-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IaXQ0rXnps7x9v3qThdY6R/xvIQBJtuKdqPPBGhtzVaBzhP4pA7hPDwNbdvpm3Jn y1HMx+XR5en4388pSNoZtQ== 0000817632-96-000020.txt : 19960928 0000817632-96-000020.hdr.sgml : 19960928 ACCESSION NUMBER: 0000817632-96-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960821 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHARED TECHNOLOGIES FARICHILD INC CENTRAL INDEX KEY: 0000817632 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TELEPHONE INTERCONNECT SYSTEMS [7385] IRS NUMBER: 870424558 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17366 FILM NUMBER: 96618510 BUSINESS ADDRESS: STREET 1: 100 GREAT MEADOW RD STREET 2: STE 104 CITY: WETHERSFIELD STATE: CT ZIP: 06109 BUSINESS PHONE: 8602582500 MAIL ADDRESS: STREET 1: 100 GREAT MEADOW ROAD SUITE 104 CITY: WETHERSFIELD STATE: CT ZIP: 06109 FORMER COMPANY: FORMER CONFORMED NAME: SHARED TECHNOLOGIES FAIRCHILD COMMUNICATIONS CORP /CT DATE OF NAME CHANGE: 19960430 FORMER COMPANY: FORMER CONFORMED NAME: SHARED TECHNOLOGIES INC DATE OF NAME CHANGE: 19920703 10-Q 1 JUNE 30, 1996 10Q Form 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15d OF THE SECURITIES AND EXCHANGE ACT OF 1934 For Quarterly Period Ended June 30, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-17366 SHARED TECHNOLOGIES FAIRCHILD INC. (exact name of registrant as specified in its charter) Delaware 87-0424558 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 100 Great Meadow Road, Suite 104 Wethersfield, CT 06109 (Address of principal executive offices) (860) 258-2400 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _ X__ No ______ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the latest practicable date. Class Outstanding at August 14, 1996 Common Stock, $.004 par value 15,058,466 shares PART I FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995 3-4 Consolidated Statements of Operations for the six months ended June 30, 1996 and 1995 5 Consolidated Statements of Operations for the three months ended June 30, 1996 and 1995 6 Consolidated Statements of Cash Flows for the six months ended June 30, 1996 and 1995 7 Consolidated Statements of Stockholders' Equity for the six months ended June 30, 1996 8 Notes to Consolidated Financial Statements 9-11 Item 2 Management's Discussion and Analysis of Results of Operations and Financial Condition 12-13 PART II OTHER INFORMATION 14 Signature Page 15 Item 1. Financial Statements
Shared Technologies Fairchild Inc. Consolidated Balance Sheets June 30, 1996 and December 31, 1995 (In thousands except per share data) (unaudited) June 30, 1996 December 31, 1995 ASSETS CURRENT ASSETS: Cash $ 830 $ 476 Accounts receivable, less allowance for doubtful accounts of $796 in 1996 and $410 in 1995 34,707 9,855 Advances to subsidiary 867 985 Inventories 1,262 - Other current assets 2,416 754 ----- --- Total current assets 40,082 12,070 ------ ------ Equipment: Property & Equipment 90,191 34,953 Accumulated depreciation (22,984) (18,305) -------- -------- 67,207 16,648 ------ ------ Other Assets: Investment in subsidiaries 493 1,581 Intangible assets 271,618 11,543 Deferred income taxes 560 560 Other 468 461 --- --- 273,139 14,145 ----------- Total assets $ 380,428 $ 42,863 The accompanying notes are an integral part of these financial statements.
Shared Technologies Fairchild Inc. Consolidated Balance Sheets June 30, 1996 and December 31, 1995 (In thousands except per share data) (unaudited) June 30, December 31, 1995 1996 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long term debt and capital lease obligations $ 21,226 $ 2,870 Accounts payable 22,144 9,035 Accrued expenses 10,422 2,221 Advanced billings 6,674 1,337 ----- ----- Total current liabilities 60,466 15,463 ------ ------ Long-Term Debt and Capital Lease Obligations less current portion 228,379 4,128 ------- ----- Redeemable Put Warrant 452 428 --- --- Convertible preferred stock, $.01 par value, authorized 250 shares, outstanding 250 shares in 1996 and no shares in 1995 25,000 - ------ ---- - Special preferred stock, $.01 par value, authorized 200 shares, outstanding 200 shares in 1996 and no shares in 1995 20,000 - STOCKHOLDERS' EQUITY: Preferred Stock, $.01 par value, authorized 25,000 shares: Series C, outstanding 428 shares in 1996 and 907 shares in 1995 4 9 Series D, outstanding 457 shares in 1996 and 1995 5 5 Common Stock; $.004 par value, 50,000 shares authorized, outstanding 15,055 shares in 1996 and 8,506 shares in 1995 60 34 Additional paid-in capital 72,860 44,777 Accumulated deficit (26,798) (21,981) -------- -------- Total stockholders' equity 46,131 22,844 ------ ------ Total liabilities and stockholders' equity $380,428 $42,863 The accompanying notes are an integral part of these financial statements.
Shared Technologies Fairchild Inc. Consolidated Statements of Operations (In thousands except per share data) For the Six Months Ended June 30, 1996 and 1995 (unaudited) June 30, 1996 June 30, 1995 Revenue: Shared telecommunications services $ 41,926 $17,070 Telecommunications systems 21,846 5,350 Cellular services - 5,290 - ----- Total revenue 63,772 27,710 ------ ------ Cost of revenue: Shared telecommunications services 21,090 9,580 Telecommunications systems 13,718 4,250 Cellular services - 3,079 - ----- Total cost of revenue 34,808 16,909 ------ ------ Gross Margin 28,964 10,801 ------ ------ Selling, general & administrative Expenses 22,856 10,094 ------ ------ Operating Income 6,108 707 Other income (expense): Gain on sale of subsidiary stock - 1,375 Equity in loss of subsidiary (1,699) - Net interest expense (8,251) (259) Minority interest in net (income) loss of subsidiaries - 89 - -- (9,950) 1,205 ------- ----- Income (loss) before income taxes and extraordinary item (3,842) 1,912 Income tax (40) (30) ---- ---- Income (loss) before extraordinary item (3,882) 1,882 Extraordinary item, loss on early retirement of debt (310) - ----- - Net income (loss) (4,192) 1,882 Preferred stock dividends (601) (199) ----- ----- Net Income (loss) applicable to common stock $ (4,793) $ 1,683 ============== ================ Income (loss) per common share Income (loss) before extraordinary item $ (0.37) $ 0.19 Extraordinary item (0.02) - -------- -------- - Net income (loss) $ (0.39) $ 0.19 ============= ================= Weighted average shares outstanding 12,433 8,772 ====== ===== The accompanying notes are an integral part of these financial statements.
Shared Technologies Fairchild Inc. Consolidated Statements of Operations For the Three Months Ended June 30, 1996 and 1995 (In thousands except per share data) (unaudited) June 30, 1996 June 30, 1995 Revenue: Shared telecommunications services $ 28,696 $ 8,736 Telecommunications systems 16,894 2,867 Cellular services - 3,263 - ----- Total revenue 45,590 14,866 ------ ------ Cost of revenue: Shared telecommunications services 14,664 4,850 Telecommunications systems 9,707 2,295 Cellular services - 2,011 - ----- Total cost of revenue 24,371 9,156 ------ ----- Gross margin 21,219 5,710 ------ ----- Selling, general & administrative Expenses 16,073 5,437 ------ ----- Operating income 5,146 273 Other income (expense): Gain on sale of subsidiary stock - 1,375 Equity in loss of subsidiary (741) - Net interest expense (6,992) (114) Minority interest in net (income) loss of subsidiaries - 78 - -- (7,733) 1,339 ------- ----- Income (loss) before income taxes (2,587) 1,612 Income tax (19) (15) ---- ---- Net income (loss) (2,606) 1,597 Preferred stock dividends (515) (99) ----- ---- Net income (loss) applicable to common stock $ (3,121) $ 1,498 ============ ================== Income (loss) per common share: Net Income (loss) $ (0.21) $0.17 ============ ===== Weighted average shares outstanding 14,900 8,831 ====== ===== The accompanying notes are an integral part of these financial statements.
Shared Technologies Fairchild Inc. Consolidated Statements of Cash Flows For the Six Months Ended June 30, 1996 and 1995 (In thousands except per share data) (unaudited) June 30, 1996 June 30, 1995 -------------------------------------------- Cash flows from operating activities: Net Income, (loss) $(4,192) $1,882 Adjustments: Gain on sale of subsidiary stock - (1,375) Depreciation & amortization 7,042 2,072 Loss on early retirement of debt 310 - Accretion on 12 1/4% bonds 4,227 - Provision for doubtful accounts 25 - Equity in loss of subsidiary 1,699 - Amortization of discount on note 14 - Minority interest in net income of subsidiaries - (89) Change in assets and liabilities: Accounts receivable 149 (1,665) Other current assets (352) (370) Other assets 1,158 (129) Accounts payable 1,532 623 Accrued expenses 1,220 (89) Advanced billings (765) (24) -------------------------------------------- Net cash provided by operating activities 12,067 836 -------------------------------------------- Cash flows from investing activities: Acquisitions (net of cash acquired) (3,766) (2,592) Cash purchases of equipment (3,931) (1,849) Investment in subsidiaries (493) - -------------------------------------------- -------------------------------------------- Net cash used in investing activities (8,190) (4,441) -------------------------------------------- Cash flows from financing activities: Preferred stock dividends (601) (199) Net proceeds from sale of subsidiary stock - 3,149 Proceeds from borrowings 244,999 2,294 Repayments of notes payable, long-term debt and capital lease obligations (190,016) (1,195) Payments to affiliate (8,407) - Deferred finance costs (9,271) - Repayment of FII preferred stock (40,581) - Proceeds from issuance of common stock 354 1,163 -------------------------------------------- Net cash provided by (used in) financing (3,523) 5,212 activities -------------------------------------------- Net increase (decrease) in cash 354 1,607 Cash, Beginning of Period 476 172 -------------------------------------------- Cash, End of Period $830 $1,779 ============================================ Supplemental Disclosures of Cash Flow Information: Cash paid during the period for - Interest $2,419 $280 Income taxes 45 56 Supplemental Disclosures of Noncash Investing and Financing Activities: Obligations to issue common stock in connection with acquisitions $- $1,806 Issuance of common stock to acquire FII 27,750 - Issuance of preferred stock to acquire FII 45,000 - Dividend accretion on redeemable put warrant 24 22
Shared Technologies Fairchild Inc. Consolidated Statement of Stockholders' Equity For the period ended June 30, 1996 (in thousands) (unaudited) Series C Series D Preferred Stock Preferred Stock Shares Amount Shares Amount Balance, January 1, 1996 907 $ 9 457 $ 5 Preferred stock dividends Dividend accretion of redeemable put warrant Issuance of Common Stock Conversions of Preferred Stock (479) (5) Exercise of common stock options and warrants Net income Balance, June 30, 1996 428 $ 4 457 $ 5 The accompanying notes are an integral part of these financial statements.
Shared Technologies Fairchild Inc. Consolidated Statement of Stockholders' Equity For the period ended June 30, 1996 (in thousands) (unaudited) Additional Common Stock Paid-in Shares Amount Capital Balance, January 1, 1996 8,506 $ 34 $ 44,777 Preferred stock dividends Dividend accretion of redeemable put warrant Issuance of Common Stock 6,000 24 27,726 Conversions of Preferred Stock 426 2 3 Exercise of common stock 123 - 354 options and warrants Net income Balance, June 30, 1996 15,055 $ 60 $72,860 The accompanying notes are an integral part of these financial statements.
Shared Technologies Fairchild Inc. Consolidated Statement of Stockholders' Equity For the period ended June 30, 1996 (in thousands) (unaudited) Accumulated Total Stockholders' Deficit Equity Balance, January 1, 1996 $(21,981) $ 22,844 Preferred stock dividends (601) (601) Dividend accretion of redeemable put warrant (24) (24) Issuance of Common Stock 27,750 Conversions of Preferred Stock - Exercise of common stock options and warrants 354 Net loss (4,192) (4,192) Balance, June 30, 1996 $ (26,798) $ 46,131 The accompanying notes are an integral part of these financial statements.
========================================== Shared Technologies Fairchild Inc. ========================================================= Notes to Consolidated Financial Statements June 30, 1996 (In thousands except for per share data) (Unaudited) 1. Basis of Presentation: ------------------------- The consolidated financial statements included herein have been prepared by Shared Technologies Fairchild Inc. (the Company) pursuant to the rules and regulations of the Securities and Exchange Commission and reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary to present a fair statement of the results for interim periods. Certain information and footnote disclosures have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's December 31, 1995 report on Form 10-K. Certain reclassifications to prior year financial statements were made in order to conform to the 1996 presentation. 2. Investment in Unconsolidated Subsidiary The Company's investment in its Unconsolidated subsidiary, Shared Technologies Cellular, Inc. (STC), is accounted for under the equity method. Prior to December 1995, the majority owned subsidiary was included on a consolidated basis. During December 1995, STC issued approximately $3,000 in voting preferred stock to third parties. Although the Company's ownership percentage of approximately 58% did not change, the voting rights assigned to the preferred stock reduced the Company's voting interest in STC, resulting in the Company's loss of voting control of STC. Accordingly, STC has been accounted for on the equity method for 1996. At June 30, 1996 the Company had an ownership interest of approximately 40% in STC. Summarized balance sheet and statement of operations information for STC as of, and for the three and six months ended, June 30, 1996 is as follows: Summarized Balance Sheet Current assets $ 2,492 Property and equipment, net 3,408 Other assets 9,779 Total assets $ 15,679 Current liabilities $ 10,970 Note payable 1,678 Total liabilities 12,648 Stockholders' equity 3,031 Total liabilities and stockholders' equity $ 15,679 Summarized Statement of Operations Three Six months ended months ended Revenues $ 5,068 9,374 Gross margin 1,852 3,381 Operating loss (1,308) (2,895) Net loss (1,377) (3,025) The Company has recently reached an agreement with STC to purchase $2,500 in STC preferred stock. This investment will be financed through the conversion of existing advances owed by STC to the Company in the amount of $1,200 and cash of $1,300. 3. Acquisitions: On June 30, 1995, the Company purchased all of the outstanding capital stock of Office Telephone Management("OTM"). OTM provides shared telecommunication services primarily to businesses located in executive office suites. The purchase price was $2,135 of which $1,335 was paid in cash and the balance through the issuance of an $800 note, (discounted at 8.59%) payable through June 30, 2005. The excess of cost over fair value of the net assets was recorded as goodwill. On March 13, 1996, the Company's stockholders approved and the Company consummated its merger with Fairchild Industries, Inc.("FII"), following a reorganization transferring all non-communication assets to its parent, RHI Holding, Inc. ("RHI"). The Company changed its name to Shared Technologies Fairchild Inc.("STFI"). Pursuant to the merger agreement, STFI issued to RHI, 6,000 shares of common stock, 250 shares of convertible preferred stock with a $25,000 liquidation preference and 20 shares of special preferred stock with a $20,000 initial liquidation preference. In addition the Company raised in the capital market approximately $111,000 after offering expenses, through the issuance of 12 1/4% Senior Subordinated Notes Due 2006 and approximately $125,000 (of an available $145,000) in loans from a credit facility with financial institutions. The funds were used primarily for the retirement of certain liabilities assumed from FII in connection with the merger, and the retirement of the Company's existing credit facility. In connection with the merger, the Company entered into two year employment agreements with key employees for annual compensation aggregating $1,250, and adopted the 1996 Equity Incentive Plan. The merger was accounted for using the purchase method of accounting. The total purchase consideration of approximately $78,067 was allocated to the net tangible and intangible assets of FII based upon their respective fair market values. The allocation of the aggregate purchase price included in the following pro forma financial statements is preliminary, and does not reflect the immediate retirement of FII long-term debt, FII Series A Preferred Stock, and FII Series C Preferred Stock. Allocation of purchase price: Assets Cash $ 1,551 Accounts receivable 22,435 Other current assets 2,572 Equipment 51,532 Goodwill 254,215 Total Assets 332,305 Liabilities and stockholders' equity Capital lease obligations $ (262) Accounts payable (13,474) Accrued expenses (8,595) Due to affiliated company (8,407) Long term debt (182,919) FII preferred stock (40,581) Net purchase price $ 78,067 The following unaudited pro forma statements of operations for the six months ended June 30, 1996 and 1995 give effect to the above acquisitions and the change in reporting of STC to the equity method (Note 2) and the pro forma effect of STC acquisitions, as if they occurred on January 1 in each year: 1996 1995 Revenues $ 91,055 $ 87,426 Cost of revenues 46,524 48,181 Gross margin 44,532 39,246 Selling, general and administrative expenses 34,404 29,724 Operating income 10,128 9,522 Equity in loss of subsidiary (1,699) (502) Interest expense, net (13,594) (13,232) Loss before income tax expense and extraordinary item (5,165) (2,837) Income taxes (5) (5) Extraordinary item, loss on early retirement of debt (357) (450) Net Loss (5,527) (3,292) Preferred stock dividends (1,162) (1,949) Loss applicable to common stock $ (6,689) $ (5,241) Net loss per common share $ (.45) $ (.39) Weighted average number of common shares outstanding 14,741 13,567 4. Contingencies: In December 1995, a suit was filed against the Company alleging a breach of a letter agreement and seeking an amount in excess of $2,250 for a commission allegedly owed in connection with the merger with FII (Note 3). The Company denies that the claimant at any time was engaged in connection with the merger. The Company filed an answer in January 1996, denying that any commission is owed. This litigation is in the discovery process. While any litigation contains an element of uncertainty, management is of the opinion that the ultimate resolution of this matter should not have a material adverse effect upon results of operations, cash flows or financial position of the Company. The Company's sales and use tax returns in certain jurisdictions are currently under examination. Management believes these examinations will not result in a material change from liabilities provided. In addition to the above matters, the Company is a party to various legal actions, the outcome of which, in the opinion of management, will not have a material adverse effect on results of operations, cash flows or financial position of the Company. 5. Income Taxes: The Company and its subsidiaries file a consolidated federal income tax return but generally file separate state income tax returns. As of June 30, 1996 the Company recorded a deferred tax asset of $7,508 and a corresponding valuation allowances of $ 6,948. SFAS No. 109 requires that the Company record a valuation allowance when it is "more likely than not that some portion or all of the deferred tax asset will not be realized". The ultimate realization of this deferred tax asset depends on the ability to generate sufficient taxable income in the future. While management believes that the total deferred tax asset will be fully realized by future operating results, together with tax planning opportunities, the uncertainty relating to the future tax effects of the merger and a desire to be conservative make it appropriate to record a valuation allowance. At June 30, 1996, the Company's NOL carryforward for federal income tax purposes was approximately $57,000, expiring between 2001 and 2007. NOL's available for state income tax purposes are less than those for federal purposes and generally expire earlier. Limitations apply to the use of NOL's due to changes in Company ownership which occured in the merger with FII. 6. Extraordinary Item: At June 30, 1996, the Company recorded an extraordinary loss of $310 relating to the early retirement of a $5,000 credit facility. The early retirement took place as a result of requirements in the merger agreement with FII (Note 3). 7. Consolidating Financial Statements (unaudited): The following unaudited statements separately show Shared Technologies Fairchild Inc. and the subsidiaries of Shared Technologies Fairchild Inc.
Consolidating Balance Sheets as of June 30, 1996 BTC MTS OTM STI Int'l STFTI ------------------------------------------------------------------------------ Assets Current Assets: Cash $ 6 $ 3 $ - $ - $ 377 31,560 Accounts receivable 419 2,178 - - Advances to subsidiaries - - - - - 1,262 Inventories - - - - Other current assets 2,291 13 112 - - ------------------------------------------------------------------------------ Total current assets 35,490 438 2,293 - - ------------------------------------------------------------------------------ Equipment: 74,568 Property & Equipment 5,333 10,290 - - Accumulated depreciation (13,858) (3,214) (5,912) - - ------------------------------------------------------------------------------ 60,710 2,119 4,378 - - ------------------------------------------------------------------------------ Other Assets: Investments in subsidiaries - - - 215 - 271,618 Intangible assets - - - - 560 Deferred income taxes - - - - 468 Other - - - - ------------------------------------------------------------------------------ 272,646 - - - 215 ------------------------------------------------------------------------------ 368,846 Total assets 2,557 6,671 - 215 ============================================================================== Liabilities and Stockholders' Equity Current Liabilities: Current portion of long term debt and capital lease obligations - - - - - 21,084 Accounts payable 195 865 - - 9,785 Accrued expenses 10 159 - - 67,889 Due to affiliate 1,688 3,290 168 215 6,155 Advanced billings 81 438 - - ------------------------------------------------------------------------------ Total current liabilities 104,913 1,974 4,752 168 215 ------------------------------------------------------------------------------ Long-term debt, less current portion - - - - - ------------------------------------------------------------------------------ Redeemable put warrant - - - - - ------------------------------------------------------------------------------ Convertible preferred stock - - - - - ------------------------------------------------------------------------------ Special preferred stock - - - - - ------------------------------------------------------------------------------ Stockholders' equity: Preferred stock series C - - - - - Preferred stock series D - - - - - Common stock - - - - - Additional paid-in capital - - - - - 263,933 Accumulated deficit 583 1,919 (168) - ------------------------------------------------------------------------------ Total stockholders' equity 263,933 583 1,919 (168) - ------------------------------------------------------------------------------ Total liabilities and 368,846 stockholders' equity 2,557 6,671 - 215 ============================================================================== Eliminating Consolidated STFCC STFI Entries STFI ---------------------------------------------------------------- Assets Current Assets: Cash $ - $ 444 $ - $ 830 34,707 Accounts receivable - 550 - Advances to subsidiaries - 74,117 (73,250) 867 1,262 Inventories - - - 2,416 Other current assets - - - ---------------------------------------------------------------- 40,082 Total current assets - 75,111 (73,250) ---------------------------------------------------------------- Equipment: 90,191 Property & Equipment - - - (22,984) Accumulated depreciation - - - ---------------------------------------------------------------- 67,207 - - - ---------------------------------------------------------------- Other Assets: (282,929) Investments in subsidiaries 266,267 16,940 493 271,618 Intangible assets - - - Deferred income taxes - - - 560 Other - - - 468 ---------------------------------------------------------------- (282,929) 273,139 266,267 16,940 ---------------------------------------------------------------- (356,179) 380,428 Total assets 266,267 92,051 ================================================================ Liabilities and Stockholders' Equity Current Liabilities: Current portion of long term debt and capital lease obligations 21,226 - - 21,226 22,144 Accounts payable - - - 10,422 Accrued expenses - 468 - Due to affiliate - - (73,250) - 6,674 Advanced billings - - - ---------------------------------------------------------------- 60,466 Total current liabilities 21,226 468 (73,250) ---------------------------------------------------------------- Long-term debt, less current portion 228,379 228,379 - - ---------------------------------------------------------------- Redeemable put warrant - 452 - 452 ---------------------------------------------------------------- 25,000 Convertible preferred stock - 25,000 - ---------------------------------------------------------------- 20,000 Special preferred stock - 20,000 - ---------------------------------------------------------------- Stockholders' equity: Preferred stock series C - 4 - 4 Preferred stock series D - 5 - 5 Common stock - 60 - 60 72,860 Additional paid-in capital - 72,860 - (282,929) (26,798) Accumulated deficit 16,662 (26,798) ---------------------------------------------------------------- (282,929) 46,131 Total stockholders' equity 16,662 46,131 ---------------------------------------------------------------- Total liabilities and (356,179) 380,428 stockholders' equity 266,267 92,051 ================================================================ Consolidating Statements of Operations for the Six Months Ended June 30, 1996 BTC MTS OTM STI Int'l STFTI -------------------------------------------------------------------- Revenue 3,455 7,861 888 - 51,068 Cost of Revenue 2,013 4,063 738 - 27,994 -------------------------------------------------------------------- 3,798 150 - Gross margin 1,442 23,074 -------------------------------------------------------------------- Selling, general & - administrative expenses 859 1,879 318 19,800 -------------------------------------------------------------------- 1,919 (168) - Operating Income 583 3,274 Other income (expense): - - - Equity in loss of subsidiary - - Net interest expense (8,251) -------------------------------------------------------------------- - - (8,251) - - -------------------------------------------------------------------- Income (loss) before income taxes and extraordinary item 583 1,919 (168) - (4,977) - - Income tax - - (40) -------------------------------------------------------------------- Income (loss) before 1,919 (168) - extraordinary item 583 (5,017) Extraordinary item, loss on - (310) early retirement of debt - - - -------------------------------------------------------------------- Net income (loss) 583 1,919 (168) - (5,327) Preferred stock dividends - - - - - -------------------------------------------------------------------- Net income (loss) applicable to common - (5,327) stock 583 1,919 (168) ==================================================================== Consolidating Statements of Operations for the Six Months Ended June 30, 1996 Consolidated Eliminating STFCC STFI Entries STFI ------------------------------------------------------------------ 500 - Revenue - 63,772 - Cost of Revenue - - 34,808 ------------------------------------------------------------------ 500 - Gross margin - 28,964 ------------------------------------------------------------------ Selling, general & - administrative expenses - - 22,856 ------------------------------------------------------------------ 500 - 6,108 Operating Income - Other income (expense): Equity in loss of subsidiary (2,993) (4,692) 5,986 (1,699) - (8,251) Net interest expense - - ------------------------------------------------------------------ (2,993) (4,692) (9,950) 5,986 ------------------------------------------------------------------ Income (loss) before income taxes and extraordinary item (2,993) (4,192) (3,842) 5,986 Income tax - (40) - - ------------------------------------------------------------------ Income (loss) before (2,993) (4,192) (3,882) extraordinary item 5,986 Extraordinary item, loss on - early retirement of debt - - (310) ------------------------------------------------------------------ (2,993) (4,192) (4,192) Net income (loss) 5,986 Preferred stock dividends (601) - (601) - ------------------------------------------------------------------ Net income (loss) applicable to common stock (2,993) (4,793) 5,986 (4,793) ================================================================== Item 2. - ------- Management's Discussion and Analysis of Results of Operations and - ----------------------------------------------------------------- Financial Condition - ------------------- Results of Operations: - ----------------------- Six Months Ended June 30, 1996 compared to June 30, 1995 Revenues STFI's revenues rose to a record $63.8 million in 1996 an increase of 130.3% over 1995 revenues of $27.7 million. This increase occurred mainly as a result of the March 13, 1996 merger with Fairchild Industries Inc. ("FII"). Shared Telecommunications Service ("STS") revenue increased $24.8 million or 145.0% and Telecommunications Systems ("Systems") revenue increased $16.6 million or 313.2%. Gross margin Gross margin increased to 45.4% of revenues for 1996 from 39.0% for 1995, an increase of 6.4%. The change in gross margin is mainly the result of changes in sales mix. The following table sets forth the components of the Company's overall gross margin ("GM") for the six months ended June 30, 1996 as a factor of sales percentage and gross margin percentage per line of business: Overall Division Sales GM GM - ----------------------------------------------------------------------------------------------- STS 65.7% 49.6% 32.6% Systems 34.3% 37.4% 12.8% ----- ----- ----- Company Total 100.0% 45.4% ====================== ====================== As shown above, the 1996 gross margin was a mix of STS gross margin of 49.6% and Systems gross margin of 37.4%. In 1995 the Company's gross margin was a combination of STS gross margin of 43.9%, Systems gross margin of 20.8% and Cellular Services ("STC") gross margin of 41.5%. Changes in gross margin for STS and Systems year to year were mainly the result of the acquisition of FII. Selling, general and administrative expenses Selling, general and administrative expenses ("SG&A") as a percentage of revenues decreased to 35.9% for 1996 compared to 36.5% for 1995. SG&A improved slightly due to the merger with FII which resulted in certain synergies. This was largely offset by increased goodwill amortization expense. Operating income Operating income increased to $6.1 million in 1996 from $0.7 million in 1995. The increase was mainly the result of the FII acquisition mentioned earlier. Interest expense Interest expense net of interest income increased by $8.0 million for the six months ended June 30, 1996 over the six months ended June 30, 1995. This is attributable to the addition of approximately $245 million in new debt on March 13, 1996. Extraordinary Item. In connection with the acquisition of FII the Company was required to repay all outstanding amounts on their existing credit facility. This early repayment resulted in a loss of $0.3 million which was recorded as an extraordinary item for the three months ended June 30, 1996. Net income As a result of the factors listed above, a net loss for the six months ended June 30, 1996 of $4.2 million was recorded compared to net income of $1.9 million for the six months ended June 30, 1995. Three Months Ended June 30, 1996 compared to June 30, 1995 Revenues STFI's revenues rose to a record $45.6 million in 1996 an increase of 206.0% over 1995 revenues of $14.9 million. STS revenue increased $20.0 million or 229.9% and Systems revenue increased $14.0 million or 482.8%. The majority of the increase was attributable to the March 13, 1996 acquisition of FII. Gross margin Gross margin increased to 46.5% of revenues for 1996 from 38.3% for 1995, an increase of 8.2%. The change in gross margin is mainly the result of changes in sales mix. The following table sets forth the components of the Company's overall gross margin ("GM") for the three months ended June 30, 1996 as a factor of sales percentage and gross margin percentage per line of business: Overall Division Sales GM GM - ----------------------------------------------------------------------------------------------- STS 62.9% 48.8% 30.7% Systems 37.1% 42.6% 15.8% ----- ----- ----- Company Total 100.0% 46.5% =============== =============== As shown above, the 1996 gross margin was a mix of STS gross margin of 48.8% and Systems gross margin of 42.6%. In 1995 the Company's gross margin was a combination of STS gross margin of 43.7%, Systems gross margin of 19.5% and STC gross margin of 39.4%. Selling, general and administrative expenses SG&A as a percentage of revenues decreased to 35.3% for 1996 compared to 36.2% for 1995. SG&A improved slightly due to the merger with FII which resulted in certain synergies. This was largely offset by increased goodwill amortization expense. Operating income Operating income increased to 5.1 million in 1996 from $0.3 million in 1995. The increase was mainly the result of the FII acquisition mentioned earlier. Interest expense Interest expense net of interest income increased by $6.8 million for the three months ended June 30, 1996 over the three months ended June 30, 1995. This is attributable to the addition of approximately $245 million in new debt on March 13, 1996. Net income As a result of the factors listed above, a net loss for the three months ended June 30, 1996 of $2.6 million was recorded compared to net income of $1.6 million for the three months ended June 30, 1995. LIQUIDITY AND CAPITAL RESOURCES ------------------------------- Due to the acquisition of FII on March 13, 1996 and the associated borrowings of $245 million, the Company's liquidity and capital resources were significantly changed. At June 30, 1996 the Company had $380 million in assets, $250 million in various long term debt and capital lease obligations and $45 million in new preferred stock. The balance sheet at June 30, 1996 shows a working capital deficit of $20.4 million compared to a deficit of $1.5 million at June 30, 1995. The Company has available for future borrowings approximately $13 million on a credit facility at June 30, 1996. Cash provided by operations was $12.1 million for the six months ended June 30, 1996 compared to $0.8 million for the six months ended June 30, 1995. The Company invested significant capital towards growth internally and through acquisition. $3.9 million was spent on equipment purchases, $0.5 million on subsidiaries, and $3.8 million to consummate the merger with FII during the six months ended June 30, 1996. Financing activities were focused primarily on raising capital to repay $223,500 million in various debt and preferred stock obtained in the merger with FII. The Company raised in the capital market approximately $115,000, through the issuance of 12 1/4% Senior Subordinated Notes Due 2006 and approximately $130,000 (of an available $145,000) in loans from a credit facility with financial institutions. In addition the Company paid $9.3 million in fees and costs to obtain this capital. $8.4 million was paid to an affiliate related to the merger with FII. Cash requirements for 1996 will be significant due to the new debt mentioned earlier. The Company anticipates repaying these borrowings and providing cash for capital expenditures with cash from operations. The Company does not anticipate the need to utilize the available credit facility for the remainder of 1996. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K: (a) Exhibits None (b) Reports on Form 8-K ========================================== =============================================================== SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. SHARED TECHNOLOGIES FAIRCHILD INC. By: /s/ Vincent DiVincenzo Vincent DiVincenzo Senior Vice President-Finance and Administration, Treasurer, Chief Financial Officer Date: August 14, 1996
EX-27 2 ART. 5 FDS FOR QUARTER END 10-Q
5 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 830 0 35503 796 1262 40082 90191 (22984) 380428 60466 0 0 9 60 0 380428 63772 63772 34808 34808 22856 0 8251 (3842) (40) (3882) 0 (310) 0 (4192) (0.39) (0.39)
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