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 January 1, 1995
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 January 1, 1995
- ----- ---------------
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
January 1, 1995 (Unaudited) and
June 30, 1994 3
Consolidated Statements of Earnings for
the Three and Six Months Ended January
1, 1995 and January 2, 1994 (Unaudited) 5
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended January 1,
1995 and January 2, 1994 (Unaudited) 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
*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>
January 1, June 30,
ASSETS 1995 1994
- ------ ------------ ------------
(Unaudited) (*)
<S> <C> <C>
Current Assets:
Cash and cash equivalents, $545 restricted... $ 59,195 $ 94,220
Short-term investments....................... 3,957 6,578
Accounts receivable-trade, less allowances
of $3,446 and $3,314....................... 74,745 73,376
Due from The Fairchild Corporation........... -- 1,305
Inventories:
Finished goods............................ 59,859 47,120
Work-in-process........................... 27,864 30,907
Raw materials............................. 13,436 11,988
------- -------
101,159 90,015
Prepaid expenses and other current assets.... 19,390 18,723
------- -------
Total Current Assets......................... 258,446 284,217
Property, plant and equipment net of
accumulated depreciation of $99,939 and
$86,555.................................... 174,616 171,245
Net assets held for sale..................... 36,029 35,134
Cost in excess of net assets acquired,
(Goodwill) less accumulated amortization of
$32,131 and $29,116........................ 202,645 200,873
Investments and advances - affiliated
companies.................................. 92,722 77,581
Prepaid pension assets....................... 60,921 61,628
Other assets................................. 56,589 59,510
------- -------
Total Assets................................. $881,968 $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>
January 1, June 30,
LIABILITIES AND STOCKHOLDER'S EQUITY 1995 1994
- ------------------------------------ ------------- ------------
(Unaudited) (*)
<S> <C> <C>
Current Liabilities:
Bank notes payable and current maturities
of long-term debt........................... $ 15,297 $ 14,978
Accounts payable............................. 40,001 35,169
Other accrued liabilities.................... 78,523 75,778
Income tax payable........................... -- 17,264
------- -------
Total Current Liabilities.................... 133,821 143,189
Long-term debt, less current maturities...... 308,335 312,481
Other long-term liabilities.................. 21,791 23,676
Retiree health care liabilities.............. 49,900 51,189
Noncurrent income taxes...................... 53,651 28,821
Minority interest in subsidiaries............ 24,687 24,595
Redeemable preferred stock of subsidiary..... 18,549 18,932
------- -------
Total Liabilities............................ 610,734 602,883
Stockholder's Equity:
Common Stock................................. 100 100
Preferred Stock.............................. 100 100
Paid-in capital.............................. 229,373 229,297
Retained earnings............................ 57,844 74,132
Cumulative translation adjustment............ 3,847 3,346
Unrealized loss on noncurrent marketable
equity securities, net of tax............. (18,625) (18,265)
Additional minimum liability for pensions,
net of tax................................ (1,405) (1,405)
------- -------
Total Stockholder's Equity................... 271,234 287,305
------- -------
Total Liabilities and Stockholder's Equity... $881,968 $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 Six Months Ended
(In thousands) January 1, January 2, January 1, January 2,
1995 1994 1995 1994
---------- ---------- ---------- ----------
(*) (*)
<S> <C> <C> <C> <C>
Revenue:
Sales................................. $125,929 $108,830 $247,322 $219,321
Other income, net..................... 875 124 1,029 1,901
------- ------- ------- -------
126,804 108,954 248,351 221,222
Costs and Expenses:
Cost of sales......................... 97,532 82,955 186,672 170,484
Selling, general & administrative..... 24,211 18,122 46,030 37,388
Research and development.............. 913 971 1,881 2,037
Amortization of goodwill.............. 1,516 1,486 3,014 3,011
Restructuring......................... -- 9,903 -- 9,903
------- ------- ------- -------
124,172 113,437 237,597 222,823
Operating income (loss)................. 2,632 (4,483) 10,754 (1,601)
Interest expense........................ 10,277 9,474 20,712 22,130
Interest income......................... (1,158) (218) (2,188) (380)
------- ------- ------- -------
Net interest expense.................... 9,119 9,256 18,524 21,750
Investment income, net.................. 2,580 5,282 2,922 6,625
Equity in earnings of affiliates........ 803 799 1,106 568
Minority interest....................... (615) (584) (1,273) (1,189)
Non-recurring income.................... -- 129,107 -- 129,107
------- ------- ------- -------
Earnings (loss) from continuing
operations before taxes............... (3,719) 120,865 (5,015) 111,760
Income tax provision.................... 207 44,185 1,223 41,841
------- ------- ------- -------
Earnings (loss) from continuing
operations............................ (3,926) 76,680 (6,238) 69,919
Loss on disposal of discontinued
operations, net....................... (25) -- (50) --
------- ------- ------- -------
Earnings (loss) before cumulative effect
of accounting changes................. (3,951) 76,680 (6,288) 69,919
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 earnings (loss)..................... $ (3,951) $ 76,680 $ (6,288) $ 53,905
======= ======= ======= =======
* 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>
<TABLE>
RHI HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<CAPTION>
Six Months Ended
January 1, January 2,
1995 1994
------------ ------------
(*)
<S> <C> <C>
Cash provided by (used for)
Operations:
Net earnings (loss)..................... $ (6,288) $ 53,905
Cumulative effect of accounting changes,
net................................... -- 16,014
Depreciation and amortization........... 17,395 16,647
Accretion of discount on long-term
liabilities........................... 1,614 1,560
Adjustments for other non-cash charges.. 1,609 8,959
Adjustments for non-cash credits........ (1,106) (568)
Gain on sale of Rexnord investment...... -- (129,107)
Loss on sale of fixed assets............ 221 168
Changes in assets and liabilities....... (4,114) 44,283
------- -------
Cash provided by operations............. 9,331 11,861
Investments:
Capital expenditures.................... (8,486) (5,714)
Proceeds received from sale of Rexnord
investment............................ -- 178,115
Proceeds received from (used for)
investment securities, net............ 5,549 (208)
Investments in affiliates............... (14,850) --
Business acquisitions................... (12,061) --
Change in net assets held for sale...... (895) (2,357)
Other, net.............................. 365 143
------- -------
Cash provided by (used for) investments. (30,378) 169,979
Financing:
Issuance of debt........................ 2,893 73,027
Debt repayments, net.................... (6,767) (132,713)
Dividends............................... (10,000) (1,007)
Capital contribution from TFC........... -- 3,382
------- -------
Cash used for financing................. (13,874) (57,311)
Effect of exchange rate changes on cash..... (104) (899)
Net increase (decrease) in cash............. (35,025) 123,630
Cash, beginning of period................... 94,220 42,838
------- -------
Cash, end of period......................... $ 59,195 $166,468
======= =======
* 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>
RHI HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Financial Statements
The consolidated balance sheet as of January 1, 1995 and the
consolidated statements of earnings and cash flows for the six months ended
January 1, 1995 and January 2, 1994 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 January 1, 1995 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 January 1, 1995 are not
necessarily indicative of the operating results for the full year. Certain
amounts in prior years' quarterly financial statements have been reclassified
to conform to the current presentation.
The Fiscal 1994 first six months data presented vary from the amounts
previously reported in the Form 10-Q dated January 2, 1994, 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 $7,579,000 in the first
six months of Fiscal 1994. Earnings from the division had no material effect
during this period.
Note 2 - Acquisitions
On June 10, 1994, the Company segment acquired 100% of the Common Stock
of Convac GmbH ("Convac") 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. The Company reports the results of Convac as
part of its Industrial Products segment.
On September 9, 1994, the Company acquired all of the outstanding Common
Stock of Scandinavian Bellyloading Company AB ("SBC"). SBC is the designer
and manufacturer of patented cargo loading systems which are installed in the
cargo area of commercial aircraft. Several major airlines are expected to
equip existing fleets with the SBC system over the next three to four years.
The Company reports the results of SBC as part of its Industrial Products
segment.
<PAGE>
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
manufacturing, distribution, design, 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.
Note 3 - Restricted Cash
The Company had approximately $545,000 of restricted cash on January 1,
1995 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>
Six Months Ended
(In thousands) ----------------------------
January 1, January 2,
1995 1994
------------ -------------
<S> <C> <C>
Net sales................................. $105,996 $ 98,929
Gross profit.............................. 34,219 32,665
Earnings from continuing operations....... 2,839 2,525
Net earnings.............................. 2,839 1,921
</TABLE>
On January 1, 1995, 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 $970,000 and $907,000 for
the six months ended January 1, 1995 and January 2, 1994, respectively, from
this investment. At the close of trading on January 2, 1994, Banner stock
was quoted at $4.50 per share. Based on this price the Company's equity
investment in Banner had an approximate market value of $38,197,000 versus a
carrying value of $54,105,000. The Company does not believe that this
decline in market value is a permanent impairment.
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") for $22.50 per share. Accordingly, the Company received $181,873,000
in gross proceeds and realized a pre-tax gain on the sale of $129,107,000 for
the quarter ended January 2, 1994. Prior to the sale of Rexnord, the Company
recorded an equity loss of $905,000 on this investment for the six month
period ended January 2, 1994.
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, of which $42,357,000 was available
on January 1, 1995. 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 January 1, 1995 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 six months ended January 1, 1995,
the Company repurchased 8,500 shares of FII's Series A Preferred Stock.
Effectively, there were 412,201 and 420,701 shares authorized, issued and
outstanding at January 1, 1995 and June 30, 1994, respectively.
Note 8 - Dividend Paid to Parent
During the six months ended January 1, 1995 and January 2, 1994, 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 Fiscal
1995, and approximately $9,669,000 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.
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 settled these
claims with the Department of Justice and agreed to pay $5,000,000, payable
in six equal semi-annual installments, with interest at 6.0% per year. The
first installment was made in the current second quarter period. The unpaid
balance is collateralized by certain excess real estate.
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, in
the first quarter of Fiscal 1995, 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
Fairchild Convac ("Convac"). The Company's operations are conducted through
Convac 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 and six month periods ended January 1, 1995 and January
2, 1994.
<PAGE>
<TABLE>
<CAPTION>
(In thousands) Three Months Ended Six Months Ended
January 1, January 2, January 1, January 2,
1995 1994 1995 1994
---------- ----------- ---------- ----------
(*) (*)
<S> <C> <C> <C> <C>
Sales by Business Segment:
Aerospace Fasteners................ $ 53,273 $ 50,446 $105,405 $102,024
Industrial Products................ 50,088 39,944 99,407 80,714
Communications Services............ 22,568 18,440 42,510 36,583
------- ------- ------- -------
Total................................. $125,929 $108,830 $247,322 $219,321
======= ======= ======= =======
Operating Income (loss) by
Business Segment:
Aerospace Fasteners................ $ (3,320) $(11,654) $ (2,149) $(18,031)
Industrial Products................ 4,039 4,903 8,950 9,897
Communications Services............ 3,829 4,114 8,251 8,045
------- ------- ------- -------
Total................................. 4,548 (2,637) 15,052 (89)
Corporate administrative expense... (2,376) (1,500) (4,352) (3,075)
Other corporate income (expense)... 460 (346) 54 1,563
------- ------- ------- -------
Operating income (loss)............... 2,632 (4,483) 10,754 (1,601)
Net interest expense.................. (9,119) (9,256) (18,524) (21,750)
Investment income, net................ 2,580 5,282 2,922 6,625
Equity in earnings of affiliates...... 803 799 1,106 568
Minority interest..................... (615) (584) (1,273) (1,189)
Non-recurring income.................. -- 129,107 -- 129,107
------- ------- ------- -------
Earnings (loss) from continuing
operations before income taxes....... (3,719) 120,865 (5,015) 111,760
Income tax provision.................. 207 44,185 1,223 41,841
------- ------- ------- -------
Earnings (loss) from continuing
operations.......................... $ (3,926) $ 76,680 $ (6,238) $ 69,919
======= ======= ======= =======
* Restated for the inclusion of a division previously included in net assets
held for sale. (See Note 1).
</TABLE>
General
- -------
Overall sales increased by 15.7% in the second quarter and 12.8% for the
six month period of Fiscal 1995 compared to sales for the same periods in
Fiscal 1994, which reflected stronger sales performances from all three
business segments.
Operating income increased $7.1 million in the second quarter and $12.4
million for the six month period of Fiscal 1995 compared to operating income
for the same periods in Fiscal 1994. During the Fiscal 1995 current quarter
and six month periods operating losses decreased significantly in the
Aerospace Fasteners segment. The Fiscal 1994 second quarter and six month
period included a restructuring charge in the Aerospace Fasteners segment of
$9.9 million. Operating income was down in the Industrial Products segment
in both current year periods and declined in the Communications Services
segment in the current second quarter period as a result of recent
acquisitions. (See discussion below).
Aerospace Fasteners
- -------------------
Sales in the Aerospace Fasteners segment increased 5.6% in the second
quarter and 3.3% for the six month period ended January 1, 1995, compared to
the corresponding Fiscal 1994 periods, primarily resulting from aggressive
management efforts during the quarter to reduce backlog caused by quality
problems and earthquake disruption, which are diminishing.
Operating losses in the Aerospace Fasteners segment decreased $8.3
million in the second quarter and $15.9 million for the Fiscal 1995 six month
period over the corresponding Fiscal 1994 periods; however this segment
continues to be affected by soft demand and price erosion and higher quality
control costs resulting from customers' intensified quality requirements.
The Fiscal 1995 quarter loss resulted primarily from excess costs incurred to
reduce the past due sales backlog, which includes many orders of small
quantities at low profit margins. A restructuring charge of $9.9 million was
recorded in the prior year second quarter and six month periods for
nonrecurring costs related to exiting certain aircraft engine bolt lines.
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 $4.3 million for
recoverability of costs related to business interruption and property damage.
Industrial Products
- -------------------
Sales in the Industrial Products segment increased 25.4% in the second
quarter and 23.2% in the Fiscal 1995 first six months, compared to the same
Fiscal 1994 periods. $8.2 million of the net increase in sales in the six
month period was at the D-M-E Company ("D-M-E"), which provides tooling to
the plastics industry, 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 Convac, a semiconductor equipment manufacturing company acquired at the
end of Fiscal 1994, and Fairchild Data Corporation. The combined sales of
these two companies was $8.7 million in the second quarter and $18.0 million
in the Fiscal 1995 first six months.
Operating income in the Industrial Products segment decreased 17.6% in
the second quarter and 9.6% in the first six months of Fiscal 1995, compared
to the same periods in Fiscal 1994. A 24.8% increase in operating income,
during the first six months, at D-M-E was offset by the inclusion of Convac,
two other operations recently added and Fairchild Data Corporation, which
reported combined operating losses totaling $1.6 million in the second
quarter, and $2.2 million in the first six months of Fiscal 1995. 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 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 22.4% in the
second quarter and 16.2% in the Fiscal 1995 first six months, compared with
the same periods in Fiscal 1994, primarily due to the inclusion of sales from
acquisitions 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 decreased 6.9%
in the second quarter and increased 2.6% in the Fiscal 1995 first six months,
compared to the same periods in Fiscal 1994. The decrease in operating
income in the Fiscal 1995 second quarter was primarily due to recognizing
initial costs related to integrating the recent acquisition. These costs
will likely affect the third quarter as well, after which management expects
this acquisition to contribute to growth in sales and operating income.
Other Expense/Income
- --------------------
Corporate Administrative Expense - FII's and TFC's staff performs work
on behalf of the Company, which is charged out monthly based on the estimated
level of effort. Corporate administrative expense increased $.9 million in
the current second quarter and $1.3 million in the six month period compared
to same periods in the prior year. This increase was primarily based on
increased TFC staff involvement on behalf of the Company. TFC expense was
not allocated to the Company in the prior year periods. Management believes
that the corporate administrative expense of the Company would be higher if
it operated as a separate independent entity.
Other Corporate Income - Other corporate income increased $.8 million in
the second quarter, largely due to increased royalty income received during
the quarter, and decreased $1.5 million in the six months ended January 1,
1995, compared to the same period in the prior year, primarily due to
recognizing gains on corporate real estate sold in the Fiscal 1994 six month
period.
<PAGE>
Net Interest Expense - Net interest expense decreased 1.5% in the second
quarter and 14.8% in the six month period ended January 1, 1995, compared to
the prior year periods. The Fiscal 1994 quarter included a $1.9 million
reduction in interest expense on intercompany borrowings which reduced the
rate from 12.23% to approximate market rates since January 1, 1993. The
Fiscal 1995 six month decline was primarily due to lower borrowings and
significantly higher cash and cash equivalent average balances during the
Fiscal 1995 period.
Investment income, net - Investment income was lower in the second
quarter and first six months, primarily as a result of recording larger gains
realized on the settlement and liquidation of investments in Fiscal 1994,
compared to Fiscal 1995. Also included in the Fiscal 1995 six month periods
were $.3 million of dividends realized on participating annuity contracts,
compared to $2.8 million in the Fiscal 1994 corresponding period.
Equity in earnings of affiliates increased $.5 million in the Fiscal
1995 first six months compared to the prior year period. The Fiscal 1994
first six months 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 FII's Series C
Preferred Stock.
Non-Recurring Income - Non-recurring income in the Fiscal 1994 periods
includes the net pre-tax gain of $129.1 million on the Company's 43.9% stock
interest in Rexnord Corporation, which was sold to BTR Dunlop Holdings, Inc.
for $22.50 per share on December 23, 1993.
Income taxes - In the first six months of Fiscal 1995, the Company
recorded a tax benefit of $1.2 million on a pretax loss of $5.0 million. The
tax benefit rate was less than the statutory rate 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 six months 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 six months, 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 six months, 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 earnings (loss) decreased $60.2 million in
the first six months of Fiscal 1995, compared to the first six months of
Fiscal 1994, primarily due to the $129.1 million net pre-tax gain recognized
from the sale of Rexnord Corporation in the Fiscal 1994 six month period.
Partially offsetting the decrease were: (1) the $12.4 million increase in
operating income in the first six months of Fiscal 1995, (2) the $16.0
million charge, net of tax, for the cumulative effect of accounting changes,
which was recorded in the first six months of Fiscal 1994, and (3) a decrease
in taxes of $40.6 million.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Working capital at January 1, 1995, was $124.6 million, which was $16.4
million lower than at June 30, 1994. The primary reasons for this decrease
included a $35.0 million reduction in cash, primarily required to service
debt and meet operating cash requirements during the first six months, and a
$7.6 million increase in accounts payable and other accrued liabilities.
Partially offsetting this reduction was an increase of $11.1 million in
inventories, reflecting acquisitions and efforts to reduce backlog, and a
reduction in current income taxes payable of $17.3 million, which was
reclassified to noncurrent income taxes.
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 January 1, 1995, had a book value
of $36.0 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 January 1, 1995 is a contractual obligation for the Company to
receive $15.9 million from an individual, which obligation has a net carrying
amount of $9.2 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 motion of 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, payment of
dividends on preferred stock and other affiliated transactions.
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
six month period January 1, 1995, capital expenditures, including the cost of
acquisitions, were $20.5 million. The Company anticipates that total capital
expenditures, including the cost of acquisitions, for the fiscal year ending
June 30, 1995 will be approximately $31.6 million.
Other liabilities that require the use of cash include post-employment
benefits for retirees, environmental investigation and remediation
obligations, and litigation settlements and related costs.
The Company expects that cash on hand, cash generated from operations,
borrowings and asset sales, 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 January 1, 1995. 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: $72.1
million for the third quarter of Fiscal 1995, $75.0 million for the fourth
quarter of Fiscal 1995, $76.6 million for the first quarter of Fiscal 1996,
and $78.4 million for the second 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 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.
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 January 1, 1995, 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
None.
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: February 10, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JAN-01-1995
<CASH> 59,195
<SECURITIES> 3,638
<RECEIVABLES> 78,191
<ALLOWANCES> 3,446
<INVENTORY> 101,159
<CURRENT-ASSETS> 258,446
<PP&E> 274,555
<DEPRECIATION> 99,939
<TOTAL-ASSETS> 881,968
<CURRENT-LIABILITIES> 133,821
<BONDS> 308,335
<COMMON> 100
18,549
100
<OTHER-SE> 271,034
<TOTAL-LIABILITY-AND-EQUITY> 881,968
<SALES> 247,322
<TOTAL-REVENUES> 248,351
<CGS> 186,672
<TOTAL-COSTS> 237,597
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,524
<INCOME-PRETAX> (5,015)
<INCOME-TAX> 1,223
<INCOME-CONTINUING> (6,238)
<DISCONTINUED> (50)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,288)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
