UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
FORM 10-Q
--------------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 1995
Commission File Number: 1-373
RHI HOLDINGS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 34-1545939
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Washington Dulles International Airport
300 West Service Road, P.O. Box 10803
Chantilly, Virginia 22021
---------------------------------------
(Address of principal executive offices)
(Zip Code)
(703) 478-5800
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class April 2, 1995
- ----- ---------------
Common Stock, $1.00 par value 100,000
Registrant meets the conditions set forth in general instructions H(1)(a) and
(b) of Form 10-Q and is therefore filing this form with reduced disclosure
format.
<PAGE>
RHI HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES*
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
April 2, 1995 (Unaudited) and June 30, 1994 3
Consolidated Statements of Earnings for
the Three and Nine Months Ended April
2, 1995 and April 3, 1994 (Unaudited) 5
Condensed Consolidated Statements of Cash
Flows for the Nine Months Ended April 2,
1995 and April 3, 1994 (Unaudited) 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 20
*For purposes of Part I of this Form 10-Q, the term "Company" means RHI
Holdings, Inc., and its subsidiaries, unless otherwise indicated. For
purposes of Part II, the term "Company" means RHI Holdings, Inc. unless
otherwise indicated.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
RHI HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
April 2, June 30,
ASSETS 1995 1994
- ------ ------------ ------------
(Unaudited) (*)
<S> <C> <C>
Current Assets:
Cash and cash equivalents, $545 restricted... $ 23,165 $ 94,220
Short-term investments....................... 4,077 6,578
Accounts receivable-trade, less allowances
of $3,997 and $3,314....................... 95,304 73,376
Due from The Fairchild Corporation........... -- 1,305
Inventories:
Finished goods............................ 63,150 47,120
Work-in-process........................... 29,953 30,907
Raw materials............................. 14,777 11,988
------- -------
107,880 90,015
Prepaid expenses and other current assets.... 17,715 18,723
------- -------
Total Current Assets......................... 248,141 284,217
Property, plant and equipment net of
accumulated depreciation of $107,226 and
$86,555.................................... 171,981 171,245
Net assets held for sale..................... 30,431 35,134
Cost in excess of net assets acquired,
(Goodwill) less accumulated amortization of
$33,629 and $29,116........................ 200,412 200,873
Investments and advances - affiliated
companies.................................. 108,175 77,581
Prepaid pension assets....................... 59,392 61,628
Other assets................................. 41,645 59,510
------- -------
Total Assets................................. $860,177 $890,188
======= =======
*Condensed from audited financial statements.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<TABLE>
RHI HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
April 2, June 30,
LIABILITIES AND STOCKHOLDER'S EQUITY 1995 1994
- ------------------------------------ ------------- ------------
(Unaudited) (*)
<S> <C> <C>
Current Liabilities:
Bank notes payable and current maturities
of long-term debt........................... $ 17,816 $ 14,978
Accounts payable............................. 40,847 35,169
Accrued interest............................. 3,887 10,236
Other accrued liabilities.................... 74,660 65,542
Income tax payable........................... -- 17,264
------- -------
Total Current Liabilities.................... 137,210 143,189
Long-term debt, less current maturities...... 304,963 312,481
Other long-term liabilities.................. 20,284 23,676
Retiree health care liabilities.............. 49,478 51,189
Noncurrent income taxes...................... 38,032 28,821
Minority interest in subsidiaries............ 24,934 24,595
Redeemable preferred stock of subsidiary..... 18,176 18,932
------- -------
Total Liabilities............................ 593,077 602,883
Stockholder's Equity:
Common Stock................................. 100 100
Preferred Stock.............................. 100 100
Paid-in capital.............................. 229,435 229,297
Retained earnings............................ 53,858 74,132
Cumulative translation adjustment............ 6,882 3,346
Unrealized loss on noncurrent marketable
equity securities, net of tax............. (21,870) (18,265)
Additional minimum liability for pensions,
net of tax................................ (1,405) (1,405)
------- -------
Total Stockholder's Equity................... 267,100 287,305
------- -------
Total Liabilities and Stockholder's Equity... $860,177 $890,188
======= =======
* Condensed from audited financial statements.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<TABLE>
RHI HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(In thousands)
<CAPTION>
Three Months Ended Nine Months Ended
April 2, April 3, April 2, April 3,
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Sales................................. $150,755 $112,836 $398,077 $332,157
Other income (expense), net........... (377) 486 652 2,387
------- ------- ------- -------
150,378 113,322 398,729 334,544
Costs and Expenses:
Cost of sales......................... 115,021 85,698 301,693 256,182
Selling, general & administrative..... 26,957 19,276 72,987 56,664
Research and development.............. 1,029 886 2,910 2,923
Amortization of goodwill.............. 1,497 1,458 4,511 4,469
Restructuring......................... -- -- -- 9,903
Unusual items......................... -- 3,200 -- 3,200
------- ------- ------- -------
144,504 110,518 382,101 333,341
Operating income........................ 5,874 2,804 16,628 1,203
Interest expense........................ 10,861 10,982 31,573 33,112
Interest income......................... (1,245) (1,246) (3,433) (1,626)
------- ------- ------- -------
Net interest expense.................... 9,616 9,736 28,140 31,486
Investment income, net.................. 139 43 3,061 6,668
Equity in earnings of affiliates........ 1,294 535 2,400 1,103
Minority interest....................... (839) (575) (2,112) (1,764)
Non-recurring income.................... -- (23) -- 129,084
------- ------- ------- -------
Earnings (loss) from continuing
operations before taxes............... (3,148) (6,952) (8,163) 104,808
Income tax provision (benefit).......... 623 (1,793) 1,846 40,048
------- ------- ------- -------
Earnings (loss) from continuing
operations............................ (3,771) (5,159) (10,009) 64,760
Loss on disposal of discontinued
operations, net....................... (215) -- (265) --
------- ------- ------- -------
Earnings (loss) before cumulative effect
of accounting changes................. (3,986) (5,159) (10,274) 64,760
Extraordinary items, net................ -- (147) -- (147)
Cumulative effect of change in
accounting for postretirement
benefits, net......................... -- -- -- (8,015)
Cumulative effect of change in
accounting for income taxes, net...... -- -- -- (7,999)
------- ------- ------- -------
Net earnings (loss)..................... $ (3,986) $ (5,306) $(10,274) $ 48,599
======= ======= ======= =======
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
<TABLE>
RHI HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<CAPTION>
Nine Months Ended
April 2, April 3,
1995 1994
------------ ------------
<S> <C> <C>
Cash provided by (used for)
Operations:
Net earnings (loss)..................... $(10,274) $ 48,599
Cumulative effect of accounting changes,
net................................... -- 16,014
Depreciation and amortization........... 27,447 25,084
Accretion of discount on long-term
liabilities........................... 2,417 2,740
Adjustments for other non-cash charges.. 2,112 9,534
Undistributed earnings of affiliates.... (2,050) (1,103)
Gain on sale of Rexnord investment...... -- (129,084)
Loss on sale of fixed assets............ 315 169
Changes in assets and liabilities....... (30,185) 17,455
------- -------
Cash used for operations................ (10,218) (10,592)
Investments:
Capital expenditures.................... (13,510) (9,401)
Proceeds received from sale of Rexnord
investment............................ -- 178,091
Proceeds received from (used for)
investment securities, net............ 5,555 (1,182)
Investments in affiliates............... (33,487) --
Business acquisitions................... (12,061) --
Changes in net assets held for sale..... 3,712 (650)
Proceeds from sale of fixed assets...... 1,102 326
Other, net.............................. -- 101
------- -------
Cash provided by (used for) investments. (48,689) 167,285
Financing:
Issuance of debt........................ 7,017 57,335
Debt repayments, net.................... (11,202) (145,891)
Dividends............................... (10,000) (1,007)
Capital contribution from TFC........... -- 3,382
------- -------
Cash used for financing................. (14,185) (86,181)
Effect of exchange rate changes on cash..... 2,037 (304)
Net increase (decrease) in cash............. (71,055) 70,208
Cash and cash equivalents, beginning of
period.................................. 94,220 42,838
------- -------
Cash and cash equivalents, end of period.... $ 23,165 $113,046
======= =======
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
RHI HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Financial Statements
The consolidated balance sheet as of April 2, 1995 and the consolidated
statements of earnings and cash flows for the nine months ended April 2, 1995
and April 3, 1994 have been prepared by the Company, without audit. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at April 2, 1995 and for all periods presented have
been made. The balance sheet at June 30, 1994 was condensed from audited
financial statements as of that date.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's June 30, 1994 Form
10-K. The results of operations for the period ended April 2, 1995 are not
necessarily indicative of the operating results for the full year. Certain
amounts in prior years' quarterly financial statements have been reclassified
to conform to the current presentation.
Note 2 - Acquisitions
On June 10, 1994, the Company acquired 100% of the Common Stock of
Convac GmbH ("Convac") for approximately $4,700,000. Convac GmbH is a
leading designer and manufacturer of high precision state-of-the-art wet
processing tools, equipment and systems required for the manufacture of
semiconductor chips and related products, compact and optical storage discs
and liquid crystal displays. The Company reports the results of Convac as
part of its Industrial Products segment.
On September 9, 1994, the Company acquired all of the outstanding Common
Stock of Scandinavian Bellyloading Company AB ("SBC"). SBC is the designer
and manufacturer of patented cargo loading systems, which are installed in
the cargo area of commercial aircraft. Several major airlines are expected
to equip existing fleets with the SBC system over the next three to four
years. The Company reports the results of SBC as part of its Industrial
Products segment.
On November 28, 1994 Fairchild Communications Services Company
("Fairchild Communications"), a partnership whose partners are indirect
subsidiaries of the Company, completed the acquisition of substantially all
of the telecommunications assets of JWP Telecom, Inc. ("JWP") for
approximately $11,000,000 plus the assumption of approximately $3,000,000 of
liabilities. JWP is a telecommunications system integrator, specializing in
manufacturing, distribution, design, installation and maintenance of voice
and data communications equipment. In the first quarter of Fiscal 1995,
Fairchild Communications acquired all the shared telecommunications assets of
Eaton & Lauth Co., Inc., for approximately $550,000.
<PAGE>
Note 3 - Restricted Cash
The Company had approximately $545,000 of restricted cash on April 2,
1995 and June 30, 1994, all of which is maintained as collateral for certain
debt facilities.
Note 4 - Summarized Statement of Earnings Information
The following table presents summarized statement of earnings
information on a 100% basis of Banner Aerospace, Inc. ("Banner") and Nacanco
Paketleme ("Nacanco"), the Company's principal investments, which are
accounted for using the equity method.
<TABLE>
<CAPTION>
Nine Months Ended
(In thousands) ----------------------------
April 2, April 3,
1995 1994
------------ -------------
<S> <C> <C>
Net sales................................. $192,688 $189,479
Gross profit.............................. 65,197 66,672
Earnings from continuing operations....... 6,214 13,482
Net earnings.............................. 6,214 12,493
</TABLE>
The Company owns approximately 47.2% of Banner common stock, which is
included in investments and advances-affiliated companies. The Company
recorded equity earnings of $1,627,000 and $1,307,000 for the nine months
ended April 2, 1995 and April 3, 1994, respectively, from this investment.
At the close of trading on March 31, 1995, Banner stock was quoted at $4.00
per share. Based on this price the Company's equity investment in Banner had
an approximate market value of $33,953,000 versus a carrying value of
$54,686,000. The Company does not believe that this decline in market value
is a permanent impairment.
On January 18, 1995, the Company purchased approximately a 26.7%
ownership interest in Nacanco common stock for $13,000,000 from the Company's
parent, The Fairchild Corporation ("TFC"). The Company recorded equity
earnings of $514,000, which represents the Company's share of estimated
earnings subsequent to the stock purchase. Equity earnings prior to the
stock purchase were recorded by TFC.
On December 23, 1993, the Company completed the sale of its 43.9% stock
interest in Rexnord Corporation ("Rexnord") to BTR Dunlop Holdings, Inc.
("BTR") for $22.50 per share. Accordingly, the Company received $181,873,000
in gross proceeds and realized a pre-tax gain on the sale of $129,084,000 for
the nine months ended April 3, 1994. Prior to the sale of Rexnord, the
Company recorded an equity loss of $906,000 on this investment for the nine
month period ended April 3, 1994.
In connection with the sale of its interest in Rexnord, the Company has
placed shares of Banner, with a fair market value of $25,000,000, in escrow
to secure the Company's indemnification of BTR against a contingent
liability. Once the contingent liability is resolved the escrow will be
released.
Note 5 - Revolving Credit Facility
On August 18, 1994, VSI Corporation's (an indirect subsidiary of the
Company) revolving credit facility was reduced by $9,250,000 to provide a
total available facility of $50,250,000, of which $38,999,000 was available
on April 2, 1995. In addition, (1) the borrowing rate was increased by 1.0%
to generally bear interest at 3.75% over the London Interbank Offer Rate, and
(2) the commitment fee charged on the unused portion of the revolving credit
facility was increased to 1.0%.
Note 6 - Minority Interest in Consolidated Subsidiaries
The Company includes $23,968,000 and $23,981,000 of minority interest on
its balance sheet at April 2, 1995 and June 30, 1994, respectively, which is
represented by the Series C Preferred Stock of Fairchild Industries, Inc.
("FII"), a majority owned subsidiary. The Series C Preferred Stock has an
annual dividend requirement of $4.25 per share through July 21, 1999 and
$7.00 per share thereafter. During the nine months ended April 2, 1995, the
Company purchased 300 shares of FII's Series C Preferred Stock. Effectively,
there were 557,260 and 557,560 shares authorized, issued and outstanding at
April 2, 1995 and June 30, 1994, respectively.
Note 7 - Redeemable Preferred Stock of Subsidiary
The Company has classified the outstanding shares of Series A Preferred
Stock of FII as a long-term liability. The Series A Preferred Stock has a
mandatory redemption value of $45.00 per share and an annual dividend
requirement of $3.60 per share. During the nine months ended April 2, 1995,
the Company repurchased 16,800 shares of FII's Series A Preferred Stock.
Effectively, there were 403,901 and 420,701 shares authorized, issued and
outstanding at April 2, 1995 and June 30, 1994, respectively.
Note 8 - Dividend Paid to Parent
During the nine months ended April 2, 1995 and April 3, 1994, the
Company paid dividends of $10,000,000 in each period to TFC. The Fiscal 1995
dividends were paid in cash. The Fiscal 1994 dividend was paid primarily in
the Company's debentures in lieu of cash.
Note 9 - Commitments and Contingencies
Lease Guaranties
- ----------------
In connection with the sale of Metro Credit Corporation, the Company
remained contingently liable as a guarantor of the payment and performance of
obligations of third party lessees under aircraft leases, which call for
aggregate annual base lease payments of approximately $3,454,000 in Fiscal
1995, and approximately $8,806,000 over the remaining 4-year guaranty period.
In each case, the Company has been indemnified by the purchasers and lessors
from any losses related to such guaranties.
Government Claims
- -----------------
Following an investigation by the Inspector General of NASA, the civil
division of the United States Department of Justice alleged improprieties in
years 1982 and 1984 through 1986, in indirect costs rates and labor charging
practices of a former subsidiary of the Company. The Company settled these
claims with the Department of Justice and agreed to pay $5,000,000, payable
in six equal semi-annual installments, with interest at 6.0% per year. The
first installment was made in the second quarter of Fiscal 1995. The unpaid
balance is collateralized by certain excess real estate.
The Corporate Administrative Contracting Officer (the "ACO"), based upon
the advice of the United States Defense Contract Audit Agency, has made a
determination that FII did not comply with Cost Accounting Standards, in
accounting for (i) the 1985 reversion to FII of certain assets of terminated
defined benefit pension plans, and (ii) pension costs upon the closing of
segments of FII's business. The ACO has directed FII to prepare a cost
impact proposal relating to such plan terminations and segment closings and,
following receipt of such cost impact proposal, may seek adjustments to
contract prices. The ACO alleges that substantial amounts will be due if
such adjustments are made. The Company believes it has properly accounted for
the asset reversions in accordance with applicable accounting standards. The
Company has entered into discussions with the government to attempt to
resolve these pension accounting issues.
Civil Litigation
- ----------------
Maurice Bidermann Litigation
----------------------------
The Company commenced an action in the United States District for the
Southern District of New York, following the breach by Maurice Bidermann
("Bidermann") of an agreement under which Bidermann was to have paid the
Company an aggregate sum of approximately $22,500,000, of which Bidermann
paid $10,000,000. Additional installments, of $5,000,000 each, were due from
Bidermann on December 31, 1992, and June 30, 1993, both of which Bidermann
failed to pay. On July 7, 1993, the United States District Court ordered
Bidermann to pay the Company the full amount of its claim, $12,947,000, plus
interest. Following receipt of the Court's order, Bidermann filed for
protection under Chapter 11 of the United States Bankruptcy Code; however, in
the first quarter of Fiscal 1995, on motion of the Company, the Bankruptcy
Court dismissed Bidermann's Chapter 11 proceedings. Prior to Bidermann's
filing for protection under Chapter 11, and continuing subsequent to the
Bankruptcy Court's dismissal of those proceedings, the Company attached
substantially all assets of Bidermann. In addition, the Company holds shares
and warrants of Bidermann Industries, USA, Inc., all of which shares and
warrants Bidermann had originally agreed to purchase from the Company for
$22,500,000. The collectibility of this judgement, which has been affirmed
by the United States Court of Appeals, will depend in part upon the Company's
ability to realize sufficient amounts from its attachments, and the value of
the shares and warrants held.
<PAGE>
Environmental Matters
- ---------------------
The Company and other aerospace fastener and industrial product
manufacturers are subject to stringent Federal, state and local environmental
laws and regulations concerning, among other things, the discharge of
materials into the environment and the generation, handling, storage,
transportation and disposal of waste and hazardous materials. To date, such
laws and regulations have not had a material effect on the financial
condition of the Company, although the Company has expended, and can be
expected to expend in the future, significant amounts for investigation of
environmental conditions and installation of environmental control
facilities, remediation of environmental conditions and other similar
matters, particularly in the Aerospace Fasteners segment.
In connection with its plans to dispose of certain real estate, the
Company must investigate environmental conditions and may be required to take
certain corrective action prior to and pursuant to any such disposition. In
addition, management has identified several areas of potential contamination
at or from other facilities owned, or previously owned, by the Company, that
may require the Company either to take corrective action or to contribute to
a clean-up. The Company is also a defendant in certain lawsuits and
proceedings seeking to require the Company to pay for investigation or
remediation of environmental matters and has been alleged to be a potentially
responsible party at various "Superfund" sites. Management of the Company
believes that it has recorded adequate reserves in its financial statements
to complete such investigation and take any necessary corrective actions or
make any necessary contributions. No amounts have been recorded as due from
third parties, including insurers, or set off against any liability of the
Company, unless such parties are contractually obligated to contribute and
are not disputing such liability.
Other Matters
- -------------
The Company is involved in other claims and lawsuits incidental to its
business, some of which involve substantial amounts. The Company either on
its own or through its insurance carriers is contesting these matters.
In the opinion of management, the ultimate resolution of its legal
proceedings, including those discussed above, will not have a material
adverse effect on the financial condition or the future operating results of
the Company.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- -------------------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
Item 2 of Form 10-Q is omitted in accordance with General Instruction
H(i)(a) and (b), Omission of Information by Certain Wholly-Owned
Subsidiaries. Management's narrative analysis of the results of operations
is furnished in lieu thereof:
MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS
- ------------------------------------------------------------
RHI Holdings, Inc. (the "Company"), formerly known as Rexnord Holdings
Inc., is essentially a holding company incorporated in the State of Delaware.
It has two operating subsidiaries, Fairchild Industries, Inc. ("FII") and
Fairchild Convac ("Convac"). The Company's operations are conducted through
Convac and VSI Corporation ("VSI"), which is a wholly-owned subsidiary of
FII. The Company is a wholly-owned subsidiary of The Fairchild Corporation
("TFC"). The Company also holds a significant equity interest in Banner
Aerospace, Inc. and Nacanco Paketleme ("Nacanco").
RESULTS OF OPERATIONS
The Company currently operates in three principal business segments:
Aerospace Fasteners, Industrial Products and Communications Services. Set
forth below is a comparison of the results from continuing operations of the
Company for the three and nine month periods ended April 2, 1995 and April 3,
1994.
<PAGE>
<TABLE>
<CAPTION>
(In thousands) Three Months Ended Nine Months Ended
April 2, April 3, April 2, April 3,
1995 1994 1995 1994
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Sales by Business Segment:
Aerospace Fasteners................ $ 56,684 $ 50,619 $162,089 $152,643
Industrial Products................ 59,616 43,208 159,023 123,922
Communications Services............ 34,455 19,009 76,965 55,592
------- ------- ------- -------
Total................................. $150,755 $112,836 $398,077 $332,157
======= ======= ======= =======
Operating Income (loss) by
Business Segment:
Aerospace Fasteners................ $ (3,573) $ (5,177) $ (5,722) $(23,208)
Industrial Products................ 8,067 6,086 17,017 15,983
Communications Services............ 5,172 4,153 13,423 12,198
------- ------- ------- -------
Total................................. 9,666 5,062 24,718 4,973
Corporate administrative expense... (3,004) (2,507) (7,356) (5,582)
Other corporate income (expense)... (788) 249 (734) 1,812
------- ------- ------- -------
Operating income...................... 5,874 2,804 16,628 1,203
Net interest expense.................. (9,616) (9,736) (28,140) (31,486)
Investment income, net................ 139 43 3,061 6,668
Equity in earnings of affiliates...... 1,294 535 2,400 1,103
Minority interest..................... (839) (575) (2,112) (1,764)
Non-recurring income.................. -- (23) -- 129,084
------- ------- ------- -------
Earnings (loss) from continuing
operations before income taxes....... (3,148) (6,952) (8,163) 104,808
Income tax provision (benefit)........ 623 (1,793) 1,846 40,048
------- ------- ------- -------
Earnings (loss) from continuing
operations.......................... $ (3,771) $ (5,159) $(10,009) $ 64,760
======= ======= ======= =======
</TABLE>
General
- -------
Overall sales increased by 33.6% in the third quarter and 19.8% for the
nine month period of Fiscal 1995 compared to sales for the same periods in
Fiscal 1994, which reflected stronger sales performances from all three
business segments.
Operating income increased $3.1 million in the third quarter and $15.4
million for the nine month period of Fiscal 1995 compared to operating income
for the same periods in Fiscal 1994. During the Fiscal 1995 current quarter
and nine month periods operating losses decreased significantly in the
Aerospace Fasteners segment primarily due to the Fiscal 1994 nine month
period having included a restructuring charge of $9.9 million recorded in the
second quarter of Fiscal 1994 and a $3.2 million charge for earthquake damage
and related business interruption occurring in the third quarter of Fiscal
1994. Operating income was up in both the Industrial Products segment and
the Communications Services segment in both current year periods. (See
discussion below).
<PAGE>
Aerospace Fasteners
- -------------------
Sales in the Aerospace Fasteners segment increased 12.0% in the third
quarter and 6.2% for the nine month period ended April 2, 1995, compared to
the corresponding Fiscal 1994 periods, primarily resulting from aggressive
management efforts during the nine month period to reduce backlog caused by
quality problems and earthquake disruption, which are diminishing.
Operating losses in the Aerospace Fasteners segment decreased $1.6
million in the third quarter and $17.5 million for the Fiscal 1995 nine month
period over the corresponding Fiscal 1994 periods; 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 third quarter loss resulted primarily from excess costs incurred to
reduce the past due sales backlog, which includes many orders of small
quantities at low profit margins. Certain products have yielded negative
margins due to labor inefficiencies and low prices. Management is taking
steps to cancel any such orders remaining in the backlog unless improved
pricing can be negotiated. 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 $9.9 million
was recorded in the prior year second quarter period for nonrecurring costs
related to exiting certain aircraft engine bolt lines and $3.2 million in the
prior year third quarter for earthquake loss (see below).
On January 17, 1994, the Company's Chatsworth, California Aerospace
Fasteners manufacturing facility suffered extensive damage from the Southern
California Earthquake. This disruption caused increased costs and reduced
revenues in Fiscal 1994 and has negatively affected Fiscal 1995 as well.
While the Company carries insurance for both business interruption and
property damage caused by earthquakes, the policy has a 5% deductible. The
Company recorded an unusual pretax loss in Fiscal 1994 of $4.0 million ($3.2
million in the nine month period ended April 3, 1994) to cover the currently
estimated net cost of the damages and business interruption caused by the
earthquake. Included in prepaids and other current assets is an insurance
claim receivable of $4.9 million for recoverability of costs related to
business interruption and property damage.
Industrial Products
- -------------------
Sales in the Industrial Products segment increased 38.0% in the third
quarter and 28.3% in the Fiscal 1995 first nine months, compared to the same
Fiscal 1994 periods. $11.6 million of the net increase in sales in the nine
month period was at the D-M-E Company ("D-M-E"), which provides tooling to
the plastics industry, and reflects customer response to the fast delivery
programs, new products, and growth of the domestic economy. Domestic demand
for tooling for plastics has been strong while foreign demand has shown signs
of improvement principally reflecting the strengthening European economy.
Expansion into selected new foreign markets is being pursued and appears to
have potential. Also included in the Industrial Products segment were sales
from Convac, a semiconductor equipment manufacturing company acquired at the
end of Fiscal 1994, another small acquisition made early in Fiscal 1995 and
Fairchild Data Corporation. The combined sales of these companies was $16.0
million in the third quarter and $34.1 million in the Fiscal 1995 first nine
months.
Operating income in the Industrial Products segment increased 32.6% in
the third quarter and 6.5% in the first nine months of Fiscal 1995, compared
to the same periods in Fiscal 1994. D-M-E operating income increased 24.1%
in the Fiscal 1995 current quarter. The remaining increase in operating
income in the current quarter compared to the Fiscal 1994 third quarter
resulted from an increase at Fairchild Data Corporation and the inclusion of
Convac and another operation acquired in Fiscal 1995. A 24.5% improvement in
operating income at D-M-E for the current nine month period was partially
offset by operating losses from the other operations. The improved results
at D-M-E resulted from a higher sales volume and improved operating margins.
In recent years D-M-E has implemented several cost savings steps, including
overhead reduction and improved inventory management programs, which have
contributed to the higher operating margins. In addition, D-M-E has
continued to implement improved manufacturing methods that have reduced cycle
time and costs.
Communications Services
- -----------------------
Sales in the Communications Services segment increased 81.3% in the
third quarter and 38.4% in the first nine months of Fiscal 1995, compared
with the same periods in Fiscal 1994, primarily due to the inclusion of sales
from the JWP Telecom, Inc., ("JWP") acquisition 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 24.5%
in the third quarter and 10.0% in the first nine months of Fiscal 1995,
compared to the same periods in Fiscal 1994 primarily due to increased sales
resulting from the reasons given above and related economies of scale.
Other Expense/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 19.8% in the
current third quarter and 31.8% in the current nine month period compared to
the same periods in the prior year. This increase in the current year
periods 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 $1.0 million
in the third quarter, and $2.5 million in the nine months ended April 2,
1995, compared to the same period in the prior year, primarily due to
increased carrying costs incurred on net assets held for sale in Fiscal 1995.
Also in the Fiscal 1994 nine month period, gains were realized on corporate
real estate sold.
Net Interest Expense - Net interest expense decreased 10.6% in the nine
month period ended April 2, 1995, compared to the prior year period. The
Fiscal 1995 nine month decline was due primarily to lower borrowings and
higher interest income during the Fiscal 1995 period.
Investment income, net - Investment income was up slightly in the third
quarter, but decreased by $3.6 million in the first nine months, primarily as
a result of recording larger gains realized on the settlement and liquidation
of investments in Fiscal 1994, compared to Fiscal 1995. Also included in the
Fiscal 1995 nine month periods were $.3 million of dividends realized on
participating annuity contracts, compared to $2.8 million in the
corresponding Fiscal 1994 period.
Equity in earnings of affiliates increased $1.3 million in the Fiscal
1995 first nine months compared to the prior year period. The Fiscal 1994
first nine months included a $2.9 million after tax restructuring charge for
Rexnord Corporation, prior to the Company selling its interest in Rexnord
Corporation. Both current year periods include no earnings or losses for
Rexnord Corporation.
Minority interest expense includes dividend expense on FII's Series C
Preferred Stock.
Non-Recurring Income - Non-recurring income in the Fiscal 1994 nine
month 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. for $22.50 per share on December 23, 1993.
Income taxes - In the first nine months of Fiscal 1995, the Company
recorded a tax provision of $1.8 million on a pretax loss of $8.2 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 first nine months after-tax charge to earnings for the
cumulative effect of the accounting change was $.5 million, which represents
the unamortized portion of an overstated liability for discontinued
operations which substantially offset the transition obligation for active
employees and retirees of continuing operations. In addition, in the Fiscal
1994 first nine months, a $7.5 million charge, net of the Company's related
tax benefit, was recorded for the Company's share of Rexnord Corporation's
cumulative charge resulting from this change in accounting.
2) Accounting for Income Taxes - The Company elected the immediate
recognition method and recorded, in the Fiscal 1994 first nine months, a $7.5
million charge, representing the cumulative effect on prior years. This
charge represents deferred taxes related primarily to fixed assets, prepaid
pension expenses, and inventory differences. In addition, a $.5 million
charge was recorded for the Company's share of Rexnord Corporation's
cumulative charge resulting from this accounting change.
Net Earnings (Loss) - The net earnings (loss) decreased $58.9 million in
the first nine months of Fiscal 1995, compared to the first nine months of
Fiscal 1994, primarily due to the $129.1 million net pre-tax gain recognized
from the sale of Rexnord Corporation in the Fiscal 1994 nine month period.
Partially offsetting the decrease were: (1) the $15.4 million increase in
operating income in the first nine months of Fiscal 1995, (2) the $16.0
million charge, net of tax, for the cumulative effect of accounting changes,
which was recorded in the first nine months of Fiscal 1994, and (3) a
decrease in taxes of $38.2 million.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Working capital at April 2, 1995, was $110.9 million, which was $30.1
million lower than at June 30, 1994. The primary reasons for this decrease
included a $71.1 million reduction in cash, primarily required to service
debt and meet operating cash requirements during the first nine months, and
a $14.8 million increase in accounts payable and other accrued liabilities,
primarily the result of acquisitions. Partially offsetting this reduction
was an increase of $39.8 million in accounts receivable and inventories,
reflecting acquisitions, slower customer payments, inventory build and
increased sales to reduce backlog, and a reduction in current income taxes
payable of $17.3 million, which was reclassified to noncurrent income taxes.
The Company's principal sources of liquidity are cash generated from
operations and borrowings under its credit agreement. The Company also
expects to generate cash from the sale of certain assets and liquidation of
investments. Net assets held for sale at April 2, 1995, had a book value of
$30.4 million and included two parcels of real estate in California and an 88
acre parcel of real estate located in Farmingdale, New York, which the
Company plans to sell, lease or develop, subject to the resolution of
environmental matters and market conditions. In March 1995, the Company sold
one parcel in California for $5.2 million. Included in long-term investments
at April 2, 1995 is a contractual obligation for the Company to receive $16.3
million from an individual, which obligation has a net carrying amount of
$9.2 million. The obligation in part, may be satisfied by 7.1% of the
outstanding common stock of Bidermann Industries USA, Inc., a closely held
company, held by the Company. In addition, the Company has attached
substantially all of the individual's property. The individual filed for
protection under Chapter 11 of the U.S. Bankruptcy Code on July 7, 1993.
However, in the first quarter of Fiscal 1995, on motion of the Company, the
Bankruptcy Court dismissed the Chapter 11 proceedings. The Company believes
that liquidation of assets held or attached by the Company will be sufficient
to recover the carrying amount of this investment. (See Note 9 to the
Financial Statements).
The Company's principal cash requirements include debt service, capital
expenditures, acquisitions, payment of other liabilities, payment of
dividends on preferred stock and other affiliated transactions.
The level of the Company's capital expenditures varies from year to
year, depending upon the timing of capital spending for new production
equipment, periodic plant and facility expansion, acquisition of high growth
companies, as well as cost reduction and labor efficiency programs. For the
nine month period April 2, 1995, capital expenditures, including the cost of
acquisitions, were $25.6 million. The Company anticipates that total capital
expenditures, including the cost of acquisitions, for the fiscal year ending
June 30, 1995 will be approximately $31.6 million.
Investments and advances in affiliated companies increased $30.6 million
primarily resulting from the Nacanco common stock purchased from TFC, a $20.5
million investment in TFC's outstanding debt and recording equity earnings.
Offsetting these increases was a $5.5 million decline in market value of the
Company's investment in TFC stock.
Other assets declined $17.9 million, primarily due to reclassifying
noncurrent taxes to the noncurrent tax liability caption on the balance
sheet.
Other liabilities that require the use of cash include post-employment
benefits for retirees, environmental investigation and remediation
obligations, and litigation settlements and related costs.
The Company expects that cash on hand, cash generated from operations,
borrowings and asset sales, and the ability to refinance portions of its
debt, will be adequate to satisfy cash requirements.
The Company's Credit Agreement requires the Company to comply with
certain financial covenants, including achieving cumulative earnings before
interest, taxes, depreciation and amortization, ("EBITDA Covenant"), and
maintaining certain coverage ratios. The Company was in compliance with the
Credit Agreement as of April 2, 1995. To comply with the minimum EBITDA
Covenant requirements (as amended) FII's subsidiary, VSI, must earn for the
cumulative total of the trailing four quarters, EBITDA as follows: $75.0
million for the fourth quarter of Fiscal 1995, $76.6 million for the first
quarter of Fiscal 1996, $78.4 million for the second quarter of Fiscal 1996,
and $80.1 million for the third quarter of Fiscal 1996. VSI's ability to
meet the minimum requirements under the EBITDA Covenant in Fiscal 1995 is
uncertain, and there can be no assurance that the Company will be able in the
future to comply with the minimum requirements under the EBITDA Covenant and
other financial covenants under the Credit Agreement. Noncompliance with any
of the financial covenants, without cure or waiver, would constitute an event
of default under the Credit Agreement. An event of default resulting from a
breach of a financial covenant may result, at the option of lenders holding
a majority of the loans, in acceleration of the principal and interest
outstanding, and a termination of the revolving credit line. However, if
necessary, management believes a waiver can be obtained.
FII may transfer available cash as dividends to 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 April 2, 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
- -------------------------------------------
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 ("SFAS No. 121") "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". SFAS No. 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 for long-lived assets and certain
identifiable intangibles to be disposed of. The Company is currently
analyzing the new standard to determine the timing and effect, if any, on its
consolidated financial statements. SFAS No. 121 is required to be
implemented by the Company on, or before, July 1, 1996.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Note 9 of Notes to Consolidated Financial
Statements.
Item 6. Exhibits and Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
For RHI HOLDINGS, INC.
(Registrant) and as its Chief
Financial Officer:
By: Michael T. Alcox
Vice President and Chief Financial
Officer
Date: May 12, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> APR-02-1995
<CASH> 23,165
<SECURITIES> 4,077
<RECEIVABLES> 99,301
<ALLOWANCES> 3,997
<INVENTORY> 107,880
<CURRENT-ASSETS> 248,141
<PP&E> 279,207
<DEPRECIATION> 107,226
<TOTAL-ASSETS> 860,177
<CURRENT-LIABILITIES> 137,210
<BONDS> 304,963
<COMMON> 100
18,176
100
<OTHER-SE> 266,900
<TOTAL-LIABILITY-AND-EQUITY> 860,177
<SALES> 398,077
<TOTAL-REVENUES> 398,729
<CGS> 301,693
<TOTAL-COSTS> 382,101
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,140
<INCOME-PRETAX> (8,163)
<INCOME-TAX> 1,846
<INCOME-CONTINUING> (10,009)
<DISCONTINUED> (265)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,274)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
