-----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, F1QjT+k7AuwPwNA4VNLujAKMRoj4OHQqk1oi0boUjXUhUgG4ZUGGHEODhjltMgp3 HkiuVp9IspJZIi6YUXrQ8A== 0000817632-96-000026.txt : 19961120 0000817632-96-000026.hdr.sgml : 19961120 ACCESSION NUMBER: 0000817632-96-000026 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961115 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: 96667317 BUSINESS ADDRESS: STREET 1: 100 GREAT MEADOW RD STREET 2: STE 104 CITY: WETHERSFIELD STATE: CT ZIP: 06109 BUSINESS PHONE: 8602582474 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 SEPTEMBER 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 September 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 November 14, 1996 Common Stock, $.004 par value 15,103,427 shares PART I FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995 3-4 Consolidated Statements of Operations for the nine months ended September 30, 1996 and 1995 5 Consolidated Statements of Operations for the three months ended September 30, 1996 and 1995 6 Consolidated Statements of Cash Flows for the nine months ended September 30, 1996 and 1995 7 Consolidated Statements of Stockholders' Equity for the nine months ended September 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 September 30, 1996 and December 31, 1995 (In thousands except per share data) (unaudited) September 30, 1996 December 31, 1995 ASSETS CURRENT ASSETS: Cash $ 545 $ 476 Accounts receivable, less allowance for doubtful accounts of $637 in 1996 and $410 in 1995 35,277 9,855 Advances to subsidiary 56 985 Inventories 1,755 - Other current assets 1,666 754 Total current assets 39,299 12,070 Equipment: Property & Equipment 93,816 34,953 Accumulated depreciation (25,789) (18,305) 68,027 16,648 Other Assets: Investment in subsidiaries 2,325 1,581 Intangible assets 263,282 11,543 Deferred income taxes 560 560 Other 558 461 266,725 14,145 ----------- ----------- Total assets $374,051 $ 42,863 The accompanying notes are an integral part of these financial statements.
Shared Technologies Fairchild Inc. Consolidated Balance Sheets September 30, 1996 and December 31, 1995 (In thousands except per share data) (unaudited) September 30, December 31 1996 1995 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long term debt and capital lease obligations $ 22,765 $ 2,870 Accounts payable 21,258 9,035 Accrued expenses 11,007 2,221 Advanced billings 6,967 1,337 Total current liabilities 61,997 15,463 Long-Term Debt and Capital Lease Obligations less current portion 228,303 4,128 Redeemable Put Warrant 465 428 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 13,881 - STOCKHOLDERS' EQUITY: Preferred $.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 15,103 shares in 1996 and 8,506 shares in 1995 60 34 Additional paid-in capital 73,113 44,777 Accumulated deficit (28,777) (21,981) Total stockholders' equity 44,405 22,844 Total liabilities and stockholders' equity $ 374,051 $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 Nine Months Ended September 30, 1996 and 1995 (unaudited) September 30, September 30, 1996 1995 Revenue: Shared telecommunications services $ 69,310 $ 25,248 Telecommunications systems 41,585 9,266 Cellular services - 9,160 Total revenue 110,895 43,674 Cost of revenue: Shared telecommunications services 34,233 13,934 Telecommunications systems 25,019 7,164 Cellular services - 5,530 Total cost of revenue 59,252 26,628 Gross Margin 51,643 17,046 Selling, general & administrative 39,118 16,086 Expenses Operating Income 12,525 960 Other income (expense): Gain on sale of subsidiary stock - 1,375 Equity in loss of subsidiary (2,009) - Interest expense (15,246) (444) Minority interest in net (income) loss of subsidiaries - 213 (17,255) 1,144 Income (loss) before income taxes and extraordinary item (4,730) 2,104 Income tax (74) (30) Income (loss) before extraordinary item (4,804) (2,074) Extraordinary item, loss on early retirement of debt (310) - Net income (loss) (5,114) 2,074 Dividend accretion on redeemable put warrant (37) (33) Dividend accretion on special preferred stock (612) - Preferred stock dividends (1,033) (299) Net Income (loss) applicable to common stock $(6,796) $ 1,742 Income (loss) per common share Income (loss) before extraordinary item $ (0.49) 0.20 Extraordinary item (0.02) - Net income (loss) $ (0.51) $ 0.20 Weighted average shares outstanding 13,316 8,698 The accompanying notes are an integral part of these financial statements.
Shared Technologies Fairchild Inc. Consolidated Statements of Operations For the Nine Months Ended September 30, 1996 and 1995 (In thousands except per share data) (unaudited) September 30, 1996 September 30, 1995 Revenue: Shared telecommunications services $27,384 $8,178 Telecommunications systems 19,739 3,917 Cellular services - 3,870 Total revenue 47,123 15,965 Cost of revenue: Shared telecommunications services 13,143 4,354 Telecommunications systems 11,301 2,914 Cellular services - 2,452 Total cost of revenue 24,444 9,720 Gross margin 22,679 6,245 Selling, general & administrative 16,262 5,977 Expenses Operating income 6,417 268 Other income (expense): Equity in loss of subsidiary (310) - Interest expense (6,995) (186) Minority interest in net (income) loss of subsidiaries - 125 7,305 (61) Income (loss) before income taxes (888) 207 Income tax (34) (15) Net income (loss) (922) 192 Dividend accretion on redeemable put warrant (13) (11) Dividend accretion on special preferred stock(612) - Preferred stock dividends (456) (100) Net income (loss) applicable to common stock $ (2,003) $ 81 Income (loss) per common share: Net Income (loss) $ (0.13) $ 0.01 Weighted average shares outstanding 15,066 8,751 The accompanying notes are an integral part of these financial statements.
Shared Technologies Fairchild Inc. Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 1996 and 1995 (In thousands except per share data) (unaudited) September 30, 1996 September 30, 1995 -------------------------------------------- Cash flows from operating activities: Net Income, (loss) $(5,114) $ 2,074 Adjustments: Gain on sale of subsidiary stock - (1,375) Depreciation & amortization 11,525 3,266 Loss on early retirement of debt 310 - Accretion on Senior Subordinated Notes 7,803 - Provision for doubtful accounts 25 - Equity in loss of subsidiary 2,009 - Amortization of discount on note 14 - Minority interest in net income of subsidiaries - (213) Change in assets and liabilities: Accounts receivable (1,056) (2,407) Other current assets (627) (594) Other assets 1,732 (310) Accounts payable 646 1,541 Accrued expenses 2,039 (57) Advanced billings (472) (47) ------------------------------------ Net cash provided by operating activities 18,834 1,878 ---------------------------------------- Cash flows from investing activities: Acquisitions (net of cash acquired) (4,011) (2,483) Capital expenditures (7,092) (3,099) Investment in subsidiaries (1,468) - ---------------------------------------- ----------------------------------------- Net cash used in investing activities (12,571) 5,582 ---------------------------------- Cash flows from financing activities: Preferred stock dividends (1,033) (299) Net proceeds from sale of subsidiary stock - 2,899 Proceeds from borrowings 244,999 2,929 Repayments of notes payable, long-term debt and capital lease obligations (192,004) (1,751) Payments to affiliate (8,407) - Deferred finance costs (9,416) - Repayment of FII preferred stock (40,706) - Proceeds from issuance of common stock 373 1,164 ------------------------------------- Net cash provided by (used in) financing (6,194) 4,942 activities --------------------------------- Net increase (decrease) in cash 69 1,238 Cash, Beginning of Period 476 172 -------------------------------------- Cash, End of Period $545 $1,410 ====================================== Supplemental Disclosures of Cash Flow Information: Cash paid during the period for - Interest $6,300 $569 Income taxes 119 74 Supplemental Disclosures of Noncash Investing and Financing Activities: Obligations to issue common stock in connection with acquisitions $- $1,806 Issuance of common stock in connection with acquisitions 27,750 - Issuance of preferred stock in connection with acquisition 38,269 - Dividend accretion on redeemable put warrant 37 33 Dividend accretion of special preferred stock 612 - Issuance of common stock to settle accrued expenses 237 67
Shared Technologies Fairchild Inc. Consolidated Statement of Stockholders' Equity For the period ended September 30, 1996 (in thousands) (unaudited) Series C Series D Preferred Sto Preferred Stock Shares Amount Shares Amount Balance, January 1, 1996 907 $ 9 457 $ 5 Preferred stock dividends Dividend accretion of redeemable put warrant Dividend accretion of special preferred stock Issuance of Common Stock Conversions of Preferred Stock (479) (5) Exercise of common stock options and warrants Issuance of common stock to 401k plan Net loss Balance, September 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 September 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 Dividend accretion of special preferred stock Issuance of Common Stock 6,000 24 27,726 Conversions of Preferred Stock 426 2 3 Exercise of common stock 126 - 373 options and warrants Issuance of common stock to 401k plan 44 - 234 Net income Balance, September 30, 1996 15,102 $ 60 $73,113 The accompanying notes are an integral part of these financial statements.
Shared Technologies Fairchild Inc. Consolidated Statement of Stockholders' Equity For the period ended September 30, 1996 (in thousands) (unaudited) Accumulated Total Stockholders' Deficit Equity Balance, January 1, 1996 $(21,981) $ 22,844 Preferred stock dividends (1,033) (1,033) Dividend accretion of redeemable put warrant (37) (37) Dividend accretion of special preferred stock (612) (612) Issuance of Common Stock 27,750 Conversions of Preferred Stock - Exercise of common stock options and warrants 373 Issuance of common stock to 401k plan 234 Net loss (5,114) (5,114) Balance, September 30, 1996 $ (28,777) $ 44,405 The accompanying notes are an integral part of these financial statements.
================================================================== Shared Technologies Fairchild Inc. ================================================================== Notes to Consolidated Financial Statements September 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 September 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 nine months ended, September 30, 1996 is as follows: Summarized Balance Sheet Current assets $ 3,026 Property and equipment, net 3,608 Other assets 9,827 Total assets $ 16,461 Current liabilities $ 9,187 Note payable 342 Total liabilities 9,529 Stockholders' equity 6,932 Total liabilities and stockholders' equity $ 16,461 Summarized Statement of Operations Three Nine months ended months ended Revenues $ 6,854 16,228 Gross margin 2,732 6,113 Operating loss (827) (3,722) Net loss (960) (3,984) In August 1996 the Company reached an agreement with STC to purchase $2,500 in STC preferred stock. This investment was financed through the conversion of existing advances owed by STC to the Company in the amount of $1,200 and a cash payment of $1,300. The STC preferred stock converts into 833 shares of STC common stock at the Company's option. 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 $71,581 was allocated to the net tangible and intangible assets of FII based upon their respective fair market values as follows: Assets Cash $ 1,551 Accounts receivable 24,747 Other current assets 2,572 Equipment 51,532 Goodwill 248,008 Total Assets 328,410 Liabilities and stockholders' equity Capital lease obligations $ (262) Accounts payable (11,577) Accrued expenses (6,981) Advanced billings (6,102) Due to affiliated company (8,407) Long term debt (182,794) FII preferred stock (40,706) Net purchase price $ 71,581 The following unaudited pro forma statements of operations for the nine months ended September 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, 1995: 1996 1995 Revenues $ 138,178 $136,400 Cost of revenues 70,968 75,764 Gross margin 67,211 60,636 Selling, general and administrative expenses 50,310 44,665 Operating income 16,901 15,971 Equity in loss of subsidiary (2,009) 372 Interest expense, net (20,594) (19,846) Loss before income tax expense and extraordinary item (5,702) (3,503) Income taxes (64) (5) Extraordinary item, loss on early retirement of debt (332) (450) Net Loss (6,098) (3,958) Preferred stock dividends (2,196) (2,924) Loss applicable to common stock $ (8,294) $ (6,882) Net loss per common share $ (.56) $ (.47) Weighted average number of common shares outstanding 14,849 14,698 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 the 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 September 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 September 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 September 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: The following unaudited statements separately show Shared Technologies Fairchild Inc. and the subsidiaries of Shared Technologies Fairchild Inc. These statements are provided to fulfill SEC reporting requirements. These subsidiaries are guarantors on the 12 1/4% Senior Subordinated Notes due 2006.
Consolidating Balance Sheets as of September 30, 1996 BTC MTS OTM STI Int'l STFTI ------------------------------------------------------------------ Assets Current Assets: Cash - - - - $ 539 - - - - 35,333 Accounts receivable Advances to - - - - - subsidiaries Other current assets - - - - 3,421 ------------------------------------------------------- Total current assets - - - - 39,293 ----------------------------------------------------------- Equipment: - - - - 93,816 Property & Equipment Accumulated - - - - (25,789) depreciation ----------------------------------------------------------------- 68,027 ------------------------------------------------------------- Other Assets: Investments in- - - - - subsidiaries - - - - 254,512 Intangible assets 560 Deferred income taxes Other 558 -------------------------------------------------------------------- 255,630 ----------------------------------------------------------- Total assets 362,950 ================================================================= Liabilities and Stockholders' Equity Current Liabilities: Current portion of long term debt and capital lease - - - - - obligations - - - - 21,258 Accounts payable - - - - 10,897 Accrued expenses - - - - 293,963 Due to affiliate - - - - 6,967 Advanced billings --------------------------------------- Total current - - - - 333,085 liabilities --------------------------------------------------------- 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 - - - - 29,865 Accumulated deficit ------------------------------------------------------ Total stockholders' - - - - 29,865 equity -------------------------------------------------------- Total liabilities and - - - - 362,950 stockholders' equity ======================================================= - - - - - ========================================================= Eliminating Consolidated STFCC STFI Entries STFI --------------------------------------------------------- Assets Current Assets: Cash - $ 6 - $ 545 - - - 35,333 Accounts receivable 227,044 66,919 (293,963) - Advances to subsidiaries - - - 3,421 Other current assets --------------------------------------------------------- 227,044 66,925 (293,963) 39,299 Total current assets --------------------------------------------------------- Equipment: - - - 93,816 Property & Equipment - - - (25,789) Accumulated depreciation ---------------------------------------------------- - - - 68,027 ------------------------------------------------------ Other Assets: 14,611 16,936 (29,222) 2,325 Investments in subsidiaries 8,770 - - 263,282 Intangible assets - - - 560 Deferred income taxes - - - 558 Other ------------------------------------------------------------- 23,381 16,936 (29,222) 266,725 ----------------------------------------------------- 250,425 83,861 (323,185) 374,051 Total assets ========================================================= Liabilities and Stockholders' Equity Current Liabilities: Current portion of long term debt and capital lease obligations 22,765 - - 22,765 - - - 21,258 Accounts payable - 110 - 11,007 Accrued expenses - - (293,963) - Due to affiliate - - - 6,967 Advanced billings ---------------------------------------------------------------- 22,765 110 (293,963) 61,997 Total current liabilities ---------------------------------------------------------------- Long-term debt, less current portion 228,303 - - 228,303 ---------------------------------------------------------------- - 465 - 465 Redeemable put warrant -------------------------------------------------------------- - 25,000 - 25,000 Convertible preferred stock --------------------------------------------------------------- - 13,881 - 13,881 Special preferred stock --------------------------------------------------------------- Stockholders' equity: - 4 - 4 Preferred stock series C - 5 - 5 Preferred stock series D - 60 - 60 Common stock - 73,113 - 73,113 Additional paid-in capital (643) (28,777) (29,222) (28,777) Accumulated deficit ---------------------------------------------------------------- (643) 44,405 (29,222) 44,405 Total stockholders' equity ------------------------------------------------------------- Total liabilities and 250,425 83,861 (323,185) 374,051 stockholders' equity ================================================================ Consolidating Statements of Operations for the Nine Months Ended September 30, 1996 BTC MTS OTM STI Int'l STFTI ------------------------------------------------------------- Revenue 3,455 7,861 888 - 96,691 Cost of Revenue 2,013 4,063 738 - 52,369 ------------------------------------------------------- 1,442 3798 150 - 44,322 Gross margin ------------------------------------------------------------ Selling, general 859 1,879 318 - 36,062 & administrative expenses -------------------------------------------------------------------- 583 1,919 (168) - 8,260 Operating Income Other income (expense): - - - - - Equity in loss of subsidiary Net interest expense - -------------------------------------------------------------------- -------------------------------------------------------------------- Income (loss) before income taxes and extraordinary item 583 1,919 (168) - 8,260 - - - - (74) Income tax -------------------------------------------------------------------- Income (loss) before 583 1,919 (168 - 8,186 extraordinary item Extraordinary item, loss on - - - - (310) early retirement of debt ------------------------------------------------------------ Net income (loss) 583 1,919 (168) - 7,876 Preferred stock dividends - - - - - ------------------------------------------------------------ Net income (loss) applicable to common 583 1,919 (168) - 7,876 stock ==================================================================== Consolidating Statements of Operations for the Nine Months Ended September 30, 1996 Consolidated Eliminating STFCC STFI Entries STFI ------------------------------------------------------------------ - 2,000 - 110,895 Revenue - 69 - 59,252 Cost of Revenue ---------------------------------------------------------- - 1,931 - 51,643 Gross margin ------------------------------------------------------------------ Selling, general & - - - 39,118 administrative expenses ------------------------------------------------------------------ - 1,931 - 12,525 Operating Income Other income (expense): Equity in loss of subsidiary (5,044) (7,053) 10,088 (2,009) (15,254) 8 - (15,246) Net interest expense ------------------------------------------------------------------ (20,298) (7,045) 10,088 (17,255) ------------------------------------------------------------------ Income (loss) before income taxes and extraordinary item (20,298) (5,114) 10,088 (4,730) Income tax - - - (74) ------------------------------------------------------------- Income (loss) before (20,298) (5,114) 10,088 (4,804) extraordinary item Extraordinary item, loss on - - - (310) early retirement of debt -------------------------------------------------------- (20,298) (5,114) 10,088 (5,114) Net income (loss) Preferred stock dividends - (1,682) - (1,682) ------------------------------------------------------------------ Net income (loss) applicable to (20,298) (6,796) 10,088 (6,976) common stock ================================================================== BTC = Boston Telecommunications Group, Inc. MTS = Multi-Tenant Services, Inc. OTM = Office Telephone Management STI Int'l = STI International, Inc. STFTI = Shared Technologies Fairchild Telecom, Inc. STFCC = Shared Technologies Fairchild Communications Corp. STFI = Shared Technologies Fairchild Inc. Item 2. - ------- Management's Discussion and Analysis of Results of Operations and - ----------------------------------------------------------------- Financial Condition - ------------------- Results of Operations: - ----------------------- Nine Months Ended September 30, 1996 compared to September 30, 1995 Revenues STFI's revenues rose to a record $110.9 million in 1996 an increase of 153.8% over 1995 revenues of $43.7 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 $44.1 million or 175.0% and Telecommunications Systems ("Systems") revenue increased $32.3 million or 347.3%. Gross margin Gross margin increased to 46.6% of revenues for 1996 from 39.1% for 1995. 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 nine months ended September 30, 1996 as a factor of sales percentage and gross margin percentage per line of business: Overall Division Sales GM GM - ------------------------------------------------------------------------- STS 62.5% 50.7% 31.7% Systems 37.5% 39.9% 14.9% Company Total 100.0% 46.6% ============= =============== As shown above, the 1996 gross margin was a mix of STS gross margin of 50.7% and Systems gross margin of 39.9%. In 1995 the Company's gross margin was a combination of STS gross margin of 44.8%, Systems gross margin of 22.6% and Cellular Services ("STC") gross margin of 40.2%. 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 35.3% for 1996 compared to 36.8% for 1995. SG&A improved slightly due to the merger with FII which resulted in certain synergy's. This was somewhat offset by increased goodwill amortization expense. Operating income Operating income increased to $12.5 million in 1996 from $1.0 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 $14.8 million for the nine months ended September 30, 1996 over the nine months ended September 30, 1995. This was 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 nine months ended September 30, 1996. Net income As a result of the factors listed above, a net loss for the nine months ended September 30, 1996 of $5.1 million was recorded compared to net income of $2.1 million for the nine months ended September 30, 1995. Three Months Ended September 30, 1996 compared to September 30, 1995 Revenues STFI's revenues rose to a record $47.1 million in 1996 an increase of 194.4% over 1995 revenues of $16.0 million. STS revenue increased $19.2 million or 234.2% and Systems revenue increased $15.8 million or 405.1% over 1995 levels. The majority of the increase was attributable to the March 13, 1996 acquisition of FII. Gross margin Gross margin increased to 48.2% of revenues for 1996 from 38.8% for 1995. 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 September 30, 1996 as a factor of sales percentage and gross margin percentage per line of business: Overall Division Sales GM GM - ------------------------------------------------------------------------- STS 58.2% 52.2% 30.4% Systems 41.8% 42.6% 17.8% Company Total 100.0% 48.2% ============== =============== As shown above, the 1996 gross margin was a mix of STS gross margin of 52.2% and Systems gross margin of 42.6%. In 1995 the Company's gross margin was a combination of STS gross margin of 46.3%, Systems gross margin of 25.6% and STC gross margin of 38.5%. Selling, general and administrative expenses SG&A as a percentage of revenues decreased to 34.6% for 1996 compared to 37.5% for 1995. SG&A improved slightly due to the merger with FII which resulted in certain synergy's. This was largely offset by increased goodwill amortization expense. Operating income Operating income increased to 6.4 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 September 30, 1996 over the three months ended September 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 September 30, 1996 of $0.9 million was recorded compared to net income of $0.2 million for the three months ended September 30, 1995. LIQUIDITY AND CAPITAL RESOURCES ------------------------------- At September 30, 1996 the Company had $374 million in assets, $251 million in various long term debt and capital lease obligations, $39 million in new preferred stock, and $44 million in stockholder's equity. The balance sheet at September 30, 1996 shows a working capital deficit of $22.7 million compared to a deficit of $2.1 million at September 30, 1995. The Company has available for future borrowings approximately $13 million on a credit facility at September 30, 1996. Cash provided by operations was $18.8 million for the nine months ended September 30, 1996 compared to $3.4 million for the year ended December 31, 1995. Cash from operations continues to be sufficient to fund ongoing operations, capital expenditures and required principal and interest payments on the Company's notes and capital lease obligations. The Company invested significant capital towards growth internally and through acquisition. $7.1 million was spent on equipment purchases, $1.5 million on additional investments in subsidiaries, and $4.0 million to consummate the merger with FII during the nine months ended September 30, 1996. Financing activities ware focused primarily on raising capital to repay $223.5 million in various debt and preferred stock associated with the merger with FII and approximately $5 million on a pre-existing credit facility. The Company raised approximately $111 million in the capital market, through the issuance of 12 1/4% Senior Subordinated Notes Due 2006 and approximately $130 million (of an available $145 million) in loans from a credit facility with financial institutions. In addition the Company paid $9.4 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 the remainder of 1996 will be significant due to required principal and interest payments on the credit facility mentioned earlier. The Company anticipates repaying these borrowings and providing cash for capital expenditures with cash from operations. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K: (a) Exhibits None (b) Reports on Form 8-K None ================================================================= ================================================================ 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: November 14, 1996
EX-27 2 ART. 5 FDS FOR QUARTER END 10-Q
5 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 545 0 35970 637 1755 39299 93816 (25789) 374051 61997 0 0 9 60 0 374051 110895 110895 59252 59252 39118 0 15246 (4730) 74 (4804) 0 (310) 0 (5114) (0.51) (0.51)
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