-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Dyxv5Nk8lGSlmJ4YuAmr6NHv3JmNGH1qlmBYbaoXCyK1PsdBMU0vxVA16CJb7A7S /b4OYI96M3C/59JZIN+rBA== 0000009779-96-000020.txt : 19960913 0000009779-96-000020.hdr.sgml : 19960913 ACCESSION NUMBER: 0000009779-96-000020 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960912 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAIRCHILD CORP CENTRAL INDEX KEY: 0000009779 STANDARD INDUSTRIAL CLASSIFICATION: BOLTS, NUTS, SCREWS, RIVETS & WASHERS [3452] IRS NUMBER: 340728587 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-06560 FILM NUMBER: 96629174 BUSINESS ADDRESS: STREET 1: 300 W SERVICE RD STREET 2: PO BOX 10803 CITY: CHANTILLY STATE: VA ZIP: 22021 BUSINESS PHONE: 7034785800 FORMER COMPANY: FORMER CONFORMED NAME: BANNER INDUSTRIES INC /DE/ DATE OF NAME CHANGE: 19901118 10-Q/A 1 THE FAIRCHILD CORPORATION FORM 10-Q/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 -------------------- FORM 10-Q/A -------------------- QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1995 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 incorporation or organization) Identification No.) Washington Dulles International Airport 300 West Service Road, P.O. Box 10803 Chantilly, Virginia 22021 ---------------------------------------- (Address of principal executive offices) (Zip Code) (703) 478-5800 ---------------------------------------------------- (Registrant's telephone number, including area code) 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 90 days. Yes X No ---- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at Class December 31, 1995 - ----- ----------------- Class A Common Stock, $.10 Par Value 13,478,262 Class B Common Stock, $.10 Par Value 2,696,886 ---------- 16,175,148 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES* INDEX PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements Condensed Consolidated Balance Sheets as of December 31, 1995 (Unaudited) and June 30, 1995 3 Consolidated Statements of Earnings for the Three and Six Months Ended December 31, 1995 and January 1, 1995 (Unaudited) 5 Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 1995 and January 1, 1995 (Unaudited) 6 Notes to Condensed Consolidated Financial Statements (Unaudited) 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings 23 Item 6. Exhibits and Reports on Form 8-K 23 *For purposes of Part I of this Form 10-Q, the term "Company" means The Fairchild Corporation, and its subsidiaries, unless otherwise indicated. For purposes of Part II, the term "Company" means The Fairchild Corporation unless otherwise indicated. PART 1. FINANCIAL INFORMATION Item 1. Financial Statements THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
December 31, June 30, ASSETS 1995 1995 - ------ ----------- ----------- (Unaudited) (*) Current Assets: Cash and cash equivalents, $5,925 and $5,968 restricted................................. $ 42,967 $ 71,182 Short-term investments....................... 6,052 4,116 Accounts receivable-trade, less allowances of $3,455 and $3,971....................... 70,241 65,446 Inventories: Finished goods............................ 40,917 38,783 Work-in-process........................... 17,604 19,950 Raw materials............................. 17,320 19,531 --------- --------- 75,841 78,264 Prepaid expenses and other current assets.... 22,057 16,751 Net current assets of discontinued operations 34,609 34,626 --------- --------- Total Current Assets......................... 251,767 270,385 Property, plant and equipment, net of accumulated depreciation of $98,970 and $89,374.................................... 129,269 132,940 Net assets held for sale..................... 52,239 51,573 Net noncurrent assets of discontinued operations................................. 85,577 88,209 Cost in excess of net assets acquired, (Goodwill) less accumulated amortization of $28,498 and $26,120......................... 152,184 154,295 Investments and advances, affiliated companies................................... 70,904 69,398 Prepaid pension assets....................... 59,191 59,567 Other assets................................. 25,975 23,927 --------- --------- Total Assets................................. $ 827,106 $ 850,294 ========= ========= *Condensed and restated for discontinued operations (see Note 3) from audited financial statements The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
December 31, June 30, LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1995 - ------------------------------------- ----------- ---------- (Unaudited) (*) Current Liabilities: Bank notes payable and current maturities of long-term debt........................... $ 100,288 $ 40,989 Accounts payable............................. 32,323 38,299 Other accrued liabilities.................... 75,816 78,503 --------- --------- Total Current Liabilities.................... 208,427 157,791 Long-term debt, less current maturities...... 448,642 509,715 Other long-term liabilities.................. 18,534 19,435 Retiree health care liabilities.............. 44,158 44,710 Noncurrent income taxes...................... 38,981 38,004 Minority interest in subsidiaries............ 24,181 24,117 Redeemable preferred stock of subsidiary..... 15,311 16,342 --------- --------- Total Liabilities............................ 798,234 810,114 Stockholders' Equity: Class A common stock, 10 cents par value; authorized 40,000,000 shares, 19,719,858 shares issued (19,647,705 in June) and 13,478,262 shares outstanding (13,406,109 in June)................................... 1,972 1,965 Class B common stock, 10 cents par value; authorized 20,000,000 shares, 2,696,886 shares issued and outstanding.............. 270 270 Paid-in capital.............................. 67,445 67,011 Retained earnings............................ 7,873 18,912 Cumulative translation adjustment............ 3,151 3,861 Net unrealized holding loss on available-for- sale securities............................ (120) (120) Treasury Stock, at cost, 6,241,596 shares of Class A Common Stock....................... (51,719) (51,719) --------- --------- Total Stockholders' Equity................... 28,872 40,180 --------- --------- Total Liabilities and Stockholders' Equity... $ 827,106 $ 850,294 ========= ========= *Condensed and restated for discontinued operations (see Note 3) from audited financial statements. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (In thousands, expect per share data)
Three Months Ended Six Months Ended December 31, January 1, December 31, January 1, 1995 1995 1995 1995 ------------ ---------- ------------ ---------- (*) (*) Revenue: Net sales of products................... $ 76,814 $ 61,441 $157,633 $119,963 Revenues from services.................. 26,636 20,408 53,743 40,791 Other income (expense), net............. (9) 700 136 612 ------- ------- ------- ------- 103,441 82,549 211,512 161,366 Costs and Expenses: Cost of goods sold...................... 61,175 53,268 125,572 99,112 Cost of services........................ 19,239 14,765 39,177 29,723 Selling, general & administrative....... 20,279 17,571 41,274 32,766 Research and development................ 23 288 44 584 Amortization of goodwill................ 1,168 1,139 2,378 2,260 Restructuring........................... 285 -- 285 -- ------- ------- ------- ------- 102,169 87,031 208,730 164,445 Operating income (loss)................... 1,272 (4,482) 2,782 (3,079) Interest expense.......................... 17,720 17,401 36,047 35,156 Interest income........................... (401) (906) (1,279) (2,041) ------- ------- ------- ------- Net interest expense...................... 17,319 16,495 34,768 33,115 Investment income (loss), net............. (83) 2,293 1,912 2,635 Equity in earnings (loss) of affiliates... (169) (428) 1,889 1,748 Minority interest......................... (544) (584) (1,085) (1,208) ------- ------- ------- ------- Loss from continuing operations before taxes................................... (16,843) (19,696) (29,270) (33,019) Income tax benefit........................ (7,827) (5,838) (10,968) (9,504) ------- ------- ------- ------- Loss from continuing operations........... (9,016) (13,858) (18,302) (23,515) Earnings from discontinued operations, net..................................... 3,420 3,193 7,290 6,190 Loss on disposal of discontinued operations, net......................... (7) (25) (27) (50) Extraordinary items, net.................. -- (23) -- (23) ------- ------- ------- ------- Net loss.................................. $ (5,603) $(10,713) $(11,039) $(17,398) ======= ======= ======= ======= Earnings Per Share Primary and Fully Diluted: Loss from continuing operations......... $ (.56) $ (.86) $ (1.13) $ (1.46) Earnings from discontinued operations, net................................... .21 .19 .45 .38 ------- ------- ------- ------- Net loss................................ $ (.35) $ (.67) $ (.68) $ (1.08) ======= ======= ======= ======= Weighted average number of shares used in computing earnings per share: Primary............................... 16,130 16,103 16,122 16,103 Fully diluted......................... 16,130 16,103 16,122 16,103 *Condensed and restated for discontinued operations. (See Note 3). The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Six Months Ended December 31, January 2, 1995 1994 ----------- ----------- (*) Cash flows provided by (used for) Operations: Net loss.................................. $(11,039) $(17,398) Depreciation and amortization............ 16,179 14,438 Accretion of discount on long-term liabilities............................ 2,132 1,942 Minority interest........................ 1,085 1,273 Undistributed earnings of affiliates..... (1,106) (1,175) Changes in assets and liabilities........ (23,845) (12,708) Non-cash charges and working capital changes of discontinued operations..... 3,524 6,998 ------- ------- Net cash used for operations............. (13,070) (6,630) Investments: Purchase of property, plant and equipment (6,873) (6,964) Acquisitions of subsidiaries, net of cash acquired............................... -- (12,061) Proceeds received from (used for) investment securities, net............. (897) 6,467 Other, net............................... (1,304) (1,384) Investing activities of discontinued operations............................. (875) (1,233) ------- ------- Net cash used for investments............ (9,949) (15,175) Financing: Proceeds from issuance of debt........... 17,119 2,893 Debt repayments and repurchase of debentures, net........................ (22,118) (14,301) Issuance of Class A common stock......... 328 -- ------- ------- Net cash used for financing.............. (4,671) (11,408) Effect of exchange rate changes on cash...... (525) (586) Net decrease in cash......................... (28,215) (33,799) Cash and cash equivalents, beginning of period..................................... 71,182 102,368 ------- ------- Cash and cash equivalents, end of period..... $ 42,967 $ 68,569 ======= ======= *Condensed and restated for discontinued operations. (See Note 3). The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 - Financial Statements The consolidated balance sheet as of December 31, 1995 and the consolidated statements of earnings and cash flows for the six months ended December 31, 1995 and January 1, 1995 have been prepared by the Company, without audit. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at December 31, 1995 and for all periods presented, have been made. All financial information has been restated for discontinued operations. The balance sheet at June 30, 1995 was condensed and restated from the audited financial statements as of that date. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's June 30, 1995 Form 10-K. The results of operations for the period ended December 31, 1995 are not necessarily indicative of the operating results for the full year. Certain amounts in prior years' quarterly financial statements have been reclassified to conform to the current presentation. Note 2 - Merger Agreement On November 9, 1995, the Company, RHI Holdings, Inc. ("RHI", the Company's wholly-owned subsidiary), and Fairchild Industries, Inc. ("FII", all of whose common stock is owned by RHI), entered into an Agreement and Plan of a Merger with Shared Technologies Inc. ("STI"), pursuant to which STI is to acquire FII's Fairchild Communications Services Company ("FCSC") telecommunications systems and services business. The acquisition is to be effected by a merger of FII into STI (the "Merger"), with STI being the surviving corporation. Prior to the Merger, FII is to undergo a restructuring pursuant to which FII will transfer all of its assets to, and cause all of its liabilities to be assumed by RHI, except for (i) the assets and liabilities of FCSC, (ii) the outstanding Series A and Series C Preferred Stock of FII (having a liquidation value of $41,817,000 at December 31, 1995), (iii) the $125,000,000 principal amount outstanding 12 1/4% Senior Notes due 1999 (the "Senior Notes") of FII, and (iv) an amount of bank and other indebtedness of approximately $56,683,000 (the "Assumed Indebtedness"). Pursuant to the Merger, the Series A and Series C Preferred Stock of FII will be cancelled and converted into the right to receive an amount of cash equal to their liquidation value ($45.00 per share plus accrued and unpaid dividends), and the Series B Preferred Stock of FII, all of which is owned by RHI will be cancelled. Prior to the Merger, FII will make a cash tender offer to purchase all of the outstanding Senior Notes and seek to obtain such noteholders' consent to amend the indenture under which the Senior Notes were issued to remove all covenants which can be amended or deleted by majority vote (see Note 5). The amount of the Assumed Indebtedness will be reduced, by (i) the extent the purchase price to be paid in such offering for the Senior Notes exceeds par, and (ii) the amount of accrued and unpaid dividends on the Series A and Series C Preferred Stock of FII on the date of the Merger. Upon the Merger, STI, as the surviving corporation, is required to (i) purchase all Senior Notes tendered (and assume FII's obligations with respect to any Senior Notes not so tendered), (ii) repay the Assumed Indebtedness in full, and (iii) deposit in escrow the funds necessary to redeem the Series A and Series C Preferred Stock. As a result of the Merger, RHI is to receive (i) 6,000,000 shares of Common Stock of STI (representing approximately 41% of the outstanding shares after giving effect to such issuance), (ii) shares of 6% Cumulative Convertible Preferred Stock of STI having an aggregate liquidation preference of $25,000,000 (subject to upward adjustment) and which are convertible into Common Stock of STI at a conversion price of $6.375 per share (which, if converted, would represent, together with the other Common Stock issued to RHI, approximately 41% of the Common Stock of STI on a fully diluted basis), and (iii) shares of a Special Preferred Stock having an initial liquidation preference of $20,000,000 (which could accrue up to a maximum of $30,000,000 over a ten-year period if not redeemed earlier). In connection with its stock ownership, the Company and RHI has the right to elect up to four of the eleven members of the Board of Directors of STI and have agreed, subject to certain exceptions, not to sell any of STI's shares, other than the Special Preferred Stock, for a two- year period. The closing of the Merger is subject to a number of conditions, including (i) the approval of the Merger by the shareholders of STI, and (ii) holders of at least 51% of the outstanding principal amount of the Senior Notes tendering their Senior Notes and consenting to the covenant changes described above. The Company and STI are scheduled to complete this transaction in Fiscal 1996. The Company expects a significant gain upon consummation of this transaction. Note 3 - Discontinued Operations During the Fiscal 1996 second quarter, the Company resolved to sell the D-M-E Company ("DME"), a mold equipment manufacturer, and the Fairchild Data Corporation ("Data"), a satellite communications company. On January 26, 1996, the Company completed the sale of certain assets, liabilities and the business of DME to Cincinnati Milacron Inc. ("Cincinnati Milacron") for approximately $245,000,000 in cash and notes, subject to audit adjustment. On January 27, 1996, the Company completed the sale of Data to SSE Telecom, Inc. ("SSE") for book value of approximately $5,250,000 and 100,000 shares of SSE's common stock valued at $9.0625 per share or $906,000 at January 26, 1996, and warrants to purchase an additional 50,000 shares of SSE's common stock at $11.09 per share. In addition, the Company has an opportunity to earn an additional 100,000 shares based on the future performance of SSE during the twelve months following the date of sale. The sale of DME will result in a significant gain to the Company in the third quarter ended March 31, 1996. Accordingly, DME and Data have been accounted for as discontinued operations and the prior periods' financial statements have been restated to reflect the discontinuance of these companies. The combined net sales of DME and Data totaled $45,475,000 and $44,080,000 for the second quarter of Fiscal 1996 and 1995, respectively, and $91,342,000 and $86,568,000 for the first six months of Fiscal 1996 and 1995, respectively. The combined net tax provision recorded on earnings from discontinued operations amounted to $2,673,000 and $2,471,000 for the second quarter of Fiscal 1996 and 1995, respectively, and $5,050,000 and $4,829,000 for the first six months of Fiscal 1996 and 1995, respectively. The components of net assets of discontinued operations on the consolidated balance sheet are as follows:
(In thousands) December 31, June 30, 1995 1995 ------------ -------- Accounts receivable................. $ 28,064 $ 28,161 Inventories......................... 26,732 26,645 Prepaid and other current assets.... 1,098 1,365 Accounts payable.................... (9,176) (9,801) Other current liabilities........... (12,109) (11,744) ------- ------- Net current assets of discontinued operations........................ $ 34,609 $ 34,626 ======= ======= Property plant and equipment, net of accumulated depreciation....... $ 36,175 $ 37,986 Goodwill, net of accumulated amortization...................... 54,846 55,664 Other assets........................ 4,202 4,602 Retiree health care liabilities..... (4,756) (4,764) Minority interest in subsidiaries.. (504) (416) Cumulative translation adjustment... (4,386) (4,863) ------- ------- Net noncurrent assets of discontinued operations........... $ 85,577 $ 88,209 ======= =======
Note 4 - Proposed Sale of Division During the second quarter ended December 31, 1995, the Company entered into preliminary discussions concerning the exchange of shares of common stock of a new subsidiary (Harco, Inc.), into which the Company would transfer substantially all assets of, and cause Harco, Inc. to assume all liabilities of the Company's Harco Division, for shares of common stock of Banner Aerospace, Inc. ("Banner"). The Company currently owns approximately 47% of Banner common shares, and if the exchange is consummated would become the majority shareholder of Banner. Harco is a distributor of precision fasteners to the aerospace industry. Note 5 - Tender Offer On December 22, 1995, FII commenced an offer (the "Tender Offer") to purchase for cash, upon terms and subject to conditions set forth in an Offer to Purchase and Consent Solicitations and related Letter of Transmittal (the "Offer to Purchase"), all $125,000,000 of its outstanding 12 1/4% Senior Secured Notes Due 1999 (the "Senior Notes"). The Tender Offer, as amended and restated, provides a purchase price per $1,000 principal amount of the Senior Notes of (i) $1,066.60 if the Tender Offer is consummated on or prior to February 28, 1996, or (ii) $1,063.90 if the Tender Offer is consummated between February 29, 1996 and March 31, 1996, or (iii) $1,057.50 if the Tender Offer is consummated after March 31, 1996, and in each case, accrued and unpaid interest up to, but not including, the payment date. Concurrently with the Tender Offer, FII solicited (the "Tender Offer Consent Solicitation") consents of the holders of the Senior Notes to (i) the adoption of the proposed amendments to the indenture pursuant to which the Senior Notes were issued (the "Indenture"), and (ii) the release of the collateral securing the FII's obligations under the Senior Notes and the Indenture, upon terms set forth in the Offer to Purchase. In addition, independent of the Tender Offer and the Tender Offer Consent Solicitation, the company also solicited consents to the waiver of any and all violations of the Indenture arising out of or relating to (i) the transfer by VSI Corporation ("VSI"), a wholly-owned subsidiary of FII, of the stock of Harco, Inc. to Banner (see Note 4), and (ii) the sale by VSI of DME to Cincinnati Milacron (see Note 3). FII will pay to holders of Senior Notes who validly tender Senior Notes pursuant to the Tender Offer and Consent Solicitations a consent fee of $25.00 per $1,000 principal amount of Senior Notes so tendered. The consent fee will be paid to holders of Senior Notes after, and subject to, the consummation of the Tender Offer. Additionally, FII will pay an early consent fee of $5.00 per $1,000 principal amount to holders of Senior Notes who on or prior to January 19, 1996, validly tender their notes, irrespective of whether the Tender Offer is consummated. The Tender Offer and the Tender Offer Consent Solicitations expire February 29, 1996. FII is to recognize an extraordinary loss, net of any related tax benefits, in the third quarter of Fiscal 1996, reflecting the contractual commitment to repurchase the Senior Notes at a premium and pay the consent fees. Note 6 - Acquisitions On September 9, 1994, the Company acquired all of the outstanding Common Stock of Scandinavian Bellyloading Company AB ("SBC"). SBC is the designer and manufacturer of patented cargo loading systems, which are installed in the cargo area of commercial aircraft. Several major airlines are expected to equip existing fleets with the SBC system over the next three to four years. The Company reports the results of SBC as part of its Industrial Products segment. On November 28, 1994, FCSC completed the acquisition of substantially all of the telecommunications assets of JWP Telecom, Inc. ("JWP") for approximately $11,000,000, plus the assumption of approximately $3,000,000 of liabilities. The Company recorded $5,595,000 in goodwill as a result of this acquisition. JWP is a telecommunications system integrator, specializing in the distribution, installation and maintenance of voice and data communications equipment. In the first quarter of Fiscal 1995, Fairchild Communications acquired all the shared telecommunications assets of Eaton & Lauth Co., Inc., for approximately $550,000. Approximately $300,000 of the acquisition price was recorded as goodwill. Proforma financial statements are not required for these acquisitions on an individual basis. Note 7 - Restructuring Charges During the second quarter ended December 31, 1995, the Company recorded $285,000 in restructuring charges relating to the closing of a small Aerospace Fasteners business located in Japan. Note 8 - Restricted Cash The Company had approximately $5,925,000 and $5,968,000 of restricted cash on December 31, 1995 and June 30, 1995, respectively, all of which is maintained as collateral for certain debt facilities. Note 9 - Summarized Statement of Earnings Information The following table presents summarized combined statement of earnings information of Banner and Nacanco Paketleme ("Nacanco"), the Company's principal investments, which are accounted for using the equity method.
Six Months Ended (In thousands) --------------------------- December 31, January 1, 1995 1995 ------------ ------------ Net sales................................. $189,684 $148,632 Gross profit.............................. 55,232 50,344 Earnings from continuing operations....... 7,228 7,168 Net earnings.............................. 7,228 7,168
The Company owns approximately 47.2% of Banner common stock, which is included in investments and advances-affiliated companies. The Company recorded equity earnings of $375,000 and $970,000 from this investment for the six months ended December 31, 1995 and January 1, 1995, respectively. At the close of trading on December 29, 1995, Banner stock was quoted at $5.75 per share. Based on this price the Company's equity investment in Banner had an approximate market value of $48,875,000 versus a carrying value of $51,453,000. The Company does not believe that this decline in market value is a permanent impairment. The Company owns approximately 31.9% of Nacanco common stock. The Company recorded equity earnings of $2,037,000 and $1,516,000 from this investment for the six months ended December 31, 1995 and January 1, 1995, respectively. In connection with the Company's December 23, 1993 sale of its interest in Rexnord Corporation to BTR Dunlop Holdings, Inc. ("BTR"), the Company has placed shares of Banner, with a fair market value of $5,000,000, in escrow to secure the Company's remaining indemnification of BTR against a contingent liability. Once the contingent liability is resolved, the escrow will be released. Note 10 - Minority Interests in Consolidated Subsidiaries The Company includes $23,804,000 of minority interest on its balance sheet at December 31, 1995 and June 30, 1995, which is represented by the Series C Preferred Stock of FII, a majority owned subsidiary. The Series C Preferred Stock has an annual dividend requirement of $4.25 per share through July 21, 1999 and $7.00 per share thereafter. There were 553,460, shares authorized, issued and outstanding at December 31, 1995 and June 30, 1995. Note 11 - Redeemable Preferred Stock of Subsidiary The Company has classified the outstanding shares of Series A Preferred Stock of FII as a long-term liability. The Series A Preferred Stock has a mandatory redemption value of $45.00 per share and an annual dividend requirement of $3.60 per share. During the six months ended December 31, 1995, the Company repurchased 22,900 shares of FII's Series A Preferred Stock. Effectively, there were 370,901 and 393,801 shares authorized, issued and outstanding at December 31, 1995 and June 30, 1995, respectively. Note 12 - Equity Securities The Company had 13,478,262 shares of Class A Common Stock and 2,696,886 shares of Class B Common Stock outstanding at December 31, 1995. During the first six months of Fiscal 1996, 72,153 shares of Class A Common Stock were issued as a result of stock options exercised. Class A Common Stock is traded on both the New York and Pacific Stock Exchanges while there is no public market for the Class B Common Stock. Shares of Class A Common Stock are entitled to one vote per share and cannot be exchanged for Class B Common Stock. Shares of Class B Common Stock are entitled to ten votes per share and can be exchanged, at any time, for shares of Class A Common Stock on a share for share basis. Note 13 - Stock Warrants On November 9, 1995, the Company issued warrants to purchase 500,000 shares of Class A Common Stock, at $9.00 per share, to Peregrine Direct Investments Limited ("Peregrine") in exchange for the standby commitment it received on November 8, 1995, from Peregrine to purchase (i) $75,000,000 principal amount of senior secured notes to be issued by a wholly-owned subsidiary of the Company, and (ii) warrants to purchase 5,000,000 shares of Class A Common Stock at $7.50 per share, if the Company elects to accept the Peregrine commitment. The warrants issued to Peregrine are immediately exercisable and will expire five years from the date of issuance. Note 14 - Earnings Per Share Primary and fully diluted earnings per share are computed by dividing net income available to common stockholders by the weighted average number of shares and share equivalents outstanding during the period. To compute the incremental shares resulting from stock options and warrants for primary earnings per share, the average market price of the Company's stock during the period is used. To compute the incremental shares resulting from stock options and warrants for fully diluted earnings per share, the greater of the ending market price or the average market price of the Company's stock is used. In computing primary and fully diluted earnings per share for the three and six months ended December 31, 1995 and January 1, 1995, the conversion of options and warrants was not assumed, as the effect was anti-dilutive. Note 15 - Commitments and Contingencies CL Motor Freight ("CL") Litigation - ---------------------------------- The Workers Compensation Bureau of the State of Ohio is seeking reimbursement from the Company for up to $5,400,000 for CL workers compensation claims which were insured under a self-insured program of CL. The Company has contested a significant portion of this claim. Government Claims - ----------------- The Corporate Administrative Contracting Officer (the "ACO"), based upon the advice of the United States Defense Contract Audit Agency, has made a determination that FII did not comply with Federal Acquisition Regulations and Cost Accounting Standards in accounting for (i) the 1985 reversion to FII of certain assets of terminated defined benefit pension plans, and (ii) pension costs upon the closing of segments of FII's business. The ACO has directed FII to prepare cost impact proposals relating to such plan terminations and segment closings and, following receipt of such cost impact proposals, may seek adjustments to contract prices. The ACO alleges that substantial amounts will be due if such adjustments are made. The Company believes it has properly accounted for the asset reversions in accordance with applicable accounting standards. The Company has held discussions with the government to attempt to resolve these pension accounting issues. Environmental Matters - --------------------- The Company and other aerospace fastener and industrial product manufacturers are subject to stringent Federal, state and local 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 the financial condition, results of operations, or net cash flows of the Company, although the Company has expended, and can be expected to expend in the future, significant amounts for investigation of environmental conditions and installation of environmental control facilities, remediation of environmental conditions and other similar matters, particularly in the Aerospace Fasteners segment. In connection with its plans to dispose of certain real estate, the Company must investigate environmental conditions and may be required to take certain corrective action prior or pursuant to any such disposition. In addition, management has identified several areas of potential contamination at or from other facilities owned, or previously owned, by the Company, that may require the Company either to take corrective action or to contribute to a clean-up. The Company is also a defendant in certain lawsuits and proceedings seeking to require the Company to pay for investigation or remediation of environmental matters and has been alleged to be a potentially responsible party at various "Superfund" sites. Management of the Company believes that it has recorded adequate reserves in its 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 liability of the Company, unless such parties are contractually obligated to contribute and are not disputing such liability. As of December 31, 1995, the consolidated total recorded liabilities of the Company for environmental matters totalled $12,354,000. As of December 31, 1995, the estimated probable exposures for these matters was $12,185,000. It is reasonably possible that the Company's total exposure for these matters could be approximately $21,137,000. Other Matters - ------------- The Company is involved in various other claims and lawsuits incidental to its business, some of which involve substantial amounts. The Company, either on its own or through its insurance carriers, is contesting these matters. In the opinion of management, the ultimate resolution of the legal proceedings, including those discussed above, will not have a material adverse effect on the financial condition, or future results of operations or net cash flows of the Company. Note 16 - Subsequent Events As of January 31, 1996, holders of approximately 93.6% of the aggregate principal amount of Senior Notes have tendered their Senior Notes pursuant to the Tender Offer, and have consented pursuant to the terms of the Tender Offer Consent Solicitation. (See Note 5). In connection with the sale of DME and Data, (see Note 3), the Company negotiated an amendment to its bank credit agreement, effective January 22, 1996. Among other things, the amendment permits the sale of DME and Data and amends certain financial covenants accordingly. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF - ------------------------------------------------- RESULTS OF OPERATIONS AND FINANCIAL CONDITION --------------------------------------------- The Fairchild Corporation (the "Company") was incorporated in October, 1969, under the laws of the State of Delaware. On November, 15, 1990, the Company changed its name from Banner Industries, Inc. to The Fairchild Corporation. RHI Holdings, Inc. ("RHI") is a direct subsidiary of the Company. RHI is the majority owner of Fairchild Industries, Inc. ("FII") which, in turn, is the 100% owner of VSI Corporation ("VSI"). The Company's operations are conducted through VSI and RHI. The Company also holds significant equity interests in Banner Aerospace, Inc. and Nacanco Paketleme ("Nacanco"). RECENT DEVELOPMENTS During the Fiscal 1996 second quarter, the Company resolved to sell the D-M-E Company ("DME"), a mold equipment manufacturer, and the Fairchild Data Corporation ("Data"), a satellite communications company. On January 26, 1996, the Company completed the sale of certain assets, liabilities and the business of DME to Cincinnati Milacron Inc. ("Cincinnati Milacron") for approximately $245.0 million in cash and notes, subject to audit adjustment. On January 27, 1996, the Company completed the sale of Data to SSE Telecom, Inc. ("SSE") for book value of approximately $5.3 million and 100,000 shares of SSE's common stock valued at $9.0625 per share or $.9 million on January 26, 1996, and warrants to purchase an additional 50,000 shares of SSE's common stock at $11.09 per share. In addition, the Company has an opportunity to earn an additional 100,000 shares based on the future performance of SSE during the twelve months following the date of sale. The sale of DME will result in a significant gain to the Company in the third quarter ended March 31, 1996. DME and Data have been accounted for as discontinued operations and the prior periods' financial statements have been restated to reflect the discontinuance of these companies. The combined net sales of DME and Data totaled $45.5 million and $44.1 million for the second quarter of Fiscal 1996 and 1995, respectively, and $91.3 million and $86.6 million for the first six months of Fiscal 1996 and 1995, respectively. On November 9, 1995, the Company, RHI and FII entered into an Agreement and Plan of a Merger with Shared Technologies Inc. ("STI"), pursuant to which STI is to acquire the FII's Fairchild Communications Services Company ("FCSC") telecommunications systems and services business. The acquisition is to be effected by a merger of FII into STI (the "Merger"), with STI being the surviving corporation. Prior to the Merger, FII is to undergo a restructuring pursuant to which FII will transfer all of its assets to, and cause all of its liabilities to be assumed by RHI, except for (i) the assets and liabilities of FCSC, (ii) the outstanding Series A and Series C Preferred Stock of FII (having a liquidation value of $41.8 million at December 31, 1995), (iii) the $125.0 million principal amount outstanding 12 1/4% Senior Notes due 1999 (the "Senior Notes") of FII, and (iv) an amount of bank and other indebtedness of approximately $56.7 million (the "Assumed Indebtedness"). Pursuant to the Merger, the Series A and Series C Preferred Stock of FII will be cancelled and converted into the right to receive an amount of cash equal to their liquidation value ($45.00 per share plus accrued and unpaid dividends). Prior to the Merger, FII will make a cash tender offer to purchase all of the outstanding Senior Notes and seek to obtain such noteholders' consent to amend the indenture under which the Senior Notes were issued to remove all covenants which can be amended or deleted by majority vote (see Note 5). The amount of the Assumed Indebtedness will be reduced, by (i) the extent the purchase price to be paid in such offering for the Senior Notes exceeds par, and (ii) the amount of accrued and unpaid dividends on the Series A and Series C Preferred Stock of FII on the date of the Merger. Upon the Merger, STI, as the surviving corporation, is required to (i) purchase all Senior Notes tendered (and assume FII's obligations with respect to any Senior Notes not so tendered), (ii) repay the Assumed Indebtedness in full, and (iii) deposit in escrow the funds necessary to redeem the Series A and Series C Preferred Stock. As a result of the Merger, RHI is to receive (i) 6,000,000 shares of Common Stock of STI (representing approximately 41% of the outstanding shares after giving effect to such issuance), (ii) shares of 6% Cumulative Convertible Preferred Stock of STI having an aggregate liquidation preference of $25.0 million (subject to upward adjustment) and which are convertible into Common Stock of STI at a conversion price of $6.375 per share (which, if converted, would represent, together with the other Common Stock issued to RHI, approximately 41% of the Common Stock of STI on a fully diluted basis), and (iii) shares of a Special Preferred Stock having an initial liquidation preference of $20.0 million (which could accrue up to a maximum of $30.0 million over a ten-year period if not redeemed earlier). The closing of the Merger is subject to a number of conditions, including (i) the approval of the Merger by the shareholders of STI, and (ii) holders of at least 51% of the outstanding principal amount of the Senior Notes tendering their Senior Notes and consenting to the covenant changes described above. The Company and STI are scheduled to complete this transaction in Fiscal 1996. The Company expects a significant gain upon consummation of this transaction. During the second quarter ended December 31, 1995, the Company entered into preliminary discussions concerning the exchange of shares of common stock of a new subsidiary (Harco, Inc.), into which the Company would transfer substantially all assets of, and cause Harco, Inc. to assume all liabilities of the Company's Harco Division, for shares of common stock of Banner Aerospace, Inc. ("Banner"). The Company currently owns approximately 47% of Banner common shares, and if the exchange is consummated would become the majority shareholder of Banner. Harco is a distributor of precision fasteners to the aerospace industry. RESULTS OF OPERATIONS The Company currently operates in three principal business segments: Aerospace Fasteners, Industrial Products and Communications Services. The following table illustrates the historical sales and operating income of the Company's continuing operations for the three and six month periods ended December 31, 1995 and January 1, 1995.
(In thousands) Three Months Ended Six Months Ended December 31, January 1, December 31, January 1, 1995 1995 1995 1995 ----------- ---------- ------------ ---------- Sales by Business Segment: Aerospace Fasteners....................... $ 55,794 $ 52,328 $107,990 $103,838 Industrial Products....................... 15,625 6,953 38,358 14,406 Communications Services................... 32,031 22,568 65,028 42,510 ------- ------- ------- ------- Total........................................ $103,450 $ 81,849 $211,376 $160,754 ======= ======= ======= ======= Operating Income (Loss) by Business Segment: Aerospace Fasteners....................... $ 639 $ (2,160) $ (916) $ (755) Industrial Products....................... (527) (2,601) 1,643 (3,104) Communications Services................... 4,862 3,829 9,771 8,251 ------- ------- ------- ------- Total........................................ 4,974 (932) 10,498 4,392 Corporate administrative expense.......... (3,395) (3,603) (7,252) (6,761) Other corporate expense................... (307) 53 (464) (710) ------- ------- ------- ------- Operating income (loss)...................... 1,272 (4,482) 2,782 (3,079) Net interest expense......................... (17,319) (16,495) (34,768) (33,115) Investment income (loss), net................ (83) 2,293 1,912 2,635 Equity in earnings (loss) of affiliates...... (169) (428) 1,889 1,748 Minority interest............................ (544) (584) (1,085) (1,208) ------- ------- ------- ------- Loss from continuing operations before income taxes...................................... (16,843) (19,696) (29,270) (33,019) Income tax benefit........................... (7,827) (5,838) (10,968) (9,504) ------- ------- ------- ------- Loss from continuing operations.............. $ (9,016) $(13,858) $(18,302) $(23,515) ======= ======= ======= ======= * The Aerospace Fasteners and the Industrial Products segments were restated for the transfer of the Gas Springs division from the Aerospace Fasteners segment to the Industrial Products segment. The Industrial Products segment was also restated for the sale of DME and Data, which are being reported as discontinued operations.
General - ------- Overall sales from continuing operations increased by 26.4% in the second quarter and 31.5% for the Fiscal 1996 six month period, compared to sales for the same periods in Fiscal 1995, which reflected stronger sales performances from all three business segments. Operating income from continuing operations increased $5.8 million in the second quarter and $5.9 million in the Fiscal 1996 six month periods compared to operating income for the same periods in Fiscal 1995. Net operating income performance improved in all three business segments in the Fiscal 1996 second quarter. (See discussion below). Aerospace Fasteners - ------------------- Sales in the Aerospace Fasteners segment increased $3.5 million or 6.6% in the second quarter and $4.2 million or 4.0% in the Fiscal 1996 six month period, compared to the corresponding Fiscal 1995 periods, reflecting moderate growth in this industry. New orders have been strong in recent months. Operating income in the Aerospace Fasteners segment increased $2.8 million in the second quarter and decreased $.2 million in the Fiscal 1996 six month period, compared to the Fiscal 1995 periods. The six month Fiscal 1996 period included additional reserves recorded for excess and obsolete inventory. The Fiscal 1995 periods included income from business interruption insurance resulting from the loss sustained in the January 1994 earthquake. This segment continues to be affected by soft demand, competitive pricing conditions and higher quality control costs resulting from customers' requirements. Management will continue to implement productivity improvements and reduce costs to bring the breakeven point in line with demand, particularly in its U.S. operations. A $.3 million restructuring charge was recorded in the Fiscal 1996 quarter for the close down of a small subsidiary located in Japan. Industrial Products - ------------------- Sales in the Industrial Products segment increased $8.7 million or 124.7% in the second quarter and $24.0 million or 166.3% in the first six months of Fiscal 1996, compared to the same periods in Fiscal 1995. $22.3 million of the year-to-date sales increase is attributable to the performance of Fairchild Technologies which includes Fairchild Convac, a semiconductor equipment manufacturer which had a strong first six months performance resulting from the shipment of orders included in the prior year end backlog. This was compared to a very slow Fiscal 1995 first six months, which was the first six months following the acquisition of Fairchild Convac. Operating income in the Industrial Products segment increased $2.1 million in the second quarter and $4.7 million in the first six months of Fiscal 1996, compared to the same periods in Fiscal 1995. $3.8 million of this net increase was contributed by Fairchild Technologies, primarily the result of the increase in sales. Communications Services - ----------------------- Sales in the Communications Services segment increased 41.9% in the second quarter and 53.0% in the Fiscal 1996 first six month period, compared with the same periods in Fiscal 1995. The increase is primarily due to the inclusion of $12.2 million of sales in the second quarter and $25.3 million in the first six months of Fiscal 1996 from the JWP Telecom, Inc. ("JWP") acquisition made during the Fiscal 1995 second quarter, as well as sales to new customers, the addition of telecommunications franchises in new office buildings, and growth at existing sites. Operating income in the Communications Services segment increased 27.0% in the second quarter and 18.4% during the six months period of Fiscal 1996, compared to the same period in Fiscal 1995, primarily due to increased sales resulting from the reasons given above and related economies of scale. Operating income as a percent of sales was 15.0% in the Fiscal 1996 first six months compared to 19.4% in the Fiscal 1995 first six months. This lower return on sales was anticipated as a result of the JWP acquisition, which has lower gross margins due to the nature of the business. Other Expenses/Income - --------------------- Corporate administrative expense decreased 5.8% in the second quarter and increased 7.3% for the six month period of Fiscal 1996, compared to the same periods in Fiscal 1995. The Fiscal 1995 six month period expense was lower, partially due to reversal of several accruals not required. Other corporate expense increased $.4 million in the second quarter and decreased $.2 million in the six month period ended December 31, 1995, compared to the same periods in the prior year. The increase in the second quarter is primarily due to higher carrying costs incurred on real estate held for sale in Fiscal 1996. Net interest expense increased 5.0% in the second quarter and 5.0% in the six month period ended December 31, 1995, compared to the prior year periods, due primarily to higher bank borrowings and lower interest income earned during the Fiscal 1996 periods. Investment income, net decreased $2.4 million in the second quarter and $.7 million in the first six months of Fiscal 1996, principally as a result of recording gains realized on the settlement and liquidation of investments in the Fiscal 1995 periods. Equity in earnings of affiliates increased $.3 million in the second quarter and increased slightly in the six month period ended December 31, 1995. Minority interest expense includes dividend expense on FII's Series C Preferred Stock. Income taxes - In the first six months of Fiscal 1996, the Company recorded a tax benefit of $11.0 million on a pretax loss of $29.3 million. The effective tax rate of 37.5% approximated the statutory rate, primarily as a result of the Company's ability to recognize tax benefits on losses from continuing operations due to overall taxable income to be recognized in Fiscal 1996, which will include gains from the sale of DME and Data. The net loss decreased $5.2 million in the first six months of Fiscal 1996, compared to the first six months of Fiscal 1995, primarily due to: (i) the $5.9 million increase in operating income, and (ii) the $1.1 million increase in earnings from discontinued operations. Partially offsetting the decrease in net loss was a higher net interest expense of $1.7 million. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Working capital at December 31, 1995, was $43.3 million, which was $67.7 million lower than working capital at June 30, 1995. The principal reasons for this decrease included a $59.3 million increase in current debt as a result of long term bank debt, including revolver bank borrowings, becoming current, and a net $26.3 million reduction in cash and short term investments, primarily required to service debt and meet operating cash requirements during the first six months. These decreases were partially offset by: (i) a net $2.4 million increase in inventory and accounts receivable increased partially due to an increase in Communications Services sales to local and state governments, which have extended terms, (ii) a $3.3 million increase in prepaid expenses and other assets for reclassification of income tax benefits and (iii) a net reduction in accounts payable and other accrued liabilities of $8.7 million. The decrease in accounts payable was primarily at Fairchild Convac and Communications Services, both of which typically have higher balances at Fiscal year end. The Company's principal sources of liquidity are cash generated from operations and borrowings under its credit agreement. The Company also expects to generate cash from the sale of discontinued operations, certain assets and liquidation of investments. Net assets held for sale at December 31, 1995 had a book value of $52.2 million and included two parcels of real estate in California, an 88 acre parcel of real estate located in Farmingdale, New York, two landfills in Pennsylvania, a real estate joint venture in California, and several other parcels elsewhere, which the Company plans to sell, lease or develop, subject to market conditions or, with respect to certain of the parcels, the resolution of certain environmental matters. The Company's principal cash requirements include debt service, capital expenditures, acquisitions, payment of other liabilities, and payment of dividends on preferred stock. The level of the Company's capital expenditures varies from year to year, depending upon the timing of capital spending for new production equipment, periodic plant and facility expansion, acquisition of high growth companies, as well as cost reduction and labor efficiency programs. For the three month period ended December 31, 1995, capital expenditures, including the cost of acquisitions, were $6.9 million for continuing operations and $1.0 million for discontinued operations. The Company anticipates that total capital expenditures for the fiscal year ending June 30, 1996 will be approximately $16.4 million. Investments and advances in affiliated companies increased $1.5 million, primarily reflecting equity earnings recorded during the first six months. Other liabilities that require the use of cash include post-employment benefits for retirees, environmental investigation and remediation obligations, and litigation settlements and related costs. The Company expects that cash on hand, cash generated from operations, borrowings, and asset sales will be adequate to satisfy cash requirements. Management intends to take appropriate action to refinance portions of its debt, if necessary to meet cash requirements. The Company's Credit Agreement, as amended, requires the Company to comply with certain financial covenants, including achieving cumulative earnings before interest, taxes, depreciation and amortization ("EBITDA Covenant"), and maintaining certain coverage ratios. As of December 31, 1995, the Company was in compliance with the Credit Agreement, as amended. To comply with the minimum EBITDA Covenant requirements, the Company's subsidiary, VSI, must earn for the cumulative total of the trailing four quarters, EBITDA as follows: $58.5 million for the third quarter of Fiscal 1996, $62.6 million for the fourth quarter of Fiscal 1996, $84.6 million for the first quarter of Fiscal 1997, and $86.4 million for the second quarter of Fiscal 1997. VSI's ability to meet the minimum requirements under the EBITDA Covenant in Fiscal 1996 is uncertain, and there can be no assurance that the Company will be able in the future to comply with the minimum requirements under the EBITDA Covenant and other financial covenants under the Credit Agreement, as amended. Noncompliance with any of the financial covenants, without cure or waiver, would constitute an event of default under the Credit Agreement, as amended. An event of default resulting from a breach of a financial covenant may result, at the option of lenders holding a majority of the loans, in acceleration of the principal and interest outstanding, and termination of the revolving credit line. However, if necessary, management believes a waiver can be obtained. EBITDA is not a substitute for GAAP income from operations or GAAP net cash flows from operating activities, and is not prepared in accordance with generally accepted accounting principles, even though it is used in a specific covenant of the Credit Agreement. Under the covenants of each of the Company's indentures, if at the end of any two consecutive fiscal quarters, the Company's consolidated net worth, as defined, is less than an amount stated in the Indenture (the "minimum net worth"), the Company must make an offer to purchase a stated aggregate principal amount of debentures or notes, as the case may be, if not already purchased by the Company during prior fiscal quarters. Under the most restrictive covenant of the Company's indentures, the Company's minimum net worth is $35 million. As of December 31, 1995, the Company's consolidated net worth was $25,721,000, after the effect of changes in accounting principles. However, the Company believes that the computation of consolidated net worth under the Indentures would be undertaken in accordance with generally accepted accounting principles, in effect at the date of the Indenture. Such computation would yield a $2,946,000 higher consolidated net worth, as a result of changes in accounting principles, primarily Statement of Financial Accounting Standards Nos. 106 and 109 which were adopted subsequent to the date of the Indentures. Accordingly, the Company believes that, for purposes of determining covenant compliance, its consolidated net worth is $28,667,000 at December 31, 1995, which is the second fiscal quarter its consolidated net worth is below the minimum net worth. However, the Company has already bought, through early purchases, more than the ;amount of debentures or bonds which would be required to be purchased to satisfy its obligations under each of the covenants, and accordingly, no offer to purchase additional debentures or bonds is required. During the third quarter, the Company's consolidated net worth is expected to improve significantly and exceed the minimum net worth, as a result of the recently completed sales of DME and Data, which will result in a significant net gain in the third quarter. The Company's subsidiaries may transfer available cash as dividends to the Company if the purpose of such dividends is to provide the Company with funds necessary to meet its debt service requirements under specified notes and debentures. However, all other dividends from FII to RHI are subject to certain limitations under the Credit Agreement, as amended. As of December 31, 1995, FII was unable to provide dividends to RHI. The Credit Agreement, as amended, also restricts FII from additional borrowings under the Credit Facilities for the payment of any dividends. IMPACT OF FUTURE ACCOUNTING CHANGES Accounting For The Impairment Of Long-Lived Assets - -------------------------------------------------- And For Long-Lived Assets To Be Disposed Of - ------------------------------------------- In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 ("SFAS 121") "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. SFAS 121 is required to be implemented by the Company on, or before, July 1, 1996. The Company's present policy is identical to the policy prescribed by SFAS 121; therefore there will be no effect from implementation. PART II. OTHER INFORMATION Item 1. Legal Proceedings Reference is made to Note 15 of Notes to Consolidated Financial Statements. Item 6. Exhibits and Reports on Form 8-K On November 14, 1995, the Company filed a Form 8-K to report on Item 1 and Item 2. The Company reported that on November 9, 1995, it had entered into an Agreement and Plan of Merger with Shared Technologies Inc. ("STI") pursuant to which STI will acquire the telecommunications systems and services business operated by Fairchild Communications Services Company. Additionally, the Company reported that, on November 13, 1995, it had entered into a letter setting forth the basic terms and conditions of a transaction with Cincinnati Milacron Inc. ("CM"), pursuant to which CM will acquire the Company's DME business for $260 million, subject to adjustment based on the closing date value of DME's net tangible assets. The Company filed the following exhibits in conjunction with the Form 8-K: Exhibits - -------- 10 (b)(g) Agreement and Plan of Merger dated as of November 9, 1995 by and among the Company and STI. 10 (b)(h) Letter Agreement dated November 13, 1995 between the Company and CM. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. For THE FAIRCHILD CORPORATION (Registrant) and as its Chief Financial Officer: By: Michael T. Alcox Senior Vice President and Chief Financial Officer Date: September 12, 1996 EX-27 2
5 6-MOS JUN-30-1996 DEC-31-1995 42,967 6,052 73,696 (3,455) 75,841 251,767 228,239 98,970 827,106 208,427 448,642 15,311 0 2,242 26,630 827,106 157,633 211,512 125,572 208,730 0 0 34,768 (29,270) (10,968) (18,302) 7,263 0 0 (11,309) (0.68) (0.68)
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