SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the year ended June 30, 1994 Commission File Number: 1-3102
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FAIRCHILD INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 52-0579835
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Washington Dulles International Airport
300 West Service Road, P.O. Box 10803
Chantilly, Virginia 22021-9998
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(703) 478-5800
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(Registrant's Telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on
Title of each class which registered
- -------------------------------------- -------------------
Series A Convertible Preferred Stock,
without par value New York Stock Exchange
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Series C Cumulative Preferred Stock,
without par value New York Stock Exchange
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9 3/4% Subordinated Debentures, Due
April 1, 1998 New York Stock Exchange
- -------------------------------------- -----------------------
12 1/4% Senior Secured Notes, Due 1999 New York Stock Exchange
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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 90 days.
Yes X No
---- ----
As of September 2, 1994, 424,701 Series A Preferred shares were
outstanding. The aggregate market value of voting stock held by non-
affiliates of the Registrant was approximately $16,351,000 (based upon the
closing prices of these shares on the New York Stock Exchange on such date).
As of September 2, 1994, 558,360 Series C Preferred shares were
outstanding. The aggregate market value of voting stock held by non-
affiliates of the Registrant was approximately $20,939,000 (based upon the
closing prices of these shares on the New York Stock Exchange on such date).
DOCUMENTS INCORPORATED BY REFERENCE: None
The Exhibit index is located on page 62.
<PAGE>
FAIRCHILD INDUSTRIES, INC.
INDEX TO
ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED JUNE 30, 1994
PART I Page
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . 13
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Stockholders. . . . 15
PART II
Item 5. Market for the Company's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . 16
Item 6. Selected Financial Data . . . . . . . . . . . . . . . 16
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . 16
Item 8. Financial Statements and Supplementary Data. . . . . . 26
Item 9. Disagreements on Accounting and Financial Disclosure . 56
PART III
Item 10. Directors and Executive Officers of the Registrant . . 56
Item 11. Executive Compensation . . . . . . . . . . . . . . . . 61
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . 61
Item 13. Certain Relationships and Related Transactions . . . . 62
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . 63
<PAGE>
PART I
------
ITEM 1. BUSINESS
- -----------------
(a) General Development of Business
Fairchild Industries, Inc. is incorporated in Delaware and is the
successor corporation to Fairchild Industries, Inc., a corporation
incorporated in Maryland in 1936, pursuant to a merger effective on May 4,
1987. As used herein, the term "Company" refers to Fairchild Industries,
Inc. and its subsidiaries unless otherwise indicated. The Company is a
subsidiary of RHI Holdings, Inc. ("RHI"), which is in turn a wholly-owned
subsidiary of The Fairchild Corporation ("TFC").
The Company conducts its operations through its wholly-owned subsidiary,
VSI Corporation ("VSI"), in three business segments: Aerospace Fasteners,
Industrial Products and Communications Services. The Aerospace Fasteners
segment designs, manufactures and markets high performance, specialty
fastening systems, primarily for aerospace applications. The Industrial
Products segment designs, manufactures and markets tooling and electronic
control systems for the plastic injection molding and die casting industries.
The Communications Services segment furnishes telecommunications services and
equipment to tenants of commercial office buildings. For a comparison of the
sales of each of the Company's three business segments for each of the last
three fiscal years, see "Management Discussion and Analysis of Results of
Operations and Financial Condition".
Fiscal 1994 Developments
- ------------------------
Aerospace Fasteners Restructuring
---------------------------------
In recent years, the Company has undertaken measures designed to reduce
costs and improve operating efficiencies, increase earnings, and maintain its
market position in the Aerospace Fasteners segment. These measures have
included closing and consolidating certain of the Aerospace Fasteners
segment's facilities.
As a result of the sustained soft worldwide demand for aircraft, and the
resulting decline in new order rates and prices for aerospace fasteners, in
Fiscal 1994, the Company has undertaken further restructuring actions to
downsize, reduce costs, reduce cycle times and improve margins. These
restructuring efforts have included discontinuance of certain aircraft engine
bolt product lines, increased cellularization of manufacturing processes,
relocation of its New Jersey operations to California and re-engineering of
certain manufacturing processes and methods to meet increased customer
quality standards. In connection with these moves, in Fiscal 1994, the
Company recorded restructuring charges of $18.9 million. The Company
believes the reduction of the capacity of the Aerospace Fasteners segment,
and the reorganization of its remaining manufacturing operations, will
continue to improve operating efficiencies and reduce operating costs.
The foregoing measures represent a continuation of actions commenced in
Fiscal 1992 and continued in Fiscal 1993, which included the consolidation of
a major manufacturing facility, the elimination of over 410 manufacturing
personnel and 100 other personnel of the Aerospace Fasteners segment, a wage
and salary freeze and certain other actions to improve manufacturing
efficiencies and streamline operations.
The Company also continues to examine its manufacturing, selling,
general and administrative costs and expenses and intends to further reduce
such costs and expenses in Fiscal 1995 and, to this end may incur additional
restructuring costs related to the elimination of product lines and further
personnel reductions.
(b) Financial Information about Business Segments
Financial information regarding the Company's business segments are
hereby incorporated by reference from Note 14 of the Company's consolidated
financial statements included in Item 8 Financial Statements and
Supplementary Data.
(c) Narrative Description of Business Segments
Aerospace Fasteners
- -------------------
The Company, through its Aerospace Fasteners segment, is a leading
worldwide manufacturer and supplier of fastening systems used in the
construction and maintenance of commercial and military aircraft. The
Aerospace Fasteners segment accounted for 45.8% of total Company sales for
the year ended June 30, 1994.
Products
--------
In general, aerospace fasteners produced by the Company are used to join
materials in applications which are not critical to flight. Products range
from standard aerospace screws to more complex systems that fasten airframe
structures, and sophisticated latching or quick disconnect mechanisms that
allow efficient access to internal parts that need to be serviced regularly
or monitored. The Aerospace Fasteners segment also manufactures and supplies
fastening systems used in non-aerospace industrial and electronic niche
applications. The Aerospace Fasteners segment produces and sells products
under various trade names and trademarks including Voi-Shan (fasteners for
aerospace structures), Screwcorp (standard externally threaded products for
aerospace applications), RAM (custom designed mechanisms for aerospace
applications), Camloc (components for the industrial, electronic, automotive
and aerospace markets), Tridair and Rosan (fastening systems for highly-
engineered aerospace, military and industrial applications). In addition to
these manufacturing operations, the Aerospace Fasteners segment includes
HARCO, which is a leading stocking distributor of self-locking nuts in the
aerospace fasteners industry.
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, Tri-Wing, Torq-Set, Phillips and Hex Heads.
Commercial Aerospace Structural and Engine Fasteners - These fasteners
consist of more highly engineered, permanent or semi-permanent fasteners used
in non-critical but more sophisticated 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, often involving exacting
standards. These fasteners include Hi-Lok, Veri-Lite, Eddie-Bolt2 and
customer proprietary engine nuts.
Proprietary Products and Fastening Systems - These very highly
engineered, proprietary fasteners are designed by the Company for specific
customer applications and include high performance structural latches and
hold down mechanisms. These fasteners are usually proprietary in nature and
are primarily used in either commercial aerospace or military applications.
These fasteners include Visu-Lok, Composi-Lok, Keen-serts, Mark IV, Flatbeam
and Ringlock.
Highly Engineered Fastening Systems for Industrial Applications - These
highly engineered fasteners are designed by the Company for specific niche
applications in the electronic, automotive and durable goods markets and are
sold under the Camloc trade name.
Gas Springs for Automotive and Industrial/Commercial Applications -
These are designed to assist in the raising, lowering or moving of heavy
loads such as the tailgate of a vehicle, sunbeds, printer canopies, acoustic
hoods and like items.
Sales and Markets
-----------------
The products of the Aerospace Fasteners segment are sold primarily to
domestic and foreign original equipment manufacturers, the maintenance and
repair market through distributors and the United States government. 78.9%
of its sales are domestic. The products of the Aerospace Fasteners segment
are marketed by a direct sales force and technical engineering support
personnel who are responsible for identifying new product applications,
obtaining the approval of new products and maintaining ongoing relationships
with customers in order to meet their requirements. Major customers include
Boeing, McDonnell Douglas, Airbus, Lockheed and Northrop and their
subcontractors as well as major distributors such as Burbank Aircraft. No
single customer accounts for more than 10% of consolidated sales.
The Company anticipates that non-aerospace and commercial aerospace
applications as a percentage of sales will increase over time as the Company
brings to market new products and military spending declines.
Research and Development
------------------------
Research and development and its engineering related support functions
are an important part of the Company's strategy of providing its customers
quality products, prompt service and overall value. Company sponsored
research and development expense in the Aerospace Fasteners segment for the
years ended June 30, 1994, 1993 and 1992 amounted to $1,435,000, $2,204,000
and $3,197,000, respectively.
Manufacturing and Production
----------------------------
The Aerospace Fasteners segment has seven major manufacturing
facilities, of which four are located in the United States and three are
located in Europe. Each facility has virtually complete production
capability, and subcontracts only those orders which exceed capacity. Each
plant is oriented to produce a specified product or group of products,
depending on the production process involved.
On January 17, 1994, the Aerospace Fasteners' Chatsworth, California
manufacturing facility suffered extensive damage from the Southern California
earthquake. As a result, the Company relocated the Chatsworth manufacturing
operations to its other Southern California facilities. See Note 11 of the
Company's consolidated financial statements included in Item 8 Financial
Statements and Supplementary Data.
The Company is continuing to extensively re-engineer the way it produces
fasteners, shifting from a process orientation to a product orientation by
forming focused discrete work groups with each having broader
responsibilities.
Competition
-----------
The Aerospace Fasteners segment's major competitors include Hi-Shear,
Inc., Monogram, Inc., Air Industries, Inc., SPS, Inc., Kaynar, Valley Todeco,
and Huck International, with regard to aerospace fasteners, and Southco,
Inc., with regard to specialized industrial applications. In addition,
competition comes from stocking distributors who may offer reduced lead times
to customers as a result of their inventory investment.
<PAGE>
Industrial Products
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The Industrial Products segment operates under the trade name D-M-E
Company ("DME"), and Fairchild Data Corporation ("Data"). DME is a leading
manufacturer and supplier of tooling and electronic control products for the
plastic injection molding industry worldwide. The principal end-users of
DME's products are the transportation, packaging, communications, housewares,
commercial and industrial products, medical products, toy, appliance,
furniture and building industries. The Company estimates that 77.5% of DME's
sales for the year ended June 30, 1994, were in North America and 22.5% were
attributable to sales outside North America.
Data is a supplier of modems for use in high-speed digitized voice and
data communications. No single customer accounts for more than 10% of
consolidated sales. The Industrial Products segment accounted for 37.5% of
total Company sales for the year ended June 30, 1994.
Products
--------
DME provides an extensive line of standardized and special order
products as well as electronic control systems. Principal product lines
include:
Mold Bases - Mold bases are used to retain the cavity and core of
a plastic mold. These products are individually stacked high alloy,
precision-machined steel plates available either as a standard dimensioned
catalog product or as a specially machined mold base made to customer
specifications.
Mold Components - Mold components are utilized within a mold base
to facilitate the mechanical action of the individual steel plates. These
products include such items as leader pins and bushings to guide and align
the plates, ejector pins and sleeves to eject the finished plastics product
from the mold, and other specialized products such as collapsible cores to
mold complex geometries involving difficult under-cuts and threads.
Moldmaking Tools/Supplies - Tooling and miscellaneous supplies
allow the moldmaker to manufacture and "finish" the actual cavity and core of
a plastic mold. These products range from ultrasonic polishing equipment and
abrasives to specialized tooling for the milling and drilling of steel.
Runnerless Molding/Process Control - DME's internally and
externally heated runnerless molding systems with thermal and/or mechanical
gate shut-off devices produce high quality plastic products while minimizing
labor content and reducing scrap in the manufacturing process. DME's
trademark runnerless molding systems are called The Hot One and The Cool
One. DME also provides sensor and computer technology, allowing processors
Statistical Process Control (SPC) of their entire molding cycle.
CAD/CAM - DME offers a unique line of Computer Aided Design (CAD)
and Computer Aided Manufacturing (CAM) hardware and software for the plastics
industry. DME sells computer hardware as a value-added reseller for some of
the industry's best known computer suppliers. Additionally, DME has
developed copyrighted software programs which are specific to the plastics
industry. These systems enable mold designers to design mold bases utilizing
a combination of most of the popular products offered by DME, including
runnerless systems.
Data is a supplier of modems for use in high-speed digitized voice and
data communications.
Sales and Markets
-----------------
DME's sales efforts in North America are led by direct field sales
representatives and regional managers, who call directly on key mold makers,
molders and designers. In addition, a telemarketing group supplements the
sales representatives' efforts and reaches the smaller or low activity
accounts. Additionally, DME utilizes distributors in key product market
segments to focus on sales of items such as temperature controls. Sales of
highly technical products, such as complete runnerless manifold systems, are
aided by technical service people located in the sales regions.
Internationally, sales are handled by direct sales representatives in
England, France, Belgium and Germany. In a number of countries in Europe and
Asia, joint venture partners sell DME products through both full-time sales
people and secondary distribution outlets. DME utilizes stocking
distributors to serve the rest of the world.
Manufacturing and Production
----------------------------
Local production facilities are a strategic advantage to sales in the
custom mold base markets DME serves. Accordingly, DME maintains regional
production facilities in North America and Europe to service customers of its
custom-manufactured products. DME owns ten manufacturing facilities in the
United States, Canada, Mexico, Belgium and Germany and licenses four other
companies to manufacture products in Brazil, Hungary, Japan and Korea.
Competition
-----------
DME competes with different companies with respect to each of its major
product categories. DME's competition principally consists of small
privately-held manufacturers operating primarily in local markets.
The Company believes it is the leading manufacturer of mold bases. DME
is one of six major competitors in North America and one of four major
competitors in Europe in the runnerless molding/process controls market. The
Company believes the runnerless molding/process controls market is a growth
market with competition based primarily on product technology and service.
A significant portion of DME's research and development is aimed at this
market. DME faces competition from various companies with respect to each of
the individual products in the other resale products category. Competition
in this category is based primarily on price and delivery time.
Communications Services
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Fairchild Communications Services Company provides telecommunications
equipment and services to tenants of commercial office buildings, under the
trade name Telecom 2000 Services. The Company believes it is the largest
provider of comprehensive telecommunications services exclusively to multi-
tenant office buildings in the United States. Fairchild Communications was
founded as a start-up venture in 1985 and has grown rapidly through
expansions and acquisitions. Sales have grown from $1.4 million in Fiscal
1986 to $74.2 million in Fiscal 1994. Approximately $48 million of such
increase was attributable to acquisitions (determined on an annualized basis
at the date of acquisition), primarily the acquisition of the
telecommunication assets of Amerisystems. The Communications Services
segment accounted for 16.7% of total Company sales for the year ended June
30, 1994.
Services
--------
Fairchild Communications negotiates long-term telecommunications
franchises with owners or developers of office buildings, typically during
the latter stages of building construction. Under these arrangements,
Fairchild Communications installs switching equipment, cable and telephone
equipment. Fairchild Communications then contracts directly with individual
tenants in the buildings to provide multi-year, single point-of-contact
telecommunications services. The services provided by Fairchild
Communications include access to services provided by regulated
communications companies, including local, long distance, international and
"800" telephone services. In addition, Fairchild Communications provides
telecommunications equipment as well as voice mail, telephone calling cards,
local area networks and voice and data cable installation. Fairchild
Communications also provides customized billing services to assist customers
in controlling their telecommunications expense. Fairchild Communications
typically provides telecommunications services at rates equal to or below
those which a customer could otherwise obtain, in part due to discounts
Fairchild Communications commands as a high volume purchaser of telephone
services.
Customers
---------
Customers typically consist of small to medium size businesses and
branches of larger organizations. As of June 30, 1994, Fairchild
Communications served approximately 4,500 customers at 275 buildings located
in 23 major metropolitan areas, providing approximately 62,000 full service
lines and 9,000 long distance only lines. Contract terms typically provide
for a lease of three to five years with an automatic renewal provision.
Competition
-----------
Fairchild Communications competes with regulated major carriers that may
provide a portion of the services that Fairchild Communications provides, but
are typically not structured to provide all of a customer's
telecommunications requirements. Fairchild Communications also competes with
small independent operators serving local markets. In some cases Fairchild
Communications competes with other communications services providers in order
to secure franchises with office building owners for the provision of
telecommunications services within their buildings. Principal competitors
include Realcom and Shared Technologies, as well as smaller, more localized,
companies. Once a franchise has been obtained, Fairchild Communications
competes with equipment manufacturers and distributors for the provision of
telephone and other telecommunications equipment and services to the
building's tenants. Principal equipment competitors include manufacturers
such as NEC, Intecom, AT&T and some of the local Bell operating companies
acting as manufacturer's distributors, as well as numerous smaller equipment
distributors.
Growth
------
Management believes that future growth in the Communications Services
segment will come primarily from four sources: acquisitions of smaller
companies operating in the same or related businesses; new customers as a
result of increased occupancy of space currently vacant in office buildings
already under franchise; additional franchise agreements with newly
constructed office buildings; and additional services to the existing
customer base.
Foreign Operations
- ------------------
The Company's operations are located primarily in the United States and
Europe. Inter-area sales are not significant to the total revenue of any
geographic area. Export sales are made by U.S. subsidiaries and divisions to
customers in non-U.S. countries, whereas foreign sales are made by the
Company's non-U.S. subsidiaries. For the Company's sales results by
geographic area and export sales, see Note 15 of the Company's consolidated
financial statements included in Item 8 Financial Statements and
Supplementary Data.
Major Customers
- ---------------
No single customer accounted for more than 10% of consolidated sales in
any of the Company's business segments for the year ended June 30, 1994.
<PAGE>
Backlog of Orders
- -----------------
Backlog is significant in the Company's Aerospace Fasteners segment due
to long-term production requirements of its customers. Backlog of unfilled
orders is not material in the Industrial Products segment, where most orders
for products are placed and filled within a few weeks. Backlog is not
applicable to the Communications Services segment.
The Company's backlog of orders as of June 30, 1994 in the Aerospace
Fasteners and Industrial Products segments amounted to $113.4 million and
$5.6 million, respectively. The Company anticipates that approximately 87.8%
of the aggregate backlog at June 30, 1994 will be delivered by June 30, 1995.
Suppliers
- ---------
The Company does not consider itself to be materially dependent upon any
one supplier, but is dependent upon a wide range of subcontractors, vendors
and suppliers of materials to meet its commitments to its customers.
Research and Patents
- --------------------
The Company's research and development activities have included:
applied research; development of new products; testing and evaluation of, and
improvements to, existing products; improvements in manufacturing techniques
and processes; development of product innovations designed to meet government
safety and environmental requirements; and development of technical services
for manufacturing and marketing. The Company's sponsored research and
development expenditures amounted to $3,940,000, $3,262,000 and $4,140,000
for the years ended June 30, 1994, 1993 and 1992, respectively. The Company
owns patents relating to the design and manufacture of certain of its
products and is a licensee of technology covered by the patents of other
companies. The Company does not believe that any of its business segments
are dependent upon any single patent or upon the rights and licenses it
possesses under any single patent owned by others.
Personnel
- ---------
As of June 30, 1994, the Company had approximately 3,500 employees.
Approximately 4% of these employees were covered by collective bargaining
agreements. The Company believes that its relations with its employees are
good.
Environmental Matters
- ---------------------
See discussion of Environmental Matters under Item 3 "Legal Proceedings"
below.
ITEM 2. PROPERTIES
- --------------------
As of June 30, 1994, the Company owned or leased properties totalling
approximately 1,698,000 square feet, approximately 1,084,000 square feet of
which was owned and 614,000 square feet of which was leased. The Aerospace
Fasteners segment's properties consisted of approximately 697,000 square
feet, with principal operating facilities of approximately 454,000 square
feet concentrated in southern California. The Industrial Products segment's
properties consisted of approximately 722,000 square feet, with principal
operating facilities of approximately 393,000 square feet located in Arizona,
Michigan, Pennsylvania and Belgium.
The Company leases its corporate headquarters at Washington-Dulles
International Airport from RHI.
The Company has several parcels of property which it is attempting to
market, lease and/or develop: (i) an 88 acre parcel located in Farmingdale,
New York, (ii) a 12 acre parcel located in City of Commerce, California,
(iii) a 6 acre parcel in Temple City, California, and (iv) an 8 acre parcel
in Chatsworth, California. In addition to the above, certain other
properties of the Company are being marketed.
On January 17, 1994, the Aerospace Fasteners' Chatsworth, California
manufacturing facility suffered extensive damage from the Southern California
earthquake. As a result, the Company relocated the Chatsworth manufacturing
operations to its other Southern California facilities. See Note 11 of the
Company's consolidated financial statements included in Item 8 Financial
Statements and Supplementary Data.
The following table sets forth the location of the larger physical
properties used in the continuing operations of the Company, their square
footage, the business segment or groups they serve and their primary use.
Each of the properties owned or leased by the Company is, in management's
opinion, generally well maintained, is suitable to support the Company's
business and is adequate for the Company's present needs. All of the
Company's occupied properties are maintained and updated on a regular basis.
<TABLE>
<CAPTION>
Owned or Square Business Segment/
Location Leased Footage Group Use
- -------- -------- ------- ------------------- -------------
<S> <C> <C> <C> <C>
Torrance, California Owned 284,000 Aerospace Fasteners Manufacturing
Youngwood, Pennsylvania Owned 135,000 Industrial Products Manufacturing
City of Industry, California Owned 120,000 Aerospace Fasteners Manufacturing
Madison Hts, Michigan Owned 69,000 Industrial Products Manufacturing
Industriepark Noord, Belgium Owned 69,000 Industrial Products Manufacturing
Santa Ana, California Owned 50,000 Aerospace Fasteners Manufacturing
Chantilly, Virginia Leased 125,000 Corporate Office
Scottsdale, Arizona Leased 120,000 Industrial Products Manufacturing
</TABLE>
Information concerning long-term rental obligations of the Company at
June 30, 1994 is set forth in Note 13 to the Company's consolidated financial
statements included in Item 8 Financial Statements and Supplementary Data.
ITEM 3. LEGAL PROCEEDINGS
- ---------------------------
Government Claims
- -----------------
In 1989, the Company learned through its own quality assurance
procedures, and voluntarily disclosed to its customers and the Department of
Defense, that certain units of VSI had not performed certain production lot
tests mentioned in the military specifications for some limited product
lines. The Company does not believe that VSI's level of testing resulted in
shipment of unsafe products or that purchasers were otherwise damaged, and
the government subsequently reduced certain test requirements. In May 1994,
VSI settled this matter with the government by payment of $330,000.
Following an investigation by the Inspector General of NASA, the civil
division of the United States Department of Justice alleged improprieties in
years 1982 and 1984 through 1986, in indirect costs rates and labor charging
practices of a former subsidiary of the Company. The Company entered into
settlement discussions with the Department of Justice to attempt to resolve
these claims and has reached an agreement in principle with the government to
settle this matter for $5,000,000, payable in six equal semi-annual
installments, with interest at 6% per year. The unpaid balance will likely
be collateralized by certain excess real estate. If the settlement is not
consummated, the government may initiate suit under the False Claims Act,
seeking treble damages and penalties, and under the Truth in Negotiation Act,
seeking a price reduction on certain contracts and subcontracts.
The Corporate Administrative Contracting Officer (the "ACO"), based upon
the advice of the United States Defense Contract Audit Agency, has made a
determination that FII did not comply with Cost Accounting Standards in
accounting for (i) the 1985 reversion to FII of certain assets of terminated
defined benefit pension plans and (ii) pension costs upon the closing of
segments of FII's business. The ACO has directed FII to prepare a cost
impact proposal relating to such plan terminations and segment closings and,
following receipt of such cost impact proposals, may seek adjustments to
contract prices. The ACO alleges that substantial amounts will be due if
such adjustments are made. The Company believes it has properly accounted
for the asset reversions in accordance with applicable accounting standards.
The Company has entered into discussions with the government to attempt to
resolve these pension accounting issues.
Environmental Matters
- ---------------------
The Company and other aerospace fastener and industrial product
manufacturers are subject to stringent Federal, state and local environmental
laws and regulations concerning, among other things, the discharge of
materials into the environment and the generation, handling, storage,
transportation and disposal of waste and hazardous materials. To date, such
laws and regulations have not had a material effect on the financial
condition of the Company, although the Company has expended, and can be
expected to expend in the future, significant amounts for investigation of
environmental conditions and installation of environmental control
facilities, remediation of environmental conditions and other similar
matters, particularly in the Aerospace Fasteners segment.
In connection with its plans to dispose of certain real estate, the
Company must investigate environmental conditions and may be required to take
certain corrective action prior or pursuant to any such disposition. In
addition, management has identified several areas of potential contamination
at or from other facilities owned, or previously owned, by the Company, that
may require the Company either to take corrective action or to contribute to
a clean-up. The Company is also a defendant in certain lawsuits and
proceedings seeking to require the Company to pay for investigation or
remediation of environmental matters and has been alleged to be a potentially
responsible party at various "Superfund" sites. Management of the Company
believes that it has recorded adequate reserves in its financial statements
to complete such investigation and take any necessary corrective actions or
make any necessary contributions. No amounts have been recorded as due from
third parties, including insurers, or set off against, any liability of the
Company, unless such parties are contractually obligated to contribute and
are not disputing such liability.
Other Matters
- -------------
The Company is involved in various other claims and lawsuits incidental
to its business, some of which involve substantial amounts. The Company,
either on its own or through its insurance carriers, is contesting these
matters.
In the opinion of management, the ultimate resolution of the legal
proceedings, including those discussed above, will not have a material
adverse effect on the financial condition or the future operating results of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
-----------------------------------------------
None.
<PAGE>
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
- --------------------------------------------------------------
STOCKHOLDER MATTERS
-------------------
All of the Company's outstanding common stock is held by RHI, a wholly
owned subsidiary of TFC. There is no established public trading market for
this class of common stock. No dividends have been declared on this class of
common stock since the date of issuance.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
<TABLE>
Five-Year Financial Summary
- ---------------------------
<CAPTION>
(In thousands, except per share amounts)
YEAR ENDED JUNE 30, 1994 1993 1992 1991 1990
- ------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Net sales............. $444,145 $463,567 $489,780 $515,652 $442,385
Earnings (loss) from
continuing operations (22,249) (11,447) 14,255 17,890 14,648
Earnings (loss) per
share from continuing
operations:
Primary........... N/A N/A N/A N/A N/A
Fully diluted..... N/A N/A N/A N/A N/A
Balance Sheet Data:
Total assets.......... 617,476 640,010 664,582 653,991 606,648
Long-term debt........ 224,132 232,929 200,677 181,557 170,469
Series A redeemable
preferred stock..... 19,112 19,112 44,238 50,848 58,945
</TABLE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
- -------------------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
RECENT DEVELOPMENTS
During the first quarter of Fiscal 1994, the Company adopted Statements
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", and No. 109, "Accounting for
Income Taxes", and elected to take one-time non-cash charges totaling $11.7
million, of which $.2 million was for postretirement benefits and $11.5
million for change in accounting for income taxes. These charges are
reflected in the fiscal year ended June 30, 1994, and represent cumulative
effects on prior years of the accounting changes. For the fiscal year ended
June 30, 1994, the effect of the changes on pretax income from continuing
operations was not material.
RESULTS OF OPERATIONS
The Company currently operates in three principal business segments:
Aerospace Fasteners, Industrial Products and Communication Services. Set
forth below is a comparison of the results of the operations of the Company
for the fiscal years ended June 30, 1994 ("Fiscal 1994"), June 30, 1993
("Fiscal 1993") and June 30, 1992 ("Fiscal 1992"). This comparison relates
solely to the continuing portions of the Company's business.
<TABLE>
<CAPTION>
(In thousands) For the years ended June 30,
--------------------------------------
Sales by Business Segment: 1994 1993 1992
--------- ---------- ----------
<S> <C> <C> <C>
Aerospace fasteners............... $ 203,456 $ 247,080 $ 299,270
Industrial products............... 166,499 148,449 132,238
Communications services........... 74,190 68,038 58,272
------- ------- -------
Total $ 444,145 $ 463,567 $ 489,780
======= ======= =======
Operating Income (Loss) by
Business Segment:
Aerospace fasteners*.............. $ (32,208) $ (15,398) $ 15,654
Industrial products............... 21,024 19,081 15,250
Communications services........... 16,483 14,688 13,399
------- ------- -------
Total 5,299 18,371 44,303
Corporate administrative expense.. (3,638) (3,260) (2,311)
Other corporate income (expense).. (2,060) 4,251 3,438
------- ------- -------
Operating income (loss)........... $ (399) $ 19,362 $ 45,430
======= ======= =======
*Includes restructuring charges of $18.9 million, $15.5 million and $2.5
million in Fiscal 1994, Fiscal 1993 and Fiscal 1992, respectively, and an
unusual loss from earthquake damage and related business interruption of $4.0
million in Fiscal 1994.
</TABLE>
FISCAL 1994 VERSUS FISCAL 1993
General
- -------
Overall sales declined by 4.2% for Fiscal 1994, compared to Fiscal 1993,
primarily caused by price erosion due to excess capacity in the aerospace
fasteners industry, reduced order rates from commercial and military
aerospace customers in the Aerospace Fasteners segment and lower revenues due
to the disruption caused by the earthquake. Reduced order rates were
principally due to reductions in defense spending and reduced build rates of
commercial airplane original equipment manufacturers due to conditions in the
airline industry. The decline in sales at the Aerospace Fasteners segment
was partially offset by significant sales increases at the Industrial
Products and Communication Services segments in the Fiscal 1994 period. The
Industrial Products segment included sales in the current period by Fairchild
Data Corporation which had been classified as a discontinued operation in the
prior periods.
Operating income decreased by $19.8 million in Fiscal 1994, compared to
Fiscal 1993. A restructuring charge of $18.9 million was recorded in Fiscal
1994 compared to $15.5 million in Fiscal 1993 to further implement the
Aerospace Fasteners segment restructuring plan. A $4.0 million charge for
earthquake damage and related business interruption also affected this
segment in Fiscal 1994. Operating income was up in the Industrial Products
and Communications Services business segments for Fiscal 1994, however, in
the Aerospace Fasteners segment operating income declined $16.8 million for
Fiscal 1994, compared to the prior year. Other corporate income also
decreased in Fiscal 1994. (See discussion below.)
Aerospace Fasteners
- -------------------
Sales in the Aerospace Fasteners segment decreased 17.7% in Fiscal 1994,
compared to Fiscal 1993, primarily due to the reduced order rates. Ordering
activity remained at low levels at original equipment manufacturers, and in
the replacement markets. In addition, customers are rescheduling orders to
take later delivery in line with reduced aircraft build rates.
The operating loss in the Aerospace Fasteners segment increased by $16.8
million in Fiscal 1994, compared to the Fiscal 1993 period. During the
Fiscal 1994 period, as a result of the sustained soft worldwide demand for
aircraft, aircraft engines and the resulting decline in new order rates and
prices for aerospace fasteners, the Company has continued to undertake
further restructuring actions to further downsize, reduce costs, reduce cycle
times and improve margins. These restructuring efforts include
discontinuance of certain aircraft engine bolt and other product lines,
increased cellularization of manufacturing processes, relocation of its New
Jersey operations into California and re-engineering certain manufacturing
processes and methods to meet increased customer quality standards.
The Company recorded a pretax restructuring charge of $18.9 million in
Fiscal 1994 to cover the cost of the above mentioned restructuring
activities, including the write down of goodwill and surplus assets related
to certain product lines, severance benefits and the nonrecurring costs
associated with the cellularization and reengineering of manufacturing
processes and methods. Depending on future demand and prices of aerospace
fasteners, the Company may take further restructuring actions in the future
and may record additional restructuring charges to cover the cost of these
activities. The Fiscal 1993 period included a restructuring charge of $15.5
million relating to further downsizing fastener operations in Europe and
California, and severance and early retirement benefits for terminated
employees.
On January 17, 1994, the Company's Chatsworth, California Aerospace
Fasteners manufacturing facility suffered extensive damage from the Southern
California earthquake. As a result, the Company has relocated the Chatsworth
manufacturing operations to its other Southern California facilities. This
disruption has caused increased costs and reduced revenues in Fiscal 1994 and
will likely negatively affect Fiscal 1995 as well. While the Company carries
insurance for both business interruption and property damage caused by
earthquakes, the policy has a 5% deductible. The Company has recorded an
unusual pretax loss in Fiscal 1994 of $4.0 million to cover the currently
estimated net cost of the damages and business interruption caused by the
earthquake. Included in prepaids and other current assets is an insurance
claim receivable of $5.9 million for recoverability of costs related to
business interruption and property damage.
Operating income in Fiscal 1994 was also affected by (1) reduced demand
and price erosion; and (2) higher quality control costs resulting from
customers' intensified quality requirements. A large customer's disapproval
in the third quarter of Fiscal 1993, of the quality system at one of the
Aerospace Fasteners segment's plants negatively affected sales and operating
income in Fiscal 1994. The disapproval resulted in the plant being
ineligible to receive new orders, delayed shipments due to on-site customer
inspection of finished product, and increased quality costs. The segment has
implemented a program to comply with the customer's quality requirements and
the plant's quality system was requalified by the customer during the first
quarter of Fiscal 1994. The quality improvement program requires that the
plant reinspect its inventories and modify certain manufacturing processes
and quality procedures at all major facilities. This program has resulted in
one time start-up costs and increased recurring quality costs, each of which
negatively affected the Fiscal 1994 operating results, and will likely
negatively affect the future profit margins of this segment.
Industrial Products
- -------------------
Sales in the Industrial Products segment increased 12.2% in Fiscal 1994
compared to Fiscal 1993. The inclusion of Fairchild Data Corporation sales
in Fiscal 1994 accounted for 76.5% of the increased sales in this segment.
The increase in sales in the current period reflects customer response to
D-M-E Company's ("DME") fast delivery programs, new products, and growth of
the domestic economy. Domestic demand for tooling for plastics has been
strong while foreign demand has been sluggish in certain countries,
reflecting the economic conditions abroad. However, expansion into selected
foreign markets is being pursued and appears to have potential.
Operating income in the Industrial Products segment increased 10.2% in
Fiscal 1994, compared to Fiscal 1993. The inclusion of Fairchild Data
Corporation operating income in Fiscal 1994 accounted for 48.9% of the
increase in operating income in this segment. The improved results in the
current period resulted from a higher sales volume and improved operating
margins. In recent years the Industrial Products segment has implemented
several cost savings steps, including overhead reduction and improved
inventory management programs, which have contributed to the higher operating
margins. The improvements in inventory management and delivery systems
resulted in faster deliveries, reduction in inventory, and higher inventory
turnover. In addition, DME has continued to implement improved manufacturing
methods that have reduced cycle times and costs.
Communications Services
- -----------------------
Sales in the Communications Services segment increased 9.0% in Fiscal
1994, compared to Fiscal 1993, primarily due to the inclusion of sales from
acquisitions, the addition of telecommunications franchises in new office
buildings, and growth at existing sites.
Operating income in the Communications Services segment increased 12.2%
in Fiscal 1994 compared to Fiscal 1993, primarily due to increased sales
resulting from the reasons given above and related economies of scale.
Operating income as a percent of sales in Fiscal 1994 was slightly higher
than in Fiscal 1993.
Other Expenses/Income
- ---------------------
Corporate Administrative Expense - The Company's corporate staff
performs work for several corporate entities including TFC, RHI, and the
Company. Corporate administrative expense incurred by the Company is
invoiced to RHI and to TFC on a monthly basis and represents the estimated
cost of services performed on behalf of such companies by the Company. The
estimated cost is based primarily on estimated hours spent by corporate
employees on functions related to RHI and to TFC. Management believes that
the corporate administrative expense of the Company would be higher if it
operated as a separate independent entity. Corporate administrative expense
increased by 11.6% in Fiscal 1994 as compared to Fiscal 1993, primarily due
to non-recurring expense incurred for severance payouts. Excluding severance
payouts, corporate administrative expense would have been relatively flat in
Fiscal 1994 compared to Fiscal 1993.
Other Corporate Income - Other corporate income decreased $6.3 million
in Fiscal 1994 compared to Fiscal 1993, primarily due to (1) the absence of
amortization of over accrued retiree health care expense in Fiscal 1994, (2)
the write down of corporate real estate held for sale in Fiscal 1994, and (3)
recording a favorable pension adjustment in Fiscal 1993.
Net Interest Expense - Net interest expense decreased 6.2% in Fiscal
1994, compared to Fiscal 1993, primarily due to lower rates on intercompany
borrowings in Fiscal 1994 compared to Fiscal 1993.
Investment Income - Investment income of $3.4 and $1.4 million was
recorded in Fiscal 1994 and Fiscal 1993, respectively, resulting principally
from dividends realized on participating pension annuity contracts.
Income Taxes - For Fiscal 1994, the Company recorded an income tax
benefit of 17.7%. The benefit tax rate was lower than the statutory rate,
largely due to the write off and amortization of goodwill, which is not
deductible for tax purposes.
Accounting Changes:
1) Postretirement Benefits - Using the immediate recognition method,
the charge to earnings representing the cumulative effect of this accounting
change was immaterial. The unamortized portion of an overstated liability of
$10.7 million for discontinued operations substantially offset the transition
obligation of $10.9 million for active employees and retirees of continuing
operations.
2) Accounting for Income Taxes - The Company elected the immediate
recognition method and recorded a $11.5 million charge representing the
cumulative effect on prior years. This charge represents deferred taxes
related primarily to differences between the tax basis and book basis of
fixed assets, prepaid pension expense, and inventory.
Extraordinary Item - Net - The extraordinary item in Fiscal 1993
represents the write-off of $1.3 million of deferred loan fees from the
portion of the term loan prepaid, or $.8 million after tax.
Net Earnings (Loss) - Net earnings decreased $21.7 million in Fiscal
1994 compared to Fiscal 1993, primarily due to the $19.8 million drop in
operating income and the $11.7 million charge, net of tax, for the cumulative
effect of accounting changes, offset partially by decreased net interest
expense, increased investment income and the income taxes benefit due to the
pretax loss.
FISCAL 1993 VERSUS FISCAL 1992
General
- -------
Overall sales declined by 5.4% for Fiscal 1993, compared to Fiscal 1992,
primarily caused by price erosion due to excess capacity in the aerospace
fasteners industry and reduced order rates from commercial and military
aerospace customers in the Aerospace Fasteners segment. The decline in sales
at the Aerospace Fasteners segment was partially offset by significant sales
increases at the Industrial Products and Communication Services segments in
the Fiscal 1993 period. Operating income decreased 57.4% for Fiscal 1993,
compared to Fiscal 1992. Operating income was up in the Industrial Products
and Communications Services business segments for Fiscal 1993; however, in
the Aerospace Fasteners segment, operating income declined $31.1 million for
Fiscal 1993, compared to the prior year. Both twelve month periods ended
June 30, 1993, and June 30, 1992, included restructuring charges in the
Aerospace Fasteners segment. Other corporate income also improved in Fiscal
1993. (See discussion below.)
Aerospace Fasteners
- -------------------
Sales in the Aerospace Fasteners segment decreased 17.4% in Fiscal 1993,
compared to Fiscal 1992, primarily due to the reduced order rates mentioned
above. Ordering activity remained at low levels at commercial airplane
original equipment manufacturers, engine manufacturers, in defense related
procurements, and in the replacement markets served by distributors. In
addition, customers rescheduled orders to take later delivery in line with
reduced aircraft build rates.
Operating income in the Aerospace Fasteners segment decreased $31.1
million in Fiscal 1993, in relation to the comparable Fiscal 1992 period.
During the Fiscal 1993 period, the Company continued to implement
restructuring plans and included a restructuring charge of $15.5 million to
further downsize fastener operations in Europe and California and close and
consolidate its New Jersey operations into California. This resulted in
severance costs, plant closing and relocation costs, and the write off of
excess assets. The Fiscal 1992 period included a restructuring charge of
$2.5 million related to severance and early retirement benefits for
terminated employees. Operating income in Fiscal 1993 also was negatively
affected by (1) reduced demand and price erosion; (2) higher quality control
costs resulting from customers' intensified quality requirements; and (3)
increased provisions for excess and slow moving inventory, which amounted to
$7.4 million in Fiscal 1993 versus $5.1 million in Fiscal 1992.
Industrial Products
- -------------------
Sales in the Industrial Products segment increased 12.3% in Fiscal 1993
compared to Fiscal 1992. The increase in sales in the current period
reflected customer response to the D-M-E's fast delivery programs, new
products, and moderation of the impact of the economic recession which
adversely affected results in Fiscal 1992. Domestic demand for tooling for
plastics was strong while foreign demand was weak.
Operating income in the Industrial Products segment increased 25.1% in
Fiscal 1993, compared to Fiscal 1992. The improved results in Fiscal 1993
resulted from a higher sales volume and improved operating margins. Early in
Fiscal 1992, the Industrial Products segment implemented several cost savings
steps, including overhead reduction and improved inventory management
programs, which have contributed to the higher operating margins.
Communications Services
- -----------------------
Sales in the Communications Services segment increased 16.8% in Fiscal
1993, compared to Fiscal 1992, primarily due to the inclusion of sales from
acquisitions, the addition of telecommunications franchises in new office
buildings, and growth at existing sites.
Operating income in the Communications Services segment increased 9.6%
in Fiscal 1993 compared to Fiscal 1992, primarily due to increased sales.
Operating income as a percent of sales declined in Fiscal 1993 to 21.6% from
23.0% in Fiscal 1992. The decline was due to lower long distance margins
partially offset by lower selling, general and administrative expenses as a
percent of sales.
Other Expenses/Income
- ---------------------
Corporate Administrative Expense - Corporate administrative expense
increased by $.9 million in Fiscal 1993 as compared to Fiscal 1992. This
increase resulted from an increase in the Company's share of the total
corporate administrative expense, primarily due to increased costs associated
with the Company's compliance reporting requirements to its banks.
Other Corporate Income - Other corporate income includes royalty income,
rental income, and the reversal of excess reserves no longer deemed
necessary. Other corporate income increased $.8 million in Fiscal 1993
compared to Fiscal 1992, primarily due to the adjustment of overstated health
care liabilities of $2.7 million no longer deemed necessary in Fiscal 1993.
Net Interest Expense - Net interest expense increased 19.2% in Fiscal
1993, compared to Fiscal 1992, primarily due to higher total borrowings and
the higher interest rate on the new senior secured notes.
Investment Income - Investment income of $1.4 million and $7.1 million
was recorded in Fiscal 1993 and Fiscal 1992, respectively, resulting
principally from dividends realized on participating pension annuity
contracts.
Income Taxes - For Fiscal 1993, the Company recorded a small income tax
provision on a pretax loss. The effective tax rate was higher than the
statutory rate largely due to permanent differences between financial
reporting and tax accounting, the majority of which resulted from the
acquisition of the Company by TFC in 1989. The most significant differences
were depreciation related to the write-up to fair value of property, plant
and equipment and amortization of goodwill, neither of which is deductible
for tax purposes.
Net Earnings (Loss) - Net earnings decreased $26.5 million in Fiscal
1993 compared to Fiscal 1992, primarily due to the $26.1 million drop in
operating income, increased net interest expense of $5.2 million, and reduced
investment income of $5.6 million, offset partially by lower income taxes due
to the pretax loss.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1994, was $23.4 million which was $8.9
million lower than at June 30, 1993. The primary reasons for this reduction
included a net increase in affiliated and external short term borrowings of
$11.8 million and a $6.6 million decrease in inventories. Partially
offsetting the effects of the working capital reductions mentioned above was
an increase in accounts receivable of $4.6 million and an increase of $6.7
million in prepaids and other current assets primarily due to the earthquake
insurance claim receivable.
The Company also expects to generate cash from the sale of certain
assets. Net assets held for sale at June 30, 1994 had a book value of $34.5
million and included three parcels of real estate in California and an 88
acre parcel of real estate located in Farmingdale, New York, which the
Company plans to sell, lease or develop, subject to the resolution of certain
environmental matters and market conditions. In June 1994 the Chatsworth
facility was classified as assets held for sale, as a result of the
earthquake.
The Company's principal cash requirements include debt service, capital
expenditures, acquisitions, payment of other liabilities and payment of
dividends on preferred stock.
The level of the Company's capital expenditures varies from year to
year, depending upon the timing of capital spending for new production
equipment, periodic plant and facility expansion, acquisition of building
telecommunications assets, as well as cost reduction and labor efficiency
programs. For the twelve month period ended June 30, 1994, capital
expenditures including the cost of acquisitions were $16.1 million. The
Company anticipates that total capital expenditures including the cost of
acquisitions for the fiscal year ending June 30, 1995, will be approximately
$19.6 million.
During Fiscal 1994, goodwill was reduced by $7.0 million as a result of
the restructuring charge which included a write down of goodwill related to
certain aerospace fasteners product lines which are in the process of being
discontinued.
Other liabilities that require the use of cash include post-employment
benefits for retirees, environmental investigation and remediation
obligations, litigation settlements and related costs.
The Company expects that cash generated from operations, borrowings,
asset sales and the ability to refinance portions of its long-term debt will
be adequate to satisfy cash requirements. If such sources are not adequate,
the Company believes that additional capital resources would be available
from RHI, via either new equity contributions or the assumption of certain of
the Company's obligations. However, there can be no assurance that RHI would
make these additional capital resources available to the Company.
The Company's Credit Agreement requires the Company to comply with
certain financial covenants including, achieving cumulative earnings before
interest, taxes, depreciation and amortization, ("EBITDA Covenant"), and
maintaining certain coverage ratios. The Company was in compliance with the
Credit Agreement as of the end of Fiscal 1994. The Company has negotiated an
amendment to the Credit Agreement (i) to accommodate the unusual loss from
the January 17, 1994 Southern California earthquake, and (ii) to reduce by
$5.0 million the Company's minimum requirement under the EBITDA Covenant for
the duration of the Credit Agreement. To comply with the minimum EBITDA
Covenant requirements (as amended), the Company's subsidiary, VSI, must earn
for the cumulative total of the trailing four quarters, EBITDA as follows:
$68.6 million for the first quarter of Fiscal 1995, $70.4 million for the
second quarter of Fiscal 1995, $72.1 million for the third quarter of Fiscal
1995, and $75.0 millon for the fourth quarter of Fiscal 1995. VSI's ability
to meet the minimum requirement under the EBITDA covenant in Fiscal 1995 is
uncertain, and there can be no assurance that the Company will be able in the
future to comply with the minimum requirements under the EBITDA Covenant and
other financial covenants under the Credit Agreement. 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 may 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. If necessary,
management believes a waiver can be obtained.
Any available cash may be paid as dividends to RHI if the purpose of
such dividends is to provide TFC with funds necessary to meet its debt
service requirements under specified notes and debentures. All other
dividends to RHI are subject to certain limitations under the Credit
Agreement. As of June 30, 1994, the Company was unable to provide dividends
to RHI. The Credit Agreement also restricts all additional borrowings under
the Credit Facilities for the payment of any dividends.
IMPACT OF FUTURE ACCOUNTING CHANGES
Accounting by Creditors for Impairment of a Loan
- ------------------------------------------------
On July 1, 1994 the Company implemented SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" ("SFAS No. 114"). SFAS No. 114 is a
change in accounting principle that requires the Company, as a creditor, to
evaluate for impairment (i) the collectibility of the contractual principal
and interest of accounts receivable and notes receivable with terms longer
than one year, and (ii) all loans restructured in a troubled debt
restructuring. Accordingly, any loan impairment shall be recognized in the
financial statements. The effect of implementing SFAS No. 114, by the
Company, was not material.
Accounting for Certain Investments and Debt and Equity Securities
- -----------------------------------------------------------------
On July 1, 1994 the Company adopted SFAS No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS No. 115"). SFAS No. 115
provides new rules on accounting and reporting for investments in equity
securities that have readily determinable fair values and for all investments
in debt securities. The effect of implementing SFAS No. 115, by the Company,
was not material.<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------------------------------------------------------
The following consolidated financial statements of the Company and the
report of the Company's independent public accountants with respect thereto,
are set forth below.
Page
----
Consolidated Balance Sheets as of June 30, 1994 and 1993.... 27
Consolidated Statements of Earnings - The three years ended
June 30, 1994, 1993 and 1992............................. 29
Consolidated Statements of Common Stockholder's Equity -
The three years ended June 30, 1994, 1993 and 1992........ 30
Consolidated Statements of Cash Flows - The three years
ended June 30, 1994, 1993 and 1992........................ 31
Notes to Consolidated Financial Statements.................. 33
Report of Independent Public Accountants.................... 55
Supplementary data regarding "Quarterly Financial Information
(Unaudited)" is set forth under this Item 8 in Note 16 to the Financial
Statements.
<PAGE>
<TABLE>
FAIRCHILD INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
June 30, June 30,
ASSETS 1994 1993
- ------ -------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................. $ 2,468 $ --
Accounts receivable-trade, less allowances
of $2,135 and $1,746................... 68,364 63,767
Inventories:
Finished goods......................... 46,358 51,776
Work-in-process........................ 28,418 30,766
Raw materials.......................... 10,120 8,987
-------- --------
84,896 91,529
Prepaid expenses and other current
assets................................. 29,353 22,698
-------- --------
Total Current Assets...................... 185,081 177,994
Property, plant and equipment - net....... 157,301 176,869
Net assets held for sale.................. 34,515 27,808
Cost in excess of net assets acquired,
(Goodwill) less accumulated amortization
of $28,864 and $24,149................... 195,929 208,689
Deferred loan costs....................... 7,820 9,463
Prepaid pension assets.................... 17,795 15,837
Notes receivable and other assets......... 19,035 23,350
-------- --------
Total Assets $ 617,476 $ 640,010
======== ========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<TABLE>
FAIRCHILD INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
June 30, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
- ------------------------------------ -------- --------
<S> <C> <C>
Current Liabilities:
Bank notes payable and current maturities
of long-term debt........................ $ 12,735 $ 50,437
Accounts payable.......................... 32,372 28,826
Due to affiliated companies............... 52,250 2,748
Accrued liabilities:
Wages, salaries and commissions........ 13,527 13,621
Employee benefit plans................. 2,015 1,321
Insurance.............................. 13,662 14,354
Interest............................... 6,836 7,222
Other.................................. 28,311 27,186
-------- --------
64,351 63,704
Total Current Liabilities................. 161,708 145,715
Long-term debt............................ 224,132 232,929
Retiree health care liabilities........... 49,200 49,035
Noncurrent income taxes................... 26,576 23,950
Other long-term liabilities............... 16,412 15,733
Redeemable preferred stock: $3.60
Cumulative Series A Convertible
Preferred Stock, without par value,
424,701 shares authorized,
issued and outstanding at redemption
value of $45.00 per share.............. 19,112 19,112
Stockholders' Equity:
Series B Preferred Stock, without par
value, 3,000 shares authorized, 2,025
and 1,976 issued and outstanding;
liquidation value of $100,000 per share. 202,500 197,600
Series C Cumulative Preferred Stock,
without par value, 558,360 shares
authorized issued and outstanding;
liquidation value of $45.00 per share... 24,015 24,015
Common Stockholder's Equity:
Common stock, par value of $100.00 per
share, 1,400 shares authorized,
issued, and outstanding................. 140 140
Paid-in capital........................... 2,390 2,230
Accumulated deficit....................... (111,855) (73,115)
Cumulative translation adjustment......... 3,146 2,666
-------- --------
Total Common Stockholder's Deficit........ (106,179) (68,079)
-------- --------
Total Stockholders' Equity................ 120,336 153,536
-------- --------
Total Liabilities and Stockholders' Equity $ 617,476 $ 640,010
======== ========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<TABLE>
FAIRCHILD INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands)
<CAPTION>
For the years ended June 30,
----------------------------
1994 1993 1992
---- ---- ----
<CAPTION> <S> <S> <S>
Revenues:
Sales.............................. $ 444,145 $ 463,567 $ 489,780
Other income - net................. 544 5,666 4,234
-------- -------- --------
444,689 469,233 494,014
Costs and Expenses:
Cost of sales...................... 337,881 351,074 358,034
Selling, general & administrative.. 72,601 74,228 78,222
Research and development........... 3,940 3,262 4,140
Amortization of goodwill........... 5,806 5,838 5,688
Restructuring...................... 18,860 15,469 2,500
Unusual items...................... 6,000 -- --
-------- -------- --------
445,088 449,871 448,584
Operating income.(loss).............. (399) 19,362 45,430
Interest expense..................... 30,667 32,821 28,512
Interest income...................... (311) (459) (1,368)
-------- -------- --------
Net interest expense................. 30,356 32,362 27,144
Investment income.................... 3,354 1,424 7,066
Equity in earnings of affiliates..... 541 522 529
Minority interest.................... (181) (129) (210)
-------- -------- --------
Earnings (loss) from continuing
operations before taxes............ (27,041) (11,183) 25,671
Income tax benefit (provision)....... 4,792 (264) (11,416)
-------- -------- --------
Net earnings (loss) from continuing
operations......................... (22,249) (11,447) 14,255
Extraordinary items, net............. -- (810) --
Cumulative effect of change in
accounting for postretirement
benefits, net...................... (252) -- --
Cumulative effect of change in
accounting for income taxes, net... (11,486) -- --
-------- -------- --------
Net earnings (loss).................. $ (33,987) $ (12,257) $ 14,255
======== ======== ========
Series A Preferred Dividends......... $ 1,529 $ 1,713 $ 3,724
Series C Preferred Dividends......... 2,373 2,160 --
-------- -------- --------
Net earnings (loss) after Preferred
Dividends.......................... $ (37,889) $ (16,130) $ 10,531
======== ======== ========
Dividends to RHI Holdings, Inc.
(Parent)........................... $ -- $ 50,000 $ --
======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<TABLE>
FAIRCHILD INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
(In thousands, except per share amounts)
<CAPTION>
Cumulative
Common Paid-in Retained Translation
Stock Capital Earnings Adjustment
------ ------- -------- -----------
<S> <C> <C> <C> <C>
BALANCE, June 30, 1991 $ 140 $ 1,309 $ (17,516) $ 2,611
- ----------------------------
Purchase of preferred stock. -- 921 -- --
Translation adjustment, net
of income taxes of $300.... -- -- -- 3,558
Net earnings................ -- -- 14,255 --
Cash dividends to preferred
stockholders............... -- -- (3,724) --
----- ------ ------- ------
BALANCE, June 30, 1992 140 2,230 (6,985) 6,169
- ----------------------------
Translation adjustment, net
of income taxes of $76..... -- -- -- (3,503)
Net loss.................... -- -- (12,257) --
Cash dividends to preferred
stockholders............... -- -- (3,873) --
Cash dividends to parent.... -- -- (50,000) --
----- ------ ------- ------
BALANCE, June 30, 1993 140 2,230 (73,115) 2,666
- ----------------------
Issuance of preferred stock
to parent................. -- 143 -- --
Transfer of subsidiary from
parent.................... -- 17 (851) --
Translation adjustment, net
of income taxes of $113.... -- -- -- 480
Net loss.................... -- -- (33,987) --
Cash dividends to preferred
stockholders............... -- -- (3,902) --
----- ------ ------- ------
BALANCE, June 30, 1994 $ 140 $ 2,390 $(111,855) $ 3,146
===== ====== ======= ======
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
<TABLE>
FAIRCHILD INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
For the years ended June 30,
------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operation activities:
Net earnings (loss).................... $ (33,987) $ (12,257) $ 14,255
Adjustments to reconcile net earnings
(loss):
Cumulative effect of change in
accounting for postretirement
benefits - net....................... 252 -- --
Cumulative effect of change in
accounting for income taxes - net.... 11,486 -- --
Depreciation and amortization...... 32,295 30,477 25,998
Accretion of discount on long-term
liabilities...................... 3,891 2,205 5,360
Equity in earnings of affiliates....... (541) (522) (529)
Provision for restructuring and
unusual items (excluding cash
payments of $6,020 in 1994 and
$7,896 in 1993)...................... 18,840 7,573 --
Minority interest...................... 181 129 210
(Gain) loss on sale of property,
plant and equipment.................. 583 2,364 (146)
Change in accounts receivable.......... (2,114) 6,942 3,681
Change in inventories.................. 4,246 9,444 (1,184)
Change in other current assets......... (10,063) (11,896) 4,580
Change in other non-current assets..... 698 (5,643) (5,008)
Change in accounts payable, accrued
and other liabilities................ (12,593) (17,295) (6,380)
-------- -------- -------
Net cash provided by operating activities 13,174 11,521 40,837
-------- -------- -------
Cash flows from investing activities:
Acquisitions, net of cash acquired..... -- (7,313) --
Collections on notes and other
receivables related to operations
sold................................. 1,183 218 147
Purchases of property, plant and
equipment............................ (16,092) (15,508) (26,559)
Proceeds from sales of property, plant
and equipment......................... 1,351 975 1,234
Change in net assets held for sale..... (1,291) 2,015 2,465
-------- -------- -------
Net cash used for investing activities... (14,849) (19,613) (22,713)
-------- -------- -------
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
<TABLE>
FAIRCHILD INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(In thousands)
<CAPTION>
For the years ended June 30,
------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of debt......... $ 106,960 $ 180,942 $ 31,331
Debt repayments........................ (103,951) (125,072) (43,056)
Issuance of Series B preferred stock... 4,000 5,000 2,600
Issuance of Series C preferred stock... -- 24,015 --
Purchase/exchange of Series A preferred
stock................................ -- (25,126) (5,911)
Paid-in capital contribution........... 143 -- --
Payment of dividends................... (3,902) (53,782) (3,853)
-------- -------- --------
Net cash provided by (used for) financing
activities............................. 3,250 5,977 (18,889)
-------- -------- --------
Effect of exchange rate changes on cash.. 893 (2,900) 340
Net increase (decrease) in cash and cash
equivalents............................ 2,468 (5,015) (425)
Cash and cash equivalents, beginning
of year................................ -- 5,015 5,440
-------- -------- --------
Cash and cash equivalents, end of year... $ 2,468 $ -- $ 5,015
======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Corporate Structure: Fairchild Industries, Inc. is incorporated in the
State of Delaware. As used herein, the term "Company" refers to Fairchild
Industries, Inc. and its subsidiaries unless otherwise indicated. The
Company is a subsidiary of RHI Holdings, Inc. ("RHI") which is in turn a
wholly-owned subsidiary of The Fairchild Corporation ("TFC"). The Company
conducts its operations through its wholly-owned subsidiary VSI Corporation
("VSI").
Fiscal Year: The fiscal year ("Fiscal") of the Company ends on June 30.
All references herein to "1994", "1993", and "1992" mean the fiscal years
ended June 30, 1994, 1993 and 1992, respectively.
Principles of Consolidation: The consolidated financial statements are
prepared in accordance with generally accepted accounting principles and
include the accounts of the Company and its majority-owned subsidiaries.
Investments in companies owned between 20 percent and 50 percent are recorded
at cost, adjusted for equity in undistributed earnings or losses since the
date of acquisition. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Statements of Cash Flows: For purposes of these statements, the Company
considers all temporary investments with original maturity dates of three
months or less as cash equivalents. Total cash disbursements made by the
Company for income taxes and interest were as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Interest.......................... $ 25,050 $ 19,129 $ 24,477
Income taxes...................... 270 1,171 4,015
</TABLE>
Inventories: Inventories are valued at the lower of cost or market,
with cost determined primarily on the last-in, first-out (LIFO) basis.
Inventories from continuing operations are valued as follows:
<TABLE>
<CAPTION>
(In thousands) June 30, June 30,
1994 1993
-------- --------
<S> <C> <C>
Last-in, first-out (LIFO)............... $ 69,828 $ 78,068
First-in, first-out (FIFO).............. 15,068 13,461
------- -------
Total inventories....................... $ 84,896 $ 91,529
======= =======
</TABLE>
For inventories valued on the LIFO method, the excess of current FIFO
value over stated LIFO value was approximately $7,924,000 and $8,981,000 at
June 30, 1994 and 1993, respectively. The LIFO decrement was immaterial for
Fiscal 1994.
Properties and Depreciation: Properties are stated at cost and
depreciated over estimated useful lives, generally on a straight-line basis.
For Federal income tax purposes, accelerated depreciation methods are used.
No interest costs were capitalized in any of the years presented. Property,
plant, and equipment consisted of the following:
<TABLE>
<CAPTION>
(In thousands) June 30, June 30,
1994 1993
-------- --------
<S> <C> <C>
Land................................... $ 14,229 $ 19,667
Buildings and improvements............. 32,937 38,206
Machinery and equipment................ 183,693 171,515
Transportation vehicles................ 529 536
Furniture and fixtures................. 5,118 4,375
Construction in progress............... 6,358 5,209
------- -------
242,864 239,508
Less: Accumulated depreciation........ (85,563) (62,639)
------- -------
Net property, plant, and equipment..... $157,301 $176,869
======= =======
</TABLE>
Amortization of Goodwill: The excess of cost of purchased businesses
over the fair value of their net assets at acquisition dates (goodwill) 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.
Amortization expense for these loan costs was $2,201,000, $1,895,000 and
$1,344,000 for Fiscal 1994, 1993 and 1992, respectively.
Impairment of Long Lived Assets: The Company reviews its long lived
assets, including property, plant and equipment, identifiable intangibles and
goodwill, for impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable. To determine
recoverability of its long lived assets the Company evaluates the probability
that undiscounted future net cash flows, without interest charges, will be
less than the carrying amount of the assets.
Despite two consecutive years of operating losses in the Company's
Aerospace Fasteners Segment, the Company believes that future net cash flows
from this segment will be sufficient to permit recovery of the segment's long
lived assets, including the remaining goodwill, after a $7,000,000 reduction
of goodwill in Fiscal 1994 relating to certain aerospace product lines which
are in the process of being discontinued.
Foreign Currency Translation: All balance sheet accounts of foreign
subsidiaries are translated at the current exchange rate as of the end of the
accounting period. Income statement items are translated at average currency
exchange rates. The resulting translation adjustment is recorded as a
separate component of stockholders' equity. Transaction gains and losses
included in other income were not significant.
Research and Development: Company-sponsored research and development
expenditures are expensed as incurred.
Reclassifications: Certain amounts in prior years' financial statements
have been reclassified to conform to the Fiscal 1994 presentation.
2. ACQUISITIONS
------------
Within the last few years, Fairchild Communications Services Company
("Fairchild Communications"), a partnership whose partners are indirect
subsidiaries of the Company, has completed the acquisition of several small
companies involved in the sale of telecommunications services and equipment
of tenants in commercial office buildings. In the third quarter of Fiscal
1993, Fairchild Communications acquired all the telecommunication assets of
Office Networks, Inc., for approximately $7,300,000.
The cost of Fiscal 1992 acquisitions by Fairchild Communications totaled
approximately $4,960,000. These purchases included: Bramtel, Inc. purchased
August 1991 for $1,800,000; Hansen Communications purchased September 1991
for $160,000; certain assets of Telshare Associates Limited Partnership
purchased April 1992 for approximately $1,100,000; and the stock of Teletech
Resources Corporation purchased May 1992 for approximately $1,900,000,
subject to certain adjustments.
3. NET ASSETS HELD FOR SALE
------------------------
The Company has decided not to sell Fairchild Data Corporation ("Data")
which previously was included in net assets held for sale. The Company is
recording the current period's results from Data with the Company's
Industrial Products Segment. Sales from Data formerly included in net assets
held for sale, and not included in results of operations, were $15,432,000
and $13,624,000 for the twelve months ended June 30, 1993 and 1992,
respectively. The impact of Data's earnings on the prior year periods was
immaterial.
Net assets held for sale at June 30, 1994 includes several parcels of
real estate in California and an 88 acre parcel of real estate located in
Farmingdale, New York, which the Company plans to sell, lease or develop,
subject to the resolution of certain environmental matters and market
conditions.
Net assets held for sale are recorded at estimated net realizable
values, which reflect anticipated sales proceeds and other carrying costs to
be incurred during the holding period. Interest is not allocated to net
assets held for sale.
4. NOTES PAYABLE AND LONG-TERM DEBT
--------------------------------
At June 30, 1994 and 1993, notes payable and long-term debt consisted of
the following:
<TABLE>
<CAPTION>
June 30, June 30,
(In thousands) 1994 1993
-------- --------
<S> <C> <C>
Short-term notes payable.................... $ 3,592 $ 40,792
======= =======
Bank credit agreement....................... $ 97,315 $102,700
9.75% Subordinated Debentures, due annually
1995 through 1998, effective rate 10.5%... 3,998 4,524
12.25% Senior secured notes due 1999........ 125,000 125,000
10.65% Industrial revenue bonds............. 1,500 1,500
Capital lease obligations, interest from
5.85% to 15.50% (see Note 13)............. 3,302 6,588
Other notes payable, collateralized
by property or equipment, interest
from 5.5% to 11.5%........................ 2,160 2,262
------- -------
233,275 242,574
Less: Current maturities................... 9,143 9,645
------- -------
$224,132 $232,929
======= =======
</TABLE>
The Company maintains a credit agreement (the "Credit Agreement") with
a consortium of banks, which provides a revolving credit facility and term
loans (collectively the "Credit Facilities"). The Credit Facilities
generally bear interest at 2.75% over the London Interbank Offer Rate
("LIBOR") for the revolving credit facility and Term Loan VII, and at 3.75%
over LIBOR for Term Loan VIII, respectively. The commitment fee on the
unused portion of the revolving credit facility was 0.5% at June 30, 1994.
The Credit Facilities mature March 31, 1997 and are secured by substantially
all the Company's assets.
The following table summarizes the Credit Facilities under the Credit
Agreement.
<TABLE>
<CAPTION>
Outstanding Total
as of Available
(In thousands) June 30, 1994 Facilities
------------- ----------
<S> <C> <C>
Revolving Credit Facility................ $ -- $ 59,500*
Term Loan VII............................ 55,315 55,315
Term Loan VIII........................... 42,000 42,000
------- -------
$ 97,315 $156,815
======= =======
* Subsequent to June 30, 1994, the revolving credit facility was
modified by $9,250,000 to $50,250,000. In addition, the borrowing rate was
increased to generally bear interest at 3.75% over LIBOR and the commitment
fee increased to 1.0%.
</TABLE>
At June 30, 1994, the Company had unused bank lines of credit
aggregating $51,706,000 at interest rates approximating the prime rate. The
Company has short-term lines of credit relating to foreign operations
aggregating $12,147,000 against which the Company owed $3,592,000 at June 30,
1994.
At June 30, 1994, the Company had outstanding letters of credit of
$7,794,000 which were supported by the Credit Agreement and other bank
facilities on an unsecured basis.
On August 5, 1992, the Company completed a public offering and issued at
par $125,000,000 of 12.25% Senior Secured Notes due 1999 (the "Notes"). The
Notes are redeemable, in whole or in part, at the Company's option on or
after August 1, 1997, at 102% of their aggregate principal amount, and
thereafter, beginning August 1, 1998, at 100% of their aggregate principal
amount plus accrued interest. The Notes are senior secured obligations of
the Company, ranking "pari passu" with the Company's existing and future
senior indebtedness. The proceeds from the sale of the Notes were used to
(i) repay $55,000,000 of the Company's term loans under the Credit Agreement,
(ii) repay $50,000,000 of loans under VSI's revolving credit facility under
the Credit Agreement (which amounts will be available for future borrowings),
including $30,000,000 which the Company paid as a portion of dividends (the
"Dividends") to its parent, RHI, and (iii) as part of the Dividends, repay
$20,000,000 of loans under RHI's revolving credit facility under the Credit
Agreement.
As a result of the issuance of the Notes, certain amendments (the "Bank
Amendments") to the Company's bank Credit Agreement became effective on
August 5, 1992. As part of the Bank Amendments, (i) the lenders have
extended to 1997 the maturity of $42,000,000 of term loans to the Company,
(ii) the lenders have extended from 1994 to 1997 $50,250,000 of loans under
VSI's revolving credit facility, (iii) the Company has repaid $55,000,000 of
term loans from the proceeds of the Notes, (iv) the Company has repaid
$50,000,000 of loans under its revolving credit facility, (v) the interest
rate on loans outstanding to the Company and VSI under the Credit Agreement
has been increased, and (vi) the Credit Agreement was amended in certain
other respects to permit greater operating flexibility and to permit the
payment of the Dividends under specified conditions.
The Credit Agreement contains certain covenants, including a material
adverse change clause, and restrictions on dividends, capital expenditures,
capital leases, operating leases, investments and indebtedness. It requires
the Company to comply with certain financial covenants including achieving
cumulative earnings before interest, taxes, depreciation and amortization
("EBITDA Covenant"), and maintaining certain coverage ratios. The Company
was in compliance with the Credit Agreement at June 30, 1994.
The Company has negotiated an amendment to the Credit Agreement (i) to
accommodate the unusual loss from the January 17, 1994 Southern California
earthquake, and (ii) to reduce by $5,000,000 the Company's minimum
requirement under the EBITDA Covenant for the duration of the Credit
Agreement. To comply with the minimum EBITDA Covenant requirement (as
amended), the Company's subsidiary, VSI, must earn for the cumulative total
of the trailing four quarters, EBITDA as follows: $68,600,000 for the first
quarter of Fiscal 1995, $70,360,000 for the second quarter of Fiscal 1995,
$72,120,000 for the third quarter of Fiscal 1995 and $75,000,000 for the
fourth quarter of Fiscal 1995. VSI's ability to meet the minimum requirement
under the EBITDA Covenant in Fiscal 1995 is uncertain, and there can be no
assurance that the Company will be able in the future to comply with the
minimum requirement under the EBITDA Covenant and other financial covenants
under the Credit Agreement. Noncompliance with any of the financial
covenants, without cure, would constitute an event of default under the
Credit Agreement. An event of default resulting from a breach of a financial
covenant may result, at the option of lenders holding a majority of the
loans, in an acceleration of the principal and interest outstanding, and a
termination of the revolving credit line. If necessary, management believes
a waiver can be obtained.
Any available cash may be paid as dividends to RHI if the purpose of
such dividends is to provide TFC with funds necessary to meet its debt
service requirements under specified notes and debentures. All other
dividends to RHI are subject to certain limitations under the Credit
Agreement. As of June 30, 1994, the Company was unable to provide dividends
to RHI. The Credit Agreement also restricts all additional borrowings under
the Credit Facilities for the payment of any dividends.
VSI's capital expenditures are limited during the remaining term of the
Credit Agreement to the lower of (i) an annual ceiling of $25,200,000 to
$26,500,000 per year, or (ii) 30% of the prior Fiscal year's earnings before
interest, taxes, depreciation and amortization. Capital expenditure
reductions can be offset by cash contributions from RHI. Capital
expenditures can also be increased if cash proceeds are received from the
sale of other property, subject to approval by the senior lenders under the
Credit Agreement. The Company's sale of property, plant, and equipment is
limited during the remaining term of the Credit Agreement.
The indenture, covering the Company's 9.75% subordinated debentures,
places restrictions on payment of dividends and the creation of additional
debt of equal priority with the debentures. The Company is in compliance
with these restrictions at June 30, 1994.
Annual maturities of long-term debt obligations (exclusive of capital
lease obligations) for each of the five years following June 30, 1994 are as
follows: $6,957,000 for 1995, $8,728,000 for 1996, $86,506,000 for 1997,
$1,000,000 for 1998, and $125,000,000 for 1999.
<PAGE>
5. PENSIONS AND POSTRETIREMENT BENEFITS
-------------------------------------
Pensions
--------
The Company has established defined benefit pension plans covering
substantially all employees. Employees in foreign subsidiaries may
participate in local pension plans which are in the aggregate insignificant
and are not included in the following disclosures. The Company's funding
policy for the plans is to contribute each year the minimum amount required
under the Employee Retirement Income Security Act of 1974.
The following table provides a summary of the components of net periodic
pension cost for the plans:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Service cost of benefits earned during
the period.......................... $ 3,827 $ 4,183 $ 4,243
Interest cost of projected benefit
obligation.......................... 5,665 5,479 4,843
Return on plan assets................. (41) (13,397) (4,652)
Net amortization and deferral......... (7,407) 6,939 (1,509)
Amortization of prior service cost.... 125 111 113
------- ------- -------
Net periodic pension cost............. 2,169 3,315 3,038
Early retirement payout............... 758 817 --
------- ------- -------
Total pension cost.................... $ 2,927 $ 4,132 $ 3,038
======= ======= =======
Assumptions used in accounting for the plans were:
1994 1993 1992
---- ---- ----
Discount Rate.......................... 8.5% 8.5% 8.5%
Expected rate of increase in salaries.. 4.5% 4.5% 4.5%
Expected long term rate of return on
plan assets.......................... 9.0% 9.0% 9.0%
</TABLE>
The following table sets forth the funded status and amounts recognized
in the Company's statement of financial position at June 30, 1994 and 1993
for its defined benefit pension plans:
<PAGE>
<TABLE>
<CAPTION>
June 30, June 30,
(In thousands) 1994 1993
-------- --------
<S> <C> <C>
Projected benefit obligation:
Vested benefit obligation.......... $ 60,372 $ 53,913
Non-vested benefits................ 4,908 6,183
------- -------
Accumulated benefit obligation..... $ 65,280 $ 60,096
======= =======
Projected benefit obligation....... $ 69,697 $ 64,138
Plan assets at fair value.......... 75,904 85,365
------- -------
Plan assets in excess of
projected benefit obligations...... 6,207 21,227
Unrecognized net loss................ 16,823 4,502
Unrecognized prior service cost...... 406 633
------- -------
Prepaid pension cost prior to SFAS
109 implementation................. $ 23,436 $ 26,362
Effect of SFAS 109 implementation.... (5,641) --
------- -------
Prepaid pension cost................. $ 17,795 $ 26,362
======= -------
Prepaid pension cost, net of tax..... $ 15,837
=======
</TABLE>
All of the Company's defined benefit plans have assets in excess of
accumulated benefit obligations.
Plan assets include Class A common stock of The Fairchild Corporation of
$3,172,000 and $2,968,000 at June 30, 1994 and 1993, respectively.
Substantially all of the plan assets are invested in listed stocks and bonds.
Postretirement Health Care Benefits
-----------------------------------
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106 ("SFAS No. 106"), "Employers' Accounting for
Postretirement Benefits Other Than Pensions". This new standard requires
that the expected cost of postretirement benefits be accrued and charged to
expense during the years the employees render the service. This is a
significant change from the Company's previous policy of expensing these
costs for active employees when paid.
The Company elected the immediate recognition method of adoption of SFAS
No. 106. The unamortized portion of the overstated liability for
discontinued operations was $10,652,000, net of tax, which substantially
offset a $10,904,000, net of tax, charge relating to the transition
obligation for active employees and retirees of continuing operations. The
charge to net earnings from the cumulative effect of this accounting change
was $252,000, net of tax.
The Company provides health care benefits for most retired employees.
Postretirement health care expense from continuing operations totaled
$1,948,000, $1,366,000 and $840,000 for the years ended June 30, 1994, 1993
and 1992, respectively. The Company has accrued approximately $33,397,000 as
of June 30, 1994, for postretirement health care benefits related to
discontinued operations. This represents the cumulative discounted value of
the long-term obligation and includes interest expense of $2,849,000,
$4,866,000 and $5,099,000 for the years ended June 30, 1994, 1993 and 1992,
respectively. The components of expense for continuing operations and
discontinued operations combined in 1994 are as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Service cost of benefits earned................$ 437
Interest cost on liabilities................... 4,364
Net amortization and deferral.................. (4)
-------
Net periodic postretirement benefit cost.......$ 4,797
=======
</TABLE>
The following table set forth the funded status for the Company's
postretirement health care benefit plan:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Accumulated postretirement benefit obligations:
Retirees.....................................$ 46,881
Fully eligible active participants........... 497
Other active participants.................... 4,962
-------
Accumulated postretirement benefit obligation.. 52,340
Unrecognized net loss.......................... (427)
-------
Accrued postretirement benefit cost............$ 51,913
=======
</TABLE>
The accumulated postretirement benefit obligation was determined using
a discount rate of 8.5%, and a health care cost trend rate of 9.5% and 6.5%
for pre-age-65 and post-age-65 employees, respectively, gradually decreasing
to 4.5% and 5.0%, respectively, in the year 2003 and thereafter.
Increasing the assumed health care cost trend rates by 1% would increase
the accumulated postretirement benefit obligation as of June 30, 1994, by
approximately $2,093,000, and increase net periodic postretirement benefit
cost by approximately $238,000 for Fiscal 1994.
6. INCOME TAXES
------------
Effective July 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by
Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"),
"Accounting for Income Taxes".
Under the liability method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities, and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Prior
to the adoption of SFAS No. 109, income tax expense was determined using the
deferred method. Deferred tax expense was based on items of income and
expense that were reported in different years in the financial statements and
tax returns and were measured at the tax rate in effect in the year the
difference originated.
As permitted under SFAS No. 109, prior years' financial statements have
not been restated. The Company elected the immediate recognition method and
recorded a $11,486,000 charge representing the prior years' cumulative
effect. This charge represents deferred taxes that had to be recorded
related primarily to fixed assets, prepaid pension expense, and inventory
basis differences.
The provision for income taxes from continuing operations is summarized as
follows:
<TABLE>
<CAPTION>
(In thousands)
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Continuing operations:
Current:
Federal......................... $ (9,355) $ (3,059) $ 3,500
State........................... 635 1,002 944
Foreign......................... 158 1,335 4,300
-------- -------- --------
(8,562) (722) 8,744
Deferred:
Federal......................... 3,528 960 2,306
State........................... 242 26 366
-------- -------- --------
3,770 986 2,672
-------- -------- --------
Net tax provision (benefit)........ $ (4,792) $ 264 $ 11,416
======== ======== ========
</TABLE>
The income tax provision for continuing operations differs from that
computed using the statutory Federal income tax rate of 35.0% in 1994 and
34.0% in the 1993, and 1992 periods for the following reasons:
<PAGE>
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Computed statutory amount.............. $ (9,465) $ (3,802) $ 8,728
State income taxes, net of applicable
Federal tax benefit.................. 655 678 865
Foreign Sales Corporation benefits..... (350) (340) (468)
Nondeductible acquisition valuation
items................................ 4,356 1,136 903
Tax on foreign earnings, net of tax
credits............................. 138 2,956 2,000
Other.................................. (126) (364) (612)
-------- -------- --------
$ (4,792) $ 264 $ 11,416
======== ======== ========
</TABLE>
The following table is a summary of the significant components of the
Company's deferred tax assets and liabilities as of June 30, 1994:
<TABLE>
<CAPTION>
(In thousands) June 30,
1994
-------
<S> <C>
Deferred tax assets:
Accrued expenses..................... $ 8,774
Asset basis differences.............. 64
Employee compensation and benefits... 4,985
Environmental reserves............... 4,239
Credit carryforwards................. 2,891
Postretirement benefits.............. 19,160
Other................................ 1,518
-------
41,631
Deferred tax liabilities
Asset basis differences.............. (42,186)
Inventory............................ (9,870)
Pensions............................. (5,169)
Other................................ (1,609)
-------
(58,834)
-------
Net deferred tax liability............. $(17,203)
=======
</TABLE>
For years prior to the change in the method of accounting for taxes, the
deferred income tax component of the income tax provision for continuing
operations consists of the effect of timing differences related to:
<TABLE>
<CAPTION>
(In thousands) 1993 1992
-------- --------
<S> <C> <C>
Compensation and other wage related... $ 813 $ (1,417)
Pension expense and reversion......... 200 (1,564)
Depreciation.......................... 2,839 3,048
Other................................. (2,866) 2,605
-------- --------
$ 986 $ 2,672
======== ========
</TABLE>
Domestic income taxes, less allowable credits, are provided on the
unremitted income of foreign subsidiaries and affiliated companies, to the
extent that such earnings are intended to be repatriated. No domestic income
taxes or foreign withholding taxes are provided on the undistributed earnings
of foreign subsidiaries and affiliates that are considered permanently
invested, or which would be offset by allowable foreign tax credits. At June
30, 1994, the amount of domestic taxes payable upon distribution of such
earnings is not significant.
In the opinion of management, adequate provision has been made for all
income taxes and interest, and any tax liability that may arise for prior
periods will not have a material effect on the financial condition or results
of operations of the Company.
7. REDEEMABLE PREFERRED STOCK
--------------------------
On August 21, 1992, the Company closed on an offer to exchange (the
"Exchange Offer") on a one-for-one basis, up to 90% of the outstanding shares
of Series A Convertible Preferred Stock of the Company for shares of Series
C Cumulative Preferred Stock of the Company. The Exchange Offer resulted in
an increase in stockholders' equity of $25,126,000 (prior to fees and
expenses) due to the Series C Preferred Stock not being mandatorily
redeemable or convertible to cash. Approximately 56.8% of the outstanding
shares of the Series A Preferred Stock were exchanged for shares of the
Series C Preferred Stock. The Series C Preferred Stock has an annual
dividend requirement of $4.25 per share through July 21, 1999, and $7.00 per
share thereafter. The Company's requirement to redeem annually shares of
Series A Preferred Stock has been reduced by the number of shares of Series
A Preferred Stock exchanged for Series C Preferred Stock, i.e., by 558,360
shares. Both the Series A Preferred Stock and the Series C Preferred Stock
are listed on the New York Stock Exchange.
The Series A Preferred Stock is subject to annual mandatory redemptions
of 165,564 shares per annum at $45.00 per share, plus any dividend
arrearages, commencing in 1989. In addition, the Company has the option of
redeeming any or all shares at $45.00 per share. The Company announced on
August 30, 1989, that the Board of Directors authorized expenditure of up to
$25,000,000 for additional early redemption of these shares as market
conditions permit. The Company purchased 146,892 shares of its Series A
Preferred Stock in Fiscal 1992. The Company did not purchase any shares in
Fiscal 1994 and 1993.
Holders of the Series A Preferred Stock have general voting rights.
Additionally, in the event of a cumulative arrearage equal to six quarterly
dividends, all Series A Preferred stockholders have the right to elect
separately, as a class, two members to the Board of Directors. No cash
dividends can be declared or paid on any stock junior to the Series A
Preferred Stock in the event of dividend arrearages or a default in the
obligation to redeem such Series A Preferred Stock. Due to the merger of the
Company with RHI in August 1989, holders of the Series A Preferred Stock are
entitled, at their option, but subject to compliance with certain covenants
under the Company's Credit Agreement, to redeem their shares for $27.18 in
cash.
Annual maturity redemption requirements for redeemable preferred stock
as of June 30, 1994, are as follows: $0 for 1995, $4,211,000 for 1996,
$7,450,000 for 1997, and $7,450,000 for 1998.
8. EQUITY SECURITIES
-----------------
3,000 shares of Series B Preferred Stock were authorized, 2,025 and
1,976 shares were issued and outstanding at June 30, 1994 and 1993. All of
the Series B Preferred Stock is owned by the Company's parent, RHI.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
Statement of Financial Accounting Standards No. 107 ("SFAS No. 107"),
"Disclosures about Fair Value of Financial Instruments," requires disclosures
of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used,
including discount rate and estimates of future cash flows. In that regard,
the derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS No. 107 excludes certain financial
instruments and all non-financial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and Cash Equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates the fair value.
Investment Securities: Fair values for equity securities are based on
quoted market prices, where available. For equity securities not actively
traded, fair values are estimated by using quoted market prices of comparable
instruments or, if there are no relevant comparables, on pricing models or
formulas using current assumptions. The fair value of limited partnerships
and other investments are estimated by discounting expected future cash flows
using a current market rate applicable to the yield, credit quality, and
maturity of the investment.
Notes Receivable: Fair values of notes receivable are estimated by
using discounted cash flow analyses, using a current market rate applicable
to the yield, credit quality, and maturity of the investment.
Short-term Borrowings: The carrying amounts of the Company's short-term
borrowings approximate their fair values.
Long-term Borrowings and Notes Payable: The carrying amounts of
borrowings under its bank credit agreement and current maturities of long-
term debt approximate their fair value. The fair value of the Company's
subordinated debentures and senior notes are based on quoted market prices,
where available. For subordinated debentures not actively traded, fair
values are estimated by using quoted market prices of comparable instruments.
The fair value for the Company's other fixed rate long-term debt is estimated
using discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
Redeemable Preferred Stock: The fair value for redeemable preferred
stock is based on the quoted market price.
Off-balance-sheet Instruments: Fair values for the Company's off-
balance-sheet instruments (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. The current period's fair value of
the Company's off-balance-sheet instruments is not material.
The carrying amounts and fair values of the Company's financial
instruments at June 30, 1994 and June 30, 1993 are as follows:
<TABLE>
<CAPTION>
June 30, 1994 June 30, 1993
--------------------- ---------------------
Carrying Fair Carrying Fair
(In Thousands) Amount Value Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash $ 2,468 $ 2,468 $ -- $ --
Investment Securities:
Long-term limited partnership.. 3,396 4,299 3,808 4,706
Notes Receivable:
Current........................ 1,275 1,229 3,082 3,030
Long-term...................... -- -- 2,458 2,459
Short-term debt.................. 3,592 3,592 40,792 40,792
Long-term debt:
Bank credit agreement.......... 97,315 97,315 102,700 102,700
Subordinated debentures and
senior notes................. 128,998 128,428 129,524 133,627
Industrial revenue bonds....... 1,500 1,500 1,500 1,500
Capitalized leases............. 3,302 3,302 6,588 6,588
Other.......................... 2,160 2,160 2,262 2,262
Redeemable preferred stock....... 19,112 15,608 19,112 13,378
</TABLE>
10. RESTRUCTURING CHARGES
---------------------
During the Fiscal 1994 period, as a result of the sustained soft
worldwide demand for aircraft, aircraft engines and the resulting decline in
new order rates and prices for aerospace fasteners, the Company has continued
to undertake additional restructuring actions to further downsize, reduce
costs, reduce cycle times and improve margins. These restructuring efforts
include discontinuance of certain aircraft engine bolt and other product
lines, increased cellularization of manufacturing processes, relocation of
its New Jersey operations into California and re-engineering certain
manufacturing processes and methods to meet increased customer quality
standards.
The Company recorded a pretax restructuring charge of $18,860,000 in
Fiscal 1994 to cover the cost of the above mentioned restructuring
activities, including the write down of goodwill and surplus assets related
to certain product lines, severance benefits and the nonrecurring costs
associated with the cellularization and reengineering of manufacturing
processes and methods. Depending on future demand and prices of aerospace
fasteners, the Company may take further restructuring actions in the future
and may record additional restructuring charges for the cost of these
activities.
The Company recorded restructuring charges of $15,469,000 and $2,500,000
in Fiscal 1993 and 1992, respectively, relating to the downsizing of fastener
operations in Europe and California, and severance and early retirement
benefits for terminated employees.
11. UNUSUAL ITEMS
-------------
On January 17, 1994, the Company's Chatsworth, California Aerospace
Fasteners manufacturing facility suffered extensive damage from the Southern
California earthquake. As a result, the Company relocated the Chatsworth
manufacturing operations to its other Southern California facilities. This
disruption has caused increased costs and reduced revenues in the Fiscal 1994
third and fourth quarters. While the Company carries insurance for both
business interruption and property damage caused by earthquakes, the policy
has a 5% deductible. The Company has recorded an unusual pretax loss of
$4,000,000 in Fiscal 1994 in the Aerospace Fasteners segment to cover the
estimated net cost of the damages and related business interruption caused by
the earthquake. An insurance claim of $5,900,000 has been recorded for
recoverability of costs related to business interruption and property damage.
In addition, the Company recorded a write down of $2,000,000 relating to this
real estate which is now included in net assets held for sale.
12. RELATED PARTY TRANSACTIONS
--------------------------
The Company's corporate staff performs work for each of the three
corporate entities. Corporate administrative expense incurred by the Company
is invoiced to RHI and to TFC on a monthly basis and represents the estimated
cost of services performed on behalf of such companies by the Company. The
estimated cost is based primarily on estimated hours spent by corporate
employees on functions related to RHI and to TFC.
The Company has entered into a tax sharing agreement with its parent
whereby the Company is included in the consolidated federal income tax return
of the parent. The Company makes payments to the parent based on the amounts
of federal income taxes, if any, it would have paid had it filed a separate
federal income tax return.
<PAGE>
The Aerospace Fasteners segment had sales to Banner Aerospace, Inc. a
47.2% affiliate of RHI, of $5,680,000, $8,750,000 and $10,941,000 for the
years ended June 30, 1994, 1993 and 1992, respectively.
13. COMMITMENTS AND CONTINGENCIES
-----------------------------
Leases
------
The Company leases certain of its facilities and equipment under capital
and operating leases. The following is an analysis of the assets under
capital leases included in property, plant and equipment:
<TABLE>
<CAPTION>
(In thousands)
June 30,
Description 1994
----------- ------
<S> <C>
Machinery and equipment................. $13,376
Less: Accumulated depreciation......... (5,665)
------
$ 7,711
======
Future minimum lease payments:
</TABLE>
<TABLE>
<CAPTION>
Operating Capital
(In thousands) Leases Leases
------ ------
<S> <C> <C>
1995............................... $ 6,835 $ 2,428
1996............................... 6,168 994
1997............................... 5,549 256
1998............................... 4,924 8
1999............................... 4,586 --
Thereafter......................... 4,051 --
------ ------
$32,113 3,686
======
Less: Amount representing interest (384)
------
Present value of capital lease
obligations...................... $ 3,302
======
</TABLE>
Rental expense under all leases amounted to $7,193,000, $9,575,000 and
$10,410,000 for the years ended June 30, 1994, 1993 and 1992, respectively.
In connection with the sale of Metro Credit Corporation, the Company
remained contingently liable as a guarantor of the payment and performance of
obligations of third party lessees under aircraft leases, which call for
aggregate annual base lease payments of approximately $3,454,000 in 1995, and
approximately $11,397,000 over the remaining 5-year guaranty period. In each
case, the Company has been indemnified by the purchasers and lessors from any
losses related to such guaranties.
Government Claims
-----------------
In 1989, the Company learned through its own quality assurance
procedures, and voluntarily disclosed to its customers and the Department of
Defense, that certain units of VSI had not performed certain production lot
tests mentioned in the military specifications for some limited product
lines. The Company does not believe that VSI's level of testing resulted in
shipment of unsafe products or that purchasers were otherwise damaged, and
the government subsequently reduced certain test requirements. In May 1994,
VSI settled this matter with the government by payment of $330,000.
Following an investigation by the Inspector General of NASA, the civil
division of the United States Department of Justice alleged improprieties in
years 1982 and 1984 through 1986, in indirect costs rates and labor charging
practices of a former subsidiary of the Company. The Company entered into
settlement discussions with the Department of Justice to attempt to resolve
these claims and has reached an agreement in principle with the government to
settle this matter for $5,000,000, payable in six equal semi-annual
installments, with interest at 6% per year. The unpaid balance will likely
be collateralized by certain excess real estate. If the settlement is not
consummated, the government may initiate suit under the False Claims Act,
seeking treble damages and penalties, and under the Truth in Negotiation Act,
seeking a price reduction on certain contracts and subcontracts.
The Corporate Administrative Contracting Officer (the "ACO"), based upon
the advice of the United States Defense Contract Audit Agency, has made a
determination that FII did not comply with Cost Accounting Standards in
accounting for (i) the 1985 reversion to FII of certain assets of terminated
defined benefit pension plans, and (ii) pension costs upon the closing of
segments of FII's business. The ACO has directed FII to prepare a cost
impact proposal relating to such plan terminations and segment closings and,
following receipt of such cost impact proposals, may seek adjustments to
contract prices. The ACO alleges that substantial amounts will be due if
such adjustments are made. The Company believes it has properly accounted
for the asset reversions in accordance with applicable accounting standards.
The Company has entered into discussions with the government to attempt to
resolve these pension accounting issues.
Environmental Matters
---------------------
The Company and other aerospace fastener and industrial product
manufacturers are subject to stringent Federal, state and local environmental
laws and regulations concerning, among other things, the discharge of
materials into the environment and the generation, handling, storage,
transportation and disposal of waste and hazardous materials. To date, such
laws and regulations have not had a material effect on the financial
condition of the Company, although the Company has expended, and can be
expected to expend in the future, significant amounts for investigation of
environmental conditions and installation of environmental control
facilities, remediation of environmental conditions and other similar
matters, particularly in the Aerospace Fasteners segment.
In connection with its plans to dispose of certain real estate, the
Company must investigate environmental conditions and may be required to take
certain corrective action prior or pursuant to any such disposition. In
addition, management has identified several areas of potential contamination
at or from other facilities owned, or previously owned, by the Company, that
may require the Company either to take corrective action or to contribute to
a clean-up. The Company is also a defendant in certain lawsuits and
proceedings seeking to require the Company to pay for investigation or
remediation of environmental matters and has been alleged to be a potentially
responsible party at various "Superfund" sites. Management of the Company
believes that it has recorded adequate reserves in its financial statements
to complete such investigation and take any necessary corrective actions or
make any necessary contributions. No amounts have been recorded as due from
third parties, including insurers, or set off against, any liability of the
Company, unless such parties are contractually obligated to contribute and
are not disputing such liability.
Other Matters
-------------
The Company is involved in various other claims and lawsuits incidental
to its business, some of which involve substantial amounts. The Company,
either on its own or through its insurance carriers, is contesting these
matters.
In the opinion of management, the ultimate resolution of the legal
proceedings, including those discussed above, will not have a material
adverse effect on the financial condition or the future operating results of
the Company.
14. BUSINESS SEGMENTS
-----------------
The Company's operations are conducted in three principal business
segments. The Aerospace Fasteners segment includes the manufacture of high
performance specialty fasteners and fastening systems. The Industrial
Products segment is primarily engaged in the manufacture of tooling and
injection control systems for the plastic injection molding and die casting
industries and the supply of modems for use in high speed digitized voice and
data communications. The Communications Services segment provides
telecommunication services to office buildings. Intersegment sales are
insignificant to the sales of any segment.
Identifiable assets represent assets that are used in the Company's
operations in each segment at year end. Corporate assets are principally in
cash and short-term investments, notes receivable, assets held for sale, and
property maintained for general corporate purposes.
The Company's financial data by business segment is as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Sales by Business Segment:
Aerospace Fasteners................. $203,456 $247,080 $299,270
Industrial Products(1).............. 166,499 148,449 132,238
Communications Services............. 74,190 68,038 58,272
------- ------- -------
Total Segment Sales $444,145 $463,567 $489,780
======= ======= =======
Operating Income by Segment:
Aerospace Fasteners(2).............. $(32,208) $(15,398) $ 15,654
Industrial Products(1).............. 21,024 19,081 15,250
Communications Services............. 16,483 14,688 13,399
------- ------- -------
Total Segment Operating Income........ 5,299 18,371 44,303
Corporate administrative expense.... (3,638) (3,260) (2,311)
Other corporate income (expense).... (2,060) 4,251 3,438
------- ------- -------
Total Consolidated Operating
Income (loss)....................... $ (399) $ 19,362 $ 45,430
======= ======= =======
Capital Expenditures:
Aerospace Fasteners................. $ 4,320 $ 5,711 $ 11,471
Industrial Products................. 3,997 4,002 5,041
Communications Services............. 7,775 5,792 10,040
Corporate and Other................. -- 3 7
------- ------- -------
Total Capital Expenditures............ $ 16,092 $ 15,508 $ 26,559
======= ======= =======
Depreciation and Amortization:
Aerospace Fasteners................. $ 14,373 $ 14,280 $ 12,525
Industrial Products................. 6,765 6,154 5,791
Communications Services............. 8,948 7,936 6,192
Corporate and Other................. 2,209 2,107 1,490
------- ------- -------
Total Depreciation and Amortization... $ 32,295 $ 30,477 $ 25,998
======= ======= =======
(1) - Included in Fiscal 1994 are the results of Fairchild Data Corporation.
Sales from this division, formerly included in net assets held for sale, and
not included in the results of operations, were $15,432,000 and $13,624,000
for Fiscal 1993 and 1992, respectively. The impact of this division's
earnings on the prior periods was immaterial.
(2) - Includes charges to reflect the cost of restructuring of $18,860,000,
$15,469,000 and $2,500,000 in Fiscal 1994, 1993 and 1992, respectively, and
an unusual loss from earthquake damage and related business interruption of
$4,000,000 in Fiscal 1994.
</TABLE>
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Identifiable Assets:
Aerospace Fasteners................. $306,008 $337,185 $373,651
Industrial Products................. 147,910 146,754 148,053
Communications Services............. 79,087 78,752 72,528
Corporate and Other................. 84,471 77,319 70,350
------- ------- -------
Total Identifiable Assets............. $617,476 $640,010 $664,582
======= ======= =======
</TABLE>
15. FOREIGN OPERATIONS AND EXPORT SALES
-----------------------------------
The Company's operations are located primarily in the United States and
Europe. Interarea sales are not significant to the total sales of any
geographic area. The Company's financial data by geographic area is as
follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Sales by Geographic Area
United States....................... $358,614 $369,343 $394,148
Europe.............................. 76,366 85,479 88,479
Other............................... 9,165 8,745 7,153
------- ------- -------
Total Sales........................... $444,145 $463,567 $489,780
======= ======= =======
Operating Income by Geographic Area
United States....................... $ (1,011) $ 15,390 $ 34,285
Europe.............................. 5,847 2,034 8,940
Other............................... 463 947 1,078
------- ------- -------
Total Segment Operating Income........ $ 5,299 $ 18,371 $ 44,303
======= ======= =======
June 30, June 30, June 30,
1994 1993 1992
-------- -------- --------
Identifiable Assets by Geographic Area
United States....................... $454,635 $479,751 $509,922
Europe.............................. 73,809 78,176 81,080
Other............................... 4,561 4,764 3,230
Corporate and Other................. 84,471 77,319 70,350
------- ------- -------
Total Identifiable Assets............. $617,476 $640,010 $664,582
======= ======= =======
</TABLE>
Export sales are defined as sales to customers in foreign countries by
the Company's domestic operations. Export sales amounted to the following:
<TABLE>
<CAPTION>
(In thousands)
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Export Sales
Europe.............................. $ 12,692 $ 15,297 $ 20,661
Other............................... 16,593 13,546 16,545
------- ------- -------
Total Export Sales.................... $ 29,285 $ 28,843 $ 37,206
======= ======= =======
</TABLE>
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
-------------------------------------------
<TABLE>
<CAPTION>
First Second Third Fourth
(In thousands) Quarter Quarter Quarter Quarter
------- -------- ------- -------
<S> <C> <C> <C> <C>
1994:
Sales..................... $110,491 $108,830 $112,836 $111,988
Gross profit.............. 22,962 25,875 27,138 30,289
Net loss from continuing
operations.............. (4,528) (5,960) (2,416) (9,345)
Cumulative effect of
change in accounting for
postretirement benefits,
net..................... (252) -- -- --
Cumulative effect of
change in accounting for
income taxes, net....... (11,486) -- -- --
Net loss.................. $(16,266) $ (5,960) $ (2,416) $ (9,345)
1993:
Sales..................... $118,100 $116,548 $114,399 $114,520
Gross profit.............. 31,917 29,653 27,609 23,314
Net earnings (loss) from
continuing operations... 2,690 1,291 (1,002) (14,426)
Net earnings (loss)....... $ 1,857 $ 1,314 $ (1,002) $(14,426)
</TABLE>
Net earnings (loss) from continuing operations includes charges to
reflect the cost of restructuring the Company's Aerospace Fasteners Segment,
of $9,903,000 and $8,957,000 in the second and fourth quarter of Fiscal 1994,
respectively, and $1,500,000, $932,000 and $13,037,000 in the second, third
and fourth quarters of Fiscal 1993, respectively. The Company recorded an
unusual loss in the third and fourth quarters of Fiscal 1994 of $3,200,000
and $2,800,000, respectively, to cover the estimated net cost of the damages
and related business interruption caused by an earthquake and the write down
of real estate. The Fiscal 1993 first quarter also includes an extraordinary
charge of $833,000, net of tax, from the write-off of deferred loan fees.
The Fiscal 1994 first and second quarter data presented vary from the
amounts previously reported in Form 10-Q due to the Company's decision not to
sell a division which was included in net assets held for sale, and not
included in the results of operations. Sales from the division were
$4,141,000 and $3,438,000 in the first and second quarters, respectively, of
Fiscal 1994. Earnings from the division had no material effect during these
periods.<PAGE>
Report of Independent Public Accountants
----------------------------------------
To Fairchild Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Fairchild
Industries, Inc. (a Delaware corporation) and subsidiaries as of June 30,
1994 and 1993, and the related consolidated statements of earnings, common
stockholder's equity and cash flows for the years ended June 30, 1994, 1993
and 1992. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Fairchild Industries, Inc.
and subsidiaries as of June 30, 1994 and 1993 and the results of their
operations and their cash flows for the years ended June 30, 1994, 1993, and
1992, in conformity with generally accepted accounting principles.
As discussed in Notes 5 and 6 to the Consolidated Financial Statements,
effective July 1, 1993, the Company changed its methods of accounting for
postretirement benefits other than pensions, and income taxes.
Arthur Andersen LLP
Washington, D.C.
August 26, 1994
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
- --------------------------------------------------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
- ---------------------------------------------------------
INFORMATION CONCERNING DIRECTORS
- --------------------------------
Name of Director, Number of Shares of
Principal Occupations Preferred Stock
During Past Five Years Director Beneficially Owned as of
and Other Information Age Since August 31, 1994
- --------------------- --- -------- ------------------------
Series A Series C
-------- --------
Alcox, Michael T. 46 1989 -- --
Vice President and Chief
Financial Officer of the
Company; Director, Senior
Vice President and Chief
Financial Officer of The
Fairchild Corporation;
Vice President and Chief
Financial Officer of RHI
Holdings, Inc.; and Director
of Banner Aerospace, Inc.(1)
Caplin, Mortimer M. 78 1979 -- 3,240(2)
Member, Caplin & Drysdale
(Attorneys); Director of
Presidential Realty
Corporation, Danaher
Corporation and Unigene
Laboratories, Inc. (1)
<PAGE>
Name of Director, Number of Shares of
Principal Occupations Preferred Stock
During Past Five Years Director Beneficially Owned as of
and Other Information Age Since August 31, 1994
- --------------------- --- -------- ------------------------
Series A Series C
-------- --------
Flaherty, Thomas J. 56 1994 -- --
Chief Operating Officer of
the Company; Director
and Chief Operating Officer
of The Fairchild Corporation;
President and Chief
Operating Officer of IMO
Industries, Inc. from 1992
to April 1993; Chief
Executive Officer & President
of Transnational Industries,
Inc. from 1990 to 1992;
from 1977 to 1990, various
executive positions with
the Hamilton Standard and
Pratt & Whitney units of
United Technologies
Corporation.
Richey, Herbert S. 72 1992 -- --
President, Richey Coal
Company (Coal Properties -
Brokerage and Consulting)
until December, 1993;
Director of The Fairchild
Corporation, Oglebay
Norton Company and Sifco
Industries, Inc.
Steiner, Jeffrey J. 57 1989 6,100 (5) 500
Chairman of the Board,
Chief Executive Officer and
President of the Company,
The Fairchild Corporation
and RHI Holdings, Inc.;
Director of Banner Aerospace,
Inc., The Franklin Corporation,
and The Copley Fund
(1), (3), (4)
<PAGE>
Name of Director, Number of Shares of
Principal Occupations Preferred Stock
During Past Five Years Director Beneficially Owned as of
and Other Information Age Since August 31, 1994
- --------------------- --- -------- ------------------------
Series A Series C
-------- --------
Steiner Hercot, Natalia 29 1989 -- --
Presently a Graduate
Student, Previously
employed with The Fairchild
Corporation as a Financial
Analyst
(1) Member of Executive Committee
(2) Includes 1,440 shares owned by the Caplin Foundation, a non-profit
corporation, beneficial ownership of which is disclaimed by Mr.
Caplin. Mr. Caplin is President of this foundation. Mr.
Caplin owns beneficially approximately 0.6% of the outstanding
Series C Preferred Stock of the Company and has sole voting
and investment power for all such shares.
(3) The Fairchild Corporation, through RHI Holdings, Inc., has a significant
direct or indirect equity position in Banner Aerospace, Inc.
(4) Mr. Steiner beneficially owns shares having approximately 72% of the
total voting power of outstanding voting stock of The Fairchild
Corporation and may be deemed to control The Fairchild Corporation.
(5) Includes 2,900 shares owned by Stinbes Limited, a corporation
organized under the laws of the Caymen Islands, an indirect wholly-
owned subsidiary of Bestin S.A., a Luxemborg joint stock company,
whose shares are owned by Paske Investments Ltd., a corporation
organized under the laws of Jersey, Channel Islands, a wholly-
owned subsidiary of the Friday Trust, of which Mr. Steiner is the
settlor and a beneficiary.
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
- ---------------------------------
The executive officers of the Company, as of September 2, 1994, are
listed below:
Name (age) and Positions and
Offices Held with Company Principal Occupation and Business
(Year Elected) Experience (Past Five Years)
- ---------------------------- ---------------------------------
Jeffrey J. Steiner (57) Chairman, Chief Executive Officer and
Chairman, Chief Executive President since 1991; Chairman and Chief
Officer and President (1991) Executive Officer since 1985 and
President since 1991 of The Fairchild
Corporation; Vice Chairman, Banner
Aerospace since 1990.
Thomas J. Flaherty (56) Chief Operating Officer since April
Chief Operating Officer (1993) 1993; President and Chief Operating
Officer of IMO Industries, Inc. from
1992 to April 1993; Chief Executive
Officer & President of Transnational
Industries, Inc. from 1990 to 1992;
from 1977 to 1990, various executive
positions with the Hamilton Standard
and Pratt & Whitney units of United
Technologies Corporation.
John D. Jackson (57) Senior Vice President, Administration
Senior Vice President since 1989; Vice President 1986-1989;
(1989) and Secretary since 1978.
(1978)
John L. Flynn (48) Vice President and Tax Counsel since
Vice President and 1986.
Tax Counsel (1986)
Harold R. Johnson (71) Vice President, Business Development,
Vice President (1988) since 1988; Founder, Chairman and
President, Telebit Corp. 1983-1988.
Jerry Lirette (46) Vice President since 1988; President
Vice President (1988) of D-M-E Company since 1984.
Michael T. Alcox (46) Vice President and Chief Financial
Vice President and Chief Officer since 1989; Senior Vice
Financial Officer (1989) President and Chief Financial Officer of
The Fairchild Corporation since 1987.
<PAGE>
Name (age) and Positions and
Offices Held with Company Principal Occupation and Business
(Year Elected) Experience (Past Five Years)
- ---------------------------- ---------------------------------
Christopher Colavito (39) Vice President and Controller since
Vice President and 1989; Assistant Controller 1987-1989.
Controller (1989)
Karen L. Schneckenburger (45) Treasurer since 1989; Director of
Treasurer (1989) Finance 1986-1989.
Melvin Borer (51) Vice President since 1991; President
Vice President (1991) of Fairchild Communications Services
Company since 1989; Vice President and
General Manager of Fairchild
Communications Services Company from
1987 to 1989.
Eric Steiner (32) Vice President since 1992; Director,
Vice President (1992) Banner Aerospace
Donald E. Miller (47) Vice President and General Counsel
Vice President and since 1991; Principal, Temkin & Miller,
General Counsel (1991) Ltd. from 1973 to 1990.
Townsend Breeden (62) Vice President since 1992; General
Vice President (1992) Manager, Keltec Florida, Inc. 1989 to
1992.
Robert D. Busey (51) Vice President since 1993;
Vice President (1993)
Robert H. Kelley (46) Vice President since 1993;
Vice President (1993)
There are no family relationships between any executive officers and
directors, except that Natalia Steiner-Hercot, a Director of the Company, and
Eric Steiner, Vice President of the Company, are children of Jeffrey Steiner,
also a Director of the Company.
Robert D. Busey, Vice President, filed a Form 3 late during the 1994
fiscal year. Robert H. Kelley, Vice President, filed a Form 3 late during
the 1994 fiscal year. Eric Steiner, Vice President, filed a Form 4 late
during the 1994 fiscal year.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
COMPENSATION OF DIRECTORS
- -------------------------
Retainer and Meeting Fees
- -------------------------
Each non-employee Director (excluding Directors who are employees of The
Fairchild Corporation or any subsidiary thereof) receives a cash retainer of
$18,000 per year and an additional $1,000 for each Board meeting attended.
Members of each Board Committee receive $750 for each Committee meeting
attended with the Chairman of each Committee receiving a $2,500 per year
retainer. A separate fee is not paid for a Committee meeting held on the
same day as another Committee meeting.
COMPENSATION OF EXECUTIVE OFFICERS AND OTHER INFORMATION
- --------------------------------------------------------
Cash Compensation
- -----------------
The information required by this section of Item 11 is set forth in the
1994 Proxy Statement of the Company's parent, The Fairchild Corporation
("TFC"), which TFC intends to file with the Securities and Exchange
Commission within 120 days after June 30, 1994, and said information is
incorporated herein by reference from TFC's 1994 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The following table sets forth, as of September 2, 1994, the Company's
common stock, Series A Preferred Stock, Series B Preferred Stock, and Series
C Preferred Stock owned by any person known to the Corporation to be the
beneficial owner of more than five (5%) percent of any class and beneficially
owned by all Directors and Officers of the Company as a group:
<TABLE>
<CAPTION>
Class of Number of Percent
Beneficial Owner Stock Shares of Class
---------------- -------- --------- --------
<S> <C> <C> <C>
RHI Holdings, Inc. (1) Common 1,400 100%
Washington Dulles International Airport
300 West Service Road, PO Box 10803
Chantilly, Virginia 22021
RHI Holdings, Inc. (1) Series A
(same as above) Preferred 4,000 .9%
RHI Holdings, Inc. (1) Series B
(same as above) Preferred 2,106 100%
RHI Holdings, Inc. (1) Series C
(same as above) Preferred 800 .1%
All Directors and Officers Series A
as a group Preferred 6,200 1.5%
All Directors and Officers Series C
as a group Preferred 6,694 1.5%
(1) RHI Holdings, Inc. (formerly Rexnord Holdings Inc.) is a wholly-owned
subsidiary of The Fairchild Corporation. Mr. Steiner, because of his
beneficial ownership of Class A common stock and Class B common stock
of The Fairchild Corporation, may be deemed to beneficially own the
common stock of the Corporation owned by RHI Holdings, Inc.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information required by this section of Item 13 is set forth in the
1994 Proxy Statement of the Company's parent, The Fairchild Corporation
("TFC"), which TFC intends to file with the Securities and Exchange
Commission within 120 days after June 30, 1994, and said information is
incorporated herein by reference from TFC's 1994 Proxy Statement.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
- ----------------------------------------------------------------
FORM 8-K
--------
(a) (1) Financial Statements.
All financial statements of the registrant as set forth under
Item 8 of this report on Form 10-K.
(a) (2) Financial Statement Schedules and Report of Independent Public
Accountants
Schedule Number Description Page Number
--------------- ----------- -----------
V Property, Plant and
Equipment 69
VI Accumulated Depreciation,
Depletion and Amortization
of Property, Plant
and Equipment 69
VIII Valuation and
Qualifying Accounts 70
IX Short-Term Borrowings 71
X Supplementary Income
Statement Information 71
The reports of the registrant's Independent Public Accountants with
respect to the above-listed financial statements for Fiscal 1994 and Fiscal
1993, and the reports on the financial statement schedules for Fiscal 1994
and Fiscal 1993, appear on page 26 of this Report.
All other schedules are omitted because they are inapplicable, or not
required, or the information is included in the consolidated financial
statements or notes thereto.
Financial statements for unconsolidated affiliates, including joint
ventures and general partnerships, accounted for by the equity method, have
been omitted because no such affiliate constitutes a significant subsidiary.
<PAGE>
Report of Independent Public Accountants
----------------------------------------
To Fairchild Industries, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Fairchild Industries, Inc. and
subsidiaries included in this Form 10-K and have issued our report thereon
dated August 26, 1994. 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 page 63 are the responsibility of the Company's
management and are presented for purposes 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
Washington, D.C.
August 26, 1994
<PAGE>
(a) (3) Exhibits
Exhibits marked with an asterisk are filed herewith. The remainder of
the exhibits have heretofore been filed with the Commission and are
incorporated herein by reference.
Exhibit
Number
- -------
3(a) Certificate of Incorporation of Fairchild Industries, Inc.
filed with the Secretary of State of Delaware on August 18, 1989
(incorporated by reference to Exhibit 3(a) of Form 10-K filed by the
Registrant for the six months ended June 30, 1989, File No. 1-3102).
3(b) Certificate of Designation, of Series B Preferred Stock of
Fairchild Industries, Inc. filed with the Secretary of State of
Delaware on August 18, 1989 (incorporated by reference to Exhibit 3(b)
of Form 10-K filed by the Registrant for the six months ended June 30,
1989, File No. 1-3102).
3(c) Certificate of Correction of Certificate of Incorporation of
Fairchild Industries, Inc. filed with the Secretary of State of
Delaware on October 18, 1989 (incorporated by reference to the 1990
10-K).
3(d) Certificate of Increase of Fairchild Industries, Inc. of Series B
Preferred Stock of Fairchild Industries, Inc. filed with the Secretary
of State of Delaware on July 3, 1990 (incorporated by reference to the
1990 10-K).
3(e) Certificate of Stock Designation of Series C Cumulative Preferred
Stock filed August 20, 1992.
3(f) Certificate of Correction of Certificate of Stock Designation of
Series C Cumulative Preferred Stock filed September 14, 1992.
3(g) Certificate of Amendment of Certificate of Incorporation of
Fairchild Industries, Inc. filed May 26, 1993.
3(h) Fairchild Industries, Inc. By-Laws (incorporated by reference to
Form 10-K filed by the Registrant for year ended June 30, 1990 (the
"1990 10-K")).
4(a) Indenture, dated as of November 1, 1982, under which certain Debt
Securities of the Company were issued (Exhibit 4 to Registration
Statement No. 2-80009 on Form S-3 effective October 28, 1982, is
incorporated herein by reference).
4(b) Indenture, dated as of January 1, 1978, under which the 9 3/4%
Subordinated Debentures of the Company, due April 1, 1998, were issued
(Exhibit 2-B to Registration Statement No. 2-60451 on Form S-7,
effective January 12, 1978, is incorporated herein by reference).
<PAGE>
4(c) Indenture, dated as of August 1, 1992, under which the 12 1/4%
Senior Secured Notes of the Company, due 1999, were issued (Exhibit
to Registration Statement No. 33-47341 on Form S-2, is incorporated
herein by reference).
10(a) Restated and Amended Credit Agreement dated as of July 27, 1992
(incorporated by reference to 1992 10-K).
10(b) Amendment No. 1, dated as of June 30, 1993, to the Restated
and Amended Credit Agreement dated as of July 27, 1992.
10(c) Agreement and Plan of Merger dated May 7, 1989 among Fairchild
Industries, Inc., Banner Industries, Inc., and Specialty Fastener
Holdings, Inc. (incorporated by reference to Exhibit 2(a) of Form
10-K filed for the six months ended June 30, 1989, File No. 1-3102).
10(d) Asset Purchase Agreement dated May 31, 1989 among Matra S.A., Aero
Acquisitions Corp., Banner Industries, Inc. and Fairchild Acquisition
Corp. (incorporated by reference to Exhibit 2(b) of Form 10-K filed by
the Registrant for the six months ended June 30, 1989, File No.
1-3102).
*10(e) Amendment No. 2, dated as of October 1, 1993, to the Restated and
Amended Credit Agreement dated as of July 27, 1992.
*10(f) Amendment No. 3, dated as of December 23, 1993, to the Restated and
Amended Credit Agreement dated as of July 27, 1992.
*10(g) Amendment No. 4, dated as of March 31, 1994, to the Restated and
Amended Credit Agreement dated as of July 27, 1992.
11 Computation of earnings per share (found at Note to Registrant's
Consolidated Financial Statements for the fiscal year ended June 30,
1994).
*22 Subsidiaries of the Fairchild Industries, Inc.
*Filed herewith
Certain instruments with respect to issues of long-term debt have not
been filed as exhibits as the total amount of securities authorized under any
one of such issues does not exceed 10% of the total assets of the registrant
and its subsidiaries on a consolidated basis. The Registrant agrees to
furnish to the Securities and Exchange Commission a copy of each such
instrument upon its request.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1994.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FAIRCHILD INDUSTRIES, INC.
By: Michael T. Alcox
------------------------
Director
Vice President and
Chief Financial Officer
By: Christopher Colavito
------------------------
Vice President and
Controller
Date: September 21, 1994
<PAGE>
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 and in the capacities and on the dates indicated.
Name, Title, Capacity Date
--------------------- ----
Michael T. Alcox September 21, 1994
-----------------------------
Director, Vice President
and Chief Financial Officer
Christopher Colavito September 21, 1994
-----------------------------
Vice President and Controller
Mortimer M. Caplin September 21, 1994
-----------------------------
Director
Thomas J. Flaherty September 21, 1994
-----------------------------
Director and Chief Operating
Officer
Herbert S. Richey September 21, 1994
-----------------------------
Director
Jeffrey J. Steiner September 21, 1994
-----------------------------
Director
Natalia Steiner Hercot September 21, 1994
-----------------------------
Director
<PAGE>
<TABLE>
FAIRCHILD INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
(In Thousands)
<CAPTION>
Machinery Construction
and in
Land Buildings Equipment Progress TOTAL
-------- --------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1991...... $ 18,325 $ 28,424 $141,333 $ 10,381 $198,463
Additions.................. -- 1,273 16,263 9,023 26,559
Retirements................ (54) (523) (4,892) -- (5,469)
Other changes.............. 1,507 4,920 12,342 (14,690) 4,079
------- ------- ------- ------- -------
Balance, June 30, 1992..... $ 19,778 $ 34,094 $165,046 $ 4,714 $223,632
======= ======= ======= ======= =======
Additions.................. $ -- $ 1,002 $ 9,380 $ 5,124 $ 15,506
Assets acquired through
acquisitions............. -- 391 1,914 -- 2,305
Retirements................ (80) (310) (5,960) (277) (6,627)
Other changes.............. (31) 3,029 6,046 (4,352) 4,692
------- ------- ------- ------- -------
Balance, June 30, 1993..... $ 19,667 $ 38,206 $176,426 $ 5,209 $239,508
======= ======= ======= ======= =======
Additions.................. $ -- $ 780 $ 11,777 $ 3,535 $ 16,092
Retirements................ -- (1,917) (10,157) -- (12,074)
Other changes.............. (5,438) (4,132) 11,294 (2,386) (662)
------- ------- ------- ------- -------
Balance, June 30, 1994..... $ 14,229 $ 32,937 $189,340 $ 6,358 $242,864
======= ======= ======= ======= =======
</TABLE>
Other changes include foreign currency translation adjustments,
intercompany transfers, and transfers between property, plant and equipment
and net assets held for sale.
<TABLE>
FAIRCHILD INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
(In Thousands)
<CAPTION>
Year Ended Year Ended Year Ended
6/30/94 6/30/93 6/30/92
------- ------- -------
<S> <C> <C> <C>
Balance, beginning of year... $ 62,639 $ 40,963 $ 25,845
Charged to expense........... 22,494 20,996 17,003
Retirements.................. (8,051) (4,348) (2,813)
Other changes................ 8,481 5,028 928
------- ------- -------
Balance, end of year......... $ 85,563 $ 62,639 $ 40,963
======= ======= =======
</TABLE>
Other changes include foreign currency translation adjustments,
intercompany transfers, and transfers between property, plant and equipment
and net assets held for sale.<PAGE>
<TABLE>
FAIRCHILD INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In Thousands)
<CAPTION>
Allowance for
Description Doubtful Accounts
- ----------- -----------------
<S> <C>
Balance, July 1, 1991 $ 1,900
Charged to cost and expenses 785
Charged to other accounts (1) 200
Amounts written off (1,183)
------
Balance, June 30, 1992 1,702
Charged to cost and expenses 820
Charged to other accounts (1) 149
Amounts written off (925)
------
Balance, June 30, 1993 1,746
Charged to cost and expenses 1,124
Charged to other accounts (1) 231
Amounts written off (966)
------
Balance, June 30, 1994 $ 2,135
======
(1) Recoveries of amounts written off in prior periods, foreign currency
translation and the change in related non-current taxes.<PAGE>
</TABLE>
<TABLE>
FAIRCHILD INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWING
(In Thousands)
<CAPTION>
Maximum Average Weighted
Weighted amount amount average
Category of Balance average outstanding outstanding interest
aggregate short- at end interest during during rate during
term borrowings of period rate the period the period the period
- ---------------- --------- -------- ----------- ----------- -----------
(A) (B)
<S> <C> <C> <C> <C> <C>
June 30, 1994
Notes payable $ 3,592 10.80% $ 50,813 $ 6,989 8.50%
June 30, 1993
Notes payable $ 40,792 7.73% $ 40,792 $ 5,043 11.87%
June 30, 1992
Notes payable $ 3,620 10.68% $ 6,703 $ 5,232 11.83%
(A) Average amount outstanding during the year is determined based upon
the amount outstanding at each month end.
(B) Average interest rate for the year is computed by dividing the actual
short-term interest expense by average short-term debt
outstanding.
</TABLE>
<TABLE>
FAIRCHILD INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In Thousands)
<CAPTION>
Charged to costs and expenses
-----------------------------
Description 1994 1993 1992
- ----------- -------- -------- --------
<S> <C> <C> <C>
Maintenance and Repairs $ 7,470 $ 7,053 $ 6,965
</TABLE>
Amendment No. 2
Dated as of October 1, 1993
to
RESTATED AND AMENDED CREDIT AGREEMENT
Dated as of July 27, 1992
THIS Amendment No. 2 ("Amendment No. 2") dated as of
October 1, 1993, is entered into among VSI Corporation, a
Delaware corporation ("VSI"), the "Senior Lenders" (as defined in
the Credit Agreement referred to below) a party hereto, Citicorp
North America, Inc., a Delaware corporation ("Citicorp"), The
Bank of Nova Scotia, a Canadian chartered bank ("Scotiabank"),
and Nationsbank of Virginia, N.A., a national banking association
("NationsBank") as agents for the Senior Lenders (Citicorp,
Scotiabank and NationsBank being sometimes hereinafter
collectively referred to as the "Agents"), and Citicorp, as
administrative agent for the Senior Lenders (the "Administrative
Agent").
PRELIMINARY STATEMENT. RHI Holdings, Inc., a Delaware
corporation, Fairchild Industries, Inc., a Delaware corporation,
VSI, the Senior Lenders, the Agents and the Administrative Agent
are parties to that certain Restated and Amended Credit Agreement
dated as of July 27, 1992 (as amended by Amendment No. 1 thereto
dated as of June 30, 1993, the "Credit Agreement"). Subject to
the terms and conditions stated herein, VSI and its Senior
Lenders have agreed to further amend the Credit Agreement as
hereinafter set forth. Capitalized terms used herein without
definition are used herein as defined in the Credit Agreement.
SECTION 1. Amendments to the Credit Agreement.
Effective as of the date of this Amendment No. 2 and
subject to the satisfaction of the conditions precedent set forth
in Section 2 below, the Credit Agreement is hereby amended as
follows:
1.1 The definition of "Consolidated EBITDA" set forth
in Section 1.01 is hereby amended to delete clause (xi) thereof
in its entirety and to substitute the following provision
therefor: "(xi) with respect to Fiscal Years ending June 30,
1993 and June 30, 1994, $10,000,000 in the aggregate of non-cash
inventory writeoffs for both such Fiscal Years".
1.2 Section 12.07 is hereby amended to delete the
table headed "Date" and "Minimum EBITDA" in its entirety and to
substitute the following table therefor:
<PAGE>
Date Minimum EBITDA
---- --------------
First Quarter, 1994 $62,000,000
Second Quarter, 1994 $62,000,000
Third Quarter, 1994 $62,000,000
Fourth Quarter, 1994 $67,000,000
First Quarter, 1995 $73,600,000
Second Quarter, 1995 $75,360,000
Third Quarter, 1995 $77,120,000
Fourth Quarter, 1995 $80,000,000
First Quarter, 1996 $81,600,000
Second Quarter, 1996 $83,360,000
Third Quarter, 1996 $85,120,000
Fourth Quarter, 1996 $88,000,000
First Quarter, 1997 $89,600,000
Second Quarter, 1997 $91,360,000
SECTION 2. Conditions Precedent to Amendment No. 2;
Effectiveness. This Amendment No. 2 shall become effective and
be deemed effective as of the date hereof, if, and only if, the
Administrative Agent shall have received on or before October 1,
1993 twenty-five (25) execution copies of this Amendment executed
by VSI and a minimum of those Senior Lenders representing the
Requisite Senior Lenders of VSI.
SECTION 3. Representations and Warranties. VSI hereby
represents and warrants as follows:
(a) This Amendment No. 2 and the Credit Agreement as
previously executed and amended and as amended hereby, constitute
legal, valid and binding obligations of VSI and are enforceable
against VSI in accordance with their terms.
(b) No Event of Default or Potential Event of Default
exists or would result from any of the transactions contemplated
by this Amendment No. 2.
(c) Upon the effectiveness of this Amendment No. 2,
VSI hereby reaffirms all covenants, representations and
warranties made in the Credit Agreement to the extent the same
are not amended hereby, and agrees that all such covenants,
representations and warranties shall be deemed to have been
remade as of the date this Amendment No. 2 becomes effective
(unless a representation and warranty is stated to be given on
and as of a specific date, in which case such representation and
warranty shall be true, correct and complete as of such date).
SECTION 4. Reference to and Effect on the Credit
Agreement.
4.01 Upon the effectiveness of this Amendment No. 2,
each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import shall
mean and be a reference to the Credit Agreement, as amended
hereby, and each reference to the Credit Agreement in any other
document, instrument or agreement executed and/or delivered in
connection with the Credit Agreement shall mean and be a
reference to the Credit Agreement as amended hereby.
4.02 Except as specifically amended above, the Credit
Agreement, the Notes and all other Loan Documents shall remain in
full force and effect and are hereby ratified and confirmed.
4.03 The execution, delivery and effectiveness of this
Amendment No. 2 shall not operate as a waiver of any right, power
or remedy of any Senior Lender or Agent or the Administrative
Agent under the Credit Agreement, the Notes or any of the other
Loan Documents, nor constitute a waiver of any provision
contained therein, except as specifically set forth herein.
SECTION 5. Execution in Counterparts. This Amendment
No. 2 may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which
when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the
same instrument. Delivery of an executed counterpart of this
Amendment No. 2 by telecopier shall be effective as delivery of a
manually executed counterpart of this Amendment No. 2.
SECTION 6. Governing Law. This Amendment No. 2 shall
be governed by and construed in accordance with the laws of the
State of New York.
SECTION 7. Headings. Section headings in this
Amendment No. 2 are included herein for convenience of reference
only and shall not constitute a part of this Amendment No. 2 for
any other purpose.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 2 to be executed by their respective officers
thereunto duly authorized as of the date first above written.
VSI CORPORATION
By Karen L. Schneckenburger
--------------------------------
Title: Treasurer
CITICORP NORTH AMERICA, INC.,
individually as a Senior Lender,
as one of the Agents for the Senior
Lenders and as Administrative Agent
for the Senior Lenders
By Colin M. Cohen
--------------------------------
Title: Vice President
THE BANK OF NOVA SCOTIA,
individually as a Senior Lender
and as one of the Agents for
the Senior Lenders
By Amanda Norsworthy
--------------------------------
Title: Assistant Agent
NATIONSBANK OF VIRGINIA, N.A.,
individually as a Senior Lender
and as one of the Agents for the
Senior Lenders
By Robert A. Sharpe, II
--------------------------------
Title: Senior Vice President
GENERALE BANK,
as a Senior Lender
By E. Matthews & Hans Neukomm
--------------------------------
Title: Senior Vice President
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.,
as a Senior Lender
By Brady Sadek
--------------------------------
Title: Vice President & Deputy General Manager
CAISSE NATIONALE DE CREDIT AGRICOLE,
as a Senior Lender
By
--------------------------------
Title:
MITSUBISHI BANK, LTD.,
as a Senior Lender
By Minoru Akimoto
--------------------------------
Title: Senior Vice President and
Manager
CANADIAN IMPERIAL BANK OF COMMERCE,
as a Senior Lender
By Julie Wochos
--------------------------------
Title: Authorized Signatory
PILGRIM PRIME RATE TRUST,
as a Senior Lender
By Kathleen Lenarcic
--------------------------------
Title: Senior Credit Analyst
UNION BANK,
as a Senior Lender
By Patrick M. Cassidy
--------------------------------
Title: Vice President
WELLS FARGO BANK, N.A.,
as a Senior Lender
By
--------------------------------
Title:
EATON VANCE PRIME RATE RESERVES,
as a Senior Lender
By Jeffrey S. Garner
--------------------------------
Title: Vice President
Consent and Amendment No. 3
Dated as of December 23, 1993
to
RESTATED AND AMENDED CREDIT AGREEMENT
Dated as of July 27, 1992
This Consent and Amendment No. 3 ("Amendment No. 3")
dated as of December 23, 1993, is entered into among RHI
Holdings, Inc., a Delaware corporation ("RHI"), the "Senior
Lenders" (as defined in the Credit Agreement referred to below)
of RHI, Citicorp North America, Inc., a Delaware corporation
("Citicorp") and The Bank of Nova Scotia, a Canadian chartered
bank ("Scotiabank") as agents for the Senior Lenders (Citicorp
and Scotiabank being sometimes hereinafter collectively referred
to as the "Agents"), and Citicorp, as administrative agent for
the Senior Lenders (the "Administrative Agent").
PRELIMINARY STATEMENT. VSI Corporation, a Delaware
corporation, Fairchild Industries, Inc., a Delaware corporation,
RHI, the Senior Lenders, the Agents, and the Administrative Agent
are parties to that certain Restated and Amended Credit Agreement
dated as of July 27, 1992, as amended, (the "Credit Agreement").
Capitalized terms used herein without definition are used herein
as defined in the Credit Agreement. RHI has entered into a
certain Purchase Agreement dated as of December 2, 1993 with The
Fairchild Corporation, a Delaware corporation ("TFC") and BTR
Dunlop Holdings, Inc., a Delaware corporation ("BTR Dunlop")
(such Purchase Agreement being herein referred to as the
"Purchase Agreement") pursuant to which, among other things, RHI
has agreed to sell all of the capital stock of Rexnord
Corporation owned by RHI (the "Rexnord Shares") to BTR Dunlop and
to indemnify BTR Dunlop and Rexnord Corporation with respect to
certain environmental liabilities.
In connection with the transactions contemplated by the
Purchase Agreement, TFC, RHI and Rexnord Corporation have entered
into a certain Tax Agreement dated as of December 2, 1993 with
BTR Dunlop (the "Tax Agreement"), pursuant to which, among other
things, (a) the Amendment to and Restatement of Tax Agreement
dated May 15, 1992, as amended on August 5, 1993, will be
terminated in its entirety and the Tax Agreement will supersede
the same in its entirety as of the time described therein and (b)
TFC and RHI will become obligated under certain indemnities
specified in the Tax Agreement with respect to certain tax
obligations of Rexnord Corporation.
In connection with the transactions contemplated by the
Purchase Agreement, TFC and RHI entered into an Escrow Agreement
dated as of December 2, 1993 with BTR Dunlop and Cahill Gordon &
Reindel, as "Escrow Agent", (the "Escrow Agreement") pursuant to
which, among other things, TFC and RHI are required (a) to
deposit, on the date the transactions described in the Purchase
Agreement close, into the escrow established pursuant to the
Escrow Agreement, for the benefit of BTR Dunlop, shares of common
stock of Aerospace having a market price of $25,000,000, as
calculated pursuant to the Escrow Agreement, as of the date of
such deposit and (b) to make or receive supplemental deposits or
withdrawals thereafter of cash and/or common stock of Aerospace
into such escrow under certain circumstances, such deposits to be
held by the Escrow Agent until the obligations of TFC and RHI
expire with respect to the indemnities for federal and state
taxes described in the Tax Agreement and the Escrow Agreement.
In connection with the establishment of such escrow arrangement,
RHI has requested that its Requisite Senior Lenders consent to
the release of certain of the stock of Aerospace pledged to the
Administrative Agent pursuant to the Special Increase II Pledge
Agreement in an amount sufficient to fund the escrow arrangement
on the date upon which the transactions described in the Purchase
Agreement are consummated.
It is contemplated that the transactions described in
the Purchase Agreement with respect to the sale of the Rexnord
Shares by RHI to BTR Dunlop will occur on the second Business Day
following the date on which all applicable waiting periods under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and under the law relating to filings with the German
Federal Cartel office referenced in the Purchase Agreement, shall
expire or be terminated.
It is further contemplated that the proceeds of the
sale of the Rexnord Shares by RHI to BTR Dunlop under the
Purchase Agreement will be used as follows:
(i) a portion thereof to repurchase or derease certain of
RHI's Subordinated Indebtedness (the "Subordinated Debt
Repayment");
(ii) a portion thereof to make dividends, distributions or
other advances to TFC to the extent permitted under the
terms and conditions of the Credit Agreement;
(iii) approximately $5,000,000 thereof to repay the
Rexnord/Holdings Mortgage Indebtedness; and
(iv) a portion thereof to repay the obligations of RHI
under Facility A in an amount sufficient to permanently
reduce the Facility Outstandings under Facility A to an
amount less than or equal to the "Facility Commitments" with
respect to "Facility A" (as each such term is hereinafter
defined in Section 1 of this Amendment No. 3).
Subject to the terms and conditions stated herein, RHI
and its Senior Lenders have agreed to further amend the Credit
Agreement as hereinafter set forth and to consent to the
transactions described in Section 2 hereof.
SECTION 1. Amendments to the Credit Agreement.
Effective as of the later to occur of (i) the
effectiveness of Amendment No. 3 pursuant to Section 3 hereof and
(ii) the Rexnord Sale Effective Date, and subject to the
satisfaction of the conditions precedent set forth in Section 3
below, the Credit Agreement is hereby amended as follows:
1.1 Section 1.01 of the Credit Agreement is hereby
amended to add the following definitions thereto in alphabetical
order:
"'Facility A Cash Collateral Amount' shall have the
meaning set forth in Section 4.2(d) hereof."
"'Facility A Collateral Loan Value' shall mean an
amount equal to the lesser of:
(i) as of any date of determination, an amount
equal to the sum of the remainder of (A) the product
of the price at which the last trade of Aerospace
common stock occurred on the immediately preceding
Business Day on the New York Stock Exchange, which
shall be the close quotation for such Business Day as
reported by The Wall Street Journal (or in the event
publication of The Wall Street Journal is permanently
or temporarily suspended, such other national domestic
daily business journal as may be designated by the
Administrative Agent) for the date of determination, or
if there is no such close quotation, the average
between the high and low quotations for such Business
Day, or if there are no such quotations for such
Business Day, the close quotation for the immediately
preceding Business Day, multiplied by the number of
Aerospace shares pledged as security under the Special
Increase II Pledge Agreement (the "Pledged Share
Value") minus (B) the sum of the amount equal to sixty
percent (60%) of the Pledged Share Value and $500,000;
and
(ii) the maximum amount permitted to be loaned
against the Aerospace shares pledged as security under
the Special Increase II Pledge Agreement under
Regulations G and U."
"'Rexnord Sale Effective Date' shall mean the date upon
which the sale of all of the Rexnord Shares owned by
RHI to BTR Dunlop Holdings, Inc., a Delaware
corporation (('BTR Dunlop') is consummated pursuant to
that certain Purchase Agreement dated as of December 2,
1993 by and among RHI, TFC and BTR Dunlop."
"'Rexnord Shares' shall mean all of the issued and
outstanding shares of Rexnord Corporation owned by
RHI."
1.2 For purposes of determining the Facility A
Commitment of each of the Facility A Lenders and the Facility A
Commitments, the definitions of "Facility Commitment" and
"Facility Commitments" set forth in Section 1.01 of the Credit
Agreement are hereby deleted in their entirety and the following
definitions are substituted therefor:
"'Facility Commitment' shall mean, (i) with respect to
Facility G and each Facility G Senior Lender the amount set
forth below such Facility G Senior Lender's name under the
heading 'Facility Commitment' on the signature pages of this
Agreement, or, as the case may be, on the signature pages of
the Assignment Agreement pursuant to which such Facility G
Senior Lender became a Facility G Senior Lender hereunder in
accordance with the provisions of Section 16.02, as such
amount may be reduced or increased (whether temporarily or
permanently) from time to time pursuant to the terms of this
Agreement, including any reduction resulting from the
assignment of all or a portion of such Facility G Senior
Lender's Facility G Commitment in accordance with Section
16.02 and (ii) with respect to Facility A and each Facility
A Lender, the amount set forth below such Facility A Senior
Lender's name under the heading 'Facility A Commitment' on
the signature pages of Consent and Amendment No. 3 to this
Agreement, or, as the case may be, on the signature pages of
the Assignment Agreement pursuant to which such Facility A
Senior Lender became a Facility A Senior Lender hereunder in
accordance with the provisions of Section 16.02, as such
amount may be reduced or increased (whether temporarily or
permanently) from time to time pursuant to the terms of this
Agreement, including any reduction resulting from the
assignment of all or a portion of such Facility A Senior
Lender's Facility A Commitment in accordance with Section
16.02. 'Facility Commitments' shall mean (i) prior to the
Facility G Extension Date, with respect to Facility G,
$59,500,000, (ii) on and after the Facility G Extension
Date, with respect to Facility G, $50,250,000 and (iii) at
any time, with respect to Facility A, the lesser of (a)
$5,000,000 and (b) the sum of (I) the Facility A Collateral
Loan Value at such time and (II) the Facility A Cash
Collateral Amount divided by one hundred and five percent
(105%).
1.3 The definition of "Facility Commitment Period" set
forth in Section 1.01 of the Credit Agreement is hereby amended
to delete clause (i) thereof in its entirety and to substitute
"(i) in the case of Facility A, on February 28, 1995" therefor.
1.4 The definition of "L/C Subfacility" set forth in
Section 1.01 of the Credit Agreement is hereby amended to delete
the amount "$15,000,000" appearing opposite the notation
"Facility A" in the column labeled "Maximum Amount as of the
Closing Date" and to substitute the amount "$5,000,000"
therefor.
1.5 Section 1.01 of the Credit Agreement is hereby amended
to delete the following definitions in their entirety: "Special
Facility II A Loans", "Special Increase II" and "Special Increase
II Termination Date".
1.6 Section 3.05(a) of the Credit Agreement is hereby
amended to delete the amount "$45,000,000" appearing at the end
thereof and to substitute the amount "$5,000,000" therefor.
1.7 Section 3.06 of the Credit Agreement is hereby amended
to delete the first sentence thereof in its entirety and to
substitute the following therefor:
"The Revolving Credit Loans made under Facility A are
evidenced by Amended and Restated Series A Revolving
Credit Notes in a maximum aggregate principal amount
of $5,000,000."
1.8 Section 3.07(a) of the Credit Agreement is hereby
amended to delete the last sentence thereof in its entirety.
1.9 Section 4.02(d) of the Credit Agreement is hereby
amended to delete the first sentence thereof in its entirety and
to substitute the following therefor:
"The Facility A Borrower shall make prepayments of its
Revolving Credit Loans and/or post cash collateral with
the Administrative Agent, in form and substance
reasonably acceptable to the Administrative Agent, such
that the amount of cash collateral on deposit with the
Administrative Agent pursuant to this Section 4.2(d) is
at all times equal to or greater than one hundred and
five percent (105%) of the difference between (a) the
Facility Outstandings for Facility A and (b) the
Facility A Collateral Loan Value (the "Facility A Cash
Collateral Amount").
1.10 Section 4.03 of the Credit Agreement is hereby
amended to delete subsection (c) thereof in its entirety.
1.11 Section 4.06(a) of the Credit Agreement is hereby
amended to delete the last sentence thereof in its entirety.
1.12 Section 9.03 of the Credit Agreement is hereby amended
to delete the phrase "(x) the cash flow projections delivered to
the Administrative Agent on June 10, 1992 and (y)" from the last
sentence thereof.
1.13 Section 11.04B of the Credit Agreement is hereby
amended to (i) delete the word "and" at the end of clause (e)
thereof, (ii) delete the period at the end of clause (f) thereof
and to substitute a semicolon and the word "and" therefor and
(iii) add the following clause (g) immediately following clause
(g) thereof:
"(g) as long as (i) no Event of Default or
Potential Event of Default exists with respect to RHI
or would result therefrom; (ii) Senior Subordinated
Debentures constituting more than fifty percent (50%)
of the aggregate outstanding principal balance thereof
on the Rexnord Sale Effective Date have been
repurchased by RHI and the Senior Subordinated
Debenture Indenture has been amended to remove any
dividend restrictions with respect to RHI; (iii) the
Rexnord 12-3/4 Debentures have been repurchased or
defeased in full, such defeasance to be in form and
substance satisfactory to the trustee under the Rexnord
12/3-4 Debenture Indenture; (iv) RHI has provided to
the Administrative Agent an Officers' Certificate
certifying as to the fulfillment of the conditions set
forth in clauses (ii) and (iii) above; and (v) the
Consolidated Net Worth of RHI is equal to greater than
$175,000,000 immediately prior to such transaction and
after giving effect thereto, the payment of dividends
or distributions on RHI's stock to TFC or the making of
other advances by RHI to TFC."
1.14 Section 12.01A of the Credit Agreement is hereby
amended to (i) delete the title thereof in its entirety and to
substitute the title "Consolidated Net Worth of RHI; Additional
Capital" therefor, (ii) delete subsection (a) thereof in its
entirety and (iii) substitute the following therefor:
"(a) the Consolidated Net Worth of RHI shall at all
times be equal to or greater than $175,000,000."
SECTION 2. Consents and Waiver. (A) Effective as of
the date of this Amendment No. 3 and subject to the satisfaction
of the conditions precedent set forth in Section 3 below, the
Senior Lenders of RHI hereby consent to the following:
(a) the sale of the Rexnord Shares by RHI to BTR Dunlop
pursuant to, and the performance by RHI of, the Purchase
Agreement;
(b) the release of the Lien of the Administrative Agent
under the Special Increase II Pledge Agreement with respect
to a sufficient number of shares of the stock of Aerospace
to satisfy the terms and conditions of the Escrow Agreement
as of the date the transactions described in the Purchase
Agreement are consummated;
(c) the release of the Lien of the Collateral Trustee
under the Rexnord Holdings Pledge Agreement with respect to
all of the Rexnord Shares pledged thereunder;
(d) the transfer by Banner Investments to RHI of all of
the issued and outstanding shares of Rexnord Corporation
owned by Banner Investments;
(e) the Subordinated Debt Repayment; and
(f) the use of a portion of the proceeds received by
RHI in connection with the sale of the Rexnord Shares to
repay a portion of the Obligations of RHI under Facility A
and the Rexnord/Holdings Mortgage Indebtedness.
(B) Effective as of the date of this Amendment No. 3
and subject to the satisfaction of the conditions precedent set
forth in Section 3 below, the Senior Lenders of RHI hereby waive
the requirement under Section 9.08 of the Credit Agreement that
RHI provide the Administrative Agent with ninety (90) days' prior
written notice of the making of a dividend or other distribution
by RHI with respect to its capital stock; provided that (i) this
waiver shall be limited to dividends made by RHI to TFC pursuant
to clause (g) of Section 11.04B of the Credit Agreement and (ii)
RHI shall provide one Business Days' prior written notice to the
Administrative Agent in connection with the making of any such
dividend or distribution."
SECTION 3. Conditions Precedent to Amendment No. 3;
Effectiveness. This Amendment No. 3 shall become effective and
be deemed effective as of the date hereof, if, and only if, (i)
the Administrative Agent shall have received on or before January
31, 1994 a facsimile or original executed copy of this Amendment
executed by RHI and each of the Senior Lenders of RHI and (ii)
the Administrative Agent shall have received on or before January
31, 1994, all of which shall be in form and substance
satisfactory to the Administrative Agent and the Senior Lenders,
(a) an amendment to the Special Increase II Pledge Agreement
executed by each of RHI and the Collateral Trustee pursuant to
which RHI agrees that the shares of Aerospace remaining subject
to the Special Increase II Pledge Agreement shall secure all of
the Obligations of RHI under Facility A and amending Exhibit A
thereto, (b) Amended and Restated Series A Revolving Credit Notes
in the maximum amount of each Facility A Lender's Facility A
Commitment executed by RHI and made payable to each of the
Facility A Lenders, (c) an amendment to the Rexnord Holdings
Pledge Agreement executed by RHI and the Collateral Trustee
deleting the references to the Rexnord Shares from Exhibit A
thereto and (d) a Pledge and Assignment Agreement executed by RHI
and the Administrative Agent with respect to the cash collateral
posted by RHI pursuant to Section 4.02(d) of the Credit
Agreement.
SECTION 4. Representations and Warranties. RHI hereby
represents and warrants as follows:
4.1 This Amendment No. 3 and the Credit Agreement as
previously executed and amended and as amended hereby, constitute
legal, valid and binding obligations of RHI and are enforceable
against RHI in accordance with their terms.
4.2 No Event of Default or Potential Event of Default
exists or would result from any of the transactions contemplated
by this Amendment No. 3.
4.3 Upon the effectiveness of this Amendment No. 3,
RHI hereby reaffirms all covenants, representations and
warranties made in the Credit Agreement to the extent the same
are not amended hereby, and agrees that all such covenants,
representations and warranties shall be deemed to have been
remade as of the date this Amendment No. 3 becomes effective
(unless a representation and warranty is stated to be given on
and as of a specific date, in which case such representation and
warranty shall be true, correct and complete as of such date).
SECTION 5. Reference to and Effect on the Credit
Agreement.
5.1 Upon the effectiveness of this Amendment No. 3,
each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import shall
mean and be a reference to the Credit Agreement, as amended
hereby, and each reference to the Credit Agreement in any other
document, instrument or agreement executed and/or delivered in
connection with the Credit Agreement shall mean and be a
reference to the Credit Agreement as amended hereby.
5.2 Except as specifically amended above, the Credit
Agreement, the Notes and all other Loan Documents shall remain in
full force and effect and are hereby ratified and confirmed.
5.3 The execution, delivery and effectiveness of this
Amendment No. 3 shall not operate as a waiver of any right, power
or remedy of any Senior Lender or Agent or the Administrative
Agent under the Credit Agreement, the Notes or any of the other
Loan Documents, nor constitute a waiver of any provision
contained therein, except as specifically set forth herein.
SECTION 6. Execution in Counterparts. This Amendment
No. 3 may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which
when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the
same instrument. Delivery of an executed counterpart of this
Amendment No. 3 by telecopier shall be effective as delivery of a
manually executed counterpart of this Amendment No. 3.
SECTION 7. Governing Law. This Amendment No. 3 shall
be governed by and construed in accordance with the laws of the
State of New York.
SECTION 8. Headings. Section headings in this
Amendment No. 3 are included herein for convenience of reference
only and shall not constitute a part of this Amendment No. 3 for
any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 3 to be executed by their respective officers
thereunto duly authorized as of the date first above written.
RHI HOLDINGS, INC.
By: Karen L. Schneckenburger
--------------------------------
Title: Treasurer
CITICORP NORTH AMERICA, INC.,
individually as a Senior Lender, as
one of the Agents for the Senior
Lenders and as Administrative Agent
for the Senior Lenders
By Colin M. Cohen
--------------------------------
Title: Vice President
Facility A Commitment: $2,500,000
THE BANK OF NOVA SCOTIA,
individually as a Senior Lender and
as one of the Agents for the Senior
Lenders
By F.C.H. Ashby
--------------------------------
Title: Senior Manager Loan Operations
Facility A Commitment: $2,500,000
CONSENT AND AMENDMENT NO. 4
Dated as of March 31, 1994 to
RESTATED AND AMENDED CREDIT AGREEMENT
Dated as of July 27, 1992
This Consent and Amendment No. 4 ("Amendment") dated as
of March 31, 1994 is entered into among VSI Corporation, a
Delaware corporation, Fairchild Industries, Inc., a Delaware
corporation, and the undersigned "Senior Lenders" (as defined in
the Credit Agreement identified below). Capitalized terms used
herein without definition are used herein as defined in the
Credit Agreement.
PRELIMINARY STATEMENT. VSI Corporation, a Delaware
corporation, Fairchild Industries, Inc., a Delaware corporation,
RHI Holdings, Inc., a Delaware corporation, the Senior Lenders,
the Agents, and the Administrative Agent are parties to that
certain Restated and Amended Credit Agreement dated as of July
27, 1992, as amended (the "Credit Agreement"). VSI has requested
the amendment of the Credit Agreement in certain respects as more
particularly described in the letter dated March 4, 1994, a copy
of which is attached hereto as Exhibit 1 and made a part hereof
(the "Amendment Request") and FII and VSI have requested the
consent of the Requisite Senior Lenders of FII and VSI,
respectively, to the transfer of the capital stock of Fairchild
Data Corporation by FII to VSI as more particularly described in
the Amendment Request.
Subject to the terms and conditions stated herein, the
undersigned Senior Lenders of VSI comprising at least the
Requisite Senior Lenders of VSI and VSI have agreed to further
amend the Credit Agreement as set forth in Section 1 hereof and
the Senior Lenders of VSI comprising at least the Requisite
Senior Lenders of VSI and the Senior Lenders of FII comprising at
least the Requisite Senior Lenders of FII have agreed to consent
to certain matters as described in Section 2 hereof.
SECTION 1. Amendments to the Credit Agreement.
Effective as of March 31, 1994, subject to the satisfaction of
the conditions precedent set forth in Section 3 hereof, the
Credit Agreement is hereby amended as follows:
1.1 Section 1.01 is amended to (i) delete the
definition of "Consolidated EBITDA" in its entirety and
substitute the following therefor:
"Consolidated EBITDA" shall mean, with respect to any
Borrower, for any period, such Borrower's Consolidated
Net Income for such period, plus without duplication,
the sum of the amounts for such period (to the extent
deducted in the determination of such Consolidated Net
Income) of such Borrower's (i) Consolidated Cash
Interest Expense, (ii) accreted interest on retiree
medical benefit obligations, (iii) charges against
income for federal, state and local income taxes, (iv)
depreciation expense, (v) amortization expense, (vi)
other non-recurring non-cash charges and expenses not
now or hereafter requiring the use of Cash, (vii) any
losses arising other than in the ordinary course of
business which have been included in the determination
of Consolidated Net Income, (viii) any increases in the
LIFO reserve, (ix) if such Borrower is VSI, charges and
expenses allocated to such Borrower in accordance with
the Allocation Memorandum in an amount not exceeding
the fair market value of the related services so
allocated, (x) with respect to Fiscal Years ending June
30, 1993 and June 30, 1994, an aggregate amount of
$10,000,000 in cash restructuring expenses, and (xi)
with respect to Fiscal Years ending June 30, 1993 and
June 30, 1994, $10,000,000 in the aggregate of non-cash
inventory writeoffs for both such Fiscal Years, minus
(in each case, to the extent included in the
determination of such Consolidated Net Income) (A) any
gains arising other than in the ordinary course of
business, (B) any decreases in the LIFO reserve, and
(C) other non-recurring credits and income not now or
hereafter generating Cash, all as determined on a
consolidated basis for such Borrower and its
Subsidiaries in conformity with GAAP; provided,
however, that for purposes of determining compliance
with Article XII the amount of losses (whether cash or
non-cash) with respect to application of insurance
deductibles and incurrence of non-reimbursable expenses
incurred as a result of earthquake not to exceed
$4,000,000 in the aggregate shall not be included in
the calculation of the covenants set forth therein with
respect to fiscal quarters designated Third Quarter,
1994, Fourth Quarter, 1994, First Quarter, 1995, and
Second Quarter, 1995."
and (ii) delete clause (ii) of the definition of "Excluded
Dispositions" in its entirety and substitute the following
therefor:
"(ii) the sale, transfer, or other disposition by FII
or VSI of all or any part of the capital stock or of
the assets of Fairchild Data Corporation,".
1.2 Section 11.14 is amended to add the word
"Consolidated" immediately preceding "EBITDA" in the proviso at
the end of such provision.
1.3 Section 12.03 is amended to add the following
proviso at the end thereof:
"provided, however, that the amount of losses (whether
cash or non-cash) with respect to application of
insurance deductibles and incurrence of nonreimbursable
expenses incurred as a result of earthquake not to
exceed $4,000,000 in the aggregate shall not be
included in the calculation of Consolidated Net Worth
of VSI."
1.4 Section 12.07 is amended to delete that portion of
the schedule of covenant test dates commencing with Fourth
Quarter, 1994 and ending with Second Quarter, 1997 in its
entirety and substitute the following therefor:
Fourth Quarter, 1994 62,000,000
First Quarter, 1995 68,600,000
Second Quarter, 1995 70,360,000
Third Quarter, 1995 72,120,000
Fourth Quarter, 1995 75,000,000
First Quarter, 1996 76,600,000
Second Quarter, 1996 78,360,000
Third Quarter, 1996 80,120,000
Fourth Quarter, 1996 83,000,000
First Quarter, 1997 84,600,000
Second Quarter, 1997 86,360,000
SECTION 2. Consent. The undersigned Senior Lenders of
VSI and the undersigned Senior Lenders of FII hereby consent to
the transfer of the capital stock of Fairchild Data Corporation
by FII to VSI to be credited as paid-in capital or in exchange
for common stock of VSI, it being understood that any common
stock of VSI issued to FII in exchange for such capital stock of
Fairchild Data Corporation will be subject to a Lien in favor of
the holders of the FII Senior Notes.
SECTION 3. Conditions Precedent to Effectiveness of
this Amendment. This Amendment shall become effective as of
March 31, 1994 if, and only if, (i) the Administrative Agent
shall have received on or before March 31, 1994 a facsimile or
original executed copy of this Amendment executed by FII, VSI,
and Senior Lenders comprising at least the Requisite Senior
Lenders of each of FII and VSI and (ii) the Administrative Agent
shall have received on March 31, 1994, for the benefit of each
Senior Lender executing and delivering this Amendment on or
before such date, payment of a fee in the amount of one-quarter
of one percent (0.25%) of the sum of (a) the Facility G
Commitment of such Senior Lender plus (b) the outstanding
principal balance as of March 31, 1994 of the Series VII Loans
payable to such Senior Lender plus (c) the outstanding principal
balance as of March 31, 1994 of the Series VIII Term Loans
payable to such Senior Lender.
SECTION 4. Representations and Warranties. FII and
VSI hereby represent and warrant as follows:
4.1 This Amendment and the Credit Agreement as
previously executed and amended and as amended hereby constitute
legal, valid and binding obligations of FII and VSI and are
enforceable against FII and VSI in accordance with their terms.
4.2 No Event of Default or Potential Event of Default
exists or would result from any of the transactions contemplated
by this Amendment.
4.3 Upon the effectiveness of this Amendment, FII and
VSI each hereby reaffirms all covenants, representations and
warranties made in the Credit Agreement to the extent the same
are not amended hereby and agrees that all such covenants,
representations and warranties shall be deemed to have been
remade as of the date this Amendment becomes effective (unless a
representation and warranty is stated to be given on and as of a
specific date, in which case such representation and warranty
shall be true, correct and complete as of such date).
SECTION 5. Reference to and Effect on the Credit
Agreement.
5.1 Upon the effectiveness of this Amendment, each
reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import shall
mean and be a reference to the Credit Agreement, as amended
hereby, and each reference to the Credit Agreement in any other
document, instrument or agreement executed and/or delivered in
connection with the Credit Agreement shall mean and be a
reference to the Credit Agreement as amended hereby.
5.2 Except as specifically amended above, the Credit
Agreement, the Notes and all other Loan Documents shall remain in
full force and effect and are hereby ratified and confirmed.
5.3 The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or
remedy of any Senior Lender or Agent or the Administrative Agent
under the Credit Agreement, the Notes or any of the other Loan
Documents, nor constitute a waiver of any provision contained
therein, except as specifically set forth herein.
SECTION 6. Execution in Counterparts. This Amendment
may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all
of which taken together shall constitute but one and the same
instrument. Delivery of an executed counterpart of this Amendment
by telecopier shall be effective as delivery of a manually
executed counterpart of this Amendment.
SECTION 7. Governing Law. This Amendment shall be
governed by and construed in accordance with the laws of the
State of New York.
SECTION 8. Headings. Section headings in this
Amendment are included herein for convenience of reference only
and shall not constitute a part of this Amendment for any other
purpose.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto
duly authorized as of the date first above written.
FAIRCHILD INDUSTRIES, INC.
By: Karen L. Schneckenburger
---------------------------
Title: Treasurer
VSI CORPORATION
By: Karen L. Schneckenburger
---------------------------
Title: Treasurer
CITICORP NORTH AMERICA, INC.,
as a Senior Lender
By: Colin M. Cohen
---------------------------
Vice President
THE BANK OF NOVA SCOTIA, as a
Senior Lender
By: F.C.H. Ashby
---------------------------
Title: Senior Manager Loan
Operations
NATIONSBANK OF VIRGINIA, N.A., as
a Senior Lender
By: Robert A. Sharpe, II
---------------------------
Title: Senior Vice President<PAGE>
GENERALE BANK, as a Senior Lender
By: Eddie Matthews & Hans Neukomm
-------------------------------
Title: Senior Vice President
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, as a Senior Lender
By: Brady S. Sadek
---------------------------
Title: Vice President &
Deputy General Manager
MITSUBISHI BANK, LTD., as a Senior
Lender
By: Minoru Akimoto
---------------------------
Title: Senior Vice President
& Manager
CANADIAN IMPERIAL BANK OF COMMERCE,
as a Senior Lender
By: Julie Wochos
---------------------------
Title: Authorized Signatory
PILGRIM PRIME RATE TRUST, as a
Senior Lender
By: Kathleen Lenarcic
---------------------------
Title: Senior Credit Analyst
UNION BANK, as a Senior Lender
By: Patrick M. Cassidy
---------------------------
Title: Vice President
WELLS FARGO BANK, N.A., as a Senior
Lender
By: Daniel Pallares
---------------------------
Title: Vice President
EATON VANCE PRIME RATE RESERVES, as
a Senior Lender
By: Jeffrey S. Garner
---------------------------
Title: Vice President
CAISSE NATIONALE DE CREDIT AGRICOLE
as a Senior Lender
By: David Bouhl, F.V.P
---------------------------
Title: Head of Corporate Banking
Chicago<PAGE>
EXHIBIT 1
to Consent and Amendment No. 4
Dated as of March 31, 1994
Attached<PAGE>
March 4, 1994
Mr. Colin M. Cohen
Vice President
Citicorp North America, Inc.
200 South Wacker Drive
31st Floor
Chicago, IL 60606
Re: Amendment and Waiver for VSI Corporation ("VSI")
Dear Colin,
Pursuant to the Restated and Amended Credit Agreement dated
as of July 27, 1992, as amended, we request the following
covenant changes for VSI:
(i) EBITDA covenant for the quarter ending June 30, 1994
and each of the remaining quarters to be reduced by
$5.0 million.
(ii) Earthquake related losses (insurance deductible and
non-reimbursable expenses) up to $4.0 million in
aggregate to be excluded from EBITDA (whether cash or
non-cash) for covenant calculation purposes for the
1994 Third Fiscal Quarter requirement and each of the
next three quarters; and the same amount to also be
excluded from the net worth covenant calculation.
(iii) Fairchild Data Corporation, a direct subsidiary of
Fairchild Industries, Inc. ("FII"), is to be
contributed to VSI and consolidated from July 1,
1993 for covenant purposes. It has been included as
a discontinued operation at FII but will now be
classified as continuing. Either the transfer of
Fairchild Data Corporation will be credited to paid-
in capital or common stock of VSI will be issued and
transferred to the Collateral Trustee as security for
the FII 12-1/4% Senior Secured Notes. The January 30,
1994 financial statements for Fairchild Data
Corporation are enclosed for your information.
Given the historically volatile earnings of the Aerospace
Fastener Division, we are requesting the $5.0 million adjustment
through the remaining Credit Agreement term. The detailed
projections for fiscal years 1994-1997 will be furnished next
week. They show that the EBITDA covenant will be met comfortably
in fiscal years 1996-1997; however, we believe our request is
still reasonble because, despite all current evidence of
improving AFD earnings, they have been volatile. In our opinion,
this is a conservative approach.
We agree to pay the approving banks a 1/4% upon the
remaining revolver commitment and term loan outstandings
applicable to each bank when the amendment is approved by the
Requisite Senior Lenders.
We request that the waiver be effective on or before April
1, 1994 for the third fiscal quarter of 1994.
Please call me regarding any questions.
Sincerely,
KLS/ss
Enclosure
cc: M. Alcox
M. Carroll
W. Hamilton
D. Huston
M. Smith
List of Significant Subsidiaries of Fairchild Industries, Inc.
Fairchild Data Corporation
VSI Corporation
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000034257
<NAME> FAIRCHILD INDUSTRIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-END> JUN-30-1994
<CASH> 2468
<SECURITIES> 0
<RECEIVABLES> 70499
<ALLOWANCES> (2135)
<INVENTORY> 84896
<CURRENT-ASSETS> 185081
<PP&E> 242864
<DEPRECIATION> (85563)
<TOTAL-ASSETS> 617476
<CURRENT-LIABILITIES> 161708
<BONDS> 224132
<COMMON> 140
19112
226515
<OTHER-SE> (106319)
<TOTAL-LIABILITY-AND-EQUITY> 617476
<SALES> 444145
<TOTAL-REVENUES> 444689
<CGS> 337881
<TOTAL-COSTS> 420228
<OTHER-EXPENSES> 24860
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30667
<INCOME-PRETAX> (27041)
<INCOME-TAX> (4792)
<INCOME-CONTINUING> (22249)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (11738)
<NET-INCOME> (33987)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
