10-K/A 1 yr2000ka.txt YEAR 2000 10-K AMENDED 11 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Year Ended June 30, 2000 Commission File Number 1-6560 THE FAIRCHILD CORPORATION -------------------------- (Exact name of Registrant as specified in its charter) Delaware 34-0728587 ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) Incorporation or organization) 45025 Aviation Drive, Suite 400, Dulles, VA 20166 ------------------------------------------- --------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (703) 478-5800 -------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of each class Name of exchange on which registered ------------------- ------------------------------------ Class A Common Stock, par value New York and Pacific Stock Exchange $.10 per share SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None ---- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days [X]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]. On April 1, 2001, the aggregate market value of the common shares held by nonaffiliates of the Registrant (based upon the closing price of these shares on the New York Stock exchange) was approximately $83.7 million (excluding shares deemed beneficially owned by affiliates of the Registrant under Commission Rules). As of April 1, 2001, the number of shares outstanding of each of the Registrant's classes of common stock were: Class A common stock, $.10 par value 22,527,801 Class B common stock, $.10 par value 2,621,502 AMENDMENT: This Form 10-K was amended solely to provide enhanced disclosure for Item 8, "Financial Statements and Supplementary Data." Disclosure enhancements were made to Footnote 3, "Discontinued Operations and Net Assets Held For Sale," Footnote 9, "Income Taxes," and Footnote 19, "Foreign Operations and Export Sales." FORWARD-LOOKING STATEMENTS Except for any historical information contained herein, the matters discussed in this Annual Report on Form 10-K contain certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operation and business. These statements relate to analyses and other information which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies. These forward-looking statements are identified by their use of terms and phrases such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will" and similar terms and phrases, including references to assumptions. These forward-looking statements involve risks and uncertainties, including current trend information, projections for deliveries, backlog and other trend projections, that may cause our actual future activities and results of operations to be materially different from those suggested or described in this Annual Report on Form 10-K. These risks include: product demand; our dependence on the aerospace industry; reliance on Boeing and the Airbus consortium of companies; customer satisfaction and quality issues; labor disputes; competition, including price competition; our ability to achieve and execute internal business plans; worldwide political instability and economic growth; and the impact of any economic downturns and inflation. If one or more of these risks or uncertainties materializes, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated or projected. Given these uncertainties, users of the information included in this Annual Report on Form 10-K, including investors and prospective investors are cautioned not to place undue reliance on such forward-looking statements. We do not intend to update the forward-looking statements included in this Annual Report, even if new information, future events or other circumstances have made them incorrect or misleading. PART II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements of the Company and the report of our independent public accountants with respect thereto, are set forth below. Page Report of Independent Public Accountants 4 Consolidated Balance Sheets as of June 30, 2000 and 1999 5 Consolidated Statements of Earnings for each of the Three Years Ended June 30, 2000, 1999, and 1998 7 Consolidated Statements of Stockholders' Equity for each of the Three Years Ended June 30, 2000, 1999, and 1998 9 Consolidated Statements of Cash Flows for each of the Three Years Ended June 30, 2000, 1999, and 1998 10 Notes to Consolidated Financial Statements 11 Supplementary information regarding "Quarterly Financial Data (Unaudited)" is set forth under Item 8 in Note 20 to Consolidated Financial Statements. Report of Independent Public Accountants To the Shareholders of The Fairchild Corporation: We have audited the accompanying consolidated balance sheets of The Fairchild Corporation (a Delaware corporation) and consolidated subsidiaries as of June 30, 2000 and 1999, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended June 30, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of Nacanco Paketleme (see Note 6), an investment that was sold in July 1999, and until then, was reflected in the consolidated accompanying financial statements using the equity method of accounting. The investment in Nacanco Paketleme represented 1 percent of total assets as of June 30, 1999, and the equity in its net income represents 11 percent, and 9 percent of earnings from continuing operations for the years ended June 30, 1999 and 1998, respectively. The statements of Nacanco Paketleme were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to the amounts included for Nacanco Paketleme, is based on the report of other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Fairchild Corporation and consolidated subsidiaries as of June 30, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2000, in conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP Vienna, VA September 11, 2000
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) ASSETS June 30, June 30, ------ 2000 1999 ------------------ ------------------ CURRENT ASSETS: Cash and cash equivalents, $14,287 and $15,752 restricted $ 35,790 $ 54,860 Short-term investments 9,054 13,094 Accounts receivable-trade, less allowances of $9,598 and $6,442 127,230 130,121 Inventories: Finished goods 138,330 137,807 Work-in-process 30,523 38,316 Raw materials 11,006 14,116 ------------------ ------------------ 179,859 190,239 Prepaid expenses and other current assets 74,231 73,926 ------------------ ------------------ Total Current Assets 426,164 462,240 Property, plant and equipment, net of accumulated depreciation of $142,938 and $103,556 174,137 184,065 Net assets held for sale 20,112 21,245 Cost in excess of net assets acquired (Goodwill), less accumulated amortization of $52,826 and $40,307 436,442 447,722 Investments and advances, affiliated companies 3,238 31,791 Prepaid pension assets 64,418 63,958 Deferred loan costs 14,714 13,077 Real estate investment 112,572 83,791 Long-term investments 10,084 15,844 Other assets 5,539 5,053 ------------------ ------------------ TOTAL ASSETS $ 1,267,420 $ 1,328,786 ================== ================== 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) LIABILITIES AND STOCKHOLDERS' EQUITY June 30, June 30, ------------------------------------ 2000 1999 ------------------ ------------------ CURRENT LIABILITIES: Bank notes payable and current maturities of long-term debt $ 28,594 $ 28,860 Accounts payable 62,494 72,271 Accrued liabilities: Salaries, wages and commissions 38,065 43,095 Employee benefit plan costs 5,608 5,204 Insurance 12,237 14,216 Interest 6,408 7,637 Other accrued liabilities 60,123 50,984 ------------------ ------------------ 122,441 121,136 Net current liabilities of discontinued operations 10,999 - ------------------ ------------------ Total Current Liabilities 213,529 233,266 LONG-TERM LIABILITES: Long-term debt, less current maturities 453,719 495,283 Other long-term liabilities 26,741 25,963 Retiree health care liabilities 42,803 44,813 Noncurrent income taxes 128,515 121,961 ------------------ ------------------ TOTAL LIABILITIES 865,307 921,286 STOCKHOLDERS' EQUITY: Class A common stock, $0.10 par value; authorized 40,000 shares, 30,079 (29,754 in 1999) shares issued and 22,430 (22,259 in 1999) shares outstanding 3,008 2,975 Class B common stock, $0.10 par value; authorized 20,000 shares, 2,622 shares issued and outstanding 262 262 Paid-in capital 231,190 229,038 Treasury stock, at cost, 7,649 (7,496 in 1999) shares of Class A common stock (75,506) (74,102) Retained earnings 261,788 252,030 Notes due from stockholders (1,867) - Cumulative other comprehensive income (16,762) (2,703) ------------------ ------------------ TOTAL STOCKHOLDERS' EQUITY 402,113 407,500 ------------------ ------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,267,420 $ 1,328,786 ================== ================== 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, ---------------------------------------------------- 2000 1999 1998 --------------- ---------------- ---------------- REVENUE: Net sales $ 635,361 $ 617,322 $ 741,176 Other income, net 14,410 3,899 6,508 --------------- ---------------- ---------------- 649,771 621,221 747,684 COSTS AND EXPENSES: Cost of goods sold 472,023 504,893 554,670 Selling, general & administrative 133,353 149,348 142,102 Amortization of goodwill 12,574 6,517 5,469 Restructuring 8,578 6,374 - --------------- ---------------- ---------------- 626,528 667,132 702,241 OPERATING INCOME (LOSS) 23,243 (45,911) 45,443 Interest expense 48,942 33,162 46,007 Interest income (4,850) (2,816) (3,292) --------------- ---------------- ---------------- Net interest expense 44,092 30,346 42,715 Investment income (loss) 9,935 39,800 (3,362) Nonrecurring gain 28,625 - 124,028 --------------- ---------------- ---------------- Earnings (loss) from continuing operations before taxes 17,711 (36,457) 123,394 Income tax (provision) benefit 4,399 13,245 (47,274) Equity in earnings (loss) of affiliates, net (346) 1,795 2,571 Minority interest, net - (2,090) (26,292) --------------- ---------------- ---------------- Earnings (loss) from continuing operations 21,764 (23,507) 52,399 Loss from discontinued operations, net - - (4,296) Gain (loss) on disposal of discontinued operations, net (12,006) (31,349) 59,717 Extraordinary items, net - (4,153) (6,730) --------------- ---------------- ---------------- NET EARNINGS (LOSS) $ 9,758 $ (59,009) $ 101,090 =============== ================ ================ Other comprehensive income (loss), net of tax: Foreign currency translation adjustments (10,098) (2,545) (5,140) Unrealized holding changes on securities arising during the period (3,961) (16,544) 20,633 --------------- ---------------- ---------------- Other comprehensive income (loss) (14,059) (19,089) 15,493 --------------- ---------------- ---------------- COMPREHENSIVE INCOME (LOSS) $ (4,301) $ (78,098) $ 116,583 =============== ================ ================ 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, -------------------------------------------------- 2000 1999 1998 --------------- ---------------- --------------- BASIC EARNINGS PER SHARE: Earnings (loss) from continuing operations $ 0.87 $ (1.03) $ 2.78 Loss from discontinued operations, net - - (0.23) Gain (loss) on disposal of discontinued operations, net (0.48) (1.38) 3.17 Extraordinary items, net - (0.18) (0.36) --------------- ---------------- --------------- NET EARNINGS (LOSS) $ 0.39 $ (2.59) $ 5.36 =============== ================ =============== Other comprehensive income (loss), net of tax: Foreign currency translation adjustments $ (0.40) $ (0.11) $ (0.27) Unrealized holding changes on securities arising during the period (0.16) (0.73) 1.10 --------------- ---------------- --------------- Other comprehensive income (loss) (0.56) (0.84) 0.83 --------------- ---------------- --------------- COMPREHENSIVE INCOME (LOSS) $ (0.17) $ (3.43) $ 6.19 =============== ================ =============== DILUTED EARNINGS PER SHARE: Earnings (loss) from continuing operations $ 0.87 $ (1.03) $ 2.66 Loss from discontinued operations, net - - (0.22) Gain (loss) on disposal of discontinued operations, net (0.48) (1.38) 3.04 Extraordinary items, net - (0.18) (0.34) --------------- ---------------- --------------- NET EARNINGS (LOSS) $ 0.39 $ (2.59) $ 5.14 =============== ================ =============== Other comprehensive income (loss), net of tax: Foreign currency translation adjustments $ (0.40) $ (0.11) $ (0.26) Unrealized holding changes on securities arising during the period (0.16) (0.73) 1.05 --------------- ---------------- --------------- Other comprehensive income (loss) (0.56) (0.84) 0.79 --------------- ---------------- --------------- --------------- ---------------- --------------- COMPREHENSIVE INCOME (LOSS) $ (0.17) $ (3.43) $ 5.93 =============== ================ =============== Weighted average shares outstanding: Basic 24,954 22,766 18,834 =============== ================ =============== Diluted 25,137 22,766 19,669 =============== ================ =============== 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) Cumulative Class A Class B Notes Other Common Common Paid-in Retained Treasury Due From Comprehensive Stock Stock Capital Earnings Stock Stockholders Income Total --------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------- Balance, July 1, 1997 $ 2,023 $ 263 $71,015 $209,949 $(51,719) $ - $ 893 $ 232,424 Net earnings - - - 101,090 - - - 101,090 Cumulative translation adjustment - - - - - - (5,140) (5,140) Compensation expense from adjusted terms to warrants and options - - 5,655 - - - - 5,655 Stock issued for Special-T Fasteners acquisition 108 - 21,939 - - - - 22,047 Stock issued for Exchange Offer 221 - 42,588 - - - - 42,809 Equity Offering 300 - 53,268 - - - - 53,568 Proceeds received from stock options exercised (141,259 shares) 10 - 652 - (189) - - 473 Cashless exercise of warrants 5 - (5) - - - - - Net unrealized holding gain on available-for-sale securities - - - - - - 20,633 20,633 --------------------------------------------------------------------------------------------- Balance, June 30, 1998 2,667 263 195,112 311,039 (51,908) - 16,386 473,559 Net loss - - - (59,009) - - - (59,009) Cumulative translation adjustment - - - - - - (2,545) (2,545) Stock issued for Special-T Fasteners acquisition 1 - 132 - - - - 133 Stock issued for Banner Aerospace merger 298 - 33,093 - - - - 33,391 Proceeds received from stock options exercised (75,383 shares) 7 - 266 - (92) - - 181 Stock issued for Special-T restricted stock plan (14,969 shares) 1 - (1) - - - - - Purchase of treasury shares - - - - (22,102) - - (22,102) Exchange of Class B for Class A common stock (3,064 shares) 1 (1) - - - - - - Compensation expense-stock options - - 436 - - - - 436 Net unrealized holding loss on available-for-sale securities - - - - - - (16,544) (16,544) --------------------------------------------------------------------------------------------- Balance, June 30, 1999 2,975 262 229,038 252,030 (74,102) - (2,703) 407,500 Net earnings - - - 9,758 - - - 9,758 Cumulative translation adjustment - - - - - - (10,098) (10,098) Stock issued for Special-T Fasteners acquisition (44,079 shares) 4 - 530 - - - - 534 Proceeds received from stock options exercised (314,126 shares) 22 - 1,321 - (916) - - 427 Stock issued for Special-T restricted stock plan (14,969 shares) 1 - (1) - - - - - Cashless exercise of warrants 6 - (6) - - - - - Purchase of treasury shares - - - - (488) - - (488) Compensation expense-stock options - - 308 - - - - 308 Loans to stockholders - - - - - (1,867) - (1,867) Net unrealized holding loss on available-for-sale securities - - - - - - (3,961) (3,961) --------------------------------------------------------------------------------------------- Balance, June 30, 2000 $ 3,008 $ 262 $231,190 $261,788 $(75,506) $ (1,867) $ (16,762) $402,113 ============================================================================================= 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, ------------------------------------------------- 2000 1999 1998 -------------- -------------- -------------- Cash flows from operating activities: ------------------------------------- Net earnings (loss) $ 9,758 $(59,009) $ 101,090 Depreciation and amortization 41,821 25,657 20,873 Deferred loan fee amortization 1,200 1,100 2,406 Accretion of discount on long-term liabilities 66 5,270 3,766 Net gain on the disposition of subsidiaries and investments in affiliates (28,625) - (124,041) Net gain on the sale of discontinued operations - - (132,787) Extraordinary items, net of cash payments - 6,389 10,347 Provision for restructuring (excluding cash payments of $2,600 in 1999) - 3,774 - (Gain) loss on sale of property, plant, and equipment (1,964) 400 246 (Undistributed) distributed earnings of affiliates, net 372 3,433 1,725 Minority interest - 2,090 26,292 Change in trading securities - (1,254) 9,275 Change in receivables 2,892 8,632 (12,846) Change in inventories (23,223) 14,727 (54,857) Change in other current assets (25,734) (22,365) (26,643) Change in other non-current assets (18,305) (26,741) 700 Change in accounts payable, accrued liabilities and other long-term liabilities (11,979) 45,906 77,434 Non-cash charges and working capital changes of discontinued operations (13,351) 15,259 11,789 -------------- -------------- -------------- Net cash provided by (used for) operating activities (67,072) 23,268 (85,231) Cash flows from investing activities: ------------------------------------- Proceeds received from (used for) investment securities, net 14,655 189,379 (7,287) Purchase of property, plant and equipment (27,339) (30,142) (36,029) Proceeds from sale of plant, property and equipment 12,693 844 336 Equity investment in affiliates (2,489) (7,678) (4,343) Proceeds received from divestiture of investment in affiliates 46,886 - - Acquisition of subsidiaries, net of cash acquired - (274,427) (59,178) Net proceeds received from sale of subsidiaries 61,906 60,396 - Net proceeds received from the sale of discontinued operations 7,100 - 167,987 Changes in real estate investment (27,712) (40,351) (17,262) Changes in net assets held for sale 4,672 3,134 2,140 Investing activities of discontinued operations - (312) (2,750) -------------- -------------- -------------- Net cash provided by (used for) investing activities 90,372 (99,157) 43,614 Cash flows from financing activities: ------------------------------------- Proceeds from issuance of debt 206,874 483,222 275,523 Debt repayments and repurchase of debentures, net (246,260) (380,083) (258,014) Issuance of Class A common stock 368 181 54,041 Purchase of treasury stock (488) (22,102) - Loans to stockholders (1,867) - - Financing activities of discontinued operations - - 2,538 -------------- -------------- -------------- Net cash provided by (used for) financing activities (41,373) 81,218 74,088 Effect of exchange rate changes on cash (997) (70) (2,290) -------------- -------------- -------------- Net change in cash and cash equivalents (19,070) 5,259 30,181 Cash and cash equivalents, beginning of the year 54,860 49,601 19,420 -------------- -------------- -------------- Cash and cash equivalents, end of the year $ 35,790 $ 54,860 $ 49,601 ============== ============== ============== 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 consolidated subsidiaries. Corporate Structure: The Fairchild Corporation was incorporated in October 1969, under the laws of the State of Delaware. Effective April 8, 1999, we became the sole owner of Banner Aerospace, Inc. RHI Holdings, Inc. is our direct subsidiary. RHI is the owner of 100% of Fairchild Holding Corp. Our principal operations are conducted through Fairchild Holding Corp. and Banner Aerospace. During fiscal 1999 and 1998 we held a significant equity interest in Nacanco Paketleme. Our financial statements present the results of our former communications services segment, Shared Technologies Fairchild and Fairchild Technologies as discontinued operations. Fiscal Year: Our fiscal year ends June 30. All references herein to "2000", "1999", and "1998" mean the fiscal years ended June 30, 2000, 1999 and 1998, respectively. Consolidation Policy: The accompanying consolidated financial statements are prepared in accordance with generally accepted accounting principles and include our accounts and all of the accounts of our wholly-owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Investments in companies in which ownership interests range from 20 to 50 percent are accounted for using the equity method (see Note 6). Revenue Recognition: Sales and related costs are recognized upon shipment of products and performance of services. Sales and related cost of sales on long-term contracts are recognized as products are delivered and services performed, determined by the percentage of completion method. Lease and rental revenue are recognized on a straight-line basis over the life of the lease. Cash Equivalents/Statements of Cash Flows: For purposes of the Statements of Cash Flows, we consider all highly liquid investments with original maturity dates of three months or less as cash equivalents. Total net cash disbursements (receipts) made by us for income taxes and interest were as follows: 2000 1999 1998 ---------------------------------------------- Interest $54,535 $29,200 $52,737 Income Taxes (15,076) (21,304) (987)
Restricted Cash: On June 30, 2000 and 1999, we had restricted cash of $14,287 and $15,752, respectively, all of which is maintained as collateral for certain debt facilities. Cash investments are in short-term treasury bills and certificates of deposit. Investments: Management determines the appropriate classification of our investments at the time of acquisition and reevaluates such determination at each balance sheet date. Trading securities are carried at fair value, with unrealized holding gains and losses included in earnings. Available-for-sale securities are carried at fair value, with unrealized holding gains and losses, net of tax, reported as a separate component of stockholders' equity. Investments in equity securities and limited partnerships that do not have readily determinable fair values are stated at cost and are categorized as other investments. Realized gains and losses are determined using the specific identification method based on the trade date of a transaction. Interest on corporate obligations, as well as dividends on preferred stock, are accrued at the balance sheet date. Inventories: Inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out ("LIFO") method at several of our domestic aerospace fastener manufacturing operations and using the first-in, first-out ("FIFO") method elsewhere. If the FIFO inventory valuation method had been used exclusively, inventories would have been approximately $3,920 and $3,018 higher at June 30, 2000 and 1999, respectively. Inventories from continuing operations are valued as follows: June 30, June 30, 2000 1999 ----------------- --------------- First-in, first-out (FIFO) $ 141,094 $ 162,797 Last-in, first-out (LIFO) 38,765 27,442 ----------------- --------------- Total inventories $ 179,859 $ 190,239 ================= ===============
Properties and Depreciation: The cost of property, plant and equipment is depreciated over estimated useful lives of the related assets. The cost of leasehold improvements is depreciated over the lesser of the length of the related leases or the estimated useful lives of the assets. In fiscal 1999, we changed the estimated useful life for depreciating our machinery and equipment from 8 to 10 years. Depreciation is computed using the straight-line method for financial reporting purposes and accelerated depreciation methods for Federal income tax purposes. Property, plant and equipment consisted of the following: June 30, June 30, 2000 1999 ---------------- ---------------- Land $ 13,170 $ 13,325 Building and improvements 48,844 56,790 Machinery and equipment 223,059 173,791 Transportation vehicles 1,124 1,062 Furniture and fixtures 20,181 22,439 Construction in progress 10,697 20,214 ---------------- ---------------- Property, plant and equipment at cost 317,075 287,621 Less: Accumulated depreciation 142,938 103,556 ---------------- ---------------- Net property, plant and equipment $ 174,137 $ 184,065 ================ ================
Amortization of Goodwill: Goodwill, which represents the excess of the cost of purchased businesses over the fair value of their net assets at dates of acquisition, is being amortized on a straight-line basis over 40 years. Deferred Loan Costs: Deferred loan costs associated with various debt issues are being amortized over the terms of the related debt, based on the amount of outstanding debt, using the effective interest method. For 2000, 1999, and 1998 amortization expense for these loan costs was $1,338, $1,100, and $2,406, respectively. Impairment of Long-Lived Assets: We review for impairment our long-lived assets, including property, plant and equipment, identifiable intangibles and goodwill, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of our long-lived assets we evaluate the probability that future undiscounted net cash flows will be less than the carrying amount of our assets. Impairment is measured based on the difference between the carrying amount of our assets and their fair value. Foreign Currency Translation: For foreign subsidiaries whose functional currency is the local foreign currency, balance sheet accounts are translated at exchange rates in effect at the end of the period, and income statement accounts are translated at average exchange rates for the period. The resulting translation gains and losses are included as a separate component of stockholders' equity. Foreign currency transaction gains and losses are included in other income and were insignificant in fiscal 2000, 1999 and 1998. Research and Development: Company-sponsored research and development expenditures are expensed as incurred. Capitalization of interest and taxes: We capitalize interest expense and property taxes relating to certain real estate property being developed in Farmingdale, New York. Interest of $5,792, $4,671 and $3,078 was capitalized in 2000, 1999 and 1998, respectively. Nonrecurring Income: Nonrecurring income of $28,625 in 2000 resulted from the disposition of two of our equity investments including Nacanco Paketleme, and the disposition of our Camloc Gas Springs division. Nonrecurring income of $124,028 in 1998 resulted from the disposition of our aerospace distribution segment's hardware group (See Note 2). Stock-Based Compensation: As permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", we will continue to use the intrinsic value based method of accounting prescribed by APB Opinion No. 25, for our stock-based employee compensation plans. The fair market disclosures that are required by SFAS 123 are included in Note 11. Fair Value of Financial Instruments: The carrying amount reported in the balance sheet approximates the fair value for our cash and cash equivalents, investments, short-term borrowings, current maturities of long-term debt, and all other variable rate debt (including borrowings under our credit agreements). The fair value for our other fixed rate long-term debt is estimated using discounted cash flow analyses, based on our current incremental borrowing rates for similar types of borrowing arrangements. Fair values of our off-balance-sheet instruments (hedging agreements, letters of credit, commitments to extend credit, and lease guarantees) are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counter parties' credit standing. These instruments are described in Note 7. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, concerning the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications: Certain amounts in our prior years' financial statements have been reclassified to conform to the 2000 presentation. Recently Issued Accounting Pronouncements: In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes a new model for accounting for derivatives and hedging activities and supersedes and amends a number of existing accounting standards. It requires that all derivatives be recognized as assets and liabilities on the balance sheet and measured at fair value. The corresponding derivative gains or losses are reported based on the hedge relationship that exists. Changes in the fair value of derivative instruments that are not designated as hedges or that do not meet the hedge accounting criteria in SFAS 133, are required to be reported in earnings. Most of the general qualifying criteria for hedge accounting under SFAS 133 were derived from, and are similar to, the existing qualifying criteria in SFAS 80, "Accounting for Futures Contracts." SFAS 133 describes three primary types of hedge relationships: fair value hedge, cash flow hedge, and foreign currency hedge. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137 to defer the required effective date of implementing SFAS 133 from fiscal years beginning after June 15, 1999 to fiscal years beginning after June 15, 2000. We adopted SFAS 133 on July 1, 2001 and recognized a cumulative pre-tax loss of approximately $0.8 million. 2. BUSINESS COMBINATIONS Acquisitions We have accounted for the following acquisitions by using the purchase method. The respective purchase price is assigned to the net assets acquired, based on the fair value of such assets and liabilities at the respective acquisition dates. On June 18, 1999, we completed the acquisition of Technico S.A. for approximately $4.1 million and assumed approximately $2.2 million of Technico's existing debt. The total cost of the acquisition exceeded the fair value of the net assets of Technico by approximately $3.4 million, which is being allocated as goodwill, and amortized using the straight-line method over 40 years. The acquisition was financed with additional borrowings from our credit facility. On April 20, 1999, we completed the acquisition of all the capital stock of Kaynar Technologies, Inc. for approximately $222 million and assumed approximately $103 million of existing debt, the majority of which was refinanced at closing. In addition, we paid $28 million for a covenant not to compete from Kaynar Technologies' largest preferred shareholder. The total cost of the acquisition exceeded the fair value of the net assets of Kaynar Technologies by approximately $282 million, which is being allocated as goodwill, and amortized using the straight-line method over 40 years. The acquisition was financed with existing cash, the sale of $225 million of 10 3/4% senior subordinated notes due 2009 and proceeds from a new bank credit facility. On February 22, 1999, we used available cash to acquire 77.3% of SNEP S.A. By June 30, 1999, we had purchased significantly all of the remaining shares of SNEP. The total amount paid was approximately $8.0 million, including $1.1 million of debt assumed in a business combination accounted for as a purchase. The total cost of the acquisition exceeded the fair value of the net assets of SNEP by approximately $4.3 million, which is being allocated as goodwill, and amortized using the straight-line method over 40 years. SNEP is a French manufacturer of precision machined self-locking nuts and special threaded fasteners serving the European industrial, aerospace and automotive markets. On March 2, 1998, we acquired Edwards and Lock Management Corporation, doing business as Special-T Fasteners, in a business combination accounted for as a purchase. The cost of the acquisition was approximately $50.0 million, of which 50.1% of the contractual purchase price was paid in shares of our Class A common stock and 49.9% was paid in cash. The total cost of the acquisition exceeded the fair value of the net assets of Special-T by approximately $23.3 million, which is being allocated as goodwill, and amortized using the straight-line method over 40 years. Special-T manages the logistics of worldwide distribution of our manufactured precision fasteners to our customers in the aerospace industry, government agencies, OEMs, and other distributors. On November 28, 1997, we acquired AS+C GmbH, Aviation Supply + Consulting in a business combination accounted for as a purchase. The total cost of the acquisition was $14.0 million, which exceeded the fair value of the net assets of AS+C by approximately $8.1 million, which is being allocated as goodwill and amortized using the straight-line method over 40 years. We purchased AS+C with cash borrowings. AS+C is an aerospace parts, logistics, and distribution company primarily servicing European customers. Divestitures On December 1, 1999, we disposed of substantially all of the assets and certain liabilities of our Dallas Aerospace subsidiary to United Technologies Inc. for approximately $57.0 million. No gain or loss was recognized from this transaction, as the proceeds received approximated the net carrying value of the assets. Approximately $37.0 million of the proceeds from this disposition were used to reduce our term indebtedness. On September 3, 1999, we completed the disposal of our Camloc Gas Springs division to a subsidiary of Arvin Industries Inc. for approximately $2.7 million. In addition, we received $2.4 million from Arvin Industries for a covenant not to compete. We recognized a $2.0 million nonrecurring gain from this disposition. We used the net proceeds from the disposition to reduce our indebtedness. On July 29, 1999, we sold our 31.9% interest in Nacanco Paketleme to American National Can Group, Inc. for approximately $48.2 million. In fiscal 2000, we recognized a $25.7 million nonrecurring gain from this divestiture. We also agreed to provide consulting services over a three-year period, at an annual fee of approximately $1.5 million. We used the net proceeds from the disposition to reduce our indebtedness. On December 31, 1998, Banner Aerospace consummated the sale of Solair, Inc., its largest subsidiary in the rotables group, to Kellstrom Industries, Inc., in exchange for approximately $60.4 million in cash and a warrant to purchase 300,000 shares of common stock of Kellstrom. In December 1998, Banner Aerospace recorded a $19.3 million pre-tax loss from the sale of Solair. This loss was included in cost of goods sold as it was attributable primarily to the bulk sale of inventory at prices below the carrying amount of that inventory. On January 13, 1998, Banner Aeropsace completed the disposition of substantially all of the assets and certain liabilities of certain subsidiaries to AlliedSignal Inc., in exchange for shares of AlliedSignal Inc. common stock with an aggregate value of $369 million. The assets transferred to AlliedSignal consisted primarily of Banner Aerospace's hardware group, which included the distribution of bearings, nuts, bolts, screws, rivets and other types of fasteners, and its PacAero unit. Approximately $196 million of the common stock received from AlliedSignal was used to repay outstanding term loans of Banner Aerospace's subsidiaries, and related fees. Acquisition of Minority Interest in Consolidated Subsidiaries On April 8, 1999, we acquired the remaining 15% of the outstanding common and preferred stock of Banner Aerospace, Inc. not already owned by us, through the merger of Banner Aerospace with one of our subsidiaries. Under the terms of the merger with Banner, we issued 2,981,412 shares of our Class A common stock to acquire all of Banner Aerospace's common and preferred stock (other than those already owned by us). Banner Aerospace is now our wholly-owned subsidiary. On June 9, 1998 we exchanged 3,659,364 shares of Banner Aerospace's common stock for 2,212,361 newly issued shares of our Class A common stock. As a result of the exchange offer, our ownership of Banner common stock increased to 83.3%. 3. DISCONTINUED OPERATIONS AND NET ASSETS HELD FOR SALE On March 11, 1998, Shared Technologies Fairchild Inc. merged into Intermedia Communications Inc. Under the terms of the merger we received approximately $178.0 million in cash (before tax and selling expenses) in exchange for the common and preferred stock of Shared Technologies Fairchild we owned. In fiscal 1998, we recorded a $96.0 million gain, net of tax, on disposal of discontinued operations, from the proceeds received from the merger of Shared Technologies Fairchild with Intermedia. The results of Shared Technologies Fairchild have been accounted for as discontinued operations. Net earnings from discontinued operations for Shared Technologies Fairchild was $648 in 1998. Based on our formal plan, we have disposed of the Fairchild Technologies' businesses, including its intellectual property, through a series of transactions. Because of Fairchild Technologies' significant utilization of cash, in February 1998, our Board of Directors adopted a formal plan to discontinue Fairchild Technologies, under which, Fairchild Technologies would either be sold or liquidated. In connection with the adoption of that plan, we recorded an after-tax charge of $36.2 million in discontinued operations in fiscal 1998. Included in the fiscal 1998 charge, was $28.2 million, net of an income tax benefit of $11.8 million, for the net losses of Fairchild Technologies through June 30, 1998. This charge included the write down of assets to estimated net realizable value and $8.0 million, net of an income tax benefit of $4.8 million, for the estimated remaining operating losses of Fairchild Technologies through February 1999, the originally anticipated disposal date. The dispositions of the Fairchild Technologies semiconductor equipment group, the major portion of the Fairchild Technologies business, took place by June 1999, approximately 15 months after the adoption of the disposition plan. We also completed a spin-off of the Fairchild Technologies optical disc equipment group business in April 2000, approximately 25 months after the original disposition plan. We received proceeds from the dispositions of Fairchild Technologies of less than we originally projected, and the operating losses of Fairchild Technologies, since the adoption date, exceeded our original estimates. At each quarter end, we continued to reevaluate our conclusions on discontinued operations and update the estimates of losses as circumstances changed. At no point did we consider retaining any portion of the Fairchild Technology business. As a result, we adjusted the net loss on disposal of discontinued operations by $31.3 million and $12.0 million in fiscal 1999 and 2000, respectively. The following schedule provides a summary of the net loss on disposal of discontinued operations for Fairchild Technologies: 1998 (a) 1999 (b) 2000 (c) Total ----------------------------------------------------- Accrual for future operating losses, net $ 8,000 $ (5,203) $ (2,797) $ - Operating losses, net 12,644 21,313 1,217 35,174 Loss on dispositions, net 15,599 15,239 13,586 44,424 ----------------------------------------------------- Loss on disposal of discontinued operations, net $ 36,243 $ 31,349 $ 12,006 $ 79,598 -----------------------------------------------------
(a) The net loss on disposal of discontinued operations was increased by $13.9 million in the fourth quarter of fiscal 1998, to reflect higher than expected operating losses that occurred since the measurement date, and to update previous loss estimates for higher than previously anticipated losses of disposal. (b) The fiscal 1999 after-tax operating loss from Fairchild Technologies exceeded the June 1998 estimate recorded for expected losses by $28.6 million, net of an income tax benefit of $8.1 million, through June 1999. Operating losses for fiscal 1999 of $8.0 million were originally planned for the first eight months of fiscal 1999. Operating costs were higher than originally projected, due to deterioration in market conditions, which resulted in increased operating expenses and hindered the disposition of Fairchild Technologies within twelve months, as originally expected. Due to the decision to cease operations of the Fairchild Technologies semiconductor group in March 1999, additional expenses became necessary to reflect the shut down of facilities and accrue for severance expenses. An additional after-tax charge of $2.8 million was recorded in fiscal 1999 for the estimated remaining losses in connection with the disposition of Fairchild Technologies. (c) The fiscal 2000 after-tax loss in connection with the disposition of the remaining operations of Fairchild Technologies exceeded anticipated losses by $12.0 million, net of tax. We recognized a higher than expected loss on the disposition of the final portions of Fairchild Technologies. At the measurement date in February 1998, management's reasonable expectation was that Fairchild Technologies would be disposed of within one year. Management felt confident that this could be accomplished for the following reasons: o We retained an investment banker to aid in the disposal of the Fairchild Technologies business. o Our belief was further enhanced as active discussions began with approximately 20 potentially interested parties; and based on those discussions we believed that we could sell Fairchild Technologies within one year. o The expected quarterly losses, as accrued at the measurement date created an incentive to sell the Fairchild Technologies business in order to reduce cash outflows. However, our February 1998 expectations that we could sell Fairchild Technologies within one year were severely hampered by a general slowdown in the semiconductor manufacturing equipment industry, the economic crisis in Asia, and public knowledge that the business was for sale. As a result of these conditions, the major customer of Fairchild Technologies semiconductor equipment group business refused to place additional firm orders and Fairchild Technologies incurred net operating losses well in excess of the $8.0 million originally planned. As a further result of these conditions, efforts to sell the Fairchild Technologies business, as a whole, were unsuccessful. However, several parties expressed interest in specific product lines and intellectual property of Fairchild Technologies. Management realized that it would have to split-up Fairchild Technologies and separately dispose of components of its semiconductor equipment group and its optical disc equipment business. In February 1999, disposition discussions began to intensify, and shortly thereafter letters of intent were signed to sell portions of the Fairchild Technologies business. In March 1999, management decided to cease all manufacturing activities of the semiconductor equipment group of Fairchild Technologies. In April 1999, we began to dispose of the semiconductor equipment group's production machinery and existing inventory, informed customers and business partners that it ceased operations, significantly reduced its workforce, and stepped up the level of discussions and negotiations with other companies regarding the sale of its remaining assets. Fairchild Technologies also continued exploring several alternative transactions with potential buyers for its optical disc equipment group business. During the fourth quarter of fiscal 1999, we liquidated, through several transactions, a significant portion of Fairchild Technologies, consisting mostly of its semiconductor equipment group. On April 14, 1999, we disposed of Fairchild Technologies' photoresist deep ultraviolet track equipment machines and technology, spare parts and testing equipment to Apex Co., Ltd. in exchange for 1,250,000 shares of Apex stock valued at approximately $5.1 million. On May 1, 1999, we sold Fairchild CDI for a nominal amount. On June 15, 1999, we received $7.9 million from Suess Microtec AG and the right to receive 350,000 shares of Suess Microtec stock (or approximately $3.5 million) in exchange for Fairchild Technologies' Falcon semiconductor equipment group product line and certain intellectual property. In July 1999, we received approximately $7.1 million from Novellus in exchange for Fairchild Technologies' Low-K dielectric product line and certain intellectual property. This transaction finalized the liquidation of the semiconductor equipment group of Fairchild Technologies. Following these transactions Fairchild Technologies completely ceased operations. Under these circumstances, management believes that discontinued operations treatment for accounting purposes continued to be appropriate subsequent to March 1999. On April 13, 2000, we completed a spin-off to our shareholders, of Fairchild (Bermuda) Ltd., which owned the Fairchild Technologies Optical Disc Equipment Group business. Subsequently, on April 14, 2000, Fairchild (Bermuda), was renamed Global Sources Ltd., and completed an exchange of approximately 95% of its shares for 100% of the shares of Trade Media Holdings Limited, an Asian based, business-to-business online and traditional marketplace services provider. After the share exchange, our stockholders owned 1,183,081 shares of the 26,152,308 issued shares of Global Sources. Earnings from discontinued operations for the twelve months ended June 30, 1998 includes net losses of $4,944 from Fairchild Technologies until the adoption date of a formal plan for its discontinuance. Fairchild Technologies reported sales of $60,339, $21,900, and $8,087 in 1998, 1999, and 2000, respectively. Net assets held for sale are stated at the lower of cost or at estimated net realizable value, which consider anticipated sales proceeds. Interest is not allocated to net assets held for sale. Net assets held for sale at June 30, 2000, includes two parcels of real estate in California, and several parcels of real estate located primarily throughout the continental United States, which we plan to sell, lease or develop, subject to the resolution of certain environmental matters and market conditions. Also included in net assets held for sale is a limited partnership interest in a landfill development partnership. 4. PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) The following table sets forth the derivation of the unaudited pro forma results, representing the impact of our acquisition of Kaynar Technologies (completed in April 1999), our merger with Banner Aerospace (completed in April 1999), our acquisition of Special-T (effective January 1998), and our dispositions of Dallas Aerospace (December 1999), Solair (December 1998), the hardware group of Banner Aerospace (completed January 1998), and the investment in Nacanco Paketleme (July 1999) and Shared Technologies Fairchild (completed in March 1998), as if these transactions had occurred at the beginning of each period presented. The pro forma information is based on the historical financial statements of these companies, giving effect to the aforementioned transactions. In preparing the pro forma data, certain assumptions and adjustments have been made which affect interest expense and investment income from our revised debt structures and reduce minority interest from our merger with Banner Aerospace. The pro forma financial information does not reflect nonrecurring income and gains from the disposal of discontinued operations that have occurred from these transactions. The unaudited pro forma information is not intended to be indicative of the future results of our operations or results that might have been achieved if these transactions had been in effect since the beginning of these fiscal periods. 2000 1999 1998 ---------------- ---------------- ---------------- Sales $613,667 $686,660 $704,633 Operating income (a) 21,192 28,745 58,953 Earnings (loss) from continuing operations (a, b) 3,695 (579) 6,174 Basic earnings (loss) from continuing operations per share 0.15 (0.03) 0.27 Diluted earnings (loss) from continuing operations per share 0.15 (0.03) 0.25 Net earnings (loss) (8,310) (36,081) 54,865 Basic earnings (loss) per share (0.33) (1.58) 2.36 Diluted earnings (loss) per share (0.33) (1.58) 2.26 (a) - Fiscal 2000 pro forma results include pre-tax restructuring charges of $8,578. Fiscal 1999 pro forma results includes pre-tax charges recorded for acquisitions of $23,604 and restructuring charges of $6,374. (b) - Excludes pre-tax nonrecurring gain of $25,747 from the liquidation Nacanco Paketleme in fiscal 2000. Excludes pre-tax investment income of $35,407 from the liquidation of certain investments in fiscal 1999.
5. INVESTMENTS Investments at June 30, 2000 consist primarily of common stock investments in public corporations, which are classified as trading securities or available-for-sale securities. Other short-term investments and long-term investments do not have readily determinable fair values and consist primarily of investments in preferred and common shares of private companies and limited partnerships. A summary of investments held by us follows: June 30, 2000 June 30, 1999 ------------------------------- ------------------------------ Aggregate Aggregate Fair Cost Fair Cost Value Basis Value Basis ------------------------------- ------------------------------ Short-term investments: Trading securities - equity $ 2,715 $ 2,926 $ 1,254 $ 1,221 Available-for-sale equity securities 6,284 5,400 11,618 9,573 Other investments 55 55 222 222 -------------- -------------- ------------- ------------- $ 9,054 $ 8,381 $ 13,094 $ 11,016 ============== ============== ============= ============= Long-term investments: Available-for-sale equity securities $ 3,828 $ 5,436 $ 14,616 $ 7,342 Other investments 6,256 6,256 1,228 1,228 -------------- -------------- ------------- ------------- $ 10,084 $ 11,692 $ 15,844 $ 8,570 ============== ============== ============= =============
On June 30, 2000, we had gross unrealized holding gains from available-for-sale securities of $1,357 and gross unrealized holding losses from available-for-sale securities of $2,082. Investment income is summarized as follows: 2000 1999 1998 ------------- ------------- ------------- Gross realized gain from sales $ 15,102 $ 36,677 $ 364 Change in unrealized holding gain (loss) from trading securities 578 33 (5,791) Gross realized loss from impairments (6,473) - (182) Dividend income 728 3,090 2,247 ------------- ------------- ------------- $ 9,935 $ 39,800 $ (3,362) ============= ============= =============
6. INVESTMENTS AND ADVANCES, AFFILIATED COMPANIES The following table summarizes historical financial information on a combined 100% basis of our investment in Nacanco Paketleme, which was accounted for using the equity method in the periods that we owned it. Statement of Earnings: 1999 1998 ---------------- ---------------- Net sales $ 75,495 $ 90,235 Gross profit 25,297 32,449 Earnings from continuing operations 13,119 14,780 Net earnings 13,119 14,780 Balance Sheet at June 30, 1999 Current assets $ 26,942 Non-current assets 38,661 Total assets 65,603 Current liabilities 12,249 Non-current liabilities 1,828
On June 30, 1999 we owned approximately 31.9% of Nacanco Paketleme common stock. We recorded equity earnings of $4,153 and $4,683 from this investment for 1999 and 1998, respectively. Our share of equity in earnings, net of tax, of all unconsolidated affiliates for 2000, 1999 and 1998 was $(346), $1,795, and $2,571, respectively. The carrying value of investments and advances, affiliated companies consists of the following: June 30, June 30, 2000 1999 ---------------- ---------------- Nacanco $ - $ 17,356 Others 3,238 14,435 ---------------- ---------------- $ 3,238 $ 31,791 ================ ================
On June 30, 2000, approximately $(3,309) of our $261,788 consolidated retained earnings were from undistributed losses of 50 percent or less currently owned affiliates accounted for using the equity method. 7. NOTES PAYABLE AND LONG-TERM DEBT At June 30, 2000 and 1999, notes payable and long-term debt consisted of the following: June 30, 2000 June 30, 1999 ------------------ ------------------ Short-term notes payable (weighted average interest rates of 4.5% $ 23,069 $ 22,924 and 3.6% in 2000 and 1999, respectively) ================== ================== Bank credit agreements $ 218,691 $ 258,100 10 3/4% Senior subordinated notes due 2009 225,000 225,000 10.65% Industrial revenue bonds 1,500 1,500 Capital lease obligations, interest from 7.4% to 10.1% 2,146 2,873 Other notes payable, collateralized by property, plant and equipment, interest from 3.0% to 10.5% 11,907 13,746 ------------------ ------------------ 459,244 501,219 Less: Current maturities (5,525) (5,936) ------------------ ------------------ Net long-term debt $ 453,719 $ 495,283 ================== ==================
Credit Agreements We maintain credit facilities with a consortium of banks, providing us with a term loan and revolving credit facilities. On June 30, 2000, the credit facilities with our senior lenders consisted of a $143,691 term loan and a $100,000 revolving loan with a $40,000 letter of credit sub-facility and a $15,000 swing loan sub-facility. Borrowings under the term loan generally bear interest at a rate of, at our option, either 2% over the Citibank N.A. base rate, or 3% over the Eurodollar rate, and is subject to change quarterly based upon our financial performance. Advances made under the revolving credit facilities generally bear interest at a rate of, at our option, either (i) 1 1/2% over the Citibank N.A. base rate, or (ii) 2 1/2% over the Eurodollar rate, and is subject to change quarterly based upon our financial performance. The credit facilities are subject to a non-use commitment fee on the aggregate unused availability, of 1/2% if greater than half of the revolving loan is being utilized or 3/4% if less than half of the revolving loan is being utilized. Outstanding letters of credit are subject to fees equivalent to the Eurodollar margin rate. The revolving credit facilities and the term loan will mature on April 30, 2005 and April 30, 2006, respectively. The term loan is subject to mandatory prepayment requirements and optional prepayments. The revolving loan is subject to mandatory prepayment requirements and optional commitment reductions. We are required under the credit agreement to comply with certain financial and non-financial loan covenants, including maintaining certain interest and fixed charge coverage ratios and maintaining certain indebtedness to EBITDA ratios at the end of each fiscal quarter. Additionally, the credit agreement restricts annual capital expenditures to $40,000 during the life of the facility. Except for non-guarantor assets, substantially all of our assets are pledged as collateral under the credit agreement. The credit agreement restricts the payment of dividends to our shareholders to an aggregate of the lesser of $0.01 per share or $400 over the life of the agreement. Noncompliance with any of the financial covenants without cure or waiver would constitute an event of default under the credit agreement. An event of default resulting from a breach of a financial covenant can result, at the option of lenders holding a majority of the loans, in an acceleration of the principal and interest outstanding, and a termination of the revolving credit line. At June 30, 2000, we were in full compliance with all the covenants under the credit agreement. At June 30, 2000, we had borrowings outstanding of $42,000 under the revolving credit facilities and we had letters of credit outstanding of $16,544, which were supported by a sub-facility under the revolving credit facilities. At June 30, 2000, we had unused bank lines of credit aggregating $41,456, at interest rates slightly higher than the prime rate. We also had short-term lines of credit relating to foreign operations, aggregating $32,653, against which we owed $14,512 at June 30, 2000. On March 23, 2000, we entered into a $30,750 term loan agreement with Morgan Guaranty Trust Company of New York. The loan is secured by all of the rental property of the Fairchild Airport Plaza shopping center located in Farmingdale, New York, including tenant leases and mortgage escrows. Borrowings under this agreement will mature on April 1, 2003, and bear interest at the rate of LIBOR plus 3.5% per annum. If our debt coverage ratio at any time reaches a threshold of 1.4 or greater, the interest rate will be reduced to LIBOR plus 3.1%. Senior Subordinated Notes On April 20, 1999, in conjunction with the acquisition of Kaynar Technologies, we issued, at par value, $225,000 of 10 3/4% senior subordinated notes that mature on April 15, 2009. We will pay interest on these notes semi-annually on April 15 and October 15 of each year. Except in the case of certain equity offerings by us, we cannot choose to redeem these notes until five years have passed from the issue date of the notes. At any one or more times after that date, we may choose to redeem some or all of the notes at certain specified prices, plus accrued and unpaid interest. Upon the occurrence of certain change of control events, each holder may require us to repurchase all or a portion of the notes at 101% of their principal amount, plus accrued and unpaid interest. The notes are our senior subordinated unsecured obligations. They rank senior to or equal in right of payment with any of our future subordinated indebtedness, and subordinated in right of payment to any of our existing and future senior indebtedness. The notes are effectively subordinated to indebtedness and other liabilities of our subsidiaries which are not guarantors. Substantially all of our domestic subsidiaries guarantee the notes with unconditional guaranties of payment that will effectively rank below their senior debt, but will rank equal to their other subordinated debt, in right of payment. The indenture under which the notes were issued contains covenants that limit what we (and most or all of our subsidiaries) may do. The indenture contains covenants that limit our ability to: incur additional indebtedness; pay dividends on, redeem or repurchase our capital stock; make investments; sell assets; create certain liens; engage in certain transactions with affiliates; and consolidate, merge or sell all or substantially all of our assets or the assets of certain of our subsidiaries. In addition, we will be obligated to offer to repurchase the notes at 100% of their principal amount, plus accrued and unpaid interest, if any, to the date of repurchase, in the event of certain asset sales. These restrictions and prohibitions are subject to a number of important qualifications and exceptions. Debt Maturity Information The annual maturity of our bank notes payable and long-term debt obligations (exclusive of capital lease obligations) for each of the five years following June 30, 2000, are as follows: $27,813 for 2001, $4,386 for 2002, $34,595 for 2003, $3,084 for 2004 and $44,575 for 2005. Hedge Agreements In fiscal 1998 we entered into a series of interest rate hedge agreements to reduce our exposure to increases in interest rates on variable rate debt. The ten-year hedge agreements provide us with interest rate protection on $100,000 of variable rate debt, with interest being calculated based on a fixed LIBOR rate of 6.24% to February 17, 2003. On February 17, 2003, the bank will have a one-time option to elect to cancel the agreement or to do nothing and proceed with the transaction, using a fixed LIBOR rate of 6.715% for the period February 17, 2003 to February 19, 2008. No costs were incurred as a result of these transactions. In conjunction with the $30,750 term loan agreement with Morgan Guaranty Trust Company of New York, we purchased an interest rate cap agreement for $183 from the lender, which provides for a maximum rate of interest of 11.625% and will mature on April 1, 2003. The cost of this agreement is being amortized as additional interest expense over the life of the loan. We recognize interest expense under the provisions of the hedge agreements based on the fixed rate. We are exposed to credit loss in the event of non-performance by the lenders; however, such non-performance is not anticipated. The table below provides information about our derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, which include interest rate swaps. For interest rate swaps, the table presents notional amounts and weighted average interest rates by expected (contractual) maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting date.
(In thousands) Expected Fiscal Year Maturity Date 2003 2008 (a) ------------------------------------- Interest Rate Hedges: Variable to Fixed $30,750 $100,000 Average cap rate 11.625% 6.49% Average floor rate N/A 6.24% Weighted average rate 10.39% 7.06% Fair Market Value $166 $(812) (a) - On February 17, 2003, the bank with which we entered into the interest rate swap agreement will have a one-time option to elect to cancel this agreement.
8. PENSIONS AND POSTRETIREMENT BENEFITS Pensions We have defined benefit pension plans covering most of our employees. Employees in our foreign subsidiaries may participate in local pension plans, for which our liability is in the aggregate insignificant. Our funding policy is to make the minimum annual contribution required by the Employee Retirement Income Security Act of 1974 or local statutory law. The changes in the pension plans' benefit obligations were as follows: 2000 1999 -------------- -------------- Projected benefit obligation at July 1, $ 221,985 $ 222,607 Service cost 5,122 3,454 Interest cost 15,214 14,328 Actuarial gains (12,593) (5,003) Benefit payments (19,239) (14,236) Plan amendment 3,190 837 Foreign currency translation (4) (2) -------------- -------------- Projected benefit obligation at June 30, $ 213,675 $ 221,985 ============== ==============
The changes in the fair values of the pension plans' assets were as follows: 2000 1999 -------------- -------------- Plan assets at July 1, $ 257,662 $ 261,097 Actual return on plan assets 10,767 11,995 Administrative expenses (1,413) (1,190) Benefit payments (19,239) (14,236) Foreign currency translation (9) (4) -------------- -------------- Plan assets at June 30, $ 247,768 $ 257,662 ============== ==============
The following table sets forth the funded status and amounts recognized in our consolidated balance sheets at June 30, 2000 and 1999, for the plans: June 30, 2000 June 30, 1999 ---------------- ---------------- Plan assets in excess of projected benefit obligations $ 34,096 $ 35,677 Unrecognized net loss 26,970 27,867 Unrecognized prior service cost 3,534 634 Unrecognized transition (asset) (182) (220) ---------------- ---------------- Prepaid pension expense recognized in the balance sheet $ 64,418 $ 63,958 ================ ================
The net prepaid pension expense recognized in the consolidated balance sheets consisted entirely of a prepaid pension asset. A summary of the components of total pension expense is as follows: 2000 1999 1998 -------------- -------------- -------------- Service cost - benefits earned during the period $ 5,122 $ 3,454 $ 2,685 Interest cost on projected benefit obligation 15,214 14,328 14,518 Expected return on plan assets (22,360) (21,694) (20,455) Amortization of net loss 1,306 1,813 1,522 Amortization of prior service cost (credit) 290 (184) (184) Amortization of transition (asset) (37) (36) (38) -------------- -------------- -------------- Net periodic pension (income) $ (465) $ (2,319) $ (1,952) ============== ============== ==============
Weighted average assumptions used in accounting for the defined benefit pension plans as of June 30, 2000 and 1999 were as follows: 2000 1999 -------------- -------------- Discount rate 8.0% 7.25% Expected rate of increase in salaries 4.5% 4.5% Expected long-term rate of return on plan assets 9.0% 9.0%
Plan assets include an investment in our Class A common stock, valued at a fair market value of $3,127 and $8,178 at June 30, 2000 and 1999, respectively. Substantially all of the other plan assets are invested in listed stocks and bonds. Postretirement Health Care Benefits We provide health care benefits for most of our retired employees. Postretirement health care benefit expense from continuing operations totaled $1,065, $951, and $804 for 2000, 1999, and 1998, respectively. Our accrual was approximately $32,345 and $33,155 as of June 30, 2000 and 1999, respectively, for postretirement health care benefits related to discontinued operations. This represents the cumulative discounted value of the long-term obligation and includes benefit expense of $3,484, $3,902 and $3,714 for the years ended June 30, 2000, 1999 and 1998, respectively. The changes in the accumulated postretirement benefit obligation of the plans were as follows: 2000 1999 --------------- -------------- Accumulated postretirement benefit obligation at July 1, $ 55,027 $ 58,197 Service cost 302 227 Interest cost 3,733 3,860 Actuarial gains (3,290) (2,718) Benefit payments (5,198) (4,539) Acquisitions/Divestitures (16) - --------------- -------------- Accumulated postretirement benefit obligation at June 30, $ 50,558 $ 55,027 =============== ==============
In fiscal 1998, we amended a former subsidiary's medical plan to increase the retirees' contribution rate to approximately 20% of the negotiated premium. Such plan amendment resulted in a $1,003 decrease to the accumulated postretirement benefit obligation and is being amortized as an unrecognized prior service credit over the average future lifetime of the respective retirees. The following table sets forth the funded status and amounts recognized in the Company's consolidated balance sheets at June 30, 2000 and 1999, for the plans: 2000 1999 ---------------- -------------- Accumulated postretirement benefit obligation $ 50,558 $ 55,027 Unrecognized prior service credit 797 866 Unrecognized net loss (8,960) (12,833) ---------------- -------------- Accrued postretirement benefit liability $ 42,395 $ 43,060 ================ ==============
The accumulated postretirement benefit obligation was determined using a discount rate of 8.0% at June 30, 2000 and 7.25% at June 30, 1999. The effect of such change resulted in a decrease to the accumulated postretirement benefit obligation in fiscal 2000. For measurement purposes, a 6.5% annual rate of increase in the per capita claims cost of covered health care benefits was assumed for fiscal 2000. The rate was assumed to decrease gradually to 5.0% for fiscal 2003 and remain at that level thereafter. A summary of the components of total postretirement expense is as follows: 2000 1999 1998 ------------- ------------- -------------- Service cost - benefits earned during the period $ 302 $ 227 $ 166 Interest cost on accumulated postretirement benefit obligation 3,733 3,860 3,979 Amortization of prior service credit (69) (69) (69) Amortization of net loss 583 835 442 ------------- ------------- -------------- Net periodic postretirement benefit cost $ 4,549 $ 4,853 $ 4,518 ============= ============= ==============
Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one percentage-point change in assumed health care cost trend rates would have the following effects as of and for the fiscal year ended June 30, 2000: One Percentage-Point Increase Decrease ---------------- -------------- Effect on service and interest components of net periodic cost $ 107 $ (105) Effect on accumulated postretirement benefit obligation 1,490 (1,351)
9. INCOME TAXES The provision (benefit) for income taxes from continuing operations is summarized as follows: 2000 1999 1998 --------------- ---------------- --------------- Current: Federal $(11,234) $ 3,416 $ (6,245) State 427 140 500 Foreign 2,893 3,994 3,893 --------------- ---------------- --------------- (7,914) 7,550 (1,852) Deferred: Federal 5,508 (10,731) 46,092 State (1,993) (10,064) 3,034 --------------- ---------------- --------------- 3,515 (20,795) 49,126 --------------- ---------------- --------------- Net tax provision (benefit) $ (4,399) $(13,245) $ 47,274 =============== ================ ===============
The income tax provision (benefit) for continuing operations differs from that computed using the statutory Federal income tax rate of 35%, in fiscal 2000, 1999, and 1998, for the following reasons: 2000 1999 1998 ---------------- --------------- --------------- Computed statutory amount $ 6,199 $ (12,760) $43,188 State income taxes, net of applicable federal tax benefit (654) 2,488 4,362 Nondeductible acquisition valuation items 4,002 1,903 1,204 Tax on foreign earnings, net of tax credits (5,030) (2,392) (1,143) Difference between book and tax basis of assets acquired and liabilities assumed (1,491) (53) 4,932 Revision of estimate for tax accruals (7,800) (1,790) (3,905) Other 375 (641) (1,364) ---------------- --------------- --------------- Net tax provision (benefit) $(4,399) $ (13,245) $47,274 ================ =============== ===============
The following table is a summary of the significant components of our deferred tax assets and liabilities, and deferred provision or benefit, for the following periods: 2000 1999 1998 Deferred Deferred Deferred June 30, (Provision) June 30, (Provision) (Provision) 2000 Benefit 1999 Benefit Benefit --------------- ---------------- --------------- -------------- --------------- Deferred tax assets: Accrued expenses $ 6,249 $ (7,910) $ 14,159 $ 11,572 $ (3,853) Asset basis differences 9,384 562 8,822 710 7,540 Inventory 5,135 (5,982) 11,117 11,117 (2,198) Employee compensation and benefits 17,022 3,435 13,587 8,501 (55) Environmental reserves 4,738 763 3,975 509 207 Loss and credit carryforward 7,035 7,035 - - - Postretirement benefits 12,000 (4,428) 16,428 (1,706) (1,338) Other 2,234 (2,405) 4,639 (7,465) 4,506 --------------- ---------------- --------------- -------------- --------------- 63,797 (8,930) 72,727 23,238 4,809 Deferred tax liabilities: Asset basis differences (80,038) 4,348 (84,386) (3,954) (54,012) Inventory - - - 1,546 (1,546) Pensions (19,318) 296 (19,614) (428) 95 Other (4,548) 771 (5,319) 393 1,528 --------------- ---------------- --------------- -------------- --------------- (103,904) 5,415 (109,319) (2,443) (53,935) --------------- ---------------- --------------- -------------- --------------- Net deferred tax liability $ (40,107) $ (3,515) $(36,592) $ 20,795 $ (49,126) =============== ================ =============== ============== ===============
The amounts included in the balance sheet are as follows: June 30, June 30, 2000 1999 --------------- --------------- Prepaid expenses and other current assets: Current deferred $ 27,206 $ 5,999 =============== =============== Noncurrent income tax liabilities: Noncurrent deferred $ 67,313 $ 42,591 Other noncurrent 61,202 79,370 --------------- --------------- $128,515 $ 121,961 =============== ===============
We maintain a very complex structure in the United States and overseas, particularly due to the large number of acquisitions and dispositions that have occurred along with other tax planning strategies. Our management performs a comprehensive review of its worldwide tax positions on an annual basis. Based on positive outcomes in recent years as a result of discussions and resolutions of matters with the tax authorities and the closure of tax years subject to tax audit, management has reversed tax accruals, no longer needed, of $7,800, $1,790, and $3,905 in 2000, 1999, and 1998, respectively. Domestic income taxes, less available credits, are provided on the unremitted income of foreign subsidiaries and affiliated companies, to the extent we intend to repatriate such earnings. No domestic income taxes or foreign withholding taxes are provided on the undistributed earnings of foreign subsidiaries and affiliates, which are considered permanently invested, or which would be offset by allowable foreign tax credits. At June 30, 2000, the amount of domestic taxes payable upon distribution of such earnings was not significant. In the opinion of our management, adequate provision has been made for all income taxes and interest; and any liability that may arise for prior periods will not have a material effect on our financial condition or our results of operations. 10. EQUITY SECURITIES We had 22,429,722 shares of Class A common stock and 2,621,652 shares of Class B common stock outstanding at June 30, 2000. Class A common stock is listed on the New York Stock Exchange under the ticker symbol of "FA". There is no public market for the Class B common stock. The shares of Class A common stock are entitled to one vote per share and cannot be exchanged for shares of Class B common stock. The shares of Class B common stock are entitled to ten votes per share and can be exchanged, at any time, for shares of Class A common stock on a share-for-share basis. For the year ended June 30, 2000, 100,795 and 14,968 shares of Class A common stock were issued as a result of the exercise of stock options and the Special-T restricted stock plan, respectively. Under the terms of our acquisition of Special-T, we issued 44,079 restricted shares of our Class A common stock during fiscal 2000, as additional merger consideration. On February 23, 2000, we issued 63,300 restricted shares of Class A common stock as a result of a cashless exercise of 250,000 warrants. In addition, our Class A common stock outstanding was reduced as a result of 52,000 shares purchased by us during fiscal 2000, which are considered as treasury stock for accounting purposes. During fiscal 2000, we issued 121,244 deferred compensation units pursuant to our stock option deferral plan, as a result of the exercise of 228,891 stock options. Each deferred compensation unit is represented by one share of our treasury stock and is convertible into one share of our Class A common stock after a specified period of time. 11. STOCK OPTIONS AND WARRANTS Stock Options We are authorized to issue 5,141,000 shares of our Class A common stock, upon the exercise of stock options issued under our 1986 non-qualified and incentive stock option plan. The purpose of the 1986 stock option plan is to encourage continued employment and ownership of Class A common stock by our officers and key employees, and to provide additional incentive to promote success. The 1986 stock option plan authorizes the granting of options at not less than the market value of the common stock at the time of the grant. The option price is payable in cash or, with the approval of our compensation and stock option committee of the Board of Directors, in shares of common stock, valued at fair market value at the time of exercise. The options normally terminate five years from the date of grant, subject to extension of up to 10 years or for a stipulated period of time after an employee's death or termination of employment. The 1986 plan expires on April 9, 2006; however, all stock options outstanding as of April 9, 2006 shall continue to be exercisable pursuant to their terms. We are authorized to issue 250,000 shares of our Class A common stock upon the exercise of stock options issued under the ten year 1996 non-employee directors stock option plan. The 1996 non-employee directors stock option plan authorizes the granting of options at the market value of the common stock on the date of grant. An initial stock option grant for 30,000 shares of Class A common stock is made to each person who becomes a new non-employee Director, with the options vesting 25% each year from the date of grant. On the date of each annual meeting, each person elected as a non-employee Director will be granted an option for 1,000 shares of Class A common stock that vest immediately. The exercise price is payable in cash or, with the approval of our compensation and stock option committee, in shares of Class A or Class B common stock, valued at fair market value at the date of exercise. All options issued under the 1996 non-employee directors stock option plan will terminate five years from the date of grant or a stipulated period of time after a non-employee Director ceases to be a member of the Board. The 1996 non-employee directors stock option plan is designed to maintain our ability to attract and retain highly qualified and competent persons to serve as our outside directors. Upon our April 8, 1999 merger with Banner Aerospace, all of Banner Aerospace's stock options then issued and outstanding were converted into the right to receive 870,315 shares of our common stock. A summary of stock option transactions under our stock option plans is presented in the following tables: Weighted Average Exercise Shares Price -------------------- ------------------- Outstanding at July 1, 1997 1,485,440 $ 7.46 Granted 357,250 24.25 Exercised (141,259) 4.70 Forfeited (46,650) 7.56 -------------------- ------------------- Outstanding at June 30, 1998 1,654,781 7.46 Granted 338,000 14.36 Plans assumption from Banner merger 870,315 4.25 Exercised (75,383) 5.21 Expired (500) 3.50 Forfeited (650) 12.16 -------------------- ------------------- Outstanding at June 30, 1999 2,786,563 11.05 Granted 200,500 8.89 Exercised (329,126) 3.98 Expired (88,216) 6.79 Forfeited (103,150) 14.53 -------------------- ------------------- Outstanding at June 30, 2000 2,466,571 $ 11.82 ==================== =================== Exercisable at June 30, 1998 667,291 $ 6.58 Exercisable at June 30, 1999 1,867,081 $ 8.75 Exercisable at June 30, 2000 1,793,459 $ 10.57
A summary of options outstanding at June 30, 2000 is presented as follows: Options Outstanding Options Exercisable ------------------------------------------------------- ---------------------------------- Weighted Average Weighted Average Remaining Average Range of Number Exercise Contract Number Exercise Exercise Prices Outstanding Price Life Exercisable Price ---------------------------- ----------------- -------------- ---------------- ---------------- -------------- $ 3.50 - $ 8.625 822,699 $ 5.30 1.1 years 762,199 $ 5.18 $ 8.72 - $13.48 492,987 $ 9.57 3.7 years 345,487 $ 9.41 $13.625 - $16.25 841,385 $ 14.80 2.2 years 531,023 $ 14.94 $18.5625 - $25.0625 309,500 $ 24.65 1.2 years 154,750 $ 24.65 ---------------------------- ----------------- -------------- ---------------- ---------------- -------------- $ 3.50 - $25.0625 2,466,571 $ 11.82 4.1 years 1,793,459 $ 10.57 ============================ ================= ============== ================ ================ ==============
The weighted average grant date fair value of options granted during 2000, 1999 and 1998 was $4.16, $6.48, and $11.18, respectively. The fair value of each option granted is estimated on the grant date using the Black-Scholes option pricing model. The following significant assumptions were made in estimating fair value: 2000 1999 1998 -------------------- ------------------- ------------------ Risk-free interest rate 5.9% - 6.8% 4.3% - 5.4% 5.4% - 6.3% Expected life in years 4.66 4.66 4.66 Expected volatility 45% - 47% 45% - 46% 44% - 45% Expected dividends none none none
We recognized compensation expense of $23 from stock options issued to a consultant and $414 from an employee stock plan that was established with our acquisition of Special-T Fasteners in 1998. We recognized compensation expense of $104 as a result of stock options that were modified in 1998. We are applying APB Opinion No. 25 in accounting for our stock option plans. Accordingly, no compensation cost has been recognized for the granting of stock options to our employees in 2000, 1999 or 1998. If stock options granted in 2000, 1999 and 1998 were accounted for based on their fair value as determined under SFAS 123, pro forma earnings would be as follows: 2000 1999 1998 --------------- --------------- ---------------- Net earnings (loss): As reported $ 9,758 $ (59,009) $101,090 Pro forma 8,096 (60,682) 99,817 Basic earnings (loss) per share: As reported $ 0.39 $ (2.59) $ 5.36 Pro forma 0.32 (2.66) 5.30 Diluted earnings (loss) per share: As reported $ 0.39 $ (2.59) $ 5.14 Pro forma 0.32 (2.66) 5.07
The pro forma effects of applying SFAS 123 are not representative of the effects on reported net earnings for future years. The effect of SFAS 123 is not applicable to awards made prior to 1996. Additional awards are expected in future years. Stock Option Deferral Plan On November 17, 1998, our shareholders approved a stock option deferral plan. Pursuant to the stock option deferral plan, certain officers may, at their election, defer payment of the "compensation" they receive in a particular year or years from the exercise of stock options. "Compensation" means the excess value of a stock option, determined by the difference between the fair market value of shares issueable upon exercise of a stock option, and the option price payable upon exercise of the stock option. An officer's deferred compensation is payable in the form of "deferred compensation units," representing the number of shares of common stock that the officer is entitled to receive upon expiration of the deferral period. The number of deferred compensation units issueable to an officer is determined by dividing the amount of the deferred compensation by the fair market value of our stock as of the date of deferral. Stock Warrants Effective as of February 21, 1997, we approved the continuation of an existing warrant to Stinbes Limited (an affiliate of Jeffrey Steiner) to purchase 375,000 shares of our Class A or Class B common stock at $7.80 per share. The warrant has been modified to permit exercise within certain window periods including, within two years after the merger of Shared Technologies Fairchild Inc. with certain companies. The warrant's exercise price per share increases by $.002 for each day subsequent to March 13, 1999. The payment of the warrant price may be made in cash or in shares of our Class A or Class B common stock, valued at fair market value at the time of exercise, or combination thereof. In no event may the warrant be exercised after March 13, 2002. As a result of certain modifications to the warrant, we recognized a charge of $5,606 in 1998. On February 21, 1996, we issued warrants to purchase 25,000 shares of Class A common stock, at $9.00 per share, to a non-employee for services provided in connection with our various dealings with Peregrine Direct Investments Limited. The warrants issued are immediately exercisable and will expire on November 8, 2000. On November 9, 1995, we issued warrants to purchase 500,000 shares of Class A Common Stock, at $9.00 per share, to Peregrine Direct Investments Limited, in exchange for a standby commitment it received on November 8, 1995, from Peregrine. We elected not to exercise our rights under the Peregrine commitment. On February 23, 2000, we issued 63,300 restricted shares of Class A common stock as a result of a cashless exercise of 250,000 of these warrants. The remaining 250,000 of warrants are immediately exercisable and will expire on November 8, 2000. 12. EARNINGS PER SHARE The following table illustrates the computation of basic and diluted earnings (loss) per share: 2000 1999 1998 ---------------- ---------------- --------------- Basic earnings per share: Earnings (loss) from continuing operations $ 21,764 $ (23,507) $ 52,399 ================ ================ =============== Weighted average common shares outstanding 24,954 22,766 18,834 ================ ================ =============== Basic earnings per share: Basic earnings (loss) from continuing operations per share $ 0.87 $ (1.03) $ 2.78 ================ ================ =============== Diluted earnings per share: Earnings (loss) from continuing operations $ 21,764 $ (23,507) $ 52,399 ================ ================ =============== Weighted average common shares outstanding 24,954 22,766 18,834 Diluted effect of options 97 antidilutive 546 Diluted effect of warrants 86 antidilutive 289 ---------------- ---------------- --------------- Total shares outstanding 25,136 22,766 19,669 ================ ================ =============== Diluted earnings (loss) from continuing operations per share $ 0.87 $ (1.03) $ 2.66 ================ ================ ===============
The computation of diluted loss from continuing operations per share for 1999 excluded the effect of incremental common shares attributable to the potential exercise of common stock options outstanding and warrants outstanding, because their effect was antidilutive. No adjustments were made to share information in the calculation of earnings per share for discontinued operations and extraordinary items. 13. RESTRUCTURING CHARGES In fiscal 1999, we recorded $6,374 of restructuring charges. Of this amount, $500 was recorded at our corporate office for severance benefits and $348 was recorded at our aerospace distribution segment for the write-off of building improvements from premises vacated. The remaining, $5,526 was recorded as a result of the Kaynar Technologies initial integration in our aerospace fasteners segment, i.e. for severance benefits ($3,932), for product integration costs incurred as of June 30, 1999 ($1,334), and for the write down of fixed assets ($260). In fiscal 2000, we recorded $8,578 of restructuring charges as a result of the continued integration of Kaynar Technologies into our aerospace fasteners segment. All of the charges recorded during the current year were a direct result of product and plant integration costs incurred as of June 30, 2000. These costs were classified as restructuring and were the direct result of formal plans to move equipment, close plants and to terminate employees. Such costs are nonrecurring in nature. Other than a reduction in our existing cost structure, none of the restructuring charges resulted in future increases in earnings or represented an accrual of future costs. As of June 20, 2000, significantly all of our integration plans have been executed and our integration process is substantially complete. 14. EXTRAORDINARY ITEMS In fiscal 1999, we recognized an extraordinary loss of $4,153, net of tax, to write-off the remaining deferred loan fees associated with the early extinguishment of our indebtedness in connection with refinanced credit facilities enabling our acquisition of Kaynar Technologies. In fiscal 1998, we recognized an extraordinary loss of $6,730, net of tax, to write-off the remaining deferred loan fees and original issue discounts associated with early extinguishment of our indebtedness when we repaid all our public debt and refinanced our credit facilites. 15. RELATED PARTY TRANSACTIONS We pay for a chartered helicopter used from time to time for business related travel. The owner of the chartered helicopter is a company controlled by Mr. Jeffrey Steiner. Cost for such flights that are charged to us are comparable to those charged in arm's length transactions between unaffiliated third parties'. We have extended loans to purchase our Class A common stock to certain members of our senior management and Board of Directors, for the purpose of encouraging ownership of our stock, and to provide additional incentive to promote our success. The loans are non-interest bearing, have maturity dates ranging from 21/2to 41/2years, and become due and payable immediately upon the termination of employment for senior management, or director affiliation with us for a director. As of June 30, 2000, the indebtedness owed to us from Mr. Cohen, Mr. Flynn, Mr. Juris, Mr. Persavich, Mr. Sharpe, and Mr. J. Steiner, was approximately $175 each. On June 30, 2000, Ms. Hercot, Mr. Kelley, Mr. Miller and Mr. E. Steiner owed us approximately $167, $50, $220 and $220, respectively. On June 30, 2000, approximately $106 of indebtedness was owed to us by each of Mr. Caplin, Mr. David, Mr. Harris, Mr. Lebard, and Mr. Richey. As of June 30, 2000, each of the individual amounts due to us represented the largest aggregate balance of indebtedness outstanding under the officer and director stock purchase program. We recognized compensation expense of $443 in 2000 as a result of favorable terms granted to the recipients of the loans. On November 16, 1999, Mr. Richey borrowed $46 from us to exercise stock options and hold our Class A common stock. The loan matures on November 16, 2001 and bears interest at 5.5%. On June 30, 2000, Mr. J. Stenier has non-interest bearing indebtedness owed to us of $200. He has authorized us to deduct this amount from his fiscal 2001compensation. In 1998, we made loans in the aggregate amount of $300 to Mr. Sharpe in order to assist him in relocating from California to Virginia. On October 1, 1998, $95 of the first loan for $100 was repaid. The second loan, for $200, bears interest at 5.5% per annum and matures on June 30, 2001. At June 30, 2000, a balance of approximately $214 was outstanding. 16. LEASES Operating Leases We hold certain of our facilities and equipment under long-term leases. The minimum rental commitments under non-cancelable operating leases with lease terms in excess of one year, for each of the five years following June 30, 2000, are as follows: $4,429 for 2001, $3,809 for 2002, $3,077 for 2003, $2,129 for 2004, and $1,835 for 2005. Rental expense on operating leases from continuing operations for fiscal 2000, 1999 and 1998 was $11,280, $9,485 and $8,610, respectively. Capital Leases Minimum commitments under capital leases for each of the five years following June 30, 2000, are $909 for 2001, $704 for 2002, $478 for 2003, $275 for 2004, and $38 for 2005, respectively. At June 30, 2000, the present value of capital lease obligations was $2,146. At June 30, 2000, capital assets leased and included in property, plant, and equipment consisted of: Land $ 79 Buildings and improvements 2,143 Machinery and equipment 2,886 Furniture and fixtures 31 Less: Accumulated depreciation (1,610) -------------- $ 3,529 ==============
Leasing Operations In fiscal 1999, we began leasing retail space to tenants under operating leases at completed sections of a shopping center we are developing in Farmingdale, New York. Rental revenue is recognized as lease payments are due from tenants and the related costs are amortized over their estimated useful life. The future minimum lease payments to be received from noncancellable operating leases on June 30, 2000 were $5,356 in 2001, $5,439 in 2002, $5,444 in 2003, $5,463 in 2004, $5,571 in 2005, and $49,735 thereafter. Rental property under operating leases consists of the following as of June 30, 2000: Land and improvements $36,228 Buildings and improvements 42,054 Tenant improvements 4,815 Construction in progress 12,643 Less: Accumulated depreciation (994) -------------- $94,746 ==============
17. CONTINGENCIES Government Claims The Corporate Administrative Contracting Officer, based upon the advice of the United States Defense Contract Audit Agency, alleged that a former subsidiary of ours did not comply with Federal Acquisition Regulations and Cost Accounting Standards in accounting for (i) the 1985 reversion of certain assets of terminated defined benefit pension plans, and (ii) pension costs upon the closing of segments of our former subsidiary's business. In January 2000, we paid the government $1.1 million to settle these pension accounting issues. Environmental Matters Our operations are subject to stringent government imposed environmental laws and regulations concerning, among other things, the discharge of materials into the environment and the generation, handling, storage, transportation and disposal of waste and hazardous materials. To date, such laws and regulations have not had a material effect on our financial condition, results of operations, or net cash flows, although we have expended, and can be expected to expend in the future, significant amounts for the investigation of environmental conditions and installation of environmental control facilities, remediation of environmental conditions and other similar matters, particularly in our aerospace fasteners segment. In connection with our plans to dispose of certain real estate, we must investigate environmental conditions and we may be required to take certain corrective action prior or pursuant to any such disposition. In addition, we have identified several areas of potential contamination related to other facilities owned, or previously owned, by us, that may require us either to take corrective action or to contribute to a clean-up. We are also a defendant in certain lawsuits and proceedings seeking to require us to pay for investigation or remediation of environmental matters and we have been alleged to be a potentially responsible party at various "superfund" sites. We believe that we have recorded adequate reserves in our financial statements to complete such investigation and take any necessary corrective actions or make any necessary contributions. No amounts have been recorded as due from third parties, including insurers, or set off against, any environmental liability, unless such parties are contractually obligated to contribute and are not disputing such liability. As of June 30, 2000, the consolidated total of our recorded liabilities for environmental matters was approximately $13.4 million, which represented the estimated probable exposure for these matters. It is reasonably possible that our total exposure for these matters could be approximately $19.9 million. Other Matters On January 12, 1999, AlliedSignal asserted indemnification claims against us for $18.9 million, arising from the disposition of Banner Aerospace's hardware business to AlliedSignal. AlliedSignal, now Honeywell International, has since added additional claims totaling $19.9 million. We believe that the amount of the claims is far in excess of any amount that AlliedSignal is entitled to recover from us. We are involved in various other claims and lawsuits incidental to our business. We, either on our own or through our insurance carriers, are contesting these matters. In the opinion of management, the ultimate resolution of the legal proceedings, including those mentioned above, will not have a material adverse effect on our financial condition, future results of operations or net cash flows. 18. BUSINESS SEGMENT INFORMATION In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS 131 supersedes Statement of Financial Accounting Standards No. 14 "Financial Reporting for Segments of a Business Enterprise" and requires that a public company report certain information about its reportable operating segments in annual and interim financial reports. Generally, financial information is required to be reported on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. We adopted SFAS 131 in fiscal 1999. We report in two principal business segments. The aerospace fasteners segment includes the manufacture of high performance specialty fasteners and fastening systems. The aerospace distribution segment distributes a wide range of aircraft parts and related support services to the aerospace industry. The Corporate and Other segment includes the Gas Springs division prior to its disposition and corporate activities. Our financial data by business segment is as follows: 2000 1999 1998 ---------------- ---------------- ----------------- Sales: Aerospace Fasteners $ 533,620 $ 442,722 $ 387,236 Aerospace Distribution 101,002 168,336 358,431 Corporate and Other 739 6,264 5,760 Eliminations (a) - - (10,251) ---------------- ---------------- ----------------- Total Sales $ 635,361 $ 617,322 $ 741,176 ================ ================ ================= Operating Income (Loss): Aerospace Fasteners $ 33,909 $ 38,956 $ 32,722 Aerospace Distribution 7,758 (40,003) 20,330 Corporate and Other (18,424) (44,864) (7,609) ---------------- ---------------- ----------------- Operating Income (Loss) (b) $ 23,243 $ (45,911) $ 45,443 ================ ================ ================= Capital Expenditures: Aerospace Fasteners $ 26,367 $ 27,414 $ 31,221 Aerospace Distribution 630 1,951 3,812 Corporate and Other 342 777 996 ---------------- ---------------- ----------------- Total Capital Expenditures $ 27,339 $ 30,142 $ 36,029 ================ ================ ================= Depreciation and Amortization: Aerospace Fasteners $ 38,025 $ 22,459 $ 16,260 Aerospace Distribution 976 1,871 3,412 Corporate and Other 2,820 1,327 1,201 ---------------- ---------------- ----------------- Total Depreciation and Amortization $ 41,821 $ 25,657 $ 20,873 ================ ================ ================= Identifiable Assets at June 30: Aerospace Fasteners $ 632,152 $ 655,714 $ 427,927 Aerospace Distribution 90,918 291,281 452,397 Corporate and Other 544,350 381,791 276,935 ---------------- ---------------- ----------------- Total Identifiable Assets $ 1,267,420 $ 1,328,786 $ 1,157,259 ================ ================ ================= (a) - Represents inter-segment sales from our aerospace fasteners segment to our aerospace distribution segment. (b) - Fiscal 2000 results include restructuring charges of $8,578 in the aerospace fasteners segment. Fiscal 1999 results include inventory impairment charges of $41,465 in the aerospace distribution segment, costs relating to acquisitions of $23,604 and restructuring charges of $5,526 in the aerospace fasteners segment, $348 in the aerospace distribution segment, and $500 at corporate.
19. FOREIGN OPERATIONS AND EXPORT SALES Our operations are located primarily in the United States and Europe. Inter-area sales are not significant to the total sales of any geographic area. Sales by geographic area are attributed by country of domicile of our subsidiaries. Our financial data by geographic area is as follows: 2000 1999 1998 ---------------- ---------------- --------------- Sales by Geographic Area: United States $ 470,984 $ 440,447 $ 613,325 Europe 160,954 176,315 127,851 Australia 2,762 417 - Other 661 143 - ---------------- ---------------- --------------- Total Sales $ 635,361 $ 617,322 $ 741,176 ================ ================ =============== Operating Income (Loss) by Geographic Area: United States $(1,440) $(66,245) $ 28,575 Europe 24,382 19,989 16,868 Australia 380 331 - Other (79) 14 - ---------------- ---------------- --------------- Total Operating Income (Loss) $23,243 $(45,911) $ 45,443 ================ ================ =============== Identifiable Assets by Geographic Area at June 30: United States $1,013,100 $1,011,993 $ 903,054 Europe 244,106 306,156 254,205 Australia 9,399 10,176 - Other 815 461 - ---------------- ---------------- --------------- Total Identifiable Assets $1,267,420 $1,328,786 $1,157,259 ================ ================ =============== Long-lived Assets by Geographic Area at June 30: United States $ 343,151 $353,006 $476,911 Germany 10,345 10,424 8,870 France 32,749 36,987 30,787 Australia 2,016 2,695 - Other 1,839 2,635 1,458 ---------------- ---------------- --------------- Total Long-lived Assets $390,101 $405,747 $518,026 ================ ================ ===============
Export sales are defined as sales by our domestic operations to customers in foreign regions. Export sales were as follows: 2000 1999 1998 ---------------- ---------------- --------------- Export Sales Europe $ 42,831 $ 42,891 $ 68,515 Canada 16,621 12,460 16,426 Japan 8,568 14,147 12,056 Asia (excluding Japan) 3,031 6,337 19,744 South America 1,146 3,556 11,038 Other 4,947 14,694 10,340 ---------------- ---------------- --------------- Total Export Sales $ 77,144 $ 94,085 $ 138,119 ================ ================ ===============
20. QUARTERLY FINANCIAL DATA (UNAUDITED) The following table of quarterly financial data has been prepared from our financial records, without audit, and reflects all adjustments which are, in the opinion of our management, necessary for a fair presentation of the results of operations for the interim periods presented. Fiscal 2000 quarters ended Oct. 3 Jan. 2 April 2 June 30 ------------------------------------------------------------ Net sales $164,509 $152,244 $158,029 $160,579 Gross profit 43,147 37,872 40,502 41,817 Earnings (loss) from continuing operations 18,110 (7,080) 2,622 8,112 per basic share 0.73 (0.28) 0.10 0.32 per diluted share 0.72 (0.28) 0.10 0.32 Loss from disposal of discontinued operations, net - - - (12,006) Per basic share - - - (0.48) Per diluted share - - - (0.48) Net earnings (loss) 18,110 (7,080) 2,622 (3,894) Per basic share 0.73 (0.28) 0.10 (0.16) per diluted share 0.72 (0.28) 0.10 (0.16) Market price range of Class A Stock: High 12 15/16 10 3/16 9 7/16 8 Low 8 3/8 6 13/16 4 1/2 4 1/8 Close 9 3/4 9 1/16 6 13/16 4 7/8
Fiscal 1999 quarters ended Sept. 27 Dec. 27 March 28 June 30 ------------------------------------------------------------ Net sales $148,539 $151,181 $146,352 $171,250 Gross profit 34,672 18,062 36,890 22,805 Earnings (loss) from continuing operations 1,190 (8,827) 20,383 (36,253) per basic share 0.05 (0.40) 0.93 (1.46) per diluted share 0.05 (0.40) 0.92 (1.46) Loss from disposal of discontinued operations, net - (9,180) (19,694) (2,475) per basic share - (0.42) (0.90) (0.10) per diluted share - (0.42) (0.89) (0.10) Extraordinary items, net - - - (4,153) Per basic share - - - (0.17) Per diluted share - - - (0.17) Net earnings (loss) 1,190 (18,007) 689 (42,881) per basic share 0.05 (0.82) 0.03 (1.73) per diluted share 0.05 (0.82) 0.03 (1.73) Market price range of Class A Stock: High 23 7/8 16 1/4 16 3/16 15 Low 12 3/8 10 3/8 10 1/2 10 Close 13 5/8 13 7/8 10 11/16 12 3/4
Gross profit was reduced for inventory impairment adjustments of $19,320 and $22,145 in the second and fourth quarter of fiscal 1999, respectively, relating to the disposition of Solair and Dallas Aerospace. Loss on disposal of discontinued operations includes losses of $12,006 in the fourth quarter of fiscal 2000, and $9,180, $19,694, and $2,475 in the second, third and fourth quarters of fiscal 1999, respectively, resulting from the estimated loss on disposal of Fairchild Technologies. Earnings from discontinued operations, net, includes the results of Fairchild Technologies (until disposition) in each quarter. Extraordinary items relate to the early extinguishment of our debt. 21. CONSOLIDATING FINANCIAL STATEMENTS (UNAUDITED) The following unaudited consolidating financial statements separately show The Fairchild Corporation and the subsidiaries of The Fairchild Corporation. These financial statements are provided to fulfill public reporting requirements and separately present guarantors of the 10 3/4% senior subordinated notes due 2009 issued by The Fairchild Corporation (the "Parent Company"). The guarantors are primarily composed of our domestic subsidiaries, excluding Fairchild Technologies, the equity investment in Nacanco, a real estate development venture, and certain other subsidiaries.
CONSOLIDATING STATEMENT OF EARNINGS FOR THE YEAR ENDED JUNE 30, 2000 Parent Non Fairchild Company Guarantors Guarantors Eliminations Historical ------------- -------------- ------------- -------------- ------------- Net Sales $ - $ 470,595 $ 166,558 $ (1,792) $ 635,361 Costs and expenses: Cost of sales - 355,643 118,172 (1,792) 472,023 Selling, general & administrative 6,175 91,305 21,463 - 118,943 Restructuring - 8,578 - - 8,578 Amortization of goodwill 808 10,745 1,021 - 12,574 ------------- -------------- ------------- -------------- ------------- 6,983 466,271 140,656 (1,792) 612,118 ------------- -------------- ------------- -------------- ------------- Operating income (loss) (6,983) 4,324 25,902 - 23,243 Net interest expense 42,347 (7,512) 9,257 - 44,092 Investment income, net (6) (9,929) - - (9,935) Intercompany dividends - - - - - Nonrecurring income on disposition of subsidiary - - (28,625) - (28,625) ------------- -------------- ------------- -------------- ------------- Earnings (loss) before taxes (49,324) 21,765 45,270 - 17,711 Income tax (provision) benefit 6,343 (238) (1,706) - 4,399 Equity in earnings of affiliates and subsidiaries 52,739 - - (53,086) (347) Earnings (loss) from continuing operations 9,758 21,527 43,564 (53,086) 21,763 Earnings (loss) from disposal of discontinued operations - - (12,005) - (12,005) ------------- -------------- ------------- -------------- ------------- Net earnings (loss) $ 9,758 $ 21,527 $ 31,559 $ (53,086) $ 9,758 ============= ============== ============= ============== =============
CONSOLIDATING BALANCE SHEET JUNE 30, 2000 Parent Non Fairchild Company Guarantors Guarantors Eliminations Historical ------------- -------------- ------------- -------------- ------------- Cash $ 35 $ 23,063 $ 12,692 $ - $ 35,790 Short-term investments 71 8,983 - - 9,054 Accounts Receivable (including intercompany), less Allowances 2,079 82,054 43,097 - 127,230 Inventory, net - 130,634 49,225 - 179,859 Prepaid and other current assets 141 67,624 6,466 - 74,231 ------------- -------------- ------------- -------------- ------------- Total current assets 2,326 312,358 111,480 - 426,164 Investment in Subsidiaries 869,958 - - (869,958) - Net fixed assets 493 131,029 42,615 - 174,137 Net assets held for sale - 20,112 - - 20,112 Investments and advances in affiliates 945 2,293 - - 3,238 Goodwill 16,528 385,156 34,758 - 436,442 Deferred loan costs 13,284 24 1,406 - 14,714 Prepaid pension assets - 64,418 - - 64,418 Real estate investment - - 112,572 - 112,572 Long-term investments 355 9,729 - - 10,084 Other assets 17,592 (13,418) 1,365 - 5,539 ------------- -------------- ------------- -------------- ------------- Total assets $921,481 $ 911,701 $ 304,196 $(869,958) $1,267,420 ============= ============== ============= ============== ============= Bank notes payable & current maturities of debt $ 2,250 $ 2,194 $ 24,150 $ - $ 28,594 Accounts payable (including intercompany) 2,954 46,105 13,435 - 62,494 Other accrued expenses (42,778) 129,106 36,113 - 122,441 Net current liabilities of discontinued operations - - - - - ------------- -------------- ------------- -------------- ------------- Total current liabilities (37,574) 177,405 73,698 - 213,529 Long-term debt, less current maturities 410,691 8,242 34,786 - 453,719 Other long-term liabilities 405 19,839 6,474 - 26,718 Noncurrent income taxes 145,847 (17,525) 193 - 128,515 Retiree health care liabilities - 38,196 4,607 - 42,803 Minority interest in subsidiaries - - 23 - 23 ------------- -------------- ------------- -------------- ------------- Total liabilities 519,369 226,157 119,781 - 865,307 Class A common stock 3,008 - 2,090 (2,090) 3,008 Class B common stock 262 - - - 262 Notes due from stockholders (520) (1,347) - - (1,867) Paid-in-capital 5,158 226,032 249,301 (249,301) 231,190 Retained earnings 469,270 469,183 (58,098) (618,567) 261,788 Cumulative other comprehensive income (46) (7,838) (8,878) - (16,762) Treasury stock, at cost (75,020) (486) - - (75,506) ------------- -------------- ------------- -------------- ------------- Total stockholders' equity 402,112 685,544 184,415 (869,958) 402,113 ------------- -------------- ------------- -------------- ------------- Total liabilities & stockholders' equity $921,481 $ 911,701 $ 304,196 $(869,958) $1,267,420 ============= ============== ============= ============== =============
CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2000 Parent Non Fairchild Company Guarantors Guarantors Eliminations Historical ------------- ------------- -------------- -------------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss) $ 9,758 $ 21,527 $ 31,559 $ (53,086) $ 9,758 Depreciation and amortization 931 32,350 8,540 - 41,821 Accretion of discount on long-term liabilities - (73) 139 - 66 Deferred loan fee amortization 1,075 2 123 - 1,200 (Gain) loss on sale of property, plant and equipment - (2,207) 243 - (1,964) Gain on sale of investments - (9,206) - - (9,206) Undistributed loss (earnings) of affiliates, net - 372 - - 372 (Gain) on sale of affiliate investments and divestiture of subsidiary - - (28,625) - (28,625) Change in assets and liabilities 58,562 (124,976) (53,815) 53,086 (67,143) Non-cash charges and working capital changes of discontinued operations - - (13,351) - (13,351) ------------- ------------- -------------- -------------- ------------ Net cash (used for) provided by operating activities 70,326 (82,211) (55,187) - (67,072) ------------- ------------- -------------- -------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Net proceeds received from investments - 14,655 - - 14,655 Purchase of property, plant and equipment (5) (19,321) (8,013) - (27,339) Proceeds from sale of property, plant and equipment - 12,693 - - 12,693 Net proceeds from divestiture of subsidiaries - 57,000 51,792 - 108,792 Net proceeds from sale of affiliate investments - - - - - Proceeds from net assets held for sale - 4,672 - - 4,672 Real estate investment - - (27,712) - (27,712) Equity investment in affiliates - (2,489) - - (2,489) Investing activities of discontinued operations - - 7,100 - 7,100 ------------- ------------- -------------- -------------- ------------ Net cash provided by investing activities (5) 67,210 23,167 - 90,372 ------------- ------------- -------------- -------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of debt 52,200 111,569 43,105 - 206,874 Debt repayments (122,359) (113,465) (10,436) - (246,260) Loans to Stockholders (520) (1,347) - - (1,867) Issuance of Class A common stock 366 - - - 366 Purchase of treasury stock - (486) - - (486) ------------- ------------- -------------- -------------- ------------ Net cash (used for) financing activities (70,313) (3,729) 32,669 - (41,373) ------------- ------------- -------------- -------------- ------------ Effect of exchange rate changes on cash - - (997) - (997) ------------- ------------- -------------- -------------- ------------ Net change in cash and cash equivalents 8 (18,730) (348) - (19,070) ------------- ------------- -------------- -------------- ------------ Cash and cash equivalents, beginning of the year 27 41,793 13,040 - 54,860 ------------- ------------- -------------- -------------- ------------ Cash and cash equivalents, end of the period $ 35 $ 23,063 $ 12,692 $ - $ 35,790 ------------- ------------- -------------- -------------- ------------
CONSOLIDATING STATEMENT OF EARNINGS FOR THE YEAR ENDED JUNE 30, 1999 Parent Non Fairchild Company Guarantors Guarantors Eliminations Historical ---------- ----------- ----------- ------------- ---------- Net Sales $ - $ 448,495 $ 169,720 $ (893) $ 617,322 Costs and expenses Cost of sales - 381,912 123,874 (893) 504,893 Selling, general & administrative 8,114 113,167 24,168 - 145,449 Restructuring - 6,374 - - 6,374 Amortization of goodwill 248 5,228 1,041 - 6,517 ---------- ------------- ----------- ------------- ---------- 8,362 506,681 149,083 (893) 663,233 ---------- ------------- ----------- ------------- ---------- Operating income (loss) (8,362) (58,186) 20,637 - (45,911) Net interest expense 27,130 (4,283) 7,499 - 30,346 Investment (income) loss, net - (39,800) - - (39,800) ---------- ------------- ----------- ------------- ---------- Earnings (loss) before taxes (35,492) (14,103) 13,138 - (36,457) Income tax (provision) benefit 21,481 (6,936) (1,300) - 13,245 Equity in earnings of Affiliates and subsidiaries (44,998) (516) 1,344 45,965 1,795 Minority interest - (2,090) - - (2,090) ---------- ------------- ----------- ------------- ----------- Earnings (loss) from continuing Operations (59,009) (23,645) 13,182 45,965 (23,507) Earnings (loss) from disposal of Discontinued operations - - (31,349) - (31,349) Extraordinary items - (4,153) - - (4,153) ---------- ------------- ----------- ------------- ----------- Net earnings (loss) $ (59,009) $ (27,798) $ (18,167) $ 45,965 $ (59,009) =========== ============= ============ ============= ===========
CONSOLIDATING BALANCE SHEET JUNE 30, 1999 Parent Non Fairchild Company Guarantors Guarantors Eliminations Historical ------------- --------------- --------------- ----------------- -------------- Cash $ 27 $ 41,793 $ 13,040 $ - $ 54,860 Short-term investments 71 13,023 - - 13,094 Accounts Receivable (including intercompany), less allowances 549 52,929 76,643 - 130,121 Inventory, net (182) 145,080 45,341 - 190,239 Prepaid and other current assets 1,297 69,000 3,629 - 73,926 ------------- --------------- --------------- ----------------- -------------- Total current assets 1,762 321,825 138,653 - 462,240 Investment in Subsidiaries 841,744 - - (841,744) - Net fixed assets 611 137,852 45,602 - 184,065 Net assets held for sale - 21,245 - - 21,245 Investments in affiliates 1,300 13,135 17,356 - 31,791 Goodwill 5,533 402,595 39,594 - 447,722 Deferred loan costs 13,029 26 22 - 13,077 Prepaid pension assets - 63,958 - - 63,958 Real estate investment - - 83,791 - 83,791 Long-term investments - 15,844 - - 15,844 Other assets 16,244 (11,865) 674 - 5,053 ------------- --------------- --------------- ----------------- -------------- Total assets $ 880,223 $ 964,615 $ 325,692 $ (841,744) $ 1,328,786 ============= =============== =============== ================= ============== Bank notes payable & current maturities of debt $ 2,250 $ 2,548 $ 24,062 $ - $ 28,860 Accounts payable (including intercompany) 972 12,824 58,475 - 72,271 Other accrued expenses 7,272 99,669 14,195 - 121,136 Net current liabilities of discontinued operations - - 10,999 - 10,999 ------------- --------------- --------------- ----------------- -------------- Total current liabilities 10,494 115,041 107,731 - 233,266 Long-term debt, less current maturities 480,850 9,908 4,525 - 495,283 Other long-term liabilities 405 18,138 7,361 - 25,904 Noncurrent income taxes (19,026) 140,749 238 - 121,961 Retiree health care liabilities - 40,189 4,624 - 44,813 Minority interest in subsidiaries - 9 50 - 59 ------------- --------------- --------------- ----------------- -------------- Total liabilities 472,723 324,034 124,529 - 921,286 Class A common stock 2,775 200 5,085 (5,085) 2,975 Class B common stock 262 - - - 262 Paid-in-capital 2,138 226,900 263,058 (263,058) 229,038 Retained earnings (deficit) 477,191 413,483 (65,043) (573,601) 252,030 Cumulative other comprehensive income (764) (2) (1,937) - (2,703) Treasury stock, at cost (74,102) - - - (74,102) ------------- --------------- --------------- ----------------- -------------- Total stockholders' equity 407,500 640,581 201,163 (841,744) 407,500 ------------- --------------- --------------- ----------------- -------------- Total liabilities & stockholders' equity $ 880,223 $ 964,615 $ 325,692 $ (841,744) $ 1,328,786 ============= =============== =============== ================= ==============
CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 1999 Parent Non Fairchild Company Guarantors Guarantors Eliminations Historical ------------ ------------ ------------ ------------ ----------- Cash Flows from Operating Activities: Net earnings (loss) $ (59,009) $ (27,798) $ (18,167) $ 45,965 $ (59,009) Depreciation & amortization 127 17,610 7,920 - 25,657 Amortization of deferred loan fees 1,100 - - - 1,100 Accretion of discount on long-term liabilities 5,270 - - - 5,270 Extraordinary items net of cash paid - 6,389 - - 6,389 Provision for restructuring - 3,774 - - 3,774 Loss on sale of PP&E - 307 93 - 400 Distributed earnings of affiliates - 1,460 1,973 - 3,433 Minority interest - 2,826 (736) - 2,090 Change in assets and liabilities 15,030 52,898 (3,058) (45,965) 18,905 Non-cash charges and working capital changes of discontinued operations - - 15,259 - 15,259 ------------ ------------ ------------ ----------- ----------- Net cash (used for) provided by operating activities (37,482) 57,466 3,284 - 23,268 ------------ ------------ ------------ ----------- ----------- Cash Flows from Investing Activities: Proceeds received from investment securities - 189,379 - - 189,379 Purchase of PP&E (61) (19,162) (10,919) - (30,142) Proceeds from sale of PP&E - 656 188 - 844 Equity investment in affiliates 630 (8,308) - - (7,678) Gross proceeds from divestiture of subsidiary - 60,396 - - 60,396 Acquisition of subsidiaries, net of cash acquired (221,467) (45,287) (7,673) - (274,427) Change in real estate investment - - (40,351) - (40,351) Change in net assets held for sale - 3,134 - - 3,134 Investing activities of discontinued operations - - (312) - (312) ------------ ------------ ------------ ----------- ----------- Net cash (used for) provided by investing activities (220,898) 180,808 (59,067) - (99,157) ------------ ------------ ------------ ----------- ----------- Cash Flows from Financing Activities: Proceeds from issuance of debt 483,100 (3,241) 3,363 - 483,222 Debt repayment (including intercompany), net (225,000) (213,187) 58,104 - (380,083) Issuance of Class A common stock 126 (126) - - - Proceeds from exercised stock options 181 - - - 181 Purchase of treasury stock - (22,102) - - (22,102) ------------ ------------ ------------ ----------- ----------- Net cash (used for) provided by financing activities 258,407 (238,656) 61,467 - 81,218 ------------ ------------ ------------ ----------- ----------- Exchange rate effect on cash - - (70) - (70) ------------ ------------ ------------ ----------- ----------- Net change in cash and cash equivalents 27 (382) 5,614 - 5,259 Cash, beginning of the year - 42,175 7,426 - 49,601 ------------ ------------ ------------ ----------- ----------- Cash, end of the year $ 27 $ 41,793 $ 13,040 $ - $ 54,860 ============ ============ ============ =========== ===========
CONSOLIDATING STATEMENTS OF EARNINGS FOR THE YEAR ENDED JUNE 30, 1998 Parent Non Fairchild Company Guarantors Guarantors Eliminations Historical ------- ---------- ---------- ------------ ----------- Net Sales $ - $ 613,324 $ 138,807 $ (10,955) $ 741,176 Costs and expenses Cost of sales - 464,942 100,683 (10,955) 554,670 Selling, general & administrative 3,516 112,447 19,631 - 135,594 Amortization of goodwill 147 4,247 1,075 - 5,469 ----------- ----------- ------------ ------------- ----------- 3,663 581,636 121,389 (10,955) 695,733 ----------- ----------- ------------ ------------- ----------- Operating income (loss) (3,663) 31,688 17,418 - 45,443 Net interest expense 24,048 14,094 4,573 - 42,715 Investment (income) loss, net (208) 3,570 - - 3,362 Nonrecurring income on disposition of subsidiary - (124,028) - - (124,028) ----------- ----------- ------------ ------------- ----------- Earnings (loss) before taxes (27,503) 138,052 12,845 - 123,394 Income tax (provision) benefit 10,580 (54,384) (3,470) - (47,274) Equity in earnings of affiliates and subsidiaries 118,013 140 3,044 (118,626) 2,571 Minority interest - (26,292) - - (26,292) ----------- ----------- ------------ ------------- ----------- Earnings (loss) from continuing operations 101,090 57,516 12,419 (118,626) 52,399 Earnings (loss) from discontinued operations - 2,348 (6,644) - (4,296) Earnings (loss) from disposal of discontinued operations - 95,018 (35,301) - 59,717 Extraordinary items - (6,730) - - (6,730) ----------- ----------- ------------ ------------- ----------- Net earnings (loss) $ 101,090 $ 148,152 $ (29,526) $ (118,626) $ 101,090 =========== =========== ============ ============= ===========
CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 1998 Parent Non Fairchild Company Guarantors Guarantors Eliminations Historical ----------- ----------- ----------- ------------- ---------- Cash Flows from Operating Activities: Net earnings (loss) $ 101,090 $ 148,152 $ (29,526) $ (118,626) $ 101,090 Depreciation & amortization 72 14,939 5,862 - 20,873 Amortization of deferred loan fees 2,406 - - - 2,406 Accretion of discount on long-term liabilities 3,766 - - - 3,766 Net gain on disposition of subsidiaries - (124,041) - - (124,041) Net gain on sale of discontinued operations - (132,787) - - (132,787) Extraordinary items net of cash paid - 10,347 - - 10,347 Loss on sale of PP&E - 147 99 - 246 Distributed earnings of affiliates - 547 1,178 - 1,725 Minority interest - 26,890 (598) - 26,292 Change in assets and liabilities (187,408) 64,276 (2,431) 118,626 (6,937) Non-cash charges and working capital changes of discontinued operations - - 11,789 - 11,789 ----------- ----------- ------------ ------------- ---------- Net cash (used for) provided by operating activities (80,074) 8,470 (13,627) - (85,231) ----------- ----------- ------------ ------------- ---------- Cash Flows from Investing Activities: Proceeds used for investment securities - (7,287) - - (7,287) Purchase of PP&E - (30,220) (5,809) - (36,029) Proceeds from sale of PP&E - 336 - - 336 Equity investment in affiliates (141) (4,202) - - (4,343) Minority interest in subsidiaries - (26,383) - - (26,383) Acquisition of subsidiaries, net of cash acquired - (25,445) (7,350) - (32,795) Net proceeds from sale of discontinued operations - 167,987 - - 167,987 Change in real estate investment - - (17,262) - (17,262) Change in net assets held for sale - 2,140 - - 2,140 Investing activities of discontinued operations - - (2,750) - (2,750) ----------- ----------- ------------ ------------- ---------- Net cash (used for) provided by investing activities (141) 76,926 (33,171) - 43,614 ----------- ----------- ------------ ------------- ---------- Cash Flows from Financing Activities: Proceeds from issuance of debt 225,000 50,523 - - 275,523 Debt repayment (including intercompany), net (198,867) (106,899) 47,752 - (258,014) Issuance of Class A common stock 53,848 193 - - 54,041 Financing activities of discontinued operations - - 2,538 - 2,538 ----------- ----------- ------------ ------------- ---------- Net cash provided by (used for) financing Activities 79,981 (56,183) 50,290 - 74,088 ----------- ----------- ------------ ------------- ---------- Exchange rate effect on cash - - (2,290) - (2,290) ----------- ----------- ------------ ------------- ---------- Net change in cash (234) 29,213 1,202 - 30,181 Cash, beginning of the year 234 12,962 6,224 - 19,420 ----------- ----------- ------------ ------------- ---------- Cash, end of the year $ - $ 42,175 $ 7,426 $ - $ 49,601 =========== =========== ============ ============= ==========
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, we have duly caused this report to be signed on our behalf by the undersigned, thereunto duly authorized. THE FAIRCHILD CORPORATION By: /s/ MICHAEL T. ALCOX -------------------- Michael T. Alcox Senior Vice President and Chief Financial Officer Date: May 7, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant, in their capacities and on the dates indicated. By: /s/ JEFFREY J. STEINER Chairman, Chief Executive May 7, 2001 ---------------------------------- Officer and Director Jeffrey J. Steiner By: /s/ MELVILLE R. BARLOW Director May 7, 2001 ---------------------------------- Melville R. Barlow By: /s/ MORTIMER M. CAPLIN Director May 7, 2001 ---------------------------------- Mortimer M. Caplin By: /s/ PHILIP DAVID Director May 7, 2001 ---------------------------------- Philip David By: /s/ ROBERT EDWARDS Director May 7, 2001 ---------------------------------- Robert Edwards By: /s/ STEVEN L. GERARD Director May 7, 2001 ----------------------------------- Steven L. Gerard By: /s/ HAROLD J. HARRIS Director May 7, 2001 ----------------------------------- Harold J. Harris By: /s/ DANIEL LEBARD Director May 7, 2001 ----------------------------------- Daniel Lebard By: /s/ HERBERT S. RICHEY Director May 7, 2001 ----------------------------------- Herbert S. Richey By: /s/ ERIC I. STEINER President, Chief Operating May 7, 2001 ----------------------------------- Officer and Director Eric I. Steiner