13
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, 1999 Commission File Number 1-6560
THE FAIRCHILD CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 34-0728587
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
45025 Aviation Drive, Suite 400
Dulles, VA 20166
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703) 478- 5800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of exchange on which registered
Class A Common Stock, par value New York and Pacific Stock Exchange
$.10 per share
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety (90) days [X].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
On September 15, 1999, 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 $156 million (excluding shares
deemed beneficially owned by affiliates of the Registrant under Commission
Rules).
As of September 15, 1999, 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 22,265,322
Class B common stock, $.10 par value 2,621,652
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive proxy statement for the 1999 Annual
Meeting of Stockholders' to be held on November 18, 1999 (the "1999 Proxy
Statement"), which the Registrant intends to file within 120 days after June 30,
1999, 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, 1999
PART I Page
Item 1. Business 4
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Stockholders 12
PART II
Item 5. Market for Our Common Equity and Related
Stockholder Matters 13
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of
Results of Operations and Financial Condition 15
Item 7A. Quantitative and Qualitative Disclosure about
Market Risk 27
Item 8. Financial Statements and Supplementary Data 28
Item 9. Disagreements on Accounting and Financial Disclosure 74
PART III
Item 10. Directors and Executive Officers of the Company 74
Item 11. Executive Compensation 74
Item 12. Security Ownership of Certain Beneficial
Owners and Management 74
Item 13. Certain Relationships and Related Transactions 74
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 75
FORWARD-LOOKING STATEMENTS
Except for any historical information contained herein, the matters
discussed in this Annual Report on Form 10-K contain certain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 with respect to our financial condition, results of operation and
business. These statements relate to analyses and other information which are
based on forecasts of future results and estimates of amounts not yet
determinable. These statements also relate to our future prospects, developments
and business strategies. These forward-looking statements are identified by
their use of terms and phrases such as "anticipate," "believe," "could,"
"estimate," "expect," "intend," "may," "plan," "predict,"
"project," "will" and similar terms and phrases, including references to
assumptions. These forward-looking statements involve risks and uncertainties,
including current trend information, projections for deliveries, backlog and
other trend projections, that may cause our actual future activities and results
of operations to be materially different from those suggested or described in
this Annual Report on Form 10-K. These risks include: product demand; our
dependence on the aerospace industry; reliance on Boeing and the Airbus
consortium of companies; customer satisfaction and quality issues; labor
disputes; competition, including recent intense price competition; our ability
to integrate and realize anticipated cost savings relating to our acquisition of
Kaynar Technologies Inc.; our ability to achieve and execute internal business
plans; worldwide political instability and economic growth; and the impact of
any economic downturns and inflation, including the recent weaknesses in the
currency, banking and equity markets of countries in South America and in the
Asia/Pacific region.
If one or more of these risks or uncertainties materializes, or if
underlying assumptions prove incorrect, our actual results may vary materially
from those expected, estimated or projected. Given these uncertainties, users of
the information included in this 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 logistics manager and, through our wholly-owned subsidiary,
Banner Aerospace, Inc., an international supplier to the aerospace industry,
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 original equipment manufacturers
(such as Boeing, the Airbus consortium, Lockheed Martin, British Aerospace and
Aerospatiale), as well as one of the leading aerospace subcontractors to OEMs,
independent distributors and the aerospace aftermarket.
Our aerospace business consists of two segments: aerospace fasteners and
aerospace parts distribution. Our 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 business strategy is as follows:
Maintain Quality Leadership. The aerospace market is extremely demanding in
terms of precision manufacturing and all parts must be certified by OEMs
pursuant to the Fedral Aviation Administration's regulations and those of other
equivalent foreign regulators. Substantially all of our plants are ISO-9000
approved. We have won numerous industry and customer quality awards and are a
preferred supplier for major aerospace customers. In order to be named a
preferred supplier, a company must qualify its products through a customer
specific quality assurance program and adhere to it strictly. 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. We have invested significantly over the past few
years 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 turnaround times for customers. 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 1.7% for fiscal 1999. In addition, scrap
and rework costs as a percentage of net sales in our aerospace fasteners segment
have fallen from an average of 9.3% in fiscal 1995 to an average of 3.9% for
fiscal 1999. Our on-time delivery rate in our aerospace fasteners segment has
improved significantly since fiscal 1997, to levels that are currently the best
in our operating history. We view these improvements as one of the keys to our
business success that will allow us to better manage industry cycles.
Supply Logistics 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 and our value to our customers.
Capitalize on Global Presence. The aerospace industry is global and
customers increasingly seek suppliers with the ability to provide reliable and
timely service worldwide. The acquisition of Kaynar Technologies has resulted in
increased manufacturing and distribution capabilities in the U.S. and Europe,
and sales offices worldwide.
Growth through Acquisitions. Despite a trend toward consolidation, the
aerospace components 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:
Complementary Market Share and Expanded Product Range. Kaynar Technologies
Inc. focused on different market segments than us, although we each focused on
segments where we could achieve economies of scale through the ability to
produce high quality parts at low cost. 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 logistics across the breadth of a customer's aerospace
needs. For example, Kaynar Technologies's internally threaded fasteners such as
engine nuts, are now be sold in combination with our externally threaded
fasteners, such as bolts and pins, to provide a single fastening system. This
will limit the inventory needs of the customer, minimize handling costs and
reduce waste.
Long-Term Customer Relationships. We work closely with our customers to
provide high quality engineering solutions accompanied by superior service
levels. As a result, our customer relationships are generally long-term. For
example, in the Fall of 1998 we were awarded a series of long-term commitments
from Boeing and certain other customers to provide a significant quantity of
aircraft fastening components over the next three to five years. We have
benefited from the trend of OEMs in reducing their number of suppliers in recent
years in an effort to lower costs and to 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 becoming 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 has 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 components 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
Through our aerospace fasteners segment, we are a leading worldwide
manufacturer and distributor of fastening systems, 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 April 20, 1999 acquisition of Kaynar Technologies
has expanded our product range to provide our customers with more complete
fastening solutions by offering engineering and logistics across the breadth of
a customer's aerospace needs. In the past 20 months, we have made a concerted
effort to establish a substantial position in the distribution/logistics segment
of the aerospace fasteners industry. Through the acquisitions of Special-T
Fasteners in the United States and AS+C in Europe, we have created a unique
capability that we believe enhances dramatically our status as the premier
fastening solutions provider in the industry. The aerospace fastener segment
accounted for 71.7% of our net sales in fiscal 1999.
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, 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, which have licensed us to use such trademarks. These
trade names and trademarks include: Voi-Shan (fasteners for aerospace
structures), Screwcorp (standard externally threaded products for aerospace
applications), K-FAST nuts (anchor nuts, gang channels, shank nuts, barrel
nuts, clinch nuts and stake nuts for defense and aerospace applications), K-
Sert (inserts that include keys to lock the insert in place and prevent any
rotation), RAM (custom designed mechanisms for aerospace applications), Perma-
Thread and Thin Wall (inserts that create a thread inside a hole and provide
a high degree of thread protection and fastening integrity), Camloc??
(components for the industrial, electronic, automotive and aerospace markets),
and Tridair and Rosan (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, Tri-
Wing, Torq-Set and Phillips. We offer the broadest 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 and include wrenchable nuts, K-Fast 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
non-critical but more sophisticated airframe and engine applications, which
could involve joining more than two materials. These fasteners are generally
engineered to specific customer requirements or manufactured to specific
customer specifications for special applications, often involving exacting
standards. We produce fasteners from a variety of materials, including
lightweight aluminum and titanium nuts for airframes, to high-strength, high-
temperature tolerant engine nuts manufactured from materials such as A-286,
Waspaloy and Hastelloy. These fasteners include Hi-Lok, Veri-Lite,
Eddie-Bolt and customer proprietary engine nuts.
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 usually proprietary in nature and are used primarily in either
commercial aerospace or military applications. They include Visu-Lok??, Composi-
Lok, Keen-serts, Mark IV, Flatbeam, and Ringlock.
Threaded Inserts - These threaded inserts are used principally in the
commercial aerospace and defense industries 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 trade name.
Precision Machined Structural Components and Assemblies - These precision
machined structural components and assemblies are used for aircraft, including
pylons, flap hinges, struts, wings fittings, landing gear parts, spares and many
other items
Fastener Tools - These tools are designed primarily to install the fasteners
and inserts 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 who have licensed the Company
to use such trademarks. Tri-Wing, Torq-set and Phillips are registered
trademarks of Phillips Screw Company. Waspaloy is a trademark of Carpenter
Technologies Corporation. Hastelloy is a registered trademark of Haynes
International, Inc. Hi-Lok is registered trademark of Hi-Shear Corporation.
Visul-lok and Composi-lok 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 engine assemblies, as well as to
subcontractors to OEMs, and to the maintenance and repair market through
distributors. Sixty-six percent of its sales are domestic. Major customers
include OEMs such as Boeing, the Airbus consortium, and Aerospatiale and their
subcontractors, as well as major distributors such as AlliedSignal, Tri-Star
Aerospace and Wesco Aircraft Hardware. In addition, OEMs have implemented
programs to reduce inventories and pursue just-in-time relationships. This has
allowed parts distributors to expand significantly their business due to their
ability to better meet OEM objectives. In response, we are expanding efforts to
provide parts through our global customer services units which include
recently acquired distributors formely know as Special-T Fasteners in the
United States and AS+C GmbH in Europe. Although no one
customer accounted for more than 10% of our consolidated sales in fiscal 1999, a
large portion of our revenues come from customers providing parts or services to
Boeing, including defense sales, and the Airbus consortium 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. As OEMs searched for cost cutting opportunities during the
aerospace industry recession of 1993-1995, parts manufacturers, including
ourselves, 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 and resulted in capacity constraints. Although lead times have
increased, we have been able to provide our major customers with favorable
pricing, while maintaining or increasing margins by negotiating for larger
minimum lot sizes that are more economic 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 the automotive market as
a hedge against the downturn in the aerospace industry.
Manufacturing and Production
Our aerospace fasteners segment has fifteen primary manufacturing facilities,
of which eight are located in the United States, six are located in Europe and
one is located in Australia. Each facility has virtually complete production
capability, and subcontracts only those production steps which exceed capacity.
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 segments largest customers have recognized its quality
and operational controls by conferring their advanced quality systems
certifications at all of our facilities (e.g. Boeing's D1-900A). All of its
aerospace manufacturing facilities are "preferred suppliers". We have
recently received all necessary quality and product approval 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. The new system
performs detailed and timely cost analysis of production by product and
facility. Updated MIS 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 dominant
manufacturer of aerospace fasteners. Based on calendar 1998 information,
the worldwide aerospace fastener market is estimated to be $1.7 billion
(before distributor resales). We hold approximately 30% of the market and
compete with SPS Technologies, GFI Industries, and the Huck International
division of the Cordant Technologies Corporation, which we believe hold
approximately 15%, 11% and 10% of the market, respectively.
Quality, performance, service and price are generally the prime competitive
factors in the aerospace fasteners segment. Our broad product range allows us to
more fully serve 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 our innovative production methods and new
products to meet customer demands. We seek to work closely with OEMs and involve
ourselves early in the design process in order that our products may be
incorporated into the design of their products.
Aerospace Distribution
We distribute a wide variety of aircraft parts, which we purchase on the
open market or acquire from OEMs as an authorized distributor. No single
distributor arrangement is material to our financial condition. The aerospace
distribution segment accounted for 27.3% of our total sales in fiscal 1999.
Products
An extensive inventory of products and a quick response time are essential
in providing service 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.
Products of the aerospace distribution segment are divided into two groups:
rotables and engines. Rotables include flight data recorders, radar and
navigation systems, instruments and hydraulic and electrical components.
Engines include jet engines and engine parts for use on both narrow and wide
body aircraft and smaller engines for corporate and regional aircraft. We
provide a number of services such as immediate shipment of parts in aircraft-on-
ground situations. We also buy and sell aircraft from time to time.
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 customers part and the customer is charged an
exchange fee plus the actual cost to overhaul the part. Engines and engine
components are sold "as is", overhauled or disassembled for resale as parts.
Sales and Markets
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 72.7% of our sales are to domestic purchasers, some of whom 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. No single customer accounts for more than 10% of our consolidated
revenue.
Dallas Aerospace, Inc., our aerospace distribution's largest subsidiary,
sells jet engines and engine parts for use on both narrow and wide body
aircraft. In addition, Dallas Aerospace provides engine repair management
services and engine leasing to a variety of airline and air cargo customers and
has bought and sold large commercial aircraft from time to time. We have
expressed our intent to sell, and are attempting to reach agreement with a
possible purchaser of Dallas Aerospace.
Competition
The rotables group competes with Air Ground Equipment Services, Duncan
Aviation, Stevens Aviation, OEMs such as Honeywell, Rockwell Collins, Raytheon,
and Litton, and other fixed based operators and maintenance repair
organizations. The major competitors for our engine group are OEMs such as
General Electric Company and Pratt & Whitney, as well as the engine parts
division of AAR Corp., Kellstrom Industries, and Air Ground Equipment Services,
and many smaller companies.
Other Operations
Our other operations included a company operating under the trade name of
Fairchild Gas Springs, which we sold subsequent to June 30, 1999. We also own
Fairchild Technologies, a technology products unit which designs, manufactures
and markets high performance production equipment and systems required for the
manufacture of recordable compact discs. Additionally, we also own several
parcels of developed and undeveloped land almost entirely representing residuals
of operations previously divested or closed. Included among these is an 88-acre
site in Farmingdale, New York, on which we are currently developing as a
shopping center. We are pursuing the liquidation of the remaining components of
Fairchild Technologies.
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, 1999 in the
aerospace fasteners segment and aerospace distribution segment amounted to
$215.3 million and $12.5 million, respectively. We anticipate that in excess of
87% of the aggregate backlog at June 30, 1999 will be delivered by June 30,
2000. In the fall of 1998, we were awarded a series of long-term commitments
from Boeing to provide a significant quantity of aircraft fastening components
over the next three to five years, however, amounts related to such agreements
are not included in our backlog until Boeing specifies delivery dates for
fasteners ordered.
Suppliers
We are not materially dependent upon any one supplier, but 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 the various
metals, composites, and finishes used in production, from over twenty different
suppliers. We have recently entered into several long-term titanium and alloy
supply contracts. 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 are licensees 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, 1999, we had approximately 5,200 employees. Of these,
approximately 3,400 and of our employees are based in the United States and
1,800 are based in Europe and elsewhere. Approximately 20% of our employees were
covered by collective bargaining agreements. Although we have had isolated work
stoppages in France in the past, these stoppages have not had a material impact
on our business. Overall, we believe that our 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, 1999, we owned or leased buildings totaling approximately
2,100,000 square feet, of which approximately 1,246,000 square feet was owned
and 854,000 square feet was leased. Our aerospace fasteners segment's
properties consisted of approximately 1,722,000 square feet, with principal
operating facilities of approximately 1,543,000 square feet concentrated in
Southern California, Massachusetts, France and Germany. The aerospace
distribution segment's properties consisted of approximately 233,000 square
feet, with principal operating facilities of approximately 155,000 square feet
located in Texas and Georgia. We own 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.
Owned Square
or
Business Primary
Location Leased Footage Segment/Group Use
Saint Cosme, Owned 304,000 Aerospace
France Fasteners Manufacturing
Torrance, Owned 284,000 Aerospace
California Fasteners Manufacturing
Fullerton, Owned 255,000 Aerospace
California Fasteners Manufacturing
City of Industry, Owned 140,000 Aerospace
California Fasteners Manufacturing
Carrollton, Texas Leased 126,000 Aerospace
Distribution Distribution
Dulles, Virginia Owned 125,000 Corporate Office
Stoughton, Leased 120,000 Aerospace
Massachusetts Fasteners Manufacturing
Huntington Beach, Owned 86,000 Aerospace
California Fasteners Manufacturing
Montbrison, France Owned 63,000 Aerospace
Fasteners Manufacturing
Hildesheim, Owned 57,000 Aerospace
Germany Fasteners Manufacturing
Toulouse, France Owned 56,000 Aerospace
Fasteners Manufacturing
Kelkheim, Germany Owned 52,000 Aerospace
Fasteners Manufacturing
Chatsworth, Leased 36,000 Aerospace
California Fasteners Distribution
Atlanta, Georgia Leased 29,000 Aerospace
Distribution Distribution
We have several parcels of property which we are attempting to market,
lease and/or develop, including: (i) an eighty-eight acre parcel located in
Farmingdale, New York, (ii) a six acre parcel in Temple City, California, (iii)
an eight acre parcel in Chatsworth, California, and (iv) several other parcels
of real estate, located primarily throughout the continental United States.
Information concerning our long-term rental obligations at June 30, 1999,
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".
Holders of Record
We had approximately 1,325 and 39 record holders of our Class A and Class B
common stock, respectively, at September 15, 1999.
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, results of operations and by restrictive covenants in our
credit agreement and 10 ??% senior subordinated notes that limit the payment of
dividends over their respective terms. See Note 8 of our Consolidated Financial
Statements included in Item 8, "Financial Statements and Supplementary Data".
Sale of Unregistered Securities
In fiscal 1998, we adopted a stock option deferral plan for officers and
directors, pursuant to which recipients of stock options may elect to defer the
gain on exercise of stock options. The "gain" is the difference between the
market value of the shares issued to an officer or director upon exercise of the
stock option, and the price paid by the officer or director for the exercise of
such stock option. An officer's or director's deferred gain is issued in the
form of "deferred compensation units." Each deferred compensation unit entitles
the recipient to receive one share of Class A common stock upon expiration of
the "deferral period" for the stock options exercised.
The deferred compensation units may be deemed our securities. Only officers
and directors who are accredited investors are allowed to elect to receive
deferred compensation units. The shares issued to an officer or director upon
expiration of the deferral period (in exchange for deferred compensation units)
have been registered pursuant to a Registration Statement on Form S-8.
Under the stock option deferral plan, in fiscal 1998 J. Flynn, deferred
$85,313 in exchange for 4,027 deferred compensation units; D. Miller, deferred
$85,313 in exchange for 4,027 deferred compensation units; E. Steiner, deferred
$573,750 in exchange for 24,545 deferred compensation units; and in fiscal 1999
D. Miller deferred $135,000 in exchange for 8,852 deferred compensation units.
ITEM 6. SELECTED FINANCIAL DATA
Five-Year Financial Summary
(In thousands, except per share data)
For the years ended June 30,
Summary of Operations: 1999 1998 1997 1996 1995
Net sales 617,322 741,176 680,763 349,236 220,351
Gross profit 112,429 186,506 181,344 74,101 26,491
Operating income (loss) (45,911) 45,443 33,499 (11,286)(30,333)
Net interest expense 30,346 42,715 47,681 56,459 64,113
Earnings (loss) from (23,507) 52,399 1,816 (32,186)(56,280)
continuing operations
Earnings (loss) per share from
continuing
operations:
Basic (1.03) 2.78 0.11 (1.98) (3.49)
Diluted (1.03) 2.66 0.11 (1.98) (3.49)
Other Data:
EBITDA (20,254) 66,316 54,314 5,931 (9,830)
Capital expenditures 30,142 36,029 15,014 5,680 5,383
Cash provided by (used for) 23,268 (85,231) (93,321)(48,951)(25,040)
operating activities
Cash provided by (used for) (99,157) 43,614 73,238 57,540 (19,156)
investing activities
Cash provided by (used for) 81,218 74,088 (1,455)(39,637) 12,345
financing activities
Balance Sheet Data:
Total assets 1,328,786 1,157,259 1,052,666 993,398 828,680
Long-term debt, less current 495,283 295,402 416,922 368,589 508,225
maturities
Redeemable preferred stock of -- -- -- -- 16,342
subsidiary
Stockholders' equity 407,500 473,559 232,424 230,861 39,278
per outstanding common
share 16.38 20.54 13.98 14.10 2.50
The results of Banner Aerospace, Inc. are included in the periods since
February 25, 1996, when Banner Aerospace became a majority-owned subsidiary.
Prior to February 25, 1996, our investment in Banner Aerospace was accounted for
using the equity method. 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 potential sale of
Dallas Aerospace. The results of Solair are included in the periods from March
1996 through December 1998, 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 restructuring and unusual charges of $6,374
and $2,319 in fiscal 1999 and 1996, 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 are the owner of 100% of RHI Holdings, Inc. and Banner
Aerospace, Inc. RHI is the owner of 100% of Fairchild Holding Corp. Our
principal operations are conducted through FHC and Banner Aerospace. During the
periods presented, we held significant equity interests in Nacanco Paketleme and
Shared Technologies Fairchild Inc.
The following discussion and analysis provide information which management
believes is relevant to assessment and understanding of our consolidated results
of operations and financial condition. The discussion should be read in
conjunction with the consolidated financial statements and notes thereto.
GENERAL
We are a leading worldwide aerospace and industrial fastener manufacturer
and distribution logistics manager and, through Banner Aerospace, an
international supplier to airlines and general aviation businesses, distributing
a wide range of aircraft parts and related support services. Through internal
growth and strategic acquisitions, we have become one of the leading suppliers
of fasteners to aircraft OEMs, such as Boeing, Lockheed Martin, Northrop
Grumman, and the Airbus consortium, including, Aerospatiale, DaimlerChrysler
Aerospace, British Aerospace and CASA.
Our aerospace business consists of two segments: aerospace fasteners and
aerospace distribution. The aerospace fasteners segment manufactures and markets
high performance fastening systems used in the manufacture and maintenance of
commercial and military aircraft. The aerospace distribution segment stocks and
distributes a wide variety of aircraft parts to commercial airlines and air
cargo carriers, fixed-base operators, corporate aircraft operators and other
aerospace companies.
CAUTIONARY STATEMENT
Certain statements in this financial discussion and analysis by management
contain certain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 with respect to our financial
condition, results of operation and business. These statements relate to
analyses and other information which are based on forecasts of future results
and estimates of amounts not yet determinable. These statements also relate to
our future prospects, developments and business strategies. These forward-
looking statements are identified by their use of terms and phrases such as
"anticipate," "believe," "could," "estimate," "expect," "intend,"
"may," "plan," "predict," "project," "will" and similar terms and
phrases, including references to assumptions. These forward-looking statements
involve risks and uncertainties, including current trend information,
projections for deliveries, backlog and other trend projections, that may cause
our actual future activities and results of operations to be materially
different from those suggested or described in this Annual Report on Form 10-K.
These risks include: product demand; our dependence on the aerospace industry;
reliance on Boeing and the Airbus consortium of companies; customer satisfaction
and quality issues; labor disputes; competition, including recent intense price
competition; our ability to integrate and realize anticipated synergies relating
to the acquisition of Kaynar Technologies Inc.; our ability to achieve and
execute internal business plans; worldwide political instability and economic
growth; and the impact of any economic downturns and inflation, including the
recent weaknesses in the currency, banking and equity markets of countries in
South America and in the Asia/Pacific region.
If one or more of these risks or uncertainties materializes, or if
underlying assumptions prove incorrect, our actual results may vary materially
from those expected, estimated or projected. Given these uncertainties, users of
the information included in this financial discussion and analysis by
management, including investors and prospective investors are cautioned not to
place undue reliance on such forward-looking statements. We do not intend to
update these forward-looking statements 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 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.
On February 22, 1999, we used available cash to acquire 77.3% of SNEP S.A.
By June 30, 1999, we had purchased significantly all of the remaining shares of
SNEP. The total amount paid was approximately $8.0 million, including $1.1
million of debt assumed, in a business combination accounted for as a purchase.
The total cost of the acquisition exceeded the fair value of the net assets of
SNEP by approximately $4.3 million, which is preliminarily being allocated as
goodwill, and amortized using the straight-line method over 40 years. SNEP is a
French manufacturer of precision machined self-locking nuts and special threaded
fasteners serving the European industrial, aerospace and automotive markets.
On 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 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 Kaynar Technologies's 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's largest preferred
shareholder. The total cost of the acquisition exceeded the fair value of the
net assets of Kaynar Technologies by approximately $269.7 million, which is
preliminarily being allocated as goodwill, and amortized 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 June 18, 1999, we completed the acquisition of Technico S.A. for
approximately $4.1 million and assumed approximately $2.2 million of Technico's
existing debt. The total cost of the acquisition exceeded the fair value of the
net assets of Technico by approximately $2.9 million, which is preliminarily
being allocated as goodwill, and amortized using the straight-line method over
40 years. The acquisition was financed with additional borrowings from our
credit facility.
Fiscal 1998 Transactions
On March 11, 1998, Shared Technologies Fairchild Inc. merged into
Intermedia Communications Inc. Under the terms of the merger, holders of Shared
Technologies Fairchild common stock received $15.00 per share in cash. We
received approximately $178.0 million in cash (before tax and selling expenses)
in exchange for the common and preferred stock of Shared Technologies Fairchild
we owned. In fiscal 1998, we recorded a $96.0 million gain, net of tax, on
disposal of discontinued operations, from the proceeds received from the merger
of Shared Technologies Fairchild with Intermedia. The results of Shared
Technologies Fairchild have been accounted for as discontinued operations.
On November 28, 1997, we acquired AS+C GmbH, Aviation Supply + Consulting
in a business combination accounted for as a purchase. The total cost of the
acquisition was $14.0 million, which exceeded the fair value of the net assets
of AS+C by approximately $8.1 million, which is allocated as goodwill and
amortized using the straight-line method over 40 years. We purchased AS+C with
cash borrowings. AS+C is an aerospace parts, logistics, and distribution company
primarily servicing the European OEM market.
On December 19, 1997, we completed a secondary offering of public
securities. The offering consisted of an issuance of 3,000,000 shares of our
Class A common stock at $20.00 per share, which generated $57 million of net
proceeds. On December 19, 1997, immediately following the Offering, we
restructured our FHC and RHI credit agreements by entering into a new six-and-a-
half-year credit facility to provide us with a $300 million senior secured
credit facility consisting of (i) a $75 million revolving loan with a letter of
credit sub-facility of $30 million and a $10 million swing loan sub-facility,
and (ii) a $225 million term loan.
On January 13, 1998, Banner Aerospace completed the disposition of
substantially all of the assets and certain liabilities of certain of its
subsidiaries to two wholly-owned subsidiaries of AlliedSignal Inc., in exchange
for shares of AlliedSignal common stock with an aggregate value of $369 million.
The assets transferred to AlliedSignal consisted primarily of Banner Aerospace's
hardware group, which included the distribution of bearings, nuts, bolts,
screws, rivets and other types of fasteners, and its PacAero unit. Approximately
$196 million of the common stock received from AlliedSignal Inc. was used to
repay outstanding term loans of Banner Aerospace's subsidiaries, and related
fees.
On February 3, 1998, with the proceeds of the equity offering, term loan
borrowings under the credit facility, and a portion of the after tax proceeds we
received from the Shared Technologies Fairchild, we refinanced substantially all
of our then existing indebtedness (other than indebtedness of Banner),
consisting of (i) $63.0 million to redeem 11 7/8% Senior Debentures due 1999;
(ii) $117.6 million to redeem 12% Intermediate Debentures due 2001; (iii) $35.9
million to redeem 13 1/8% Subordinated Debentures due 2006; (iv) $25.1 million
to redeem 13% Junior Subordinated Debentures due 2007; and (vi) accrued interest
of $10.6 million.
On March 2, 1998, we acquired Edwards and Lock Management Corporation,
doing business as Special-T Fasteners, in a business combination accounted for
as a purchase. The cost of the acquisition was approximately $50.0 million, of
which 50.1% of the contractual purchase price was paid in shares of our Class A
common stock and 49.9% was paid in cash. The total cost of the acquisition
exceeded the fair value of the net assets of Special-T by approximately $23.3
million, which is being allocated as goodwill, and amortized using the straight-
line method over 40 years. Special-T manages the logistics of worldwide
distribution of Company-manufactured precision fasteners to customers in the
aerospace industry, government agencies, OEMs, and other distributors.
On May 11, 1998, we commenced an offer to exchange, for each properly
tendered share of common stock of Banner, a number of shares of our Class A
common stock, par value $0.10 per share, equal to the quotient of $12.50 divided
by $20.675 up to a maximum of 4,000,000 shares of Banner Aerospace's common
stock. The exchange offer expired on June 9, 1998 and 3,659,364 shares of Banner
Aerospace's common stock were validly tendered for exchange and we issued
2,212,361 shares Class A common stock to the tendering shareholders.
Fiscal 1997 Transactions
In February 1997, we completed a transaction pursuant to which we acquired
common shares and convertible debt representing an 84.2% interest, on a fully
diluted basis, of Simmonds S.A. We then initiated a tender offer to purchase the
remaining shares and convertible debt held by the public. By June 30, 1997, we
had purchased, or placed sufficient cash in escrow to purchase, all the
remaining shares and convertible debt of Simmonds. The total purchase price of
Simmonds, including the assumption of debt, was approximately $62.0 million,
which we funded with available cash and borrowings. We recorded approximately
$20.5 million in goodwill as a result of this acquisition, which is being
amortized using the straight-line method over 40 years. Simmonds is one of
Europe's leading manufacturers and distributors of aerospace and automotive
fasteners.
On June 30, 1997, we sold all the patents of Fairchild Scandinavian
Bellyloading Company to Teleflex Incorporated for $5.0 million, and immediately
thereafter sold all the stock of Fairchild Scandinavian Bellyloading Company to
a wholly-owned subsidiary of Teleflex for $2.0 million.
Consolidated Results
We currently report in two principal business segments: aerospace fasteners
and aerospace distribution. The results of the Gas Springs division are
included in the Corporate and Other classification. The following table
illustrates the historical sales and operating income of our operations for the
past three years.
(In thousands) For the years ended June 30,
1999 1998 1997
Sales by Segment:
Aerospace Fasteners $442,722 $387,236 $269,026
Aerospace Distribution 168,336 358,431 411,765
Corporate and Other 6,264 5,760 15,185
Eliminations (a) - (10,251) (15,213)
Total Sales $617,322 $741,176 $680,763
Operating Income (Loss) by
Segment:
Aerospace Fasteners 38,956 32,722 17,390
Aerospace Distribution (40,003) 20,330 30,891
Corporate and Other (44,864) (7,609) (14,782)
Total Operating Income
(Loss) (b) $(45,911) $45,443 $33,499
(a) Represents intersegment sales from our aerospace fasteners segment to our
aerospace distribution segment.
(b) Fiscal 1999 results include an inventory impairment charges of $41,465 in
the aerospace distribution segment, costs relating to acquisitions of
$23,604 and restructuring charges of $5,526 in the aerospace fasteners
segment, $348 in the aerospace distribution segment, and $500 at corporate.
The following unaudited pro forma table illustrates sales and operating
income of our operations by segment, on a pro forma basis, as if we had operated
in a consistent manner for the past three years. The pro forma results represent
the impact of our merger with Kaynar Technologies (completed in April 1999), our
merger with Banner Aerospace (completed in April 1999), our acquisition of
Special-T (effective January 1998), our disposition of Solair (completed in
December 1998), our disposition of the hardware group (completed January 13,
1998), the disposition of Shared Technologies Fairchild (completed in March
1998), and our disposition of Fairchild Scandinavian Bellyloading Company
(completed June 30, 1997), 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. The pro forma information is not necessarily
indicative of the results of operations that would actually have occurred if the
transactions had been in effect since the beginning of each period, nor are they
necessarily indicative of our future results.
For the years ended June 30,
1999 1998 1997
Sales by Segment:
Aerospace Fasteners $610,200 $630,538 $468,082
Aerospace Distribution 140,017 148,339 117,781
Corporate and Other 6,264 5,760 5,118
Total Sales $756,481 $784,637 $590,981
Operating Income (Loss) by
Segment:
Aerospace Fasteners 54,426 68,037 32,992
Aerospace Distribution (20,836) 9,382 8,235
Corporate and Other (24,396) (12,439) (16,385)
Total Operating Income
(Loss) (a) $ 9,194 $ 64,980 $ 24,842
(a) Fiscal 1999 results include an inventory impairment charge of $22,145 in
the aerospace distribution segment, costs relating to acquisitions of
$23,604 and restructuring charges of $5,526 in the aerospace fasteners
segment, $348 in the aerospace distribution segment, and $500 at corporate.
Net sales of $617.3 million in 1999 decreased by $123.9 million, or 16.7%,
compared to sales of $741.2 million in 1998. The decrease is attributable
primarily to the loss of revenues resulting from the disposition of Banner
Aerospace's hardware group and Solair. Approximately 7.3% of the current year's
sales growth came from acquisitions in the aerospace fasteners segment.
Divestitures decreased our growth by approximately 21.0% and our internal growth
was down 6.2%. Net sales of $741.2 million in 1998 increased by $60.4 million,
or 8.9%, compared to sales of $680.8 million in 1997. Sales growth was
stimulated by the resurgent commercial aerospace industry and business
acquisitions, partially offset by the loss of revenues as a result of the
disposition of Banner Aerospace's hardware group. Approximately 15.8% of the
1998 sales growth was stimulated by the resurgent commercial aerospace industry.
On a pro forma basis, net sales decreased 3.6% and increased 32.8% in 1999 and
1998, respectively, as compared to the previous fiscal periods.
Gross margin as a percentage of sales was 18.2%, 25.2% and 26.6% in 1999,
1998, and 1997, respectively. Included in cost of goods sold for 1999 was a
charge of $41.5 million recognized in our aerospace distribution segment from
the disposition of Solair and the potential disposition of Dallas Aerospace. Of
this charge, $19.3 million was attributable to Solair's bulk sale of inventory
at prices below this carrying amount. Excluding these charges, gross margin as
a percentage of sales was 24.9% in fiscal 1999. The lower margins in the fiscal
1999 period are attributable to a change in product mix in our aerospace
distribution segment as a result of the dispositions. Partially offsetting the
overall lower margins was an improvement in margins within our aerospace
fasteners segment resulting from acquisitions, efficiencies associated with
increased production, improved skills of the work force, and reduction in the
payment of overtime. Decreased margins in the fiscal 1998 period were
attributable to a change in product mix in the aerospace distribution segment as
a result of the disposition of Banner' Aerospace's hardware group.
Selling, general & administrative expense as a percentage of sales was
24.2%, 19.1%, and 21.0% in fiscal 1999, 1998, and 1997, 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 20.4% in 1999. This increase in 1999 is
attributable to increased environmental expenses. The improvement in fiscal 1998
was attributable primarily to administrative efficiencies allowed by increased
sales.
Other income decreased $2.6 million in 1999 as compared to 1998, and
increased $6.5 million in 1998 as compared to 1997. These changes are due
primarily to the fiscal 1998 sale of air rights over a portion of the property
we own and are developing in Farmingdale, New York.
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 $5.5
million was recorded as a result of the Kaynar Technologies merger integration
process at our aerospace fasteners segment for severance benefits, product
integration expenses incurred as of June 30, 1999, and the write down of
redundant fixed assets. As of June 30, 1999, approximately one-third of the
integration process has been executed. We expect to incur additional
restructuring charges for product integration costs during the next twelve
months at our aerospace fasteners segment. We anticipate that our integration
process will be substantially completed by the second quarter of fiscal 2000.
We reported an operating loss of $45.9 million in fiscal 1999 which was a
decrease from operating income of $45.4 million reported in fiscal 1998. The
current year was affected by $71.4 million of expenses recognized for inventory
impairment, restructuring and costs related to acquisitions. Operating income of
$45.4 million in fiscal 1998 increased $11.9 million, or 35.7%, compared to
operating income of $33.5 million in fiscal 1997. The increase in operating
income was due primarily to the improved results in our aerospace fasteners
segment.
Net interest expense decreased 29.0% in fiscal 1999 compared to fiscal 1998
and decreased 10.4% in fiscal 1998 compared to fiscal 1997. The decreases were
due to a series of transactions occurring in fiscal 1998 that significantly
reduced our total debt. We expect interest expense to increase significantly in
the next year as a result of additional debt we incurred to finance the
acquisition of Kaynar Technologies.
Investment income (loss), net, was $39.8 million, $(3.4) million, and $6.7
million in 1999, 1998, and 1997, respectively. We recognized a large gain in
1999 from the liquidation of our position in AlliedSignal to raise funds to
acquire Kaynar Technologies. The $10.1 decrease in 1998 was due to recognition
of unrealized losses on the fair market adjustments of investments previously
classified as trading securities in the fiscal 1998 periods, while recording
unrealized gains from trading securities in the fiscal 1997 periods. Unrealized
holding gains (losses) on available-for-sale investments are marked to market
value through stockholders' equity and reported separately as part of
comprehensive income.
Nonrecurring income of $124.0 million in 1998 resulted from the disposition
of Banner Aerospace's hardware group. Nonrecurring income in 1997 included the
$2.5 million gain from the sale of Scandinavian Bellyloading Company.
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. The income tax
provision of $47.3 million reported in fiscal 1998 represents a 38.3% effective
tax rate on pre-tax earnings from continuing operations (excluding equity in
earnings of affiliates and minority interest) of $123.4 million. The tax
provision was slightly higher than the statutory rate because of goodwill
associated with the disposition of Banner Aerospace's hardware group, which is
not deductible for tax purposes. Income taxes included a $7.3 million tax
benefit in Fiscal 1997 on a pre-tax loss of $5.0 million from continuing
operations.
Equity in earnings of affiliates decreased $0.8 million in 1999, compared
to 1998, and $0.4 million in 1998, compared to 1997. The decreases are primarily
attributable to losses recorded by small start-up ventures. In July 1999, we
divested our 31.9% interest in Nacanco. This will likely reduce our future
equity earnings.
Minority interest decreased by $24.2 million in 1999 and increased by $22.8
million in 1998 as a result of the $124.0 million nonrecurring pre-tax gain
recognized in 1998 from the disposition of Banner Aerospace's hardware group. On
April 8, 1999, we completed a merger with Banner Aerospace, which will
effectively reduce our future minority interest effects to immaterial amounts.
Included in earnings (loss) from discontinued operations are the results of
Fairchild Technologies through January 1998, and our equity in earnings of
Shared Technologies Fairchild prior to the merger of Shared Technologies
Fairchild. Losses increased in fiscal 1998 as a result of increased losses
recorded at Fairchild Technologies and lower equity earnings contributed by
Shared Technologies Fairchild. (See Note 4 to our Consolidated Financial
Statements).
In 1998, we recorded a $96.0 million gain, net of tax, on disposal of
discontinued operations, from the proceeds received from the merger of Shared
Technologies Fairchild. This gain was partially offset in connection with the
adoption of a formal plan to enhance the opportunities for disposition of
Fairchild Technologies. Under this plan we recorded an after-tax charge of $31.3
million and $36.2 million on disposal of discontinued operations in fiscal 1999
and 1998, respectively. 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 and $8.0 million (net of an income tax
benefit of $4.8 million) for the estimated operating losses of Fairchild
Technologies. 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, based on a current estimate of the
remaining losses in connection with the disposition of Fairchild Technologies.
While we believe that $2.8 million is a reasonable charge for the remaining
losses to be incurred from Fairchild Technologies, there can be no assurance
that this estimate is adequate.
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 (See Note 8). In fiscal 1998 we recognized an extraordinary loss of
$6.7 million, net of tax, to write-off the remaining deferred loan fees and
original issue discounts associated with early extinguishment of our
indebtedness pursuant the repayment of all our public debt and refinancing of
credit facilities.
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 $16.5 million in fiscal 1999 and
increased by $20.6 million in 1998. The 1999 changes reflect primarily
gains realized from the liquidation of investments, primarily AlliedSignal
common stock. The 1998 increase was primarily the result of an increase in
the value of AlliedSignal common stock which we received from the
disposition of Banner Aerospace's hardware group. Foreign currency
translation adjustments decreased by $2.5 million and $5.1 million in fiscal
1999 and 1998, respectively.
Segment Results
Aerospace Fasteners Segment
Sales in the aerospace fasteners segment increased by $55.5 million to
$442.7 million, up 14.3% in fiscal 1999, compared to fiscal 1998, reflecting
growth due primarily to the acquisition of Kaynar Technologies. New orders
stabilized in 1999 reflecting a plateau during fiscal 1999 and ultimately a
slight downturn in the commercial aerospace industry in the fourth quarter of
fiscal 1999. Backlog increased by $38 million in fiscal 1999 to $215 million at
June 30, 1999, reflecting the acquisition of Kaynar Technologies. Excluding $90
million of backlog contributed by Kaynar Technologies, our backlog decreased $52
million. Sales in the aerospace fasteners segment increased by $118.2 million to
$387.2 million, up 43.9% in fiscal 1998, compared to fiscal 1997, reflecting
growth in the commercial aerospace industry combined with the effect of
acquisitions. On a pro forma basis reflecting acquisitions in comparable
periods, sales decreased 3.2% in fiscal 1999, compared to fiscal 1998, and
increased 34.7% in fiscal 1998 compared to fiscal 1997
Operating income increased by $6.2 million, or 19.1%, in fiscal 1999,
compared to fiscal 1998. Included in our 1999 results are restructuring charges
of $5.5 million for integration costs and severance from the integration of our
business with the Kaynar Technologies business. Excluding restructuring charges,
operating income increased $11.7 million in fiscal 1999 compared to fiscal 1998.
Excluding restructuring charges, internal growth was 7.9% in fiscal 1999 at
operations we owned entirely during the period, compared to the fiscal 1998
results of these same operations on a pro forma basis. Operating income improved
by $15.3 million, or 88.2%, in fiscal 1998, compared to fiscal 1997.
Acquisitions and marketing changes were contributing factors to the fiscal 1998
improvement. We anticipate that cost savings resulting from the manufacturing
integration of the Kaynar Technologies business with our own business will
further improve operating results in fiscal 2000. On a pro forma basis,
operating income decreased $13.6 million in fiscal 1999, as compared to fiscal
1998 and increased $35.0 million in fiscal 1998, as compared to fiscal 1997.
We believe the demand for aerospace fasteners in fiscal 2000 will remain
relatively high in Europe, and expect sluggish demand in the United States. We
anticipate that order rates may start increasing again during the ladder part of
fiscal 2000. In the meantime, we believe production volume on a worldwide basis
will remain at reasonable levels. We expect that our merger integration savings
and production efficiency improvements will allow us to generate an increase in
margin.
Aerospace Distribution Segment
Sales in our aerospace distribution segment decreased by $190.1 million, or
53.0%, in fiscal 1999, compared to the fiscal 1998 period, due primarily to the
loss of revenues as a result of the disposition of the hardware group and
Solair. Sales decreased by $53.3 million, or 13.0% in fiscal 1998, compared to
fiscal 1997. The exclusion of six months' revenues as a result of the hardware
group disposition was responsible primarily for the decrease in 1998, in which
sales otherwise reflected a robust aerospace industry. On a twelve-month pro
forma basis, sales decreased $8.3 million, or 5.6%, in 1999 compared to 1998,
and increased $30.6 million, or 25.9%, in 1998 compared to 1997.
Operating income decreased by $60.3 million, in fiscal 1999, as compared to
fiscal 1998. A charge of $41.4 million is included in the current year results,
in connection with the sale of Solair and the potential sale of Dallas
Aerospace. Excluding these charges, operating income would have decreased $18.9
million in fiscal 1999, compared to the same period of the prior year, due
primarily to the disposition of Solair and the hardware group. Operating income
decreased $10.6 million in fiscal 1998, compared to fiscal 1997, due to the
hardware group disposition. On a twelve-month pro forma basis, operating income
decreased $30.2 million in fiscal 1999, compared to fiscal 1998, and was stable
in fiscal 1998 compared to fiscal 1997.
Corporate and Other
The Corporate and Other classification includes the Gas Springs division
and corporate activities. The group reported an 8.8% improvement in sales in
fiscal 1999, compared to fiscal 1998. An operating loss of $44.9 million in
fiscal 1999 was $37.3 million higher than the operating loss of $7.6 million
reported in fiscal 1998. The current year includes $23.6 million of one-time
costs associated primarily with the acquisition of Kaynar Technologies,
restructuring charges, and increased environmental, legal and travel expenses.
Also, the prior year included other income of $8.6 million, including $4.4
million realized as a result of the condemnation of air rights over a portion of
the property we own and are developing in Farmingdale, New York.
The group reported a decrease in sales of $9.4 million, in 1998, as
compared to 1997, due to the exclusion of Fairchild Scandinavian Bellyloading
results in fiscal 1998. The operating loss decreased by $7.2 million in 1998,
compared to fiscal 1997, as a result of an increase in other income and a
decrease in legal expenses.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Total capitalization as of June 30, 1999 and 1998 amounted to $931.6
million and $789.6 million, respectively. The changes in capitalization included
an increase of $208.1 million in debt and a decrease of $66.1 million in equity.
The increase in debt was a result of the acquisition of Kaynar Technologies. The
decrease in equity was due primarily to a $22.1 million purchase of treasury
stock, the $59.0 million reported loss, and a $19.0 million change in cumulative
other comprehensive income, offset partially by the issuance of $22.2 million of
our Class A common stock resulting from the merger with Banner Aerospace.
We maintain a portfolio of investments classified primarily as available-
for-sale securities, which had a fair market value of $28.9 million at June 30,
1999. The market value of these investments decreased $16.5 million in 1999 due
primarily to the liquidation of investments in which investment income of $39.8
million was realized. While there is risk associated with market fluctuations
inherent in stock investments, and because our portfolio it not diversified,
large swings in its value should be expected. In 1999, we liquidated
substantially all of our AlliedSignal common stock, using the proceeds therefrom
in connection with the acquisition of Kaynar Technologies. In fiscal 1999, we
sold approximately 4.9 million shares of AlliedSignal common stock for aggregate
proceeds of approximately $219.9 million.
We have an 88-acre site in Farmingdale, New York, of which we are
developing as a shopping center. We have invested (cash and interest) of
approximately $40.4 million, $17.3 million and $6.7 million into this project in
1999, 1998 and 1997, respectively. We estimate funding of approximately $20.0
million is needed to complete this project.
Net cash provided by operating activities for fiscal 1999 was $23.3
million. The primary use 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 used for operating activities for fiscal
1998 was $85.2 million. The primary use of cash for operating activities in
fiscal 1998 was a $54.9 million increase in inventories.
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 from
investing activities for fiscal 1998 was $43.6 million and included proceeds
received from the disposition of discontinued operations, including Shared
Technologies Fairchild, of $168.0 million. This was slightly offset by cash used
for the acquisition of subsidiaries and minority interests of $32.8 million and
$26.4 million, respectively.
Net cash provided by financing activities in fiscal 1999 and 1998 was $81.2
million and $74.1 million, respectively. 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
acquistion of Kaynar Technologies. Cash provided by financing activities in
fiscal 1998 included the issuance $53.8 million of stock from our 1998 equity
offering and $275.5 million from the issuance of additional debt partially
offset by the repayment of debt and the repurchase of debentures of $258.0
million.
Our principal cash requirements include debt service, capital
expenditures, acquisitions, and payment of other liabilities. Other liabilities
that require the use of cash include postretirement benefits, environmental
investigation and remediation obligations, real estate development, and
litigation settlements and related costs. We expect that cash on hand, cash
generated from operations, and cash from borrowings and asset sales will be
adequate to satisfy our cash requirements in fiscal 2000.
Discontinued Operations
In fiscal 1999, 1998, and 1997, Fairchild Technologies had pre-tax
operating losses of approximately $49.5 million, $48.7 million, and $3.6
million, respectively. In addition, as a result of the downturn in the Asian
markets, Fairchild Technologies experienced delivery deferrals, reduction in new
orders, lower margins and increased price competition. In response, in February
1998, we adopted a formal plan for the disposition of Fairchild Technologies.
The plan called for a reduction in production capacity and headcount at
Fairchild Technologies and the pursuit of potential vertical and horizontal
integration with peers and competitors of the two divisions that constitute
Fairchild Technologies.
During the fourth quarter of fiscal 1999, we liquidated a significant
portion of Fairchild Technologies mostly consisting of our semiconductor
equipment group through several transactions. On April 14, 1999, we disposed of
our photoresist deep ultraviolet track equipment machines, spare parts and
testing equipment to Apex Co., Ltd. in exchange for 1,250,000 shares of Apex
stock valued at approximately $5.1 million. On June 15, 1999, we received $7.9
million from Suess Microtec AG and the right to receive 350,000 shares of Suess
Microtec stock (or approximately $3.5 million) by June 2000 in exchange for all
of the fixed assets and inventory of Fairchild Technologies SEG GmbH and certain
intellectual property. On May 1, 1999, we sold Fairchild CDI for a nominal
amount. Subsequent to June 30, 1999, we received approximately $7.1 million from
Novellus in exchange for our Low-K dielectric product line and certain
intellectual property. We are also exploring several alternative transactions
regarding the Fairchild Technologies optical disc equipment group business, but
we have not made any definitive arrangement for its ultimate disposition.
Uncertainty of the Spin-Off
In order to focus our operations on the aerospace industry, we have been
considering for some time distributing to our stockholders certain of our assets
via distribution of all of the stock of a new entity, which may own all or a
substantial part of our non-aerospace operations. We are still in the process of
deciding the exact composition of the assets and liabilities to be included in
the spin-off, but such assets would be likely to include certain real estate
interests. Our ability to consummate the spin-off, if we should choose to do so,
would be contingent, among other things, on attaining certain milestones under
our credit facility, or waivers thereof, and all necessary governmental and
third party approvals. There is no assurance that we will be able to reach such
milestones or obtain the necessary waivers from our lenders. In addition, we may
encounter unexpected delays in effecting the spin-off, and we can make no
assurance as to the timing thereof, or as to whether the spin-off will ever
occur.
Depending on the ultimate structure and timing of the spin-off, it may be a
taxable transaction to our stockholders and could result in a material tax
liability to us as well as our stockholders. The amount of the tax to us is
uncertain, and if the tax is material to us, we may elect not to consummate the
spin-off. Because circumstances may change and provisions of the Internal
Revenue Code of 1986, as amended, may be further amended from time to time, we
may, depending on various factors, restructure or delay the timing of the spin-
off to minimize the tax consequences to us and our stockholders, or elect not to
consummate the spin-off. Under the spin-off, it is expected that that the newly
created entity may assume certain of our liabilities, including contingent
liabilities, and may indemnify us for such liabilities. In the event this entity
is unable to satisfy the liabilities, which it will assume in connection with
the spin-off, we may have to satisfy such liabilities.
Year 2000
As the end of the century nears, there is a widespread concern that many
existing data processing devices that use only the last two digits to refer to a
year will not properly recognize a year that begins with the digits ''20''
instead of ''19.'' If not properly modified, these data processing devices could
fail, create erroneous results, or cause unanticipated systems failures, among
other problems. In response, we have developed a worldwide Year 2000 readiness
plan that is divided into a number of interrelated and overlapping phases. These
phases include corporate awareness and planning, readiness assessment,
evaluation and prioritization of solutions, implementation of remediation,
validation testing, and contingency planning. Each is discussed below.
Awareness. In the corporate awareness and planning phase, we formed a Year
2000 project group under the direction of our Chief Financial Officer and Chief
Information Officer, identified and designated key personnel within the company
to coordinate our Year 2000 efforts, and retained the services of outside
technical review and modification consultants. The project group prepared an
overall schedule and working budget for our Year 2000 plan. We have completed
this phase of our Year 2000 plan. We evaluate our information technology
applications regularly, and based on such evaluation revise the schedule and
budget to reflect the progress of our Year 2000 readiness efforts. The Chief
Financial Officer and Chief Information Officer regularly report to our
management and to our audit committee on the status of the Year 2000 project.
Assessment. In the readiness assessment phase, we, in coordination with
our technical review consultants, have been evaluating our Year 2000
preparedness in a number of areas, including our information technology
infrastructure, external resources, physical plant and production facilities,
equipment and machinery, products and inventory. We have completed this phase of
our Year 2000 Plan. Pending the completion of all validation testing, we
continue to review on a regular basis all aspects of our Year 2000 preparedness.
In this respect, we have designated officers at each of our business segments to
provide regular assessment updates to our Chief Information Officer and outside
consultants, who have assimilated a range of alternative methods to complete
each phase of our Year 2000 plan and are reporting regularly their findings and
conclusions to our management.
Evaluation. In the evaluation and prioritization of solutions phase, we
seek to develop potential solutions to the Year 2000 issues identified in our
readiness assessment phase, consider those solutions in light of our other
information technology and business priorities, prioritize the various
remediation tasks, and develop an implementation schedule. This phase is largely
complete. However, we will continue to evaluate our Year 2000 readiness status
through November 15, 1999, when all validation testing is anticipated to be
complete. However, identified problems will be corrected as soon as practicable
after identification. To date, we have not identified any major information
technology system or non-information technology system that must be replaced in
its entirety for Year 2000 reasons. We have also determined that most of the
Year 2000 issues identified in the assessment phase can be addressed
satisfactorily through system modifications, component upgrades and software
patches. Thus, we do not presently anticipate incurring any material systems
replacement costs relating to the Year 2000 issues.
Implementation. In the implementation of remediation phase, we, with the
assistance of our technical review and modification consultants, began to
implement the proposed solutions to any identified Year 2000 issues. The
solutions include equipment and component upgrades, systems and software
patches, reprogramming and resetting machines, and other modifications.
Substantially all of the material systems within the aerospace fasteners and
aerospace distribution segments of our business are currently Year 2000 ready.
However, we are continuing to evaluate and implement Year 2000 modifications to
embedded data processing technology in certain manufacturing equipment used in
our aerospace fasteners segment.
Testing. In the validation testing phase, we seek to evaluate and confirm
the results of our Year 2000 remediation efforts. In conducting our validation
testing, we are using, among other things, proprietary testing protocols
developed internally and by our technical review and modification consultants,
as well as testing tools such as Greenwich Mean Time's Check 2000 and SEMATECH's
Year 2000 Readiness Testing Scenarios Version 2.0. The Greenwich tools identify
potential Year 2000-related software and data problems, and the SEMATECH
protocols validate the ability of data processing systems to rollover and hold
transition dates. Testing for both the aerospace fasteners segment and the
aerospace distribution segment is approximately 90 percent complete. To date,
the results of our validation testing have not revealed any new and significant
Year 2000 issues or any ineffective remediation. We have completed testing of
our most critical information technology and related systems.
Contingency Planning. In the contingency planning phase, we, together with
our technical review consultants, are assessing the Year 2000 readiness of our
key suppliers, distributors, customers and service providers. Toward that
objective, we have sent letters, questionnaires and surveys to our business
partners, inquiring about their Year 2000 readiness arrangements. The average
response rate has been approximately 55 percent, including our most significant
business partners have responded to our inquiries. In this phase, we have
evaluated the risks that our failure or the failure of others to be Year 2000
ready would cause a material disruption to, or have a material effect on, our
financial condition, business or operations. So far, we have identified only our
aerospace fasteners MRP system as being both mission critical and potentially at
risk. In mitigation of this concern, we have engaged a consultant to test,
evaluate and implement the manufacturer-designed Year 2000 patches for the
system. We are also developing and evaluating contingency plans to deal with
events arising from significant Year 2000 issues outside of our infrastructure.
In this regard, we are considering the advisability of augmenting our
inventories of certain raw materials and finished products, securing additional
sources for certain supplies and services, arranging for back-up utilities, and
exploring alternate distribution and sales channels, among other things.
The following chart summarizes our progress, by phase and business segment,
in completing the Year 2000 plan:
Percentage of Year 2000 Plan Completed
(By Phase and Business Segment)
Quarter Ended
Sept.Dec. Mar. June Sept. Dec. Mar. June Work
28, 28, 29, 30, 27, 27, 28, 30, Remaining
1997 1997 1998 1998 1998 1998 1999 1999
Awareness:
Aerospace 50% 100% 100% 100% 100% 100% 100% 100% 0%
Fasteners
Aerospace 100 100 100 100 100 100 100 100 0
Distribution
Assessment:
Aerospace 25 50 75 100 100 100 100 0
Fasteners
Aerospace 0 0 0 50 100 100 100 0
Distribution
Evaluation:
Aerospace 0 70 100 100 0
Fasteners
Aerospace 20 100 100 100 0
Distribution
Implementation:
Aerospace 50 60 90 10
Fasteners
Aerospace 40 75 95 5
Distribution
Testing:
Aerospace 20 35 90 10
Fasteners
Aerospace 30-40 70 90 10
Distribution
Contingency
Planning:
Aerospace 0 20 35 90 10
Fasteners
Aerospace 25 50 65 90 10
Distribution
The chart below summarizes costs we incurred through June 30, 1999, by
segment, to address Year 2000 issues, and the total costs we reasonably
anticipate incurring during the remainder of 1999 relating to the Year 2000
issue.
(In thousands) Year 2000 Costs Anticipated Year 2000
as of Costs
June 30, 1999 During the Next Six
Months
Aerospace Fasteners $685 $400
Aerospace Distribution $600 $50
We have funded the costs of our Year 2000 plan from general operating
funds, and all such costs have been deducted from income. To date, the costs
associated with our Year 2000 efforts have not had a material effect on, and
have caused no delays with respect to, our other information technology programs
or projects.
We anticipate that we will complete our Year 2000 preparations by November
15, 1999. Although our Year2000 implementation, testing and contingency planning
phases are not yet complete, we do not currently believe that Year 2000 issues
will materially affect our business, results of operations or financial
condition. However, in some international markets in which we conduct business,
the level of awareness and remediation efforts by third parties, utilities and
infrastructure managers relating to the Year 2000 issue may be less advanced
than in the United States, which could, despite our efforts, have an adverse
effect on us. If our mission critical systems are not Year 2000 ready, we could
be subject to significant business interruptions, and could be liable to
customers and other third parties for breach of contract, breach of warranty,
misrepresentation, unlawful trade practices and other claims.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes a new model for accounting for derivatives and hedging activities
and supersedes and amends a number of existing accounting standards. It
requires that all derivatives be recognized as assets and liabilities on the
balance sheet and measured at fair value. The corresponding derivative gains or
losses are reported based on the hedge relationship that exists, if any.
Changes in the fair value of derivative instruments that are not designated as
hedges or that do not meet the hedge accounting criteria in SFAS 133, are
required to be reported in earnings. Most of the general qualifying criteria
for hedge accounting under SFAS 133 were derived from, and are similar to, the
existing qualifying criteria in SFAS 80 "Accounting for Futures Contracts."
SFAS 133 describes three primary types of hedge relationships: fair value hedge,
cash flow hedge, and foreign currency hedge. In June 1999, the FASB issued
Statement of Financial Accounting Standards No. 137 to defer the required
effective date of implementing SFAS 133 from fiscal years beginning after June
15, 1999 to fiscal years beginning after June 15, 2000. We will adopt SFAS 133
in fiscal 2001 and we are currently evaluating the financial statement impact.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The table below provides information about our derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates, which include interest rate swaps. For interest rate swaps, the
table presents notional amounts and weighted average interest rates by expected
(contractual) maturity dates. Notional amounts are used to calculate the
contractual payments to be exchanged under the contract. Weighted average
variable rates are based on implied forward rates in the yield curve at the
reporting date.
Expected Maturity Date
2000 2001 2002 2003 2004 Thereafter
Interest Rate Swaps:
Variable to fixed 20,000 60,000 - - - 100,000
Average cap rate 7.25% 6.81% - - - 6.49%
Average floor 5.84% 5.99% - - - 6.24%
rate
Weighted average 5.71% 5.74% - - - 6.12%
rate
Fair market value (44) (99) - - - (3,709)
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 29
Consolidated Balance Sheets as of June 30, 1999 and 1998 30
Consolidated Statements of Earnings for each of the Three
Years Ended June 30, 1999, 1998, and 1997 32
Consolidated Statements of Stockholders' Equity for each
of the Three Years Ended June 30, 1999, 1998, and 1997 34
Consolidated Statements of Cash Flows for each of the Three
Years Ended June 30, 1999, 1998, and 1997 35
Notes to Consolidated Financial Statements 36
Supplementary information regarding "Quarterly Financial Data (Unaudited)" is
set forth under Item 8 in Note 21 to Consolidated Financial Statements.
Report of Independent Public Accountants
To The Fairchild Corporation and Consolidated Subsidiaries:
We have audited the accompanying consolidated balance sheets of The
Fairchild Corporation (a Delaware corporation) and consolidated subsidiaries as
of June 30, 1999 and 1998, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 1999, 1998 and 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of Nacanco Paketleme (see Note 7), the investment in which
is reflected in the accompanying financial statements using the equity method of
accounting. The investment in Nacanco Paketleme represents 1 percent and 2
percent of total assets as of June 30, 1999 and 1998, respectively, and the
equity in its net income represents 11 percent, 9 percent, and 257 percent of
earnings from continuing operations as of June 30, 1999, 1998, and 1997,
respectively. The statements of Nacanco Paketleme were audited by other auditors
whose report has been furnished to us and our opinion, insofar as it relates to
the amounts included for Nacanco Paketleme, is based on the report of other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of The Fairchild Corporation and consolidated
subsidiaries as of June 30, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years ended June 30, 1999, 1998 and
1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Vienna, VA
September 15, 1999
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, June 30,
ASSETS 1999 1998
CURRENT ASSETS:
Cash and cash equivalents, $15,752 and $746
restricted $ 54,860 $ 49,601
Short-term investments 13,094 3,962
Accounts receivable-trade, less allowances 130,121 120,284
of $6,442 and $5,655
Inventories:
Finished goods 137,807 187,205
Work-in-process 38,316 20,642
Raw materials 14,116 9,635
190,239 217,482
Net current assets of discontinued
operations - 11,613
Prepaid expenses and other current assets 73,926 53,081
TOTAL CURRENT ASSETS 462,240 456,023
Property, plant and equipment, net of
accumulated
depreciation of $103,556 and $82,968 184,065 118,963
Net assets held for sale 21,245 23,789
Net noncurrent assets of discontinued 8,541
operations -
Cost in excess of net assets acquired
(Goodwill), less
accumulated amortization of $40,307 and 447,722 168,307
$42,079
Investments and advances, affiliated 31,791 27,568
companies
Prepaid pension assets 63,958 61,643
Deferred loan costs 13,077 6,362
Real estate investment 83,791 43,440
Long-term investments 15,844 235,435
Other assets 5,053 7,188
TOTAL ASSETS $1,328,786 $1,157,259
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
CURRENT LIABILITIES:
Bank notes payable and current maturities of
long-term debt $ 28,860 $ 20,665
Accounts payable 72,271 53,859
Accrued liabilities:
Salaries, wages and commissions 43,095 23,613
Employee benefit plan costs 5,204 1,463
Insurance 14,216 12,575
Interest 7,637 2,303
Other accrued liabilities 50,984 52,789
121,136 92,743
Net current liabilities of discontinued
operations 10,999 -
Income taxes 28,311
-
TOTAL CURRENT LIABILITIES 233,266 195,578
LONG-TERM LIABILITES:
Long-term debt, less current maturities 495,283 295,402
Other long-term liabilities 25,904 23,767
Retiree health care liabilities 44,813 42,103
Noncurrent income taxes 121,961 95,176
Minority interest in subsidiaries 59 31,674
TOTAL LIABILITIES 921,286 683,700
STOCKHOLDERS' EQUITY:
Class A common stock, 10 cents par value;
authorized 40,000,000
shares, 29,754,448 (26,678,561 in 1998)
shares issued and
22,258,580 (20,428,591 in 1998) shares 2,975 2,667
outstanding
Class B common stock, 10 cents par value;
authorized 20,000,000
shares, 2,621,652 (2,624,716 in 1998) 262 263
shares issued and outstanding
Paid-in capital 229,038 195,112
Retained earnings 252,030 311,039
Cumulative other comprehensive income (2,703) 16,386
Treasury Stock, at cost, 7,495,868
(6,249,970 in 1998) shares
of Class A common stock (74,102) (51,908)
TOTAL STOCKHOLDERS' EQUITY 407,500 473,559
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$1,328,786 $1,157,259
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
For the Years Ended June 30,
1999 1998 1997
REVENUE:
Net sales $617,322 $741,176 $680,763
Other income, net 3,899 6,508 28
621,221 747,684 680,791
COSTS AND EXPENSES:
Cost of goods sold, including inventory
impairment adjustments of $41,465 in 1999 504,893 554,670 499,419
relating to the disposition of Solair and
the potential disposition of Dallas
Aerospace
Selling, general & administrative 149,348 142,102 143,059
Amortization of goodwill 6,517 5,469 4,814
Restructuring 6,374 - -
667,132 702,241 647,292
OPERATING INCOME (LOSS) (45,911) 45,443 33,499
Interest expense 33,162 46,007 52,376
Interest income (2,816) (3,292) (4,695)
Net interest expense 30,346 42,715 47,681
Investment income (loss), net 39,800 (3,362) 6,651
Non-recurring income - 124,028 2,528
Earnings (loss) from continuing operations
before taxes (36,457) 123,394 (5,003)
Income tax (provision) benefit 13,245 (47,274) 7,344
Equity in earnings of affiliates, net 1,795 2,571 2,989
Minority interest, net (2,090) (26,292) (3,514)
Earnings (loss) from continuing operations (23,507) 52,399 1,816
Loss from discontinued operations, net - (4,296) (485)
Gain (loss) on disposal of discontinued
operations, net (31,349) 59,717 -
Earnings (loss) before extraordinary items (54,856) 107,820 1,331
Extraordinary items, net (4,153) (6,730) -
NET EARNINGS (LOSS) $(59,009) $101,090 $ 1,331
Other comprehensive income, net of tax:
Foreign currency translation adjustments (2,545) (5,140) (1,514)
Unrealized holding gains (losses) on
secruities arising during the period (16,544) 20,633 74
Other comprehensive income (loss) (19,089) 15,493 (1,440)
COMPREHENSIVE INCOME (LOSS) $(78,098)$116,583 $ (109)
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
For the Years Ended June 30,
1999 1998 1997
BASIC EARNINGS PER SHARE:
Earnings (loss) from continuing operations $ $ $
$ (1.03) $ 2.78 $ 0.11
Loss from discontinued operations, net
- (0.23) (0.03)
Gain (loss) on disposal of discontinued
operations, net (1.38) 3.17 -
Extraordinary items, net
(0.18) (0.36) -
NET EARNINGS (LOSS)
$ (2.59) $ 5.36 $ 0.08
Other comprehensive income, net of tax:
Foreign currency translation adjustments
$ (0.11) $(0.27) $ (0.09)
Unrealized holding gains (losses) on
securities arising during the period (0.73) 1.10 -
Other comprehensive income
(0.84) 0.83 (0.09)
COMPREHENSIVE INCOME (LOSS)
$(3.43) $ 6.19 $(0.01)
DILUTED EARNINGS PER SHARE:
Earnings (loss) from continuing operations
$ (1.03) $ 2.66 $ 0.11
Loss from discontinued operations, net
- (0.22) (0.03)
Gain (loss) on disposal of discontinued
operations, net (1.38) 3.04 -
Extraordinary items, net
(0.18) (0.34) -
NET EARNINGS (LOSS)
$ (2.59) $ 5.14 $ 0.08
Other comprehensive income, net of tax:
Foreign currency translation adjustments
$ (0.11) $(0.26) $ (0.09)
Unrealized holding gains (losses) on
securities arising during the period (0.73) 1.05 -
Other comprehensive income
(0.84) 0.79 (0.09)
COMPREHENSIVE INCOME (LOSS) $(3.43) $ 5.93 $(0.01)
Weighted average shares outstanding:
Basic 22,766 18,834 16,539
Diluted 22,766 19,669 17,321
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Class Class
A B Cumulative
Common Common Paid Other
in Retained Treasury Comprehensive
Stock Stock Capital Earnings Stock Income Total
Balance, July 1, 1996 $2,000 $263 $69,366 $208,618 $(51,719) $2,333 $230,861
Net earnings - - - 1,331 - - 1,331
Foreign currency
translation adjustments - - - - - (1,514) (1,514)
Fair market value of
stock warrants issued - - 546 - - - 546
Proceeds received from
options exercised (234,935
shares) 23 - 1,103 - - - 1,126
Net unrealized holding
gain on available-for-sale
securities - - - - - 74 74
Balance, June 30, 1997 2,023 263 71,015 209,949 (51,719) 893 232,424
Net earnings - - - 101,090 - - 101,090
Foreign currency
translation adjustments - - - - - (5,140) (5,140)
Compensation expense from
adjusted terms to warrants and
options - - 5,655 - - - 5,655
Stock issued for Special-
T acquisition 108 - 21,939 - - - 22,047
Stock issued for Exchange
Offer 221 - 42,588 - - - 42,809
Equity Offering
300 - 53,268 - - - 53,568
Proceeds received from
stock options
exercised (141,259
shares) 10 - 652 - (189) - 473
Cashless exercise of
warrants (47,283 shares) 5 - (5) - - - -
Net unrealized holding
gain on available-for-sale
securities - - - - - 20,633 20,633
Balance, June 30, 1998 2,667 263 195,112 311,039 (51,908) 16,386 473,559
Net Loss - - - (59,009) - - (59,009)
Foreign currency
translation adjustments - - - - - (2,545) (2,545)
Stock issued for Special-
T acquistion 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
Restricted stock plan
issuance (14,969 shares) 1 - (1) - - -
Purchase of treasury
shares (1,239,750 shares) - - - - (22,102) - (22,102)
Exchange of Class B for
Class A
common stock (3,064 1 (1) - - - - -
shares)
Compensation expense from
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
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Years Ended June 30,
1999 1998 1997
Cash flows from operating activities:
Net earnings (loss) $ (59,009)101,090 1,331
Depreciation and amortization 25,657 20,873 20,815
Deferred loan fee amortization 1,100 2,406 2,847
Accretion of discount on long-term
liabilities 5,270 3,766 4,963
Net gain on the disposition of
subsidiaries - (124,041) -
Net gain on the sale of discontinued
operations - (132,787) -
Extraordinary items, net of cash
payments 6,389 10,347 -
Provision for restructuring (excluding
cash payments of $2,600 in 1999) 3,774 - -
(Gain) loss on sale of property, plant,
and equipment 400 246 (72)
(Undistributed) distributed earnings of
affiliates, net 3,433 1,725 (1,055)
Minority interest 2,090 26,292 3,514
Change in trading securities (1,254) 9,275 (5,733)
Change in receivables 8,632 (12,846)(48,693)
Change in inventories 14,727 (54,857)(36,868)
Change in other current assets (22,365)(26,643)(14,088)
Change in other non-current assets (26,741) 700 (9,828)
Change in accounts payable, accrued
liabilities and other long-term liabilities 45,906 77,434 6,747
Non-cash charges and working capital
changes of discontinued operations 15,259 11,789 (17,201)
Net cash provided by (used for)
operating activities 23,268 (85,231)(93,321)
Cash flows from investing activities:
Proceeds received from (used for)
investment securities, net 189,379 (7,287)(12,951)
Purchase of property, plant and
equipment (30,142)(36,029)(15,014)
Proceeds from sale of plant, property
and equipment 844 336 213
Equity investment in affiliates (7,678) (4,343) (1,749)
Minority interest in subsidiaries - (26,383) (1,610)
Acquisition of subsidiaries, net of cash
acquired (274,427)(32,795)(55,916)
Net proceeds received from sale of
subsidiary 60,396 - -
Net proceeds received from the sale of
discontinued operations - 167,987 173,719
Changes in real estate investment (40,351)(17,262) (6,737)
Changes in net assets held for sale 3,134 2,140 385
Investing activities of discontinued
operations (312) (2,750) (7,102)
Net cash provided by (used for)
investing activities (99,157) 43,614 73,238
Cash flows from financing activities:
Proceeds from issuance of debt 483,222 275,523 154,294
Debt repayments and repurchase of
debentures, net (380,083)(258,014)(155,600)
Issuance of Class A common stock 181 54,041 1,126
Purchase of treasury stock (22,102) - -
Financing activities of discontinued
operations - 2,538 (1,275)
Net cash provided by (used for)
financing activities 81,218 74,088 (1,455)
Effect of exchange rate changes on cash (70) (2,290) 1,309
Net change in cash and cash equivalents 5,259 30,181 (20,229)
Cash and cash equivalents, beginning of the
year 49,601 19,420 39,649
Cash and cash equivalents, end of the year $54,860 $49,601 $19,420
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 a direct
subsidiary of us. RHI is the owner of 100% of Fairchild Holding Corp. Our
principal operations are conducted through Fairchild Holding Corp. and Banner
Aerospace. During the periods covered by these financial statements we held
significant equity interests in Nacanco Paketleme and Shared Technologies
Fairchild Inc. In February 1998, we adopted a formal plan to dispose of our
interest in our technologies products segment operating under the name of
Fairchild Technologies. Accordingly, our financial statements present the
results of our former communications services segment, Shared Technologies
Fairchild and Fairchild Technologies as discontinued operations.
Fiscal Year: Our fiscal year ends June 30. All references herein to
"1999", "1998", and "1997" mean the fiscal years ended June 30, 1999, 1998 and
1997, respectively.
Consolidation Policy: The accompanying consolidated financial statements
are prepared in accordance with generally accepted accounting principles and
include our accounts and all of the accounts of our wholly-owned and majority-
owned subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation. Investments in companies in which ownership
interest range from 20 to 50 percent are accounted for using the equity method
(see Note 7).
Revenue Recognition: Sales and related costs are recognized upon shipment
of product and performance of services. Sales and related cost of sales on long-
term contracts are recognized as products are delivered and services performed,
determined by the percentage of completion method. Lease and rental revenue are
recognized as earned.
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:
1999 1998 1997
Interest $29,200 $52,737 $48,567
Income Taxes (21,304) (987) (1,926)
Restricted Cash: On June 30, 1999 and 1998, we had restricted cash of
$15,752 and $746, respectively, all of which is maintained as collateral for
certain debt facilities. Cash investments are in short-term treasury bills and
certificates of deposit.
Investments: Management determines the appropriate classification of our
investments at the time of acquisition and reevaluates such determination at
each balance sheet date. Trading securities are carried at fair value, with
unrealized holding gains and losses included in earnings. Available-for-sale
securities are carried at fair value, with unrealized holding gains and losses,
net of tax, reported as a separate component of stockholders' equity.
Investments in equity securities and limited partnerships that do not have
readily determinable fair values are stated at cost and are categorized as other
investments. Realized gains and losses are determined using the specific
identification method based on the trade date of a transaction. Interest on
corporate obligations, as well as dividends on preferred stock, are accrued at
the balance sheet date.
Inventories: Inventories are stated at the lower of cost or market. Cost is
determined using the last-in, first-out ("LIFO") method at several of our
domestic aerospace fastener manufacturing operations and using the first-in,
first-out ("FIFO") method elsewhere. If the FIFO inventory valuation method had
been used exclusively, inventories would have been approximately $3,018 and
$8,706 higher at June 30, 1999 and 1998, respectively. Inventories from
continuing operations are valued as follows
June 30, June 30,
1999 1998
First-in, first-out (FIFO) $162,797 $177,426
Last-in, First-out (LIFO) 27,442 40,056
Total inventories $190,239 $217,482
Properties and Depreciation: The cost of property, plant and equipment is
depreciated over estimated useful lives of the related assets. The cost of
leasehold improvements is depreciated over the lesser of the length of the
related leases or the estimated useful lives of the assets. In fiscal 1999, we
changed the estimated useful life for depreciating our machinery and equipment
from 8 to 10 years. Depreciation is computed using the straight-line method for
financial reporting purposes and accelerated depreciation methods for Federal
income tax purposes. No interest costs were capitalized in any of the years
presented. Property, plant and equipment consisted of the following:
June 30, June 30,
1999 1998
Land $ 13,325 $ 11,694
Building and improvements 56,790 47,579
Machinery and equipment 173,791 113,669
Transportation vehicles 1,062 676
Furniture and fixtures 22,439 16,362
Construction in progress 20,214 11,951
Property, plant and equipment at 287,621 201,931
cost
Less: Accumulated depreciation 103,556 82,968
Net property, plant and equipment $184,065 $118,963
Amortization of Goodwill: Goodwill, which represents the excess of the cost
of purchased businesses over the fair value of their net assets at dates of
acquisition, is being amortized on a straight-line basis over 40 years.
Deferred Loan Costs: Deferred loan costs associated with various debt
issues are being amortized over the terms of the related debt, based on the
amount of outstanding debt, using the effective interest method. Amortization
expense for these loan costs for 1999, 1998 and 1997 was $1,100, $2,406 and
$2,847, respectively.
Impairment of Long-Lived Assets: We review our long-lived assets, including
property, plant and equipment, identifiable intangibles and goodwill, for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be fully recoverable. To determine
recoverability of our long-lived assets we evaluate the probability that future
undiscounted net cash flows will be less than the carrying amount of our assets.
Impairment is measured based on the difference between the carrying amount of
our assets and their fair value.
Foreign Currency Translation: For foreign subsidiaries whose functional
currency is the local foreign currency, balance sheet accounts are translated at
exchange rates in effect at the end of the period, and income statement accounts
are translated at average exchange rates for the period. The resulting
translation gains and losses are included as a separate component of
stockholders' equity. Foreign currency transaction gains and losses are
included in other income and were insignificant in fiscal 1999, 1998 and 1997.
Research and Development: Company-sponsored research and development
expenditures are expensed as incurred.
Capitalization of interest and taxes: We capitalize interest expense and
property taxes relating to certain real estate property being developed in
Farmingdale, New York. Interest of $4,671, $3,078 and $2,356 was capitalized in
1999, 1998 and 1997, respectively.
Nonrecurring Income: Nonrecurring income of $124,028 in 1998 resulted from
the disposition of our aerospace distribution segment's hardware group (See Note
2). Nonrecurring income of $2,528 in 1997 resulted from the gain recorded from
the sale of Fairchild Scandinavian Bellyloading Company, (See Note 2).
Stock-Based Compensation: In fiscal 1997, we implemented Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". SFAS 123 establishes financial accounting standards for stock-
based employee compensation plans and for transactions in which an entity issues
equity instruments to acquire goods or services from non-employees. As
permitted by SFAS 123, 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. Fair market disclosures 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, short-term borrowings, current maturities of long-term debt, and
all other variable rate debt (including borrowings under our credit agreements).
The fair value for our other fixed rate long-term debt is estimated using
discounted cash flow analyses, based on our current incremental borrowing rates
for similar types of borrowing arrangements. Fair values of our off-balance-
sheet instruments (hedging agreements, letters of credit, commitments to extend
credit, and lease guarantees) are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements
and the counter parties' credit standing. These instruments are described in
Note 8.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires our management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, concerning the disclosure of contingent assets and liabilities, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications: Certain amounts in our prior years' financial statements
have been reclassified to conform to the 1999 presentation.
Recently Issued Accounting Pronouncements: In June 1998, the FASB issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes a new model for
accounting for derivatives and hedging activities and supersedes and amends a
number of existing accounting standards. It requires that all derivatives be
recognized as assets and liabilities on the balance sheet and measured at fair
value. The corresponding derivative gains or losses are reported based on the
hedge relationship that exists, if any. Changes in the fair value of derivative
instruments that are not designated as hedges or that do not meet the hedge
accounting criteria in SFAS 133, are required to be reported in earnings. Most
of the general qualifying criteria for hedge accounting under SFAS 133 were
derived from, and are similar to, the existing qualifying criteria in SFAS 80,
"Accounting for Futures Contracts." SFAS 133 describes three primary types of
hedge relationships: fair value hedge, cash flow hedge, and foreign currency
hedge. In June 1999, the FASB issued Statement of Financial Accounting Standards
No. 137 to defer the required effective date of implementing SFAS 133 from
fiscal years beginning after June 15, 1999 to fiscal years beginning after June
15, 2000. We will adopt SFAS 133 in fiscal 2001 and we are currently evaluating
the financial statement impact.
BUSINESS COMBINATIONS
Aquisitions
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 assummed approximately $2.2 million of Technico's
existing debt. The total cost of the acquisition exceeded the fair value of the
net assets of Technico by approximately $2.9 million, which is preliminarily
being allocated as goodwill, and amortized 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 Kaynar Technologies's 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's largest preferred
shareholder. The total cost of the acquisition exceeded the fair value of the
net assets of Kaynar Technologies by approximately $269.7 million, which is
preliminarily being allocated as goodwill, and amortized 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, 1997, we had purchased significantly all of the remaining shares
SNEP. The total amount paid was approximately $8.0 million, including $1.1
million of debt assumed, in a business combination accounted for as a purchase.
The total cost of the acquisition exceeded the fair value of the net assets of
SNEP by approximately $4.3 million, which is preliminarily being allocated as
goodwill, and amortized using the straight-line method over 40 years. SNEP is a
French manufacturer of precision machined self-locking nuts and special threaded
fasteners serving the European industrial, aerospace and automotive markets.
On March 2, 1998, we acquired Edwards and Lock Management Corporation,
doing business as Special-T Fasteners, in a business combination accounted for
as a purchase. The cost of the acquisition was approximately $50.0 million, of
which 50.1% of the contractual purchase price was paid in shares of our Class A
common stock and 49.9% was paid in cash. The total cost of the acquisition
exceeded the fair value of the net assets of Special-T by approximately $23.3
million, which is being allocated as goodwill, and amortized using the straight-
line method over 40 years. Special-T manages the logistics of worldwide
distribution of our manufactured precision fasteners to our customers in the
aerospace industry, government agencies, OEMs, and other distributors.
On November 28, 1997, we acquired AS+C GmbH, Aviation Supply + Consulting
in a business combination accounted for as a purchase. The total cost of the
acquisition was $14.0 million, which exceeded the fair value of the net assets
of AS+C by approximately $8.1 million, which is being allocated as goodwill and
amortized using the straight-line method over 40 years. We purchased AS+C with
cash borrowings. AS+C is an aerospace parts, logistics, and distribution company
primarily servicing European customers.
In February 1997, we completed a transaction pursuant to which we acquired
common shares and convertible debt representing an 84.2% interest, on a fully
diluted basis, of Simmonds S.A. We then initiated a tender offer to purchase the
remaining shares and convertible debt held by the public. By June 30, 1997, we
had purchased, or placed sufficient cash in escrow to purchase, all the
remaining shares and convertible debt of Simmonds. The total purchase price of
Simmonds, including the assumption of debt, was approximately $62.0 million,
which we funded with available cash and borrowings. We recorded approximately
$20.5 million in goodwill as a result of this acquisition, which is being
amortized using the straight-line method over 40 years. Simmonds is one of
Europe's leading manufacturers of aerospace and automotive fasteners.
Divestitures
On December 31, 1998, Banner Aerospace consummated the sale of Solair,
Inc., its largest subsidiary in the rotables group, to Kellstrom Industries,
Inc., in exchange for approximately $60.4 million in cash and a warrant to
purchase 300,000 shares of common stock of Kellstrom. In December 1998, Banner
Aerospace recorded a $19.3 million pre-tax loss from the sale of Solair. This
loss was included in cost of goods sold as it was attributable primarily to the
bulk sale of inventory at prices below the carrying amount of that inventory.
On January 13, 1998, Banner Aeropsace completed the disposition of
substantially all of the assets and certain liabilities of certain subsidiaries
to AlliedSignal Inc., in exchange for shares of AlliedSignal Inc. common stock
with an aggregate value of $369 million. The assets transferred to AlliedSignal
consisted primarily of Banner Aerospace's hardware group, which included the
distribution of bearings, nuts, bolts, screws, rivets and other types of
fasteners, and its PacAero unit. Approximately $196 million of the common stock
received from AlliedSignal was used to repay outstanding term loans of Banner
Aerospace's subsidiaries, and related fees.
On June 30, 1997, we sold all the patents of Fairchild Scandinavian
Bellyloading Company to Teleflex Incorporated for $5.0 million, and immediately
thereafter sold for $2.0 million, all the stock of Fairchild Scandinavian
Bellyloading Company to a wholly-owned subsidiary of Teleflex. Nonrecurring
income in 1997 included the $2.5 million gain from the sale of Scandinavian
Bellyloading Company.
3. MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES
Outstanding minority interest in our subsidiaries at June 30, 1999 and June
30, 1998 were $59 and $31,674 respectively.
On April 8, 1999, we acquired the remaining 15% of the outstanding common
and preferred stock of Banner Aerospace, Inc. not already owned by us, through
the merger of Banner Aerospace with one of our subsidiaries. Under the terms of
the merger with Banner, we issued 2,981,412 shares of our Class A common stock
to acquire all of Banner Aerospace's common and preferred stock (other than
those already owned by us). Banner Aerospace is now our wholly-owned subsidiary.
On June 9, 1998 we exchanged 3,659,364 shares of Banner Aerospace's common
stock for 2,212,361 newly issued shares of our Class A common stock. As a result
of the exchange offer, our ownership of Banner common stock increased to 83.3%.
In May 1997, Banner Aerospace granted all of its stockholders certain rights to
purchase Series A convertible paid-in-kind preferred stock. In June 1997,
Banner Aerospace received net proceeds of $33,876 and issued 3,710,955 shares of
preferred stock. We purchased $28,390 of the preferred stock issued by Banner
Aerospace, increasing our voting percentage to 64.0%..
4. DISCONTINUED OPERATIONS AND NET ASSETS HELD FOR SALE
On March 11, 1998, Shared Technologies Fairchild Inc. merged into
Intermedia Communications Inc. Under the terms of the merger, holders of Shared
Technologies Fairchild common stock received $15.00 per share in cash. We
received approximately $178.0 million in cash (before tax and selling expenses)
in exchange for the common and preferred stock of Shared Technologies Fairchild
we owned. In fiscal 1998, we recorded a $96.0 million gain, net of tax, on
disposal of discontinued operations, from the proceeds received from the merger
of Shared Technologies Fairchild with Intermedia. The results of Shared
Technologies Fairchild have been accounted for as discontinued operations. Net
earnings from discontinued operations for Shared Technologies Fairchild was $648
and $3,149 in 1998 and 1997, respectively.
In fiscal 1999, 1998, and 1997, Fairchild Technologies had pre-tax
operating losses of approximately $49.5 million, $48.7 million, and $3.6
million, respectively. In addition, as a result of the downturn in the Asian
markets, Fairchild Technologies experienced delivery deferrals, reduction in new
orders, lower margins and increased price competition. In response, in February
1998, we adopted a formal plan for disposition of Fairchild Technologies. The
plan called for a reduction in production capacity and headcount at Fairchild
Technologies and the pursuit of potential vertical and horizontal integration
with peers and competitors of the two divisions that constitute Fairchild
Technologies.
During the fourth quarter of fiscal 1999, we liquidated a significant
portion of Fairchild Technologies, mostly consisting of our semiconductor
equipment group through several transactions. On April 14, 1999, we disposed of
our photoresist deep ultraviolet track equipment machines, spare parts and
testing equipment to Apex Co., Ltd. in exchange for 1,250,000 shares of Apex
stock valued at approximately $5.1 million. On June 15, 1999, we received $7.9
million from Suess Microtec AG and the right to receive 350,000 shares of Suess
Microtec stock (or approximately $3.5 million) by September 2000 in exchange for
all of the shares of Fairchild Technologies SEG GmbH and certain intellectual
property. On May 1, 1999, we sold Fairchild CDI for a nominal amount. Subsequent
to June 30, 1999, we received approximately $7.1 million from Novellus in
exchange for our Low-K dielectric product line and certain intellectual
property. We are also exploring several alternative transactions regarding the
Fairchild Technologies optical disc equipment group business, but we have not
made any definitive arrangements for its ultimate disposition.
In connection with the adoption of such plan, we recorded an after-tax
charge of $31.3 million and $36.2 million in discontinued operations in fiscal
1999 and 1998, respectively. 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 and $8.0 million, net of an income
tax benefit of $4.8 million, for the estimated remaining operating losses of
Fairchild Technologies. 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, based on a current estimate of the
remaining losses in connection with the disposition of Fairchild Technologies.
While we believe that $2.8 million is a reasonable charge for the remaining
losses to be incurred from Fairchild Technologies, there can be no assurance
that this estimate is adequate.
Earnings from discontinued operations for the twelve months ended June 30,
1998 and 1997 includes net losses of $4,944 and $3,634, respectively, from
Fairchild Technologies until the adoption date of a formal plan for its
discontinuance.
Net assets held for sale at June 30, 1999, includes two parcels of real
estate in California, and several other 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 are limited partnership
interests in a real estate development joint venture and a landfill development
partnership.
Net assets held for sale are stated at the lower of cost or at estimated
net realizable value, which consider anticipated sales proceeds. Interest is not
allocated to net assets held for sale.
5. PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
The following table set forth the derivation of the unaudited pro forma
results, representing the impact of our acquisition of Kaynar Technologies
(completed in April 1999), our merger with Banner Aerospace (completed in April
1999), our acquisition of Special-T (effective January 1998), our disposition of
Solair (completed in December 1998), our disposition of the hardware group of
Banner Aerospace (completed January 13, 1998), the disposition of Shared
Technologies Fairchild (completed in March 1998), and our divestiture of
Fairchild Scandianvian Bellyloading Company (completed June 30, 1997), 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 reduce
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 either
future results of our operations or results that might have been achieved if
these transactions had been in effect since the beginning of each period
1999 1998 1997
Sales $ 756,481 $784,637 $ 590,981
Operating income (a) 9,194 64,980 24,842
Earnings (loss) from continuing operations
(a, b) (13,268) 10,110 (5,400)
Basic earnings (loss) from continuing
operations per share (0.58) 0.45 (0.28)
Diluted earnings (loss) from continuing
operations per share (0.58) 0.42 (0.28)
Net earnings (loss) (48,770) 58,801 (5,885)
Basic earnings (loss) per share (2.14) 2.61 (0.30)
Diluted earnings (loss) per share (2.14) 2.43 (0.30)
(a) - Fiscal 1999 pro forma results includes pre-tax charges recorded for the
write-down of inventory and allowances for the doubtful collection of certain
accounts receivable of $25,045, costs relating to acquisitions of $23,604 and
restructuring charges of $6,374.
(b) - Excludes pre-tax investment income of $35,407 from the liquidation of
certain investments.
6. INVESTMENTS
Investments at June 30, 1999 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, 1999 June 30, 1998
Aggregate Aggregate
Fair Cost Fair Cost
Value Basis Value Basis
Short-term investments:
Trading securities - equity $ 1,254 $ 1,221 $ - $ -
Available-for-sale equity 11,618 9,573 3,907 5,410
securities
Other investments 222 222 55 55
$13,094 $11,016 $3,962 $5,465
Long-term investments:
Available-for-sale equity
securities $14,616 $ 7,342 $234,307 $195,993
Other investments 1,228 1,228 1,128 1,128
$15,844 $ 8,570 $235,435 $197,121
On June 30, 1999, we had gross unrealized holding gains from available-for-
sale securities of $13,649 and gross unrealized holding losses from available-
for-sale securities of $4,330.
Investment income is summarized as follows:
1999 1998 1997
Gross realized gain from sales $36,677 $ 364 $1,673
Change in unrealized holding gain
(loss) from trading securities 33 (5,791) 4,289
Gross realized loss from impairments - (182) -
Dividend income 3,090 2,247 689
$39,800 $(3,362) $6,651
7. INVESTMENTS AND ADVANCES, AFFILIATED COMPANIES
The following table summarizes historical financial information on a combined
100% basis of our principal investments, which are accounted for using the
equity method.
1999 1998 1997
Statement of Earnings:
Net sales $ 75,495 $ 90,235 $102,962
Gross profit 25,297 32,449 39,041
Earnings from continuing
operations 13,119 14,780 14,812
Net earnings 13,119 14,780 14,812
Balance Sheet at June 30:
Current assets $ 26,942 $ 33,867
Non-current assets 38,661 39,898
Total assets 65,603 73,765
Current liabilities 12,249 14,558
Non-current liabilities 1,828 1,471
On June 30, 1999 we owned approximately 31.9% of Nacanco Paketleme common
stock. We recorded equity earnings of $4,153, $4,683, and $4,673 from this
investment for 1999, 1998 and 1997, respectively.
Our share of equity in earnings, net of tax, of all unconsolidated
affiliates for 1999, 1998 and 1997 was $1,795, $2,571, and $2,989, respectively.
The carrying value of investments and advances, affiliated companies consists of
the following:
June June
30, 30,
1999 1998
Nacanco $17,356 $19,329
Others 14,435 8,239
$31,791 $27,568
On June 30, 1999, approximately $2,698 of our $252,030 consolidated
retained earnings were from undistributed earnings of 50 percent or less
currently owned affiliates accounted for using the equity method.
8. NOTES PAYABLE AND LONG-TERM DEBT
At June 30, 1999 and 1998, notes payable and long-term debt consisted of the
following:
June 30, June 30,
1999 1998
Short-term notes payable (weighted
average interest rates of 3.6% $ 22,924 $ 17,811
and 5.2% in 1999 and 1998,
respectively)
Bank credit agreements $258,100 $290,800
10 3/4 % Senior subordinated notes due 2009
225,000 -
10.65% Industrial revenue bonds 1,500 1,500
Capital lease obligations, interest from
6.9% to 10.1% 2,873 923
Other notes payable, collateralized by
property, plant and
equipment, interest from 3.5% to 10.5% 13,746 5,033
501,219 298,256
Less: Current maturities (5,936) (2,854)
Net long-term debt $495,283 $295,402
Credit Agreements
We maintain credit facilities with a consortium of banks, providing us with
a term loan and revolving credit facilities. On April 20, 1999, simultaneous
with our acquisition of Kaynar Technologies, we restructured our then existing
credit facilities by entering into a new credit agreement to provide us with a
$325,000 senior secured credit facility. The new credit facilities consist of a
$225,000 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 will 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 until March 31,
2000, and is subject to change based upon our financial performance thereafter.
Advances made under the revolving credit facilities will generally bear interest
at a rate of, at our option, either (i) 2% over the Citibank N.A. base rate, or
(ii) 3% over the Eurodollar rate until March 31, 2000, and is subject to change
based upon our financial performance thereafter. The new 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 new credit
facilities will mature on April 30, 2006. 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 new credit agreement to comply with certain
financial and non-financial loan covenants, including maintaining certain
interest and fixed charge coverage ratios and maintaining certain indebtedness
to EBITDA ratios at the end of each fiscal quarter. Additionally, the new
credit agreement restricts annual capital expenditures to $40,000 during the
life of the facility. Except for non-guarantor assets, substantially all of our
assets are pledged as collateral under the new credit agreement. The new credit
agreement restricts the payment of dividends to our shareholders to an aggregate
of the lesser of $0.01 per share or $400 over the life of the agreement. At June
30, 1999, we were in compliance with all the covenants under the credit
agreement.
At June 30, 1999, we had borrowings outstanding of $33,100 under the
revolving credit facilities and we had letters of credit outstanding of $17,677,
which were supported by a sub-facility under the revolving credit facilities.
At June 30, 1999, we had unused bank lines of credit aggregating $49,223, at
interest rates slightly higher than the prime rate. We also had short-term
lines of credit relating to foreign operations, aggregating $25,857, against
which we owed $12,295 at June 30, 1999.
Senior Subordinated Notes
On April 20, 1999, in conjunction with the acquisition of Kaynar
Technologies, we issued, at par value, $225,000 of 10 3/4% senior subordinated
notes that mature on April 15, 2009. We will pay interest on these notes semi-
annually on April 15 and October 15 of each year, beginning on October 15, 1999.
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 guarantees 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 or 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, 1999, are as follows: $27,690 for 2000, $5,189 for 2001,
$4,113 for 2002, $3,632 for 2003 and $2,988 for 2004.
Hedge Agreements
In September 1995, we entered into several interest rate hedge agreements
to manage our exposure to increases in interest rates on our variable rate debt.
The hedge agreements provide interest rate protection on $60,000 of debt through
September 2000, by providing an interest rate cap of 7% if the 90-day LIBOR rate
exceeds 7%. If the 90-day LIBOR rate drops below 5%, we will be required to pay
interest at a floor rate of approximately 6%.
In November 1996, we entered into an additional hedge agreement to provide
interest rate protection on $20,000 of debt through November 1999. The hedge
agreement provides for a cap of 7 1/4% if the 90-day LIBOR exceeds 7 1/4%. If
the 90-day LIBOR drops below 5%, we will be required to pay interest at a floor
rate of approximately 6%. No cash outlay was required to obtain this hedge
agreement, as the cost of the cap was offset by the sale of the floor.
In fiscal 1998 we entered into a series of interest rate hedge agreements
to reduce our exposure to increases in interest rates on variable rate debt. The
ten-year hedge agreements provides us with interest rate protection on $100,000
of variable rate debt, with interest being calculated based on a fixed LIBOR
rate of 6.24% to February 17, 2003. On February 17, 2003, the bank will have a
one-time option to elect to cancel the agreement or to do nothing and proceed
with the transaction, using a fixed LIBOR rate of 6.715% for the period February
17, 2003 to February 19, 2008. No costs were incurred as a result of these
transactions.
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, including interest rate swaps. For interest rate swaps, the
table presents notional amounts and weighted average interest rates by expected
(contractual) maturity dates. Notional amounts are used to calculate the
contractual payments to be exchanged under the contract. Weighted average
variable rates are based on implied forward rates in the yield curve at the
reporting date.
Expected Maturity Date
2000 2001 2002 2003 2004 Thereafter
Interest Rate Swaps:
Variable to fixed 20,000 60,000 - - - 100,000
Average cap rate 7.25% 6.81% - - - 6.49%
Average floor 5.84% 5.99% - - - 6.24%
rate
Weighted average 5.71% 5.74% - - - 6.12%
rate
Fair market value (44) (99) - - - (3,709)
The fair value of our other off-balance-sheet financial instruments is not
material at June 30, 1999. The fair value of our fixed rate debt approximates
our carrying balance at June 30, 1999.
9. PENSIONS AND POSTRETIREMENT BENEFITS
Pensions
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." This statement amends and eliminates certain
disclosures previously required as well as adds certain new disclosures. This
statement does not change the way pension costs and liabilities are measured or
recognized in the financial statements. To conform to Statement No. 132, we have
presented and, where necessary, restated our disclosure in these consolidated
financial statements.
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:
1999 1998
Projected benefit obligation at
July 1, $222,607 $206,444
Service cost 3,454 2,685
Interest cost 14,328 14,518
Actuarial (gains) / losses (5,003) 15,364
Benefit payments (14,236) (16,366)
Plan amendment 837 -
Foreign currency translation (2) (38)
Projected benefit obligation at
June 30, $221,985 $222,607
The changes in the fair values of the pension plans' assets were as follows:
1999 1998
Plan assets at July 1, $261,097$237,480
Actual return on plan assets 11,995 41,102
Administrative expenses (1,190) (1,024)
Benefit payments (14,236)(16,366)
Foreign currency translation (4) (95)
Plan assets at June 30, $257,662$261,097
The following table sets forth the funded status and amounts recognized in
our consolidated balance sheets at June 30, 1999 and 1998, for the plans:
June 30,June 30,
1999 1998
Plan assets in excess of projected benefit
obligations $ 35,677 $ 38,490
Unrecognized net loss 27,867 23,797
Unrecognized prior service cost/(credit) 634 (387)
Unrecognized transition (asset) (220) (257)
Prepaid pension expense recognized in the
balance sheet $ 63,958 $ 61,643
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:
1999 1998 1997
Service cost - benefits earned
during the period $ 3,454 $ 2,685 $ 2,521
Interest cost on projected benefit
obligation 14,328 14,518 15,833
Expected return on plan assets (21,694)(20,455)(21,294)
Amortization of net loss 1,813 1,522 928
Amortization of prior service
credit (184) (184) (180)
Amortization of transition (asset) (36) (38) (39)
Loss recognized due to curtailment - - 142
Net periodic pension (income) $(2,319)$(1,952)$(2,089)
Weighted average assumptions used in accounting for the defined benefit
pension plans as of June 30, 1999 and 1998 were as follows:
1999 1998
Discount rate 7.25% 7.0%
Expected rate of increase in 4.5% 4.5%
salaries
Expected long-term rate of return 9.0% 9.0%
on plan assets
Plan assets include an investment in our Class A common stock, valued at a
fair market value of $8,178 and $16,167 at June 30, 1999 and 1998, 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
$951, $804, and $642 for 1999, 1998 and 1997, respectively. Our accrual was
approximately $33,155 and $33,062 as of June 30, 1999 and 1998, respectively,
for postretirement health care benefits related to discontinued operations.
This represents the cumulative discounted value of the long-term obligation and
includes interest expense of $3,902, $3,714, and $3,349 for the years ended June
30, 1999, 1998 and 1997, respectively.
The changes in the accumulated postretirement benefit obligation of the
plans were as follows:
1999 1998
Accumulated postretirement benefit
obligation at July 1, $ 58,197$ 50,870
Service cost 227 166
Interest cost 3,860 3,979
Actuarial (gains) / losses (2,718) 10,696
Benefit payments (4,539) (6,511)
Plan amendment - (1,003)
Accumulated postretirement benefit
obligation at June 30, $ 55,027$ 58,197
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, 1999 and 1998, for the
plans:
1999 1998
Accumulated postretirement benefit
obligation $ 55,027$ 58,197
Unrecognized prior service credit (866) (935)
Unrecognized net loss 12,833 16,387
Accrued postretirement benefit liability $ 43,060$ 42,745
The accumulated postretirement benefit obligation was determined using a
discount rate of 7.25% at June 30, 1999 and 7.0% at June 30, 1998. The effect
of such change resulted in a decrease to the accumulated postretirement benefit
obligation in fiscal 1999. 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 1999. The rate was assumed to decrease gradually to 4.0% for
fiscal 2003 and remain at that level thereafter.
A summary of the components of total postretirement expense is as follows:
1999 1998 1997
Service cost - benefits earned during
the period $ 227 $ 166 $ 140
Interest cost on accumulated
postretirement benefit obligation 3,860 3,979 3,940
Amortization of prior service credit (69) (69) -
Amortization of net (gain) / loss 835 442 (89)
Net periodic postretirement benefit
cost $ 4,853 $ 4,518 $3,991
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, 1999:
One Percentage-Point
Increase Decrease
Effect on service and interest
components of net periodic cost $ 126 $ (122)
Effect on accumulated postretirement 1,604 (1,513)
benefit obligation
10. INCOME TAXES
The provision (benefit) for income taxes from continuing operations is
summarized as follows:
1999 1998 1997
Current:
Federal $ 3,416 $ (6,245) $ 4,003
State 140 500 1,197
Foreign 3,994 3,893 (49)
7,550 (1,852) 5,151
Deferred:
Federal (10,731) 46,092 (15,939)
State (10,064) 3,034 3,444
(20,795) 49,126 (12,495)
Net tax provision (benefit)$(13,245) $47,274 $(7,344)
The income tax provision (benefit) for continuing operations differs from
that computed using the statutory Federal income tax rate of 35%, in fiscal
1999, 1998 and 1997, for the following reasons:
1999 1998 1997
Computed statutory amount $(12,760) $43,188 $(1,751)
State income taxes, net of applicable
federal tax benefit 2,488 4,362 778
Nondeductible acquisition valuation
items 1,903 1,204 1,064
Tax on foreign earnings, net of tax
credits (2,392) (1,143) (1,938)
Difference between book and tax basis
of assets acquired and (53) 4,932 (1,102)
liabilities assumed
Revision of estimate for tax accruals (1,790) (3,905) (5,335)
Other (641) (1,364) 940
Net tax provision (benefit) $(13,245) $47,274 $(7,344)
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:
1999 1998 1997
Deferred Deferred Deferred
June 30,(Provision)June 30,(Provision)(Provision)
1999 Benefit 1998 Benefit Benefit
Deferred tax assets:
Accrued expenses $ 14,159 $ 11,572 $ 2,587 $(3,853) $ 504
Asset basis differences 8,822 710 8,112 7,540 (1,492)
Inventory 11,117 11,117 - (2,198) 2,198
Employee compensation
and benefits 13,587 8,501 5,086 (55) (267)
Environmental reserves 3,975 509 3,466 207 (1,253)
Loss and credit
carryforward - - - - (8,796)
Postretirement benefits 16,428 (1,706) 18,134 (1,338) 138
Other 4,639 (7,465) 12,104 4,506 2,079
72,727 23,238 49,489 4,809 (6,889)
Deferred tax
liabilities:
Asset basis differences (84,386) (3,954)(80,432) (54,012)(3,855)
Inventory - 1,546 (1,546) (1,546) 2,010
Pensions (19,614) (428)(19,186) 95 (1,038)
Other (5,319) 393 (5,712) 1,528 22,267
(109,319) (2,443)(106,876)(53,935)19,384
Net deferred tax
liability $(36,592) $20,795 $(57,387)$(49,126)$12,495
The amounts included in the balance sheet are as follows:
June June
30, 30,
1999 1998
Prepaid expenses and other current
assets:
Current deferred $5,999 $ -
Income taxes payable:
Current deferred $ - $34,553
Other current - (6,242)
$ - $28,311
Noncurrent income tax liabilities:
Noncurrent deferred $42,591 $22,834
Other noncurrent 79,370 72,342
$121,961 $95,176
The 1999, 1998 and 1997 net tax benefits include the results of reversing
$1,790, $3,905, and $5,335 respectively, of federal income taxes previously
provided for, due to a change in the estimate of required tax accruals.
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, 1999, 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 22,258,580 shares of Class A common stock and 2,621,652 shares of
Class B common stock outstanding at June 30, 1999. Class A common stock is
traded on both the New York and Pacific Stock Exchanges. There is no public
market for the Class B common stock. Shares of Class A common stock are
entitled to one vote per share and cannot be exchanged for shares of Class B
common stock. Shares of Class B common stock are entitled to ten votes per
share and can be exchanged, at any time, for shares of Class A common stock on a
share-for-share basis. In fiscal 1999, 75,383 and 14,969 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 3,064
shares of Class B common stock into Class A common stock. In accordance with
terms of our acquisition of Special-T, as amended, we issued 9,911 restricted
shares of our Class A common stock in fiscal 1999 as additional merger
consideration. Additionally, our Class A common stock outstanding was reduced as
a result of 1,239,750 shares purchased by Banner Aerospace, which are considered
as treasury stock for accounting purposes.
On April 8, 1999, we acquired the remaining 15% of the outstanding common
and preferred stock of Banner Aerospace not already owned by us, through the
merger of Banner Aerospace with one of our subsidiaries. Under the terms of the
merger with Banner Aerospace, we issued 2,981,412 shares of our Class A common
stock to acquire all of Banner Aerospace's common and preferred stock, other
than those shares already owned by us.
During fiscal 1999, we issued 8,852 deferred compensation units pursuant to
our stock option deferral plan as a result of a cashless exercise of 15,000
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 shares of common stock,
valued at fair market value at the time of exercise. The options normally
terminate five years from the date of grant, subject to extension of up to 10
years or for a stipulated period of time after an employee's death or
termination of employment. The 1986 plan expires on April 9, 2006; however, all
stock options outstanding as of April 9, 2006 shall continue to be exercisable
pursuant to their terms.
We are authorized to issue 250,000 shares of our Class A common stock upon
the exercise of stock options issued under the ten year 1996 non-employee
directors stock option plan. The 1996 non-employee directors stock option plan
authorizes the granting of options at the market value of the common stock on
the date of grant. An initial stock option grant for 30,000 shares of Class A
common stock is made to each person who becomes a new non-employee Director,
with the options vesting 25% each year from the date of grant. On the date of
each annual meeting, each person elected as a non-employee Director will be
granted an option for 1,000 shares of Class A common stock that vest
immediately. The exercise price is payable in cash or, with the approval of our
compensation and stock option committee, in shares of Class A or Class B common
stock, valued at fair market value at the date of exercise. All options issued
under the 1996 non-employee directors stock option plan will terminate five
years from the date of grant or a stipulated period of time after a non-employee
Director ceases to be a member of the Board. The 1996 non-employee directors
stock option plan is designed to maintain our ability to attract and retain
highly qualified and competent persons to serve as our outside directors.
Upon our April 8, 1999 merger with Banner Aerospace, all of Banner
Aerospace's stock options then issued and outstanding were converted into the
right to receive 870,315 shares of our common stock.
On November 17, 1994, our stockholders approved the grant of stock options
of 190,000 shares to our outside Directors to replace expired stock options.
These stock options expire five years from the date of the grant.
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, 1996 1,273,487 $ 4.27
Granted 457,350 14.88
Exercised (234,935) 4.79
Expired (1,050) 4.59
Forfeited (9,412) 3.59
Outstanding at June 30, 1997 1,485,440 7.46
Granted 357,250 24.25
Exercised (141,259) 4.70
Forfeited (46,650) 7.56
Outstanding at June 30, 1998 1,654,781 7.46
Granted 338,000 14.36
Plans assumption from 870,315 4.25
Banner merger
Exercised (75,383) 5.21
Expired (500) 3.50
Forfeited (650) 12.16
Outstanding at June 30, 1999 2,786,563 $ 11.05
Exercisable at June 30, 1997 486,855 $ 4.95
Exercisable at June 30, 1998 667,291 $ 6.58
Exercisable at June 30, 1999 1,867,081 $ 8.75
A summary of options outstanding at June 30, 1999 is presented as follows:
Options Outstanding Opertions Exercisable
Weighted Average Weighted
Average Remaining Average
Range of Number Exercise Contracted Number Exercise
Exercise Prices Outstanding Price Life Exercisable Price
$3.50 - $8.625 1.4
1,149,787 $ 4.76 years1,017,490 $ 4.84
$8.72 - $13.48 4.6
396,741 $ 9.56 years 386,741 $ 9.47
$13.625 - $16.25 3.5
906,285 $14.77 years 379,412 $15.07
$18.5625 - $25.0625 3.2
333,750 $24.02 years 83,438 $24.14
$3.50 - $25.0625 4.1
2,786,563 $11.05 years 1,867,081 $ 8.75
The weighted average grant date fair value of options granted during 1999,
1998, and 1997 was $6.48, $11.18, and $6.90, 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:
1999 1998 1997
Risk-free interest rate 4.3% - 5.4% 5.4% - 6.3% 6.0% - 6.7%
Expected life in years 4.66 4.66 4.65
Expected volatility 45% - 46% 44% - 45% 43% - 45%
Expected dividends none none none
We recognized compensation expense of $23 from stock options issued to a
consultant and $414 from an employee stock plan that was established with our
acquisition of Special-T Fasteners in 1998. We recognized compensation expense
of $104 as a result of stock options that were modified in 1998. We are applying
APB Opinion No. 25 in accounting for its stock option plans. Accordingly, no
compensation cost has been recognized for the granting of stock options to our
employees in 1999, 1998 or 1997. If stock options granted in 1999, 1998 and 1997
were accounted for based on their fair value as determined under SFAS 123, pro
forma earnings would be as follows:
1999 1998 1997
Net earnings (loss):
As reported $(59,009) $101,090 $ 1,331
Pro forma (60,682) 99,817 283
Basic earnings (loss) per
share:
As reported $ (2.59) $ 5.36 $ 0.08
Pro forma (2.66) 5.30 0.02
Diluted earnings (loss) per
share:
As reported $ (2.59) $ 5.14 $ 0.08
Pro forma (2.66) 5.07 0.02
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 (at their
election) may defer payment of the "compensation" they receive in a particular
year or years from the exercise of stock options. "Compensation" means the
excess value of a stock option, determined by the difference between the fair
market value of shares issueable upon exercise of a stock option, and the option
price payable upon exercise of the stock option. An officer's deferred
compensation is payable in the form of "deferred compensation units,"
representing the number of shares of common stock that the officer is entitled
to receive upon expiration of the deferral period. The number of deferred
compensation units issueable to an officer is determined by dividing the amount
of the deferred compensation by the fair market value of our stock as of the
date of deferral.
Stock Warrants
Effective as of February 21, 1997, we approved the continuation of an
existing warrant to Stinbes Limited (an affiliate of Jeffrey Steiner) to
purchase 375,000 shares of our Class A or Class B common stock at $7.80 per
share. The warrant has been modified to permit exercise within certain window
periods including, within two years after the merger of Shared Technologies
Fairchild Inc. with certain companies. The warrant's exercise price per share
increases by $.002 for each day subsequent to March 13, 1999. The payment of the
warrant price may be made in cash or in shares of our Class A or Class B common
stock, valued at fair market value at the time of exercise, or combination
thereof. In no event may the warrant be exercised after March 13, 2002, but as
a result of certain events is now exercisable only through March 9, 2000. As a
result of certain modifications to the warrant, we recognized a charge of $5,606
in 1998.
On February 21, 1996, we issued warrants to purchase 25,000 shares of Class
A common stock, at $9.00 per share, to a non-employee for services provided in
connection with our various dealings with Peregrine Direct Investments Limited.
The warrants issued are immediately exercisable and will expire on November 8,
2000.
On November 9, 1995, we issued warrants to purchase 500,000 shares of Class
A Common Stock, at $9.00 per share, to Peregrine Direct Investments Limited, in
exchange for a standby commitment it received on November 8, 1995, from
Peregrine. We elected not to exercise our rights under the Peregrine commitment.
The warrants are immediately exercisable and will expire on November 8, 2000.
13. EARNINGS PER SHARE
The following table illustrates the computation of basic and diluted earnings
(loss) per share:
1999 1998 1997
Basic earnings per share:
Earnings (loss) from continuing
operations $(23,507) $52,399 $ 1,816
Weighted average common shares
outstanding 22,766 18,834 16,539
Basic earnings per share:
Basic earnings (loss) from continuing
operations per share $ (1.03) $ 2.78 $ 0.11
Diluted earnings per share:
Earnings (loss) from continuing
operations $(23,507) $ 52,399 $ 1,816
Weighted average common shares
outstanding 22,766 18,834 16,539
Diluted effect of options Antidilutive 546 449
Diluted effect of warrants Antidilutive 289 333
Total shares outstanding 22,766 19,669 17,321
Diluted earnings (loss) from
continuing operations per share $ (1.03) $ 2.66 $ 0.11
The computation of diluted loss from continuing operations per share for
1999 excluded the effect of incremental common shares attributable to the
potential exercise of common stock options outstanding and warrants outstanding,
because their effect was antidilutive. No adjustments were made to share
information in the calculation of earnings per share for discontinued operations
and extraordinary items.
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 remainder, $5,526 was recorded
as a result of the Kaynar Technologies initial integration in our aerospace
fasteners segment, i.e. for severance benefits ($3,932), for product integration
costs incurred as of June 30, 1999 ($1,334), and for the write down of fixed
assets ($260). All costs classified as restructuring were the direct result of
formal plans to close plants and to terminate employees. The costs included in
restructuring were predominately nonrecurring in nature. Other than a reduction
in our existing cost structure and manufacturing capacity, none of the
restructuring charges resulted in future increases in earnings or represented an
accrual of future costs. As of June 30, 1999, approximately one-third of the
integration plans has been executed. We expect to incur additional restructuring
charges for product integration costs during the next twelve months at our
aerospace fasteners segment. We anticipate that our integration process will be
substantially completed in the second quarter of fiscal 2000.
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 our indebtedness in connection with our acquisition of Kaynar
Technologies (See Note 8).
In fiscal 1998, we recognized an extraordinary loss of $6,730, net of tax,
to write-off the remaining deferred loan fees and original issue discounts
associated with early extinguishment of our indebtedness when we repaid all our
public debt and refinanced our credit facilities.
16. RELATED PARTY TRANSACTIONS
We paid for a chartered aircraft used from time to time for business
related travel. The owner of the chartered aircraft is a company 51% owned by
an immediate family member of 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 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'.
In 1999, we entered into a $300 loan agreement with one of our senior vice
president's who was relocated. At June 30, 1999, a balance of $200 was
outstanding.
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, 1999,
are as follows: $5,200 for 2000, $3,549 for 2001, $2,784 for 2002, $2,043 for
2003, and $1,164 for 2004. Rental expense on operating leases from continuing
operations for fiscal 1999, 1998 and 1997 was $9,485, $8,610, and $4,928,
respectively.
Capital Leases
Minimum commitments under capital leases for each of the five years
following June 30, 1999, are $1,324 for 2000, $808 for 2001, $498 for 2002, $380
for 2003, and $254 for 2004, respectively. At June 30, 1999, the present value
of capital lease obligations was $2,874. At June 30, 1999, capital assets leased
and included in property, plant, and equipment consisted of:
Land $ 86
Buildings and improvements 2,180
Machinery and equipment 6,282
Furniture and fixtures 33
Less: Accumulated depreciation (2,250)
$6,331
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. Accumulated depreciation on finished sections of the shopping center and
leased to others is $100 at June 30, 1999. The future minimum lease payments to
be received from noncancellable operating leases on June 30, 1999 were $3,246 in
2000, $4,678 in 2001, $4,678 in 2002, $4,684 in 2003, $4,706 in 2004 and $47,350
thereafter. Subsequent to June 30, 1999, we have entered into several new
agreements to lease additional retail space at our shopping center.
18. CONTINGENCIES
Government Claims
The Corporate Administrative Contracting Officer (the "ACO"), based upon
the advice of the United States Defense Contract Audit Agency, has made a
determination that a former subsidiary of ours did not comply with Federal
Acquisition Regulations and Cost Accounting Standards in accounting for (i) the
1985 reversion of certain assets of terminated defined benefit pension plans,
and (ii) pension costs upon the closing of segments of our former subsidiaries
business. The ACO has directed us to prepare cost impact proposals relating to
such plan terminations and segment closings and, following receipt of such cost
impact proposals, may seek adjustments to contract prices. The ACO alleges that
substantial amounts will be due if such adjustments are made, however, an
estimate of the possible loss or range of loss from the ACO's assertion cannot
be made. We believe that management of our former subsidiary properly accounted
for the asset reversions in accordance with applicable accounting standards. We
intend to enter into mediation with the government to attempt to resolve these
pension accounting issues.
Environmental Matters
Our operations are subject to stringent government imposed environmental
laws and regulations concerning, among other things, the discharge of materials
into the environment and the generation, handling, storage, transportation and
disposal of waste and hazardous materials. To date, such laws and regulations
have not had a material effect on our financial condition, results of
operations, or net cash flows of us, although we have expended, and can be
expected to expend in the future, significant amounts for investigation of
environmental conditions and installation of environmental control facilities,
remediation of environmental conditions and other similar matters, particularly
in our aerospace fasteners segment.
In connection with our plans to dispose of certain real estate, we must
investigate environmental conditions and we may be required to take certain
corrective action prior or pursuant to any such disposition. In addition, we
have identified several areas of potential contamination at or from other
facilities owned, or previously owned, by us, that may require us to 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, 1999, the consolidated total of our recorded liabilities for
environmental matters was approximately $10.3 million, which represented the
estimated probable exposure for these matters. It is reasonably possible that
our total exposure for these matters could be approximately $17.5 million.
Other Matters
On January 12, 1999, AlliedSignal made indemnification claims against us
for $18.9 million, arising from the disposition to AlliedSignal of Banner
Aerospace's hardware business. We believe that the amount of the claim is far in
excess of any amount that AlliedSignal is entitled to recover from us.
We are involved in various other claims and lawsuits incidental to our
business, 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, 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
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 supersedes Statement of Financial
Accounting Standards No. 14 "Financial Reporting for Segments of a Business
Enterprise" and requires that a public company report certain information about
its reportable operating segments in annual and interim financial reports.
Generally, financial information is required to be reported on the basis that is
used internally for evaluating segment performance and deciding how to allocate
resources to segments. We adopted SFAS 131 in fiscal 1999.
We reports in two principal business segments. The aerospace fasteners
segment includes the manufacture of high performance specialty fasteners and
fastening systems. The aerospace distribution segment distributes a wide range
of aircraft parts and related support services to the aerospace industry. The
results of Fairchild Technologies, which is primarily engaged in the designing
and manufacturing of capital equipment and systems for recordable compact disc
and advance semiconductor manufacturing, were previously reported under
Corporate and Other, along with the results of two smaller operations.
Fairchild Technologies is now recorded in discontinued operations. Our
financial data by business segment is as follows:
1999 1998 1997
Sales:
Aerospace Fasteners $442,722 $387,236 $269,026
Aerospace Distribution 168,336 358,431 411,765
Corporate and Other 6,264 5,760 15,185
Eliminations (a) - (10,251) (15,213)
Total Sales $617,322 $741,176 $680,763
Operating Income (Loss):
Aerospace Fasteners $ 38,956 $ 32,722 $ 17,390
Aerospace Distribution (40,003) 20,330 30,891
Corporate and Other (44,864) (7,609) (14,782)
Operating Income (Loss) (b) $(45,911)$ 45,443 $ 33,499
Capital Expenditures:
Aerospace Fasteners $ 27,414 $ 31,221 $ 8,964
Aerospace Distribution 1,951 3,812 4,787
Corporate and Other 777 996 1,263
Total Capital Expenditures $ 30,142 $ 36,029 $ 15,014
Depreciation and Amortization:
Aerospace Fasteners $ 22,459 $ 16,260 $ 15,506
Aerospace Distribution 1,871 3,412 4,139
Corporate and Other 1,327 1,201 1,170
Total Depreciation and
Amortization $ 25,657 $ 20,873 $ 20,815
Identifiable Assets at June 30:
Aerospace Fasteners $655,714 $427,927 $346,533
Aerospace Distribution 291,281 452,397 428,436
Corporate and Other 381,791 276,935 277,697
Total Identifiable Assets $1,328,786 $1,157,259 $1,052,666
(a) - Represents intersegment sales from our aerospace fasteners segment to our
aerospace distribution segment.
(b) - Fiscal 1999 results include an inventory impairment charges of $41,465 in
the aerospace distribution segment, costs relating to acquisitions of $23,604
and restructuring charges of $5,526 in the aerospace fasteners segment, $348
in the aerospace distribution segment, and $500 at corporate.
20. FOREIGN OPERATIONS AND EXPORT SALES
Our operations are located primarily in the United States and Europe. Inter-
area sales are not significant to the total sales of any geographic area. Our
financial data by geographic area is as follows:
1999 1998 1997
Sales by Geographic Area:
United States $440,447 $613,325 $580,453
Europe 176,315 127,851 100,310
Australia 417 - -
Other 143 - -
Total Sales $617,322 $741,176 $680,763
Operating Income (Loss) by
Geographic Area:
United States $(66,245)$ 28,575 $ 27,489
Europe 19,989 16,868 6,010
Australia 331 - -
Other 14 - -
Total Operating Income (Loss) $(45,911)$ 45,443 $ 33,499
Identifiable Assets by Geographic
Area at June 30:
United States $1,011,993 $903,054 $855,233
Europe 306,156 254,205 197,433
Australia 10,176 - -
Other 461 - -
Total Identifiable Assets $1,328,786 $1,157,259 $1,052,666
Export sales are defined as sales by our domestic operations to customers
in foreign countries. Export sales were as follows:
1999 1998 1997
Export Sales
Europe $ 42,891 $ 68,515 $ 48,187
Japan 14,147 12,056 19,819
Canada 12,460 16,426 17,797
Asia (excluding Japan) 6,337 19,744 21,221
South America 3,556 11,038 4,414
Other 14,694 10,340 11,493
Total Export Sales $ 94,085 $138,119 $122,931
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 1999 quarters ended Sept. 27 Dec. 27 March 28June 30
Net sales $148,539 $151,181$146,352 $171,250
Gross profit 34,672 18,062 36,890 22,805
Earnings (loss) from continuing 1,190 (8,827) 20,383 (36,253)
per basic share 0.05 (0.40) 0.93 (1.46)
per diluted share 0.05 (0.40) 0.92 (1.46)
Loss from disposal of discontinued - (9,180)(19,694) (2,475)
operations, net
per basic share - (0.42) (0.90) (0.10)
per diluted share - (0.42) (0.89) (0.10)
Extraordinary items, net - - - (4,153)
Per basic share - - - (0.17)
Per diluted share - - - (0.17)
Net earnings (loss) 1,190 (18,007) 689 (42,881)
per basic share 0.05 (0.82) 0.03 (1.73)
per diluted share 0.05 (0.82) 0.03 (1.73)
Market price range of Class A Stock:
High 23 7/8 16 1/4 16 3/16 15
Low 12 3/8 10 3/8 10 1/2 10
Close 13 5/8 13 7/8 10 11/16 12 3/4
Fiscal 1998 quarters ended Sept. 28 Dec. 28 March 29June 30
Net sales $194,362 $208,616$164,164 $174,034
Gross profit 46,329 56,822 37,790 45,565
Earnings (loss) from continuing
operations 1,229 (4,605) 50,418 5,357
per basic share 0.07 (0.27) 2.52 0.25
per diluted share 0.07 (0.27) 2.41 0.24
Loss from discontinued operations, net (737) (1,945) (1,578) (36)
Per basic share (0.04) (0.11) (0.08) 0.24
Per diluted share (0.04) (0.11) (0.08) 0.44
Gain (loss) from disposal of
discontinued operations, net - 29,974 46,548 (16,805)
Per basic share - 1.75 2.32 (0.78)
Per diluted share - 1.75 2.23 (0.76)
Extraordinary items, net - (3,024) (3,701) (5)
Per basic share - (0.18) (0.18) -
Per diluted share - (0.18) (0.18) -
Net earnings (loss) 492 20,400 91,687 (11,489)
Per basic share 0.03 1.19 4.58 (0.53)
per diluted share 0.03 1.19 4.38 (0.52)
Market price range of Class A Stock:
High 28 3/8 28 11/16 25 23
Low 17 19 5/16 19 7/16 18 3/16
Close 26 7/8 21 1/2 21 1/4 20 3/16
Gross profit was reduced for inventory impairment adjustments of $19,320
and $22,145 in the second and fourth quarter of fiscal 1999, respectively,
relating to the disposition of Solair and the potential disposition of Dallas
Aerospace. Gain (loss) on disposal of discontinued operations includes losses of
$9,180, $19,694, and $2,475 in the second, third and fourth quarters of fiscal
1999, respectively, and $22,352 and $13,891 in the third and fourth quarter of
fiscal 1998, respectively, resulting from the estimated loss on disposal of
Fairchild Technologies. Gain (loss) on disposal of discontinued operations
includes gains (losses) of $29,974, $68,900, and $(2,914) in the second, third
and fourth quarter of fiscal 1998, respectively, from the Shared Technologies
Fairchild divestiture. Earnings from discontinued operations, net, includes the
results of Fairchild Technologies and Shared Technologies Fairchild (until
disposition) in each quarter. Extraordinary items relate to the early
extinguishment of our debt.
22. CONSOLIDATING FINANCIAL STATEMENTS (UNAUDITED)
The following unaudited financial statements separately show The Fairchild
Corporation and the subsidiaries of The Fairchild Corporation. These financial
statements are provided to fulfill public reporting requirements and separately
present guarantors of the 10 3/4% senior subordinated notes due 2009 issued by
The Fairchild Corporation (the "Parent Company"). The guarantors are primarily
composed of our domestic subsidiaries, excluding Fairchild Technologies, the
equity investment in Nacanco, a real estate development venture, and certain
other subsidiaries.
CONSOLIDATING STATEMENTS OF EARNINGS
FOR THE YEAR ENDED JUNE 30, 1999
Parent Elimi- Fairchild
Company Guarantors Guarantors nations Historical
Net Sales $ - $448,495 $169,720 $ (893) $617,322
Costs and expenses
Cost of sales - 381,912 123,874 (893) 504,893
Selling, general &
administrative 8,114 113,167 24,168 - 145,449
Restructuring - 6,374 - - 6,374
Amortization of
goodwill 248 5,228 1,041 - 6,517
8,362 506,681 149,083 (893) 663,233
Operating income
(loss) (8,362) (58,186) 20,637 - (45,911)
Net interest expense 27,130 (4,283) 7,499 - 30,346
Investment (income)
loss, net - (39,800) - - (39,800)
Earnings(loss) before
taxes (35,492) (14,103) 13,138 - (36,457)
Income tax (provision)
benefit 21,481 (6,936) (1,300) - 13,245
Equity in earnings of
affiliates and
subsidiaries (44,998) (516) 1,344 45,965 1,795
Minority interest - (2,090) - - (2,090)
Earnings (loss) from
continuing operations (59,009) (23,645) 13,182 45,965 (23,507)
Earnings (loss) from
disposal of discontinued
operations - - (31,349) - (31,349)
Extraordinary items - (4,153) - - (4,153)
Net earnings (loss) $(59,009) $(27,798)$(18,167) $45,965 $(59,009)
CONSOLIDATING BALANCE SHEET
JUNE 30, 1999
Parent Non Fairchild
Company Guarantors Guarantors Eliminatins Historical
Cash $ 27 $ 41,793 $ 13,040 $ - $ 54,860
Short-term investments 71 13,023 - - 13,094
Accounts Receivable (including
intercompany), less
allowances 549 52,929 76,643 - 130,121
Inventory, net (182) 145,080 45,341 - 190,239
Prepaid and other current
assets 1,297 69,000 3,629 - 72,926
Total current assets 1,762 321,825 138,653 - 462,240
Investment in
Subsidiaries 841,744 - - (841,744) -
Net fixed assets 611 137,852 45,602 - 184,065
Net assets held for sale - 21,245 - - 21,245
Investment if affiliates 1,300 13,135 17,356 - 31,791
Goodwill 5,533 402,595 39,594 - 447,722
Deferred loan costs 13,029 26 22 - 13,077
Prepaid pension assets - 63,958 - - 63,958
Real estate investment - - 83,791 - 83,791
Long-term investments - 15,844 - - 15,844
Other assets 16,244 (11,865) 674 - 5,053
Total assets $880,223 $964,615 $325,692 $(842,744) $1,328,786
Bank notes payable &
current maturities of
debt $ 2,250 $ 2,548 $ 24,062 $ - $ 28,860
Accounts payable
(including inter-
company) 972 12,824 58,475 - 72,271
Other accrued expenses 7,272 99,669 14,195 - 121,136
Net current liabilities
of discontinued operations - - 10,999 - 10,999
Total liabilities 10,494 115,041 107,731 - 233,266
Long-term debt, less
current maturities 480,850 9,908 4,525 - 495,283
Other long-term
liabilities 405 18,138 7,361 - 25,904
Noncurrent income taxes (19,026) 140,749 238 - 121,961
Retiree health care
liabilities - 40,189 4,624 - 44,813
Minority interest in
subsidiaries - 9 50 - 59
Total liabilities 472,723 324,034 124,529 - 921,286
Class A common
stock 2,775 200 5,085 (5,085) 2,975
Class B common
stock 262 - - - 262
Paid-in-capital 2,138 226,900 263,058 (263,058) 229,038
Retained earnings
(deficit) 477,191 413,483 (65,043) (573,601) 252,030
Cumulative other
comprehensive income (764) (2) (1,937) - (2,703)
Treasury stock, at cost (74,102) - - - (74,102)
Total stockholders'
equity 407,500 640,581 201,163 (841,744) 407,500
Total liabilities &
stockholders' equity $880,223 $964,615 $325,692 $(841,744) $1,328,786
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1999
Parent Non Elimina- Fairchild
Company Guarantors Guarantors tions 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 27 (382) 5,614 - 5,259
Cash, beginning of
the year - 42,175 7,426 - 49,601
Cash, end of the
year $ 27 $ 41,793 $ 13,040 $ - $ 54,860
CONSOLIDATING STATEMENTS OF EARNINGS
FOR THE YEAR ENDED JUNE 30, 1998
Parent Non Elimina- Fairchild
Company Guarantors Guarantors tion Historical
Net Sales $ - $613,324 $138,807 $(10,955) $741,176
Cost and expenses
Cost of sales - 464,942 100,683 (10,955) 554,670
Selling, general &
administrative 3,516 112,447 19,631 - 135,594
Amortization of
goodwill 147 4,247 1,075 - 5,469
3,663 581,636 121,389 (10,955) 695,733
Operating income
(loss) (3,663) 31,688 17,418 - 45,443
Net interest expense 24,048 14,094 4,573 - 42,715
Investment (income)
loss, net (208) 3,570 - - 3,362
Nonrecurring income
on disposition of
subsidiary - (124,028) - - (124,028)
Earnings (loss) before
taxes (27,503) 138,052 12,845 - 123,394
Income tax (provision)
benefit 10,580 (54,384) (3,470) - (47,274)
Equity in earnings
of affiliates and
subsidiaries 118,013 140 3,044 (118,626) 2,571
Minority interest - (26,292) - - (26,292)
Earnings (loss) from
continuing operations 101,090 57,516 12,419 (118,626) 52,399
Earnings (loss) from
discontinued
operations - 2,348 (6,644) - (4,296)
Earnings (loss) from
disposal of
discontinued operations - 95,018 (35,301) - 59,717
Extraordinary items - (6,730) - - (6,730)
Net earnings
(loss) $101,090 $148,152$(29,526) $(118,626) $101,090
CONSOLIDATING BALANCE SHEET
JUNE 30, 1998
Parent Non Elimina- Fairchild
Company Guarantors Guarantors tions Historical
Cash $ - $ 42,175 $ 7,426 $ - $ 49,601
Short-term investments 71 3,891 - - 3,962
Accounts Receivable
(including intercompany),
less allowances 400 74,158 45,726 - 120,284
Inventory, net - 183,164 34,318 - 217,482
Prepaid and other
current assets (1,230) 48,145 6,166 - 53,081
Net current assets of
discontinued operations - - 11,613 - 11,613
Total current assets (759) 351,533 105,249 - 456,023
Investment in
Subsidiaries 627,634 - - (627,634) -
Net fixed assets 677 77,678 40,608 - 118,963
Net assets held
for sale - 23,789 - - 23,789
Net noncurrent of
discontinued operations - - 8,541 - 8,541
Investment in affiliates 963 7,276 19,329 - 27,568
Goodwill 14,333 120,253 33,721 - 168,307
Deferred loan cost 5,168 1,194 - - 6,362
Prepaid pension assets - 61,643 - - 61,643
Real estate investment - 214 43,226 - 43,440
Long-term investments - 235,435 - - 235,435
Other assets 15,863 (8,833) 158 - 7,188
Total assets $663,879 $870,182 $250,832 $(627,634)$1,157,259
Bank notes payable &
current maturities
of debt $ 2,250 $ - $ 18,415 $ - $ 20,665
Accounts payable
(including intercompany) 124 11,197 42,538 - 53,859
Other accrued expenses 10,165 94,453 16,436 - 121,054
Total current
liabilities 12,539 105,650 77,389 - 195,578
Long-term debt, less
current maturities 222,750 67,300 5,352 - 295,402
Other long-term
liabilities 470 16,428 6,869 - 23,767
Noncurrent income
tax (45,439) 140,262 353 - 95,176
Retiree health care
liabilities - 38,677 3,426 - 42,103
Minority interest in
subsidiaries - 31,674 - - 31,674
Total liabilities 190,320 399,991 93,389 - 683,700
Class A common stock 2,467 200 3,084 (3,084) 2,667
Class B common stock 263 - - - 263
Paid-in-capital (29,476) 224,588 200,656 (200,656) 195,112
Retained earnings 513,204 265,436 (43,707) (423,894) 311,039
Cumulative other
comprehensive
income (761) 19,737 (2,590) - 16,386
Treasury stock, at cost (12,138) (39,770) - - (51,908)
Total stockholders'
equity 473,559 470,191 157,443 (627,634) 473,559
Total liabilities
and stockholders'
equity $663,879 $870,182 $250,832 $(627,634) $1,157,259
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1998
Parent Non Elimina- Fairchild
Company Guarantors Guarantors tion Historical
Cash Flows from Operating Activities:
Net earnings (loss) $101,090 $148,152 $(29,526) $(118,626) $101,090
Depreciation &
amortization 72 14,939 5,862 - 20,873
Amortization of
deferred loan fees 2,406 - - - 2,406
Accretion of discount
on long-term
liabilities 3,766 - - - 3,766
Net gain on disposition
of subsidiaries - (124,041) - - (124,041)
Net gain on sale
of discontinued
operations - (132,787) - - (132,787)
Extraordinary items net
of cash paid - 10,347 - - 10,347
Loss on sale of PP&E - 147 99 - 246
Distributed earnings
of affiliates - 547 1,178 - 1,725
Minority interest - 26,890 (598) - 26,292
Change in assets
and liabilities (187,408) 64,276 (2,431) 118,626 (6,937)
Non-cash charges and
working capital changes
of discontinued
operations - - 11,789 - 11,789
Net cash (used for)
provided by operating
activities (80,074) 8,470 (13,627) - (85,231)
Cash Flows from Investing Activities:
Proceeds used for
investment securities - (7,287) - - (7,287)
Purchase of PP&E - (30,220) (5,809) - (36,029)
Proceeds from sale
of PP&E - 336 - - 336
Equity investment in
affiliates (141) (4,202) - - (4,343)
Minority interest in
subsidiaries - (26,383) - - (26,383)
Acquisition of subsidiaries,
net of cash acquired - (25,445) (7,350) - (32,795)
Net proceeds from sale
of discontinued
operations - 167,987 - - 167,987
Change in real estate
investment - - (17,262) - (17,262)
Change in net assets
held for sale - 2,140 - - 2,140
Investing activities of
discontinued operations - - (2,750) - (2,750)
Net cash (used for)
provided by investing
activities (141) 76,926 (33,171) - 43,614
Cash Flows from Financing Activities:
Proceeds from issuance
of debt 225,000 50,523 - - 275,523
Debt repayment (including
intercompany), net (198,867)(106,899) 47,752 - (258,014)
Issuance of Class A
common stock 53,848 193 - - 54,041
Financing activities
of discontinued
operations - - 2,538 - 2,538
Net cash provided by (used)
for financing
Activities 79,981 (56,183) 50,290 - 74,088
Exchange rate effect
on cash - - (2,290) - (2,290)
Net change in cash (234) 29,213 1,202 - 30,181
Cash, beginning of
the year 234 12,962 6,224 - 19,420
Cash, end of year $ - $42,175 $7,426 $ - $49,601
CONSOLIDATING STATEMENTS OF EARNINGS
FOR THE YEAR ENDED JUNE 30, 1997
Parent Non Elimina- Fairchild
Company Guarantors Guarantors tions Historical
Net Sales $ - $593,819 $90,243 $(3,299) $680,763
Costs and Expense:
Cost of sales - 441,534 61,184 (3,299) 499,419
Selling, general &
administrative 3,925 117,739 21,367 - 143,031
Amortization of
goodwill 130 4,215 469 - 4,814
4,055 563,488 83,020 (3,299) 647,264
Operating income
(loss) (4,055) 30,331 7,223 - 33,499
Net interest expense 25,252 21,556 873 - 47,681
Investment income, net (16) (6,635) - - (6,651)
Nonrecurring income
on disposition of
subsidiary - (2,528) - - (2,528)
Earnings (loss) before
taxes (29,291) 17,938 6,350 - (5,003)
Income tax (provision)
benefit 15,076 (8,263) 531 - 7,344
Equity in earnings
of affiliates and
subsidiaries 15,546 (528) 3,037 (15,066) 2,989
Minority interest - (3,514) - - (3,514)
Earnings (loss) from
continuting operations 1,331 5,633 9,918 (15,066) 1,816
Earnings (loss) from
discontinued
operations - 3,149 (3,634) - (485)
Net earnings (loss) $ 1,331 $ 8,782 $ 6,284 $(15,066) $1,331
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1997
Parent Non Elimina- Fairchild
Company Guarantors Guarantors tions Historical
Cash Flows from Operating Activities:
Net earnings (loss) $ 1,331 $ 8,782 $6,284 $(15,066) $ 1,331
Depreciation &
amoritzation 179 15,356 5,280 - 20,815
Amortization of deferred
loan fees 2,847 - - - 2,847
Accretion of discount on
long-term liabilities 4,963 - - - 4,963
Gain on sale of PP&E - (72) - - (72)
(Undistributed)
distributed earnings of
affiliates - (1,434) 379 - (1,055)
Minority interest - 2,896 618 - 3,514
Change in assets
and liabilities (23,591) (102,350) 2,412 15,066 (108,463)
Non-cash charges and
working capital changes
of discontinued
operations - - (17,201) - (17,201)
Net cash used for
operating activities (14,271) (76,822) (2,228) - (93,321)
Cash Flows from Investing Activities:
Proceeds used for
investment securities - (12,951) - - (12,951)
Purchase of PP&E - (12,371) (2,643) - (15,014)
Proceeds from sale of
PP&E - 213 - - 213
Equity investment
in affiliates 2,092 (3,841) - - (1,749)
Minority interest in
subsidiaries - (1,610) - - (1,610)
Acquisitin of subsidiaries,
net of cash acquired - - (55,916) - (55,916)
Net proceeds from sale
of discontinued
operations - 173,719 - - 173,719
Change in real estate
investment - - (6,737) - (6,737)
Change in net assets
held for sale - 385 - - 385
Investing activities of
discontinued operations - - (7,102) - (7,102)
Net cash (used for)
provided by investing
activities 2,092 143,544 (72,398) - 73,238
Cash Flows from Financing Activities:
Proceeds from issuance
of debt 9,400 144,894 - - 154,294
Debt repayment(including
intercompany), net - (229,874) 74,274 - (155,600)
Issuance of Class A
common stock 1,126 - - - 1,126
Financing activities of
discontinued operations - - (1,275) - (1,275)
Net cash (used for)
provided by financing
activities 10,526 (84,980) 72,999 - (1,455)
Exchange rate effect
on cash - - 1,309 - 1,309
Net change in cash (1,653) (18,258) (318) - (20,229)
Cash, beginning of
the year 1,887 31,220 6,542 - 39,649
Cash, end of year $ 234 $12,962 $ 6,224 $ - $ 19,420
23. SUBSEQUENT EVENTS
On July 29, 1999, we sold our 31.9% interest in Nacanco Paketleme to American
National Can Group, Inc. for approximately $48.2 million. We also agreed to
provide consulting services over a three-year period, at an annual fee of
approximately $1.5 million. We used the net proceeds from the disposition to
reduce our indebtedness.
In September 1999, we have expressed our intent to sell Dallas Aeropsace,
Inc. to a prospective acquirer. If the sale is consummated we intend to use the
proceeds to reduce our indebtedness or to grow our business at our aerospace
fastener segment.
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 certain allegedly improper business transactions involving Elf
Acquitaine, a French petroleum company, its former chairman and various third
parties, including Maurice Bidermann. In connection with this inquiry, the
magistrate has made inquiry into allegedly improper transactions between Mr.
Steiner and that petroleum company. In response to the magistrate's request that
Mr. Steiner appear in France as a witness, Mr. Steiner submitted written
statements concerning the transactions and appeared in person before the
magistrate and others. Mr. Steiner, who has been put under examination (mis en
examen) by the magistrate, with respect to this matter, has not been charged.
Mr. Steiner appeared before the Tribunal de Grande Instance de Paris to
answer a charge of knowingly benefiting in 1990 from a misuse by Mr. Bidermann
of corporate assets of Societe Generale Mobiliere et Immobiliere, a French
corporation in which Mr. Bidermann is believed to have been the sole
shareholder. Mr. Steiner was assessed a fine of two million French Francs in
connection therewith. Both Mr. Steiner and the prosecutor (parquet) have
appealed the decision.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by this Item is incorporated herein by reference from
the 1999 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference from
the 1999 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 1999 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference from
the 1999 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 77
II Valuation and Qualifying Accounts 81
All other schedules are omitted because they are not required.
Report of Independent Public Accountants
To The Fairchild Corporation:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of The Fairchild Corporation and subsidiaries
included in this Form 10-K and have issued our report thereon dated September
15, 1999. Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedules listed in the index
on the preceding page are the responsibility of the Company's management and are
presented for the purpose of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audits
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 15, 1999
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,
ASSETS 1999 1998
Current assets:
Cash and cash equivalents $ 27 $ --
Marketable Securities 71 71
Accounts receivable 549 400
Inventory (182) ---
Prepaid expenses and other current assets 1,297 (1,230)
Total current assets 1,762 (759)
Property, plant and equipment, less
accumulated depreciation 611 677
Investments in subsidiaries 841,744 627,634
Investments and advances, affiliated
companies 1,300 963
Goodwill 5,533 14,333
Noncurrent tax assets 19,026 45,439
Deferred loan fees 13,029 5,168
Other assets 16,244 15,863
Total assets $899,249 $709,318
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 2,250 $ 2,250
Accounts payable 972 124
Accrued Salaries 497 5,929
Accrued Insurance 213 213
Accrued Interest 7,049 1,082
Other Accrued 1,990 967
Accrued Income Taxes (2,477) 1,974
Total current liabilities 10,494 12,539
Long-term debt 480,850 222,750
Other long-term liabilities 405 470
Total liabilities 491,749 235,759
Stockholders' equity:
Class A common stock 2,775 2,467
Class B common stock 262 263
Treasury stock (74,102) (12,138)
Cumulative comprehensive Income (764) (761)
Additional paid in capital 2,138 (29,476)
Retained earnings 477,191 513,204
Total stockholders' equity 407,500 473,559
Total liabilities and stockholders' equity $899,249 $709,318
The accompanying notes are an integral part of these condensed financial
statements.
Schedule I
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED FINANCIAL STATEMENTS OF THE COMPANY
STATEMENT OF EARNINGS (NOT CONSOLIDATED)
(In thousands)
For the Years Ended June 30,
1999 1998 1997
Costs and Expenses:
Selling, general & administrative $ 8,114 $ 3,516 $ 3,925
Amortization of goodwill 248 147 130
8,362 3,663 4,055
Operating loss (8,362) (3,663) (4,055)
Net interest expense 27,130 24,048 25,252
Investment income, net -- 208 16
Equity in earnings of affiliates 967 (613) 480
Loss from continuing operations
before taxes (34,525) (28,116) (28,811)
Income tax provision (benefit) (21,481) (10,580) (15,076)
Loss before equity in earnings
(loss) of subsidiaries (13,044) (17,536) (13,735)
Equity in earnings (loss) of
subsidiaries (45,965) 118,626 15,066
Net earnings (loss) $(59,009)$101,090 $ 1,331
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,
1999 1998 1997
Cash provided by (used for) operation $(37,482)$(80,074)$(14,271)
Investing activities:
Acquisition of subsidiaries (221,467) -- --
Purchase of PP&E (61) -- --
Equity investments in affiliates 630 (141) 2,092
Other -- -- --
(220,898) (141) 2,092
Financing activities:
Proceeds from issuance of debt,
including intercompany 483,100 225,000 9,400
Debt repayments (225,000)(198,867) -
Issuance of common stock 307 53,848 1,126
Other -- -- --
258,407 79,981 10,526
Net increase (decrease) in cash $ 27 $ (234) $(1,653)
The accompanying notes are an integral part of these condensed financial
statements.
Schedule I
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED FINANCIAL STATEMENTS OF THE 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,
1999 1998
Bank Credit Agreement $258,100 $225,000
10 3/4% Senior subordinated Notes
Due 2009 225,000 --
Total Debt $483,100 $225,000
Less: Current Maturities (2,250) (2,250)
Total Long-Term Debt $480,850 $222,750
Maturities of long-term debt for the next five years are as follows: $2,250
in 2000, $2,250 in 2001, $2,250 in 2002, $2,250 in 2003, and $2,250 in 2004.
3. DIVIDENDS FROM SUBSIDIARIES
Cash dividends paid to The Fairchild Corporation by its consolidated
subsidiaries were, $47,742, $42,100 and $10,000 in 1999, 1998 and 1997,
respectively. In 1999, The Fairchild Corporation received 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 from its subsidiaries. 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 our opinion, the ultimate resolution of the
legal proceedings will not have a material adverse effect on our financial
condition, future results of operations or net cash flows.
4. CONTINGENCIES
We are involved in various other claims and lawsuits incidental to its business,
some of which involve substantial amounts. We, either on our own or through our
insurance carriers, is 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,
1999 1998 1997
Beginning balance $ 5,655 $ 6,905 $ 5,449
Charges to cost and expenses 3,426 2,240 1,978
Charges to other accounts (a) (2,940) (2,642) 445
Acquired companies 616 - -
Amounts written off (315) (848) (967)
Ending Balance $ 6,442 $ 5,655 $ 6,905
(a) Recoveries of amounts written off in prior periods, foreign currency
translation and the change in related noncurrent taxes. Fiscal 1998 includes a
reduction of $2,801 relating to the assets disposed as a result the disposition
of Banner Aerospace's hardware group.
(a)(3) Exhibits.
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 Registrant's By-Laws, amended and restated as of February 12, 1999.
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).
(a)(3) Exhibits (continued)
10. Material Contracts
(Stock Option Plans)
10.1 1988 U.K. Stock Option Plan of Banner Industries, Inc. (incorporated by
reference to Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1988).
10.2 Description of grants of stock options to non-employee directors of
Registrant (incorporated by reference to Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1988).
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 From 10-Q for the quarter
ended March 29, 1998).
*10.7 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).
(Employee Agreements)
10.8 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).
10.9 Employment Agreement between RHI Holdings, Inc., and Jacques Moskovic,
dated as of December 29, 1994 (incorporated by reference to Registrant's
Annual Report on Form 10-K/A for the fiscal year ended June 30, 1996).
10.10 Employment Agreement between Fairchild France, Inc., and Jacques
Moskovic, dated as of December 29, 1994 (incorporated by reference to
Registrant's Annual Report on Form 10-K/A for the fiscal year ended June
30, 1996).
10.11 Employment Agreement between Fairchild France, Inc., Fairchild CDI,
S.A., and Jacques Moskovic, dated as of April 18, 1997 (incorporated by
reference to the Registrant's Annual Report on From 10-K for the fiscal
year ended June 30, 1995).
10.12 Letter Agreement dated September 9, 1996, between Registrant and Colin
M. Cohen (incorporated by reference to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1997).
*10.13 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.
10.14 Letter Agreement dated February 27, 1998, between Registrant and John
L. Flynn (incorporated by reference to Registrant's Quarterly Report on
From 10-Q for the quarter ended March 29, 1998).
10.15 Letter Agreement dated February 27, 1998, between Registrant and
Donald E. Miller (incorporated by reference to Registrant's Quarterly
Report on From 10-Q for the quarter ended March 29, 1998).
10.16 Employment Agreement between Robert Edwards and Fairchild Holding
Corp., dated March 2, 1998 (incorporated by reference to Registrant's
Quarterly Report on From 10-Q for the quarter ended March 29, 1998).
10.17 Promissory Note in the amount of $100,000, issued by Robert Sharpe to
the Registrant, dated July 1, 1998 (incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal year ended June 30,
1998).
10.18 Promissory Note in the amount of $200,000 issued by Robert Sharpe to the
Registrant, dated July 1, 1998 (incorporated by reference to Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30, 1998).
*10.19 Officer Loan Program, dated as of February 5, 1999, lending up to
$750,000 to officers for the purchase of Company Stock.
*10.20 Employment Agreement between Jordan Law and Fairchild Holding Corp.,
dated as of April 20, 1999.
*10.21 Employment Agreement between LeRoy A. Dack and Fairchild Holding Corp.,
dated as of April 20, 1999.
*10.22 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.
(Credit Agreements)
Fairchild Holding Corp. Credit Agreement
10.23 Credit Agreement dated as of March 13, 1996, among Fairchild Holding
Corp., 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, 1996).
10.24 Restated and Amended Credit Agreement dated as of July 26, 1996, among
Fairchild Holding Corp, Citicorp USA, Inc. and certain financial
institutions (the "FHC Credit Agreement") (incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal year ended June 30,
1996).
10.25 Amendment No. 1, dated as of January 21, 1997, to the FHC Credit
Agreement dated as of March 13, 1996 (incorporated by reference to
Registrant's Quarterly Report on From 10-Q for the quarter ended March 30,
1997).
10.26 Amendment No. 2 and Consent, dated as of February 21, 1997, to the FHC
Credit Agreement dated as of March 13, 1996 (incorporated by reference to
Registrant's Quarterly Report on From 10-Q for the quarter ended March 30,
1997).
10.27 Amendment No. 3, dated as of June 30, 1997, to the FHC Credit
Agreement dated as of March 13, 1996 (incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal year ended June 30,
1997).
10.28 Second Amended And Restated Credit Agreement dated as of July 18,
1997, to the FHC Credit Agreement dated as of March 13, 1996 (incorporated
by reference to Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1997).
RHI Credit Agreement
10.29 Restated and Amended Credit Agreement dated as of May 27, 1996, (the
"RHI Credit Agreement"), among RHI Holdings, Inc., 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, 1996).
10.30 Amendment No. 1 dated as of July 29, 1996, to the RHI Credit Agreement
dated as of May 27, 1996 (incorporated by reference to Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1996).
10.31 Amendment No. 2 dated as of April 7, 1997, to the RHI Credit Agreement
dated as of May 27, 1996 (incorporated by reference to Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1997).
10.32 Amendment No. 3 dated as of September 26, 1997, to the RHI Credit
Agreement dated as of May 27, 1996 (incorporated by reference to
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
28, 1997).
Fairchild Corporation Credit Agreement
10.33 Third Amended and Restated Credit Agreement, dated as of December 19,
1997, among RHI Holdings, Inc., Fairchild Holding Corp., the Registrant,
Citicorp USA, Inc. and certain financial institutions (incorporated by
reference to Registrant's Quarterly Report on Form 10-Q for the quarter
ended December 28, 1997).
10.34 Amendment No. 1 dated as of January 29, 1999 to Third Amended and
Restated Credit Agreement dated as of December 19, 1997 (incorporated by
reference to Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 28, 1999).
*10.35 Credit Agreement dated as of April 20, 1999, among The Fairchild
Corporation (as Borrower), Citicorp. USA, Inc. and certain financial
institutions.
Interest Rate Hedge Agreements
10.36 Interest Rate Hedge Agreement between Registrant and Citibank, N.A.
dated as of August 19, 1997 (incorporated by reference to Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 28, 1997).
10.37 Amendment dated as of December 23, 1997, to the Interest Rate Hedge
Agreement between Registrant and Registrant and Citibank, N.A. dated as of
August 19, 1997(incorporated by reference to (incorporated by reference to
Registrant's Quarterly Report on Form 10-Q for the quarter ended December
28, 1997).
10.38 Amendment dated as of January 14, 1997, to the Interest Rate
Hedge Agreement between Registrant and Citibank, N.A. dated as of August
19, 1997 (incorporated by reference to Registrant's Quarterly Report on
From 10-Q for the quarter ended March 29, 1998).
(Warrants to Steiner Affiliate)
10.39 Form Warrant Agreement (including form of Warrant) issued by the
Company to Drexel Burnham Lambert on March 13, 1986, subsequently purchased
by Jeffrey Steiner and subsequently assigned to Stinbes Limited (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).
10.40 Form Warrant Agreement issued to Stinbes Limited 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).
10.41 Extension of Warrant Agreement between Registrant and Stinbes
Limited 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).
10.42 Amendment of Warrant Agreement dated February 9, 1998, between the
Registrant and Stinbes Limited (incorporated by reference to Registrant's
Quarterly Report on From 10-Q for the quarter ended March 29, 1998).
10.43 Amendment of Warrant Agreement dated December 12, 1998, effective
retroactively as of September 7, 1998, between Registrant and Stinbes
Limited (incorporated by reference to Registrant's Quarterly Report on From
10-Q for the quarter ended March 29, 1999).
(Other Material Contracts)
10.44 Asset Purchase Agreement dated as of January 23, 1996, between The
Fairchild Corporation, RHI Holdings, Inc. and Cincinnati Milacron, Inc.
(incorporated by reference to the Registrant's Report on Form 8-K dated
January 26, 1996).
10.45 Agreement and Plan of Merger dated as of November 9, 1995 by and among
The Fairchild Corporation, RHI Holdings, Inc., Fairchild Industries, Inc.
and Shared Technologies, Inc. ("STI Merger Agreement") (incorporated by
reference to Registrant's Report on Form 8-K dated November 9, 1995).
10.46 Amendment No. 1 to STI Merger Agreement dated as of February 2, 1996
(incorporated by reference to Registrant's Report on Form 8-K dated March
13, 1996).
10.47 Amendment No. 2 to STI Merger Agreement dated as of February 23, 1996
(incorporated by reference to Registrant's Report on Form 8-K dated March
13, 1996).
10.48 Amendment No. 3 to STI Merger Agreement dated as of March 1, 1996
(incorporated by reference to the Registrant's Report on Form 8-K dated
March 13, 1996).
10.49 Voting Agreement dated as of July 16, 1997, between RHI Holdings,
Inc., and Tel-Save Holdings, Inc. (regarding voting Registrant's stock in
Shared Technologies Fairchild Inc.) (incorporated by reference to the
Registrant's Schedule 13D/A, Amendment No. 3, filed July 22, 1997).
10.50 Stock Option Agreement dated November 20, 1997 between RHI Holdings,
Inc. and Intermedia Communications Inc. (incorporated by reference to
Schedule 13D/A, Amendment No. 4, dated as of November 25, 1997, filed by
the Company on December 1, 1997).
10.51 Stock Purchase Agreement dated November 25, 1997 between RHI
Holdings, Inc. and Intermedia Communications Inc. (incorporated by
reference to Schedule 13D/A, Amendment No. 4, dated as of November 25,
1997, filed by the Company on December 1, 1997).
10.52 Asset Purchase Agreement dated as of December 8, 1997, among Banner
Aerospace, Inc. and seven of its subsidiaries (Adams Industries, Inc.,
Aerospace Bearing Support, Inc., Aircraft Bearing Corporation, Banner
Distribution, Inc., Burbank Aircraft Supply, Inc., Harco, Inc. and
PacAero), AlliedSignal Inc. and AS BAR LLC (incorporated by reference to
Banner Aerospace, Inc.'s Report on Form 8-K dated January 28, 1998).
10.53 Asset Purchase Agreement dated as of December 8, 1997, among Banner
Aerospace, Inc. and two of its subsidiaries (PB Herndon Aerospace, Inc. and
Banner Aerospace Services, Inc.), AlliedSignal Inc. and AS BAR PBH LLC
(incorporated by reference to Banner Aerospace, Inc.'s Report on Form 8-K
dated January 28, 1998).
10.54 Agreement and Plan of Merger dated January 28, 1998, as amended on
February 20, 1998, and March 2, 1998 (the "Special-T Fasteners Merger
Agreement), between the Company and the shareholders' of Special-T
Fasteners, regarding the merger of Special-T into Fairchild (incorporated
by reference to Registrant's Report on Form 8-K dated March 2, 1998, filed
on March 12, 1998).
10.55 Third Amendment dated September 25, 1998 to the Special-T Fasteners
Merger Agreement (incorporated by reference to Registrant's Quarterly
Report on From 10-Q for the quarter ended September 27, 1998).
10.56 Agreement and Plan of Reorganization by and among The Fairchild
Corporation, Dah Dah, Inc. and Kaynar Technologies Inc., dated as of
December 26, 1998, regarding the merger of Kaynar into Fairchild
(incorporated by reference to Registrant's Registration Statement on Form
S-4 filed on January 15, 1999).
10.57 Voting and Option Agreement by and among The Fairchild Corporation,
Dah Dah, Inc., CFE Inc., and general Electric Capital Corporation dated as
of December 26, 1998, regarding voting of Kaynar stock for the Kaynar-
Fairchild merger (incorporated by reference to Registrant's Report on Form
8-K dated December 30, 1998).
10.58 Voting Agreements by and between The Fairchild Corporation and each of
the following individuals: Jordan Law, David A. Werner, Robert L. Beers and
LeRoy A. Dack, each agreement dated as of December 26, 1998, regarding
voting of Kaynar stock for the Kaynar-Fairchild merger(incorporated by
reference to Registrant's Report on Form 8-K dated December 30, 1998).
10.59 Agreement and Plan of Merger between The Fairchild Corporation, MTA,
Inc. and Banner Aerospace, Inc., dated as of January 11, 1999, regarding
the merger of Banner into Fairchild (incorporated by reference to "Appendix
A" of Registrant's Proxy Statement/Prospectus included as part of
Registrant's Registration Statement No. 333-70673 on Form S-4 declared
effective March 25, 1999).
*10.60 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.
(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, 1999, 1998 and 1997).
*22 List of subsidiaries of Registrant.
*23.1 Consent of Arthur Andersen LLP, independent public accountants.
*23.2 Consent of Price Waterhouse Coopers, independent public accountants.
*27 Financial Data Schedules.
99.1 Financial statements, related notes thereto and Auditors' Report of Nacanco
Paketleme for the fiscal year ended December 31, 1998 (incorporated by
reference to the Registrant's Report on Form 8-K filed on June 26, 1999).
- -------------------------
*Filed herewith.
(b) Reports on Form 8-K
On April 8, 1999, the Company filed a Form 8-K to report (Item 5) the
completion of the merger with Banner Aerospace, Inc. and to report additional
losses taken at Fairchild Technologies.
On May 5, 1999, the Company filed a Form 8-K to report the acquisition of
Kaynar Technologies Inc. to report (Item 7) audited financial statements of
Kaynar Technologies Inc., and unaudited pro forma consolidate financial
statements giving effect to the acquisition of Kaynar Technologies Inc.
On June 25, 1999, the Company filed a Form 8-K to report (Item 5) audited
financial statements for the years ended December 31, 1998, 1997 and 1996 for
Nacanco Paketleme, formerly a 32% owned equity affiliate.
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: Colin M. Cohen
Senior Vice President and
Chief Financial Officer
Date: September 28, 1999
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
MICHAEL T. ALCOX Vice President and Director September 28,
By: /s/ 1999
Michael T. Alcox
MELVILLE R. BARLOW Director
By:
Melville R. Barlow
MORTIMER M. CAPLIN Director September 28,
By: /s/ 1999
Mortimer M. Caplin
COLIN M. COHEN Senior Vice President, September 28,
By: /s/ Chief 1999
Colin M. Cohen Financial Officer and
Director
PHILIP DAVID Director
By:
Philip David
ROBERT EDWARDS Executive Vice President September 28,
By: /s/ 1999
Robert Edwards And Director
HAROLD J. HARRIS Director September 28,
By: /s/ 1999
Harold J. Harris
DANIEL LEBARD Director September 28,
By: /s/ 1999
Daniel Lebard
JACQUES S. MOSKOVIC Senior Vice President September 28,
By: /s/ 1999
Jacques S. Moskovic And Director
HERBERT S. RICHEY Director
By:
Herbert S. Richey
MOSHE SANBAR Director September 28,
By: /s/ 1999
Moshe Sanbar
ROBERT A. SHARPE II Senior Vice President,
By:
Robert A. Sharpe II Operations and Director
ERIC I. STEINER President, Chief Operating
By:
Eric I. Steiner Officer and Director