) (74.3%)
Shares in Pacific Horizon Funds
