-----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, RLqa/aDcS6+4b1GVhlFtYFkRTausIvhC1rQRxvhI10klRw5HicAGO7kSi2E4hz1l s6CTGRDXRdvz7bQH91pRuA== 0000928385-00-002584.txt : 20001013 0000928385-00-002584.hdr.sgml : 20001013 ACCESSION NUMBER: 0000928385-00-002584 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000920 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAIRCHILD CORP CENTRAL INDEX KEY: 0000009779 STANDARD INDUSTRIAL CLASSIFICATION: 3452 IRS NUMBER: 340728587 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-06560 FILM NUMBER: 725421 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: STE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DRIVE STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FORMER COMPANY: FORMER CONFORMED NAME: BANNER INDUSTRIES INC /DE/ DATE OF NAME CHANGE: 19901118 10-K405 1 0001.txt FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Year Ended June 30, 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 $.10 per share New York and Pacific Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None ---- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days [X]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [_]. On September 8, 2000, 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 $122 million (excluding shares deemed beneficially owned by affiliates of the Registrant under Commission Rules). As of September 8, 2000, the number of shares outstanding of each of the Registrant's classes of common stock were as follows: Class A common stock, $.10 par value 22,430,622 ---------- Class B common stock, $.10 par value 2,621,652 ---------- DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's definitive proxy statement for the 2000 Annual Meeting of Stockholders' to be held on November 20, 2000 (the "2000 Proxy Statement"), which the Registrant intends to file within 120 days after June 30, 2000, are incorporated by reference into Parts III and IV. THE FAIRCHILD CORPORATION INDEX TO ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED JUNE 30, 2000
PART I Page ---- Item 1. Business 3 Item 2. Properties 10 Item 3. Legal Proceedings 10 Item 4. Submission of Matters to a Vote of Stockholders 10 PART II Item 5. Market for Our Common Equity and Related Stockholder Matters 11 Item 6. Selected Financial Data 13 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition 14 Item 7A. Quantitative and Qualitative Disclosure about Market Risk 24 Item 8. Financial Statements and Supplementary Data 25 Item 9. Disagreements on Accounting and Financial Disclosure 66 PART III Item 10. Directors and Executive Officers of the Company 66 Item 11. Executive Compensation 66 Item 12. Security Ownership of Certain Beneficial Owners and Management 66 Item 13. Certain Relationships and Related Transactions 66 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 67
2 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 I All references in this Annual Report on Form 10-K to the terms "we," "our," "us," the "Company" and "Fairchild" refer to The Fairchild Corporation and its subsidiaries. All references to "fiscal" in connection with a year shall mean the 12 months ended June 30. Item 1. BUSINESS General We are a leading worldwide aerospace and industrial fastener manufacturer and supply chain services provider and, through our wholly-owned subsidiary, Banner Aerospace, Inc., an international supplier to the aerospace industry, distributing a wide range of aircraft parts and related support services. Through internal growth and strategic acquisitions, we have become one of the leading suppliers of fastening systems to aircraft original equipment manufacturers (such as Boeing, European Aeronautic Defense and Space Company (formerly the Airbus consortium), General Electric and Lockheed Martin), as well as one of the leading aerospace subcontractors to OEMs, independent distributors and the aerospace aftermarket (such as Honeywell International). Our aerospace business consists of two segments: aerospace fasteners and aerospace parts distribution. Our aerospace fasteners segment manufactures and markets high performance fastening systems used in the manufacture and maintenance of commercial and military aircraft. Our aerospace distribution segment stocks and distributes a wide variety of aircraft parts to commercial airlines and air cargo carriers, fixed-base operators, corporate aircraft operators and other aerospace companies. 3 Our business strategy is as follows: Maintain Quality Leadership. The aerospace market is extremely demanding in terms of precision manufacturing and OEMs must certify all parts pursuant to the Federal Aviation Administration's regulations and equivalent foreign regulators. Our plants are equipped with cutting-edge CAD/CAM manufacturing programming, which allows us to produce seamlessly customer orders on a worldwide basis using the same specification and quality assurance systems. All of our plants are ISO- 9000 approved. We have won numerous industry and customer quality awards and are a preferred supplier for many major aerospace customers. In order to be named a preferred supplier, a company must qualify its products through a customer specific quality assurance program and strictly adhere to it. Approvals and awards we have obtained include: Boeing D1 9000 Rev A; Boeing (St. Louis) Silver Supplier; Boeing Source Approved; DaimlerChrysler Aerospace Source Approved; General Electric Source Approved; Pratt & Whitney Source Approved; Lockheed- Martin Star Supplier; and DISC Large Business Supplier of the Year. Lower Manufacturing Costs. Over the past few years, we have invested significantly in state-of-the-art machinery, employee training and manufacturing techniques, to produce products at the lowest cost while maintaining high quality. This investment in process superiority has resulted in increased capacity, lower break-even levels and faster cycle times, while reducing defect levels and improving responsiveness to customer needs. For example, the customer rejection rate at our aerospace fasteners segment has fallen from an average of 18.2% in fiscal 1995 to an average of 1.6% for fiscal 2000. Our on-time delivery rate in our aerospace fasteners segment has improved significantly since fiscal 1997, to levels that are currently the best in our operating history. We view these continuous improvements as one of the keys to our business success that will allow us to better manage industry cycles. Supply Chain Services. Our aerospace industry customers are increasingly requiring additional supply chain management services as they seek to manage inventory and lower their manufacturing costs. In response, we are developing a number of logistics and supply chain management services that we expect will contribute to our growth. Capitalize on Global Presence. The aerospace industry is global and customers increasingly seek suppliers with the ability to provide reliable and timely service worldwide. The acquisition of Kaynar Technologies in April 1999 has resulted in increased manufacturing and distribution capabilities in the U.S. and Europe, and sales offices worldwide. Growth through Acquisitions. Despite a trend toward consolidation, the aerospace components industry remains fragmented. Consolidation has been driven, in part, by the combination of the OEMs as they seek to reduce their procurement costs. We have successfully integrated a number of acquisitions, achieving material synergies in the process, and anticipate further opportunities to do so in the future. Our strategy is based on the following strengths: Expanded Product Range. As a result of the acquisition of Kaynar Technologies, we greatly expanded the range of products we offer. This expansion permits us to provide our customers with more complete fastening solutions, by offering engineering and supply chain services across the breadth of a customer's aerospace needs. For example, our internally threaded fasteners, such as engine nuts, which were formerly manufactured by Kaynar Technologies, are now being sold in combination with our externally threaded fasteners, such as bolts and pins, to provide a single fastening system. This limits the inventory needs of the customer, minimizes handling costs and reduces waste. Long-Term Customer Relationships. We work closely with our customers to provide high quality engineering solutions accompanied by our superior service levels. As a result, our customer relationships are generally long-term. For example, in the fall of 1998 we were awarded a series of long-term commitments from Boeing and certain other customers to provide a significant quantity of aircraft fastening components over the next three to five years. We continue to benefit from the trend of OEMs efforts to reduce the number of their suppliers in an effort to lower costs and to ensure quality and availability. We have become or been retained as a key supplier to the OEMs and increased our overall share of OEM business. OEMs are increasingly demanding in terms of overall service level, including just-in-time delivery of 4 components to the production line. We believe that our focus on quality and customer service will remain the cornerstone of our relationships with our customers. Diverse End Markets. Although a significant proportion of our sales are to OEMs in the commercial aerospace industry, we have significant sales to the defense/aerospace aftermarket and industrial markets. In addition, our distribution business has a very low OEM component. We believe this diversification will help mitigate the effects of the OEM cycle on our results. Experienced Management Teams. We have management teams with many years of experience in the aerospace components industry and a history of improving quality, lowering costs and raising the level of customer service, leading to higher overall profitability. In addition, our management teams have achieved growth by successfully integrating a number of acquisitions. Recent Developments Our recent developments are incorporated herein by reference from "Recent Developments and Significant Business Combinations" included in Item 7 "Management's Discussion and Analysis of Results of Operations and Financial Condition". Financial Information about Business Segments Our business segment information is incorporated herein by reference from Note 18 of our Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" Narrative Description of Business Segments Aerospace Fasteners Through our aerospace fasteners segment, we are a leading worldwide manufacturer and distributor of precision fastening systems, components and latching devices used primarily in the construction and maintenance of commercial and military aircraft, as well as applications in other industries, including the automotive, electronic and other non-aerospace industries. Our April 20, 1999 acquisition of Kaynar Technologies has expanded our product range to provide our customers with more complete fastening solutions by offering engineering and supply chain services across the breadth of a customer's aerospace needs. In recent years, we have made a concerted effort to establish a substantial position in the distribution/supply chain services segment of the aerospace fasteners industry. Through the acquisitions of Special-T Fasteners in the United States and AS+C in Europe, we have created a unique capability that we believe enhances dramatically our status as the industry's premier fastening solutions provider. The aerospace fastener segment accounted for 84% of our net sales in fiscal 2000. Products (1) (see note below) In general, the aerospace fasteners we produce are highly engineered, close tolerance, high strength fastening devices designed for use in harsh, demanding environments. Products range from standard aerospace screws and precision self- locking internally threaded nuts, to more complex systems that fasten airframe structures, and sophisticated latching or quick disconnect mechanisms that allow efficient access to internal parts which require regular servicing or monitoring. Our aerospace fasteners segment produces and sells products under various trade names and trademarks. The trademarks discussed below either belong to us or to third parties, which have licensed us to use such trademarks. These trade names and trademarks include: Voi-Shan(R) (fasteners for aerospace structures), Screwcorp(TM) (standard externally threaded products for aerospace applications), K-FAST(TM) nuts (high-strength vibration resistant self-locking nuts that offer fast, reliable, and repetitve installations with K-FAST(TM) tooling), Keensert(TM) (inserts that include keys to lock the insert in place and prevent rotation), RAM(R) (custom designed mechanisms for aerospace applications), Perma-Thread(R) and Slimsert(TM) (inserts that create a thread inside a hole and provide a high degree of thread protection and fastening 5 integrity), Camloc(R) (components for the industrial, electronic, automotive and aerospace markets), and Tridair(R) and Rosan(R) (fastening systems for highly- engineered aerospace, military and industrial applications). Our aerospace fasteners segment also manufactures and supplies fastening systems used in non- aerospace industrial, electronic and marine applications. Principal product lines of the aerospace fasteners segment include: Standard Aerospace Airframe Fasteners - These fasteners consist of standard externally threaded fasteners used in non-critical airframe applications on a wide variety of aircraft. These fasteners include Hi-Torque Speed Drive(R), Tri-Wing(R), Torq-Set(R) and Phillips(R). We offer a line of lightweight, non- metallic composite fasteners, used primarily for military aircraft as they are designed to reduce radar visibility, enhance resistance to lightning strikes and provide galvanic corrosion protection. We also offer a variety of coatings and finishes for our fasteners, including anodizing, cadmium plating, silver plating, aluminum plating, solid film lubricants and water-based cetyl and solvent free lubricants. Commercial Aerospace Self-Locking Nuts - These precision, self-locking internally threaded nuts are used in the manufacture of commercial aircraft and aerospace/defense products and are designed principally for use in harsh, demanding environments and include wrenchable nuts, K-Fast(TM) nuts, anchor nuts, gang channels, shank nuts, barrel nuts, clinch nuts and stake nuts. Commercial Aerospace Structural and Engine Fasteners - These fasteners consist of more highly engineered, permanent or semi-permanent fasteners used in both airframe and engine applications, which could involve joining more than two materials. These fasteners are generally engineered to specific customer requirements or manufactured to specific customer specifications for special applications. We produce fasteners from a variety of materials, including lightweight nuts and pins made out of aluminum and titanium, to high-strength, high-temperature tolerant nuts and bolts manufactured from materials such as A- 286, Waspaloy(R), Inconel(R), and Hastelloy(R). These fasteners are designed for critical aircraft engine and airframe applications. These fasteners include Hi-Lok(R), Veri-Lite(R), Eddie-Bolt2(R) and customer proprietary engine nuts and bolts. Proprietary Products and Fastening Systems - These very highly engineered, proprietary fasteners are designed by us for specific customer applications and include high performance structural latches and hold down mechanisms. These fasteners are usually proprietary in nature and are used primarily in either commercial aerospace or military applications. They include Livelok(R), Trimil(R), Keenserts(R), Mark IV(TM), Flatbeam(TM) and Ringlock(TM). Threaded Inserts - These threaded inserts are used principally in the commercial aerospace and defense industries and are made of high-grade steel and other high-tensile metals which are intended to be installed into softer metals, plastics and composite materials to create bolt-ready holes. Highly Engineered Fastening Systems for Industrial Applications - These highly engineered fasteners are designed by us for specific niche applications in the electronic, automotive and durable goods markets and are sold under the Camloc(R) trade name. Precision Machined Structural Components and Assemblies - These precision machined structural components and assemblies are used for aircraft, including pylons, flap hinges, struts, wing fittings, landing gear parts, spares and many other items. Fastener Tools - These tools are designed primarily to install the fasteners that we manufacture, but can also be used to attach other wrenchable nuts, bolts and inserts. - - -------------------------------------------------------------------------------- (1) - Note on the use of registered trademarks. The trademarks discussed herein either belong to the Company or to third parties who have licensed the Company to use such trademarks. Tri-Wing(R), Torq-set(R) and Phillips(R) are registered trademarks of Phillips Screw Company. Waspaloy(R) is a trademark of Carpenter Technologies Corporation. Hastelloy(R) is a registered trademark of Haynes International, Inc. Hi-Lok(R) is registered trademark of Hi-Shear Corporation. Visul-lok(R) and Composi-lok(R) are registered trademarks of Monogram Aerospace Fasteners, Inc. 6 Sales and Markets The products of our aerospace fasteners segment are sold primarily to domestic and foreign OEMs of airframes and engines, as well as to subcontractors of OEMs, and to the maintenance and repair market through distributors. Approximately 66% of our sales are domestic. Major customers include OEMs such as Boeing, European Aeronautic Defense and Space Company, and General Electric and their subcontractors, as well as distributors such as Honeywell, and Wesco Aircraft Hardware. In fiscal 2000, many OEMs implemented programs to reduce inventories and pursue just-in-time relationships. In response, we are expanding efforts to provide supply chain services through our global customer service units, which include the distributors we acquired in fiscal 1998, formerly known as Special-T Fasteners in the United States and AS+C in Europe. Although no one customer accounted for more than 10% of our consolidated sales in fiscal 2000, a large portion of our revenues come from Boeing and customers providing parts or services to Boeing, including defense sales, and the European Aeronautic Defense and Space Company and their subcontractors. Accordingly, we are dependent on the business of those manufacturers. Revenues in our aerospace fasteners segment are closely related to aircraft production. As OEMs searched for cost cutting opportunities during the aerospace industry recession of 1993-1995, parts manufacturers, including us, accepted lower-priced orders and/or smaller quantity orders to maintain market share, at lower profit margins. However, during recent years, this situation has improved as build rates in the aerospace industry have increased and resulted in capacity constraints. Although lead times have increased, we have been able to provide our major customers with favorable pricing, while maintaining or increasing margins by negotiating for larger minimum lot sizes that are more economic to manufacture. Fasteners also have applications in the automotive/industrial markets, where numerous special fasteners are required, such as engine bolts, wheel bolts and turbo charger tension bolts. We are actively targeting all markets where precision fasteners are used. Manufacturing and Production Our aerospace fasteners segment has fifteen primary manufacturing facilities, of which eight are located in the United States, six are located in Europe and one is located in Australia. Each facility has complete production capability. Each plant is designed to produce a specified product or group of products, determined by the production process involved and certification requirements. Our aerospace fasteners segment's largest customers have recognized its quality and operational controls by conferring their advanced quality systems certifications at substantially all of our facilities (e.g. Boeing's D1-9000A). We have received all necessary quality and product approvals from OEMs. We have a modern information system at all of our U.S. facilities, which was expanded to most of our European operations in fiscal 1999 and 2000. The new system was designed to perform detailed and timely cost analysis of production by product and facility. Updated IT systems also help us to better service our customers. OEMs require each product to be produced in an OEM-qualified/OEM- approved facility. Competition Despite intense competition in the industry, we remain the largest manufacturer of aerospace fasteners. Based on calendar 1999 information, the worldwide aerospace fastener market is estimated to be $1.3 billion (before distributor resales). We hold approximately 38% of the market and compete with SPS Technologies, GFI Industries, and the Huck International division of Alcoa, which, we believe, hold approximately 18%, 13% and 10% of the market, respectively. Quality, performance, service and price are generally the prime competitive factors in the aerospace fasteners segment. Our broad product range allows us to serve more fully each OEM and distributor. Our product array is diverse and offers customers a large selection to address various production needs. We seek to maintain our technological edge and competitive advantage over our competitors, and have demonstrated our innovative production methods and new products 7 and supply chain services to meet customer demands. We seek to work closely with OEMs and involve ourselves early in the design process in order that our products may be incorporated into the design of their products. Aerospace Distribution Through our subsidiary Banner Aerospace, Inc., we offer a wide variety of aircraft parts, component repair and overhaul and aircraft services. The aircraft parts, which we distribute are either purchased on the open market or acquired from OEMs as an authorized distributor. No single distributor arrangement is material to our financial condition. The aerospace distribution segment accounted for 16% of our total sales in fiscal 2000. Products Products of the aerospace distribution segment include rotable parts such as flight data recorders, radar and navigation systems, instruments, hydraulic and electrical components, space components and electronic warfare systems. Rotable parts are sometimes purchased as new parts, but are generally purchased in the aftermarket and are then overhauled by us or for us by outside contractors, including OEMs or FAA-licensed facilities. Rotables are sold in a variety of conditions such as new, overhauled, serviceable and "as is". Rotables may also be exchanged instead of sold. An exchange occurs when an item in inventory is exchanged for a customer's part and the customer is charged an exchange fee. An extensive inventory of products and a quick response time are essential in providing support to our customers. Another key factor in selling to our customers is our ability to maintain a system that traces a part back to the manufacturer or repair facility. We also offer immediate shipment of parts in aircraft-on-ground situations. Through our FAA-licensed repair stations we provide a number of services such as component repair and overhaul and aircraft services. Component repair and overhaul capabilities include pressurization, instrumentation, avionics, aircraft accessories and airframe components. Aircraft services include aircraft sales, inspections, repairs, maintenance, modifications and avionics for corporate aircraft. Sales and Markets Our aerospace distribution segment sells its products in the United States and abroad to commercial airlines and air cargo carriers, fixed-base operators, corporate aircraft operators, distributors and other aerospace companies. Approximately 78% of our sales are to domestic purchasers, some of whom may represent offshore users. Our aerospace distribution segment conducts marketing efforts through its direct sales force, outside representatives and, for some product lines, overseas sales offices. Sales in the aviation aftermarket depend on price, service, quality and reputation. Our aerospace distribution segment's business does not experience significant seasonal fluctuations nor depend on a single customer. No single customer accounts for more than 10% of our consolidated revenue. Competition Our aerospace distribution segment competes with Air Ground Equipment Services, Duncan Aviation, Stevens Aviation; OEMs such as Honeywell, Rockwell Collins, Raytheon, and Litton; other fixed based operators and maintenance repair organizations; and many smaller companies. Other Operations We also own several parcels of developed and undeveloped land almost entirely representing residuals of operations previously divested or closed. Included among these is an 88-acre site in Farmingdale, New York, on which we are currently developing and operating a retail shopping center. 8 Foreign Operations Our operations are located throughout the world. Inter-area sales are not significant to the total revenue of any geographic area. Export sales are made by U.S. businesses to customers in non-U.S. countries, whereas foreign sales are made by our non-U.S. subsidiaries. For our sales results by geographic area and export sales, see Note 19 of our Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data". Backlog of Orders Backlog is important for all our operations, due to the long-term production requirements of our customers. Our backlog of orders as of June 30, 2000 in the aerospace fasteners segment amounted to $204 million. We anticipate that in excess of 85% of the aggregate backlog at June 30, 2000 will be delivered by June 30, 2001. In the fall of 1998, we were awarded a series of long-term commitments from Boeing to provide a significant quantity of aircraft fastening components over a three-to-five year period. However, amounts related to such agreements are not included in our backlog until Boeing specifies delivery dates for fasteners ordered. Suppliers We are not materially dependent upon any one supplier, but we are dependent upon a wide range of subcontractors, vendors and suppliers of materials to meet our commitments to our customers. From time to time, we enter into exclusive supply contracts in return for logistics and price advantages. We do not believe that any one of these contracts would impair our operations if a supplier failed to perform. Nevertheless, commercial deposits of certain metals, such as titanium and nickel, which are required for the manufacture of several of our products, are found only in certain parts of the world. The availability and prices of these metals may be influenced by private or governmental cartels, changes in world politics, unstable governments in exporting nations, or inflation. Similarly, supplies of steel and other less exotic metals used by us may also be subject to variation in availability. We purchase raw materials, which include the various metals, composites, and finishes used in production, from over twenty different suppliers. We have entered into several long-term contracts to supply titanium and alloy metals. In the past, fluctuations in the price of titanium have had an adverse effect on our sales margins. Research and Patents We own patents relating to the design and manufacture of certain of our products and are licensees of technology covered by the patents of other companies. We do not believe that any of our business segments are dependent upon any single patent. Personnel As of June 30, 2000, we had approximately 4,900 employees. Of these, approximately 3,300 are based in the United States and 1,600 are based in Europe and elsewhere. Approximately 20% of our employees were covered by collective bargaining agreements. Although, in the past, we have had isolated work stoppages in France, these stoppages have not had a material impact on our business. Overall, we believe that our relations with our employees are good. Environmental Matters A discussion of our environmental matters is included in Note 17, "Contingencies", to our Consolidated Financial Statements, included in Part II, Item 8, "Financial Statements and Supplementary Data" and is incorporated herein by reference. 9 ITEM 2. PROPERTIES As of June 30, 2000, we owned or leased buildings totaling approximately 1,933,000 square feet, of which approximately 1,100,000 square feet were owned and 825,000 square feet were leased. Our aerospace fasteners segment's properties consisted of approximately 1,750,000 square feet, with principal operating facilities of approximately 1,575,000 square feet concentrated in Southern California, Massachusetts, France, Germany and Australia. The aerospace distribution segment's properties consisted of approximately 90,000 square feet, with principal operating facilities of approximately 30,000 square feet located in Georgia. We lease our corporate headquarters building at Washington-Dulles International Airport. The following table sets forth the location of the larger properties used in our continuing operations, their square footage, the business segment or groups they serve and their primary use. Each of the properties owned or leased by us is, in our opinion, generally well maintained. All of our occupied properties are maintained and updated on a regular basis.
Owned or Square Location Leased Footage Business Segment/Group Primary Use - - ------------------------------ ------------ ----------- ------------------------ ------------ Saint Cosme, France Owned 304,000 Aerospace Fasteners Manufacturing Fullerton, California Leased 288,000 Aerospace Fasteners Manufacturing Torrance, California Owned 284,000 Aerospace Fasteners Manufacturing City of Industry, California Owned 140,000 Aerospace Fasteners Manufacturing Stoughton, Massachusetts Leased 110,000 Aerospace Fasteners Manufacturing Montbrison, France Owned 63,000 Aerospace Fasteners Manufacturing Huntington Beach, California Owned 58,000 Aerospace Fasteners Manufacturing Hildesheim, Germany Owned 57,000 Aerospace Fasteners Manufacturing Toulouse, France Owned 52,000 Aerospace Fasteners Manufacturing Kelkheim, Germany Owned 52,000 Aerospace Fasteners Manufacturing Chatsworth, California Leased 36,000 Aerospace Fasteners Distribution Dulles, Virginia Leased 34,000 Corporate Office Atlanta, Georgia Leased 29,000 Aerospace Distribution Distribution Victoria, Australia Leased 24,000 Aerospace Fasteners Manufacturing
We have several parcels of property which we are attempting to market, lease and/or develop, including: (i) an eighty-eight acre parcel located in Farmingdale, New York, (ii) a six acre parcel in Temple City, California, (iii) an eight acre parcel in Chatsworth, California, and (iv) several other parcels of real estate, located primarily throughout the continental United States. Information concerning our long-term rental obligations at June 30, 2000, is set forth in Note 16 to our Consolidated Financial Statements, included in Item 8, "Financial Statements and Supplementary Data", and is incorporated herein by reference. ITEM 3. LEGAL PROCEEDINGS A discussion of our legal proceedings is included in Note 17, "Contingencies", to our Consolidated Financial Statements, included in Part II, Item 8, "Financial Statements and Supplementary Data", of this annual report and is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. 10 PART II ITEM 5 MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Market Information Our Class A common stock is traded on the New York Stock Exchange and Pacific Stock Exchange under the symbol FA. Our Class B common stock is not listed on any exchange and is not publicly traded. Class B common stock can be converted to Class A common stock at any time at the option of the holder. Information regarding the quarterly price range of our Class A common stock is incorporated herein by reference from Note 20 of our Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data". We are authorized to issue 5,141,000 shares of our Class A common stock under our 1986 non-qualified stock option plan, and 250,000 shares of our Class A common stock under our 1996 non-employee directors stock option plan. At the beginning and of the fiscal year we had 317,597 shares available to grant under the 1986 non-qualified stock option plan and 139,000 shares available to grant under the 1996 non-employee directors stock option plan. At the end of the fiscal year we had 325,997 shares available to grant under the 1986 non- qualified stock option plan and 103,000 shares available to grant under the 1996 non-employee directors stock option plan. Information regarding our stock option plans is incorporated herein by referenced from Note 11 of our Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data". Holders of Record We had approximately 1,301 and 38 record holders of our Class A and Class B common stock, respectively, at September 8, 2000. Dividends Our current policy is to retain earnings to support the growth of our present operations and to reduce our outstanding debt. Any future payment of dividends will be determined by our Board of Directors and will depend on our financial condition, results of operations and by restrictive covenants in our credit agreement and 10 3/4% senior subordinated notes that limit the payment of dividends over their respective terms. See Note 7 of our Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data". Sale of Unregistered Securities In fiscal 1998, we adopted a stock option deferral plan for officers and directors, pursuant to which recipients of stock options may elect to defer the gain on exercise of stock options. The "gain" is the difference between the market value of the shares issued to an officer or director upon exercise of the stock option, and the price paid by the officer or director for the exercise of such stock option. An officer's or director's deferred gain is issued in the form of "deferred compensation units." Each deferred compensation unit entitles the recipient to receive one share of Class A common stock upon expiration of the "deferral period" for the stock options exercised. The deferred compensation units may be deemed our securities. Only officers and directors who are accredited investors are allowed to elect to receive deferred compensation units. The shares issued to an officer or director upon expiration of the deferral period (in exchange for deferred compensation units) have been registered pursuant to a Registration Statement on Form S-8. In fiscal 1998, under the stock option deferral plan, J. Flynn deferred $85,313 in exchange for 4,027 deferred compensation units; D. Miller deferred $85,313 in exchange for 4,027 deferred compensation units; and E. Steiner, deferred $573,750 in exchange for 24,545 deferred compensation units. In fiscal 1999, under the stock option deferral 11 plan, D. Miller deferred $135,000 in exchange for 8,852 deferred compensation units. In fiscal 2000, under the stock option deferral plan, P. David deferred $118,125 in exchange for 15,882 deferred compensation units; J. Flynn deferred $80,625 in exchange for 9,126 deferred compensation units; H. Harris deferred $116,250 in exchange for 15,762 deferred compensation units; D. Miller deferred $120,000 in exchange for 13,568 deferred compensation units; H. Richey deferred $140,000 in exchange for 18,666 deferred compensation units; E. Steiner deferred $125,938 in exchange for 14,254 deferred compensation units; and J. Steiner, deferred $303,750 in exchange for 33,986 deferred compensation units. On February 23, 2000, Deutsche Bank exercised a warrant of 250,000 shares through a "cashless exercise". This resulted in the issuance of 63,300 unregistered shares. The shares were deemed to have been held by the warrant holder for more than two years, and may be sold by the warrant holder in the market pursuant to Rule 144. 12 ITEM 6. SELECTED FINANCIAL DATA Five-Year Financial Summary (In thousands, except per share data)
For the years ended June 30, -------------------------------------------------------------------------- Summary of Operations: 2000 1999 1998 1997 1996 ------------- ------------- -------------- -------------- ------------ Net sales $ 635,361 $ 617,322 $ 741,176 $ 680,763 $349,236 Gross profit 163,338 112,429 186,506 181,344 74,101 Operating income (loss) 23,243 (45,911) 45,443 33,499 (11,286) Net interest expense 44,092 30,346 42,715 47,681 56,459 Earnings (loss) from continuing operations 21,764 (23,507) 52,399 1,816 (32,186) Earnings (loss) per share from continuing operations: Basic $ 0.87 $ (1.03) $ 2.78 $ 0.11 $ (1.98) Diluted 0.87 (1.03) 2.66 0.11 (1.98) Other Data: EBITDA 65,065 (20,254) 66,316 54,314 5,931 Capital expenditures 27,339 30,142 36,029 15,014 5,680 Cash provided by (used for) operating activities (67,072) 23,268 (85,231) (93,321) (48,951) Cash provided by (used for) investing activities 90,372 (99,157) 43,614 73,238 57,540 Cash provided by (used for) financing activities (41,373) 81,218 74,088 (1,455) (39,637) Balance Sheet Data: Total assets 1,267,420 1,328,786 1,157,259 1,052,666 993,398 Long-term debt, less current maturities 453,719 495,283 295,402 416,922 368,589 Stockholders' equity 402,113 407,500 473,559 232,424 230,861 per outstanding common share $ 16.05 $ 16.38 $ 20.54 $ 13.98 $ 14.10
The results of Banner Aerospace, Inc. are included in the periods since February 25, 1996, when Banner Aerospace became a majority-owned subsidiary. Prior to February 25, 1996, our investment in Banner Aerospace was accounted for using the equity method. Fiscal 1998 includes the gain from the disposition of Banner Aerospace's hardware group. The results of the hardware group are included in the periods from March 1996 through December 1997, until disposition. Fiscal 1999 includes the loss on the disposition of Banner Aerospace's Solair subsidiary and the loss recognized on the sale of Dallas Aerospace. The results of Solair are included in the periods from March 1996 through December 1998, until disposition. The results of Dallas Aerospace are included in the periods from March 1996 through November 1999, until disposition. These transactions materially affect the comparability of the information reflected in the selected financial data. EBITDA represents the sum of operating income before depreciation and amortization. Included in EBITDA are restructuring and unusual charges of $8,578, $6,374 and $2,319 in fiscal 2000, 1999 and 1996, respectively. We consider EBITDA to be an indicative measure of our operating performance due to the significance of our long-lived assets and because such data is considered useful by the investment community to better understand our results, and can be used to measure our ability to service debt, fund capital expenditures and expand our business. EBITDA is not a measure of financial performance under GAAP, may not be comparable to other similarly titled measures of other companies and should not be considered as an alternative either to net income as an indicator of our operating performance, or to cash flows as a measure of our liquidity. Cash expenditures for various long-term assets, interest expense, and income taxes have been, and will be incurred which are not reflected in the EBITDA presentation. 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The Fairchild Corporation was incorporated in October 1969, under the laws of the State of Delaware, under the name of Banner Industries, Inc. On November 15, 1990, we changed our name from Banner Industries, Inc. to The Fairchild Corporation. We are the owner of 100% of RHI Holdings, Inc. and Banner Aerospace, Inc. RHI is the owner of 100% of Fairchild Holding Corp. Our principal operations are conducted through FHC and Banner Aerospace. During the periods presented, we held significant equity interests in Nacanco Paketleme and Shared Technologies Fairchild Inc. The following discussion and analysis provide information which management believes is relevant to the assessment and understanding of our consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes thereto. GENERAL We are a leading worldwide aerospace and industrial fastener manufacturer and distribution supply chain services manager and, through Banner Aerospace, an international supplier to airlines and general aviation businesses, distributing a wide range of aircraft parts and related support services. Through internal growth and strategic acquisitions, we have become one of the leading suppliers of fasteners to aircraft OEMs, such as Boeing, European Aeronautic Defense and Space Company, General Electric, Lockheed Martin, and Northrop Grumman. Our aerospace business consists of two segments: aerospace fasteners and aerospace distribution. The aerospace fasteners segment manufactures and markets high performance fastening systems used in the manufacture and maintenance of commercial and military aircraft. The aerospace distribution segment stocks and distributes a wide variety of aircraft parts to commercial airlines and air cargo carriers, fixed-base operators, corporate aircraft operators and other aerospace companies. CAUTIONARY STATEMENT Certain statements in this financial discussion and analysis by management contain certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operation and business. These statements relate to analyses and other information which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies. These forward- looking statements are identified by their use of terms and phrases such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will" and similar terms and phrases, including references to assumptions. These forward-looking statements involve risks and uncertainties, including current trend information, projections for deliveries, backlog and other trend projections, that may cause our actual future activities and results of operations to be materially different from those suggested or described in this Annual Report on Form 10-K. These risks include: product demand; our dependence on the aerospace industry; reliance on Boeing and European Aeronautic Defense and Space Company; customer satisfaction and quality issues; labor disputes; competition, including recent intense 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 financial discussion and analysis by management, including investors and prospective investors are cautioned not to place undue reliance on such forward-looking statements. We do not intend to update these forward-looking statements in this Annual Report, even if new information, future events or other circumstances have made them incorrect or misleading. 14 RESULTS OF OPERATIONS Business Transactions The following summarizes certain business combinations and transactions we completed which significantly affect the comparability of the period to period results presented in this Management's Discussion and Analysis of Results of Operations and Financial Condition. Fiscal 2000 Transactions 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 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. 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 these assets. Approximately $37.0 million of the proceeds from this disposition were used to reduce our term indebtedness. On April 13, 2000, we completed a spin-off to our stockholders of the shares of Fairchild (Bermuda) Ltd. On April 14, 2000, Fairchild (Bermuda) sold to Convac Technologies Ltd. the Optical Disc Equipment Group business formerly owned by Fairchild Technologies. Subsequently, on April 14, 2000, Fairchild (Bermuda), renamed Global Sources Ltd., 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. Immediately after the share exchange, our stockholders owned 1,183,081 shares of the 26,152,308 issued shares of Global Sources. Global Sources shares are listed on the NASDAQ under the symbol "GSOL". Fiscal 1999 Transactions On December 31, 1998, Banner consummated the sale of Solair, Inc., its largest subsidiary in the rotables group of the aerospace distribution segment, to Kellstrom Industries, Inc., in exchange for approximately $60.4 million in cash and a warrant to purchase 300,000 shares of common stock of Kellstrom. In December 1998, Banner recorded a $19.3 million pre-tax loss from the sale of Solair. This loss was included in cost of goods sold as it was primarily attributable to the bulk sale of inventory at prices below the carrying amount of inventory. On February 22, 1999, we used available cash to acquire 77.3% of SNEP S.A. By June 30, 1999, we had purchased significantly all of the remaining shares of SNEP. The total amount paid was approximately $8.0 million, including $1.1 million of debt assumed, in a business combination accounted for as a purchase. The total cost of the acquisition exceeded the fair value of the net assets of SNEP by approximately $4.3 million, which is being allocated as goodwill, and amortized using the straight-line method over 40 years. SNEP is a French manufacturer of precision machined self-locking nuts and special threaded fasteners serving the European industrial, aerospace and automotive markets. On April 8, 1999, we acquired the remaining 15% of the outstanding common and preferred stock of Banner Aerospace, Inc. not already owned by us, through the merger of Banner with one of our subsidiaries. Under the terms of the merger with Banner, we issued 2,981,412 shares of our Class A common stock to acquire all of Banner's common and preferred stock (other than those already owned by us). Banner is now our wholly-owned subsidiary. 15 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 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. Fiscal 1998 Transactions On November 28, 1997, we acquired AS+C GmbH, Aviation Supply + Consulting in a business combination accounted for as a purchase. The total cost of the acquisition was $14.0 million, which exceeded the fair value of the net assets of AS+C by approximately $8.1 million, which is allocated as goodwill and amortized using the straight-line method over 40 years. We purchased AS+C with cash borrowings. AS+C is an aerospace parts, logistics, and distribution company primarily servicing the European OEM market. On December 19, 1997, we completed a secondary offering of public securities. The offering consisted of an issuance of 3,000,000 shares of our Class A common stock at $20.00 per share, which generated $57 million of net proceeds. On December 19, 1997, immediately following the Offering, we restructured our FHC and RHI credit agreements by entering into a new six-and-a-half-year credit facility to provide us with a $300 million senior secured credit facility consisting of (i) a $75 million revolving loan with a letter of credit sub- facility of $30 million and a $10 million swing loan sub-facility, and (ii) a $225 million term loan. On January 13, 1998, Banner Aerospace completed the disposition of substantially all of the assets and certain liabilities of certain of its subsidiaries to two wholly-owned subsidiaries of AlliedSignal Inc. (now Honeywell International), in exchange for shares of AlliedSignal common stock with an aggregate value of $369 million. The assets transferred to AlliedSignal consisted primarily of Banner Aerospace's hardware group, which included the distribution of bearings, nuts, bolts, screws, rivets and other types of fasteners, and its PacAero unit. Approximately $196 million of the common stock received from AlliedSignal Inc. was used to repay outstanding term loans of Banner Aerospace's subsidiaries, and related fees. On February 3, 1998, with the proceeds of the equity offering, term loan borrowings under the credit facility, and a portion of the after tax proceeds we received from the Shared Technologies Fairchild, we refinanced substantially all of our then existing indebtedness (other than indebtedness of Banner), consisting of (i) $63.0 million to redeem 11 7/8% Senior Debentures due 1999; (ii) $117.6 million to redeem 12% Intermediate Debentures due 2001; (iii) $35.9 million to redeem 13 1/8% Subordinated Debentures due 2006; (iv) $25.1 million to redeem 13% Junior Subordinated Debentures due 2007; and (vi) accrued interest of $10.6 million. On March 2, 1998, we acquired Edwards and Lock Management Corporation, doing business as Special-T Fasteners, in a business combination accounted for as a purchase. The cost of the acquisition was approximately $50.0 million, of which 50.1% of the contractual purchase price was paid in shares of our Class A common stock and 49.9% was paid in cash. The total cost of the acquisition exceeded the fair value of the net assets of Special-T by approximately $23.3 million, which is being allocated as goodwill, and amortized using the straight-line method over 40 years. Special-T manages the logistics of worldwide distribution of Company-manufactured precision fasteners to customers in the aerospace industry, government agencies, OEMs, and other distributors. On March 11, 1998, Shared Technologies Fairchild Inc. merged into Intermedia Communications Inc. Under the terms of the merger, holders of Shared Technologies Fairchild common stock received $15.00 per share in cash. We received 16 approximately $178.0 million in cash (before tax and selling expenses) in exchange for the common and preferred stock of Shared Technologies Fairchild we owned. In fiscal 1998, we recorded a $96.0 million gain, net of tax, on disposal of discontinued operations, from the proceeds received from the merger of Shared Technologies Fairchild with Intermedia. The results of Shared Technologies Fairchild have been accounted for as discontinued operations. On May 11, 1998, we commenced an offer to exchange, for each properly tendered share of common stock of Banner, a number of shares of our Class A common stock, par value $0.10 per share, equal to the quotient of $12.50 divided by $20.675 up to a maximum of 4,000,000 shares of Banner Aerospace's common stock. The exchange offer expired on June 9, 1998 and 3,659,364 shares of Banner Aerospace's common stock were validly tendered for exchange and we issued 2,212,361 shares Class A common stock to the tendering shareholders. Consolidated Results We currently report in two principal business segments: aerospace fasteners and aerospace distribution. The results of the Gas Springs division are included in the Corporate and Other classification. The following table illustrates the historical sales and operating income of our operations for the past three years.
(In thousands) For the years ended June 30, --------------------------------------------------------------- 2000 1999 1998 ----------------- ----------------- ----------------- Sales by Segment: 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) by Segment: 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) ----------------- ----------------- ----------------- Total Operating Income (Loss) (b) $ 23,243 $(45,911) $ 45,443 ================= ================= =================
(a) Represents intersegment 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. The following unaudited pro forma table illustrates sales and operating income of our operations by segment, on a pro forma basis, as if we had operated in a consistent manner for the past three years. The pro forma results represent the impact of our 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. The pro forma information is not necessarily indicative of the results of operations that would actually have occurred if the transactions had been in effect since the beginning of each period, nor are they necessarily indicative of our future results. 17
For the years ended June 30, --------------------------------------------------------------- 2000 1999 1998 ----------------- ----------------- ----------------- Sales by Segment: Aerospace Fasteners $533,620 $610,200 $630,538 Aerospace Distribution 79,308 70,196 68,335 Corporate and Other 739 6,264 5,760 ----------------- ----------------- ----------------- Total Sales $613,667 $686,660 $704,633 ================= ================= ================= Operating Income (Loss) by Segment: Aerospace Fasteners $ 33,909 $ 54,427 $ 68,037 Aerospace Distribution 5,680 (1,611) 3,355 Corporate and Other (18,397) (24,071) (12,439) ----------------- ----------------- ----------------- Total Operating Income (Loss) (a) $ 21,192 $ 28,745 $ 58,953 ================= ================= =================
(a) Fiscal 2000 results include restructuring charges of $8,578 in the aerospace fasteners segment. Fiscal 1999 results include costs relating to acquisitions of $23,604 and restructuring charges of $5,526 in the aerospace fasteners segment, $348 in the aerospace distribution segment, and $500 at corporate. Net sales of $635.4 million in 2000 increased by $18.0 million, or 2.9%, compared to sales of $617.3 million in 1999. The improvement is attributable primarily to the additional revenues provided by the acquisition of Kaynar Technologies, offset partially by the dispositions of Solair and Dallas Aerospace. Net sales of $617.3 million in 1999 decreased by $123.9 million, or 16.7%, compared to sales of $741.2 million in 1998. The decrease is attributable primarily to the loss of revenues resulting from the disposition of our aerospace distribution segment's hardware group and Solair. On a pro forma basis, net sales decreased 10.6% and 2.6% in 2000 and 1999, respectively, as compared to the previous fiscal periods. Gross margin as a percentage of sales was 25.7%, 18.2%, and 25.2% in 2000, 1999, and 1998, respectively. Included in cost of goods sold for 1999 was a charge of $41.5 million recognized in our aerospace distribution segment from the dispositions of Solair and Dallas Aerospace. Of this charge, $19.3 million was attributable to Solair's bulk sale of inventory at prices below the carrying amount. Excluding these charges, gross margin as a percentage of sales was 24.9% in fiscal 1999. The change in margins in 2000 and 1999 periods are attributable to a change in product mix as a result of the acquisitions and dispositions. Partially offsetting the overall lower margins in 1999 was an improvement in margins within our aerospace fasteners segment, resulting from acquisitions, efficiencies associated with production being integrated, and improved skills of the work force. Selling, general & administrative expense as a percentage of sales was 21.0%, 24.2%, and 19.2%, in 2000, 1999, and 1998, respectively. Included in selling, general & administrative expense in fiscal 1999 were $23.6 million of one-time costs associated primarily with the acquisition of Kaynar Technologies. Excluding these costs, selling, general & administrative expense as a percentage of sales would have been 20.4% in 1999. Other income increased $10.5 million in 2000 as compared to 1999, due primarily to $5.1 million of gains recognized on the disposition of real estate and $3.2 million in increased rental income received from new tenants occupying a shopping center we own and are developing in Farmingdale, New York. Other income decreased $2.6 million in 1999 as compared to 1998, due primarily to the fiscal 1998 condemnation of air rights over a portion of the property we own in Farmingdale, New York. In fiscal 1999, we recorded $6.4 million of restructuring charges. Of this amount, $0.5 million was recorded at our corporate office for severance benefits and $0.3 million was recorded at our aerospace distribution segment for the write- 18 off of building improvements from premises vacated. The remainder, $5.5 million was recorded as a result of the costs incurred from the initial integration of Kaynar Technologies into our aerospace fasteners segment, i.e. for severance benefits ($3.9 million), for product integration costs incurred as of June 30, 1999 ($1.3 million), and for the write down of fixed assets ($0.3 million). In fiscal 2000, we recorded $8.6 million of restructuring charges as a result of the continued integration of Kaynar Technologies into our aerospace fasteners segment. All of the charges recorded 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 30, 2000, significantly all of our integration plans have been executed and our integration process is substantially complete. Operating income of $23.2 million in fiscal 2000 increased $69.2 million, or 150.6%, compared to an operating loss of $45.9 million in fiscal 1999. We reported an operating loss of $45.9 million in fiscal 1999, which was a decrease from operating income of $45.4 million reported in fiscal 1998. Fiscal 1999 was affected by $71.4 million of expenses recognized for inventory impairment, restructuring costs and other costs related to acquisitions. Fiscal 2000 results also improved because of $5.1 million of gains recognized on the sale of real estate, and $3.2 million in increased rental income received from new tenants occupying a shopping center we own and are developing in Farmingdale, New York. Net interest expense increased by 45.3% in fiscal 2000 as compared to fiscal 1999, as a result of the additional debt we incurred to finance the acquisition of Kaynar Technologies. Net interest expense decreased 29.0% in fiscal 1999 compared to fiscal 1998. The improvement in fiscal 1999 was due to a series of transactions occurring in fiscal 1998 that significantly reduced our total debt. Investment income (loss), net, was $9.9 million, $39.8 million, and $(3.4) million in 2000, 1999, and 1998, respectively. Investment income in fiscal 2000 and fiscal 1999, respectively, was due primarily to recognizing realized gains on investments liquidated. We recognized a large gain in 1999 from the liquidation of our position in AlliedSignal to raise funds to acquire Kaynar Technologies. Nonrecurring income of $28.6 million in fiscal 2000 resulted from a $25.7 million, $2.0 million, and $0.9 million gains recognized on the disposition of our equity investment in Nacanco Paketleme, our Camloc Gas Springs division and a smaller equity investment, respectively. Nonrecurring income of $124.0 million in 1998 resulted from the disposition of Banner Aerospace's hardware group. We recorded an income tax benefit of $4.4 million in fiscal 2000 on earnings from continuing operations of $17.7 million. A tax benefit was recorded due primarily to a change in the estimate of required tax accruals. We recorded an income tax benefit of $13.2 million in fiscal 1999 representing a 36.3% effective tax rate on pre-tax losses from continuing operations. The tax benefit approximates the statutory rate. The income tax provision of $47.3 million reported in fiscal 1998 represents a 38.3% effective tax rate on pre-tax earnings from continuing operations of $123.4 million. The tax provision was slightly higher than the statutory rate because of goodwill associated with the disposition of Banner Aerospace's hardware group, which is not deductible for tax purposes. Equity in earnings of affiliates decreased $2.1 million in 2000, compared to 1999, and $0.8 million in 1999, compared to 1998. In July 1999, we divested our 31.9% interest in Nacanco and this reduced our equity earnings in fiscal 2000. The decrease in 1999 was attributable primarily to losses recorded by small start-up ventures. Included in earnings (loss) from discontinued operations are the results of Fairchild Technologies through January 1998, and our equity in earnings of Shared Technologies Fairchild prior to the merger of Shared Technologies Fairchild. (See Note 4 to our Consolidated Financial Statements). In 1998, we recorded a $96.0 million gain, net of tax, on disposal of discontinued operations, from the proceeds received from the merger of Shared Technologies Fairchild. This gain was partially offset in connection with the adoption of a formal plan to enhance the opportunities for disposition of Fairchild Technologies. In connection with the adoption of 19 such plan, we recorded an after-tax charge of $12.0 million, $31.3 million and $36.2 million in discontinued operations in fiscal 2000, 1999 and 1998, respectively. Included in the fiscal 1998 charge, was $28.2 million, net of an income tax benefit of $11.8 million, for the net losses of Fairchild Technologies through June 30, 1998, and $8.0 million, net of an income tax benefit of $4.8 million, for the estimated remaining operating losses of Fairchild Technologies. The fiscal 1999 after-tax operating loss from Fairchild Technologies exceeded the June 1998 estimate recorded for expected losses by $28.6 million, net of an income tax benefit of $8.1 million, through June 1999. An additional after-tax charge of $2.8 million, net of an income tax benefit of $2.4 million, was recorded in fiscal 1999, for estimated remaining losses in connection with the disposition of Fairchild Technologies. The fiscal 2000 after-tax loss in connection with the disposition of the remaining operations of Fairchild Technologies exceeded anticipated losses by $20.0 million, net of an income tax benefit of $8.0 million. In fiscal 1999, we recognized an extraordinary loss of $4.2 million, net of tax, to write-off the remaining deferred loan fees associated with the early extinguishment of our indebtedness pursuant to our acquisition of Kaynar Technologies (See Note 8). In fiscal 1998, we recognized an extraordinary loss of $6.7 million, net of tax, to write-off the remaining deferred loan fees and original issue discounts associated with early extinguishment of our indebtedness pursuant the repayment of all our public debt and refinancing of credit facilities. Comprehensive income (loss) includes foreign currency translation adjustments and unrealized holding changes in the fair market value of available-for-sale investment securities. The fair market value of unrealized holding securities declined by $4.0 million and $16.5 million in fiscal 2000 and 1999, respectively. The changes reflect primarily gains realized from the liquidation of investments, including AlliedSignal common stock divested in fiscal 1999. Foreign currency translation adjustments decreased by $10.1 million and $2.5 million in fiscal 2000 and 1999, respectively, due primarily to the strengthening of the U.S. Dollar against the French Franc and German Mark. Segment Results Aerospace Fasteners Segment Sales by our aerospace fasteners segment increased by $90.9 million to $533.6 million, up 20.5% in fiscal 2000, compared to fiscal 1999. These improvements reflected growth from acquisitions, offset partially by weakened demand for our products in the commercial aerospace industry. On June 30, 2000, our backlog was $204 million compared to $220 million at June 30, 1999. On a pro forma basis, sales decreased by 12.5% in fiscal 2000, as compared to fiscal 1999. Our operations in the United States were negatively impacted by reduced bookings caused by inventory reduction efforts at Boeing and its ripple effect on prices. Sales in the aerospace fasteners segment increased by $55.5 million to $442.7 million, up 14.3% in fiscal 1999, compared to fiscal 1998, reflecting growth due primarily to the acquisition of Kaynar Technologies. Backlog increased by $38 million in fiscal 1999 to $220 million at June 30, 1999, reflecting the acquisition of Kaynar Technologies. Excluding $90 million of backlog contributed by Kaynar Technologies, our backlog decreased $52 million in fiscal 1999. On a pro forma basis reflecting acquisitions in comparable periods, sales decreased 3.2% in fiscal 1999, compared to fiscal 1998. Operating income in our aerospace fasteners segment decreased by $5.0 million in fiscal 2000, compared to fiscal 1999. Included in our fiscal 2000 and 1999 results are restructuring charges incurred of $8.6 million and $5.5 million, respectively, due to the integration of Kaynar Technologies into our Aerospace Fasteners business. Excluding restructuring charges, operating income decreased by $2.0 million in fiscal 2000, compared to fiscal 1999, reflecting reduced margins due to pricing pressures offset partially by cost improvement initiatives and acquisitions made during fiscal 1999. Operating expenses at all operations are being strictly controlled as management attempts to reduce operating costs to improve operating results in the short term, without adversely affecting our future performance. Operating income increased by $6.2 million, or 19.1%, in fiscal 1999, compared to fiscal 1998. Included in our 1999 results are restructuring charges of $5.5 million for integration costs and severance from the integration of our business with the Kaynar Technologies business. Excluding restructuring charges, operating income increased $11.8 million in fiscal 1999 compared to fiscal 1998. On a pro forma basis and excluding restructuring charges, operating income decreased by $17.5 20 million in fiscal 2000, compared to fiscal 1999, and $8.1 million in fiscal 1999 as compared to fiscal 1998, due to lower sales levels associated with a weakened commercial aerospace industry and its negative effects on operating effectiveness. We believe the overall demand for aerospace fasteners in fiscal 2001 will improve as the results of Boeing's inventory reduction program diminishes and the announced increase in aircraft build rates favorably affect demand. We believe that the integration savings from the Kaynar merger and production efficiency improvements will partially offset the weakened demand for our products. Aerospace Distribution Segment Sales in our aerospace distribution segment decreased by $67.3 million, or 40.0%, in fiscal 2000, compared to the fiscal 1999 period. The decrease was due to the loss of revenues as a result of the disposition of Solair and Dallas Aerospace. Sales decreased by $190.1 million, or 53.0%, in fiscal 1999, compared to the fiscal 1998 period, due primarily to the loss of revenues as a result of the disposition of the hardware group and Solair. On a pro forma basis, sales increased $9.1 million, or 13.0%, in 2000 compared to 1999, and $1.9 million, or 2.7%, in 1999 compared to 1998. Operating income in our aerospace distribution segment increased by $47.8 million in fiscal 2000, compared to fiscal 1999. Included in the fiscal 1999 period, was a charge of $19.3 million due to the sale of Solair and a $22.1 million charge relating to the potential sale of Dallas Aerospace. Operating income decreased by $60.3 million, in fiscal 1999, as compared to fiscal 1998. A charge of $41.4 million is included in the 1999 results, in connection with the disposition of Solair and the potential disposition of Dallas Aerospace. Excluding these charges, operating income would have decreased $18.9 million in fiscal 1999, compared to fiscal 1998, due primarily to the disposition of Solair and the hardware group. On a pro forma basis, operating income increased by $7.3 million in fiscal 2000, compared to fiscal 1999, reflecting increases in margins and a reduction in corporate overhead. Corporate and Other The Corporate and Other segment includes the Gas Springs division prior to its disposition and corporate activities. The group reported an improvement of $26.4 million, or 58.9%, reducing operating losses from $44.9 million in fiscal 1999 to $18.4 million in fiscal 2000. An operating loss of $44.9 million in fiscal 1999 was $37.3 million higher than the operating loss of $7.6 million reported in fiscal 1998. Results from fiscal 2000 included $5.1 million of gains recognized on the disposition of real estate and $3.2 million in increased rental income received from new tenants occupying a shopping center we own and are developing in Farmingdale, New York. Results from fiscal 1999 included $23.6 million of one-time costs associated primarily with the acquisition of Kaynar Technologies, restructuring charges, and increased environmental, legal and travel expenses. Results from fiscal 1998 included other income of $8.6 million, including $4.4 million realized as a result of the condemnation of air rights over a portion of the property we own and are developing in Farmingdale, New York. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Total capitalization as of June 30, 2000 and 1999 amounted to $884.4 million and $931.6 million, respectively. The changes in capitalization included a decrease of $41.8 million in debt and a decrease of $5.4 million in equity. The decrease in debt reflected a $81.3 million decrease in term loan borrowing with our primary lenders, as a result of the proceeds received from the divestiture of assets, offset partially by $30.8 million of cash borrowed from a new term loan facility used to support our operations and finance construction costs to complete a shopping center being developed in Farmingdale, New York. The decrease in equity was due primarily to a $14.1 million decrease in cumulative other comprehensive income, offset partially by reported net income of $9.8 million. We maintain a portfolio of investments classified primarily as available-for- sale securities, which had a fair market value of $19.1 million at June 30, 2000. The market value of the investment portfolio decreased by $4.0 million in 2000 as a result of realized gains from the divestiture of securities. While there is risk associated with market fluctuations inherent in stock investments, and because our portfolio is not diversified, large swings in its value should be expected. 21 We have an 88-acre site in Farmingdale, New York, which we are developing and operating as a shopping center. We have invested (cash and capitalized interest) approximately $28.8 million, $40.4 million, and $17.3 million into this project in 2000, 1999 and 1998, respectively. We estimate additional funding of approximately $5.0 million is needed to complete the current phases of this project. Net cash used for operating activities for fiscal 2000 was $67.1 million. The primary use of cash for operating activities in fiscal 2000 was a $23.2 million increase in inventories, a $12.0 million decrease in accounts payable, and a $25.7 million increase in other current assets. Net cash provided by operating activities for fiscal 1999 was $23.3 million. The primary source of cash for operating activities in fiscal 1999 was an increase in accounts payable, accrued liabilities and other long-term liabilities of $45.9 million, partially offset by our net loss and non-cash adjustments of $16.8 million. Net cash used for operating activities for fiscal 1998 was $85.2 million. The primary use of cash for operating activities in fiscal 1998 was a $54.9 million increase in inventories. Net cash provided from investing activities for fiscal 2000 was $90.4 million and included $108.8 million in proceeds received from the dispositions of Dallas Aerospace, our Gas Springs division and our investment in Nacanco Paketleme, and $12.0 million proceeds received from the condemnation of property. This was slightly offset by cash used for capital expenditures and real estate investments of $27.3 million and $27.7 million, respectively. Net cash used for investing activities for fiscal 1999 was $99.2 million and included $274.4 million used for acquisitions, partially offset by $189.4 million received from the liquidation of investments. Net cash provided from investing activities for fiscal 1998 was $43.6 million and included proceeds of $168.0 million received from the disposition of discontinued operations, including Shared Technologies Fairchild. This was offset slightly by cash used for the acquisition of subsidiaries and minority interests of $32.8 million and $26.4 million, respectively. Net cash used for financing activities in fiscal 2000 was $41.4 million, The primary use of cash for financing activities in fiscal 2000 was $39.4 million used to reduce debt. Net cash provided by financing activities in fiscal 1999 and fiscal 1998 was $81.2 million and $74.1 million, respectively. Cash provided by financing activities in fiscal 1999 included the issuance of additional debt of $483.2 million offset partially by $380.0 million of debt repayments and $22.1 million of treasury stock purchased. We increased our debt in fiscal 1999, as a result of the acquisition of Kaynar Technologies. Cash provided by financing activities in fiscal 1998 included the issuance of $53.8 million of stock from our 1998 equity offering and $275.5 million from the issuance of additional debt partially offset by $258.0 million from the repayment of debt and the repurchase of debentures. Our principal cash requirements include debt service, capital expenditures, acquisitions, real estate development, and payment of other liabilities. Other liabilities that require the use of cash include postretirement benefits, environmental investigation and remediation obligations, and litigation settlements and related costs. We expect that cash on hand, cash generated from operations, cash from borrowings and additional financing and asset sales will be adequate to satisfy our cash requirements in fiscal 2001. 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 million 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 $0.4 million 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. 22 Discontinued Operations In 1998, we adopted a formal plan to dispose of Fairchild Technologies. Based on this plan, we have sold the Fairchild Technologies' businesses, including most of its intellectual property, through a series of transactions. On April 14, 1999, we disposed of Fairchild Technologies photoresist deep-ultraviolet track equipment machines, spare parts and testing equipment to Apex Co., Ltd. in exchange for 1,250,000 shares of Apex stock valued at approximately $5.1 million. On June 15, 1999, we received from Suess Microtec AG $7.9 million and the right to receive 350,000 shares of Suess Microtec stock, or at least approximately $3.5 million, by September 2000 in exchange for certain inventory, fixed assets, and intellectual property of Fairchild Technologies' semiconductor equipment group. On May 1, 1999, we sold Fairchild CDI for a nominal amount. In July 1999, we received approximately $7.1 million from Novellus Systems, Inc. in exchange for Fairchild Technologies' Low-K dielectric product line and certain intellectual property. On April 13, 2000, we completed the disposition of Fairchild Technologies' optical disc equipment group by a spinoff of Fairchild (Bermuda), Ltd. to our shareholders. Year 2000 We did not experience any material problems as a result of the Year 2000 turnover or in connection with the leap year date of February 29, 2000. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes a new model for accounting for derivatives and hedging activities and supersedes and amends a number of existing accounting standards. It requires that all derivatives be recognized as assets and liabilities on the balance sheet and measured at fair value. The corresponding derivative gains or losses are reported based on the hedge relationship that exists, if any. Changes in the fair value of derivative instruments that are not designated as hedges or that do not meet the hedge accounting criteria in SFAS 133, are required to be reported in earnings. Most of the general qualifying criteria for hedge accounting under SFAS 133 were derived from, and are similar to, the existing qualifying criteria in SFAS 80 "Accounting for Futures Contracts." SFAS 133 describes three primary types of hedge relationships: fair value hedge, cash flow hedge, and foreign currency hedge. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137 to defer the required effective date of implementing SFAS 133 from fiscal years beginning after June 15, 1999 to fiscal years beginning after June 15, 2000. We adopted SFAS 133 on July 1, 2001 and recognize a cumulative pre-tax loss of approximately $0.8 million. 23 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The table below provides information about our derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, which include interest rate swaps. For interest rate swaps, the table presents notional amounts and weighted average interest rates by expected (contractual) maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting date. (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. 24 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 26 Consolidated Balance Sheets as of June 30, 2000 and 1999 27 Consolidated Statements of Earnings for each of the Three Years Ended June 30, 2000, 1999, and 1998 29 Consolidated Statements of Stockholders' Equity for each of the Three Years Ended June 30, 2000, 1999, and 1998 31 Consolidated Statements of Cash Flows for each of the Three Years Ended June 30, 2000, 1999, and 1998 32 Notes to Consolidated Financial Statements 33
Supplementary information regarding "Quarterly Financial Data (Unaudited)" is set forth under Item 8 in Note 20 to Consolidated Financial Statements. 25 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 26 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. 27 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. 28 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. 29 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. 30 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. 31 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. 32 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 product and performance of services. Sales and related cost of sales on long- term contracts are recognized as products are delivered and services performed, determined by the percentage of completion method. Lease and rental revenue are recognized 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. 33 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. 34 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. 35 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 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 36 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 sold the Fairchild Technologies' businesses, including most of its intellectual property, through a series of transactions. On April 14, 1999, we disposed of Fairchild Technologies photoresist deep- ultraviolet track equipment machines, spare parts and testing equipment to Apex Co., Ltd. in exchange for 1,250,000 shares of Apex stock valued at approximately $5.1 million. On June 15, 1999, we received from Suess Microtec AG $7.9 million and the right to receive by September 2000, 350,000 shares of Suess Microtec stock, or at least approximately $3.5 million, in exchange for certain inventory, fixed assets, and intellectual property of Fairchild Technologies' semiconductor equipment group. On May 1, 1999, we sold Fairchild CDI for a nominal amount. In July 1999, we received approximately $7.1 million from Novellus Systems, Inc. in exchange for Fairchild Technologies' Low-K dielectric product line and certain intellectual property. On April 13, 2000, we completed the disposition of Fairchild Technologies' optical disc equipment group by a spinoff of Fairchild (Bermuda), Ltd. to our shareholders. 37 In connection with the adoption of such plan, we recorded an after-tax charge of $12.0 million, $31.3 million and $36.2 million in discontinued operations in fiscal 2000, 1999 and 1998, respectively. Included in the fiscal 1998 charge, was $28.2 million, net of an income tax benefit of $11.8 million, for the net losses of Fairchild Technologies through June 30, 1998 and $8.0 million, net of an income tax benefit of $4.8 million, for the estimated remaining operating losses of Fairchild Technologies. The fiscal 1999 after-tax operating loss from Fairchild Technologies exceeded the June 1998 estimate recorded for expected losses by $28.6 million, net of an income tax benefit of $8.1 million, through June 1999. An additional after-tax charge of $2.8 million, net of an income tax benefit of $2.4 million, was recorded in fiscal 1999, for estimated remaining losses in connection with the disposition of Fairchild Technologies. The fiscal 2000 after-tax loss in connection with the disposition of the remaining operations of Fairchild Technologies exceeded anticipated losses by $20.0 million, net of an income tax benefit of $8.0 million. 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. 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 set forth the derivation of the unaudited pro forma results, representing the impact of our acquisition of Kaynar Technologies (completed in April 1999), our merger with Banner Aerospace (completed in April 1999), our acquisition of Special-T (effective January 1998), 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. 38 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 39 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% and 3.6% in 2000 and 1999, respectively) $ 23,069 $ 22,924 ============== ============== 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. 40 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 or merge or sell all or substantially all of our assets or the assets of certain of our subsidiaries. In addition, we will be obligated to offer to repurchase the notes at 100% of their principal amount, plus accrued and unpaid interest, if any, to the date of repurchase, in the event of certain asset sales. These restrictions and prohibitions are subject to a number of important qualifications and exceptions. 41 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. 42 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, June 30, 2000 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. 43 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. 44 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) 45 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 ========== ========== ===========
46 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 ======== ======== The 2000, 1999 and 1998 net tax benefits include the results of reversing $7,800, $1,790 and $3,905, respectively, of federal income taxes previously provided, due to a change in the estimate of required tax accruals. Domestic income taxes, less available credits, are provided on the unremitted income of foreign subsidiaries and affiliated companies, to the extent we intend to repatriate such earnings. No domestic income taxes or foreign withholding taxes are provided on the undistributed earnings of foreign subsidiaries and affiliates, which are considered 47 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. 48 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 ============================== ================= =============== ================ ================ ===========
49 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 its 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 50 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 remainder, $5,526 was recorded as a result of the Kaynar Technologies initial integration in our aerospace fasteners segment, i.e. for severance benefits ($3,932), for product integration costs incurred as of June 30, 1999 ($1,334), and for the write down of fixed assets ($260). In fiscal 2000, we recorded $8,578 of 51 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 2 1/2 to 4 1/2 years, 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 2001 compensation. 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. $95 of the first loan for $100 was repaid in full on October 1, 1998. 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. 52 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 ============== 53 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. 54 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. 55 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. 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 ================ ================ ================
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 ================ ================ ================
56 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 57 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 =========== ============ ============ =============== ==========
58 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 2,079 82,054 43,097 - 127,230 Allowances 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 =========== ============ ============ ============== ============
59 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 - - (28,625) - (28,625) of subsidiary Change in assets and liabilities 58,562 (124,976) (53,815) 53,086 (67,143) Non-cash charges and working capital changes of - - (13,351) - (13,351) discontinued operations ----------- ------------ ------------ --------------- --------- 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) =========== =========== =========== =========== ===========
61 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 =========== =========== =========== =========== ===========
62 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 =========== =========== =========== =========== ===========
63 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 =========== =========== =========== =========== ===========
64 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 ========== ========== ========== ========== ==========
65 ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 5. OTHER INFORMATION Articles have appeared in the French press reporting an inquiry by a French magistrate into allegedly improper business transactions involving Elf Acquitaine, a French petroleum company, its former chairman and various third parties. In connection with this inquiry, the magistrate has made inquiry into allegedly improper transactions between Mr. Steiner and that petroleum company. In response to the magistrate's request that Mr. Steiner appear in France as a witness, Mr. Steiner submitted written statements concerning the transactions and appeared in person before the magistrate and others. The magistrate has put Mr. Steiner under examination (mis en examen) with respect to this matter and imposed a surety (caution) of ten million French francs which has been paid. Mr. Steiner has not been charged. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The information required by this Item is incorporated herein by reference from the 2000 Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated herein by reference from the 2000 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated herein by reference from the 2000 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated herein by reference from the 2000 Proxy Statement. 66 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K The following documents are filed as part of this Report: (a)(1) Financial Statements. All financial statements of the registrant as set forth under Item 8 of this report on Form 10-K (see index on Page 15). (a)(2) Financial Statement Schedules and Report of Independent Public Accountants.
Schedule Number Description Page - - --------------- ------------------------------------------------- ---- I Condensed Financial Information of Parent Company 69 II Valuation and Qualifying Accounts 73
All other schedules are omitted because they are not required. 67 Report of Independent Public Accountants To The Fairchild Corporation: We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of The Fairchild Corporation and consolidated subsidiaries included in this Form 10-K and have issued our report thereon dated September 11, 2000. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the index on the preceding page are the responsibility of the Company's management and are presented for the purpose of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Vienna, VA September 11, 2000 68 SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT THE FAIRCHILD CORPORATION CONDENSED FINANCIAL STATEMENTS OF THE PARENT COMPANY BALANCE SHEETS (NOT CONSOLIDATED) (In thousands)
June 30, June 30, ASSETS 2000 1999 --------------------- --------------------- Current assets: Cash and cash equivalents $ 35 $ 27 Marketable Securities 71 71 Accounts receivable 2,079 549 Inventory (182) Current tax assets 49,181 - Prepaid expenses and other current assets 141 1,297 --------------------- --------------------- Total current assets 51,507 1,762 Property, plant and equipment, less accumulated depreciation 493 611 Investments in subsidiaries 869,958 841,744 Investments and advances, affiliated companies 945 1,300 Goodwill 16,528 5,533 Noncurrent tax assets - 19,026 Deferred loan fees 13,284 13,029 Other assets 17,947 16,244 --------------------- --------------------- Total assets $970,662 $899,249 ===================== ===================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 2,250 $ 2,250 Accounts payable 2,954 972 Accrued Salaries 111 497 Accrued Insurance 213 213 Accrued Interest 5,736 7,049 Other Accrued 343 1,990 Accrued Income Taxes - (2,477) --------------------- --------------------- Total current liabilities 11,607 10,494 Long-term debt 410,691 480,850 Other long-term liabilities 405 405 Noncurrent Income Tax 145,847 - --------------------- --------------------- Total liabilities 568,550 491,749 Stockholders' equity: Class A common stock 3,008 2,775 Class B common stock 262 262 Notes due from stockholders (520) - Treasury stock (75,020) (74,102) Cumulative comprehensive Income (46) (764) Additional paid in capital 5,158 2,138 Retained earnings 469,270 477,191 --------------------- --------------------- Total stockholders' equity 402,112 407,500 --------------------- --------------------- Total liabilities and stockholders' equity $970,662 $899,249 ===================== =====================
The accompanying notes are an integral part of these condensed financial statements. 69 Schedule I THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED FINANCIAL STATEMENTS OF THE COMPANY STATEMENT OF EARNINGS (NOT CONSOLIDATED) (In thousands)
For the Years Ended June 30, ------------------------------------------------------------------- 2000 1999 1998 ------------------------------------------------------------------- Costs and Expenses: Selling, general & administrative $ 6,175 $ 8,114 $ 3,516 Amortization of goodwill 808 248 147 ------------------------------------------------------------------- 6,983 8,362 3,663 Operating loss (6,983) (8,362) (3,663) Net interest expense 42,347 27,130 24,048 Investment income, net 6 -- 208 Equity in earnings of affiliates (347) 967 (613) ------------------------------------------------------------------- Loss from continuing operations before taxes (49,671) (34,525) (28,116) Income tax provision (benefit) (6,343) (21,481) (10,580) ------------------------------------------------------------------- Loss before equity in earnings (loss) of subsidiaries (43,328) (13,044) (17,536) Equity in earnings (loss) of subsidiaries 53,086 (45,965) 118,626 ------------------------------------------------------------------- Net earnings (loss) $ 9,758 $(59,009) $101,090 ===================================================================
The accompanying notes are an integral part of these condensed financial statements. 70 Schedule I THE FAIRCHILD CORPORATION CONDENSED FINANCIAL STATEMENTS OF THE PARENT COMPANY STATEMENT OF CASH FLOWS (NOT CONSOLIDATED) (IN THOUSANDS)
For the Years Ended June 30, --------------------------------------------------------------- 2000 1999 1998 ------------------- --------------------- ------------------- Cash provided by (used for) operations $ 70,326 $ (37,482) $ (80,074) Investing activities: Acquisition of subsidiaries -- (221,467) -- Purchase of PP&E (5) (61) -- Equity investments in affiliates -- 630 (141) Other -- -- -- ------------------- --------------------- ------------------- (5) (220,898) (141) Financing activities: Proceeds from issuance of debt, including intercompany 52,200 483,100 225,000 Debt repayments (122,359) (225,000) (198,867) Issuance of common stock 366 307 53,848 Other (520) -- -- ------------------- --------------------- ------------------- (70,313) 258,407 79,981 ------------------- --------------------- ------------------- Net increase (decrease) in cash $ 8 $ 27 $ (234) =================== ===================== ===================
The accompanying notes are an integral part of these condensed financial statements. 71 Schedule I THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED FINANCIAL STATEMENTS OF THE COMPANY NOTES TO FINANCIAL STATEMENTS (NOT CONSOLIDATED) (In thousands) 1. BASIS OF PRESENTATION In accordance with the requirements of Regulation S-X of the Securities and Exchange Commission, our financial statements are condensed and omit many disclosures presented in the consolidated financial statements and the notes thereto. 2. LONG-TERM DEBT
June 30, June 30, 2000 1999 ------------------ ---------------- Bank Credit Agreement $187,941 $258,100 10 3/4% Senior subordinated Notes Due 2009 225,000 225,000 ------------------ ---------------- Total Debt 412,941 483,100 ================== ================ Less: Current Maturities (2,250) (2,250) ------------------ ---------------- Total Long-Term Debt $410,691 $480,850 ================== ================
Long-term debt maturing over the next five years is as follows: $2,250 in 2001, $2,250 in 2002, $2,250 in 2003, $2,250 in 2004, and $2,250 in 2005. 3. DIVIDENDS FROM SUBSIDIARIES Cash dividends paid to The Fairchild Corporation by its consolidated subsidiaries were, $25,317, $47,742 and $42,100 in 2000, 1999 and 1998, respectively. In 1999, The Fairchild Corporation received from its subsidiaries, dividends of its stock with a fair market value of $22,102 and Banner Aerospace's stock with a fair market value of $187,424. We are involved in various other claims and lawsuits incidental to our business, some of which involve substantial amounts. 4. CONTINGENCIES We are involved in various other claims and lawsuits incidental to our business, some of which involve substantial amounts. We, either on our own or through our insurance carriers, are contesting these matters. In the opinion of management, the ultimate resolution of the legal proceedings will not have a material adverse effect on our financial condition, or future results of operations or net cash flows. 72 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Changes in the allowance for doubtful accounts are as follows:
For the Years Ended June 30, ------------------------------------------------------- 2000 1999 1998 --------------- --------------- -------------- Beginning balance $6,442 $ 5,655 $ 6,905 Charges to cost and expenses 2,377 3,426 2,240 Charges to other accounts (a) 1,671 (2,940) (2,642) Acquired companies - 616 - Amounts written off (892) (315) (848) --------------- --------------- -------------- Ending Balance $9,598 $ 6,442 $ 5,655 =============== =============== ==============
(a) Recoveries of amounts written off in prior periods, foreign currency translation and the change in related noncurrent taxes. Fiscal 1998 includes a reduction of $2,801 relating to the assets disposed of as a result the disposition of Banner Aerospace's hardware group. 73 (a)(3) Exhibits. Articles of Incorporation, Bylaws, and Instruments Defining Rights of Securities 3.1 Registrant's Restated Certificate of Incorporation (incorporated by reference to Exhibit "C" of Registrant's Proxy Statement dated October 27, 1989). 3.2 Registrant's Amended and Restated By-Laws, as amended as of November 21, 1996 (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 29, 1996). 3.3 Amendment to the Company's By-Laws, dated as of February 12, 1999 (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1999). 3.4 Amendment to the Company's By-Laws, dated February 17, 2000, together with Charter for the Board's Audit Committee, adopted on February 17, 2000 (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 2, 2000). 4.1 Specimen of Class A Common Stock certificate (incorporated by reference to Registration Statement No. 33-15359 on Form S-2). 4.2 Specimen of Class B Common Stock certificate (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1989). 4.3 Indenture dated as of April 20, 1999, between the Company and Subsidiary Guarantors and The Bank of New York, as Trustee (relating to the Company's 10 3/4% Senior Subordinated Notes Due 2009) (incorporated by reference to Registrant's Registration Statement No. 333-80311 on Form S-4, declared effective August 9, 1999). 4.4 Form of Global Note (relating to the Company's 10 3/4% Senior Subordinated Notes Due 2009) (incorporated by reference to Registrant's Registration Statement No. 333-80311 on Form S-4, declared effective August 9, 1999). 4.5 Registration Rights Agreement, dated April 15, 1999, between the Company and Credit Suisse First Boston Corporation on behalf of the Initial Purchasers (relating to the Company's 10 3/4% Senior Subordinated Notes Due 2009) (incorporated by reference to Registrant's Registration Statement No. 333-80311 on Form S-4, declared effective August 9, 1999). 4.6 Purchase Agreement, dated as of April 15, 1999, between the Company, the Subsidiary Guarantors and the Initial Purchasers (relating to the Company's 10 3/4% Senior Subordinated Notes Due 2009) (incorporated by reference to Registrant's Registration Statement No. 333-80311 on Form S-4, declared effective August 9, 1999). (a)(3) Exhibits (continued) 10. Material Contracts (Stock Option Plans) 10.1 1988 U.K. Stock Option Plan of Banner Industries, Inc. (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1988). 10.2 Description of grants of stock options to non-employee directors of Registrant (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1988). 74 10.3 Amended and Restated 1986 Non-Qualified and Incentive Stock Option Plan, dated as of February 9, 1998 (incorporated by reference to Exhibit B of Registrant's Proxy Statement dated October 9, 1998). 10.4 Amendment Dated May 7, 1998 to the 1986 Non-Qualified and Incentive Stock Option Plan (incorporated by reference to Exhibit A of Registrant's Proxy Statement dated October 9, 1998). 10.5 1996 Non-Employee Directors Stock Option Plan (incorporated by reference to Exhibit B of Registrant's Proxy Statement dated October 7, 1996). 10.6 Stock Option Deferral Plan dated February 9, 1998 (for the purpose of allowing deferral of gain upon exercise of stock options) (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 29, 1998). *10.7 Amendment to the Stock Option Deferral Plan, dated June 28, 2000 (for the purpose of making an equitable adjustment in connection with the spin off of Fairchild Bermuda and the receipt of Global Sources shares). 10.8 Amendment dated May 21, 1999, amending the 1996 Non-Employee Directors Stock Option Plan (for the purpose of allowing deferral of gain upon exercise of stock options) (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1999). (Employee Agreements) 10.9 Amended and Restated Employment Agreement between Registrant and Jeffrey J. Steiner dated September 10, 1992 (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1993). 10.10 Employment Agreement between RHI Holdings, Inc., and Jacques Moskovic, dated as of December 29, 1994 (incorporated by reference to Registrant's Annual Report on Form 10-K/A for the fiscal year ended June 30, 1996). 10.11 Employment Agreement between Fairchild France, Inc., and Jacques Moskovic, dated as of December 29, 1994 (incorporated by reference to Registrant's Annual Report on Form 10-K/A for the fiscal year ended June 30, 1996). 10.12 Employment Agreement between Fairchild France, Inc., Fairchild CDI, S.A., and Jacques Moskovic, dated as of April 18, 1997 (incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1995). 10.13 Letter Agreement dated September 9, 1996, between Registrant and Colin M. Cohen (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997). 10.14 Banner Aerospace, Inc. Deferred Bonus Plan, dated January 21, 1998 (as amended), to allow the deferral of bonuses in connection with 1998 or 1999 Extraordinary Transactions (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1999). 10.15 Letter Agreement dated February 27, 1998, between Registrant and John L. Flynn (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 29, 1998). 10.16 Letter Agreement dated February 27, 1998, between Registrant and Donald E. Miller (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 29, 1998). 10.17 Employment Agreement between Robert Edwards and Fairchild Holding Corp., dated March 2, 1998 (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 29, 1998). 75 10.18 Promissory Note in the amount of $100,000, issued by Robert Sharpe to the Registrant, dated July 1, 1998 (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1998). 10.19 Promissory Note in the amount of $200,000 issued by Robert Sharpe to the Registrant, dated July 1, 1998 (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1998). 10.20 Officer Loan Program, dated as of February 5, 1999, lending up to $750,000 to officers for the purchase of Company Stock (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1999). 10.21 Director and Officer Loan Program, dated as of August 12, 1999, lending up to $2,000,000 to officers and directors for the purchase of Company Stock (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1999). *10.22 Employment Agreement between Eric Steiner and The Fairchild Corporation, dated as of August 1, 2000. *10.23 Employment Agreement between Banner Aerospace, Inc. and Warren D. Persavich (together with Amendment No. 1 to such Agreement). (Credit Agreements) Fairchild Holding Corp. Credit Agreement 10.24 Restated and Amended Credit Agreement dated as of July 26, 1996, among Fairchild Holding Corp, Citicorp USA, Inc. and certain financial institutions (the "FHC Credit Agreement") (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1996). 10.25 Amendment No. 1, dated as of January 21, 1997, to the FHC Credit Agreement dated as of March 13, 1996 (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 30, 1997). 10.26 Amendment No. 2 and Consent, dated as of February 21, 1997, to the FHC Credit Agreement dated as of March 13, 1996 (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 30, 1997). 10.27 Amendment No. 3, dated as of June 30, 1997, to the FHC Credit Agreement dated as of March 13, 1996 (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997). 10.28 Second Amended And Restated Credit Agreement dated as of July 18, 1997, to the FHC Credit Agreement dated as of March 13, 1996 (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997). RHI Credit Agreement 10.29 Restated and Amended Credit Agreement dated as of May 27, 1996, (the "RHI Credit Agreement"), among RHI Holdings, Inc., Citicorp USA, Inc. and certain financial institutions. (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1996). 10.30 Amendment No. 1 dated as of July 29, 1996, to the RHI Credit Agreement dated as of May 27, 1996 (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1996). 76 10.31 Amendment No. 2 dated as of April 7, 1997, to the RHI Credit Agreement dated as of May 27, 1996 (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997). 10.32 Amendment No. 3 dated as of September 26, 1997, to the RHI Credit Agreement dated as of May 27, 1996 (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 28, 1997). Fairchild Corporation Credit Agreement 10.33 Third Amended and Restated Credit Agreement, dated as of December 19, 1997, among RHI Holdings, Inc., Fairchild Holding Corp., the Registrant, Citicorp USA, Inc. and certain financial institutions (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended December 28, 1997). 10.34 Amendment No. 1 dated as of January 29, 1999 to Third Amended and Restated Credit Agreement dated as of December 19, 1997 (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 28, 1999). 10.35 Credit Agreement dated as of April 20, 1999, among The Fairchild Corporation (as Borrower), Citicorp. USA, Inc. and certain financial institutions (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1999). 10.36 Amendment No. 1, dated as of November 29, 1999 to the Credit Agreement dated as of April 20, 1999 (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended January 2, 2000). 10.37 Amendment No. 2, dated as of March 10, 2000 to the Credit Agreement dated as of April 20, 1999 (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 2, 2000). Warthog, Inc. Credit Agreement 10.38 Mortgage and Security Agreement with Morgan Guaranty Trust Company of New York dated March 23, 2000 (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 2, 2000). Interest Rate Hedge Agreements 10.39 Interest Rate Hedge Agreement between Registrant and Citibank, N.A. dated as of August 19, 1997 (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 28, 1997). 10.40 Amendment dated as of December 23, 1997, to the Interest Rate Hedge Agreement between Registrant and Registrant and Citibank, N.A. dated as of August 19, 1997(incorporated by reference to (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended December 28, 1997). 10.41 Amendment dated as of January 14, 1997, to the Interest Rate Hedge Agreement between Registrant and Citibank, N.A. dated as of August 19, 1997 (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 29, 1998). (Warrants to Steiner Affiliate) 10.42 Form Warrant Agreement (including form of Warrant) issued by the Company to Drexel Burnham Lambert on March 13, 1986, subsequently purchased by Jeffrey Steiner and subsequently assigned to Stinbes Limited (an affiliate of 77 Jeffrey Steiner), for the purchase of Class A or Class B Common Stock (incorporated herein by reference to Exhibit 4(c) of the Company's Registration Statement No. 33-3521 on Form S-2). 10.43 Form Warrant Agreement issued to Stinbes Limited dated as of September 26, 1997, effective retroactively as of February 21, 1997 (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 28, 1997). 10.44 Extension of Warrant Agreement between Registrant and Stinbes Limited for 375,000 shares of Class A or Class B Common Stock dated as of September 26, 1997, effective retroactively as of February 21, 1997 (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 28, 1997). 10.45 Amendment of Warrant Agreement dated February 9, 1998, between the Registrant and Stinbes Limited (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 29, 1998). 10.46 Amendment of Warrant Agreement dated December 12, 1998, effective retroactively as of September 7, 1998, between Registrant and Stinbes Limited (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 29, 1999). (Other Material Contracts) 10.47 Voting Agreement dated as of July 16, 1997, between RHI Holdings, Inc., and Tel-Save Holdings, Inc. (regarding voting Registrant's stock in Shared Technologies Fairchild Inc.) (incorporated by reference to the Registrant's Schedule 13D/A, Amendment No. 3, filed July 22, 1997). 10.48 Stock Option Agreement dated November 20, 1997 between RHI Holdings, Inc. and Intermedia Communications Inc. (incorporated by reference to Schedule 13D/A, Amendment No. 4, dated as of November 25, 1997, filed by the Company on December 1, 1997). 10.49 Stock Purchase Agreement dated November 25, 1997 between RHI Holdings, Inc. and Intermedia Communications Inc. (incorporated by reference to Schedule 13D/A, Amendment No. 4, dated as of November 25, 1997, filed by the Company on December 1, 1997). 10.50 Asset Purchase Agreement dated as of December 8, 1997, among Banner Aerospace, Inc. and seven of its subsidiaries (Adams Industries, Inc., Aerospace Bearing Support, Inc., Aircraft Bearing Corporation, Banner Distribution, Inc., Burbank Aircraft Supply, Inc., Harco, Inc. and PacAero), AlliedSignal Inc. and AS BAR LLC (incorporated by reference to Banner Aerospace, Inc.'s Report on Form 8-K dated January 28, 1998). 10.51 Asset Purchase Agreement dated as of December 8, 1997, among Banner Aerospace, Inc. and two of its subsidiaries (PB Herndon Aerospace, Inc. and Banner Aerospace Services, Inc.), AlliedSignal Inc. and AS BAR PBH LLC (incorporated by reference to Banner Aerospace, Inc.'s Report on Form 8-K dated January 28, 1998). 10.52 Agreement and Plan of Merger dated January 28, 1998, as amended on February 20, 1998, and March 2, 1998 (the "Special-T Fasteners Merger Agreement), between the Company and the shareholders' of Special-T Fasteners, regarding the merger of Special-T into Fairchild (incorporated by reference to Registrant's Report on Form 8-K dated March 2, 1998, filed on March 12, 1998). 10.53 Third Amendment dated September 25, 1998 to the Special-T Fasteners Merger Agreement (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 27, 1998). 78 10.54 Agreement and Plan of Reorganization by and among The Fairchild Corporation, Dah Dah, Inc. and Kaynar Technologies Inc., dated as of December 26, 1998, regarding the merger of Kaynar into Fairchild (incorporated by reference to Registrant's Registration Statement on Form S-4 filed on January 15, 1999). 10.55 Voting and Option Agreement by and among The Fairchild Corporation, Dah Dah, Inc., CFE Inc., and general Electric Capital Corporation dated as of December 26, 1998, regarding voting of Kaynar stock for the Kaynar- Fairchild merger (incorporated by reference to Registrant's Report on Form 8-K dated December 30, 1998). 10.56 Voting Agreements by and between The Fairchild Corporation and each of the following individuals: Jordan Law, David A. Werner, Robert L. Beers and LeRoy A. Dack, each agreement dated as of December 26, 1998, regarding voting of Kaynar stock for the Kaynar-Fairchild merger (incorporated by reference to Registrant's Report on Form 8-K dated December 30, 1998). 10.57 Agreement and Plan of Merger between The Fairchild Corporation, MTA, Inc. and Banner Aerospace, Inc., dated as of January 11, 1999, regarding the merger of Banner into Fairchild (incorporated by reference to "Appendix A" of Registrant's Proxy Statement/Prospectus included as part of Registrant's Registration Statement No. 333-70673 on Form S-4 declared effective March 25, 1999). 10.58 Share Purchase Agreement dated as of July 27, 1999 between a Company subsidiary and Jeffrey Steiner (as Sellers) and American National Can Group, Inc. (as Buyer), for the sale of all stock of Nacanco Paketleme A.S. owned by the Sellers (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1999). 10.59 Asset Purchase Agreement dated as of October 22, 1999, among The Fairchild Corporation, Banner Aerospace, Inc., Dallas Aerospace, Inc., and United Technologies Corporation, acting through its Pratt & Whitney Division (incorporated by reference to the Registrant's Report on Form 8-K dated December 13, 1999). (a)(3) Exhibits (continued) Other Exhibits 11. Computation of earnings per share (found at Note 12 in Item 8 to Registrant's Consolidated Financial Statements for the fiscal years ended June 30, 2000, 1999 and 1998). *22 List of subsidiaries of Registrant. *23.1 Consent of Arthur Andersen LLP, independent public accountants. *27 Financial Data Schedules. - - ------------------------- *Filed herewith. (b) Reports on Form 8-K We have not filed any reports under Form 8-K during the quarter ended June 30, 2000. 79 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: September 20, 2000 80 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 September 20, 2000 ------------------------------------------ Jeffrey J. Steiner Officer and Director By: /s/ MELVILLE R. BARLOW Director September 20, 2000 ------------------------------------------ Melville R. Barlow By: /s/ MORTIMER M. CAPLIN Director September 20, 2000 ------------------------------------------ Mortimer M. Caplin By: /s/ PHILIP DAVID Director September 20, 2000 ------------------------------------------ Philip David By: /s/ ROBERT EDWARDS Executive Vice President-Fairchild September 20, 2000 ------------------------------------------ Robert Edwards Fasteners and Director By: /s/ STEVEN L. GERARD Director September 20, 2000 ------------------------------------------ Steven L. Gerard By: /s/ HAROLD J. HARRIS Director September 20, 2000 ------------------------------------------ Harold J. Harris By: /s/ DANIEL LEBARD Director September 20, 2000 ------------------------------------------ Daniel Lebard By: /s/ HERBERT S. RICHEY Director September 20, 2000 ------------------------------------------ Herbert S. Richey By: /s/ ERIC I. STEINER President, Chief Operating September 20, 2000 ------------------------------------------ Eric I. Steiner Officer and Director
81 EX-10.7 2 0002.txt AMENDMENT TO THE STOCK OPTION DEFERRAL PLAN AMENDMENT NO. 2 to THE FAIRCHILD CORPORATION STOCK OPTION DEFERRAL PLAN Date of Stock Option Deferral Plan: February 9, 1998 - - ---------------------------------- Date of Amendment No. 2: June 28, 2000 - - ----------------------- Recitals A. The Fairchild Corporation, a Delaware corporation (the "Corporation") by ----------- resolution of its Board of Directors (the "Board"), adopted The Fairchild ----- Corporation Stock Option Deferral Plan (the "Plan") effective as of ---- February 9, 1998. B. The Plan provides for the issuance of Deferred Compensation Units to Plan Participants who elect to defer the gain upon exercise of stock options. Deferred Compensation Units means the right to receive a specified number of shares of common stock of the Corporation, determined by dividing the deferred gain by the fair market value of the Corporation's common stock as of the deferral date. C. The Plan is administered by the Board's Compensation and Stock Option Committee (the "Committee"). --------- D. Article VII of Plan provides that the Committee may amend the Plan. E. Section 4.4 of the Plan provides that the Committee may make equitable adjustments to the number of Deferred Compensation Units in the event of a stock split, stock dividend, stock exchange or other similar corporate change. F. The Corporation declared a stock dividend, pursuant to which each share of the Corporation's Stock outstanding as of April 3, 2000, was entitled to receive 0.0475 shares of Global Sources Ltd. (the "Spin Off"). -------- The Committee wishes to adjust the Deferred Compensation Units as an equitable adjustment for the Spin Off. The Committee approved such adjustment by telephonic meeting on April 6, 2000. The Board ratified such adjustment by telephonic meeting on April 6, 2000. Capitalized terms used but not otherwise defined herein shall have the meaning ascribed to them in the Plan. Now, Therefore, the Plan is amended as follows: 1. Spin Off Shares. A new Section 4.7 is added to the Plan, to read in its --------------- entirety as follows: Section 4.7: Spin Off Shares: Spin Off Share Equivalents shall be ----------------------------- credited to each Participant's Account as of April 3, 2000. 1 As used herein "Spin Off Share Equivalents" means the right of a -------------------------- Participant to receive a specified number of shares of Global Sources Ltd., equal to (a) 0.0475 shares of Global Sources Ltd., multiplied by (b) the number of Deferred Compensation Units credited the Account of the Participant as of April 3, 2000. The aggregate number of Deferred Compensation Units credited to the Participants' Accounts as of April 3, 2000 is 166,722. The ------- Corporation shall cause to be issued in the name of the Plan 7,916 ----- shares of Global Sources Ltd., to be held by the Plan in order to satisfy its obligations under this Section 4.7. 2. Miscellaneous. Except as amended hereby, the Plan shall remain in full ------------- force and effect. This Amendment No. 1 to the Plan is effective as of June 28, 2000. In witness whereof, the Committee has caused this Amendment No. 1 to be signed as of June 28, 2000. /s/ MELVILLE BARLOW /s/ DANIEL LEBARD - - ------------------- ----------------- Melville Barlow Daniel Lebard /s/ PHILIP DAVID /s/ HERBERT S. RICHEY - - ---------------- --------------------- Philip David Herbert S. Richey 2 EX-10.22 3 0003.txt EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT, dated as of the 1/st/ day of August, 2000 (the "Effective Date") between The Fairchild Corporation (the "Company"), and Eric I. -------------- ------- Steiner, (the "Employee"). -------- RECITALS A. The Employee has served as the Company's President since 1998 and as Chief Operating Officer of the Company since 1996. B. The Employee has served as President and Chief Executive Officer of Fairchild Fasteners (a division of Fairchild Holding Corp., a Company subsidiary) ("Fairchild Fasteners") since 1995. ------------------- C. The Company and the Employee wish to continue such employment, provided that it is subject to a written agreement. NOW, THEREFORE, the parties agree as follows: 1. Employment, Duties and Acceptance --------------------------------- 1.1 Employment by the Company. The Company hereby employs the Employee for ------------------------- the Term (as defined in Section 2 below) as President and Chief Operating Officer of the Company, subject to the reasonable direction of the Company's Board of Directors (the "Board of Directors"). ------------------ 1.2 Acceptance of Employment by Employee. The Employee hereby accepts such ------------------------------------ employment. Employee further agrees to serve, at the Company's reasonable request from time to time, as a director of the Company or as an officer or director of the any subsidiary of the Company, without any compensation therefor other than that specified in this Agreement. 1.3 Vacation. The Employee shall be entitled to annual vacations in -------- accordance with the vacation policy of the Company, as in effect from time to time. 1.4 Travel. The Employee shall be subject to reasonable travel ------ requirements as may be necessary or desirable to perform fully his obligations hereunder. 1.5 Place of Services. Employee may render service and perform his duties ----------------- from such location as he, in his sole discretion, shall determine, and shall not be required to maintain any residence or be physically present at any location without his prior consent. 2. Term of Employment. The term of the Employee's employment under this ------------------ Agreement ("Term") shall commence as of August 1, 2000, and shall extend to ---- and include the third (3/rd/) anniversary of such date, unless sooner terminated pursuant to Section 4 of this Agreement; provided, however, that commencing on August 1, 2001, and on each August 1 thereafter, the Term shall automatically be extended for one additional year unless, not later than ninety (90) days preceding such date, the Employee or the Company shall give written notice to the other party that it does not wish to extend the Term for such additional period. 3. Compensation. ------------ 3.1 Salary. As full compensation for all services to be rendered pursuant ------ to this Agreement, the Company agrees to pay the Employee (or, in the event the Employee performs services hereunder on behalf of a subsidiary of the Company, the Company shall cause such subsidiary to pay the Employee, without duplication and only to the extent not paid by the Company or any other subsidiary), during the Term, a salary at the fixed rate of $540,000 per annum, or such greater amount as shall be approved by the Board of Directors in its sole discretion, less such deductions as shall be required to be withheld by applicable law and regulations (the "Base Salary"), payable in accordance with the ----------- Company's payroll policies in effect from time to time. 3.2 Participation in Benefit Plans. During the Term, the Employee shall ------------------------------ participate in each of the following (collectively, "Additional ---------- Compensation Plans"): (i) group life, hospitalization or disability ------------------ insurance plans and health programs, (ii) stock option plans, (iii) bonus participation or extra compensation plans or other incentive compensation plans, (iv) auto allowance plan, (v) supplemental executive retirement plans (SERP), pension plans or profit sharing plans, (vi) split dollar life insurance plan, and (vii) other so- called "fringe" benefit plans, formal or informal, which are available to other employees of the Company and for which he qualifies. 3.3 Expenses. Subject to such policies as may be established from time to -------- time by the Board of Directors, the Company shall pay or reimburse the Employee for all reasonable expenses actually incurred or paid by him during the Term in the performance of his services under this Agreement. Employee shall present expense statements, or vouchers, or such other supporting information as the Company may require as a condition to expense reimbursement. 4. Termination. ----------- 4.1 Termination Upon Death. If the Employee shall die during the Term, ---------------------- this Agreement shall terminate except that the Employee's legal representatives shall be entitled to receive (in addition to any death benefits Employee may be entitled to receive under any other plan or agreement), death benefits at a level and vesting no less favorably than that which the highest compensated executive of the Company (or its affiliates), other that the Employee, is eligible or entitled. 4.2 Termination Upon Disability. If, during the Term, the Employee shall --------------------------- become physically or mentally disabled, whether totally or partially, so that he is unable substantially to perform his services hereunder for (i) a period of nine (9) consecutive -2- months, or (ii) for shorter periods aggregating nine (9) months during any twelve (12) month period, the Company may, at any time after the last day of the nine (9) consecutive months of disability, or the day on which the shorter periods of disability shall have equaled an aggregate of nine (9) months, by written notice to the Employee, but before the Employee has recovered from such disability, terminate the Term of the Employee's employment hereunder. Notwithstanding such disability, the Company (A) shall pay the Employee (in addition to any disability benefits the Employee may be entitled to receive under any other plan or arrangement) disability benefits at a level and vesting no less favorably than that which the highest compensated executive of the Company (or its affiliates), other than the Employee, is eligible or entitled, and (B) following the end of the fiscal year in which such termination shall have occurred, shall pay the Employee (in addition to any disability benefits the Employee may be entitled to receive under any other plan or agreement) the full amount which would have been payable to the Employee and shall provide the Employee all benefits to which the Employee would have been entitled, but for such termination, through the end of the fiscal year in which termination has occurred, under any Additional Compensation Plan. 4.3 Termination by the Company for Cause. In the event of gross neglect by ------------------------------------ the Employee of his duties hereunder, conviction of the Employee of any felony, or of any lesser crime or offense involving the property of the Company or any of its subsidiaries or affiliates, willful misconduct by the Employee in connection with the performance of his duties hereunder or any other conduct which would constitute a material breach of the Employee's obligations to the Company, the Company may at any time by written notice to the Employee terminate the Term, without any liability to the Company, except the Company (i) shall pay the Employee all monthly or semimonthly installments of Base Salary up to an including the date of such termination, and (ii) following the end of the fiscal year in which such termination shall have occurred, shall pay the Employee the full amount which would have been payable to the Employee and shall provide the Employee all benefits to which the Employee would have been entitled, but for such termination, through the end of the fiscal year in which termination has occurred, under any Additional Compensation Plan, but prorated up to and including the date of such termination. 5. Protection of Confidential Information; Non-Competition. ------------------------------------------------------- 5.1 Confidential Information. In view of the fact that the Employee's work ------------------------ for the Company will bring him into close contact with many confidential affairs of the Company not readily available to the public, and plans for future developments, the Employee agrees: 5.1.1 To keep and retain in the strictest confidence all confidential matters of the Company, including, without limitation, trade "know how" secrets, customer lists, pricing policies, operational methods, technical processes, formulae, inventions and research projects, and other business affairs of the Company, learned by him heretofore or hereafter, and not to disclose them to anyone outside of the -3- Company, either during or after his employment with the Company, except in the course of performing his duties hereunder or with the Company's express written consent; 5.1.2 To execute and fully comply with a confidentiality and rights agreement or such other similar agreement which may be required by the Company from time to time, consistent with its policies and procedures; and 5.1.3 To deliver promptly to the Company on termination of his employment with the Company, or at any time the Company may so request, all memoranda, notes, records, reports, manuals, drawings, blueprints and other documents (and all copies thereof and all information stored via electronic means whether on computer disks or via any other means) relating to the Company's business and all property associated therewith, which he may then possess or have under his control. 5.2 Non-Competition. During the Term and for a period of not less than one --------------- (1) year following the termination of such period, or for any period Employee is receiving severance payments, the Employee shall not in any state of the United States, or any other foreign country in which the Company shall then be doing business, directly or indirectly, enter the employ of, or render any services to, any person, firm or corporation engaged in any business competitive with the business of the Company or of any of its subsidiaries or affiliates; he shall not engage in such business on his own account; and he shall not become interested in any such business, directly or indirectly, as an individual, partner, shareholder, director, officer, principal, agent, lender, employee, trustee, consultant, or any other relationship or capacity; provided, however, that nothing contained in this Section -------- ------- 5.2 shall be deemed to prohibit the Employee from acquiring, solely as an investment, not more than 5% of the shares of capital stock of any public corporation. 5.3 Remedies of the Company Upon Employee Breach. If the Employee commits -------------------------------------------- a breach, or threatens to commit a breach, of any of the provisions of Sections 5.1 or 5.2 hereof, the Company shall have the following rights and remedies: 5.3.1 The right and remedy to have the provisions of this Agreement specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company; and 5.3.2 The right and remedy to require the Employee to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits (collectively, "Benefits") derived or received by the Employee as the result -------- of any transactions constituting a breach of any of the provisions of the Sections 5.1 or 5.2, and the Employee hereby agrees to account for and pay over such Benefits to the Company. -4- Each of the rights and remedies enumerated above shall be independent of the other, and shall be severally enforceable, and all of such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to the Company under the law or in equity. 5.4 Construction and Enforceability. ------------------------------- 5.4.1 If any of the covenants contained in Section 5.1 or 5.2, or any part thereof, is hereafter construed to be invalid or unenforceable, the same shall not affect the remainder of the covenant or covenants, which shall be given full effect, without regard to the invalid portions. 5.4.2 If any of the covenants contained in Section 5.1 or 5.2, or any part thereof, is held to be unenforceable because of the duration of such provision or the area covered thereby, the parties agree that the court making such determination shall have the power to reduce the duration and/or area of such provision and, in its reduced form, said provision shall then be enforceable. 5.5 Enforceability in Jurisdictions. The parties hereto intend to and ------------------------------- hereby confer jurisdiction to enforce the covenants contained in Sections 5.1 and 5.2 upon federal or state courts or the courts of any foreign jurisdiction within the geographical scope of such covenants. In the event that the courts of any one or more of such state, federal or foreign jurisdictions shall hold such covenants wholly unenforceable by reason of the breadth of such scope or otherwise, it is the intention of the parties hereto that such determination not bar or in any way affect the Company's right to the relief provided above in the courts of any other state, federal or foreign jurisdictions within the geographical scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, the above covenants as they relate to each state and foreign country being for this purpose, severable into diverse and independent covenants. 6. Inventions and Patents. ---------------------- 6.1 The Employee agrees that all processes, computer software, technologies and inventions ("Inventions"), including new ---------- contributions, improvements, ideas and discoveries, whether patentable or not, conceived, developed, invented or made by him during the term, shall belong to the Company provided that such Inventions grew out of the Employee's work with the Company or any of its subsidiaries or affiliates, are related in any manner to the business (commercial or experimental) of the Company or any of its subsidiaries or affiliates or are conceived or made on the Company's time or with the use of the Company's facilities or materials. The Employee shall further: (i) promptly disclose such Inventions to the Company; (ii) assign to the Company, without additional compensation, all patent and other rights to such Inventions in the United States and foreign countries; (iii) sign all papers -5- necessary to carry out the foregoing; and (iv) give testimony in support of his inventorship. 6.2 If any Invention is described in a patent application or is disclosed to third parties, directly or indirectly, by the Employee within two years after the termination of his employment by the Company, it is to be presumed that the Invention was conceived or made during the period of the Employee's employment by the Company. 6.3 The Employee agrees that he will not assert any rights to any Invention as having been made or acquired by him prior to the date of this Agreement, except for Inventions, if any, disclosed to the Company in writing prior to the date hereof. 7. Intellectual Property. The Company shall be the sole owner of all the --------------------- products and proceeds of the Employee's services hereunder, including, but not limited to, all materials, ideas, concepts, formats, suggestions, computer software, developments, arrangements, packages, programs and other intellectual properties that the Employee may acquire, obtain, develop or create in connection with and during the term of the Employee's employment hereunder, free and clear of any claims by the Employee (or anyone claiming under the Employee) of any kind or character whatsoever (other than the Employee's right to receive payments hereunder). The Employee shall, at the request of the Company, execute such assignments, certificates or other instruments as the Company may from time to time deem necessary or desirable to evidence, establish, maintain, perfect, protect, enforce or defend its right, or title and interest in or to any such properties. 8. Indemnification. The Company agrees to hold harmless and indemnify, the --------------- Employee, if he is made, or threatened to be made, a party to any action or proceeding, whether civil or criminal, including any action by or in the right of the Company, by reason of or inuring from the provision of his services hereunder (other than an action by the Company against the Employee by reason of breach of this Agreement by the Employee), or by reason of or inuring from the Employee's acting as a director or executive officer of the Company, against all judgments, fines, amounts paid in settlement and reasonable expenses, including attorney's fees, and expenses of experts, to the fullest extent permitted by law. If permitted by law and the Certificate of Incorporation and Bylaws of the Company, the Company shall advance to the Employee all legal and other expenses incurred in defending any threatened or pending action or proceeding. 9. Change of Control. ----------------- 9.1 Defined Terms. As used in this Section 9, the following terms shall ------------- have the following meanings: (i) "Change of Control" shall have the meaning set forth in Exhibit A ----------------- hereto. (ii) "Change of Control Payment" A lump sum payment (payable no later ------------------------- than three business days after a Change of Control) in the amount of 2.99 times the sum of A plus B minus C, where: -6- "A" is the Base Salary as of the date immediately preceding such Change of Control; "B" is the average of the bonus or bonuses paid to the Employee by the Company in the five fiscal years of the Company immediately preceding the year in which the Change of Control occurs; and "C" is the portion of the acceleration of payments to the Employee under stock options which are vested solely due to a Change of Control which is considered a parachute payment under Section 280G of the Internal Revenue Code of 1986, as amended from time to time. (iii) "Company Change of Control" shall be a Change of Control ------------------------- involving the Company. (iv) "Fairchild Fasteners Change of Control" shall be a Change of ------------------------------------- Control involving Fairchild Fasteners and not involving the Company. 9.2 Change Of Control Payment Obligations. ------------------------------------- 9.2.1 In the event of a Company Change of Control: (i) The Term shall immediately end (as of the date of the Change of Control); and (ii) The Employee shall receive the Change of Control Payment, and the Company shall have no further payment obligations under this Agreement. 9.2.2 In the event of a Fairchild Fasteners Change of Control: (i) The Company may (but shall not be required to) terminate the Term of this Agreement, in which case the Employee shall receive the Change of Control Payment and the Company shall have no further payment obligations under this Agreement; or (ii) If the Company does not elect to terminate the Term, the Employee shall receive the Change of Control Payment and this Agreement shall remain in full force and effect. 9.3 Withholding. All payments hereunder shall be subject to withholding of ----------- such amounts as shall be required under applicable law. 9.4 Limitation on Payments Pursuant to IRC (S) 280G. In no event shall any ------------------------------------------------ amounts payable pursuant to this Agreement which are deemed to constitute "parachute payments" (as defined in Section 280G of the Internal Revenue Code, as amended by the Tax Reform Act of 1986, and as thereafter amended (the "Code")), when added to any ---- -7- other payments which are deemed to constitute "parachute payments" as defined in the Code, exceed 2.99 times of the Employee's "base amount" (as defined in the Code). 10. Notices. All notices, requests, consents and other communications, ------- required or permitted to be given hereunder, shall be in writing and shall be deemed to have been duly given if delivered by registered or certified mail (notices shall be deemed to have been given on the date sent), as follows (or to such other address as either party shall designate by notice in writing to the other in accordance herewith): If to the Company, to it at: If to the Employee, to him at: --------------------------- ----------------------------- The Fairchild Corporation 33801 Archbold Lane 45025 Aviation Drive, Suite 400 Upperville, VA 20184 Dulles, VA 20166 11. General. ------- 11.1 Governing Law. This Agreement shall be governed by and construed and ------------- enforced in accordance with the laws of the State of Delaware applicable to agreements made and to be performed entirely in Delaware, exclusive of its choice of law rules. 11.2 Headings. The article and section headings contained herein are for -------- reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 11.3 Entire Agreement. This Agreement sets forth the entire agreement and ---------------- understanding of the parties relating to the subject matter hereof, and supersedes all prior agreements, arrangements and understandings, written or oral, relating to the subject matter hereof as of the Effective Date. No representation, promise or inducement has been made by either party that is not embodied in this Agreement, and neither party shall be bound by or liable for any alleged representation, promise or inducement not so set forth. 11.4 Assignability; Successors. This Agreement is binding upon and shall ------------------------- inure to the benefit of the parties hereto and their respective successors, and the assigns of the Company. Notwithstanding the foregoing, neither party shall assign or transfer any rights or obligations hereunder, except that the Company may assign or transfer this Agreement to a successor corporation in the event of a merger, consolidation, or transfer or sale of all or substantially all of the assets of the Company, provided that no such assignment shall relieve the Company from liability for its obligations hereunder. Any purported assignment, other than as provided above, shall be null and void. 11.5 Modifications; Waivers. This Agreement may be amended, modified, ---------------------- superseded, cancelled, renewed or extended and the terms or covenants hereof may be waived, only by a written instrument executed by both of the parties hereto, or in the case of a waiver, by the party waiving compliance. The failure of either party at any time or -8- times to require performance of any provision hereof shall in no manner affect the right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement. 12. Subsidiaries and Affiliates. As used herein, the term "subsidiary" shall --------------------------- ---------- mean any corporation or other business entity controlled by the corporation in question, and the term "affiliate" shall mean and include any --------- corporation or other business entity controlling, controlled by or under common control with the corporation in question. 13. Compensation Committee Approval. Notwithstanding anything to the contrary ------------------------------- set forth above, this Agreement shall not be effective until such time as it is approved by the Company's Compensation and Stock Option Committee. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. The Fairchild Corporation Officer's Certification By: ____________________________ The consent of the Compensation and Stock Option Committee was obtained on ______________, 2000. Name:__________________________ By:____________________________ Title: ________________________ ________________________ EMPLOYEE /s/ ERIC I. STEINER - - ------------------- Eric I. Steiner Attached: Exhibit A (Definition of Change of Control) -9- EX-10.23 4 0004.txt EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT -------------------- EMPLOYMENT AGREEMENT, dated as of December 1, 1990, between BANNER AEROSPACE, INC., (the "Company"), a Delaware corporation, and WARREN D. PERSAVICH (the "Executive") WHEREAS, the Company wishes to employ the Executive as its Vice President and Treasurer; and WHEREAS, the Executive wishes to be employed by the Company in such position. NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Employment. Duties and Acceptance. --------------------------------- 1.1 Employment by the Company. The Company hereby employs the ------------------------- Executive, for the Term (as hereinafter defined), to render, subject to the following paragraph, exclusive and full-time services to the Company as Senior Vice President and Chief Financial Officer of the Company, subject to the direction of the Company's Board of Directors or any duly authorized committee thereof (the "Board of Directors") and, in connection therewith, to perform such duties as he shall reasonably be directed to perform by the Board of Directors. 1.2 Acceptance of Employment by Executive: Appointment as an -------------------------------------------------------- Executive Officer. The Executive hereby accepts such employment and agrees ----------------- to render the services described above. The Executive further agrees to accept election and to serve during all or any part of the Term as an officer or director of the Company and of any subsidiary or affiliate of the Company (or of any other corporation at the Company's reasonable request) without any compensation therefor other than that specified in this Agreement if elected to any such position by the shareholders or by the Board of Directors of the Company or of any subsidiary or affiliate (or other corporation), as the case may be. 1.3 Vacation. The Executive shall be entitled to annual vacations in -------- accordance with the vacation policy of the Company, as in effect from time to time. 1.4 Domicile of Executive: Travel. The Executive shall render the ----------------------------- services described above in the Greater Cleveland, Ohio area and shall not be required to move his residence from, or render his services outside, such area without his prior consent. The Executive shall be subject to reasonable travel requirements as may be necessary or desirable to perform fully his obligations hereunder. 2. Term of Employment. ------------------ 2.1 Term. The term of the Executive's employment under this Agreement ---- (the "Term") shall be effective on the date hereof (the "Effective Date") and shall extend for one (1) year from the Effective Date unless extended pursuant to Section 2.2 of this Agreement or unless sooner terminated pursuant to Article 4 of this Agreement. 2.2 Extension of Term. ----------------- Following the initial one (1) year period of the Term, the Term shall be extended until the earlier of (i) one (1) year following the date on which the Company gives written notice to the Executive that it does not wish to extend Executive's employment with the Company, or (ii) one (1) year following the date on which the Executive resigns his employment with the Company, unless the Term is sooner terminated pursuant to Article 4 of this Agreement. Notwithstanding the foregoing, in the event that at any time during the Term (i) Jeffrey J. Steiner and his "associates" (as defined in the Securities Exchange Act of 1934, and amended (the "Exchange Act';)) shall cease to "control" (as defined in the Exchange Act), directly or indirectly, The Fairchild Corporation ("Fairchild") or (ii) Fairchild or any affiliate of Fairchild shall cease to "control" (as defined in the Exchange Act) the Company, and thereafter the Company delivers a written notice to the Executive that it does not wish to extend the Executive's employment with the Company, then the Term shall be extended until the date which is two (2) years following the date on which the Company delivers such notice. 3. Compensation. ------------ 3.1 Salary. As full compensation for all services to be rendered ------ pursuant to this Agreement, the Company agrees to pay the Executive (or, in the event the Executive performs services hereunder on behalf of a subsidiary of the Company, the Company shall cause such subsidiary to pay the Executive, without duplication and only to the extent not paid by the Company or any other subsidiary), during the Term, a salary at the fixed rate of $120,000 per annum, or such greater amount as shall be approved by the Board of Directors in its sole discretion (the "Base Salary"), payable in accordance with the payroll policies of the Company as from time to time in effect, less such deductions as shall be required to be withheld by applicable law and regulations. 3.2 Bonuses. For the nine (9) month period commencing July 1, 1990 ------- and ending March 31, 1991, the Executive shall be entitled to receive a bonus (the "Incentive Bonus") as a participant in the Company's incentive compensation arrangement (the "Bonus Arrangement"), a current description of which is contained in the Company's Registration Statement on Form S-1 dated July 26, 1990 (the "Registration Statement'), which Incentive Bonus shall be based on the same terms set forth in the Registration Statement. During subsequent fiscal years, the Executive shall be entitled to receive incentive bonuses as a participant in such other compensation arrangements as the Board of Directors may approve from time to time. In addition, the Executive shall be entitled to receive from time to time such other bonuses, including transaction-related bonuses and stock options as the Board of Directors shall, from time to time, in its sole discretion determine. 3.3 Expenses. Subject to such policies as may from time to time be -------- established by the Board of Directors, applicable to its senior executive officers generally, the Company shall pay or reimburse the Executive for all reasonable expenses actually incurred or paid by him during the Term in the performance of his services under this Agreement, upon presentation of expense statements or vouchers or such other supporting information as it may require; provided, however, that the maximum amount available for such ------------------ expenses during any period may be fixed in advance by the Board of Directors of the Company. 3.4 Participation in Executive Benefit Plans. The Executive shall ---------------------------------------- participate in each group life, hospitalization or disability insurance plan, health program, pension plan or similar benefit plan and any stock option plan of the Company which is available to other senior executive officers of the Company and for which he qualifies and will be entitled to an executive auto allowance and all costs related thereto. 3.5 Limitations Imposed by Law. The provisions of this Agreement -------------------------- relating to the compensation to be paid to the Executive shall be subject to any limitations provided by law or regulation that may from time to time limit the compensation payable to the Executive. 4. Termination. ----------- 4.1 Termination Upon Death. If the Executive shall die during the ---------------------- Term, this Agreement shall terminate, except that the Executive's legal representatives shall be entitled to receive the Executive's Base Salary for a period of six months following the last day of the month in which his death occurs and, following the end of the fiscal year in which his death occurs, such legal representatives shall be entitled to receive the amount of incentive or other bonuses, if any, that would otherwise have been payable to Executive under Section 3.2 and which have accrued through the end of the fiscal year in which his death occurs as if the Executive had been employed by the Company for the entire fiscal year. 4.2 Termination Upon Disability. If during the Term the Executive --------------------------- shall become physically or mentally disabled, whether totally or partially, so that he is unable substantially to perform his services hereunder for (i) a period of six consecutive months, or (ii) for shorter periods aggregating six months during any twelve month period, the Company may at any time after the last day of the six consecutive months of disability or the day on which the shorter periods of disability shall have equaled an aggregate of six months, by written notice to the Executive (but before the Executive has recovered from such disability), terminate the Term of the Executive's employment hereunder. Notwithstanding such disability the Company shall continue to pay the Executive his Base Salary up to and including the date of such termination, and following the end of the fiscal year in which such termination occurs shall pay to Executive, the amount of incentive or other bonuses, if any, that would otherwise have been payable to Executive under Section 3.2 and which have accrued through the end of the fiscal year in which such termination occurs as if the Executive had been employed by the Company for the entire fiscal year. 4.3 Termination by the Company for Cause. The Company may at any time ------------------------------------ during the Term, by 30 days notice to the Executive, terminate for Cause (as hereinafter defined) the Employee's employment hereunder, in which event the Executive shall be entitled to receive his Base Salary accrued through the effective date of such termination. The Executive shall have no right to receive any other compensation or benefit hereunder after the effective date of such termination; provided, however, that the foregoing ------------------ shall not affect the Executive's right to receive any compensation or benefit under any other agreement accrued to the date of such termination in accordance with the terms thereof, including but not limited to, any compensation or benefits under the Bonus Arrangement or any stock option or other executive benefit plan. As used herein the term for "Cause" shall be deemed to mean and include with respect to the Executive (i) conduct of the Executive, at any time, which has involved criminal dishonesty, conviction of the Executive of any felony, or of any lesser crime or offense involving the property of the Company or any of its subsidiaries or affiliates, significant conflict of interest, serious impropriety, or breach of corporate duty, misappropriation of any money or other assets or properties of the Company or its subsidiaries, (ii) willful violation of specific and lawful directions from the Board of Directors or the Chief Executive Officer of the Company (which directions must not be inconsistent with the provisions of this Agreement), failure or refusal to perform the services customarily performed by a senior executive officer (and such failure or refusal continues after a written direction from the Board of Directors) or expressly required by the terms of this Agreement, or willful misconduct or gross negligence by the Executive in connection with the performance of his duties hereunder, (iii) chronic alcoholism or drug addiction and (iv) any other acts or conduct inconsistent with the standards of loyalty, integrity or care reasonably required by the Company of its senior executives. 5. Protection of Confidential Information: Non-Competition. ------------------------------------------------------- 5.1 Confidential Information. In view of the fact that the ------------------------ Executive's work for the Company will bring him into close contact with many confidential affairs of the Company not readily available to the public, and plans for future developments, the Executive agrees: 5.1.1 To keep and retain in the strictest confidence all confidential matters of the Company, including, without limitation trade "know how" secrets, customer lists, pricing policies, operational methods, technical processes, formulae, inventions and research projects, and other business affairs of the Company, learned by him heretofore or hereafter, and not to disclose them to anyone outside of the Company, either during or after his employment with the Company, except in the course of performing his duties hereunder or with the Company's express written consent; and 5.1.2 To deliver promptly to the Company on termination of his employment by the Company, or at any time the Company may so request, all memoranda, notes, records, reports, manuals, drawings, blueprints and other documents (and all copies thereof) relating to the Company's business and all property associated therewith, which he may then possess or have under his control. 5.2 Non-Competition. During the Term and for a period of six months --------------- following the termination of such period, the Executive shall not in any state of the United States or any foreign country in which the Company shall then be doing business, directly or indirectly, enter the employ of, or render any services to, any person, firm or corporation (other than Fairchild) engaged in any business competitive with the business of the Company or of any of its subsidiaries or affiliates; he shall not engage in such business on his own account; and he shall not become interested in any such business, directly or indirectly, as an individual, partner, shareholder, director, officer, principal, agent, employee, trustee, consultant, or any other relationship or capacity; provided, however, that nothing contained in this Section 5.2 shall be deemed to prohibit the Executive from acquiring, (a) solely as an investment, not more than To of the shares of capital stock of any public corporation, or (b) shares of the capital stock of Fairchild. 5.3 Remedies of the Company Upon Executive Breach. If the Executive --------------------------------------------- commits a breach, or threatens to commit a breach, of any of the provisions of Sections 5.1 or 5.2 hereof, the Company shall have the following rights and remedies: 5.3.1 The right and remedy to have the provisions of this Agreement specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach of threatened breach will cause irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company; and 5.3.2 The right and remedy to require the Executive to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits (collectively, "Benefits") derived or received by the Executive as the result of any transactions constituting a breach of any of the provisions of the preceding paragraph, and the Executive hereby agrees to account for and pay over such Benefits to the Company. Each of the rights and remedies enumerated above shall be independent of the other, and shall be severally enforceable, and all of such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to the Company under the law or in equity. 5.4 Construction and Enforceability. ------------------------------- 5.4.1 If any of the covenants contained in Section 5.1 or 5.2, or any part thereof, is hereafter construed to be invalid or unenforceable, the same shall not affect the remainder of the covenant or covenants, which shall be given full effect, without regard to the invalid portions. 5.4.2 If any of the covenants contained in Section 5.1 or 5.2, or any part thereof, is held to be unenforceable because of the duration of such provision or the area covered thereby, the parties agree that the court making such determination shall have the power to reduce the duration and/or area of such provision and, in its reduced form, said provision shall then be enforceable. 5.5 Enforceability in Jurisdictions. The parties hereto intend to and ------------------------------- hereby confer jurisdiction to enforce the covenants contained in Sections 5.1 and 5.2 upon federal or state courts or the courts of any foreign jurisdiction within the geographical scope of such covenants. In the event that the courts of any one or more of such state, federal or foreign jurisdictions shall hold such covenants wholly unenforceable by reason of the breadth of such scope or otherwise, it is the intention of the parties hereto that such determination not bar or in any way affect the Company's right to the relief provided above in the courts of any other state, federal or foreign jurisdictions within the geographical scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, the above covenants as they relate to each state and foreign country being, for this purpose, severable into diverse and independent covenants. 5.6 Company Lists. The Executive recognizes and agrees (i) that all ------------- existing lists of customers of the Company, and all lists of customers of the Company developed during the course of the Executive's employment by the Company, are and shall be the sole exclusive property of the Company, and that the Executive neither has nor shall have any right, title or interest therein; (ii) that such lists of customers are and must continue to be confidential; (iii) that such lists are not readily accessible to competitors of the Company; (iv) that the Company's present and future business is and will continue to be of a type that customers will normally patronize only one concern; and (v) that the Company's present and future business relationship with its customers is and will continue to be of a type which normally continues unless interfered with by others. 6. Inventions and Patents. ---------------------- 6.1 The Executive agrees that all processes, technologies and inventions ("Inventions"), including new contributions, improvements, ideas and discoveries, whether patentable or not, conceived, developed, invented or made by him during the Term shall belong to the Company, provided that such Inventions grew out of the Executive's work with the Company or any of its subsidiaries or affiliates, are related in any manner to the business (commercial or experimental) of the Company or any of its subsidiaries or affiliates or are conceived or made on the Company's time or with the use of the Company's facilities or materials. The Executive shall further: (a) promptly disclose such Inventions to the Company; (b) assign to the Company, without additional compensation, all patent and other rights to such Inventories for the United States and foreign countries; (c) sign all papers necessary to carry out the foregoing; and (d) give testimony in support of his inventorship. 6.2 If any Invention is described in a patent application or is disclosed to third parties, directly or indirectly, by the Executive within two years after the termination of his employment by the Company, it is to be presumed that the Invention was conceived or made during the period of the Executive's employment by the Company. 6.3 The Executive agrees that he will not assert any rights to any Invention as having been made or acquired by him prior to the date of this Agreement, except for Inventions, if any, disclosed to the Company in writing prior to the date hereof. 7. Intellectual Property. The Company shall be the sole owner of all the --------------------- products and proceeds of the Executive's services hereunder, including, but not limited to, all materials, ideas, concepts, formats, suggestions, developments, arrangements, packages, programs and other intellectual properties that the Executive may acquire, obtain, develop or create in connection with and during the Term of the Executive's employment hereunder, free and clear of any claims by the Executive (or anyone claiming under the Executive) of any kind or character whatsoever (other than the Executive's right to receive payments hereunder). The Executive shall, at the request of the Company, execute such assignments, certificates or other instruments as the Company may from time to time deem necessary or desirable to evidence, establish, maintain, perfect, protect, enforce or defend its right, or title and interest in or to any such properties. 8. Indemnification. The Company will indemnify the Executive, to the --------------- maximum extent permitted by applicable law, against all costs, charges and expenses incurred or sustained by him in connection with any action, suit or proceeding to which he may be made a party by reason of his being an officer, director or employee of the Company or of any subsidiary or affiliate of the Company or any other corporation for which the Executive serves as an officer, director, or employee at the Company's request. 9. Arbitration. Any controversy or claim arising out of or relating to ----------- this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the Rules of the American Arbitration Association then pertaining in the County of Cuyahoga, State of Ohio, and judgment upon the award rendered by the Arbitrator may be entered in any Court having jurisdiction thereof The Arbitrator shall be deemed to possess the power to issue mandatory orders and restraining orders in connection with such arbitration; provided, however, that nothing in this Section 9 shall be construed so as to deny the Company the right and power to seek and obtain injunctive relief in a court of equity for any breach or threatened breach by the Executive of any of his covenants contained in Section 5 hereof. 10. Attorney's Fees. In the event either party hereto commences any --------------- action, suit or other proceeding in law or in equity, or any arbitration, to enforce the provisions of this Agreement or for any remedy for breach of this Agreement, the non-prevailing party in such action shall pay the prevailing party's costs and expenses, including reasonable attorneys' fees incurred in such action or arbitration proceeding. 11. Notices. All notices, requests, consents and other communications, ------- required or permitted to be given hereunder, shall be in writing and shall be deemed to have been duly given if delivered by registered or certified mail (notices shall be deemed to have been given on the date sent), as follows (or to such other address as either party shall designate by notice in writing to the other in accordance herewith): 11.1 if to the Company, to it at: Banner Aerospace, Inc. 25700 Science Park Drive Cleveland, Ohio 44122 Attention: Samuel J. Krasney 11.2 if to the Executive, to him at: Warren D. Persavich 2783 Wexford Boulevard Stow, Ohio 44224 12. General. ------- 12.1 Governing Law. This Agreement shall be governed by and construed ------------- and enforced in accordance with the laws of the State of Ohio applicable to agreements made and to be performed entirely in Ohio. 12.2 Headings. The article and section headings contained herein are -------- for reference purposes only and shall not in anyway affect the meaning or interpretation of this Agreement. 12.3 Entire Agreement. This Agreement sets forth the entire agreement ---------------- and understanding of the parties relating to the subject matter hereof, and supersedes all prior agreements, arrangements and understandings, written or oral, relating to the subject matter hereof No representation, promise or inducement has been made by either party that is not embodied in this Agreement, and neither party shall be bound by or liable for any alleged representation, promises or inducement not so set forth. 12.4 Assignability: Successors. This Agreement, and the Executive's ------------------------- rights and obligations hereunder, may not be assigned by the Executive. The Company may assign its rights, together with its obligations, hereunder to any subsidiary or affiliate of the Company or in connection with any sale, transfer or other disposition of all or substantially all of its business or assets; in any event the obligations of the Company hereunder shall be binding on its successors or assigns, whether by assignment to a subsidiary or affiliate of the Company or by merger, consolidation or acquisition of all or substantially all of its business or assets. 12.5 Modifications: Waivers. This Agreement may be amended, modified, ---------------------- superseded, canceled, renewed or extended and the terms or covenants hereof may be waived, only by a written instrument executed by both of the parties hereto, or in the case of a waiver, by the party waiving compliance. The failure of either party at any time or times to require performance of any provision hereof shall be in no manner affect the right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement. 13. Subsidiaries and Affiliates. As used herein the term "subsidiary" --------------------------- shall mean any corporation or other business entity controlled by the corporation in question, and the term "affiliate" shall mean and include any corporation or other business entity controlling, controlled by or under common control with the corporation in question. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. BANNER AEROSPACE, INC. By: /s/ JEFFREY J. STEINER ---------------------- Title: Chairman and Chief Executive Officer /s/ Warren Persavich -------------------- AMENDED EMPLOYMENT AGREEMENT AMENDED EMPLOYMENT AGREEMENT, dated as of July 1, 1993, ("Amended Employment Agreement") between BANNER AEROSPACE, INC., a Delaware corporation, (the "Company") and WARREN D. PERSAVICH (the "Executive"). WHEREAS, The Company and the Executive have executed an employment agreement dated December 1, 1990, which is in full force and effect; and WHEREAS, the Company believes it is in its best interests to move its corporate headquarters from Cleveland, Ohio to Chantilly, Virginia; and WHEREAS, The Executive agrees to amend Section 1.4 of the Current Employment Agreement and render his services in Chantilly, Virginia; and WHEREAS, The Company and Executive have agreed to increase the compensation and amend certain terms of employment to induce the Executive to move to Chantilly, Virginia; and continue the employment of the Executive as its Senior Vice President and Chief Financial Officer. NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Employment, Duties and Acceptance. --------------------------------- 1.1 Current Employment Agreement. The Company currently employs the ---------------------------- Executive under the terms of an employment agreement dated December 1, 1990 (the "Current Agreement"). The Company and Executive agree that the Current Agreement shall stay in force and effect until such time that both (i) the Amended Employment Agreement is executed; and (ii) the Effective Date as defined herein has been triggered. Upon the completion of (i) and (ii) above, this Amended Employment Agreement shall become effective and the Current Agreement shall terminate. Notwithstanding the provisions of this paragraph 1.1, the Executive shall be entitled to the reimbursement of expenses as provided in Section 1.5 and 1.6 of this Amended Employment Agreement if the Effective Date does not occur prior to January 1, 1994. 1.2 Employment by the Company. The Company hereby employs the ------------------------- Executive, for the Term, (as hereinafter defined), to render, subject to the following paragraph, exclusive and full-time services to the Company as Senior Vice President and Chief Financial Officer of the Company, subject to the direction of the Chief Executive Officer ("the CEO"), the Board of Directors, and the Executive Committee of the Board of Directors (Executive Committee) or any duly authorized committee thereof and, in connection therewith, to perform such duties as he shall reasonably be directed to perform by the CEO, Board of Directors, or Executive Committee. 1.3 Acceptance of Employment by Executive; Appointment as an -------------------------------------------------------- Executive Officer. The Executive hereby accepts such employment and agrees to - - ----------------- render the services described above. The Executive further agrees to accept election and to serve during all or any part of the Term as an officer or director of the Company and of any subsidiary or affiliate of the Company (or of any other corporation at the Company's reasonable request) without any compensation therefor other than that specified in this Agreement if elected to any such position by the shareholders or by the Board of Directors of the Company or of any subsidiary or affiliate (or other corporation), as the case may be. 1.4 Vacation. The Executive shall be entitled to annual vacations in -------- accordance with the vacation policy of the Company, as in effect from time to time. 1.5 Domicile of Executive: Travel. The Executive shall render the ----------------------------- services described above at the Company's corporate offices within a 20 mile radius of 300 West Service Road, Chantilly, Virginia ("New Headquarters") and shall not be required to move his residence from, or render his services outside such area without his prior consent. However, the Executive agrees to move his residence if the New Headquarters are moved to a major metropolitan area (defined as having in excess of one million people) in the States of California, Texas, Florida, or Ohio, and will be entitled to an appropriate cost of living adjustment, but only upwards, if the cost of living as can reasonably be determined, is greater than the cost of living at the New Headquarters. In the event the Executive relocates his residence as provided above, he will be entitled to reasonable relocation expenses in accordance with Section 1.5 and 1.6. The Executive shall be required to locate his residence to an area proximate to the New Headquarters within twelve months of the Effective Date. If the Company does not move its office by or January 1, 1994, Executive will be entitled to reimbursement of all costs for acquiring, divesting, and/or maintaining a new residence. The reimbursed costs will be "grossed up" for income tax purposes to the extent the reimbursed costs require the Executive to pay any additional state or federal income taxes. Executive will use his best efforts to, (i) minimize the deposit required for issuing a bid on a new residence and, (ii) provide in the terms for such bid that the deposit will be deemed liquidated damages. The Executive shall be subject to reasonable travel requirements as may be necessary or desirable to perform fully his obligations hereunder. 1.6 Moving Costs. The Executive shall be entitled to reimbursement ------------ for (i) reasonable expenses incurred by the Executive and his family in the relocation of the Executive's residence from Stow, Ohio, to an area proximate to the New Headquarters, including house-hunting expenses; and (ii) actual travel and temporary living expenses for the Executive and his family for a period not to exceed twelve months from a date which is 30 days prior to the Effective Date with a maximum of $2,000.00 in any one month; and (iii) closing costs associated with the sale of the current residence in Stow, Ohio and closing costs associated with the purchase of a new residence proximate to the Company's New Headquarters. Closing costs shall include all costs related to the sale and purchase of each residence but shall exclude mortgage points, which are paid solely to reduce the applicable interest rate. Reimbursement for aggregate closing costs shall not exceed $30,000.00. All reimbursed costs pursuant to section 1.6 will be "grossed-up" for income tax purposes to the extent the reimbursed costs require the Executive to pay any additional state or federal income taxes. 2. Term of Employment. ------------------ 2.1 Term. The term of the Executive's employment under this Agreement ---- (the "Term") shall be effective on the first day of the month in which the Company's offices are physically moved to the New Headquarters (the "Effective Date") and shall extend for three (3) years from the Effective Date unless scorer terminated pursuant to Article 4 of this Agreement. 2.2 Extension of Term. Following the initial one (1) year period of ----------------- the Term, the Term shall be extended for one additional day at the end of each and every successive day so as to provide a continuous "rolling term" at all times of not less than 730 days, unless the Term is sooner terminated pursuant to Article 4 of this Agreement. 3. Compensation. ------------ 3.1 Salary. As full compensation for all services to be rendered ------ pursuant to this Agreement, the Company agrees to pay the Executive (or, in the event the Executive performs services hereunder on behalf of a subsidiary of the Company, the Company shall cause such subsidiary to pay the Executive, without duplication and only to the extent not paid by the Company or any other subsidiary), during the Term, a salary at the fixed rate of $155,000 per annum, or such greater amount as shall be approved by the Board of Directors of the Company in its sole discretion (the "Base Salary"), payable in accordance with the payroll policies of the Company as from time to time in effect, less such deductions as shall be required to be withheld by applicable law and regulations. If the Effective Date occurs subsequent to January 1, 1994, the Base Salary will be increased retroactively from it current level of $120,000 to $155,000 effective October 1, 1993. The Executive shall be entitled to a salary review ate the end of each calendar year beginning in 1994. 3.2 Bonuses. For the twelve (12) month period commencing April 1, ------- 1993 and ending March 31, 1994, and each fiscal year thereafter, the Executive shall be entitled to receive a bonus (the "Bonus") as a participant in the Company's incentive compensation arrangement. The Executive will receive a Bonus equal to 50% of his annual Base Salary, in effect at the end of each fiscal year, upon but only upon, the achievement of goals designated from time to time by the compensation committee. The amount of Bonus paid will be offset by bonus advances, if any. In addition, the Executive shall be entitled to receive from time to time such other bonuses, including transaction-related bonuses as the Board of Directors shall, from time to time, in its sole discretion determine. For the fiscal year ended March 31, 1994, the Executive will be entitled to a bonus advance of $38,750, to be paid upon the Effective Date. If for any reason the Executive does not earn a Bonus for fiscal 1994 or the Bonus amount earned is less than the bonus advance, the Executive shall repay the advance or the amount by which the advance exceeds the actual Bonus. The repayment of the bonus advance, if any, will be made at the time the Bonus would have been payable to the Executive. 3.3 Expenses. Subject to such policies as may from time to time be -------- established by the Board of Directors, applicable to its senior executive officers generally, the Company shall pay or reimburse the Executive for all reasonable expenses actually incurred or paid by him during the Term in the performance of his services under this Amended Employment Agreement, upon presentation of expense statements or vouchers or such other supporting information as it may require; provided, -------- however, that the maximum amount available for such expenses during any period - - ------- may be fixed in advance by the CEO or Executive Committee of the Company. 3.4 Participation in Executive Benefit Plans. The Executive shall ---------------------------------------- participate in each group life, dental, health, disability and pension plan or similar benefit plans and any stock option plan of the Company which is available to other senior executive officers of the Company and for which he qualifies and will be entitled to an executive auto allowance (currently $650 per month) and all costs related thereto. 3.5 Stock Options. The Chief Executive Officer shall make a ------------- recommendation to the Company's Stock Option and Compensation Committee for an award to the Executive of an option to acquire 30,000 shares of common stock of the Company in accordance with the non-qualified and incentive stock option plan of Banner Aerospace, Inc. as amended. 3.6 Limitations Imposed by Law. The provisions of this Agreement -------------------------- relating to the compensation to be paid to the Executive shall be subject to any limitations provided by law or regulation that may from time to time limit the compensation payable to the Executive. 4. Termination. ------------ 4.1 Termination Upon Death. If the Executive shall die during the ---------------------- Term, this Agreement shall terminate, except that the Executive's legal representatives shall be entitled to receive the Executive's Base Salary for a period of six months following the last day of the month in which his death occurs and, following the end of the fiscal year in which his death occurs, such legal representatives shall be entitled to receive the amount of Bonus, if any, that would otherwise have been payable to Executive under Section 3.2 and which have accrued through the end of the fiscal year in which his death occurs as if the Executive had been employed by the Company for the entire fiscal year. 4.2 Termination Upon Disability. If during the Term, the Executive --------------------------- shall become physically or mentally disabled, whether totally or partially, so that he is unable substantially to perform his services hereunder for (i) a period of six consecutive months, or (ii) for shorter periods aggregating six months during any twelve month period, the Company may at any time after the last day of the six consecutive months of disability or the day on which the shorter periods of disability shall have equaled an aggregate of six months, by written notice to the Executive (but before the Executive has recovered from such disability), terminate the Term of the Executive's employment hereunder. Notwithstanding such disability the Company shall; (i) continue to pay the Executive his Base Salary up to and including the date of such termination, and (ii) following the end of the fiscal year in which such termination occurs shall pay to the Executive, the amount of Bonus, if any, that would otherwise have been payable to the Executive under Section 3.2 and which have accrued through the end of the fiscal year in which such termination occurs as if the Executive had been employed by the Company for the entire fiscal year. Any disability payments due to the Executive pursuant to this section 4.2 ("Disability Payments") shall be reduced by proceeds of Company paid disability insurance ("Disability Insurance Proceeds"), but only to the extent that the aggregate of such Disability Payments and Disability Insurance Proceeds would provide a disability benefit in excess of 100% of the Base Salary for the applicable period. 4.3 Termination by the Company for Cause. The Company may at any time ------------------------------------ during the Term, by thirty days notice to the Executive, terminate for Cause (as hereinafter defined) the Executive's employment hereunder, in which event the Executive shall be entitled to receive his Base Salary accrued through the effective date of such termination. The Executive shall have no right to receive any other compensation or benefit hereunder after the effective date of such termination; provided, however, that the foregoing shall not affect the ------------------ Executive's right to receive any compensation or benefit under any other agreement accrued to the date of such termination (but in no event beyond such date) in accordance with the terms thereof, including but not limited to, any compensation or benefits under the Bonus Arrangement or any stock option or other executive benefit plan. As used herein the term for "Cause" shall be deemed to mean and include with respect to the Executive (i) conduct of the Executive, at any time, which has involved criminal dishonesty, conviction of the Executive of any felony, or of any lesser crime or offense involving the property of the Company or any of its subsidiaries or affiliates, significant conflict of interest, serious impropriety, or breach of corporate duty, misappropriation of any money or other assets or properties of the Company or its subsidiaries or affiliates; (ii) willful violation of specific and lawful directions from the CEO or Executive Committee or expressly required by the terms of this Agreement, or willful misconduct or gross negligence by the Executive in connection with the performance of his duties hereunder; (iii) chronic alcoholism or drug addiction; (iv) any other acts or conduct inconsistent with the standards of loyalty, integrity or care reasonably required by the Company of its senior executives; and (v) failure to timely satisfy the residency requirement as provided in Section 1.5. 4.4 Termination Without Cause. If the Executive is terminated without ------------------------- cause (other than upon death, disability, voluntary resignation), commencing on the effective date of such termination (the "Termination Date"), the Executive shall not be required to render any further services to the Company and shall receive in a lump sum within 30 days of the Termination Date an amount equal to: (i) all Base Salary payable to the Executive during the remainder of the Term; and (ii) a bonus equal to 50% of the annual Base Salary as of the Termination Date (the "Severance Bonus"). The Executive will also be entitled to Bonus earned but unpaid from any prior fiscal year. In addition to the foregoing, if the Executive is terminated without cause within twelve months of the Effective Date, he shall be entitled to a bonus ("Additional Bonus") which shall be an amount equal to the Bonus that would have been earned for the period beginning on the Termination Date and ending on the third anniversary of the Effective Date. The Additional Bonus, if any, will be reduced by the Severance Bonus, but in no case will it be less than zero. The Additional Bonus will be paid pursuant to Section 3.2. If the Executive is terminated without cause on a date which occurs twelve months after the Effective Date, he shall be entitled to a bonus ("Extra Bonus") which shall be an amount equal to the Bonus that would have been earned for the period beginning on the Termination Date and ending on the second anniversary of the Termination Date. The Extra Bonus, if any, will be reduced by the Severance Bonus, but in no case will it be less than zero. The Extra Bonus will be paid pursuant to Section 3.2. For purposes of this Section 4.4, all bonuses earned will be prorated on a per diem basis for any bonus periods, which are less than twelve months. For purposes of calculating the vesting period for any Supplementary Employee Retirement Plan which may hereafter be adopted by the Company which has benefits which vest over time, the period from the Termination Date through the remainder of the Term will be credited to the Executive in computing his length of service. All other compensation and benefits due during the Term, including, but not limited to, auto allowance and related expenses, pension benefits, life, dental, disability and health insurance (together, the "Other Benefits") will be continued through the end of the Term; provided, however, the Other Benefits will be reduced to the extent that the Executive actually receives these benefits from another employer during the remainder of the Term. If the Executive is employed by another employer during the remainder of the Term, the maximum benefit payable for Other Benefits during this period will not exceed $833.00 for each remaining month of the Term. The assignment to the Executive of duties or responsibilities which are in the aggregate materially less in nature to the normal and/or current duties of the Chief Financial Officer or any other substantial adverse change in the position, nature or status of the Executive's job description shall be deemed termination without cause for purposes of this section 4.4. If the Executive is terminated without cause, any compensation earned by the Executive from another employer during the remaining term of this agreement shall not offset or mitigate compensation payable to the Executive pursuant to this section 4.4, except that Other Benefits may be reduced as provided above. 5. Protection of Confidential Information; Non-Competition. ------------------------------------------------------- 5.1 Confidential Information. In view of the fact that the ------------------------ Executive's work for the Company will bring him into close contact with many confidential affairs of the Company not readily available to the public, and plans for future developments, the Executive agrees: 5.1.1 To keep and retain in the strictest confidence all confidential matters of the Company, including, without limitation trade "know how" secrets, customer lists, pricing policies, operational methods, technical processes, formulae, inventions and research projects, and other business affairs of the Company, learned by him heretofore or hereafter, and not to disclose them to anyone outside of the Company, either during or after his employment with the Company, except in the course of performing his duties hereunder or with the Company's express written consent; and 5.1.2 To deliver promptly to the Company on termination of his employment by the Company, or at any time the Company may so request, all memoranda, notes, records, reports, manuals, drawings, blueprints and other documents (and all copies thereof) relating to the Company's business and all property associated therewith, which he may then possess or have under his control. 5.2 Non-Competition. During the Term and for a period of six months --------------- following the termination of such period, the Executive shall not in any state of the United States or any foreign country in which the Company shall then be doing business, directly or indirectly, enter the employ of, or render any services to, any person, firm or corporation (other than The Fairchild Corporation) engaged in any business competitive with the business of the Company or of any of its subsidiaries or affiliates; he shall not engage in such business on his own account; and he shall not become interested in any such business, directly or indirectly, as an individual, partner, shareholder, director, officer, principal, agent, employee, trustee, consultant, or any other relationship or capacity; provided, however, that nothing contained in this Section 5.2 shall be deemed to prohibit the Executive from acquiring, (a) solely as an investment, not more than 1% of the shares of capital stock of any public corporation, or (b) shares of the capital stock of Fairchild, or (c) shares of the Company. 5.3 Remedies of the Company Upon Executive Breach. If the Executive --------------------------------------------- commits a breach, or threatens to commit a breach, of any of the provisions of Sections 5.1 or 5.2 hereof, the Company shall have the following rights and remedies: 5.3.1 The right and remedy to have the provisions of this Agreement specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company; and 5.3.2 The right and remedy to require the Executive to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits (collectively, "Benefits") derived or received by the Executive as the result of any transactions constituting a breach of any of the provisions of the preceding paragraph, and the Executive hereby agrees to account for and pay over such Benefits Company. Each of the rights and remedies enumerated above shall be independent of the other, and shall be severally enforceable, and all of such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to the Company under the law or in equity. 5.4 Construction and Enforceability. ------------------------------- 5.4.1 If any of the covenants contained in Section 5.1 or 5.2, or any part thereof, is hereafter construed to be invalid or unenforceable, the same shall not affect the remainder of the covenant or covenants, which shall be given full effect, without regard to the invalid portions. 5.4.2 If any of the covenants contained in Section 5.1 or 5.2, or any part thereof, is held to be unenforceable because of the duration of such provision or the area covered thereby, the parties agree that the court making such determination shall have the power to reduce the duration and/or area of such provision and, in its reduced form, said provision shall then be enforceable. 5.5 Enforceability in Jurisdictions. The parties hereto intend to and ------------------------------- hereby confer jurisdiction to enforce the covenants contained in Sections 5.1 and 5.2 upon federal or state courts or the courts of any foreign jurisdiction within the geographical scope of such covenants. In the event that the courts of any one or more of such state, federal or foreign for jurisdictions shall hold such covenants wholly unenforceable by reason of the breadth of such scope or otherwise, it is the intention of the parties hereto that such determination not bar or in any way affect the Company's right to the relief provided above in the courts of any other state, federal or foreign jurisdictions within the geographical scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, the above covenants as they relate to each state and foreign country being, for this purpose, severable into diverse and independent covenants. 5.6 Company Lists. The Executive recognizes and agrees (i) that all ------------- existing lists of customers of the Company, and all lists of customers of the Company developed during the course of the Executive's employment by the Company, are and shall be the sole exclusive property of the Company, and that the Executive neither has nor shall have any right, title or interest therein; (ii) that such lists of customers are and must continue to be confidential; (iii) that such lists are not readily accessible to competitors of the Company; (iv) that the Company's present and future business is and will continue to be of a type that customers will normally patronize only one concern; and (v) that the Company's present and future business relationship with its customers is and will continue to be of a type which normally continues unless interfered with by others. 6. Inventions and Patents. ---------------------- 6.1 The Executive agrees that all processes, technologies and inventions ("Inventions"), including new contributions, improvements, ideas and discoveries, whether patentable or not, conceived, developed, invented or made by him during the Term shall belong to the Company, provided that such Inventions grew out of the Executive's work with the Company or any of its subsidiaries or affiliates, are related in any manner to the business (commercial or experimental) of the Company or any of its subsidiaries or affiliates or are conceived or made on the Company's time or with the use of the Company's facilities or materials. The Executive shall further: (a) promptly disclose such Inventions to the Company; (b) assign to the Company, without additional compensation, all patent and other rights to such Inventories for the United States and foreign countries; (c) sign all papers necessary to carry out the foregoing; and (d) give testimony in support of his inventorship. 6.2 If any Invention is described in a patent application or is disclosed to third parties, directly or indirectly, by the Executive within two years after the termination of his employment by the Company, it is to be presumed that the Invention was conceived or made during the period of the Executive's employment by the Company. 6.3 The Executive agrees that he will not assert any rights to any Invention as having been made or acquired by him prior to the date of this Agreement, except for Inventions, if any, disclosed to the Company in writing prior to the date hereof. 7. Intellectual Property. The Company shall be the sole owner of all the ----------------------- products and proceeds of the Executive's services hereunder, including, but not limited to, all materials, ideas, concepts, formats, suggestions, developments, arrangements, packages, programs and other intellectual properties that the Executive may acquire, obtain, develop or create in connection with and during the Term of the Executive's employment hereunder, free and clear of any claims by the Executive (or anyone claiming under the Executive) of any kind or character whatsoever (other than the Executive's right to receive payments hereunder). The Executive shall, at the request of the Company, execute such assignments, certificates or other instruments as the Company may from time to time deem necessary or desirable to evidence, establish, maintain, perfect, protect, enforce or defend its right, or title and interest in or to an; such properties. 8. Indemnification. The Company will indemnify the Executive, to the --------------- maximum extent permitted by applicable law, against all costs, charges and expenses incurred or sustained by him in connection with any action, suit or proceeding to which he may be made a party by reason of his being an officer, director or employee of the Company or of any subsidiary or affiliate of the Company or any other corporation for which the Executive serves as an officer, director or employee at the Company's request. 9. Arbitration. Any controversy or claim arising out of or relating to ----------- this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the Rules of the American Arbitration Association then pertaining in the County of Loudoun, State of Virginia, and judgment upon the award rendered by the Arbitrator may be entered in any Court having jurisdiction thereof. The Arbitrator shall be deemed to possess the power to issue mandatory orders and restraining orders in connection with such arbitration; provided, however, that nothing in this Section 9 shall be construed so as to deny the Company the right and power to seek and obtain injunctive relief in a court of equity for any breach or threatened breach by the Executive of any of his covenants contained in Section 5 hereof. 10. Attorney's Fees. In the event either party hereto commences any --------------- action, suit or other proceeding in law or in equity, or any arbitration, to enforce the provisions of this Agreement or for any remedy for breach of this Agreement, the non-prevailing party in such action shall pay the prevailing party's costs and expenses, including reasonable attorneys' fees incurred in such action or arbitration proceeding. 11. Notices. All notices, requests, consents and other communications, ------- required or permitted to be given hereunder, shall be in writing and shall be deemed to have been duly given if delivered by registered or certified mail (notices shall be deemed to have been given on the date sent), as follows (or to such other address as either party shall designate by notice in writing to the other in accordance herewith): 11.1 if to the Company, to it at: Banner Aerospace, Inc. 300 West Service Road Chantilly, Virginia 22021 Attention: Jeffrey Steiner 11.2 if to the Executive, to him at: Warren D. Persavich 2783 Wexford Boulevard Stow, Ohio 44224 12. General. ------- 12.1 Governing Law. This Agreement shall be governed by and construed ------------- and enforced in accordance with the laws of the State of Virginia applicable to agreements made and to be performed entirely in Virginia. 12.2 Headings. The article and section headings contained herein are -------- for reference purposes only and shall not in anyway affect the meaning or interpretation of this Agreement. 12.3 Entire Agreement. This Agreement sets forth the entire agreement ---------------- and understanding of the parties relating to the subject matter hereof, and supersedes all prior agreements, arrangements and understandings, written or oral, relating to the subject matter hereof. No representation, promise or inducement has been made by either part) that is not embodied in this Agreement, and neither party shall be bound by or liable for any alleged representation, promises or inducement not so set forth. 12.4 Assignability; Successors. This Agreement, and the Executive's ------------------------- rights and obligations hereunder, may not be assigned by the Executive. The Company may assign its rights, together with its obligations, hereunder to any subsidiary or affiliate of the Company or in connection with any sale, transfer or other disposition of all or substantially all of its business or assets; in any event the obligations of the Company hereunder shall be binding on its successors or assigns, whether by assignment to a subsidiary or affiliate of the Company or by merger, consolidation or acquisition of all or substantially all of its business or assets. 12.5 Modifications; Waivers. This Agreement may be amended, modified, ---------------------- superseded, canceled, renewed or extended and the terms or covenants hereof may be waived, only by a written instrument executed by both of the parties hereto, or in the case of a waiver, by the party waiving compliance. The failure of either party at any time or times to require performance of any provision hereof shall be in no manner affect the right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement. 13. Subsidiaries and Affiliates. As used herein the term "subsidiary" --------------------------- shall mean any corporation or other business entity controlled by the corporation in question, and the term "affiliate" shall mean and include any corporation or other business entity controlling, controlled by or under common control with the corporation in question. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. BANNER AEROSPACE, INC. By: /s/ Eugene Juris ---------------- Title: Vice President /s/ Warren D. Persavich ----------------------- EX-22 5 0005.txt LIST OF SUBSIDIARIES OF REGISTRANT The Fairchild Corporation Subsidiaries as of June 30, 2000
- - ----------------------------------------------------------------------------------------------------------------------- Entity Name Incorporated in: Description - - ----------------------------------------------------------------------------------------------------------------------- A10 Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Aero International, Inc. OH Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Aircraft Tire Corporation DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Aviation Full Services (Hong Kong) Limited Hong Kong Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Aviation One Company Ltd. Cayman Islands Equity Affiliate {50%} - - ----------------------------------------------------------------------------------------------------------------------- Avilas, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Babar, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Banner Aero (Australia) Pty, Ltd. Australia Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Banner Aerospace--Aircraft Services, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Banner Aerospace Holding Company I, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Banner Aerospace Holding Company II, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Banner Aerospace, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Banner Aerospace Services, Inc. OH Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Banner Aerospace-Singapore, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Banner Capital Ventures, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Banner Energy Corporation of Kentucky, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Banner Industrial Distribution, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Banner Industrial Products, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Banner Investments (U.K.) Limited UK Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- BAR DE, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Camloc Holdings Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Convac France S.A. France Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- DAC International, Inc. TX Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Dallas Aerospace, Inc. TX Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Discontinued Aircraft, Inc. TX Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Discontinued Services, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- D-M-E Iberica S.A. Spain Equity Affiliate {46%} - - ----------------------------------------------------------------------------------------------------------------------- Eagle Environmental II, L.P. DE Partnership {49.9%} - - ----------------------------------------------------------------------------------------------------------------------- Eagle Environmental, L.P. DE Partnership {49.9%} - - ----------------------------------------------------------------------------------------------------------------------- Eurosim Componentes Mecanicos de Seguranca, Lda. Portugal Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- F. F. Handels GmbH Germany Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Arms International Limited Canada (Ontario) Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Corporation (The) DE - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Data Corporation DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Environmental Liability Management, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Export Sales Corporation Barbados Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Fastener Group Ltd. UK Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Fasteners (UK) Ltd. UK Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Fasteners Co., Ltd. Thailand Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Fasteners Corp. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Fasteners Direct, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Fasteners Direct oHG (GmbH & Co.) Germany Partnership, General - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Fasteners Europe--Camloc GmbH Germany Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Fasteners Europe--Simmonds S.A.R.L. France Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Fasteners Europe--VSD GmbH Germany Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Fasteners Femipari Kft. Hungary Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Fasteners Germany GmbH Germany Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Fasteners Melbourne Pty. Australia Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Fasteners Pte. Ltd. Singapore Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Finance Company Ireland Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Fairchild France, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Germany, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Holding Corp. DE Subsidiary - - -----------------------------------------------------------------------------------------------------------------------
i
- - ----------------------------------------------------------------------------------------------------------------------- Entity Name Incorporated in: Description - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Retiree Medical Services, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Technologies Europe Limited UK Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Technologies IP, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Technologies Semiconductor Equipment Group GmbH Germany Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Technologies USA, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Fairchild Titanium Technologies, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Faircraft Sales Ltd. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- GCCUS, Inc. Georgetown Jet Center, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Gobble Gobble, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Hartz-Rex Associates NJ Partnership {49%} - - ----------------------------------------------------------------------------------------------------------------------- Jenkins Coal Dock Company, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- JJS Limited UK Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Kaynar Technologies Ltd. UK Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- KenCoal Associates OH Partnership {80%} - - ----------------------------------------------------------------------------------------------------------------------- KT International Sales Corporation Barbados Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- M&M Machine & Tool Co. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Mairoll, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Marcliff Corporation DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Marson Creative Fastener, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Matrix Aviation, Inc. KS Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Mecaero SNC France Partnership, General - - ----------------------------------------------------------------------------------------------------------------------- MediaDisc SA France Equity Affiliate {41%} - - ----------------------------------------------------------------------------------------------------------------------- Meow, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Nasam Incorporated CA Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Normvest Russia Equity Affiliate {50%} - - ----------------------------------------------------------------------------------------------------------------------- PB Herndon Aerospace, Inc. MO Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Plymouth Leasing Company DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Professional Aircraft Accessories, Inc. FL Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Professional Aviation Associates, Inc. GA Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Quack Quack, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Recoil (Europe) Ltd. UK Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Recoil Australia Holdings, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Recoil Holdings, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Recoil Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Recoil Marketing BVBA Belgium Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Recycling Investments II, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Recycling Investments, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- RHI Holdings, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Rooster, Inc. (The) DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- SCI de La Praz France Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Sheepdog, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Simmonds S.A. France Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Snails, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- SNEP SA France Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Sovereign Air Limited DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Suchomimous Terensis, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Technico SA France Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Teuza Management and Development (1991) Ltd. Israel Equity Affiliate {40%} - - ----------------------------------------------------------------------------------------------------------------------- Transfix S.A. France Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- V&V Redondo Beach Limited Partnership CA Partnership {49%} - - ----------------------------------------------------------------------------------------------------------------------- VSI Holdings, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- Warthog, Inc. DE Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- WIS LP, Ltd. Bermuda Subsidiary - - ----------------------------------------------------------------------------------------------------------------------- WIS Partners, LP Bermuda Partnership - - -----------------------------------------------------------------------------------------------------------------------
ii EX-23.1 6 0006.txt CONSENT OF ARTHUR ANDERSEN LLP Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation of our reports in this Form 10-K, into the Company's previously filed Registration Statement File Nos. 35-27317, 33-21698, 33-06183, 333-49779, and 333-62037. ARTHUR ANDERSEN LLP Vienna, VA September 15, 2000 EX-27 7 0007.txt FINANCIAL DATA SCHEDULE
5 1,000 12-MOS JUN-30-2000 JUN-30-2000 35,790 9,054 146,426 9,598 179,859 426,163 460,013 142,938 1,267,420 213,530 453,719 0 0 3,270 398,842 1,267,420 635,361 649,771 472,023 626,582 0 0 44,092 17,711 (4,399) 21,764 (12,006) 0 0 9,758 0.39 0.39
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