SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the year ended June 30, 1995 Commission File Number: 1-373
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RHI HOLDINGS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 34-1545939
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(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
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(Address of principal executive offices) (Zip Code)
(703) 478-5800
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(Registrant's Telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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11 7/8% Senior Subordinated Debentures Due 1999 New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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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
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<PAGE>
OMISSION OF CERTAIN INFORMATION
- -------------------------------
Registrant meets the conditions set forth in General Instructions
J(1)(a) and (b) of Form 10-K and is therefore filing this Form with the
reduced disclosure format.
DOCUMENTS INCORPORATED BY REFERENCE: None
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The Exhibit index is located on page 58.
<PAGE>
RHI HOLDINGS, 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 . . . . . . . . . . . . . . . . . . . . . . 7
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . 8
Item 4. Submission of Matters to a Vote of Stockholders . . . 10
PART II
Item 5. Market for the Company's Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . . . . . . 11
Item 6.* Selected Financial Data . . . . . . . . . . . . . . . 11
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . 11
Item 8. Financial Statements and Supplementary Data . . . . . 19
Item 9. Disagreements on Accounting and Financial Disclosure . 57
PART III
Item 10.* Directors and Executive Officers of the Registrant . . 57
Item 11.* Executive Compensation . . . . . . . . . . . . . . . . 57
Item 12.* Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . 57
Item 13.* Certain Relationships and Related Transactions . . . . 57
PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . 58
*Item of Form 10-K is omitted in accordance with General Instruction J,
Omission of Information by Certain Wholly-Owned Subsidiaries.
<PAGE>
PART I
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ITEM 1. BUSINESS
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Item 1 of Form 10-K is omitted in accordance with General Instruction
J(2)(d), Omission of Information by Certain Wholly-Owned Subsidiaries. A
brief description of the business done by RHI Holdings, Inc. and its
subsidiaries is furnished in lieu thereof:
(a) Brief Description
-----------------
RHI Holdings, Inc. (the "Company"), formerly known as Rexnord Holdings
Inc., is primarily a holding company incorporated in Delaware. It has two
subsidiaries, Fairchild Industries, Inc. ("FII") and Convac GmbH ("Convac").
As used herein, the term "Company" refers to RHI Holdings, Inc. and its
subsidiaries, unless otherwise indicated. The Company is a wholly-owned
subsidiary of The Fairchild Corporation ("TFC"). The Company also holds
significant equity interests in Banner Aerospace, Inc. ("Banner"), which is
a leading international distributor to the aerospace industry, and Nacanco
Paketleme ("Nacanco"), which manufactures customized cans for soft drinks and
beer in Turkey.
The Company conducts its operations primarily through a wholly-owned
subsidiary of FII, 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 includes (i) D-M-E Company
("DME") which designs, manufactures and markets tooling and electronic
control systems for the plastic injection molding and die casting industries,
(ii) Fairchild Data Corporation ("Data") a supplier of modems, (iii) Convac,
a subsidiary acquired in June 1994, which is a leading designer and
manufacturer of wet processing tools, equipment and systems required for the
manufacture of semiconductor chips and related products and for compact and
optical storage disks and flat panel displays, and (iv) Scandinavian
Bellyloading Company AB ("SBC") acquired in September, 1994. SBC is the
designer and manufacturer of patented cargo loading systems, which are
installed in the cargo area of commercial aircraft. 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 users. For a
comparison of the sales of each of the Company's three business segments for
each of the last three fiscal years, see "Management Discussion and Analysis
of Results of Operations and Financial Condition".
<PAGE>
Fiscal 1995 Developments
- ------------------------
Overall sales increased by 22.8% in Fiscal 1995, compared to sales in
Fiscal 1994, which reflected stronger sales performances from all three
business segments.
Operating income was $15.5 million in Fiscal 1995, compared to an
operating income of $0.5 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.
Aerospace Fasteners
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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 40.2% of total Company sales for
the year ended June 30, 1995.
Industrial Products
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The Industrial Products segment consists primarily of three distinct
companies operating under the trade names DME, Data and Convac. DME is a
leading manufacturer and supplier of tooling and electronic control products
for the plastics injection molding industry worldwide. Data is a supplier of
modems for use in high-speed digitized voice and data communications. Convac
is a leading designer and manufacturer of wet processing tools, equipment and
systems required for the manufacture of semiconductor chips and related
products and for compact and optical storage discs and flat panel displays.
The Industrial Products segment accounted for 39.9% of total Company sales
for the year ended June 30, 1995.
Communications Services
- -----------------------
Fairchild Communications Services Company 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 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 telecommunication assets of Amerisystems and JWP Telecom, Inc. The
Communications Services segment accounted for 19.9% of total Company sales
for the year ended June 30, 1995.
Foreign Operations
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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 18 of the Company's consolidated
financial statements included in Item 8, Financial Statements and
Supplementary Data.
Major Customers
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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, $41.3 million and $4.2 million, respectively. The Company
anticipates that approximately 88.1% of the aggregate backlog at June 30,
1995 will be delivered by June 30, 1996.
Suppliers
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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
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As of June 30, 1995, the Company had approximately 3,800 employees.
Approximately 5% 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
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As of June 30, 1995, the Company owned or leased properties totaling
approximately 1,739,000 square feet, approximately 1,164,000 square feet of
which was owned and 575,000 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 783,000 square feet, with principal
operating facilities of approximately 451,000 square feet located in Arizona,
Michigan, Pennsylvania and Belgium.
The Company owns its corporate headquarters at Washington-Dulles
International Airport.
The Company has several parcels of property which it is attempting to
market, lease and/or develop: (i) an 88 acre parcel located in Farmingdale,
New York, (ii) a 12 acre parcel located in City of Commerce, California,
(iii) a 6 acre parcel in Temple City, California, and (iv) an 8 acre parcel
in Chatsworth, California. In addition to the above, certain other
properties of the Company are being marketed.
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 these
properties owned or leased by the Company is, in management's opinion,
generally well maintained, is suitable to support the Company's business and
is adequate for the Company's present needs. All of the Company's occupied
properties are maintained and updated on a regular basis.
<TABLE>
<CAPTION>
Owned or Square Business Segment/
Location Leased Footage Group Use
- -------- -------- ------- ------------------- -------------
<S> <C> <C> <C> <C>
Torrance, California Owned 284,000 Aerospace Fasteners Manufacturing
Youngwood, Pennsylvania Owned 135,000 Industrial Products Manufacturing
Chantilly, Virginia Owned 125,000 Corporate Office
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
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 17 to the Company's consolidated
financial statements, included in Item 8 Financial Statements and
Supplementary Data.
ITEM 3. LEGAL PROCEEDINGS
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Government Claims
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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 Federal Acquisition Regulations
and 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 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.
<PAGE>
Civil Litigation
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Maurice Bidermann Litigation
----------------------------
The Company obtained a judgment in the United States District for the
Southern District of New York, for $12,947,000, plus interest, against
Maurice Bidermann ("Bidermann") for breach of an agreement under which
Bidermann was to have acquired the Company's interest in Bidermann Industries
USA, Inc. ("BIUSA"), for approximately $22,500,000, of which Bidermann paid
$10,000,000, and then defaulted. On June, 1995, the Company settled this
claim for approximately $12,000,000, in addition to the $10,000,000
previously collected, and transferred its interest in BIUSA to third parties.
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 totalled $14,087,000. As of June 30, 1995,
the estimated probable exposures for these matters was $13,918,000. It is
reasonably possible the Company's total exposure for these matters could be
approximately $22,870,000.
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
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ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
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STOCKHOLDER MATTERS
-------------------
All of the Company's outstanding common stock is held by TFC. There is
no established public trading market and no dividends have been declared for
this class of common stock.
ITEM 6. SELECTED FINANCIAL DATA
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Item 6 of Form 10-K is omitted in accordance with General Instructions
J(2)(a), Omission of Information by Certain Wholly-Owned Subsidiaries.
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
- ----------------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
Item 7 of Form 10-K is omitted in accordance with General Instruction
J(2)(a), 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 subsidiaries, Fairchild Industries, Inc. ("FII") and Convac GmbH
("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 of the operations of the Company
for the fiscal years ended June 30, 1995 ("Fiscal 1995") and June 30, 1994
("Fiscal 1994"). This comparison relates solely to the continuing portions
of the Company's business.
<PAGE>
<TABLE>
<CAPTION>
(In thousands) For the years ended June 30,
----------------------------
1995 1994
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<S> <C> <C>
Sales by Business Segment:
Aerospace fasteners............... $219,129 $203,456
Industrial products............... 217,596 166,499
Communications services........... 108,710 74,190
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Total $545,435 $444,145
======= =======
Operating Income (Loss) by
Business Segment:
Aerospace fasteners*.............. $(14,073) $(32,208)
Industrial products............... 21,319 21,024
Communications services........... 18,498 16,483
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Total 25,744 5,299
Corporate administrative expense.. (9,902) (8,023)
Other corporate (expense) income.. (321) 3,194
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Operating income.................. $ 15,521 $ 470
======= =======
*Includes restructuring charges of $18.9 million, 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 22.8% in Fiscal 1995, compared to sales in
Fiscal 1994, which reflected stronger sales performances from all three
business segments.
Operating income increased $15.1 million in Fiscal 1995, compared to
operating income in Fiscal 1994. During the Fiscal 1995, operating losses
decreased significantly in the Aerospace Fasteners segment primarily due to
the Fiscal 1994 period having included a restructuring charge of $18.9
million and a $4.0 million charge for earthquake damage and related business
interruption. 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 damages and business
interruption.
Industrial Products
- -------------------
Sales in the Industrial Products segment increased 30.7% 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 Convac, a semiconductor equipment manufacturing company
acquired at the end of Fiscal 1994, another small acquisition made early in
Fiscal 1995 and Fairchild Data Corporation. The combined sales of these
companies was $49.8 million in the Fiscal 1995 period.
Operating income in the Industrial Products segment increased 1.4% 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 operating
losses from the other operations which incurred significant R&D and start-up
costs. 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 was 17.0% in Fiscal 1995. This lower
return was anticipated as a result of the JWP acquisition, which has lower
gross margins due to the nature of the business.
Other Expenses/Income
- ---------------------
Corporate Administrative Expense - FII's and TFC's staff perform work on
behalf of the Company, which is charged out monthly based on the estimated
level of effort. Corporate administrative expense increased 23.4% in Fiscal
1995 compared to the prior year. The increase in the current year was
primarily due to increased FII and TFC staff involvement on behalf of the
Company and its subsidiaries. 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 decreased $3.5 million
in Fiscal 1995, compared to Fiscal 1994, primarily due to increased carrying
costs and losses reported on net assets held for sale. Gains on sale of a
trademark was recognized in the prior year period.
Net Interest Expense - Net interest expense decreased 4.6% in Fiscal
1995, compared to the prior year period, due primarily to lower borrowings
and increased interest income earned on higher cash and cash equivalents
average balances during the Fiscal 1995 period.
Investment Income, net - Investment income approximated the prior year.
Included in Fiscal 1995, was a $1.3 million gain on the Bidermann settlement
discussed in Item 8, Note 16 to the Financial Statements.
Equity in earnings of affiliates increased $8.4 million in Fiscal 1995,
compared to Fiscal 1994. Fiscal 1995 included $2.2 million of positive
earnings from Nacanco Paketleme. The Fiscal 1994 period included a $5.7
million loss from Banner Aerospace which included losses on discontinued
operations and restructuring charges.
Minority interest expense includes dividend expense on FII's Series C
Preferred Stock.
Non-Recurring Income - Non-recurring income in the Fiscal 1994 period
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.
on December 23, 1993.
Income Taxes - For Fiscal 1995, the Company recorded a tax provision of
$.8 million on a pretax loss of $16.9 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 after-tax charge to earnings for the cumulative effect of this
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 Fiscal 1994, 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 Fiscal 1994, 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 ("Rexnord") cumulative
charge resulting from this change in accounting.
Net Earnings (Loss) - The net earnings (loss) decreased $52.1 million in
Fiscal 1995, compared to the Fiscal 1994 period, primarily due to the $129.1
million net pre-tax gain on the sale of the Company's interest in Rexnord
recognized in the Fiscal 1994 period. Offsetting the decrease were: (1) the
$15.0 million increase in operating income and the $8.4 million increase in
equity earnings in Fiscal 1995, (2) a decrease in taxes of $35.6 million in
Fiscal 1995 and (3) the $16.0 million charge, net of tax, for the cumulative
effect of accounting changes, which was recorded in Fiscal 1994.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1995 was $141.8 million, which was slightly
higher than the prior year. A $32.6 million decrease in cash and short term
investments was offset by a $31.0 million increase in receivables and
inventories, which was higher as a result of acquisitions, slower customer
payments, inventory build and increased sales to reduce backlog. Accounts
payable and accrued expenses increased $18.0 million, primarily as a result
of acquisitions. This was offset by a $17.3 million decrease in the income
taxes payable account as a result of recording income taxes on the sale of
shares of Rexnord in Fiscal 1994.
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 June 30, 1995 had a book value of
$49.8 million and included two parcels of real estate in California, an 88
acre parcel of real estate located in Farmingdale, New York, two landfills in
Pennsylvania, a real estate joint venture in California and several other
parcels elsewhere which the Company plans to sell, lease or develop, subject
to the resolution of certain environmental matters and market conditions. At
the end of 1995, it was determined to reclassify to this classification
several investments and properties now being marketed.
The Company's principal cash requirements include debt service, capital
expenditures, acquisitions, payment of other liabilities and mandatory
redemption of, 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
Fiscal 1995, capital expenditures, including the cost of acquisitions, were
$32.7 million. Capital expenditures for Fiscal 1994 and Fiscal 1993 were
$18.1 million and $22.9 million, respectively. The Company anticipates that
capital expenditures in Fiscal 1996 will approximate $18.8 million.
Investments and advances in affiliated companies increased $34.2 million
primarily resulting from a $20.5 million investment in TFC's outstanding
debt, the purchase of Nacanco common stock from TFC, and recording equity
earnings.
Long term investments declined $14.4 million as a result of (1)
recovering proceeds in excess of book value from the liquidation of
collateral and assets attached relating to the Maurice Bidermann litigation,
and (2) reclassifying a real estate joint venture to net assets held for
sale.
Other assets declined $24.9 million, due primarily to reclassifying
noncurrent taxes to the noncurrent tax liability caption on the balance sheet
and reclassifying several properties to net assets held for sale.
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.
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, as of 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 million 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
acceleration of the principal and interest outstanding, and termination of
the revolving credit line. However, if necessary, management believes a
waiver can be obtained.
FII may transfer available cash as dividends to the Company 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 June 30, 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.
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 has 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.... 20
Consolidated Statements of Earnings - The three years ended
June 30, 1995, 1994 and 1993............................. 22
Consolidated Statements of Stockholder's Equity - The three
years ended June 30, 1995, 1994 and 1993.................. 23
Consolidated Statements of Cash Flows - The three years
ended June 30, 1995, 1994 and 1993........................ 24
Notes to Consolidated Financial Statements.................. 26
Report of Independent Public Accountants.................... 56
Supplementary data regarding "Quarterly Financial Information (Unaudited)" is
set forth under this Item 8 in Note 19 to Consolidated Financial Statements.
<PAGE>
<TABLE>
RHI HOLDINGS, 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, $545 restricted... $ 64,174 $ 94,220
Short-term investments....................... 4,045 6,578
Accounts receivable-trade, less allowances
of $5,415 and $3,314....................... 90,100 73,376
Due from The Fairchild Corporation........... -- 1,305
Inventories:
Finished goods............................ 53,105 47,120
Work-in-process........................... 27,704 30,907
Raw materials............................. 23,434 11,988
--------- ---------
104,243 90,015
Prepaid expenses and other current assets.... 24,986 18,723
--------- ---------
Total Current Assets......................... 287,548 284,217
Property, plant and equipment, net........... 170,156 171,245
Net assets held for sale..................... 49,753 35,134
Cost in excess of net assets acquired,
(Goodwill) less accumulated amortization of
$35,134 and $29,116........................ 204,851 200,873
Investments and advances - affiliated
companies.................................. 111,744 77,581
Deferred loan costs.......................... 7,107 9,938
Prepaid pension assets....................... 59,567 61,628
Long-term investments........................ 346 14,716
Other assets................................. 9,960 34,856
--------- ---------
Total Assets................................. $ 901,032 $ 890,188
========= =========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<TABLE>
RHI HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
June 30, June 30,
LIABILITIES AND STOCKHOLDER'S EQUITY 1995 1994
- ------------------------------------ ------------ ------------
<S> <C> <C>
Current Liabilities:
Bank notes payable and current maturities
of long-term debt........................... $ 16,803 $ 14,978
Accounts payable............................. 47,124 35,169
Accrued liabilities:
Salaries, wages and commissions........... 16,225 14,667
Employee benefit plan costs............... 1,352 2,120
Insurance................................. 16,835 14,942
Interest.................................. 10,031 10,236
Other..................................... 37,354 33,813
Income tax payable........................ -- 17,264
--------- ---------
81,797 93,042
Total Current Liabilities.................... 145,724 143,189
Long-term debt............................... 336,268 312,481
Other long-term liabilities.................. 18,342 23,676
Retiree health care liabilities.............. 49,474 51,189
Noncurrent income taxes...................... 44,135 28,821
Minority interest in subsidiaries............ 24,533 24,595
Redeemable preferred stock of subsidiary..... 17,722 18,932
------- -------
Total liabilities............................ 636,198 602,883
Stockholder's Equity:
Common Stock................................. 100 100
Preferred Stock.............................. 100 100
Paid-in capital.............................. 229,533 229,297
Retained earnings............................ 46,102 74,132
Cumulative translation adjustment............ 8,724 3,346
Net unrealized holding loss on available-for-
sale securities............................ (19,725) (18,265)
Additional minimum liability for pensions,
net of tax................................. -- (1,405)
--------- ---------
Total Stockholder's Equity................... 264,834 287,305
--------- ---------
Total Liabilities and Stockholder's Equity... $ 901,032 $ 890,188
========= =========
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
(In thousands)
<CAPTION>
For the Years Ended June 30,
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Sales............................ $545,435 $444,145 $463,567
Other income, net................ 2,341 5,882 6,908
------- ------- -------
547,776 450,027 470,475
Costs and Expenses:
Cost of sales.................... 419,008 337,881 351,074
Selling, general & administrative 103,129 76,986 77,278
Research and development......... 4,100 3,940 3,262
Amortization of goodwill......... 6,018 5,890 5,922
Restructuring.................... -- 18,860 15,469
Unusual items.................... -- 6,000 --
------- ------- -------
532,255 449,557 453,005
Operating income................... 15,521 470 17,470
Interest expense................... 43,254 43,637 47,528
Interest income.................... (4,529) (3,042) (1,233)
------- ------- -------
Net interest expense............... 38,725 40,595 46,295
Investment income, net............. 5,954 6,004 2,776
Equity in earnings (loss) of
affiliates....................... 2,778 (5,591) 9,876
Minority interest.................. (2,449) (2,552) (2,289)
Non-recurring income............... -- 129,082 --
------- ------- -------
Earnings (loss) from continuing
operations before income taxes... (16,921) 86,818 (18,462)
Income tax provision (benefit)..... 819 36,459 (3,528)
------- ------- -------
Earnings (loss) from continuing
operations........................ (17,740) 50,359 (14,934)
Loss on disposal of discontinued
operations, net................... (290) -- --
------- ------- -------
Earnings (loss) before extraordinary
items and accounting changes....... (18,030) 50,359 (14,934)
Extraordinary items, net............ -- (243) (12,614)
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)................ $(18,030) $ 34,102 $(27,548)
======= ======= =======
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 STOCKHOLDER'S EQUITY
(In thousands)
<CAPTION>
Unrealized Additional
Loss On Minimum
Cumulative Noncurrent Liability
Common Pref. Paid-in Retained Translation Marketable For
Stock Stock Capital Earnings Adjustment Securities Pensions Total
------ ----- ------- -------- ----------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, July 1, 1992 $100 $100 $224,800 $88,429 $ 6,169 $ - $ - $319,598
- ----------------------
Net loss.............. - - - (27,548) - - - (27,548)
Cumulative translation
adjustment, net...... - - - - (3,503) - - (3,503)
Net unrealized holding
loss on noncurrent
marketable securities - - - - - (18,986) - (18,986)
Dividends to parent... - - - (10,000) - - - (10,000)
Gain on Initial Public
Offering of Rexnord
Corporation.......... - - 1,079 - - - - 1,079
--- --- ------- ------ ----- ------- ------ -------
BALANCE, June 30, 1993 100 100 225,879 50,881 2,666 (18,986) - 260,640
- ----------------------
Net earnings.......... - - - 34,102 - - - 34,102
Cumulative translation
adjustment, net...... - - - - 680 - - 680
Dividends to parent... - - - (10,000) - - - (10,000)
Net unrealized holding
gain on noncurrent
marketable securities - - - - - 721 - 721
Additional minimum
liability for
pensions............. - - - - - - (1,405) (1,405)
Transfer of subsidiary
from parent.......... - - - (851) - - - (851)
Capital contribution
from parent.......... - - 3,381 - - - - 3,381
Gain on purchase of
preferred stock of
subsidiary........... - - 37 - - - - 37
--- --- ------- ------ ----- ------- ------ -------
BALANCE, June 30, 1994 100 100 $229,297 74,132 3,346 (18,265) (1,405) 287,305
- ----------------------
Net loss.............. - - - (18,030) - - - (18,030)
Cumulative translation
adjustment, net..... - - - - 5,378 - - 5,378
Dividends to parent... - - - (10,000) - - - (10,000)
Net unrealized holding
loss on available-
for-sale securities. - - - - - (1,460) - (1,460)
Reduction of minimum
liability for pensions- - - - - - 1,405 1,405
Gain on purchase of
prefered stock of
subsidiary.......... - - 236 - - - - 236
--- --- ------- ------ ----- ------- ------ -------
BALANCE, June 30, 1995$100 $100 $229,533 $46,102 $8,724 $(19,725) $ - $264,834
=== === ======= ====== ===== ======= ====== =======
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 CASH FLOWS
(In thousands)
<CAPTION>
For the Years Ended June 30,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)....................... $(18,030) $ 34,102 $(27,548)
Adjustments to reconcile net earnings
(loss) to net cash provided by (used for)
operating activities:
Cumulative effect of accounting changes,
net................................... -- 16,014 --
Extraordinary loss on recapitalization
of Rexnord Corporation................ -- -- 11,808
Depreciation and amortization........... 36,760 33,575 31,527
Accretion of discount on long-term
liabilities........................... 3,713 3,288 2,252
Provision for restructuring and unusual
items (excluding cash payments of
$6,020 in 1994 and $7,896 in 1993).... -- 18,840 7,573
Net gain on sale of Rexnord investment.. -- (129,082) --
Loss on sale of property, plant and
equipment............................. 713 411 2,297
Undistributed (earnings) loss of
affiliates........................... (2,466) 5,902 (9,620)
Minority interest....................... 2,449 2,552 2,289
Change in trading securities............ 1,879 -- --
Change in accounts receivable........... (16,696) (2,515) 7,268
Change in inventories................... (13,525) 4,246 9,444
Change in other current assets.......... 1,059 10,561 (999)
Change in non-current assets............ 6,954 (1,983) (13,204)
Change in accounts payable, accrued
and other liabilities................. 2,267 (1,123) (31,418)
-------- -------- --------
Net cash provided by (used for) operating
activities.............................. 5,077 (5,212) (8,331)
Cash flows from investing activities:
Net proceeds from sale (purchase) of
Rexnord investment...................... -- 178,089 (18,635)
Change in TFC and other investments....... (8,396) (1,584) 31,798
Equity investments in affiliates.......... (13,213) -- --
Acquisition of subsidiaries, net of cash
acquired................................ (12,061) (1,905) (7,313)
Collections on notes and other receivables
related to operations sold.............. -- 1,183 218
Purchase of property, plant and equipment. (20,652) (16,218) (15,544)
Proceeds from sale of property, plant and
equipment............................... 1,243 1,351 1,287
-------- -------- --------
Net cash (used for) provided by investing
activities................................ (53,079) 160,916 (8,189)
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 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............ $ 72,450 $ 68,558 $224,728
Debt repayments and repurchase of
debentures, net......................... (46,932) (176,148) (165,609)
Payment of dividends...................... (10,000) (1,007) (10,000)
Capital contribution from TFC............. -- 3,381 --
-------- -------- --------
Net cash provided by (used for) financing
activities................................ 15,518 (105,216) 49,119
Effects of exchange rate changes on cash.... 2,438 894 (2,900)
Change in cash and cash equivalents......... (30,046) 51,382 29,699
Cash and cash equivalents, beginning of
year...................................... 94,220 42,838 13,139
-------- -------- --------
Cash and cash equivalents, end of year...... $ 64,174 $ 94,220 $ 42,838
======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
RHI HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Corporate Structure: RHI Holdings, Inc. (the "Company"), formerly known
as Rexnord Holdings Inc., is a holding company incorporated in the State of
Delaware. It has two subsidiaries, Fairchild Industries, Inc. ("FII") and
Convac GmbH ("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 significant equity interests in Banner
Aerospace, Inc. ("Banner") and Nacanco Paketleme ("Nacanco").
Fiscal Year: The fiscal year ("Fiscal") of the Company ends 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 (see Note 6).
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 net cash
disbursements (receipts) made by the Company for income taxes and interest
were as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Interest....................... $ 39,943 $ 38,562 $ 37,758
Income taxes................... 221 (931) 2,679
</TABLE>
Restricted Cash: On June 30, 1995 and 1994, the Company had restricted
cash of $545,000, all of which is maintained as collateral for certain debt
facilities. Cash investments are in high grade, short-term certificate of
deposits.
Investments: On July 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115"). There was no cumulative effect as
a result of adopting SFAS 115 in Fiscal 1995.
Management determines the appropriate classification of its investments
at the time of acquisition and reevaluates such determination at each balance
sheet date. Trading securities are carried at fair value, with unrealized
holding gains and losses included in earnings. Available-for-sale securities
are carried at fair value, with unrealized holding gains and losses, net of
tax, reported as a separate component of shareholder's equity. Investments
in equity securities that do not have readily determinable fair values are
stated at cost, adjusted for permanent impairment, and categorized as other
investments. At June 30, 1994, the Company used the lower of cost or market
method for its investments. In determining realized gains and losses, the
cost of securities sold is based on the specific identification method.
Interest on corporate obligations, as well as dividends on preferred stock
are accrued at the balance sheet date.
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>
June 30, June 30,
(In thousands) 1995 1994
-------- --------
<S> <C> <C>
Last-in, first-out (LIFO)................... $ 69,211 $ 69,829
First-in, first-out (FIFO).................. 35,032 20,186
------- -------
Total inventories........................... $104,243 $ 90,015
======= =======
</TABLE>
For inventories valued on the LIFO method, the excess of current FIFO
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>
June 30, June 30,
(In thousands) 1995 1994
-------- --------
<S> <C> <C>
Land...................................... $ 14,022 $ 16,227
Buildings and improvements................ 45,621 44,818
Machinery and equipment................... 208,970 184,147
Transportation vehicles................... 618 618
Furniture and fixtures.................... 9,001 5,632
Construction in progress.................. 4,582 6,358
------- -------
282,814 257,800
Less: Accumulated depreciation........... (112,658) (86,555)
------- -------
Net property, plant, and equipment........ $170,156 $171,245
======= =======
</TABLE>
Amortization of Goodwill: The excess of the 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 debt outstanding, using the effective interest method.
Amortization expense for these loan costs for Fiscal 1995, 1994 and 1993 was
$2,918,000, $2,948,000 and $2,493,000, 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 stockholder's equity. Foreign transaction gains and
losses are included in other income and were not significant in Fiscal 1995,
1994 and 1993.
Research and Development: Company-sponsored research and development
expenditures are expensed as incurred.
Non-recurring Items: Non-recurring income for Fiscal 1994 consists of
the gain realized from the sale of the Company's equity investment in Rexnord
Corporation ("Rexnord") (see Note 6).
Reclassification: Certain amounts in prior years' financial statements
have been reclassified to conform with the 1995 presentation.
In October 1994, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 119 ("SFAS 119"), "Disclosure
about Derivative Financial Instruments and Fair Value of Financial
Instruments". SFAS 119, which is effective for the Company's Fiscal 1995
financial statements, requires certain disclosure about all derivative
financial instruments. Management has determined that the requirements of
SFAS 119 are immaterial to the Company's Fiscal 1995 financial statements.
2. ACQUISITIONS
------------
On June 10, 1994, the Company acquired 100% of the Common Stock of
Convac GmbH ("Convac")for approximately $4,700,000. Convac 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.
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 acquistions on
an individual basis.
3. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
------------------------------------------------
The Company has decided not to sell Fairchild Data Corporation ("Data")
which previously was included in net assets held for sale. The Company is
recording the Fiscal 1995 and 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, and several other parcels of real estate located
primarily throughout the continental United States, which the Company plans
to sell, lease or develop, subject to the resolution of certain environmental
matters and market conditions. Also included in net assets held for sale are
limited partnership interests in (i) a real estate development joint venture
located in California; and (ii) a landfill development partnership.
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 $290,000 after tax loss on the disposal of
discontinued operations relating to (i) workers' compensation claims for
employees of operations which were previously discontinued, and (ii)
liability insurance premiums paid on properties of discontinued operations.
4. EXTRAORDINARY ITEMS
-------------------
The Company recognized extraordinary gains and losses from the early
extinguishment of debt resulting from repurchases of its debentures on the
open market or in negotiated transactions, and the write-offs of certain
deferred costs associated with the issuance of securities repurchased. Total
repurchases executed by the Company were: $11,023,000 face value purchased
for $11,387,000 in Fiscal 1994, and $559,000 face value purchased for
$495,000 in Fiscal 1993. In Fiscal 1993, FII wrote-off $1,262,000 of
deferred loan costs in association with certain amendments to the Company's
credit agreement with a consortium of banks. Early extinguishment of the
Company's debt and the write-off of certain deferred loan costs resulted in
an extraordinary loss of $243,000, net of a $131,000 tax benefit, and
$810,000, net of a $435,000 tax benefit in Fiscal 1994 and 1993,
respectively.
In Fiscal 1993, in conjunction with an initial public offering and
recapitalization of Rexnord, the Company recorded an extraordinary charge of
$11,804,000, relating to 42.0% (its previous ownership percentage share) of
Rexnord's extraordinary charge relating to premiums paid to repurchase debt
and write off deferred loan costs.
<PAGE>
5. INVESTMENTS
-----------
Short-term investments at June 30, 1995, primarily consist of common
stock investments in public corporations, which are classified as trading
securities. All other short-term and all long-term investments do not have
readily determinable fair values and consist of investments in limited
partnerships and certain preferred and common stocks. A summary of
investments held by the Company consist of the following:
<TABLE>
<CAPTION>
(In thousands) 1995 1994
------------------ ------------------
Aggregate Aggregate
Name of Issuer or Fair Cost Market Cost
Title of Each Issue Value Basis Value Basis
- ------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Short-term investments:
- -----------------------
Trading securities:
Common Stock................. $ 3,968 $ 5,088 $ 2,969 $ 4,053
Other Investments.............. 77 77 3,609 3,609
------ ------ ------ ------
$ 4,045 $ 5,165 $ 6,578 $ 7,662
====== ====== ====== ======
Other long-term investments:
- ----------------------------
Bidermann Investment (a)....... $ -- $ -- $ 9,314 $ 9,314
Real Estate Development Joint
Venture Limited Partnership(b) -- -- 3,396 3,396
Preferred Stock................ -- -- 2,006 2,006
Other investment............... 346 346 -- --
------ ------ ------ ------
$ 346 $ 346 $14,716 $14,716
====== ====== ====== ======
(a) The Company received proceeds of approximately $12,000,000 from the sale
of collateral and liquidation of assets attached in the Maurice
Bidermann litigation (see Note 16).
(b) Represents a former plant site in Redondo Beach, California, which was
contributed to a joint venture with a developer that has built and
partially leased a retail center. This investment was reclassified to
net assets held for sale in 1995.
Investment income is summarized as follows:
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Gross realized gain from sales............. $3,947 $3,919 $ 934
Change in unrealized holdings loss on
trading securities....................... (36) -- --
Lower of cost or market valuation
adjustment............................... -- (1,084) 288
Gross realized loss from impairments....... (402) (186) (200)
Dividend income............................ 2,445 3,355 1,490
Interest income............................ -- -- 264
----- ----- -----
$5,954 $6,004 $2,776
===== ===== =====
</TABLE>
6. INVESTMENTS AND ADVANCES - AFFILIATED COMPANIES
-----------------------------------------------
The following table presents summarized financial statement information
on a combined 100% basis of Banner and Nacanco, the Company's principal
investments, which are accounted for using the equity method.
<TABLE>
<CAPTION>
(In thousands) For the years ended June 30,
--------------------------------
Statement of Earnings: 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net sales..................... $313,888 $283,055 $313,594
Gross profit.................. 100,644 98,689 81,352
Earnings from continuing
operations.................. 9,623 17,231 281
Discontinued operations, net.. -- (12,996) (712)
Net earnings (loss)........... 9,623 4,235 (431)
Balance Sheet at June 30,:
Current assets................ $257,314 $280,144
Noncurrent assets............. 61,348 57,881
Total assets.................. 318,662 338,025
Current liabilities........... 61,174 60,753
Noncurrent liabilities........ 101,256 126,920
</TABLE>
On June 30, 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 (loss) of $138,000, $(5,697,000) and
$(1,380,000) on its investment in Banner for Fiscal 1995, 1994 and Fiscal
1993, respectively. At the close of trading on June 30, 1995, Banner stock
was quoted at $5.00 per share. Based on this price, the Company's equity
investment in Banner had an approximate market value of $42,441,000 versus a
carrying value of $53,931,000. The Company does not believe this decline in
market value is a permanent impairment.
On June 30, 1995 the Company owned approximately 26.7% of Nacanco common
stock, which was effectively purchased from TFC on January 2, 1995. The
Company recorded equity earnings from its investment in Nacanco of $2,248,000
for the six months ended June 30, 1995.
On December 23, 1993, the Company completed a sale of its 43.9% stock
interest in Rexnord to BTR Dunlop Holdings, Inc. ("BTR"). Accordingly, the
Company received $181,873,000 in gross proceeds and realized a pre-tax gain
on the sale of $129,082,000 in Fiscal 1994. Prior to the sale of Rexnord,
the Company recorded equity earnings (loss) of $(905,000) and $10,828,000
from this investment for Fiscal 1994 and 1993, respectively. The net
earnings for Fiscal 1994, were decreased by recording the Company's 43.9%
share of the cumulative charge which resulted from the adoption of SFAS No.
106 and SFAS No. 109 at Rexnord. (See Notes 8 and 9).
The Company is accounting for its investments in TFC at market value.
As of June 30, 1995, the amortized cost basis of the Company's investment in
TFC common stock was $44,606,000 and had been written down by $29,859,000,
before tax, to market value. The Company recorded a gross unrealized loss of
$2,185,000 from its investment in TFC common stock in 1995. In addition, the
Company's amortized cost basis of its net investment in TFC debt was
$23,405,000 on June 30, 1995, and was written down by $29,000, before tax, to
market value in 1995. The carrying value of investments and advances -
affiliated companies consists of the following:
<TABLE>
<CAPTION>
(In thousands) June 30, June 30,
1995 1994
Investment in TFC: -------- --------
<S> <C> <C>
TFC stock and warrants.............. $ 14,746 $ 16,931
TFC 12.25% senior subordinated notes
due 1996.......................... 17,703 2,918
TFC 12% intermediate subordinated
debentures due 2002............... 5,675 --
-------- --------
$ 38,124 $ 19,849
Investment in Affiliated Companies:
Banner Aerospace, Inc.............. $ 53,931 $ 53,793
Nacanco Paketlene.................. 15,248 --
Others............................. 4,441 3,939
-------- --------
73,620 57,732
-------- --------
$ 111,744 $ 77,581
======== ========
</TABLE>
On June 30, 1995, approximately $(4,693,000) of the Company's
$46,102,000 consolidated retained earnings was from undistributed losses of
50 percent or less owned affiliates accounted for by the equity method.
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 shares will be
released.
7. 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 8.32% and
8.89% in 1995 and 1994, respectively). $ 5,448 $ 3,974
======= =======
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
11.875% Senior Subordinated Debentures
due 1997 through 1999................. 85,687 85,593
12.75% Debentures due in 1995........... -- 500
10.65% Industrial revenue bonds......... 1,500 1,500
Capital lease obligations interest from
5.85% to 15.50% (see Note 16)......... 1,253 3,302
Other notes payable, collateralized
by property or equipment, interest
from 5.5% to 10.65%................... 4,788 6,277
------- -------
347,623 323,485
Less: Current maturities............... (11,355) (11,004)
------- -------
Net long-term debt...................... $336,268 $312,481
======= =======
</TABLE>
The Company and its subsidiaries maintain a credit agreement (the "Credit
Agreement") with a consortium of banks, which provides a revolving credit
facility and two term loans to FII and a revolving credit facility to the
Company (collectively the "Credit Facilities"). The revolving credit
facility provided to the Company generally bears interest at 1.0% over the
prime rate and matures February 28, 1996. The revolving credit facility, and
Term Loan VIII, provided to FII, generally bear interest at 3.75% over the
London Interbank Offered Rate ("LIBOR") and at 2.75% over LIBOR for Term Loan
VII, respectively. The commitment fee on the unused portion of the revolving
credit facilities was 1.0% at June 30, 1995. The Credit Facilities provided
to FII mature on March 31, 1997. The Credit Facilities are secured by
substantially all of FII's assets.
The following table summarizes the Credit Facilities under the Credit
Agreement at June 30, 1995:
<TABLE>
<CAPTION>
(In thousands) Outstanding Total
as of Available
June 30, 1995 Facilities
------------- ----------
<S> <C> <C>
RHI Holdings, Inc.
Revolving credit facility (a)...... $ 100 $ 5,000
======= =======
Fairchild Industries, Inc.
Revolving credit facility (b)...... $ 34,700 $ 50,250
Term Loan VII ..................... 49,696 49,696
Term Loan VIII..................... 42,000 42,000
------- -------
$126,396 $141,946
======= =======
Total
Revolving credit facilities........ $ 34,800 $ 55,250
Term loans......................... 91,696 91,696
------- -------
$126,496 $146,946
======= =======
(a) This amount is included in short-term notes payable.
(b) In the first quarter of Fiscal 1995, the revolving credit facility at
FII was reduced by $9,250,000 to $50,250,000. In addition, the
borrowing rate generally 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>
At June 30, 1995, the Company had outstanding letters of credit of
$11,598,000, which were supported by the Credit Agreement and other bank
facilities on an unsecured basis. At June 30, 1995, the Company had unused
bank lines of credit aggregating $8,852,000 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.
Summarized below are certain items and other information relating to the
debt issuances outstanding at June 30, 1995:
<PAGE>
<TABLE>
<CAPTION>
(In thousands) 11.875%
Senior FII FII 9.75%
Subordinated 12.25% Senior Subordinated
Debentures Notes Debentures
------------ ------------- ----------------
<S> <C> <C> <C>
Date Issued........... March 1987 Aug. 1992 Jan. 1978
Face Value............ $126,000 $125,000 $ 16,082
Balance, June 30,
1995................ $ 85,687 $125,000 $ 2,999
Percent Issued at..... 99.214 100.0 95.784
Bond Discount......... $ 990 N/A $ 678
Amortization 1995..... $ 94 - $ 6
1994..... $ 80 - $ 6
1993..... $ 43 - $ 11
Yield to Maturity..... 12.01% 12.25% 9.75%
Interest Payments..... Semi-Annual Semi-Annual Annual
Sinking Fund Start
Date................ 3/1/97 N/A 4/1/83
Sinking Fund
Installments........ $ 31,500 none $ 1,005
Fiscal Year Maturity.. 1999 1999 1998
Redeemable by Company
after............... 3/1/92 7/31/97 1/1/98
</TABLE>
Under the most restrictive covenants of the above indentures, the
Company's consolidated net worth as defined must not be less than
$125,000,000. The indentures also provide restrictions on the amount of
additional borrowings by the Company.
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,
including a requirement for the Company and TFC to maintain unrestricted
holding company cash and cash equivalent balances of $30,000,000 for the
quarter ended December 31, 1995, and $10,000,000 at the end of each fiscal
quarter thereafter (including any non-restricted VSI directed reduction
amounts contributed). The Company was in compliance with the Credit
Agreement, as amended, at June 30, 1995. To comply with the minimum EBITDA
Covenant requirements (as amended), the Company's subsidiary, VSI, must earn
for the cumulative total of the trailing four quarters, EBITDA as follows:
$60,000,000 for the first quarter of Fiscal 1996, $65,000,000 for the second
quarter of Fiscal 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 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.
For FII's operating subsidiary, VSI, 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 the Company. 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. FII's sale of
property, plant, and equipment is limited during the remaining term of the
Credit Agreement.
FII may transfer available cash as dividends to the Company at any such
time that TFC is unable 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 June 30,
1995, FII was unable to provide dividends to the Company. The Credit
Agreement also restricts FII from additional borrowings under the Credit
Facilities for payment of any dividends.
In addition, the Credit Agreement permits the Company to pay dividends
(i) up to $10,000,000 per year, and (ii) in amounts in excess of $10,000,000
if needed by TFC to service its indebtedness; provided, however, that
dividends pursuant to clause (ii) of this sentence are permitted only if and
to the extent TFC does not have cash, cash equivalents or marketable
securities readily available to service its indebtedness and maintain
reasonable working capital.
Annual maturities of long-term debt obligations (exclusive of capital
lease obligations) for each of the five years subsequent to June 30, 1995,
are as follows: $15,789,000 for 1996, $122,506,000 for 1997, $23,723,000 for
1998, $188,022,000 for 1999, and $56,000 for 2000.
8. PENSIONS AND POSTRETIREMENT BENEFITS
------------------------------------
Pensions
--------
The Company and its subsidiaries have 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 is to make the minimum annual contribution required by applicable
regulations.
The following table provides a summary of the components of net periodic
pension expense (income) for the plans:
<TABLE>
<CAPTION>
(In thousands)
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Service cost of benefits earned
during the period...................... $ 3,917 $ 3,827 $ 4,184
Interest cost of projected benefit
obligation............................. 14,860 14,552 14,166
Return on plan assets.................... (14,526) (5,051) (31,490)
Amortization of prior service cost....... 81 126 111
Net amortization and deferral............ (4,341) (15,007) 13,488
------- ------- -------
(9) (1,553) 459
Net periodic pension expense (income) from
other plans including foreign plans.... 78 (745) (1,654)
------- ------- -------
Net periodic pension expense(income)..... $ 69 $ (2,298) $ (1,195)
======= ======= =======
</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
the plans:
<PAGE>
<TABLE>
<CAPTION>
(In thousands)
1995 1994
-------- --------
<S> <C> <C>
Projected benefit obligation:
Vested benefit obligation................. $168,843 $183,120
Non-vested benefits....................... 6,488 10,684
------- -------
Accumulated benefit obligation............ 175,331 193,804
Effect of projected future compensation
levels.................................. 5,815 4,418
------- -------
181,146 198,222
Plan assets at fair value................... 212,477 239,756
------- -------
Plan assets in excess of projected benefit
obligations............................... 31,331 41,534
Unrecognized net loss....................... 42,720 35,843
Unrecognized prior service cost............. 329 411
Unrecognized net transition assets.......... (190) (594)
Additional minimum liability for one defined
plan...................................... -- (2,166)
------- -------
Prepaid pension cost prior to SFAS 109
implementation............................ 74,190 75,028
Effect of SFAS 109 implementation........... (14,623) (13,400)
------- -------
Prepaid pension cost (a).................... $ 59,567 $ 61,628
======= =======
(a) Does not include excess liabilities over plan assets of $1,405,000, net
of tax at June 30, 1994.
</TABLE>
Plan assets include Class A Common Stock of TFC valued at $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 106"), "Employers' Accounting for
Postretirement Benefits Other than Pensions". The 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
106. The unamortized portion of the overstated liability for discontinued
operations was $10,370,000, 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 as the cumulative effect of this accounting change was $534,000, net
of tax. For the Fiscal year ended June 30, 1994, the effect of the changes
on pretax income from continuing operations was not material.
As a result of Rexnord's adoption of SFAS 106, effective July 1, 1993,
the Company recorded an after-tax charge of $7,481,000 to net earnings, which
represented the Company's share of Rexnord's cumulative effect of this change
in accounting, net of the related tax benefits from the charge.
The Company provides health care benefits for most retired employees.
Postretirement health care expense from continuing operations totaled
$1,388,000, $1,948,000, and $1,366,000 for the years ended June 30, 1995,
1994 and 1993, respectively. The Company has accrued approximately
$33,778,000 and $35,386,000 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 $3,185,000, $3,011,000 and $4,866,000 for the
years ended June 30, 1995, 1994 and 1993, respectively. The components of
expense in 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
(In thousands)
1995 1994
------- -------
<S> <C> <C>
Service cost of benefits earned...................$ 321 $ 437
Interest cost on liabilities...................... 4,385 4,526
Net amortization and deferral..................... (133) (4)
------- -------
Net periodic postretirement benefit cost..........$ 4,573 $ 4,959
======= =======
</TABLE>
The following table sets forth the funded status for the Company's
postretirement health care benefit plans at June 30, 1995 and 1994:
<TABLE>
<CAPTION>
(In thousands)
1995 1994
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees........................................$ 45,970 $ 48,556
Fully eligible active participants.............. 531 497
Other active participants....................... 5,741 4,962
------- -------
Accumulated postretirement benefit obligation..... 52,242 54,015
Unrecognized net loss............................. 223 113
------- -------
Accrued postretirement benefit liability..........$ 52,019 $ 53,902
======= =======
</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 $2,385,000, and increase the net periodic postretirement
benefit cost by approximately $263,000 for Fiscal 1995.
9. 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 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 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 109, prior years' financial statements have not
been restated. The Company elected the immediate recognition method and
recorded a $7,476,000 charge representing the prior years' cumulative effect.
This charge represents deferred taxes that had to be recorded related
primarily to fixed assets, prepaid pension expenses, and inventory basis
differences.
As a result of Rexnord's adoption of SFAS 109 effective July 1, 1993,
the Company recorded an after-tax charge to net earnings of $523,000, which
represented the Company's share of Rexnord's cumulative effect for this
change in accounting.
The provision (benefit) for income taxes from continuing operations is
summarized as follows:
<PAGE>
<TABLE>
<CAPTION>
(In thousands)
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.................... $ 311 $ 13,842 $ (6,969)
State...................... 1,630 635 1,002
Foreign.................... 1,808 204 1,453
------- ------- -------
3,749 14,681 (4,514)
Deferred:
Federal.................... (2,698) 21,535 960
State...................... (232) 243 26
------- ------- -------
(2,930) 21,778 986
------- ------- -------
Net tax provision (benefit)... $ 819 $ 36,459 $ (3,528)
======= ======= =======
</TABLE>
The income tax provision (benefit) for continuing operations differs
from that computed using the statutory Federal income tax rate of 35% in 1995
and 1994 and 34% in 1993 for the following reasons:
<TABLE>
<CAPTION>
(In thousands)
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Computed statutory amount............ $ (5,922) $ 30,386 $ (6,277)
State income taxes, net of
applicable Federal tax benefit..... 828 655 678
Foreign Sales Corporation benefits... -- (350) (340)
Nondeductible acquisition valuation
items.............................. 1,947 4,386 2,004
Equity income and dividends.......... -- -- (2,531)
Tax on foreign earnings, net of tax
credits............................ 3,155 141 3,361
Difference between book and tax
basis of assets acquired and
liabilities assumed................ 1,366 1,366 582
Other................................ (555) (125) (1,005)
------- ------- -------
Net tax provision (benefit).......... $ 819 $ 36,459 $ (3,528)
======= ======= =======
</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................... $ 6,933 $ (2,006) $ 8,939 $ 1,801
Asset basis differences............ 1,875 (4,894) 6,769 (8,927)
Employee compensation and benefits. 5,372 174 5,198 (856)
Environmental reserves............. 5,249 (1,202) 6,451 (267)
Credit carryforwards............... 2,891 -- 2,891 --
Postretirement benefits............ 20,607 529 20,078 (125)
Other.............................. 3,115 1,396 1,719 (3,944)
------- ------- ------- -------
46,042 (6,003) 52,045 (12,318)
Deferred tax liabilities:
Asset basis differences............ (39,830) 3,951 (43,781) (9)
Inventory.......................... (6,694) 3,176 (9,870) 1,310
Pensions........................... (19,759) 1,074 (20,833) 20
Other.............................. (10,669) 732 (11,401) (9,494)
------- ------- ------- -------
(76,952) 8,933 (85,885) (8,173)
------- ------- ------- -------
(30,910) 2,930 (33,840) (20,491)
Less amount related to accounting change -- -- -- 1,287
------- ------- ------- -------
Net deferred tax liability........... $(30,910) $ 2,930 $(33,840) $(21,778)
======= ======= ======= =======
The amounts included in the balance sheet are as follows:
Prepaid expense and other current assets:
Current deferred................... $ 9,075 $ --
Tax receivable..................... 2,783 --
------- -------
$ 11,858 $ --
======= =======
Other assets:
Tax receivable $ -- $ 14,109
======= =======
Income taxes (receivable) payable:
Current deferred.................... $ -- $ (6,859)
Tax payable......................... -- 24,123
------- -------
$ -- $ 17,264
======= =======
Noncurrent income tax liabilities:
Noncurrent deferred................. $ 39,985 $ 40,699
Other............................... 4,150 (11,878)
------- -------
$ 44,135 $ 28,821
======= =======
</TABLE>
For Fiscal 1993 prior to its change in its 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........ 201
Depreciation......................... 2,839
Investment earnings.................. --
Other................................ (2,867)
-------
$ 986
=======
</TABLE>
Domestic income taxes, less allowable credits, are provided on the
unremitted income of foreign subsidiaries and affiliated companies, to the
extent that such earnings are intended to be repatriated. No domestic income
taxes or foreign withholding taxes are provided on the undistributed earnings
of foreign subsidiaries and affiliates that are considered permanently
invested, or which would be offset by allowable foreign tax credits. At June
30, 1995, the amount of domestic taxes payable upon distribution of such
earnings was not significant.
In the opinion of management, adequate provision has been made for all
income taxes and interest, and any liability that may arise for prior periods
will not have a material effect on the financial condition or results of
operations of the Company.
10. MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES
----------------------------------------------
The Company includes $23,804,000 and $23,981,000 of minority interest on
its balance sheet at June 30, 1995 and 1994, respectively, represented by the
Series C Preferred Stock of FII. The Series C Preferred Stock of FII has
an annual dividend requirement of $4.25 per share through July 21, 1999, and
$7.00 per share thereafter. The Company purchased 4,100 and 800 shares of
FII's Series C Preferred Stock in Fiscal 1995 and 1994, respectively. There
were 553,460 and 557,560 shares outstanding at June 30, 1995 and 1994,
respectively. Series C Preferred Stock is listed on the New York Stock
Exchange ("NYSE").
11. 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. Annual mandatory redemptions of 165,564
shares at $45.00 per share plus any dividend in arrears began in January
1989. FII has the option of redeeming any or all of its shares, at $45.00
per share. Due to the merger of FII in August 1989 with the Company, holders
of the Series A Preferred Stock are entitled, at their option, but subject to
compliance with certain covenants under FII's Credit Agreement, to redeem
their shares for $27.18 in cash.
The Company purchased 26,900 and 4,000 shares of FII's Series A
Preferred Stock in Fiscal 1995 and 1994, respectively. Effectively, there
were 393,801 and 420,701 shares outstanding at June 30, 1995 and June 30,
1994, respectively. Series A Preferred Stock is listed on the NYSE.
Annual maturity redemption requirements for redeemable preferred stock
as of June 30, 1994, are as follows: $2,820,000 for 1996, $7,450,000 for
1997, and $7,450,000 for 1998.
12. 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 publicly issued preferred stock of FII 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:
<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............... $ 64,174 $ 64,174 $ 94,220 $ 94,220
Investment Securities:
Short-term equity securities.......... 3,968 3,968 2,969 2,969
Short-term limited partnerships....... 12 12 2,899 2,899
Short-term other investments.......... 65 99 710 803
Long-term equity securities........... -- -- 2,006 2,006
Long-term limited partnerships........ 346 346 3,396 3,508
Long-term Bidermann investment........ -- -- 9,314 9,314
Notes Receivable:
Current............................... -- -- 1,275 1,229
Long-term............................. -- -- 5,671 6,077
Short-term debt......................... 5,448 5,448 3,974 3,974
Long-term debt:
Bank credit agreement................. 126,396 126,396 97,315 97,315
Subordinated debentures and senior
notes............................... 213,687 212,912 215,091 212,307
Industrial revenue bonds.............. 1,500 1,500 1,500 1,500
Capitalized leases.................... 1,253 1,253 3,302 3,302
Other................................. 4,788 4,788 6,278 6,278
Minority interest in FII................ 23,804 20,755 23,981 21,675
Redeemable preferred stock of subsidiary 17,722 14,571 18,932 15,461
</TABLE>
13. 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.
<PAGE>
<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>
14. 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 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 of $4,000,000 in Fiscal 1994 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 this real estate which is now included in net assets held for
sale.
<PAGE>
15. RELATED PARTY TRANSACTIONS
--------------------------
Corporate office administrative expense recorded by FII was billed to
the Company on a monthly basis during 1995, 1994 and 1993. These costs
represent the cost of services incurred on behalf of the Company. In
addition, TFC billed the Company for services performed by TFC on behalf of
the Company in 1995. The Company has reimbursed FII and TFC for these
services.
The Company has entered into a tax sharing agreement with TFC whereby
the Company is included in the consolidated federal income tax return of TFC.
The Company makes payments to TFC based on the amount of federal income
taxes, if any, it would have paid had it filed a separate federal income tax
return.
The Industrial Products segment had intercompany sales to direct
subsidiaries of TFC, the Company's parent, of $5,468,000 in 1995. These
sales are included in the total revenues of the Company.
The Aerospace Fasteners segment had sales to Banner Aerospace, Inc. a
47.2% affiliate of the Company, of $5,494,000, $5,680,000 and $8,750,000 in
1995, 1994 and 1993, respectively.
16. 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>
Building and improvements......... $ 422
Machinery and equipment........... 12,688
Furniture and fixtures............ 297
Less: Accumulated depreciation... (7,167)
-------
$ 6,240
=======
</TABLE>
<PAGE>
Future minimum lease payments:
<TABLE>
<CAPTION>
Operating Capital
(In thousands) Leases Leases
------ ------
<S> <C> <C>
1996............................. $ 8,508 $ 1,109
1997............................. 7,516 244
1998............................. 7,428 8
1999............................. 6,812 --
2000............................. 7,284 --
------ ------
$37,548 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.
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 FII did not comply with Federal Acquisition Regulations
and 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 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.
Civil Litigation
- ----------------
Maurice Bidermann Litigation
----------------------------
The Company obtained a judgment in the United States District for the
Southern District of New York, for $12,947,000, plus interest, against
Maurice Bidermann ("Bidermann") for breach of an agreement under which
Bidermann was to have acquired the Company's interest in Bidermann Industries
USA, Inc. ("BIUSA"), for approximately $22,500,000, of which Bidermann paid
$10,000,000, and then defaulted. In June 1995, the Company settled this
claim for approximately $12,000,000, in addition to the $10,000,000
previously collected, and transferred its interest in BIUSA to third parties.
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 totalled $14,087,000. As of June 30, 1995,
the estimated probable exposures for these matters was $13,918,000. It is
reasonably possible the Company's total exposure for these matters could be
approximately $22,870,000.
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.
17. 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 engaged in (i) the manufacture of tooling and injection
control systems for the plastic injection molding and die casting industries,
(ii) the supply of modems for use in high speed digitized voice and data
communications, and (iii) the designing and manufacturing of wet processing
tools, equipment and systems. The Communications Services segment provides
telecommunication services to office buildings and sells, installs and
maintains telecommunications systems for business and governmental 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, marketable securities, prepaid pension costs, 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).......... 217,596 166,499 148,449
Communications Services.......... 108,710 74,190 68,038
--------- --------- ---------
Total Segment Sales................ $ 545,435 $ 444,145 $ 463,567
========= ========= =========
Operating Income (Loss) by Segment:
Aerospace Fasteners (b).......... $ (14,073) $ (32,208) $ (15,398)
Industrial Products (a).......... 21,319 21,024 19,081
Communications Services.......... 18,498 16,483 14,688
--------- --------- ---------
Total Segment Operating Income..... 25,744 5,299 18,371
Corporate Administrative Expense. (9,902) (8,023) (6,310)
Other Corporate (Expense)Income.. (321) 3,194 5,409
--------- --------- ---------
Total Consolidated Operating Income $ 15,521 $ 470 $ 17,470
========= ========= =========
Capital Expenditures:
Aerospace Fasteners.............. $ 4,974 $ 4,320 $ 5,711
Industrial Products.............. 4,931 3,997 4,002
Communications Services.......... 10,349 7,775 5,792
Corporate and Other.............. 398 126 39
--------- --------- ---------
Total Capital Expenditures......... $ 20,652 $ 16,218 $ 15,544
========= ========= =========
Depreciation and Amortization:
Aerospace Fasteners.............. $ 15,619 $ 14,373 $ 14,280
Industrial Products.............. 7,385 6,765 6,154
Communications Services.......... 10,329 8,948 7,936
Corporate and Other.............. 3,427 3,489 3,157
--------- --------- ---------
Total Depreciation and Amortization $ 36,760 $ 33,575 $ 31,527
========= ========= =========
Identifiable Assets at June 30,:
Aerospace Fasteners.............. $ 290,465 $ 306,008 $ 337,185
Industrial Products.............. 185,458 164,632 146,754
Communications Services.......... 108,666 79,087 78,752
Corporate and Other.............. 316,443 340,461 368,029
--------- --------- ---------
Total Identifiable Assets.......... $ 901,032 $ 890,188 $ 930,720
========= ========= =========
(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
period 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 business interruption of $4,000,000 in Fiscal
1994.
</TABLE>
18. FOREIGN OPERATIONS AND EXPORT SALES
-----------------------------------
The Company's operations are located primarily in the United States and
Europe. Inter-area 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.................... $ 413,430 $ 358,614 $ 369,343
Europe........................... 121,226 76,366 85,479
Other............................ 10,779 9,165 8,745
--------- --------- ---------
Total Sales $ 545,435 $ 444,145 $ 463,567
========= ========= =========
Operating Income by Geographic Area:
United States.................... $ 23,654 $ (1,011) $ 15,390
Europe........................... 785 5,847 2,034
Other............................ 1,305 463 947
--------- --------- ---------
Total Segment Operating Income..... $ 25,744 $ 5,299 $ 18,371
========= ========= =========
Identifiable Assets by Geographic
Area at June 30,:
United States.................... $ 479,086 $ 458,621 $ 479,751
Europe........................... 106,428 86,545 78,176
Other............................ 9,465 4,561 4,764
Corporate and other assets....... 306,053 340,461 368,029
--------- --------- ---------
Total Identifiable Assets.......... $ 901,032 $ 890,188 $ 930,720
========= ========= =========
</TABLE>
Export sales are defined as sales to customers in foreign countries by
the Company's domestic operations. Export sales amounted to the following:
<PAGE>
<TABLE>
<CAPTION>
(In thousands)
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Export Sales
Europe........................... $ 16,547 $ 12,692 $ 15,297
Other............................ 18,469 16,593 13,546
--------- --------- ---------
Total Export Sales................. $ 35,016 $ 29,285 $ 28,843
========= ========= =========
</TABLE>
19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
-------------------------------------------
<TABLE>
<CAPTION>
First Second Third Fourth
(In thousands) Quarter Quarter Quarter Quarter
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1995:
Sales........................... $121,393 $125,929 $150,755 $147,358
Gross profit.................... 32,253 28,397 35,734 30,043
Loss from continuing operations. (2,312) (3,926) (3,771) (7,731)
Loss on disposal of discontinued
operations.................... (25) (25) (215) (25)
Net loss........................ (2,337) (3,951) (3,986) (7,756)
1994:
Sales........................... $110,491 $108,830 $112,836 $111,988
Gross profit.................... 22,962 25,875 27,138 30,289
Earnings (loss) from continuing
operations.................... (6,761) 76,680 (5,159) (14,401)
Extraordinary items, net........ -- -- (147) (96)
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)............. (22,775) 76,680 (5,306) (14,497)
</TABLE>
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 quarter 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 second quarter of Fiscal 1994 includes non-recurring income of
$129,094,000, net pre-tax, from the gain on the sale of the Company's 43.9%
stock interest in Rexnord.
Extraordinary items relate to the early extinguishment of debt by the
Company. (See Note 4).
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 RHI Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of RHI Holdings,
Inc. (a Delaware corporation and wholly-owned subsidiary of The Fairchild
Corporation and formerly known as Rexnord Holdings Inc.) and subsidiaries as
of June 30, 1995 and 1994, and the related consolidated statements of
earnings, stockholder's 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 RHI Holdings, 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 8 and 9 to the consolidated financial statements,
effective July 1, 1993, the Company changed its methods of accounting for
postretirement benefits other than pensions, and income taxes.
Arthur Andersen LLP
Washington, D.C.
September 15, 1995
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
- -------------------------------------------------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Item 10 of Form 10-K is omitted in accordance with General Instruction
J(2)(c), Omission of Information by Certain Wholly-owned Subsidiaries.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
Item 11 of Form 10-K is omitted in accordance with General Instruction
J(2)(c), Omission of Information by Certain Wholly-owned Subsidiaries.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
Item 12 of Form 10-K is omitted in accordance with General Instruction
J(2)(c), Omission of Information by Certain Wholly-owned Subsidiaries.
ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
- -------------------------------------------------------
Item 10 of Form 10-K is omitted in accordance with General Instruction
J(2)(c), Omission of Information by Certain Wholly-owned Subsidiaries.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ---------------------------------------------------------------------------
The following documents are filed as a part of this Form 10-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 Independent Auditors' Report
Schedule Number Description Page Number
--------------- ----------- -----------
II Valuation and Qualifying Accounts 67
All other schedules are omitted because they are not required, are
inapplicable, or the information is included in the consolidated financial
statements or notes thereto.
<PAGE>
Report of Independent Public Accountants
----------------------------------------
To RHI Holdings, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of RHI Holdings, Inc. (formerly known as
Rexnord Holdings 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. (The following references to Registrant are The
Fairchild Corporation, formerly Banner Industries, Inc., the
parent of RHI Holdings).
3. Articles of Incorporation and By-Laws, as amended.
4(a) Indenture between Rexnord Acquisition Corp ("RAC") and Irving
Trust Company dated as of March 2, 1987, pursuant to which RAC's
Senior Subordinated Debentures due 1990 (the "Rexnord Senior
Debentures") were issued (the "Rexnord Senior Indenture"), and
specimen of Rexnord Senior Debenture (incorporated by reference
from the 1987 10-K).
4(b) First Supplemental Indenture between Rexnord Inc. ("Rexnord")
(as successor to RAC) and Irving Trust Company dated as of July
1, 1987, to the Rexnord Senior Indenture (incorporated by
reference to Registration Statement No. 33-15359 on Form S-2).
4(c) Second Supplemental Indenture between Rexnord Holdings, Inc.,
now known as RHI Holdings, Inc. ("RHI") (as successor to Rexnord)
and Irving Trust Company dated as of August 16, 1988, to the
Rexnord Senior Indenture (incorporated by reference to the 1988
10-K).
4(d) Securities Purchase Agreement dated as of March 2, 1987, by and
among Registrant, RAC and each of the Purchasers of the Senior
Subordinated Debentures and other securities (incorporated by
reference from Exhibit 4(k) of the Registration Statement on Form
S-2 of Banner Industries, Inc. filed with the Securities and
Exchange Commission on June 26, 1987 (No. 33-15359)).
4(e) Registration Rights Agreement dated as of March 2, 1987 by and
among Registrant, RAC and each of the Purchasers of the Senior
Subordinated Debentures and other securities (incorporated by
reference to Exhibit 4(d) of Report on Form 8-K of Banner
Industries, Inc., filed with the Securities and Exchange
Commission on March 17, 1987).
4(f) Indenture between Rex-PT, Inc. ("Rex-PT") and Irving Trust
Company dated as of August 15, 1988, pursuant to which Rex-PT
Senior Subordinated Notes due 1988 ("Rex-PT Notes") were issued,
and specimen of Rex-PT Note (incorporated by reference from
Registrant's Report on Form 8-K dated August 16, 1988).
4(g) Indenture between Rexnord and First Wisconsin Trust Company
dated as of June 1, 1983 (The "Rexnord Indenture"), First
Supplemental Indenture between Rexnord and First Wisconsin
Trust Company dated as of October 1, 1984, to the Rexnord
Indenture, pursuant to which Rexnord's Debentures due 1994
(the "Rexnord Debentures") were issued, and specimen of
Rexnord Debenture (incorporated by reference to Form 8-A of
Rexnord dated October 3, 1984).
4(h) Second Supplemental Indenture among Rexnord, RHI and First
Wisconsin Trust Company dated as of August 16, 1988, to
the Rexnord Indenture (incorporated by reference to the 1988
10-K).
4(i) Indenture dated as of November 1, 1982, between Fairchild
Industries, Inc. ("Fairchild") and Continental Illinois National
Bank and Trust Company of Chicago, pursuant to which certain debt
securities of Fairchild were issued (incorporated by reference to
Registration Statement No. 2-80009 on Form S-3).
4(j) Indenture dated as of January 1, 1978, between Fairchild and
Bankers Trust Company, pursuant to which Fairchild's 9-3/4%
Subordinated Debentures due April 1, 1988 were issued
(incorporated by reference to Registration Statement No. 2-60451
on Form S-7).
10(a) Restated and Amended Credit Agreement dated as of July 27, 1992
(incorporated by reference in the 1993 10-K).
10(a)(i) Amendment No. 1 dated as of June 30, 1993 to Restated and
Amended Credit Agreement dated as of July 27, 1992 (incorporated
by reference in the 1993 10-K).
10(a)(ii) Amendment No. 2, dated as of October 1, 1993, to Restated and
Amended Credit Agreement dated as of July 27, 1992 (incorporated
by reference in the 1994 10-K).
10(a)(iii)Amendment No. 3, dated as of December 23, 1993, to Restated
and Amended Credit Agreement dated as of July 27, 1992
(incorporated by reference in the 1994 10-K).
10(a)(iv) Amendment No. 4, dated as of March 31, 1994, to Restated
and Amended Credit Agreement dated as of July 27, 1992
(incorporated by reference in the 1994 10-K).
*10(a) (v) Amendment No. 5, dated as of July 29, 1994, Restated and
Amended Credit Agreement dated as of July 27, 1992.
*10(a)(vi) Amendment No. 6, dated as of October 15, 1994, to Restated and
Amended Credit Agreement dated as of July 27, 1992.
*10(a)(vii)Amendment No. 7, dated as of January 18, 1995, to Restated and
Amended Credit Agreement dated as of July 27, 1992.
*10(a)(viii)Amendment No. 8, dated as of February 15, 1995, to Restated and
Amended Credit Agreement dated as of July 27, 1992.
*10(a)(ix) Amendment No. 9, dated as of May 25, 1995, to Restated and
Amended Credit Agreement dated as of July 27, 1992.
<PAGE>
*10(a)(x) Amendment No. 10, dated as of June 30, 1995, to Restated and
Amended Credit Agreement dated as of July 27, 1992.
10(b) Share Purchase Agreement dated January 13, 1989, between
Textron, Inc. and Registrant regarding sale to Textron Inc. of
all shares of Avdel PLC held by Registrant or Rexnord Holdings
(U.K.) PLC (incorporated by reference to the 1989 10-K).
10(c) Form of Agreement among Registrant, Transcontinental Services
Group, N.V., Jeffrey J. Steiner, Nathaniel de Rothschild, Robert
P. Burrow and Daniel Lebard (incorporated by reference to
Schedule 13D of Transcontinental Services Group N.V. dated
January 28, 1988).
10(d) Securities Purchase Agreement dated as of August 15, 1988, by
and among Registrant, Rex-PT, Inc. ("Rex-PT"), Rex-PT Holdings
Inc. ("Rex-PT Holdings") and certain Purchasers, including (i) as
Exhibit 2, Debt Registration Rights Agreement dated as of August
15, 1988, by and among Rex-PT and certain Purchasers, (ii) as
Exhibit 3, Common Stock Registration Rights Agreement dated as of
August 16, 1988, by and among Rex-PT Holdings and certain
Purchasers, and (iii) as Exhibit 4, Stockholders' Agreement dated
as of August 16, 1988, by and among Registrant, Rex-PT Holdings,
RHI and certain holders of Rex-PT Holdings common stock
(incorporated by reference to the August 16, 1988 8-K).
10(e) Form of Securities Purchase Agreement among Rex-PT Holdings,
Rex-PT, Registrant and Rex-PT Investors Inc. ("Rex-PT Investors")
(incorporated by reference to Registrant's Current Report on Form
8-K dated September 29, 1988 (the "September 29, 1988 8-K")).
10(f) Form of Agreement of Merger between Rex-PT Holdings and Rex-PT
Investors (incorporated by reference to the September 29, 1988
8-K).
10(g) Form of Securities Purchase Agreement among Rex-PT Investors,
Rex-PT Holdings, Rex-PT, Registrant and certain purchasers
(incorporated by reference to the September 29, 1988 8-K).
10(h) Form of Stockholders' Agreement among Rex-PT Holdings,
Registrant, RHI and Rex-PT Investors (incorporated by reference to
the September 29, 1988 8-K).
10(i) Form of Voting Trust Agreement among certain holders of Rex-PT
Holdings common stock (incorporated by reference to the September
29, 1988 8-K).
10(j) Form of Amended and Restated Common Stock Registration Rights
Agreement among Rex-PT Holdings and certain purchasers
(incorporated by reference to the September 29, 1988 8-K).
<PAGE>
10(k) Form of Common Stock Registration Rights Agreement between
Rex-PT Holdings and Rex-PT Investors (incorporated by reference
to the September 29, 1988 8-K).
10(l) Form of Common Stock Registration Rights Agreement between
Rex-PT Holdings and RHI (incorporated by reference to the
September 29, 1988 8-K).
10(m) Form of Registration Rights Agreement between Rex-PT Holdings,
RHI and certain purchasers (incorporated by reference to the
September 29, 1988 8-K).
10(n) Form of Registration Rights Agreement between Rex-PT Holdings,
RHI and certain purchasers (incorporated by reference to the
September 29, 1988 8-K).
10(o) Form of Amended and Restated Stockholders' Agreement between
Rex-PT Holdings, Registrant, RHI and certain investors
(incorporated by reference to the September 29, 1988
8-K).
10(p) Share Purchase Agreement dated October 4, 1988, by and between
Rexnord Holdings, Registrant, ChemRex Inc. and SKW Alloys, Inc.,
ABM Investments Ltd., SKW Bauchemie GmbH and SKW Trostberg Ag
(incorporated by reference to Registrant's Current Report on Form
8-K dated November 15, 1988 (the "November 15, 1988 8-K")).
10(q) Asset Purchase Agreement dated November 15, 1988, by and among
RHI, ChemRex Inc. and J.W. Brett, Inc. (incorporated
by reference to the September 29, 1988 8-K).
10(r) Asset Purchase Agreement dated as of December 16, 1988, between
RHI and Ilium Industries, Inc. (the "Ilium Agreement"); Amendment
to the Ilium Agreement dated as of February 21, 1989; and Second
Amendment to the Ilium Agreement dated as of March 15, 1989)
(incorporated by reference to Registrant's Current Report on Form
8-K dated March 17, 1989).
10(s) Agreement and Plan of Merger dated as of May 7, 1989, among
Registrant, Specialty Fastener Holdings, Inc. and Fairchild, and
Amendment thereto dated May 12, 1989 (incorporated by reference
to Registrant's Current Report on Form 8-K dated June 19, 1989).
10(t) Assets Purchase Agreement dated May 31, 1989, among Matra S.A.,
AERO Acquisition Corp., Registrant and Fairchild Acquisition
Corp. ("FAC") (incorporated by reference to Exhibit (a)(10) to
Amendment No. 2 to Tender Offer Statement on schedule 14D-1 and
Schedule 13D of Registrant and FAC, dated May 31, 1989).
10(u) Agreement dated as of June 28, 1992, between Banner Investments,
Inc. and Registrant (incorporated by reference to 1992 10-K).
10(v) Agreement dated as of June 26, 1993, between Banner Investments,
Inc. and Registrant (incorporated by reference to 1993 10-K).
10(w) Exchange and Standstill Agreement dated July 19, 1993, among The
Fairchild Corporation, Registrant, RHI and Rex-PT Holdings, Inc.
(incorporated by reference to 1993 10-K).
10(x) Registration Rights Agreement dated July 9, 1993 between
Rexnord Corporation and RHI (incorporated by reference to 1994
10-K).
10(y) Allocation Agreement dated April 13, 1993 by and among The
Fairchild Corporation, RHI, Rex-PT Holdings, Rexnord Corporation,
Rexnord Puerto Rico, Inc. and Rexnord
Canada Limited (incorporated by reference to 1993 10-K).
10(z) Trademark Purchase Agreement dated April 13, 1993 by and
between Rexnord Corporation and RHI (incorporated by reference
to 1993 10-K).
10(a)(a) Purchase Agreement by and between BTR Dunlop Holdings, Inc., The
Fairchild Corporation and Registrant dated as of December 2, 1993
(incorporated by reference to Registrant's Current Report on
Form 8-K dated December 23, 1993).
*22 Significant subsidiaries of RHI Holdings, Inc.
28(a) Form 11-K Annual Report of the Rexnord Savings and Investment
Plan for the year ended December 31, 1987 (incorporated by
reference to 1988 Form 10-K).
28(b) Financial statements, related notes thereto, financial
statement schedules, and Auditors' Reports of Banner Aerospace,
Inc. for the fiscal year ended March 31, 1994 (incorporated by
reference to Banner Aerospace, Inc.'s Form 10-K for fiscal year
ended March 31, 1994).
99(a) Registrant's press release, dated December 23, 1993
(incorporated by reference to Registrant's Current Report on
Form 8-K dated December 23, 1993).
* Filed herewith
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the last quarter
of 1994 fiscal year.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
RHI HOLDINGS, INC.
Registrant
By: Michael T. Alcox
------------------------
Vice President and
Chief Financial Officer
Date: September 26, 1995
<PAGE>
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed by the following persons in the capacities and on the dates
indicated:
Name, Title, Capacity Date
--------------------- ----
Jeffrey J. Steiner
------------------------------- September 26, 1995
Chairman, Chief Executive
Officer, President and Director
Michael T. Alcox
------------------------------- September 26, 1995
Senior Vice President, Chief
Financial Officer and Director
Frederick W. McCarthy
------------------------------- September 26, 1995
Director
Irving Levine
------------------------------- September 26, 1995
Director
<PAGE>
RHI HOLDINGS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Changes in allowance for doubtful accounts are as follows:
<TABLE>
<CAPTION>
For the years ended June 30,
---------------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Beginning balance............ $3,314 $1,746 $1,702
Charged to costs and expenses 2,645 1,124 820
Charged to other accounts (1) 110 1,410 149
Amounts written off.......... (654) (966) (925)
----- ----- -----
Ending balance............... $5,415 $3,314 $1,746
===== ===== =====
(1) Recoveries of amounts written off in prior periods and foreign currency
translation. Included in Fiscal 1994 is $1,179,000 relating to the
acquisition of a subsidiary.
</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 RHI Holdings, Inc.
Fairchild Communications Services, Inc.
Fairchild Communications Services Company [Partnership]
Fairchild Convac GmbH
Fairchild Data Corporation
Fairchild Industries, Inc.
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> 64,174
<SECURITIES> 4,045
<RECEIVABLES> 95,515
<ALLOWANCES> 5,415
<INVENTORY> 104,243
<CURRENT-ASSETS> 287,548
<PP&E> 282,814
<DEPRECIATION> 112,658
<TOTAL-ASSETS> 901,032
<CURRENT-LIABILITIES> 145,724
<BONDS> 336,268
<COMMON> 100
17,722
100
<OTHER-SE> 264,634
<TOTAL-LIABILITY-AND-EQUITY> 901,032
<SALES> 545,435
<TOTAL-REVENUES> 547,776
<CGS> 419,008
<TOTAL-COSTS> 532,255
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,725
<INCOME-PRETAX> (16,921)
<INCOME-TAX> 819
<INCOME-CONTINUING> (17,740)
<DISCONTINUED> (290)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,030)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
