Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
FORM 10-K
--------------------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the year ended June 30, 1996 Commission File Number: 1-6560
------------- ------
THE FAIRCHILD CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 34-0728587
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Washington Dulles International Airport
300 West Service Road, P.O. Box 10803
Chantilly, Virginia 20153
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(703) 478-5800
----------------------------------------------------
(Registrant's Telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on
Title of each class which registered
- ------------------- -------------------
Class A Common Stock, par value
$.10 per share New York and Pacific Stock Exchange
- ------------------------------- -----------------------------------
13 1/8% Subordinated Debentures
due 2006 New York Stock Exchange
- ------------------------------- -----------------------------------
12% Intermediate Subordinated
Debentures due 2001 New York Stock Exchange
- ------------------------------- -----------------------------------
13% Junior Subordinated
Debentures due 2007 New York Stock Exchange
- ------------------------------- -----------------------------------
Securities registered pursuant to Section 12(g) of the Act: None
----
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K [ ].
As of August 30, 1996, the aggregate market value of the common shares
(based upon the closing price of these shares on the New York Stock Exchange)
of the Registrant held by nonaffiliates was approximately $127.3 million
(excluding shares deemed beneficially owned by affiliates of the Registrant
under Commission Rules).
As of August 30, 1996, the number of shares outstanding of each of the
Registrant's classes of common stock were as follows:
Class A common stock, $.10 par value 13,803,035
------------
Class B common stock, $.10 par value 2,633,704
------------
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive proxy statement for the 1996
Annual Meeting of Stockholders' to be held on November 21, 1996 (the "1996
Proxy Statement"), which the Registrant intends to file within 120 days after
June 30, 1996, are incorporated by reference into Parts III and IV.
THE FAIRCHILD CORPORATION
INDEX TO
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED JUNE 30, 1996
PART I Page
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . 15
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . 16
Item 4. Submission of Matters to
a Vote of Stockholders . . . . . . . . . . . . . . . . 18
PART II
Item 5. Market for the Company's
Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . 19
Item 6. Selected Financial Data . . . . . . . . . . . . . . . 20
Item 7. Management's Discussion and Analysis
of Results of Operations and
Financial Condition . . . . . . . . . . . . . . . . . 20
Item 8. Financial Statements and
Supplementary Data . .. . . . . . . . . . . . . . . . 34
Item 9. Disagreements on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . 78
PART III
Item 10. Directors and Executive Officers
of the Company . . . . . . . . . . . . . . . . . . . . 78
Item 11. Executive Compensation . . . . . . . . . . . . . . . . 78
Item 12. Security Ownership of Certain
Beneficial Owners and Management . . . . . . . . . . . 78
Item 13. Certain Relationships and
Related Transactions . . . . . . . . . . . . . . . . . 78
PART IV
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K . . . . . . . . . . 79
PART I
------
ITEM 1. BUSINESS
- -----------------
(a) General Development of Business
The Fairchild Corporation (the "Company") was incorporated under the
laws of the State of Delaware in October 1969. The Company changed its name
from Banner Industries, Inc. to The Fairchild Corporation on November 15,
1990. The Company is a holding company which owns all of the issued and
outstanding stock of RHI Holdings, Inc. ("RHI"), and through RHI all of the
issued and outstanding stock of Fairchild Holding Corporation ("FHC").
Through RHI, the Company is the majority stockholder of Banner Aerospace,
Inc. ("Banner").
The Company's principal operations are conducted through RHI and FHC, in
four business segments: Aerospace Fasteners, Aerospace Distribution,
Industrial Products, and prior to March 13, 1996, Communications Services.
The Aerospace Fasteners segment designs, manufactures and markets high
performance, specialty fastening systems, primarily for aerospace
applications. The Aerospace Distribution segment is a leading international
distributor to the aerospace industry, providing a wide range of aircraft
parts and related support services. The Industrial Products segment designs,
manufactures and markets wet processing tools, equipment and systems required
for the manufacture of semiconductor chips and related products. The
Communications Services segment, which was merged into Shared Technologies
Inc. on March 13, 1996, furnished telecommunications services and equipment
to tenants of commercial office buildings, and sold, installed, and
maintained telecommunications systems for business and government customers.
For a comparison of the sales of each of the Company's business segments for
each of the last three fiscal years, see "Management Discussion and Analysis
of Results of Operations and Financial Condition".
The Company also owns a significant equity interest in Nacanco Paketleme
("Nacanco"), which manufactures customized cans for soft drinks and beer in
Turkey, and Shared Technologies Fairchild Inc. ("STFI"), which provides
telecommunications services and systems domestically.
Fiscal 1996 Developments
- ------------------------
The Company, RHI and Fairchild Industries, Inc. ("FII," the company's
former subsidiary), entered into an Agreement and Plan of Merger dated as of
November 9, 1995 (as amended, the "Merger Agreement") with Shared
Technologies Inc. ("STI"). On March 13, 1996, in accordance with the Merger
Agreement, STI succeeded to the telecommunications systems and services
business operated by the Company's Fairchild Communications Services Company
("FCSC").
The transaction was effected by a Merger of FII with and into STI (the
"Merger") with the surviving company renamed STFI. Prior to the Merger, FII
transferred all of its assets to, and all of its liabilities were assumed by
FHC, except for the assets and liabilities of FCSC, and $223.5 million of
FII's existing debt and preferred stock consisting of (i) the $40.0 million
liquidation value of the outstanding Series A and Series C Preferred Stock of
FII, (ii) the $125.0 million principal amount outstanding of FII 12 1/4%
Senior Notes due 1999 (the "Senior Notes"), and (iii) an amount of bank and
other indebtedness of approximately $58.5 million (the "Assumed
Indebtedness"). The stock of FHC was then distributed to RHI. No taxabale
gain or loss was recognized, in the Company's view, on the transfer of the
FII assets and liabilities to FHC, and the distribution of FHC stock to RHI.
As part of the Merger Agreement, FII made a cash tender offer to purchase all
of the outstanding Senior Notes and obtained such holders consent to amend
the indenture under which the Senior Notes were issued to remove all
covenants which could be amended or deleted by majority vote (the "Tender
Offer"). Pursuant to the Merger, an amount sufficient to redeem the Series
A and Series C Preferred Stock at their liquidation value ($45.00 per share
plus accrued and unpaid dividends) was placed with Chemical Mellon
Shareholder Services as Escrow Agent. Also as part of the Merger, STFI (i)
purchased the $125.0 million aggregate principal amount of Senior Notes
tendered pursuant to the aforesaid tender offer, and (ii) repaid in full the
Assumed Indebtedness.
As a result of the Merger, the Company received (i) 6,000,000 shares of
Common Stock of STFI (representing approximately 41% of the outstanding
shares after giving effect to such issuance), (ii) shares of 6% Cumulative
Convertible Preferred Stock of STFI having an aggregate liquidation
preference of $25.0 million (subject to upward adjustment) and which are
convertible into Common Stock of STFI at a conversion price of $6.375 per
share (which, if converted, would represent, together with the other Common
Stock issued to the Company, approximately 42% of the Common Stock of STFI on
a fully diluted basis), and (iii) shares of a Special Preferred Stock having
an initial liquidation preference of $20.0 million (which could accrue up to
a maximum of $30.0 million over a ten-year period, if not redeemed earlier).
In connection with its stock ownership, the Company has the right to elect
four of the eleven members of the Board of Directors of STFI and have agreed,
subject to certain exceptions, not to sell any of STFI's shares for a two-
year period.
The Merger was structured as a reorganization under section 368(a)(1)(A)
of the Internal Revenue Code of 1986, as amended. In Fiscal 1996, the
Company recorded a $163.1 million non-recurring gain from this transaction.
On February 22, 1996, pursuant to the Asset Purchase Agreement dated
January 26, 1996 (the "closing date"), the Company, through its subsidiaries,
completed the sale of certain assets, liabilities and the business of the
D-M-E Company ("DME") to Cincinnati Milacron Inc. ("CMI") for a sales price
of approximately $244.3 million, as adjusted. The sales price consists of
$74.0 million in cash, and two 8% promissory notes in the aggregate principal
amount of $170.3 million (together, the "8% CMI Notes"). The promissory
notes were due to mature one year following the closing date; provided that
the Company had the right to require prepayment of, and CMI had the right to
prepay the 8% CMI Notes after the six-month anniversary of the closing date.
On July 29, 1996, CMI paid in full the 8% CMI Notes.
As a result of the sale of DME, the Company recorded an after-tax gain
on disposal of discontinued operations of approximately $54.0 million in
Fiscal 1996.
On January 27, 1996, FII completed the sale of Fairchild Data
Corporation ("Data") to SSE Telecom, Inc. ("SSE") for book value of
approximately $4.4 million and 100,000 shares of SSE's common stock valued at
$9.0625 per share, or $.9 million, at January 26, 1996, and warrants to
purchase an additional 50,000 shares of SSE's common stock at $11.09 per
share. In addition, the Company has an opportunity to earn an additional
100,000 shares based on the future performance of SSE during the twelve
months following the date of sale. The Company recorded a loss of $.1
million from this transaction in Fiscal 1996.
Effective February 25, 1996, the Company completed a transfer of Harco
to Banner in exchange for 5,386,477 shares of Banner common stock. The
exchange has increased the Company's ownership of Banner common stock from
approximately 47.2% to 59.3%, resulting in the Company becoming the majority
shareholder of Banner. Accordingly, the Company consolidated Banner on
February 25, 1996. Banner is a leading international supplier to the
aerospace industry as a distributor, providing a wide range of aircraft parts
and related support services. Harco is a distributor of precision fasteners
to the aerospace industry.
(b) Financial Information about Business Segments
The Company's business segment information is hereby incorporated by
reference from Note 22 of the Company's consolidated financial statements
included in Item 8 Financial Statements and Supplementary Data.
(c) Narrative Description of Business Segments
Aerospace Fasteners
- -------------------
The Company, through its Aerospace Fasteners segment, is a leading
worldwide manufacturer and supplier of fastening systems used in the
construction and maintenance of commercial and military aircraft. The
Aerospace Fasteners segment accounted for 42.4% of total Company sales for
the year ended June 30, 1996.
Products
--------
In general, aerospace fasteners produced by the Company are used to join
materials in applications that are not of themselves critical to flight.
Products range from standard aerospace screws, to more complex systems that
fasten airframe structures, and sophisticated latching or quick disconnect
mechanisms that allow efficient access to internal parts which require
regular servicing or monitoring. The Aerospace Fasteners segment also
manufactures and supplies fastening systems used in non-aerospace industrial
and electronic niche applications. The Aerospace Fasteners segment produces
and sells products under various trade names and trademarks including Voi-
Shan (fasteners for aerospace structures), Screwcorp (standard externally
threaded products for aerospace applications), RAM (custom designed
mechanisms for aerospace applications), Camloc (components for the
industrial, electronic, automotive and aerospace markets), Tridair and
Rosan (fastening systems for highly-engineered aerospace, military and
industrial applications).
Principal product lines of the Aerospace Fasteners segment include:
Standard Aerospace Airframe Fasteners - These fasteners consist of
standard externally threaded fasteners used in non-critical airframe
applications on a wide variety of aircraft. These fasteners include Hi-
Torque Speed Drive, Tri-Wing, Torq-Set, Phillips and Hex Heads.
Commercial Aerospace Structural and Engine Fasteners - These fasteners
consist of more highly engineered, permanent or semi-permanent fasteners used
in non-critical but more sophisticated airframe and engine applications,
which could involve joining more than two materials. These fasteners are
generally engineered to specific customer requirements or manufactured to
specific customer specifications for special applications, often involving
exacting standards. These fasteners include Hi-Lok, Veri-Lite, Eddie-
Bolt2 and customer proprietary engine nuts.
Proprietary Products and Fastening Systems - These very highly
engineered, proprietary fasteners are designed by the Company for specific
customer applications and include high performance structural latches and
hold down mechanisms. These fasteners are usually proprietary in nature and
are primarily used in either commercial aerospace or military applications.
These fasteners include Visu-Lok, Composi-Lok, Keen-serts, Mark IV,
Flatbeam and Ringlock.
Highly Engineered Fastening Systems for Industrial Applications - These
highly engineered fasteners are designed by the Company for specific niche
applications in the electronic, automotive and durable goods markets and are
sold under the Camloc trade name.
Sales and Markets
-----------------
The products of the Aerospace Fasteners segment are sold primarily to
domestic and foreign original equipment manufacturers ("OEMs"), the
maintenance and repair market through distributors, and to the United States
government. 66.1% of its sales are domestic. Major customers include OEMs
such as Boeing, McDonnell Douglas, Airbus, Lockheed and Northrop, and their
subcontractors, as well as major distributors such as Burbank Aircraft,
Special-T and Wesco. During the last four years, OEMs have significantly
reduced their production levels and now require smaller lot sizes of raw
materials and components. In addition, OEMs have implemented programs to
reduce inventories and pursue just-in-time relationships. This has allowed
parts distributors to significantly expand their business due to their
ability to better meet OEM objectives. In response, the Company, which
formerly supplied the OEMs directly, is expanding efforts to provide parts
through distributors, by establishing master distributorship agreements, with
Airbus, CASA Spain, Special-T and Wesco. No single customer accounts for
more than 10% of consolidated sales.
Products are marketed by a direct (field) sales force which coordinates
with an internal (technical/engineering)sales force. The field sales effort
is organized by region and customer. The internal sales force is organized
by facility and product range and is focused on servicing customers needs,
identifying new product applications, and obtaining the approval of new
products. All the Company's products are leveraged through centralized
advertising and promotional activities.
Revenues in the Aerospace Fastener's segment bear a strong relationship
to aircraft production. As OEMs searched for cost cutting opportunities
during the aerospace industry recession, parts manufacturers, including the
Company, accepted lower-priced and/or smaller orders to maintain market
share, at lower profit margins. However, during the last year, this
situation has improved as build rates in the aerospace industry have
increased and resulted in capacity constraints. As lead times have
increased, the Company has been able to negotiate contracts at more favorable
pricing with its major customers as well as lot sizes that are more economic.
In addition, the Company has refused to accept "make and hold" contracts
which traditionally resulted from parts manufacturers agreeing to produce
parts which would then remain in the parts manufacturer's inventory
indefinitely. Overall, existing backlog should be sold at higher margins and
in for larger lot sizes which are appropriate to each facility's costs.
Fasteners also have applications in the automotive/industrial industry,
where numerous special fasteners are required (such as engine bolts, wheel
bolts and turbo charger tension bolts). The Company is actively targeting
the automotive market as a hedge against any potential downturn in the
aerospace industry.
Manufacturing and Production
----------------------------
The Aerospace Fasteners segment has five primary manufacturing
facilities, of which three are located in the United States and two are
located in Europe. Each facility has virtually complete production
capability, and subcontracts only those orders which exceed capacity. Each
plant is designed to produce a specified product or group of products,
depending on the production process involved as well as certification and
customer demands. The Company has obtained IPSO and D1 certificates, which
means that its manufacturing facilities meet stringent production and process
standards that are increasingly being required by many major manufacturers.
During the last four years, the Company has consolidated its global
production of fasteners from ten into five facilities. Staffing levels have
also been extensively reduced at production facilities and at the
headquarters level to better reflect production volumes. Roughly 40% of the
workforce has been cut to bring current employment down to about 1,700 from
2,700. Headcount reduction during the last fiscal year included over two
hundred headquarters staff members moving into the production facilities to
displace redundant plant staff members.
During Fiscal 1995, management began implementation of a new information
system at all its U.S. facilities, which will also be functional in Fiscal
1997 for its European operations. The new system performs detailed and
timely cost analysis of production by product and facility. Updated MIS
systems also help the Company to better service its customers. OEMs require
each product to be produced in a OEM-qualified/OEM-approved facility.
Competition
-----------
Despite intense competition in the industry, the Company remains the
dominant manufacturer of aerospace fasteners. The worldwide aerospace
fastener market is estimated to be $1 billion (before distributor reselling).
The Company holds approximately 20%-25% of the market and competes with SPS,
Kaynar, and Hi-shear, which hold approximately 19%, 10% and 8% of the market,
respectively. In Europe, its largest competitors are Blanc Aero, Southco
Fasteners, and Schwarz Verbindungs.
The Company competes primarily in the highly-engineered "systems"
segment as the Company produces a broad product range which allows it to more
fully serve each OEM or distributor's needs. The specialized producers
(those producing one or a limited number products) tend to be smaller,
independent operators which are more vulnerable to substitution or
technological obsolescence risks. The Company's product array is diverse and
offers customers a good selection to address the various production needs.
In addition, roughly 45% of the Company's output is unique or is in a market
where the Company has a small number of competitors. The Company seeks to
maintain a technological edge as a competitive advantage, and has
historically demonstrated its ability to innovate and compete in a number of
ways.
Aerospace Distribution
- ----------------------
The Company acquired a majority ownership of Banner on February 26,
1996. The Company, through Banner, distributes a wide variety of aircraft
parts, which it carries in inventory. In addition to selling products that
it has purchased on the open market, Banner also acts as a non-exclusive,
authorized distributor of many different product lines. No single
distributor arrangement is material to the Company's financial condition
taken as a whole. The Aerospace Distribution segment accounted for 25.9% of
total Company sales in Fiscal 1996.
Products
--------
Banner believes it is the world's largest independent stocking
distributor of aircraft hardware inventory, including bearings, nuts, bolts,
screws, rivets and other types of fasteners that are used on aircraft.
Banner purchases its inventory of hardware parts principally from
manufacturers. An extensive inventory of products and a quick response time
are essential in providing services to its customers. Another key factor in
selling to its customers is Banner's ability to maintain a system that
provides for traceability of parts back to the manufacturer.
Products of the Aerospace Distribution segment are divided into three
groups: hardware, rotables and engines. Hardware includes bearings, nuts,
bolts, screws, rivets and other types of fasteners. Rotables include flight
data recorders, radar and navigation systems, instruments, landing gear and
hydraulic and electrical components. Engines include jet engines and engine
parts for use on both narrow and wide body aircraft and smaller engines for
corporate and commuter aircraft. Banner provides a number of services such
as immediate shipment of parts in aircraft on ground situations. The
Aerospace Distribution segment also provides products to OEMs in the
aerospace industry under just-in-time and inventory management programs.
Banner also buys and sells commercial aircraft from time to time.
Hardware is usually purchased new from manufacturers, but may also be
purchased from other distributors. Hardware is sold only in new condition.
Rotable parts are sometimes purchased as new parts, but are generally
purchased as used parts which are then overhauled for the Company by outside
contractors, including the original manufacturers and FAA-licensed
facilities. Rotables are sold in a variety of conditions such as new,
overhauled, serviceable and "as is". Rotables can also be exchanged instead
of sold. An exchange occurs when an overhauled aircraft part in inventory is
exchanged for a used part from the customer and the customer is charged an
exchange fee plus the actual cost to overhaul the part. Engines and engine
components are sold as is, overhauled or disassembled for resale as parts.
Sales and Markets
-----------------
Subsidiaries of the Aerospace Distributions segment sells its products
in the United States and abroad to most of the world's commercial airlines
and to air cargo carriers, as well as many OEMs, other distributors, fixed-
base operators, corporate aircraft operators and other aerospace and non-
aerospace companies. Approximately 68.0% of its sales are domestic.
The Aerospace Distributions segment market through their respective
direct sales forces, outside representatives and, for some product lines,
overseas sales offices. Sales in the aviation aftermarket depend on price,
service, quality and reputation. The Aerospace Distribution segment's
business does not experience significant seasonal fluctuations nor does the
business depend on a single customer. No single customer accounts for more
than 10% of the Company's consolidated revenue.
Competition
-----------
The hardware product group competes with OEMs such as Boeing, which
supports the fleet of Boeing-produced aircraft; fastener manufacturers, as
well as independent distributors such as Wesco Aircraft Hardware Corp., M&M
Aerospace Hardware, Tri-Star Aerospace, Inc. and many other large and small
companies. Banner believes it generally has a price advantage over
manufacturers in the smaller quantities in which it usually deals, and can
generally provide more expeditious service. In the rotable group, the major
competitors are AAR Corp., Air Ground Equipment Services ("AGES"), Aviation
Sales Company, The Memphis Group and other large and small companies in a
very fragmented industry. The major competitors for Banner's engine group
are OEMs such as General Electric Company and Pratt and Whitney, as well as
the engine/engine parts division of AAR Corp. and AGES and many smaller
companies.
Industrial Products
- -------------------
The Industrial Products segment consists primarily of three distinct
companies operating under the trade names Fairchild Technologies ("FT"),
Fairchild Scandinavian Bellyloading Company AB ("SBC") and Fairchild Gas
Springs Division ("Gas Springs").
Acquired by the Company in June 1994, FT is a designer, manufacturer
and marketer of high performance, cost effective production equipment used to
manufacture semiconductors, liquid crystal displays (LCD) and compact disk
(CD) products.
A Fiscal 1995 start-up operation, Gas Springs is a designer and
manufacturer of gas springs for automotive and industrial/commercial
applications to assist in the raising, lowering and moving of heavy loads.
Acquired by the Company in September 1994, SBC is the designer and
manufacturer of patented cargo loading systems, which are installed in the
cargo area of commercial aircraft, enabling cargo to be loaded rapidly and
efficiently.
The Industrial Products segment accounted for 13.5% of total Company
sales for the year ended June 30, 1996. Approximately 89.5% of the
Industrial Products segment revenues is provided by FT.
Products
--------
FT is a leader in microlithography manufacturering in Europe and has
four primary product lines, the first being equipment for wafer
microlithography processing. This includes the mainstay Series 6000 Flexible
Wafer Process Line, consisting of lithographic processing systems with
flexible material flow, modular design and high throughput, and the recently
designed Falcon Modular Microlithography System for 0.25 micron (65/256 Mbit)
device manufacturing. The Falcon system has a fully modular design and is
expandable to accommodate expected technological advancements and specific
customer configurations.
A second product line is coating and handling equipment for compact disc
production, and FT has been a leader in this field since the early days of CD
production, and is a preferred supplier to Europe's largest CD manufacturer.
A third line is modular process equipment for use by the fabricators of
liquid crystal displays. FT supplies advanced modular solutions with high
throughput, small footprint and minimum cost of ownership. FT is also a
leading manufacturer of photolithography processing equipment for photomask
and thinfilm products.
FT specializes in providing system solutions, and in coating,
developing, priming, etching, stripping, cleaning and thermal processing of
wafers, substrates and related semiconductor products.
Gas Springs manufactures gas load springs, devices used in the raising,
lowering or moving of heavy loads. This product can be used for numerous
consumer and industrial applications, including fitness equipment, sunbeds,
furniture, automotive, and agricultural and construction equipment.
SBC produces a sliding carpet loading systems for installation in the
cargo area of commercial aircraft.
Sales and Markets
-----------------
With a strong base of controls/clean room technology and
software/services engineering, FT is able to provide systems with multiple
modular designs for a variety of customer applications. Today, more than
1,000 FT wafer production systems are in operation worldwide. Approximately
60% of the Company's business in 1996 is derived from wafer related products
and services. The remaining 40% is split between LCD and CD related systems,
products, and services. Major customers in the wafer product line are
Motorola, Samsung, Siemens, GEC Plessey, Texas Instruments, National
Semiconductor, Macronix, and Erso. Other major customers include Philips and
Litton for the LCD product line, Sonopress (Bertelsmann), and Krauss Maffei
for the CD product line and Hyundai, NEC and Canon for the photomask product
line.
Approximately 88.2% of the Industrial Products segment sales are
foreign.
Manufacturing and Production
----------------------------
FT has two manufacturing facilities consisting of Fairchild Technologies
GmbH, located in Vaihingen, Germany and Fairchild Technologies USA, Inc.
located in Fremont, California.
Competition
-----------
The wafer product line and the LCD product line competes with Tokyo
Electron, Dai Nippon Screen and the Silicon Valley Group. Competitors in the
CD product line consists of Robi Systems, Leybold and Marubeni. Competition
in the photomask product line is provided by Mitsubishi Toyo, Tasmo and Solid
State Equipment.
Communication Services
- ----------------------
On March 13, 1996, the Company's Fairchild Communications Services
Company was merged with STI. As a result of the Merger, the Company is
accounting for its investment in STFI using the equity method. Prior to
March 13, 1996, the Company consolidated the results of FCSC. The
Communications Services segment accounted for 18.2% of total Company sales
for the year ended June 30, 1996. All of the Communications Services segment
sales were domestic.
Foreign Operations
- ------------------
The Company's operations are located primarily in the United States and
Europe. Inter-area sales are not significant to the total revenue of any
geographic area. Export sales are made by U.S. subsidiaries and divisions to
customers in non-U.S. countries, whereas foreign sales are made by the
Company's non-U.S. subsidiaries. For the Company's sales results by
geographic area and export sales, see Note 23 of the Company's consolidated
financial statements included in Item 8, Financial Statements and
Supplementary Data.
Major Customers
- ---------------
No single customer accounted for more than 10% of consolidated sales in
any of the Company's business segments for the year ended June 30, 1996.
Backlog of Orders
- -----------------
Backlog is significant in the Company's Aerospace Fasteners segment,
Aerospace Distribution segment and Industrial Products segments, due to long-
term production requirements of its customers. The Company's backlog of
orders as of June 30, 1996 in the Aerospace Fasteners, Aerospace Distribution
segment and Industrial Products segments amounted to $109.9 million, $62.2
million, and $22.9 million, respectively. The Company anticipates that
approximately 86.8% of the aggregate backlog at June 30, 1996 will be
delivered by June 30, 1997.
Suppliers
- ---------
The Company does not consider itself to be materially dependent upon any
one supplier, but is dependent upon a wide range of subcontractors, vendors
and suppliers of materials to meet its commitments to its customers.
Research and Patents
- --------------------
The Company's research and development activities have included:
applied research; development of new products; testing and evaluation of, and
improvements to, existing products; improvements in manufacturing techniques
and processes; development of product innovations designed to meet government
safety and environmental requirements; and development of technical services
for manufacturing and marketing. The Company's sponsored research and
development expenditures amounted to $.1 million, $1.0 million and $1.4
million for the years ended June 30, 1996, 1995, and 1994, respectively. The
Company owns patents relating to the design and manufacture of certain of its
products and is a licensee of technology covered by the patents of other
companies. The Company does not believe that any of its business segments
are dependent upon any single patent.
Personnel
- ---------
As of June 30, 1996, the Company had approximately 2,800 employees.
Approximately 5% of these employees were covered by collective bargaining
agreements. The Company believes that its relations with its employees are
good.
Environmental Matters
- ---------------------
See discussion of Environmental Matters under Item 3 "Legal Proceedings"
below.
ITEM 2. PROPERTIES
- --------------------
As of June 30, 1996, the Company owned or leased properties totalling
approximately 1,525,000 square feet, approximately 791,000 square feet of
which was owned and 734,000 square feet was leased. The Aerospace Fasteners
segment's properties consisted of approximately 563,000 square feet, with
principal operating facilities of approximately 516,000 square feet
concentrated in Southern California and Germany. The Aerospace Distribution
segments properties consisted of approximately 703,000 square feet, with
principal operating facilities of approximately 473,000 square feet located
in California, Connecticut, Florida, Texas and Utah. The Industrial Products
segment's properties consisted of approximately 117,000 square feet, with
principal operating facilities of approximately 82,000 square feet located in
California and Germany.
The Company owns its corporate headquarters at Washington-Dulles
International Airport.
The Company has several parcels of property which it is attempting to
market, lease and/or develop, including: (i) a 68 acre parcel located in
Farmingdale, New York, (ii) a 6 acre parcel in Temple City, California, (iii)
an 8 acre parcel in Chatsworth, California, and (iv) several other parcels of
real estate primarily located throughout the continental United States.
The following table sets forth the location of the larger properties
used in the continuing operations of the Company, their square footage, the
business segment or groups they serve and their primary use. Each of the
properties owned or leased by the Company is, in management's opinion,
generally well maintained, is suitable to support the Company's business and
is adequate for the Company's present needs. All of the Company's occupied
properties are maintained and updated on a regular basis.
Owned or Square Business Segment/ Primary
Location Leased Footage Group Use
- -------- -------- ------- ----------------- -------
Torrance, California Owned 284,000 Aerospace Fasteners Manufacturing
Sun Valley, California Leased 143,000 Aerospace Distribution Distribution
City of Industry, California Owned 140,000 Aerospace Fasteners Manufacturing
Carrollton, Texas Leased 126,000 Aerospace Distribution Distribution
Chantilly, Virginia Owned 125,000 Corporate Office
West Valley City, Utah Owned 81,000 Aerospace Distribution Distribution
Ft. Lauderdale, Florida Leased 57,000 Aerospace Distribution Distribution
Santa Ana, California Owned 50,000 Aerospace Fasteners Manufacturing
Vailingem Germany Leased 49,000 Industrial Products Manufacturing
Kelkheim, Germany Leased 42,000 Aerospace Fasteners Manufacturing
El Segundo, California Leased 36,000 Aerospace Distribution Distribution
Fremont, California Leased 31,000 Industrial Products Manufacturing
Suffield, Connecticut Owned 30,000 Aerospace Distribtuion Distribution
Information concerning long-term rental obligations of the Company at
June 30, 1996, is set forth in Note 21 to the Company's consolidated
financial statements, included in Item 8, Financial Statements and
Supplementary Data.
ITEM 3. LEGAL PROCEEDINGS
- ---------------------------
CL Motor Freight ("CL") Litigation
- ----------------------------------
The Workers Compensation Bureau of the State of Ohio is seeking
reimbursement from the Company for up to $5,400,000 for CL workers
compensation claims which were insured under a self-insured program of CL.
The Company has contested a significant portion of this claim.
Government Claims
- -----------------
The Corporate Administrative Contracting Officer (the "ACO"), based upon
the advice of the United States Defense Contract Audit Agency, has made a
determination that FII did not comply with Federal Acquisition Regulations
and Cost Accounting Standards in accounting for (i) the 1985 reversion to FII
of certain assets of terminated defined benefit pension plans, and (ii)
pension costs upon the closing of segments of FII's business. The ACO has
directed FII to prepare cost impact proposals relating to such plan
terminations and segment closings and, following receipt of such cost impact
proposals, may seek adjustments to contract prices. The ACO alleges that
substantial amounts will be due if such adjustments are made. The Company
believes it has properly accounted for the asset reversions in accordance
with applicable accounting standards. The Company has held discussions with
the government to attempt to resolve these pension accounting issues.
Environmental Matters
- ---------------------
The Company and other aerospace fastener and industrial product
manufacturers are subject to stringent Federal, state and local environmental
laws and regulations concerning, among other things, the discharge of
materials into the environment and the generation, handling, storage,
transportation and disposal of waste and hazardous materials. To date, such
laws and regulations have not had a material effect on the financial
condition, results of operations, or net cash flows of the Company, although
the Company has expended, and can be expected to expend in the future,
significant amounts for investigation of environmental conditions and
installation of environmental control facilities, remediation of
environmental conditions and other similar matters, particularly in the
Aerospace Fasteners segment.
In connection with its plans to dispose of certain real estate, the
Company must investigate environmental conditions and may be required to take
certain corrective action prior or pursuant to any such disposition. In
addition, management has identified several areas of potential contamination
at or from other facilities owned, or previously owned, by the Company, that
may require the Company either to take corrective action or to contribute to
a clean-up. The Company is also a defendant in certain lawsuits and
proceedings seeking to require the Company to pay for investigation or
remediation of environmental matters and has been alleged to be a potentially
responsible party at various "Superfund" sites. Management of the Company
believes that it has recorded adequate reserves in its financial statements
to complete such investigation and take any necessary corrective actions or
make any necessary contributions. No amounts have been recorded as due from
third parties, including insurers, or set off against, any liability of the
Company, unless such parties are contractually obligated to contribute and
are not disputing such liability.
As of June 30, 1996, the consolidated total recorded liabilities of the
Company for environmental matters totalled $11.3 million, which represented
the estimated probable exposures for these matters. It is reasonably
possible that the Company's total exposure for these matters could be
approximately $19.1 million.
Other Matters
- -------------
The Company is involved in various other claims and lawsuits incidental
to its business, some of which involve substantial amounts. The Company,
either on its own or through its insurance carriers, is contesting these
matters.
In the opinion of management, the ultimate resolution of the legal
proceedings, including those discussed above, will not have a material
adverse effect on the financial condition, or future results of operations or
net cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
- --------------------------------------------------------
None.
PART II
-------
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
- ----------------------------------------------------------------------
MATTERS
-------
(a) Market Information
The Company's Class A Common Stock is traded on the New York Stock
Exchange and Pacific Stock Exchange under the symbol FA. The Company's Class
B Common Stock is not listed on any exchange and is not publicly traded.
Class B Common Stock can be converted to Class A Common Stock at any time.
Information regarding the quarterly price range of the Company's Class
A Common Stock is hereby incorporated by reference from Note 24 of the
Company's consolidated financial statements included in Item 8 Financial
Statements and Supplementary Data.
(b) Holders
The Company had approximately 1,425 and 68 record holders of its Class
A and Class B Common Stock, respectively, at August 30, 1996.
(c) Dividends
The Company suspended its regular dividend payments in Fiscal 1988. The
Company's present intention is to resume regular dividend payments when
deemed prudent by its Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
Five-Year Financial Summary
(In thousands, except per share data)
For the years ended June 30, 1996 1995 1994 1993 1992
- --------------------------- ---------- ---------- ---------- ---------- ----------
Summary of Operations:
Net sales........................ $ 500,810 $ 365,550 $ 277,646 $ 315,118 $ 357,542
Earnings (loss) from continuing
operations..................... 137,370 (47,914) (13,594) (54,930) (28,809)
Earnings (loss) per share from
continuing operations:
Primary...................... 8.28 (2.97) .84 (3.41) (1.77)
Fully diluted................ 8.03 (2.97) .84 (3.41) (1.77)
Cash dividends per common share:
Class A........................ -- -- -- -- .20
Class B........................ -- -- -- -- .10
Balance Sheet Data:
Total assets..................... $1,009,938 $ 850,294 $ 866,621 $ 941,675 $ 986,203
Long-term debt, less current
maturities..................... 368,589 509,715 522,406 566,491 533,820
Redeemable preferred stock of
subsidiary..................... -- 16,342 17,552 17,732 42,858
Stockholders' equity............. 231,168 40,180 69,494 53,754 111,808
per outstanding common share... 14.10 2.50 4.32 3.34 6.85
Fiscal 1996 includes (i) the non-recurring gain resulting from the
merger of Fairchild Communications Services Company into Shared Technologies
Inc., (ii) the gain on disposal of discontinued operations, primarily
resulting from the sale of the D-M-E Company, and (iii) the results of Banner
Aerospace, Inc. which have been consolidated since Banner became a majority-
owned subsidiary on February 25, 1996. Prior to February 25, 1996, the
Company's investment in Banner was accounted for using the equity method.
Fiscal 1994 includes the gain on the sale of Rexnord Corporation stock.
These transactions materially affect the comparability of the information
reflected in the selected financial data.
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
- ------------------------------------------------------------------------
FINANCIAL CONDITION
-------------------
The Fairchild Corporation (the "Company") was incorporated in October,
1969, under the laws of the State of Delaware. On November, 15, 1990, the
Company changed its name from Banner Industries, Inc. to The Fairchild
Corporation. RHI Holdings, Inc. ("RHI") is a direct subsidiary of the
Company. RHI is the 100% owner of Fairchild Holding Corporation ("FHC") and
the majority owner of Banner Aerospace, Inc. ("Banner"). The Company's
principal operations are conducted through RHI and FHC. The Company also
holds significant equity interests in Shared Technologies Fairchild, Inc.
("STFI") and Nacanco Paketleme ("Nacanco").
RECENT DEVELOPMENTS
The Company, RHI and Fairchild Industries, Inc. ("FII," the company's
former subsidiary), entered into an Agreement and Plan of Merger dated as of
November 9, 1995 (as amended, the "Merger Agreement") with Shared
Technologies Inc. ("STI"). On March 13, 1996, in accordance with the Merger
Agreement, STI succeeded to the telecommunications systems and services
business operated by the Company's Fairchild Communications Services Company
("FCSC").
The transaction was effected by a Merger of FII with and into STI (the
"Merger") with the surviving company renamed STFI. Prior to the Merger, FII
transferred all of its assets to, and all of its liabilities were assumed by
FHC, except for the assets and liabilities of FCSC, and $223.5 million of the
FII's existing debt and preferred stock consisting of (i) the $40.0 million
liquidation value of the outstanding Series A and Series C Preferred Stock of
FII, (ii) the $125.0 million principal amount outstanding of FII 12 1/4%
Senior Notes due 1999 (the "Senior Notes"), and (iii) an amount of bank and
other indebtedness of approximately $58.5 million (the "Assumed
Indebtedness"). The stock of FHC was then distributed to RHI. No taxabale
gain or loss was recognized, in the Company's view, on the transfer of the
FII assets and liabilities to FHC, and the distribution of FHC stock to RHI.
As part of the Merger Agreement, FII made a cash tender offer to purchase all
of the outstanding Senior Notes and obtained such holders consent to amend
the indenture under which the Senior Notes were issued to remove all
covenants which could be amended or deleted by majority vote (the "Tender
Offer"). Pursuant to the Merger, an amount sufficient to redeem the Series
A and Series C Preferred Stock at their liquidation value ($45.00 per share
plus accrued and unpaid dividends) was placed with Chemical Mellon
Shareholder Services as Escrow Agent. Also as part of the Merger, STFI (i)
purchased the $125.0 million aggregate principal amount of Senior Notes
tendered pursuant to the Tender Offer and (ii) repaid in full the Assumed
Indebtedness.
As a result of the Merger, the Company received (i) 6,000,000 shares of
Common Stock of STFI (representing approximately 41% of the outstanding
shares after giving effect to such issuance), (ii) shares of 6% Cumulative
Convertible Preferred Stock of STFI having an aggregate liquidation
preference of $25.0 million (subject to upward adjustment) and which are
convertible into Common Stock of STFI at a conversion price of $6.375 per
share (which, if converted, would represent, together with the other Common
Stock issued to the Company, approximately 42% of the Common Stock of STFI on
a fully diluted basis), and (iii) shares of a Special Preferred Stock having
an initial liquidation preference of $20.0 million (which could accrue up to
a maximum of $30.0 million over a ten-year period, if not redeemed earlier).
In connection with its stock ownership, the Company has the right to elect
four of the eleven members of the Board of Directors of STFI and have agreed,
subject to certain exceptions, not to sell any of STFI's shares for a two-
year period.
The Merger was structured as a reorganization under section 368(a)(1)(A)
of the Internal Revenue Code of 1986, as amended. In Fiscal 1996, the
Company recorded a $163.1 million non-recurring gain from this transaction.
On February 22, 1996, pursuant to the Asset Purchase Agreement dated
January 26, 1996 (the "closing date"), the Company, through its subsidiaries,
completed the sale of certain assets, liabilities and the business of the
D-M-E Company ("DME") to Cincinnati Milacron Inc. ("CMI") for a sales price
of approximately $244.3 million, as adjusted. The sales price consists of
$74.0 million in cash, and two 8% promissory notes in the aggregate principal
amount of $170.3 million (together, the "8% CMI Notes"). The promissory
notes were due to mature one year following the closing date; provided that
the Company had the right to require prepayment of, and CMI had the right to
prepay the 8% CMI Notes after the six-month anniversary of the closing date.
On July 29, 1996, CMI paid in full the 8% CMI Notes.
As a result of the sale of DME, the Company recorded an after-tax gain
on disposal of discontinued operations of approximately $54.0 million in
Fiscal 1996.
On January 27, 1996, FII completed the sale of Fairchild Data
Corporation ("Data") to SSE Telecom, Inc. ("SSE") for book value of
approximately $4.4 million and 100,000 shares of SSE's common stock valued at
$9.0625 per share, or $.9 million, at January 26, 1996, and warrants to
purchase an additional 50,000 shares of SSE's common stock at $11.09 per
share. In addition, the Company has an opportunity to earn an additional
100,000 shares based on the future performance of SSE during the twelve
months following the date of sale. There was no material gain or loss from
this transaction.
DME and Data have been accounted for as discontinued operations and the
prior periods financial statements have been restated to reflect the
discontinuance of these companies. The combined net sales of DME and Data
totaled $108.1 million (through January 26, 1996), $180.8 million and $166.5
million for Fiscal 1996, 1995 and 1994, respectively. Net earnings from
discontinued operations was $9.2 million (through January 26, 1996), $14.0
million and $4.9 million for Fiscal 1996, 1995 and 1994, respectively.
Effective February 25, 1996, the Company completed a transfer of Harco
to Banner in exchange for 5,386,477 shares of Banner common stock. The
exchange has increased the Company's ownership of Banner common stock from
approximately 47.2% to 59.3%, resulting in the Company becoming the majority
shareholder of Banner. Accordingly, the Company consolidated Banner on
February 25, 1996. Banner is a leading international supplier to the
aerospace industry as a distributor, providing a wide range of aircraft parts
and related support services. Harco is a distributor of precision fasteners
to the aerospace industry.
RESULTS OF OPERATIONS
During Fiscal 1996, the Company operated in four principal business
segments: Aerospace Fasteners, Aerospace Distribution, Industrial Products
and Communications Services. The following table illustrates the historical
sales and operating income of the Company's continuing operations for the
past three years.
For the years ended June 30,
(In thousands) --------------------------------
1996 1995 1994
Sales by Business Segment: -------- -------- --------
Aerospace Fasteners............... $218,059 $215,364 $203,456
Aerospace Distribution (c)........ 129,973 -- --
Industrial Products............... 67,330 41,476 --
Communications Services........... 91,290 108,710 74,190
Eliminations (a).................. (5,842) -- --
------- ------- -------
Total $500,810 $365,550 $277,646
======= ======= =======
Operating Income (Loss) by
Business Segment:
Aerospace Fasteners (b)........... $ 135 $(11,497) $(32,208)
Aerospace Distribution (c)........ 5,625 -- --
Industrial Products............... 826 (5,089) --
Communications Services........... 14,561 18,498 16,483
------- ------- -------
Total 21,147 1,912 (15,725)
Corporate administrative expense.. (14,506) (13,179) (16,868)
Other corporate (expense) income.. (1,196) (2,152) 2,231
------- ------- -------
Operating income (loss)............. $ 5,445 $(13,419) $(30,362)
======= ======= =======
(a) Intersegment eliminations includes $5,819 of sales from the Aerospace
Fasteners segment to the Aerospace Distribution segment and $23 of sales from
the Aerospace Distribution segment to the Aerospace Fasteners segment in
Fiscal 1996.
(b) Includes restructuring charges of $2.3 million and $18.9 million in
Fiscal 1996 and Fiscal 1994, respectively, and an unusual loss from
earthquake damage and related business interruption of $4.0 million in Fiscal
1994.
(c) The Company became the majority shareholder of Banner Aerospace, Inc. on
February 25, 1996 and, accordingly, began consolidating their results as of
then.
FISCAL 1996 VERSUS FISCAL 1995
General
- -------
Overall sales increased by 37.0% in Fiscal 1996, compared to sales in
Fiscal 1995, which reflected strong sales performances from the Aerospace
Fasteners, Aerospace Distribution and Industrial Products business segments.
Operating income increased $18.9 million in Fiscal 1996, compared to
operating losses in Fiscal 1995. During Fiscal 1996, operating losses
decreased significantly in the Aerospace Fasteners segment, primarily due to
the cost of management changes, consolidation of plants, eliminating
unprofitable product lines, pricing adjustments, substantial work force
downsizing and new productivity programs, quality and marketing programs put
in place. Operating income in the current year was up in the Industrial
Products segment. The Communications Services segment contributed operating
income of $14.6 million through March 13, 1996 when it was deconsolidated and
merged with STFI. (See discussion below).
Aerospace Fasteners
- -------------------
Sales in the Aerospace Fasteners segment increased 1.3% in Fiscal 1996,
compared to the Fiscal 1995 period, reflecting moderate growth in this
industry. New orders have been strong in recent months. The Harco division
was transferred to the Aerospace Distribution segment on February 25, 1996.
Excluding Harco's sales in both periods, sales increased 3.6% in Fiscal 1996.
Operating income was positive in the Aerospace Fasteners segment, which
was a $11.6 million improvement in the Fiscal 1996 period over the
corresponding Fiscal 1995 period. Management will continue to implement
productivity improvements and reduce costs. A restructuring charge of $2.3
million was recorded in Fiscal 1996, primarily for severance pay to employees
terminated as a result of further downsizing.
Aerospace Distribution
- ----------------------
As a result of the transfer of Harco to Banner effective February 25,
1996, the Company recorded four months of sales and operating income of
Banner, including Harco, for four months, as part of the Aerospace
Distribution segment. This segment reported $130.0 million in sales and $5.6
million in operating income for this four month period ended June 30, 1996.
The first eight months of Harco's sales and operating income are included in
the Aerospace Fasteners Segment.
Industrial Products
- -------------------
Sales in the Industrial Products segment, which included two start up
operations in Fiscal 1995, increased 62.3% in Fiscal 1996, compared to the
Fiscal 1995 period. $24.3 million of the sales increase is attributable to
the performance of Fairchild Technologies which includes Fairchild Convac, a
semiconductor equipment manufacturer which had a strong Fiscal 1996
performance resulting from the shipment of orders included in the prior year
end backlog. This was compared to a very slow Fiscal 1995, which was the
first period following the acquisition of Fairchild Convac. Also included in
this segment is the Gas Spring division, which reported sales of $4.8 million
in Fiscal 1996, and the Fairchild Scandinavian Bellyloading Company "SBC"
which reported sales of $2.2 million.
Operating income in the Industrial Products segment became positive in
Fiscal 1996 and increased $5.9 million in Fiscal 1996, compared to Fiscal
1995. $3.8 million of this net increase was contributed by Fairchild
Technologies, primarily the result of its increase in sales and $2.5 million
by the Gas Spring start-up which decreased its losses to breakeven.
Communications Services
- -----------------------
Sales of $91.3 million were reported for the Communications Services
segment in Fiscal 1996 for 8 1/2 months compared to a full 12 months of
operating results in Fiscal 1995 as a result of the March 13, 1996 merger of
the Communications Services segment with STI. Operating income of $14.6
million was reported for the Communications Services segment in Fiscal 1996
for 8 1/2 months prior to the Merger.
Other Expenses/Income
- ---------------------
Corporate Administrative Expense - During Fiscal 1996, corporate
administrative expense increased 10.1%. This increase resulted from
additional corporate expenses required to complete the Merger and sale of
discontinued operations. The Fiscal 1995 expense was lower partially due to
the reversal of several accruals not required.
Other corporate expense decreased $1.0 million in Fiscal 1996, compared
to Fiscal 1995, primarily due to a favorable settlement of a bankruptcy case.
Net interest expense decreased 12.8% in Fiscal 1996, compared to the
prior year period, due primarily to lower borrowings as a result of the sale
of DME and the Merger, and higher interest income earned on the 8% CMI Notes.
Investment income, net, decreased by 19.9%, primarily as a result of
losses realized on the write-off of two foreign investments.
Equity in earnings of affiliates increased $3.3 million in Fiscal 1996,
compared to Fiscal 1995. Earnings from Nacanco, in which the Company holds
a 31.9% interest, increased $2.6 million for the year, primarily due to a
25.2% increase in net sales in the current year.
Minority interest expense includes dividend expense on FII's Series C
Preferred Stock until it was redeemed on March 13, 1996, and approximately
40.7% of Banner's earnings since the consolidation of Banner on February 25,
1996.
Non-Recurring income includes a $163.1 million nontaxable gain resulting
from the Merger. Expenses related to other transactions are netted against
the above gain.
Income Taxes - For Fiscal 1996, the tax benefit from the continuing
operations loss, excluding the nontaxable non-recurring gain, was $22.1
million.
Earnings from discontinued operations, net, include the earnings, net of
tax from DME and Data for all periods presented.
Gain (loss) on disposal of discontinued operations resulted primarily
from the sale of DME to CMI.
Extraordinary items, net, resulted from premiums paid, redemption costs
and consent fees associated with the retirement of the Senior Notes and the
write off of deferred loan fees, primarily related to Senior Notes and bank
debt extinguished early. This totaled $10.4 million, net of a tax benefit,
in Fiscal 1996.
The net earnings increased $223.5 million in Fiscal 1996, compared to
Fiscal 1995, primarily due to: (i) the $18.9 million increase in operating
income, (ii) the $163.1 million non-recurring pre-tax gain recorded from the
Merger, and (iii) the $53.6 million gain, net of tax, from the disposal of
discontinued operations. Partially offsetting these increases was a $10.4
million extraordinary loss from the early extinguishment of debt.
FISCAL 1995 VERSUS FISCAL 1994
General
- -------
Overall sales increased by 31.7% in Fiscal 1995, compared to sales in
Fiscal 1994, which reflected stronger sales performances from all three
business segments.
Operating income increased $16.9 million in Fiscal 1995, compared to
operating losses in Fiscal 1994. During Fiscal 1995, operating losses
decreased significantly in the Aerospace Fasteners segment, primarily due to
the Fiscal 1994 period having included a restructuring charge of $18.9
million and a $4.0 million charge for earthquake damage and related business
interruption. Operating income in Fiscal 1995 was up 12.2% in the
Communications Services segment. (See discussion below).
Aerospace Fasteners
- -------------------
Sales in the Aerospace Fasteners segment increased 5.9% in Fiscal 1995,
compared to the Fiscal 1994 period, primarily resulting from aggressive
management efforts during Fiscal 1995 to reduce backlog caused by quality
problems and earthquake disruption, which have diminished.
Operating losses in the Aerospace Fasteners segment decreased $20.7
million for the Fiscal 1995 period, over the corresponding Fiscal 1994
period; however, this segment continued to be affected by soft demand and
severe price erosion and higher quality control costs resulting from
customers' requirements. The Fiscal 1995 loss resulted primarily from excess
costs incurred to reduce the past due sales backlog, which included many
orders of small quantities at low profit margins. Certain products have
yielded negative margins due to labor inefficiencies and low prices.
Management has taken steps to cancel any such orders remaining in the backlog
unless improved pricing can be negotiated. Significant provisions for excess
and slow moving inventories were also recorded in Fiscal 1995, contributing
to the operating loss. Management will continue to reduce the capacity of
the Aerospace Fasteners segment as necessary to bring the breakeven point in
line with demand. These actions may result in further restructuring charges
in the future. A restructuring charge of $18.9 million was recorded in the
prior year for nonrecurring costs related to exiting certain aircraft engine
bolt lines, and an unusual loss of $4.0 million was recorded in the prior
year for earthquake damage (see below).
In January of 1994, the Company's Chatsworth, California Aerospace
Fasteners manufacturing facility suffered extensive damage from the Southern
California Earthquake. This disruption caused increased costs and reduced
revenues in Fiscal 1994 and has negatively affected Fiscal 1995 as well. In
June of 1995, the Company reached final settlement of its insurance claim and
recovered a total of $17.0 million for property damages and business
interruption.
Industrial Products
- -------------------
Included in the Industrial Products segment were sales from Fairchild
Technologies (which evolved from Convac GmbH, a semiconductor equipment
manufacturing company acquired at the end of Fiscal 1994), FSB, another small
acquisition, made early in Fiscal 1995 and the Gas Spring Division, a Fiscal
1995 start-up company. The combined sales of these companies was $41.5
million in the Fiscal 1995 period.
Operating losses were incurred from operations which incurred
significant organization and start-up costs.
Communications Services
- -----------------------
Sales in the Communications Services segment increased 46.5% in Fiscal
1995, compared to Fiscal 1994, primarily due to the inclusion of sales from
the acquisition of specified assets of JWP Telecom, Inc., ("JWP") made during
the Fiscal 1995 second quarter, as well as sales to new customers, the
addition of telecommunications franchises in new office buildings, and growth
at existing sites.
Operating income in the Communications Services segment increased 12.2%
in Fiscal 1995, compared to Fiscal 1994, primarily due to increased sales
resulting from the reasons given above and related economies of scale.
Operating income as a percent of sales was 17.0% in Fiscal 1995. This lower
return was anticipated as a result of the JWP acquisition, which has lower
gross margins due to the nature of the business.
Other Expenses/Income
- ---------------------
Corporate Administrative Expense - During Fiscal 1995, corporate
administrative expense decreased 21.9%. This decline resulted primarily from
cost controls, including a reduction in work force and wage and salary caps
that were in effect for most corporate employees, and sale of the Company
airplane during Fiscal 1994.
Other Corporate Income - Other corporate income decreased $4.4 million
in Fiscal 1995, compared to Fiscal 1994, primarily due to increased carrying
costs and losses reported on net assets held for sale. In addition, start up
costs related to a corporate sponsored joint venture are included in this
category. Gain on sale of a trademark was recognized in the prior year
period.
Net Interest Expense - Net interest expense decreased 2.8% in Fiscal
1995, compared to the prior year period, due primarily to lower borrowings
and increased interest income earned on higher balances of cash and cash
equivalents during the Fiscal 1995 period.
Investment income, net - Investment Income decreased by 7.5%, primarily
as a result of higher dividends realized on participating annuity contracts
in the prior year period.
Equity in earnings of affiliates increased $3.0 million in Fiscal 1995,
compared to Fiscal 1994. Earnings from Nacanco, in which the Company holds
a 31.9% interest, were down $2.6 million for the year, primarily due to a
large tax adjustment taken during the current year. The Fiscal 1994 period
included a $5.7 million loss from Banner Aerospace which included losses on
discontinued operations and restructuring charges.
Minority interest expense includes dividend expense on FII's Series C
Preferred Stock.
Non-Recurring Income - Non-recurring income in the Fiscal 1994 period
includes the net pre-tax gain of $129.1 million on the Company's 43.9% stock
interest in Rexnord Corporation, which was sold to BTR Dunlop Holdings, Inc.
on December 23, 1993.
Income Taxes - For Fiscal 1995, the Company recorded a tax benefit of
$28.2 million at a 37.1% effective tax rate.
Earnings from discontinued operations, net, include the earnings from
DME and Data, net of tax for all periods presented.
Accounting Changes:
- -------------------
1) Postretirement Benefits - Using the immediate recognition method, the
Fiscal 1994 after-tax benefit to earnings for the cumulative effect of this
accounting change was $4.3 million, which represented the unamortized portion
of an overstated liability for discontinued operations, partially offset by
the transition obligation for active employees and retirees of continuing
operations. Included in Fiscal 1994 earnings from discontinued operations is
a net charge of $4.8 million, which represents the portion allocated to DME
and Data for the implementation of SFAS 106. In addition, in Fiscal 1994, a
$7.5 million charge, net of the Company's related tax benefit, was recorded
for the Company's share of Rexnord Corporation's cumulative charge resulting
from this change in accounting.
2) Accounting for Income Taxes - The Company elected the immediate
recognition method and recorded, in Fiscal 1994, a $2.0 million benefit,
representing the cumulative effect on prior years. Included in Fiscal 1994
earnings from discontinued operations, is a net charge of $4.4 million
representing DME's share of the SFAS 109 implementation, resulting from
deferred taxes related primarily to fixed assets, prepaid pension expenses,
and inventory differences. In addition, a $.5 million charge was recorded
for the Company's share of Rexnord Corporation's ("Rexnord") cumulative
charge resulting from this change in accounting.
Net Earnings (Loss) - The net earnings (loss) decreased $49.6 million in
Fiscal 1995, compared to the Fiscal 1994 period, primarily due to the $129.1
million net pre-tax gain on the sale of the Company's interest in Rexnord
recognized in the Fiscal 1994 period. Offsetting the decrease were: (1) the
$16.9 million increase in operating income and the $3.0 million increase in
equity earnings in Fiscal 1995, (2) the $2.0 million decrease in net interest
expense, (3) the $1.7 million charge, net of tax, for the cumulative effect
of accounting changes, which was recorded in Fiscal 1994, and (4) a decrease
in taxes of $45.9 million.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1996, was $352.9 million, which was $240.3
million higher than at June 30, 1995. The principal reasons for this
increase included a $170.4 million receivable reflecting the 8% CMI Notes. In
addition, due primarily to the consolidation of Banner and the
deconsolidation of FCSC, there was a net increase in accounts receivable of
$33.2 million, and increase in inventory of $192.9 million (the FCSC
business, a telecommunication services business had virtually no inventory).
Offsetting this increase in working capital were net increases in accounts
payable and accrued liabilities of $30.4 million reflecting the
reconsolidation of Banner and the deconsolidation of FCSC. The Company's
current bank debt borrowings increased $43.9 million reflecting the current
debt on the new interim credit agreement at FHC discussed below. Net current
assets of discontinued operations decreased $34.6 million reflecting the sale
of DME and Data.
The Company's principal sources of liquidity are cash generated from
operations and borrowings under its credit agreement. The Company also
expects to generate cash from the sale of certain assets and liquidation of
investments. Net assets held for sale at June 30, 1996, had a book value of
$45.4 million and included two parcels of real estate in California, a 68
acre parcel of real estate located in Farmingdale, New York, two landfills in
Pennsylvania, a real estate joint venture in California, and several other
parcels elsewhere, which the Company plans to sell, lease or develop, subject
to market conditions or, with respect to certain of the parcels, the
resolution of environmental matters. Net assets held for sale decreased $6.2
million primarily resulting from the sale of 20 acres of a larger parcel of
real estate, owned by the Company, in Farmingdale, New York. The proceeds
were applied against the carrying value of this property.
The Company's principal cash requirements include debt service, capital
expenditures, acquisitions, and payment of other liabilities.
Property, plant and equipment ("PP&E") decreased $45.0 million from June
30, 1995, as a result of deconsolidating FCSC and consolidating Banner. At
March 13, 1996 FCSC had PP&E of $51.1 million which was deconsolidated, and
Banner had $12.9 million which was consolidated.
Investments and advances in affiliated companies decreased $15.9
million. Changes in investments and advances in affiliates included a $54.0
million decrease resulting from the consolidation of Banner, offset partially
by recording a $29.0 million investment from the Merger, in which the Company
retained a 41% interest in STFI, and recording equity earnings of $4.9
million (primarily Nacanco) during the year.
Other liabilities that require the use of cash include post-employment
benefits for retirees, environmental investigation and remediation
obligations, litigation settlements and related costs.
The Company maintains credit agreements (the "Credit Agreements") with
a consortium of banks, which provides revolving credit facilities to RHI, FHC
and Banner and term loans to FHC and Banner (collectively the "Credit
Facilities").
On March 13, 1996, in connection with the Merger, the Company replaced
the credit agreement of its former subsidiary, VSI Corporation, (the "Prior
Credit Agreement") with an interim credit agreement (the "Interim Credit
Agreement") at FHC. The Interim Credit Agreement provided FHC with a $50.0
million revolving credit facility and a $30.0 million term loan, both of
which generally had an interest rate of 1/2% over the prime rate, or 1 1/2%
over the London Interbank Offered Rate ("LIBOR")and required a commitment fee
of 1/2% on the unused portion of the revolving credit facility. The Prior
Credit Agreement generally bore interest at 2 3/4% to 3 3/4% over LIBOR and
required a commitment fee of 1%.
The Interim Credit Agreement required compliance with certain financial
loan covenants, including achieving a minimum of cumulative earnings before
interest, taxes, depreciation and amortization ("EBITDA Covenant") at March
31, 1996, and maintaining a certain interest ratio coverage at specified
periods. Additionally, the Interim Credit Agreement restricted FHC's capital
expenditures during the term of the Interim Credit Agreement to $6.0 million,
in the aggregate. The Company was in compliance with these covenants
throughout the life of the Interim Credit Agreement.
The Interim Credit Agreement matured on July 29, 1996, at which time the
Company repaid in full the loans made under the Interim Credit Agreement. On
July 26, 1996, the Company amended and restated the terms and provisions of
the Interim Credit Agreement in their entirety (the "Restated Credit
Agreement"). The Restated Credit Agreement extends to July 28, 2000, the
maturity of FHC's revolving credit termination date, and provides FHC with a
revolving credit facility (the "FHC Revolver") that has a borrowing base of
up to $52.0 million. The borrowing base is determined monthly based upon
specified percentages of FHC's accounts receivable, inventories and the
appraised value of equipment and real property. The FHC Revolver consists
of up to $40.0 million available for domestic operations and $12.0 million
available for European operations. The FHC Revolver generally bears
interest at a base rate of 1 1/2% over the greater of (i) Citibank New York's
base rate, or (ii) the Federal Funds Rate plus 1/2% for domestic borrowings
and at 2 1/2% over Citibank London's base rate for foreign borrowings. FHC's
Revolver is subject to a non-use commitment fee of 1/2% on the average unused
availability; and outstanding letters of credit are subject to fees of 2 3/4%
per annum.
The Restated Credit Agreement requires FHC to comply with certain
financial loan covenants, including maintaining a minimum net worth of $150.0
million and maintaining certain interest and fixed charge coverage ratios at
the end of each Fiscal Quarter. Additionally, the Restated Credit Agreement
restricts the FHC's annual capital expenditures to $12.0 million.
Substantially all of FHC's assets are pledged as collateral under the
Restated Credit Agreement.
FHC may transfer available cash as dividends to the Company.
The Credit Agreements provide RHI with a $4.3 million revolving credit
facility (the "RHI Credit Agreement") which generally bears a base interest
of 1/2% over the prime rate, requires a commitment fee of 1/2%, and matures
on May 26, 1998. RHI's Credit Agreement requires RHI to comply with
specified covenants and maintain a consolidated net worth of $175.0 million.
Additionally, RHI's capital expenditures are restricted, except for certain
leasehold improvements, to $2.0 million per annum plus the selling price of
fixed assets for such Fiscal Year. At June 30, 1996, the Company was in
compliance with all the covenants under RHI's Credit Agreement.
Banner has a credit agreement (the "Banner Credit Agreement") which
provides Banner and its subsidiaries with funds for working capital and
potential acquisitions. On June 30, 1996, The Banner Credit Agreement
consisted of a $55.0 million term loan and a $71.5 million revolving credit
facility, both of which initially bear interest at prime plus 1 1/4% or LIBOR
plus 2 1/2%. Interest rates on Banner's borrowings whether computed at the
prime rate or LIBOR may increase by 1/4% or decrease by up to 1% based upon
certain performance criteria. On June 30, 1995, Banner's performance level
resulted in borrowings under the Banner Credit Agreement being at the
initial interest rates for the quarter ending September 30, 1996. The Banner
Credit Agreement was amended on July 1, 1996, to provide additional financing
with a $30.0 million seven-year term loan ("Tranche B Loan") and requires
that loans made to Banner do not exceed a defined borrowing base, which is
based upon a percentage of inventories and accounts receivable. The Tranche
B Loan bears interest at Prime plus 1 3/4% or LIBOR plus 3%. Banner's term
loans require certain semiannual loan payments. Banner's revolving credit
facility is subject to a non-use fee of 1/2% of the unused availability.
Substantially all of Banner's assets are pledged as collateral under the
Banner Credit Agreement. The Banner Credit Agreement matures August 2001.
The Banner Credit Agreement requires quarterly compliance with various
financial and non-financial loan covenants, including maintaining a minimum
net worth, and minimum ratios of interest coverage, fixed charge coverage,
and debt to earnings before interest, taxes, depreciation and amortization.
Banner also has certain limitations on the incurrence of additional debt. As
of June 30, 1996, Banner was in compliance with all covenants under the
Banner Credit Agreement.
Banner has several interest rate hedge agreements ("Hedge Agreements")
to manage its exposure to increases in interest rates on its variable rate
debt. The Hedge Agreements provide interest rate protection on $60.0 million
of debt through September 2000, by providing a cap of 7% if the 90-day LIBOR
rate exceeds 7%. If the 90-day LIBOR rate drops below 5%, Banner will be
required to pay a floor rate of approximately 6%.
IMPACT OF FUTURE ACCOUNTING CHANGES
Accounting For The Impairment Of Long-Lived Assets
- --------------------------------------------------
And For Long-Lived Assets To Be Disposed Of
- -------------------------------------------
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 ("SFAS 121") "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
SFAS 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those
assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS 121 is required to be
implemented by the Company on, or before, July 1, 1996. The Company's
present policy is identical to the policy prescribed by SFAS 121; therefore
there will be no effect from implementation.
In October 1995, FASB issued Statement of Financial Accounting Standards
No. 123 ("SFAS 123"), Accounting for Stock-Based Compensation. SFAS 123
establishes financial accounting standards for stock-based employee
compensation plans and to transactions in which an entity issues equity
instruments to acquire goods or services from non-employees. As permitted by
SFAS 123, the Company plans to continue to use the intrinsic value based
method of accounting prescribed by APB Opinion No. 25 for its stock-based
employee compensation plans. The Company is required to adopt SFAS 123 and
will make all the necessary fair market disclosures for Fiscal 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The following consolidated financial statements of the Company and the
report of the Company's independent public accountants with respect thereto,
are set forth below.
Page
----
Consolidated Balance Sheets as of June 30, 1996 and 1995...... 35
Consolidated Statements of Earnings - The Three Years Ended
June 30, 1996, 1995, and 1994................................. 37
Consolidated Statements of Stockholders' Equity - The Three
Years Ended June 30, 1996, 1995, and 1994..................... 39
Consolidated Statements of Cash Flows - The Three Years
Ended June 30, 1996, 1995, and 1994........................... 40
Notes to Consolidated Financial Statements.................... 42
Report of Independent Public Accountants...................... 77
Supplementary data regarding "Quarterly Financial Information
(Unaudited)" is set fourth under Item 8 in Note 24 to Consolidated Financial
Statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, June 30,
ASSETS 1996 1995
- ------ -------- --------
Current Assets:
Cash and cash equivalents..................... $ 39,649 $ 71,182
(of which $8,224 and $5,968 is restricted)
Short-term investments........................ 10,498 4,116
Accounts receivable-trade, less allowances
of $6,327 and $3,971........................ 98,694 65,446
Notes Receivable.............................. 170,384 --
Inventories:
Finished goods............................. 236,263 38,783
Work-in-process............................ 16,294 19,950
Raw materials.............................. 18,586 19,531
--------- ---------
271,143 78,264
Prepaid expenses and other current assets..... 19,275 16,751
Net current assets of discontinued operations. -- 34,626
--------- ---------
Total Current Assets.......................... 609,643 270,385
Property, plant and equipment, net............ 87,956 132,940
Net assets held for sale...................... 45,405 51,573
Net noncurrent assets of discontinued
operations.................................. -- 88,209
Cost in excess of net assets acquired,
(Goodwill) less accumulated amortization of
$31,912 and $26,120.......................... 140,201 154,295
Investments and advances, affiliated companies 53,471 69,398
Deferred loan costs........................... 7,825 12,013
Prepaid pension assets........................ 57,660 59,567
Long-term investments......................... 585 838
Notes receivable and other assets............. 7,192 11,076
--------- ---------
$1,009,938 $ 850,294
========= =========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
The FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
- ------------------------------------ -------- --------
Current Liabilities:
Bank notes payable and current maturities
of long-term debt........................... $ 84,892 $ 40,989
Accounts payable............................. 65,478 38,299
Accrued liabilities:
Salaries, wages and commissions........... 17,367 11,333
Employee benefit plan costs............... 6,511 1,193
Insurance................................. 16,340 16,562
Interest.................................. 10,748 16,309
Other..................................... 30,791 33,106
--------- ---------
81,757 78,503
Income taxes................................. 24,635 --
--------- ---------
Total Current Liabilities.................... 256,762 157,791
Long-term debt............................... 368,589 509,715
Other long-term liabilities.................. 18,605 19,435
Retiree health care liabilities.............. 44,452 44,710
Noncurrent income taxes...................... 31,737 38,004
Minority interest in subsidiaries............ 58,625 24,117
Redeemable preferred stock of subsidiary..... -- 16,342
------- -------
Total liabilities............................ 778,770 810,114
Stockholders' Equity:
Class A common stock, 10 cents par value;
authorized 40,000,000 shares, 19,997,756,
(19,647,705 in 1995)shares issued, and
13,756,160 (13,406,109 in 1995) shares
outstanding................................ 2,000 1,965
Class B common stock, 10 cents par value;
authorized 20,000,000 shares, 2,633,704
shares issued and outstanding (2,696,886 in
1995)...................................... 263 270
Paid-in capital.............................. 69,366 67,011
Retained earnings............................ 208,618 18,912
Cumulative translation adjustment............ 2,760 3,861
Net unrealized holding loss on available-for-
sale securities............................ (120) (120)
Treasury Stock, at cost, 6,241,596 shares of
Class A common stock....................... (51,719) (51,719)
--------- ---------
Total Stockholders' Equity................... 231,168 40,180
--------- ---------
Total Liabilities and Stockholders' Equity... $1,009,938 $ 850,294
========= =========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
For the Years Ended June 30,
--------------------------------
1996 1995 1994
-------- -------- --------
Revenue:
Net sales of product.................. $445,990 $287,817 $203,456
Revenues from services................ 54,820 77,733 74,190
Other income.......................... 635 1,169 5,966
------- ------- -------
501,445 366,719 283,612
Costs and Expenses:
Cost of goods sold.................... 344,914 245,094 175,041
Cost of services...................... 39,005 54,753 52,324
Selling, general & administrative..... 104,981 74,797 55,226
Research and development.............. 94 974 1,435
Amortization of goodwill.............. 4,687 4,520 4,395
Restructuring......................... 2,319 -- 18,860
Unusual items......................... -- -- 6,693
------- ------- -------
496,000 380,138 313,974
Operating income (loss)................. 5,445 (13,419) (30,362)
Interest expense........................ 67,112 71,087 73,057
Interest income......................... (8,072) (3,371) (3,381)
------- ------- -------
Net interest expense.................... 59,040 67,716 69,676
Investment income, net.................. 4,575 5,705 6,165
Equity in earnings (loss) of affiliates. 4,871 1,607 (1,423)
Minority interest....................... (1,952) (2,293) (2,500)
Non-recurring income.................... 161,406 -- 129,082
------- ------- -------
Earnings (loss) from continuing
operations before taxes............... 115,305 (76,116) 31,286
Income tax (benefit) provision.......... (22,065) (28,202) 17,692
------- ------- -------
Earnings (loss) from continuing
operations............................ 137,370 (47,914) 13,594
Earnings from discontinued operations,
net................................... 9,186 13,994 4,942
Gain (loss) on disposal of discontinued
operations, net....................... 53,586 (259) (368)
------- ------- -------
Earnings (loss) before extraordinary
items and cumulative effect of
accounting changes.................... 200,142 (34,179) 18,168
Extraordinary items, net................ (10,436) 355 (643)
Cumulative effect of accounting changes,
net.................................. -- -- (1,703)
------- ------- -------
Net earnings (loss)..................... $189,706 $(33,824) $ 15,822
======= ======= =======
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
For the Years Ended June 30,
--------------------------------
1996 1995 1994
-------- -------- --------
Primary Earnings (Loss) Per Share:
Earnings (loss) from continuing
operations........................... $ 8.28 $ (2.97) $ .84
Earnings from discontinued operations,
net.................................. .55 .87 .31
Gain (loss) on disposal of discontinued
operations, net...................... 3.23 (.02) (.02)
------ ------- -------
Earnings (loss) before extraordinary
items and cumulative effect of
accounting changes................... 12.06 (2.12) 1.13
Extraordinary items, net............... (.63) .02 (.04)
Cumulative effect of accounting changes
net.................................. -- -- (.11)
------ ------- -------
Net earnings (loss) per share.......... $ 11.43 $ (2.10) $ .98
====== ======= =======
Fully Diluted Earnings (Loss) Per Share:
Earnings (loss) from continuing
operations........................... $ 8.03 $ (2.97) $ .84
Earnings from discontinued operations,
net.................................. .54 .87 .31
Gain (loss) on disposal of discontinued
operations, net...................... 3.13 (.02) (.02)
------ ------ -------
Earnings (loss) before extraordinary
items and cumulative effect of
accounting changes................... 11.70 (2.12) 1.13
Extraordinary items, net............... (.61) .02 (.04)
Cumulative effect of accounting
changes, net......................... -- -- (.11)
------ ------- -------
Net earnings (loss) per share.......... $ 11.09 $ (2.10) $ .98
====== ======= =======
Weighted Average Number of Shares used
in Computing Earnings Per Share:
Primary.................................. 16,600 16,103 16,103
Fully diluted............................ 17,100 16,103 16,103
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
/TABLE
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Class A Class B Cumulative
Common Common Paid-in Retained Translation Treasury
Stock Stock Capital Earnings Adjustment Stock Other Total
----- ----- ------- -------- ----------- ------- ----- --------
BALANCE, July 1, 1993 $1,965 $ 270 $66,737 $36,914 $ (593) $(51,719) $ - $ 53,574
- ----------------------
Net earnings.......... - - - 15,822 - - - 15,822
Cumulative translation
adjustment, net...... - - - - 1,465 - - 1,465
Gain on purchase of
preferred stock of
subsidiary........... - - 38 - - - - 38
Additional minimum
liability for
pensions............. - - - - - - (1,405) (1,405)
----- ---- ------ ------ ----- ------- ------ -------
BALANCE, June 30, 1994 1,965 270 66,775 52,736 872 (51,719) (1,405) 69,494
- ----------------------
Net loss.............. - - - (33,824) - - - (33,824)
Cumulative translation
adjustment, net...... - - - - 2,989 - - 2,989
Gain on purchase of
preferred stock of
subsidiary........... - - 236 - - - - 236
Reduction of minimum
liability for pensions - - - - - - 1,405 1,405
Net unrealized holding
loss on available-for-
sale securities...... - - - - - - (120) (120)
----- ---- ------ ------ ----- ------- ------ -------
BALANCE, June 30, 1995 1,965 270 67,011 18,912 3,861 (51,719) (120) 40,180
Net earnings.......... - - - 189,706 - - - 189,706
Cumulative translation
adjustment, net...... - - - - (1,101) - - (1,101)
Fair market value of
stock warrants issued - - 1,148 - - - - 1,148
Proceeds received from
options exercised.... 28 - 1,481 - - - - 1,509
Exchange of Class B
for Class A common
stock................ 7 (7) - - - - - -
Gain realized on
retirement of
preferred stock of
subsidiary........... - - (274) - - - - (274)
----- ---- ------ ------- ----- ------- ------ -------
BALANCE, June 30, 1996 $2,000 $ 263 $69,366 $208,618 $2,760 $(51,719) $ (120) $231,168
===== ==== ====== ======= ===== ======= ====== =======
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Years Ended June 30,
--------------------------------
1996 1995 1994
-------- -------- --------
Cash flows from operating activities:
Net earnings (loss)............................... $ 189,706 $ (33,824) $ 15,822
Adjustments to reconcile net earnings (loss) to
net cash used for operating activities:
Cumulative effect of accounting changes, net.. -- -- 1,703
Depreciation and amortization................. 29,717 31,208 29,462
Accretion of discount on long-term
liabilities................................. 4,686 4,773 4,453
Net gain on the merger of subsidiaries........ (162,703) -- --
Net gain on the sale of discontinued
operations.................................. (53,942)
Net gain on sale of Rexnord investment........ -- -- (129,082)
Extraordinary items, net of cash payments..... 4,501 -- --
Provision for restructuring and unusual items
(excluding cash payments of $777 in 1996
and $6,020 in 1994)......................... 1,542 -- 19,533
(Gain) loss on sale of property, plant and
equipment................................... (9) 655 36
Undistributed (earnings) loss of affiliates... (3,857) (500) 1,423
Minority interest............................. 1,952 2,293 2,500
Change in trading securities.................. (5,346) 1,879 --
Change in receivables......................... (5,999) (14,414) (1,828)
Change in inventories......................... (10,744) (9,611) 4,281
Change in other current assets................ (615) (2,928) (4,518)
Change in other non-current assets............ (1,089) 4,469 2,880
Change in accounts payable, accrued
liabilities, and other long-term liabilities (36,537) (13,093) 3,700
Non-cash charges and working capital changes
of discontinued operations.................. -- 3,568 17,131
-------- -------- --------
Net cash used for operating activities............ (48,737) (25,525) (32,504)
Cash flows from investing activities:
Proceeds received from (used for) investment
securities, net................................. 265 12,281 1,574
Purchase of property, plant and equipment......... (15,122) (16,260) (12,282)
Proceeds from sale of property, plant and
equipment....................................... 122 151 7,602
Equity investments in affiliates.................. (2,361) (1,051) (3,393)
Minority interest in subsidiaries................. (2,817) -- --
Acquisition of subsidiaries, net of cash acquired. -- (12,157) (1,905)
Net proceeds from the sale of discontinued
operations...................................... 71,559 -- --
Net proceeds from sale of Rexnord Corporation..... -- -- 178,089
Changes in net assets held for sale............... 5,894 1,441 (1,291)
Investing activities of discontinued operations... -- (3,561) (3,617)
-------- -------- --------
Net cash (used for) provided by investing
activities...................................... 57,540 (19,156) 164,777
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(In thousands)
For the Years Ended June 30,
--------------------------------
1996 1995 1994
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of debt.................... $ 157,877 $ 71,712 $ 68,558
Debt repayments and repurchase of debentures...... (198,761) (59,367) (169,948)
Issuance of Class A common stock.................. 1,509 -- --
-------- -------- --------
Net cash provided by (used for) financing
activities...................................... (39,375) 12,345 (101,390)
Effect of exchange rate changes on cash........... (961) 1,150 1,386
Net (decrease) increase in cash and cash
equivalents..................................... (31,533) (31,186) 32,269
Cash and cash equivalents, beginning of the year.. 71,182 102,368 70,099
-------- -------- --------
Cash and cash equivalents, end of the year........ $ 39,649 $ 71,182 $ 102,368
======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Corporate Structure: The Fairchild Corporation (the "Company") was
incorporated under the laws of the State of Delaware in October, 1969. RHI
Holdings, Inc. ("RHI") is a direct subsidiary of the Company. RHI is the
owner of all of the issued and outstanding stock of Fairchild Holding
Corporation ("FHC") and the majority owner of Banner Aerospace, Inc.,
("Banner"). The Company's principal operations are conducted through FHC and
Banner. The Company also holds significant equity interests in Shared
Technologies Fairchild Inc., ("STFI") and Nacanco Paketleme ("Nacanco").
Fiscal Year: The fiscal year ("Fiscal") of the Company ends June 30.
All references herein to "1996", "1995", and "1994" mean the fiscal years
ended June 30, 1996, 1995 and 1994, respectively.
Principles of Consolidation: The consolidated financial statements are
prepared in accordance with generally accepted accounting principles and
include the accounts of the Company and its wholly-owned and majority-owned
subsidiaries. Prior period financial information has been restated for
discontinued operations, which includes the D-M-E Company ("DME") and
Fairchild Data Corporation ("Data"). Investments in companies in which
ownership interest range from 20 to 50 percent are accounted for using the
equity method (see Note 9). All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash Equivalents/Statements of Cash Flows: For purposes of the
statements of cash flows, the Company considers all highly liquid investments
with original maturity dates of three months or less as cash equivalents.
Total net cash disbursements (receipts) made by the Company for income taxes
and interest were as follows:
1996 1995 1994
-------- -------- --------
Interest....................... $ 66,843 $ 66,262 $ 66,774
Income Taxes................... 9,279 (3,056) (16)
Restricted Cash: On June 30, 1996 and 1995, the Company had restricted
cash of $8,224 and $5,968, respectively, all of which is maintained as
collateral for certain debt facilities. Cash investments are in high grade,
short-term certificates of deposit.
Investments: On July 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115"). There was no cumulative effect as
the result of adopting SFAS 115 in Fiscal 1995.
Management determines the appropriate classification of its investments
at the time of acquisition and reevaluates such determination at each balance
sheet date. Trading securities are carried at fair value, with unrealized
holding gains and losses included in earnings. Available-for-sale securities
are carried at fair value, with unrealized holding gains and losses, net of
tax, reported as a separate component of shareholders' equity. Investments
in equity securities and limited partnerships that do not have readily
determinable fair values are stated at cost, adjusted for impairments, and
categorized as other investments. At June 30, 1994, the Company used the
lower of cost or market method for its investments. In determining realized
gains and losses, the cost of securities sold is based on the specific
identification method. Interest on corporate obligations, as well as
dividends on preferred stock are accrued at the balance sheet date.
Inventories: Inventories are stated at the lower of cost or market.
Cost is determined using the last-in, first-out ("LIFO") method at principal
domestic aerospace manufacturing operations and using the first-in, first-out
("FIFO") method elsewhere. If the FIFO inventory valuation method had been
used exclusively, inventories would have been approximately $4,756 and $5,168
higher at June 30, 1996 and 1995, respectively. Inventories from continuing
operations are valued as follows:
June 30, June 30,
(In thousands) 1996 1995
-------- --------
First-in, first-out (FIFO)................. $ 239,800 $ 35,532
Last-in, first-out (LIFO).................. 31,343 42,732
-------- --------
Total inventories.......................... $ 271,143 $ 78,264
======== ========
Properties and Depreciation: Properties are stated at cost and
depreciated over estimated useful lives, generally on a straight-line basis.
For Federal income tax purposes, accelerated depreciation methods are used.
No interest costs were capitalized in any of the years presented. Property,
plant and equipment consisted of the following:
June 30, June 30,
1996 1995
-------- --------
Land....................................... $ 10,408 $ 9,992
Buildings and improvements................. 40,853 35,706
Machinery and equipment.................... 94,406 162,594
Transportation vehicles.................... 767 638
Furniture and fixtures..................... 18,466 10,815
Construction in progress................... 2,329 2,569
------- -------
167,229 222,314
Less: Accumulated depreciation............ (79,273) (89,374)
------- -------
Net property, plant and equipment.......... $ 87,956 $132,940
======= =======
Amortization of Goodwill: The excess of the cost of purchased
businesses over the fair value of their net assets at acquisition dates
(goodwill) is being amortized on a straight-line basis over 40 years.
Deferred Loan Costs: Deferred loan costs associated with various debt
issues are being amortized over the terms of the related debt, based on the
amount of outstanding debt, using the effective interest method.
Amortization expense for these loan costs for Fiscal 1996, 1995 and 1994 was
$3,827, $3,794, and $4,253, respectively.
Impairment of Long-Lived Assets: The Company reviews its long-lived
assets, including property, plant and equipment, identifiable intangibles and
goodwill, for impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be fully recoverable. To
determine recoverability of its long-lived assets the Company evaluates the
probability that future undiscounted net cash flows, without interest
charges, will be less than the carrying amount of the assets. Impairment is
measured based on the difference between the carrying amount of the assets
and fair value.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
SFAS 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those
assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS 121 is required to be
implemented by the Company on, or before, July 1, 1996. Since the Company's
present policy is identical to the policy prescribed by SFAS 121, there will
be no effect from implementation.
Foreign Currency Translation: All balance sheet accounts of foreign
subsidiaries are translated at current exchange rates at the end of the
accounting period. Income statement items are translated at average exchange
rates during the period. The resulting translation adjustment is recorded as
a separate component of stockholders' equity. Foreign transaction gains and
losses are included in other income and were insignificant in Fiscal 1996,
1995 and 1994.
Research and Development: Company-sponsored research and development
expenditures are expensed as incurred.
Non-Recurring Items: Non-recurring income for Fiscal 1996 was $161,406
and includes a $163,130 nontaxable gain resulting from the merger of
Fairchild Communications Services Company into Shared Technologies Inc. (See
Note 2). Expenses related to other alternative transactions considered were
netted against the above gain. Non-recurring income for Fiscal 1994
consisted of the net pretax gain of $129,082 on the sale of Rexnord
Corporation ("Rexnord") stock (see Note 9).
Earnings Per Share: Primary and fully diluted earnings per share are
computed by dividing net income available to common shareholders by the
weighted average number of shares and share equivalents outstanding during
the period. To compute the incremental shares resulting from stock options
and warrants for primary earnings per share, the average market price of the
Company's stock during the period is used. To compute the incremental shares
resulting from stock options and warrants for fully diluted earnings per
share, the greater of the ending market price or the average market price of
the Company's stock is used. In computing fully diluted earnings per share
for Fiscal 1996, the conversion of options and warrants was assumed as the
effect was dilutive. In computing primary earnings per share for Fiscal
1996, only the dilutive effect from the conversion of options was assumed, as
the effect from the conversion of warrants alone was antidilutive. In
computing primary and fully diluted earnings per share for Fiscal 1995 and
1994, the conversion of options and warrants was not assumed, as the effect
was antidilutive.
Stock-Based Compensation: In October 1995, FASB issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), Accounting for Stock-
Based Compensation. SFAS 123 establishes financial accounting standards for
stock-based employee compensation plans and to transactions in which an
entity issues equity instruments to acquire goods or services from non-
employees. As permitted by SFAS 123, the Company plans to continue to use
the intrinsic value based method of accounting prescribed by APB Opinion No.
25 for its stock-based employee compensation plans. The Company is required
to adopt SFAS 123 and will make all the necessary fair market disclosures for
Fiscal 1997.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Reclassifications: Certain amounts in prior years' financial statements
have been reclassified to conform to the 1996 presentation.
2. MERGER AGREEMENT
----------------
The Company, RHI and Fairchild Industries, Inc. ("FII", RHI's former
subsidiary), entered into an Agreement and Plan of Merger dated as of
November 9, 1995 (as amended, the "Merger Agreement") with Shared
Technologies Inc. ("STI"). On March 13, 1996, in accordance with the Merger
Agreement, STI succeeded to the telecommunications systems and services
business operated by the Company's Fairchild Communications Services Company
("FCSC").
The transaction was effected by a Merger of FII with and into STI (the
"Merger") with the surviving company renamed Shared Technologies Fairchild
Inc. ("STFI"). Prior to the Merger, FII transferred all of its assets to,
and all of its liabilities were assumed by FHC, except for the assets and
liabilities of FCSC, and $223,500 of FII's existing debt and preferred stock
consisting of (i) the $40,027 liquidation value of the outstanding Series A
and Series C Preferred Stock of FII, (ii) the $125,000 principal amount
outstanding of FII 12 1/4% Senior Notes due 1999 (the "Senior Notes"), and
(iii) an amount of bank and other indebtedness of approximately $58,473 (the
"Assumed Indebtedness"). The stock of FHC was then distributed to RHI. No
taxable gain or loss was recognized, in the company's view, on the transfer
of the FII assets and liabilities to FHC, and the distribution of FHC stock
to RHI. As part of the Merger Agreement, FII made a cash tender offer to
purchase all of the outstanding Senior Notes and obtained such Noteholders'
consent to amend the indenture under which the Senior Notes were issued to
remove all covenants which could be amended or deleted by majority vote (the
"Tender Offer") (see Note 10). Pursuant to the Merger, an amount sufficient
to redeem the Series A and Series C Preferred Stock at their liquidation
value ($45.00 per share plus accrued and unpaid dividends) was placed with
Chemical Mellon Shareholder Services as Escrow Agent. Also as part of the
Merger, STFI (i) purchased the $125,000 aggregate principal amount of Senior
Notes tendered pursuant to the Tender Offer, and (ii) repaid in full the
Assumed Indebtedness.
As a result of the Merger, the Company received (i) 6,000,000 shares of
Common Stock of STFI (representing approximately 41% of the outstanding
shares after giving effect to such issuance), (ii) shares of 6% Cumulative
Convertible Preferred Stock of STFI having an aggregate liquidation
preference of $25,000 (subject to upward adjustment), recorded at a fair
value of $20,500, and which are convertible into Common Stock of STFI at a
conversion price of $6.375 per share (which, if converted, would represent,
together with the other Common Stock issued to the Company, approximately 42%
of the Common Stock of STFI on a fully diluted basis), and (iii) shares of a
Special Preferred Stock having an initial liquidation preference of $20,000
(which could accrue up to a maximum of $30,000 over a ten-year period, if not
redeemed earlier), recorded at a fair value of $8,500. In connection with
its stock ownership, the Company has the right to elect four of the eleven
members of the Board of Directors of STFI and has agreed, subject to certain
exceptions, not to sell any of STFI's shares for a two-year period.
The Merger was structured as a reorganization under section 368(a)(1)(A)
of the Internal Revenue Code of 1986, as amended. In Fiscal 1996, the
Company recorded a $163,130 non-recurring gain from this transaction.
3. ACQUISITIONS
------------
On June 10, 1994, the Company acquired 100% of the Common Stock of
Fairchild Convac GmbH ("Fairchild Convac")for approximately $4,700.
Fairchild Convac is a leading designer and manufacturer of high precision
state-of-the-art wet processing tools, equipment and systems required for the
manufacture of semiconductor chips and related products, compact and optical
storage discs and liquid crystal displays. The Company reports the results
of Fairchild Convac as part of its Industrial Products segment.
On September 9, 1994, the Company acquired all of the outstanding Common
Stock of Fairchild Scandinavian Bellyloading Company AB ("SBC"). SBC is a
designer and manufacturer of a patented cargo loading system, which is
installed in the cargo area of commercial aircraft. Several major airlines
are expected to equip existing fleets with the SBC system over the next two
to three years. The Company reports the results of SBC as part of its
Industrial Products segment.
On November 28, 1994, FCSC completed the acquisition of substantially
all of the telecommunications assets of JWP Telecom, Inc. ("JWP") for
approximately $11,000, plus the assumption of approximately $3,000 of
liabilities. JWP is a telecommunications system integrator, specializing in
the distribution, installation and maintenance of voice and data
communications equipment. In the first quarter of Fiscal 1995, FCSC acquired
all the shared telecommunications assets of Eaton & Lauth Co., Inc., for
approximately $550.
4. MAJORITY INTEREST BUSINESS COMBINATION
--------------------------------------
Effective February 25, 1996, the Company completed a transfer of the
Company's Harco Division ("Harco") to Banner Aerospace, Inc. ("Banner") in
exchange for 5,386,477 shares of Banner common stock. The exchange has
increased the Company's ownership of Banner common stock from approximately
47.2% to 59.3%, resulting in the Company becoming the majority shareholder of
Banner. Accordingly, the Company consolidated Banner on February 25, 1996.
The Company recorded a $427 non-recurring loss from outside expenses incurred
for this transaction in 1996. Banner is a leading international supplier to
the aerospace industry as a distributor, providing a wide range of aircraft
parts and related support services. Harco is a distributor of precision
fasteners to the aerospace industry.
5. DISCONTINUED OPERATIONS AND NET ASSETS HELD FOR SALE
----------------------------------------------------
During the Fiscal 1996 second quarter, FII adopted a formal plan to sell
DME, a mold equipment manufacturer, and Data, a satellite communications
company.
On February 22, 1996, pursuant to the Asset Purchase Agreement dated
January 26, 1996 (the "closing date"), the Company, through one of its
subsidiaries, completed the sale of certain assets, liabilities and the
business of DME to Cincinnati Milacron Inc. ("CMI") for a sales price of
approximately $244,331, as adjusted. The sales price consists of $74,000 in
cash, and two 8% promissory notes in the aggregate principal amount of
$170,331 (together, the "8% CMI Notes"). The 8% CMI Notes were due to mature
one year following the closing date; provided that the Company had the right
to require prepayment of, and CMI had the right to prepay the 8% CMI Notes
after the six-month anniversary of the closing date. On July 29, 1996, CMI
paid in full the 8% CMI Notes.
As a result of the sale of DME, the Company recorded a gain on disposal
of discontinued operations, of approximately $54,012, net of a $61,929 tax
provision, in Fiscal 1996.
On January 27, 1996, FII completed the sale of Data to SSE Telecom, Inc.
("SSE") for book value of approximately $4,400 and 100,000 shares of SSE's
common stock valued at $9.0625 per share, or $906, at January 26, 1996, and
warrants to purchase an additional 50,000 shares of SSE's common stock at
$11.09 per share. In addition, the Company has an opportunity to earn an
additional 100,000 shares based on the future performance of SSE during the
twelve months following the date of sale. There was no material gain or loss
from this transaction.
DME and Data have been accounted for as discontinued operations and the
prior periods financial statements have been restated to reflect the
discontinuance of these companies. The combined net sales of DME and Data
totaled $108,131, $180,773 and $166,499 for Fiscal 1996, 1995 and 1994,
respectively. Earnings from discontinued operations was $9,186, net of
$5,695 for taxes in 1996, $13,994, net of $10,183 for taxes in 1995, and
$4,942, net of $7,317 for taxes and $9,247 for the net cumulative effect of
accounting changes in 1994. The components of net assets of discontinued
operations on the consolidated balance sheet are as follows:
June 30,
1995
-------
Accounts receivable............................... $ 28,161
Inventories....................................... 26,645
Prepaid and other current assets.................. 1,365
Accounts payable.................................. (9,801)
Other current liabilities......................... (11,744)
-------
Net current assets of discontinued operations..... $ 34,626
=======
Property, plant & equipment, net of accumulated
depreciation..................................... 37,986
Goodwill, net of accumulated amortization......... 55,664
Other assets...................................... 4,602
Retiree health care liabilities................... (4,764)
Minority interest in subsidiaries................. (416)
Cumulative translation adjustment................. (4,863)
-------
Net noncurrent assets of discontinued operations.. $ 88,209
=======
The Company recorded after tax losses on the disposal of discontinued
operations, of $259 and $368 in 1995 and 1994, respectively. These losses
related primarily to (i) liability insurance premiums paid for properties of
discontinued operations, and workers' compensation claims for employees of
operations which were previously discontinued.
Net assets held for sale at June 30, 1996, includes two parcels of real
estate in California, a 68 acre parcel of real estate located in Farmingdale,
New York, and several other parcels of real estate located primarily
throughout the continental United States, which the Company plans to sell,
lease or develop, subject to the resolution of certain environmental matters
and market conditions. Also included in net assets held for sale are limited
partnership interests in (i) a real estate development joint venture, and
(ii) a landfill development partnership.
Net assets held for sale are stated at the lower of cost or at estimated
net realizable value, which reflect anticipated sales proceeds, and other
carrying costs to be incurred during the holding period. Interest is not
allocated to net assets held for sale.
6. PROFORMA FINANCIAL STATEMENTS (UNAUDITED)
-----------------------------------------
The following unaudited pro forma information for the twelve months
ended June 30, 1996 and June 30, 1995, provides the results of the Company's
operations as though (i) the disposition of DME and Data, (ii) the Merger of
FCS, and (iii) the transfer of Harco to Banner, resulting in the
consolidation of Banner, had been in effect since the beginning of each
period. The pro forma information is based on the historical financial
statements of the Company, DME, FCSC and Banner, giving effect to the
aforementioned transactions. In preparing the pro forma data, certain
assumptions and adjustments have been made which (i) reduce interest expense
for revised debt structures, (ii) increase interest income for notes
receivable, (iii) reduce minority interest from Series C Preferred Stock of
FII being redeemed, and (iv) adjust equity in earnings of affiliates to
include the estimated results of STFI.
The following unaudited pro forma financial information is not
necessarily indicative of the results of operations that actually would have
occurred if the transactions had been in effect since the beginning of each
period, nor is it necessarily indicative of future results of the Company.
1996 1995
---------- ----------
Sales................................... $601,069 $489,773
Loss from continuing operations......... (15,766) (32,972)
Primary loss from continuing operations
per share............................. (.96) (2.05)
Net loss................................ (15,766) (32,876)
Primary net loss per share............ (.96) (2.04)
The pro forma financial information has not been adjusted for non-
recurring income and gains from disposal of discontinued operations that have
been or are expected to be incurred from these transactions within the
ensuing year.
7. EXTRAORDINARY ITEMS
-------------------
During Fiscal 1996, the Company used the Merger transaction and cash
available to retire fully all of the Senior Notes, FII's 9 3/4% subordinated
debentures due 1998, and bank loans under a credit agreement of a former
subisdiary of the Company, VSI Corporation. The redemption of the Senior
Notes at a premium, consent fees paid to holders of the Senior Notes, the
write off of the original issue discount on FII 9 3/4% subordinated
debentures and the write off of the remaining deferred loan fees associated
with the issuance of the debt retired, resulted in an extraordinary loss of
$10,436, net of a tax benefit.
During Fiscal 1995 and 1994, the Company recognized extraordinary gains
and losses from the early extinguishment of debt resulting from repurchases
of its debentures on the open market or in negotiated transactions, and the
write-offs of certain deferred costs associated with the issuance of
securities repurchased. Early extinguishment of the Company's debt resulted
in an extraordinary income (loss) of $355, net of a $191 tax provision, and
$(643), net of a $347 tax benefit, in Fiscal 1995 and 1994, respectively.
8. INVESTMENTS
-----------
Short-term investments at June 30, 1996, consist primarily of common
stock investments in public corporations, which are classified as trading
securities. All other short-term investments and all long-term investments
do not have readily determinable fair values and primarily consist of
investments in preferred and common stocks of private companies. A summary
of investments held by the Company consists of the following:
1996 1995
------------------- ------------------
Aggregate Aggregate
Name of Issuer or Fair Cost Fair Cost
Type of Each Issue Value Basis Value Basis
- ------------------- --------- ------- ---------- --------
Short-term investments:
- -----------------------
Trading Securities:
Common Stock.................... $10,362 $ 5,954 $ 3,968 $ 5,088
Other Investments................. 136 136 148 148
------ ------ ------ ------
$10,498 $ 6,090 $ 4,116 $ 5,236
====== ====== ====== ======
Other long-term investments:
- ----------------------------
Preferred Stock................... $ 492 $ 492 $ 492 $ 492
Other Investments................. 93 93 346 346
------ ------ ------ ------
$ 585 $ 585 $ 838 $ 838
====== ====== ====== ======
Investment income is summarized as follows:
1996 1995 1994
------- ------- -------
Gross realized gain (loss) from sales $ (1,744) $ 3,948 $ 4,320
Change in unrealized holdings gain
(loss) from trading securities..... 5,527 (36) --
Lower of cost or market valuation
adjustment......................... -- -- (1,084)
Gross realized loss from impairments. (652) (426)
Dividend income...................... 792 2,445 3,355
------- ------- -------
$ 4,575 $ 5,705 $ 6,165
======= ======= =======
9. INVESTMENTS AND ADVANCES, AFFILIATED COMPANIES
-----------------------------------------------
The following table presents summarized historical financial information
on a combined 100% basis of the Company's principal investments, which are
accounted for using the equity method.
Statement of Earnings: 1996 1995 1994
------- ------- -------
Net sales.................... $351,695 $313,888 $283,055
Gross profit................. 114,248 100,644 98,689
Earnings from continuing
operations................. 15,183 9,623 17,231
Discontinued operations, net. -- -- (12,996)
Net earnings................. 15,183 9,623 4,235
Balance Sheet at June 30,:
Current assets................ $ 93,925 $257,314
Non-current assets............ 377,547 61,348
Total assets.................. 471,472 318,662
Current liabilities........... 87,858 61,174
Non-current liabilities....... 275,025 101,256
The Company owns approximately 31.9% of Nacanco common stock. The
Company recorded equity earnings of $5,487, $2,859 and $5,429 from this
investment for 1996, 1995 and 1994, respectively.
Since March 13, 1996, as a result of the Merger in which the Company
received a 41% interest in STFI, the Company has accounted for its investment
in STFI using the equity method. Prior to March 13, 1996, the Company
consolidated the results of FCSC, which was merged into STFI (see Note 2).
The Company recorded equity earnings of $50 from the investment in STFI
during the final 3 1/2 months of Fiscal 1996.
On June 30, 1996, the Company's investments in STFI consisted of (i)
$20,988 carrying value for the $25,000 face value 6% cumulative Convertible
Preferred Stock, (ii) $9,116 carrying value for the $20,000 face value
Special Preferred Stock, and (iii) $455 carrying value for 6,200,000 shares
of common stock of STFI. At the close of trading on June 30, 1996, STFI's
common stock was quoted at $7.25 per share. Based on this price, the
Company's investment in STFI common stock had an approximate market value of
$44,950. The Company is amortizing its discounted investment in each of the
STFI issuances over the 11 and 12 year life of the issuances. Included in
Fiscal 1996 equity earnings was $939 from such amortization.
Effective February 25, 1996, the Company increased its percentage of
ownership of Banner Common Stock from 47.2% to approximately 59.3%. Since
February 25, 1996, the Company is consolidating Banner's results. Prior to
February 25, 1996, the Company accounted for its investment in Banner using
the equity method and held its investment in Banner as part of investments
and advances-affiliated companies. The Company recorded equity earnings
(loss) of $363, $138 and $(5,697) from this investment for 1996, 1995 and
1994, respectively.
On December 23, 1993, the Company completed a sale of its 43.9% stock
interest in Rexnord to BTR Dunlop Holdings, Inc. ("BTR"). Accordingly, the
Company received $181,873 in gross proceeds and realized a pre-tax gain on
the sale of $129,082 in Fiscal 1994. Prior to the sale of Rexnord, the
Company recorded an equity loss of $905 from this investment for 1994. The
net earnings for Fiscal 1994, were decreased by recording the Company's 43.9%
share of the cumulative charge which resulted from the adoption of SFAS No.
106 and SFAS No. 109 at Rexnord. (See Notes 11 and 12).
In connection with the Company's December 23, 1993 sale of its interest
in Rexnord Corporation to BTR Dunlop Holdings, Inc. ("BTR"), the Company
placed shares of Banner, with a fair market value of $5,000, in escrow to
secure the Company's remaining indemnification of BTR against a contingent
liability. Once the contingent liability is resolved, the escrow will be
released.
The Company is accounting for an investment in a public fund, which is
controlled by an affiliated investment group of the Company, at market value.
The amortized cost basis of the investment was $923 and had been written down
by $185, before tax, to market value. The Company's gross unrealized loss
was $120, net of tax from this investment in 1995.
The Company's share of equity in earnings (loss) of all unconsolidated
affiliates for 1996, 1995 and 1994 was $4,871, $1,607 and $(1,423),
respectively. The carrying value of investments and advances, affiliated
companies consists of the following:
June 30, June 30,
1996 1995
-------- --------
Banner Aerospace................... $ -- $ 51,146
Nacanco............................ 20,886 16,312
STFI............................... 30,559 --
Others............................. 2,026 1,940
------- -------
$ 53,471 $ 69,398
======= =======
On June 30, 1996, approximately $12,875 of the Company's $208,618
consolidated retained earnings was from undistributed earnings of 50 percent
or less currently owned affiliates accounted for by the equity method.
10. NOTES PAYABLE AND LONG-TERM DEBT
--------------------------------
At June 30, 1996 and 1995, notes payable and long-term debt consisted of
the following:
June 30, June 30,
1996 1995
-------- --------
Bank credit agreements................... $ 73,500 $ 100
Other short-term notes payable........... 3,035 5,389
------- -------
Short-term notes payable (weighted
average interest rates of 8.6% and
8.3% in 1996 and 1995, respectively)... $ 76,535 $ 5,489
======= =======
Bank credit agreements................... $112,500 $126,396
12 1/4% Senior subordinated notes due
1996................................... -- 24,146
9 3/4% FII debentures due 1998........... -- 2,999
12 1/4% FII Senior secured notes due 1999 -- 125,000
11 7/8% RHI Senior debentures due 1999... 85,769 85,687
12% Intermediate debentures due 2001..... 114,495 113,734
13 1/8% Subordinated debentures due 2006. 35,061 34,943
13% Junior Subordinated debentures due
2007.................................. 24,800 24,769
10.65% Industrial revenue bonds.......... 1,500 1,500
Capital lease obligations interest from
10 1/4% to 10 1/2%..................... 65 1,253
Other notes payable, collateralized
by property, plant and equipment,
interest from 6% to 9.4%............... 2,756 4,788
------- -------
376,946 545,215
Less: Current maturities................ (8,357) (35,500)
------- -------
Net long-term debt....................... $368,589 $509,715
======= =======
On March 13, 1996, FII consummated the Tender Offer and purchased for
cash, upon terms and subject to conditions set forth in an Offer to Purchase
and Consent Solicitations and related Letter of Transmittal (the "Offer to
Purchase") dated as of December 22, 1995, all $125,000 of the Senior Notes.
Terms of the Tender Offer, as amended and restated, required a purchase price
of $1,063.90 per $1,000.00 principal amount of the Senior Notes, and accrued
and unpaid interest up to, but not including, the payment date. During the
Tender Offer period, FII received consents solicited (the "Tender Offer
Consent Solicitation") of the holders of the Senior Notes to (i) the adoption
of the proposed amendments to the indenture pursuant to which the Senior
Notes were issued (the "Indenture"), and (ii) the release of the collateral
securing FII's obligations under the Senior Notes and the Indenture, upon
terms set forth in the Offer to Purchase.
In addition, independent of the Tender Offer and the Tender Offer
Consent Solicitation, FII also solicited and received consents to the waiver
of any and all violations of the Indenture arising out of or relating to (i)
the transfer by VSI Corporation ("VSI"), a wholly-owned subsidiary of FII, of
the stock of Harco to Banner (see Note 4), and (ii) the sale by VSI of DME to
CMI (see Note 5).
As part of the consummation of the Tender Offer, FII paid holders of
Senior Notes who validly tendered Senior Notes pursuant to the Tender Offer
and Consent Solicitations a consent fee of $25.00 per $1,000.00 principal
amount of Senior Notes tendered. FII paid an early consent fee consisting of
$5.00 per $1,000.00 principal amount to holders of Senior Notes who on or
prior to January 19, 1996, validly tendered their shares.
The Company maintains credit agreements (the "Credit Agreements") with
a consortium of banks, which provides revolving credit facilities to RHI, FHC
and Banner and term loans to FHC and Banner (collectively the "Credit
Facilities").
On March 13, 1996, in connection with the Merger, the Company replaced
the credit agreement of its former subsidiary, VSI Corporation, (the "Prior
Credit Agreement") with an interim credit agreement (the "Interim Credit
Agreement") at FHC. The Interim Credit Agreement provided FHC with a $50,000
revolving credit facility and a $30,000 term loan, both of which generally
had an interest rate of 1/2% over the prime rate, or 1 1/2% over the London
Interbank Offered Rate ("LIBOR") and required a commitment fee of 1/2% on the
unused portion of the revolving credit facility. The Prior Credit Agreement
generally bore interest at 2 3/4% to 3 3/4% over LIBOR and required a
commitment fee of 1%.
The Interim Credit Agreement required compliance with certain financial
loan covenants, including achieving a minimum of cumulative earnings before
interest, taxes, depreciation and amortization ("EBITDA Covenant") at March
31, 1996, and maintaining a certain interest ratio coverage at specified
periods. Additionally, the Interim Credit Agreement restricted FHC's capital
expenditures during the term of the Interim Credit Agreement to $6,000, in
the aggregate. The Company was in compliance with these covenants throughout
the life of the Interim Credit Agreement.
The Interim Credit Agreement matured on July 29, 1996, at which time the
Company repaid in full the loans made under the Interim Credit Agreement. On
July 26, 1996, the Company amended and restated the terms and provisions of
the Interim Credit Agreement in their entirety (the "Restated Credit
Agreement"). The Restated Credit Agreement extends to July 28, 2000, the
maturity of FHC's revolving credit termination date, and provides FHC with a
revolving credit facility (the "FHC Revolver") that has a borrowing base of
up to $52,000. The borrowing base is determined monthly based upon specified
percentages of FHC's accounts receivable, inventories and the appraised value
of equipment and real property. The FHC Revolver consists of up to $40,000
available for domestic operations and $12,000 available for European
operations. The FHC Revolver generally bears interest at a base rate of
1 1/2% over the greater of (i) Citibank New York's base rate, or (ii) the
Federal Funds Rate plus 1/2% for domestic borrowings and at 2 1/2% over
Citibank London's base rate for foreign borrowings. FHC's Revolver is
subject to a non-use commitment fee of 1/2% on the average unused
availability; and outstanding letters of credit are subject to fees of 2 3/4%
per annum.
The Restated Credit Agreement requires FHC to comply with certain
financial loan covenants, including maintaining a minimum net worth of
$150,000 and maintaining certain interest and fixed charge coverage ratios at
the end of each Fiscal Quarter. Additionally, the Restated Credit Agreement
restricts the FHC's annual capital expenditures to $12,000.
The Credit Agreements provide RHI with a $4,250 revolving credit
facility (the "RHI Credit Agreement") which generally bears a base interest
of 1/2% over the prime rate, requires a commitment fee of 1/2%, and matures
on May 26, 1998. RHI's Credit Agreement requires RHI to comply with
specified covenants and maintain a consolidated net worth of $175,000.
Additionally, RHI's capital expenditures are restricted, except for certain
leasehold improvements, to $2,000 per annum plus the selling price of fixed
assets for such Fiscal Year. The Company was in compliance with all the
covenants under RHI's Credit Agreement at June 30, 1996.
Banner has a credit agreement (the "Banner Credit Agreement") which
provides Banner and its subsidiaries with funds for working capital and
potential acquisitions. On June 30, 1996, The Banner Credit Agreement
consisted of a $55,000 term loan and a $71,500 revolving credit facility,
both of which initially bear interest at prime plus 1 1/4% or LIBOR plus
2 1/2%. The interest rate on Banner's borrowings, whether computed at the
prime rate or LIBOR, may increase by 1/4% or decrease by up to 1% based upon
certain performance criteria. On June 30, 1995, Banner's performance level
resulted in borrowings under the Banner Credit Agreement being at the
initial interest rates for the quarter ending September 30, 1996. The Banner
Credit Agreement was amended on July 1, 1996, to provide additional financing
with a $30,000 seven-year term loan ("Tranche B Loan") and requires that
loans made to Banner do not exceed a defined borrowing base, which is based
upon a percentage of inventories and accounts receivable. The Tranche B Loan
bears interest at Prime plus 1 3/4% or LIBOR plus 3%. Banner's term loans
require certain semiannual loan payments. Banner's revolving credit facility
is subject to a non-use fee of 1/2% of the unused availability. Substantially
all of Banner's assets are pledged as collateral under the Banner Credit
Agreement. The Banner Credit Agreement matures August 2001.
The Banner Credit Agreement requires quarterly compliance with various
financial and non-financial loan covenants, including maintaining a minimum
net worth, and minimum ratios of interest coverage, fixed charge coverage,
and debt to earnings before interest, taxes, depreciation and amortization.
Banner also has certain limitations on the incurrence of additional debt. As
of June 30, 1996, Banner was in compliance with all covenants under the
Credit Agreement.
Banner has several interest rate hedge agreements ("Hedge Agreements")
to manage its exposure to increases in interest rates on its variable rate
debt. The Hedge Agreements provide interest rate protection on $60,000 of
debt through September 2000, by providing a cap of 7% if the 90-day LIBOR
rate exceeds 7%. If the 90-day LIBOR rate drops below 5%, Banner will be
required to pay a floor rate of approximately 6%.
The following table summarizes the Credit Facilities under the Credit
Agreements at June 30, 1996:
Outstanding Total
as of Available
June 30, 1996 Facilities
------------- ----------
RHI Holdings, Inc.
Revolving credit facility (a)....... $ 100 $ 4,250
Fairchild Holding Corporation ======= =======
Revolving credit facility (a)....... $ 43,400 $ 50,000
Term Loan (a)....................... 30,000 30,000
Banner Aerospace, Inc.
Revolving credit facility........... 61,000 71,500
Term Loan........................... 51,500 51,500
------- -------
$186,000 $207,250
======= =======
Total
Revolving credit facilities......... $104,500 $125,750
Term loans.......................... 81,500 81,500
------- -------
$186,000 $207,250
======= =======
(a) These amounts are included in short-term notes payable.
At June 30, 1996, the Company had outstanding letters of credit of
$11,405, which were supported by the Credit Agreement and other bank
facilities on an unsecured basis. At June 30, 1996, the Company had unused
short-term bank lines of credit aggregating $9,845 at interest rates slightly
higher than the prime rate. The Company also has short-term lines of credit
relating to foreign operations aggregating $5,668 against which the Company
owed $3,035 at June 30, 1996.
Summarized below are certain items and other information relating to the
debt outstanding at June 30, 1996:
12% 13% 11 7/8%
13 1/8% Intermediate Junior RHI Senior
Subordinated Subordinated Subordinated Subordinated
Debentures Debentures Debentures Debentures
------------ ------------ ------------ ------------
Date Issued March 1986 Oct. 1986 March 1987 March 1987
Face Value $ 75,000 $160,000 $102,000 $126,000
Balance, June 30,
1996 $ 35,061 $114,495 $ 24,800 $ 85,769
Percent Issued at 95.769 93.470 98.230 99.214
Bond Discount $ 3,173 $ 10,448 $ 1,805 $ 990
Amortization 1996 $ 118 $ 761 $ 30 $ 82
1995 $ 103 $ 687 $ 27 $ 94
1994 $ 90 $ 621 $ 23 $ 80
Yield to Maturity 13.80% 13.06% 13.27% 12.01%
Interest Payments Semi-Annual Semi-Annual Semi-Annual Semi-Annual
Sinking Fund Start
Date 3/15/97 10/15/97 3/1/98 3/1/97
Sinking Fund
Installments $ 7,500 $ 32,000 $ 10,200 $ 31,500
Fiscal Year Maturity 2006 2002 2007 1999
Redeemable by the
Company after 3/15/89 10/15/89 3/1/92 3/1/92
Under the most restrictive covenants of the above indentures, the
Company's consolidated net worth, as defined, must not be less than $35,000.
RHI's consolidated net worth must not be less than $125,000. At June 30,
1996, consolidated net worth was $231,168 at the Company and $428,772 at RHI.
At the present time, none of the Company's consolidated retained earnings are
available for capital distributions due to a cumulative earnings restriction.
The indentures also provide restrictions on the amount of additional
borrowings by the Company.
FHC may transfer available cash as dividends to the Company.
Annual maturities of long-term debt obligations for each of the five
years following June 30, 1996, are as follows: $8,357 for 1997, $30,314 for
1998, $90,786 for 1999, $40,520 for 2000, and $45,025 for 2001.
11. PENSIONS AND POSTRETIREMENT BENEFITS
------------------------------------
Pensions
--------
The Company and its subsidiaries have defined benefit pension plans
covering substantially all employees. Employees in foreign subsidiaries may
participate in local pension plans, which are in the aggregate insignificant
and are not included in the following disclosures. The Company's funding
policy is to make the minimum annual contribution required by applicable
regulations.
The following table provides a summary of the components of net periodic
pension expense (income) for the plans:
1996 1995 1994
-------- -------- --------
Service cost of benefits earned
during the period...................... $ 3,513 $ 3,917 $ 3,827
Interest cost of projected benefit
obligation............................. 14,499 14,860 14,552
Return on plan assets.................... (39,430) (14,526) (5,051)
Amortization of prior service cost....... 81 81 126
Net amortization and deferral............ 21,495 (4,341) (15,007)
------- ------- -------
158 (9) (1,553)
Net periodic pension expense (income) for
other plans including foreign plans.... (118) 78 (745)
------- ------- -------
Net periodic pension expense (income).... $ 40 $ 69 $ (2,298)
======= ======= =======
Assumptions used in accounting for the plans were:
1996 1995 1994
-------- -------- --------
Discount Rate............................ 8.5% 8.5% 8.5%
Expected rate of increase in salaries.... 4.5% 4.5% 4.5%
Expected long-term rate of return on
plan assets............................ 9.0% 9.0% 9.0%
In Fiscal 1996, the Company recognized one-time charges of $857 from the
divestiture of subsidiaries, which resulted in a recognition of prior service
costs, and $84 from the early retirement window program at the Company's
corporate office. The reduction in liabilities due from the cessation of
future salary increases is not immediately recognizable in income, but will
be used as an offset against existing unrecognized losses. The Company will
have a future savings benefit from a lower net periodic pension cost due to
the amortization of a smaller unrecognized loss.
The following table sets forth the funded status and amounts recognized
in the Company's consolidated balance sheets at June 30, 1996, and 1995 for
the plans:
June 30, June 30,
1996 1995
-------- --------
Projected benefit obligation:
Vested benefit obligation................. $164,819 $168,843
Non-vested benefits....................... 6,169 6,488
------- -------
Accumulated benefit obligation............ 170,988 175,331
Effect of projected future compensation
levels.................................. 905 5,815
------- -------
171,893 181,146
Plan assets at fair value................... 224,692 212,477
------- -------
Plan assets in excess of projected benefit
obligations............................... 52,799 31,331
Unrecognized net loss....................... 20,471 42,720
Unrecognized prior service cost............. (354) 329
Unrecognized net transition assets.......... (608) (190)
------- -------
Prepaid pension cost prior to SFAS 109
implementation............................ 72,308 74,190
Effect of SFAS 109 implementation........... (14,648) (14,623)
------- -------
Prepaid pension cost........................ $ 57,660 $ 59,567
======= =======
Plan assets include Class A Common Stock of the Company valued at a fair
market value of $11,094 and $2,763 at June 30, 1996 and 1995, respectively.
Substantially all of the plan assets are invested in listed stocks and bonds.
Postretirement Health Care Benefits
-----------------------------------
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106 ("SFAS 106"), "Employers' Accounting for
Postretirement Benefits Other than Pensions". The standard requires that the
expected cost of postretirement benefits be accrued and charged to expense
during the years the employees render the service. This is a significant
change from the Company's previous policy of expensing these costs for active
employees when paid.
The Company elected the immediate recognition method of adoption of SFAS
106. The unamortized portion of the overstated liability for discontinued
operations was $15,172, net of tax, which more than offset a $10,904, net of
tax, charge relating to the transition obligation for active employees and
retirees of continuing operations. The benefit to net earnings as the
cumulative effect of this accounting change was $4,268, net of tax. Included
in Fiscal 1994 earnings from discontinued operations is a net charge of
$4,802, which represents the portion allocated to DME and Data for the
implementation of SFAS 106. For the Fiscal year ended June 30, 1994, the
effect of the changes on pretax income from continuing operations was not
material.
As a result of Rexnord's adoption of SFAS 106, effective July 1, 1993,
the Company recorded an after-tax charge of $7,481 to net earnings, which
represented the Company's share of Rexnord's cumulative effect of this change
in accounting, net of the related tax benefits from the charge.
A one-time credit of $3,938, resulting from the divestitures of
subsidiaries, was offset by $4,361 from DME's accumulated postretirement
benefit obligation for active employees, which was transferred to CMI as part
of the sale. The Company recognized the net effect of $423 as an expense in
1996.
The Company provides health care benefits for most retired employees.
Postretirement health care expense from continuing operations totaled $779,
$701, and $1,086 for the years ended June 30, 1996, 1995 and 1994,
respectively. The Company has accrued approximately $36,995 and $36,732 as
of June 30, 1996 and 1995, respectively, for postretirement health care
benefits related to discontinued operations. This represents the cumulative
discounted value of the long-term obligation and includes interest expense of
$3,877, $3,872, and $3,873 for the years ended June 30, 1996, 1995 and 1994,
respectively. The components of expense in Fiscal 1996 and 1995 are as
follows:
1996 1995
------- -------
Service cost of benefits earned...................$ 281 $ 321
Interest cost on liabilities...................... 4,377 4,385
Net amortization and deferral..................... (2) (133)
------- -------
Net periodic postretirement benefit cost..........$ 4,656 $ 4,573
======= =======
The following table sets forth the funded status for the Company's
postretirement health care benefit plans at June 30, 1996:
1996 1995
------- -------
Accumulated postretirement benefit obligations:
Retirees........................................$ 46,846 $ 45,970
Fully eligible active participants.............. 347 531
Other active participants....................... 1,887 977
------- -------
Accumulated postretirement benefit obligation..... 49,080 47,478
Unrecognized net loss............................. 2,086 223
------- -------
Accrued postretirement benefit liability..........$ 46,994 $ 47,255
======= =======
The accumulated postretirement benefit obligation was determined using
a discount rate of 8.5%, and a health care cost trend rate of 7.5% and 7.0%
for pre-age-65 and post-age-65 employees, respectively, gradually decreasing
to 4.75% and 5.25%, respectively, in the year 2003 and thereafter.
Increasing the assumed health care cost trend rates by 1% would increase
the accumulated postretirement benefit obligation as of June 30, 1996, by
approximately $1,169, and increase the net periodic postretirement benefit
cost by approximately $182 for Fiscal 1996.
12 INCOME TAXES
------------
Effective July 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by
Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting
for Income Taxes".
Under the liability method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities, and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Prior
to the adoption of SFAS 109, income tax expense was determined using the
deferred method. Deferred tax expense was based on items of income and
expense that were reported in different years in the financial statements and
tax returns and were measured at the tax rate in effect in the year the
difference originated.
As permitted under SFAS 109, prior years' financial statements have not
been restated. The Company elected the immediate recognition method and
recorded a $2,033 benefit representing the prior years' cumulative effect.
This benefit is the restated result representing the effect of SFAS 109 on
the Company's continuing operations. Included in Fiscal 1994 earnings from
discontinued operations, is a net charge of $4,445 representing DME's share
of the SFAS 109 implementation, which represents deferred taxes that had to
be recorded related primarily to fixed assets, prepaid pension expenses, and
inventory basis differences.
As a result of Rexnord's adoption of SFAS 109 effective July 1, 1993,
the Company recorded an after-tax charge to net earnings of $523, which
represented the Company's share of Rexnord's cumulative effect for this
change in accounting.
The provision (benefit) for income taxes from continuing operations is
summarized as follows:
1996 1995 1994
-------- -------- --------
Current:
Federal.......................... $ (41,595) $ (8,315) $ (316)
State............................ 1,203 424 (516)
Foreign.......................... 669 1,191 (570)
-------- -------- --------
(39,723) (6,700) (1,402)
Deferred:
Federal......................... 21,315 (19,450) 18,851
State........................... (3,657) (2,052) 243
-------- -------- --------
17,658 (21,502) 19,094
-------- -------- --------
Net tax provision (benefit)........ $ (22,065) $ (28,202) $ 17,692
======== ======== ========
The income tax provision (benefit) for continuing operations differs
from that computed using the statutory Federal income tax rate of 35% in
Fiscal 1996, 1995 and 1994 for the following reasons:
1996 1995 1994
-------- -------- --------
Computed statutory amount......... $ 40,357 $ (26,641) $ 10,950
State income taxes, net of
applicable federal tax benefit.. 782 (1,794) 14
Foreign Sales Corporation benefit. -- (1) (228)
Nondeductible acquisition
valuation items................. 1,329 1,420 3,863
Tax on foreign earnings, net of
tax credits..................... 1,711 2,965 (9)
Difference between book and tax
basis of assets acquired and
liabilities assumed............. 1,040 1,366 1,366
Nontaxable gain related to the
Merger.......................... (60,681) -- --
Revision of estimate for tax
accruals........................ (3,500) (5,000) --
Other............................. (3,103) (517) 1,736
--------- --------- --------
Net tax provision(benefit)........ $ (22,065) $ (28,202) $ 17,692
========= ========= ========
The following table is a summary of the significant components of the
Company's deferred tax assets and liabilities, and deferred provision or
benefit for the following periods:
1996 1995 1994
Deferred Deferred Deferred
June 30, (Provision) June 30, (Provision) (Provision)
1996 Benefit 1995 Benefit Benefit
-------- ----------- -------- ----------- -----------
Deferred tax assets:
Accrued expenses..................... $ 5,936 (1,643) $ 7,579 $ (2,218) $ 1,960
Asset basis differences.............. 2,064 1,787 277 (7,292) (8,428)
Employee compensation and benefits... 5,408 (26) 5,434 106 (859)
Environmental reserves............... 4,512 (737) 5,249 (1,202) (267)
Loss and credit carryforwards........ 8,796 (23,229) 32,025 17,991 2,499
Postretirement benefits.............. 19,334 (1,273) 20,607 514 (124)
Other................................ 5,519 2,186 3,333 1,530 (4,145)
------- ------- ------- ------- -------
51,569 (22,935) 74,504 9,429 (9,364)
Deferred tax liabilities:
Asset basis differences.............. (22,565) 16,602 (39,167) 4,129 1,638
Inventory............................ (2,010) 4,684 (6,694) 3,176 1,310
Pensions............................. (18,243) 1,516 (19,759) 1,074 20
Other................................ (29,507) (17,525) (11,982) 3,694 (11,411)
------- ------- ------- ------- -------
(72,325) 5,277 (77,602) 12,073 (8,443)
------- ------- ------- ------- -------
(20,756) (17,658) (3,098) 21,502 (17,807)
Less amount related to accounting change -- -- -- -- 1,287
------- ------- ------- ------- -------
Net deferred tax liability............. $(20,756) $(17,658) $ (3,098) $ 21,502 $(19,094)
======= ======= ======= ======= =======
June 30, June 30,
1996 1995
-------- --------
The amounts included in the balance
sheet are as follows:
Prepaid expenses and other current assets:
Current deferred..................... $ 8,012 $ 7,117
Other current........................ -- (1,849)
------- -------
$ 8,012 $ 5,268
======= =======
Income taxes payable:
Current deferred..................... 20,797 $ --
Other current........................ 3,838 --
------- -------
$ 24,635 $ --
======= =======
Noncurrent income tax liabilities:
Noncurrent deferred.................. 7,971 $ 10,215
Other noncurrent..................... 23,766 27,789
------- -------
$ 31,737 $ 38,004
======= =======
The 1996 and 1995 net tax benefits include the results of reversing
$3,500 and $5,000, respectively, of federal income taxes previously provided
due to a change in the estimate of required tax accruals.
For tax purposes, the Company had available, at June 30, 1996, net
operating loss ("NOL") carryforwards for regular Federal income tax purposes
of approximately $18,300, which will expire in the year 2010.
Domestic income taxes, less available credits, are provided on the
unremitted income of foreign subsidiaries and affiliated companies, to the
extent that such earnings are intended to be repatriated. No domestic income
taxes or foreign withholding taxes are provided on the undistributed earnings
of foreign subsidiaries and affiliates, which are considered permanently
invested, or which would be offset by allowable foreign tax credits. At June
30, 1996, the amount of domestic taxes payable upon distribution of such
earnings was not significant.
In the opinion of management, adequate provision has been made for all
income taxes and interest, and any liability that may arise for prior periods
will not have a material effect on the financial condition or results of
operations of the Company.
13. MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES
----------------------------------------------
The Company is including $58,625 of minority interest in its balance
sheet at June 30, 1996, representing approximately 40.7% of Banner's common
stock effectively outstanding on a consolidated basis.
The Company included $23,804 of minority interest on its balance sheet
at June 30, 1995, representing 553,460 shares of Series C Preferred Stock of
FII. The Series C Preferred Stock was assumed by STFI and redeemed entirely
as part of the Merger. (See Note 2).
14. REDEEMABLE PREFERRED STOCK OF SUBSIDIARY
----------------------------------------
The Company classified 393,801 shares of Series A Preferred Stock of FII
as a long-term liability at June 30, 1995. The Series A Preferred Stock was
assumed by STFI and redeemed entirely as part of the Merger. (See Note 2).
15. EQUITY SECURITIES
-----------------
The Company had 13,756,160 shares of Class A common stock and 2,633,704
shares of Class B common stock outstanding at June 30, 1996. 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. Shares of Class A common
stock are entitled to one vote per share and cannot presently be exchanged
for shares of Class B common stock. Shares of Class B common stock are
entitled to ten votes per share and can be exchanged, at any time, for shares
of Class A common stock on a share-for-share basis. In Fiscal 1996, 286,869
shares of Class A Common Stock were issued as a result of the exercise of
stock options and shareholders converted 63,182 shares of Class B common
stock into Class A common stock.
RHI holds an investment of 1,319,423 shares of the Company's Class A
common stock. At June 30, 1996, RHI's carrying value was approximately
$63,902. The Company accounts for the Class A common stock held by RHI as
Treasury Stock.
16. STOCK OPTIONS AND WARRANTS
--------------------------
The Company has reserved 4,320,000 shares of Class A common stock for
issue to key employees under the Company's 1986 Stock Option Plan. This plan
authorizes the granting of options over a ten-year period (an extension of an
additional ten year period for the granting of options is subject to
shareholders approval at the next annual meeting of shareholders) at not less
than the market value of the common stock at the time of the grant. The
option price is payable in cash or, with the approval of the stock option
committee of the Board of Directors, in shares of common stock, valued at
fair market value at the time of exercise. The options normally terminate
five years from their date of grant, subject to extension of up to 10 years
or for a stipulated period of time after an employee's death or termination
of employment.
Stock Options Granted to Directors
----------------------------------
On May 19, 1988, the Board of Directors approved the grant of 180,000
stock options to six outside Directors of the Company at an exercise price of
$6.04 per share. In Fiscal 1990 and 1991, the Company granted and approved
75,000 and 60,000 options, respectively, to certain Directors. On November
17, 1994, shareholders approved the grant of stock options of 190,000 shares
to outside Directors of the Company to replace expired stock options. These
stock options expire five years from the date of the grant.
Stock option transactions are summarized below:
(In thousands Shares Shares under option plan
except per share available --------------------------
data) for grant 1986 Other Price
-----------------------------------------
July 1, 1993....... 563 1,357 231 $4.125-11.00
Granted............ (27) 27 30 $3.50-4.125
Canceled........... 64 (64) (60) $4.25-9.125
---------------------------
June 30, 1994...... 600 1,320 201 $3.50-11.00
Granted............ (357) 357 -- $3.00-3.875
Canceled........... 148 (148) (30) $3.00-11.00
---------------------------
June 30, 1995...... 391 1,529 171 $3.00-9.125
Exercised.......... -- (246) (41) $3.50-9.125
Granted............ (540) 540 -- $3.625-15.50
Canceled........... 669 (669) (11) $3.875-7.00
---------------------------
June 30, 1996...... 520 1,154 119 $3.00-15.50
===========================
Stock Warrants
--------------
On November 9, 1995, the Company issued warrants to purchase 500,000
shares of Class A Common Stock, at $9.00 per share, to Peregrine Direct
Investments Limited ("Peregrine"), in exchange for a standby commitment it
received on November 8, 1995, from Peregrine to purchase (i) $75,000
principal amount of senior secured notes to be issued by a wholly-owned
subsidiary of the Company, and (ii) warrants to purchase 5,000,000 shares of
Class A Common Stock at $7.50 per share. The Company elected not to exercise
its rights under the Peregrine commitment. The warrants are immediately
exercisable and will expire five years from the date of issuance.
On February 21, 1996, the Company issued warrants to purchase 25,000
shares of Class A Common Stock, at $9.00 per share, to a non-employee for
services provided in connection with the Company's various dealings with
Peregrine. The warrants issued are immediately exercisable and will expire
at the same time the Peregrine warrants expire.
The Company has recorded non-recurring expenses of $1,148 for the
estimated fair market value at grant date of the stock warrants issued in
1996. The warrants issued in 1996 were outstanding at June 30, 1996.
At June 30, 1996, the Company also had outstanding, warrants to purchase
375,000 shares of the Company's common stock for $7.67 per share. The
warrants can be used to purchase either Class A or B common stock and will
expire on March 13, 1997.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
Statement of Financial Accounting Standards No. 107, ("SFAS 107")
"Disclosures about Fair Value of Financial Instruments", requires disclosures
of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used,
including discount rate and estimates of future cash flows. In that regard,
the derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS 107 excludes certain financial
instruments and all non-financial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
The carrying amount reported in the balance sheet approximates the fair
value for cash and cash equivalents, short-term borrowings, current
maturities of long-term debt, and all other variable rate debt (including
borrowings under the Credit Agreement).
Fair values for equity securities, long-term public debt issued by the
Company, and publicly issued preferred stock of FII are based on quoted
market prices, where available. For equity securities not actively traded,
fair values are estimated by using quoted market prices of comparable
instruments or, if there are no relevant comparables, on pricing models or
formulas using current assumptions. The fair value of limited partnerships,
other investments, and notes receivable are estimated by discounting expected
future cash flows using a current market rate applicable to the yield,
considering the credit quality and maturity of the investment.
The fair value for the Company's other fixed rate long-term debt is
estimated using discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
Fair values for the Company's off-balance-sheet instruments (letters of
credit, commitments to extend credit, and lease guarantees) are based on fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counter parties' credit standing.
The fair value of the Company's off-balance-sheet instruments at June 30,
1996, was not material.
The carrying amounts and fair values of the Company's financial
instruments at June 30, 1996 and 1995, are as follows:
June 30, 1996 June 30, 1995
---------------------- ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
Cash and cash equivalents......... $ 39,649 $ 39,649 $ 71,182 $ 71,812
Investment Securities:
Short-term equity securities.... 10,362 10,362 3,968 3,968
Short-term other investments.... 136 167 148 194
Long-term equity securities..... 492 1,358 492 492
Long-term limited partnerships.. 93 93 346 346
Notes Receivable:
Current......................... 170,384 170,384 -- --
Long-term....................... 3,702 3,702 970 940
Short-term debt................... 76,535 76,535 5,489 5,489
Long-term debt:
Bank credit agreement........... 112,500 112,500 126,396 126,396
Senior notes and subordinated
debentures.................... 260,125 264,759 411,279 384,139
Industrial revenue bonds........ 1,500 1,500 1,500 1,500
Capitalized leases.............. 65 65 1,253 1,253
Other........................... 2,756 2,756 4,787 4,787
Minority interest in Banner....... 58,625 79,756 -- --
Minority interest in FII.......... -- -- 23,804 20,755
Redeemable preferred stock of
subsidiary...................... -- -- 16,342 14,571
18. RESTRUCTURING CHARGES
---------------------
In Fiscal 1996 and 1994, the Company recorded the restructuring charges
in the Aerospace Fasteners segment in the categories shown below. Except for
the costs included in the other category (see note (d) below), all costs
classified as restructuring were the direct result of formal plans to close
plants, to terminate employees, or to exit product lines. Substantially all
of these plans have been executed. Other than a reduction in the Company's
existing cost structure and manufacturing capacity, none of the restructuring
charges resulted in future increases in earnings or represented an accrual of
future costs. The costs included in restructuring were predominately non-
recurring in nature.
SIGNIFICANT COMPONENTS 1996 1994
- ---------------------- ------ ------
Write off of goodwill related to discontinued
product lines................................. $ -- $ 6,959
Write down of inventory to net realizable value
related to discontinued product lines (a)...... 156 2,634
Write down of fixed assets related to
discontinued product lines..................... 270 3,000
Severance benefits for terminated employees
(substantially all paid within twelve months).. 1,368 471
Plant closings facility costs (b)............... 389 851
Relocation of business from closed plant in
New Jersey to California (c)................... -- 1,795
Contract termination claims..................... 136 128
Other (d)....................................... -- 3,022
------ ------
$ 2,319 $18,860
====== ======
(a) Write down was required because product line was discontinued.
(b) Includes lease settlements, write offs of leasehold improvements,
maintenance, restorations and clean up costs.
(c) Principally consists of costs to move equipment, inventory, tooling and
personnel.
(d) Includes costs associated with a requalification of product lines by a
customer, nonrecurring costs of cellularization and reengineering of
manufacturing processes and methods.
19. UNUSUAL ITEMS
-------------
On January 17, 1994, the Company's Chatsworth, California Aerospace
Fasteners manufacturing facility suffered extensive damage from the Southern
California earthquake. As a result, the Company relocated the Chatsworth
manufacturing operations to its other Southern California facilities. This
disruption caused increased costs and reduced revenues in Fiscal 1994, and
has negatively affected Fiscal 1995 as well. While the Company carries
insurance for both business interruption and property damage caused by
earthquakes, the policy has a 5% deductible. The Company recorded an unusual
pretax loss of $4,000 in Fiscal 1994 to cover the estimated net cost of the
damages and related business interruption caused by the earthquake. In
addition, the Company recorded a write down of $2,000 in Fiscal 1994,
relating to this real estate which is now included in net assets held for
sale.
20. RELATED PARTY TRANSACTIONS
--------------------------
Corporate office administrative expense recorded by FHC and its
predecessors was billed to the Company on a monthly basis during 1996, 1995
and 1994. These costs represent the cost of services incurred on behalf of
affiliated companies. Each of these affiliated companies has reimbursed FHC
for such services.
The Company and its wholly-owned subsidiaries are all parties to a tax
sharing agreement whereby the Company files a consolidated federal income tax
return and the subsidiaries make payments to the Company based on the amount
of federal income taxes, if any, the subsidiary would have paid if it had
filed a separate tax return.
Prior to the consolidation of Banner on February 25, 1996, the Aerospace
Fasteners segment had sales to Banner of $3,663, $5,494 and $5,680 in Fiscal
1996, 1995 and 1994, respectively.
21. COMMITMENTS AND CONTINGENCIES
-----------------------------
Lease Commitments
-----------------
The Company holds certain of its facilities and equipment under long-
term leases. The minimum rental commitments under non-cancelable operating
leases with lease-terms in excess of one year for each of the five years
following June 30, 1996, was $5,935 for 1997, $3,638 for 1998, $2,722 for
1999, $1,415 for 2000, and $1,235 for 2001. Commitments under capital leases
were not significant to the accompanying financial statements. Rental
expense on operating leases from continuing operations for Fiscal 1996, 1995
and 1994 was $6,197, $6,695 and $6,007, respectively.
CL Motor ("CL") Freight Litigation
- ----------------------------------
The Workers Compensation Bureau of the State of Ohio is seeking
reimbursement from the Company for up to $5,400 for CL workers compensation
claims which were insured under a self-insured program of CL. The Company
has contested a significant portion of this claim.
Government Claims
- -----------------
The Corporate Administrative Contracting Officer (the "ACO"), based upon
the advice of the United States Defense Contract Audit Agency, has made a
determination that FII did not comply with Federal Acquisition Regulations
and Cost Accounting Standards in accounting for (i) the 1985 reversion to FII
of certain assets of terminated defined benefit pension plans, and (ii)
pension costs upon the closing of segments of FII's business. The ACO has
directed FII to prepare cost impact proposals relating to such plan
terminations and segment closings and, following receipt of such cost impact
proposals, may seek adjustments to contract prices. The ACO alleges that
substantial amounts will be due if such adjustments are made. The Company
believes it has properly accounted for the asset reversions in accordance
with applicable accounting standards. The Company has held discussions with
the government to attempt to resolve these pension accounting issues.
Environmental Matters
- ---------------------
The Company and other aerospace fastener and industrial product
manufacturers are subject to stringent Federal, state and local environmental
laws and regulations concerning, among other things, the discharge of
materials into the environment and the generation, handling, storage,
transportation and disposal of waste and hazardous materials. To date, such
laws and regulations have not had a material effect on the financial
condition, results of operations, or net cash flows of the Company, although
the Company has expended, and can be expected to expend in the future,
significant amounts for investigation of environmental conditions and
installation of environmental control facilities, remediation of
environmental conditions and other similar matters, particularly in the
Aerospace Fasteners segment.
In connection with its plans to dispose of certain real estate, the
Company must investigate environmental conditions and may be required to take
certain corrective action prior or pursuant to any such disposition. In
addition, management has identified several areas of potential contamination
at or from other facilities owned, or previously owned, by the Company, that
may require the Company either to take corrective action or to contribute to
a clean-up. The Company is also a defendant in certain lawsuits and
proceedings seeking to require the Company to pay for investigation or
remediation of environmental matters and has been alleged to be a potentially
responsible party at various "Superfund" sites. Management of the Company
believes that it has recorded adequate reserves in its financial statements
to complete such investigation and take any necessary corrective actions or
make any necessary contributions. No amounts have been recorded as due from
third parties, including insurers, or set off against, any liability of the
Company, unless such parties are contractually obligated to contribute and
are not disputing such liability.
As of June 30, 1996, the consolidated total recorded liabilities of the
Company for environmental matters totalled $11,287, which represented the
estimated probable exposures for these matters. It is reasonably possible
that the Company's total exposure for these matters could be approximately
$19,118.
Other Matters
- -------------
The Company is involved in various other claims and lawsuits incidental
to its business, some of which involve substantial amounts. The Company,
either on its own or through its insurance carriers, is contesting these
matters.
In the opinion of management, the ultimate resolution of the legal
proceedings, including those discussed above, will not have a material
adverse effect on the financial condition, or future results of operations or
net cash flows of the Company.
22. BUSINESS SEGMENT INFORMATION
----------------------------
The Company's operations were conducted in four principal business
segments during Fiscal 1996. The Aerospace Fasteners segment includes the
manufacture of high performance specialty fasteners and fastening systems.
The Aerospace Distribution segment distributes a wide range of aircraft parts
and related support services to the aerospace industry. The Industrial
Products segment is primarily engaged in the designing and manufacturing of
wet processing tools, equipment and systems. The Communications Services
segment provides telecommunication services to office buildings and sells,
installs and maintains telecommunications systems for business and government
customers.
Identifiable assets represent assets that are used in the Company's
operations in each segment at year end. Corporate assets are principally in
cash, marketable securities, prepaid pension costs, assets held for sale, and
property maintained for general corporate purposes.
The Company's financial data by business segment is as follows:
1996 1995 1994
--------- --------- ---------
Sales by Business Segment:
Aerospace Fasteners.............. $ 218,059 $ 215,364 $ 203,456
Aerospace Distribution (c)....... 129,973 -- --
Industrial Products.............. 67,330 41,476 --
Communications Services.......... 91,290 108,710 74,190
Eliminations (a)................. (5,842) -- --
--------- --------- ---------
Total Segment Sales................ $ 500,810 $ 365,550 $ 277,646
========= ========= =========
Operating Income (Loss) by Segment:
Aerospace Fasteners (b).......... $ 135 $ (11,497) $ (32,208)
Aerospace Distribution (c)....... 5,625 -- --
Industrial Products.............. 826 (5,089) --
Communications Services.......... 14,561 18,498 16,483
--------- --------- ---------
Total Segment Operating Income..... 21,147 1,912 (15,725)
Corporate Administrative Expense. (14,506) (13,179) (16,868)
Other Corporate Income (Expense). (1,196) (2,152) 2,231
--------- --------- ---------
Total Consolidated Operating
Income (Loss).................... $ 5,445 $ (13,419) $ (30,362)
========= ========= =========
Capital Expenditures:
Aerospace Fasteners.............. $ 3,841 $ 4,974 $ 4,320
Aerospace Distribution........... 1,556 -- --
Industrial Products.............. 1,130 491 --
Communications Services.......... 8,500 10,349 7,775
Corporate and Other.............. 95 446 187
--------- --------- ---------
Total Capital Expenditures......... $ 15,122 $ 16,260 $ 12,282
========= ========= =========
Depreciation and Amortization:
Aerospace Fasteners.............. $ 14,916 $ 15,619 $ 14,373
Aerospace Distribution........... 1,341 -- --
Industrial Products.............. 919 432 --
Communications Services.......... 8,064 10,329 8,948
Corporate and Other.............. 4,477 4,828 6,141
--------- --------- ---------
Total Depreciation and Amortization $ 29,717 $ 31,208 $ 29,462
========= ========= =========
Identifiable Assets at June 30,:
Aerospace Fasteners.............. $ 252,200 $ 290,465 $ 306,008
Aerospace Distribution........... 329,477 -- --
Industrial Products.............. 35,141 37,101 16,722
Communications Services.......... -- 108,666 79,087
Corporate and Other.............. 393,120 414,062 484,804
--------- --------- ---------
Total Identifiable Assets.......... $1,009,938 $ 850,294 $ 886,621
========= ========= =========
(a) - Intersegment eliminations includes $5,819 of sales from the Aerospace
Fasteners segment to the Aerospace Distribution segment and $23 of sales from
the Aerospace Distribution segment to the Aerospace Fasteners segment.
(b) - Includes charges to reflect the cost of restructuring of $2,319 and
$18,860 in Fiscal 1996 and 1994, respectively, and an unusual loss from
earthquake damage and business interruption of $4,000 in Fiscal 1994.
(c) - The Company became the majority shareholder of Banner Aerospace, Inc.
on February 25, 1996 and, accordingly, began consolidating their results as
of then.
23. FOREIGN OPERATIONS AND EXPORT SALES
-----------------------------------
The Company's operations are located primarily in the United States and
Europe. Inter-area sales are not significant to the total sales of any
geographic area. The Company's financial data by geographic area is as
follows:
1996 1995 1994
--------- --------- ---------
Sales by Geographic Area:
United States.................... $ 393,247 $ 283,811 $ 234,626
Europe........................... 107,186 80,945 41,988
Other............................ 377 794 1,032
--------- --------- ---------
Total Sales........................ $ 500,810 $ 365,550 $ 277,646
========= ========= =========
Operating Income by Geographic Area:
United States.................... $ 15,360 $ 2,307 $ (20,495)
Europe........................... 5,935 (432) 4,839
Other............................ (148) 37 (69)
--------- --------- ---------
Total Segment Operating Income..... $ 21,147 $ 1,912 $ (15,725)
========= ========= =========
Identifiable Assets by Geographic
Area at June 30,:
United States.................... $ 546,147 $ 355,387 $ 336,533
Europe........................... 77,627 85,668 47,654
Other............................ -- 892 908
Corporate and other assets....... 386,164 408,347 501,526
--------- --------- ---------
Total Identifiable Assets.......... $1,009,938 $ 850,294 $ 886,621
========= ========= =========
Export sales are defined as sales to customers in foreign countries by
the Company's domestic operations. Export sales amounted to the following:
1996 1995 1994
--------- --------- ---------
Export Sales
Europe........................... $ 27,330 $ 13,329 $ 9,440
Asia............................. 20,878 5,666 2,661
Canada........................... 8,878 2,810 2,953
Other............................ 8,565 911 792
--------- --------- ---------
Total Export Sales................. $ 65,651 $ 22,716 $ 15,846
========= ========= =========
24. QUARTERLY FINANCIAL DATA (UNAUDITED)
------------------------------------
The following table of quarterly financial data has been prepared from
the financial records of the Company without audit, and reflects all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results of operations for the interim periods presented:
- ----------------------------------------------------------------------------------------------
Fiscal 1996 quarters ended Oct. 1 Dec. 31 March 31 June 30
- ----------------------------------------------------------------------------------------------
Net sales.......................... $107,926 $103,450 $135,451 $153,983
Gross profit....................... 23,591 23,036 29,846 40,418
Earnings (loss) from continuing
operations....................... (9,286) (9,016) 155,095 577
per share...................... (.58) (.56) 9.27 .03
Earnings from discontinued
operations, net................. 3,870 3,420 1,769 127
per share..................... .24 .21 .11 .01
Gain (loss) from disposal of
discontinued operations, net.... (20) (7) 61,286 (7,673)
per share...................... -- -- 3.66 (.45)
Extraordinary items, net........... -- -- (10,436) --
per share...................... -- -- (.62) --
Net earnings (loss)................ (5,436) (5,603) 207,714 (6,969)
per share...................... (.34) (.35) 12.42 (.41)
Market price range of Class A Stock
High............................. 6 8 3/4 9 7/8 15 7/8
Low.............................. 2 7/8 4 3/4 8 9 1/4
- ----------------------------------------------------------------------------------------------
Fiscal 1995 quarters ended Oct. 2 Jan. 1 April 2 June 30
- ----------------------------------------------------------------------------------------------
Net sales.......................... $ 78,905 $ 81,849 $102,982 $101,814
Gross profit....................... 18,103 13,816 18,820 14,964
Loss from continuing operations.... (10,033) (13,858) (15,146) (8,877)
per share...................... (.62) (.86) (.94) (.55)
Earnings from discontinued
operations, net.................. 3,373 3,193 4,389 3,039
per share...................... .20 .19 .27 .19
Loss from disposal of discontinued
operations, net.................. (25) (25) (184) (25)
per share...................... -- -- (.01) --
Extraordinary items, net........... -- (23) 378 --
per share...................... -- -- .02 --
Net loss........................... (6,685) (10,713) (10,563) (5,863)
per share...................... (.42) (.67) (.66) (.36)
Market price range of Class A Stock
High............................. 4 1/8 4 1/8 3 3/4 3 3/8
Low.............................. 3 1/8 2 5/8 2 3/8 2
/TABLE
Earnings (loss) from continuing operations in the fourth quarter
of
Fiscal 1995, includes adjustments to inventories and receivables of the
Company's Aerospace Fasteners Segment, to reflect required valuation
allowances against these assets. Charges to reflect the cost of
restructuring the Company's Aerospace Fasteners Segment, of $285, $959 and
$1,075 in the second, third and fourth quarters of Fiscal 1996, respectively,
are included in earnings (loss) from continuing operations.
The third quarter of Fiscal 1996 includes non-recurring income of
$161,480, primarily from the gain on the merger of FCSC with STI.
Earnings from discontinued operations includes the results of DME and
Data in each quarter.
Extraordinary items relate to the early extinguishment of debt by the
Company. (See Note 7).
The Fiscal 1995 four quarters and the Fiscal 1996 first quarter data
varies from that previously reported in each of those quarters' respective
Form 10-Q filings, and have been restated to reflect the sale of DME and
Data. (See Note 5). The previously reported Fiscal 1996 quarters were
restated for adjustments to inventory reserves, which resulted in additional
income (expense), net of tax, of $(1,138), $(453) and $494 in the first,
second and third quarters of Fiscal 1996, respectively.
Report of Independent Public Accountants
----------------------------------------
To The Fairchild Corporation:
We have audited the accompanying consolidated balance sheets of The Fairchild
Corporation (a Delaware corporation) and subsidiaries as of June 30, 1996 and
1995, and the related consolidated statements of earnings, stockholders'
equity and cash flows for the years ended June 30, 1996, 1995 and 1994.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Fairchild Corporation
and subsidiaries as of June 30, 1996 and 1995, and the results of their
operations and their cash flows for the years ended June 30, 1996, 1995 and
1994, in conformity with generally accepted accounting principles.
As discussed in Notes 11 and 12 to the consolidated financial statements,
effective July 1, 1993, the Company changed its methods of accounting for
postretirement benefits other than pensions, and income taxes.
Arthur Andersen LLP
Washington, D.C.
September 4, 1996
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
- -------------------------------------------------------------
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
- ---------------------------------------------------------
The information required by this Item is incorporated herein by
reference from the 1996 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
The information required by this Item is incorporated herein by
reference from the 1996 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The information required by this Item is incorporated herein by
reference from the 1996 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information required by this Item is incorporated herein by
reference from the 1996 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
The following documents are filed as part of this Report:
(a)(1) Financial Statements.
All financial statements of the registrant as set forth under Item 8 of
this report on Form 10-K (see index on Page 30).
(a)(2) Financial Statement Schedules and Report of Independent Public
Accountants.
Schedule Number Description Page Number
--------------- ----------- -----------
II Valuation and Qualifying Accounts 94
All other schedules are omitted because they are not required.
Report of Independent Public Accountants
----------------------------------------
To The Fairchild Corporation:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of The Fairchild Corporation and
subsidiaries included in this Form 10-K and have issued our report thereon
dated September 4, 1996. Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule
listed in the index on the preceding page is the responsibility of the
Company's management and is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in
our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
Arthur Andersen LLP
Washington, D.C.
September 4, 1996
(a)(3) Exhibits.
3 (a) Registrant's Restated Certificate of Incorporation
(incorporated by reference to Exhibit "C" of Registrant's
Proxy Statement dated October 27, 1989).
* (b) Registrant's Amended and Restated By-Laws (as amended as
of September 15, 1995).
4 (a) Specimen of Class A Common Stock certificate (incorporated by
reference to Registration Statement No. 33-15359 on Form S-2).
(b) Specimen of Class B Common Stock certificate (incorporated by
reference from Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1989 (the "1989 10-K")).
(c) Form of Indenture between Registrant and J. Henry Schroder Bank
& Trust Company, pursuant to which Registrant's 13-1/8%
Subordinated Debentures due 2006 (the "Senior Debentures") were
issued (the "Debenture Indenture"), and specimen of Senior
Debenture (incorporated by reference to Registration Statement
No. 33-3521 on Form S-2).
(d) First Supplemental Indenture dated as of November 26, 1986, to
the Debenture Indenture (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1986 (the "December 1986 10-Q").
(e) Form of Indenture between Registrant and Manufacturers Hanover
Trust Company pursuant to which Registrant's 12-1/4% Senior
Subordinated Notes due 1996 (the "Senior Notes") were issued
(the"Note Indenture"), and specimen of Senior Note
(incorporated by reference to Registration Statement No.
33-03521 on Form S-2).
(f) First Supplemental Indenture dated as of November 26, 1986, to
the Note Indenture (incorporated by reference to the December
1986 10-Q).
(g) Indenture between Registrant and Connecticut National Bank (as
successor to National Westminster Bank) dated as of October 15,
1986, pursuant to which Registrant's Intermediate Subordinated
Debentures due 2001 (the "Intermediate Debentures") were
issued, and specimen of Intermediate Debenture (incorporated by
reference to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1986 (the "September 1986 10-Q")).
(h) Indenture between Rexnord Acquisition Corp. ("RAC") and Bank of
New York (as successor to Irving Trust Company) dated as of
March 2, 1987, pursuant to which RAC's Senior Subordinated
Debentures due 1999 (the "Rexnord Senior Debentures") were
issued (the "Rexnord Senior Indenture"), and specimen of
Rexnord Senior Debenture incorporated by reference from
Registrants Annual Report on Form 10-K for fiscal year ended
June 30, 1987 (the "1987 10-K").
(i) First Supplemental Indenture between Rexnord Inc. ("Rexnord")
(as successor to RAC) and Irving Trust Company dated as of July
1, 1987, to the Rexnord Senior Indenture (incorporated by
reference to Registration Statement No. 33-15359 on Form S-2).
(j) Second Supplemental Indenture between Rexnord Holdings Inc.,
now know as RHI Holdings, Inc. ("RHI") (as successor to
Rexnord) and Irving Trust Company dated as of August 16, 1988,
to the Rexnord Senior Indenture (incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1988 (the "1988 10-K")).
(k) Indenture between Registrant and Norwest Bank Minneapolis, N.A.
dated as of March 2, 1987, pursuant to which Registrant's
Junior Subordinated Debentures due 2007 (the "Junior
Debentures") were issued, and specimen of Junior Debenture
(incorporated by reference to Final Amendment to Tender Offer
Statement on Schedule 14D-1 of Banner Acquisition Corp. ("BAC")
dated March 9, 1987).
(l) First Supplemental Indenture between Registrant and Norwest
Bank, Minnesota Bank, N.A., dated as of February 28, 1991, to
Indenture dated as of March 2, 1987, relating to the Junior
Debentures (incorporated by reference to the 1991 10-K).
(m) Securities Purchase Agreement dated as of October 15, 1986, by
and among Registrant and each of the Purchasers of the
Intermediate Debentures (incorporated by reference to the
September 1986 10-Q).
(n) Securities Purchase Agreement dated as of March 2, 1987, by and
among Registrant, RAC and each of the Purchasers of the Junior
Debentures, the Rexnord Senior Debentures and other securities
(incorporated by reference to the 1987 10-K).
(o) Registration Rights Agreement dated as of October 15, 1986, by
and among Registrant and each of the purchasers of the
Intermediate Debentures (incorporated by reference to the
September 1986 10-Q).
(p) Registration Rights Agreement dated as of March 2, 1987, by and
among Registrant, RAC and each of the purchasers of the Junior
Debentures, the Rexnord Senior Debentures and other securities
(incorporated by reference to Registrant's Report on Form 8-K
dated March 17, 1987).
(q) Indenture between Rexnord and First Wisconsin Trust Company
dated as of June 1, 1983 (the "Rexnord Indenture"), First
Supplemental Indenture between Rexnord and First Wisconsin
Trust Company dated as of October 1, 1984 to the Rexnord
Indenture, pursuant to which Rexnord's Debentures due 1995 (the
"Rexnord Debentures") were issued, and specimen of Rexnord
Debenture (incorporated by reference to Form 8-A of Rexnord,
dated October 3, 1984).
(r) Second Supplemental Indenture among Rexnord, RHI and First
Wisconsin Trust Company dated as of August 16, 1988, to the
Rexnord Indenture (incorporated by reference to the 1988 10-K).
(s) Indenture dated as of November 1, 1982, between Fairchild
Industries, Inc. ("Fairchild") and Continental Illinois
National Bank and Trust Company of Chicago, pursuant to which
certain debt securities of Fairchild were issued (incorporated
by reference to Registration Statement No. 2-80009 on Form
S-3).
(t) Indenture dated as of January 1, 1978 between Fairchild and
Bankers Trust Company, pursuant to which Fairchild's 9-3/4%
Subordinated Debentures due April 1, 1988 were issued
(incorporated by reference to Registration Statement No.
2-60451 on Form S-7).
(u) Indenture dated as of March 1, 1991, between Registrant and
Sovran Bank, N.A., pursuant to which the Registrant's 14% Senior
Secured Notes were issued (incorporated by reference to the
1991 10-K).
(v) Indenture date as of August 1, 1992, between Fairchild and
NationsBank, N.A. pursuant to which Fairchild's 12 1/4% Senior
Secured Notes were issued (incorporated by reference to the
1992 10-K).
10 (a) Restated and Amended Credit Agreement dated as of July 27, 1992
(incorporated by reference to the 1992 10-K).
(a)(i) Amendment No. 1, dated as of June 30, 1993, to the Restated
and Amended Credit Agreement dated as of July 27, 1992
(incorporated by reference to the 1993 10-K).
(a)(ii) Amendment No. 2, dated as of October 1, 1993, to Restated and
Amended Credit Agreement dated as of July 27, 1992 (incorporated
by reference to the 1994 10-K).
(a)(iii) Amendment No. 3, dated as of December 23, 1993, to Restated and
Amended Credit Agreement dated as of July 27, 1992 (incorporated
by reference to the 1994 10-K).
(a)(iv) Amendment No. 4, dated as of March 31, 1994, to Restated and
Amended Credit Agreement dated as of July 27, 1992 (incorporated
by reference to the 1994 10-K).
(a)(v) Amendment No. 5, dated as of July 29, 1994, to Restated and
Amended Credit Agreement dated as of July 27, 1992
(incorporated by reference to the 1995 10-K).
(a)(vi) Amendment No. 6, dated as of October 15, 1994, to Restated and
Amended Credit Agreement dated as of July 27, 1992
(incorporated by reference to the 1995 10-K).
(a)(vii) Amendment No. 7, dated as of January 18, 1995, to Restated and
Amended Credit Agreement dated as of July 27, 1992
(incorporated by reference to the 1995 10-K).
(a)(viii)Amendment No. 8, dated as of February 15, 1995, to Restated and
Amended Credit Agreement dated as of July 27, 1992
(incorporated by reference to the 1995 10-K).
(a)(ix) Amendment No. 9, dated as of May 25, 1995, to Restated and
Amended Credit Agreement dated as of July 27, 1992
(incorporated by reference to the 1995 10-K).
(a)(x) Amendment No. 10, dated as of June 30, 1995, to Restated and
Amended Credit Agreement dated as of July 27, 1992
(incorporated by reference to the 1995 10-K).
*(a)(xi) Amendment No. 11, dated as of September 6, 1995, to Restated and
Amended Credit Agreement dated as of July 27, 1992.
*(a)(xii) Amendment No. 12, dated as of January 13, 1996, to Restated and
Amended Credit Agreement dated as of July 27, 1992.
(b) Securities Purchase Agreement dated as of August 15, 1988, by
and among Registrant, Rex-PT, Inc. ("Rex-PT"), Rex-PT Holdings
Inc. ("Rex-PT Holdings") and certain Purchasers, including (i) as
Exhibit 2, Debt Registration Rights Agreement dated as of August
15, 1988, by and among Rex-PT and certain Purchasers, (ii) as
Exhibit 3, Common Stock Registration Rights Agreement dated as of
August 16, 1988, by and among Rex-PT Holdings and certain
Purchasers, and (iii) as Exhibit 4, Stockholders' Agreement dated
as of August 16, 1988, by and among Registrant, Rex-PT Holdings,
RHI and certain holders of Rex-PT Holdings common stock
(incorporated by reference to the August 16, 1988 8-K).
(c) Form of Securities Purchase Agreement among Rex-PT Holdings,
Rex-PT, Registrant and Rex-PT Investors Inc. ("Rex-PT
Investors") (incorporated by reference to Registrant's Current
Report on Form 8-K dated September 29, 1988 (the "September 29,
1988 8-K")).
(d) Form of Agreement of Merger between Rex-PT Holdings and Rex-PT
Investors (incorporated by reference to the September 29, 1988
8-K).
(e) Form of Securities Purchase Agreement among Rex-PT Investors,
Rex-PT Holdings, Rex-PT, Registrant and certain purchasers
(incorporated by reference to the September 29, 1988 8-K).
(f) Form of Stockholders' Agreement among Rex-PT Holdings,
Registrant, RHI and Rex-PT Investors (incorporated
by reference to the September 29, 1988 8-K).
(g) Form of Voting Trust Agreement among certain holders of Rex-PT
Holdings common stock (incorporated by reference to the September
29, 1988 8-K).
(h) Form of Amended and Restated Common Stock Registration Rights
Agreement among Rex-PT Holdings and certain purchasers
(incorporated by reference to the September 29, 1988 8-K).
(i) Form of Common Stock Registration Rights Agreement between
Rex-PT Holdings and Rex-PT Investors (incorporated by reference
to the September 29, 1988 8-K).
(j) Form of Common Stock Registration Rights Agreement between
Rex-PT Holdings and RHI (incorporated by reference to the
September 29, 1988 8-K).
(k) Form of Registration Rights Agreement among Rex-PT Holdings,
RHI and Rex-PT Investors (incorporated by reference to the
September 29, 1988 8-K).
(l) Form of Registration Rights Agreement among Rex-PT Holdings,
RHI and certain purchasers (incorporated by reference to the
September 29, 1988 8-K).
(m) Form of Amended and Restated Stockholders' Agreement among
Rex-PT Holdings, Registrant, RHI and certain investors
(incorporated by reference to the 1988 10-K).
(n) Share Purchase Agreement dated October 4, 1988, by and between
RHI, Registrant, ChemRex Inc. and SKY Alloys, Inc., ABM
Investments Ltd., SKW Bauchemie GmbH and SKW Trostberg AG
(incorporated by reference to Registrant's Current Report on Form
8-K dated November 15, 1988 (the "November 15, 1988 8-K)).
(o) Asset Purchase Agreement dated November 15, 1988, by and among
RHI, ChemRex Inc. and J.W. Brett, Inc. (incorporated by reference
to the November 15, 1988 8-K).
(p) Asset Purchase Agreement dated as of December 16, 1988, between
RHI and Ilium Industries, Inc. (the "Ilium Agreement"); Amendment
to the Ilium Agreement dated as of February 21, 1989; and Second
Amendment to the Ilium Agreement dated as of March 15, 1989)
(incorporated by reference to Registrant's Current Report on Form
8-K dated March 17, 1989).
(q) Agreement and Plan of Merger dated as of May 7, 1989, among
Registrant, Specialty Fastener Holdings, Inc. and Fairchild, and
Amendment thereto dated May 12, 1989 (incorporated by reference
to Registrant's Current Report on Form 8-K dated June 19, 1989).
(r) Assets Purchase Agreement dated May 31, 1989, among Matra S.A.,
AERO Acquisition Corp., Registrant and Fairchild Acquisition
Corp. ("FAC") (incorporated by reference to Exhibit (a)(10) to
Amendment No. 2 to Tender Offer Statement on Schedule 14D-1 and
Schedule 13D of Registrant and FAC, dated May 31, 1989).
(s) Share Purchase Agreement dated as of October 31, 1990, among
Registrant, Banner Investments, Inc., North West Water Inc. and
North West Water Group PLC (the "Envirex Agreement")
(incorporated by reference to Form 8-K dated November 30, 1990).
(t) Amendments 1 - 6 to the Envirex Agreement (incorporated by
reference to 1991 10-K).
(u) Stock Purchase Agreement dated as of November 13, 1990, by and
between Registrant, Thompson Holding Company, Inc., Thompson
Aircraft Tire Corporation, a Delaware corporation, Thompson
Aircraft Tire Corporation, a Florida corporation and Bridgestone
Corporation (incorporated by reference to Form 8-K dated January
18, 1991).
(v) Option Sale Agreement dated December 26, 1990 by and between
RHI and Zaria, Inc. (incorporated by reference to 1991 10-K).
(w) Stock Purchase Agreement dated as of June 28, 1991 by and
between Sovereign Air Limited and S.A. Holdings, Inc.
(incorporated by reference to 1991 10-K).
(x) Agreement dated as of June 28, 1991 between Banner
Investments, Inc. and RHI (incorporated by reference to 1991
10-K).
(y) Agreement dated November 8, 1990, by and among Registrant and
Columbia Savings and Loan (incorporated by reference to 1991
10-K).
(z) Escrow and Amendment to Purchase Agreement as entered on
January 24, 1991 among Registrant, Columbia Savings and Loan and
Citibank, N.A. (incorporated by reference to 1991 10-K).
(a)(a) Stock Purchase Agreement dated as of February 7, 1992 among
Registrant, Thompson Aircraft Tire Corporation and Aero Tires
& Brakes, Inc. (incorporated by reference to 1993 10-K).
(a)(b) Exchange and Standstill Agreement dated June 19, 1992 by and
among Registrant, RHI and Rex-PT Holdings, Inc. (incorporated by
reference to 1992 10-K).
(a)(c) Registration Rights Agreement dated July 9, 1992 between
Rexnord Corporation and RHI (incorporated by reference 1993
10-K).
(a)(d) Allocation Agreement dated April 13, 1992 by and among The
Fairchild Corporation, RHI, Rex-PT Holdings, Rexnord
Corporation, Rexnord Puerto Rico, Inc. and Rexnord Canada
Limited (incorporated by reference to 1992 10-K).
(a)(e) Trademark Purchase Agreement dated April 13, 1992 by and
between Rexnord Corporation and RHI (incorporated by reference to
1992 10-K).
(a)(f) Deferred Compensation Agreement between Registrant and Samuel J.
Krasney dated July 14, 1972, as amended November 17, 1978,
September 3, 1985 (the "Krasney Deferred Compensation Agreement")
(incorporated by reference to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1985).
(a)(g) Amendment to the Krasney Deferred Compensation Agreement dated
September 6, 1990 (incorporated by reference to 1991 10-K).
(a)(h) Incentive Compensation Bonus Arrangement (description
incorporated by reference to Registrant's Proxy Statement dated
October 26, 1988).
(a)(i) Amended and Restated Employment Agreement between Registrant
and Samuel J. Krasney dated April 24, 1990 (incorporated by
reference to the 1990 10-K).
(a)(j) Letter Agreements dated August 4, 1993 among Samuel J. Krasney,
The Fairchild Corporation and Jeffrey J. Steiner (incorporated
by reference to 1993 10-K).
(a)(k) Amendment to the Krasney Option dated October 18, 1985
(incorporated by reference to the 1989 10-K).
(a)(l) Second Amendment to the Krasney Option dated April 30, 1986
(incorporated by reference to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1986).
(a)(m) Amended and Restated 1986 Deferred Performance Incentive Plan
of Banner Industries, Inc. (the "Deferred Incentive Plan")
(incorporated by reference to the 1988 10-K).
(a)(n) 1988 U.K. Stock Option Plan of Banner Industries, Inc.
(incorporated by reference to the 1988 10-K).
(a)(o) Description of grants of stock options to non-employee
directors of Registrant (incorporated by reference to the 1988
10-K).
(a)(p) Amended and Restated Employment Agreement between Registrant
and Jeffrey J. Steiner dated September 10, 1992 (incorporated
by reference to 1993 10-K).
(a)(q) Agreement dated as of November 8, 1988 between Samuel J.
Krasney and Registrant, and Amendment No. 1 thereto dated as of
January 23, 1989, regarding exercise of performance incentive
units granted under the Deferred Incentive Plan (incorporated by
reference to the 1989 10-K).
(a)(r) Agreement dated as of November 8, 1988 between Jeffrey J.
Steiner and Registrant, and Amendment No. 1 thereto dated as of
January 23, 1989, regarding exercise of performance incentive
units granted under the Deferred Incentive Plan (incorporated by
reference to the 1989 10-K).
(a)(s) Letter Agreement dated October 23, 1991 between Registrant and
Eric I. Steiner (incorporated by reference to 1992 10-K).
(a)(t) Letter Agreement dated October 23, 1991 between Registrant and
John D. Jackson (incorporated by reference to 1992 10-K).
(a)(u) Letter Agreement dated October 23, 1991 between Registrant and
Michael T. Alcox (incorporated by reference to 1992 10-K).
(a)(v) Letter Agreement dated October 23, 1991 between Registrant and
Donald E. Miller (incorporated by reference to 1992 10-K).
(a)(w) Letter Agreement dated October 23, 1991 between Registrant and
John L. Flynn (incorporated by reference to 1992 10-K).
(a)(x) Letter Agreement dated April 8, 1993 between Registrant and
Thomas Flaherty (incorporated by reference to 1993 10-K).
(a)(y) Purchase Agreement by and between BTR Dunlop Holdings, Inc.,
RHI Holdings, Inc., and Registrant, dated as of December 2,
1993 (incorporated by reference to Registrant's current
report on Form 8-K dated December 23, 1993.
(a)(z) Letter Agreement dated October 21, 1994, as amended December
21, 1994, between Registrant and Eric I. Steiner
(incorporated by reference to the 1995 10-K).
(b)(a) Letter Agreement dated October 21, 1994, as amended December
21, 1994, between Registrant and Michael T. Alcox
(incorporated by reference to the 1995 10-K).
(b)(b) Letter Agreement dated October 21, 1994, as amended December
21, 1994, between Registrant and Donald E. Miller
(incorporated by reference to the 1995 10-K).
(b)(c) Letter Agreement dated October 21, 1994, as amended December
21, 1994, between Registrant and John L Flynn
(incorporated by reference to the 1995 10-K).
(b)(d) Letter Agreement dated October 21, 1994, as amended December
21, 1994, between Registrant and Jerry Lirette
(incorporated by reference to the 1995 10-K).
(b)(e) Letter Agreement dated October 21, 1994, as amended December
21, 1994, between Registrant and Mel D. Borer
(incorporated by reference to the 1995 10-K).
(b)(f) Letter Agreement dated October 21, 1994, as amended December
21, 1994, between Registrant and Thomas J. Flaherty
(incorporated by reference to the 1995 10-K).
(b)(g) Agreement and Plan of Merger dated as of November 9, 1995 by and
among The Fairchild Corporation, RHI, FII and Shared
Technologies, Inc. ("STI Merger Agreement") (incorporated by
reference from the Registrant's Form 8-K dated as of November 9,
1995).
(b)(g)(i) Amendment No. 1 to STI Merger Agreement dated as of February 2,
1996 (incorporated by reference from the Registrant's Form 8-K
dated as of March 13, 1996).
(b)(g)(ii) Amendment No. 2 to STI Merger Agreement dated as of February
23, 1996 (incorporated by reference from the Registrant's Form
8-K dated as of March 13, 1996).
(b)(g)(iii) Amendment No. 3 to STI Merger Agreement dated as of March 1,
1996 (incorporated by reference from the Registrant's Form 8-K
dated as of March 13, 1996).
(b)(h) Asset Purchase Agreement dated as of January 23, 1996, between
The Fairchild Corporation, RHI and Cincinnati Milacron, Inc.
(incorporated by reference from the Registrant's Form 8-K dated
as of January 26, 1996).
*(b)(i) Credit Agreement dated as of March 13, 1996, among Fairchild
Holding Corporation ("FHC"), Citicorp USA, Inc. and certain
financial institutions.
*(b)(j) Restated and Amended Credit Agreement dated as of May 27, 1996,
(the "RHI Credit Agreement"), among RHI, Citicorp USA, Inc. and
certain financial institutions.
*(b)(j)(i) Amendment No. 1 dated as of July 29, 1996, to the RHI Credit
Agreement dated as of May 27, 1996.
*(b)(k) Restated and Amended Credit Agreement dated as of July 26, 1996,
(the "FHC Credit Agreement"), among FHC, Citicorp USA, Inc. and
certain financial institutions.
(b)(l) 1986 Non-Qualified and Incentive Stock Option Plan (incorporated
by reference to Registrant's Proxy Statement dated November 15,
1990).
(b)(m) Stock Exchange Agreement between The Fairchild Corporation and
Banner Aerospace, Inc. pursuant to which the Registrant exchanged
Harco, Inc. for shares of Banner Aerospace, Inc. (incorporated
by reference to the Banner Aerospace, Inc. Definitive Proxy
Statement dated and filed with the SEC on February 23, 1996
with respect to the Special Meeting of Shareholders of
Banner Aerospace, Inc. held on March 12, 1996).
*(b)(n) Employment Agreement between RHI Holdings, Inc., and Jacques
Moskovic, dated as of December 29, 1994.
*(b)(n)(i) Employment Agreement between RHI Holdings, Inc., and Jacques
Moskovic, dated as of December 29, 1994.
11 Computation of earnings per share (found at Note to
Registrant's Consolidated Financial Statements for the fiscal
year ended June 30, 1994).
*21 List of subsidiaries of Registrant.
*23 Consent of Arthur Andersen LLP, independent public
accountants.
*27 Financial Data Schedules
99(a) Registrant's press release, dated December 23, 1993
(incorporated by reference to Registrants Form 8-K dated
December 23, 1993).
99(b) Financial statements, related notes thereto and Auditors'
Report of Banner Aerospace, Inc. for the fiscal year ended March
31, 1996 (incorporated by reference to the Banner Aerospace,
Inc. Form 10-K for fiscal year ended March 31, 1996).
*Filed herewith.
(b) Reports on Form 8-K
Registrant filed no reports on Form 8-K during the last quarter of
Fiscal 1996.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE FAIRCHILD CORPORATION
By: Michael T. Alcox
Senior Vice President and
Chief Financial Officer
Date: September 26, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant, in their capacities and on the dates indicated.
Name, Title, Capacity Date
--------------------- ----
Jeffrey J. Steiner September 26, 1996
Chairman, Chief Executive
Officer, President and Director
Samuel J. Krasney September 26, 1996
Vice Chairman and Director
Michael T. Alcox September 26, 1996
Senior Vice President, Chief
Financial Officer and Director
Philip David September 26, 1996
Director
Harold J. Harris September 26, 1996
Director
Herbert S. Richey September 26, 1996
Director
Frederick W. McCarthy September 26, 1996
Director
Eric I. Steiner September 26, 1996
Senior Vice President and
Director
Mortimer M. Caplin September 26, 1996
Director
Robert A. Sharpe, II September 26, 1996
Director
Melville R. Barlow September 26, 1996
Director
Colin M. Cohen September 26, 1996
Director
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- -----------------------------------------------
Changes in the allowance for doubtful accounts are as follows:
For the Years Ended June 30,
(In thousands) ----------------------------------
1996 1995 1994
-------- -------- --------
Beginning balance................. $ 3,971 $ 2,284 $ 1,084
Charged to cost and expenses...... 2,099 1,868 360
Charges to other accounts (1)..... 1,970 (86) 1,328
Amounts written off............... (1,713) (95) (488)
------- ------- -------
Ending balance.................... $ 6,327 $ 3,971 $ 2,284
======= ======= =======
(1) Recoveries of amounts written off in prior periods, foreign currency
translation and the change in related noncurrent taxes. Included in Fiscal
1994 is $1,179 relating to the acquisition of a subsidiary.
Included in Fiscal 1996 is $2,348 relating to the consolidation of
Banner Aerospace, Inc. and $(309) from the deconsolidation of the Fairchild
Communications Services Company as a result of the Merger.