UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 2, 2000
Commission File Number 1-6560
THE FAIRCHILD CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 34-0728587
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
45025 Aviation Drive, Suite 400
Dulles, VA 20166
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703) 478-5800
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Outstanding at
Title of Class April 2, 2000
Class A Common Stock, $0.10 Par Value 22,414,722
Class B Common Stock, $0.10 Par Value 2,621,652
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets as of April 2, 2000 (Unaudited) and
June 30, 1999 3
Consolidated Statements of Earnings (Unaudited) for the Three and Nine
Months ended April 2, 2000 and March 28, 1999 5
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine
Months ended April 2, 2000 and March 28, 1999 7
Notes to Condensed Consolidated Financial Statements (Unaudited) 8
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition 19
Item 3. Quantitative and Qualitative Disclosure About Market Risk 27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 28
Item 2.Changes in Securities and Use of Proceeds 28
Item 4.Submission of Matters to a Vote of Security Holders 28
Item 5.Other Information 28
Item 6. Exhibits and Reports on Form 8-K 28
All references in this Quarterly Report on Form 10-Q to the terms ''we,'' ''our,'' ''us,'' the ''Company'' and ''Fairchild'' refer to The Fairchild Corporation and its subsidiaries. All references to ''fiscal'' in connection with a year shall mean the 12 months ended June 30.
PART I. FINANCIAL INFORMATION
<TABLE>
ITEM 1. FINANCIAL STATEMENTS
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 2, 2000 (Unaudited) and June 30, 1999
(In thousands)
ASSETS
<CAPTION>
April 2, |
June 30, |
|
ASSETS |
2000 |
1999 |
(*) |
||
CURRENT ASSETS: |
||
<S> |
<C> |
<C> |
Cash and cash equivalents, $52,987 and $15,752 restricted |
$ 85,605 |
$ 54,860 |
Short-term investments |
13,164 |
13,094 |
Accounts receivable-trade, less allowances of $4,427 and $6,442 |
121,733 |
130,121 |
Inventories: |
||
Finished goods |
138,719 |
137,807 |
Work-in-process |
34,957 |
38,316 |
Raw materials |
11,201 |
14,116 |
184,877 |
190,239 |
|
Prepaid expenses and other current assets |
64,660 |
73,926 |
Total Current Assets |
470,039 |
462,240 |
Property, plant and equipment, net of accumulated |
||
depreciation of $138,997 and $103,556 |
181,872 |
184,065 |
Net assets held for sale |
20,058 |
21,245 |
Cost in excess of net assets acquired (Goodwill), less |
||
accumulated amortization of $56,729 and $40,307 |
429,244 |
447,722 |
Investments and advances, affiliated companies |
10,242 |
31,791 |
Prepaid pension assets |
64,104 |
63,958 |
Deferred loan costs |
15,079 |
13,077 |
Real estate investment |
108,859 |
83,791 |
Long-term investments |
12,773 |
15,844 |
Other assets |
7,373 |
5,053 |
TOTAL ASSETS |
$1,319,643 |
$1,328,786 |
*Condensed from audited financial statements.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<TABLE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 2, 2000 (Unaudited) and June 30, 1999
(In thousands)
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
April 2, |
June 30, |
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
2000 |
1999 |
CURRENT LIABILITIES: |
(*) |
|
<S> |
<C> |
<C> |
Bank notes payable and current maturities of long-term debt |
$ 29,201 |
$ 28,860 |
Accounts payable |
51,751 |
72,271 |
Accrued liabilities: |
||
Salaries, wages and commissions |
41,345 |
43,095 |
Employee benefit plan costs |
7,818 |
5,204 |
Insurance |
9,916 |
14,216 |
Interest |
13,057 |
7,637 |
Other accrued liabilities |
46,457 |
50,984 |
118,593 |
121,136 |
|
Net current liabilities of discontinued operations |
6,082 |
10,999 |
Total Current Liabilities |
205,627 |
233,266 |
LONG-TERM LIABILITES: |
||
Long-term debt, less current maturities |
489,581 |
495,283 |
Other long-term liabilities |
24,345 |
25,904 |
Retiree health care liabilities |
46,251 |
44,813 |
Noncurrent income taxes |
138,584 |
121,961 |
Minority interest in subsidiaries |
64 |
59 |
TOTAL LIABILITIES |
904,452 |
921,286 |
STOCKHOLDERS' EQUITY: |
||
Class A common stock, $0.10 par value; authorized |
||
40,000 shares, 30,064 (29,754 in June) shares issued and |
||
22,415 (22,259 in June) shares outstanding |
3,006 |
2,975 |
Class B common stock, $0.10 par value; authorized 20,000 |
||
shares, 2,622 shares issued and outstanding |
262 |
262 |
Paid-in capital |
231,046 |
229,038 |
Retained earnings |
265,682 |
252,030 |
Cumulative other comprehensive income |
(9,296) |
(2,703) |
Treasury stock, at cost, 7,649 (7,496 in June) shares of Class A common stock |
(75,509) |
(74,102) |
TOTAL STOCKHOLDERS' EQUITY |
415,191 |
407,500 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$1,319,643 |
$1,328,786 |
*Condensed from audited financial statements
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<TABLE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF EARNINGS (Unaudited)
<CAPTION>
For The Three (3) and Nine (9) Months Ended April 2, 2000 and March 28, 1999
(In thousands, except per share data)
Three Months Ended |
Nine Months Ended |
|||||||
04/02/00 |
03/28/99 |
04/02/00 |
03/28/99 |
|||||
REVENUE: |
||||||||
<S> |
<C> |
<C> |
<C> |
<C> |
||||
Net sales |
$158,029 |
$146,352 |
$474,782 |
$446,072 |
||||
Other income, net |
2,031 |
704 |
9,641 |
1,473 |
||||
160,060 |
147,056 |
484,423 |
447,545 |
|||||
COSTS AND EXPENSES: |
||||||||
Cost of goods sold |
117,527 |
109,462 |
353,261 |
356,448 |
||||
Selling, general & administrative |
31,325 |
28,049 |
98,530 |
83,495 |
||||
Amortization of goodwill |
3,082 |
1,364 |
9,190 |
4,002 |
||||
Restructuring |
1,399 |
- |
7,456 |
- |
||||
153,333 |
138,875 |
468,437 |
443,945 |
|||||
OPERATING INCOME |
6,727 |
8,181 |
15,986 |
3,600 |
||||
Interest expense |
13,717 |
7,075 |
38,045 |
22,281 |
||||
Interest income |
(2,041) |
(267) |
(3,598) |
(1,326) |
||||
Net interest expense |
11,676 |
6,808 |
34,447 |
20,955 |
||||
Investment income |
6,272 |
36,876 |
9,150 |
37,710 |
||||
Nonrecurring gain |
852 |
- |
28,855 |
- |
||||
Earnings from continuing operations before taxes |
2,175 |
38,249 |
19,544 |
20,355 |
||||
Income tax provision |
(156) |
(13,749) |
(5,422) |
(7,316) |
||||
Equity in earnings (loss) of affiliates, net |
603 |
132 |
(470) |
1,821 |
||||
Minority interest, net |
- |
(4,249) |
- |
(2,114) |
||||
Earnings from continuing operations |
2,622 |
20,383 |
13,652 |
12,746 |
||||
Loss on disposal of discontinued operations, net |
- |
(19,694) |
- |
(28,874) |
||||
NET EARNINGS (LOSS) |
$ 2,622 |
$ 689 |
$ 13,652 |
$(16,128) |
||||
Other comprehensive income (loss), net of tax: |
||||||||
Foreign currency translation adjustments |
(3,660) |
(6,139) |
(6,742) |
1,413 |
||||
Unrealized holding changes on securities arising during the period |
(1,690) |
(12,865) |
149 |
(15,620) |
||||
Other comprehensive loss |
(5,350) |
(19,004) |
(6,593) |
(14,207) |
||||
COMPREHENSIVE INCOME (LOSS) |
$(2,728) |
$(18,315) |
$ 7,059 |
$(30,335) |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<TABLE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF EARNINGS (Unaudited)
For The Three (3) and Nine (9) Months Ended April 2, 2000 and March 28, 1999
<CAPTION>
(In thousands, except per share data)
Three Months Ended |
Nine Months Ended |
|||||||
04/02/00 |
03/28/99 |
04/02/00 |
03/28/99 |
|||||
BASIC EARNINGS PER SHARE: |
||||||||
<S> |
<C> |
<C> |
<C> |
<C> |
||||
Earnings from continuing operations |
$ 0.10 |
$ 0.93 |
$ 0.55 |
$ 0.58 |
||||
Loss on disposal of discontinued operations, net |
- |
(0.90) |
- |
(1.30) |
||||
NET EARNINGS (LOSS) |
$ 0.10 |
$ 0.03 |
$ 0.55 |
$ (0.72) |
||||
Other comprehensive income (loss), net of tax: |
||||||||
Foreign currency translation adjustments |
$ (0.15) |
$ (0.28) |
$ (0.27) |
$ 0.06 |
||||
Unrealized holding changes on securities arising during the period |
(0.07) |
(0.59) |
0.01 |
(0.71) |
||||
Other comprehensive loss |
(0.22) |
(0.87) |
(0.26) |
(0.65) |
||||
COMPREHENSIVE INCOME (LOSS) |
$ (0.12) |
$ (0.84) |
$ 0.29 |
$ (1.37) |
||||
DILUTED EARNINGS PER SHARE: |
||||||||
Earnings from continuing operations |
$ 0.10 |
$ 0.92 |
$ 0.54 |
$ 0.57 |
||||
Loss on disposal of discontinued operations, net |
- |
(0.89) |
- |
(1.28) |
||||
NET EARNINGS (LOSS) |
$ 0.10 |
$ 0.03 |
$ 0.54 |
$ (0.71) |
||||
Other comprehensive income (loss), net of tax: |
||||||||
Foreign currency translation adjustments |
$ (0.14) |
$ (0.28) |
$ (0.27) |
$ 0.06 |
||||
Unrealized holding changes on securities arising during the period |
(0.07) |
(0.58) |
0.01 |
(0.69) |
||||
Other comprehensive loss |
(0.21) |
(0.86) |
(0.26) |
(0.63) |
||||
COMPREHENSIVE INCOME (LOSS) |
$ (0.11) |
$ (0.83) |
$ 0.28 |
$ (1.34) |
||||
Weighted average shares outstanding: |
||||||||
Basic |
24,975 |
21,872 |
24,922 |
22,129 |
||||
Diluted |
25,297 |
22,165 |
25,416 |
22,552 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<TABLE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For The Nine (6) Months Ended April 2, 2000 and March 28, 1999
<CAPTION>
(In thousands)
For the Nine Months Ended |
|||
04/02/2000 |
03/28/1999 |
||
Cash flows from operating activities: |
|||
<S> |
<C> |
<C> |
|
Net earnings |
$ 13,652 |
$(16,128) |
|
Depreciation and amortization |
30,314 |
17,371 |
|
Accretion of discount on long-term liabilities |
2,845 |
3,854 |
|
Amortization of deferred loan fees |
902 |
888 |
|
Net gain on divestiture of investment in affiliates |
(26,598) |
- |
|
Net gain on divestiture of subsidiary |
(2,256) |
- |
|
Distributed (undistributed) earnings of affiliates, net |
723 |
3,376 |
|
Minority interest |
- |
2,114 |
|
Change in assets and liabilities |
(52,293) |
(19,907) |
|
Non-cash charges and working capital changes of discontinued operations |
(12,535) |
12,445 |
|
Net cash provided by (used for) operating activities |
(45,246) |
4,013 |
|
Cash flows from investing activities: |
|||
Purchase of property, plant and equipment |
(24,805) |
(18,694) |
|
Acquisition of subsidiaries, net of cash acquired |
- |
(3,940) |
|
Net proceeds received from investment securities |
13,571 |
173,424 |
|
Net proceeds received from divestiture of investment in affiliates |
46,886 |
- |
|
Net proceeds received from divestiture of subsidiaries |
61,906 |
60,397 |
|
Real estate investment |
(26,419) |
(24,524) |
|
Investment in equity affiliates |
(2,476) |
- |
|
Proceeds received from net assets held for sale |
4,672 |
3,526 |
|
Other, net |
- |
283 |
|
Investing activities of discontinued operations |
7,100 |
(542) |
|
Net cash provided by investing activities |
80,435 |
189,930 |
|
Cash flows from financing activities: |
|||
Proceeds from issuance of debt |
198,172 |
80,127 |
|
Debt repayments |
(201,453) |
(135,569) |
|
Issuance of Class A common stock |
286 |
153 |
|
Purchase of treasury stock |
(486) |
(22,101) |
|
Financing activities of discontinued operations |
- |
30 |
|
Net cash used for financing activities |
3,481) |
(77,360) |
|
Effect of exchange rate changes on cash |
(963) |
1,162 |
|
Net change in cash and cash equivalents |
30,745 |
117,745 |
|
Cash and cash equivalents, beginning of the year |
54,860 |
49,601 |
|
Cash and cash equivalents, end of the period |
$ 85,605 |
$ 167,346 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except share data)
- FINANCIAL STATEMENTS
- DIVESTITURES
- DISCONTINUED OPERATIONS
- PRO FORMA FINANCIAL STATEMENTS
- EQUITY SECURITIES
- RESTRICTED CASH
- NEW TERM LOAN AGREEMENT
- EARNINGS PER SHARE
- RESTRUCTURING CHARGES
- CONTINGENCIES
- CONSOLIDATING FINANCIAL STATEMENTS
- SUBSEQUENT EVENTS
The consolidated balance sheet as of April 2, 2000 and the consolidated statements of earnings and cash flows for the nine months ended April 2, 2000 and March 28, 1999 have been prepared by us, without audit. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at April 2, 2000, and for all periods presented, have been made. The balance sheet at June 30, 1999 was condensed from the audited financial statements as of that date.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our June 30, 1999 Annual Report on Form 10-K. The results of operations for the period ended April 2, 2000 are not necessarily indicative of the operating results for the full year. Certain amounts in the prior year's quarterly financial statements have been reclassified to conform to the current presentation.
On December 1, 1999, we disposed of substantially all of the assets and certain liabilities of our Dallas Aerospace subsidiary to United Technologies Inc. for approximately $57.0 million. No gain or loss was recognized from this transaction, as the proceeds received approximated the net carrying value of the assets. Approximately $37.0 million of the proceeds from this disposition will be used to reduce our term indebtedness.
On September 3, 1999, we completed the disposal of our Camloc Gas Springs division to a subsidiary of Arvin Industries Inc. for approximately $2.7 million. In addition, we received $2.4 million from Arvin Industries for a covenant not to compete. We recognized a $2.3 million nonrecurring gain from this disposition. We used the net proceeds from the disposition to reduce our indebtedness.
On July 29, 1999, we sold our 31.9% interest in Nacanco Paketleme to American National Can Group, Inc. for approximately $48.2 million. In the nine months ended April 2, 2000, we recognized a $25.7 million nonrecurring gain from this divestiture. We also agreed to provide consulting services over a three-year period, at an annual fee of approximately $1.5 million. We used the net proceeds from the disposition to reduce our indebtedness.
In 1998, we adopted a formal plan to dispose of Fairchild Technologies. Based on this plan, we have sold the Fairchild Technologies' businesses, including most of its intellectual property, through a series of transactions. On April 14, 1999, we disposed of Fairchild Technologies photoresist deep-ultraviolet track equipment machines, spare parts and testing equipment to Apex Co., Ltd. in exchange for 1,250,000 shares of Apex stock valued at approximately $5.1 million. On June 15, 1999, we received from Suess Microtec AG $7.9 million and the right to receive 350,000 shares of Suess Microtec stock, or at least approximately $3.5 million, by September 2000 in exchange for certain inventory, fixed assets, and intellectual property of Fairchild Technologies' semiconductor equipment group. On May 1, 1999, we sold Fairchild CDI for a nominal amount. In July 1999, we received approximately $7.1 million from Novellus Systems, Inc. in exchange for Fairchild Technologies' Low-K dielectric product line and certain intellectual property. On April 14, 2000, we completed the disposition of Fairchild Technologies' optical disc equipment group to Convac Technologies Ltd. for a nominal amount (See Note 12).
As of April 2, 2000, we have a remaining accrual of $4.4 million, net of an income tax benefit of $3.2 million, for our current estimate of the remaining losses in connection with the disposition of Fairchild Technologies' businesses when the Optical Disc Equipment Group was sold to Convac Technologies. While we believe that $4.4 million is a reasonable estimate of the remaining losses to be incurred from Fairchild Technologies, this estimate may prove to be inadequate.
The following table sets forth the derivation of the unaudited pro forma results, representing the impact of our acquisition of Kaynar Technologies (April 1999), our merger with Banner Aerospace (April 1999), and our dispositions of Dallas Aerospace (December 1999), Solair (December 1998) and the investment in Nacanco (July 1999), as if these transactions had occurred at the beginning of each of our fiscal periods. The pro forma information is based on the historical financial statements of these companies, giving effect to the aforementioned transactions. In preparing the pro forma data, certain assumptions and adjustments have been made which increase interest expense based on revised debt structures; increase goodwill amortization expense for the acquisition of Kaynar Technologies; and reduce minority interest as a result of our merger with Banner Aerospace. The unaudited pro forma information is not intended to be indicative of either future results of our operations or results that might have been achieved if these transactions had been in effect since the beginning of these fiscal periods.
<TABLE>
<CAPTION>
For the nine months ended: |
April 2, |
March 28, |
2000 |
1999 |
|
<S> |
<C> |
<C> |
Net sales |
$ 453,088 |
$ 516,574 |
Gross profit |
117,465 |
138,264 |
Net earnings (loss) |
(4,417) |
22,033 |
Net earnings (loss), per basic share |
$ (0.18) |
$ 0.88 |
Net earnings (loss), per diluted share |
$ (0.18) |
$ 0.83 |
</TABLE>
We had 22,414,722 shares of Class A common stock and 2,621,652 shares of Class B common stock outstanding at April 2, 2000. Class A common stock is traded on both the New York and Pacific Stock Exchanges. There is no public market for the Class B common stock. The shares of Class A common stock are entitled to one vote per share and cannot be exchanged for shares of Class B common stock. The shares of Class B common stock are entitled to ten votes per share and can be exchanged, at any time, for shares of Class A common stock on a share-for-share basis. For the nine months ended April 2, 2000, 85,795 and 14,968 shares of Class A common stock were issued as a result of the exercise of stock options and the Special-T restricted stock plan, respectively. Under the terms of our acquisition of Special-T, we issued 44,079 restricted shares of our Class A common stock during the nine months ended April 2, 2000, as additional merger consideration. On February 23, 2000, we issued 63,300 restricted shares of Class A common stock as a result of a cashless exercise of 250,000 warrants. In addition, our Class A common stock outstanding was reduced as a result of 52,000 shares purchased by us during the first nine months of fiscal 2000, which are considered as treasury stock for accounting purposes.
During the nine months ended April 2, 2000, we issued 121,244 deferred compensation units pursuant to our stock option deferral plan, as a result of the exercise of 228,891 stock options. Each deferred compensation unit is represented by one share of our treasury stock and is convertible into one share of Class A common stock after a specified period of time.
On April 2, 2000 and June 30, 1999, we had restricted cash of $52,987 and $15,752, respectively, all of which is maintained as collateral for certain debt facilities and escrow arrangements.
On March 23, 2000, we entered into a $30,750 term loan agreement with Morgan Guaranty Trust Company of New York. The loan is secured by all of the rental property of the Fairchild Airport Plaza shopping center located in Farmingdale, New York, including tenant leases and mortgage escrows. Borrowings under this agreement will mature on April 1, 2003, and bear interest at the rate of LIBOR plus 3.5% per annum. If our debt coverage ratio at any time reaches a threshold of 1.4 or greater, the interest rate will be reduced to LIBOR plus 3.1%. We may borrow up to an additional $19,250 at the same terms dependent on our ability to meet certain operating ratios on or before July 17, 2000.
In conjunction with this loan, we purchased an interest rate cap agreement for $183 from the lender, which provides for a maximum rate of interest of 11.625% and will mature on April 1, 2003. The cost of this agreement is being amortized as additional interest expense over the life of the loan.
The following table illustrates the computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended |
Nine Months Ended |
|||||||
04/02/2000 |
03/28/1999 |
04/02/2000 |
03/28/1999 |
|||||
Basic earnings per share: |
||||||||
<S> |
<C> |
<C> |
<C> |
<C> |
||||
Earnings from continuing operations |
$ 2,622 |
$ 20,383 |
$ 13,652 |
$ 12,746 |
||||
Common shares outstanding |
24,975 |
21,872 |
24,922 |
22,129 |
||||
Basic earnings from continuing operations per share |
$ 0.10 |
$ 0.93 |
$ 0.55 |
$ 0.58 |
||||
Diluted earnings per share: |
||||||||
Earnings from continuing operations |
$ 2,622 |
$ 20,383 |
$ 13,652 |
$ 12,746 |
||||
Common shares outstanding |
24,975 |
21,872 |
24,922 |
22,129 |
||||
Options |
138 |
208 |
214 |
128 |
||||
Warrants |
184 |
85 |
280 |
295 |
||||
Total shares outstanding |
25,297 |
22,165 |
25,416 |
22,552 |
||||
Diluted earnings from continuing operations per share |
$ 0.10 |
$ 0.92 |
$ 0.54 |
$ 0.57 |
</TABLE>
Stock options entitled to purchase 1,820,014 shares of Class A common stock were antidilutive and not included in the earnings per share calculation for the three and nine months ended April 2, 2000. These shares could be dilutive in subsequent periods.
In the nine months ended April 2, 2000, we recorded $7.5 million of restructuring charges as a result of the continued integration of Kaynar Technologies into our aerospace fasteners segment. All of the charges recorded during the current nine months were a direct result of product and plant integration costs incurred as of April 2, 2000. These costs were classified as restructuring and were the direct result of formal plans to move equipment, close plants and to terminate employees. Such costs are nonrecurring in nature. Other than a reduction in our existing cost structure, none of the restructuring charges resulted in future increases in earnings or represented an accrual of future costs. As of April 2, 2000, the majority of the integration plans have been executed. During the next three months, we expect to incur additional restructuring charges for product integration costs at our aerospace fasteners segment. We anticipate that our integration process will be substantially complete by the end of fiscal 2000.
Government Claims
The Corporate Administrative Contracting Officer, based upon the advice of the United States Defense Contract Audit Agency, alleged that a former subsidiary of ours did not comply with Federal Acquisition Regulations and Cost Accounting Standards in accounting for (i) the 1985 reversion of certain assets of terminated defined benefit pension plans, and (ii) pension costs upon the closing of segments of our former subsidiary's business. In January 2000, we paid the government $1.1 million to settle these pension accounting issues.
Environmental Matters
Our operations are subject to stringent government imposed environmental laws and regulations concerning, among other things, the discharge of materials into the environment and the generation, handling, storage, transportation and disposal of waste and hazardous materials. To date, such laws and regulations have not had a material effect on our financial condition, results of operations, or net cash flows, although we have expended, and can be expected to expend in the future, significant amounts for the investigation of environmental conditions and installation of environmental control facilities, remediation of environmental conditions and other similar matters, particularly in our aerospace fasteners segment.
In connection with our plans to dispose of certain real estate, we must investigate environmental conditions and we may be required to take certain corrective action prior or pursuant to any such disposition. In addition, we have identified several areas of potential contamination related to other facilities owned, or previously owned, by us, that may require us either to take corrective action or to contribute to a clean-up. We are also a defendant in certain lawsuits and proceedings seeking to require us to pay for investigation or remediation of environmental matters and we have been alleged to be a potentially responsible party at various "superfund" sites. We believe that we have recorded adequate reserves in our financial statements to complete such investigation and take any necessary corrective actions or make any necessary contributions. No amounts have been recorded as due from third parties, including insurers, or set off against, any environmental liability, unless such parties are contractually obligated to contribute and are not disputing such liability.
As of April 2, 2000, the consolidated total of our recorded liabilities for environmental matters was approximately $9.3 million, which represented the estimated probable exposure for these matters. It is reasonably possible that our total exposure for these matters could be approximately $16.5 million.
Other Matters
On January 12, 1999, AlliedSignal asserted indemnification claims against us for $18.9 million, arising from the disposition of Banner Aerospace's hardware business to AlliedSignal. We believe that the amount of the claim is far in excess of any amount that AlliedSignal is entitled to recover from us.
We are involved in various other claims and lawsuits incidental to our business. We, either on our own or through our insurance carriers, are contesting these matters. In the opinion of management, the ultimate resolution of the legal proceedings, including those mentioned above, will not have a material adverse effect on our financial condition, future results of operations or net cash flows.
The following unaudited financial statements separately show The Fairchild Corporation and the subsidiaries of The Fairchild Corporation. These financial statements are provided to fulfill public reporting requirements and separately present guarantors of the 10 3/4% senior subordinated notes due 2009 issued by The Fairchild Corporation (the "Parent Company"). The guarantors are composed primarily of our domestic subsidiaries, excluding Fairchild Technologies, a real estate development venture, and certain other subsidiaries.
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENTS OF EARNINGS |
|||||
For the Nine Months Ended |
|||||
April 2, 2000 |
|||||
Parent Company |
Guarantors |
Non Guarantors |
Eliminations |
Fairchild Historical |
|
<S> |
<C> |
<C> |
<C> |
<C> |
<C> |
Net Sales |
$ - |
$ 349,717 |
$ 126,853 |
$ (1,788) |
$ 474,782 |
Costs and expenses |
|||||
Cost of sales |
- |
263,174 |
91,875 |
(1,788) |
353,261 |
Selling, general & administrative |
3,861 |
66,859 |
18,169 |
- |
88,889 |
Restructuring |
- |
7,456 |
- |
- |
7,456 |
Amortization of goodwill |
385 |
8,040 |
765 |
- |
9,190 |
4,246 |
345,529 |
110,809 |
(1,788) |
458,796 |
|
Operating income (loss) |
(4,246) |
4,188 |
16,044 |
- |
15,986 |
Net interest expense |
37,283 |
(8,568) |
5,732 |
- |
34,447 |
Investment (income) loss, net |
(6) |
(9,144) |
- |
- |
(9,150) |
Intercompany dividends |
- |
- |
18,515 |
(18,515) |
- |
Nonreucrring income on |
|||||
Disposition of subsidiary |
- |
(3,123) |
(25,732) |
- |
(28,855) |
Earnings (loss) before taxes |
(41,523) |
25,023 |
17,529 |
18,515 |
19,544 |
Income tax (provision) benefit |
(4,476) |
(137) |
(809) |
- |
(5,422) |
Equity in earnings of |
|||||
affiliates and subsidiaries |
59,651 |
- |
- |
(60,121) |
(470) |
Minority interest |
- |
- |
- |
- |
- |
Earnings (loss) from continuing operations |
13,652 |
24,886 |
16,720 |
(41,606) |
13,652 |
Earnings (loss) from disposal of discontinued operations |
- |
- |
- |
- |
- |
Net earnings (loss) |
$ 13,652 |
$ 24,886 |
$ 16,720 |
$ (41,606) |
$ 13,652 |
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATING BALANCE SHEET |
|||||
April 2, 2000 |
|||||
Parent Company |
Guarantors |
Non Guarantors |
Eliminations |
Fairchild Historical |
|
<S> |
<C> |
<C> |
<C> |
<C> |
<C> |
Cash |
$ 133 |
$ 67,932 |
$ 17,540 |
$ - |
$ 85,605 |
Marketable securities |
71 |
13,093 |
- |
- |
13,164 |
Accounts receivable (including intercompany), |
|||||
less allowances |
2,811 |
76,120 |
42,802 |
- |
121,733 |
Inventory, net |
- |
137,786 |
47,091 |
- |
184,877 |
Prepaid and other current assets |
344 |
58,736 |
5,580 |
- |
64,660 |
Net current assets of discontinued operations |
- |
- |
- |
- |
- |
Total current assets |
3,359 |
353,667 |
113,013 |
- |
470,039 |
Investment in Subsidiaries |
946,237 |
- |
- |
(946,237) |
- |
Net fixed assets |
523 |
138,907 |
42,442 |
- |
181,872 |
Net assets held for sale |
- |
20,058 |
- |
- |
20,058 |
Investments in affiliates |
945 |
9,297 |
- |
- |
10,242 |
Goodwill |
5,175 |
391,014 |
33,055 |
- |
429,244 |
Deferred loan costs |
13,536 |
23 |
1,520 |
- |
15,079 |
Prepaid pension assets |
- |
64,104 |
- |
- |
64,104 |
Real estate investment |
- |
- |
108,859 |
- |
108,859 |
Long-term investments |
355 |
12,418 |
- |
- |
12,773 |
Other assets |
18,305 |
(11,504) |
572 |
- |
7,373 |
Total assets |
$ 988,435 |
$ 977,984 |
$ 299,461 |
$ (946,237) |
$ 1,319,643 |
Bank notes payable & current maturities of debt |
$ 2,250 |
$ 2,133 |
$ 24,818 |
$ - |
$ 29,201 |
Accounts payable (including intercompany) |
239 |
37,043 |
14,468 |
- |
51,750 |
Other accrued expenses |
(12,786) |
110,265 |
21,114 |
- |
118,593 |
Net current liabilities of discontinued operations |
- |
- |
6,082 |
- |
6,082 |
Total current liabilities |
(10,297) |
149,441 |
66,482 |
- |
205,626 |
Long-term debt, less current maturities |
445,650 |
8,241 |
35,690 |
- |
489,581 |
Other long-term liabilities |
405 |
17,259 |
6,681 |
- |
24,345 |
Noncurrent income taxes |
137,486 |
878 |
220 |
- |
138,584 |
Retiree health care liabilities |
- |
41,722 |
4,529 |
- |
46,251 |
Minority interest in subsidiaries |
- |
19 |
46 |
- |
65 |
Total liabilities |
573,244 |
217,560 |
113,648 |
- |
904,452 |
Class A common stock |
2,995 |
- |
5,195 |
(5,184) |
3,006 |
Class B common stock |
262 |
- |
- |
- |
262 |
Paid-in-capital |
5,041 |
226,005 |
252,111 |
(252,111) |
231,046 |
Retained earnings |
482,678 |
535,929 |
(63,983) |
(688,942) |
265,682 |
Cumulative other comprehensive income |
(764) |
(1,022) |
(7,510) |
- |
(9,296) |
Treasury stock, at cost |
(75,021) |
(488) |
- |
- |
(75,509) |
Total stockholders' equity |
415,191 |
760,424 |
185,813 |
(946,237) |
415,191 |
Total liabilities & stockholders' equity |
$ 988,435 |
$ 977,984 |
$ 299,461 |
$ (946,237) |
$ 1,319,643 |
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENTS OF CASH FLOWS |
|||||
For the Nine Months Ended |
|||||
April 2, 2000 |
|||||
Parent Company |
Guarantors |
Non Guarantors |
Eliminations |
Fairchild Historical |
|
Cash Flows from Operating Activities: |
|||||
<S> |
<C> |
<C> |
<C> |
<C> |
<C> |
Net earnings (loss) |
$13,652 |
$ 24,886 |
$ 16,720 |
$ (41,606) |
$ 13,652 |
Depreciation and amortization |
478 |
23,430 |
6,406 |
- |
30,314 |
Amortization of deferred loan fees |
894 |
2 |
6 |
- |
902 |
Accretion of discount on long-term liabilities |
- |
2,845 |
- |
- |
2,845 |
(Gain) on sale of affiliate investment and divestiture of subsidiary |
- |
- |
(28,854) |
- |
(28,854) |
Undistributed loss (earnings) of affiliates |
- |
723 |
- |
- |
723 |
Change in assets and liabilities |
20,001 |
(103,237) |
(10,663) |
41,606 |
(52,293) |
Non-cash charges and working capital changes of discontinued operations |
- |
- |
(12,535) |
- |
(12,535) |
Net cash (used for) provided by operating activities |
35,025 |
(51,351) |
(28,920) |
- |
(45,246) |
Cash Flows from Investing Activities: |
|||||
Net proceeds from (used for) investments |
- |
13,571 |
- |
- |
13,571 |
Purchase of property, plant and equipment |
(5) |
(19,326) |
(5,474) |
- |
(24,805) |
Equity investment in affiliates |
- |
2,476) |
- |
- |
(2,476) |
Net proceeds from sale of affiliate investements and divestiture of subsidiaries |
- |
57,000 |
51,792 |
- |
108,792 |
Real estate investment |
- |
- |
(26,419) |
- |
(26,419) |
Proceeds from net assets held for sale |
- |
4,672 |
- |
- |
4,672 |
Investing activities of discontinued operations |
- |
- |
7,100 |
- |
7,100 |
Net cash (used for) provided by investing activities |
(5) |
53,441 |
26,999 |
- |
80,435 |
Cash Flows from Financing Activities: |
|||||
Proceeds from issuance of debt |
45,600 |
110,570 |
42,002 |
- |
198,172 |
Debt repayment and repurchase of debentures (including intercompany), net |
(80,800) |
(86,049) |
(34,604) |
- |
(201,453) |
Issuance of Class A common stock |
286 |
- |
- |
- |
286 |
Purchase of treasury stock |
- |
(486) |
- |
- |
(486) |
Financing activities of discontinued operations |
- |
- |
- |
- |
- |
Net cash (used for) provided by financing activities |
(34,914) |
24,035 |
7,398 |
- |
(3,481) |
Effect of exchange rate changes on cash |
- |
14 |
(977) |
- |
(963) |
Net change in cash and cash equivalents |
106 |
26,139 |
4,500 |
- |
30,745 |
Cash and cash equivalents, beginning of the year |
27 |
41,793 |
13,040 |
- |
54,860 |
Cash and cash equivalents, end of the year |
$ 133 |
$ 67,932 |
$ 17,540 |
$ - |
$ 85,605 |
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENTS OF EARNINGS |
|||||
For the Nine Months Ended |
|||||
March 28, 1999 |
|||||
Parent Company |
Guarantors |
Non Guarantors |
Eliminations |
Fairchild Historical |
|
<S> |
<C> |
<C> |
<C> |
<C> |
<C> |
Net Sales |
$ - |
$ 323,011 |
$ 123,631 |
$ (570) |
$ 446,072 |
Costs and expenses |
|||||
Cost of sales |
- |
265,769 |
91,249 |
(570) |
356,448 |
Selling, general & administrative |
3,412 |
58,715 |
19,895 |
- |
82,022 |
Amortization of goodwill |
184 |
3,159 |
659 |
- |
4,002 |
3,596 |
327,643 |
111,803 |
(570) |
442,472 |
|
Operating income (loss) |
(3,596) |
(4,632) |
11,828 |
- |
3,600 |
Net interest expense |
16,091 |
3,375 |
1,489 |
- |
20,955 |
Investment (income) loss, net |
- |
(37,710) |
- |
- |
(37,710) |
Earnings (loss) before taxes |
(19,687) |
29,703 |
10,339 |
- |
20,355 |
Income tax (provision) benefit |
7,076 |
(10,678) |
(3,714) |
- |
(7,316) |
Equity in earnings of affiliates and subsidiaries |
(3,517) |
(284) |
2,105 |
3,517 |
1,821 |
Minority interest |
- |
(2,090) |
(24) |
- |
(2,114) |
Earnings (loss) from continuing operations |
(16,128) |
16,651 |
8,706 |
3,517 |
12,746 |
Earnings (loss) from disposal of discontinued operations |
- |
- |
(28,874) |
- |
(28,874) |
Net earnings (loss) |
$(16,128) |
$ 16,651 |
$ (20,168) |
$ 3,517 |
$ (16,128) |
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATING BALANCE SHEET |
||||||
June 30, 1999 |
||||||
Parent Company |
Guarantors |
Non Guarantors |
Eliminations |
Fairchild Historical |
||
<S> |
<C> |
<C> |
<C> |
<C> |
<C> |
|
Cash |
$ 27 |
$ 41,793 |
$ 13,040 |
$ - |
$ 54,860 |
|
Marketable securities |
71 |
13,023 |
- |
- |
13,094 |
|
Accounts Receivable (including intercompany),less allowances |
549 |
52,929 |
76,643 |
- |
130,121 |
|
Inventory, net |
(182) |
145,080 |
45,341 |
- |
190,239 |
|
Prepaid and other current assets |
1,297 |
69,000 |
3,629 |
- |
73,926 |
|
Total current assets |
1,762 |
321,825 |
138,653 |
- |
462,240 |
|
Investment in Subsidiaries |
841,744 |
- |
- |
(841,744) |
- |
|
Net fixed assets |
611 |
137,852 |
45,602 |
- |
184,065 |
|
Net assets held for sale |
- |
21,245 |
- |
- |
21,245 |
|
Investments in affiliates |
1,300 |
13,135 |
17,356 |
- |
31,791 |
|
Goodwill |
5,533 |
402,595 |
39,594 |
- |
447,722 |
|
Deferred loan costs |
13,029 |
26 |
22 |
- |
13,077 |
|
Prepaid pension assets |
- |
63,958 |
- |
- |
63,958 |
|
Real estate investment |
- |
- |
83,791 |
- |
83,791 |
|
Long-term investments |
- |
15,844 |
- |
- |
15,844 |
|
Other assets |
16,244 |
(11,865) |
674 |
- |
5,053 |
|
Total assets |
$880,223 |
$ 964,615 |
$ 325,692 |
$ (841,744) |
$ 1,328,786 |
|
Bank notes payable & current maturities of debt |
$ 2,250 |
$ 2,548 |
$ 24,062 |
$ - |
$ 28,860 |
|
Accounts payable (including intercompany) |
972 |
12,824 |
58,475 |
- |
72,271 |
|
Other accrued expenses |
7,272 |
99,669 |
14,195 |
- |
121,136 |
|
Net current liabilities of discontinued operations |
- |
- |
10,999 |
- |
10,999 |
|
Total current liabilities |
10,494 |
115,041 |
107,731 |
- |
233,266 |
|
Long-term debt, less current maturities |
480,850 |
9,908 |
4,525 |
- |
495,283 |
|
Other long-term liabilities |
405 |
18,138 |
7,361 |
- |
25,904 |
|
Noncurrent income taxes |
(19,026) |
140,749 |
238 |
- |
121,961 |
|
Retiree health care liabilities |
- |
40,189 |
4,624 |
- |
44,813 |
|
Minority interest in subsidiaries |
- |
9 |
50 |
- |
59 |
|
Total liabilities |
472,723 |
324,034 |
124,529 |
- |
921,286 |
|
Class A common stock |
2,775 |
200 |
5,085 |
(5,085) |
2,975 |
|
Class B common stock |
262 |
- |
- |
- |
262 |
|
Paid-in-capital |
2,138 |
226,900 |
263,058 |
(263,058) |
229,038 |
|
Retained earnings |
477,191 |
413,483 |
(65,043) |
(573,601) |
252,030 |
|
Cumulative other comprehensive income |
(764) |
(2) |
(1,937) |
- |
(2,703) |
|
Treasury stock, at cost |
(74,102) |
- |
- |
- |
(74,102) |
|
Total stockholders' equity |
407,500 |
640,581 |
201,163 |
(841,744) |
407,500 |
|
Total liabilities & stockholders' equity |
$880,223 |
$ 964,615 |
$ 325,692 |
$ (841,744) |
$ 1,328,786 |
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENTS OF CASH FLOWS |
||||||
For the Nine Months Ended |
||||||
March 28, 1999 |
||||||
Parent Company |
Guarantors |
Non Guarantors |
Eliminations |
Fairchild Historical |
||
Cash Flows from Operating Activities: |
||||||
<S> |
<C> |
<C> |
<C> |
<C> |
<C> |
|
Net earnings (loss) |
$(16,128) |
$ 16,651 |
$ (20,168) |
$ 3,517 |
$ (16,128) |
|
Depreciation and amortization |
278 |
11,791 |
5,302 |
- |
17,371 |
|
Amortization of deferred loan fees |
888 |
- |
- |
- |
888 |
|
Accretion of discount on long-term liabilities |
- |
3,854 |
- |
- |
3,854 |
|
Undistributed loss (earnings) of affiliates |
- |
488 |
2,888 |
- |
3,376 |
|
Minority interest |
- |
1,364 |
750 |
- |
2,114 |
|
Change in assets and liabilities |
27,964 |
(48,047) |
3,693 |
(3,517) |
(19,907) |
|
Non-cash charges and working capital changes of discontinued operations |
- |
- |
12,445 |
- |
12,445 |
|
Net cash (used for) provided by operating activities |
13,002 |
(13,899) |
4,910 |
- |
4,013 |
|
Cash Flows from Investing Activities: |
||||||
Net proceeds from (used for) investments |
- |
173,424 |
- |
- |
173,424 |
|
Purchase of property, plant and equipment |
(37) |
(10,361) |
(8,296) |
- |
(18,694) |
|
Net proceeds from divestiture of subsidiaries |
- |
60,397 |
- |
- |
60,397 |
|
Acquisition of subsidiaries, net of cash acquired |
- |
- |
(3,940) |
- |
(3,940) |
|
Proceeds from net assets held for sale |
- |
3,526 |
- |
- |
3,526 |
|
Real estate investment |
- |
- |
(24,524) |
- |
(24,524) |
|
Investing activities of discontinued operations |
- |
- |
(542) |
- |
(542) |
|
Other, net |
- |
283 |
- |
- |
283 |
|
Net cash (used for) provided by investing activities |
(37) |
227,269 |
(37,302) |
- |
189,930 |
|
Cash Flows from Financing Activities: |
||||||
Proceeds from issuance of debt |
17,000 |
63,127 |
- |
- |
80,127 |
|
Debt repayment and repurchase of debentures (including intercompany), net |
(10,050) |
(155,379) |
29,860 |
- |
(135,569) |
|
Issuance of Class A common stock |
154 |
(1) |
- |
- |
153 |
|
Purchase of treasury stock |
- |
(22,101) |
- |
- |
(22,101) |
|
Financing activities of discontinued operations |
- |
- |
30 |
- |
30 |
|
Net cash (used for) provided by financing activities |
7,104 |
(114,354) |
29,890 |
- |
(77,360) |
|
Effect of exchange rate changes on cash |
- |
- |
1,162 |
- |
1,162 |
|
Net change in cash and cash equivalents |
20,069 |
99,016 |
(1,340) |
- |
117,745 |
|
Cash and cash equivalents, beginning of the year |
- |
42,175 |
7,426 |
- |
49,601 |
|
Cash and cash equivalents, end of the year |
$ 20,069 |
$ 141,191 |
$ 6,086 |
$ - |
$ 167,346 |
</TABLE>
On April 13, 2000, we completed a spin-off to our stockholders of the shares of Fairchild (Bermuda) Ltd. On April 14, 2000, Fairchild (Bermuda) sold to Convac Technologies Ltd. the Optical Disc Equipment Group business formerly owned by Fairchild Technologies. Subsequently, on April 14, 2000, Fairchild (Bermuda), renamed Global Sources Ltd., completed an exchange of approximately 95% of its shares for 100% of the shares of Trade Media Holdings Limited, an Asian based, Business-to-Business online and traditional marketplace services provider. After the share exchange, our stockholders owned 1,183,081 shares of the 26,152,308 issued shares of Global Sources. Global Sources shares are listed on the NASDAQ under the symbol "GSOL".
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Fairchild Corporation was incorporated in October 1969, under the laws of the State of Delaware, under the name of Banner Industries, Inc. On November 15, 1990, we changed our name from Banner Industries, Inc. to The Fairchild Corporation. We are the owner of 100% of RHI Holdings, Inc. and Banner Aerospace, Inc. RHI is the owner of 100% of Fairchild Holding Corp. Our principal operations are conducted through Fairchild Holding and Banner Aerospace.
The following discussion and analysis provide information which management believes is relevant to assessment and understanding of our consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes thereto.
GENERAL
We are a leading worldwide aerospace and industrial fastener manufacturer and distribution logistics manager and, through Banner Aerospace, an international supplier to airlines and general aviation businesses, distributing a wide range of aircraft parts and related support services. Through internal growth and strategic acquisitions, we have become one of the leading suppliers of fasteners to aircraft OEMs, such as Boeing, Lockheed Martin, Northrop Grumman, and the Airbus consortium of Aerospatiale, DaimlerChrysler Aerospace, BAE Systems and CASA.
Our aerospace business consists of two segments: aerospace fasteners and aerospace distribution. The aerospace fasteners segment manufactures and markets high performance fastening systems used in the manufacture and maintenance of commercial and military aircraft. The aerospace distribution segment stocks and distributes a wide variety of aircraft parts to commercial airlines and air cargo carriers, fixed-base operators, corporate aircraft operators and other aerospace companies.
CAUTIONARY STATEMENT
Certain statements in this financial discussion and analysis by management contain certain "forward-looking statements", within the meaning of the Private Securities Litigation Reform Act of 1995, with respect to our financial condition, results of operation and business. These statements relate to analyses and other information which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies. These forward-looking statements are identified by their use of terms and phrases such as ''anticipate,'' ''believe,'' ''could,'' ''estimate,'' ''expect,'' ''intend,'' ''may,'' ''plan,'' ''predict,'' ''project,'' ''will'' and similar terms and phrases, including references to assumptions. These forward-looking statements involve risks and uncertainties, including current trend information, projections for deliveries, backlog and other trend projections, that may cause our actual future activities and results of operations to be materially different from those suggested or described in this Quarterly Report on Form 10-Q. These risks include: product demand; our dependence on the aerospace industry; reliance on Boeing and the Airbus consortium of companies; customer satisfaction and quality issues; labor disputes; competition, including recent intense price competition; our ability to integrate and realize anticipated synergies relating to the acquisition of Kaynar Technologies Inc.; our ability to achieve and execute internal business plans; worldwide political instability and economic growth; and the impact of any economic downturns and inflation, including recent weaknesses in the currency, banking and equity markets of countries in South America and in the Asia/Pacific region.
If one or more of these risks or uncertainties materializes, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated or projected. Given these uncertainties, users of the information included in this financial discussion and analysis by management, including investors and prospective investors are cautioned not to place undue reliance on such forward-looking statements. We do not intend to update the forward-looking statements contained in this Quarterly Report, even if new information, future events or other circumstances have made them incorrect or misleading.
RESULTS OF OPERATIONS
Business Transactions
The following summarizes certain business combinations and transactions which significantly affect the comparability of the period to period results presented in this Management's Discussion and Analysis of Results of Operations and Financial Condition.
Fiscal 2000 Transactions
On December 1, 1999, we disposed of substantially all of the assets and certain liabilities of our Dallas Aerospace subsidiary to United Technologies Inc. for approximately $57.0 million. No gain or loss was recognized from this transaction, as the proceeds received approximated the net carrying value of these assets. Approximately $37.0 million of the proceeds from this disposition will be used to reduce our term indebtedness.
On September 3, 1999, we completed the disposal of our Camloc Gas Springs division to a subsidiary of Arvin Industries Inc. for approximately $2.7 million. In addition, we received $2.4 million from Arvin Industries for a covenant not to compete. We recognized a $2.3 million nonrecurring gain from this disposition.
On July 29, 1999, we sold our 31.9% interest in Nacanco Paketleme to American National Can Group, Inc. for approximately $48.2 million. In the nine months ended April 2, 2000, we recognized a $25.7 million nonrecurring gain from this divestiture. We also agreed to provide consulting services over a three-year period, at an annual fee of approximately $1.5 million. We used the net proceeds from the disposition to reduce our indebtedness.
Fiscal 1999 Transactions
On December 31, 1998, Banner Aerospace consummated the sale of Solair, Inc., its largest subsidiary in the rotables group of the aerospace distribution segment, to Kellstrom Industries, Inc., in exchange for approximately $60.4 million in cash and a warrant to purchase 300,000 shares of common stock of Kellstrom. In December 1998, Banner Aerospace recorded a $19.3 million pre-tax loss from the sale of Solair. This loss was included in cost of goods sold, as it was attributable primarily to the bulk sale of inventory at prices below its carrying amount.
On February 22, 1999, we used available cash to acquire 77.3% of SNEP S.A. By June 30, 1999, we had purchased substantially all of the remaining shares of SNEP. The total amount paid was approximately $8.0 million, including $1.1 million of debt assumed, in a business combination accounted for as a purchase. The total cost of the acquisition exceeded the fair value of the net assets of SNEP by approximately $4.3 million, which is being allocated as goodwill, and amortized over 40 years using the straight-line method. SNEP is a French manufacturer of precision machined self-locking nuts and special threaded fasteners serving the European industrial, aerospace and automotive markets.
On April 8, 1999, we acquired the remaining 15% of the outstanding common and preferred stock of Banner Aerospace, Inc. not already owned by us, through the merger of Banner Aerospace with one of our subsidiaries. Under the terms of the merger with Banner Aerospace, we issued 2,981,412 shares of our Class A common stock to acquire all of Banner Aerospace's common and preferred stock (other than those already owned by us). Banner Aerospace is now our wholly-owned subsidiary.
On April 20, 1999, we completed the acquisition of all the capital stock of Kaynar Technologies Inc. for approximately $222 million and assumed approximately $103 million of Kaynar Technologies debt, the majority of which was refinanced at closing. In addition, we paid $28 million for a covenant not to compete from the largest preferred shareholder of Kaynar Technologies. The total cost of the acquisition exceeded the fair value of the net assets of Kaynar Technologies by approximately $269.7 million, which is preliminarily being allocated as goodwill, and amortized over 40 years using the straight-line method. The acquisition was financed with existing cash, the sale of $225 million of 10 3/4% senior subordinated notes due 2009 and proceeds from a new bank credit facility.
On June 18, 1999, we completed the acquisition of Technico S.A. for approximately $4.1 million and assumed approximately $2.2 million of Technico's existing debt. The total cost of the acquisition exceeded the fair value of the net assets of Technico by approximately $2.9 million, which is preliminarily being allocated as goodwill, and amortized over 40 years using the straight-line method. The acquisition was financed with additional borrowings from our credit facility.
Consolidated Results
We currently report in two principal business segments: aerospace fasteners and aerospace distribution. The results of the Gas Springs division, prior to its disposition, were included in the Corporate and Other classification. The following table illustrates the historical sales and operating income of our operations for the three and nine months ended April 2, 2000 and March 28, 1999, respectively.
<TABLE>
Actual Segment Results
<CAPTION>
(In thousands) |
Three Months Ended |
Nine Months Ended |
||||||
4/2/2000 |
3/28/1999 |
4/2/2000 |
3/28/1999 |
|||||
<S> |
<C> |
<C> |
<C> |
<C> |
||||
Sales by Segment: |
||||||||
Aerospace Fasteners |
$ 138,134 |
$ 103,749 |
$ 396,697 |
$ 303,071 |
||||
Aerospace Distribution |
19,895 |
41,082 |
77,346 |
138,448 |
||||
Corporate and Other |
- |
1,521 |
739 |
4,553 |
||||
TOTAL SALES |
$ 158,029 |
$ 146,352 |
$ 474,782 |
$ 446,072 |
||||
Operating Results by Segment: |
||||||||
Aerospace Fasteners (a) |
$ 10,466 |
$ 10,913 |
$ 22,256 |
$ 29,390 |
||||
Aerospace Distribution |
1,652 |
2,289 |
5,991 |
(13,278) |
||||
Corporate and Other |
(5,391) |
(5,021) |
(12,261) |
(12,512) |
||||
OPERATING INCOME |
$ 6,727 |
$ 8,181 |
$ 15,986 |
$ 3,600 |
(a) - Includes restructuring charges of $1.4 million and $7.5 million in the three and nine months ended April 2, 2000, respectively.
</TABLE>
The following table illustrates sales and operating income of our operations by segment, on an unaudited pro forma basis, for the three and nine months ended April 2, 2000 and March 28, 1999, respectively, as if we had operated in a consistent manner in each of the reported periods. The pro forma results represent the impact of our acquisition of Kaynar Technologies (April 1999), our merger with Banner Aerospace (April 1999), and our dispositions of Dallas Aerospace (December 1999) and Solair (December 1998), as if these transactions had occurred at the beginning of each of our fiscal periods. The pro forma information is based on the historical financial statements of these companies, giving effect to the aforementioned transactions. The pro forma information is not necessarily indicative of the results of operations, that would actually have occurred if the transactions had been in effect since the beginning of fiscal 1999, nor are they necessarily indicative of our future results.
<TABLE>
Pro Forma Segment Results
<CAPTION>
(In thousands) |
Three Months Ended |
Nine Months Ended |
||||||
4/2/2000 |
3/28/1999 |
4/2/2000 |
3/28/1999 |
|||||
<S> |
<C> |
<C> |
<C> |
<C> |
||||
Sales by Segment: |
||||||||
Aerospace Fasteners |
$ 138,134 |
$ 154,993 |
$ 396,697 |
$ 458,192 |
||||
Aerospace Distribution |
19,895 |
19,669 |
55,652 |
53,829 |
||||
Corporate and Other |
- |
1,521 |
739 |
4,553 |
||||
TOTAL SALES |
$ 158,029 |
$ 176,183 |
$ 453,088 |
$ 516,574 |
||||
Operating Results by Segment: |
||||||||
Aerospace Fasteners |
$ 10,466 |
$ 14,757 |
$ 22,256 |
$ 44,502 |
||||
Aerospace Distribution |
1,652 |
304 |
3,913 |
1,737 |
||||
Corporate and Other |
(5,391) |
(5,021) |
(12,234) |
(12,422) |
||||
OPERATING INCOME (LOSS) |
$ 6,727 |
$ 10,040 |
$ 13,935 |
$ 33,817 |
</TABLE>
Net sales of $158.0 million in the third quarter of fiscal 2000 increased by $11.7 million, or 7.4%, compared to sales of $146.4 million in the third quarter of fiscal 1999. Net sales of $474.8 million in the first nine months of fiscal 2000 increased by $28.7 million, or 6.4%, compared to sales of $446.1 million in the first nine months of fiscal 1999. The improvement is attributable primarily to the additional revenues provided by the acquisition of Kaynar Technologies, offset partially from the dispositions of Solair and Dallas Aerospace. On a pro forma basis, net sales decreased 10.3% and 12.3% for the three and nine months ended April 2, 2000, respectively, compared to the same periods ended March 28, 1999, reflecting weakening demand for our products by domestic aerospace manufacturers and distributors.
Gross margin as a percentage of sales was 25.6% and 25.2% in the third quarter of fiscal 2000 and fiscal 1999, and 25.6% and 20.1% for the first nine months of fiscal 2000 and fiscal 1999, respectively. Included in cost of goods in the nine month period ended March 28, 1999, was a charge of $19.3 million that was recognized in the aerospace distribution segment from the bulk sale of inventory at prices below its carrying amount. Excluding this charge, gross margin as a percentage of sales would have been 24.4% in the nine months ended March 28, 1999. The higher margins in the fiscal 2000 period are attributable to cost improvement initiatives, offset partially by lower prices. In addition, our aerospace fasteners segment also benefited as a result of the acquisition of Kaynar Technologies and efficiencies achieved from the integration process of facilities.
Selling, general & administrative expense as a percentage of sales was 19.8% and 19.2% in the third quarter of fiscal 2000 and 1999, respectively, and 20.8% and 18.7% in the first nine months of fiscal 2000 and 1999, respectively. The increase is due primarily to our decision to maintain our sales and marketing infrastructure on lower sales volume.
Other income increased $8.2 million in the first nine months of fiscal 2000, compared to the first nine months of fiscal 1999. The increase is due primarily to $3.1 million of income recognized from the disposition of non-core property during the current period and a $2.8 million increase in rental income.
In the nine months ended April 2, 2000, we recorded $7.5 million of restructuring charges as a result of the continued integration of Kaynar Technologies into our aerospace fasteners segment. All of the charges recorded during the current nine months were a direct result of product and plant integration costs incurred as of April 2, 2000. These costs were classified as restructuring and were the direct result of formal plans to move equipment, close plants and to terminate employees. Such costs are nonrecurring in nature. Other than a reduction in our existing cost structure, none of the restructuring charges resulted in future increases in earnings or represented an accrual of future costs. As of April 2, 2000, the majority of the integration plans have been executed. During the next three months, we expect to incur additional restructuring charges for product integration costs at our aerospace fasteners segment. We anticipate that our integration process will be substantially complete by the end of fiscal 2000.
Operating income for the third quarter ended April 2, 2000 decreased by $1.5 million as compared to the same period of the prior year, due primarily to restructuring charges of $1.4 million recognized in the current quarter. Operating income for the nine months ended April 2, 2000 improved by $12.4 million as compared to the same period of the prior year. The increase in the current period is due primarily to a charge of $19.3 million that was recognized in December 1998, from the bulk sale of inventory at prices below carrying amount, offset partially by $7.5 million of restructuring charges recognized in the nine months ended April 2, 2000.
Net interest expense increased $13.5 million in the first nine months of fiscal 2000, compared to the first nine months of fiscal 1999. We expect the trend of reporting increased interest expense to continue throughout fiscal 2000, as a result of additional debt we incurred through financing the acquisition of Kaynar Technologies and the financing of our Farmingdale real estate as well as the increase in interest rates.
Investment income of $9.2 million and $37.7 million in the first nine months of fiscal 2000 and fiscal 1999, respectively, was due primarily to recognizing realized gains on investments liquidated. Investment income of $6.3 million and $36.9 million in the first three months of fiscal 2000 and fiscal 1999, respectively, was due primarily to recognizing realized gains on investments liquidated.
Nonrecurring income of $28.9 million in the nine months ended April 2, 2000 resulted from the disposition of two of our equity investments including Nacanco Paketleme, and the disposition of our Camloc Gas Springs division.
An income tax provision of $5.4 million in the first nine months of fiscal 2000 represented a 27.7% effective tax rate on pre-tax earnings from continuing operations. The tax provision was lower than the statutory rate resulting from lower tax rates in jurisdictions of some of our foreign operations.
Comprehensive income (loss) includes foreign currency translation adjustments and unrealized holding changes in the fair market value of available-for-sale investment securities. For the nine months ended April 2, 2000, foreign currency translation adjustments decreased by $6.7 million and the fair market value of unrealized holding gains on investment securities we own increased by $0.1 million.
Segment Results
Aerospace Fasteners Segment
Sales by our Aerospace Fasteners segment increased by $34.4 million, or 33.1%, in the third quarter of fiscal 2000 and $93.6 million, or 30.9%, in the first nine months of fiscal 2000, as compared to the same periods of fiscal 1999. These improvements reflected growth from acquisitions, offset partially by weakened demand for our products in the commercial aerospace industry. On April 2, 2000, backlog was $204 million compared to $220 million at June 30, 1999. On a pro forma basis, sales decreased by 13.4% in the first nine months of fiscal 2000, as compared to the same period of the prior year. Our operations in the United States continue to be negatively impacted by reduced bookings caused by inventory reduction efforts at Boeing and its ripple effect on prices.
Operating income decreased by $0.4 million and $7.1 million in the third quarter and first nine months of fiscal 2000, respectively, compared to the fiscal 1999 periods. Included in our current quarter and nine months results are restructuring charges incurred of $1.4 million and $7.5 million, respectively, due to the integration of Kaynar Technologies into our Aerospace Fasteners business. Excluding restructuring charges, operating income increased by $1.0 million and $0.3 million in the third quarter and first nine months of fiscal 2000, respectively, compared to the fiscal 1999 periods, reflecting cost improvement initiatives and acquisitions made during fiscal 1999, offset partially by reduced margins due to pricing pressures. Operating expenses continue to be reviewed at all operations as management attempts to reduce operating costs to improve margins in the short term, without adversely affecting operating income on a long term basis. On a pro forma basis and excluding restructuring charges, operating income decreased by $14.8 million for the nine months ended April 2, 2000, compared to the nine months ended March 28, 1999, due to lower sales levels associated with the weak commercial aerospace industry.
We believe the demand for aerospace fasteners in calendar 2000 will remain relatively stable in Europe and will continue to be soft in the United States commercial aerospace market. We anticipate that the negative impact on us of Boeing's inventory reduction program will diminish in the latter part of calendar 2000. We believe that the integration savings from the Kaynar merger and production efficiency improvements will partially offset the weakened demand for our products.
Aerospace Distribution Segment
Sales in our aerospace distribution segment decreased by $21.2 million, or 51.6%, in the third quarter and $61.1 million, or 44.1%, in the first nine months of fiscal 2000, compared to the fiscal 1999 periods. The decrease was due to the loss of revenues as a result of the disposition of Solair and Dallas Aerospace. On a pro forma basis, sales increased $1.8 million, or 3.4%, in the current nine-month period.
Operating income decreased by $0.6 million in the third quarter and increased by $19.3 million in the fiscal 2000 nine-month period, compared to the fiscal 1999 periods. Included in the prior year periods, was a charge of $19.3 million attributable to the bulk sale of Solair inventory at prices below the carrying amount of inventory. On a pro forma basis, operating income increased by $2.2 million in the first nine months ended April 2, 2000, compared to the first nine months ended March 28, 1999, reflecting increases in margins and a reduction in corporate overhead.
Corporate and Other
The Corporate and Other classification included the Camloc Gas Springs division, prior to its disposition, and corporate activities. The group reported a decrease in sales in the third quarter and first nine months of fiscal 2000, compared to the fiscal 1999 periods, as a result of the disposition of the Camloc Gas Springs division in September 1999. An operating loss of $12.3 million in the first nine months of fiscal 2000 was a $0.2 million improvement, compared to the operating loss of $12.5 million reported in the first nine months of fiscal 1999. The current period included other income of $9.0 million due primarily to income recognized from the disposition of non-core property and rental income earned at our shopping center in Farmingdale, New York.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Total capitalization as of April 2, 2000 and June 30, 1999 amounted to $934.0 million and $931.6 million, respectively. The changes in capitalization included an increase of $7.7 million in equity due primarily to our reported net earnings, offset partially by a reduction in comprehensive income. Debt decreased by $5.4 million in the nine months ended April 2, 2000. This reflected a $37.5 million decrease in term loan borrowing with our primary lenders, as a result of the proceeds received from the divestiture of assets, offset partially by $30.8 million of cash borrowed from a new term loan facility used to support our operations and finance construction costs to complete a shopping center being developed in Farmingdale, New York.
We maintain a portfolio of investments classified primarily as available-for-sale securities, which had a fair market value of $25.9 million at April 2, 2000. The market value of these investments increased by $0.1 million in the nine months ended April 2, 2000. While there is risk associated with market fluctuations inherent in stock investments, and because our portfolio is not diversified, large swings in its value should be expected.
Net cash provided by (used for) operating activities for the nine months ended April 2, 2000 and March 28, 1999 was $(45.2) million and $4.0 million, respectively. The primary use of cash for operating activities in the first nine months of fiscal 2000 was a $28.2 million increase in inventories and a $17.9 million decrease in accounts payable and other accrued liabilities, offset partially by a $8.3 million decrease in accounts receivable. The primary use of cash for operating activities in the first nine months of fiscal 1999 was a $56.1 million decrease in accounts payable and accrued liabilities and a $31.4 million increase in other non-current assets, offset partially by a $50.5 million decrease in inventories and a $18.6 decrease in accounts receivable.
Net cash provided by investing activities for the nine months ended April 2, 2000 and March 28, 1999, amounted to $80.4 million and $189.9 million, respectively. In the first nine months of fiscal 2000, the primary source of cash from investing activities was $108.8 million of net proceeds received from the dispositions of Dallas Aerospace, Nacanco and the Camloc Gas Springs division and $13.6 million received from the sale of investments, offset partially by capital expenditures of $24.8 million and investments in real estate of $26.4 million. In the first nine months of fiscal 1999, the primary source of cash from investing activities was $173.4 million from the liquidation of investment securities and $60.4 million of gross proceeds received from disposition of Solair, Inc., partially offset by investments in real estate of $24.5 million and capital expenditures of $18.7 million.
Net cash used for financing activities for the nine months ended April 2, 2000 and March 28, 1999, was $3.5 million and $77.4 million, respectively. Cash used for financing activities in the first nine months of fiscal 2000 included debt repayment of $201.5 million and a $0.5 million purchase of treasury stock, offset partially by $198.2 million of proceeds from the issuance of debt and $0.3 million from the issuance of stock. Cash used for financing activities in the first nine months of fiscal 1999 included a $135.6 million repayment of debt and the $22.1 million purchase of treasury stock, offset partially by a $80.1 million net increase from the issuance of additional debt.
Our principal cash requirements include debt service, capital expenditures, acquisitions, real estate development, and payment of other liabilities. Other liabilities that require the use of cash include postretirement benefits, environmental investigation and remediation obligations, and litigation settlements and related costs. We expect that cash on hand, cash generated from operations, cash from borrowings and additional financing and asset sales will be adequate to satisfy our cash requirements in fiscal 2000.
Our credit agreement requires us to comply with financial covenants at the end of each quarter, including:
- Maintaining an interest coverage ratio
- Maintaining a minimum consolidated fixed charge coverage ratio
- Maintaining a ratio of consolidated debt to earnings before interest, taxes, depreciation and amortization
- Maintaining a ratio of senior debt to earnings before interest, taxes, depreciation and amortization
On April 2, 2000, we were in compliance with the credit agreement. Despite the recent downturn in the aerospace industry, we anticipate that we will be able to meet these covenant requirements for our fiscal year ending June 30, 2000, however there can be no assurance that we will be able to comply with these covenants in the future. Noncompliance with any of the financial covenants without cure or waiver would constitute an event of default under the credit agreement. An event of default resulting from a breach of a financial covenant can result, at the option of lenders holding a majority of the loans, in an acceleration of the principal and interest outstanding, and a termination of the revolving credit line.
Discontinued Operations
In 1998, we adopted a formal plan to dispose of Fairchild Technologies. Based on this plan, we have sold the Fairchild Technologies' businesses, including most of its intellectual property, through a series of transactions. On April 14, 1999, we disposed of Fairchild Technologies photoresist deep-ultraviolet track equipment machines, spare parts and testing equipment to Apex Co., Ltd. in exchange for 1,250,000 shares of Apex stock valued at approximately $5.1 million. On June 15, 1999, we received from Suess Microtec AG $7.9 million, and the right to receive 350,000 shares of Suess Microtec stock, or at least approximately $3.5 million, by September 2000 in exchange for certain inventory, fixed assets, and intellectual property of Fairchild Technologies' semiconductor equipment group. On May 1, 1999, we sold Fairchild CDI for a nominal amount. In July 1999, we received approximately $7.1 million from Novellus Systems, Inc. in exchange for Fairchild Technologies' Low-K dielectric product line and certain intellectual property. On April 14, 2000, we completed the disposition of Fairchild Technologies' optical disc equipment group to Convac Technologies Ltd. for a nominal amount (See Note 12).
As of April 2, 2000, we have a remaining accrual of $4.4 million, net of an income tax benefit of $3.2 million, for our current estimate of the remaining losses in connection with the disposition of Fairchild Technologies' businesses when the Optical Disc Equipment Group was sold to Convac Technologies. While we believe that $4.4 million is a reasonable estimate for the remaining losses to be incurred from Fairchild Technologies, this estimate may prove to be inadequate.
Spin-Off
On April 13, 2000, we completed a spin-off to our stockholders of the shares of Fairchild (Bermuda) Ltd. On April 14, 2000, Fairchild (Bermuda) sold to Convac Technologies Ltd. the Optical Disc Equipment Group business formerly owned by Fairchild Technologies. Subsequently, on April 14, 2000, Fairchild (Bermuda), renamed Global Sources Ltd., completed an exchange of approximately 95% of its shares for 100% of the shares of Trade Media Holdings Limited, an Asian based, Business-to-Business online and traditional marketplace services provider. After the share exchange, our stockholders owned 1,183,081 shares of the 26,152,308 issued shares of Global Sources. Global Sources shares are listed on the NASDAQ under the symbol "GSOL".
Year 2000
To date, we have not experienced any material problems as a result of the Year 2000 turnover or in connection with the leap year date of February 29, 2000.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes a new model for accounting for derivatives and hedging activities and supersedes and amends a number of existing accounting standards. It requires that all derivatives be recognized as assets and liabilities on the balance sheet and measured at fair value. The corresponding derivative gains or losses are reported based on the hedge relationship that exists, if any. Changes in the fair value of derivative instruments that are not designated as hedges or that do not meet the hedge accounting criteria in SFAS 133, are required to be reported in earnings. Most of the general qualifying criteria for hedge accounting under SFAS 133 were derived from, and are similar to, the existing qualifying criteria in SFAS 80 "Accounting for Futures Contracts." SFAS 133 describes three primary types of hedge relationships: fair value hedge, cash flow hedge, and foreign currency hedge. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137 to defer the required effective date of implementing SFAS 133, from fiscal years beginning after June 15, 1999 to fiscal years beginning after June 15, 2000. We will adopt SFAS 133 in fiscal 2001, and are currently evaluating the financial statement impact.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The table below provides information about our derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, which include interest rate swaps. For interest rate swaps, the table presents notional amounts and weighted average interest rates by expected (contractual) maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting date.
(In thousands)
Expected Fiscal Year Maturity Date |
2003 |
2008 (a) |
Interest Rate Hedges: |
||
Variable to Fixed |
$30,750 |
$100,000 |
Average cap rate |
11.625% |
6.49% |
Average floor rate |
N/A |
6.24% |
Weighted average rate |
10.39% |
7.09% |
Fair Market Value |
$183 |
$(370) |
(a) - On February 17, 2003, the bank with which we entered into the interest rate swap agreement will have a one-time option to elect to cancel this agreement.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The information required to be disclosed under this Item is set forth in Footnote 10 (Contingencies) of the Consolidated Financial Statements (Unaudited) included in this Report.
Item 2. Changes in Securities and Use of Proceeds
Our stock option deferral plan allows officers and directors who are accredited investors to defer the gain upon exercise of stock options by receiving deferred compensation units instead of shares of stock. The deferred compensation units may be deemed securities issued by us. The shares issued to an officer or director upon expiration of the deferral period (in exchange for deferred compensation units) have been registered pursuant to a registration statement on form S-8. Under our stock option deferral plan, an aggregate of 2,940 deferred compensation units were issued in February 2000 to the following officers: John Flynn (630 deferred compensation units), Donald Miller (1,050 deferred compensation units), and Eric Steiner (1,260 deferred compensation units).
On February 23, 2000, we issued 63,300 restricted shares of Class A common stock as a result of a cashless exercise of 250,000 warrants. The warrants were originally issued in 1995 pursuant to a privately negotiated transactoin. The shares issued pursuant to the warrant are deemed to have been owned more than two years, and may be traded by the holder in compliance with Rule 144. The holder of the shares is not an officer, director or affiliate of the Company.
Item 5. Other Information
Articles have appeared in the French press reporting an inquiry by a French magistrate into certain allegedly improper business transactions involving Elf Acquitaine, a French petroleum company, its former chairman and various third parties. In connection with this inquiry, the magistrate has made inquiry into allegedly improper transactions between Mr. Steiner and that petroleum company. In response to the magistrate's request that Mr. Steiner appear in France as a witness, Mr. Steiner submitted written statements concerning the transactions and appeared in person before the magistrate and others. The magistrate has put Mr. Steiner under examination (mis en examen) with respect to this matter and imposed a surety (caution) of ten million French francs which has been paid. Mr. Steiner has not been charged.
Item 6. Exhibits and Reports on Form 8-K
- Exhibits:
- Reports on Form 8-K:
*3.1 Amendment to the Company's By-Laws, dated February 17, 2000, together with Charter for the Board's Audit Committee, adopted February 17, 2000.
*10.1 Amendment No. 2, dated as of March 10, 2000 to the Credit Agreement dated as of April 20, 1999.
*10.2 Mortgage and Security Agreement with Morgan Guaranty Trust Company of New York dated March 23, 2000.
*27 Financial Data Schedules.
* - Filed herewith
There were no reports filed on Form 8-K during the quarter ended April 2, 2000 for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to the signed on its behalf by the undersigned hereunto duly authorized.
For THE FAIRCHILD CORPORATION
(Registrant) and as its Chief
Financial Officer:
By: Colin M. Cohen
Senior Vice President and
Chief Financial Officer
Date: May 15, 2000