11
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Year Ended June 30, 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
--------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of exchange on which registered
------------------- ------------------------------------
Class A Common Stock, par value New York and Pacific Stock Exchange
$.10 per share
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 ninety (90) days [X].
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 [ ].
On April 1, 2001, the aggregate market value of the common shares held by
nonaffiliates of the Registrant (based upon the closing price of these shares on
the New York Stock exchange) was approximately $83.7 million (excluding shares
deemed beneficially owned by affiliates of the Registrant under Commission
Rules).
As of April 1, 2001, the number of shares outstanding of each of the
Registrant's classes of common stock were:
Class A common stock, $.10 par value 22,527,801
Class B common stock, $.10 par value 2,621,502
AMENDMENT:
This Form 10-K was amended solely to provide enhanced disclosure for Item
8, "Financial Statements and Supplementary Data." Disclosure enhancements were
made to Footnote 3, "Discontinued Operations and Net Assets Held For Sale,"
Footnote 9, "Income Taxes," and Footnote 19, "Foreign Operations and Export
Sales."
FORWARD-LOOKING STATEMENTS
Except for any historical information contained herein, the matters
discussed in this Annual Report on Form 10-K 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
Annual Report on Form 10-K. 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 price competition; our ability to achieve and execute
internal business plans; worldwide political instability and economic growth;
and the impact of any economic downturns and inflation.
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 Annual Report on Form 10-K, 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 included in this Annual Report, even if new information, future
events or other circumstances have made them incorrect or misleading.
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company and the
report of our independent public accountants with respect thereto, are set forth
below.
Page
Report of Independent Public Accountants 4
Consolidated Balance Sheets as of June 30, 2000 and 1999 5
Consolidated Statements of Earnings for each of the Three
Years Ended June 30, 2000, 1999, and 1998 7
Consolidated Statements of Stockholders' Equity for each
of the Three Years Ended June 30, 2000, 1999, and 1998 9
Consolidated Statements of Cash Flows for each of the
Three Years Ended June 30, 2000, 1999, and 1998 10
Notes to Consolidated Financial Statements 11
Supplementary information regarding "Quarterly Financial Data (Unaudited)" is
set forth under Item 8 in Note 20 to Consolidated Financial Statements.
Report of Independent Public Accountants
To the Shareholders of The Fairchild Corporation:
We have audited the accompanying consolidated balance sheets of The
Fairchild Corporation (a Delaware corporation) and consolidated subsidiaries as
of June 30, 2000 and 1999, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the financial statements of Nacanco Paketleme (see Note 6), an
investment that was sold in July 1999, and until then, was reflected in the
consolidated accompanying financial statements using the equity method of
accounting. The investment in Nacanco Paketleme represented 1 percent of total
assets as of June 30, 1999, and the equity in its net income represents 11
percent, and 9 percent of earnings from continuing operations for the years
ended June 30, 1999 and 1998, respectively. The statements of Nacanco Paketleme
were audited by other auditors whose report has been furnished to us and our
opinion, insofar as it relates to the amounts included for Nacanco Paketleme, is
based on the report of other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of The Fairchild Corporation and
consolidated subsidiaries as of June 30, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
June 30, 2000, in conformity with accounting principles generally accepted in
the United States.
Arthur Andersen LLP
Vienna, VA
September 11, 2000
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS June 30, June 30,
------ 2000 1999
------------------ ------------------
CURRENT ASSETS:
Cash and cash equivalents, $14,287 and $15,752 restricted $ 35,790 $ 54,860
Short-term investments 9,054 13,094
Accounts receivable-trade, less allowances of $9,598 and $6,442 127,230 130,121
Inventories:
Finished goods 138,330 137,807
Work-in-process 30,523 38,316
Raw materials 11,006 14,116
------------------ ------------------
179,859 190,239
Prepaid expenses and other current assets 74,231 73,926
------------------ ------------------
Total Current Assets 426,164 462,240
Property, plant and equipment, net of accumulated
depreciation of $142,938 and $103,556 174,137 184,065
Net assets held for sale 20,112 21,245
Cost in excess of net assets acquired (Goodwill), less
accumulated amortization of $52,826 and $40,307 436,442 447,722
Investments and advances, affiliated companies 3,238 31,791
Prepaid pension assets 64,418 63,958
Deferred loan costs 14,714 13,077
Real estate investment 112,572 83,791
Long-term investments 10,084 15,844
Other assets 5,539 5,053
------------------ ------------------
TOTAL ASSETS $ 1,267,420 $ 1,328,786
================== ==================
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</FN>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY June 30, June 30,
------------------------------------ 2000 1999
------------------ ------------------
CURRENT LIABILITIES:
Bank notes payable and current maturities of long-term debt $ 28,594 $ 28,860
Accounts payable 62,494 72,271
Accrued liabilities:
Salaries, wages and commissions 38,065 43,095
Employee benefit plan costs 5,608 5,204
Insurance 12,237 14,216
Interest 6,408 7,637
Other accrued liabilities 60,123 50,984
------------------ ------------------
122,441 121,136
Net current liabilities of discontinued operations 10,999
-
------------------ ------------------
Total Current Liabilities 213,529 233,266
LONG-TERM LIABILITES:
Long-term debt, less current maturities 453,719 495,283
Other long-term liabilities 26,741 25,963
Retiree health care liabilities 42,803 44,813
Noncurrent income taxes 128,515 121,961
------------------ ------------------
TOTAL LIABILITIES 865,307 921,286
STOCKHOLDERS' EQUITY:
Class A common stock, $0.10 par value; authorized
40,000 shares, 30,079 (29,754 in 1999) shares issued and
22,430 (22,259 in 1999) shares outstanding 3,008 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 231,190 229,038
Treasury stock, at cost, 7,649 (7,496 in 1999) shares of Class A common stock (75,506) (74,102)
Retained earnings 261,788 252,030
Notes due from stockholders (1,867)
-
Cumulative other comprehensive income (16,762) (2,703)
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY 402,113 407,500
------------------ ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,267,420 $ 1,328,786
================== ==================
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</FN>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
For the Years Ended June 30,
----------------------------------------------------
2000 1999 1998
--------------- ---------------- ----------------
REVENUE:
Net sales $ 635,361 $ 617,322 $ 741,176
Other income, net 14,410 3,899 6,508
--------------- ---------------- ----------------
649,771 621,221 747,684
COSTS AND EXPENSES:
Cost of goods sold 472,023 504,893 554,670
Selling, general & administrative 133,353 149,348 142,102
Amortization of goodwill 12,574 6,517 5,469
Restructuring 8,578 6,374 -
--------------- ---------------- ----------------
626,528 667,132 702,241
OPERATING INCOME (LOSS) 23,243 (45,911) 45,443
Interest expense 48,942 33,162 46,007
Interest income (4,850) (2,816) (3,292)
--------------- ---------------- ----------------
Net interest expense 44,092 30,346 42,715
Investment income (loss) 9,935 39,800 (3,362)
Nonrecurring gain 28,625 - 124,028
--------------- ---------------- ----------------
Earnings (loss) from continuing operations before taxes 17,711 (36,457) 123,394
Income tax (provision) benefit 4,399 13,245 (47,274)
Equity in earnings (loss) of affiliates, net (346) 1,795 2,571
Minority interest, net - (2,090) (26,292)
--------------- ---------------- ----------------
Earnings (loss) from continuing operations 21,764 (23,507) 52,399
Loss from discontinued operations, net - - (4,296)
Gain (loss) on disposal of discontinued operations, net (12,006) (31,349) 59,717
Extraordinary items, net - (4,153) (6,730)
--------------- ---------------- ----------------
NET EARNINGS (LOSS) $ 9,758 $ (59,009) $ 101,090
=============== ================ ================
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (10,098) (2,545) (5,140)
Unrealized holding changes on securities arising during the period (3,961) (16,544) 20,633
--------------- ---------------- ----------------
Other comprehensive income (loss) (14,059) (19,089) 15,493
--------------- ---------------- ----------------
COMPREHENSIVE INCOME (LOSS) $ (4,301) $ (78,098) $ 116,583
=============== ================ ================
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</FN>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
For the Years Ended June 30,
--------------------------------------------------
2000 1999 1998
--------------- ---------------- ---------------
BASIC EARNINGS PER SHARE:
Earnings (loss) from continuing operations $ 0.87 $ (1.03) $ 2.78
Loss from discontinued operations, net - - (0.23)
Gain (loss) on disposal of discontinued operations, net (0.48) (1.38) 3.17
Extraordinary items, net - (0.18) (0.36)
--------------- ---------------- ---------------
NET EARNINGS (LOSS) $ 0.39 $ (2.59) $ 5.36
=============== ================ ===============
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments $ (0.40) $ (0.11) $ (0.27)
Unrealized holding changes on securities arising during the period (0.16) (0.73) 1.10
--------------- ---------------- ---------------
Other comprehensive income (loss) (0.56) (0.84) 0.83
--------------- ---------------- ---------------
COMPREHENSIVE INCOME (LOSS) $ (0.17) $ (3.43) $ 6.19
=============== ================ ===============
DILUTED EARNINGS PER SHARE:
Earnings (loss) from continuing operations $ 0.87 $ (1.03) $ 2.66
Loss from discontinued operations, net - - (0.22)
Gain (loss) on disposal of discontinued operations, net (0.48) (1.38) 3.04
Extraordinary items, net - (0.18) (0.34)
--------------- ---------------- ---------------
NET EARNINGS (LOSS) $ 0.39 $ (2.59) $ 5.14
=============== ================ ===============
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments $ (0.40) $ (0.11) $ (0.26)
Unrealized holding changes on securities arising during the period (0.16) (0.73) 1.05
--------------- ---------------- ---------------
Other comprehensive income (loss) (0.56) (0.84) 0.79
--------------- ---------------- ---------------
--------------- ---------------- ---------------
COMPREHENSIVE INCOME (LOSS) $ (0.17) $ (3.43) $ 5.93
=============== ================ ===============
Weighted average shares outstanding:
Basic 24,954 22,766 18,834
=============== ================ ===============
Diluted 25,137 22,766 19,669
=============== ================ ===============
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</FN>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Cumulative
Class A Class B Notes Other
Common Common Paid-in Retained Treasury Due From Comprehensive
Stock Stock Capital Earnings Stock Stockholders Income Total
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Balance, July 1, 1997 $ 2,023 $ 263 $71,015 $209,949 $(51,719) $ - $ 893 $ 232,424
Net earnings - - - 101,090 - - - 101,090
Cumulative translation adjustment - - - - - - (5,140) (5,140)
Compensation expense from adjusted
terms to warrants and options - - 5,655 - - - - 5,655
Stock issued for Special-T Fasteners
acquisition 108 - 21,939 - - - - 22,047
Stock issued for Exchange Offer 221 - 42,588 - - - - 42,809
Equity Offering 300 - 53,268 - - - - 53,568
Proceeds received from stock options
exercised (141,259 shares) 10 - 652 - (189) - - 473
Cashless exercise of warrants 5 - (5) - - - - -
Net unrealized holding gain on
available-for-sale securities - - - - - - 20,633 20,633
---------------------------------------------------------------------------------------------
Balance, June 30, 1998 2,667 263 195,112 311,039 (51,908) - 16,386 473,559
Net loss - - - (59,009) - - - (59,009)
Cumulative translation adjustment - - - - - - (2,545) (2,545)
Stock issued for Special-T Fasteners
acquisition 1 - 132 - - - - 133
Stock issued for Banner Aerospace
merger 298 - 33,093 - - - - 33,391
Proceeds received from stock options
exercised (75,383 shares) 7 - 266 - (92) - - 181
Stock issued for Special-T restricted
stock plan (14,969 shares) 1 - (1) - - - - -
Purchase of treasury shares - - - - (22,102) - - (22,102)
Exchange of Class B for Class A
common stock (3,064 shares) 1 (1) - - - - - -
Compensation expense-stock options - - 436 - - - - 436
Net unrealized holding loss on
available-for-sale securities - - - - - - (16,544) (16,544)
---------------------------------------------------------------------------------------------
Balance, June 30, 1999 2,975 262 229,038 252,030 (74,102) - (2,703) 407,500
Net earnings - - - 9,758 - - - 9,758
Cumulative translation adjustment - - - - - - (10,098) (10,098)
Stock issued for Special-T Fasteners
acquisition (44,079 shares) 4 - 530 - - - - 534
Proceeds received from stock options
exercised (314,126 shares) 22 - 1,321 - (916) - - 427
Stock issued for Special-T restricted
stock plan (14,969 shares) 1 - (1) - - - - -
Cashless exercise of warrants 6 - (6) - - - - -
Purchase of treasury shares - - - - (488) - - (488)
Compensation expense-stock options - - 308 - - - - 308
Loans to stockholders - - - - - (1,867) - (1,867)
Net unrealized holding loss on
available-for-sale securities - - - - - - (3,961) (3,961)
---------------------------------------------------------------------------------------------
Balance, June 30, 2000 $ 3,008 $ 262 $231,190 $261,788 $(75,506) $ (1,867) $ (16,762) $402,113
=============================================================================================
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</FN>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Years Ended June 30,
-------------------------------------------------
2000 1999 1998
-------------- -------------- --------------
Cash flows from operating activities:
- -------------------------------------
Net earnings (loss) $ 9,758 $(59,009) $ 101,090
Depreciation and amortization 41,821 25,657 20,873
Deferred loan fee amortization 1,200 1,100 2,406
Accretion of discount on long-term liabilities 66 5,270 3,766
Net gain on the disposition of subsidiaries and investments in affiliates (28,625) - (124,041)
Net gain on the sale of discontinued operations - - (132,787)
Extraordinary items, net of cash payments - 6,389 10,347
Provision for restructuring (excluding cash payments of $2,600 in 1999) - 3,774 -
(Gain) loss on sale of property, plant, and equipment (1,964) 400 246
(Undistributed) distributed earnings of affiliates, net 372 3,433 1,725
Minority interest - 2,090 26,292
Change in trading securities - (1,254) 9,275
Change in receivables 2,892 8,632 (12,846)
Change in inventories (23,223) 14,727 (54,857)
Change in other current assets (25,734) (22,365) (26,643)
Change in other non-current assets (18,305) (26,741) 700
Change in accounts payable, accrued liabilities and other long-term
liabilities (11,979) 45,906 77,434
Non-cash charges and working capital changes of discontinued operations (13,351) 15,259 11,789
-------------- -------------- --------------
Net cash provided by (used for) operating activities (67,072) 23,268 (85,231)
Cash flows from investing activities:
-------------------------------------
Proceeds received from (used for) investment securities, net 14,655 189,379 (7,287)
Purchase of property, plant and equipment (27,339) (30,142) (36,029)
Proceeds from sale of plant, property and equipment 12,693 844 336
Equity investment in affiliates (2,489) (7,678) (4,343)
Proceeds received from divestiture of investment in affiliates 46,886 - -
Acquisition of subsidiaries, net of cash acquired - (274,427) (59,178)
Net proceeds received from sale of subsidiaries 61,906 60,396 -
Net proceeds received from the sale of discontinued operations 7,100 - 167,987
Changes in real estate investment (27,712) (40,351) (17,262)
Changes in net assets held for sale 4,672 3,134 2,140
Investing activities of discontinued operations - (312) (2,750)
-------------- -------------- --------------
Net cash provided by (used for) investing activities 90,372 (99,157) 43,614
Cash flows from financing activities:
-------------------------------------
Proceeds from issuance of debt 206,874 483,222 275,523
Debt repayments and repurchase of debentures, net (246,260) (380,083) (258,014)
Issuance of Class A common stock 368 181 54,041
Purchase of treasury stock (488) (22,102) -
Loans to stockholders (1,867) - -
Financing activities of discontinued operations - - 2,538
-------------- -------------- --------------
Net cash provided by (used for) financing activities (41,373) 81,218 74,088
Effect of exchange rate changes on cash (997) (70) (2,290)
-------------- -------------- --------------
Net change in cash and cash equivalents (19,070) 5,259 30,181
Cash and cash equivalents, beginning of the year 54,860 49,601 19,420
-------------- -------------- --------------
Cash and cash equivalents, end of the year $ 35,790 $ 54,860 $ 49,601
============== ============== ==============
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</FN>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
General: All references in the notes to the consolidated financial
statements to the terms "we," "our," "us," the "Company" and "Fairchild" refer
to The Fairchild Corporation and its consolidated subsidiaries.
Corporate Structure: The Fairchild Corporation was incorporated in
October 1969, under the laws of the State of Delaware. Effective April 8,
1999, we became the sole owner of Banner Aerospace, Inc. RHI Holdings, Inc. is
our direct subsidiary. RHI is the owner of 100% of Fairchild Holding Corp.
Our principal operations are conducted through Fairchild Holding Corp.
and Banner Aerospace. During fiscal 1999 and 1998 we held a significant equity
interest in Nacanco Paketleme. Our financial statements present the results of
our former communications services segment, Shared Technologies Fairchild and
Fairchild Technologies as discontinued operations.
Fiscal Year: Our fiscal year ends June 30. All references herein to "2000",
"1999", and "1998" mean the fiscal years ended June 30, 2000, 1999 and 1998,
respectively.
Consolidation Policy: The accompanying consolidated financial statements
are prepared in accordance with generally accepted accounting principles and
include our accounts and all of the accounts of our wholly-owned and
majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. Investments in companies in
which ownership interests range from 20 to 50 percent are accounted for using
the equity method (see Note 6).
Revenue Recognition: Sales and related costs are recognized upon shipment
of products and performance of services. Sales and related cost of sales on
long-term contracts are recognized as products are delivered and services
performed, determined by the percentage of completion method. Lease and rental
revenue are recognized on a straight-line basis over the life of the lease.
Cash Equivalents/Statements of Cash Flows: For purposes of the Statements
of Cash Flows, we consider all highly liquid investments with original maturity
dates of three months or less as cash equivalents. Total net cash disbursements
(receipts) made by us for income taxes and interest were as follows:
2000 1999 1998
----------------------------------------------
Interest $54,535 $29,200 $52,737
Income Taxes (15,076) (21,304) (987)
Restricted Cash: On June 30, 2000 and 1999, we had restricted cash of
$14,287 and $15,752, respectively, all of which is maintained as collateral for
certain debt facilities. Cash investments are in short-term treasury bills and
certificates of deposit.
Investments: Management determines the appropriate classification of our
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 stockholders' equity.
Investments in equity securities and limited partnerships that do not have
readily determinable fair values are stated at cost and are categorized as other
investments. Realized gains and losses are determined using the specific
identification method based on the trade date of a transaction. 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 several of our
domestic aerospace fastener 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 $3,920 and
$3,018 higher at June 30, 2000 and 1999, respectively. Inventories from
continuing operations are valued as follows:
June 30, June 30,
2000 1999
----------------- ---------------
First-in, first-out (FIFO) $ 141,094 $ 162,797
Last-in, first-out (LIFO) 38,765 27,442
----------------- ---------------
Total inventories $ 179,859 $ 190,239
================= ===============
Properties and Depreciation: The cost of property, plant and equipment is
depreciated over estimated useful lives of the related assets. The cost of
leasehold improvements is depreciated over the lesser of the length of the
related leases or the estimated useful lives of the assets. In fiscal 1999, we
changed the estimated useful life for depreciating our machinery and equipment
from 8 to 10 years. Depreciation is computed using the straight-line method for
financial reporting purposes and accelerated depreciation methods for Federal
income tax purposes. Property, plant and equipment consisted of the following:
June 30, June 30,
2000 1999
---------------- ----------------
Land $ 13,170 $ 13,325
Building and improvements 48,844 56,790
Machinery and equipment 223,059 173,791
Transportation vehicles 1,124 1,062
Furniture and fixtures 20,181 22,439
Construction in progress 10,697 20,214
---------------- ----------------
Property, plant and equipment at cost 317,075 287,621
Less: Accumulated depreciation 142,938 103,556
---------------- ----------------
Net property, plant and equipment $ 174,137 $ 184,065
================ ================
Amortization of Goodwill: Goodwill, which represents the excess of the cost
of purchased businesses over the fair value of their net assets at dates of
acquisition, 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. For 2000, 1999,
and 1998 amortization expense for these loan costs was $1,338, $1,100, and
$2,406, respectively.
Impairment of Long-Lived Assets: We review for impairment our long-lived
assets, including property, plant and equipment, identifiable intangibles and
goodwill, whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be fully recoverable. To determine recoverability
of our long-lived assets we evaluate the probability that future undiscounted
net cash flows will be less than the carrying amount of our assets. Impairment
is measured based on the difference between the carrying amount of our assets
and their fair value.
Foreign Currency Translation: For foreign subsidiaries whose functional
currency is the local foreign currency, balance sheet accounts are translated at
exchange rates in effect at the end of the period, and income statement accounts
are translated at average exchange rates for the period. The resulting
translation gains and losses are included as a separate component of
stockholders' equity. Foreign currency transaction gains and losses are included
in other income and were insignificant in fiscal 2000, 1999 and 1998.
Research and Development: Company-sponsored research and development
expenditures are expensed as incurred.
Capitalization of interest and taxes: We capitalize interest expense and
property taxes relating to certain real estate property being developed in
Farmingdale, New York. Interest of $5,792, $4,671 and $3,078 was capitalized in
2000, 1999 and 1998, respectively.
Nonrecurring Income: Nonrecurring income of $28,625 in 2000 resulted from
the disposition of two of our equity investments including Nacanco Paketleme,
and the disposition of our Camloc Gas Springs division. Nonrecurring income of
$124,028 in 1998 resulted from the disposition of our aerospace distribution
segment's hardware group (See Note 2).
Stock-Based Compensation: As permitted by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", we will continue
to use the intrinsic value based method of accounting prescribed by APB Opinion
No. 25, for our stock-based employee compensation plans. The fair market
disclosures that are required by SFAS 123 are included in Note 11.
Fair Value of Financial Instruments: The carrying amount reported in the
balance sheet approximates the fair value for our cash and cash equivalents,
investments, short-term borrowings, current maturities of long-term debt, and
all other variable rate debt (including borrowings under our credit agreements).
The fair value for our other fixed rate long-term debt is estimated using
discounted cash flow analyses, based on our current incremental borrowing rates
for similar types of borrowing arrangements. Fair values of our
off-balance-sheet instruments (hedging agreements, 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. These
instruments are described in Note 7.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires our management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, concerning the disclosure of contingent assets and liabilities, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications: Certain amounts in our prior years' financial
statements have been reclassified to conform to the 2000 presentation.
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. 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 adopted SFAS 133 on July 1, 2001 and recognized a cumulative
pre-tax loss of approximately $0.8 million.
2. BUSINESS COMBINATIONS
Acquisitions
We have accounted for the following acquisitions by using the purchase
method. The respective purchase price is assigned to the net assets acquired,
based on the fair value of such assets and liabilities at the respective
acquisition dates.
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 $3.4 million, which is being allocated
as goodwill, and amortized using the straight-line method over 40 years. The
acquisition was financed with additional borrowings from our credit facility.
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 existing debt, the majority of which was
refinanced at closing. In addition, we paid $28 million for a covenant not to
compete from Kaynar Technologies' largest preferred shareholder. The total cost
of the acquisition exceeded the fair value of the net assets of Kaynar
Technologies by approximately $282 million, which is being allocated as
goodwill, and amortized using the straight-line method over 40 years. 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 February 22, 1999, we used available cash to acquire 77.3% of SNEP S.A.
By June 30, 1999, we had purchased significantly all of the remaining shares of
SNEP. The total amount paid was approximately $8.0 million, including $1.1
million of debt assumed in a business combination accounted for as a purchase.
The total cost of the acquisition exceeded the fair value of the net assets of
SNEP by approximately $4.3 million, which is being allocated as goodwill, and
amortized using the straight-line method over 40 years. SNEP is a French
manufacturer of precision machined self-locking nuts and special threaded
fasteners serving the European industrial, aerospace and automotive markets.
On March 2, 1998, we acquired Edwards and Lock Management Corporation,
doing business as Special-T Fasteners, in a business combination accounted for
as a purchase. The cost of the acquisition was approximately $50.0 million, of
which 50.1% of the contractual purchase price was paid in shares of our Class A
common stock and 49.9% was paid in cash. The total cost of the acquisition
exceeded the fair value of the net assets of Special-T by approximately $23.3
million, which is being allocated as goodwill, and amortized using the
straight-line method over 40 years. Special-T manages the logistics of worldwide
distribution of our manufactured precision fasteners to our customers in the
aerospace industry, government agencies, OEMs, and other distributors.
On November 28, 1997, we acquired AS+C GmbH, Aviation Supply + Consulting
in a business combination accounted for as a purchase. The total cost of the
acquisition was $14.0 million, which exceeded the fair value of the net assets
of AS+C by approximately $8.1 million, which is being allocated as goodwill and
amortized using the straight-line method over 40 years. We purchased AS+C with
cash borrowings. AS+C is an aerospace parts, logistics, and distribution company
primarily servicing European customers.
Divestitures
On December 1, 1999, we disposed of substantially all of the assets and
certain liabilities of our Dallas Aerospace subsidiary to United Technologies
Inc. for approximately $57.0 million. No gain or loss was recognized from this
transaction, as the proceeds received approximated the net carrying value of the
assets. Approximately $37.0 million of the proceeds from this disposition were
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 $2.0 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 fiscal
2000, we recognized a $25.7 million nonrecurring gain from this divestiture. We
also agreed to provide consulting services over a three-year period, at an
annual fee of approximately $1.5 million. We used the net proceeds from the
disposition to reduce our indebtedness.
On December 31, 1998, Banner Aerospace consummated the sale of Solair,
Inc., its largest subsidiary in the rotables group, 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 the carrying amount of that inventory.
On January 13, 1998, Banner Aeropsace completed the disposition of
substantially all of the assets and certain liabilities of certain subsidiaries
to AlliedSignal Inc., in exchange for shares of AlliedSignal Inc. common stock
with an aggregate value of $369 million. The assets transferred to AlliedSignal
consisted primarily of Banner Aerospace's hardware group, which included the
distribution of bearings, nuts, bolts, screws, rivets and other types of
fasteners, and its PacAero unit. Approximately $196 million of the common stock
received from AlliedSignal was used to repay outstanding term loans of Banner
Aerospace's subsidiaries, and related fees.
Acquisition of Minority Interest in Consolidated Subsidiaries
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, 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 June 9, 1998 we exchanged 3,659,364 shares of Banner Aerospace's common
stock for 2,212,361 newly issued shares of our Class A common stock. As a result
of the exchange offer, our ownership of Banner common stock increased to 83.3%.
3. DISCONTINUED OPERATIONS AND NET ASSETS HELD FOR SALE
On March 11, 1998, Shared Technologies Fairchild Inc. merged into
Intermedia Communications Inc. Under the terms of the merger we received
approximately $178.0 million in cash (before tax and selling expenses) in
exchange for the common and preferred stock of Shared Technologies Fairchild we
owned. In fiscal 1998, we recorded a $96.0 million gain, net of tax, on disposal
of discontinued operations, from the proceeds received from the merger of Shared
Technologies Fairchild with Intermedia. The results of Shared Technologies
Fairchild have been accounted for as discontinued operations. Net earnings from
discontinued operations for Shared Technologies Fairchild was $648 in 1998.
Based on our formal plan, we have disposed of the Fairchild Technologies'
businesses, including its intellectual property, through a series of
transactions. Because of Fairchild Technologies' significant utilization of
cash, in February 1998, our Board of Directors adopted a formal plan to
discontinue Fairchild Technologies, under which, Fairchild Technologies would
either be sold or liquidated. In connection with the adoption of that plan, we
recorded an after-tax charge of $36.2 million in discontinued operations in
fiscal 1998. Included in the fiscal 1998 charge, was $28.2 million, net of an
income tax benefit of $11.8 million, for the net losses of Fairchild
Technologies through June 30, 1998. This charge included the write down of
assets to estimated net realizable value and $8.0 million, net of an income tax
benefit of $4.8 million, for the estimated remaining operating losses of
Fairchild Technologies through February 1999, the originally anticipated
disposal date. The dispositions of the Fairchild Technologies semiconductor
equipment group, the major portion of the Fairchild Technologies business, took
place by June 1999, approximately 15 months after the adoption of the
disposition plan. We also completed a spin-off of the Fairchild Technologies
optical disc equipment group business in April 2000, approximately 25 months
after the original disposition plan. We received proceeds from the dispositions
of Fairchild Technologies of less than we originally projected, and the
operating losses of Fairchild Technologies, since the adoption date, exceeded
our original estimates. At each quarter end, we continued to reevaluate our
conclusions on discontinued operations and update the estimates of losses as
circumstances changed. At no point did we consider retaining any portion of the
Fairchild Technology business. As a result, we adjusted the net loss on disposal
of discontinued operations by $31.3 million and $12.0 million in fiscal 1999 and
2000, respectively. The following schedule provides a summary of the net loss on
disposal of discontinued operations for Fairchild Technologies:
1998 (a) 1999 (b) 2000 (c) Total
-----------------------------------------------------
Accrual for future operating losses, net $ 8,000 $ (5,203) $ (2,797) $ -
Operating losses, net 12,644 21,313 1,217 35,174
Loss on dispositions, net 15,599 15,239 13,586 44,424
-----------------------------------------------------
Loss on disposal of discontinued operations, net $ 36,243 $ 31,349 $ 12,006 $ 79,598
-----------------------------------------------------
(a) The net loss on disposal of discontinued operations was increased by $13.9
million in the fourth quarter of fiscal 1998, to reflect higher than
expected operating losses that occurred since the measurement date, and to
update previous loss estimates for higher than previously anticipated
losses of disposal.
(b) The fiscal 1999 after-tax operating loss from Fairchild Technologies
exceeded the June 1998 estimate recorded for expected losses by $28.6
million, net of an income tax benefit of $8.1 million, through June 1999.
Operating losses for fiscal 1999 of $8.0 million were originally planned
for the first eight months of fiscal 1999. Operating costs were higher than
originally projected, due to deterioration in market conditions, which
resulted in increased operating expenses and hindered the disposition of
Fairchild Technologies within twelve months, as originally expected. Due to
the decision to cease operations of the Fairchild Technologies
semiconductor group in March 1999, additional expenses became necessary to
reflect the shut down of facilities and accrue for severance expenses. An
additional after-tax charge of $2.8 million was recorded in fiscal 1999 for
the estimated remaining losses in connection with the disposition of
Fairchild Technologies.
(c) The fiscal 2000 after-tax loss in connection with the disposition of the
remaining operations of Fairchild Technologies exceeded anticipated losses
by $12.0 million, net of tax. We recognized a higher than expected loss on
the disposition of the final portions of Fairchild Technologies.
At the measurement date in February 1998, management's reasonable
expectation was that Fairchild Technologies would be disposed of within one
year. Management felt confident that this could be accomplished for the
following reasons:
o We retained an investment banker to aid in the disposal of the Fairchild
Technologies business.
o Our belief was further enhanced as active discussions began with
approximately 20 potentially interested parties; and based on those
discussions we believed that we could sell Fairchild Technologies
within one year.
o The expected quarterly losses, as accrued at the measurement date
created an incentive to sell the Fairchild Technologies business in
order to reduce cash outflows.
However, our February 1998 expectations that we could sell Fairchild
Technologies within one year were severely hampered by a general slowdown in the
semiconductor manufacturing equipment industry, the economic crisis in Asia, and
public knowledge that the business was for sale. As a result of these
conditions, the major customer of Fairchild Technologies semiconductor equipment
group business refused to place additional firm orders and Fairchild
Technologies incurred net operating losses well in excess of the $8.0 million
originally planned. As a further result of these conditions, efforts to sell the
Fairchild Technologies business, as a whole, were unsuccessful. However, several
parties expressed interest in specific product lines and intellectual property
of Fairchild Technologies. Management realized that it would have to split-up
Fairchild Technologies and separately dispose of components of its semiconductor
equipment group and its optical disc equipment business. In February 1999,
disposition discussions began to intensify, and shortly thereafter letters of
intent were signed to sell portions of the Fairchild Technologies business.
In March 1999, management decided to cease all manufacturing activities of
the semiconductor equipment group of Fairchild Technologies. In April 1999, we
began to dispose of the semiconductor equipment group's production machinery and
existing inventory, informed customers and business partners that it ceased
operations, significantly reduced its workforce, and stepped up the level of
discussions and negotiations with other companies regarding the sale of its
remaining assets. Fairchild Technologies also continued exploring several
alternative transactions with potential buyers for its optical disc equipment
group business.
During the fourth quarter of fiscal 1999, we liquidated, through several
transactions, a significant portion of Fairchild Technologies, consisting mostly
of its semiconductor equipment group. On April 14, 1999, we disposed of
Fairchild Technologies' photoresist deep ultraviolet track equipment machines
and technology, 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 May
1, 1999, we sold Fairchild CDI for a nominal amount. On June 15, 1999, we
received $7.9 million from Suess Microtec AG and the right to receive 350,000
shares of Suess Microtec stock (or approximately $3.5 million) in exchange for
Fairchild Technologies' Falcon semiconductor equipment group product line and
certain intellectual property.
In July 1999, we received approximately $7.1 million from Novellus in
exchange for Fairchild Technologies' Low-K dielectric product line and certain
intellectual property. This transaction finalized the liquidation of the
semiconductor equipment group of Fairchild Technologies.
Following these transactions Fairchild Technologies completely ceased
operations. Under these circumstances, management believes that discontinued
operations treatment for accounting purposes continued to be appropriate
subsequent to March 1999.
On April 13, 2000, we completed a spin-off to our shareholders, of
Fairchild (Bermuda) Ltd., which owned the Fairchild Technologies Optical Disc
Equipment Group business. Subsequently, on April 14, 2000, Fairchild (Bermuda),
was renamed Global Sources Ltd., and 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.
Earnings from discontinued operations for the twelve months ended June 30,
1998 includes net losses of $4,944 from Fairchild Technologies until the
adoption date of a formal plan for its discontinuance.
Fairchild Technologies reported sales of $60,339, $21,900, and $8,087 in
1998, 1999, and 2000, respectively.
Net assets held for sale are stated at the lower of cost or at estimated
net realizable value, which consider anticipated sales proceeds. Interest is not
allocated to net assets held for sale. Net assets held for sale at June 30,
2000, includes two parcels of real estate in California, and several parcels of
real estate located primarily throughout the continental United States, which we
plan to sell, lease or develop, subject to the resolution of certain
environmental matters and market conditions. Also included in net assets held
for sale is a limited partnership interest in a landfill development
partnership.
4. PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
The following table sets forth the derivation of the unaudited pro forma
results, representing the impact of our acquisition of Kaynar Technologies
(completed in April 1999), our merger with Banner Aerospace (completed in April
1999), our acquisition of Special-T (effective January 1998), and our
dispositions of Dallas Aerospace (December 1999), Solair (December 1998), the
hardware group of Banner Aerospace (completed January 1998), and the investment
in Nacanco Paketleme (July 1999) and Shared Technologies Fairchild (completed in
March 1998), as if these transactions had occurred at the beginning of each
period presented. 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 affect interest expense and investment income from our revised debt
structures and reduce minority interest from our merger with Banner Aerospace.
The pro forma financial information does not reflect nonrecurring income and
gains from the disposal of discontinued operations that have occurred from these
transactions. The unaudited pro forma information is not intended to be
indicative of the 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.
2000 1999 1998
---------------- ---------------- ----------------
Sales $613,667 $686,660 $704,633
Operating income (a) 21,192 28,745 58,953
Earnings (loss) from continuing operations (a, b) 3,695 (579) 6,174
Basic earnings (loss) from continuing operations per share 0.15 (0.03) 0.27
Diluted earnings (loss) from continuing operations per share 0.15 (0.03) 0.25
Net earnings (loss) (8,310) (36,081) 54,865
Basic earnings (loss) per share (0.33) (1.58) 2.36
Diluted earnings (loss) per share (0.33) (1.58) 2.26
<FN>
(a) - Fiscal 2000 pro forma results include pre-tax restructuring charges of
$8,578. Fiscal 1999 pro forma results includes pre-tax charges recorded for
acquisitions of $23,604 and restructuring charges of $6,374.
(b) - Excludes pre-tax nonrecurring gain of $25,747 from the liquidation
Nacanco Paketleme in fiscal 2000. Excludes pre-tax investment income of
$35,407 from the liquidation of certain investments in fiscal 1999.
</FN>
5. INVESTMENTS
Investments at June 30, 2000 consist primarily of common stock investments
in public corporations, which are classified as trading securities or
available-for-sale securities. Other short-term investments and long-term
investments do not have readily determinable fair values and consist primarily
of investments in preferred and common shares of private companies and limited
partnerships. A summary of investments held by us follows:
June 30, 2000 June 30, 1999
------------------------------- ------------------------------
Aggregate Aggregate
Fair Cost Fair Cost
Value Basis Value Basis
------------------------------- ------------------------------
Short-term investments:
Trading securities - equity $ 2,715 $ 2,926 $ 1,254 $ 1,221
Available-for-sale equity securities 6,284 5,400 11,618 9,573
Other investments 55 55 222 222
-------------- -------------- ------------- -------------
$ 9,054 $ 8,381 $ 13,094 $ 11,016
============== ============== ============= =============
Long-term investments:
Available-for-sale equity securities $ 3,828 $ 5,436 $ 14,616 $ 7,342
Other investments 6,256 6,256 1,228 1,228
-------------- -------------- ------------- -------------
$ 10,084 $ 11,692 $ 15,844 $ 8,570
============== ============== ============= =============
On June 30, 2000, we had gross unrealized holding gains from
available-for-sale securities of $1,357 and gross unrealized holding losses from
available-for-sale securities of $2,082. Investment income is summarized as
follows:
2000 1999 1998
------------- ------------- -------------
Gross realized gain from sales $ 15,102 $ 36,677 $ 364
Change in unrealized holding gain (loss) from trading securities 578 33 (5,791)
Gross realized loss from impairments (6,473) - (182)
Dividend income 728 3,090 2,247
------------- ------------- -------------
$ 9,935 $ 39,800 $ (3,362)
============= ============= =============
6. INVESTMENTS AND ADVANCES, AFFILIATED COMPANIES
The following table summarizes historical financial information on a
combined 100% basis of our investment in Nacanco Paketleme, which was accounted
for using the equity method in the periods that we owned it.
Statement of Earnings: 1999 1998
---------------- ----------------
Net sales $ 75,495 $ 90,235
Gross profit 25,297 32,449
Earnings from continuing operations 13,119 14,780
Net earnings 13,119 14,780
Balance Sheet at June 30, 1999
Current assets $ 26,942
Non-current assets 38,661
Total assets 65,603
Current liabilities 12,249
Non-current liabilities 1,828
On June 30, 1999 we owned approximately 31.9% of Nacanco Paketleme common
stock. We recorded equity earnings of $4,153 and $4,683 from this investment for
1999 and 1998, respectively.
Our share of equity in earnings, net of tax, of all unconsolidated
affiliates for 2000, 1999 and 1998 was $(346), $1,795, and $2,571, respectively.
The carrying value of investments and advances, affiliated companies consists of
the following:
June 30, June 30,
2000 1999
---------------- ----------------
Nacanco $ - $ 17,356
Others 3,238 14,435
---------------- ----------------
$ 3,238 $ 31,791
================ ================
On June 30, 2000, approximately $(3,309) of our $261,788 consolidated
retained earnings were from undistributed losses of 50 percent or less currently
owned affiliates accounted for using the equity method.
7. NOTES PAYABLE AND LONG-TERM DEBT
At June 30, 2000 and 1999, notes payable and long-term debt consisted of
the following:
June 30, 2000 June 30, 1999
------------------ ------------------
Short-term notes payable (weighted average interest rates of 4.5% $ 23,069 $ 22,924
and 3.6% in 2000 and 1999, respectively)
================== ==================
Bank credit agreements $ 218,691 $ 258,100
10 3/4% Senior subordinated notes due 2009 225,000 225,000
10.65% Industrial revenue bonds 1,500 1,500
Capital lease obligations, interest from 7.4% to 10.1% 2,146 2,873
Other notes payable, collateralized by property, plant and
equipment, interest from 3.0% to 10.5% 11,907 13,746
------------------ ------------------
459,244 501,219
Less: Current maturities (5,525) (5,936)
------------------ ------------------
Net long-term debt $ 453,719 $ 495,283
================== ==================
Credit Agreements
We maintain credit facilities with a consortium of banks, providing us with
a term loan and revolving credit facilities. On June 30, 2000, the credit
facilities with our senior lenders consisted of a $143,691 term loan and a
$100,000 revolving loan with a $40,000 letter of credit sub-facility and a
$15,000 swing loan sub-facility. Borrowings under the term loan generally bear
interest at a rate of, at our option, either 2% over the Citibank N.A. base
rate, or 3% over the Eurodollar rate, and is subject to change quarterly based
upon our financial performance. Advances made under the revolving credit
facilities generally bear interest at a rate of, at our option, either (i) 1
1/2% over the Citibank N.A. base rate, or (ii) 2 1/2% over the Eurodollar rate,
and is subject to change quarterly based upon our financial performance. The
credit facilities are subject to a non-use commitment fee on the aggregate
unused availability, of 1/2% if greater than half of the revolving loan is being
utilized or 3/4% if less than half of the revolving loan is being utilized.
Outstanding letters of credit are subject to fees equivalent to the Eurodollar
margin rate. The revolving credit facilities and the term loan will mature on
April 30, 2005 and April 30, 2006, respectively. The term loan is subject to
mandatory prepayment requirements and optional prepayments. The revolving loan
is subject to mandatory prepayment requirements and optional commitment
reductions.
We are required under the credit agreement to comply with certain financial
and non-financial loan covenants, including maintaining certain interest and
fixed charge coverage ratios and maintaining certain indebtedness to EBITDA
ratios at the end of each fiscal quarter. Additionally, the credit agreement
restricts annual capital expenditures to $40,000 during the life of the
facility. Except for non-guarantor assets, substantially all of our assets are
pledged as collateral under the credit agreement. The credit agreement restricts
the payment of dividends to our shareholders to an aggregate of the lesser of
$0.01 per share or $400 over the life of the agreement. 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. At June 30, 2000, we were in full
compliance with all the covenants under the credit agreement.
At June 30, 2000, we had borrowings outstanding of $42,000 under the
revolving credit facilities and we had letters of credit outstanding of $16,544,
which were supported by a sub-facility under the revolving credit facilities. At
June 30, 2000, we had unused bank lines of credit aggregating $41,456, at
interest rates slightly higher than the prime rate. We also had short-term lines
of credit relating to foreign operations, aggregating $32,653, against which we
owed $14,512 at June 30, 2000.
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%.
Senior Subordinated Notes
On April 20, 1999, in conjunction with the acquisition of Kaynar
Technologies, we issued, at par value, $225,000 of 10 3/4% senior subordinated
notes that mature on April 15, 2009. We will pay interest on these notes
semi-annually on April 15 and October 15 of each year. Except in the case of
certain equity offerings by us, we cannot choose to redeem these notes until
five years have passed from the issue date of the notes. At any one or more
times after that date, we may choose to redeem some or all of the notes at
certain specified prices, plus accrued and unpaid interest. Upon the occurrence
of certain change of control events, each holder may require us to repurchase
all or a portion of the notes at 101% of their principal amount, plus accrued
and unpaid interest.
The notes are our senior subordinated unsecured obligations. They rank
senior to or equal in right of payment with any of our future subordinated
indebtedness, and subordinated in right of payment to any of our existing and
future senior indebtedness. The notes are effectively subordinated to
indebtedness and other liabilities of our subsidiaries which are not guarantors.
Substantially all of our domestic subsidiaries guarantee the notes with
unconditional guaranties of payment that will effectively rank below their
senior debt, but will rank equal to their other subordinated debt, in right of
payment.
The indenture under which the notes were issued contains covenants that
limit what we (and most or all of our subsidiaries) may do. The indenture
contains covenants that limit our ability to: incur additional indebtedness; pay
dividends on, redeem or repurchase our capital stock; make investments; sell
assets; create certain liens; engage in certain transactions with affiliates;
and consolidate, merge or sell all or substantially all of our assets or the
assets of certain of our subsidiaries. In addition, we will be obligated to
offer to repurchase the notes at 100% of their principal amount, plus accrued
and unpaid interest, if any, to the date of repurchase, in the event of certain
asset sales. These restrictions and prohibitions are subject to a number of
important qualifications and exceptions.
Debt Maturity Information
The annual maturity of our bank notes payable and long-term debt
obligations (exclusive of capital lease obligations) for each of the five years
following June 30, 2000, are as follows: $27,813 for 2001, $4,386 for 2002,
$34,595 for 2003, $3,084 for 2004 and $44,575 for 2005.
Hedge Agreements
In fiscal 1998 we entered into a series of interest rate hedge agreements
to reduce our exposure to increases in interest rates on variable rate debt. The
ten-year hedge agreements provide us with interest rate protection on $100,000
of variable rate debt, with interest being calculated based on a fixed LIBOR
rate of 6.24% to February 17, 2003. On February 17, 2003, the bank will have a
one-time option to elect to cancel the agreement or to do nothing and proceed
with the transaction, using a fixed LIBOR rate of 6.715% for the period February
17, 2003 to February 19, 2008. No costs were incurred as a result of these
transactions.
In conjunction with the $30,750 term loan agreement with Morgan Guaranty
Trust Company of New York, 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.
We recognize interest expense under the provisions of the hedge agreements
based on the fixed rate. We are exposed to credit loss in the event of
non-performance by the lenders; however, such non-performance is not
anticipated.
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% 7.06%
Fair Market Value $166 $(812)
<FN>
(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.
</FN>
8. PENSIONS AND POSTRETIREMENT BENEFITS
Pensions
We have defined benefit pension plans covering most of our employees.
Employees in our foreign subsidiaries may participate in local pension plans,
for which our liability is in the aggregate insignificant. Our funding policy is
to make the minimum annual contribution required by the Employee Retirement
Income Security Act of 1974 or local statutory law.
The changes in the pension plans' benefit obligations were as follows:
2000 1999
-------------- --------------
Projected benefit obligation at July 1, $ 221,985 $ 222,607
Service cost 5,122 3,454
Interest cost 15,214 14,328
Actuarial gains (12,593) (5,003)
Benefit payments (19,239) (14,236)
Plan amendment 3,190 837
Foreign currency translation (4) (2)
-------------- --------------
Projected benefit obligation at June 30, $ 213,675 $ 221,985
============== ==============
The changes in the fair values of the pension plans' assets were as follows:
2000 1999
-------------- --------------
Plan assets at July 1, $ 257,662 $ 261,097
Actual return on plan assets 10,767 11,995
Administrative expenses (1,413) (1,190)
Benefit payments (19,239) (14,236)
Foreign currency translation (9) (4)
-------------- --------------
Plan assets at June 30, $ 247,768 $ 257,662
============== ==============
The following table sets forth the funded status and amounts recognized in
our consolidated balance sheets at June 30, 2000 and 1999, for the plans:
June 30, 2000 June 30, 1999
---------------- ----------------
Plan assets in excess of projected benefit obligations $ 34,096 $ 35,677
Unrecognized net loss 26,970 27,867
Unrecognized prior service cost 3,534 634
Unrecognized transition (asset) (182) (220)
---------------- ----------------
Prepaid pension expense recognized in the balance sheet $ 64,418 $ 63,958
================ ================
The net prepaid pension expense recognized in the consolidated balance
sheets consisted entirely of a prepaid pension asset.
A summary of the components of total pension expense is as follows:
2000 1999 1998
-------------- -------------- --------------
Service cost - benefits earned during the period $ 5,122 $ 3,454 $ 2,685
Interest cost on projected benefit obligation 15,214 14,328 14,518
Expected return on plan assets (22,360) (21,694) (20,455)
Amortization of net loss 1,306 1,813 1,522
Amortization of prior service cost (credit) 290 (184) (184)
Amortization of transition (asset) (37) (36) (38)
-------------- -------------- --------------
Net periodic pension (income) $ (465) $ (2,319) $ (1,952)
============== ============== ==============
Weighted average assumptions used in accounting for the defined benefit
pension plans as of June 30, 2000 and 1999 were as follows:
2000 1999
-------------- --------------
Discount rate 8.0% 7.25%
Expected rate of increase in salaries 4.5% 4.5%
Expected long-term rate of return on plan assets 9.0% 9.0%
Plan assets include an investment in our Class A common stock, valued at a
fair market value of $3,127 and $8,178 at June 30, 2000 and 1999, respectively.
Substantially all of the other plan assets are invested in listed stocks and
bonds.
Postretirement Health Care Benefits
We provide health care benefits for most of our retired employees.
Postretirement health care benefit expense from continuing operations totaled
$1,065, $951, and $804 for 2000, 1999, and 1998, respectively. Our accrual was
approximately $32,345 and $33,155 as of June 30, 2000 and 1999, respectively,
for postretirement health care benefits related to discontinued operations. This
represents the cumulative discounted value of the long-term obligation and
includes benefit expense of $3,484, $3,902 and $3,714 for the years ended June
30, 2000, 1999 and 1998, respectively.
The changes in the accumulated postretirement benefit obligation of the
plans were as follows:
2000 1999
--------------- --------------
Accumulated postretirement benefit obligation at July 1, $ 55,027 $ 58,197
Service cost 302 227
Interest cost 3,733 3,860
Actuarial gains (3,290) (2,718)
Benefit payments (5,198) (4,539)
Acquisitions/Divestitures (16) -
--------------- --------------
Accumulated postretirement benefit obligation at June 30, $ 50,558 $ 55,027
=============== ==============
In fiscal 1998, we amended a former subsidiary's medical plan to increase
the retirees' contribution rate to approximately 20% of the negotiated premium.
Such plan amendment resulted in a $1,003 decrease to the accumulated
postretirement benefit obligation and is being amortized as an unrecognized
prior service credit over the average future lifetime of the respective
retirees.
The following table sets forth the funded status and amounts recognized in
the Company's consolidated balance sheets at June 30, 2000 and 1999, for the
plans:
2000 1999
---------------- --------------
Accumulated postretirement benefit obligation $ 50,558 $ 55,027
Unrecognized prior service credit 797 866
Unrecognized net loss (8,960) (12,833)
---------------- --------------
Accrued postretirement benefit liability $ 42,395 $ 43,060
================ ==============
The accumulated postretirement benefit obligation was determined using a
discount rate of 8.0% at June 30, 2000 and 7.25% at June 30, 1999. The effect of
such change resulted in a decrease to the accumulated postretirement benefit
obligation in fiscal 2000. For measurement purposes, a 6.5% annual rate of
increase in the per capita claims cost of covered health care benefits was
assumed for fiscal 2000. The rate was assumed to decrease gradually to 5.0% for
fiscal 2003 and remain at that level thereafter.
A summary of the components of total postretirement expense is as follows:
2000 1999 1998
------------- ------------- --------------
Service cost - benefits earned during the period $ 302 $ 227 $ 166
Interest cost on accumulated postretirement benefit obligation 3,733 3,860 3,979
Amortization of prior service credit (69) (69) (69)
Amortization of net loss 583 835 442
------------- ------------- --------------
Net periodic postretirement benefit cost $ 4,549 $ 4,853 $ 4,518
============= ============= ==============
Assumed health care cost trend rates have a significant effect on the
amounts reported for health care plans. A one percentage-point change in assumed
health care cost trend rates would have the following effects as of and for the
fiscal year ended June 30, 2000:
One Percentage-Point
Increase Decrease
---------------- --------------
Effect on service and interest components of net periodic cost $ 107 $ (105)
Effect on accumulated postretirement benefit obligation 1,490 (1,351)
9. INCOME TAXES
The provision (benefit) for income taxes from continuing operations is
summarized as follows:
2000 1999 1998
--------------- ---------------- ---------------
Current:
Federal $(11,234) $ 3,416 $ (6,245)
State 427 140 500
Foreign 2,893 3,994 3,893
--------------- ---------------- ---------------
(7,914) 7,550 (1,852)
Deferred:
Federal 5,508 (10,731) 46,092
State (1,993) (10,064) 3,034
--------------- ---------------- ---------------
3,515 (20,795) 49,126
--------------- ---------------- ---------------
Net tax provision (benefit) $ (4,399) $(13,245) $ 47,274
=============== ================ ===============
The income tax provision (benefit) for continuing operations differs from
that computed using the statutory Federal income tax rate of 35%, in fiscal
2000, 1999, and 1998, for the following reasons:
2000 1999 1998
---------------- --------------- ---------------
Computed statutory amount $ 6,199 $ (12,760) $43,188
State income taxes, net of applicable federal tax benefit (654) 2,488 4,362
Nondeductible acquisition valuation items 4,002 1,903 1,204
Tax on foreign earnings, net of tax credits (5,030) (2,392) (1,143)
Difference between book and tax basis of assets acquired and
liabilities assumed (1,491) (53) 4,932
Revision of estimate for tax accruals (7,800) (1,790) (3,905)
Other 375 (641) (1,364)
---------------- --------------- ---------------
Net tax provision (benefit) $(4,399) $ (13,245) $47,274
================ =============== ===============
The following table is a summary of the significant components of our
deferred tax assets and liabilities, and deferred provision or benefit, for the
following periods:
2000 1999 1998
Deferred Deferred Deferred
June 30, (Provision) June 30, (Provision) (Provision)
2000 Benefit 1999 Benefit Benefit
--------------- ---------------- --------------- -------------- ---------------
Deferred tax assets:
Accrued expenses $ 6,249 $ (7,910) $ 14,159 $ 11,572 $ (3,853)
Asset basis differences 9,384 562 8,822 710 7,540
Inventory 5,135 (5,982) 11,117 11,117 (2,198)
Employee compensation and benefits 17,022 3,435 13,587 8,501 (55)
Environmental reserves 4,738 763 3,975 509 207
Loss and credit carryforward 7,035 7,035 - - -
Postretirement benefits 12,000 (4,428) 16,428 (1,706) (1,338)
Other 2,234 (2,405) 4,639 (7,465) 4,506
--------------- ---------------- --------------- -------------- ---------------
63,797 (8,930) 72,727 23,238 4,809
Deferred tax liabilities:
Asset basis differences (80,038) 4,348 (84,386) (3,954) (54,012)
Inventory - - - 1,546 (1,546)
Pensions (19,318) 296 (19,614) (428) 95
Other (4,548) 771 (5,319) 393 1,528
--------------- ---------------- --------------- -------------- ---------------
(103,904) 5,415 (109,319) (2,443) (53,935)
--------------- ---------------- --------------- -------------- ---------------
Net deferred tax liability $ (40,107) $ (3,515) $(36,592) $ 20,795 $ (49,126)
=============== ================ =============== ============== ===============
The amounts included in the balance sheet are as follows:
June 30, June 30,
2000 1999
--------------- ---------------
Prepaid expenses and other current assets:
Current deferred $ 27,206 $ 5,999
=============== ===============
Noncurrent income tax liabilities:
Noncurrent deferred $ 67,313 $ 42,591
Other noncurrent 61,202 79,370
--------------- ---------------
$128,515 $ 121,961
=============== ===============
We maintain a very complex structure in the United States and overseas,
particularly due to the large number of acquisitions and dispositions that have
occurred along with other tax planning strategies. Our management performs a
comprehensive review of its worldwide tax positions on an annual basis. Based on
positive outcomes in recent years as a result of discussions and resolutions of
matters with the tax authorities and the closure of tax years subject to tax
audit, management has reversed tax accruals, no longer needed, of $7,800,
$1,790, and $3,905 in 2000, 1999, and 1998, respectively.
Domestic income taxes, less available credits, are provided on the
unremitted income of foreign subsidiaries and affiliated companies, to the
extent we intend to repatriate such earnings. 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, 2000, the amount
of domestic taxes payable upon distribution of such earnings was not
significant.
In the opinion of our 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 our financial condition or our results of
operations.
10. EQUITY SECURITIES
We had 22,429,722 shares of Class A common stock and 2,621,652 shares of
Class B common stock outstanding at June 30, 2000. Class A common stock is
listed on the New York Stock Exchange under the ticker symbol of "FA". 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 year ended June 30, 2000, 100,795 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 fiscal 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 fiscal 2000, which are considered as treasury stock for accounting
purposes.
During fiscal 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 our Class A common stock
after a specified period of time.
11. STOCK OPTIONS AND WARRANTS
Stock Options
We are authorized to issue 5,141,000 shares of our Class A common stock,
upon the exercise of stock options issued under our 1986 non-qualified and
incentive stock option plan. The purpose of the 1986 stock option plan is to
encourage continued employment and ownership of Class A common stock by our
officers and key employees, and to provide additional incentive to promote
success. The 1986 stock option plan authorizes the granting of options 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 our compensation and
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 the 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. The 1986 plan expires on April 9, 2006; however, all
stock options outstanding as of April 9, 2006 shall continue to be exercisable
pursuant to their terms.
We are authorized to issue 250,000 shares of our Class A common stock upon
the exercise of stock options issued under the ten year 1996 non-employee
directors stock option plan. The 1996 non-employee directors stock option plan
authorizes the granting of options at the market value of the common stock on
the date of grant. An initial stock option grant for 30,000 shares of Class A
common stock is made to each person who becomes a new non-employee Director,
with the options vesting 25% each year from the date of grant. On the date of
each annual meeting, each person elected as a non-employee Director will be
granted an option for 1,000 shares of Class A common stock that vest
immediately. The exercise price is payable in cash or, with the approval of our
compensation and stock option committee, in shares of Class A or Class B common
stock, valued at fair market value at the date of exercise. All options issued
under the 1996 non-employee directors stock option plan will terminate five
years from the date of grant or a stipulated period of time after a non-employee
Director ceases to be a member of the Board. The 1996 non-employee directors
stock option plan is designed to maintain our ability to attract and retain
highly qualified and competent persons to serve as our outside directors.
Upon our April 8, 1999 merger with Banner Aerospace, all of Banner
Aerospace's stock options then issued and outstanding were converted into the
right to receive 870,315 shares of our common stock.
A summary of stock option transactions under our stock option plans is
presented in the following tables:
Weighted
Average
Exercise
Shares Price
-------------------- -------------------
Outstanding at July 1, 1997 1,485,440 $ 7.46
Granted 357,250 24.25
Exercised (141,259) 4.70
Forfeited (46,650) 7.56
-------------------- -------------------
Outstanding at June 30, 1998 1,654,781 7.46
Granted 338,000 14.36
Plans assumption from Banner merger 870,315 4.25
Exercised (75,383) 5.21
Expired (500) 3.50
Forfeited (650) 12.16
-------------------- -------------------
Outstanding at June 30, 1999 2,786,563 11.05
Granted 200,500 8.89
Exercised (329,126) 3.98
Expired (88,216) 6.79
Forfeited (103,150) 14.53
-------------------- -------------------
Outstanding at June 30, 2000 2,466,571 $ 11.82
==================== ===================
Exercisable at June 30, 1998 667,291 $ 6.58
Exercisable at June 30, 1999 1,867,081 $ 8.75
Exercisable at June 30, 2000 1,793,459 $ 10.57
A summary of options outstanding at June 30, 2000 is presented as follows:
Options Outstanding Options Exercisable
------------------------------------------------------- ----------------------------------
Weighted Average Weighted
Average Remaining Average
Range of Number Exercise Contract Number Exercise
Exercise Prices Outstanding Price Life Exercisable Price
- ---------------------------- ----------------- -------------- ---------------- ---------------- --------------
$ 3.50 - $ 8.625 822,699 $ 5.30 1.1 years 762,199 $ 5.18
$ 8.72 - $13.48 492,987 $ 9.57 3.7 years 345,487 $ 9.41
$13.625 - $16.25 841,385 $ 14.80 2.2 years 531,023 $ 14.94
$18.5625 - $25.0625 309,500 $ 24.65 1.2 years 154,750 $ 24.65
- ---------------------------- ----------------- -------------- ---------------- ---------------- --------------
$ 3.50 - $25.0625 2,466,571 $ 11.82 4.1 years 1,793,459 $ 10.57
============================ ================= ============== ================ ================ ==============
The weighted average grant date fair value of options granted during 2000,
1999 and 1998 was $4.16, $6.48, and $11.18, respectively. The fair value of each
option granted is estimated on the grant date using the Black-Scholes option
pricing model. The following significant assumptions were made in estimating
fair value:
2000 1999 1998
-------------------- ------------------- ------------------
Risk-free interest rate 5.9% - 6.8% 4.3% - 5.4% 5.4% - 6.3%
Expected life in years 4.66 4.66 4.66
Expected volatility 45% - 47% 45% - 46% 44% - 45%
Expected dividends none none none
We recognized compensation expense of $23 from stock options issued to a
consultant and $414 from an employee stock plan that was established with our
acquisition of Special-T Fasteners in 1998. We recognized compensation expense
of $104 as a result of stock options that were modified in 1998. We are applying
APB Opinion No. 25 in accounting for our stock option plans. Accordingly, no
compensation cost has been recognized for the granting of stock options to our
employees in 2000, 1999 or 1998. If stock options granted in 2000, 1999 and 1998
were accounted for based on their fair value as determined under SFAS 123, pro
forma earnings would be as follows:
2000 1999 1998
--------------- --------------- ----------------
Net earnings (loss):
As reported $ 9,758 $ (59,009) $101,090
Pro forma 8,096 (60,682) 99,817
Basic earnings (loss) per share:
As reported $ 0.39 $ (2.59) $ 5.36
Pro forma 0.32 (2.66) 5.30
Diluted earnings (loss) per share:
As reported $ 0.39 $ (2.59) $ 5.14
Pro forma 0.32 (2.66) 5.07
The pro forma effects of applying SFAS 123 are not representative of the
effects on reported net earnings for future years. The effect of SFAS 123 is not
applicable to awards made prior to 1996. Additional awards are expected in
future years.
Stock Option Deferral Plan
On November 17, 1998, our shareholders approved a stock option deferral
plan. Pursuant to the stock option deferral plan, certain officers may, at their
election, defer payment of the "compensation" they receive in a particular year
or years from the exercise of stock options. "Compensation" means the excess
value of a stock option, determined by the difference between the fair market
value of shares issueable upon exercise of a stock option, and the option price
payable upon exercise of the stock option. An officer's deferred compensation is
payable in the form of "deferred compensation units," representing the number of
shares of common stock that the officer is entitled to receive upon expiration
of the deferral period. The number of deferred compensation units issueable to
an officer is determined by dividing the amount of the deferred compensation by
the fair market value of our stock as of the date of deferral.
Stock Warrants
Effective as of February 21, 1997, we approved the continuation of an
existing warrant to Stinbes Limited (an affiliate of Jeffrey Steiner) to
purchase 375,000 shares of our Class A or Class B common stock at $7.80 per
share. The warrant has been modified to permit exercise within certain window
periods including, within two years after the merger of Shared Technologies
Fairchild Inc. with certain companies. The warrant's exercise price per share
increases by $.002 for each day subsequent to March 13, 1999. The payment of the
warrant price may be made in cash or in shares of our Class A or Class B common
stock, valued at fair market value at the time of exercise, or combination
thereof. In no event may the warrant be exercised after March 13, 2002. As a
result of certain modifications to the warrant, we recognized a charge of $5,606
in 1998.
On February 21, 1996, we 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 our various dealings with Peregrine Direct Investments Limited.
The warrants issued are immediately exercisable and will expire on November 8,
2000.
On November 9, 1995, we issued warrants to purchase 500,000 shares of Class
A Common Stock, at $9.00 per share, to Peregrine Direct Investments Limited, in
exchange for a standby commitment it received on November 8, 1995, from
Peregrine. We elected not to exercise our rights under the Peregrine commitment.
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 of these warrants. The remaining
250,000 of warrants are immediately exercisable and will expire on November 8,
2000.
12. EARNINGS PER SHARE
The following table illustrates the computation of basic and diluted earnings
(loss) per share:
2000 1999 1998
---------------- ---------------- ---------------
Basic earnings per share:
Earnings (loss) from continuing operations $ 21,764 $ (23,507) $ 52,399
================ ================ ===============
Weighted average common shares outstanding 24,954 22,766 18,834
================ ================ ===============
Basic earnings per share:
Basic earnings (loss) from continuing operations per share $ 0.87 $ (1.03) $ 2.78
================ ================ ===============
Diluted earnings per share:
Earnings (loss) from continuing operations $ 21,764 $ (23,507) $ 52,399
================ ================ ===============
Weighted average common shares outstanding 24,954 22,766 18,834
Diluted effect of options 97 antidilutive 546
Diluted effect of warrants 86 antidilutive 289
---------------- ---------------- ---------------
Total shares outstanding 25,136 22,766 19,669
================ ================ ===============
Diluted earnings (loss) from continuing operations per share $ 0.87 $ (1.03) $ 2.66
================ ================ ===============
The computation of diluted loss from continuing operations per share for
1999 excluded the effect of incremental common shares attributable to the
potential exercise of common stock options outstanding and warrants outstanding,
because their effect was antidilutive. No adjustments were made to share
information in the calculation of earnings per share for discontinued operations
and extraordinary items.
13. RESTRUCTURING CHARGES
In fiscal 1999, we recorded $6,374 of restructuring charges. Of this
amount, $500 was recorded at our corporate office for severance benefits and
$348 was recorded at our aerospace distribution segment for the write-off of
building improvements from premises vacated. The remaining, $5,526 was recorded
as a result of the Kaynar Technologies initial integration in our aerospace
fasteners segment, i.e. for severance benefits ($3,932), for product integration
costs incurred as of June 30, 1999 ($1,334), and for the write down of fixed
assets ($260). In fiscal 2000, we recorded $8,578 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 year were a
direct result of product and plant integration costs incurred as of June 30,
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 June 20, 2000,
significantly all of our integration plans have been executed and our
integration process is substantially complete.
14. EXTRAORDINARY ITEMS
In fiscal 1999, we recognized an extraordinary loss of $4,153, net of tax,
to write-off the remaining deferred loan fees associated with the early
extinguishment of our indebtedness in connection with refinanced credit
facilities enabling our acquisition of Kaynar Technologies.
In fiscal 1998, we recognized an extraordinary loss of $6,730, net of tax,
to write-off the remaining deferred loan fees and original issue discounts
associated with early extinguishment of our indebtedness when we repaid all our
public debt and refinanced our credit facilites.
15. RELATED PARTY TRANSACTIONS
We pay for a chartered helicopter used from time to time for business
related travel. The owner of the chartered helicopter is a company controlled by
Mr. Jeffrey Steiner. Cost for such flights that are charged to us are comparable
to those charged in arm's length transactions between unaffiliated third
parties'.
We have extended loans to purchase our Class A common stock to certain
members of our senior management and Board of Directors, for the purpose of
encouraging ownership of our stock, and to provide additional incentive to
promote our success. The loans are non-interest bearing, have maturity dates
ranging from 21/2to 41/2years, and become due and payable immediately upon the
termination of employment for senior management, or director affiliation with
us for a director. As of June 30, 2000, the indebtedness owed to us from
Mr. Cohen, Mr. Flynn, Mr. Juris, Mr. Persavich, Mr. Sharpe, and Mr. J.
Steiner, was approximately $175 each. On June 30, 2000, Ms. Hercot,
Mr. Kelley, Mr. Miller and Mr. E. Steiner owed us approximately $167, $50, $220
and $220, respectively. On June 30, 2000, approximately $106 of indebtedness
was owed to us by each of Mr. Caplin, Mr. David, Mr. Harris, Mr. Lebard, and
Mr. Richey. As of June 30, 2000, each of the individual amounts due to us
represented the largest aggregate balance of indebtedness outstanding under
the officer and director stock purchase program. We recognized compensation
expense of $443 in 2000 as a result of favorable terms granted to the
recipients of the loans.
On November 16, 1999, Mr. Richey borrowed $46 from us to exercise stock
options and hold our Class A common stock. The loan matures on November 16, 2001
and bears interest at 5.5%.
On June 30, 2000, Mr. J. Stenier has non-interest bearing indebtedness
owed to us of $200. He has authorized us to deduct this amount from his fiscal
2001compensation.
In 1998, we made loans in the aggregate amount of $300 to Mr. Sharpe in
order to assist him in relocating from California to Virginia. On October 1,
1998, $95 of the first loan for $100 was repaid. The second loan, for $200,
bears interest at 5.5% per annum and matures on June 30, 2001. At June 30, 2000,
a balance of approximately $214 was outstanding.
16. LEASES
Operating Leases
We hold certain of our 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, 2000,
are as follows: $4,429 for 2001, $3,809 for 2002, $3,077 for 2003, $2,129 for
2004, and $1,835 for 2005. Rental expense on operating leases from continuing
operations for fiscal 2000, 1999 and 1998 was $11,280, $9,485 and $8,610,
respectively.
Capital Leases
Minimum commitments under capital leases for each of the five years
following June 30, 2000, are $909 for 2001, $704 for 2002, $478 for 2003, $275
for 2004, and $38 for 2005, respectively. At June 30, 2000, the present value of
capital lease obligations was $2,146. At June 30, 2000, capital assets leased
and included in property, plant, and equipment consisted of:
Land $ 79
Buildings and improvements 2,143
Machinery and equipment 2,886
Furniture and fixtures 31
Less: Accumulated depreciation (1,610)
--------------
$ 3,529
==============
Leasing Operations
In fiscal 1999, we began leasing retail space to tenants under operating
leases at completed sections of a shopping center we are developing in
Farmingdale, New York. Rental revenue is recognized as lease payments are due
from tenants and the related costs are amortized over their estimated useful
life. The future minimum lease payments to be received from noncancellable
operating leases on June 30, 2000 were $5,356 in 2001, $5,439 in 2002, $5,444 in
2003, $5,463 in 2004, $5,571 in 2005, and $49,735 thereafter. Rental property
under operating leases consists of the following as of June 30, 2000:
Land and improvements $36,228
Buildings and improvements 42,054
Tenant improvements 4,815
Construction in progress 12,643
Less: Accumulated depreciation (994)
--------------
$94,746
==============
17. CONTINGENCIES
Government Claims
The Corporate Administrative Contracting Officer, based upon the advice of
the United States Defense Contract Audit Agency, alleged that a former
subsidiary of ours did not comply with Federal Acquisition Regulations and Cost
Accounting Standards in accounting for (i) the 1985 reversion of certain assets
of terminated defined benefit pension plans, and (ii) pension costs upon the
closing of segments of our former 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 June 30, 2000, the consolidated total of our recorded liabilities for
environmental matters was approximately $13.4 million, which represented the
estimated probable exposure for these matters. It is reasonably possible that
our total exposure for these matters could be approximately $19.9 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. AlliedSignal, now Honeywell International,
has since added additional claims totaling $19.9 million. We believe that the
amount of the claims 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.
18. BUSINESS SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 supersedes Statement of Financial
Accounting Standards No. 14 "Financial Reporting for Segments of a Business
Enterprise" and requires that a public company report certain information about
its reportable operating segments in annual and interim financial reports.
Generally, financial information is required to be reported on the basis that is
used internally for evaluating segment performance and deciding how to allocate
resources to segments. We adopted SFAS 131 in fiscal 1999.
We report in two principal business segments. 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
Corporate and Other segment includes the Gas Springs division prior to its
disposition and corporate activities. Our financial data by business segment is
as follows:
2000 1999 1998
---------------- ---------------- -----------------
Sales:
Aerospace Fasteners $ 533,620 $ 442,722 $ 387,236
Aerospace Distribution 101,002 168,336 358,431
Corporate and Other 739 6,264 5,760
Eliminations (a) - - (10,251)
---------------- ---------------- -----------------
Total Sales $ 635,361 $ 617,322 $ 741,176
================ ================ =================
Operating Income (Loss):
Aerospace Fasteners $ 33,909 $ 38,956 $ 32,722
Aerospace Distribution 7,758 (40,003) 20,330
Corporate and Other (18,424) (44,864) (7,609)
---------------- ---------------- -----------------
Operating Income (Loss) (b) $ 23,243 $ (45,911) $ 45,443
================ ================ =================
Capital Expenditures:
Aerospace Fasteners $ 26,367 $ 27,414 $ 31,221
Aerospace Distribution 630 1,951 3,812
Corporate and Other 342 777 996
---------------- ---------------- -----------------
Total Capital Expenditures $ 27,339 $ 30,142 $ 36,029
================ ================ =================
Depreciation and Amortization:
Aerospace Fasteners $ 38,025 $ 22,459 $ 16,260
Aerospace Distribution 976 1,871 3,412
Corporate and Other 2,820 1,327 1,201
---------------- ---------------- -----------------
Total Depreciation and Amortization $ 41,821 $ 25,657 $ 20,873
================ ================ =================
Identifiable Assets at June 30:
Aerospace Fasteners $ 632,152 $ 655,714 $ 427,927
Aerospace Distribution 90,918 291,281 452,397
Corporate and Other 544,350 381,791 276,935
---------------- ---------------- -----------------
Total Identifiable Assets $ 1,267,420 $ 1,328,786 $ 1,157,259
================ ================ =================
<FN>
(a) - Represents inter-segment sales from our aerospace fasteners segment to our aerospace distribution segment.
(b) - Fiscal 2000 results include restructuring charges of $8,578 in the aerospace fasteners segment. Fiscal 1999
results include inventory impairment charges of $41,465 in the aerospace distribution segment, costs relating to acquisitions of
$23,604 and restructuring charges of $5,526 in the aerospace fasteners segment, $348 in the aerospace distribution segment, and
$500 at corporate.
</FN>
19. FOREIGN OPERATIONS AND EXPORT SALES
Our operations are located primarily in the United States and Europe.
Inter-area sales are not significant to the total sales of any geographic area.
Sales by geographic area are attributed by country of domicile of our
subsidiaries. Our financial data by geographic area is as follows:
2000 1999 1998
---------------- ---------------- ---------------
Sales by Geographic Area:
United States $ 470,984 $ 440,447 $ 613,325
Europe 160,954 176,315 127,851
Australia 2,762 417 -
Other 661 143 -
---------------- ---------------- ---------------
Total Sales $ 635,361 $ 617,322 $ 741,176
================ ================ ===============
Operating Income (Loss) by Geographic Area:
United States $(1,440) $(66,245) $ 28,575
Europe 24,382 19,989 16,868
Australia 380 331 -
Other (79) 14 -
---------------- ---------------- ---------------
Total Operating Income (Loss) $23,243 $(45,911) $ 45,443
================ ================ ===============
Identifiable Assets by Geographic Area at June 30:
United States $1,013,100 $1,011,993 $ 903,054
Europe 244,106 306,156 254,205
Australia 9,399 10,176 -
Other 815 461 -
---------------- ---------------- ---------------
Total Identifiable Assets $1,267,420 $1,328,786 $1,157,259
================ ================ ===============
Long-lived Assets by Geographic Area at June 30:
United States $ 343,151 $353,006 $476,911
Germany 10,345 10,424 8,870
France 32,749 36,987 30,787
Australia 2,016 2,695 -
Other 1,839 2,635 1,458
---------------- ---------------- ---------------
Total Long-lived Assets $390,101 $405,747 $518,026
================ ================ ===============
Export sales are defined as sales by our domestic operations to customers
in foreign regions. Export sales were as follows:
2000 1999 1998
---------------- ---------------- ---------------
Export Sales
Europe $ 42,831 $ 42,891 $ 68,515
Canada 16,621 12,460 16,426
Japan 8,568 14,147 12,056
Asia (excluding Japan) 3,031 6,337 19,744
South America 1,146 3,556 11,038
Other 4,947 14,694 10,340
---------------- ---------------- ---------------
Total Export Sales $ 77,144 $ 94,085 $ 138,119
================ ================ ===============
20. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table of quarterly financial data has been prepared from our
financial records, without audit, and reflects all adjustments which are, in the
opinion of our management, necessary for a fair presentation of the results of
operations for the interim periods presented.
Fiscal 2000 quarters ended Oct. 3 Jan. 2 April 2 June 30
------------------------------------------------------------
Net sales $164,509 $152,244 $158,029 $160,579
Gross profit 43,147 37,872 40,502 41,817
Earnings (loss) from continuing operations 18,110 (7,080) 2,622 8,112
per basic share 0.73 (0.28) 0.10 0.32
per diluted share 0.72 (0.28) 0.10 0.32
Loss from disposal of discontinued operations, net - - - (12,006)
Per basic share - - - (0.48)
Per diluted share - - - (0.48)
Net earnings (loss) 18,110 (7,080) 2,622 (3,894)
Per basic share 0.73 (0.28) 0.10 (0.16)
per diluted share 0.72 (0.28) 0.10 (0.16)
Market price range of Class A Stock:
High 12 15/16 10 3/16 9 7/16 8
Low 8 3/8 6 13/16 4 1/2 4 1/8
Close 9 3/4 9 1/16 6 13/16 4 7/8
Fiscal 1999 quarters ended Sept. 27 Dec. 27 March 28 June 30
------------------------------------------------------------
Net sales $148,539 $151,181 $146,352 $171,250
Gross profit 34,672 18,062 36,890 22,805
Earnings (loss) from continuing operations 1,190 (8,827) 20,383 (36,253)
per basic share 0.05 (0.40) 0.93 (1.46)
per diluted share 0.05 (0.40) 0.92 (1.46)
Loss from disposal of discontinued operations, net - (9,180) (19,694) (2,475)
per basic share - (0.42) (0.90) (0.10)
per diluted share - (0.42) (0.89) (0.10)
Extraordinary items, net - - - (4,153)
Per basic share - - - (0.17)
Per diluted share - - - (0.17)
Net earnings (loss) 1,190 (18,007) 689 (42,881)
per basic share 0.05 (0.82) 0.03 (1.73)
per diluted share 0.05 (0.82) 0.03 (1.73)
Market price range of Class A Stock:
High 23 7/8 16 1/4 16 3/16 15
Low 12 3/8 10 3/8 10 1/2 10
Close 13 5/8 13 7/8 10 11/16 12 3/4
Gross profit was reduced for inventory impairment adjustments of $19,320
and $22,145 in the second and fourth quarter of fiscal 1999, respectively,
relating to the disposition of Solair and Dallas Aerospace. Loss on disposal of
discontinued operations includes losses of $12,006 in the fourth quarter of
fiscal 2000, and $9,180, $19,694, and $2,475 in the second, third and fourth
quarters of fiscal 1999, respectively, resulting from the estimated loss on
disposal of Fairchild Technologies. Earnings from discontinued operations, net,
includes the results of Fairchild Technologies (until disposition) in each
quarter. Extraordinary items relate to the early extinguishment of our debt.
21. CONSOLIDATING FINANCIAL STATEMENTS (UNAUDITED)
The following unaudited consolidating 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 primarily composed of our domestic subsidiaries, excluding Fairchild
Technologies, the equity investment in Nacanco, a real estate development
venture, and certain other subsidiaries.
CONSOLIDATING STATEMENT OF EARNINGS
FOR THE YEAR ENDED JUNE 30, 2000
Parent Non Fairchild
Company Guarantors Guarantors Eliminations Historical
------------- -------------- ------------- -------------- -------------
Net Sales $ - $ 470,595 $ 166,558 $ (1,792) $ 635,361
Costs and expenses:
Cost of sales - 355,643 118,172 (1,792) 472,023
Selling, general & administrative 6,175 91,305 21,463 - 118,943
Restructuring - 8,578 - - 8,578
Amortization of goodwill 808 10,745 1,021 - 12,574
------------- -------------- ------------- -------------- -------------
6,983 466,271 140,656 (1,792) 612,118
------------- -------------- ------------- -------------- -------------
Operating income (loss) (6,983) 4,324 25,902 - 23,243
Net interest expense 42,347 (7,512) 9,257 - 44,092
Investment income, net (6) (9,929) - - (9,935)
Intercompany dividends - - - - -
Nonrecurring income on disposition of subsidiary - - (28,625) - (28,625)
------------- -------------- ------------- -------------- -------------
Earnings (loss) before taxes (49,324) 21,765 45,270 - 17,711
Income tax (provision) benefit 6,343 (238) (1,706) - 4,399
Equity in earnings of affiliates and subsidiaries 52,739 - - (53,086) (347)
Earnings (loss) from continuing operations 9,758 21,527 43,564 (53,086) 21,763
Earnings (loss) from disposal of discontinued operations - - (12,005) - (12,005)
------------- -------------- ------------- -------------- -------------
Net earnings (loss) $ 9,758 $ 21,527 $ 31,559 $ (53,086) $ 9,758
============= ============== ============= ============== =============
CONSOLIDATING BALANCE SHEET
JUNE 30, 2000
Parent Non Fairchild
Company Guarantors Guarantors Eliminations Historical
------------- -------------- ------------- -------------- -------------
Cash $ 35 $ 23,063 $ 12,692 $ - $ 35,790
Short-term investments 71 8,983 - - 9,054
Accounts Receivable (including intercompany), less
Allowances 2,079 82,054 43,097 - 127,230
Inventory, net - 130,634 49,225 - 179,859
Prepaid and other current assets 141 67,624 6,466 - 74,231
------------- -------------- ------------- -------------- -------------
Total current assets 2,326 312,358 111,480 - 426,164
Investment in Subsidiaries 869,958 - - (869,958) -
Net fixed assets 493 131,029 42,615 - 174,137
Net assets held for sale - 20,112 - - 20,112
Investments and advances in affiliates 945 2,293 - - 3,238
Goodwill 16,528 385,156 34,758 - 436,442
Deferred loan costs 13,284 24 1,406 - 14,714
Prepaid pension assets - 64,418 - - 64,418
Real estate investment - - 112,572 - 112,572
Long-term investments 355 9,729 - - 10,084
Other assets 17,592 (13,418) 1,365 - 5,539
------------- -------------- ------------- -------------- -------------
Total assets $921,481 $ 911,701 $ 304,196 $(869,958) $1,267,420
============= ============== ============= ============== =============
Bank notes payable & current maturities of debt $ 2,250 $ 2,194 $ 24,150 $ - $ 28,594
Accounts payable (including intercompany) 2,954 46,105 13,435 - 62,494
Other accrued expenses (42,778) 129,106 36,113 - 122,441
Net current liabilities of discontinued operations - - - - -
------------- -------------- ------------- -------------- -------------
Total current liabilities (37,574) 177,405 73,698 - 213,529
Long-term debt, less current maturities 410,691 8,242 34,786 - 453,719
Other long-term liabilities 405 19,839 6,474 - 26,718
Noncurrent income taxes 145,847 (17,525) 193 - 128,515
Retiree health care liabilities - 38,196 4,607 - 42,803
Minority interest in subsidiaries - - 23 - 23
------------- -------------- ------------- -------------- -------------
Total liabilities 519,369 226,157 119,781 - 865,307
Class A common stock 3,008 - 2,090 (2,090) 3,008
Class B common stock 262 - - - 262
Notes due from stockholders (520) (1,347) - - (1,867)
Paid-in-capital 5,158 226,032 249,301 (249,301) 231,190
Retained earnings 469,270 469,183 (58,098) (618,567) 261,788
Cumulative other comprehensive income (46) (7,838) (8,878) - (16,762)
Treasury stock, at cost (75,020) (486) - - (75,506)
------------- -------------- ------------- -------------- -------------
Total stockholders' equity 402,112 685,544 184,415 (869,958) 402,113
------------- -------------- ------------- -------------- -------------
Total liabilities & stockholders' equity $921,481 $ 911,701 $ 304,196 $(869,958) $1,267,420
============= ============== ============= ============== =============
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2000
Parent Non Fairchild
Company Guarantors Guarantors Eliminations Historical
------------- ------------- -------------- -------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 9,758 $ 21,527 $ 31,559 $ (53,086) $ 9,758
Depreciation and amortization 931 32,350 8,540 - 41,821
Accretion of discount on long-term liabilities - (73) 139 - 66
Deferred loan fee amortization 1,075 2 123 - 1,200
(Gain) loss on sale of property, plant and equipment - (2,207) 243 - (1,964)
Gain on sale of investments - (9,206) - - (9,206)
Undistributed loss (earnings) of affiliates, net - 372 - - 372
(Gain) on sale of affiliate investments and divestiture
of subsidiary - - (28,625) - (28,625)
Change in assets and liabilities 58,562 (124,976) (53,815) 53,086 (67,143)
Non-cash charges and working capital changes of
discontinued operations - - (13,351) - (13,351)
------------- ------------- -------------- -------------- ------------
Net cash (used for) provided by operating activities 70,326 (82,211) (55,187) - (67,072)
------------- ------------- -------------- -------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds received from investments - 14,655 - - 14,655
Purchase of property, plant and equipment (5) (19,321) (8,013) - (27,339)
Proceeds from sale of property, plant and equipment - 12,693 - - 12,693
Net proceeds from divestiture of subsidiaries - 57,000 51,792 - 108,792
Net proceeds from sale of affiliate investments - - - - -
Proceeds from net assets held for sale - 4,672 - - 4,672
Real estate investment - - (27,712) - (27,712)
Equity investment in affiliates - (2,489) - - (2,489)
Investing activities of discontinued operations - - 7,100 - 7,100
------------- ------------- -------------- -------------- ------------
Net cash provided by investing activities (5) 67,210 23,167 - 90,372
------------- ------------- -------------- -------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 52,200 111,569 43,105 - 206,874
Debt repayments (122,359) (113,465) (10,436) - (246,260)
Loans to Stockholders (520) (1,347) - - (1,867)
Issuance of Class A common stock 366 - - - 366
Purchase of treasury stock - (486) - - (486)
------------- ------------- -------------- -------------- ------------
Net cash (used for) financing activities (70,313) (3,729) 32,669 - (41,373)
------------- ------------- -------------- -------------- ------------
Effect of exchange rate changes on cash - - (997) - (997)
------------- ------------- -------------- -------------- ------------
Net change in cash and cash equivalents 8 (18,730) (348) - (19,070)
------------- ------------- -------------- -------------- ------------
Cash and cash equivalents, beginning of the year 27 41,793 13,040 - 54,860
------------- ------------- -------------- -------------- ------------
Cash and cash equivalents, end of the period $ 35 $ 23,063 $ 12,692 $ - $ 35,790
------------- ------------- -------------- -------------- ------------
CONSOLIDATING STATEMENT OF EARNINGS
FOR THE YEAR ENDED JUNE 30, 1999
Parent Non Fairchild
Company Guarantors Guarantors Eliminations Historical
---------- ----------- ----------- ------------- ----------
Net Sales $ - $ 448,495 $ 169,720 $ (893) $ 617,322
Costs and expenses
Cost of sales - 381,912 123,874 (893) 504,893
Selling, general & administrative 8,114 113,167 24,168 - 145,449
Restructuring - 6,374 - - 6,374
Amortization of goodwill 248 5,228 1,041 - 6,517
---------- ------------- ----------- ------------- ----------
8,362 506,681 149,083 (893) 663,233
---------- ------------- ----------- ------------- ----------
Operating income (loss) (8,362) (58,186) 20,637 - (45,911)
Net interest expense 27,130 (4,283) 7,499 - 30,346
Investment (income) loss, net - (39,800) - - (39,800)
---------- ------------- ----------- ------------- ----------
Earnings (loss) before taxes (35,492) (14,103) 13,138 - (36,457)
Income tax (provision) benefit 21,481 (6,936) (1,300) - 13,245
Equity in earnings of
Affiliates and subsidiaries (44,998) (516) 1,344 45,965 1,795
Minority interest - (2,090) - - (2,090)
---------- ------------- ----------- ------------- -----------
Earnings (loss) from continuing
Operations (59,009) (23,645) 13,182 45,965 (23,507)
Earnings (loss) from disposal of
Discontinued operations - - (31,349) - (31,349)
Extraordinary items - (4,153) - - (4,153)
---------- ------------- ----------- ------------- -----------
Net earnings (loss) $ (59,009) $ (27,798) $ (18,167) $ 45,965 $ (59,009)
=========== ============= ============ ============= ===========
CONSOLIDATING BALANCE SHEET
JUNE 30, 1999
Parent Non Fairchild
Company Guarantors Guarantors Eliminations Historical
------------- --------------- --------------- ----------------- --------------
Cash $ 27 $ 41,793 $ 13,040 $ - $ 54,860
Short-term investments 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 (deficit) 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
============= =============== =============== ================= ==============
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1999
Parent Non Fairchild
Company Guarantors Guarantors Eliminations Historical
------------ ------------ ------------ ------------ -----------
Cash Flows from Operating Activities:
Net earnings (loss) $ (59,009) $ (27,798) $ (18,167) $ 45,965 $ (59,009)
Depreciation & amortization 127 17,610 7,920 - 25,657
Amortization of deferred loan fees 1,100 - - - 1,100
Accretion of discount on long-term liabilities 5,270 - - - 5,270
Extraordinary items net of cash paid - 6,389 - - 6,389
Provision for restructuring - 3,774 - - 3,774
Loss on sale of PP&E - 307 93 - 400
Distributed earnings of affiliates - 1,460 1,973 - 3,433
Minority interest - 2,826 (736) - 2,090
Change in assets and liabilities 15,030 52,898 (3,058) (45,965) 18,905
Non-cash charges and working capital changes
of discontinued operations - - 15,259 - 15,259
------------ ------------ ------------ ----------- -----------
Net cash (used for) provided by operating
activities (37,482) 57,466 3,284 - 23,268
------------ ------------ ------------ ----------- -----------
Cash Flows from Investing Activities:
Proceeds received from investment securities - 189,379 - - 189,379
Purchase of PP&E (61) (19,162) (10,919) - (30,142)
Proceeds from sale of PP&E - 656 188 - 844
Equity investment in affiliates 630 (8,308) - - (7,678)
Gross proceeds from divestiture of subsidiary - 60,396 - - 60,396
Acquisition of subsidiaries, net of cash acquired (221,467) (45,287) (7,673) - (274,427)
Change in real estate investment - - (40,351) - (40,351)
Change in net assets held for sale - 3,134 - - 3,134
Investing activities of discontinued operations - - (312) - (312)
------------ ------------ ------------ ----------- -----------
Net cash (used for) provided by investing
activities (220,898) 180,808 (59,067) - (99,157)
------------ ------------ ------------ ----------- -----------
Cash Flows from Financing Activities:
Proceeds from issuance of debt 483,100 (3,241) 3,363 - 483,222
Debt repayment (including intercompany), net (225,000) (213,187) 58,104 - (380,083)
Issuance of Class A common stock 126 (126) - - -
Proceeds from exercised stock options 181 - - - 181
Purchase of treasury stock - (22,102) - - (22,102)
------------ ------------ ------------ ----------- -----------
Net cash (used for) provided by financing
activities 258,407 (238,656) 61,467 - 81,218
------------ ------------ ------------ ----------- -----------
Exchange rate effect on cash - - (70) - (70)
------------ ------------ ------------ ----------- -----------
Net change in cash and cash equivalents 27 (382) 5,614 - 5,259
Cash, beginning of the year - 42,175 7,426 - 49,601
------------ ------------ ------------ ----------- -----------
Cash, end of the year $ 27 $ 41,793 $ 13,040 $ - $ 54,860
============ ============ ============ =========== ===========
CONSOLIDATING STATEMENTS OF EARNINGS
FOR THE YEAR ENDED JUNE 30, 1998
Parent Non Fairchild
Company Guarantors Guarantors Eliminations Historical
------- ---------- ---------- ------------ -----------
Net Sales $ - $ 613,324 $ 138,807 $ (10,955) $ 741,176
Costs and expenses
Cost of sales - 464,942 100,683 (10,955) 554,670
Selling, general & administrative 3,516 112,447 19,631 - 135,594
Amortization of goodwill 147 4,247 1,075 - 5,469
----------- ----------- ------------ ------------- -----------
3,663 581,636 121,389 (10,955) 695,733
----------- ----------- ------------ ------------- -----------
Operating income (loss) (3,663) 31,688 17,418 - 45,443
Net interest expense 24,048 14,094 4,573 - 42,715
Investment (income) loss, net (208) 3,570 - - 3,362
Nonrecurring income on
disposition of subsidiary - (124,028) - - (124,028)
----------- ----------- ------------ ------------- -----------
Earnings (loss) before taxes (27,503) 138,052 12,845 - 123,394
Income tax (provision) benefit 10,580 (54,384) (3,470) - (47,274)
Equity in earnings of affiliates and
subsidiaries 118,013 140 3,044 (118,626) 2,571
Minority interest - (26,292) - - (26,292)
----------- ----------- ------------ ------------- -----------
Earnings (loss) from continuing operations 101,090 57,516 12,419 (118,626) 52,399
Earnings (loss) from discontinued
operations - 2,348 (6,644) - (4,296)
Earnings (loss) from disposal of
discontinued operations - 95,018 (35,301) - 59,717
Extraordinary items - (6,730) - - (6,730)
----------- ----------- ------------ ------------- -----------
Net earnings (loss) $ 101,090 $ 148,152 $ (29,526) $ (118,626) $ 101,090
=========== =========== ============ ============= ===========
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1998
Parent Non Fairchild
Company Guarantors Guarantors Eliminations Historical
----------- ----------- ----------- ------------- ----------
Cash Flows from Operating Activities:
Net earnings (loss) $ 101,090 $ 148,152 $ (29,526) $ (118,626) $ 101,090
Depreciation & amortization 72 14,939 5,862 - 20,873
Amortization of deferred loan fees 2,406 - - - 2,406
Accretion of discount on long-term
liabilities 3,766 - - - 3,766
Net gain on disposition of subsidiaries - (124,041) - - (124,041)
Net gain on sale of discontinued operations - (132,787) - - (132,787)
Extraordinary items net of cash paid - 10,347 - - 10,347
Loss on sale of PP&E - 147 99 - 246
Distributed earnings of affiliates - 547 1,178 - 1,725
Minority interest - 26,890 (598) - 26,292
Change in assets and liabilities (187,408) 64,276 (2,431) 118,626 (6,937)
Non-cash charges and working capital
changes of discontinued operations - - 11,789 - 11,789
----------- ----------- ------------ ------------- ----------
Net cash (used for) provided by operating
activities (80,074) 8,470 (13,627) - (85,231)
----------- ----------- ------------ ------------- ----------
Cash Flows from Investing Activities:
Proceeds used for investment securities - (7,287) - - (7,287)
Purchase of PP&E - (30,220) (5,809) - (36,029)
Proceeds from sale of PP&E - 336 - - 336
Equity investment in affiliates (141) (4,202) - - (4,343)
Minority interest in subsidiaries - (26,383) - - (26,383)
Acquisition of subsidiaries, net of cash
acquired - (25,445) (7,350) - (32,795)
Net proceeds from sale of
discontinued operations - 167,987 - - 167,987
Change in real estate investment - - (17,262) - (17,262)
Change in net assets held for sale - 2,140 - - 2,140
Investing activities of discontinued
operations - - (2,750) - (2,750)
----------- ----------- ------------ ------------- ----------
Net cash (used for) provided by investing
activities (141) 76,926 (33,171) - 43,614
----------- ----------- ------------ ------------- ----------
Cash Flows from Financing Activities:
Proceeds from issuance of debt 225,000 50,523 - - 275,523
Debt repayment (including
intercompany), net (198,867) (106,899) 47,752 - (258,014)
Issuance of Class A common stock 53,848 193 - - 54,041
Financing activities of discontinued
operations - - 2,538 - 2,538
----------- ----------- ------------ ------------- ----------
Net cash provided by (used for) financing
Activities 79,981 (56,183) 50,290 - 74,088
----------- ----------- ------------ ------------- ----------
Exchange rate effect on cash - - (2,290) - (2,290)
----------- ----------- ------------ ------------- ----------
Net change in cash (234) 29,213 1,202 - 30,181
Cash, beginning of the year 234 12,962 6,224 - 19,420
----------- ----------- ------------ ------------- ----------
Cash, end of the year $ - $ 42,175 $ 7,426 $ - $ 49,601
=========== =========== ============ ============= ==========
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, we have duly caused this report to be signed on our behalf
by the undersigned, thereunto duly authorized.
THE FAIRCHILD CORPORATION
By: /s/ MICHAEL T. ALCOX
--------------------
Michael T. Alcox
Senior Vice President and
Chief Financial Officer
Date: May 7, 2001
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.
By: /s/ JEFFREY J. STEINER Chairman, Chief Executive May 7, 2001
---------------------------------- Officer and Director
Jeffrey J. Steiner
By: /s/ MELVILLE R. BARLOW Director May 7, 2001
----------------------------------
Melville R. Barlow
By: /s/ MORTIMER M. CAPLIN Director May 7, 2001
----------------------------------
Mortimer M. Caplin
By: /s/ PHILIP DAVID Director May 7, 2001
----------------------------------
Philip David
By: /s/ ROBERT EDWARDS Director May 7, 2001
----------------------------------
Robert Edwards
By: /s/ STEVEN L. GERARD Director May 7, 2001
-----------------------------------
Steven L. Gerard
By: /s/ HAROLD J. HARRIS Director May 7, 2001
-----------------------------------
Harold J. Harris
By: /s/ DANIEL LEBARD Director May 7, 2001
-----------------------------------
Daniel Lebard
By: /s/ HERBERT S. RICHEY Director May 7, 2001
-----------------------------------
Herbert S. Richey
By: /s/ ERIC I. STEINER President, Chief Operating May 7, 2001
----------------------------------- Officer and Director
Eric I. Steiner