SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
FORM 10-K
--------------------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the year ended June 30, 1995 Commission File Number: 1-3102
------------- ------
FAIRCHILD INDUSTRIES, INC.
------------------------------------------------------
(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
- ----------------------------------------------------
(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
- -------------------------------------- -----------------------
Series C Cumulative Preferred Stock,
without par value New York Stock Exchange
- -------------------------------------- -----------------------
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
- -------------------------------------- -----------------------
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 1, 1995, 424,701 Series A Preferred shares were
outstanding. The aggregate market value of voting stock held by non-
affiliates of the Registrant was approximately $15,224,000 (based upon the
closing prices of these shares on the New York Stock Exchange on such date).
As of September 1, 1995, 558,360 Series C Preferred shares were
outstanding. The aggregate market value of voting stock held by non-
affiliates of the Registrant was approximately $21,567,000 (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, 1995
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. . . . . . 27
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, and sells, installs, and
maintains telecommunications systems for business and government customers.
For a comparison of the sales and operating income or loss 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 1995 Developments
- ------------------------
Overall sales increased by 14.5% in Fiscal 1995, compared to sales in
Fiscal 1994, which reflected stronger sales performances from all three
business segments.
Operating income was $23.4 million in Fiscal 1995, compared to an
operating loss of $0.4 million in Fiscal 1994. Operating income in the
current year was up in both the Industrial Products segment and the
Communications Services segment. The Aerospace Fasteners segment reported an
operating loss of $14.1 million in Fiscal 1995, compared to a loss of $32.2
million in Fiscal 1994.
The Fiscal 1995 loss in the Aerospace Fasteners segment resulted
primarily from excess costs incurred to reduce the past due sales backlog,
which included many orders of small quantities at low profit margins.
Certain products have yielded negative margins due to labor inefficiencies
and low prices. Management has taken steps to cancel any such orders
remaining in the backlog unless improved pricing can be negotiated.
Significant provisions for excess and slow moving inventory were also
recorded in Fiscal 1995 contributing to the operating loss. Management will
also continue to reduce the capacity of the Aerospace Fasteners segment as
necessary to bring the breakeven point in line with demand. These actions
may result in further restructuring charges in the future. Restructuring
charges of $18.9 million and $15.5 million were recorded in the Fiscal 1994
and Fiscal 1993 periods, respectively, for nonrecurring costs related to
exiting certain aircraft engine bolt lines, the consolidation of a major
manufacturing facility and further downsizing. An unusual loss of $4.0
million was recorded in the Fiscal 1994 period for earthquake damage.
(b) Financial Information about Business Segments
The Company's business segments information is 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 43.1% of total Company sales for
the year ended June 30, 1995.
Products
--------
In general, aerospace fasteners produced by the Company are used to join
materials in applications that 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 which require regular servicing or
monitoring. 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 for 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 to the United States government.
74.9% 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. 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.
<PAGE>
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, 1995, 1994 and 1993 amounted to $974,000, $1,435,000 and
$2,204,000, 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, 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.
Industrial Products
-------------------
The Industrial Products segment consist of two distinct companies
operating under the trade names 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 66.2% of DME's sales for the year ended June 30, 1995,
were in North America and 33.8% were attributable to sales outside North
America.
Data is a supplier of modems for use in high-speed digitized voice and
data communications.
The Industrial Products segment accounted for 35.5% of total Company
sales for the year ended June 30, 1995.
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 consist of a number of high alloy, precision-
machined steel plates put together in combination with other mold components
into a mold base assembly 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 molding 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 representatives located in the various sales
regions.
Internationally, sales are handled by direct sales representatives in
England, France, Belgium and Germany. In a number of countries in Europe,
Asia and the South Pacific, joint venture partners sell DME products through
full-time sales representatives 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 has 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 India.
Competition
-----------
DME competes with different companies with respect to each of its major
product categories. DME's competition principally consists of privately-held
manufacturers operating primarily in local markets.
DME believes it is the leading supplier of mold bases, mold components
and electronic control systems for the plastic injection molding industry.
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 resale products segment of its
business. Competition in this segment is based primarily on price and
delivery time.
<PAGE>
Communications Services
- -----------------------
Fairchild Communications Services Company ("Fairchild Communications")
provides telecommunications equipment and services to tenants of commercial
office buildings, under the trade name Telecom 2000 Services. As a result
of its acquisition of JWP Telecom, Inc. in the second fiscal quarter,
Fairchild Communications also sells, installs, and maintains
telecommunications systems for business and government customers, under the
name Telecom 2000 Systems. Fairchild Communications is a distributor for
Northern Telecom, NEC, Octel, Centigram and Active Voice, all leading
manufacturers of telephone systems, voice mail systems and other equipment.
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 $110 million in Fiscal 1995. Approximately
$80 million of such increase was attributable to acquisitions (determined on
an annualized basis at the date of acquisition), primarily the acquisition
of the telecommunications assets of Amerisystems and JWP Telecom. The JWP
Telecom acquisition contributed sales of approximately $30 million in Fiscal
1995. The Communication Services segment accounted for 21.4% of total
Company sales for Fiscal 1995.
Services
--------
Fairchild Communications negotiates long-term telecommunications
franchises with owners and developers of office buildings. Under these
arrangements, Fairchild Communications installs switching equipment, cable
and telephone equipment, and subsequently contracts directly with individual
tenants in the buildings to provide multi-year, single-point-of-contact
telecommunications services.
Telecom 2000 Services include access to services provided by regulated
communications companies including local, long distance, international and
800 telephone services. Fairchild Communications also provides telephone
switching equipment and telephones as well as voice mail, telephone calling
cards, local area networks and voice and data cable installation and
customized billing services that assist customers in controlling their
telecommunications expense. Fairchild Communications typically provides its
services at rates equal to or below those which customers could otherwise
obtain, in part due to discounts it can obtain as a high volume purchaser of
telephone services.
Systems
-------
Fairchild Communications' Telecom 2000 Systems business sells
telecommunications equipment directly to end-users and installs, services and
maintains the equipment after the sale. Systems installations include PBX
and key telephone systems, voice mail and automated call distribution systems
and entire call centers. Fairchild Communications' systems business employs
a staff of field and design engineers capable of assisting customers in
planning and implementation of all of their telecommunications plant needs.
Customer service options range from basic business hour response to 24 hour
a day, 365 days per year maintenance contracts. Fairchild Communications
will also contract with customers to staff their facilities with dedicated
service personnel under long term contracts.
Customers
---------
Telecom 2000 Services' and Systems' customers consist of small to medium
size businesses as well as larger organizations and governmental agencies.
As of June 30, 1995, Fairchild Communications had offices in 23 cities
serving over 10,000 customers. Contract terms with Telecom 2000 Services
customers typically have a term of three to five years with provision for
automatic renewal. Contracts with Telecom 2000 Systems customers for
maintenance services typically have a term of one year with provision for
automatic renewal.
Competition
-----------
Fairchild Communications services business 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 customers telecommunications requirements. Fairchild Communications also
competes with small independent operators serving local markets. Fairchild
Communications also competes with other shared communications services
providers in order to secure telecommunications franchises with office
building owners. Principal competitors include Metropolitan Fiber Systems'
Realcom unit and Shared Technologies. Once a franchise has been obtained,
Fairchild Communications competes with equipment manufacturers and
distributors and long distance companies for the provision of telephone and
other telecommunications equipment and services to building tenants. The
principle competitors of Fairchild Communications' business systems include
manufacturers such as AT&T and Rolm and distributors of equipment
manufactured by such companies as Northern Telecom and NEC.
Growth
------
Management believes that future growth in the Communications segment
will come primarily from four sources: acquisitions 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 or those being
added; expansion of equipment dealer territory; 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, 1995.
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 and the
Communications Services segment, where most orders are filled within a few
weeks.
The Company's backlog of orders as of June 30, 1995 in the Aerospace
Fasteners, Industrial Products and Communications Services segments amounted
to $100.6 million, $9.2 million and $4.2 million, respectively. The Company
anticipates that approximately 84.7% of the aggregate backlog at June 30,
1995 will be delivered by June 30, 1996.
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 $4,100,000, $3,940,000 and $3,262,000
for the years ended June 30, 1995, 1994 and 1993, 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.
Personnel
- ---------
As of June 30, 1995, the Company had approximately 3,500 employees.
Approximately 6% 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, 1995, the Company owned or leased properties totalling
approximately 1,628,000 square feet, approximately 1,038,000 square feet of
which was owned and 589,000 square feet was leased. The Aerospace Fasteners
segment's properties consisted of approximately 677,000 square feet, with
principal operating facilities of approximately 535,000 square feet
concentrated in southern California. The Industrial Products segment's
properties consisted of approximately 677,000 square feet, with principal
operating facilities of approximately 451,000 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 6 acre parcel in Temple City, California, and (iii) an 8
acre parcel in Chatsworth, California. In addition to the above, certain
other properties of the Company are being marketed. In March 1995, the
Company sold a parcel of real estate located in California for $5.2 million.
The following table sets forth the location of the larger 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.
<PAGE>
<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, 1995, 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
- -----------------
The Corporate Administrative Contracting Officer (the "ACO"), based upon
the advice of the United States Defense Contract Audit Agency, has made a
determination that the Company did not comply with Federal Acquisition
Regulations and Cost Accounting Standards in accounting for (i) the 1985
reversion to the Company of certain assets of terminated defined benefit
pension plans, and (ii) pension costs upon the closing of segments of the
Company's business. The ACO has directed the Company to prepare a cost
impact proposals relating to such plan terminations and segment closings and,
following receipt of such cost impact proposals, may seek adjustments to
contract prices. The ACO alleges that substantial amounts will be due if
such adjustments are made. The Company believes it has properly accounted
for the asset reversions in accordance with applicable accounting standards.
The Company had 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.
As of June 30, 1995, the consolidated total recorded liabilities of the
Company for environmental matters referred to above totalled $8,601,000. As
of June 30, 1995, the estimated probable exposures for these matters was
$8,580,000. It is reasonalby possible the Company's total exposure for these
matters could be approximately $15,778,000.
Other Matters
- -------------
The Company is involved in various other claims and lawsuits incidental
to its business, some of which involve substantial amounts. The Company,
either on its own or through its insurance carriers, is contesting these
matters.
In the opinion of management, the ultimate resolution of the legal
proceedings, including those discussed above, will not have a material
adverse effect on the financial condition or 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)
For the years ended June 30, 1995 1994 1993 1992 1991
- ---------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Net sales................. $508,612 $444,145 $463,567 $489,780 $515,652
Earnings (loss) from
continuing operations... (12,159) (22,249) (11,447) 14,255 17,890
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.............. 615,788 617,476 640,010 664,582 653,991
Long-term debt, less
current maturities...... 249,306 224,132 232,929 200,677 181,557
Series A redeemable
preferred stock......... 19,112 19,112 19,112 44,238 50,848
</TABLE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
- -------------------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
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, 1995 ("Fiscal 1995"), June 30, 1994
("Fiscal 1994") and June 30, 1993 ("Fiscal 1993"). 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: 1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
Aerospace fasteners............... $ 219,129 $ 203,456 $ 247,080
Industrial products............... 180,773 166,499 148,449
Communications services........... 108,710 74,190 68,038
------- ------- -------
Total $ 508,612 $ 444,145 $ 463,567
======= ======= =======
Operating Income (Loss) by
Business Segment:
Aerospace fasteners*.............. $ (14,073) $ (32,208) $ (15,398)
Industrial products............... 23,625 21,024 19,081
Communications services........... 18,498 16,483 14,688
------- ------- -------
Total 28,050 5,299 18,371
Corporate administrative expense.. (5,203) (3,638) (3,260)
Other corporate income (expense).. 546 (2,060) 4,251
------- ------- -------
Operating income (loss)........... $ 23,393 $ (399) $ 19,362
======= ======= =======
*Includes restructuring charges of $18.9 million and $15.5 million in Fiscal
1994 and Fiscal 1993, respectively, and an unusual loss from earthquake
damage and related business interruption of $4.0 million in Fiscal 1994.
</TABLE>
FISCAL 1995 VERSUS FISCAL 1994
General
- -------
Overall sales increased by 14.5% in Fiscal 1995, compared to sales in
Fiscal 1994, which reflected stronger sales performances from all three
business segments.
Operating income increased $23.8 million in Fiscal 1995, compared to
operating losses in Fiscal 1994. During the Fiscal 1995, operating losses
decreased in the Aerospace Fasteners segment. The Fiscal 1994 period
included a restructuring charge of $18.9 million and a $4.0 million charge
for earthquake damage and related business interruption in the Aerospace
Fastener segment. Operating income in the current year was up in both the
Industrial Products segment and the Communications Services segment. (See
discussion below).
Aerospace Fasteners
- -------------------
Sales in the Aerospace Fasteners segment increased 7.7% in Fiscal 1995,
compared to the Fiscal 1994 period, primarily resulting from aggressive
management efforts during the current year to reduce backlog caused by
quality problems and earthquake disruption, which have diminished.
Operating losses in the Aerospace Fasteners segment decreased $18.1
million for the Fiscal 1995 period, over the corresponding Fiscal 1994
period; however, this segment continues to be affected by soft demand and
severe price erosion and higher quality control costs resulting from
customers' requirements. The Fiscal 1995 loss resulted primarily from excess
costs incurred to reduce the past due sales backlog, which included many
orders of small quantities at low profit margins. Certain products have
yielded negative margins due to labor inefficiencies and low prices.
Management has taken steps to cancel any such orders remaining in the backlog
unless improved pricing can be negotiated. Significant provisions for excess
and slow moving inventory were also recorded in Fiscal 1995, contributing to
the operating loss. Management will also continue to reduce the capacity of
the Aerospace Fasteners segment as necessary to bring the breakeven point in
line with demand. These actions may result in further restructuring charges
in the future. A restructuring charge of $18.9 million was recorded in the
prior year for nonrecurring costs related to exiting certain aircraft engine
bolt lines, and an unusual loss of $4.0 million was recorded in the prior
year for earthquake damage (see below).
In January of 1994, the Company's Chatsworth, California Aerospace
Fasteners manufacturing facility suffered extensive damage from the Southern
California Earthquake. This disruption caused increased costs and reduced
revenues in Fiscal 1994 and has negatively affected Fiscal 1995 as well. In
June of 1995, the Company reached final settlement of its insurance claim and
recovered a total of $17.0 million for property damage and business
interruption. (See further discussion in the Fiscal 1994 versus 1993
discussion).
Industrial Products
- -------------------
Sales in the Industrial Products segment increased 8.6% in Fiscal 1995,
compared to the Fiscal 1994 period. $15.1 million of the net increase in
sales in Fiscal 1995 was at the D-M-E Company ("D-M-E"), which provides
tooling to the plastics industry, reflecting customer response to D-M-E's
fast delivery programs, new products, and growth of the domestic economy.
Domestic demand for tooling for plastics has been strong while foreign demand
has shown signs of improvement as a result of the strengthening European
economy. Expansion into selected new foreign markets is being pursued and
appears to have potential. Also included in the Industrial Products segment
were sales from Fairchild Data Corporation, which were 5.9% lower than the
prior year.
Operating income in the Industrial Products segment increased 12.4% in
Fiscal 1995, compared to Fiscal 1994. A $4.2 million improvement in
operating income at D-M-E in Fiscal 1995 was partially offset by Fairchild
Data Corporation, which reported an operating loss of $.6 million in the
Fiscal 1995 period. The improved results at D-M-E resulted from a higher
sales volume and improved operating margins. In recent years D-M-E has
implemented several cost savings steps, including overhead reduction, plant
consolidation and improved inventory management programs, which have
contributed to the higher operating margins. In addition, D-M-E has
continued to implement improved manufacturing methods that have reduced cycle
time and costs.
Communications Services
- -----------------------
Sales in the Communications Services segment increased 46.5% in Fiscal
1995, compared to Fiscal 1994, primarily due to the inclusion of sales from
the acquisition of specified assets of JWP Telecom, Inc., ("JWP") made during
the Fiscal 1995 second quarter, as well as sales to new customers, the
addition of telecommunications franchises in new office buildings, and growth
at existing sites.
Operating income in the Communications Services segment increased 12.2%
in Fiscal 1995, compared to Fiscal 1994, 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 1995 was 17.0%. This lower
return was anticipated as a result of the JWP acquisition, which has lower
gross margins due to the nature of its business.
Other Expenses/Income
- ---------------------
Corporate Administrative Expense - During Fiscal 1995, corporate
administrative expense increased 43.0%. This increase was primarily the
result of a greater percentage of staff time being spent on the Company's
operations, therefore, less time was billed to the parent companies, RHI and
TFC. Also, costs were allocated from TFC to the Company, which was not done
in the prior year periods. Management believes that the corporate
administrative expense of the Company would be higher if it as a separate
independent entity.
Other Corporate Income - Other corporate income improved $2.6 million in
Fiscal 1995, compared to Fiscal 1994. The Fiscal 1994 period included a $2.0
million write down on Corporate real estate held for sale.
Net Interest Expense - Net interest expense increased 15.6% in Fiscal
1995, compared to the prior year period, primarily as a result higher
intercompany interest expense and higher interest rates during the Fiscal
1995 period.
Investment income, net - Investment Income decreased by $2.4 million.
Included in the Fiscal 1995 period were $0.9 million of dividends realized on
participating annuity contracts, compared to $3.4 million in the Fiscal 1994
period.
Income Taxes - For Fiscal 1995, the Company recorded a tax provision of
$2.0 million on a pretax loss of $10.1 million. A tax provision resulted
rather than a tax benefit largely due to the amortization of goodwill, which
is not deductible for tax purposes.
Accounting Changes:
- -------------------
1) Postretirement Benefits - Using the immediate recognition method, the
Fiscal 1994 charge to earnings for 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, in Fiscal 1994, 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 expenses, and inventory.
Net Losses - The net loss decreased $21.6 million in Fiscal 1995,
compared to the Fiscal 1994 period, primarily due to: (1) the $23.8 million
increase in operating income earned in Fiscal 1995, and (2) the $11.7 million
charge, net of tax, for the cumulative effect of accounting changes, which
was recorded in Fiscal 1994. Partially offsetting the decline in net loss
were higher net interest expenses of $4.6 million, lower investment income of
$2.4 million and higher taxes of $6.8 million in Fiscal 1995.
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. 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
Fiscal 1994 by Fairchild Data Corporation which was classified as a
discontinued operation in Fiscal 1993.
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 Fiscal 1993. 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.
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, sustained soft worldwide demand for aircraft and aircraft
engines caused a decline in new order rates and in prices for aerospace
fasteners. In response, the Company continued to undertake further
restructuring actions to further downsize, reduce costs, reduce cycle times
and improve margins. These restructuring efforts included discontinuance of
certain aircraft engine bolt and other product lines, increased
cellularization of manufacturing processes, relocation of its New Jersey
operations to California and re-engineering certain manufacturing processes
and methods to meet more stringent 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. The Fiscal 1993 period included a restructuring
charge of $15.5 million to downsize fastener operations in Europe and the
United States.
Operating income in Fiscal 1994 was also affected by (1) reduced demand
and price erosion; and (2) higher quality control costs resulting from
customer quality requirements. The segment has implemented programs to
comply with customer quality requirements, which 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.
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 caused increased costs and reduced revenues in Fiscal 1994. While
the Company carries insurance for both business interruption and property
damage caused by earthquakes, the policy has a 5% deductible. The Company
recorded an unusual pretax loss in Fiscal 1994 of $4.0 million to cover the
estimated net cost of the damages and business interruption caused by the
earthquake.
Industrial Products
- -------------------
Sales in the Industrial Products segment increased 12.2% in Fiscal 1994
compared to Fiscal 1993. The inclusion of Fairchild Data Corporation
accounted for 76.5% of the increased sales in this segment in Fiscal 1994.
Sales increased by $4.2 million at D-M-E Company ("DME") in Fiscal 1994,
reflecting customer response to D-M-E's fast delivery programs, new products,
and growth of the domestic economy.
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 at D-M-E
in the current period resulted from a higher sales volume and improved
operating margins achieved primarily through cost reduction and improved
productivity.
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. 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, (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 - (see "Accounting Changes" which are included above
in Fiscal 1995 versus 1994 discussion).
Extraordinary Item - Net - The extraordinary item in Fiscal 1993
represents the write-off of $1.3 million of deferred loan fees when a portion
of the term loan was repaid, 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.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1995, was $57.3 million which was $34.0
million higher than at June 30, 1994. Receivables and inventory increased
$20.5 million, primarily as a result of acquisitions, slower customer
payments, inventory build and increased sales to reduce backlog. Current
borrowings from affiliated companies were reduced by $38.5 million and
replaced by borrowings on the revolving line of credit, now classified as
long term debt. This increase was offset partially by a $14.1 million
reduction in prepaid expenses and other current assets reflecting (1) current
deferred taxes being reclassified to the noncurrent income tax classification
and (2) a reduction in the earthquake insurance claim receivable. Accounts
payable and accrued expenses increased $8.2 million, primarily as a result of
acquisitions.
The Company's principal sources of liquidity are cash generated from
operations and borrowings under its credit agreement. The Company also
expects to generate cash from the sale of certain assets. Net assets held
for sale at June 30, 1995 had a book value of $34.8 million and included two
parcels of real estate in California, 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 and a limited partnership interest in a real estate
development joint venture in California. In March 1995, the Company sold one
parcel in California for $5.2 million.
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, 1995, capital
expenditures, including the cost of acquisitions, were $31.3 million. The
Company anticipates that total capital expenditures including the cost of
acquisitions for the fiscal year ending June 30, 1996, will be approximately
$17.4 million.
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 on hand, cash generated from operations,
borrowings, and asset sales 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. During the fiscal year ended
June 30, 1995, RHI made equity contributions to the Company totaling $25.3
million. Management intends to take appropriate action to refinance portions
of its debt, if necessary to meet cash requirements.
The Company's Credit Agreement, as amended, requires the Company to
comply with certain financial covenants, including achieving cumulative
earnings before interest, taxes, depreciation and amortization, ("EBITDA
Covenant"), and maintaining certain coverage ratios. The Company was in
compliance with the Credit Agreement, as amended, on June 30, 1995. To
comply with the minimum EBITDA Covenant requirements, the Company's
subsidiary, VSI, must earn for the cumulative total of the trailing four
quarters, EBITDA as follows: $60.0 million for the first quarter of Fiscal
1996, $65.0 million for the second quarter of Fiscal 1996, $70.0 million for
the third quarter of Fiscal 1996, and $80.0 millon for the fourth quarter of
Fiscal 1996. VSI's ability to meet the minimum requirements under the EBITDA
covenant in Fiscal 1996 is uncertain, and there can be no assurance that the
Company will be able in the future to comply with the minimum requirements
under the EBITDA Covenant and other financial covenants under the Credit
Agreement. 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. However, 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, 1995, 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 For The Impairment Of Long-Lived Assets
- --------------------------------------------------
And For Long-Lived Assets To Be Disposed Of
- -------------------------------------------
It is the Company's policy to review its long-lived assets, including
property, plant and equipment, identifiable intangible assets and goodwill,
for impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be fully recoverable. To determine the
recoverability of its long-lived assets, the Company evaluates the
probability that future undiscounted net cash flows, without interest charges
will be less than the carrying amount of the assets. Impairment is measured
at fair value.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 ("SFAS 121") "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
SFAS 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those
assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS 121 is required to be
implemented by the Company on, or before, July 1, 1996. Since the Company's
present policy is identical to the policy prescribed by SFAS 121, there will
be no effect from implementation.
As noted above, the Company's Aerospace Fasteners segment has suffered
dramatic reductions in sales in the past three years resulting from both
reduced defense spending and the severe downturn in the build rate of
commercial airliners. These sales reductions have created excess capacity in
the industry and have caused price erosion and margin deterioration. The
Company has responded to these market conditions with several restructuring
actions, including significant reductions in selling, general and
administrative expenses, personnel reductions, plant closings and
consolidations, discontinuance of unprofitable product lines and re-
engineering of manufacturing processes.
Despite these actions, the Aerospace Fasteners segment lost from
operations (excluding restructuring and earthquake charges) $14.1 million in
Fiscal 1995, $9.3 million in Fiscal 1994 and was breakeven in Fiscal 1993.
Most of these losses were concentrated in two of the segments operating units
while the other five units were predominately profitable during the periods.
As part of restructuring and earthquake charges totaling $38.3 over the past
three fiscal years, the Company wrote off $7.0 million of goodwill, related
to exiting product lines.
In light of recent industry conditions and the losses suffered in the
Aerospace Fasteners segment in the past three fiscal years, the Company has
reviewed its long-lived assets for potential impairment. The Company has
concluded, based on the following, that no impairment currently exists.
Projections of future aircraft build rates published by the major airframe
manufacturers, show the rates close to doubling in the next few years. The
Company believes the operating units within the Aerospace Fasteners segment
which have incurred operating losses are likely to return to profitability.
Therefore, positive cash flow is likely to be generated in the next several
years within the Aerospace Fastener segment, enabling it to recover the
carrying value of the segment's long-lived assets, including goodwill.
However, if industry conditions do not improve or the Company does not
participate in the improvement as it occurs, it may be necessary to further
write-down long-lived assets in the Aerospace Fasteners segment in the next
few years. Such write-downs could be significant in amount.
<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, 1995 and 1994.... 28
Consolidated Statements of Earnings - The three years ended
June 30, 1995, 1994 and 1993............................. 30
Consolidated Statements of Stockholders' Equity -
The three years ended June 30, 1995, 1994 and 1993........ 31
Consolidated Statements of Cash Flows - The three years
ended June 30, 1995, 1994 and 1993........................ 32
Notes to Consolidated Financial Statements.................. 34
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 1995 1994
- ------ -------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................. $ 2,412 $ 2,468
Accounts receivable-trade, less allowances
of $4,478 and $2,135................... 84,927 68,364
Inventories:
Finished goods......................... 50,963 46,358
Work-in-process........................ 19,976 28,418
Raw materials.......................... 17,866 10,120
-------- --------
88,805 84,896
Prepaid expenses and other current
assets................................. 15,239 29,353
-------- --------
Total Current Assets...................... 191,383 185,081
Property, plant and equipment, net........ 158,191 157,301
Net assets held for sale.................. 34,811 34,515
Cost in excess of net assets acquired,
(Goodwill) less accumulated amortization
of $34,707 and $28,864................... 195,986 195,929
Deferred loan costs....................... 5,648 7,820
Prepaid pension assets.................... 15,336 17,795
Other assets.............................. 14,433 19,035
-------- --------
Total Assets.............................. $ 615,788 $ 617,476
======== ========
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 1995 1994
- ------------------------------------ -------- --------
<S> <C> <C>
Current Liabilities:
Bank notes payable and current maturities
of long-term debt........................ $ 15,352 $ 12,735
Accounts payable.......................... 39,124 32,372
Due to affiliated companies............... 13,759 52,250
Accrued liabilities:
Wages, salaries and commissions........ 14,655 13,527
Employee benefit plans................. 1,352 2,015
Insurance.............................. 15,150 13,662
Interest............................... 6,647 6,836
Other.................................. 28,002 28,311
-------- --------
65,806 64,351
Total Current Liabilities................. 134,041 161,708
Long-term debt............................ 249,306 224,132
Retiree health care liabilities........... 47,567 49,200
Noncurrent income taxes................... 18,049 26,576
Other long-term liabilities............... 13,179 16,412
-------- --------
Total liabilities......................... 462,142 478,028
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, 2,278
and 2,025 issued and outstanding;
liquidation value of $100,000 per share. 227,800 202,500
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........................... 2,523 2,390
Accumulated deficit....................... (128,116) (111,855)
Cumulative translation adjustment......... 8,172 3,146
-------- --------
Total Common Stockholder's Deficit........ (117,281) (106,179)
-------- --------
Total Stockholders' Equity................ 134,534 120,336
-------- --------
Total Liabilities and Stockholders' Equity $ 615,788 $ 617,476
======== ========
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,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Sales.............................. $ 508,612 $ 444,145 $ 463,567
Other income, net.................. 2,908 544 5,666
-------- -------- --------
511,520 444,689 469,233
Costs and Expenses:
Cost of sales...................... 392,802 337,881 351,074
Selling, general & administrative.. 85,383 72,601 74,228
Research and development........... 4,100 3,940 3,262
Amortization of goodwill........... 5,842 5,806 5,838
Restructuring...................... -- 18,860 15,469
Unusual items...................... -- 6,000 --
-------- -------- --------
488,127 445,088 449,871
Operating income.(loss).............. 23,393 (399) 19,362
Interest expense..................... 35,284 30,667 32,821
Interest income...................... (184) (311) (459)
-------- -------- --------
Net interest expense................. 35,100 30,356 32,362
Investment income.................... 924 3,354 1,424
Equity in earnings of affiliates..... 762 541 522
Minority interest.................... (121) (181) (129)
-------- -------- --------
Loss from continuing operations
before taxes........................ (10,142) (27,041) (11,183)
Income tax provision (benefit)....... 2,017 (4,792) 264
-------- -------- --------
Net loss from continuing operations.. (12,159) (22,249) (11,447)
Loss on disposal of discontinued
operations, net.................... (200) -- --
-------- -------- --------
Net loss before extraordinary items
and changes in accounting
principals......................... (12,359) (22,249) (11,447)
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 loss............................. $ (12,359) $ (33,987) $ (12,257)
======== ======== ========
Series A Preferred Dividends......... $ 1,529 $ 1,529 $ 1,713
Series C Preferred Dividends......... 2,373 2,373 2,160
-------- -------- --------
Loss after Preferred Dividends....... $ (16,261) $ (37,889) $ (16,130)
======== ======== ========
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 STOCKHOLDERS' EQUITY
(In thousands)
<CAPTION>
Series B Series C Cumulative
Common Preferred Preferred Paid-in Accumulated Translation
Stock Stock Stock Capital Deficit Adjustment Total
------ --------- --------- ------- ----------- ----------- -------
<S> <C> <C> <C> <C. <C> <C> <C>
BALANCE, July 1, 1992 $ 140 $192,600 $ -- $ 2,230 $ (6,985) $ 6,169 $194,154
- -----------------------
Net loss............... -- -- -- -- (12,257) -- (12,257)
Issuance of Series B
Preferred Stock to
parent................ -- 5,000 -- -- -- -- 5,000
Exchange of Series A
Preferred Stock for
issuance of Series C
Preferred Stock....... -- -- 24,015 -- -- -- 24,015
Cash dividends to
preferred stockholders -- -- -- -- (3,873) -- (3,873)
Cash dividends to
parent -- -- -- -- (50,000) -- (50,000)
Cumulative translation
adjustment, net...... -- -- -- -- -- (3,503) (3,503)
------- ------- ------- ------- -------- ------- -------
BALANCE, June 30, 1993 $ 140 $197,600 $ 24,015 $ 2,230 $ (73,115) $ 2,666 $153,536
- -----------------------
Net loss............... -- -- -- -- (33,987) -- (33,987)
Issuance of Series B
Preferred Stock to
parent................ -- 4,900 -- 143 -- -- 5,043
Transfer of subsidiary
from parent........... -- -- -- 17 (851) -- (834)
Cash dividends to
preferred stockholders -- -- -- -- (3,902) -- (3,902)
Cumulative translation
adjustment, net....... -- -- -- -- -- 480 480
------- ------- ------- ------- -------- ------- -------
BALANCE, June 30, 1994 $ 140 $202,500 $ 24,015 $ 2,390 $(111,855) $ 3,146 $120,336
- -----------------------
Net loss............... -- -- -- -- (12,359) -- (12,359)
Issuance of Series B
Preferred Stock to
parent................ -- 25,300 -- 88 -- -- 25,388
Transfer of pension
plan from parent...... -- -- -- 45 -- -- 45
Cash dividends to
preferred stockholders -- -- -- -- (3,902) -- (3,902)
Cumulative translation
adjustment, net....... -- -- -- -- -- 5,026 5,026
------- ------- ------- ------- -------- ------- -------
BALANCE, June 30, 1995 $ 140 $227,800 $ 24,015 $ 2,523 $(128,116) $ 8,172 $134,534
======= ======= ======= ======= ======== ======= =======
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<TABLE>
FAIRCHILD INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
For the years ended June 30,
------------------------------
1995 1994 1993
Cash flows from operating activities: -------- -------- --------
<S> <C> <C> <C>
Net loss................................$ (12,359) $ (33,987) $ (12,257)
Adjustments to reconcile net loss:
Cumulative effect of accounting changes,
net................................... -- 11,738 --
Depreciation and amortization........... 35,172 32,295 30,477
Accretion of discount on long-term
liabilities............................ 3,311 3,070 2,205
Undistributed earnings of affiliates.... (450) (230) (266)
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....................... 121 181 129
Loss on sale of property, plant and
equipment............................. 726 583 2,364
Change in accounts receivable........... (16,563) (2,114) 6,942
Change in inventories................... (3,696) 4,246 9,444
Change in other current assets.......... 9,545 (10,063) (11,896)
Change in other non-current assets...... 3,538 387 (5,899)
Change in accounts payable, accrued
and other liabilities................. (4,062) (11,772) (17,295)
-------- -------- -------
Net cash provided by operating activities 15,283 13,174 11,521
-------- -------- -------
Cash flows from investing activities:
Acquisitions, net of cash acquired...... (11,550) -- (7,313)
Collections on notes and other
receivables related to operations
sold.................................. -- 1,183 218
Purchases of property, plant and
equipment............................. (19,779) (16,092) (15,508)
Proceeds from sales of property, plant
and equipment.......................... 1,787 1,351 975
Change in net assets held for sale...... 1,914 (1,291) 2,015
-------- -------- -------
Net cash used for investing activities.... (27,628) (14,849) (19,613)
-------- -------- -------
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 CASH FLOWS - CONTINUED
(In thousands)
<CAPTION>
For the years ended June 30,
------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of debt......... $ 72,117 $ 106,960 $ 180,942
Debt repayments and repurchase of
debentures, net...................... (82,817) (103,951) (125,072)
Issuance of Series B preferred stock... 24,400 4,000 5,000
Issuance of Series C preferred stock... -- -- 24,015
Purchase/exchange of Series A preferred
stock................................ -- -- (25,126)
Paid-in capital contribution........... 88 143 --
Payment of dividends................... (3,902) (3,902) (53,782)
-------- -------- --------
Net cash provided by financing activities 9,886 3,250 5,977
-------- -------- --------
Effect of exchange rate changes on cash.. 2,403 893 (2,900)
Net increase (decrease) in cash and cash
equivalents............................ (56) 2,468 (5,015)
Cash and cash equivalents, beginning
of year................................ 2,468 -- 5,015
-------- -------- --------
Cash and cash equivalents, end of year... $ 2,412 $ 2,468 $ --
======== ======== ========
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 "1995", "1994", and "1993" mean the fiscal years
ended June 30, 1995, 1994 and 1993, 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. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Investments in companies owned between 20 percent and 50
percent are recorded using the equity method. On June 30, 1995,
approximately $1,620,000 of the Company's $(128,116,000) accumulated deficit
were from undistributed earnings of 50 percent or less owned affiliates.
Cash Equivalents/Statements of Cash Flows: For purposes of these
statements, the Company considers all highly liquid 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) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Interest.......................... $ 29,898 $ 25,050 $ 19,129
Income taxes...................... 1,867 270 1,171
</TABLE>
Inventories: Inventories are stated at the lower of cost or market.
Cost is determined primarily using the last-in, first-out (LIFO) method.
Inventories from continuing operations are valued as follows:
<TABLE>
<CAPTION>
(In thousands) June 30, June 30,
1995 1994
-------- --------
<S> <C> <C>
Last-in, first-out (LIFO)............... $ 69,211 $ 69,828
First-in, first-out (FIFO).............. 19,594 15,068
------- -------
Total inventories....................... $ 88,805 $ 84,896
======= =======
</TABLE>
For inventories valued on the LIFO method, the excess of current FIFO
value over stated LIFO value was approximately $7,447,000 and $7,924,000 at
June 30, 1995 and 1994, respectively. The LIFO decrement was immaterial for
Fiscal 1995.
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,
1995 1994
-------- --------
<S> <C> <C>
Land................................... $ 14,022 $ 14,229
Buildings and improvements............. 33,353 32,937
Machinery and equipment................ 208,475 183,693
Transportation vehicles................ 513 529
Furniture and fixtures................. 8,025 5,118
Construction in progress............... 4,419 6,358
------- -------
268,807 242,864
Less: Accumulated depreciation........ (110,616) (85,563)
------- -------
Net property, plant, and equipment..... $158,191 $157,301
======= =======
</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 $2,259,000, $2,201,000 and
$1,895,000, for Fiscal 1995, 1994 and 1993, 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 fully recoverable. To
determine recoverability of its long-lived assets the Company evaluates the
probability that future undiscounted net cash flows, without interest
charges, will be less than the carrying amount of the assets. Impairment is
measured at fair value.
Despite three 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.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
SFAS 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those
assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS 121 is required to be
implemented by the Company on, or before, July 1, 1996. Since the Company's
present policy is identical to the policy prescribed by SFAS 121, there will
be no effect from implementation. (For further discussion, see "Impact of
future accounting changes" included in Item 7, Management Discussion and
Analysis of Results of Operations and Financial Condition).
Foreign Currency Translation: All balance sheet accounts of foreign
subsidiaries are translated at current exchange rates at the end of the
accounting period. Income statement items are translated at average exchange
rates during the period. The resulting translation adjustment is recorded as
a separate component of stockholders' equity. Foreign transaction gains and
losses are included in other income and were insignificant in Fiscal 1995,
1994 and 1993.
Research and Development: Company-sponsored research and development
expenditures are expensed as incurred.
Reclassification: Certain amounts in prior years' financial statements
have been reclassified to conform to the Fiscal 1995 presentation.
2. ACQUISITIONS
------------
On November 28, 1994, Fairchild Communications Services Company
("Fairchild Communications"), a partnership whose partners are indirect
subsidiaries of the Company, completed the acquisition of substantially all
of the telecommunications assets of JWP Telecom, Inc. ("JWP") for
approximately $11,000,000, plus the assumption of approximately $3,000,000 of
liabilities. JWP is a telecommunications system integrator, specializing in
the distribution, installation and maintenance of voice and data
communications equipment. In the first quarter of Fiscal 1995, Fairchild
Communications acquired all the shared telecommunications assets of Eaton &
Lauth Co., Inc., for approximately $550,000.
In Fiscal 1993, Fairchild Communications acquired all the
telecommunication assets of Office Networks, Inc. for approximately
$7,300,000.
Proforma financial statements are not required for these acquisitions on
an individual basis.
3. NET ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
----------------------------------------------------
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 Fiscal 1995 and Fiscal 1994 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 for the twelve months ended June 30, 1993. The impact of Data's
earnings on the Fiscal 1993 period was immaterial.
Net assets held for sale at June 30, 1995, includes two 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, and a limited partnership interest in a real estate development
joint venture.
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.
The Company recorded a $200,000 after tax loss on disposal of
discontinued operations, relating to workers' compensation claims from
employees of operations which were previously discontinued.
4. NOTES PAYABLE AND LONG-TERM DEBT
--------------------------------
At June 30, 1995 and 1994, notes payable and long-term debt consisted of
the following:
<TABLE>
<CAPTION>
June 30, June 30,
(In thousands) 1995 1994
-------- --------
<S> <C> <C>
Short-term notes payable (weighted average
interest rates of 8.2% and 8.5% in 1995
and 1994, respectively)................... $ 5,348 $ 3,592
======= =======
Bank credit agreement....................... $126,396 $ 97,315
9.75% Subordinated Debentures, due annually
1996 through 1998......................... 2,999 3,998
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)............. 1,253 3,302
Other notes payable, collateralized
by property or equipment, interest
from 5.50% to 10.65%...................... 2,162 2,160
------- -------
259,310 233,275
Less: Current maturities................... 10,004 9,143
------- -------
$249,306 $224,132
======= =======
</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 3.75% over the London Interbank Offer Rate
("LIBOR") for the revolving credit facility and Term Loan VIII, and at 2.75%
over LIBOR for Term Loan VII, respectively. The commitment fee on the unused
portion of the revolving credit facility was 1.0% at June 30, 1995. 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, 1995 Facilities
------------- ----------
<S> <C> <C>
Revolving Credit Facility (a)............ $ 34,700 $ 50,250
Term Loan VII............................ 49,696 49,696
Term Loan VIII........................... 42,000 42,000
------- -------
$126,396 $141,946
======= =======
(a) In the first quarter of Fiscal 1995, the revolving credit facility
was reduced by $9,250,000 to $50,250,000. In addition, the borrowing rate
increased by 1.0% to generally bear interest at 3.75% over LIBOR and the
commitment fee increased by 0.5% to 1.0%.
</TABLE>
On June 30, 1995, the Company had outstanding letters of credit of
$7,554,000 which were supported by the Credit Agreement and other bank
facilities on an unsecured basis. At June 30, 1995, the Company had unused
short-term bank lines of credit aggregating $7,996,000 at interest rates
slightly higher than the prime rate. The Company also has short-term lines
of credit relating to foreign operations aggregating $9,529,000 against which
the Company owed $5,349,000 at June 30, 1995.
The Credit Agreement, as amended, 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.
To comply with the minimum EBITDA Covenant requirements (as amended), the
Company's subsidiary, VSI Corporation ("VSI"), must earn for the cumulative
total of the trailing four quarters, EBITDA as follows: $60,000,000 for the
first quarter of Fiscal 1996, $65,000,000 for the second quarter of 1996,
$70,000,000 for the third quarter of Fiscal 1996, and $80,000,000 for the
fourth quarter of Fiscal 1996. VSI's ability to meet the minimum requirements
under the EBITDA Covenant in Fiscal 1996 is uncertain, and there can be no
assurance that the Company will be able in the future to comply with the
minimum requirements under the EBITDA Covenant and other financial covenants
under the Credit Agreement. 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. However, if necessary, management
believes a waiver can be obtained.
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.
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, 1995, 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.
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, 1995.
Annual maturities of long-term debt obligations (exclusive of capital
lease obligations) for each of the five years following June 30, 1995 are as
follows: $14,338,000 for 1996, $121,231,000 for 1997, $1,001,000 for 1998,
$125,056,000 for 1999, and $56,000 for 2000.
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:
<PAGE>
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost of benefits earned during
the period.......................... $ 3,917 $ 3,827 $ 4,183
Interest cost of projected benefit
obligation.......................... 5,784 5,665 5,479
Return on plan assets................. (10,102) (41) (13,397)
Net amortization and deferral......... 3,248 (7,407) 6,939
Amortization of prior service cost.... 81 125 111
------- ------- -------
Net periodic pension cost............. 2,928 2,169 3,315
Early retirement payout............... 414 758 817
------- ------- -------
Total pension cost.................... $ 3,342 $ 2,927 $ 4,132
======= ======= =======
</TABLE>
Assumptions used in accounting for the plans were:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
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 consolidated balance sheets at June 30, 1995 and 1994 for
its defined benefit pension plans:
<TABLE>
<CAPTION>
(In thousands) 1995 1994
-------- --------
<S> <C> <C>
Projected benefit obligation:
Vested benefit obligation.......... $ 72,636 $ 60,372
Non-vested benefits................ 3,880 4,908
------- -------
Accumulated benefit obligation..... $ 76,516 $ 65,280
======= =======
Projected benefit obligation....... $ 82,331 $ 69,697
Plan assets at fair value.......... 86,916 75,904
------- -------
Plan assets in excess of
projected benefit obligations...... 4,585 6,207
Unrecognized net loss................ 16,310 16,823
Unrecognized prior service cost...... 329 406
------- -------
Prepaid pension cost prior to SFAS
109 implementation................. $ 21,224 $ 23,436
Effect of SFAS 109 implementation.... (5,888) (5,641)
------- -------
Prepaid pension cost................. $ 15,336 $ 17,795
======= =======
</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
$2,763,000 and $3,172,000 at June 30, 1995 and 1994, 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 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
$1,385,000, $1,948,000 and $1,366,000 for the years ended June 30, 1995, 1994
and 1993, respectively. The Company has accrued approximately $31,998,000
and $33,397,000 as of June 30, 1995 and 1994, respectively, 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 $3,068,000, $2,849,000 and $4,866,000 for the
years ended June 30, 1995, 1994 and 1993, respectively. The components of
expense for continuing operations and discontinued operations combined in
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
(In thousands)
1995 1994
------- -------
<S> <C> <C>
Service cost of benefits earned................$ 318 $ 437
Interest cost on liabilities................... 4,258 4,364
Net amortization and deferral.................. (123) (4)
------- -------
Net periodic postretirement benefit cost.......$ 4,453 $ 4,797
======= =======
</TABLE>
The following table set forth the funded status for the Company's
postretirement health care benefit plan at June 30, 1995 and 1994:
<TABLE>
<CAPTION>
(In thousands)
1995 1994
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees.....................................$ 44,494 $ 46,881
Fully eligible active participants........... 531 497
Other active participants.................... 5,738 4,962
------- -------
Accumulated postretirement benefit obligation.. 50,763 52,340
Unrecognized net loss.......................... (527) (427)
------- -------
Accrued postretirement benefit cost............$ 50,236 $ 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 8.0% and 7.5%
for pre-age-65 and post-age-65 employees, respectively, gradually decreasing
to 4.5% and 4.5%, 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, 1995, by
approximately $2,353,000, and increase net periodic postretirement benefit
cost by approximately $260,000 for Fiscal 1995.
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, in Fiscal 1994, 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 (benefit) for income taxes from continuing operations is
summarized as follows:
<TABLE>
<CAPTION>
(In thousands)
1995 1994 1993
Continuing operations: -------- -------- --------
<S> <C> <C> <C>
Current:
Federal......................... $ 4,443 $ (9,355) $ (3,059)
State........................... 1,588 635 1,002
Foreign......................... 1,767 158 1,335
-------- -------- --------
7,798 (8,562) (722)
Deferred:
Federal......................... (5,947) 3,528 960
State........................... 166 242 26
-------- -------- --------
(5,781) 3,770 986
-------- -------- --------
Net tax provision (benefit)........ $ 2,017 $ (4,792) $ 264
======== ======== ========
</TABLE>
The income tax provision for continuing operations differs from that
computed using the statutory Federal income tax rate of 35.0% in 1995 and
1994 and 34.0% in 1993 for the following reasons:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Computed statutory amount.............. $ (3,549) $ (9,465) $ (3,802)
State income taxes, net of applicable
Federal tax benefit.................. 1,199 655 678
Foreign Sales Corporation benefits..... -- (350) (340)
Nondeductible acquisition valuation
items................................ 1,918 4,356 1,136
Tax on foreign earnings, net of tax
credits............................. 2,638 138 2,956
Other.................................. (189) (126) (364)
-------- -------- --------
$ 2,017 $ (4,792) $ 264
======== ======== ========
</TABLE>
The following table is a summary of the significant components of the
Company's deferred tax assets and liabilities as of June 30, 1995 and 1994:
<PAGE>
<TABLE>
<CAPTION>
(In thousands) 1995 1994
Deferred Deferred
June 30, (Provision) June 30, (Provision)
1995 Benefit 1994 Benefit
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Deferred tax assets:
Accrued expenses..................... $ 5,914 $ (2,860) $ 8,774 $ 1,454
Asset basis differences.............. 10 (54) 64 (1,133)
Employee compensation and benefits... 5,200 215 4,985 (837)
Environmental reserves............... 3,329 (910) 4,239 (464)
Credit carryforwards................. 2,891 -- 2,891 --
Postretirement benefits.............. 19,712 552 19,160 (231)
Other................................ 2,061 543 1,518 (3,789)
------- ------- ------- -------
39,117 (2,514) 41,631 (5,000)
Deferred tax liabilities:
Asset basis differences.............. (38,148) 4,038 (42,186) (8)
Inventory............................ (6,473) 3,397 (9,870) 1,310
Pensions............................. (4,230) 939 (5,169) 1,184
Other................................ (1,688) (79) (1,609) (121)
------- ------- ------- -------
(50,539) 8,295 (58,834) 2,365
------- ------- ------- -------
(11,422) 5,781 (17,203) (2,635)
Less amount related to accounting change -- -- -- 1,135
------- ------- ------- -------
Net deferred tax liability............. $(11,422) $ 5,781 $(17,203) $ (3,770)
======= ======= ======= =======
The amounts included in the balance
sheet are as follows:
Prepaid expenses and other current assets:
Current deferred..................... $ 7,642 $ 5,367
Taxes receivable (payable)........... (1,438) 6,419
------- -------
$ 6,204 $ 11,786
======= =======
Other assets:
Taxes receivable..................... $ -- $ 2,873
======= =======
Noncurrent income tax liabilities
(assets):
Noncurrent deferred.................. $ 19,064 $ 22,570
Other noncurrent..................... (1,015) 4,006
------- -------
$ 18,049 $ 26,576
======= =======
</TABLE>
For Fiscal 1993 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
--------
<S> <C>
Compensation and other wage related... $ 813
Pension expense and reversion......... 200
Depreciation.......................... 2,839
Other................................. (2,866)
--------
$ 986
========
</TABLE>
<PAGE>
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, 1995, 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
--------------------------
The Series A Preferred Stock is subject to annual mandatory redemptions
of 165,564 shares per annum at $45.00 per share and annual dividend payments
of $3.60 per share. 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 did not purchase any shares during the past three fiscal years.
Series A preferred Stock is listed on the New York Stock Exchange ("NYSE").
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, 1995, are as follows: $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, 2,278 and
2,025 shares were issued and outstanding at June 30, 1995 and 1994,
respectively. All of which is owned by the Company's parent, RHI.
<PAGE>
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
Statement of Financial Accounting Standards No. 107 ("SFAS 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 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:
The carrying amount reported in the balance sheet approximates the fair
value for cash and cash equivalents, short-term borrowings, current
maturities of long-term debt, and all other variable rate debt (including
borrowings under the Credit Agreement).
Fair values for equity securities, long-term public debt issued by the
Company, and redeemable preferred stock of the Company, 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,
other investments, and notes receivable are estimated by discounting expected
future cash flows using a current market rate applicable to the yield,
considering the credit quality and maturity of the investment.
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.
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 fair value of the Company's off-balance-sheet instruments at June 30,
1995, is not material.
The carrying amounts and fair values of the Company's financial
instruments at June 30, 1995 and June 30, 1994 are as follows:
<PAGE>
<TABLE>
<CAPTION>
June 30, 1995 June 30, 1994
--------------------- ---------------------
Carrying Fair Carrying Fair
(In Thousands) Amount Value Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents........ $ 2,412 $ 2,412 $ 2,468 $ 2,468
Investment Securities:
Long-term limited partnership.. -- -- 3,396 4,299
Notes receivable-current......... -- -- 1,275 1,229
Short-term debt.................. 5,348 5,348 3,592 3,592
Long-term debt:
Bank Credit Agreement.......... 126,396 126,396 97,315 97,315
Subordinated debentures and
senior notes................. 127,999 128,681 128,998 128,428
Industrial revenue bonds....... 1,500 1,500 1,500 1,500
Capitalized leases............. 1,253 1,253 3,302 3,302
Other.......................... 2,162 2,162 2,160 2,160
Redeemable preferred stock....... 19,112 15,714 19,112 15,608
</TABLE>
10. RESTRUCTURING CHARGES
---------------------
In Fiscal 1994 and 1993, the Company recorded the restructuring charges
in the Aerospace Fasteners segment in the categories shown below. Except for
the costs included in the other category (see note (d) below), all costs
classified as restructuring were the direct result of formal plans to close
plants, to terminate employees, or to exit product lines. Substantially all
of these plans have been executed. These charges were either incurred during
the year shown or shortly after each year end. Other than a reduction in the
Company's existing cost structure and manufacturing capacity, none of the
restructuring charges resulted in future increases in earnings or represented
an accrual of future costs. The costs included in restructuring were
predominately non-recurring in nature and to a large degree non-cash charges.
<TABLE>
<CAPTION>
(In thousands)
SIGNIFICANT COMPONENTS 1994 1993
- ---------------------- ------ ------
<S> <C> <C>
Write off of goodwill related to discontinued
products lines................................ $ 6,959 $ --
Write down of inventory to net realizable value
related to discontinued product lines (a)...... 2,634 540
Write down of fixed assets related to
discontinued product lines..................... 3,000 3,465
Severance benefits for terminated employees
(substantially all paid within twelve months).. 471 4,213
Plant closings facility costs (b)............... 851 3,164
Relocation of business from closed plant in
New Jersey to California (c)................... 1,795 1,884
Contract termination claims..................... 128 --
Lease penalty for closed plant.................. -- 388
Other (d)....................................... 3,022 1,815
------ ------
$18,860 $15,469
(a) Write down was required because product line was discontinued, otherwise
inventory would have been sold at prices in excess of book value.
(b) Includes lease settlements, write offs of leasehold improvements,
maintenance, restorations and clean up costs.
(c) Principally consists of costs to move equipment, inventory, tooling and
personnel.
(d) Includes costs associated with a requalification of product lines by a
customer, nonrecurring costs of cellularization and reengineering of
manufacturing processes and methods.
</TABLE>
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 caused increased costs and reduced revenues in the Fiscal 1994,
and negatively affected 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 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. In addition, the Company recorded a
write down of $2,000,000 in Fiscal 1994 relating to the damaged real estate
which is 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. In addition, TFC bills the
Company for services performed by TFC on behalf of the Company.
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.
The Aerospace Fasteners segment had sales to Banner Aerospace, Inc. a
47.2% affiliate of RHI, of $5,494,000, $5,680,000 and $8,750,000 for the
years ended June 30, 1995, 1994 and 1993, respectively.
<PAGE>
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 1995
----------- ------
<S> <C>
Buildings and improvements.............. $ 422
Machinery and equipment................. 12,688
Furniture and fixtures.................. 297
Less: Accumulated depreciation......... (7,167)
------
$ 6,240
======
</TABLE>
Future minimum lease payments:
<TABLE>
<CAPTION>
Operating Capital
(In thousands) Leases Leases
------ ------
<S> <C> <C>
1996............................... $ 8,131 $ 1,109
1997............................... 7,302 244
1998............................... 7,278 8
1999............................... 6,771 --
2000............................... 7,253 --
------ ------
$36,735 1,361
======
Less: Amount representing interest (108)
------
Present value of capital lease obligations $ 1,253
======
</TABLE>
Rental expense under all leases amounted to $10,811,000, $7,193,000 and
$9,575,000 for the years ended June 30, 1995, 1994 and 1993, 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 $3,094,000 in 1996, and
approximately $7,942,000 over the remaining 4-year guaranty period. In each
case, the Company has been indemnified by the purchasers and lessors from any
losses related to such guaranties.
<PAGE>
Government Claims
-----------------
The Corporate Administrative Contracting Officer (the "ACO"), based upon
the advice of the United States Defense Contract Audit Agency, has made a
determination that the Company did not comply with Federal Acquisition
Regulations and Cost Accounting Standards in accounting for (i) the 1985
reversion to the Company of certain assets of terminated defined benefit
pension plans, and (ii) pension costs upon the closing of segments of the
Company's business. The ACO has directed the Company to prepare cost impact
proposals relating to such plan terminations and segment closings and,
following receipt of such cost impact proposals, may seek adjustments to
contract prices. The ACO alleges that substantial amounts will be due if
such adjustments are made. The Company believes it has properly accounted
for the asset reversions in accordance with applicable accounting standards.
The Company has 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.
As of June 30, 1995, the consolidated total recorded liabilities of the
Company for environmental matters referred to above totalled $8,601,000. As
of June 30, 1995, the estimated probable exposures for these matters was
$8,580,000. It is reasonalby possible the Company's total exposure for these
matters could be approximately $15,778,000.
Other Matters
- -------------
The Company is involved in various other claims and lawsuits incidental
to its business, some of which involve substantial amounts. The Company,
either on its own or through its insurance carriers, is contesting these
matters.
In the opinion of management, the ultimate resolution of the legal
proceedings, including those discussed above, will not have a material
adverse effect on the financial condition or 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 and sells, installs and
maintains telecommunications systems for business and government customers.
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:
<PAGE>
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Sales by Business Segment:
Aerospace Fasteners................. $219,129 $203,456 $247,080
Industrial Products(a).............. 180,773 166,499 148,449
Communications Services............. 108,710 74,190 68,038
------- ------- -------
Total Segment Sales $508,612 $444,145 $463,567
======= ======= =======
Operating Income (Loss) Segment:
Aerospace Fasteners(b).............. $(14,073) $(32,208) $(15,398)
Industrial Products(a).............. 23,625 21,024 19,081
Communications Services............. 18,498 16,483 14,688
------- ------- -------
Total Segment Operating Income........ 28,050 5,299 18,371
Corporate administrative expense.... (5,203) (3,638) (3,260)
Other corporate income (expense).... 546 (2,060) 4,251
------- ------- -------
Total Consolidated Operating
Income (loss)....................... $ 23,393 $ (399) $ 19,362
======= ======= =======
Capital Expenditures:
Aerospace Fasteners................. $ 4,974 $ 4,320 $ 5,711
Industrial Products................. 4,440 3,997 4,002
Communications Services............. 10,349 7,775 5,792
Corporate and Other................. 16 -- 3
------- ------- -------
Total Capital Expenditures............ $ 19,779 $ 16,092 $ 15,508
======= ======= =======
Depreciation and Amortization:
Aerospace Fasteners................. $ 15,619 $ 14,373 $ 14,280
Industrial Products................. 6,962 6,765 6,154
Communications Services............. 10,329 8,948 7,936
Corporate and Other................. 2,262 2,209 2,107
------- ------- -------
Total Depreciation and Amortization... $ 35,172 $ 32,295 $ 30,477
======= ======= =======
Identifiable Assets at June 30,:
Aerospace Fasteners................. $290,465 $306,008 $337,185
Industrial Products................. 152,697 147,910 146,754
Communications Services............. 108,666 79,087 78,752
Corporate and Other................. 63,960 84,471 77,319
------- ------- -------
Total Identifiable Assets............. $615,788 $617,476 $640,010
======= ======= =======
(a) - Included in Fiscal 1995 and 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 for
Fiscal 1993. The impact of this division's earnings on the Fiscal 1993
results was immaterial.
(b) - Includes charges to reflect the cost of restructuring of $18,860,000,
and $15,469,000 in Fiscal 1994 and 1993, respectively, and an unusual loss
from earthquake damage and related business interruption of $4,000,000 in
Fiscal 1994.
</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) 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Sales by Geographic Area
United States....................... $402,414 $358,614 $369,343
Europe.............................. 95,420 76,366 85,479
Other............................... 10,778 9,165 8,745
------- ------- -------
Total Sales........................... $508,612 $444,145 $463,567
======= ======= =======
Operating Income by Geographic Area
United States....................... $ 24,639 $ (1,011) $ 15,390
Europe.............................. 2,107 5,847 2,034
Other............................... 1,304 463 947
------- ------- -------
Total Segment Operating Income........ $ 28,050 $ 5,299 $ 18,371
======= ======= =======
Identifiable Assets by Geographic Area
at June 30:
United States....................... $473,269 $454,635 $479,751
Europe.............................. 79,029 73,809 78,176
Other............................... 9,465 4,561 4,764
Corporate and Other................. 54,025 84,471 77,319
------- ------- -------
Total Identifiable Assets............. $615,788 $617,476 $640,010
======= ======= =======
</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)
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Export Sales
Europe.............................. $ 16,547 $ 12,692 $ 15,297
Other............................... 17,031 16,593 13,546
------- ------- -------
Total Export Sales.................... $ 33,578 $ 29,285 $ 28,843
======= ======= =======
</TABLE>
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
-------------------------------------------
<TABLE>
<CAPTION>
First Second Third Fourth
(In thousands) Quarter Quarter Quarter Quarter
------- -------- ------- -------
<S> <C> <C> <C> <C>
1995:
Sales..................... $114,562 $119,921 $138,912 $135,217
Gross profit.............. 30,176 26,800 31,994 26,840
Earnings (loss) from
continuing operations... 307 (1,906) (2,439) (8,121)
Loss on disposal of
discontinued operations. -- -- (200) --
Net earnings (loss)....... 307 (1,906) (2,639) (8,121)
1994:
Sales..................... $110,491 $108,830 $112,836 $111,988
Gross profit.............. 22,962 25,875 27,138 30,289
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)
</TABLE>
Net earnings (loss) from continuing operations in the fourth quarter of
Fiscal 1995, include adjustments to inventories and receivables of the
Company's Aerospace Fasteners Segment, to reflect required valuation
allowances against these assets. 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 quarters of Fiscal 1994, respectively,
are included in earnings (loss) from continuing operations. 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
related write down of real estate and other assets.
The Fiscal 1994 first and second quarter data presented vary from the
amounts previously reported in each of their respective Form 10-Q filings 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,
1995 and 1994, and the related consolidated statements of earnings,
stockholders' equity and cash flows for the years ended June 30, 1995, 1994
and 1993. 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, 1995 and 1994 and the results of their
operations and their cash flows for the years ended June 30, 1995, 1994, and
1993, 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 method of accounting for
postretirement benefits other than pensions, and income taxes.
Arthur Andersen LLP
Washington, D.C.
September 15, 1995
<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, 1995
- --------------------- --- -------- ------------------------
Series A Series C
-------- --------
Alcox, Michael T. 47 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)(3)
Caplin, Mortimer M. 79 1979 -- 3,240(2)
Member, Caplin & Drysdale
(Attorneys); Director of
Presidential Realty
Corporation and Danaher
Corporation (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, 1995
- --------------------- --- -------- ------------------------
Series A Series C
-------- --------
Flaherty, Thomas J. 57 1993 -- --
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.
Jackson, John D. 58 1994 -- --
Consultant to The Fairchild
Corporation since January
1995; prior to that date, held
position of Secretary of the
Company as well as various
executive positions since
1976. Senior Vice President
and Secretary of The
Fairchild Corporation from
1990 to 1994.
Richey, Herbert S. 73 1992 -- --
President, Richey Coal
Company (Coal Properties -
Brokerage and Consulting)
until December, 1993;
Director of The Fairchild
Corporation and Sifco
Industries, Inc.
<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, 1995
- --------------------- --- -------- ------------------------
Series A Series C
-------- --------
Steiner, Jeffrey J. 58 1989 3,200 (5) 3,200 (5)
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; President
of Cedco Holdings, Inc.
(1), (3), (4)
Steiner Hercot, Natalia 30 1989 -- --
employed with The Fairchild
Corporation as an International
Coordinator and Translater
Triebwasser, Sol 74 1995 -- --
Director of Banner Aerospace, Inc.,
Technical Journals and Professional
Relations of IBM Corporation
(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) 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.
EXECUTIVE OFFICERS OF THE COMPANY
- ---------------------------------
The executive officers of the Company, as of September 1, 1995, 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 (58) 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 (57) 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 L. Flynn (49) Vice President and Tax Counsel since
Vice President and 1986.
Tax Counsel (1986)
Harold R. Johnson (72) Vice President, Business Development,
Vice President (1988) since 1988; Founder, Chairman and
President, Telebit Corp. 1983-1988.
Jerry Lirette (47) Vice President since 1988; President
Vice President (1988) of D-M-E Company since 1984.
Michael T. Alcox (47) 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 (40) Vice President and Controller since
Vice President and 1989; Assistant Controller 1987-1989.
Controller (1989)
Karen L. Schneckenburger (46) Treasurer since 1989; Director of
Treasurer (1989) Finance 1986-1989.
Melvin Borer (52) 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 (33) Vice President since 1992; Director,
Vice President (1992) Banner Aerospace
Donald E. Miller (48) Vice President and General Counsel
Vice President and since 1991; Principal, Temkin & Miller,
General Counsel (1991) Ltd. from 1973 to 1990.
and Secretary (1995)
Townsend Breeden (63) Vice President since 1992; General
Vice President (1992) Manager, Keltec Florida, Inc. 1989 to
1992.
Robert D. Busey (52) Vice President since 1993;
Vice President (1993)
Robert H. Kelley (47) 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.
Jeffrey J. Steiner, Director, filed two Form 4's late during the 1995
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.
COMPENSATION OF EXECUTIVE OFFICERS AND OTHER INFORMATION
- --------------------------------------------------------
Cash Compensation
- -----------------
The information required by this section of Item 11 is set forth in the
1995 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, 1995, and said information is
incorporated herein by reference from TFC's 1995 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The following table sets forth, as of September 1, 1995, 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:
Class of Number of Percent
Beneficial Owner Stock Shares of Class
---------------- -------- --------- --------
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 39,600 9.3%
RHI Holdings, Inc. (1) Series B
(same as above) Preferred 2,302 100%
RHI Holdings, Inc. (1) Series C
(same as above) Preferred 4,900 0.9%
All Directors and Officers Series A
as a group Preferred 3,300 0.8%
All Directors and Officers Series C
as a group Preferred 9,194 1.6%
(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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information required by this section of Item 13 is set forth in the
1995 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, 1995, and said information is
incorporated herein by reference from TFC's 1995 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
--------------- ----------- -----------
II Valuation and
Qualifying Accounts 70
The reports of the registrant's Independent Public Accountants with
respect to the above-listed financial statements for Fiscal 1995 and Fiscal
1994, and the reports on the financial statement schedules for Fiscal 1995
and Fiscal 1994, appear on page 64 of this Report.
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.
All other schedules are omitted because they are not required.
<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 September 15, 1995. Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule
listed in the index on the preceeding page is the responsibility of the
Company's management and is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in
our opinion, fairly states 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.
September 15, 1995
<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).
<PAGE>
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).
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 (incorporated
by reference to 1993 10-K).
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 (incorporated
by reference to 1994 10-K).
10(f) Amendment No. 3, dated as of December 23, 1993, to the Restated and
Amended Credit Agreement dated as of July 27, 1992 (incorporated
by reference to 1994 10-K).
10(g) Amendment No. 4, dated as of March 31, 1994, to the Restated and
Amended Credit Agreement dated as of July 27, 1992 (incorporated
by reference to 1994 10-K).
*10(h) Amendment No. 5, dated as of July 29, 1994, to the Restated and
Amended Credit Agreement dated as of July 27, 1992.
*10(i) Amendment No. 6, dated as of October 15, 1994, to Restated and
Amended Credit Agreement dated as of July 27, 1992.
*10(j) Amendment No. 7, dated as of January 18, 1995, to Restated and
Amended Credit Agreement dated as of July 27, 1992.
*10(k) Amendment No. 8, dated as of February 15, 1995, to Restated and
Amended Credit Agreement dated as of July 27, 1992.
*10(l) Amendment No. 9, dated as of May 25, 1995, to Restated and
Amended Credit Agreement dated as of July 27, 1992.
*10(m) Amendment No. 10, dated as of June 30, 1995, to 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 Significant 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, 1995.
<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 26, 1995
<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 26, 1995
Director, Vice President
and Chief Financial Officer
Christopher Colavito
----------------------------- September 26, 1995
Vice President and Controller
Mortimer M. Caplin
----------------------------- September 26, 1995
Director
Thomas J. Flaherty
----------------------------- September 26, 1995
Director and Chief Operating
Officer
Herbert S. Richey
----------------------------- September 26, 1995
Director
Jeffrey J. Steiner
----------------------------- September 26, 1995
Director
Natalia Steiner Hercot
----------------------------- September 26, 1995
Director
Sol Triebwasser
----------------------------- September 26, 1995
Director
John D. Jackson
------------------------------ September 26, 1995
Director<PAGE>
<TABLE>
FAIRCHILD INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Changes in allowance for doubtful accounts are as follows:
<CAPTION>
(In thousands)
For the year ended June 30, 1995 1994 1993
- ---------------------------- ------ ------ ------
<S> <C> <C> <C>
Begining balance............... $2,135 $1,746 $1,702
Charged to costs and expenses.. 2,645 1,124 820
Charged to other accounts (1).. 352 231 149
Amounts written off............ (654) (966) (925)
----- ----- -----
Ending balance................. $4,478 $2,135 $1,746
===== ===== =====
(1) Recoveries of amounts written off in prior periods and foreign currency
translation.
</TABLE>
Consent and Amendment No. 5
Dated as of July 29, 1994
to
RESTATED AND AMENDED CREDIT AGREEMENT
Dated as of July 27, 1992
This Consent and Amendment No. 5 ("Amendment No. 5")
dated as of July 29, 1994, is entered into among RHI Holdings,
Inc., a Delaware corporation ("RHI"), and Citicorp North America,
Inc., a Delaware corporation and the sole "Senior Lender" (as
defined in the Credit Agreement referred to below) of RHI.
PRELIMINARY STATEMENT. RHI and Citicorp North America,
Inc., as a Senior Lender of RHI, are parties, among others, 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 formed a Subsidiary, Fairchild Germany, Inc., a
Delaware corporation ("FGI"), and FGI has acquired 100% of the
Capital Stock of Convac GmbH, a corporation organized under the
laws of Germany ("Convac Germany"), which at the time of such
acquisition had certain Subsidiaries including Convac Equipment
for Semiconductor Technology Ltd., a corporation organized under
the laws of the United Kingdom; Convac USA, Inc., a Delaware
corporation ("Convac USA"); Convac France S.A., a corporation
organized under the laws of France; and Convac Trading AG, a
corporation organized under the laws of Switzerland. Following
the consummation of such acquisition, 100% of the Capital Stock
of Convac USA was transferred to FGI, whereupon Convac USA and
Applied Process Technology, Inc., a California corporation
("APT") in which Convac USA owns a 90% equity interest, became
Subsidiaries of FGI.
In connection with the transactions described above, RHI has
requested (i) the amendment of certain negative covenants in the
Credit Agreement and (ii) certain consents with respect to
certain Indebtedness of Convac Germany and its Subsidiaries and
the acquisition by Convac USA of an additional 10% of the Capital
Stock of APT as more particularly described in that certain
letter dated July 19, 1994, a copy of which is attached hereto as
Exhibit A (the "Consent Request") and made a part hereof.
Subject to the terms and conditions stated herein, RHI
and its Senior Lender have agreed to further amend the Credit
Agreement as hereinafter set forth and the Senior Lender has
agreed to consent to the transactions described in Section 2
hereof.
<PAGE>
SECTION 1. Amendments to the Credit Agreement.
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 11.14 is amended to delete clause (a) thereof in
its entirety and to substitute the following therefor:
(a) in the case of RHI, in any Fiscal Year of RHI, in an
aggregate amount in excess of the sum of (i)
$1,250,000 plus leasehold improvements made with
respect to the Virginia Real Property and (ii) RHI's
Selling Price of Fixed Assets for such Fiscal Year,
1.2 Section 11.01B(h) of the Credit Agreement is amended to
delete the provisions thereof in their entirety and to substitute
the following therefor:
(h) Indebtedness of a Foreign Subsidiary of RHI; provided
that the proceeds of such Indebtedness are used by
such Foreign Subsidiary or RHI in the routine conduct
of its business;
1.4 Section 11.06B is amended to delete the number
"$500,000" at the end thereof and to substitute therefor the
number "$2,000,000".
SECTION 2. Consent. (A) Subject to the satisfaction
of the conditions precedent set forth in Section 3 below, the
sole Senior Lender of RHI hereby consents to the following:
(a) the Indebtedness of Subsidiaries of RHI identified on
Exhibits 1 through 5 attached to the Consent Request,
notwithstanding any provision in Section 11.01B of the Credit
Agreement to the contrary; and
(b) RHI's advance of approximately $300,000 in cash to
Convac USA to facilitate Convac USA's acquisition of the balance
of the issued and outstanding Capital Stock of APT representing
ten percent (10%) of all issued and outstanding Capital Stock of
APT as more particularly described in the Consent Request and
such acquisition by Convac USA.
SECTION 3. Conditions Precedent to Amendment No. 5;
Effectiveness. The amendments set forth in SECTION 1 above shall
become effective and be deemed effective as of the date hereof,
and the consents set forth in SECTION 2 above shall become
effective as of June 10, 1994, if, and only if, the
Administrative Agent shall have received on or before August 8,
1994: (i) a facsimile or original executed copy of this
Amendment executed by RHI and Citicorp North America, Inc. as the
sole Senior Lender of RHI and (ii) an amendment to the Rexnord
Holdings Pledge Agreement executed by RHI for delivery to the
Collateral Trustee pursuant to which the Capital Stock of FGI is
pledged as additional security for RHI's Obligations.
SECTION 4. Representations and Warranties. RHI hereby
represents and warrants as follows:
4.1 This Amendment No. 5 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. 5, except Events of Default or Potential
Events of Default which would arise but for the consents granted
herein.
4.3 Upon the effectiveness of this Amendment No. 5, 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. 5 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. 5,
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. 5 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. 5 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. 5 by telecopier shall be effective as delivery of a
manually executed counterpart of this Amendment No. 5.
SECTION 7. Governing Law. This Amendment No. 5 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. 5 are included herein for convenience of reference
only and shall not constitute a part of this Amendment No. 5 for
any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 5 to be executed by their respective officers
thereunto duly authorized as of the date first above written.
RHI HOLDINGS, INC.
By: Karen Schneckenburger
Title: Treasurer
CITICORP NORTH AMERICA, INC.,
individually as a Senior Lender of
RHI
By: Emily Rosensheck
Title: Vice President
Consent and Amendment No. 6
Dated as of October 15, 1994
to
RESTATED AND AMENDED CREDIT AGREEMENT
Dated as of July 27, 1992
This Consent and Amendment No. 6 ("Amendment No. 6")
dated as of October 15, 1994, is entered into among VSI
Corporation, a Delaware corporation ("VSI"), RHI Holdings, Inc.,
a Delaware corporation ("RHI"), the "Senior Lenders" (as defined
in the Credit Agreement referred to below) of VSI a party hereto
comprising at least the "Requisite Senior Lenders" of VSI, and
the sole Senior Lender of RHI.
PRELIMINARY STATEMENT. VSI, RHI, certain financial
institutions in the capacity of Senior Lenders of VSI, Citicorp
North America, Inc., a Delaware corporation ("Citicorp"), as the
sole Senior Lender of RHI, 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 of VSI and RHI (Citicorp,
Scotiabank and NationsBank being sometimes hereinafter
collectively referred to as the "Agents"), and Citicorp, as
administrative agent for the Senior Lenders of VSI and RHI (the
"Administrative Agent") are parties, among others, 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.
VSI has informed the Administrative Agent of the
intention of Fairchild Communications Services Company, a
Subsidiary of VSI ("VSI"), to acquire selected assets of JWP
Telecom Inc., a Delaware corporation ("JWP"), subject to certain
liabilities for a purchase price of $14,800,000, up to
$11,000,000 of which purchase price is to be paid in cash, and to
obtain up to $11,000,000 as a cash capital contribution from RHI
to enable it to consummate such acquisition of the JWP assets
and, in connection therewith, requested the consent of the
Requisite Senior Lenders of VSI to such acquisition and exclusion
of the purchase of such assets from Consolidated Capital
Expenditures for purposes of compliance with Section 11.14(c) of
the Credit Agreement.
VSI has further informed the Administrative Agent that,
as of January 30, 1994, RAM was merged with and into VSI, with
VSI being the surviving corporation, and that RAM now operates as
part of the Camloc USA division of VSI. Therefore, VSI has
requested that separate reporting for RAM as has heretofore been
provided pursuant to the requirements of the Credit Agreement no
longer be required and that Section 11.08A be deleted from the
Credit Agreement in its entirety.
In response to the requests of VSI set forth above, the
parties hereto, hereby agree as follows:
SECTION 1. Amendments to the Credit Agreement.
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 11.14 is amended to add the following
third proviso at the end thereof:
and (iii) in no event shall Consolidated Capital
Expenditures of VSI and its Subsidiaries include the amounts
expended in Fiscal Year 1995 in connection with the purchase of
selected assets of JWP Telecom Inc. by Fairchild Communications
Services Company.
1.2 Section 11.08A of the Credit Agreement is deleted
in its entirety.
SECTION 2. Consent. Subject to the satisfaction of the
conditions precedent set forth in Section 3 below, the Requisite
Senior Lenders of VSI hereby consent to FCS's acquisition of
selected assets of JWP Telecom Inc., subject to certain
liabilities as previously disclosed to the Senior Lenders of VSI,
the Agents, and the Administrative Agent, for a purchase price of
$14,800,000, up to $11,000,000 of which will be paid in cash.
SECTION 3. Conditions Precedent to Effectiveness. The
amendments set forth in SECTION 1 above and the consent set forth
in SECTION 2 above shall become effective and be deemed effective
as of the date hereof, if, and only if, the Administrative Agent
shall have received (i) on or before October 15, 1994, a
facsimile or original executed copy of this Amendment No. 6
executed by VSI and Senior Lenders of VSI constituting at least
the Requisite Lenders of VSI and (ii) within ten (10) Business
Days after consummation of such acquisition of JWP Telecom Inc.
assets, such agreements and documents as the Agent shall request
in order to grant and perfect Liens on such assets for the
benefit of the Senior Lenders and Issuing Banks of VSI.
SECTION 4. Representations and Warranties. Each of
VSI and RHI hereby represents and warrants as follows:
4.1 This Amendment No. 6 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 and 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. 6, except Events of Default or
Potential Events of Default which would arise but for the
consents granted herein.
4.3 Upon the effectiveness of this Amendment No. 6,
VSI hereby reaffirms all covenants, representations and
warranties made by such Person 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. 6 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. 6,
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. 6 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. 6 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. 6 by telecopier shall be effective as delivery of a
manually executed counterpart of this Amendment No. 6.
SECTION 7. Governing Law. This Amendment No. 6 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. 6 are included herein for convenience of reference
only and shall not constitute a part of this Amendment No. 6 for
any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 6 to be executed by their respective officers
thereunto duly authorized as of the date first above written.
VSI CORPORATION
By: Karen L. Schneckenburger
Title: Treaurer
CITICORP NORTH AMERICA, INC.
By: Emily Rosensheck
Title: Vice President
THE BANK OF NOVA SCOTIA
By: F.C.H. Ashby
Title: Senior Manager Loan
Operations
CANADIAN IMPERIAL BANK OF COMMERCE
By: Mary Kate Miller
Title: Authorized Signatory
GENERALE BANK
By: Eddie Mathews
Title: Senior Vice President
WELLS FARGO BANK, N.A.
By: Stanley Jeppsen
Title: Vice President
NATIONSBANK OF VIRGINIA, N.A.
By:Michael Fluedia
Title: Vice President
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED
By: Brady Sadek
Title: Vice President and Deputy
General Manager
THE MITSUBISHI BANK, LIMITED
By:
Title:
CAISSE NATIONALE DE CREDIT AGRICOLE
By: Dean Balice
Title: Senior Vice President
Branch Manager
UNION BANK
By: Patrick M. Cassidy
Title: Vice President
PILGRIM PRIME RATE TRUST
By: Kathleen Lenarici
Title: Senior Credit Analyzer
EATON VANCE PRIME RATE RESERVES
By: Barbara Campbell
Title: Assistant Treasurer
Amendment No. 7
Dated as of January 18, 1995
to
RESTATED AND AMENDED CREDIT AGREEMENT
Dated as of July 27, 1992
This Amendment No. 7 ("Amendment No. 7") dated as of
January 18, 1995, is entered into between RHI Holdings, Inc., a
Delaware corporation ("RHI") and Citicorp North America, Inc., a
Delaware corporation (the "RHI Senior Lender"), the sole Senior
Lender of RHI.
PRELIMINARY STATEMENT. RHI, the RHI Senior Lender,
certain financial institutions in the capacities of Agents and
Administrative Agent for the Senior Lenders are parties, among
others, 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 requested that Section 11.07B(b) of the Credit
Agreement be amended to increase the amount of permitted recourse
obligations of RHI's Foreign Subsidiaries resulting from sales,
discounts, and other transfers of Accounts of such Foreign
Subsidiaries and the RHI Senior Lender has agreed to such request
on the terms and conditions set forth herein.
SECTION 1. Amendment to the Credit Agreement.
Subject to the satisfaction of the conditions precedent
set forth in Section 2 below, Section 11.07B(b) of the Credit
Agreement is hereby amended to delete the provisions thereof in
their entirety and substitute the following therefor:
(b) RHI shall not permit any of its Foreign
Subsidiaries to, directly or indirectly, sell or discount or
otherwise sell any of its Accounts or any of its notes or
obligations receivable in any amount with recourse, except
Accounts, notes or obligations receivable which result in
recourse obligations of such Foreign Subsidiaries in an aggregate
amount not in excess of $2,500,000.
SECTION 2. Conditions Precedent to Effectiveness. The
amendment set forth in SECTION 1 above 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 January 23,
1995, a facsimile or original executed copy of this Amendment No.
7 executed by RHI and the RHI Senior Lender.
SECTION 3. Representations and Warranties. RHI hereby
represents and warrants as follows:
3.1 This Amendment No. 7 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.
3.2 No Event of Default or Potential Event of
Default exists or would result from any of the transactions
contemplated by this Amendment No. 7.
3.3 Upon the effectiveness of this Amendment No. 7,
RHI hereby reaffirms all covenants, representations and
warranties made by such Person 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. 7 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.
4.1 Upon the effectiveness of this Amendment No. 7,
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.
4.2 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.
4.3 The execution, delivery and effectiveness of this
Amendment No. 7 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. 7 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. 7 by telecopier shall be effective as delivery of a
manually executed counterpart of this Amendment No. 7.
SECTION 6. Governing Law. This Amendment No. 7 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. 7 are included herein for convenience of reference
only and shall not constitute a part of this Amendment No. 7 for
any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 7 to be executed by their respective officers
thereunto duly authorized as of the date first above written.
CITICORP NORTH AMERICA, INC.
By: Emily rosensheck
Title: Vice President
RHI HOLDINGS, INC.
By: Karen L. Schneckenburger
Title: Treasurer
Amendment No. 8
Dated as of February 15, 1995
to
RESTATED AND AMENDED CREDIT AGREEMENT
Dated as of July 27, 1992
This Amendment No. 8 ("Amendment No. 8") dated as of
February 15, 1995, is entered into between RHI Holdings, Inc., a
Delaware corporation ("RHI") and Citicorp North America, Inc., a
Delaware corporation (the "RHI Senior Lender"), the sole Senior
Lender of RHI.
PRELIMINARY STATEMENT. RHI, the RHI Senior Lender,
certain financial institutions in the capacities of Agents and
Administrative Agent for the Senior Lenders are parties, among
others, 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 requested that the Facility Commitment Period
for Facility A be extended to February 28, 1996 and the RHI
Senior Lender has agreed to such request on the terms and
conditions set forth herein.
SECTION 1. Amendment to the Credit Agreement.
Subject to the satisfaction of the conditions precedent
set forth in Section 2 below, the definition of "Facility
Commitment Period" set forth in Section 1.01 is hereby amended to
to delete the provisions of clause (i) thereof in their entirety
and substitute "(i) in the case of Facility A, on February 28,
1996" therefor.
SECTION 2. Conditions Precedent to Effectiveness. The amendment
set forth in SECTION 1 above 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 February
15, 1995, a facsimile or original executed copy of this Amendment
No. 8 executed by RHI and the RHI Senior Lender.
SECTION 3. Representations and Warranties. RHI hereby
represents and warrants as follows:
3.1 This Amendment No. 8 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.
3.2 No Event of Default or Potential Event of
Default exists or would result from any of the transactions
contemplated by this Amendment No. 8.
3.3 Upon the effectiveness of this Amendment No. 8,
RHI hereby reaffirms all covenants, representations and
warranties made by such Person 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. 8 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.
4.1 Upon the effectiveness of this Amendment No. 8,
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.
4.2 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.
4.3 The execution, delivery and effectiveness of this
Amendment No. 8 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. 8 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. 8 by telecopier shall be effective as delivery of a
manually executed counterpart of this Amendment No. 8.
SECTION 6. Governing Law. This Amendment No. 8 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. 8 are included herein for convenience of reference
only and shall not constitute a part of this Amendment No. 8 for
any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 8 to be executed by their respective officers
thereunto duly authorized as of the date first above written.
CITICORP NORTH AMERICA, INC.
By: Emily Rosensheck
Title: Vice President
RHI HOLDINGS, INC.
By:Karen L. Schneckenburger
Title: Treasurer
Amendment No. 9
Dated as of May 25, 1995
RESTATED AND AMENDED CREDIT AGREEMENT
Dated as of July 27, 1992
This Amendment No. 9 ("Amendment No. 9") dated as of
May 25, 1995, is entered into between RHI Holdings, Inc., a
Delaware corporation ("RHI") and Citicorp North America, Inc., a
Delaware corporation (the "RHI Senior Lender"), the sole Senior
Lender of RHI.
PRELIMINARY STATEMENT. RHI, the RHI Senior Lender,
certain financial institutions in the capacities of Agents and
Administrative Agent for the Senior Lenders are parties, among
others, 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 requested certain consents and certain
amendments to the Credit Agreement to permit (i) limited sales of
Accounts by RHI and its domestic subsidiaries and (ii) the
increase to $17,300,000 of RHI's combined permitted investment in
Fairchild Convac GmbH ("Convac") and SBC; and RHI Senior Lender
has agreed to such request on the terms and conditions set forth
herein.
SECTION 1. Amendment to the Credit Agreement. Subject
to the satisfaction of the conditions precedent set forth in
Section 3 below, Section 11.07B(a) is hereby deleted in its
entirety and replaced with the following new Section 11.07B(a):
"SECTION 11.07B Sale of Accounts. Except as otherwise
permitted hereunder:
(a) RHI shall not, and shall not permit any of its
Domestic Subsidiaries to, directly or indirectly, sell, with
recourse or without, or discount or otherwise sell to any Person,
any of its Accounts or any of its notes or obligations receivable
in any amount other than (i) up to a total of $18,000,000 face
amount of Accounts in the aggregate during the term of this
Agreement, without recourse to RHI or any of its Subsidiaries, <PAGE>
and (ii) up to an additional $12,000,000 face amount of
Accounts in the aggregate during the term of this Agreement, with
recourse, provided such recourse is only to Convac and not to any
other Person."
SECTION 2. Consent. The limitations on investments by
RHI and its subsidiaries in Convac and SBC are set forth in
consent letters between RHI and the RHI Senior Lender dated June
10, 1994 and August 12, 1994, respectively. The RHI Senior
Lender hereby consents to the combination of such investment
limitations, into a single limit, and to the increase of such
combined limit from $15,300,000 to $17,300,000, provided,
however, that the calculation of such investment limitation shall
be based upon a nonfluctuating DM/$US exchange rate of 1.666 (the
spot rate as of June 10, 1994). To the extent that this Section
2 shall be in any way inconsistent with the provisions of Section
11.03B of the Credit Agreement (re: investments permitted to be
made by RHI), the provisions of this Section 2 shall be the
governing and controlling provisions.
SECTION 3. Conditions Precedent to Effectiveness. The
amendment and consent set forth in Sections 1 and 2 above 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 May 25, 1995, a facsimile or original executed copy of
this Amendment No. 9 executed by RHI and the RHI Senior Lender.
SECTION 4. Representations and Warranties. RHI hereby
represents and warrants as follows:
4.1 This Amendment No. 9 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. 9.
4.3 Upon the effectiveness of this Amendment No. 9,
RHI hereby reaffirms all covenants, representations and
warranties made by such Person 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. 9 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. 9,
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. 9 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. 9 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. 9 by telecopier shall be effective as delivery of a
manually executed counterpart of this Amendment No. 9.
SECTION 7. Governing Law. This Amendment No. 9 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. 9 are included herein for convenience of reference
only and shall not constitute a part of this Amendment No. 9 for
any other purpose.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 9 to be executed by their respective officers
thereunto duly authorized as of the date first above written.
CITICORP NORTH AMERICA, INC.
By: Emily Rosensheck
Title: Vice President
RHI HOLDINGS, INC.
By: Karen L. Schneckenburger
Title: Treasurer
CONSENT AND AMENDMENT NO. 10
Dated as of June 30, 1995
to
RESTATED AND AMENDED CREDIT AGREEMENT
Dated as of July 27, 1992
This Consent and Amendment No. 10 ("Amendment") dated
as of June 30, 1995 is entered into among VSI Corporation, a
Delaware corporation ("VSI"), Fairchild Industries, Inc., a
Delaware corporation ("FII"), RHI Holdings, Inc., a Delaware
corporation ("RHI") 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, FII, 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"). VSI has
requested the amendment of the Credit Agreement in certain
respects as more particularly described in the letter dated
August 15, 1995, a copy of which is attached hereto as Exhibit 1
and made a part hereof (the "Amendment Request") and RHI, FII and
VSI have requested the consent of their respective Requisite
Senior Lenders to certain cash capital contributions to FII and
VSI and the use by VSI thereof for Consolidated Capital
Expenditures, as more particularly described in the Amendment
Request.
Subject to the terms and conditions stated herein, (i)
the undersigned Senior Lenders of VSI, FII and RHI comprising at
least the Requisite Senior Lenders of VSI, FII and RHI,
respectively, have agreed to further amend the Credit Agreement
as set forth in Section 1 hereof and (ii) the Senior Lenders of
FII comprising at least the Requisite Senior Lenders of FII, the
Senior Lender of RHI, and the Senior Lenders of VSI comprising at
least the Requisite Senior Lenders of VSI have agreed to consent
to certain matters as described in Section 2 hereof.
SECTION 1. Amendments to the Credit Agreement.
Effective as of June 30, 1995, subject to the satisfaction of the
conditions precedent set forth in Section 3 hereof, the Credit
Agreement is hereby amended as follows:
1.1 Article IX is amended to add the following
provision at the end thereof:
SECTION 9.13 TFC/RHI Consolidated Liquidity. RHI
shall deliver to the Administrative Agent and the Senior Lenders,
within ten (10) days after the end of each fiscal quarter of each
Fiscal Year, commencing with the fiscal quarter ending on
December 31, 1995, an Officers' Certificate of RHI in the form
attached to Amendment No. 10 to this Agreement as Exhibit 2
setting forth the calculation of the sum of the amounts set forth
in Section 14.01(r) for such fiscal quarter.
1.2 Section 12.07 is amended to delete that portion of
the schedule of covenant test dates commencing with Fourth
Quarter, 1995 and ending with Fourth Quarter, 1996 in its
entirety and substitute the following therefor:
Fourth Quarter, 1995 60,000,000
First Quarter, 1996 60,000,000
Second Quarter, 1996 65,000,000
Third Quarter, 1996 70,000,000
Fourth Quarter, 1996 80,000,000
1.3 Section 14.01 is amended to add the following
provisions at the end thereof:
(q) Sale of Fairchild Communications Services Company;
Equity and Debt Offerings. VSI and/or Fairchild Communications
Services Company shall have failed to notify the Administrative
Agent in writing on or before October 31, 1995 that the
appropriate Borrower or Subsidiary of a Borrower has engaged one
or more investment bankers of recognized national standing with
respect to accomplishing and consummating an initial public
offering of equity securities and/or a public offering of debt
securities of Fairchild Communications Services Company, or a
Subsidiary of FII or VSI holding the equity securities or assets
of Fairchild Communications Services Company, and a public
offering of debt securities of a Subsidiary of FII or VSI holding
directly or indirectly those assets which comprise VSI's D-M-E
division.
(r) TFC/RHI Consolidated Liquidity. The sum, as of
any given date of determination, of (i) the amount of
consolidated Cash and Cash Equivalents of TFC and RHI plus (ii)
that portion of the VSI Directed Reduction Amount then available
for borrowing and permitted to be transferred or remitted to RHI
minus (iii) the amount of Cash and Cash Equivalents of TFC and
RHI which is then required to secure Contractual Obligations of
TFC or RHI (a) as of December 31, 1995 shall be less than
$30,000,000 or (b) as of March 31, 1996 or the last day of each
fiscal quarter of TFC thereafter shall be less than $10,000,000.
<PAGE>
(s) VSI Default as to Publicly Held Indebtedness of
Affiliates. If such Borrower is VSI, (i) TFC shall fail to make
any payment when due on any Indebtedness of TFC owing with
respect to its (A) 12 1/4% Senior Subordinated Notes due 1996,
(B) 12% Intermediate Subordinated Debentures due 2001, (C) 13
1/8% Subordinated Debentures due 2006, or (D) 13% Junior
Subordinated Debentures due 2007, (ii) RHI shall fail to make any
payment when due on any Indebtedness of RHI owing with respect to
the Senior Subordinated Debentures, or (iii) FII shall fail to
make any payment when due on any Indebtedness of FII owing with
respect to the FII Senior Notes; or any breach, default or event
of default shall occur under any instrument, agreement or
indenture pertaining to any Indebtedness described in clause (i),
(ii), or (iii) above, if the effect thereof (with or without the
giving of notice or lapse of time or both) is to accelerate (as
distinguished from imposing a requirement to offer to purchase),
or permit the holder(s) of such Indebtedness to accelerate (as
distinguished from imposing a requirement to offer to purchase),
the maturity of any such Indebtedness.
SECTION 2. Consents.
2.1 The undersigned Senior Lender of RHI hereby
consents to RHI's cash contribution, in exchange for FII Series B
Preferred, to FII of the amount required, not to exceed $500,000,
by VSI to make the incremental Consolidated Capital Expenditures
referenced in the parenthetical exception to the provisions of
clause (i)(A) of the proviso at the end of Section 11.14 of the
Agreement and the undersigned Senior Lenders of FII hereby
consent to the contribution of such amount received by FII as
aforesaid to VSI as paid-in capital; provided that (i) such
amount received by VSI is used to make Consolidated Capital
Expenditures for the Fiscal Year ending in 1995 and (ii) the FII
Series B Preferred issued in exchange for such capital
contribution is pledged to secure the FII Senior Notes under the
Senior Note Collateral Documents.
2.2 The undersigned Senior Lenders of VSI hereby
consent to VSI's use of up to $500,000 received by VSI as a cash
contribution from FII to VSI's paid-in capital, as referenced in
Section 2.1 above, to make Consolidated Capital Expenditures for
the Fiscal Year ending in 1995 in excess of the amount that would
otherwise be permissible pursuant to clause (A) of the proviso
included in Section 11.14 of the Credit Agreement.
SECTION 3. Conditions Precedent to Effectiveness of
this Amendment. This Amendment shall become effective as of June
30, 1995 if, and only if, (i) the Administrative Agent shall have
received on or before September 15, 1995, (a) a facsimile or
original executed copy of this Amendment executed by RHI, FII,
VSI, and Senior Lenders comprising at least the Requisite Senior
Lenders of each of RHI, FII and VSI and (b) a facsimile or
original executed copy of a Reaffirmation Agreement and
Acknowledgment in the form attached hereto as Exhibit 3 executed
by the parties referenced therein and (ii) the Administrative
Agent shall have received on September 15, 1995, 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 September 15, 1995 of the Series VII Term
Loans payable to such Senior Lender plus (c) the outstanding
principal balance as of September 15, 1995 of the Series VIII
Term Loans payable to such Senior Lender.
SECTION 4. Representations and Warranties. RHI, 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 RHI, FII and VSI and are
enforceable against RHI, 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, RHI, 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).
<PAGE>
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
RHI HOLDINGS, INC.
By: Karen L. Schneckenburger
Title: Treasurer
CITICORP NORTH AMERICA, INC.
By: Emily Rosensheck
Title: Vice President
BANK OF NOVA SCOTIA
By: A. S. Norsworthy
Title: Assistant Agent
NATIONSBANK, N.A.
By: John D. Mindnick
Title: Senior Vice President
GENERALE BANK NEW YORK
By: Eddie Matthews
By: F. Mauchant
Title: Senior Vice President
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, CHICAGO BRANCH
By: Brady S. Sadek
Title: Vice President & General
Manager
THE MITSUBISHI BANK, LIMITED
By: Toshinori Yagura
Title: General Manager
CANADIAN IMPERIAL BANK OF COMMERCE
By: Mary Kate Miller
Title: Authorized Signatory
PILGRIM PRIME RATE TRUST
By: Kathleen Lenarici
Title: Assistant Portfolio Manager
UNION BANK
By: Patrick M. Cassidy
Title: Vice President
WELLS FARGO BANK, N.A.
By: Linda Spradling
Title: Vice President
SENIOR DEBT PORTFOLIO
By: Jeffrey S. Garner
Title: Vice President
CAISSE NATIONALE DE CREDIT AGRICOLE
By: David Bouhl, F.V.P.
Title: Head of Corporate Banking
Chaicago
<PAGE>
EXHIBIT 1
to Consent and Amendment No. 10
Dated as of June 30, 1995
AMENDMENT REQUEST
Attached
<PAGE>
EXHIBIT 2
to Consent and Amendment No. 10
Dated as of June 30, 1995
FORM OF TFC/RHI CONSOLIDATED LIQUIDITY OFFICERS' CERTIFICATE
To: Citicorp North America, Inc.,
as Administrative Agent and
the Senior Lenders under the
Restated and Amended Credit
Agreement dated as of July 27, 1992
(the "Credit Agreement")
Dated: [insert date]
The undersigned hereby certifies that the calculation set
forth below evidencing compliance with Section 14.01(r) of the
Credit Agreement is complete and accurate as of the fiscal
quarter of The Fairchild Corporation ending on ________, 199_.
TFC/RHI consolidated Cash and
Cash Equivalents $____________
plus
Non-Restricted VSI Directed
Reduction Amount $____________
minus
Restricted Cash and Cash Equivalents
of TFC/RHI ($____________)
$_____________
_____________________
Name:
Title:
EXHIBIT 3
to Consent and Amendment No. 10
Dated as of June 30, 1995
FORM OF REAFFIRMATION AGREEMENT AND ACKNOWLEDGMENT
Attached
AMENDMEN.10 September 15, 1995
List of Significant Subsidiaries of Fairchild Industries, Inc.
Fairchild Communications Services, Inc.
Fairchild Communications Services Company [Partnership]
Fairchild Data Corporation
VSI Corporation
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,412
<SECURITIES> 0
<RECEIVABLES> 89,405
<ALLOWANCES> 4,478
<INVENTORY> 88,805
<CURRENT-ASSETS> 191,383
<PP&E> 268,807
<DEPRECIATION> 110,616
<TOTAL-ASSETS> 615,788
<CURRENT-LIABILITIES> 134,041
<BONDS> 249,306
<COMMON> 140
19,112
251,815
<OTHER-SE> (117,421)
<TOTAL-LIABILITY-AND-EQUITY> 615,788
<SALES> 508,612
<TOTAL-REVENUES> 511,520
<CGS> 392,802
<TOTAL-COSTS> 488,127
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,100
<INCOME-PRETAX> (10,142)
<INCOME-TAX> 2,017
<INCOME-CONTINUING> (12,159)
<DISCONTINUED> (200)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,359)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
