UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Year Ended June 30, 2001 Commission File Number 1-6560
THE FAIRCHILD CORPORATION
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(Exact name of Registrant as specified in its charter)
Delaware 34-0728587
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
45025 Aviation Drive, Suite 400, Dulles, VA 20166
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703) 478-5800
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of exchange on which registered
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Class A Common Stock, par New York and Pacific Stock Exchange
value $.10 per share
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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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 September 7, 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 $94.5 million (excluding
shares deemed beneficially owned by affiliates of the Registrant under
Commission Rules).
As of September 7, 2001, the number of shares outstanding of each of the
Registrant's classes of common stock were as follows:
Class A common stock, $.10 par value 22,527,801
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Class B common stock, $.10 par value 2,621,502
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DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive proxy statement for the 2001 Annual
Meeting of Stockholders' to be held on November 13, 2001, which the Registrant
intends to file within 120 days after June 30, 2001, are incorporated by
reference into Parts III and IV.
THE FAIRCHILD CORPORATION
INDEX TO
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED JUNE 30, 2001
PART I Page
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Stockholders 10
PART II
Item 5. Market for Our Common Equity and Related Stockholder Matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Results of Operations
and Financial Condition 13
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 23
Item 8. Financial Statements and Supplementary Data 24
Item 9. Disagreements on Accounting and Financial Disclosure 67
PART III
Item 10. Directors and Executive Officers of the Company 67
Item 11. Executive Compensation 67
Item 12. Security Ownership of Certain Beneficial Owners and Management 67
Item 13. Certain Relationships and Related Transactions 67
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K 68
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
estimates, 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 European Aeronautic Defense and Space
Company; customer satisfaction and quality issues; labor disputes; competition,
including recent intense price competition; our ability to achieve and execute
internal business plans; worldwide political instability and economic growth;
reduced passenger miles flown as a result of the September 11, 2001, terrorist
attacks on the United States; the cost and availability of electric power to
operate our plants; 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 I
All references in this Annual Report on Form 10-K to the terms "we," "our,"
"us," the "Company" and "Fairchild" refer to The Fairchild Corporation and its
subsidiaries. All references to "fiscal" in connection with a year shall mean
the 12 months ended June 30.
Item 1. BUSINESS
General
We are a leading worldwide aerospace and industrial fastener manufacturer
and distribution supply chain services provider and, through Banner Aerospace,
an international supplier to airlines and general aviation businesses,
distributing a wide range of aircraft parts and related support services.
Through internal growth and strategic acquisitions, we have become one of the
leading suppliers of fasteners to aircraft OEMs, such as Boeing, European
Aeronautic Defense and Space Company, General Electric, Lockheed Martin, and
Northrop Grumman.
Our business consists of three segments: aerospace fasteners, aerospace
distribution and real estate operations. The aerospace fasteners segment
manufactures and markets high performance fastening systems used in the
manufacture and maintenance of commercial and military aircraft. Our aerospace
distribution segment stocks and distributes a wide variety of aircraft parts to
commercial airlines and air cargo carriers, fixed-base operators, corporate
aircraft operators and other aerospace companies. Our real estate operations
segment owns and operates a shopping center located in Farmingdale, New York.
Our business strategy is as follows:
Maintain Quality Leadership. The aerospace market demands precision
manufacturing, and OEMs must certify that all parts meet stringent Federal
Aviation Administration's regulations and equivalent foreign regulations. All of
our plants are ISO-9000 approved. We have won numerous industry and customer
quality awards and are a preferred supplier for many major aerospace customers.
In order to be named a preferred supplier, a company must qualify its products
through a specified customer quality assurance program and strictly adhere to
it. Approvals and awards we have obtained include: Boeing D1 9000 Rev A; Boeing
(St. Louis) Silver Supplier; Boeing Source Approved; DaimlerChrysler Aerospace
Source Approved; General Electric Source Approved; Pratt & Whitney Source
Approved; Lockheed-Martin Star Supplier; and DISC Large Business Supplier of the
Year.
Lower Manufacturing Costs. Over the past few years, we have invested
significantly in state-of-the-art machinery, employee training and manufacturing
techniques, to produce products at the lowest cost while maintaining high
quality. This investment in process superiority has resulted in increased
capacity, lower break-even levels and faster cycle times, while reducing defect
levels and improving responsiveness to customer needs. For example, the customer
rejection rate at our aerospace fasteners segment has fallen from an average of
18.2% in fiscal 1995 to an average of 1.3% for fiscal 2001. We view these
continuous improvements as one of the keys to our business success that will
allow us to better manage industry cycles.
Supply Chain Services. Our aerospace industry customers are increasingly
requiring additional supply chain management services as they seek to manage
inventory and lower their manufacturing costs. In response, we are developing a
number of logistics and supply chain management services that we expect will
contribute to our growth.
Capitalize on Global Presence. The aerospace industry is global and
customers increasingly seek suppliers with the ability to provide reliable and
timely service worldwide. Our acquisition, of Kaynar Technologies, in April
1999, resulted in our increased manufacturing capabilities in the U.S., Europe,
and Australia, and increased our sales presence worldwide. Our plants are
equipped with cutting-edge manufacturing technology, which allows us to produce
seamlessly, customer orders on a worldwide basis using, at each of our
facilities, the same specification and quality assurance systems.
Growth through Acquisitions. Despite a trend toward consolidation, the
aerospace fasteners industry remains fragmented. Consolidation has been driven,
in part, by the combination of the OEMs as they seek to reduce their procurement
costs. We have successfully integrated a number of acquisitions, achieving
material synergies in the process, and anticipate further opportunities to do so
in the future.
Our strategy is based on the following strengths:
Expanded Product Range. As a result of the acquisition of Kaynar
Technologies, we greatly expanded the range of products we offer. This expansion
permits us to provide our customers with more complete fastening solutions, by
offering engineering and supply chain services across the breadth of our
customers' needs. For example, our internally threaded fasteners, such as engine
nuts, which were formerly manufactured by Kaynar Technologies, are now being
sold in combination with our externally threaded fasteners, such as bolts and
pins, to provide a single fastening system. This limits the inventory needs of
the customer, minimizes handling costs and reduces waste.
Long-Term Customer Relationships. We work closely with our customers to
provide high quality engineering solutions accompanied by our superior service
levels. As a result, our customer relationships are generally long-term. We
continue to benefit from the trend of OEMs efforts to reduce the number of their
suppliers in an effort to lower costs and ensure quality and availability. We
have become or been retained as a key supplier to the OEMs and increased our
overall share of OEM business. OEMs are increasingly demanding in terms of
overall service level, including just-in-time delivery of components to the
production line. We believe that our focus on quality and customer service will
remain the cornerstone of our relationships with our customers.
Diverse End Markets. Although a significant proportion of our sales are to
OEMs in the commercial aerospace industry, we have significant sales to the
defense/aerospace aftermarket and industrial markets. In addition, our
distribution business is well diversified with a very low OEM component. We
believe this diversification will help mitigate the effects of the OEM cycle on
our results.
Experienced Management Teams. We have management teams with many years of
experience in the aerospace fasteners industry and a history of improving
quality, lowering costs and raising the level of customer service, leading to
higher overall profitability. In addition, our management teams have achieved
growth by successfully integrating a number of acquisitions.
Recent Developments
Our recent developments are incorporated herein by reference from "Recent
Developments and Significant Business Combinations" included in Item 7
"Management's Discussion and Analysis of Results of Operations and Financial
Condition".
Financial Information about Business Segments
Our business segment information is incorporated herein by reference from
Note 19 of our Consolidated Financial Statements included in Item 8, "Financial
Statements and Supplementary Data"
Narrative Description of Business Segments
Aerospace Fasteners Segment
Through our aerospace fasteners segment, we are a leading worldwide
manufacturer and distributor of precision fastening systems, components and
latching devices used primarily in the construction and maintenance of
commercial and military aircraft, as well as applications in other industries,
including the automotive, electronic and other non-aerospace industries. Our
product range provides our customers with complete fastening solutions by
offering engineering and supply chain services across the breadth of our
customers' needs. As such, we have created a unique capability that we believe
enhances dramatically our status as the industry's premier fastening solutions
provider. We also have a substantial position in the distribution/supply chain
services segment of the aerospace fasteners industry. The aerospace fasteners
segment accounted for 86% of our net sales in fiscal 2001.
Products (1) (see note below)
In general, the aerospace fasteners we produce are highly engineered, close
tolerance, high strength fastening devices designed for use in harsh, demanding
environments. Products range from standard aerospace screws and precision
self-locking internally threaded nuts, to more complex systems that fasten
airframe structures, and sophisticated latching or quick disconnect mechanisms
that allow efficient access to internal parts which require regular servicing or
monitoring. Our aerospace fasteners segment produces and sells products under
various trade names and trademarks. The trademarks discussed below either belong
to us or to third parties that have licensed us to use such trademarks. These
trade names and trademarks include: Voi-Shan(R) (fasteners for aerospace
structures), Screwcorp(TM) (standard externally threaded products for aerospace
applications), K-FAST(TM) nuts (high-strength vibration resistant self-locking
nuts that offer fast, reliable, and repetitive installations with K-FAST(TM)
tooling), Keensert(TM) (inserts that include keys to lock the insert in place
and prevent rotation), RAM(R) (custom designed mechanisms for aerospace
applications), Perma-Thread(R) and Slimsert(TM) (inserts that create a thread
inside a hole and provide a high degree of thread protection and fastening
integrity), Camloc(R) (components for the industrial, electronic, automotive and
aerospace markets), and Tridair(R) and Rosan(R) (fastening systems for
highly-engineered aerospace, military and industrial applications). Our
aerospace fasteners segment also manufactures and supplies fastening systems
used in non-aerospace industrial, electronic and marine applications.
Principal product lines of the aerospace fasteners segment include:
Standard Aerospace Airframe Fasteners - These fasteners consist of standard
externally threaded fasteners used in non-critical airframe applications on a
wide variety of aircraft. These fasteners include Hi-Torque Speed Drive(R),
Tri-Wing(R), Torq-Set(R) and Phillips(R). We offer a line of lightweight,
non-metallic composite fasteners, used primarily for military aircraft as they
are designed to reduce radar visibility, enhance resistance to lightning strikes
and provide galvanic corrosion protection. We also offer a variety of coatings
and finishes for our fasteners, including anodizing, cadmium plating, silver
plating, aluminum plating, solid film lubricants and water-based cetyl and
solvent free lubricants.
Commercial Aerospace Self-Locking Nuts - These precision, self-locking
internally threaded nuts are used in the manufacture of commercial aircraft and
aerospace/defense products and are designed principally for use in harsh,
demanding environments. They include wrenchable nuts, K-Fast(TM) nuts, anchor
nuts, gang channels, shank nuts, barrel nuts, clinch nuts and stake nuts.
Commercial Aerospace Structural and Engine Fasteners - These fasteners
consist of more highly engineered, permanent or semi-permanent fasteners used in
both airframe and engine applications, which could involve joining more than two
materials. These fasteners are generally engineered to specific customer
requirements or manufactured to specific customer specifications for special
applications. We produce fasteners from a variety of materials, including
lightweight nuts and pins made out of aluminum and titanium, to high-strength,
high-temperature tolerant nuts and bolts manufactured from materials such as
A-286, Waspaloy(R), Inconel(R), and Hastelloy(R). These fasteners are designed
for aircraft engine and airframe applications. These fasteners include
Hi-Lok(R), Veri-Lite(R), and Eddie-Bolt2(R).
Proprietary Products and Fastening Systems - These very highly engineered,
proprietary fasteners are designed by us for specific customer applications and
include high performance structural latches and hold down mechanisms. These
fasteners are used primarily in either commercial aerospace or military
applications. They include Livelok(R), Trimil(R), Keenserts(R), Mark IV(TM),
Flatbeam(TM) and Ringlock(TM).
Threaded Inserts - These threaded inserts are used principally in the
commercial aerospace and defense industries and are made of high-grade steel and
other high-tensile metals which are intended to be installed into softer metals,
plastics and composite materials to create bolt-ready holes.
Highly Engineered Fastening Systems for Industrial Applications - These
highly engineered fasteners are designed by us for specific niche applications
in the electronic, automotive and durable goods markets and are sold under the
Camloc(R) trade name.
Precision Machined Structural Components and Assemblies - These precision
machined structural components and assemblies are used for aircraft, including
pylons, flap hinges, struts, wing fittings, landing gear parts, spares and many
other items.
Fastener Tools - These tools are designed primarily to install the
fasteners that we manufacture, but can also be used to attach other wrenchable
nuts, bolts and inserts.
--------------------------------------------------------------------------------
(1) - Note on the use of registered trademarks. The trademarks discussed herein
either belong to the Company or to third parties that have licensed the Company
to use such trademarks. Tri-Wing(R), Torq-set(R) and Phillips(R) are registered
trademarks of Phillips Screw Company. Waspaloy(R) is a trademark of Carpenter
Technologies Corporation. Hastelloy(R) is a registered trademark of Haynes
International, Inc. Hi-Lok(R) is registered trademark of Hi-Shear Corporation.
Visul-lok(R) and Composi-lok(R) are registered trademarks of Monogram Aerospace
Fasteners, Inc.
Sales and Markets
The products of our aerospace fasteners segment are sold primarily to
domestic and foreign OEMs of airframes and engines, as well as to subcontractors
of OEMs, and to the maintenance and repair market through distributors.
Approximately 77% of our sales are to domestic customers. Major customers
include OEMs such as Boeing, European Aeronautic Defense and Space Company, and
General Electric and their subcontractors, as well as distributors such as
Honeywell. Many OEMs have implemented programs to reduce inventories and pursue
just-in-time relationships. In response, we expanded our efforts to provide
supply chain services through our global customer service units. Sales of $99
million to Boeing accounted for approximately 16% of our consolidated sales in
fiscal 2001. Also, a large portion of our revenues come from customers providing
parts or services to Boeing, including defense sales, and the European
Aeronautic Defense and Space Company and their subcontractors. Accordingly, we
are dependent on the business of those manufacturers.
Revenues in our aerospace fasteners segment are closely related to aircraft
production, which, in turn, is related in part to air miles flown. As OEMs
searched for cost cutting opportunities during the aerospace industry recession
of 1993-1995, parts manufacturers, including us, accepted lower-priced orders
and/or smaller quantity orders to maintain market share, at lower profit
margins. However, during recent years, this situation has improved as build
rates in the aerospace industry have increased. We have been able to provide our
major customers with favorable pricing, while maintaining or increasing gross
margins by negotiating for larger minimum lot sizes that are more economical to
manufacture.
Fasteners also have applications in the automotive/industrial markets,
where numerous special fasteners are required, such as engine bolts, wheel bolts
and turbo charger tension bolts. We are actively targeting all markets where
precision fasteners are used.
Manufacturing and Production
Our aerospace fasteners segment has fifteen primary manufacturing
facilities, of which seven are located in the United States, seven are located
in Europe and one is located in Australia. Each facility has complete production
capability. Each plant is designed to produce a specified product or group of
products, determined by the production process involved and certification
requirements. Our aerospace fasteners segment's largest customers have
recognized our quality and operational controls by conferring their advanced
quality systems certifications at substantially all of our facilities (e.g.
Boeing's D1-9000A). We have received all necessary quality and product approvals
from OEMs.
We have a modern information system at all of our U.S. facilities, which
was expanded to most of our European operations in fiscal 1999 and 2000. The
system performs detailed and timely cost analysis of production by product and
facility. Updated IT systems also help us to better service our customers. OEMs
require each product to be produced in an OEM-qualified/OEM-approved facility.
Competition
Despite intense competition in the industry, we remain the largest
manufacturer of aerospace fasteners. Based on calendar 2000 information, the
worldwide aerospace fastener market is estimated to be $1.4 billion, before
distributor resale. We hold approximately 40% of the market and compete with SPS
Technologies, GFI Industries, and the Huck International division of Alcoa.
Quality, performance, service and price are generally the prime competitive
factors in the aerospace fasteners segment. Our broad product range allows us to
serve more fully each OEM and distributor. Our product array is diverse and
offers customers a large selection to address various production needs. We seek
to maintain our technological edge and competitive advantage over our
competitors, and have demonstrated superior production methods, new product
development and supply chain services to meet our customer demands. We seek to
work closely with OEMs and involve ourselves early in the design process so that
our fasteners may readily be incorporated into the design of their products.
Aerospace Distribution Segment
Through our subsidiary Banner Aerospace, Inc., we offer a wide variety of
aircraft parts and component repair and overhaul services. The aircraft parts,
which we distribute are either purchased on the open market or acquired from
OEMs as an authorized distributor. No single distributor arrangement is material
to our financial condition. The aerospace distribution segment accounted for 14%
of our total sales in fiscal 2001.
Products
Products of the aerospace distribution segment include rotable parts such
as flight data recorders, radar and navigation systems, instruments, hydraulic
and electrical components, space components and certain defense related items.
Rotable parts are sometimes purchased as new parts, but are generally
purchased in the aftermarket and are then overhauled by us or for us by outside
contractors, including OEMs or FAA-licensed facilities. Rotables are sold in a
variety of conditions such as new, overhauled, serviceable and "as is". Rotables
may also be exchanged instead of sold. An exchange occurs when an item in
inventory is exchanged for a customer's part and the customer is charged an
exchange fee.
An extensive inventory of products and a quick response time are essential
in providing support to our customers. Another key factor in selling to our
customers is our ability to maintain a system that traces a part back to the
manufacturer or repair facility. We also offer immediate shipment of parts in
aircraft-on-ground situations.
Through our FAA-licensed repair station we provide a number of services
such as component repair and overhaul services. Component repair and overhaul
capabilities include pressurization, instrumentation, avionics, aircraft
accessories and airframe components. Aircraft services include aircraft sales,
inspections, repairs, maintenance, modifications and avionics for corporate
aircraft.
Sales and Markets
Our aerospace distribution segment sells its products in the United States
and abroad to commercial airlines and air cargo carriers, fixed-base operators,
corporate aircraft operators, distributors and other aerospace companies.
Approximately 75% of our sales are to domestic purchasers, some of which may
represent offshore users.
Our aerospace distribution segment conducts marketing efforts through its
direct sales force, outside representatives and, for some product lines,
overseas sales offices. Sales in the aviation aftermarket depend on price,
service, quality and reputation. Our aerospace distribution segment's business
does not experience significant seasonal fluctuations nor depend on a single
customer.
Competition
Our aerospace distribution segment competes with Air Ground Equipment
Services, Duncan Aviation, Stevens Aviation; OEMs such as Honeywell, Rockwell
Collins, Raytheon, and Litton; other repair and overhaul organizations; and many
smaller companies.
Real Estate Operations Segment
Our real estate operations segment owns and operates a shopping center
located in Farmingdale, New York. Rental revenue was higher in the fiscal 2001
due to an increase in the amount of space leased to tenants. As of June 30,
2001, we have leased approximately 74% of the developed shopping center.
Foreign Operations
Our operations are located throughout the world. Inter-area sales are
not significant to the total revenue of any geographic area. Export sales are
made by U.S. businesses to customers in non-U.S. countries, whereas foreign
sales are made by our non-U.S. subsidiaries. For our sales results by
geographic area and export sales, see Note 20 of our Consolidated Financial
Statements included in Item 8, "Financial Statements and Supplementary Data".
Backlog of Orders
Backlog is important for all our operations, due to the long-term
production requirements of our customers. Our backlog of orders as of June 30,
2001 in the aerospace fasteners segment amounted to approximately $220 million.
We anticipate that in excess of 85% of the aggregate backlog at June 30, 2001
will be delivered by June 30, 2002. Often we are awarded long-term commitments
from our customers to provide significant quantities of aircraft fastening
components over periods ranging generally from three-to-five years. However,
amounts related to such agreements are not included in our backlog until our
customers specify delivery dates for the fasteners ordered.
Suppliers
We are not materially dependent upon any one supplier, but we are dependent
upon a wide range of subcontractors, vendors and suppliers of materials to meet
our commitments to our customers. From time to time, we enter into exclusive
supply contracts in return for logistics and price advantages. We do not believe
that any one of these contracts would impair our operations if a supplier failed
to perform.
Nevertheless, commercial deposits of certain metals, such as titanium and
nickel, which are required for the manufacture of several of our products, are
found only in certain parts of the world. The availability and prices of these
metals may be influenced by private or governmental cartels, changes in world
politics, unstable governments in exporting nations, or inflation. Similarly,
supplies of steel and other less exotic metals used by us may also be subject to
variation in availability. We purchase raw materials, which include metals,
composites, and finishes used in production, from over twenty different
suppliers. We have entered into several long-term contracts to supply titanium
and alloy metals. In the past, fluctuations in the price of titanium have had an
adverse effect on our sales margins.
Research and Patents
We own patents relating to the design and manufacture of certain of our
products and have licenses of technology covered by the patents of other
companies. We do not believe that any of our business segments are dependent
upon any single patent.
Personnel
As of June 30, 2001, we had approximately 5,500 employees. Of these,
approximately 3,600 are based in the United States and 1,900 are based in Europe
and elsewhere. Approximately 20% of our employees were covered by collective
bargaining agreements. Although, in the past, we have had isolated work
stoppages in France, these stoppages have not had a material impact on our
business. Overall, we believe that relations with our employees are good.
Environmental Matters
A discussion of our environmental matters is included in Note 18,
"Contingencies", to our Consolidated Financial Statements, included in Part II,
Item 8, "Financial Statements and Supplementary Data" and is incorporated herein
by reference.
ITEM 2. PROPERTIES
As of June 30, 2001, we owned or leased buildings totaling approximately
1,960,000 square feet, of which approximately 1,090,000 square feet were owned
and 870,000 square feet were leased. Our aerospace fasteners segment's
properties consisted of approximately 1,840,000 square feet, with principal
operating facilities of approximately 1,508,000 square feet concentrated in
Southern California, Massachusetts, France, Germany and Australia. The aerospace
distribution segment's properties consisted of approximately 80,000 square feet,
with principal operating facilities of approximately 30,000 square feet located
in Georgia. We lease our corporate headquarters building at Washington-Dulles
International Airport.
The following table sets forth the location of the larger properties used in
our continuing operations, their square footage, the business segment or groups
they serve and their primary use. Each of the properties owned or leased by us
is, in our opinion, generally well maintained. All of our occupied properties
are maintained and updated on a regular basis.
<table>
<s> <c> <c> <c> <c>
Owned or Square
Location Leased Footage Business Segment/Group Primary Use
-------- ------- ------- ---------------------- -----------
Saint Cosme, France Owned 304,000 Aerospace Fasteners Manufacturing
Torrance, California Owned 284,000 Aerospace Fasteners Manufacturing
Fullerton, California Leased 276,000 Aerospace Fasteners Manufacturing
City of Industry, California Owned 140,000 Aerospace Fasteners Manufacturing
Stoughton, Massachusetts Leased 110,000 Aerospace Fasteners Manufacturing
Simi Valley, California Leased 88,000 Aerospace Fasteners Distribution
Montbrison, France Owned 63,000 Aerospace Fasteners Manufacturing
Huntington Beach, California Owned 58,000 Aerospace Fasteners Manufacturing
Hildesheim, Germany Owned 57,000 Aerospace Fasteners Manufacturing
Toulouse, France Owned 52,000 Aerospace Fasteners Manufacturing
Kelkheim, Germany Owned 52,000 Aerospace Fasteners Manufacturing
Dulles, Virginia Leased 34,000 Corporate Office
Atlanta, Georgia Leased 29,000 Aerospace Distribution Distribution
Oakleigh, Australia Leased 24,000 Aerospace Fasteners Manufacturing
</table>
We have several parcels of property which we are attempting to market,
lease and/or develop, including: an eighty-eight acre parcel located in
Farmingdale, New York; an eight acre parcel in Chatsworth, California; and
several other parcels of real estate, located primarily throughout the
continental United States.
Information concerning our long-term rental obligations at June 30, 2001,
is set forth in Note 17 to our Consolidated Financial Statements, included in
Item 8, "Financial Statements and Supplementary Data", and is incorporated
herein by reference.
ITEM 3. LEGAL PROCEEDINGS
A discussion of our legal proceedings is included in Note 18,
"Contingencies", to our Consolidated Financial Statements, included in Part II,
Item 8, "Financial Statements and Supplementary Data", of this annual report and
is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5 MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market Information
Our Class A common stock is traded on the New York Stock Exchange and
Pacific Stock Exchange under the symbol FA. Our Class B common stock is not
listed on any exchange and is not publicly traded. Class B common stock can be
converted to Class A common stock at any time at the option of the holder.
Information regarding the quarterly price range of our Class A common stock
is incorporated herein by reference from Note 21 of our Consolidated Financial
Statements included in Item 8, "Financial Statements and Supplementary Data".
We are authorized to issue 5,141,000 shares of our Class A common stock
under our 1986 non-qualified stock option plan, and 250,000 shares of our Class
A common stock under our 1996 non-employee directors stock option plan. At the
beginning of the fiscal year, we had 325,997 shares available to grant under the
1986 non-qualified stock option plan and 103,000 shares available to grant under
the 1996 non-employee directors stock option plan. At the end of the fiscal
year, we had 368,131 shares available to grant under the 1986 non-qualified
stock option plan and 127,000 shares available to grant under the 1996
non-employee directors stock option plan. Information regarding our stock option
plans is incorporated herein by referenced from Note 12 of our Consolidated
Financial Statements included in Item 8, "Financial Statements and Supplementary
Data".
Holders of Record
We had approximately 1,301 and 37 record holders of our Class A and Class B
common stock, respectively, at September 7, 2001.
Dividends
Our current policy is to retain earnings to support the growth of our
present operations and to reduce our outstanding debt. Any future payment of
dividends will be determined by our Board of Directors and will depend on our
financial condition and results of operations, and in any event are restricted
by covenants in our credit agreement and 10 3/4% senior subordinated notes that
limit the payment of dividends over their respective terms. See Note 7 of our
Consolidated Financial Statements included in Item 8, "Financial Statements and
Supplementary Data".
Sale of Unregistered Securities
There were no sales or issuance of unregistered securities in the last
fiscal quarter for the 2001 fiscal year. Sales or issuance of unregistered
securities in previous fiscal quarters were reported on Form 10-Q for each such
quarter.
ITEM 6. SELECTED FINANCIAL DATA
<table>
<caption>
Five-Year Financial Summary
(In thousands, except per share data)
For the years ended June 30,
-------------------------------------------------------------------
Summary of Operations: 2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
Net sales $ 622,812 $ 635,361 $ 617,322 $ 741,176 $ 680,763
Rental revenue 7,030 3,583 364 - -
Gross profit 158,882 164,432 112,468 186,506 181,344
Operating income (loss) 21,303 23,243 (45,911) 45,443 33,499
Net interest expense 55,716 44,092 30,346 42,715 47,681
Earnings (loss) from continuing operations (15,000) 21,764 (23,507) 52,399 1,816
Earnings (loss) per share from continuing operations:
Basic $ (0.60) $ 0.87 $(1.03) $ 2.78 $ 0.11
Diluted (0.60) 0.87 (1.03) 2.66 0.11
Other Data:
EBITDA 65,035 65,065 (20,254) 66,316 54,314
Capital expenditures 16,384 27,339 30,142 36,029 15,014
Cash provided by (used for) operating activities (39,537) (67,072) 23,268 (85,231) (93,321)
Cash provided by (used for) investing activities 4,093 90,372 (99,157) 43,614 73,238
Cash provided by (used for) financing activities (20,839) (41,373) 81,218 74,088 (1,455)
Balance Sheet Data:
Total assets 1,209,865 1,267,420 1,328,786 1,157,259 1,052,666
Long-term debt, less current maturities 470,530 453,719 495,283 295,402 416,922
Stockholders' equity 361,853 402,113 407,500 473,559 232,424
per outstanding common share $ 14.39 $ 16.05 $ 16.38 $ 20.54 $ 13.98
</table>
Fiscal 1998 includes the gain from the disposition of Banner Aerospace's
hardware group. The results of the hardware group are included in the periods
from March 1996 through December 1997, until disposition. Fiscal 1999 includes
the loss on the disposition of Banner Aerospace's Solair subsidiary and the loss
recognized on the sale of Dallas Aerospace. The results of Solair are included
in the periods from March 1996 through December 1998, until disposition. The
results of Dallas Aerospace are included in the periods from March 1996 through
November 1999, until disposition. These transactions materially affect the
comparability of the information reflected in the selected financial data.
EBITDA represents the sum of operating income before depreciation and
amortization. Included in EBITDA are impairment expense of $5.9 million in
fiscal 2001 and restructuring charges of $8.6 million and $6.4 million in fiscal
2000 and 1999, respectively. We consider EBITDA to be an indicative measure of
our operating performance due to the significance of our long-lived assets and
because such data is considered useful by the investment community to better
understand our results, and can be used to measure our ability to service debt,
fund capital expenditures and expand our business. EBITDA is not a measure of
financial performance under GAAP, may not be comparable to other similarly
titled measures of other companies and should not be considered as an
alternative either to net income as an indicator of our operating performance,
or to cash flows as a measure of our liquidity. Cash expenditures for various
long-term assets, interest expense, and income taxes have been, and will be
incurred which are not reflected in the EBITDA presentation.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The Fairchild Corporation was incorporated in October 1969, under the laws
of the State of Delaware, under the name of Banner Industries, Inc. On November
15, 1990, we changed our name from Banner Industries, Inc. to The Fairchild
Corporation. We own 100% of RHI Holdings, Inc. and Banner Aerospace, Inc. RHI
is the owner of 100% of Fairchild Holding Corp. Our principal operations are
conducted through Fairchild Holding Corp. and Banner Aerospace.
The following discussion and analysis provide information which management
believes is relevant to the assessment and understanding of our consolidated
results of operations and financial condition. The discussion should be read in
conjunction with the consolidated financial statements and notes thereto.
GENERAL
We are a leading worldwide aerospace and industrial fastener manufacturer
and distribution supply chain services provider and, through Banner Aerospace,
an international supplier to airlines and general aviation businesses,
distributing a wide range of aircraft parts and related support services.
Through internal growth and strategic acquisitions, we have become one of the
leading suppliers of fasteners to aircraft OEMs, such as Boeing, European
Aeronautic Defense and Space Company, General Electric, Lockheed Martin, and
Northrop Grumman.
Our business consists of three segments: aerospace fasteners, aerospace
distribution and real estate operations. The aerospace fasteners segment
manufactures and markets high performance fastening systems used in the
manufacture and maintenance of commercial and military aircraft. Our aerospace
distribution segment stocks and distributes a wide variety of aircraft parts to
commercial airlines and air cargo carriers, fixed-base operators, corporate
aircraft operators and other aerospace companies. Our real estate operations
segment owns and operates a shopping center located in Farmingdale, New York.
CAUTIONARY STATEMENT
Certain statements in this financial discussion and analysis by management
contain certain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 with respect to our financial
condition, results of operation and business. These statements relate to
analyses and other information, which are based on forecasts of future results
and estimates of amounts not yet determinable. These statements also relate to
our future prospects, developments and business strategies. These
forward-looking statements are identified by their use of terms and phrases such
as "anticipate," "believe," "could," "estimate," "expect," "intend," "may,"
"plan," "predict," "project," "will" and similar terms and phrases, including
references to assumptions. These forward-looking statements involve risks and
uncertainties, including current trend information, projections for deliveries,
backlog and other trend estimates, that may cause our actual future activities
and results of operations to be materially different from those suggested or
described in this financial discussion and analysis by management. These risks
include: product demand; our dependence on the aerospace industry; reliance on
Boeing and European Aeronautic Defense and Space Company; customer satisfaction
and quality issues; labor disputes; competition, including recent intense price
competition; our ability to achieve and execute internal business plans;
worldwide political instability and economic growth; reduced passenger miles
flown as a result of the September 11, 2001 terrorist attacks on the United
states; the cost and availability of electric power to operate our plants; 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 financial discussion and analysis by
management, including investors and prospective investors are cautioned not to
place undue reliance on such forward-looking statements. We do not intend to
update the forward-looking statements included in this Annual Report, even if
new information, future events or other circumstances have made them incorrect
or misleading.
RESULTS OF OPERATIONS
Business Transactions
The following summarizes certain business combinations and transactions we
completed which significantly affect the comparability of the period to period
results presented in this Management's Discussion and Analysis of Results of
Operations and Financial Condition.
Fiscal 2000 Transactions
On July 29, 1999, we sold our 31.9% interest in Nacanco Paketleme to
American National Can Group, Inc. for approximately $48.2 million. Our
investment in Nacanco began in November 1987, and throughout the years we
invested approximately $6.2 million in Nacanco. Since the inception of our
investment, we recorded equity earnings of $25.7 million and received cash
dividends of $12.5 million from Nacanco. We recognized a $25.7 million
nonrecurring gain from this divestiture in the nine months ended April 2, 2000.
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. As a result of this disposition, our
interest expense was reduced. However, our equity earnings and dividend proceeds
also significantly decreased. In accordance with our plan to dispose of non-core
assets, the opportunity to dispose of our interest in Nacanco Paketleme
presented us with an excellent opportunity to realize a substantial return on
our investment and allowed us to reduce our then outstanding indebtedness by
approximately 8.6%.
On September 3, 1999, we completed the disposal of our Camloc Gas Springs
division to a subsidiary of Arvin Industries Inc. for approximately $2.7
million. In addition, we received $2.4 million from Arvin Industries for a
covenant not to compete. We recognized a $2.3 million nonrecurring pre-tax gain
from this disposition. We decided to dispose of the Camloc Gas Springs division
in order to concentrate our focus on our operations in the aerospace industry.
On December 1, 1999, we disposed of substantially all of the assets and
certain liabilities of our Dallas Aerospace subsidiary to United Technologies
Inc. for approximately $57.0 million. No gain or loss was recognized from this
transaction, as the proceeds received approximated the net carrying value of
these assets. Approximately $37.0 million of the proceeds from this disposition
were used to reduce our term indebtedness and our interest expense. As a result
of this transaction, we reported a reduction in revenues of $21.7 million and
operating income of $2.1 million for the nine months ended April 1, 2001, as
compared to the nine months ended April 2, 2000. We estimated that the market
base for the older-type of engines that we were selling was shrinking, and that
we would be required to invest a substantial amount of cash to purchase
newer-type of engines to maintain market share. The opportunity to exit this
business presented us with an opportunity to improve cash flows by reducing our
indebtedness by $37.0 million, and by preserving our cash, which would otherwise
have had to have been invested to upgrade our inventory.
On April 13, 2000, we completed a spin-off to our stockholders of the
shares of Fairchild (Bermuda) Ltd. On April 14, 2000, Fairchild (Bermuda) sold
to Convac Technologies Ltd. the Optical Disc Equipment Group business formerly
owned by Fairchild Technologies. Subsequently, on April 14, 2000, Fairchild
(Bermuda), renamed Global Sources Ltd., completed an exchange of approximately
95% of its shares for 100% of the shares of Trade Media Holdings Limited, an
Asian based, business-to-business online and traditional marketplace services
provider. Immediately after the share exchange, our stockholders owned 1,183,081
shares of the 26,152,308 issued shares of Global Sources. Global Sources shares
are listed on the NASDAQ under the symbol "GSOL". This transaction allowed us to
complete our formal plan to dispose of Fairchild Technologies and provided our
shareholders with a unique opportunity to participate in a new public entity.
Fiscal 1999 Transactions
On December 31, 1998, Banner consummated the sale of Solair, Inc., its
largest subsidiary in the rotables group of the aerospace distribution segment,
to Kellstrom Industries, Inc., in exchange for approximately $60.4 million in
cash and a warrant to purchase 300,000 shares of common stock of Kellstrom. In
December 1998, Banner recorded a $19.3 million pre-tax loss from the sale of
Solair. This loss was included in cost of goods sold as it was primarily
attributable to the bulk sale of inventory at prices below the carrying amount
of inventory. The opportunity to exit this business presented us with an
opportunity to improve cash flows by reducing our indebtedness by $60.4 million,
and by preserving our cash, which would otherwise have had to have been required
to be invested to upgrade our inventory.
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. We
acquired SNEP to compliment our existing product group and expand our European
customer base.
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 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's common and preferred stock, other than those shares already
owned by us. Banner is now our wholly-owned subsidiary.
On April 20, 1999, we completed the acquisition of all the capital stock of
Kaynar Technologies Inc. for approximately $222 million and assumed
approximately $103 million of 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.
We acquired Kaynar Technologies primarily to increase our existing product base,
expand our customer base, and create the opportunity to generate significant
synergistic cash savings. The acquisition also ensured that we would remain the
world's largest manufacturer of aerospace fasteners.
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. We
acquired Technico to expand our European customer base.
Consolidated Results
We currently report in three principal business segments: aerospace
fasteners, aerospace distribution and real estate operations. The results of
Camloc Gas Springs division, prior to its disposition, were included in the
Corporate and Other classification. The following table provides the historical
sales and operating income of our operations for fiscal 2001, 2000 and 1999. The
following table also illustrates sales and operating income of our operations by
segment, on an unaudited pro forma basis, for fiscal 2000 and 1999, as if we had
operated in a consistent manner in each of the reported periods. The pro forma
results represent the impact of our dispositions of Dallas Aerospace in December
1999 and Camloc Gas Springs in September 1999, as if these transactions had
occurred at the beginning of fiscal 2000 and 1999, respectively. The fiscal 1999
pro forma results also represent the impact of our disposition of Solair in
December 1998, our acquisition of Kaynar Technologies in April 1999, and our
merger with Banner Aerospace in April 1999, as if these transactions had
occurred at the beginning of fiscal 1999. The pro forma information is based on
the historical financial statements of these companies, giving effect to the
aforementioned transactions. The pro forma information is not necessarily
indicative of the results of operations, that would actually have occurred if
these transactions had been in effect since the beginning of fiscal 2000 and
fiscal 1999, nor is it necessarily indicative of our future results.
<table>
<caption>
(In thousands) Actual Pro Forma
------------------------------------------ ----------------------------
2001 2000 1999 2000 1999
------------------------------------------ ----------------------------
Sales by Segment:
Aerospace Fasteners Segment $ 536,904 $ 533,620 $ 442,722 $ 533,620 $ 610,200
Aerospace Distribution Segment 85,908 101,002 168,336 79,308 70,196
Corporate and Other - 739 6,264 - -
------------------------------------------ ----------------------------
Total Sales $ 622,812 $ 635,361 $ 617,322 $ 612,928 $ 680,396
------------------------------------------ ----------------------------
Operating Income (Loss) by Segment:
Aerospace Fasteners Segment $ 37,008 $ 33,909 $ 38,956 $ 33,909 $ 54,427
Aerospace Distribution Segment 2,499 7,758 (40,003) 5,707 (1,611)
Real Estate Operations Segment (a) (138) 1,033 17 1,033 17
Corporate and Other (18,066) (19,457) (44,881) (19,470) (24,661)
------------------------------------------ ----------------------------
Total Operating Income (Loss) (b) (c) $ 21,303 $ 23,243 $ (45,911) $ 21,179 $ 28,172
------------------------------------------ ----------------------------
<FN>
(a) Includes rental revenue of $7.0 million, $3.6 million and $0.4
million in fiscal 2001, 2000 and 1999, respectively.
(b) Fiscal 2000 results include restructuring charges of $8.6 million in
the aerospace fasteners segment. Fiscal 1999 results include inventory
impairment charges of $41.5 million in the aerospace distribution
segment, costs relating to acquisitions of $23.6 million and
restructuring charges of $5.5 million in the aerospace fasteners
segment, $0.3 million in the aerospace distribution segment, and $0.5
million at corporate.
(c) Fiscal 2001 results includes one-time impairment charges of $1.1
million in the aerospace fasteners segment, $2.4 million in the
aerospace distribution segment, and $2.5 million in the real estate
segment.
</FN>
Net Sales of $622.8 million in 2001 decreased by $12.6 million, or 2.0%,
compared to sales of $635.4 million in 2000. The results for 2000, included
revenue of $22.4 million from Dallas Aerospace and the Camloc Gas Springs
division prior to their respective dispositions. Additionally, sales in 2001
were adversely affected by approximately $24.4 million, due to the foreign
currency impact on our European operations. On a pro forma basis and excluding
the period-to-period foreign currency effect, net sales increased by $34.3
million for 2001, as compared to 2000. Net sales of $635.4 million in 2000
increased by $18.0 million, or 2.9%, compared to sales of $617.3 million in
1999. The improvement is attributable primarily to the additional revenues
provided by the acquisition of Kaynar Technologies, offset partially by the
dispositions of Solair and Dallas Aerospace. On a pro forma basis, net sales
decreased 9.9% in 2000, as compared to 1999, due primarily to reduced bookings
caused by Boeing's inventory reduction program.
Rental revenue was $7.0 million in 2001, $3.6 million in 2000 and $0.4
million in 1999. Rental revenue was higher in the 2001 and 2000 periods due to
an increase in the amount of space leased to tenants.
Gross margin as a percentage of sales was 25.1%, 25.7%, and 18.2%, in 2001,
2000, and 1999, respectively. Included in cost of goods sold for 1999 was a
charge of $41.5 million recognized in our aerospace distribution segment from
the dispositions of Solair and Dallas Aerospace. Of this charge, $19.3 million
was attributable to Solair's bulk sale of inventory at prices below the carrying
amount. Excluding these charges, gross margin as a percentage of sales was 24.9%
in fiscal 1999. The change in margins in 2001, 2000 and 1999 periods are
attributable to a change in product mix as a result of the acquisitions and
dispositions.
Selling, general & administrative expense as a percentage of sales was
20.1%, 20.6%, and 24.1%, in 2001, 2000, and 1999, respectively. Included in
selling, general & administrative expense in fiscal 1999 were $23.6 million of
one-time costs associated primarily with the acquisition of Kaynar Technologies.
Excluding these costs, selling, general & administrative expense as a percentage
of sales would have been 20.3% in 1999.
Other income decreased $4.9 million in 2001, compared to 2000. The decrease
was due primarily to $5.1 million of income recognized from the disposition of
non-core property in 2000, and a $0.7 million loss recognized from the
disposition of non-core property during 2001. Other income increased $7.3
million in 2000 as compared to 1999, due primarily to $5.1 million of gains
recognized on the disposition of real estate.
An impairment charge of $5.9 million was recorded in 2001. The impairment
charge included $2.4 million due to the closing of a small subsidiary at our
aerospace distribution segment, of which $1.7 million represented the write-off
of goodwill, and $0.4 million represented severance payments. The impairment
charge also included a write-off of approximately $2.3 million of improvements
at our shopping center, and $1.1 million for the write-off of leasehold
improvements from the relocation of our domestic distribution facility in our
aerospace fasteners segment.
In fiscal 1999, we recorded $6.4 million of restructuring charges. Of this
amount, $0.5 million was recorded at our corporate office for severance
benefits, and $0.3 million was recorded at our aerospace distribution segment
for the write-off of building improvements from premises vacated. The remaining
$5.6 million was recorded as a result of the costs incurred from the initial
integration of Kaynar Technologies into our aerospace fasteners segment, i.e.
for severance benefits ($3.9 million), for product integration costs incurred as
of June 30, 1999 ($1.3 million), and for the write down of fixed assets ($0.3
million). In fiscal 2000, we recorded $8.6 million of restructuring charges as a
result of the continued integration of Kaynar Technologies into our aerospace
fasteners segment. All of the charges recorded 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.
Operating income of $21.3 million in 2001 decreased by $1.9 million as
compared to operating income of $23.2 million in 2000. The results in fiscal
2000 included $2.1 million of operating income from Dallas Aerospace, prior to
its disposition and $5.1 million of income recognized from the disposition of
non-core property, offset partially by restructuring charges of $7.5 million.
Operating income in fiscal 2001 was adversely affected by approximately $3.2
million due to the foreign currency impact on our European operations, and by
the impairment charge of $5.9 million. Operating income of $23.2 million in
fiscal 2000 increased $69.2 million, or 150.6%, compared to an operating loss of
$45.9 million in fiscal 1999. Fiscal 1999 was affected by $71.4 million of
expenses recognized for inventory impairment, restructuring costs and other
costs related to acquisitions. Fiscal 2000 results also improved due to $5.1
million of gains recognized on the sale of real estate, and $3.2 million in
increased rental revenue.
Net interest expense increased $11.6 million in fiscal 2001 as compared to
fiscal 2000. However, cash interest expense of $50.5 million in 2001 actually
decreased by $4.1 million, as compared to cash interest expense of $54.5 million
in 2000. We recognized interest expense of $3.5 million in 2001, as compared to
$1.0 million in 2000, resulting from $30.8 million borrowed in March 2000, and
we capitalized $5.8 million of interest expense in fiscal 2000 from real estate
development activities at our shopping center in Farmingdale, New York. Interest
expense from the accretion of discount on long-term liabilities was $7.9 million
in 2001, as compared to $0.1 million in 2000, and reflects primarily a 3/4%
decline in discount rate from our postretirement benefit obligations. Net
interest expense increased by 45.3% in fiscal 2000 as compared to fiscal 1999,
as a result of the additional debt we incurred to finance the acquisition of
Kaynar Technologies.
Investment income (loss), net, was $8.4 million, $9.9 million, and $39.8
million in 2001, 2000, and 1999, respectively. Investment income in these
periods was due primarily to recognizing realized gains on investments
liquidated. We recognized a large gain in 1999 from the liquidation of our
position in AlliedSignal to raise funds to acquire Kaynar Technologies.
The fair market value adjustment of a ten-year $100 million interest rate
contract decreased by $5.6 million in fiscal 2001.
Nonrecurring income of $28.6 million in fiscal 2000 resulted from $25.7
million, $2.0 million, and $0.9 million gains recognized on the disposition of
our equity investment in Nacanco Paketleme, our Camloc Gas Springs division and
a smaller equity investment, respectively.
We recorded an income tax benefit of $16.5 million in fiscal 2001,
representing a 52.3% effective tax rate on pre-tax losses from continuing
operations. The tax benefit was higher than the statutory rate due primarily to
the reversal of $3.5 million of tax accruals no longer required. We recorded an
income tax benefit of $4.4 million in fiscal 2000 on earnings from continuing
operations of $17.7 million. A tax benefit was recorded due primarily to a
change in the estimate of required tax accruals. We recorded an income tax
benefit of $13.2 million in fiscal 1999 representing a 36.3% effective tax rate
on pre-tax losses from continuing operations. The tax benefit approximates the
statutory rate.
Equity in earnings of affiliates improved by $0.5 million in 2001 compared
to 2000, and decreased by $2.1 million in 2000, compared to 1999. The decrease
in 2001 was attributable primarily to $0.1 million of income in 2001, as
compared to $0.3 million of losses from small start-up ventures in 2000. In July
1999, we divested our 31.9% interest in Nacanco and this reduced our equity
earnings in fiscal 2000.
In 1998, we adopted a formal plan to discontinue Fairchild Technologies. In
connection with the adoption of such plan, we recorded an after-tax charge of
$12.0 million and $31.3 million, in discontinued operations, in fiscal 2000 and
1999, respectively. 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.
An additional after-tax charge of $2.8 million, net of an income tax benefit of
$2.4 million, was recorded in fiscal 1999, for estimated remaining losses in
connection with the disposition of Fairchild Technologies. The fiscal 2000
after-tax loss in connection with the final disposition of the remaining
operations of Fairchild Technologies exceeded anticipated losses by $20.0
million, net of an income tax benefit of $8.0 million.
In fiscal 1999, we recognized an extraordinary loss of $4.2 million, net of
tax, to write-off the remaining deferred loan fees associated with the early
extinguishment of our indebtedness pursuant to our acquisition of Kaynar
Technologies.
Comprehensive income (loss) includes foreign currency translation
adjustments and unrealized holding changes in the fair market value of
available-for-sale investment securities. The fair market value of unrealized
holding securities declined by $1.0 million, $4.0 million and $16.5 million in
fiscal 2001, 2000 and 1999, respectively. The changes reflect primarily gains
realized from the liquidation of investments, including AlliedSignal common
stock divested in fiscal 1999. Foreign currency translation adjustments
decreased by $24.5 million, $10.1 million and $2.5 million in fiscal 2001, 2000
and 1999, respectively, due primarily to the strengthening of the U.S. Dollar
against the French Franc and German Mark.
We adopted SFAS 133 "Accounting for Derivative Instruments and Hedging
Activities" on July 1, 2000. At adoption, we recorded within other comprehensive
income, a decrease of $0.5 million in the fair market value of our $100 million
interest rate swap agreement. The $0.5 million decrease will be amortized over
the remaining life of the interest rate swap agreement using the effective
interest method. The offsetting interest rate swap liability is separately being
reported as a "fair market value of interest rate contract" within other
long-term liabilities. In the statement of earnings we have recorded the net
swap interest accrual as part of interest expense. Unrealized changes in the
fair value of the swap are recorded net of the current interest accrual on a
separate line entitled "decrease in fair market value of interest rate
derivatives."
Segment Results
Aerospace Fasteners Segment
Sales in our Aerospace Fasteners segment increased by $3.3 million, or
0.6%, in fiscal 2001, as compared to fiscal 2000. Sales by our European
operations were adversely effected by approximately $24.4 million in 2001,
compared to 2000, due to the foreign currency impact from the U.S. dollar
strengthening against the Euro. However, our book-to-bill ratio improved to
approximately 106% in 2001, as compared to 99% in 2000, which we believe
indicates an improving market place as compared to the sluggish conditions we
have experienced over the past twelve months. This favorable trend has led to a
$15.8 million increase in backlog to $220.0 million at June 30, 2001, compared
to $204.2 million at June 30, 2000. Sales by our aerospace fasteners segment
increased by $90.9 million to $533.6 million, up 20.5% in fiscal 2000, compared
to fiscal 1999. These improvements reflected growth from acquisitions, offset
partially by weakened demand for our products in the commercial aerospace
industry. On a pro forma basis, sales decreased by 12.5% in fiscal 2000, as
compared to fiscal 1999. In fiscal 2000, our operations in the United States
were negatively impacted by reduced bookings caused by inventory reduction
efforts at Boeing and its ripple effect on prices.
Operating income increased by $3.1 million in fiscal 2001, compared to
fiscal 2000. The increase was due primarily to productivity improvements from
cost reduction efforts, offset partially by reduced gross margins resulting from
pricing pressures. Operating income in fiscal 2001 was adversely affected by
approximately $3.2 million due to the foreign currency impact on our European
operations. Operating expenses at all operations are being strictly controlled
as management attempts to reduce operating costs to improve operating results in
the short-term, without adversely affecting our future long-term performance.
Operating income in our aerospace fasteners segment decreased by $5.0 million in
fiscal 2000, compared to fiscal 1999. Included in our fiscal 2000 and 1999
results are restructuring charges of $8.6 million and $5.5 million,
respectively, incurred due to the integration of Kaynar Technologies into our
Aerospace Fasteners business. Excluding restructuring charges, operating income
decreased by $2.0 million in fiscal 2000, compared to fiscal 1999, reflecting
reduced margins due to pricing pressures, offset partially by cost improvement
initiatives and acquisitions made during fiscal 1999. On a pro forma basis and
excluding restructuring charges, operating income decreased by $17.5 million in
fiscal 2000, compared to fiscal 1999, due to lower sales levels associated with
a weakened commercial aerospace industry and its negative effects on operating
effectiveness.
Our Aerospace Fasteners segment has several manufacturing facilities
located in California. From time-to-time these operations have been affected by
an electric power shortage. We are cautiously optimistic that the electric power
shortage in California will be resolved without any major business interruption,
however, unless current tariffs are revised or their continued implementation
stayed, our manufacturing costs may be materially higher. We are pursuing both
long term and short term alternatives to our current electric power purchasing
commitments. We anticipate that the overall demand for aerospace fasteners in
fiscal 2002 will continue to improve as the announced increase in aircraft build
rates favorably affect the demand for our products. However, aircraft build
rates could be adversely affected by decreased worldwide demand for travel
following the September 11, 2001, terrorist attacks that temporarily halted
domestic and hampered worldwide travel. The heinous terrorists' attacks of
September 11, 2001, continue to have a significant effect on the commercial
aviation industry, raising concerns about our strong order backlog and projected
levels of new orders. A significant amount of cancellations of orders for
aircraft from Boeing and Airbus could adversely impact our future results. We
are monitoring events closely and any significant decline in future bookings
will cause us to implement further cost reduction measures to protect our
businesses.
Aerospace Distribution Segment
Sales in our aerospace distribution segment decreased by $15.1 million, or
14.9%, in fiscal 2001, compared to fiscal 2000. Results from fiscal 2000
included revenue of $21.7 million from Dallas Aerospace, prior to its
disposition. Sales in our aerospace distribution segment decreased by $67.3
million, or 40.0%, in fiscal 2000, compared to the fiscal 1999 period. The
decrease was due to the loss of revenues as a result of the disposition of
Solair and Dallas Aerospace. On a pro forma basis, sales increased $6.6 million,
or 8.3%, in 2001 compared to 2000, and $9.1 million, or 13.0%, in 2000 compared
to 1999, reflecting an overall improvement in demand for our products.
Operating income in our aerospace distribution segment decreased by $5.3
million in 2001, compared to 2000. Operating income in 2001 included asset
impairment charges of $3.1 million due to the closing of Banner Aircraft
Services, which had operating losses of $3.9 million in 2001. The results for
2000, included operating income of $2.1 million from Dallas Aerospace, prior to
its disposition. Operating income increased by $47.8 million in 2000, compared
to 1999, which included a charge of $19.3 million due to the sale of Solair, and
a $22.1 million charge relating to Dallas Aerospace, which was sold in November
1999. A charge of $41.4 million is included in the 1999 results, in connection
with the disposition of Solair and the potential disposition of Dallas
Aerospace. On a pro forma basis and excluding impairment charges, operating
income was flat in 2001, as compared to 2000, and increased by $7.3 million in
2000, as compared to 1999, reflecting increases in margins and a reduction in
corporate overhead.
Demand for our aerospace products could be adversely affected by decreased
worldwide demand for travel following the September 11, 2001, terrorist attacks
that temporarily halted domestic and hampered worldwide travel.
Real Estate Operations Segment
Our real estate operations segment owns and operates a shopping center
located in Farmingdale, New York. Included in operating income was rental
revenue of $7.0 million, $3.6 million and $0.4 million for 2001, 2000 and 1999,
respectively. Rental revenue was higher in the fiscal 2001 and fiscal 2000
periods due to an increase in the amount of space leased to tenants. As of June
30, 2001, approximately 74% of the developed shopping center was leased.
We reported an operating loss of $0.1 million for fiscal 2001 compared to
operating income of $1.0 million in fiscal 2000. We recorded a one-time charge
of $2.3 million to write-off improvements at our shopping center. The results of
2001 were also affected by an increase in administrative and depreciation
expenses as a result of the increase in rental revenue.
Corporate Segment
The corporate segment includes the Gas Springs division prior to its
disposition. The corporate segment reported a decrease in sales as a result of
the disposition of the Camloc Gas Springs division in September 1999. The
corporate segment reported that operating results improved by $1.4 million, or
7.1% in 2001, as compared to 2000. In fiscal 2000, operating results improved by
$25.4 million, or 56.6%, reducing operating losses from $44.9 million in 1999 to
$19.5 million in 2000. Results from fiscal 2001 and 2000 included $3.1 million
and $5.1 million, respectively, of gains recognized on the disposition of
non-core property. Results from fiscal 1999 included $23.6 million of one-time
costs associated primarily with the acquisition of Kaynar Technologies,
restructuring charges, and increased environmental, legal and travel expenses.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Total capitalization as of June 30, 2001 and 2000 amounted to $858.9
million and $884.4 million, respectively. The changes in capitalization included
an increase of $14.7 million in debt and a decrease of $40.3 million in equity.
The increase in debt reflected an $18.1 million net increase in borrowings with
our primary lenders, as a result of cash borrowed to support our operations. The
decrease in equity was due primarily to our reported net loss of $15.0 million,
and a $26.0 million decrease in cumulative other comprehensive income, which was
due primarily to $24.5 million in unfavorable foreign currency translation
adjustments.
We maintain a portfolio of investments classified primarily as
available-for-sale securities, which had a fair market value of $10.9 million at
June 30, 2001. The market value of the investment portfolio decreased by $8.3
million in 2001 as a result of realized gains from the divestiture of
securities. There is risk associated with market fluctuations inherent in stock
investments, and because our portfolio is not diversified, large swings in its
value may occur.
Net cash used for operating activities for fiscal 2001 was $39.5 million.
The primary use of cash for operating activities in fiscal 2001 was a $9.1
million increase in inventories, a $71.4 million decrease in accounts payable
and other accrued liabilities, and a $16.7 million increase in other current
assets, offset partially by a $5.5 million decrease in accounts receivable. Net
cash used for operating activities for fiscal 2000 was $67.1 million. The
primary use of cash for operating activities in fiscal 2000 was a $23.2 million
increase in inventories, a $12.0 million decrease in accounts payable, and a
$25.7 million increase in other current assets. Net cash provided by operating
activities for fiscal 1999 was $23.3 million. The primary source of cash for
operating activities in fiscal 1999 was an increase in accounts payable, accrued
liabilities and other long-term liabilities of $45.9 million, partially offset
by our net loss and non-cash adjustments of $16.8 million.
Net cash provided from investing activities for fiscal 2001 was $4.1
million, and included $16.4 million in proceeds received from the dispositions
of investments, and $4.6 million in proceeds received from the disposition of
property, offset by capital expenditures of $16.4 million. Net cash provided
from investing activities for fiscal 2000 was $90.4 million, and included $108.8
million in proceeds received from the dispositions of Dallas Aerospace, our Gas
Springs division and our investment in Nacanco Paketleme, and $12.0 million in
proceeds received from the condemnation of property. This was slightly offset by
cash of $27.3 million used for capital expenditures and $27.7 million for real
estate investments. Net cash used for investing activities for fiscal 1999 was
$99.2 million, and included $274.4 million used for acquisitions, partially
offset by $189.4 million received from the liquidation of investments.
Net cash provided by financing activities in fiscal 2001 was $15.4 million,
and included a $14.7 million net issuance of additional debt used to fund
operations. Net cash used for financing activities in fiscal 2000 was $41.4
million. The primary use of cash for financing activities in fiscal 2000 was
$39.4 million used to reduce debt. Net cash provided by financing activities in
fiscal 1999 was $81.2 million. Cash provided by financing activities in fiscal
1999 included the issuance of additional debt of $483.2 million, offset
partially by $380.0 million of debt repayments, and $22.1 million of treasury
stock purchased. We increased our debt in fiscal 1999, as a result of the
acquisition of Kaynar Technologies.
Our working capital requirement has increased in fiscal 2001, as our
aerospace fasteners segment engaged in a new inventory supply program with a
customer, requiring a significant investment in inventory. Under this program,
we must maintain a certain level of inventory to fulfill the customer's monthly
requirements. Sales under the program are expected to increase in the first
quarter of fiscal 2002.
Our principal cash requirements include debt service, capital expenditures,
real estate development, and payment of other liabilities. Other liabilities
that require the use of cash include postretirement benefits, environmental
investigation and remediation obligations, and litigation settlements and
related costs. We expect that cash on hand, cash generated from operations, cash
available from borrowings and additional financing and asset sales will be
adequate to satisfy our cash requirements during the next twelve months.
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. Our most restrictive covenant is the
interest coverage ratio, which represents the ratio of EBITDA to interest
expense, as defined in the credit agreement. At June 30, 2001, the interest
coverage ratio was 2.05, which exceeded the minimum requirement of 2.0.
Additionally, the credit agreement restricts annual capital expenditures to $40
million 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 $0.4 million
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 may 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, 2001, we were in full compliance with
all the covenants under the credit agreement.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, "Accounting for Business Combinations."
This statement requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001, and establishes specific
criteria for the recognition of intangible assets separately from goodwill. We
will follow the requirements of this statement for business acquisitions made
after June 30, 2001.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, "Accounting for Goodwill and Other
Intangible Assets." This statement requires that goodwill and intangible assets
deemed to have an indefinite life not be amortized. Instead of amortizing
goodwill and intangible assets deemed to have an indefinite life, the statement
requires a test for impairment to be performed annually, or immediately if
conditions indicate that such an impairment could exist. The amortization period
of intangible assets with finite lives will no longer be limited to forty years.
This statement is effective for fiscal years beginning after December 15, 2001,
and permits early adoption for fiscal years beginning after March 15, 2001. We
will adopt SFAS No. 142 on July 1, 2001. As a result of adopting SFAS No. 142,
we will stop amortizing goodwill of approximately $12.5 million per year. Due to
the fair value measurement requirement, rather than the undiscounted cash flows
approach, we may have to record a material impairment from the implementation of
SFAS No. 142. We are continuing to evaluate the impact of adopting this
standard.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations". This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
associated asset retirement costs. It applies to legal obligations associated
with the retirement of long-lived assets that result from the acquisition,
construction, development, and normal operation of a long-lived asset, except
for certain lease obligations. This statement is effective for fiscal years
beginning after June 15, 2002. We are currently evaluating the impact of
adopting this standard.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In fiscal 1998, we entered into a ten-year interest rate swap agreement to
reduce our cash flow exposure to increases in interest rates on variable rate
debt. The ten-year interest rate swap agreement provides us with interest rate
protection on $100 million 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, that we entered into the interest rate swap agreement, 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.
We did not elect to pursue hedge accounting for the interest rate swap
agreement, which was executed to provide an economic hedge against cash flow
variability on the floating rate note. When evaluating the impact of SFAS No.
133 on this hedge relationship, we assessed the key characteristics of the
interest rate swap agreement and the note. Based on this assessment, we
determined that the hedging relationship would not be highly effective. The
ineffectiveness is caused by the existence of the embedded written call option
in the interest rate swap agreement, and the absence of a mirror option in the
hedged item. As such, pursuant to SFAS No. 133, we designated the interest rate
swap agreement in the no hedging designation category. Accordingly, we have
recognized a non-cash decrease in fair market value of interest rate derivatives
of $5.6 million in fiscal 2001 as a result of the fair market value adjustment
for our interest rate swap agreement.
The fair market value adjustment of these agreements will generally
fluctuate based on the implied forward interest rate curve for 3-month LIBOR. If
the implied forward interest rate curve decreases, the fair market value of the
interest hedge contract will increase and we will record an additional charge.
If the implied forward interest rate curve increases, the fair market value of
the interest hedge contract will decrease, and we will record income.
In March 2000, the Company issued a floating rate note with a principal
amount of $30,750,000. Embedded within the promissory note agreement is an
interest rate cap. The embedded interest rate cap limits the 1-month LIBOR
interest rate that we must pay on the note to 8.125%. At execution of the
promissory note, the strike rate of the embedded interest rate cap of 8.125% was
above the 1-month LIBOR rate of 6.61%. Under SFAS 133, the embedded interest
rate cap is considered to be clearly and closely related to the debt of the host
contract and is not required to be separated and accounted for separately from
the host contract. In fiscal 2001, we accounted for the hybrid contract,
comprised of the variable rate note and the embedded interest rate cap, as a
single debt instrument.
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.
<table>
<caption>
(In thousands)
Expected Fiscal Year Maturity Date 2003 2008
----------------------------------------------------------------------
Type of Interest Rate Contracts Interest Rate Cap Variable to Fixed
Variable to Fixed $30,750 $100,000
Fixed LIBOR rate N/A 6.24% (a)
LIBOR cap rate 8.125% N/A
Average floor rate N/A N/A
Weighted average forward LIBOR rate 4.85% 5.88%
Fair Market Value at June 30, 2001 $31 $(6,422)
<FN>
(a) - 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.
</FN>
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 25
Consolidated Balance Sheets as of June 30, 2001 and 2000 26
Consolidated Statements of Earnings for each of the Three Years Ended
June 30, 2001, 2000, and 1999 28
Consolidated Statements of Stockholders' Equity for each of the Three
Years Ended June 30, 2001, 2000, and 1999 30
Consolidated Statements of Cash Flows for each of the Three Years
Ended June 30, 2001, 2000, and 1999 31
Notes to Consolidated Financial Statements 32
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 Fairchild Corporation:
We have audited the accompanying consolidated balance sheets of The
Fairchild Corporation (a Delaware corporation) and subsidiaries as of June 30,
2001 and 2000, and the related consolidated statements of earnings,
stockholders' equity and cash flows for the three years in the period ended June
30, 2001. 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 accompanying consolidated
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 represented 11 percent of earnings from continuing
operations for the year ended June 30, 1999. 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
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, 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
subsidiaries as of June 30, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
2001, in conformity with accounting principles generally accepted in the United
States.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedules I and II in Item 14 of Part IV
of the Form 10-K is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Vienna, VA
September 7, 2001
<table>
<caption>
THE FAIRCHILD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS June 30, June 30,
------
2001 2000
-----------------------------------
CURRENT ASSETS:
Cash and cash equivalents, $1,184 and $14,287 restricted $ 14,951 $ 35,790
Short-term investments 3,105 9,054
Accounts receivable-trade, less allowances of $6,951 and $9,598 121,703 127,230
Inventories:
Finished goods 146,416 138,330
Work-in-process 30,813 30,523
Raw materials 11,758 11,006
-----------------------------------
188,987 179,859
-----------------------------------
Prepaid expenses and other current assets 62,163 53,311
-----------------------------------
Total Current Assets 390,909 407,244
-----------------------------------
Property, plant and equipment, net of accumulated
depreciation of $156,914 and $142,938 149,108 174,137
Net assets held for sale 17,999 20,112
Cost in excess of net assets acquired (Goodwill), less
accumulated amortization of $65,332 and $52,826 419,149 436,442
Investments and advances, affiliated companies 2,813 3,238
Prepaid pension assets 65,249 64,418
Deferred loan costs 12,916 14,714
Real estate investment 110,505 112,572
Long-term investments 7,779 10,084
Other assets 33,438 24,459
-----------------------------------
TOTAL ASSETS $ 1,209,865 $ 1,267,420
-----------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
THE FAIRCHILD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY June 30, June 30,
------------------------------------
2001 2000
-----------------------------------
CURRENT LIABILITIES:
Bank notes payable and current maturities of long-term debt $ 26,528 $ 28,594
Accounts payable 57,625 62,494
Accrued liabilities:
Salaries, wages and commissions 29,894 38,065
Employee benefit plan costs 6,421 5,608
Insurance 13,923 12,237
Interest 7,016 6,408
Other accrued liabilities 38,031 60,123
-----------------------------------
Total Current Liabilities 179,438 213,529
LONG-TERM LIABILITES:
Long-term debt, less current maturities 470,530 453,719
Fair market value of interest rate contract 6,422 -
Other long-term liabilities 25,729 26,741
Retiree health care liabilities 41,886 42,803
Noncurrent income taxes 124,007 128,515
-----------------------------------
TOTAL LIABILITIES 848,012 865,307
STOCKHOLDERS' EQUITY:
Class A common stock, $0.10 par value; authorized 40,000 shares, 30,335 (30,079
in 2000) shares issued and 22,528 (22,430 in 2000) shares
outstanding 3,034 3,008
Class B common stock, $0.10 par value; authorized 20,000
shares, 2,622 shares issued and outstanding 262 262
Paid-in capital 232,820 231,190
Treasury stock, at cost, 7,807 (7,649 in 2000) shares of Class A common stock (76,563) (75,506)
Retained earnings 246,788 261,788
Notes due from stockholders (1,768) (1,867)
Cumulative other comprehensive income (42,720) (16,762)
-----------------------------------
TOTAL STOCKHOLDERS' EQUITY 361,853 402,113
-----------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,209,865 $ 1,267,420
-----------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
THE FAIRCHILD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
For the Years ended June 30,
----------------------------------------------------
2001 2000 1999
----------------------------------------------------
REVENUE:
Net sales $ 622,812 $ 635,361 $617,322
Rental revenue 7,030 3,583 364
Other income, net 5,922 10,827 3,535
----------------------------------------------------
TOTAL REVENUES 635,764 649,771 621,221
COSTS AND EXPENSES:
Cost of goods sold 466,361 472,023 504,893
Cost of rental revenue 4,599 2,489 325
Selling, general & administrative 125,106 130,864 149,023
Amortization of goodwill 12,506 12,574 6,517
Impairment charges 5,889 - -
Restructuring - 8,578 6,374
----------------------------------------------------
Total costs and expenses 614,461 626,528 667,132
OPERATING INCOME (LOSS) 21,303 23,243 (45,911)
Interest expense 57,577 48,942 33,162
Interest income (1,861) (4,850) (2,816)
----------------------------------------------------
Net interest expense 55,716 44,092 30,346
Investment income 8,367 9,935 39,800
Decrease in fair market value of interest rate contract (5,610) - -
Nonrecurring gain - 28,625 -
----------------------------------------------------
Earnings (loss) from continuing operations before taxes (31,656) 17,711 (36,457)
Income tax benefit 16,546 4,399 13,245
Equity in earnings (loss) of affiliates, net 110 (346) 1,795
Minority interest, net - - (2,090)
----------------------------------------------------
Earnings (loss) from continuing operations (15,000) 21,764 (23,507)
Loss on disposal of discontinued operations, net - (12,006) (31,349)
Extraordinary items, net - - (4,153)
----------------------------------------------------
NET EARNINGS (LOSS) $ (15,000) $ 9,758 $(59,009)
----------------------------------------------------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (24,452) (10,098) (2,545)
Derivative financial instrument adjustments (478) - -
Unrealized periodic holding changes on securities (1,028) (3,961) (16,544)
----------------------------------------------------
Other comprehensive loss (25,958) (14,059) (19,089)
----------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ (40,958) $ (4,301) $(78,098)
----------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
THE FAIRCHILD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
For the Years ended June 30,
----------------------------------------------------
2001 2000 1999
----------------------------------------------------
BASIC EARNINGS PER SHARE:
Earnings (loss) from continuing operations $ (0.60) $ 0.87 $ (1.03)
Loss on disposal of discontinued operations, net - (0.48) (1.38)
Extraordinary items, net - - (0.18)
----------------------------------------------------
NET EARNINGS (LOSS) $ (0.60) $ 0.39 $ (2.59)
----------------------------------------------------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments $ (0.97) $ (0.40) $ (0.11)
Derivative financial instrument adjustments (0.02) - -
Unrealized periodic holding changes on securities (0.04) (0.16) (0.73)
----------------------------------------------------
Other comprehensive loss (1.03) (0.56) (0.84)
----------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ (1.63) $ (0.17) $ (3.43)
----------------------------------------------------
DILUTED EARNINGS PER SHARE:
Earnings (loss) from continuing operations $ (0.60) $ 0.87 $ (1.03)
Loss on disposal of discontinued operations, net - (0.48) (1.38)
Extraordinary items, net - - (0.18)
----------------------------------------------------
NET EARNINGS (LOSS) $ (0.60) $ 0.39 $ (2.59)
----------------------------------------------------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments $ (0.97) $ (0.40) $ (0.11)
Derivative financial instrument adjustments (0.02) - -
Unrealized periodic holding changes on securities (0.04) (0.16) (0.73)
----------------------------------------------------
Other comprehensive loss (1.03) (0.56) (0.84)
----------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ (1.63) $ (0.17) $ (3.43)
----------------------------------------------------
Weighted average shares outstanding:
Basic 25,122 24,954 22,766
----------------------------------------------------
Diluted 25,122 25,137 22,766
----------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
THE FAIRCHILD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
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, 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
Net loss - - - (15,000) - - - (15,000)
Cumulative translation adjustment - - - - - - (24,452) (24,452)
Proceeds received from stock options
exercised (374,016 shares) 26 - 1,403 - (1,057) - - 372
Compensation expense-stock options - - 227 - - - - 227
Net loans from stockholders - - - - - 99 - 99
Change in fair market value of
interest rate contract - - - - - - (478) (478)
Net unrealized holding loss on
available-for-sale securities - - - - - - (1,028) (1,028)
---------------------------------------------------------------------------------------------
Balance, June 30, 2001 $ 3,034 $ 262 $232,820 $246,788 $(76,563) $ (1,768) $ (42,720) $361,853
---------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
THE FAIRCHILD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Years Ended June 30,
----------------------------------------------
2001 2000 1999
----------------------------------------------
Cash flows from operating activities:
Net earnings (loss) $ (15,000) $ 9,758 $ (59,009)
Depreciation and amortization 43,732 41,821 25,657
Deferred loan fee amortization 1,871 1,200 1,100
Accretion of discount on long-term liabilities 7,864 66 5,270
Net gain on the disposition of subsidiaries - (28,625) -
Extraordinary items, net of cash payments - - 6,389
Provision for restructuring (excluding cash payments of $777 in 1999) - - 3,774
(Gain) loss on sale of property, plant, and equipment 4,159 (1,964) 400
(Undistributed) distributed earnings of affiliates, net (110) 372 3,433
Minority interest - - 2,090
Unrealized holding loss on derivatives 6,422 - -
Change in trading securities 667 - (1,254)
Change in accounts receivable 5,526 2,892 8,632
Change in inventories (9,128) (23,223) 14,727
Change in prepaid expenses and other current assets (16,673) (25,734) (22,365)
Change in prepaid expenses other non-current assets 2,758 (18,305) (26,741)
Change in accounts payable, accrued liabilities and other long-term (71,445) (11,979) 45,906
liabilities
Non-cash charges and working capital changes of discontinued operations - (13,351) 15,259
----------------------------------------------
Net cash provided by (used for) operating activities (39,537) (67,072) 23,268
Cash flows from investing activities:
Proceeds received from investment securities, net 16,447 14,655 189,379
Purchase of property, plant and equipment (16,384) (27,339) (30,142)
Proceeds from sale of plant, property and equipment 4,628 12,693 844
Equity investment in affiliates 477 (2,489) (7,678)
Net proceeds received from divestiture of investment in affiliate - 46,886 -
Acquisition of subsidiaries, net of cash acquired - - (274,427)
Net proceeds received from the sale of subsidiaries - 61,906 60,396
Net proceeds received from the sale of discontinued operations - 7,100 -
Change in real estate investment (2,566) (27,712) (40,351)
Changes in net assets held for sale 1,491 4,672 3,134
Investing activities of discontinued operations - - (312)
----------------------------------------------
Net cash provided by (used for) investing activities 4,093 90,372 (99,157)
Cash flows from financing activities:
Proceeds from issuance of debt 168,161 206,874 483,222
Debt repayments and repurchase of debentures (153,416) (246,260) (380,083)
Issuance of Class A common stock 593 368 181
Purchase of treasury stock - (488) (22,102)
Loans to stockholders 99 (1,867) -
----------------------------------------------
Net cash provided by (used for) financing activities 15,437 (41,373) 81,218
Effect of exchange rate changes on cash (832) (997) (70)
----------------------------------------------
Net change in cash and cash equivalents (20,839) (19,070) 5,259
Cash and cash equivalents, beginning of the year 35,790 54,860 49,601
----------------------------------------------
Cash and cash equivalents, end of the year $ 14,951 $ 35,790 $ 54,860
----------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
THE FAIRCHILD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and 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 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 we held a significant equity
interest in Nacanco Paketleme. Our financial statements present the results of
our former Technologies segment as discontinued operations.
Fiscal Year: Our fiscal year ends June 30. All references herein to "2001",
"2000", and "1999" mean the fiscal years ended June 30, 2001, 2000 and 1999,
respectively.
Consolidation Policy: The accompanying consolidated financial statements
are prepared in accordance with accounting principles generally accepted in the
United States and include our accounts and all of the accounts of our
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, as 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:
2001 2000 1999
----------------------------------------
Interest $50,471 $54,535 $29,200
Income Taxes 388 (15,076) (21,304)
Restricted Cash: On June 30, 2001 and 2000, we had restricted cash of
$1,184 and $14,287, 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 two 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 $3,506 and $3,920 higher
at June 30, 2001 and 2000, respectively. Inventories from continuing operations
are valued as follows:
June 30, June 30,
2001 2000
-------------------------------
First-in, first-out (FIFO) $ 156,375 $ 141,094
Last-in, first-out (LIFO) 32,612 38,765
-------------------------------
Total inventories $ 188,987 $ 179,859
-------------------------------
Properties and Depreciation: The cost of property, plant and equipment is
depreciated over the 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. Our machinery and
equipment is depreciated over 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,
2001 2000
-------------------------------
Land $ 13,035 $ 13,170
Building and improvements 45,282 48,844
Machinery and equipment 221,566 223,059
Transportation vehicles 1,085 1,124
Furniture and fixtures 19,805 20,181
Construction in progress 5,249 10,697
-------------------------------
Property, plant and equipment at cost 306,022 317,075
Less: Accumulated depreciation 156,914 142,938
-------------------------------
Net property, plant and equipment $ 149,108 $ 174,137
-------------------------------
Net Assets Held for Sale: Net assets held for sale are stated at the lower
of cost or at estimated net realizable value, which considers anticipated sales
proceeds. Interest is not allocated to net assets held for sale. Net assets held
for sale at June 30, 2001, includes 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.
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. See the
discussion of recently issued accounting pronouncements at the end of this note.
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 2001, 2000,
and 1999, amortization expense for these loan costs was $1,870, $1,338, and
$1,100, respectively.
Impairment of Long-Lived Assets: We review our long-lived assets for
impairment, 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 estimated fair value. An impairment charge of $5.9 million
was recorded in 2001. The impairment charge included $2.4 million due to the
closing of a small subsidiary at our aerospace distribution segment, of which
$1.7 million represented the write-off of goodwill, and $0.4 million represented
severance payments. The impairment charge also included a write-off of
approximately $2.3 million of improvements at our shopping center, and a $1.1
million for the write-off of leasehold improvements from the relocation of our
domestic distribution facility in our aerospace fasteners segment.
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 2001, 2000 and 1999.
Research and Development: Company-sponsored research and development
expenditures are expensed as incurred and were insignificant in fiscal 2001,
2000 and 1999.
Capitalization of interest and taxes: We capitalize interest expense and
property taxes relating to certain real estate property being developed in
Farmingdale, New York. Capitalized interest is added to the cost of the
underlying assets and is amortized over the useful lives of the assets. Interest
of $386, $5,792 and $4,671 was capitalized in 2001, 2000 and 1999, 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.
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 12.
Fair Value of Financial Instruments: The carrying amount reported in the
balance sheet approximates the fair value for our cash and cash equivalents,
investments, specified hedging agreements, 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 other off-balance-sheet instruments (letters of credit,
commitments to extend credit, and lease guarantees) are based on fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the counter parties' credit standing. 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, 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 2001 presentation.
Recently Issued Accounting Pronouncements: In June 2001, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 141, "Accounting for Business Combinations." This statement requires the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001, and establishes specific criteria for the recognition of
intangible assets separately from goodwill. We will follow the requirements of
this statement for business acquisitions made after June 30, 2001.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, "Accounting for Goodwill and Other
Intangible Assets." This statement requires that goodwill and intangible assets
deemed to have an indefinite life not be amortized. Instead of amortizing
goodwill and intangible assets deemed to have an indefinite life, the statement
requires a test for impairment to be performed annually, or immediately if
conditions indicate that such an impairment could exist. The amortization period
of intangible assets with finite lives will no longer be limited to forty years.
This statement is effective for fiscal years beginning after December 15, 2001,
and permits early adoption for fiscal years beginning after March 15, 2001. We
will adopt SFAS No. 142 on July 1, 2001. As a result of adopting SFAS No. 142,
we will stop amortizing goodwill of approximately $12.5 million per year. Due to
the fair value measurement requirement, rather than the undiscounted cash flows
approach, we may have to record a material impairment from the implementation of
SFAS No. 142. We are continuing to evaluate the impact of adopting this
standard.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations". This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
associated asset retirement costs. It applies to legal obligations associated
with the retirement of long-lived assets that result from the acquisition,
construction, development, and normal operation of a long-lived asset, except
for certain obligations of leases. This statement is effective for fiscal years
beginning after June 15, 2002. We are currently evaluating the impact of
adopting this standard.
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.
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.
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.
3. DISCONTINUED OPERATIONS
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 1999 (a) 2000 (b) 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
-----------------------------------------------------
<FN>
(a) 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.
(b) 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.
</FN>
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 from Suess Microtec AG $7.9 million 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 stockholders of the
shares of Fairchild (Bermuda) Ltd. On April 14, 2000, Fairchild (Bermuda) sold
to Convac Technologies Ltd. the Optical Disc Equipment Group business formerly
owned by Fairchild Technologies. Subsequently, on April 14, 2000, Fairchild
(Bermuda), renamed Global Sources Ltd., completed an exchange of approximately
95% of its shares for 100% of the shares of Trade Media Holdings Limited, an
Asian based, business-to-business online and traditional marketplace services
provider. Immediately after the share exchange, our stockholders owned 1,183,081
shares of the 26,152,308 issued shares of Global Sources. Global Sources shares
are listed on the NASDAQ under the symbol "GSOL". This transaction allowed us to
complete our formal plan to dispose of Fairchild Technologies and provided our
shareholders with a unique opportunity to participate in a new public entity.
Fairchild Technologies reported sales of $8,087 and $21,900 in 2000 and
1999, respectively.
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), and our dispositions of Dallas Aerospace (December 1999), Camloc Gas
Springs (September 1999), Solair (December 1998), and the investment in Nacanco
Paketleme (July 1999), 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
--------------------------------
Sales $612,928 $680,396
Operating income (a) 21,179 28,172
Earnings (loss) from continuing operations (a, b) 2,358 (967)
Basic earnings (loss) from continuing operations per share 0.09 (0.04)
Diluted earnings (loss) from continuing operations per share 0.09 (0.04)
Net earnings (loss) (9,648) (36,469)
Basic earnings (loss) per share (0.39) (1.60)
Diluted earnings (loss) per share (0.38) (1.60)
<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 of
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, 2001 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, 2001 June 30, 2000
-------------------------- --------------------------
Aggregate Aggregate
Fair Cost Fair Cost
Short-term investments: Value Basis Value Basis
-----------------------
-------------------------- ---------------------------
Trading securities - equity $ 2,175 $ 2,875 $ 2,715 $ 2,926
Available-for-sale equity securities 875 912 6,284 5,400
Other investments 55 55 55 55
-------------------------- ---------------------------
$ 3,105 $ 3,842 $ 9,054 $ 8,381
-------------------------- ---------------------------
Long-term investments:
Available-for-sale equity securities $ 2,204 $ 3,622 $ 3,828 $ 5,436
Other investments 5,575 5,575 6,256 6,256
-------------------------- ---------------------------
$ 7,779 $ 9,197 $ 10,084 $ 11,692
-------------------------- ---------------------------
On June 30, 2001, we had gross unrealized holding gains from
available-for-sale securities of $223 and gross unrealized holding losses from
available-for-sale securities of $1,678. Investment income is summarized as
follows:
2001 2000 1999
----------------------------------------
Gross realized gain from sales $ 10,732 $ 15,102 $ 36,677
Change in unrealized holding gain (loss) from trading securities (668) 578 33
Gross realized loss from impairments (2,376) (6,473) -
Dividend income 679 728 3,090
----------------------------------------
$ 8,367 $ 9,935 $ 39,800
----------------------------------------
6. INVESTMENTS AND ADVANCES, AFFILIATED COMPANIES
Our share of equity in earnings, net of tax, of all unconsolidated
affiliates for 2001, 2000 and 1999 was $110, $(346), and $1,795, respectively.
The carrying value of investments and advances, affiliated companies was $2,813
and $3,238 at June 30, 2001 and 2000, respectively.
On June 30, 2001, approximately $(1,085) of our $246,788 consolidated
retained earnings were from undistributed losses of 50 percent or less currently
owned affiliates accounted for using the equity method.
On June 30, 1999, we owned approximately 31.9% of Nacanco Paketleme common
stock. We recorded equity earnings of $4,153 from this investment in 1999. 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
----------------
Net sales $ 75,495
Gross profit 25,297
Earnings from continuing operations 13,119
Net earnings 13,119
7. NOTES PAYABLE AND LONG-TERM DEBT
At June 30, 2001 and 2000, notes payable and long-term debt consisted of
the following:
June 30, 2001 June 30, 2000
-----------------------------------
Short-term notes payable (weighted average interest rates of 4.75% $ 22,272 $ 23,069
and 4.5% in 2001 and 2000, respectively)
-----------------------------------
Bank credit agreements $ 239,041 $ 218,691
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 7.61% to 10.1% 638 2,146
Other notes payable, collateralized by property, plant and
equipment, interest from 3.0% to 10.5% 8,607 11,907
-----------------------------------
474,786 459,244
Less: Current maturities (4,256) (5,525)
-----------------------------------
Net long-term debt $ 470,530 $ 453,719
-----------------------------------
Credit Agreements
We maintain credit facilities with a consortium of banks, providing us with
a term loan and revolving credit facilities. On June 30, 2001, 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. Our most restrictive covenant is the
interest coverage ratio, which represents the ratio of EBITDA to interest
expense, as defined in the credit agreement. At June 30, 2001, the interest
coverage ratio was 2.05, which exceeded the minimum requirement of 2.0.
Additionally, the credit agreement restricts annual capital expenditures to $40
million 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 $0.4 million
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 may 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, 2001, we were in full compliance with
all the covenants under the credit agreement.
At June 30, 2001, we had borrowings outstanding of $64,600 under the
revolving credit facilities and we had letters of credit outstanding of $15,492,
which were supported by a sub-facility under the revolving credit facilities. At
June 30, 2001, we had unused bank lines of credit aggregating $19,908, at
interest rates slightly higher than the prime rate. We also had short-term lines
of credit relating to foreign operations, aggregating $18,384, against which we
owed $10,679 at June 30, 2001.
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
developed 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 3.1%.
Senior Subordinated Notes
On April 20, 1999, we issued, at par value, $225,000 of 10 3/4% senior
subordinated notes that mature on April 15, 2009. We pay interest on these notes
semi-annually on April 15th and October 15th 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, 2001, are as follows: $26,139 for 2002, $34,485 for 2003,
$3,065 for 2004, $44,743 for 2005 and $2,626 for 2006.
8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes a new model for accounting for derivatives and hedging activities
and supersedes and amends a number of existing accounting standards. It requires
that all derivatives be recognized as assets and liabilities on the balance
sheet and measured at fair value. The corresponding derivative gains or losses
are reported based on the hedge relationship that exists, if any. Changes in the
fair value of derivative instruments that are not designated as hedges or that
do not meet the hedge accounting criteria in SFAS 133, are required to be
reported in earnings. Most of the general qualifying criteria for hedge
accounting under SFAS 133 were derived from, and are similar to, the existing
qualifying criteria in SFAS 80 "Accounting for Futures Contracts." SFAS 133
describes three primary types of hedge relationships: fair value hedge, cash
flow hedge, and foreign currency hedge. In June 1999, the FASB issued Statement
of Financial Accounting Standards No. 137 to defer the required effective date
of implementing SFAS 133 from fiscal years beginning after June 15, 1999 to
fiscal years beginning after June 15, 2000.
In fiscal 1998, we entered into a ten-year interest rate swap agreement to
reduce our cash flow exposure to increases in interest rates on variable rate
debt. The ten-year interest rate swap agreement provides us with interest rate
protection on $100 million 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 that we entered into the interest swap agreement, 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.
We adopted SFAS 133 on July 1, 2000. At adoption, we recorded within other
comprehensive income, a decrease of $0.5 million in the fair market value of our
$100 million interest rate swap agreement. The $0.5 million decrease will be
amortized over the remaining life of the interest rate swap agreement using the
effective interest method. The offsetting interest rate swap liability is
separately being reported as a "fair market value of interest rate contract"
within other long-term liabilities. In the statement of earnings, we have
recorded the net swap interest accrual as part of interest expense. Unrealized
changes in the fair value of the swap are recorded net of the current interest
accrual on a separate line entitled "decrease in fair market value of interest
rate derivatives."
We did not elect to pursue hedge accounting for the interest rate swap
agreement, which was executed to provide an economic hedge against cash flow
variability on the floating rate note. When evaluating the impact of SFAS No.
133 on this hedge relationship, we assessed the key characteristics of the
interest rate swap agreement and the note. Based on this assessment, we
determined that the hedging relationship would not be highly effective. The
ineffectiveness is caused by the existence of the embedded written call option
in the interest rate swap agreement, and the absence of a mirror option in the
hedged item. As such, pursuant to SFAS No. 133, we designated the interest rate
swap agreement in the no hedging designation category. Accordingly, we have
recognized a non-cash decrease in fair market value of interest rate derivatives
of $5.6 million in 2001, as a result of the fair market value adjustment for our
interest rate swap agreement.
The fair market value adjustment of these agreements will generally
fluctuate based on the implied forward interest rate curve for the 3-month
LIBOR. If the implied forward interest rate curve decreases, the fair market
value of the interest hedge contract will increase and we will record an
additional charge. If the implied forward interest rate curve increases, the
fair market value of the interest hedge contract will decrease, and we will
record income.
In March 2000, the Company issued a floating rate note with a principal
amount of $30,750,000. Embedded within the promissory note agreement is an
interest rate cap. The embedded interest rate cap limits the 1-month LIBOR
interest rate that we must pay on the note to 8.125%. At execution of the
promissory note, the strike rate of the embedded interest rate cap of 8.125% was
above the 1-month LIBOR rate of 6.61%. Under SFAS 133, the embedded interest
rate cap is considered to be clearly and closely related to the debt of the host
contract and is not required to be separated and accounted for separately from
the host contract. In fiscal 2001, we accounted for the hybrid contract,
comprised of the variable rate note and the embedded interest rate cap, as a
single debt instrument.
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
----------------------------------------------------------------------
Type of Interest Rate Contracts Interest Rate Cap Variable to Fixed
Variable to Fixed $30,750 $100,000
Fixed LIBOR rate N/A 6.24% (a)
LIBOR cap rate 8.125% N/A
Average floor rate N/A N/A
Weighted average forward LIBOR rate 4.85% 5.88%
Fair Market Value at June 30, 2001 $31 $(6,422)
<FN>
(a) - 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.
</FN>
9. 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:
2001 2000
---------------------------
Projected benefit obligation at July 1, $ 199,021 $ 207,331
Service cost 5,729 5,122
Interest cost 15,403 15,214
Actuarial gains (losses) 7,248 (12,593)
Benefit payments (17,376) (19,239)
Plan amendment 71 3,190
Foreign currency translation (0) (4)
Plan wind-up (537) 0
---------------------------
Projected benefit obligation at June 30, $ 209,559 $ 199,021
---------------------------
The changes in the fair values of the pension plans' assets were as follows:
2001 2000
---------------------------
Plan assets at July 1, $ 247,768 $ 257,662
Actual return on plan assets 14,471 10,767
Administrative expenses (1,201) (1,413)
Benefit payments (17,376) (19,239)
Foreign currency translation (0) (9)
Plan wind-up (1,341) 0
---------------------------
Plan assets at June 30, $ 242,321 $ 247,768
---------------------------
The following table sets forth the funded status and amounts recognized in
our consolidated balance sheets at June 30, 2001 and 2000, for the plans:
June 30, 2001 June 30, 2000
----------------------------
Plan assets in excess of projected benefit obligations $ 32,762 $ 48,747
Unrecognized net loss 29,392 12,319
Unrecognized prior service cost 3,095 3,534
Unrecognized transition (asset) 0 (182)
----------------------------
Prepaid pension expense recognized in the balance sheet $ 65,249 $ 64,418
----------------------------
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:
2001 2000 1999
----------------------------------------
Service cost - benefits earned during the period $ 5,729 $ 5,122 $ 3,454
Interest cost on projected benefit obligation 15,403 15,214 14,328
Expected return on plan assets (22,816) (22,360) (21,694)
Amortization of net loss 37 1,306 1,813
Amortization of prior service cost (credit) 510 290 (184)
Amortization of transition (asset) (9) (37) (36)
----------------------------------------
Net periodic pension (income) $ (1,146) $ (465) $ (2,319)
----------------------------------------
Weighted average assumptions used in accounting for the defined benefit
pension plans as of June 30, 2001 and 2000 were as follows:
2001 2000
---------------------------
Discount rate 7.25% 8.0%
Expected rate of increase in salaries 4.0% 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 $4,496 and $3,127 at June 30, 2001 and 2000, 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
$1,262, $1,065, and $951 for 2001, 2000, and 1999, respectively. Our accrual was
approximately $31,302 and $32,345 as of June 30, 2001 and 2000, 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 $3,612, $3,484, and $3,902 for the years ended June
30, 2001, 2000 and 1999, respectively.
The changes in the accumulated postretirement benefit obligation of the
plans were as follows:
2001 2000
-----------------------------
Accumulated postretirement benefit obligation at July 1, $ 50,558 $ 55,027
Service cost 347 302
Interest cost 4,062 3,733
Actuarial gains 8,988 (3,290)
Benefit payments (5,734) (5,198)
Acquisitions/Divestitures 0 (16)
-----------------------------
Accumulated postretirement benefit obligation at June 30, $ 58,221 $ 50,558
-----------------------------
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, 2001 and 2000, for the
plans:
2001 2000
-----------------------------
Accumulated postretirement benefit obligation $ 58,221 $ 50,558
Unrecognized prior service credit 728 797
Unrecognized net loss (17,414) (8,960)
-----------------------------
Accrued postretirement benefit liability $ 41,535 $ 42,395
-----------------------------
The accumulated postretirement benefit obligation was determined using a
discount rate of 7.25% at June 30, 2001 and 8.0% at June 30, 2000. The effect of
such change resulted in an increase to the accumulated postretirement benefit
obligation in fiscal 2001. For measurement purposes, a 6.0% annual rate of
increase in the per capita claims cost of covered health care benefits was
assumed for fiscal 2001. The rate was assumed to decrease to 5.50% in fiscal
2002 and 5.00% for fiscal 2003 and remain at that level thereafter.
A summary of the components of total postretirement expense is as follows:
2001 2000 1999
---------------------------------------
Service cost - benefits earned during the period $ 347 $ 302 $ 227
Interest cost on accumulated postretirement benefit obligation 4,062 3,733 3,860
Amortization of prior service credit (69) (69) (69)
Amortization of net loss 534 583 835
---------------------------------------
Net periodic postretirement benefit cost $ 4,874 $ 4,549 $ 4,853
---------------------------------------
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, 2001:
One Percentage-Point
Increase Decrease
----------------------------------
Effect on service and interest components of net periodic cost $ 113 $ (106)
Effect on accumulated postretirement benefit obligation 1,481 (1,364)
10. INCOME TAXES
The provision (benefit) for income taxes from continuing operations is
summarized as follows:
2001 2000 1999
---------------------------------------------
Current:
Federal $(11,952) $(11,234) $ 3,416
State 345 427 140
Foreign (513) 2,893 3,994
---------------------------------------------
(12,120) (7,914) 7,550
Deferred:
Federal (3,670) 5,508 (10,731)
State (756) (1,993) (10,064)
---------------------------------------------
(4,426) 3,515 (20,795)
---------------------------------------------
Net tax provision (benefit) $ (16,546) $ (4,399) $(13,245)
---------------------------------------------
The income tax provision (benefit) for continuing operations differs from
that computed using the statutory Federal income tax rate of 35%, in fiscal
2001, 2000, and 1999, for the following reasons:
2001 2000 1999
----------------------------------------------
Computed statutory amount $ (11,080) $ 6,199 $ (12,760)
State income taxes, net of applicable federal tax benefit 2,329 (654) 2,488
Nondeductible acquisition valuation items 3,374 4,002 1,903
Tax on foreign earnings, net of tax credits (7,149) (5,030) (2,392)
Difference between book and tax basis of assets acquired and
liabilities assumed 0 (1,491) (53)
Revision of estimate for tax accruals (3,500) (7,800) (1,790)
Other (520) 375 (641)
----------------------------------------------
Net tax provision (benefit) $ (16,546) $(4,399) $ (13,245)
----------------------------------------------
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:
2001 2000 1999
Deferred Deferred Deferred
June 30, (Provision) June 30, (Provision) (Provision)
2001 Benefit 2000 Benefit Benefit
----------------------------------------------------------------------------
Deferred tax assets:
Accrued expenses $ 6,160 $ (89) $ 6,249 $ (7,910) $ 11,572
Asset basis differences (6,006) (15,390) 9,384 562 710
Inventory 10,924 5,789 5,135 (5,982) 11,117
Employee compensation and benefits 13,449 (3,573) 17,022 3,435 8,501
Environmental reserves 4,765 27 4,738 763 509
Loss and credit carryforward 1 (7,034) 7,035 7,035 0
Postretirement benefits 12,286 286 12,000 (4,428) (1,706)
Other 4,491 2,257 2,234 (2,405) (7,465)
----------------------------------------------------------------------------
46,070 (17,727) 63,797 (8,930) 23,238
Deferred tax liabilities:
Asset basis differences (61,154) 18,884 (80,038) 4,348 (3,954)
Inventory 0 0 0 0 1,546
Pensions (19,819) (501) (19,318) 296 (428)
Other (778) 3,770 (4,548) 771 393
----------------------------------------------------------------------------
(81,751) 22,153 (103,904) 5,415 (2,443)
----------------------------------------------------------------------------
Net deferred tax liability $(35,681) $ 4,426 $ (40,107) $ (3,515) $ 20,795
----------------------------------------------------------------------------
The amounts included in the balance sheet are as follows:
June 30, June 30,
2001 2000
------------------------------
Prepaid expenses and other current assets:
Current deferred $ 4,367 $ 8,286
------------------------------
Other Assets:
Noncurrent deferred $ 28,710 $ 18,920
------------------------------
Noncurrent income tax liabilities:
Noncurrent deferred $ 68,647 $ 67,313
Other noncurrent 55,360 61,202
------------------------------
$124,007 $128,515
------------------------------
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 $3,500,
$7,800, and $1,790 in 2001, 2000, and 1999, 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, 2001, 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.
11. EQUITY SECURITIES
We had 22,527,801 shares of Class A common stock and 2,621,502 shares of
Class B common stock outstanding at June 30, 2001. 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, 2001, 82,966 and
14,963 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, and
shareholders converted 150 shares of Class B common stock into Class A common
stock.
During fiscal 2001, we issued 132,394 deferred compensation units pursuant
to our stock option deferral plan, as a result of the exercise of 291,050 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.
12. 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 "mature" 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, 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.
At the Annual Shareholders meeting held in November 2000, the shareholders
approved the 2000 non-employee directors stock option plan, pursuant to which
each non-employee director was issued stock options for 7,500 shares (52,500
shares in the aggregate) immediately after the 2000 Annual Meeting.
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, 1998 1,654,781 $ 7.46
Granted 338,000 14.36
Plans assumed 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
Granted 353,906 6.38
Exercised (374,016) 3.67
Expired (222,719) 8.06
Forfeited (300,400) 17.53
-----------------------------------
Outstanding at June 30, 2001 1,923,342 $ 11.92
-----------------------------------
Exercisable at June 30, 1999 1,867,081 $ 8.75
Exercisable at June 30, 2000 1,793,459 $ 10.57
Exercisable at June 30, 2001 1,291,911 $ 12.97
A summary of options outstanding at June 30, 2001 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
--------------------- ------------------------------------------------------- ----------------------------------
$ 6.00 - $ 8.63 585,760 $ 6.40 2.9 years 205,479 $ 6.28
$ 8.72 - $13.48 457,987 9.48 2.7 years 371,737 9.41
$13.63 - $16.25 685,595 14.67 1.6 years 569,195 14.72
$18.56 - $25.07 194,000 24.69 1.2 years 145,500 24.69
--------------------- ------------------------------------------------------- ----------------------------------
$ 6.00 - $25.07 1,923,342 $ 11.92 2.3 years 1,291,911 $ 12.97
--------------------- ------------------------------------------------------- ----------------------------------
The weighted average grant date fair value of options granted during 2001,
2000 and 1999 was $3.13, $4.16, and $6.48, 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:
2001 2000 1999
----------------------------------------------------------
Risk-free interest rate 5.3% - 6.3% 5.9% - 6.8% 4.3% - 5.4%
Expected life in years 4.31 4.66 4.66
Expected volatility 52% - 53% 45% - 47% 45% - 46%
Expected dividends None None None
We recognized compensation expense of $13 from stock options issued to a
consultant in 2001. 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 2001, 2000 or 1999. If stock
options granted in 2001, 2000 and 1999 were accounted for based on their fair
value as determined under SFAS 123, pro forma earnings would be as follows:
2001 2000 1999
----------------------------------------------
Net earnings (loss):
As reported $ (15,000) $ 9,758 $ (59,009)
Pro forma (16,923) 8,096 (60,682)
Basic earnings (loss) per share:
As reported $ (0.60) $ 0.39 $ (2.59)
Pro forma (0.67) 0.32 (2.66)
Diluted earnings (loss) per share:
As reported $ (0.60) $ 0.39 $ (2.59)
Pro forma (0.67) 0.32 (2.66)
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 payment of the warrant price may be
made in cash or in "mature" shares of our Class A or Class B common stock,
valued at fair market value at the time of exercise, or combination thereof. The
warrant expires on March 13, 2002.
During fiscal 2001, we issued warrants to purchase 25,000 shares of Class A
common stock, at $9.34 per share, to a non-employee for services provided. The
warrants issued are immediately exercisable and will expire on November 8, 2001.
We recorded expense of $13 from the issuance of these warrants.
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 expired on November 8, 2000.
13. EARNINGS PER SHARE
The following table illustrates the computation of basic and diluted earnings
(loss) per share:
2001 2000 1999
----------------------------------------------
Basic earnings per share:
Earnings (loss) from continuing operations $ (15,000) $ 21,764 $ (23,507)
----------------------------------------------
Weighted average common shares outstanding 25,122 24,954 22,766
----------------------------------------------
Basic earnings per share:
Basic earnings (loss) from continuing operations per share $ (0.60) $ 0.87 $ (1.03)
----------------------------------------------
Diluted earnings per share:
Earnings (loss) from continuing operations $ (15,000) $ 21,764 $ (23,507)
----------------------------------------------
Weighted average common shares outstanding 24,954
25,122 22,766
Diluted effect of options antidilutive 97 antidilutive
Diluted effect of warrants antidilutive 86 antidilutive
----------------------------------------------
Total shares outstanding 25,122 25,137 22,766
----------------------------------------------
Diluted earnings (loss) from continuing operations per share $ (0.60) $ 0.87 $ (1.03)
----------------------------------------------
The computation of diluted loss from continuing operations per share for
2001 and 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 in 2000 and 1999.
14. 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. $3,932 for severance benefits, $1,334 for product
integration costs incurred as of June 30, 1999, and $260 for the write down of
fixed assets. 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 2000 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.
15. 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 indebtedness in connection with our refinanced credit
facilities.
16. 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, 2001, the indebtedness owed to us from Mr.
Flynn, Mr. Juris, Mr. Persavich, and Mr. J. Steiner, was approximately $175
each. On June 30, 2001, Mr. Gerard, Ms. Hercot, Mr. Kelley, Mr. Miller and Mr.
E. Steiner owed us approximately $99, $167, $50, $220 and $220, respectively.
On June 30, 2001, 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,
2001, 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 $22 and $443 in 2001
and 2000, respectively, 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 had non-interest bearing indebtedness owed
to us of $200. During fiscal 2001, the loan was repaid.
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 was repaid. During fiscal 2001 the balance due and accrued interest
was paid in full.
17. 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, 2001,
are as follows: $8,061 for 2002, $6,939 for 2003, $5,571 for 2004, $4,304 for
2005, and $2,576 for 2006. Rental expense on operating leases from continuing
operations for fiscal 2001, 2000, and 1999 was $12,445, $11,280 and $9,485,
respectively.
Capital Leases
Minimum commitments under capital leases for each of the five years
following June 30, 2001, are $428 for 2002, $233 for 2003, $43 for 2004, $0 for
2005, and $0 for 2006, respectively. At June 30, 2001, the present value of
capital lease obligations was $639. At June 30, 2001, capital assets leased and
included in property, plant, and equipment consisted of:
Land $ 70
Buildings and improvements 378
Machinery and equipment 1,920
Furniture and fixtures 17
Less: Accumulated depreciation (1,993)
--------------
$ 392
--------------
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 non-cancelable
operating leases on June 30, 2001 were $5,434 in 2002, $5,434 in 2003, $5,434 in
2004, $5,363 in 2005, $5,303 in 2006, and $41,654 thereafter. Rental property
under operating leases consists of the following as of June 30, 2001:
Land and improvements $21,818
Buildings and improvements 55,412
Tenant improvements 9,445
Less: Accumulated depreciation (3,262)
--------------
$83,413
--------------
18. CONTINGENCIES
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, 2001, the consolidated total of our recorded liabilities for
environmental matters was approximately $14.2 million, which represented the
estimated probable exposure for these matters. It is reasonably possible that
our total exposure for these matters could be approximately $18.4 million.
Other Matters
AlliedSignal (now Honeywell International) had asserted indemnification
claims against us in an aggregate amount of $38.8 million, arising from the
disposition of Banner Aerospace's hardware business to AlliedSignal. We claimed
that AlliedSignal owed us approximately $6.8 million. In October 2000, we
reached an agreement with AlliedSignal to settle these claims and as a result of
the settlement no cash changed hands.
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.
19. BUSINESS SEGMENT INFORMATION
We report in three 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
real estate segment leases space to tenants at completed sections of a shopping
center we are developing in Farmingdale, New York. The corporate segment
includes the Gas Springs division prior to its disposition and corporate
activities. Our financial data by business segment is as follows:
Aerospace Aerospace Real Estate
Fasteners (d) Distribution Operations Corporate Total
-------------------------------------------------------------------------------
Fiscal 2001:
Sales $ 536,904 $ 85,908 $ - $ - $ 622,812
Operating income (loss) (a) (b) 37,008 2,499 (138) (18,066) 21,303
Capital expenditures 15,261 751 - 372 16,384
Depreciation and amortization 39,090 900 2,268 1,474 43,732
Identifiable assets at June 30 579,981 46,718 116,250 466,916 1,209,865
Fiscal 2000:
Sales $ 533,620 $ 101,002 $ - $ 739 $ 635,361
Operating income (loss) (a) (c) 33,909 7,758 1,033 (19,457) 23,243
Capital expenditures 26,367 630 - 342 27,339
Depreciation and amortization 38,025 976 894 1,926 41,821
Identifiable assets at June 30 599,139 54,784 122,148 491,349 1,267,420
Fiscal 1999:
Sales $ 442,722 $ 168,336 $ - $ 6,264 $ 617,322
Operating income (loss) (a) (c) 38,956 (40,003) 17 (44,881) (45,911)
Capital expenditures 27,414 1,951 - 777 30,142
Depreciation and amortization 22,459 1,871 - 1,327 25,657
Identifiable assets at June 30 619,316 133,115 83,806 492,549 1,328,786
<FN>
(a) Includes rental revenue by our real estate operations segment of $7.0
million, $3.6 million and $0.4 million in fiscal 2001, 2000 and 1999,
respectively.
(b) Fiscal 2001 results Include one-time impairment expenses of $1.1 million in
the aerospace fasteners segment, $2.4 million in the aerospace distribution
segment, and $2.5 million in the real estate segment.
(c) Fiscal 2000 results include restructuring charges of $8.6 million in the
aerospace fasteners segment. Fiscal 1999 results include inventory
impairment charges of $41.5 million in the aerospace distribution segment,
costs relating to acquisitions of $23.6 million, and restructuring charges
of $5.5 million in the aerospace fasteners segment, $0.3 million in the
aerospace distribution segment, and $0.5 million at corporate.
(d) Sales from our aerospace fasteners segment included $99.0 million to Boeing
in fiscal 2001, representing 16% of our consolidated sales. Sales to Boeing
were below10% of our consolidated sales in fiscal 2000 and 1999,
respectively.
</FN>
20. FOREIGN OPERATIONS AND EXPORT SALES
Our operations are located primarily in the United States and Europe. All
rental revenue is generated in the United States. 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:
United
States Europe Australia Other Total
------------------------------------------------------------------------
Fiscal 2001:
Sales by geographic area $465,490 $154,339 $ 2,260 $ 723 $622,812
Operating income (loss) by geographic area (4,402) 24,377 1,329 (1) 21,303
Identifiable assets by geographic area at June 30 1,032,593 168,729 7,678 865 1,209,865
Long-lived assets by geographic area at June 30 318,196 38,458 1,515 12 358,181
Fiscal 2000:
Sales by geographic area $470,984 $160,954 $ 2,762 $ 661 $635,361
Operating income (loss) by geographic area (1,440) 24,382 380 (79) 23,243
Identifiable assets by geographic area at June 30 1,013,100 244,106 9,399 815 1,267,420
Long-lived assets by geographic area at June 30 343,151 43,094 2,016 1,839 390,100
Fiscal 1999:
Sales by geographic area $440,447 $176,315 $ 417 $ 143 $617,322
Operating income (loss) by geographic area (66,245) 19,989 331 14 (45,911)
Identifiable assets by geographic area at June 30 1,011,993 306,156 10,176 461 1,328,786
Long-lived assets by geographic area at June 30 353,006 47,411 2,695 2,635 405,747
Export sales are defined as sales by our operations located in the United
States to customers in foreign regions. Export sales were as follows:
Asia South
Europe Canada Japan (without Japan) America Other Total
--------------------------------------------------------------------------------------------------------
Fiscal 2001 $ 87,303 $ 14,738 $ 8,502 $ 3,285 $ 1,911 $ 4,181 $119,920
Fiscal 2000 42,831 16,621 8,568 3,031 1,146 4,947 77,144
Fiscal 1999 42,891 12,460 14,147 6,337 3,556 14,694 94,085
21. 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 2001 quarters ended Oct. 1 Dec. 31 April 1 June 30
------------------------------------------------------------
Net sales $148,367 $148,100 $162,358 $163,987
Gross profit 34,776 39,055 42,487 40,133
Net earnings (loss) (5,445) (6,639) (3,492) 576
per basic share (0.22) (0.26) (0.14) 0.02
per diluted share (0.22) (0.26) (0.14) 0.02
Market price range of Class A Stock:
High 7.50 7.00 6.64 7.74
Low 4.69 4.63 4.91 4.33
Close 6.44 5.50 4.92 7.01
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
Loss on disposal of discontinued operations includes losses of $12,006 in
the fourth quarter of fiscal 2000, resulting from the disposal of Fairchild
Technologies.
22. 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, 2001
Parent Non Fairchild
Company Guarantors Guarantors Eliminations Historical
------------- ------------ ------------- --------------- -------------
Net Sales $ - $ 474,653 $ 160,894 $ (12,735) $ 622,812
Costs and expenses
Cost of sales - 365,506 113,590 (12,735) 466,361
Selling, general & administrative 6,559 94,522 21,561 - 122,642
Amortization of goodwill 808 10,704 994 - 12,506
------------- ------------ ------------- --------------- -------------
7,367 470,732 136,145 (12,735) 601,509
------------- ------------ ------------- --------------- -------------
Operating income (loss) (7,367) 3,921 24,749 - 21,303
Net interest expense (including intercompany) (10,831) 57,904 8,643 - 55,716
Investment (income) loss, net (2,995) 1,534 (6,906) - (8,367)
Intercompany dividends - 500 2 (502) -
Fair market value adjustment of interest rate contract 5,610 - - - 5,610
------------- ------------ ------------- --------------- -------------
Earnings (loss) before taxes 849 (56,017) 23,010 502 (31,656)
Income tax (provision) benefit (1,394) 38,149 (20,209) - 16,546
Equity in earnings of affiliates and subsidiaries (14,455) 169 - 14,396 110
------------- ------------ ------------- --------------- -------------
Net earnings (loss) $ (15,000) $ (17,699) $ 2,801 $ 14,898 $ (15,000)
============= ============ ============= =============== =============
CONSOLIDATING BALANCE SHEET
JUNE 30, 2001
Parent Non Fairchild
Company Guarantors Guarantors Eliminations Historical
------------- ------------ -------------- -------------- -------------
Cash $ 562 $ 6,546 $ 7,483 $ - $ 14,951
Marketable securities 71 3,034 - - 3,105
Accounts Receivable (including intercompany), less
allowances 2,336 628,104 84,599 (593,336) 121,703
Inventory, net - 144,157 44,830 - 188,987
Prepaid and other current assets 287 22,134 7,198 32,544 62,163
------------- ------------ -------------- -------------- -------------
Total current assets 3,256 803,975 144,470 (560,792) 390,909
Investment in Subsidiaries 880,945 - - (880,945) -
Net fixed assets 501 112,969 35,638 - 149,108
Net assets held for sale - 17,999 - - 17,999
Net noncurrent assets of discontinued operations - - - - -
Investments in affiliates 93 2,720 - - 2,813
Goodwill 15,720 370,440 32,989 - 419,149
Deferred loan costs 11,944 20 952 - 12,916
Prepaid pension assets - 65,249 - - 65,249
Real estate investment - - 110,505 - 110,505
Long-term investments 1,205 3,626 3,436 (488) 7,779
Other assets 2,607 1,335 786 28,710 33,438
------------- ------------ -------------- -------------- -------------
Total assets $ 916,271 $1,378,333 $ 328,776 $(1,413,515) $ 1,209,865
============= ============ ============== ============== =============
Bank notes payable & current maturities of debt $ 2,250 $ 1,632 $ 22,646 $ - $ 26,528
Accounts payable (including intercompany) 20 778,541 230,934 (951,870) 57,625
Other accrued expenses (54,398) 57,839 30,590 61,254 95,285
Net current liabilities of discontinued operations - - - - -
------------- ------------ -------------- -------------- -------------
Total current liabilities (52,128) 838,012 284,170 (890,616) 179,438
Long-term debt, less current maturities 431,041 5,918 33,571 - 470,530
Fair market value of interest rate contract 6,422 - - - 6,422
Other long-term liabilities 405 21,672 3,652 - 25,729
Noncurrent income taxes 124,466 (587) 128 - 124,007
Retiree health care liabilities - 37,335 4,551 - 41,886
------------- ------------ -------------- -------------- -------------
Total liabilities 510,206 902,350 326,072 (890,616) 848,012
Class A common stock 3,034 - - - 3,034
Class B common stock 262 - - - 262
Notes due from stockholders (430) (1,338) - - (1,768)
Paid-in-capital 232,820 478,207 83,513 (561,720) 232,820
Retained earnings 246,788 25,623 (64,932) 39,309 246,788
Cumulative other comprehensive income (334) (26,509) (15,877) - (42,720)
Treasury stock, at cost (76,075) - - (488) (76,563)
------------- ------------ -------------- -------------- -------------
Total stockholders' equity 406,065 475,983 2,704 (522,899) 361,853
------------- ------------ -------------- -------------- -------------
Total liabilities & stockholders' equity $ 916,271 $1,378,333 $ 328,776 $(1,413,515) $ 1,209,865
============= ============= =============== ============== =============
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2001
Parent Non Fairchild
Company Guarantors Guarantors Eliminations Historical
------------- ------------ -------------- --------------- ------------
Cash Flows from Operating Activities:
Net earnings (loss) $ (15,000) $ (17,699) $ 2,801 $ 14,898 $ (15,000)
Depreciation & amortization 885 32,243 10,604 - 43,732
Accretion of discount on long-term liabilities (1) 6,288 1,577 - 7,864
Amortization of deferred loan fees 1,414 3 454 - 1,871
Unrealized holding (gain) loss on derivatives 6,422 - - - 6,422
(Gain) loss on sale of PP&E - 1,802 2,357 - 4,159
Undistributed (distributed) earnings of affiliates 59 (169) - - (110)
Change in assets and liabilities (14,670) (37,858) (21,049) (14,898) (88,475)
------------- ------------ -------------- --------------- ------------
Net cash (used for) provided by operating activities (20,891) (15,390) (3,256) - (39,537)
Cash Flows from Investing Activities:
Proceeds received from (used for):
Purchase of PP&E (106) (11,643) (4,635) - (16,384)
Investment securities, net - 16,447 - - 16,447
Sale of PP&E 14 4,459 155 - 4,628
Equity investment in affiliates 477 - - - 477
Change in real estate investment - - (2,566) - (2,566)
Change in net assets held for sale - 1,491 - - 1,491
------------- ------------ -------------- --------------- ------------
Net cash (used for) provided by investing activities 385 10,754 (7,046) - 4,093
Cash Flows from Financing Activities:
Proceeds from issuance of debt 146,974 - 21,187 - 168,161
Debt repayments, net (126,624) (11,891) (14,901) - (153,416)
Issuance of Class A common stock 592 - - - 592
Loans to stockholders 91 9 - - 100
------------- ------------ -------------- --------------- ------------
Net cash (used for) provided by financing activities 21,033 (11,882) 6,286 - 15,437
Effect of exchange rate changes on cash - - (832) - (832)
------------- ------------ -------------- --------------- ------------
Net change in cash 527 (16,518) (4,848) - (20,839)
Cash, beginning of the year 35 23,064 12,691 - 35,790
------------- ------------ -------------- --------------- ------------
Cash, end of the year $ 562 $ 6,546 $ 7,843 $ - $ 14,951
============= ============ ============== =============== ============
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 (18,920) 55,311
------------- -------------- ------------- -------------- -------------
Total current assets 2,326 312,358 111,480 (18,920) 407,244
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 18,920 24,459
------------- -------------- ------------- -------------- -------------
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
------------- -------------- ------------- -------------- -------------
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 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 (income) 42,347 (7,512) 9,257 - 44,092
Investment income, net (6) (9,929) - - (9,935)
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 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 (used for) 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 provided by (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 (income) 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 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
================ =============== ================ =============== ============
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 5. OTHER INFORMATION
Articles have appeared in the French press reporting an inquiry by a French
magistrate into allegedly improper business transactions involving Elf
Acquitaine, a French petroleum company, its former chairman and various third
parties. In connection with this inquiry, the magistrate has made inquiry into
allegedly improper transactions between Mr. Steiner and that petroleum company.
In response to the magistrate's request, Mr. Steiner has submitted written
statements concerning the transactions and appeared in person, in France, before
the magistrate and others. The magistrate put Mr. Steiner under examination (mis
en examen) with respect to this matter and imposed a surety (caution) of ten
million French Francs which has been paid. Mr. Steiner has not been charged.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by this Item is incorporated herein by reference from
the 2001 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference from
the 2001 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference from
the 2001 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference from
the 2001 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this Report:
(a)(1) Financial Statements.
All financial statements of the registrant as set forth under Item 8 of
this report on Form 10-K (see index on Page 15).
(a)(2) Financial Statement Schedules and Report of Independent Public
Accountants.
Schedule Number Description Page
--------------- ------------------------------------------- -----
I Condensed Financial Information of Parent Company 69
II Valuation and Qualifying Accounts 73
All other schedules are omitted because they are not required.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE FAIRCHILD CORPORATION
CONDENSED FINANCIAL STATEMENTS OF THE PARENT COMPANY
BALANCE SHEETS (NOT CONSOLIDATED)
(In thousands)
June 30, June 30,
2001 2000
------------------- -------------------
ASSETS
Current assets:
Cash and cash equivalents $ 562 $ 35
Marketable Securities 71 71
Accounts receivable 2,336 2,079
Inventory - -
Prepaid expenses and other current assets 61,541 49,322
------------------- -------------------
Total current assets 64,510 51,507
Property, plant and equipment, less accumulated depreciation 501 493
Investments in subsidiaries 880,945 869,958
Investments and advances, affiliated companies 93 945
Goodwill 15,720 16,528
Noncurrent tax assets - -
Deferred loan fees 11,944 13,284
Investments 1,205 355
Other assets 2,607 17,592
------------------- -------------------
Total assets $ 977,525 $ 970,662
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 2,250 $ 2,250
Accounts payable 20 2,954
Other Accrued Expenses 6,856 6,403
------------------- -------------------
Total current liabilities 9,126 11,607
Long-term debt 431,041 410,691
Noncurrent income taxes 124,465 145,847
Other long-term liabilities 6,827 405
------------------- -------------------
Total liabilities 571,459 568,550
Stockholders' equity:
Class A common stock 3,034 3,008
Class B common stock 262 262
Notes due from Stockholders (429) (520)
Treasury Stock (76,075) (75,020)
Cumulative Comp Inc (334) (46)
APIC 6,788 5,158
Retained earnings 472,820 469,270
------------------- -------------------
Total stockholders' equity 406,066 402,112
------------------- -------------------
Total liabilities and stockholders' equity $ 977,525 $ 970,662
=================== ===================
The accompanying notes are an integral part of these condensed financial
statements.
Schedule I
THE FAIRCHILD CORPORATION
CONDENSED FINANCIAL STATEMENTS OF THE PARENT COMPANY
STATEMENT OF EARNINGS (NOT CONSOLIDATED)
(In thousands)
For the Year Ended June 30,
-----------------------------------------------------
2001 2000 1999
-----------------------------------------------------
Costs and Expenses:
Selling, general & administrative $ 6,560 $ 6,175 $ 8,114
Amortization of goodwill 808 808 248
-----------------------------------------------------
7,368 6,983 8,362
Operating loss (7,368) (6,983) (8,362)
Net interest income (expense) 10,831 (42,347) (27,130)
Investment income, net 2,995 6 -
FMV adj. of Interest Rate Contract (5,610) - -
Equity in earnings of affiliates 110 (347) 967
-----------------------------------------------------
Loss from continuing operations before taxes 958 (49,671) (34,525)
Income tax provision (benefit) 1,394 (6,343) (21,481)
-----------------------------------------------------
Loss before equity in earnings (loss) of subsidiaries (436) (43,328) (13,044)
Equity in earnings (loss) of subsidiaries (14,565) 53,086 (45,965)
-----------------------------------------------------
Net earnings (loss) $ (15,001) $ 9,758 $ (59,009)
=====================================================
The accompanying notes are an integral part of these condensed financial
statements.
Schedule I
THE FAIRCHILD CORPORATION
CONDENSED FINANCIAL STATEMENTS OF THE PARENT COMPANY
STATEMENT OF CASH FLOWS (NOT CONSOLIDATED)
(In thousands)
For the Years Ended June 30,
-----------------------------------------------------
2001 2000 1999
---------------- ---------------- ----------------
Cash provided by (used for) operations $ (20,891) $ 70,326 $ (37,482)
Investing activities:
Acquisition of subsidiaries -- -- (221,467)
Purchase of PP&E (92) (5) (61)
Equity investments in affiliates 477 -- 630
Other -- -- --
---------------- ---------------- ----------------
385 (5) (220,898)
Financing activities:
Proceeds from issuance of debt, including intercompany 146,974 52,200 483,100
Debt repayments (126,624) (122,359) (225,000)
Issuance of common stock 592 366 307
Other 91 (520) --
---------------- ---------------- ----------------
21,033 (70,313) 258,407
---------------- ---------------- ----------------
Net increase (decrease) in cash $ 527 $ 8 $ 27
================ ================ ================
The accompanying notes are an integral part of these condensed financial
statements.
Schedule I
THE FAIRCHILD CORPORATION
CONDENSED FINANCIAL STATEMENTS OF THE PARENT COMPANY
NOTES TO FINANCIAL STATEMENTS (NOT CONSOLIDATED)
(In thousands)
1. BASIS OF PRESENTATION
In accordance with the requirements of Regulation S-X of the Securities and
Exchange Commission, our financial statements are condensed and omit many
disclosures presented in the consolidated financial statements and the notes
thereto.
2. LONG-TERM DEBT
June 30, June 30,
2001 2000
------------------- ----------------
Bank Credit Agreement $ 208,291 $ 187,941
10 3/4% Senior subordinated Notes Due 2009 225,000 225,000
------------------- ----------------
Total Debt 433,291 412,941
=================== ================
Less: Current Maturities (2,250) (2,250)
------------------- ----------------
Total Long-Term Debt $ 431,041 $ 410,691
=================== ================
Long-term debt maturing over the next five years is as follows: $2,250 in
2002, $2,250 in 2003, $2,250 in 2004, $44,250 in 2005, and $2,250 in 2006.
3. DIVIDENDS FROM SUBSIDIARIES
Cash dividends paid to The Fairchild Corporation by its consolidated
subsidiaries were $47,742 and $42,100 in 2000, and 1999, respectively. In 1999,
The Fairchild Corporation received from its subsidiaries, dividends of its stock
with a fair market value of $22,102 and Banner Aerospace's stock with a fair
market value of $187,424.
4. CONTINGENCIES
We are involved in various other claims and lawsuits incidental to our
business, some of which involve substantial amounts. 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 will not have a
material adverse effect on our financial condition, or future results of
operations or net cash flows.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Changes in the allowance for doubtful accounts are as follows:
For the Years Ended June 30,
---------------------------------------------------
2001 2000 1999
--------------- -------------- ---------------
Beginning balance $ 9,598 $ 6,442 $ 5,655
Charges to cost and expenses 3,184 2,377 3,426
Charges to other accounts (a) (477) 1,671 (2,940)
Acquired companies - - 616
Amounts written off (5,354) (892) (315)
--------------- -------------- ---------------
Ending Balance $ 6,951 $ 9,598 $ 6,442
=============== ============== ===============
<FN>
(a) Recoveries of amounts written off in prior periods and the effect of
foreign currency translation. Fiscal 1999 includes a reduction of $2,722
relating to the assets disposed of as a result of the disposition of
Solair.
</FN>
(a)(3) Exhibits.
A. Articles of Incorporation, Bylaws, and Instruments Defining Rights of
Securities
3.1 Registrant's Restated Certificate of Incorporation (incorporated by
reference to Exhibit "C" of Registrant's Proxy Statement dated October
27, 1989).
*3.2 Certificate of Amendment to Registrant's Certificate of Incorporation,
dated November 16, 1990, changing name from Banner Industries, Inc. to
The Fairchild Corporation.
3.3 Registrant's Amended and Restated By-Laws, as amended as of November
21, 1996 (incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended December 29, 1996).
3.4 Amendment to the Company's By-Laws, dated as of February 12, 1999
(incorporated by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1999).
3.5 Amendment to the Company's By-Laws, dated February 17, 2000, together
with Charter for the Board's Audit Committee, adopted on February 17,
2000 (incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended April 2, 2000).
3.6 Amendment to the Company's Charter of the Audit Committee, dated
May 10, 2001.
4.1 Specimen of Class A Common Stock certificate (incorporated by reference
to Registration Statement No. 33-15359 on Form S-2).
4.2 Specimen of Class B Common Stock certificate (incorporated by reference
to Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1989).
4.3 Indenture dated as of April 20, 1999, between the Company and
Subsidiary Guarantors and The Bank of New York, as Trustee (relating to
the Company's 10 3/4% Senior Subordinated Notes Due 2009) (incorporated
by reference to Registrant's Registration Statement No. 333-80311 on
Form S-4, declared effective August 9, 1999).
4.4 Form of Global Note (relating to the Company's 10 3/4% Senior
Subordinated Notes Due 2009) (incorporated by reference to Registrant's
Registration Statement No. 333-80311 on Form S-4, declared effective
August 9, 1999).
4.5 Registration Rights Agreement, dated April 15, 1999, between the
Company and Credit Suisse First Boston Corporation on behalf of the
Initial Purchasers (relating to the Company's 10 3/4% Senior
Subordinated Notes Due 2009) (incorporated by reference to Registrant's
Registration Statement No. 333-80311 on Form S-4, declared effective
August 9, 1999).
4.6 Purchase Agreement, dated as of April 15, 1999, between the Company,
the Subsidiary Guarantors and the Initial Purchasers (relating to the
Company's 10 3/4% Senior Subordinated Notes Due 2009) (incorporated by
reference to Registrant's Registration Statement No. 333-80311 on Form
S-4, declared effective August 9, 1999).
B. Material Contracts
B1. (Stock Option Plans)
10.3 Amended and Restated 1986 Non-Qualified and Incentive Stock Option
Plan, dated as of February 9, 1998 (incorporated by reference to
Exhibit B of Registrant's Proxy Statement dated October 9, 1998).
10.4 Amendment Dated May 7, 1998 to the 1986 Non-Qualified and Incentive
Stock Option Plan (incorporated by reference to Exhibit A of
Registrant's Proxy Statement dated October 9, 1998).
10.5 1996 Non-Employee Directors Stock Option Plan (incorporated by
reference to Exhibit B of Registrant's Proxy Statement dated October 7,
1996).
10.6 Stock Option Deferral Plan dated February 9, 1998 (for the purpose of
allowing deferral of gain upon exercise of stock options) (incorporated
by reference to Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 29, 1998).
10.7 Amendment to the Stock Option Deferral Plan, dated June 28, 2000 (for
the purpose of making an equitable adjustment in connection with the
spin off of Fairchild Bermuda and the receipt of Global Sources shares)
(incorporated by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 2000).
10.8 Amendment dated May 21, 1999, amending the 1996 Non-Employee Directors
Stock Option Plan (for the purpose of allowing deferral of gain upon
exercise of stock options) (incorporated by reference to Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30, 1999).
10.9 2000 Non-Employee Directors Stock Option Plan (incorporated by
reference to Appendix 2 of Registrant's Proxy Statement dated October
10, 2000).
10.10 2001 Non-Employee Directors Stock Option Plan (incorporated by
reference to Appendix 1 of Registrant's Proxy Statement dated October
10, 2000).
B2. (Employee Agreements)
10.11 Amended and Restated Employment Agreement between Registrant and
Jeffrey J. Steiner dated September 10, 1992 (incorporated by reference
to Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1993).
*10.12 Employment Agreement between Banner Aerospace, Inc. and Jeffrey J.
Steiner, dated September 9, 1992.
*10.13 Restated and Amended Service Agreement between Fairchild Switzerland,
Inc. and Jeffrey J. Steiner, dated April 1, 2001.
10.14 Banner Aerospace, Inc. Deferred Bonus Plan, dated January 21, 1998 (as
amended), to allow the deferral of bonuses in connection with 1998 or
1999 Extraordinary Transactions (incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal year ended June
30, 1999).
10.15 Letter Agreement dated February 27, 1998, between Registrant and John
L. Flynn (incorporated by reference to Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 29, 1998).
10.16 Letter Agreement dated February 27, 1998, between Registrant and Donald
E. Miller (incorporated by reference to Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 29, 1998).
10.17 Officer Loan Program, dated as of February 5, 1999, lending up to
$750,000 to officers for the purchase of Company Stock (incorporated by
reference to Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1999).
10.18 Director and Officer Loan Program, dated as of August 12, 1999, lending
up to $2,000,000 to officers and directors for the purchase of Company
Stock (incorporated by reference to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1999).
10.19 Employment Agreement between Eric Steiner and The Fairchild
Corporation, dated as of August 1, 2000 (incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal year ended June
30, 2000).
10.20 Employment Agreement between Banner Aerospace, Inc. and Warren D.
Persavich (together with Amendment No. 1 to such Agreement)
(incorporated by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 2000).
B3. (Credit Agreements)
B3.1. Fairchild Corporation Credit Agreement:
10.21 Credit Agreement dated as of April 20, 1999, among The Fairchild
Corporation (as Borrower), Citicorp. USA, Inc. and certain financial
institutions (incorporated by reference to Registrant's Annual Report
on Form 10-K for the fiscal year ended June 30, 1999).
10.22 Amendment No. 1, dated as of November 29, 1999 to the Credit Agreement
dated as of April 20, 1999 (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
January 2, 2000).
10.23 Amendment No. 2, dated as of March 10, 2000 to the Credit Agreement
dated as of April 20, 1999 (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
April 2, 2000).
B3.2. Warthog, Inc. Credit Agreement:
10.24 Mortgage and Security Agreement with Morgan Guaranty Trust Company of
New York dated March 23, 2000 (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended April
2, 2000).
B3.3. Interest Rate Hedge Agreements:
10.25 ISDA Master (Swap) Agreement between Registrant and Citibank, N.A.
dated as of October 30, 1997 (incorporated by reference to Exhibit
10.36 of Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 28, 1997).
*10.26 Amendment No. 1 dated as of August 7, 1998, to the ISDA Master (Swap)
Agreement between Registrant and Citibank, N.A. dated as of
October 30, 1997.
*10.27 Confirmation Letter dated as of January 16, 1998, to the ISDA Master
(Swap) Agreement between Registrant and Citibank, N.A. dated as of
October 30, 1997.
B4. (Warrants to Steiner Affiliate):
10.28 Form Warrant Agreement (including form of Warrant) issued by the
Company to Drexel Burnham Lambert on March 13, 1986, subsequently
purchased by Jeffrey Steiner, subsequently assigned to Stinbes Limited
(an affiliate of Jeffrey Steiner) and subsequently assigned to The
Steiner Group, LLC (an affiliate of Jeffrey Steiner), for the purchase
of Class A or Class B Common Stock (incorporated herein by reference to
Exhibit 4(c) of the Company's Registration Statement No. 33-3521 on
Form S-2). (Referred to as the "Steiner Warrant")
10.29 Form Warrant Agreement issued to Stinbes Limited (subsequently assigned
to The Steiner Group, LLC) dated as of September 26, 1997, effective
retroactively as of February 21, 1997 (incorporated by reference to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 28, 1997).
10.30 Extension of Warrant Agreement between Registrant and Stinbes Limited
(subsequently assigned to The Steiner Group, LLC) for 375,000 shares of
Class A or Class B Common Stock dated as of September 26, 1997,
effective retroactively as of February 21, 1997 (incorporated by
reference to Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 28, 1997).
10.31 Amendment of Warrant Agreement dated February 9, 1998, between the
Registrant and Stinbes Limited (subsequently assigned to The Steiner
Group, LLC) (incorporated by reference to Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 29, 1998).
10.32 Amended Warrant Agreement dated December 28, 1998, effective
retroactively as of September 17, 1998, between Registrant and Stinbes
Limited (subsequently assigned to The Steiner Group, LLC) (incorporated
by reference to Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 29, 1999).
B5. (Other Material Contracts):
10.33 Share Purchase Agreement dated as of July 27, 1999 between a Company
subsidiary and Jeffrey Steiner (as Sellers) and American National Can
Group, Inc. (as Buyer), for the sale of all stock of Nacanco Paketleme
A.S. owned by the Sellers (incorporated by reference to Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30, 1999).
10.34 Asset Purchase Agreement dated as of October 22, 1999, among The
Fairchild Corporation, Banner Aerospace, Inc., Dallas Aerospace, Inc.,
and United Technologies Corporation, acting through its Pratt & Whitney
Division (incorporated by reference to the Registrant's Report on Form
8-K dated December 13, 1999).
(a)(3) Exhibits (continued)
Other Exhibits
11. Computation of earnings per share (found at Note 13 in Item 8 to
Registrant's Consolidated Financial Statements for the fiscal years
ended June 30, 2001, 2000 and 1999).
*22 List of subsidiaries of Registrant.
*23.1 Consent of Arthur Andersen LLP, independent public accountants.
-------------------------
*Filed herewith.
(b) Reports on Form 8-K
We have not filed any reports under Form 8-K during the quarter ended June 30,
2001.
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: September 21, 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: JEFFREY J. STEINER Chairman, Chief Executive September 21, 2001
/s/ Officer and Director
------------------------------
Jeffrey J. Steiner
By: MELVILLE R. BARLOW Director September 21, 2001
/s/
-------------------------------
Melville R. Barlow
By: MORTIMER M. CAPLIN Director September 21, 2001
/s/
-------------------------------
Mortimer M. Caplin
By: PHILIP DAVID Director September 21, 2001
/s/
-------------------------------
Philip David
By: ROBERT EDWARDS Director September 21, 2001
/s/
-------------------------------
Robert Edwards
By: STEVEN L. GERARD Director September 21, 2001
/s/
-------------------------------
Steven L. Gerard
By: HAROLD J. HARRIS Director September 21, 2001
/s/
-------------------------------
Harold J. Harris
By: DANIEL LEBARD Director September 21, 2001
/s/
-------------------------------
Daniel Lebard
By: HERBERT S. RICHEY Director September 21, 2001
/s/
--------------------------------
Herbert S. Richey
By: ERIC I. STEINER President, Chief Operating September 21, 2001
/s/ Officer and Director
--------------------------------
Eric I. Steiner