5
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 September 28, 1997
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 Identification No.)
Incorporation or organization)
Washington Dulles International Airport
300 West Service Road, PO Box 10803
Chantilly, VA 20153
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703) 478-5800
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 ninety (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
Title of Class September 28, 1997
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.
RHI HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
INDEX
Page
PART 1. FINANCIAL INFORMATION
Item 1.Condensed Consolidated Balance Sheets as of September 28, 1997
(Unaudited) and
June 30, 1997 .
3
Consolidated Statements of Earnings for the Three Months ended
September 28, 1997
and September 29, 1996 (Unaudited)
5
Condensed Consolidated Statements of Cash Flows for the Three
Months ended
September 28, 1997 and September 29, 1996 (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
15
Item 6. Exhibits and Reports on Form 8-K
15
* For purposes of Part 1 and 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.
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
<TABLE>
RHI HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 28, 1997 (Unaudited) and June 30, 1997
ASSETS
<CAPTION>
(In thousands)
June 30,
September 1997 (*)
28,
1997
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents, $4,463 and $ 8,244 $ 18,901
$4,577 restricted
Short-term investments 18,332 25,576
Accounts receivable-trade, less 168,053 165,920
allowances of $8,977 and $7,923
Inventories:
Finished goods 305,071 297,192
Work-in-progress 29,706 26,887
Raw materials 24,807 18,626
359,584 342,705
Prepaid expenses and other current 41,226 33,066
assets
Total Current Assets 595,439 586,168
Property, plant and equipment, net of 131,667 128,176
accumulated depreciation of $124,240
and $130,770
Net assets held for sale 25,199 25,084
Cost in excess of net assets 149,458 149,996
acquired, (Goodwill) less accumulated
amortization of $35,895 and $35,731
Investments and advances, affiliated 187,627 149,345
companies
Prepaid pension assets 59,512 59,742
Deferred loan costs 8,471 6,007
Other assets 45,995 44,217
TOTAL ASSETS $ 1,203,368 $ 1,148,735
*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
September 28, 1997 (Unaudited) and June 30, 1997
LIABILITIES AND STOCKHOLDER'S EQUITY
<CAPTION>
(In thousands)
September June 30,
28, 1997 (*)
1997
<S> <C> <C>
CURRENT LIABILITIES:
Bank notes payable and current $ 79,748 $ 47,322
maturities of long-term debt
Accounts payable 83,858 83,863
Other accrued liabilities 82,776 98,550
Income taxes -- 19,892
246,382 249,627
Total Current Liabilities
LONG-TERM LIABILITIES:
Long-term debt, less current 236,609 241,540
maturities
Other long-term liabilities 21,912 23,153
Retiree health care liabilities 43,284 43,387
Noncurrent income taxes 120,282 83,843
Minority interest in subsidiaries 69,224 68,355
TOTAL LIABILITIES 737,693 709,905
STOCKHOLDER'S EQUITY:
Common Stock 100 100
Preferred Stock 100 100
Paid-in capital 229,260 229,260
Retained earnings 188,830 188,159
Cumulative translation adjustment (884 ) (1,852 )
Net unrealized holding gain on 48,269 23,063
available-for-sale securities
TOTAL STOCKHOLDER'S EQUITY 465,675 438,830
TOTAL LIABILITIES AND STOCKHOLDER'S $ 1,203,368 $ 1,148,735
EQUITY
*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 STATEMENTS OF EARNINGS (Unaudited)
For The Three (3) Months Ended September 28, 1997 and September 29, 1996
<CAPTION>
(In thousands, except per share data) Three Months
Ended
September
September 29,
28, 1996
1997
<S> <C> <C>
REVENUE:
Net sales $ 213,383 $ 145,894
Other income, net 5,385 209
218,768 146,103
COSTS AND EXPENSES:
Cost of goods sold 161,737 106,306
Selling, general & administrative 44,481 34,933
Research and development 605 23
Amortization of goodwill 1,187 1,080
208,010 142,342
OPERATING INCOME 10,758 3,761
Interest expense 7,070 8,705
Interest income (831 ) (2,308 )
Net interest expense 6,239 6,397
1,897 (375 )
Investment income (loss), net
Equity in earnings of affiliates 1,751 1,994
Minority interest (788 ) (785 )
7,379 (1,802 )
EARNINGS (LOSS) BEFORE TAXES
2,358 (122 )
Income tax provision (benefit)
NET EARNINGS (LOSS) $ 5,021 $ (1,680 )
The accompanying notes to summarized financial information are an integral
part of these statements.
</TABLE>
<TABLE>
RHI HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For The Three (3) Months Ended September 28, 1997 and September 29, 1996
<CAPTION>
(In thousands) Three Months Ended
September September
28, 29,
1997 1996 (*)
<S> <C> <C>
Cash flows provided by (used for)
Operations:
Net earnings (loss) 5,021 (1,680 )
$ $
Depreciation and amortization 6,557 4,931
Accretion of discount on long-term (569 ) 839
liabilities
Distributed earnings of affiliates, 715 1,290
net
Minority interest 788 785
Changes in assets and liabilities (45,401 ) (48,782 )
(32,889 ) (42,617 )
Net cash used for operations
Investments:
Net proceeds from the sale of -- 173,719
discontinued operations
Purchase of property, plant and (10,178 ) (2,131 )
equipment
Net proceeds received from 8,007 15
investments
Changes in net assets held for sale (139 ) (1,230 )
Other, net 45 5
(2,265 ) 170,378
Net cash provided by (used for)
investments
Financing:
Proceeds from issuance of debt 95,109 33,473
Debt repayments and repurchase of (67,631 ) (77,566 )
debentures, net
Payment of dividends (4,350 ) (5,000 )
23,128 (49,093 )
Net cash provided by (used for)
financing
1,369 588
Effects of exchange rate changes on
cash
Net increase (decrease) in cash and (10,657 ) 79,256
cash equivalents
Cash and cash equivalents, beginning 18,901 36,112
of period
Cash and cash equivalents, end of $ 8,244 $ 115,368
period
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)
(In thousands, except per share data)
1. FINANCIAL STATMENTS
The consolidated balance sheet as of September 28, 1997 and the
consolidated statements of earnings and cash flows for the three months
ended September 28, 1997 and September 29, 1996 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 September
28, 1997, and for all periods presented, have been made. The balance sheet
at June 30, 1997 was condensed from the 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, 1997 Form
10-K and Banner Aerospace, Inc.'s March 31, 1997 Form 10-K. The results of
operations for the period ended September 28, 1997 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.
2. BUSINESS COMBINATIONS
The Company's acquisitions described in this section have been
accounted for using the purchase method. The purchase prices assigned to
net assets acquired were based on the fair value of such assets and
liabilities at the respective acquisition dates.
In February 1997, the Company completed a transaction (the "Simmonds
Acquisition") pursuant to which the Company acquired common shares and
convertible debt representing an 84.2% interest, on a fully diluted basis,
of Simmonds S.A. ("Simmonds"). The Company initiated a tender offer to
purchase the remaining shares and convertible debt held by the public. By
June 30, 1997, the Company had purchased, or placed sufficient cash in
escrow to purchase, all the remaining shares and convertible debt of
Simmonds. The total purchase price of Simmonds, including the assumption
of debt, was approximately $62,000, which the Company funded with available
cash. The Company recorded approximately $13,750 in goodwill as a result
of this acquisition, which will be amortized using the straight-line method
over 40 years. Simmonds is one of Europe's leading manufacturers and
distributors of aerospace and automotive fasteners.
In January 1997, Banner Aerospace, Inc. ("Banner"), a majority-owned
subsidiary of the Company, acquired PB Herndon Company ("PB Herndon") in a
business combination accounted for as a purchase. The total cost of the
acquisition was $16,000, including the assumption of $1,300 in debt, which
exceeded the fair value of the net assets of PB Herndon by approximately
$3,500, which is being amortized using the straight-line method over 40
years. The Company purchased PB Herndon with available cash. PB Herndon is
a distributor of specialty fastener lines and similar aerospace related
components.
On June 30, 1997, the Company sold all the patents of Fairchild
Scandinavian Bellyloading Company ("SBC") to Teleflex Incorporated
("Teleflex") for $5,000, and immediately thereafter sold all the stock of
SBC to a wholly owned subsidiary of Teleflex for $2,000. The Company may
also receive additional proceeds of up to $7,000 based on future net sales
of SBC's patented products and services.
3. RESTRICTED CASH
The Company had approximately $4,463 and $4,839 of restricted cash on
September 28, 1997 and June 30, 1997, respectively, all of which is
maintained as collateral for certain debt facilities.
4. SUMMARIZED STATEMENT OF EARNINGS INFORMATION
The following table presents summarized historical financial
information, on a combined 100% basis, of the Company's principal
investments, which are accounted for using the equity method.
<TABLE>
<CAPTION>
Three Months Ended
September September
28, 29,
1997 1996
<S> <C> <C>
Net sales 82,025 80,037
$ $
Gross profit 35,686 34,997
Earnings from continuing operations 2,501 4,052
Net earnings 2,501 4,052
</TABLE>
The Company owns approximately 31.9% of Nacanco Paketleme common stock.
The Company recorded equity earnings of $1,692 and $1,560 from this
investment for the three months ended September 28, 1997 and September 29,
1996, respectively.
On September 28, 1997, the Company's investments in Shared
Technologies Fairchild Inc. ("STFI") consisted of (i) $22,703 carrying
value for $25,000 face value of 6% cumulative Convertible Preferred Stock,
(ii) $11,666 carrying value for $20,000 face value of Special Preferred
Stock, and (iii) $(2,332) carrying value for 6,225,000 shares of common
stock. At the close of trading on September 26, 1997, STFI's common stock
was quoted at $11.56 per share. Based on this price, the Company's
investment in STFI common stock had an approximate market value of $71,977.
The Company recorded equity earnings of $59 and $434 from these investments
during the three months ended September 28, 1997 and September 29, 1996,
respectively.
On July 16, 1997, STFI entered into a definitive merger agreement (the
"STFI/Tel-Save Merger") with Tel-Save Holdings, Inc. ("Tel-Save"), pursuant
to which Tel-Save would acquire STFI in a business combination accounted
for as a pooling of interests. Upon consummation of the STFI/Tel-Save
Merger, the Company will receive shares of Tel-Save's common stock in
exchange for its shares of STFI common stock and STFI cumulative
convertible preferred stock. The price to be paid by Tel-Save is $11.25
for each share of STFI. This price may increase depending on the price of
Tel-Save prior to the effective date of the merger. In addition, the
Company will receive approximately $22,000 cash in redemption for its
shares of STFI special preferred stock. Tel-Save and STFI have scheduled
shareholder meetings on December 1, 1997, to vote on the planned merger.
As a result of the transaction, the Company expects to recognize a pre-tax
gain in excess of $100,000.
The company investments in TFC are considered available-for-sale
securities and are carried at market value. As of September 28, 1997, the
carrying value of the Company's investment in 4,369,400 shares of TFC
common stock was $117,427 and included an increase of $72,821, before tax,
to market value. The Company's unrealized gain of $38,778 and $6,008 from
its investment in TFC common stock in the three months ended September 28,
1997 and September 29, 1996, respectively, is included in the equity
section of the balance sheet, net of the income tax effect.
5. CREDIT AGREEMENTS
On July 18, 1997, the FHC Credit Agreement was restructured to
provide FHC with a $150,000 senior secured credit facility (the "FHC
Facility") consisting of (i) a $75,000 revolver loan, with a letter of
credit sub-facility of $12,000, and (ii) a $75,000 term loan. Advances
made under the FHC Facility would generally bear interest at a rate of, at
the Company's option, (i) 2% over the Citibank N.A. base rate, or (ii) 3
1/4% over the Eurodollar Rate ("LIBOR"). The FHC Facility is subject to a
non-use commitment fee of 1/2% of the aggregate unused availability; and
outstanding letters of credit are subject to fees of 3 1/2% per annum. A
borrowing base is calculated monthly to determine the amounts available
under the FHC Facility. The borrowing base is determined monthly based
upon specified percentages of (i) FHC's accounts receivable, inventories,
and the appraised value of equipment and real property, and (ii) assets
pledged by the Company to secure the facility. The FHC Facility matures on
July 28, 2000. The FHC Facility provides that on December 31, 1998, the
Company must repay the term loan, in full, together with an amount
necessary to reduce the outstanding revolving loans to $52,000, if the
Company has not complied with certain financial covenant requirements as of
September 30, 1998. The Company was in compliance with all of its credit
agreements on September 28, 1997.
In August 1997, the Company entered into a delayed-start swap interest
rate lock hedge agreement (the "FHC Hedge Agreement") to reduce its
exposure to increases in interest rates on variable rate debt. Beginning on
December 15, 1997, the FHC Hedge Agreement will provide interest rate
protection on $100,000 of variable rate debt for ten years, with interest
being calculated based on a fixed LIBOR rate of 6.696%.
6. MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES
On September 28, 1997, the Company had $69,224 of minority interest,
of which $68,964 represents approximately 40.7% of Banner's common stock
outstanding on a consolidated basis.
7. DIVIDENDS PAID TO PARENT
During the three months ended September 28, 1997 and September 29,
1996, the Company paid cash dividends of $4,350 and $5,000, respectively,
to TFC.
8. 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 Fairchild Industries, Inc. ("FII"), a former
subsidiary of the company, 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 has held discussions with the government to attempt to resolve
these pension accounting issues.
Environmental Matters
The Company's operations are subject to stringent Government imposed
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, results of operations, or net cash flows 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 September 28, 1997, the consolidated total recorded liabilities
of the Company for environmental matters approximated $8,300, which
represented the estimated probable exposures for these matters. It is
reasonably possible that the Company's total exposure for these matters
could be approximately $13,000 on an undiscounted cash flow basis.
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 aforementioned, will not have a
material adverse effect on the financial condition, or future results of
operations or net cash flows of 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 Holding Corporation
("FHC") and Banner Aerospace, Inc. ("Banner"). The Company is a wholly-
owned subsidiary of The Fairchild Corporation ("TFC"). The Company also
holds a significant equity interest in Shared Technologies Fairchild Inc.,
("STFI") and Nacanco Paketleme ("Nacanco").
The following discussion and analysis provide information which
management believes is relevant to assessment and understanding of the
Company's consolidated results of operations and financial condition. The
discussion should be read in conjunction with the consolidated financial
statements and notes thereto.
CAUTIONARY STATEMENT
Certain statements in the financial discussion and analysis by
management contain forward-looking information that involves risk and
uncertainty, including current trend information, projections for
deliveries, backlog, and other trend projections. Actual future results
may differ materially depending on a variety of factors, including product
demand; performance issues with key suppliers; customer satisfaction and
qualification issues; labor disputes; governmental export and import
policies; worldwide political stability and economic growth; legal
proceedings; business combinations; investment risks; and acts of nature.
RECENT DEVELOPMENTS
On July 16, 1997, STFI entered into a definitive merger agreement (the
"STFI/Tel-Save Merger") with Tel-Save Holdings, Inc. ("Tel-Save"), pursuant
to which Tel-Save plans to acquire STFI in a business combination accounted
for as a pooling of interests. Upon consummation of the STFI/Tel-Save
Merger, the Company will receive shares of Tel-Save's common stock in
exchange for its shares of STFI common stock and STFI cumulative
convertible preferred stock. The price to be paid by Tel-Save is $11.25
for each share of STFI. This price may increase depending on the price of
Tel-Save prior to the effective date of the merger. In addition, the
Company will receive approximately $22 million cash in redemption for its
shares of STFI special preferred stock. The Company expects the merger to
be consummated prior to December 31, 1997. As a result of the transaction,
the Company would recognize a pre-tax gain in excess of $100 million.
On June 30, 1997, the Company sold all the patents of Fairchild
Scandinavian Bellyloading Company ("SBC") to Teleflex Incorporated
("Teleflex") for $5.0 million, and immediately thereafter sold all the
stock of SBC to a wholly owned subsidiary of Teleflex for $2.0 million.
The Company may also receive additional proceeds of up to $7.0 million
based on future net sales of SBC's patented products and services.
In February 1997, the Company completed a transaction (the "Simmonds
Acquisition") pursuant to which the Company acquired common shares and
convertible debt representing an 84.2% interest, on a fully diluted basis,
of Simmonds S.A. ("Simmonds"). The Company initiated a tender offer to
purchase the remaining shares and convertible debt held by the public. By
June 30, 1997, the Company had purchased, or placed sufficient cash in
escrow to purchase, all the remaining shares and convertible debt of
Simmonds. The total purchase price of Simmonds, including the assumption
of debt, was approximately $62.0 million, which the Company funded with
available cash. The Company recorded approximately $13.7 million in
goodwill as a result of this acquisition, which will be amortized using the
straight-line method over 40 years. Simmonds is one of Europe's leading
manufacturers and distributors of aerospace and automotive fasteners.
In January 1997, Banner, through its subsidiary, Dallas Aerospace,
Inc., acquired PB Herndon Company ("PB Herndon") in a business combination
accounted for as a purchase. The total cost of the acquisition was $16.0
million, including the assumption of $1.3 million in debt, which exceeded
the fair value of the net assets of PB Herndon by approximately $3.5
million. The excess is being amortized using the straight-line method over
40 years. The Company purchased PB Herndon with available cash. PB Herndon
is a distributor of specialty fastener lines and similar aerospace related
components.
RESULTS OF OPERATIONS
The Company currently reports in two principal business segments:
Aerospace Fasteners and Aerospace Distribution. The results of Fairchild
Technologies, together with the results of Gas Springs and SBC (for the
prior year period) are included in the Corporate and Other classification.
The following table illustrates the historical sales and operating income
of the Company's operations for the three months ended September 28, 1997
and September 29, 1996.
<TABLE>
<CAPTION>
(In thousands) For the Quarter Ended
September September
28, 1997 29, 1996
<S> <C> <C>
Sales by Segment:
Aerospace Fasteners 76,847 55,047
$ $
Aerospace Distribution 122,914 84,107
Corporate and Other 18,469 9,458
Eliminations (a) (4,847 ) (2,718 )
213,383 145,894
Total Sales $ $
Operating Income (Loss) by Segment:
Aerospace Fasteners $ 2,510 $ 2,108
Aerospace Distribution 9,371 5,981
Corporate and Other (1,123 ) (4,328 )
Total Operating Income $ 10,758 $ 3,761
(a) Represents intersegment sales from the Aerospace Fasteners segment to
the Aerospace Distribution segment.
</TABLE>
CONSOLIDATED RESULTS
Net sales of $213.4 million in the first quarter of Fiscal 1998
improved significantly by $67.5 million, or 46.3%, compared to sales of
$145.9 million in the first quarter of Fiscal 1997. Sales growth was
stimulated by the resurgent commercial aerospace industry, together with
the effects that recent acquisitions contributed in the current quarter.
Gross Margin as a percentage of sales was 24.2% and 27.1% in the first
quarter of Fiscal 1998 and 1997, respectively. The lower margin in the
current quarter is attributable to inefficiencies associated with increased
production rates requiring the addition of new employees and payment
overtime to existing employees within the Aerospace Fasteners segment, and
a change in product mix and increased price competition within the
Aerospace Distribution segment.
Selling, General & Administrative expense as a percentage of sales was
20.8% and 23.9% in the first quarter of Fiscal 1998 and 1997, respectively.
The improvement in the current quarter was attributable primarily to
administrative efficiencies in correlation to the increase in sales.
Research and Development expense increased in the current quarter,
compared to the prior year quarter, as a result of product development
within Fairchild Technologies. Additional research and development
expenses will be incurred in the future.
Other income increased $5.2 million in the current quarter, compared
to the prior year quarter, due primarily to the sale of air rights over a
portion of the property the Company owns and is developing in Farmingdale,
New York.
Operating income of $10.8 million in the first quarter of Fiscal 1998
increased $7.0 million, or 186%, compared to operating income of $3.8
million in the first quarter of Fiscal 1997. The increase in operating
income was due primarily to the improved results provided by the Company's
aerospace operations and the aforementioned increase in other income.
Investment income, net, increased $2.3 million in the first quarter of
Fiscal 1998, due primarily to recording unrealized gains on the fair market
adjustments of trading securities in the first quarter of Fiscal 1998 while
recording unrealized losses from trading securities in the first quarter of
Fiscal 1997.
Equity in earnings of affiliates decreased $.6 million in the first
quarter of Fiscal 1998, compared to the first quarter of Fiscal 1997, due
to slightly lower earnings by STFI and Nacanco.
Income Taxes included a $2.4 million tax provision in the first
quarter of Fiscal 1998, on pre-tax earnings of $7.4 million which is
slightly below the statutory rate.
Net earnings of $5.0 million in the three months ended September 28,
1997, improved by $6.7 million compared to the $1.7 million net loss
recorded in the three months ended September 29, 1996. This improvement
is attributable to (i) the $7.0 million increase in operating income, and
(ii) the $2.3 million increase in investment income, offset partially by a
$2.5 million decrease from the effect of income taxes.
SEGMENT RESULTS:
AEROSPACE FASTENERS SEGMENT
Sales in the Aerospace Fasteners segment increased by $21.8 million to
$76.8 million, up 39.6% the first quarter of Fiscal 1998, compared to the
first quarter of Fiscal 1997, reflecting significant growth in the
commercial aerospace industry combined with the effect of the Simmonds
acquisition. New orders have continued to exceed reported sales, resulting
in a backlog of $201 million at September 28, 1997, up from $196 million at
June 30, 1997. Excluding current quarter sales of $14.6 million contributed
by Simmonds, sales increased 13.1% in Fiscal 1997, compared to the same
quarter of the prior year.
Operating income improved by $.4 million, or 19.1%, during the first
quarter of Fiscal 1998, compared to the first quarter of Fiscal 1997. This
improvement was attributable to the results of Simmonds. Excluding current
quarter results of Simmonds, operating income would have decreased by $1.1
million in the first quarter of Fiscal 1998, compared to the same quarter
of the prior year, reflecting inefficiencies associated with increased
production rates which required the addition of employees and substantial
overtime work. The Company anticipates the productivity inefficiencies will
gradually improve in the coming months.
AEROSPACE DISTRIBUTION SEGMENT
Aerospace Distribution sales were up $38.8 million, or 46.1%, for the
first three months of Fiscal 1998, compared to the same period of the prior
year. The improvement in the current period is due to increased sales to
commercial airlines, original equipment manufacturers, and other
distributors and increased sales of turbine parts and engine management
services. In addition, sales of $5.2 million by PB Herndon also contributed
to the increase.
Operating income was up $3.4 million, or 56.7%, for the first three
months of Fiscal 1998, compared to the same period of the prior year, due
primarily to the increase in sales and the related economies of scale.
Lower gross margins, as a percentage of sales, resulting from a change in
product mix together with increased price competition were offset by
improved efficiencies of selling, general and administrative expenses, as a
percentage of sales. This segment has benefited from the extended service
lives of existing aircraft, growth from acquisitions and internal growth,
which has increased its overall market share.
CORPORATE AND OTHER
The Corporate and Other classification includes Fairchild
Technologies, Gas Springs Division and corporate activities. The results of
SBC, which was sold at Fiscal 1997 year-end, are included in the prior
period results. The group reported an increase in sales of $9.0 million,
or 95.3%, in the first quarter of Fiscal 1998, as compared to the same
period in Fiscal 1997, due primarily to an improvement in sales of
Fairchild Technologies advanced semiconductor manufacturing equipment line.
The operating loss decreased by $3.2 million in the first quarter of Fiscal
1998, compared to the first quarter of Fiscal 1997, as a result of an
increase in other income, partially offset by increased losses at Fairchild
Technologies. The operating results classified under Corporate and Other
are affected by the operations of Fairchild Technologies Division ("The
Division"), which may fluctuate because of industry cyclicality, the volume
and timing of orders, the timing of new product shipments, customer's capital
spending, and pricing changes by The Division and its competition.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At September 28, 1997, cash and cash equivalents decreased to $8.2
million from $18.9 million at June 30, 1997, due to cash used for
operations of $32.9 million and net capital expenditures of $10.2 million,
offset partially by cash of $27.5 million provided by the increased
borrowings from the revolver. The Company's principal cash requirements
include debt service, capital expenditures, acquisitions, and payment of
other liabilities. 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 maintains credit agreements with a consortium of banks, which
provide revolving credit facilities to RHI and FHC, a separate revolving
credit facility and term loans to Banner. At September 28, 1997, the
Company had available credit lines of $86.9 million. The Company
anticipates that existing capital resources, cash generated from
operations, and cash from borrowings and asset sales will be adequate to
maintain the Company's current level of operations. The Company's
management intends to take appropriate action to refinance portions of its
debt, if necessary to meet long-term cash requirements.
On July 16, 1997, STFI entered into a definitive merger agreement (the
"STFI/Tel-Save Merger") with Tel-Save Holdings, Inc. ("Tel-Save"), pursuant
to which Tel-Save will acquire STFI in a business combination accounted for
as a pooling of interests. Upon consummation of the STFI/Tel-Save Merger,
the Company will receive shares of Tel-Save's common stock, in exchange for
its shares of STFI common stock and STFI cumulative convertible preferred
stock, as well as approximately $22.0 million cash in redemption of its
shares of STFI special preferred stock. As a result of the transaction,
the Company expects to recognize a pre-tax gain in excess of $100 million.
With the year 2000 approaching, the Company is preparing all of its
computer systems to be Year 2000 compliant. Substantially all of the
systems within the Aerospace Fasteners segment are currently Year 2000
compliant. The Company expects to replace and upgrade some systems, which
are not Year 2000 compliant, within the Aerospace Distribution segment and
at Fairchild Technologies. The Company expects all of its systems will be
Year 2000 compliant on a timely basis. However, there can be no assurance
that the systems of other companies, on which the Company's systems rely,
will also be timely converted. Management is currently evaluating the cost
of ensuring that all systems are Year 2000 compliant.
Management believes it has successfully restructured and repositioned
the Company from a diversified industrial company to a focused Aerospace
Industry participant. As worldwide airlines and aircraft manufacturers
increase capacity to meet demand, the Company plans to benefit through
internal growth, external growth, and improved productivity.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued two pronouncements, Statement of Financial Accounting Standards No.
128 ("SFAS 128") "Earnings Per Share", and Statement of Financial
Accounting Standards No. 129 ("SFAS 129") "Disclosure of Information about
Capital Structure". SFAS 128 establishes accounting standards for
computing and presenting earnings per share ("EPS"). SFAS 128 is effective
for periods ending after December 15, 1997, including interim periods, and
requires restatement of all prior period EPS data presented. Results from
the calculation of simple and diluted earnings per share, as prescribed by
SFAS 128, would not be materially different from the calculations for
primary and fully diluted earnings per share for years ending June 30, 1997
and June 30, 1996. SFAS 129 establishes standards for disclosure of
information about the Company's capital structure and becomes effective for
periods ending after December 15, 1997.
In June 1997, FASB issued two pronouncements, Statement of Financial
Accounting Standards No. 130 ("SFAS 130") "Reporting Comprehensive Income",
and Statement of Financial Accounting Standards No. 131 ("SFAS 131")
"Disclosures about Segments of an Enterprise and Related Information".
SFAS 130 establishes standards for reporting and display of comprehensive
income and its components in the financial statements. SFAS 131 supersedes
Statement of Financial Accounting Standards No. 14 "Financial Reporting for
Segments of a Business Enterprise" and requires that a public company
report certain information about its operating segments in annual and
interim financial reports. The Company will adopt SFAS 130 and SFAS 131 in
Fiscal 1999.
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
Exhibits:
* 10(g)(iv) Amendment No. 3 dated as of September 26, 1997, to the
RHI Credit Agreement dated as of May 27, 1996.
* 10(k) Interest Rate Hedge Agreement between Registrant and
Citibank, N.A. dated as of August 19, 1997.
* 27 Financial Data Schedules
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter.
* Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to the signed on
its behalf by the undersigned hereunto duly authorized.
For RHI HOLDINGS, INC.
(Registrant) and as its Chief
Financial Officer:
By: Colin M. Cohen
Senior Vice President and
Chief Financial Officer
Date: November 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-28-1997
<CASH> 8,244
<SECURITIES> 18,332
<RECEIVABLES> 177,030
<ALLOWANCES> 8,977
<INVENTORY> 359,584
<CURRENT-ASSETS> 595,439
<PP&E> 255,907
<DEPRECIATION> 124,240
<TOTAL-ASSETS> 1,203,368
<CURRENT-LIABILITIES> 246,382
<BONDS> 236,609
0
100
<COMMON> 100
<OTHER-SE> 465,475
<TOTAL-LIABILITY-AND-EQUITY> 1,203,368
<SALES> 213,383
<TOTAL-REVENUES> 218,768
<CGS> 161,737
<TOTAL-COSTS> 208,010
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,239
<INCOME-PRETAX> 7,379
<INCOME-TAX> 2,358
<INCOME-CONTINUING> 5,021
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,021
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
4
AMENDMENT NO. 3
Dated as of September 26, 1997
to
RESTATED AND AMENDED CREDIT AGREEMENT
Dated as of May 27, 1996
This Amendment No. 3 ("Amendment") dated as of September 26, 1997
is entered into between RHI Holdings, Inc., a Delaware
corporation ("RHI") and Citicorp North America, Inc., as the sole
"Senior Lender" (as defined in the Credit Agreement identified
below) of RHI. Capitalized terms used herein without definition
are used herein as defined in the Credit Agreement.
PRELIMINARY STATEMENT:
RHI, Citicorp North America, Inc., as Senior Lender, and the
Administrative Agent are parties to that certain Restated and
Amended Credit Agreement dated as of May 27, 1996, as heretofore
amended (the "Credit Agreement").
RHI has entered into a certain Second Amended and Restated Credit
Agreement dated as of July 18, 1997 (the "FHC Credit Agreement)
in the capacity as a guarantor of the obligations thereunder of
Fairchild Holding Corp., a Delaware corporation and wholly-owned
subsidiary of RHI.
The parties to the Credit Agreement are desirous of conforming
certain provisions of the Credit Agreement to certain terms of
the FHC Credit Agreement as they pertain to RHI.
Subject to the terms and conditions stated herein, RHI and the
sole Senior Lender of RHI have agreed to amend the Credit
Agreement as set forth in Section 1.
SECTION 1. Amendment to the Credit Agreement. Effective as of
July 18, 1997, subject to the satisfaction of the conditions
precedent set forth in Section 2 hereof, the Credit Agreement is
hereby amended to:
1.1 Delete the definition of "Tax Allocation Agreement" in its
entirety and substitute the following therefor:
"Tax Allocation Agreement" means that certain Eleventh Amended
and Restated Tax Allocation Agreement dated as of July 18, 1997
among TFC, the Borrower, Fairchild Holding Corp. and certain
Affiliates thereof, as in effect on July 18, 1997.
1.2 Delete the provisions of Section 9.04(c) in their entirety.
1.3 Amend the provisions of Section 9.07(b) to delete the
provisions thereof in their entirety and substitute the following
therefor:
(b) Concurrently with the annual delivery to the independent
accountants of the Borrower of a letter relating to financial
exposure of the Borrower and its Subsidiaries with respect to
Environmental Liabilities and Costs substantially in the form of
that letter dated August 28, 1996 addressed to Arthur Andersen &
Co., a copy of which has been delivered to the Administrative
Agent prior to July 18, 1997, the Borrower shall deliver a like
letter addressed to the Administrative Agent; provided, however,
that in the event no such letter is provided to the independent
accountants of the Borrower with respect to any given Fiscal
Year, such letter shall be prepared with respect to such Fiscal
Year and delivered to the Administrative Agent on October 31 of
the calendar year in which such Fiscal Year ends.
1.4 Delete the provisions of Section 9.13 in their entirety.
1.5 Delete the provisions of Section 11.14 in their entirety.
1.6 Delete the provisions of Section 11.21 in their entirety.
1.7 Delete the provisions of Section 14.01(r) in their entirety.
SECTION 2. Condition Precedent to Effectiveness of this
Amendment. This Amendment shall become effective as of July 18,
1997 if, and only if, the Administrative Agent shall have
received on or before September 26, 1997, an original copy of
this Amendment executed by RHI and the sole Senior Lender.
SECTION 3. Representations and Warranties. RHI hereby
represents and warrants as follows:
3.1 This Amendment 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.
3.3 Upon the effectiveness of this Amendment and as of the date
hereof, RHI hereby reaffirms all covenants, representations and
warranties made by it 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).
SECTION 4. Reference to and Effect on the Credit Agreement.
4.1 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.
4.2 Except as specifically amended above, the Credit Agreement
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
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 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 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 6. Governing Law. This Amendment 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 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.
RHI HOLDINGS, INC. CITICORP NORTH AMERICA, INC.
By: Karen L. Schneckenburger By: Timothy L. Freeman
Vice President & Treasurer Vice President
457582.296344.01 November 10, 1997
SCHEDULE
to the
MASTER AGREEMENT
Dated as of October 30, 1997
between Citibank, N.A. ("Party A"), a national banking association
organized under the laws of the United States and Fairchild Holding
Corp. ("Party B"), a Delaware corporation.
Scope of Agreement
As of the date of this Agreement, all Transactions entered into
(whether before or after this Agreement is entered into) between the
parties to this Agreement through Offices specified in Part 4(4) of
this Schedule (and the respective rights and obligations of the
parties in respect of those Transactions) shall be governed by,
subject to, and determined in accordance with, the terms and
conditions set out in this Agreement and the related Confirmations.
PART 1
Termination Provisions
In this Agreement:
(1) "Specified Entity" does not apply.
(2) "Specified Transaction" will have the meaning specified in
Section 14 of the Agreement.
(3) The "Cross-Default" provisions of Section 5(a)(vi) of the
Agreement will apply to Party
A and Party B.
"Specified Indebtedness" means any obligation (whether present
or future, contingent or
otherwise, as principal or surety or otherwise) in respect of
borrowed money, other than
indebtedness in respect of deposits received.
<PAGE>
"Threshold Amount" means (i) with respect to Party A, 2% of the
stockholders' equity of Party A and (ii) with respect to Party B, 2%
of the stockholders' equity of Party B.
(4) The "Credit Event Upon Merger" provisions of Section 5(b)(iv)
of the Agreement will
apply to Party A and Party B.
The "Automatic Early Termination" provision of Section 6(a) of the
Agreement will not
apply to Party A or Party B; provided, however, where the Event of
Default specified in Section 5(a)(vii)(1), (3), (4), (5), (6) or to
the extent analogous thereto, (8) of the Agreement, is governed by a
system of law which does not permit termination to take place after
the occurrence of the relevant Event of Default, then the Automatic
Early Termination provision of Section 6(a) of the Agreement will
apply to Party A and Party B.
(6) Payments on Early Termination. For the purpose of Section 6(e)
of the Agreement:
The Second Method and Market Quotation will apply.
(7) "Termination Currency" means United States Dollars.
(8) Additional Termination Events.
(a) Section 5(b) of the Agreement is modified by adding at the end
thereof the following subsection (vi):
(vi) Impossibility. Due to the occurrence of a natural or man-
made disaster, armed conflict, act of terrorism, riot, labor
disruption or any other circumstance beyond its control after the
date on which a Transaction is entered into, it becomes impossible
(other than as a result of its own misconduct) for such a party
(which will be the Affected Party):
(1) to perform any absolute or contingent obligation, to make
a payment or
delivery or to receive a payment or delivery in respect of such
Transaction or
to comply with any other material provision of this Agreement
relating to such Transaction; or
to perform, or for any Credit Support Provider of such party to
perform, any
contingent or other obligation which the party (or such Credit
Support Provider) has under any Credit Support Document relating to
such Transaction.
(b) An Impossibility shall be treated as an Illegality for purposes
of Section 5(c) of the
Agreement.
<PAGE>
(9) It shall constitute an Event of Default hereunder and Party B
shall be deemed the
Defaulting Party if an event of default (however described)
occurs under the Credit
Agreement dated as of July 18, 1997 among Fairchild Holding
Corp., as Borrower, RHI
Holdings, as Guarantor, the institutions from time to time
party thereto as Lenders, the
institution from time to time as issuing Banks, Citicorp USA,
Inc., as Administration
Agent and Collateral Agent, Nationsbank, N.A., as Syndication
Agent and Salomon
Brothers Inc., as Documentation Agent.
(10) It shall constitute an Event of Default hereunder and
Party B shall be deemed the Defaulting Party if the collateral
pledged under the Credit Agreement no longer secures Party B's
obligations hereunder.
PART 2
Tax Representations
(1) Payer Representations. For the purpose of Section 3(e) of the
Agreement, Party A and
Party B will make the following representation:
It is not required by any applicable law, as modified by the
practice of any relevant governmental revenue authority, of any
Relevant Jurisdiction to make any deduction or withholding for or on
account of any Tax from any payment (other than interest under
Section 2(e), 6(d)(ii) or 6(e) of this Agreement) to be made by it
to the other party under this Agreement. In making this
representation, it may rely on:
(x) the accuracy of any representation made by the other party
pursuant to Section
3(f) of this Agreement;
(y) the satisfaction of the agreement contained in Section
4(a)(i) or 4(a)(iii) of this
Agreement and the accuracy and effectiveness of any
document provided by the
other party pursuant to Section 4(a)(i) or 4(a)(iii) of
this Agreement; and
(z) the satisfaction of the agreement of the other party
contained in Section 4(d) of
this Agreement;
provided that it shall not be a breach of this representation where
reliance is placed on clause (y) and the other party does not
deliver a form or document under Section 4(a)(iii) by reason of
material prejudice to its legal or commercial position.
<PAGE>
(2) Payee Representations. For the purpose of Section 3(f) of the
Agreement, Party A and Party B make the representations
specified below, if any:
The following representation will apply to Party A:
It is a national banking association organized under the laws of the
United States and its U.S. taxpayer identification number is 13-
5266470
The following representation will apply to Party B:
It is a corporation created or organized in the United States or
under the laws of the United States or of any State and its U.S.
taxpayer identification number is 541794337.
PART 3
Documents to be Delivered
For the purpose of Section 4(a) of the Agreement:
(1) Tax forms, documents or certificates to be delivered are:
As required under Section 4(a)(iii) of the Agreement.
(2) Other documents to be delivered are:
(a) Certified copies of all documents evidencing necessary
corporate and other authorizations and approvals with respect to the
execution, delivery and performance by the party of this Agreement.
Party required to deliver: Party B
Date by which to be delivered: Upon execution of this Agreement
Covered by Section 3(d) Representation: Yes
(b) A certificate of an authorized officer of the party, certifying
the names, true signatures
and authority of the officers of the party signing this
Agreement.
Party required to deliver: Party B
Date by which to be delivered: Upon execution of this Agreement
Covered by Section 3(d) Representation: Yes
<PAGE>
(c) An opinion of counsel to the party substantially in the form
set forth in Exhibit I and
covering such other matters as reasonably requested by the
receiving party.
Party required to deliver: Party B
Date by which to be delivered: Upon execution of this Agreement
Covered by Section 3(d) Representation: No
(d) Such other document as the other party may reasonably request
in connection with each
Transaction.
Party required to deliver: Party B
Date by which to be delivered: Promptly upon request
Covered by Section 3(d) Representation: Yes
PART 4
Miscellaneous
(1) Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the State of New York without
reference to choice of law doctrine.
(2) Process Agent. For the purpose of Section 13(c) of the
Agreement:
Party B appoints as its Process Agent in the State of New York:
Not applicable
(3) Offices. The provisions of Section 10(a) of the Agreement will
not apply.
(4) Multibranch Party. For the purpose of Section 10 of the
Agreement:
(a) Party A is a Multibranch Party and may act through the
following Offices: New York and London.
(b) Party B is not a Multibranch Party.
<PAGE>
(5) Addresses for Notices. For the purpose of Section 12(a) of the
Agreement:
(a) Address for notices or communications to Party A:
Address: Citibank, N.A., New York Head Office
399 Park Avenue, 7th Floor
New York, New York 10043
Attention: Vice President in Charge of Global Derivatives
(For all purposes)
(b) Address for notices or communications to Party B:
Address: Fairchild Holding Corp.
P.O. Box 10803
Chantilly, Virginia 20153
or overnight:
300 West Service Road
Chantilly, Virginia 20102
Attention: Colin M. Cohen, Vice President
Telefax No.: 703-478-5775
(For all purposes)
(6) Calculation Agent. The Calculation Agent is Party A, unless
otherwise specified in a Confirmation in relation to the relevant
Transaction.
(7) "Affiliate" will have the meaning specified in Section 14 of
the Agreement.
(8) Credit Support Document. None.
(9) The Credit Support Provider. None.
<PAGE>
PART 5
Other Provisions
( l ) Existing Agreements.
(a) Subject and without prejudice to Part 5(7) of this Schedule,
effective as of the date
hereof, this Agreement shall supersede any existing agreement
or agreements between the
parties relating to Transactions entered into through any of
the Offices of the parties
listed in Part 4(4) of this Schedule.
(b) If, on the date hereof, any sum remains payable under that
superseded agreement as a
result of any Transaction, this Agreement shall apply in
relation thereto with any
necessary consequential amendments.
(2) Confirmations. Notwithstanding anything to the contrary in the
Agreement:
(a) The parties hereto agree that with respect to each Transaction
hereunder a legally binding agreement shall exist from the moment
that the-parties hereto agree on the essential terms of such
Transaction, which the parties anticipate will occur by telephone.
(b) For each Transaction Party A and Party B agree to enter into
hereunder, Party A shall
promptly send to Party B a Confirmation setting forth the terms
of such Transaction.
Party B shall execute and return the Confirmation to Party A or
request correction of any
error within three Business Days of receipt. Failure of Party B
to respond within such
period shall not affect the validity or enforceability of such
Transaction and shall be
deemed to be an affirmation of such terms.
(3) Additional Agreements. Each party agrees, upon learning of the
occurrence of any event
or commencement of any condition that constitutes (or that with
the giving of notice or
passage of time or both would constitute) an Event of Default
or Termination Event with
respect to such party, promptly to give the other party notice
of such event or condition
(or, in lieu of giving notice of such event or condition in the
case of an event or condition
that with the giving of notice or passage of time or both would
constitute an Event of
Default or Termination Event with respect to the party, to
cause such event or condition
to cease to exist before becoming an Event of Default or
Termination Event).
(4) Additional Representations. Section 3 of the Agreement is
hereby amended by adding
at the end thereof the following subsections:
(g) Eligible Swap Participant. It is an "eligible swap
participant" as that term is defined by the Commodity Futures
Trading Commission at 17 C.F.R. ?? 35.1(b)(2).
<PAGE>
(h) Relationship Between Parties.
(i) It is not relying on any advice, statements or recommendations
(whether written or oral) of the other party regarding any
Transaction, other than the written representations expressly made
by that other party in this Agreement and in the Confirmation in
respect of that Transaction;
(ii) In respect of each Transaction under this Agreement,
(1) it has the capacity to evaluate,(internally or
through independent professional advice) that Transaction (including
decisions regarding the appropriateness or suitability of that
Transaction) and has made its own decision to enter into that
Transaction;
(2) it understands the terms, conditions and risks of that
Transaction and is willing to accept those terms and conditions and
to assume (financially and otherwise) those risks;
(3) it is entering into that Transaction as
principal and not as agent for any
other party; and
(4) it acknowledges and agrees that the other party
is not acting as a fiduciary or advisor to it in connection with
that Transaction.
(i) It is entering into that Transaction for the purposes of
managing its borrowings or investments, hedging its underlying
assets or liabilities or in connection with a line of business, and
not for purposes of speculation.
(5) Additional Representations of Party B. Party B represents and
warrants to Party A that
(i) this Agreement constitutes a Hedge Agreement (as defined in the
Credit Agreement)
and (ii) Party B's obligations hereunder are secured by the Credit
Agreement..
(6) Advances. If at any time any amounts due to Party A by Party B
hereunder remain
unpaid after the applicable grace period, if any, such amounts shall
be advanced by
Citicorp USA Inc. Party B acknowledges that each such advance shall
constitute a Hedge
Agreement Undertaking by CUSA as defined in the Deed of Trust and
any and all such
advances, together with interest thereon, as provided in this
Agreement, shall be secured
by the Deed of Trust and other loan documents executed in connection
therewith. No
such disbursement by CUSA shall in any way limit the rights and
remedies of Party A
under this Agreement arising by reason of the occurrence of such
failure to pay by Party
B (including without limitation, the right to terminate this
Agreement and collect the
amount, if any, owed by Party B in connection with this Agreement)
and default by Party
B under this Agreement shall also be a default under the Loan
Agreement and Deed of
Trust.
<PAGE>
(7) Set-off. Section 6 of the Agreement is amended by adding the
following new subsection
6(f):
(f) In addition to any rights of set-off a party may have as a
matter of law or otherwise, upon the occurrence of an Event of
Default with respect to a party ("X") the other party ("Y") will
have the right (but will not be obliged) without prior notice to X
or any other person to set-off any obligation of X owing to Y
(whether or not arising under this Agreement, whether or not
matured, whether or not contingent and regardless of the currency,
place of payment or booking office of the obligation) against any
obligation of Y owing to X (whether or not arising under this
Agreement, whether or not matured, whether or not contingent and
regardless of the currency, place of payment or booking office of
the obligation).
For the purpose of cross-currency set-off, Y may convert any
obligation to another currency at a market rate determined by Y.
If an obligation is unascertained, Y may in good faith estimate that
obligation and set-off in respect of the estimate, subject to the
relevant party accounting to the other when the obligation is
ascertained.
Nothing in this provision will be deemed to create a charge or
other security interest.
(8) Netting Provisions. If an Early Termination Date is designated,
amounts determined in
respect of all Terminated Transactions shall, to the fullest
extent permitted by law, be
aggregated with and netted against one another in performing
the calculations
contemplated by Section 6(e) of this Agreement. Any Terminated
Transaction(s) that
cannot be so aggregated and netted pursuant to the application
of the previous sentence
shall be aggregated and netted amongst themselves to the
fullest extent permitted by law.
Any Terminated Transactions that cannot be so aggregated and
netted amongst themselves
shall instead be (and is hereby agreed always to have been)
governed by, and subject to,
(i) the terms and conditions set out in any relevant agreement
otherwise superseded by
this Agreement as referred to in Part 5(l)(a) of this Schedule
or (ii) if no such agreement
exists, the terms and conditions set out in the relevant
Confirmation(s) with respect to
such Transaction(s).
(9) Severability. Any provision of this Agreement which is
prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions of the
Agreement or affecting the validity or enforceability of such
provision in any other
jurisdiction unless such severance shall substantially impair
the benefits of the remaining
portions of this Agreement or changes the reciprocal
obligations of the parties. The parties
hereto shall endeavor in good faith negotiations to replace the
prohibited or unenforceable
provision with a valid provision, the economic effect of which
comes as close as possible
to that of the prohibited or unenforceable provision.
<PAGE>
WAIVER OF JURY TRIAL. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDINGS.
(11) Telephonic Recording. The parties agree, subject to any consent
required by applicable law, that each may electronically record all
telephonic conversations between them and that any such tape
recordings may be submitted in evidence in any Proceedings relating
to the Agreement. In the event of any dispute between the parties as
to the terms of a Transaction governed by the Agreement or the
obligations thereby created prior to the execution of a Confirmation
for such Transaction, the parties may use electronic recordings
between the persons who entered into such Transaction as the
preferred evidence of the terms of such Transaction.
(12) Escrow Payments. If by reason of the time difference between
the cities in which payments are to be made, it is not possible for
simultaneous payments to be made on any date on which both parties
are required to make payments hereunder, either party may at its
option and in its sole discretion notify the other party that
payments on that date are to be made in escrow. In this case deposit
of the payment due earlier on that date shall be made by 2:00 p.m.
(local time at the place for the earlier payment) on that date with
an escrow agent selected by the party giving the notice, accompanied
by irrevocable payment instructions (i) to release the deposited
payment to the intended recipient upon receipt by the escrow agent
of the required deposit of the corresponding payment from the other
party on the same date accompanied by irrevocable payment
instructions to the same effect or (ii) if the required deposit of
the corresponding payment is not made on that same date, to return
the payment deposited to the party that paid it into escrow. The
party that elects to have payments made in escrow shall pay the
costs of the escrow arrangements and shall cause those arrangements
to provide that the intended recipient of the payment due to be
deposited first shall be entitled to interest on that deposited
payment for each day in the period of its deposit at the rate
offered by the escrow agent for that day for overnight deposits in
the relevant currency in the office where it holds that deposited
payment (at 11:00 a.m. local time on that day) if that payment is
not released by 5:00 p.m. local time on the date it is deposited for
any reason other than the intended recipient's failure to make the
escrow deposit it is required to make hereunder in a timely fashion.
PART 6
FX Transactions and Currencv Options
(1) The provisions of the 1992 ISDA FX and Currency Option
Definitions as published by
the International Swap Dealers Association, Inc. (the "FX
Definitions") are hereby
incorporated herein in their entirety and shall apply to FX
Transactions, Currency
Obligations and Currency Options entered into by the Offices of
the parties specified in
Part 4(4) of this Schedule. FX Transactions, Currency
Obligations and Currency Options
are each deemed to be Transactions pursuant to the ISDA Master
Agreement.
<PAGE>
Regardless of any express provision or provisions to the contrary in
respect of an FX Transaction or Currency Option (i) all FX
Transactions and all Currency Options entered into between the
parties prior to, on, or (until agreed otherwise by the parties)
after the date of this Agreement shall be deemed to be Transactions
for the purposes of this Agreement, and (ii) all Confirmations
howsoever described and whether by means of electronic messaging
system, letter, telex, facsimile or otherwise in respect of FX
Transactions and Currency Options shall constitute "Confirmations"
as referred to in this Agreement even where not so specified in the
Confirmation. Such Confirmations will supplement, form a part of and
be subject to this Agreement.
(2) Section 1.2 of the FX Definitions is hereby amended by adding
the following new
subsections (c), (d) and (e).
(c) Currency. "Currency" means money denominated in the
lawful currency of any country or any "composite currency" such as
the European Currency Unit.
(d) Currency Obligation. "Currency Obligation" means the
undertaking of a party hereunder to receive or deliver an amount of
Currency pursuant to an FX Transaction, including a netted Currency
Obligation under Section 1.4 hereof, unless otherwise agreed.
(e) Designated Netting Office. "Designated Netting Office" means,
as to either party, the office or offices specified as such in the
Schedule and any other office specified from time to time by one
party and agreed to in writing by the other.
(3) Section 1.3 of the FX Definitions is hereby amended by
substituting the following
therefor in its entirety.
Section 1.3 Settlement. On each Value Date each party will deliver
to the other the amount of each Currency (if any) to be delivered by
it under a Currency Obligation and take delivery of the amount of
each Currency (if any) to be received by it under the Currency
Obligation, in each case by wire transfer of same day (or
immediately available) and freely transferable funds to the
respective bank accounts designated by such party. Time shall be of
the essence in this Agreement.
(4) The FX Definitions are hereby amended by adding the following
new Section 1.4.
Section 1.4. Netting and Novation.
(a) Unless otherwise agreed to by the parties hereto, whenever
an FX Transaction is entered into between a pair of Designated
Netting Offices of the parties which creates a Currency Obligation
in the same Currency and for the same Value Date as an existing
Currency Obligation between such Designated Netting Offices, such
Currency Obligations shall automatically and without further action
be netted, individually cancelled and simultaneously replaced
through novation by a new Currency Obligation determined as
<PAGE>
follows: (i) if the cancelled Currency Obligations evidenced an
undertaking by the same party to deliver the underlying Currency,
the new Currency Obligation shall equal the aggregate of the
cancelled Currency Obligations, and (ii) if the cancelled Currency
Obligations evidenced undertakings by each party to deliver the
underlying Currency, the amount of the underlying Currency to be
delivered by each party under the cancelled Currency Obligations
shall be compared, and the new Currency Obligation shall equal the
amount by which the Currency Obligation of the party having the
greater obligation with respect to such Currency exceeded the
Currency Obligation of the party having the lesser obligation with
respect to such Currency. Such new Currency Obligation shall be
considered a "Currency Obligation" hereunder.
(b) Unless otherwise agreed and specified in a Confirmation,
the provisions of Section 1.4(a) above shall apply notwithstanding
that either party (i) may fail to send out a Confirmation, (ii) may
not on its books treat the Currency Obligations as cancelled and
simultaneously replaced by a new Currency Obligation as provided
herein, or (iii) may send out a Confirmation that incorrectly states
any term of a Currency Obligation.
(5) Section 2.2 of the FX Definitions is hereby amended by adding
the following new
subsections (u) and (v):
(u) Call Option. "Call Option" means a Currency Option
entitling, but not obligating, the Buyer to purchase from the Seller
at the Strike Price a specified quantity of the Call Currency.
(v) Put Option. "Put Option" means a Currency Option
entitling, but not obligating, the Buyer to sell to the Seller at
the Strike Price a specified quantity of the Put Currency.
(6) The FX Definitions are hereby amended by adding the following
new Section 2.5:
Section 2.5. Discharge and Termination of Options. Unless otherwise
agreed, any Call Option or any Put Option written by a party will
automatically be terminated and discharged, in whole or in part, as
applicable, against a Call Option or a Put Option, respectively,
written by the other party, such termination and discharge to occur
automatically upon the payment in full of the last Premium payable
in respect of such Options; provided that such termination and
discharge may only occur in respect of Currency Options:
(a) each being with respect to the same Put Currency and the
same Call Currency;
(b) each having the same Expiration Date and Expiration Time;
(c) each being of the same style, i.e. either both being
American Style Options or
both being European Style Options;
<PAGE>
(d) each having the same Strike Price;
(e) neither of which shall have been exercised by delivery of
a Notice of Exercise;
and
(f) each of which has been entered into by the same pair of
Designated Netting
Offices of the parties;
and, upon the occurrence of such termination and discharge, neither
party shall have any further obligation to the other party in
respect of the relevant Currency Options or, as the case may be,
parts thereof so terminated and discharged. In the case of a partial
termination and discharge (i.e., where the relevant Currency Options
are for different amounts of the Currency Pair), the remaining
portion of the Currency Option which is partially discharged and
terminated shall continue to be a Currency Option for all purposes
hereunder.
(7) Confirmations. With respect to FX Transactions and Currency
Options, FX Transactions
and Currency Options shall be promptly confirmed by the parties
by Confirmations
(which Confirmations shall be in a form agreed to by the
parties) exchanged by mail,
telex, facsimile or other electronic means. Unless either party
objects to the terms
contained in any such Confirmation within three (3) Local
Business Days of receipt
thereof, the terms of such Confirmation shall be deemed correct
and accepted absent
manifest error, unless a corrected Confirmation is sent by a
party within such three day
period, in which case the party receiving such corrected
Confirmation shall have three (3)
Local Business Days after receipt thereof to object to the
terms contained in such
corrected Confirmation. In the event of any conflict between
the terms of a Confirmation
and this Agreement, (a) the terms of this Agreement shall
prevail in the case of an FX
Transaction, and the Confirmation shall not modify the terms of
this Agreement, and (b)
the terms of the Confirmation shall prevail in the case of a
Currency Option, and the
terms of this Agreement shall be deemed modified with respect
to such Currency Option.
(8) The Designated Netting Offices of Party A are: New York and
London
The Designated Netting Office of Party B is: Virginia
Notwithstanding the foregoing, netting start-up dates for netting
between each pair of Designated Netting Offices shall be the dates
mutually agreed upon by the parties.
(9) Payments on Early Termination. For the purpose of Section 6(e)
of the Agreement for
FX Transactions, Currency Obligations and Currency Options
only:
The Second Method and Loss will apply.
<PAGE>
IN WITNESS WHEREOF the parties have executed this document on the
respective dates specified below with effect from the date specified
on the first page of this document.
CITIBANK, N.A. FAIRCHILD HOLDING CORP.
By: By: Colin M. Cohen
Print Name: Print Name: Colin M. Cohen
Title: Vice President Title: Sr. Vice President
DATE: DATE:
Citicorp USA, Inc. hereby executes this Agreement for the purpose of
confirming its obligation to make advances as set forth in Section
(6) of-Part 5 of this Schedule.
CITICORP USA, INC.
By:
Print Name:
Title:
<PAGE>
EXHIBIT I
FORM OF OPINION OF COUNSEL FOR [X]
(Date satisfactory to recipient)
Citicorp USA, Inc.
_______________
_______________
_______________
Ladies and Gentlemen:
This opinion is furnished to you pursuant to the Schedule to the
Master Agreement dated as of ________, 19_ (the "Agreement") between
_____________("[X]") and you. Terms defined in the Agreement and
used but not defined herein have the meanings given to them in the
Agreement.
We have acted as counsel to [X] in connection with the preparation,
execution and delivery of the Agreement. In that connection we have
examined such documents as we have deemed necessary or appropriate
for the opinions expressed herein.
Based on the foregoing and upon such investigations as we have
deemed necessary, we are of the opinion that, so far as the laws of
____________ are concerned:
(a) [X] is duly organized and validly existing and has the power
and authority to execute and
deliver, and to perform its obligations under, the Agreement.
(b) The execution and delivery of the Agreement by [X] and the
performance of its
obligations thereunder have been and remain duly authorized by
all necessary action and
do not contravene any provision of its certificate of
incorporation or by-laws (or
equivalent constituent documents) or any law, regulation or
contractual restriction binding
on or affecting it or its property.
(c) All consents, authorizations and approvals (including, without
limitation, exchange control
approvals) required for the execution and delivery by [X] of
the Agreement and the
performance of its obligations thereunder have been obtained
and remain in full force and
effect, all conditions thereof have been duly complied with,
and no other action by, and
no notice to or filing with, any governmental authority or
regulatory body is required for
such execution, delivery or performance.
<PAGE>
(d) The Agreement is a legal, valid and binding obligation of [X],
enforceable against [X] in
accordance with its terms, subject to applicable bankruptcy,
insolvency and similar laws
affecting creditors' rights generally, and subject, as to
enforceability, to general principles
of equity (regardless of whether enforcement is sought in a
proceeding in equity or at
law).
Very truly yours,
