UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 1995
Commission File Number: 1-373
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
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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)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class October 1, 1995
- ----- ---------------
Common Stock, $1.00 par value 100,000
Registrant meets the conditions set forth in general instructions H(1)(a) and
(b) of Form 10-Q and is therefore filing this form with reduced disclosure
format.
<PAGE>
RHI HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES*
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
October 1, 1995 (Unaudited) and June 30, 1995 3
Consolidated Statements of Earnings for
the Three Months Ended October 1, 1995
and October 2, 1994 (Unaudited) 5
Condensed Consolidated Statements of Cash
Flows for the Three Months Ended October 1,
1995 and October 2, 1994 (Unaudited) 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
*For purposes of Part I of this Form 10-Q, the term "Company" means RHI
Holdings, Inc., and its subsidiaries, unless otherwise indicated. For
purposes of Part II, the term "Company" means RHI Holdings, Inc. unless
otherwise indicated.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
RHI HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
October 1, June 30,
ASSETS 1995 1995
- ------ ------------ ------------
(Unaudited) (*)
<S> <C> <C>
Current Assets:
Cash and cash equivalents, $4,463 and $545
restricted................................. $ 41,470 $ 64,174
Short-term investments....................... 6,040 4,045
Accounts receivable-trade, less allowances
of $5,310 and $5,415....................... 100,769 90,100
Inventories:
Finished goods............................ 55,230 53,105
Work-in-process........................... 25,790 27,704
Raw materials............................. 21,160 23,434
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102,180 104,243
Prepaid expenses and other current assets.... 17,187 24,986
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Total Current Assets......................... 267,646 287,548
Property, plant and equipment net of
accumulated depreciation of $117,705 and
$112,658................................... 167,303 170,156
Net assets held for sale..................... 50,002 49,753
Cost in excess of net assets acquired,
(Goodwill) less accumulated amortization of
$36,717 and $35,134........................ 203,377 204,851
Investments and advances - affiliated
companies.................................. 121,587 111,744
Prepaid pension assets....................... 59,374 59,567
Other assets................................. 18,222 17,413
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Total Assets................................. $887,511 $901,032
======= =======
*Condensed from audited financial statements.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<TABLE>
RHI HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
October 1, June 30,
LIABILITIES AND STOCKHOLDER'S EQUITY 1995 1995
- ------------------------------------ ------------- ------------
(Unaudited) (*)
<S> <C> <C>
Current Liabilities:
Bank notes payable and current maturities
of long-term debt........................... $ 23,249 $ 16,803
Accounts payable............................. 44,859 47,124
Accrued interest............................. 4,009 10,031
Other accrued liabilities.................... 72,498 71,766
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Total Current Liabilities.................... 144,615 145,724
Long-term debt, less current maturities...... 329,544 336,268
Other long-term liabilities.................. 18,350 18,342
Retiree health care liabilities.............. 48,955 49,474
Noncurrent income taxes...................... 42,786 44,135
Minority interest in subsidiaries............ 24,455 24,533
Redeemable preferred stock of subsidiary..... 16,930 17,722
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Total Liabilities............................ 625,635 636,198
Stockholder's Equity:
Common Stock................................. 100 100
Preferred Stock.............................. 100 100
Paid-in capital.............................. 229,628 229,533
Retained earnings............................ 38,889 46,102
Cumulative translation adjustment............ 7,633 8,724
Net unrealized holding loss on available-for-
sale securities............................. (14,474) (19,725)
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Total Stockholder's Equity................... 261,876 264,834
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Total Liabilities and Stockholder's Equity... $887,511 $901,032
======= =======
* 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
October 1, October 2,
1995 1994
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<S> <C> <C>
Revenue:
Sales..................................... $153,470 $121,393
Other income (expense), net............... 357 154
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153,827 121,547
Costs and Expenses:
Cost of sales............................. 112,565 89,140
Selling, general & administrative......... 27,899 21,819
Research and development.................. 752 968
Amortization of goodwill.................. 1,582 1,498
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142,798 113,425
Operating income............................ 11,029 8,122
Interest expense............................ 11,500 10,435
Interest income............................. (1,390) (1,030)
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Net interest expense........................ 10,110 9,405
Investment income, net...................... 1,995 342
Equity in earnings of affiliates............ 2,085 303
Minority interest........................... (598) (658)
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Earnings (loss) from continuing
operations before taxes................... 4,401 (1,296)
Income tax provision........................ 1,601 1,016
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Earnings (loss) from continuing
operations................................ 2,800 (2,312)
Loss on disposal of discontinued
operations, net........................... (13) (25)
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Net earnings (loss)......................... $ 2,787 $ (2,337)
======= =======
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<TABLE>
RHI HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<CAPTION>
Three Months Ended
October 1, October 2,
1995 1994
------------ ------------
<S> <C> <C>
Cash flows provided by (used for)
Operations:
Net earnings (loss)..................... $ 2,787 $ (2,337)
Depreciation and amortization........... 9,339 8,401
Accretion of discount on long-term
liabilities........................... 862 782
Minority interest....................... 598 658
Undistributed earnings of affiliates.... (1,882) (303)
Changes in assets and liabilities....... (18,792) (13,482)
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Net cash used for operations............ (7,088) (6,281)
Investments:
Purchase of property, plant and
equipment............................. (3,900) (3,462)
Acquisitions of subsidiaries, net of
cash acquired......................... -- (550)
Changes in net assets held for sale..... (679) (484)
Other, net.............................. (124) 10
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Net cash used for investments........... (4,703) (4,486)
Financing:
Proceeds from issuance of debt.......... 2,618 940
Debt repayments and repurchase of
debentures, net....................... (2,916) (2,915)
Payment of dividends.................... (10,000) (10,000)
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Net cash used for financing............. (10,298) (11,975)
Effect of exchange rate changes on cash..... (615) 137
Net decrease in cash........................ (22,704) (22,605)
Cash and cash equivalents, beginning of
period.................................. 64,174 94,220
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Cash and cash equivalents, end of period.... $ 41,470 $ 71,615
======= =======
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 October 1, 1995 and the
consolidated statements of earnings and cash flows for the three months ended
October 1, 1995 and October 2, 1994 have been prepared by the Company,
without audit. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows at October 1, 1995 and for all
periods presented have been made. The balance sheet at June 30, 1995 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, 1995 Form
10-K. The results of operations for the period ended October 1, 1995 are not
necessarily indicative of the operating results for the full year. Certain
amounts in prior years' quarterly financial statements have been reclassified
to conform to the current presentation.
Note 2 - Acquisitions
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. The Company recorded $5,595,000 in goodwill as a result of this
acquisition. 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. Approximately $300,000 of the
acquisition price was recorded as goodwill.
Proforma financial statements are not required for these acquisitions on
an individual basis.
Note 3 - Restricted Cash
The Company had approximately $4,463,000 and $545,000 of restricted cash
on October 1, 1995 and June 30, 1995, respectively, 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>
Three Months Ended
(In thousands) ----------------------------
October 1, October 2,
1995 1994
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<S> <C> <C>
Net sales................................. $ 98,654 $ 79,397
Gross profit.............................. 29,982 25,913
Earnings from continuing operations....... 6,511 7,822
Net earnings.............................. 6,511 7,822
</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 $346,000 and $253,000 for the three months ended
October 1, 1995 and October 2, 1994, respectively, from this investment. At
the close of trading on September 29, 1995, Banner stock was quoted at $5.25
per share. Based on this price the Company's equity investment in Banner had
an approximate market value of $44,563,000 versus a carrying value of
$54,277,000. 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 $1,525,000 for the three months ended October 1, 1995. Equity
earnings prior to the stock purchase were recorded by TFC.
In connection with the Company's December 23, 1993 sale of its interest
in Rexnord Corporation to BTR Dunlop Holdings, Inc. ("BTR"), 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 - Minority Interest in Consolidated Subsidiaries
The Company includes $23,804,000 of minority interest on its balance
sheet at October 1, 1995 and June 30, 1995, 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. There were 553,460 shares authorized, issued and outstanding at
October 1, 1995 and June 30, 1995.
Note 6 - Redeemable Preferred Stock of Subsidiary
The Company has classified the outstanding shares of Series A Preferred
Stock of FII as a long-term liability. The Series A Preferred Stock has a
mandatory redemption value of $45.00 per share and an annual dividend
requirement of $3.60 per share. During the three months ended October 1,
1995, the Company repurchased 17,600 shares of FII's Series A Preferred
Stock. Effectively, there were 376,201 and 393,801 shares authorized, issued
and outstanding at October 1, 1995 and June 30, 1995, respectively.
Note 7 - Dividend Paid to Parent
During the three months ended October 1, 1995 and October 2, 1994, the
Company paid cash dividends of $10,000,000 in each period to TFC.
Note 8 - Commitments and Contingencies
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 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 held discussions with
the government to attempt to resolve these pension accounting issues.
Environmental Matters
- ---------------------
The Company and other aerospace fastener and industrial product
manufacturers are subject to stringent Federal, state and local environmental
laws and regulations concerning, among other things, the discharge of
materials into the environment and the generation, handling, storage,
transportation and disposal of waste and hazardous materials. To date, such
laws and regulations have not had a material effect on the financial
condition of the Company, although the Company has expended, and can be
expected to expend in the future, significant amounts for investigation of
environmental conditions and installation of environmental control
facilities, remediation of environmental conditions and other similar
matters, particularly in the Aerospace Fasteners segment.
In connection with its plans to dispose of certain real estate, the
Company must investigate environmental conditions and may be required to take
certain corrective action prior or pursuant to any such disposition. In
addition, management has identified several areas of potential contamination
at or from other facilities owned, or previously owned, by the Company, that
may require the Company either to take corrective action or to contribute to
a clean-up. The Company is also a defendant in certain lawsuits and
proceedings seeking to require the Company to pay for investigation or
remediation of environmental matters and has been alleged to be a potentially
responsible party at various "Superfund" sites. Management of the Company
believes that it has recorded adequate reserves in its financial statements
to complete such investigation and take any necessary corrective actions or
make any necessary contributions. No amounts have been recorded as due from
third parties, including insurers, or set off against, any liability of the
Company, unless such parties are contractually obligated to contribute and
are not disputing such liability.
As of October 1, 1995, the consolidated total recorded liabilities of
the Company for environmental matters totalled $13,332,000. As of October 1,
1995, the estimated probable exposures for these matters was $13,163,000. It
is reasonably possible that the Company's total exposure for these matters
could be approximately $22,115,000.
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.
Note 9 - Subsequent Events
On November 9, 1995, the Company announced it has entered into an
agreement to merge its Fairchild Industires, Inc. subsidiary with Shared
Technologies Inc. ("Shared Technologies"). The agreement provides that, upon
consummation of the merger, Shared Technologies will (1) assume and repay
approximately $180,000,000 of the Company's existing debt, and may redeem
FII's Series A and Series C preferred stock issues, and (2) issue to the
Company 6,000,000 shares of common stock of Shared Technologies (equal to
approximately 41% of Shared Technologies shares outstanding following the
transaction) and $45,000,000 face amount of newly-issued Shared Technolgoies
preferred shares, part of which are convertible into additional shares of
Shared Technologies common stock which would increase the Company's interest
to approximately 42%, on a fully diluted basis. None of FII's assets and
liabilities other than those relating to the Communications Services segment
and $180,000,000 of the Company's existing debt will be transferred to Shared
Technologies pursuant to the merger. The Company and Shared Technologies
expect to complete this transaction in January, 1996.
On November 13, 1995, the Company signed a letter of intent with
Cincinnati Milacron Inc. ("Cincinnati Milacron") to sell the D-M-E Company
("D-M-E"), a mold equipment supplier, subject to satifactory completion of
due diligence and definitive documentation, and various approvals of,
including the Cincinnati Milcron Board of Directors, normal regulatory
agencies and debt holders of FII. The sale price is approximately
$260,000,000 for the purchase of the D-M-E business including assets and
liabilities. The Company expects to complete this transaction early in 1996.
Both transactions will result in significant gains to the Company.
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 month periods ended October 1, 1995 and October 2,
1994.
<PAGE>
<TABLE>
<CAPTION>
(In thousands) Three Months Ended
October 1, October 2,
1995 1994
----------- -----------
<S> <C> <C>
Sales by Business Segment:
Aerospace Fasteners...................... $ 52,196 $ 51,510*
Industrial Products...................... 68,277 49,941*
Communications Services.................. 32,997 19,942
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Total....................................... $153,470 $121,393
======= =======
Operating Income by Business Segment:
Aerospace Fasteners...................... $ 310 $ 1,405*
Industrial Products...................... 8,471 4,677*
Communications Services.................. 4,909 4,422
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Total....................................... 13,690 10,504
Corporate administrative expense......... (2,719) (1,976)
Other corporate income (expense)......... 58 (406)
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Operating income............................ 11,029 8,122
Net interest expense........................ (10,110) (9,405)
Investment income, net...................... 1,995 342
Equity in earnings of affiliates............ 2,085 303
Minority interest........................... (598) (658)
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Earnings (loss) from continuing
operations before income taxes............. 4,401 (1,296)
Income tax provision........................ 1,601 1,016
------- -------
Earnings (loss) from continuing
operations................................ $ 2,800 $ (2,312)
======= =======
*Restated for the transfer of the Gas Springs division from the Aerospace
Fasteners segment to the Industrial Products segment.
</TABLE>
General
- -------
Overall sales increased by 26.4% in the first quarter of Fiscal 1996,
compared to sales for the same periods in Fiscal 1994, which reflected
stronger sales performances from the Industrial Products and the
Communications Services business segments.
Operating income increased $2.9 million in the first quarter of Fiscal
1996, compared to operating income for the same period in Fiscal 1995.
Operating income was up in both the Industrial Products segment and the
Communications Services segment in the current year period offsetting a
decline in operating income from the Aerospace Fasteners segment. (See
discussion below).
Aerospace Fasteners
- -------------------
Sales in the Aerospace Fasteners segment increased slightly in the
Fiscal 1996 first quarter, compared to the corresponding Fiscal 1995 quarter,
reflecting the continual slow growth in this industry.
Operating income in the Aerospace Fasteners segment decreased $1.1
million in the first quarter of Fiscal 1996 compared to the Fiscal 1995
period. The Fiscal 1995 quarter included income from business interruption
insurance resulting from the January 1994 earthquake. This segment continues
to be affected by soft demand, competitive pricing conditions and higher
quality control costs resulting from customers' requirements. Management
will continue to implement productivity improvements and reduce costs to
bring the breakeven point in line with demand, particularly in its U.S.
operations.
Industrial Products
- -------------------
Sales in the Industrial Products segment increased $18.3 million or 36.7%
in the Fiscal 1996 first quarter compared to the Fiscal 1995 quarter. $13.8
million of this sales increase is attributed to the excellent performance of
Fairchild Technologies which includes Fairchild Convac, a semiconductor
equipment business which had a strong first quarter performance resulting
from the shipment of a surge of orders included in the prior year end
backlog. This was compared to a very slow Fiscal 1995 first quarter, which
was the first quarter following the acquisition. Sales at D-M-E increased
$2.1 million or 5.3% underlining this operation's continued growth.
Fairchild Data sales rose $1.3 million or 50.5%.
Operating income in the Industrial Products segment increased $3.8
million. $2.9 million of this increase was contributed by Fairchild
Technologies as a result of the increase in sales. Fairchild Data
Corporation's operating income improved by $0.7 million from the prior year
on higher sales and improved gross margins and D-M-E was up by $0.3 million.
Communications Services
- -----------------------
Sales in the Communications Services segment increased 65.5% in the
first quarter of Fiscal 1996 compared with the same period in Fiscal 1995,
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 11.0%
in the first quarter of Fiscal 1996, compared to the same period in Fiscal
1995 primarily due to increased sales resulting from the reasons given above
and related economies of scale. Operating income as a percent of sales was
14.9% in the Fiscal 1996 first quarter compared to 22.2% in the Fiscal 1995
first quarter. This lower return on sales was anticipated as a result of the
JWP acquisition, which has lower gross margins due to the nature of the
business.
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 37.6% in the
current first quarter, compared to the same period in the prior year. This
increase in the current year period was primarily due to higher outside legal
fees and 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 increased $.5 million in the first quarter,
compared to the same period in the prior year, primarily due to decreased
carrying costs incurred on net assets held for sale in Fiscal 1996 and a
currency loss recognized on a Canadian pension plan in Fiscal 1995.
Net interest expense increased 7.5% in the Fiscal 1996 first quarter,
compared to the Fiscal 1995 first quarter, primarily the result of higher
bank borrowings during the Fiscal 1996 period.
Investment income, net was up significantly in the first quarter of
Fiscal 1996, principally as a result of recording unrealized holding gains
related to trading securities in the current quarter.
Equity in earnings of affiliates increased $1.8 million in the Fiscal
1996 first three months compared to the prior year period. The Fiscal 1996
first three months include $1.5 million of equity earnings provided by
Nacanco, which was purchased from TFC in January 1995 and not included in the
prior year period's quarterly results.
Minority interest expense includes dividend expense on FII's Series C
Preferred Stock.
Income taxes - In the first three months of Fiscal 1996, the Company
recorded a tax provision of 36.4%.
Net earnings (loss) - The net earnings increased $5.1 million in the
first three months of Fiscal 1996, compared to the first three months of
Fiscal 1995, primarily due to: (1) the $2.9 million increase in operating
income, (2) the $1.7 million increase in investment income, and (3) a $1.8
million increase in equity earnings. A $.7 million increase in net interest
expense and $.6 million increase in taxes partially offset these increases.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Working capital at October 1, 1995, was $123.0 million, which was $18.8
million lower than at June 30, 1995. The principal reasons for this decrease
included a $20.7 million net reduction in cash and short-term investments,
primarily required to service debt and meet operating cash requirements
during the first three months, a decrease in prepaid expenses of $7.8 million
reflecting current taxes being reclassed to noncurrent, and an increase in
current debt of $6.4 million resulting from long term bank debt becoming
current. Partially offsetting this reduction was a net increase of $8.6
million in accounts receivable and inventories, reflecting acquisitions,
slower customer payments, and higher sales and a net reduction in accounts
payable and accrued liabilities of $7.6 million.
The Company's principal sources of liquidity are cash generated from
operations and borrowings under its credit agreement. The Company also
expects to generate cash from the sale of certain assets and liquidation of
investments. Net assets held for sale at October 1, 1995, had a book value
of $50.0 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 environmental matters and market conditions.
The Company's principal cash requirements include debt service, capital
expenditures, acquisitions, payment of other liabilities, and payment of
dividends on preferred stock.
The level of the Company's capital expenditures varies from year to
year, depending upon the timing of capital spending for new production
equipment, periodic plant and facility expansion, acquisition of high growth
companies, as well as cost reduction and labor efficiency programs. For the
three month period October 1, 1995, capital expenditures, including the cost
of acquisitions, were $3.9 million. The Company anticipates that total
capital expenditures, including the cost of acquisitions, for the fiscal year
ending June 30, 1996 will be approximately $18.8 million.
Investments and advances in affiliated companies increased $9.8 million
primarily resulting from recording a $7.6 million increase in the market
value of the Company's investment in TFC stock and $1.5 million of equity
earnings for Nacanco Paketleme previously recorded at the TFC level in the
Fiscal 1995 first quarter.
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 October 1, 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: $65.0 million for the second quarter of Fiscal
1996, $70.0 million for the third quarter of Fiscal 1996, $80.0 million for
the fourth quarter of Fiscal 1996, and $84.6 million for the first quarter of
Fiscal 1997. 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 October 1, 1995, FII was unable to provide
dividends to the Company. The Credit Agreement also restricts FII from
additional borrowings under the Credit Facilities for the payment of any
dividends.
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 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. The Company's
present policy is identical to the policy prescribed by SFAS 121, therefore
there will be no effect from implementation.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Note 8 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: November 14, 1995
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<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> OCT-01-1995
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<SECURITIES> 6,040
<RECEIVABLES> 106,079
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<OTHER-SE> 261,676
<TOTAL-LIABILITY-AND-EQUITY> 887,511
<SALES> 153,470
<TOTAL-REVENUES> 153,827
<CGS> 112,565
<TOTAL-COSTS> 142,798
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