UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
FORM 10-Q
--------------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 1994
Commission File Number: 1-373
RHI HOLDINGS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 34-1545939
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Washington Dulles International Airport
300 West Service Road, P.O. Box 10803
Chantilly, Virginia 22021
---------------------------------------
(Address of principal executive offices)
(Zip Code)
(703) 478-5800
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class October 2, 1994
- ----- ------------------
Common Stock, $1.00 par value 100,000
Registrant meets the conditions set forth in general instructions H(1)(a) and
(b) of Form 10-Q and is therefore filing this form with reduced disclosure
format.
<PAGE>
RHI HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES*
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
October 2, 1994 (Unaudited) and
June 30, 1994 3
Consolidated Statements of Earnings for
the Three Months Ended October 2, 1994
October 3, 1993 (Unaudited) 5
Condensed Consolidated Statements of Cash
Flows for the Three Months Ended October 2,
1994 and October 3, 1993 (Unaudited) 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) 8
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
*For purposes of Part I of this Form 10-Q, the term "Company" means RHI
Holdings, Inc., and its subsidiaries, unless otherwise indicated. For
purposes of Part II, the term "Company" means RHI Holdings, Inc. unless
otherwise indicated.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
RHI HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
October 2, June 30,
ASSETS 1994 1994
- ------ ------------ ------------
(Unaudited) (*)
<S> <C> <C>
Current Assets:
Cash and cash equivalents, $545 restricted... $ 71,615 $ 94,220
Short-term investments....................... 5,390 6,578
Accounts receivable-trade, less allowances
of $3,338 and $3,314....................... 76,988 73,376
Due from The Fairchild Corporation........... -- 1,305
Inventories:
Finished goods............................ 51,019 47,120
Work-in-process........................... 30,356 30,907
Raw materials............................. 14,774 11,988
------- -------
96,149 90,015
Prepaid expenses and other current assets.... 20,502 18,723
------- -------
Total Current Assets......................... 270,644 284,217
Property, plant and equipment net of
accumulated depreciation of $93,537 and
$86,555.................................... 168,839 171,245
Net assets held for sale..................... 35,618 35,134
Cost in excess of net assets acquired,
(Goodwill) less accumulated amortization of
$30,614 and $29,116........................ 199,728 200,873
Investments and advances - affiliated
companies.................................. 77,683 77,581
Prepaid pension assets....................... 60,696 61,628
Other assets................................. 58,996 59,510
------- -------
Total Assets................................. $872,204 $890,188
======= =======
*Condensed from audited financial statements.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<TABLE>
RHI HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
October 2, June 30,
LIABILITIES AND STOCKHOLDER'S EQUITY 1994 1994
- ------------------------------------ ------------- ------------
(Unaudited) (*)
<S> <C> <C>
Current Liabilities:
Bank notes payable and current maturities
of long-term debt........................... $ 14,628 $ 14,978
Accounts payable............................. 36,907 35,169
Accrued interest............................. 3,939 10,236
Other accrued liabilities.................... 62,840 65,542
Income tax payable........................... -- 17,264
------- -------
Total Current Liabilities.................... 118,314 143,189
Long-term debt, less current maturities...... 310,880 312,481
Other long-term liabilities.................. 22,577 23,676
Retiree health care liabilities.............. 50,270 51,189
Noncurrent income taxes...................... 51,220 28,821
Minority interest in subsidiaries............ 24,661 24,595
Redeemable preferred stock of subsidiary..... 18,644 18,932
------- -------
Total Liabilities............................ 596,566 602,883
Stockholder's Equity:
Common Stock................................. 100 100
Preferred Stock.............................. 100 100
Paid-in capital.............................. 229,349 229,297
Retained earnings............................ 61,795 74,132
Cumulative translation adjustment............ 3,964 3,346
Unrealized loss on noncurrent marketable
equity securities, net of tax............. (18,265) (18,265)
Additional minimum liability for pensions,
net of tax................................ (1,405) (1,405)
------- -------
Total Stockholder's Equity................... 275,638 287,305
------- -------
Total Liabilities and Stockholder's Equity... $872,204 $890,188
======= =======
* Condensed from audited financial statements.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<TABLE>
RHI HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(In thousands)
<CAPTION>
Three Months Ended
(In thousands) October 2, October 3,
1994 1993
---------- -----------
(*)
<S> <C> <C>
Revenue:
Sales...................................... $121,393 $110,491
Other income, net.......................... 154 1,777
------- -------
121,547 112,268
Costs and Expenses:
Cost of sales.............................. 89,140 87,529
Selling, general & administrative.......... 21,819 19,266
Research and development................... 968 1,066
Amortization of goodwill................... 1,498 1,525
------- -------
113,425 109,386
Operating income............................. 8,122 2,882
Interest expense............................. 10,435 12,656
Interest income.............................. (1,030) (162)
------- -------
Net interest expense......................... 9,405 12,494
Investment income, net....................... 342 1,343
Equity in earnings (loss) of affiliates...... 303 (231)
Minority interest............................ (658) (605)
------- -------
Loss from continuing operations before taxes. (1,296) (9,105)
Income tax provision (benefit)............... 1,016 (2,344)
------- -------
Loss from continuing operations.............. (2,312) (6,761)
Loss on disposal of discontinued
operations, net............................ (25) --
------- -------
Loss before cumulative effect of accounting
changes................................... (2,337) (6,761)
Cumulative effect of change in accounting for
postretirement benefits, net............... -- (8,015)
Cumulative effect of change in accounting for
income taxes, net.......................... -- (7,999)
------- -------
Net loss..................................... $ (2,337) $(22,775)
======= =======
* Restated for the inclusion of a division previously included in net assets
held for sale. (See Note 1).
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<TABLE>
RHI HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<CAPTION>
Three Months Ended
October 2, October 3,
1994 1993
------------ ------------
(*)
<S> <C> <C>
Cash provided by (used for)
Operations:
Net loss................................ $ (2,337) $(22,775)
Cumulative effect of accounting changes,
net................................... -- 16,014
Depreciation and amortization........... 8,401 8,387
Accretion of discount on long-term
liabilities........................... 782 778
Adjustments for other non-cash charges.. 658 605
Adjustments for non-cash credits........ (303) 231
Loss (gain) on sale of fixed assets..... 11 (135)
Changes in assets and liabilities....... (14,681) (11,952)
------- -------
Cash used for operations................ (7,469) (8,847)
Investments:
Capital expenditures.................... (3,462) (2,862)
Proceeds received from investment
securities............................ 1,188 739
Business acquisitions................... (550) --
Other, net.............................. (474) 64
------- -------
Cash used for investments............... (3,298) (2,059)
Financing:
Issuance of debt........................ 940 58,516
Debt repayments, net.................... (2,915) (45,431)
Dividends............................... (10,000) (1,007)
Capital contribution from TFC........... -- 3,382
------- -------
Cash provided by (used for) financing... (11,975) 15,460
Effect of exchange rate changes on cash..... 137 183
Net increase (decrease) in cash............. (22,605) 4,737
Cash, beginning of period................... 94,220 42,838
------- -------
Cash, end of period......................... $ 71,615 $ 47,575
======= =======
* Restated for the inclusion of a division previously included in net assets
held for sale. (See Note 1).
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
RHI HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Financial Statements
The consolidated balance sheet as of October 2, 1994 and the
consolidated statements of earnings and cash flows for the three months ended
October 2, 1994 and October 3, 1993 have been prepared by the Company,
without audit. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows at October 2, 1994 and for all
periods presented have been made. The balance sheet at June 30, 1994 was
condensed from audited financial statements as of that date.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's June 30, 1994 Form
10-K. The results of operations for the period ended October 2, 1994 are not
necessarily indicative of the operating results for the full year. Certain
amounts in prior years' quarterly financial statements have been reclassified
to conform to the current presentation.
The Fiscal 1994 first quarter data presented vary from the amounts
previously reported in the Form 10-Q dated October 3, 1993, and have been
restated due to the Company's decision not to sell a division, which was
previously included in net assets held for sale, and not included in the
results of operations. Sales from the division were $4,141,000 in the first
quarter of Fiscal 1994. Earnings from the division had no material effect
during this period.
Note 2 - Acquisitions
On June 10, 1994, the Company's Industrial Products segment acquired
100% of the Common Stock of Convac GmbH for approximately $4,700,000. Convac
GmbH is a leading designer and manufacturer of high precision state-of-the-
art wet processing tools, equipment and systems required for the manufacture
of semiconductor chips and related products, compact and optical storage
discs and liquid crystal displays.
On September 9, 1994, the Company's Industrial Products segment acquired
all of the outstanding Common Stock of Scandinavian Bellyloading Company AB
("SBC"). SBC is the designer and manufacturer of patented cargo loading
systems which are installed in the cargo area of commercial aircraft.
Several major airlines are expected to equip existing fleets with the SBC
system over the next three to four years.
Note 3 - Restricted Cash
The Company had approximately $545,000 of restricted cash on October 2,
1994 and June 30, 1994, all of which is maintained as collateral for certain
debt facilities.
Note 4 - Summarized Statement of Earnings Information
The following table presents summarized statement of earnings
information on a 100% basis of Banner Aerospace, Inc. ("Banner"), the
Company's principal investment, which is accounted for using the equity
method.
<TABLE>
<CAPTION>
Three Months Ended
(In thousands) ----------------------------
October 2, October 3,
1994 1993
------------ -------------
<S> <C> <C>
Net sales................................. $54,586 $51,637
Gross profit.............................. 16,651 16,556
Earnings from continuing operations....... 1,230 1,471
Net earnings.............................. 1,230 1,375
</TABLE>
On October 2, 1994, the Company owned approximately 47.2% of Banner
common stock, which is included in investments and advances-affiliated
companies. The Company recorded equity earnings of $228,000 and $830,000 for
the three months ended October 2, 1994 and October 3, 1993, respectively,
from this investment. At the close of trading on September 30, 1994, Banner
stock was quoted at $5.625 per share. Based on this price the Company's
equity investment in Banner had an approximate market value of $47,746,000
versus a carrying value of $53,437,000. The Company believes this decline in
market value is temporary.
On December 23, 1993, the Company completed the sale of its 43.9% stock
interest in Rexnord Corporation ("Rexnord") to BTR Dunlop Holdings, Inc.
("BTR"). Prior to the sale of Rexnord, the Company recorded an equity loss
of $1,167,000 on this investment for the three month period ended October 3,
1993.
In connection with the sale of its interest in Rexnord, the Company has
placed shares of Banner, with a fair market value of $25,000,000, in escrow
to secure the Company's indemnification of BTR against a contingent
liability. Once the contingent liability is resolved the escrow will be
released.
Note 5 - Revolving Credit Facility
On August 18, 1994, VSI Corporation's (an indirect subsidiary of the
Company) revolving credit facility was reduced by $9,250,000 to provide a
total available facility of $50,250,000, all of which was available on
October 2, 1994. In addition, (1) the borrowing rate was increased by 1.0%
to generally bear interest at 3.75% over the London Interbank Offer Rate, and
(2) the commitment fee charged on the unused portion of the revolving credit
facility was increased to 1.0%.
Note 6 - Minority Interest in Consolidated Subsidiaries
The Company includes $23,981,000 of minority interest on its balance
sheet at October 2, 1994 and June 30, 1994, which is represented by the
Series C Preferred Stock of Fairchild Industries, Inc. ("FII"), a majority
owned subsidiary. The Series C Preferred Stock has an annual dividend
requirement of $4.25 per share through July 21, 1999 and $7.00 per share
thereafter.
Note 7 - Redeemable Preferred Stock of Subsidiary
The Company has classified the outstanding shares of Series A Preferred
Stock of FII as a long-term liability. The Series A Preferred Stock has a
mandatory redemption value of $45.00 per share and an annual dividend
requirement of $3.60 per share. During the three months ended October 2,
1994, the Company repurchased 6,400 shares of FII's Series A Preferred Stock.
Effectively, there were 414,301 and 420,701 shares authorized, issued and
outstanding at October 2, 1994 and June 30, 1994, respectively.
Note 8 - Dividend Paid to Parent
During the three months ended October 2, 1994 and October 3, 1993, the
Company paid dividends of $10,000,000 in each period to The Fairchild
Corporation ("TFC"), the parent of the Company. The Fiscal 1995 dividends
were paid in cash. The Fiscal 1994 dividend was paid primarily in the
Company's debentures in lieu of cash.
Note 9 - Commitments and Contingencies
Lease Guaranties
- ----------------
In connection with the sale of Metro Credit Corporation, the Company
remained contingently liable as a guarantor of the payment and performance of
obligations of third party lessees under aircraft leases, which call for
aggregate annual base lease payments of approximately $3,454,000 in 1995, and
approximately $10,533,000 over the remaining 5-year guaranty period. In each
case, the Company has been indemnified by the purchasers and lessors from any
losses related to such guaranties.
Government Claims
- -----------------
Following an investigation by the Inspector General of NASA, the civil
division of the United States Department of Justice alleged improprieties in
years 1982 and 1984 through 1986, in indirect costs rates and labor charging
practices of a former subsidiary of the Company. The Company entered into
settlement discussions with the Department of Justice to attempt to resolve
these claims and has reached an agreement in principle with the government to
settle this matter for $5,000,000, payable in six equal semi-annual
installments, with interest at 6.0% per year. The unpaid balance will likely
be collateralized by certain excess real estate. If the settlement is not
consummated, the government may initiate suit under the False Claims Act,
seeking treble damages and penalties, and under the Truth in Negotiations
Act, seeking a price reduction on certain contracts and subcontracts.
The Corporate Administrative Contracting Officer (the "ACO"), based upon
the advice of the United States Defense Contract Audit Agency, has made a
determination that FII did not comply with Cost Accounting Standards, in
accounting for (i) the 1985 reversion to FII of certain assets of terminated
defined benefit pension plans, and (ii) pension costs upon the closing of
segments of FII's business. The ACO has directed FII to prepare a cost
impact proposal relating to such plan terminations and segment closings and,
following receipt of such cost impact proposal, 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.
Civil Litigation
- ----------------
Maurice Bidermann Litigation
----------------------------
The Company commenced an action in the United States District for the
Southern District of New York, following the breach by Maurice Bidermann
("Bidermann") of an agreement under which Bidermann was to have paid the
Company an aggregate sum of approximately $22,500,000, of which Bidermann
paid $10,000,000. Additional installments, of $5,000,000 each, were due from
Bidermann on December 31, 1992, and June 30, 1993, both of which Bidermann
failed to pay. On July 7, 1993, the United States District Court ordered
Bidermann to pay the Company the full amount of its claim, $12,947,000, plus
interest. Following receipt of the Court's order, Bidermann filed for
protection under Chapter 11 of the United States Bankruptcy Code; however,
subsequent to the 1994 fiscal year, on motion of the Company, the Bankruptcy
Court dismissed Bidermann's Chapter 11 proceedings. Prior to Bidermann's
filing for protection under Chapter 11, and continuing subsequent to the
Bankruptcy Court's dismissal of those proceedings, the Company attached
substantially all assets of Bidermann. In addition, the Company holds shares
and warrants of Bidermann Industries, USA, Inc., all of which shares and
warrants Bidermann had originally agreed to purchase from the Company for
$22,500,000. The collectibility of this judgement, which has been affirmed
by the United States Court of Appeals, will depend in part upon the Company's
ability to realize sufficient amounts from its attachments, and the value of
the shares and warrants held.
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 to and pursuant to any such disposition. In
addition, management has identified several areas of potential contamination
at or from other facilities owned, or previously owned, by the Company, that
may require the Company either to take corrective action or to contribute to
a clean-up. The Company is also a defendant in certain lawsuits and
proceedings seeking to require the Company to pay for investigation or
remediation of environmental matters and has been alleged to be a potentially
responsible party at various "Superfund" sites. Management of the Company
believes that it has recorded adequate reserves in its financial statements
to complete such investigation and take any necessary corrective actions or
make any necessary contributions. No amounts have been recorded as due from
third parties, including insurers, or set off against any liability of the
Company, unless such parties are contractually obligated to contribute and
are not disputing such liability.
Other Matters
- -------------
The Company is involved in 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 its 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.
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
- -------------------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
Item 2 of Form 10-Q is omitted in accordance with General Instruction
H(i)(a) and (b), Omission of Information by Certain Wholly-Owned
Subsidiaries. Management's narrative analysis of the results of operations
is furnished in lieu thereof:
MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS
- ------------------------------------------------------------
RHI Holdings, Inc. (the "Company"), formerly known as Rexnord Holdings
Inc., is essentially a holding company incorporated in the State of Delaware.
It has two operating subsidiaries, Fairchild Industries, Inc. ("FII") and
Convac GmbH. The Company's operations are conducted through Convac GmbH and
VSI Corporation ("VSI"), which is a wholly-owned subsidiary of FII. The
Company is a wholly-owned subsidiary of The Fairchild Corporation ("TFC").
The Company also holds a significant equity interest in Banner Aerospace,
Inc. ("Banner").
RESULTS OF OPERATIONS
The Company currently operates in three principal business segments:
Aerospace, Fasteners, Industrial Products and Communications Services. Set
forth below is a comparison of the results from continuing operations of the
Company for the three month periods ended October 2, 1994 and October 3,
1993.
<PAGE>
<TABLE>
<CAPTION>
(In thousands) Three Months Ended
October 2, October 3,
1994 1993
---------- -----------
(*)
<S> <C> <C>
Sales by Business Segment:
Aerospace Fasteners................ $ 52,132 $ 51,578
Industrial Products................ 49,319 40,770
Communications Services............ 19,942 18,143
------- -------
Total................................. $121,393 $110,491
======= =======
Operating Income (loss) by
Business Segment:
Aerospace Fasteners................ $ 1,171 $ (6,377)
Industrial Products................ 4,911 4,994
Communications Services............ 4,422 3,931
------- -------
Total................................. 10,504 2,548
Corporate administrative expense... (1,976) (1,575)
Other corporate income (expense)... (406) 1,909
------- -------
Operating income...................... 8,122 2,882
Net interest expense.................. (9,405) (12,494)
Investment income, net................ 342 1,343
Equity in earnings of affiliates...... 303 (231)
Minority interest..................... (658) (605)
------- -------
Loss from continuing operations
before income taxes................. (1,296) (9,105)
Income tax provision (benefit)........ 1,016 (2,344)
------- -------
Loss from continuing operations....... $ (2,312) $ (6,761)
======= =======
* Restated for the inclusion of a division previously included in net assets
held for sale. (See Note 1).
</TABLE>
General
- -------
Overall sales increased by 9.9% in the first quarter of Fiscal 1995
compared to sales for the same period in Fiscal 1994, due to sales increases
in all three business segments.
Operating income increased $5.2 million in the first quarter of Fiscal
1995 compared to operating income for the same period in Fiscal 1994.
Operating income increased significantly in the Aerospace Fasteners and
Communications Services segments and was down slightly in the Industrial
Products segment in the Fiscal 1995 first quarter compared to the Fiscal 1994
period. Other corporate income also decreased (see discussion below).
Aerospace Fasteners
- -------------------
Sales in the Aerospace Fasteners segment increased 1.1% in the Fiscal
1995 quarter compared to Fiscal 1994 quarter, primarily resulting from the
very aggressive management efforts during the quarter to reduce backlog
previously delayed primarily due to quality problems and earthquake
disruption, which are diminishing.
Operating income in the Fiscal 1995 quarter increased $7.5 million over
the Fiscal 1994 quarter; however this segment continues to be affected by
reduced demand and price erosion and higher quality control costs resulting
from customers' intensified quality requirements.
On January 17, 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.
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 currently estimated net cost of the damages and business
interruption caused by the earthquake. Included in prepaids and other
current assets is an insurance claim receivable of $8.9 million for
recoverability of costs related to business interruption and property damage.
Industrial Products
- -------------------
Sales in the Industrial Products segment increased 21.0% in the Fiscal
1995 first quarter compared to the Fiscal 1994 first quarter. Over 9% of the
increase in sales in the current quarter period was at the D-M-E Company and
reflects customer response to the 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 principally
reflecting 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 and Convac GmbH, a semiconductor equipment manufacturing company
acquired at the end of Fiscal 1994.
Operating income in the Industrial Products segment decreased slightly
in the first quarter of Fiscal 1995 compared to the same period in Fiscal
1994. The inclusion of Fairchild Data Corporation and Convac GmbH, which
reported operating losses in the Fiscal 1995 quarter, was partially offset by
a 21.4% increase in operating income at the D-M-E Company. The improved
results at D-M-E resulted from a higher sales volume and improved operating
margins. In recent years this operation has implemented several cost savings
steps, including overhead reduction and improved inventory management
programs, which have contributed to the higher operating margins. The
improvements in inventory management and delivery systems resulted in faster
deliveries, reduction in inventory, and higher inventory turnover. In
addition, D-M-E Company has continued to implement improved manufacturing
methods that have reduced cycle time and costs.
Communications Services
- -----------------------
Sales in the Communications Services segment increased 9.9% in the
Fiscal 1995 first quarter compared to the same period in Fiscal 1994,
primarily due to the inclusion of sales from a small acquisition and 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 12.5%
in the Fiscal 1995 first quarter compared to the same period in 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 the
first quarter of Fiscal 1995 was slightly higher than the return on sales in
the comparable period of Fiscal 1994.
Other Expenses/Income
- ---------------------
Corporate Administrative Expense - FII's corporate staff performs work
for several corporate entities including TFC, FII and the Company. Corporate
administrative expense incurred by FII is invoiced to the Company and to TFC
on a monthly basis and represents the estimated cost of services performed on
behalf of such companies by FII. Management believes that the corporate
administrative expense would be higher if it operated as a separate
independent entity. Corporate administrative expense increased 25.5% in the
first quarter compared to same period in the prior year. This increase was
based on increased TFC staff involvement on behalf of the Company. TFC
expense was not allocated to the Company in the prior year period.
Other Corporate Income - Other corporate income decreased $2.3 million
in the Fiscal 1995 first quarter compared to the same period in the prior
year, primarily due to recognizing gains on corporate real estate sold in the
prior year first quarter.
Net Interest Expense - Net interest expense decreased 24.7% in the
first quarter ended October 2, 1994, compared to the prior year period,
primarily due to lower borrowings and significantly higher cash and cash
equivalents during the Fiscal 1995 first quarter period.
Investment income, net - Investment income was lower in the first three
months, primarily as a result of recording gains realized on the liquidation
of investments in Fiscal 1994 compared to Fiscal 1995. Also included in the
Fiscal 1995 three month period were $.3 million of dividends realized on
participating annuity contracts compared to $.9 million in the Fiscal 1994
three month period.
Equity in earnings of affiliates increased $.5 million in the Fiscal
1995 first quarter compared to the prior year period. The Fiscal 1994 first
quarter included a $2.9 million after tax restructuring charge for Rexnord
Corporation, prior to the Company selling its interest in Rexnord
Corporation. The current year period includes no earnings or losses for
Rexnord Corporation.
Minority interest expense includes dividend expense on the Series C
Preferred Stock.
Income taxes - In the first quarter of Fiscal 1995, the Company recorded
a tax provision. 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 first quarter after-tax charge to earnings for the cumulative
effect of the accounting change was $.5 million, which represents the
unamortized portion of an overstated liability for discontinued operations
which substantially offset the transition obligation for active employees and
retirees of continuing operations. In addition, in the Fiscal 1994 first
quarter, a $7.5 million charge, net of the Company's related tax benefit, was
recorded for the Company's share of Rexnord Corporation's cumulative charge
resulting from this change in accounting.
2) Accounting for Income Taxes - The Company elected the immediate
recognition method and recorded, in the Fiscal 1994 first quarter, a $7.5
million charge representing the cumulative effect on prior years. This
charge represents deferred taxes related primarily to fixed assets, prepaid
pension expenses, and inventory differences. In addition, a $.5 million
charge was recorded for the Company's share of Rexnord Corporation's
cumulative charge resulting from this accounting change.
Net Earnings (Loss) - The net loss decreased $20.4 million in the first
quarter of Fiscal 1995 compared to the first quarter of Fiscal 1994,
primarily due to: (1) the $5.2 million increase in operating income in the
first quarter of Fiscal 1995 and (2) the $16.0 million charge, net of tax,
for the cumulative effect of accounting changes which was recorded in the
first quarter of Fiscal 1994.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Working capital at October 2, 1994, was $152.3 million which was $11.3
million higher than at June 30, 1994. The primary reasons for this increase
included a $9.7 million increase in receivables and inventory, reflecting
efforts to reduce backlog, plus a $9.0 million decrease in accrued interest
and other accrued liabilities, and a reduction in current income taxes
payable of $17.3 million which was reclassified to noncurrent income taxes.
These increases were partially offset by a $22.6 million reduction in cash,
primarily required at FII and VSI to service debt and meet operating cash
requirements during the first quarter.
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 and liquidation of
investments. Net assets held for sale at October 2, 1994, had a book value
of $35.6 million and included several parcels of real estate in California
and an 88 acre parcel of real estate located in Farmingdale, New York, which
the Company plans to sell, lease or develop, subject to the resolution of
environmental matters and market conditions. Included in long-term
investments at October 2, 1994 is a contractual obligation for the Company to
receive $12.9 million from an individual which has a net carrying amount of
$9.3 million. The obligation in part, may be satisfied by 7.1% of the
outstanding common stock of Bidermann Industries USA, Inc., a closely held
company, held by the Company. In addition, the Company has attached
substantially all of the individual's property. The individual filed for
protection under Chapter 11 of the U.S. Bankruptcy Code on July 7, 1993.
However, in the first quarter of Fiscal 1995, on a motion by the Company, the
Bankruptcy Court dismissed the Chapter 11 proceedings. The Company believes
that liquidation of assets held or attached by the Company will be sufficient
to recover the carrying amount of this investment. (See Note 9 to the
Financial Statements).
The Company's principal cash requirements include debt service, capital
expenditures, acquisitions, payment of other liabilities and payment of
dividends on preferred stock.
The level of the Company's capital expenditures varies from year to
year, depending upon the timing of capital spending for new production
equipment, periodic plant and facility expansion, acquisition of high growth
companies, as well as cost reduction and labor efficiency programs. For the
three month period October 2, 1994, capital expenditures, including the cost
of acquisitions, were $4.0 million. The Company anticipates that total
capital expenditures, including the cost of acquisitions, for the fiscal year
ending June 30, 1995 will be approximately $19.6 million.
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, and the ability to refinance portions of its
debt, will be adequate to satisfy cash requirements.
The Company's Credit Agreement requires the Company to comply with
certain financial covenants, including achieving cumulative earnings before
interest, taxes, depreciation and amortization, ("EBITDA Covenant"), and
maintaining certain coverage ratios. The Company was in compliance with the
Credit Agreement as of October 2, 1994. To comply with the minimum EBITDA
Covenant requirements (as amended) FII's subsidiary, VSI, must earn for the
cumulative total of the trailing four quarters, EBITDA as follows: $70.4
million for the second quarter of Fiscal 1995, $72.1 million for the third
quarter of Fiscal 1995, $75.0 million for the fourth quarter of Fiscal 1995,
and $76.6 million for the first quarter of Fiscal 1996. VSI's ability to
meet the minimum requirements under the EBITDA Covenant in Fiscal 1995 is
uncertain, and there can be no assurance that the Company will be able in the
future to comply with the minimum requirements under the EBITDA Covenant and
other financial covenants under the Credit Agreement. Noncompliance with any
of the financial covenants, without cure, or waiver would constitute an event
of default under the Credit Agreement. An event of default resulting from a
breach of a financial covenant may result, at the option of lenders holding
a majority of the loans, in an acceleration of the principal and interest
outstanding, and a termination of the revolving credit line. If necessary,
management believes a waiver can be obtained.
FII may transfer available cash 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 from FII to the Company are subject to certain limitations under
the Credit Agreement. As of October 2, 1994, FII was unable to provide
dividends to the Company. The Credit Agreement also restricts FII from
additional borrowings under the Credit Facilities for the payment of any
dividends.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Note 9 of Notes to Consolidated Financial
Statements.
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
For RHI HOLDINGS, INC.
(Registrant) and as its Chief
Financial Officer:
By: Michael T. Alcox
Vice President and Chief Financial
Officer
Date: November 14, 1994
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> OCT-02-1994
<CASH> 71,615
<SECURITIES> 1,511
<RECEIVABLES> 80,326
<ALLOWANCES> (3,338)
<INVENTORY> 96,149
<CURRENT-ASSETS> 270,644
<PP&E> 262,376
<DEPRECIATION> (93,537)
<TOTAL-ASSETS> 872,204
<CURRENT-LIABILITIES> 118,314
<BONDS> 310,880
<COMMON> 100
18,644
100
<OTHER-SE> 275,438
<TOTAL-LIABILITY-AND-EQUITY> 872,204
<SALES> 121,393
<TOTAL-REVENUES> 121,547
<CGS> 89,140
<TOTAL-COSTS> 113,425
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,435
<INCOME-PRETAX> (1,296)
<INCOME-TAX> 1,016
<INCOME-CONTINUING> (2,312)
<DISCONTINUED> (25)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,337)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
