SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the year ended June 30, 1995 Commission File Number: 1-6560
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THE FAIRCHILD CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 34-0728587
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Washington Dulles International Airport
300 West Service Road, P.O. Box 10803
Chantilly, Virginia 22021-9998
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(Address of principal executive offices) (Zip Code)
(703) 478-5800
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(Registrant's Telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on
Title of each class which registered
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Class A Common Stock, par value
$.10 per share New York and Pacific Stock Exchange
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12 1/4% Senior Subordinated
Notes due 1996 New York Stock Exchange
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13 1/8% Subordinated Debentures
due 2006 New York Stock Exchange
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12% Intermediate Subordinated
Debentures due 2001 New York Stock Exchange
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13% Junior Subordinated
Debentures due 2007 New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K [ ].
As of September 1, 1995, the aggregate market value of the common shares
(based upon the closing price of these shares on the New York Stock Exchange)
of the Registrant held by nonaffiliates was $28.8 million (excluding shares
deemed beneficially owned by affiliates of the Registrant under Commission
Rules).
As of September 1, 1995, the number of shares outstanding of each of the
Registrant's classes of common stock were as follows:
Class A common stock, $.10 par value 13,406,109
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Class B common stock, $.10 par value 2,696,886
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DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive proxy statement for the 1995
Annual Meeting of Stockholders' to be held on November 2, 1995 (the "1995
Proxy Statement"), which the Registrant intends to file within 120 days after
June 30, 1995, are incorporated by reference into Parts III and IV.
<PAGE>
THE FAIRCHILD CORPORATION
INDEX TO
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED JUNE 30, 1995
PART I Page
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . 13
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to
a Vote of Stockholders . . . . . . . . . . . . . . . . 16
PART II
Item 5. Market for the Company's
Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . 17
Item 6. Selected Financial Data . . . . . . . . . . . . . . . 18
Item 7. Management's Discussion and Analysis
of Results of Operations and
Financial Condition . . . . . . . . . . . . . . . . . 18
Item 8. Financial Statements and
Supplementary Data . . . . . . . . . . . . . . . . . . 30
Item 9. Disagreements on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . 71
PART III
Item 10. Directors and Executive Officers
of the Company . . . . . . . . . . . . . . . . . . . . 71
Item 11. Executive Compensation . . . . . . . . . . . . . . . . 71
Item 12. Security Ownership of Certain
Beneficial Owners and Management . . . . . . . . . . . 71
Item 13. Certain Relationships and
Related Transactions . . . . . . . . . . . . . . . . . 71
PART IV
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K . . . . . . . . . . 72
<PAGE>
PART I
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ITEM 1. BUSINESS
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(a) General Development of Business
The Fairchild Corporation (the "Company") was incorporated under the
laws of the State of Delaware in October 1969. The Company changed its name
from Banner Industries, Inc. to The Fairchild Corporation on November 15,
1990. The Company is a holding company which owns all of the issued and
outstanding stock of RHI Holdings, Inc. ("RHI"), and through RHI all of the
issued and outstanding common stock of Fairchild Industries, Inc. ("FII").
The Company conducts its operations through RHI and VSI Corporation
("VSI"), a wholly owned subsidiary of FII, in three business segments:
Aerospace Fasteners, Industrial Products, and Communications Services. The
Aerospace Fasteners segment designs, manufactures and markets high
performance, specialty fastening systems, primarily for aerospace
applications. The Industrial Products segment designs, manufactures and
markets tooling and electronic control systems for the plastic injection
molding and die casting industries and wet processing tools, equipment and
systems required for the manufacture of semiconductor chips and related
products. The Communications Services segment furnishes telecommunications
services and equipment to tenants of commercial office buildings, and sells,
installs, and maintains telecommunications systems for business and
government customers. For a comparison of the sales of each of the Company's
three business segments for each of the last three fiscal years, see
"Management Discussion and Analysis of Results of Operations and Financial
Condition".
Through RHI, the Company is the largest stockholder of Banner Aerospace,
Inc. ("Banner"), which is a leading international distributor to the
aerospace industry. The Company also owns a significant equity interest in
Nacanco Paketleme ("Nacanco"), which manufactures customized cans for soft
drinks and beer in Turkey.
Fiscal 1995 Developments
- ------------------------
Overall sales increased by 23.0% in Fiscal 1995, compared to sales in
Fiscal 1994, which reflected stronger sales performances from all three
business segments.
Operating income was $10.2 million in Fiscal 1995, compared to an
operating loss of $9.3 million in Fiscal 1994. Operating income in the
current year was up in both the Industrial Products segment and the
Communications Services segment. The Aerospace Fasteners segment reported an
operating loss of $14.1 million in Fiscal 1995, compared to a loss of $32.2
million in Fiscal 1994.
The Fiscal 1995 loss in the Aerospace Fasteners segment resulted
primarily from excess costs incurred to reduce the past due sales backlog,
which included many orders of small quantities at low profit margins.
Certain products have yielded negative margins due to labor inefficiencies
and low prices. Management has taken steps to cancel any such orders
remaining in the backlog unless improved pricing can be negotiated.
Significant provisions for excess and slow moving inventory were also
recorded in Fiscal 1995 contributing to the operating loss. Management will
also continue to reduce the capacity of the Aerospace Fasteners segment as
necessary to bring the breakeven point in line with demand. These actions
may result in further restructuring charges in the future. Restructuring
charges of $18.9 million and $15.5 million were recorded in the Fiscal 1994
and Fiscal 1993 periods, respectively, for nonrecurring costs related to
exiting certain aircraft engine bolt lines, the consolidation of a major
manufacturing facility and further downsizing. An unusual loss of $4.0
million was recorded in the Fiscal 1994 period for earthquake damage.
(b) Financial Information about Business Segments
The Company's business segment information is hereby incorporated by
reference from Note 19 of the Company's consolidated financial statements
included in Item 8 Financial Statements and Supplementary Data.
(c) Narrative Description of Business Segments
Aerospace Fasteners
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The Company, through its Aerospace Fasteners segment, is a leading
worldwide manufacturer and supplier of fastening systems used in the
construction and maintenance of commercial and military aircraft. The
Aerospace Fasteners segment accounted for 40.1% of total Company sales for
the year ended June 30, 1995.
Products
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In general, aerospace fasteners produced by the Company are used to join
materials in applications that are not critical to flight. Products range
from standard aerospace screws, to more complex systems that fasten airframe
structures, and sophisticated latching or quick disconnect mechanisms that
allow efficient access to internal parts which require regular servicing or
monitoring. The Aerospace Fasteners segment also manufactures and supplies
fastening systems used in non-aerospace industrial and electronic niche
applications. The Aerospace Fasteners segment produces and sells products
under various trade names and trademarks including Voi-Shan (fasteners for
aerospace structures), Screwcorp (standard externally threaded products for
aerospace applications), RAM (custom designed mechanisms for aerospace
applications), Camloc (components for the industrial, electronic, automotive
and aerospace markets), Tridair and Rosan (fastening systems for highly-
engineered aerospace, military and industrial applications). In addition to
these manufacturing operations, the Aerospace Fasteners segment includes
HARCO, which is a leading stocking distributor of self-locking nuts for the
aerospace fasteners industry.
Principal product lines of the Aerospace Fasteners segment include:
Standard Aerospace Airframe Fasteners - These fasteners consist of
standard externally threaded fasteners used in non-critical airframe
applications on a wide variety of aircraft. These fasteners include Hi-
Torque Speed Drive, Tri-Wing, Torq-Set, Phillips and Hex Heads.
Commercial Aerospace Structural and Engine Fasteners - These fasteners
consist of more highly engineered, permanent or semi-permanent fasteners used
in non-critical but more sophisticated airframe and engine applications,
which could involve joining more than two materials. These fasteners are
generally engineered to specific customer requirements or manufactured to
specific customer specifications for special applications, often involving
exacting standards. These fasteners include Hi-Lok, Veri-Lite, Eddie-Bolt2
and customer proprietary engine nuts.
Proprietary Products and Fastening Systems - These very highly
engineered, proprietary fasteners are designed by the Company for specific
customer applications and include high performance structural latches and
hold down mechanisms. These fasteners are usually proprietary in nature and
are primarily used in either commercial aerospace or military applications.
These fasteners include Visu-Lok, Composi-Lok, Keen-serts, Mark IV, Flatbeam
and Ringlock.
Highly Engineered Fastening Systems for Industrial Applications - These
highly engineered fasteners are designed by the Company for specific niche
applications in the electronic, automotive and durable goods markets and are
sold under the Camloc trade name.
Gas Springs for Automotive and Industrial/Commercial Applications -
These are designed to assist in the raising, lowering or moving of heavy
loads such as the tailgate of a vehicle, sunbeds, printer canopies, acoustic
hoods and like items.
Sales and Markets
-----------------
The products of the Aerospace Fasteners segment are sold primarily to
domestic and foreign original equipment manufacturers, the maintenance and
repair market through distributors, and to the United States government.
74.9% of its sales are domestic. The products of the Aerospace Fasteners
segment are marketed by a direct sales force and technical engineering
support personnel who are responsible for identifying new product
applications, obtaining the approval of new products and maintaining ongoing
relationships with customers. Major customers include Boeing, McDonnell
Douglas, Airbus, Lockheed and Northrop, and their subcontractors, as well as
major distributors such as Burbank Aircraft. No single customer accounts for
more than 10% of consolidated sales.
The Company anticipates that non-aerospace and commercial aerospace
applications as a percentage of sales will increase over time as the Company
brings to market new products and military spending declines.
Research and Development
------------------------
Research and development and its engineering related support functions
are an important part of the Company's strategy of providing its customers
quality products, prompt service and overall value. Company sponsored
research and development expense in the Aerospace Fasteners segment for the
years ended June 30, 1995, 1994 and 1993 amounted to $974,000, $1,435,000 and
$2,204,000, respectively.
Manufacturing and Production
----------------------------
The Aerospace Fasteners segment has seven major manufacturing facilities,
of which four are located in the United States and three are located in
Europe. Each facility has virtually complete production capability, and
subcontracts only those orders which exceed capacity. Each plant is oriented
to produce a specified product or group of products, depending on the
production process involved.
On January 17, 1994, the Aerospace Fasteners' Chatsworth, California
manufacturing facility suffered extensive damage from the Southern California
earthquake. As a result, the Company relocated the Chatsworth manufacturing
operations to its other Southern California facilities. See Note 16 of the
Company's consolidated financial statements, included in Item 8 Financial
Statements and Supplementary Data.
The Company is continuing to extensively re-engineer the way it produces
fasteners, shifting from a process orientation to a product orientation by
forming focused discrete work groups, each having broader responsibilities.
Competition
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The Aerospace Fasteners segment's major competitors include Hi-Shear,
Inc., Monogram, Inc., Air Industries, Inc., SPS, Inc., Kaynar, Valley Todeco,
and Huck International, with regard to aerospace fasteners, and Southco,
Inc., with regard to specialized industrial applications. In addition,
competition comes from stocking distributors who may offer reduced lead times
to customers as a result of their inventory investment.
Industrial Products
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The Industrial Products segment consists primarily of three distinct
companies operating under the trade names D-M-E Company ("DME"), Fairchild
Data Corporation ("Data") and Convac GmbH ("Convac"). DME is a leading
manufacturer and supplier of tooling and electronic control products for the
plastic injection molding industry worldwide. The principal end-users of
DME's products are the transportation, packaging, communications, housewares,
commercial and industrial products, medical products, toy, appliance,
furniture and building industries. 66.2% of DME's sales for the year ended
June 30, 1995, were in North America and 33.8% were attributable to sales
outside North America.
In June 1994, as part of the Company's strategy of diversifying into
new, high growth industries, the Company, through RHI, acquired 100% of the
outstanding common stock of Convac, a German corporation. Convac is a
leading designer and manufacturer of wet processing tools, equipment and
systems in multiple modular design, required for the manufacture of
semiconductor chips and related products, and for compact and optical storage
discs and liquid crystal displays. See Note 2 of the Company's consolidated
financial statements, included in Item 8 Financial Statements and
Supplementary Data.
The Industrial Products segment accounted for 40.0% of total Company
sales for the year ended June 30, 1995.
Products
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DME provides an extensive line of standardized and special order
products as well as electronic control systems. Principal product lines
include:
Mold Bases - Mold bases are used to retain the cavity and core of
a plastic mold. These products consist of a number of high alloy, precision-
machined steel plates put together in combination with other mold components
into a mold base assembly available either as a standard dimensioned catalog
product or as a specially machined mold base made to customer specifications.
Mold Components - Mold components are utilized within a mold base
to facilitate the mechanical action of the individual steel plates. These
products include such items as leader pins and bushings to guide and align
the plates, ejector pins and sleeves to eject the finished plastics product
from the mold, and other specialized products such as collapsible cores to
mold complex geometries involving difficult under-cuts and threads.
Moldmaking Tools/Supplies - Tooling and miscellaneous supplies
allow the moldmaker to manufacture and "finish" the actual cavity and core of
a plastic mold. These products range from ultrasonic polishing equipment and
abrasives to specialized tooling for the milling and drilling of steel.
Runnerless Molding/Process Control - DME's internally and
externally heated runnerless molding systems with thermal and/or mechanical
gate shut-off devices produce high quality plastic products while minimizing
labor content and reducing scrap in the manufacturing process. DME's
trademark runnerless molding systems are called The Hot One and The Cool One.
DME also provides sensor and computer technology, allowing processors
Statistical Process Control (SPC) of their entire molding cycle.
CAD/CAM - DME offers a unique line of Computer Aided Design (CAD)
and Computer Aided Manufacturing (CAM) hardware and software for the plastics
industry. DME sells computer hardware as a value-added reseller for some of
the industry's best known computer suppliers. Additionally, DME has
developed copyrighted software programs which are specific to the plastics
industry. These systems enable mold designers to design mold bases utilizing
a combination of most of the popular products offered by DME, including
runnerless molding systems.
Data is a supplier of modems for use in high-speed digitized voice and
data communications.
The four primary product groups of Convac include wafer track
systems/cluster, photomask processing equipment, liquid crystal display
process equipment and compact disc coating equipment.
Sales and Markets
-----------------
DME's sales efforts in North America are led by direct field sales
representatives and regional managers, who call directly on key mold makers,
molders and designers. In addition, a telemarketing group supplements the
sales representatives' efforts and reaches the smaller or low activity
accounts. Additionally, DME utilizes distributors in key product market
segments to focus on sales of items such as temperature controls. Sales of
highly technical products, such as complete runnerless manifold systems, are
aided by technical service representatives located in the various sales
regions.
Internationally, sales are handled by direct sales representatives in
England, France, Belgium and Germany. In a number of countries in Europe and
in Asia and the South Pacific, joint venture partners sell DME products
through full-time sales representatives and secondary distribution outlets.
DME utilizes stocking distributors to serve the rest of the world.
Manufacturing and Production
----------------------------
Local production facilities are a strategic advantage to sales in the
custom mold base markets DME serves. Accordingly, DME maintains regional
production facilities in North America and Europe to service customers of its
custom-manufactured products. DME has ten manufacturing facilities in the
United States, Canada, Mexico, Belgium and Germany and licenses four other
companies to manufacture products in Brazil, Hungary, Japan and India.
Competition
-----------
DME competes with different companies with respect to each of its major
product categories. DME's competition principally consists of privately-held
manufacturers operating primarily in local markets.
DME believes it is the leading supplier of mold bases, mold components
and electronic control systems for the plastic injection molding industry.
DME is one of six major competitors in North America, and one of four major
competitors in Europe, in the runnerless molding/process controls market.
The Company believes the runnerless molding/process controls market is a
growth market with competition based primarily on product technology and
service. A significant portion of DME's research and development is aimed at
this market. DME faces competition from various companies with respect to
each of the individual products in the resale products segment of its
business. Competition in this segment is based primarily on price and
delivery time.
Communications Services
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Fairchild Communications Services Company ("Fairchild Communications")
provides telecommunications equipment and services to tenants of commercial
office buildings, under the trade name Telecom 2000 Services. As a result
of its acquisition of JWP Telecom, Inc. in the second fiscal quarter,
Fairchild Communications also sells, installs, and maintains
telecommunications systems for business and government customers, under the
name Telecom 2000 Systems. Fairchild Communications is a distributor for
Northern Telecom, NEC, Octel, Centigram and Active Voice, all leading
manufacturers of telephone systems, voice mail systems and other equipment.
Fairchild Communications was founded as a start-up venture in 1985 and
has grown rapidly through expansions and acquisitions. Sales have grown from
$1.4 million in Fiscal 1986 to $110 million in Fiscal 1995. Approximately
$80 million of such increase was attributable to acquisitions (determined on
an annualized basis at the date of acquisition), primarily the acquisition
of the telecommunications assets of Amerisystems and JWP Telecom. The JWP
Telecom acquisition contributed sales of approximately $30 million in Fiscal
1995. The Communication Services segment accounted for 19.9% of total
Company sales for Fiscal 1995.
Services
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Fairchild Communications negotiates long-term telecommunications
franchises with owners and developers of office buildings. Under these
arrangements, Fairchild Communications installs switching equipment, cable
and telephone equipment, and subsequently contracts directly with individual
tenants in the buildings to provide multi-year, single-point-of-contact
telecommunications services.
Telecom 2000 Services include access to services provided by regulated
communications companies including local, long distance, international and
800 telephone services. Fairchild Communications also provides telephone
switching equipment and telephones as well as voice mail, telephone calling
cards, local area networks and voice and data cable installation and
customized billing services that assist customers in controlling their
telecommunications expense. Fairchild Communications typically provides its
services at rates equal to or below those which customers could otherwise
obtain, in part due to discounts it can obtain as a high volume purchaser of
telephone services.
Systems
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Fairchild Communications' Telecom 2000 Systems business sells
telecommunications equipment directly to end-users and installs, services and
maintains the equipment after the sale. Systems installations include PBX
and key telephone systems, voice mail and automated call distribution systems
and entire call centers. Fairchild Communications systems business employs
a staff of field and design engineers capable of assisting customers in
planning and implementation of all of their telecommunications plant needs.
Customer service options range from basic business hour response to 24 hour
a day, 365 days per year maintenance contracts. Fairchild Communications
will also contract with customers to staff their facilities with dedicated
service personnel under long term contracts.
Customers
---------
Telecom 2000 Services' and Systems' customers consist of small to medium
size businesses as well as larger organizations and governmental agencies.
As of June 30, 1995, Fairchild Communications had offices in 23 cities
serving over 10,000 customers. Contract terms with Telecom 2000 Services
customers typically have a term of three to five years with provision for
automatic renewal. Contracts with Telecom 2000 Systems customers for
maintenance services typically have a term of one year with provision for
automatic renewal.
Competition
-----------
Fairchild Communications services business competes with regulated major
carriers that may provide a portion of the services that Fairchild
Communications provides, but are typically not structured to provide all of
a customers telecommunications requirements. Fairchild Communications also
competes with small independent operators serving local markets. Fairchild
Communications also competes with other shared communications services
providers in order to secure telecommunications franchises with office
building owners. Principal competitors include Metropolitan Fiber Systems'
Realcom unit and Shared Technologies. Once a franchise has been obtained,
Fairchild Communications competes with equipment manufacturers and
distributors and long distance companies for the provision of telephone and
other telecommunications equipment and services to building tenants. The
principal competitors of Fairchild Communications' business systems include
manufacturers such as AT&T and Rolm and distributors of equipment
manufactured by such companies as Northern Telecom and NEC.
<PAGE>
Growth
------
Management believes that future growth in the Communications segment
will come primarily from four sources: acquisitions operating in the same or
related businesses; new customers as a result of increased occupancy of space
currently vacant in office buildings already under franchise or those being
added; an increase in equipment dealer territory; and additional services to
the existing customer base.
Foreign Operations
- ------------------
The Company's operations are located primarily in the United States and
Europe. Inter-area sales are not significant to the total revenue of any
geographic area. Export sales are made by U.S. subsidiaries and divisions to
customers in non-U.S. countries, whereas foreign sales are made by the
Company's non-U.S. subsidiaries. For the Company's sales results by
geographic area and export sales, see Note 20 of the Company's consolidated
financial statements included in Item 8, Financial Statements and
Supplementary Data.
Major Customers
- ---------------
No single customer accounted for more than 10% of consolidated sales in
any of the Company's business segments for the year ended June 30, 1995.
Backlog of Orders
- -----------------
Backlog is significant in the Company's Aerospace Fasteners segment, due
to long-term production requirements of its customers. Backlog of unfilled
orders is not material in the Industrial Products segment and the
Communications Services segment, where most orders are filled within a few
weeks.
The Company's backlog of orders as of June 30, 1995 in the Aerospace
Fasteners, Industrial Products and Communications Services segments amounted
to $100.6 million, $41.3 million and $4.2 million, respectively. The Company
anticipates that approximately 88.1% of the aggregate backlog at June 30,
1995 will be delivered by June 30, 1996.
Suppliers
- ---------
The Company does not consider itself to be materially dependent upon any
one supplier, but is dependent upon a wide range of subcontractors, vendors
and suppliers of materials to meet its commitments to its customers.
<PAGE>
Research and Patents
- --------------------
The Company's research and development activities have included:
applied research; development of new products; testing and evaluation of, and
improvements to, existing products; improvements in manufacturing techniques
and processes; development of product innovations designed to meet government
safety and environmental requirements; and development of technical services
for manufacturing and marketing. The Company's sponsored research and
development expenditures amounted to $4,100,000, $3,940,000 and $3,262,000
for the years ended June 30, 1995, 1994 and 1993, respectively. The Company
owns patents relating to the design and manufacture of certain of its
products and is a licensee of technology covered by the patents of other
companies. The Company does not believe that any of its business segments
are dependent upon any single patent.
Personnel
- ---------
As of June 30, 1995, the Company had approximately 3,800 employees.
Approximately 5% of these employees were covered by collective bargaining
agreements. The Company believes that its relations with its employees are
good.
Environmental Matters
- ---------------------
See discussion of Environmental Matters under Item 3 "Legal Proceedings"
below.
ITEM 2. PROPERTIES
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As of June 30, 1995, the Company owned or leased properties totalling
approximately 1,771,000 square feet, approximately 1,164,000 square feet of
which was owned and 575,000 square feet was leased. The Aerospace Fasteners
segment's properties consisted of approximately 677,000 square feet, with
principal operating facilities of approximately 535,000 square feet
concentrated in southern California. The Industrial Products segment's
properties consisted of approximately 783,000 square feet, with principal
operating facilities of approximately 451,000 square feet located in Arizona,
Michigan, Pennsylvania and Belgium.
The Company owns its corporate headquarters at Washington-Dulles
International Airport.
The Company has several parcels of property which it is attempting to
market, lease and/or develop, including: (i) an 88 acre parcel located in
Farmingdale, New York, (ii) a 6 acre parcel in Temple City, California, (iii)
an 8 acre parcel in Chatsworth, California, and (iv) several other parcels of
real estate primarily located throughout the continental United States.
The following table sets forth the location of the larger properties
used in the continuing operations of the Company, their square footage, the
business segment or groups they serve and their primary use. Each of the
properties owned or leased by the Company is, in management's opinion,
generally well maintained, is suitable to support the Company's business and
is adequate for the Company's present needs. All of the Company's occupied
properties are maintained and updated on a regular basis.
<TABLE>
<CAPTION>
Owned or Square Business Segment/
Location Leased Footage Group Use
- -------- -------- ------- ----------------- -------------
<S> <C> <C> <C> <C>
Torrance, California Owned 284,000 Aerospace Fasteners Manufacturing
Youngwood, Pennsylvania Owned 135,000 Industrial Products Manufacturing
Chantilly, Virginia Owned 125,000 Corporate Office
City of Industry, California Owned 120,000 Aerospace Fasteners Manufacturing
Madison Hts, Michigan Owned 69,000 Industrial Products Manufacturing
Industriepark Noord, Belgium Owned 69,000 Industrial Products Manufacturing
Santa Ana, California Owned 50,000 Aerospace Fasteners Manufacturing
Scottsdale, Arizona Leased 120,000 Industrial Products Manufacturing
</TABLE>
Information concerning long-term rental obligations of the Company at
June 30, 1995, is set forth in Note 18 to the Company's consolidated
financial statements, included in Item 8 Financial Statements and
Supplementary Data.
ITEM 3. LEGAL PROCEEDINGS
- ---------------------------
CL Motor Freight Litigation
- ---------------------------
The Workers Compensation Bureau of the State of Ohio is seeking
reimbursement from the Company for up to $5,400,000 for CL workers
compensation claims which were insured under a self-insured program of CL.
The Company has contested a significant portion of this claim.
Government Claims
- -----------------
The Corporate Administrative Contracting Officer (the "ACO"), based upon
the advice of the United States Defense Contract Audit Agency, has made a
determination that FII did not comply with Federal Acquisition Regulations
and Cost Accounting Standards in accounting for (i) the 1985 reversion to FII
of certain assets of terminated defined benefit pension plans, and (ii)
pension costs upon the closing of segments of FII's business. The ACO has
directed FII to prepare cost impact proposals relating to such plan
terminations and segment closings and, following receipt of such cost impact
proposals, may seek adjustments to contract prices. The ACO alleges that
substantial amounts will be due if such adjustments are made. The Company
believes it has properly accounted for the asset reversions in accordance
with applicable accounting standards. The Company had discussions with the
government to attempt to resolve these pension accounting issues.
Civil Litigation
- ----------------
Maurice Bidermann Litigation
----------------------------
The Company obtained a judgment in the United States District for the
Southern District of New York, for $12,947,000, plus interest, against
Maurice Bidermann ("Bidermann") for breach of an agreement under which
Bidermann was to have acquired the Company's interest in Bidermann Industries
USA, Inc. ("BIUSA"), for approximately $22,500,000, of which Bidermann paid
$10,000,000, and then defaulted. On June, 1995, the Company settled this
claim for approximately $12,000,000, in addition to the $10,000,000
previously collected, and transferred its interest in BIUSA to third parties.
Environmental Matters
- ---------------------
The Company and other aerospace fastener and industrial product
manufacturers are subject to stringent Federal, state and local environmental
laws and regulations concerning, among other things, the discharge of
materials into the environment and the generation, handling, storage,
transportation and disposal of waste and hazardous materials. To date, such
laws and regulations have not had a material effect on the financial
condition of the Company, although the Company has expended, and can be
expected to expend in the future, significant amounts for investigation of
environmental conditions and installation of environmental control
facilities, remediation of environmental conditions and other similar
matters, particularly in the Aerospace Fasteners segment.
In connection with its plans to dispose of certain real estate, the
Company must investigate environmental conditions and may be required to take
certain corrective action prior or pursuant to any such disposition. In
addition, management has identified several areas of potential contamination
at or from other facilities owned, or previously owned, by the Company, that
may require the Company either to take corrective action or to contribute to
a clean-up. The Company is also a defendant in certain lawsuits and
proceedings seeking to require the Company to pay for investigation or
remediation of environmental matters and has been alleged to be a potentially
responsible party at various "Superfund" sites, Management of the Company
believes that it has recorded adequate reserves in its financial statements
to complete such investigation and take any necessary corrective actions or
make any necessary contributions. No amounts have been recorded as due from
third parties, including insurers, or set off against, any liability of the
Company, unless such parties are contractually obligated to contribute and
are not disputing such liability.
As of June 30, 1995, the consolidated total recorded liabilities of the
Company for environmental matters referred to above totalled $14,087,000. As
of June 30, 1995, the estimated probable exposures for these matters was
$13,918,000. It is reasonably possible the Company's total exposure for
these matters could be approximately $22,870,000.
Other Matters
- -------------
The Company is involved in various other claims and lawsuits incidental
to its business, some of which involve substantial amounts. The Company,
either on its own or through its insurance carriers, is contesting these
matters.
In the opinion of management, the ultimate resolution of the legal
proceedings, including those discussed above, will not have a material
adverse effect on the financial condition or the future operating results of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
- --------------------------------------------------------
None.
<PAGE>
PART II
-------
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
- ----------------------------------------------------------------------
MATTERS
-------
(a) Market Information
The Company's Class A Common Stock is traded on the New York Stock
Exchange and Pacific Stock Exchange under the symbol FA. The Company's Class
B Common Stock is not listed on any exchange and is not publicly traded.
Class B Common Stock can be converted to Class A Common Stock at any time.
Information regarding the quarterly price range of the Company's Class
A Common Stock is hereby incorporated by reference from Note 21 of the
Company's consolidated financial statements included in Item 8 Financial
Statements and Supplementary Data.
(b) Holders
The Company had approximately 1,658 and 64 record holders of its Class
A and Class B Common Stock, respectively, at September 1, 1995.
(c) Dividends
The Company suspended its regular dividend payments in Fiscal 1988. The
Company's present intention is to resume regular dividend payments when
deemed prudent by its Board of Directors.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
<TABLE>
Five-Year Financial Summary
(In thousands, except per share data)
For the years ended June 30, 1995 1994 1993 1992 1991
- --------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Net sales........................ $ 546,323 $ 444,145 $ 463,567 $ 489,780 $ 515,652
Earnings (loss) from continuing
operations..................... (33,920) 27,783 (43,465) (20,168) 22,447
Earnings (loss) per share from
continuing operations:
Primary...................... (2.11) 1.72 (2.70) (1.24) 1.31
Fully diluted................ (2.11) 1.72 (2.70) (1.24) 1.30
Cash dividends per common share:
Class A........................ -- -- -- .20 --
Class B........................ -- -- -- .10 --
Balance Sheet Data:
Total assets..................... $ 881,882 $ 913,529 $ 960,882 $1,009,376 $1,068,818
Long-term debt, less current
maturities..................... 509,715 522,406 566,491 533,820 527,228
Redeemable preferred stock of
subsidiary..................... 16,342 17,552 17,732 42,858 49,468
Stockholders' equity............. 45,043 71,968 56,865 115,605 142,795
per outstanding common share... 2.80 4.47 3.53 7.15 8.46
</TABLE>
Fiscal 1994 includes the gain on the sale of Rexnord Corporation stock.
This transaction materially affects the comparability of the information
reflected in the selected financial data.
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
- ------------------------------------------------------------------------
FINANCIAL CONDITION
-------------------
The Fairchild Corporation (the "Company") was incorporated under the
laws of the State of Delaware in October, 1969. The Company changed its name
from Banner Industries, Inc. to The Fairchild Corporation on November 15,
1990. RHI Holdings, Inc. ("RHI") is a direct subsidiary of the Company. RHI
is the owner of all of the common stock of Fairchild Industries, Inc. ("FII")
which, in turn, is the 100% owner of VSI Corporation ("VSI"). The Company's
operations are conducted through VSI and RHI. The Company also holds
significant equity interests in Banner Aerospace, Inc. ("Banner") and Nacanco
Paketleme ("Nacanco").
RESULTS OF OPERATIONS
The Company currently operates in three principal business segments:
Aerospace Fasteners, Industrial Products and Communications Services. The
following table illustrates the historical sales and operating income of the
Company's continuing operations for the past three years.
<PAGE>
<TABLE>
<CAPTION>
For the years ended June 30,
(In thousands) --------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Sales by Business Segment:
Aerospace Fasteners............... $219,129 $203,456 $247,080
Industrial Products............... 218,484 166,499 148,449
Communications Services........... 108,710 74,190 68,038
------- ------- -------
Total $546,323 $444,145 $463,567
======= ======= =======
Operating Income (Loss) by
Business Segment:
Aerospace Fasteners*.............. $(14,073) $(32,208) $(15,398)
Industrial Products............... 21,112 21,024 19,081
Communications Services........... 18,498 16,483 14,688
------- ------- -------
Total 25,537 5,299 18,371
Corporate administrative expense.. (13,179) (16,868) (19,506)
Other corporate (expense) income.. (2,152) 2,231 5,309
------- ------- -------
Operating Income (loss)............. $ 10,206 $ (9,338) $ 4,174
======= ======= =======
*Includes restructuring charges of $18.9 million and $15.5 million in Fiscal
1994 and Fiscal 1993, respectively, and an unusual loss from earthquake
damage and related business interruption of $4.0 million in Fiscal 1994.
</TABLE>
FISCAL 1995 VERSUS FISCAL 1994
General
- -------
Overall sales increased by 23.0% in Fiscal 1995, compared to sales in
Fiscal 1994, which reflected stronger sales performances from all three
business segments.
Operating income increased $19.5 million in Fiscal 1995, compared to
operating losses in Fiscal 1994. During Fiscal 1995, operating losses
decreased significantly in the Aerospace Fasteners segment primarily due to
the Fiscal 1994 period having included a restructuring charge of $18.9
million and a $4.0 million charge for earthquake damage and related business
interruption. Operating income in the current year was up in both the
Industrial Products segment and the Communications Services segment. (See
discussion below).
<PAGE>
Aerospace Fasteners
- -------------------
Sales in the Aerospace Fasteners segment increased 7.7% in Fiscal 1995,
compared to the Fiscal 1994 period, primarily resulting from aggressive
management efforts during the current year to reduce backlog caused by
quality problems and earthquake disruption, which have diminished.
Operating losses in the Aerospace Fasteners segment decreased $18.1
million for the Fiscal 1995 period, over the corresponding Fiscal 1994
period; however, this segment continues to be affected by soft demand and
severe price erosion and higher quality control costs resulting from
customers' requirements. The Fiscal 1995 loss resulted primarily from excess
costs incurred to reduce the past due sales backlog, which included many
orders of small quantities at low profit margins. Certain products have
yielded negative margins due to labor inefficiencies and low prices.
Management has taken steps to cancel any such orders remaining in the backlog
unless improved pricing can be negotiated. Significant provisions for excess
and slow moving inventories were also recorded in Fiscal 1995, contributing
to the operating loss. Management will also continue to reduce the capacity
of the Aerospace Fasteners segment as necessary to bring the breakeven point
in line with demand. These actions may result in further restructuring
charges in the future. A restructuring charge of $18.9 million was recorded
in the prior year for nonrecurring costs related to exiting certain aircraft
engine bolt lines, and an unusual loss of $4.0 million was recorded in the
prior year for earthquake damage (see below).
In January of 1994, the Company's Chatsworth, California Aerospace
Fasteners manufacturing facility suffered extensive damage from the Southern
California Earthquake. This disruption caused increased costs and reduced
revenues in Fiscal 1994 and has negatively affected Fiscal 1995 as well. In
June of 1995, the Company reached final settlement of its insurance claim and
recovered a total of $17.0 million for property damages and business
interruption. (See further discussion in the Fiscal 1994 versus 1993
discussion).
Industrial Products
- -------------------
Sales in the Industrial Products segment increased 31.2% in Fiscal 1995,
compared to the Fiscal 1994 period. $15.1 million of the net increase in
sales in Fiscal 1995 was at the D-M-E Company ("D-M-E"), which provides
tooling to the plastics industry, reflecting customer response to D-M-E's
fast delivery programs, new products, and growth of the domestic economy.
Domestic demand for tooling for plastics has been strong while foreign demand
has shown signs of improvement as a result of the strengthening European
economy. Expansion into selected new foreign markets is being pursued and
appears to have potential. Also included in the Industrial Products segment
were sales from Convac, a semiconductor equipment manufacturing company
acquired at the end of Fiscal 1994, another small acquisition made early in
Fiscal 1995 and Fairchild Data Corporation. The combined sales of these
companies was $50.7 million in the Fiscal 1995 period.
Operating income in the Industrial Products segment was flat in Fiscal
1995, compared to Fiscal 1994. A $4.2 million improvement in operating
income at D-M-E in Fiscal 1995 was offset by operating losses from the other
operations which incurred significant R&D and start-up costs. The improved
results at D-M-E resulted from a higher sales volume and improved operating
margins. In recent years D-M-E has implemented several cost savings steps,
including overhead reduction, plant consolidation and improved inventory
management programs, which have contributed to the higher operating margins.
In addition, D-M-E has continued to implement improved manufacturing methods
that have reduced cycle time and costs.
Communications Services
- -----------------------
Sales in the Communications Services segment increased 46.5% in Fiscal
1995, compared to Fiscal 1994, primarily due to the inclusion of sales from
the acquisition of specified assets of JWP Telecom, Inc., ("JWP") made during
the Fiscal 1995 second quarter, as well as sales to new customers, the
addition of telecommunications franchises in new office buildings, and growth
at existing sites.
Operating income in the Communications Services segment increased 12.2%
in Fiscal 1995, compared to Fiscal 1994, primarily due to increased sales
resulting from the reasons given above and related economies of scale.
Operating income as a percent of sales was 17.0% in Fiscal 1995. This lower
return was anticipated as a result of the JWP acquisition, which has lower
gross margins due to the nature of the business.
Other Expenses/Income
- ---------------------
Corporate Administrative Expense - During Fiscal 1995, corporate
administrative expense decreased 21.9%. This decline resulted primarily from
cost controls, including a reduction in work force and wage and salary caps
that were in effect for most corporate employees and sale of the Company
airplane during Fiscal 1994.
Other Corporate Income - Other corporate income decreased $4.4 million
in Fiscal 1995, compared to Fiscal 1994, primarily due to increased carrying
costs and losses reported on net assets held for sale. In addition, start up
costs related to a corporate sponsored joint venture are included in this
category. Gain on sale of a trademark was recognized in the prior year
period.
Net Interest Expense - Net interest expense decreased 2.7% in Fiscal
1995, compared to the prior year period, due primarily to lower borrowings
and increased interest income earned on higher cash and cash equivalents
average balances during the Fiscal 1995 period.
Investment income, net - Investment Income decreased by 7.5%, primarily
as a result of higher dividends realized on participating annuity contracts
in the prior year period.
Equity in earnings of affiliates increased $3.3 million in Fiscal 1995,
compared to Fiscal 1994. Earnings from Nacanco, in which the Company holds
a 31.9% interest, were down $2.6 million for the year, primarily due to a
large tax adjustment taken during the current year. The Fiscal 1994 period
included a $5.7 million loss from Banner Aerospace which included losses on
discontinued operations and restructuring charges.
Minority interest expense includes dividend expense on FII's Series C
Preferred Stock.
Non-Recurring Income - Non-recurring income in the Fiscal 1994 period
includes the net pre-tax gain of $129.1 million on the Company's 43.9% stock
interest in Rexnord Corporation, which was sold to BTR Dunlop Holdings, Inc.
on December 23, 1993.
Income Taxes - For Fiscal 1995, the Company recorded a tax benefit of
$18.0 million at a 34.7% effective tax rate.
Accounting Changes:
- -------------------
1) Postretirement Benefits - Using the immediate recognition method, the
Fiscal 1994 after-tax charge to earnings for the cumulative effect of this
accounting change was $.5 million, which represents the unamortized portion
of an overstated liability for discontinued operations, which substantially
offset the transition obligation for active employees and retirees of
continuing operations. In addition, in Fiscal 1994, a $7.5 million charge,
net of the Company's related tax benefit, was recorded for the Company's
share of Rexnord Corporation's cumulative charge resulting from this change
in accounting.
2) Accounting for Income Taxes - The Company elected the immediate
recognition method and recorded, in Fiscal 1994, a $2.4 million charge,
representing the cumulative effect on prior years. This charge represents
deferred taxes related primarily to fixed assets, prepaid pension expenses,
and inventory differences. In addition, a $.5 million charge was recorded
for the Company's share of Rexnord Corporation's ("Rexnord") cumulative
charge resulting from this change in accounting.
Net Earnings (Loss) - The net earnings (loss) decreased $49.6 million in
Fiscal 1995, compared to the Fiscal 1994 period, primarily due to the $129.1
million net pre-tax gain on the sale of the Company's interest in Rexnord
recognized in the Fiscal 1994 period. Offsetting the decrease were: (1) the
$19.5 million increase in operating income and the $3.3 million increase in
equity earnings in Fiscal 1995, (2) the $11.0 million charge, net of tax, for
the cumulative effect of accounting changes, which was recorded in Fiscal
1994, and (3) a decrease in taxes of $43.0 million.
<PAGE>
FISCAL 1994 VERSUS FISCAL 1993
General
- -------
Overall sales declined by 4.2% for Fiscal 1994, compared to Fiscal 1993,
primarily caused by price erosion due to excess capacity in the aerospace
fasteners industry, reduced order rates from commercial and military
aerospace customers in the Aerospace Fasteners segment and lower revenues due
to the disruption caused by the earthquake. Reduced order rates were
principally due to reductions in defense spending and reduced build rates of
commercial airplane original equipment manufacturers, due to conditions in
the airline industry. The decline in sales at the Aerospace Fasteners
segment was partially offset by significant sales increases at the Industrial
Products and Communication Services segments in the Fiscal 1994 period. The
Industrial Products segment included sales in the Fiscal 1994 period by
Fairchild Data Corporation which had been classified as a discontinued
operation in the Fiscal 1993 period.
Operating income decreased by $13.5 million in Fiscal 1994, compared to
Fiscal 1993. A restructuring charge of $18.9 million was recorded in Fiscal
1994, to further implement the Aerospace Fasteners segment restructuring
plan. A $4.0 million charge for earthquake damage and related business
interruption also affected this segment in Fiscal 1994. Operating income was
up in the Industrial Products and Communications Services business segments
for Fiscal 1994; however, in the Aerospace Fasteners segment operating income
declined $16.8 million for Fiscal 1994, compared to Fiscal 1993. Other
corporate income also decreased in Fiscal 1994. (See discussion below.)
Aerospace Fasteners
- -------------------
Sales in the Aerospace Fasteners segment decreased 17.7% in Fiscal 1994,
compared to Fiscal 1993, primarily due to the reduced order rates.
The operating loss in the Aerospace Fasteners segment increased by $16.8
million in Fiscal 1994, compared to the Fiscal 1993 period. During the
Fiscal 1994 period, sustained soft worldwide demand for aircraft and aircraft
engines caused a decline in new order rates and in prices for aerospace
fasteners. In response, the Company continued to undertake restructuring
actions to further downsize, reduce costs, reduce cycle times and improve
margins. These restructuring efforts included discontinuance of certain
aircraft engine bolt and other product lines, increased cellularization of
manufacturing processes, relocation of its New Jersey operations to
California and re-engineering certain manufacturing processes and methods to
meet more stringent customer quality standards.
The Company recorded a pretax restructuring charge of $18.9 million in
Fiscal 1994 to cover the cost of the above mentioned restructuring
activities, including the write down of goodwill and surplus assets related
to certain product lines, severance benefits and the nonrecurring costs
associated with the cellularization and reengineering of manufacturing
processes and methods. The Fiscal 1993 period included a restructuring
charge of $15.5 million to downsize fastener operations in Europe and the
United States.
Operating income in Fiscal 1994 was also affected by (1) reduced demand
and price erosion; and (2) higher quality control costs resulting from
customer quality requirements. The segment has implemented programs to
comply with customer quality requirements, which resulted in one time start-
up costs and increased recurring quality costs, each of which negatively
affected the Fiscal 1994 operating results, and will likely negatively affect
the future profit margins of this segment.
On January 17, 1994, the Company's Chatsworth, California Aerospace
Fasteners manufacturing facility suffered extensive damage from the Southern
California earthquake. As a result, the Company relocated the Chatsworth
manufacturing operations to its other Southern California facilities. This
disruption caused increased costs and reduced revenues in Fiscal 1994. While
the Company carries insurance for both business interruption and property
damage caused by earthquakes, the policy has a 5% deductible. The Company
recorded an unusual pretax loss in Fiscal 1994 of $4.0 million to cover the
estimated net cost of the damages and business interruption caused by the
earthquake.
Industrial Products
- -------------------
Sales in the Industrial Products segment increased 12.2% in Fiscal 1994
compared to Fiscal 1993. The inclusion of Fairchild Data Corporation sales
in Fiscal 1994 accounted for 76.5% of the increased sales in this segment.
Sales increased by $4.2 million at D-M-E Company in Fiscal 1994, reflecting
customer response to D-M-E's fast delivery programs, new products, and
growth of the domestic economy.
Operating income in the Industrial Products segment increased 10.2% in
Fiscal 1994, compared to Fiscal 1993. The inclusion of Fairchild Data
Corporation operating income in Fiscal 1994 accounted for 48.9% of the
increase in operating income in this segment. The improved results at D-M-E
in the Fiscal 1994 period resulted from a higher sales volume and improved
operating margins. In recent years the Industrial Products segment has
implemented several cost savings steps, including overhead reduction and
improved inventory management programs, which have contributed to the higher
operating margins. The improvements in inventory management and delivery
systems resulted in faster deliveries, reduction in inventory, and higher
inventory turnover. In addition, D-M-E has continued to implement improved
manufacturing methods that have reduced cycle times and costs.
Communications Services
- -----------------------
Sales in the Communications Services segment increased 9.0% in Fiscal
1994, compared to Fiscal 1993, primarily due to the inclusion of sales from
acquisitions, the addition of telecommunications franchises in new office
buildings, and growth at existing sites.
Operating income in the Communications Services segment increased 12.2%
in Fiscal 1994 compared to Fiscal 1993, primarily due to increased sales
resulting from the reasons given above and related economies of scale.
Operating income as a percent of sales in Fiscal 1994 was slightly higher
than in Fiscal 1993.
Other Expenses/Income
- ---------------------
Corporate Administrative Expense - Corporate administrative expense
decreased by 13.5% in Fiscal 1994, as compared to Fiscal 1993. This decline
resulted primarily from cost controls, including a reduction in work force
and wage and salary caps that were in effect for most corporate employees,
and the sale of the Company airplane during Fiscal 1994. Excluding severance
payouts, corporate administrative expense declined over 15.9% in Fiscal 1994
compared to Fiscal 1993.
Other Corporate Income - Other corporate income decreased $3.1 million
in Fiscal 1994 compared to Fiscal 1993, primarily due to the absence of
amortization of over accrued retiree health care expense, and the write down
of a corporate facility held for sale.
Net Interest Expense - Net interest expense decreased 1.0% in Fiscal
1994, compared to Fiscal 1993, primarily due to higher interest income in the
Fiscal 1994 period as a result of higher cash balances.
Investment Income - Investment income was higher by $3.5 million in
Fiscal 1994 compared to Fiscal 1993, primarily as a result of gains realized
on the liquidation of investments in Fiscal 1994. Also included in Fiscal
1994 were $2.8 million of dividends realized on participating pension annuity
contracts.
Equity in Earnings of Affiliates - Equity in earnings of affiliates
decreased $12.1 million in Fiscal 1994 compared to Fiscal 1993, due to the
lower earnings of Banner, after recording nonrecurring charges for
discontinued operations, and of Rexnord prior to the Company selling its
interest in Rexnord. Consequently, Fiscal 1994 includes no earnings for
Rexnord subsequent to the sale date.
Minority Interest - Minority interest includes dividend expense on FII's
Series C Preferred Stock, issued August 22, 1992 by FII.
Non-Recurring Income - Non-recurring income in Fiscal 1994 includes the
net pre-tax gain of $129.1 million on the Company's 43.9% stock interest in
Rexnord, which was sold to BTR Dunlop Holdings, Inc. for $22.50 per share on
December 23, 1993.
Income Taxes - For Fiscal 1994, the Company provided an income tax
provision at a rate of 47.4%. The provision tax rate was higher than the
statutory rate, largely due to the write off and amortization of goodwill,
which is not deductible for tax purposes.
Accounting Changes:
1) Postretirement Benefits - Using the immediate recognition method,
the after-tax charge to earnings representing the cumulative effect of the
accounting change was $.5 million in Fiscal 1994. The unamortized portion of
an overstated liability of $10.4 million for discontinued operations
substantially offset the transition obligation of $10.9 million for active
employees and retirees of continuing operations. In addition, a $7.5 million
charge, net of the Company's related tax benefit, was recorded in Fiscal 1994
for the Company's share of Rexnord's cumulative charge resulting from this
change in accounting.
2) Accounting for Income Taxes - The Company elected the immediate
recognition method and recorded a $2.4 million charge in Fiscal 1994
representing the cumulative effect on prior years. This charge represents
deferred taxes related primarily to differences between the tax basis and
book basis of fixed assets, prepaid pension expense, and inventory. In
addition, a $.5 million charge was recorded in Fiscal 1994 for the Company's
share of Rexnord's cumulative charge resulting from this accounting change.
Extraordinary items - net included in Fiscal 1993 is an extraordinary
charge of $11.8 million, net of tax, which is 42% of the Rexnord
extraordinary charge related to premiums paid to repurchase debt and the
write off of deferred loan costs. In addition, FII recorded a charge of $.8
million, net of tax, for deferred loan fees written off when a portion of the
term loan was repaid.
Net Earnings (Loss) - The $71.9 million increase in the Fiscal 1994 net
earnings compared to Fiscal 1993 was primarily due to the $129.1 million pre-
tax gain on the sale of shares of Rexnord, offset partially by a $13.5
million drop in operating income, decreased equity earnings of $12.0 million,
an $11.0 million charge, net of tax, for the cumulative effect of changes in
accounting principles, and increased taxes on the higher level of income.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1995 was $112.6 million, which was $33.2
million lower than at June 30, 1994. The primary reasons for this decrease
included a $31.2 million reduction in cash, primarily required to service
debt and meet operating cash requirements during the year, and a $26.0
million increase in current debt resulting from long term debt becoming
current and an increase in accounts payable of $12.8 million, primarily as a
result of acquisitions. These decreases in working capital were partially
offset by a $34.3 million increase in accounts receivable and inventory,
reflecting acquisitions, slower customer payments, and inventory build and
increased sales to reduce backlog.
The Company's principal sources of liquidity are cash generated from
operations and borrowings under its credit agreement. The Company also
expects to generate cash from the sale of certain assets and liquidation of
investments. Net assets held for sale at June 30, 1995 had a book value of
$51.6 million and included two parcels of real estate in California and an 88
acre parcel of real estate located in Farmingdale, New York, which the
Company plans to sell,lease or develop, subject to the resolution of certain
environmental matters and market conditions. At the end of 1995, it was
determined to reclassify to this classification, several investments and
properties now being marketed, including two landfills in Pennsylvania, and
a real estate joint venture in California.
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
Fiscal 1995, capital expenditures including the cost of acquisitions, were
$32.9 million. Capital expenditures, for Fiscal 1994 and Fiscal 1993 were
$18.2 million and $22.9 million, respectively. The Company anticipates that
capital expenditures in Fiscal 1996 will approximate $18.8 million.
Long term investments declined $14.6 million as a result of: (1)
recovering proceeds in excess of book value on the Maurice Bidermann
litigation, and (2) reclassifying a real estate joint venture to net assets
held for sale.
Notes receivable and other assets declined $28.3 million, due primarily
to reclassifying noncurrent taxes to the noncurrent tax liability caption on
the balance sheet, and reclassifying several properties to net assets held
for sale.
Long term debt decreased $12.7 million during Fiscal 1995, as a result
of the Company repurchasing some of its senior and intermediate debt, and
senior debt due in 1996 being reclassified to current 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 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 actions to refinance portions of its
debt, if necessary to meet cash requirements.
The Company's Credit Agreement, as amended, requires the Company to
comply with certain financial covenants, including achieving cumulative
earnings before interest, taxes, depreciation and amortization, ("EBITDA
Covenant"), and maintaining certain coverage ratios. The Company was in
compliance with the Credit Agreement, as amended, as of June 30, 1995. To
comply with the minimum EBITDA Covenant requirements (as amended) the
Company's subsidiary, VSI must earn for the cumulative total of the trailing
four quarters, EBITDA as follows: $60.0 million for the first quarter of
Fiscal 1996, $65.0 million for the second quarter of Fiscal 1996, $70.0
million for the third quarter of Fiscal 1996, and $80.0 millon for the fourth
quarter of Fiscal 1996. VSI's ability to meet the minimum requirements under
the EBITDA covenant in Fiscal 1996 is uncertain, and there can be no
assurance that the Company will be able in the future to comply with the
minimum requirements under the EBITDA Covenant and other financial covenants
under the Credit Agreement. Noncompliance with any of the financial
covenants, without cure or waiver, would constitute an event of default under
the Credit Agreement. An event of default resulting from a breach of a
financial covenant may result, at the option of lenders holding a majority of
the loans, in acceleration of the principal and interest outstanding, and
termination of the revolving credit line. However, if necessary, management
believes a waiver can be obtained.
The Company's subsidiaries may transfer available cash as dividends to
the Company if the purpose of such dividends is to provide the Company with
funds necessary to meet its debt service requirements under specified notes
and debentures. However, all other dividends from FII to RHI are subject to
certain limitations under the Credit Agreement. As of June 30, 1995, FII was
unable to provide dividends to RHI. The Credit Agreement also restricts FII
from additional borrowings under the Credit Facilities for the payment of any
dividends.
IMPACT OF FUTURE ACCOUNTING CHANGES
Accounting For The Impairment Of Long-Lived Assets
- --------------------------------------------------
And For Long-Lived Assets To Be Disposed Of
- -------------------------------------------
It is the Company's policy to review its long-lived assets, including
property, plant and equipment, identifiable intangible assets and goodwill,
for impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be fully recoverable. To determine the
recoverability of its long-lived assets, the Company evaluates the
probability that future undiscounted net cash flows, without interest charges
will be less than the carrying amount of the assets. Impairment is measured
at fair value.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 ("SFAS 121") "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
SFAS 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those
assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS 121 is required to be
implemented by the Company on, or before, July 1, 1996. Since the Company's
present policy is identical to the policy prescribed by SFAS 121, there will
be no effect from implementation.
<PAGE>
As noted above, the Company's Aerospace Fasteners segment has suffered
dramatic reductions in sales in the past three years resulting from both
reduced defense spending and the severe downturn in the build rate of
commercial airliners. These sales reductions have created excess capacity in
the industry and have caused price erosion and margin deterioration. The
Company has responded to these market conditions with several restructuring
actions, including significant reductions in selling, general and
administrative expenses, personnel reductions, plant closings and
consolidations, discontinuance of unprofitable product lines and re-
engineering of manufacturing processes.
Despite these actions, the Aerospace Fasteners segment lost from
operations (excluding restructuring and earthquake charges) $14.1 million in
Fiscal 1995, $9.3 million in Fiscal 1994 and was breakeven in Fiscal 1993.
Most of these losses were concentrated in two of the segments operating units
while the other five units were predominately profitable during the periods.
As part of restructuring and earthquake charges totaling $38.3 over the past
three fiscal years, the Company wrote off $7.0 million of goodwill, related
to exiting product lines.
In light of recent industry conditions and the losses suffered in the
Aerospace Fasteners segment in the past three fiscal years, the Company has
reviewed its long-lived assets for potential impairment. The Company has
concluded, based on the following, that no impairment currently exists.
Projections of future aircraft build rates published by the major airframe
manufacturers, show the rates close to doubling in the next few years. The
Company believes the operating units within the Aerospace Fasteners segment
which have incurred operating losses are likely to return to profitability.
Therefore, positive cash flow is likely to be generated in the next several
years within the Aerospace Fastener segment, enabling it to recover the
carrying value of the segment's long-lived assets, including goodwill.
However, if industry conditions do not improve or the Company does not
participate in the improvement as it occurs, it may be necessary to further
write-down long-lived assets in the Aerospace Fasteners segment in the next
few years. Such write-downs could be significant in amount.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The following consolidated financial statements of the Company and the
report of the Company's independent public accountants with respect thereto,
are set forth below.
Page
----
Consolidated Balance Sheets as of June 30, 1995 and 1994...... 31
Consolidated Statements of Earnings - The Three Years Ended
June 30, 1995, 1994, and 1993................................. 33
Consolidated Statements of Stockholders' Equity - The Three
Years Ended June 30, 1995, 1994, and 1993..................... 35
Consolidated Statements of Cash Flows - The Three Years
Ended June 30, 1995, 1994, and 1993........................... 36
Notes to Consolidated Financial Statements.................... 38
Report of Independent Public Accountants...................... 70
Supplementary data regarding "Quarterly Financial Information
(Unaudited)" is set fourth under this Item 8 in Note 21 to Consolidated
Financial Statements.
<PAGE>
<TABLE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
June 30, June 30,
ASSETS 1995 1994
- ------ -------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents..................... $ 71,182 $ 102,368
(of which $5,968 and $4,745 is restricted)
Short-term investments........................ 4,116 6,649
Accounts receivable-trade, less allowances
of $5,610 and $3,468........................ 93,607 74,196
Inventories:
Finished goods............................. 53,771 47,120
Work-in-process............................ 27,704 30,907
Raw materials.............................. 23,434 11,988
--------- ---------
104,909 90,015
Prepaid expenses and other current assets..... 18,116 20,128
--------- ---------
Total Current Assets.......................... 291,930 293,356
Property, plant and equipment, net............ 170,926 174,147
Net assets held for sale...................... 51,573 36,375
Cost in excess of net assets acquired,
(Goodwill) less accumulated amortization of
$35,779 and $29,622.......................... 209,959 205,395
Investments and advances - affiliated
companies.................................... 73,670 71,532
Deferred loan costs........................... 12,013 15,952
Prepaid pension assets........................ 59,567 61,628
Long-term investments......................... 838 15,458
Notes receivable and other assets............. 11,406 39,686
--------- ---------
$ 881,882 $ 913,529
========= =========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
<TABLE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
June 30, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
- ------------------------------------ -------- --------
<S> <C> <C>
Current Liabilities:
Bank notes payable and current maturities
of long-term debt........................... $ 40,989 $ 14,978
Accounts payable............................. 48,100 35,271
Accrued liabilities:
Salaries, wages and commissions........... 16,466 14,932
Employee benefit plan costs............... 1,481 2,120
Insurance................................. 16,802 15,014
Interest.................................. 16,309 16,936
Other..................................... 39,189 35,620
--------- ---------
90,247 84,622
Income taxes payable......................... -- 12,713
--------- ---------
Total Current Liabilities.................... 179,336 147,584
Long-term debt............................... 509,715 522,406
Other long-term liabilities.................. 19,435 25,116
Retiree health care liabilities.............. 49,474 51,189
Noncurrent income taxes...................... 38,004 53,162
Minority interest in subsidiaries............ 24,533 24,552
Redeemable preferred stock of subsidiary..... 16,342 17,552
------- -------
Total liabilities............................ 836,839 841,561
Stockholders' Equity:
Class A common stock, 10 cents par value;
authorized 40,000,000 shares, 19,647,705
shares issued and 13,406,109 shares
outstanding................................ 1,965 1,965
Class B common stock, 10 cents par value;
authorized 20,000,000 shares, 2,696,886
shares issued and outstanding.............. 270 270
Paid-in capital.............................. 67,011 66,775
Retained earnings............................ 18,912 52,736
Cumulative translation adjustment............ 8,724 3,346
Additional minimum liability for pensions,
net of tax................................. -- (1,405)
Net unrealized holding loss on available-for-
sale securities............................ (120) --
Treasury Stock, at cost, 6,241,596 shares of
Class A common stock....................... (51,719) (51,719)
--------- ---------
Total Stockholders' Equity................... 45,043 71,968
--------- ---------
Total Liabilities and Stockholders' Equity... $ 881,882 $ 913,529
========= =========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<TABLE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
<CAPTION>
For the Years Ended June 30,
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Sales................................. $546,323 $444,145 $463,567
Other income.......................... 656 5,742 6,889
------- ------- -------
546,979 449,887 470,456
Costs and Expenses:
Cost of sales......................... 419,290 337,881 351,001
Selling, general & administrative..... 107,226 85,831 90,485
Research and development.............. 4,100 3,940 3,262
Amortization of goodwill.............. 6,157 6,020 6,065
Restructuring......................... -- 18,860 15,469
Unusual items......................... -- 6,693 --
------- ------- -------
536,773 459,225 466,282
Operating income (loss)................. 10,206 (9,338) 4,174
Interest expense........................ 71,159 73,071 72,110
Interest income......................... (3,389) (3,388) (1,692)
------- ------- -------
Net interest expense.................... 67,770 69,683 70,418
Investment income, net.................. 5,705 6,165 2,696
Equity in earnings (loss) of affiliates. 2,369 (882) 11,196
Minority interest....................... (2,449) (2,552) (2,289)
Non-recurring income.................... -- 129,082 --
------- ------- -------
Earnings (loss) from continuing
operations before taxes............... (51,939) 52,792 (54,641)
Income tax (benefit) provision.......... (18,019) 25,009 (11,176)
------- ------- -------
Earnings (loss) from continuing
operations............................ (33,920) 27,783 (43,465)
Loss on disposal of discontinued
operations, net....................... (259) (368) (25)
------- ------- -------
Earnings (loss) before extraordinary
items and cumulative effect of
accounting changes.................... (34,179) 27,415 (43,490)
Extraordinary items, net................ 355 (643) (12,614)
Cumulative effect of change in
accounting for postretirement
benefits, net......................... -- (8,015) --
Cumulative effect of change in
accounting for income taxes, net..... -- (2,935) --
------- ------- -------
Net earnings (loss)..................... $(33,824) $ 15,822 $(56,104)
======= ======= =======
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
/TABLE
<PAGE>
<TABLE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
<CAPTION>
For the Years Ended June 30,
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Earnings (Loss) per Common Share:
Primary and Fully Diluted:
Earnings (loss) from continuing
operations........................... $ (2.11) $ 1.72 $ (2.70)
Loss from discontinued operations, net. (.01) (.02) --
Earnings (loss) before extraordinary
items and cumulative effect of
accounting changes................... (2.12) 1.70 (2.70)
Extraordinary items, net............... .02 (.04) (.78)
Cumulative effect of change in
accounting for postretirement
benefits, net........................ -- (.50) --
Cumulative effect of change in
accounting for income taxes, net..... -- (.18) --
------- ------- -------
Net earnings (loss) per share.......... $ (2.10) $ .98 $ (3.48)
======= ======= =======
Weighted Average Number of Shares used
in Computing Earnings Per Share:
Primary.................................. 16,103 16,103 16,113
Fully diluted............................ 16,103 16,103 16,113
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
<TABLE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<CAPTION>
Class A Class B Cumulative
Common Common Paid-in Retained Translation Treasury
Stock Stock Capital Earnings Adjustment Stock Other Total
----- ----- ------- -------- ----------- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, July 1, 1992 $1,964 $271 $65,658 $93,018 $6,169 $(51,475) $ - $115,605
- ----------------------
Net loss.............. - - - (56,104) - - - (56,104)
Cumulative translation
adjustment, net...... - - - - (3,471) - - (3,471)
Exchange of Class B
for Class A common
stock................ 1 (1) - - - - - -
Purchase of treasury
stock................ - - - - - (244) - (244)
Gain on Initial Public
Offering of Rexnord
Corporation.......... - - 1,079 - - - - 1,079
----- ---- ------ ------ ----- ------- ------ ------
BALANCE, June 30, 1993 1,965 270 66,737 36,914 2,698 (51,719) - 56,865
- ----------------------
Net earnings.......... - - - 15,822 - - - 15,822
Cumulative translation
adjustment, net...... - - - - 648 - - 648
Gain on purchase of
preferred stock of
subsidiary........... - - 38 - - - - 38
Additional minimum
liability for
pensions............. - - - - - - (1,405) (1,405)
----- ---- ------ ------ ----- ------- ------ ------
BALANCE, June 30, 1994 1,965 270 66,775 52,736 3,346 (51,719) (1,405) 71,968
- ----------------------
Net loss.............. - - - (33,824) - - - (33,824)
Cumulative translation
adjustment, net...... - - - - 5,378 - - 5,378
Gain on purchase of
preferred stock of
subsidiary........... - - 236 - - - - 236
Reduction of minimum
liability for pensions - - - - - - 1,405 1,405
Net unrealized holding
loss on available-for-
sale securities...... - - - - - - (120) (120)
----- ---- ------ ------ ----- ------- ------ ------
BALANCE, June 30, 1995 $1,965 $ 270 $67,011 $18,912 $8,724 $(51,719) $ (120) $45,043
===== ==== ====== ====== ===== ======= ====== ======
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
/TABLE
<PAGE>
<TABLE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
For the Years Ended June 30,
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)............................... $ (33,824) $ 15,822 $ (56,104)
Adjustments to reconcile net earnings (loss) to
net cash used for operating activities:
Cumulative effect of accounting changes, net.. -- 10,950 --
Extraordinary loss on recapitalization of
Rexnord Corporation......................... -- -- 11,808
Depreciation and amortization................. 38,170 36,227 33,955
Accretion of discount on long-term
liabilities................................. 4,773 4,453 3,355
Net gain on sale of Rexnord investment........ -- (129,082) --
Provision for restructuring and unusual items
(excluding cash payments of $6,020 in 1994
and $7,896 in 1993)......................... -- 19,533 7,573
Loss on sale of property, plant and equipment. 713 214 2,294
Undistributed (earnings) loss of affiliates... (950) 1,193 (10,945)
Minority interest............................. 2,449 2,552 2,289
Change in trading securities.................. 1,879 -- --
Change in receivables......................... (16,165) (2,803) 7,252
Change in inventories......................... (14,000) 4,246 9,444
Change in other current assets................ (3,517) (4,498) 30,092
Change in other non-current assets............ 6,022 (3,366) (8,637)
Change in accounts payable, accrued
liabilities, and other long-term liabilities (10,958) 11,288 (53,496)
-------- -------- --------
Net cash used for operating activities............ (25,408) (33,271) (21,120)
Cash flows from investing activities:
Change in investments............................. 12,281 1,574 31,845
Purchase of property, plant and equipment......... (20,700) (16,279) (15,596)
Proceeds from sale of property, plant and
equipment....................................... 1,243 7,982 1,301
Equity investments in affiliates.................. (1,264) (3,393) (19,527)
Acquisition of subsidiaries, net of cash acquired. (12,157) (1,905) (7,313)
Net proceeds from sale of Rexnord Corporation..... -- 178,089 --
-------- -------- --------
Net cash (used for) provided by investing
activities...................................... (20,597) 166,068 (9,290)
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
<TABLE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(In thousands)
<CAPTION>
For the Years Ended June 30,
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of debt.................... $ 71,712 $ 68,558 $ 223,038
Debt repayments and repurchase of debentures, net. (59,367) (169,948) (165,363)
Purchases of treasury shares...................... -- -- (244)
-------- -------- --------
Net cash provided by (used for) financing
activities...................................... 12,345 (101,390) 57,431
Effect of exchange rate changes on cash........... 2,474 862 (2,868)
Net (decrease) increase in cash and cash
equivalents..................................... (31,186) 32,269 24,153
Cash and cash equivalents, beginning of the year.. 102,368 70,099 45,946
-------- -------- --------
Cash and cash equivalents, end of the year........ $ 71,182 $ 102,368 $ 70,099
======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Corporate Structure: The Fairchild Corporation (the "Company") was
incorporated under the laws of the State of Delaware in October, 1969. RHI
Holdings, Inc. ("RHI") is a direct subsidiary of the Company. RHI is the
owner of all of the common stock of Fairchild Industries, Inc. ("FII") which,
in turn, is the 100% owner of VSI Corporation ("VSI"). The Company's
operations are conducted through VSI and RHI. The Company also holds
significant equity interests in Banner Aerospace, Inc. ("Banner") and Nacanco
Paketleme ("Nacanco").
Fiscal Year: The fiscal year ("Fiscal") of the Company ends June 30.
All references herein to "1995", "1994", and "1993" mean the fiscal years
ended June 30, 1995, 1994 and 1993, respectively.
Principles of Consolidation: The consolidated financial statements are
prepared in accordance with generally accepted accounting principles and
include the accounts of the Company and its majority owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Investments in companies owned between 20 percent and 50
percent are recorded using the equity method (see Note 6).
Cash Equivalents/Statements of Cash Flows: For purposes of the
statements of cash flows, the Company considers all highly liquid investments
with original maturity dates of three months or less as cash equivalents.
Total net cash disbursements (receipts) made by the Company for income taxes
and interest were as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Interest....................... $ 66,334 $ 66,788 $ 63,567
Income Taxes................... (3,056) (16) (23,171)
</TABLE?
Restricted Cash: On June 30, 1995 and 1994, the Company had restricted
cash of $5,968,000 and $4,745,000, respectively, all of which is maintained
as collateral for certain debt facilities. Cash investments are in high
grade, short-term certificates of deposit.
Investments: On July 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115"). There was no cumulative effect as
the result of adopting SFAS 115 in Fiscal 1995.
Management determines the appropriate classification of its investments
at the time of acquisition and reevaluates such determination at each balance
sheet date. Trading securities are carried at fair value, with unrealized
holding gains and losses included in earnings. Available-for-sale securities
are carried at fair value, with unrealized holding gains and losses, net of
tax, reported as a separate component of shareholders' equity. Investments
in equity securities and limited partnerships that do not have readily
determinable fair values are stated at cost, adjusted for impairments, and
categorized as other investments. At June 30, 1994, the Company used the
lower of cost or market method for its investments. In determining realized
gains and losses, the cost of securities sold is based on the specific
identification method. Interest on corporate obligations, as well as
dividends on preferred stock are accrued at the balance sheet date.
Inventories: Inventories are stated at the lower of cost or market.
Cost is determined primarily using the last-in, first-out (LIFO) method.
Inventories from continuing operations are valued as follows:
</TABLE>
<TABLE>
<CAPTION>
June 30, June 30,
(In thousands) 1995 1994
-------- --------
<S> <C> <C>
Last-in, first-out (LIFO).................. $ 69,211 $ 69,829
First-in, first-out (FIFO)................. 35,698 20,186
-------- --------
Total inventories.......................... $ 104,909 $ 90,015
======== ========
</TABLE>
For inventories valued on the LIFO method, the excess of current FIFO
value over stated LIFO value was approximately $7,447,000 and $7,924,000 at
June 30, 1995 and 1994, respectively. The LIFO decrement was immaterial for
Fiscal 1995.
Properties and Depreciation: Properties are stated at cost and
depreciated over estimated useful lives, generally on a straight-line basis.
For Federal income tax purposes, accelerated depreciation methods are used.
No interest costs were capitalized in any of the years presented. Property,
plant and equipment consisted of the following:
<TABLE>
<CAPTION>
June 30, June 30,
(In thousands) 1995 1994
-------- --------
<S> <C> <C>
Land....................................... $ 14,022 $ 17,811
Buildings and improvements................. 47,397 47,376
Machinery and equipment.................... 208,970 184,171
Transportation vehicles.................... 649 618
Furniture and fixtures..................... 10,965 7,501
Construction in progress................... 4,582 6,358
------- -------
286,585 263,835
Less: Accumulated depreciation............ (115,659) (89,688)
------- -------
Net property, plant and equipment.......... $170,926 $174,147
======= =======
</TABLE>
Amortization of Goodwill: The excess of the cost of purchased
businesses over the fair value of their net assets at acquisition dates
(goodwill) is being amortized on a straight-line basis over 40 years.
Deferred Loan Costs: Deferred loan costs associated with various debt
issues are being amortized over the terms of the related debt, based on the
amount of outstanding debt, using the effective interest method.
Amortization expense for these loan costs for Fiscal 1995, 1994 and 1993 was
$3,794,000, $4,253,000 and $3,355,000, respectively.
Impairment of Long-Lived Assets: The Company reviews its long-lived
assets, including property, plant and equipment, identifiable intangibles and
goodwill, for impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be fully recoverable. To
determine recoverability of its long-lived assets the Company evaluates the
probability that future undiscounted net cash flows, without interest
charges, will be less than the carrying amount of the assets. Impairment is
measured at fair value.
Despite three consecutive years of operating losses in the Company's
Aerospace Fasteners segment, the Company believes that future net cash flows
from this segment will be sufficient to permit recovery of the segment's
long-lived assets, including the remaining goodwill.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
SFAS 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those
assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS 121 is required to be
implemented by the Company on, or before, July 1, 1996. Since the Company's
present policy is identical to the policy prescribed by SFAS 121, there will
be no effect from implementation. (For further discussion see "Impact of
Future Accounting Changes" included in Item 7, Management Discussion and
Analysis of Results of Operations and Financial Condition).
Foreign Currency Translation: All balance sheet accounts of foreign
subsidiaries are translated at current exchange rates at the end of the
accounting period. Income statement items are translated at average exchange
rates during the period. The resulting translation adjustment is recorded as
a separate component of stockholders' equity. Foreign transaction gains and
losses are included in other income and were insignificant in Fiscal 1995,
1994 and 1993.
Research and Development: Company-sponsored research and development
expenditures are expensed as incurred.
Non-Recurring Items: Non-recurring income for Fiscal 1994 consists of
the net pretax gain of $129,082,000 on the sale of Rexnord Corporation
("Rexnord") stock (see Note 6).
Earnings Per Share: Primary and fully diluted earnings per share are
computed by dividing net income available to common shareholders by the
weighted average number of shares and share equivalents outstanding during
the period. To compute the incremental shares resulting from stock options
and warrants for primary earnings per share, the average market price of the
Company's stock during the period is used. To compute the incremental shares
resulting from stock options and warrants for fully diluted earnings per
share, the greater of the ending market price or the average market price of
the Company's stock is used. In computing earnings per share for Fiscal
1995, 1994 and 1993, the conversion of options and warrants was not assumed,
as the effect was anti-dilutive.
Reclassifications: Certain amounts in prior years' financial statements
have been reclassified to conform to the 1995 presentation.
In October 1994, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 119 ("SFAS 119"), "Disclosure
about Derivative Financial Instruments and Fair Value of Financial
Instruments". SFAS 119, which is effective for the Company's Fiscal 1995
financial statements, requires certain disclosure about all derivative
financial instruments. Management has determined that the requirements of
SFAS 119 are immaterial to the Company's Fiscal 1995 financial statements.
2. ACQUISITIONS
------------
On June 10, 1994, the Company acquired 100% of the Common Stock of
Convac GmbH ("Convac")for approximately $4,700,000. Convac is a leading
designer and manufacturer of high precision state-of-the-art wet processing
tools, equipment and systems required for the manufacture of semiconductor
chips and related products, compact and optical storage discs and liquid
crystal displays. The Company reports the results of Convac as part of its
Industrial Products segment.
On September 9, 1994, the Company acquired all of the outstanding Common
Stock of Scandinavian Bellyloading Company AB ("SBC"). SBC is the designer
and manufacturer of patented cargo loading systems, which are installed in
the cargo area of commercial aircraft. Several major airlines are expected
to equip existing fleets with the SBC system over the next three to four
years. The Company reports the results of SBC as part of its Industrial
Products segment.
On November 28, 1994, Fairchild Communications Services Company
("Fairchild Communications"), a partnership whose partners are indirect
subsidiaries of the Company, completed the acquisition of substantially all
of the telecommunications assets of JWP Telecom, Inc. ("JWP") for
approximately $11,000,000, plus the assumption of approximately $3,000,000 of
liabilities. JWP is a telecommunications system integrator, specializing in
the distribution, installation and maintenance of voice and data
communications equipment. In the first quarter of Fiscal 1995, Fairchild
Communications acquired all the shared telecommunications assets of Eaton &
Lauth Co., Inc., for approximately $550,000.
In Fiscal 1993, Fairchild Communications acquired all the
telecommunication assets of Office Networks, Inc., for approximately
$7,300,000.
Proforma statements are not required for these acquisitions on an
individual basis.
3. DISCONTINUED OPERATIONS AND NET ASSETS HELD FOR SALE
----------------------------------------------------
The Company recorded after tax losses on the disposal of discontinued
operations, of $259,000, $368,000 and $25,000 in 1995, 1994 and 1993,
respectively. These losses related primarily to (i) liability insurance
premiums paid for properties of discontinued operations, and workers'
compensation claims for employees of operations which were previously
discontinued.
The Company has decided not to sell Fairchild Data Corporation ("Data"),
which previously was included in net assets held for sale. The Company is
recording the Fiscal 1995 and 1994 results from Data with the Company's
Industrial Products Segment. Sales from Data formerly included in net assets
held for sale, and not included in results of operations, were $15,432,000
for the twelve months ended June 30, 1993. The impact of Data's earnings on
the Fiscal 1993 period was immaterial.
Net assets held for sale at June 30, 1995, includes two parcels of real
estate in California, an 88 acre parcel of real estate located in
Farmingdale, New York, and several other parcels of real estate located
primarily throughout the continental United States, which the Company plans
to sell, lease or develop, subject to the resolution of certain environmental
matters and market conditions. Also included in net assets held for sale are
limited partnership interests in (i) a real estate development joint venture,
and (ii) a landfill development partnership.
Net assets held for sale are stated at the lower of cost or at estimated
net realizable value, which reflect anticipated sales proceeds, and other
carrying costs to be incurred during the holding period. Interest is not
allocated to net assets held for sale.
4. EXTRAORDINARY ITEMS
-------------------
The Company recognized extraordinary gains and losses from the early
extinguishment of debt resulting from repurchases of its debentures on the
open market or in negotiated transactions, and the write-offs of certain
deferred costs associated with the issuance of securities repurchased. Total
repurchases executed by the Company were: $13,600,000 face value purchased
for $12,541,000 in Fiscal 1995, $33,658,000 face value purchased for
$34,016,000 in Fiscal 1994, and $559,000 face value purchased for $495,000 in
Fiscal 1993. In Fiscal 1993, FII wrote-off $1,262,000 of deferred loan costs
in association with certain amendments to the Company's credit agreement.
Early extinguishment of the Company's debt resulted in extraordinary income
(loss) of $355,000, net of a $191,000 tax provision, $(643,000), net of a
$347,000 tax benefit, and $(810,000), net of a $435,000 tax benefit in Fiscal
1995, 1994 and 1993, respectively.
In Fiscal 1993, in conjunction with an initial public offering and
recapitalization of Rexnord Corporation ("Rexnord"), the Company recorded an
extraordinary charge of $11,804,000, relating to 42.0% (its previous
ownership percentage share) of Rexnord's extraordinary charge relating to
premiums paid to repurchase debt and write off deferred loan costs.
5. INVESTMENTS
-----------
Short-term investments at June 30, 1995, primarily consist of common
stock investments in public corporations, which are classified as trading
securities. All other short-term investments and all long-term investments
do not have readily determinable fair values and consist of investments in
limited partnerships and certain preferred and common stocks. A summary of
investments held by the Company consist of the following:
<TABLE>
<CAPTION>
(In thousands) 1995 1994
------------------- ------------------
Aggregate Aggregate
Name of Issuer or Fair Cost Market Cost
Type of Each Issue Value Basis Value Basis
- ------------------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Short-term investments:
- -----------------------
Trading Securities:
Common Stock.................... $ 3,968 $ 5,088 $ 2,969 $ 4,053
Other Investments................. 148 148 3,680 3,920
------ ------ ------ ------
$ 4,116 $ 5,236 $ 6,649 $ 7,973
====== ====== ====== ======
Other long-term investments:
- ----------------------------
Preferred Stock................... $ 492 $ 492 $ 2,748 $ 2,748
Real Estate Development Joint
Venture Limited Partnership (a). -- -- 3,396 3,396
Bidermann Industries USA, Inc (b). -- -- 9,314 9,314
Other Investments................. 346 346 -- --
------ ------ ------ ------
$ 838 $ 838 $15,458 $15,458
====== ====== ====== ======
(a) Represents a former plant site in Redondo Beach, California, which was
contributed to a joint venture with a developer that has built and partially
leased a retail center. This investment was reclassified to net assets held
for sale in 1995.
(b) The Company received proceeds of approximately $12,000,000 relating to
the sale of collateral and liquidation of the assets attached in the Maurice
Bidermann litigation. (See Note 18).
</TABLE>
Investment income is summarized as follows:
<TABLE>
<CAPTION>
(In thousands)
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Gross realized gains from sales...... $ 3,948 $ 4,320 $ 962
Change in unrealized holdings loss on
trading securities................. (36) -- --
Lower of cost or market valuation
adjustment......................... -- (1,084) 288
Gross realized loss from impairments. (652) (426) (320)
Dividend income...................... 2,445 3,355 1,502
Interest income...................... -- -- 264
------- ------- -------
$ 5,705 $ 6,165 $ 2,696
======= ======= =======
</TABLE>
6. INVESTMENTS AND ADVANCES - AFFILIATED COMPANIES
-----------------------------------------------
The following table presents summarized financial information on a
combined 100% basis of Banner and Nacanco, the Company's principal
investments, which are accounted for using the equity method.
<TABLE>
<CAPTION>
(In thousands)
Statement of Earnings: 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Net sales.................... $313,888 $283,055 $313,594
Gross profit................. 100,644 98,689 81,352
Earnings from continuing
operations................. 9,623 17,231 281
Discontinued operations, net. -- (12,996) (712)
Net earnings (loss).......... 9,623 4,235 (431)
Balance Sheet at June 30,:
Current assets................ $257,314 $280,144
Non-current assets............ 61,348 57,881
Total assets.................. 318,662 338,025
Current liabilities........... 61,174 60,753
Non-current liabilities....... 101,256 126,920
</TABLE>
On June 30, 1995, the Company owned approximately 47.2% of Banner common
stock, which is included in investments and advances - affiliated companies.
The Company recorded equity earnings (loss) of $138,000, $(5,697,000) and
$(1,380,000) on its investment in Banner for Fiscal 1995, 1994 and 1993,
respectively. At the close of trading on June 30, 1995, Banner stock was
quoted at $5.00 per share. Based on this price, the Company's equity
investment in Banner had an approximate market value of $42,500,000 versus a
carrying value of $51,146,000. The Company does not believe that this
decline in market value is a permanent impairment.
On June 30, 1995, the Company owned approximately 31.9% of Nacanco
common stock. The Company recorded equity earnings of $2,859,000, $5,429,000
and $820,000 from this investment for Fiscal 1995, 1994 and 1993,
respectively.
On December 23, 1993, the Company completed a sale of its 43.9% stock
interest in Rexnord to BTR Dunlop Holdings, Inc. ("BTR"). Accordingly, the
Company received $181,873,000 in gross proceeds and realized a pre-tax gain
on the sale of $129,082,000 in Fiscal 1994. Prior to the sale of Rexnord,
the Company recorded equity earnings (loss) of $(905,000) and $10,828,000
from this investment for Fiscal 1994 and 1993, respectively. The net
earnings for Fiscal 1994, were decreased by recording the Company's 43.9%
share of the cumulative charge which resulted from the adoption of SFAS No.
106 and SFAS No. 109 at Rexnord. (See Notes 8 and 9).
The Company is accounting for an investment in a public fund, which is
controlled by an affiliated investment group of the Company, at market value.
Accordingly, the amortized cost basis of the investment was $923,000 and had
been written down by $185,000, before tax, to market value. The Company's
gross unrealized loss was $120,000, net of tax from this investment in 1995.
The Company's share of equity in earnings (loss) of all unconsolidated
affiliates for 1995, 1994 and 1993 was $2,369,000, $(882,000) and
$11,196,000, respectively. The carrying value of investments and advances -
affiliated companies consists of the following:
<TABLE>
<CAPTION>
(In thousands) June 30, June 30,
1995 1994
-------- --------
<S> <C> <C>
Banner Aerospace................... $ 51,146 $ 51,008
Nacanco............................ 16,312 14,598
Other.............................. 6,212 5,926
------- -------
$ 73,670 $ 71,532
======= =======
</TABLE>
On June 30, 1995, approximately $12,766,000 of the Company's $18,912,000
consolidated retained earnings was from undistributed earnings of 50 percent
or less currently owned affiliates accounted for by the equity method.
In connection with the sale of its interest in Rexnord, the Company has
placed shares of Banner, with a fair market value of $25,000,000, in escrow
to secure the Company's indemnification of BTR against a contingent
liability. Once the contingent liability is resolved, the shares will be
released.
7. NOTES PAYABLE AND LONG-TERM DEBT
--------------------------------
At June 30, 1995 and 1994, notes payable and long-term debt consisted of
the following:
<TABLE>
<CAPTION>
(In thousands, except for percents) June 30, June 30,
1995 1994
-------- --------
<S> <C> <C>
Short-term notes payable (weighted
average interest rates of 8.32% and
8.89% in 1995 and 1994, respectively).. $ 5,489 $ 3,974
======= =======
Bank credit agreement.................... $126,396 $ 97,315
12.25% Senior secured notes due 1999..... 125,000 125,000
Subordinated notes and debentures
interest from 9.75% to 13.125%......... 286,279 300,016
10.65% Industrial revenue bonds.......... 1,500 1,500
Capital lease obligations interest from
5.85% to 15.50% (See Note 18).......... 1,253 3,302
Other notes payable, collateralized
by property, plant and equipment,
interest from 5.5% to 10.65%........... 4,787 6,277
------- -------
545,215 533,410
Less: Current maturities................ (35,500) (11,004)
------- -------
Net long-term debt....................... $509,715 $522,406
======= =======
</TABLE>
The Company maintains a credit agreement (the "Credit Agreement") with a
consortium of banks, which provides a revolving credit facility and two term
loans to FII, and a revolving credit facility to RHI (collectively the
"Credit Facilities"). The revolving credit facility provided to RHI
generally bears interest at 1.0% over the prime rate, and matures February
28, 1996. The revolving credit facility and Term Loan VIII, provided to FII,
generally bears interest at 3.75% over the London Interbank Offered Rate
("LIBOR") and at 2.75% over LIBOR for Term Loan VII, respectively. The
Credit Facilities provided to FII mature on March 31, 1997. The commitment
fee on the unused portion of the revolving credit facilities was 1.0% at June
30, 1995. The Credit Facilities are secured by substantially all of FII's
assets.
The following table summarizes the credit facilities under the credit
agreement at June 30, 1995:
<PAGE>
<TABLE>
<CAPTION>
(In thousands) Outstanding Total
as of Available
June 30, 1995 Facilities
------------- ----------
<S> <C> <C>
RHI Holdings, Inc.
Revolving credit facility (a)....... $ 100 $ 5,000
Fairchild Industries, Inc ======= =======
Revolving credit facility (b)....... $ 34,700 $ 50,250
Term Loan VII....................... 49,696 49,696
Term Loan VIII...................... 42,000 42,000
------- -------
$126,396 $141,946
======= =======
Total
Revolving credit facilities......... $ 34,800 $ 55,250
Term loans.......................... 91,696 91,696
------- -------
$126,496 $146,946
======= =======
(a) This amount is included in short-term notes payable.
(b) In the first quarter of Fiscal 1995, the revolving credit facility at
FII was reduced by $9,250,000 to $50,250,000. In addition, the borrowing
rate increased by 1.0% to generally bear interest at 3.75% over LIBOR and the
commitment fee increased by 0.5% to 1.0%.
</TABLE>
At June 30, 1995, the Company had outstanding letters of credit of
$11,598,000, which were supported by the Credit Agreement and other bank
facilities on an unsecured basis. At June 30, 1995, the Company had unused
short-term bank lines of credit aggregating $8,852,000 at interest rates
slightly higher than the prime rate. The Company also has short-term lines
of credit relating to foreign operations aggregating $9,529,000 against which
the Company owed $5,349,000 at June 30, 1995.
Summarized below are certain items and other information relating to the
debt outstanding at June 30, 1995:
<PAGE>
<TABLE>
<CAPTION>
12.25% 12% 13%
(In thousands) Senior 13.125% Intermediate Junior
Subordinated Subordinated Subordinated Subordinated
Notes Debentures Debentures Debentures
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Date Issued March 1986 March 1986 Oct. 1986 March 1987
Face Value $ 60,000 $ 75,000 $160,000 $102,000
Balance, June 30,
1995 $ 24,146 $ 34,943 $113,735 $ 24,769
Percent Issued at 95.864 95.769 93.470 98.230
Bond Discount $ 2,482 $ 3,173 $ 10,448 $ 1,805
Amortization 1995 $ 171 $ 103 $ 687 $ 27
1994 $ 279 $ 90 $ 621 $ 23
1993 $ 265 $ 79 $ 547 $ 20
Yield to Maturity 13.00% 13.800% 13.06% 13.27%
Interest Payments Semi-Annual Semi-Annual Semi-Annual Semi-Annual
Sinking Fund Start
Date N/A 3/15/97 10/15/97 3/1/98
Sinking Fund
Installments N/A $ 7,500 $ 32,000 $ 10,200
Fiscal Year Maturity 1996 2006 2002 2007
Redeemable by the
Company after 3/15/89 3/15/89 10/15/89 3/1/92
</TABLE>
<TABLE>
<CAPTION>
11.875% 12.25% 9.75%
RHI Senior FII FII
Subordinated Senior Subordinated
Debentures Notes Debentures
------------ ----------- ------------
<S> <C> <C> <C>
Date Issued March 1987 Aug. 1992 Jan. 1978
Face Value $126,000 $125,000 $ 16,082
Balance, June 30,
1995 $ 85,687 $125,000 $ 2,999
Percent Issued at 99.214 100.0 95.784
Bond Discount $ 990 N/A $ 678
Amortization 1995 $ 94 -- $ 6
1994 $ 80 -- $ 6
1993 $ 43 -- $ 11
Yield to Maturity 12.01% 12.25% 9.75%
Interest Payments Semi-Annual Semi-Annual Annual
Sinking Fund Start
Date 3/1/97 N/A 4/1/83
Sinking Fund
Installments $ 31,500 N/A $1,005
Fiscal Year Maturity 1999 1999 1998
Redeemable by the
Company after 3/1/92 7/31/97 1/1/98
</TABLE>
Under the most restrictive covenants of the above indentures, the
Company's consolidated net worth, as defined, must not be less than
$35,000,000. However, the Company believes that computation of consolidated
net worth under the indentures would be undertaken in accordance with
Generally Accepted Accounting Principles in effect at the date of the
execution and delivery of each indenture by the Company. Such computation
would yield a consolidated net worth for the Company approximately $2,946,000
higher than presented above, as a result of changes in accounting principles,
primarily Statement of Financial Accounting Standards Nos. 106 and 109, which
were adopted subsequent to the Company's execution and delivery of the
indenture. RHI's consolidated net worth must not be less than $125,000,000.
At the present time, none of the Company's consolidated retained earnings are
available for capital distributions due to a cumulative earnings restriction.
The indentures also provide restrictions on the amount of additional
borrowings by the Company.
The Credit Agreement, as amended, contains certain covenants, including
a material adverse change clause, and restrictions on dividends, capital
expenditures, capital leases, operating leases, investments and indebtedness.
It requires the Company to comply with certain financial covenants, including
achieving cumulative earnings before interest, taxes, depreciation and
amortization ("EBITDA Covenant"), and maintaining certain coverage ratios,
including a requirement for the Company and RHI to maintain unrestricted
holding company cash and cash equivalent balances of $30,000,000 for the
quarter ended December 31, 1995, and $10,000,000 at the end of each fiscal
quarter thereafter (including any non-restricted VSI directed reduction
amounts contributed). The Company was in compliance with the Credit
Agreement, as amended, at June 30, 1995. To comply with the minimum EBITDA
Covenant requirements (as amended), the Company's subsidiary, VSI, must earn
for the cumulative total of the trailing four quarters, EBITDA as follows:
$60,000,000 for the first quarter of Fiscal 1996, $65,000,000 for the second
quarter of Fiscal 1996, $70,000,000 for the third quarter of Fiscal 1996, and
$80,000,000 for the fourth quarter of Fiscal 1996. VSI's ability to meet the
minimum requirements under the EBITDA Covenant in Fiscal 1996 is uncertain,
and there can be no assurance that the Company will be able in the future to
comply with the minimum requirements under the EBITDA Covenant and other
financial covenants under the Credit Agreement. Noncompliance with any of
the financial covenants, without cure or waiver, would constitute an event of
default under the Credit Agreement. An event of default resulting from a
breach of a financial covenant may result, at the option of lenders holding
a majority of the loans, in an acceleration of the principal and interest
outstanding, and a termination of the revolving credit line. However, if
necessary, management believes a waiver can be obtained.
For FII's operating subsidiary, VSI, capital expenditures are limited
during the remaining term of the Credit Agreement to the lower of (i) an
annual ceiling of $25,200,000 to $26,500,000 per year, or (ii) 30% of the
prior fiscal year's earnings before interest, taxes, depreciation and
amortization. Capital expenditure reductions can be offset by cash
contributions from the Company. Capital expenditures can also be increased
if cash proceeds are received from the sale of other property, subject to
approval by the senior lenders under the Credit Agreement. FII's sale of
property, plant, and equipment is limited during the remaining term of the
Credit Agreement.
The Company's subsidiaries may transfer available cash as dividends to
the Company if the purpose of such dividends is to provide the Company with
funds necessary to meet its debt service requirements under specified notes
and debentures. However, all other dividends from FII to RHI are subject to
certain limitations under the Credit Agreement. As of June 30, 1995, FII was
unable to provide dividends to RHI. The Credit Agreement also restricts FII
from additional borrowings under the Credit Facilities for the payment of any
dividends.
Annual maturities of long-term debt obligations (exclusive of capital
lease obligations) for each of the five years following June 30, 1995, are as
follows: $39,975,000 for 1996, $122,506,000 for 1997, $23,723,000 for 1998,
$206,605,000 for 1999, and $31,551,000 for 2000.
8. PENSIONS AND POSTRETIREMENT BENEFITS
------------------------------------
Pensions
--------
The Company and its subsidiaries have defined benefit pension plans
covering substantially all employees. Employees in foreign subsidiaries may
participate in local pension plans, which are in the aggregate insignificant
and are not included in the following disclosures. The Company's funding
policy is to make the minimum annual contribution required by applicable
regulations.
The following table provides a summary of the components of net periodic
pension expense (income) for the plans:
<TABLE>
<CAPTION>
(In thousands)
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Service cost of benefits earned
during the period...................... $ 3,917 $ 3,827 $ 4,184
Interest cost of projected benefit
obligation............................. 14,860 14,552 14,166
Return on plan assets.................... (14,526) (5,051) (31,490)
Amortization of prior service cost....... 81 126 111
Net amortization and deferral............ (4,341) (15,007) 13,488
------- ------- -------
(9) (1,553) 459
Net periodic pension expense (income) for
other plans including foreign plans.... 78 (745) (1,654)
------- ------- -------
Net periodic pension expense (income).... $ 69 $ (2,298) $ (1,195)
======= ======= =======
/TABLE
<PAGE>
Assumptions used in accounting for the plans were:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Discount Rate............................ 8.5% 8.5% 8.5%
Expected rate of increase in salaries.... 4.5% 4.5% 4.5%
Expected long-term rate of return on
plan assets............................ 9.0% 9.0% 9.0%
</TABLE>
The following table sets forth the funded status and amounts recognized
in the Company's consolidated balance sheets at June 30, 1995, and 1994 for
the plans:
<TABLE>
<CAPTION>
(In thousands) June 30, June 30,
1995 1994
-------- --------
<S> <C> <C>
Projected benefit obligation:
Vested benefit obligation................. $168,843 $183,120
Non-vested benefits....................... 6,488 10,684
------- -------
Accumulated benefit obligation............ 175,331 193,804
Effect of projected future compensation
levels.................................. 5,815 4,418
------- -------
181,146 198,222
Plan assets at fair value................... 212,477 239,756
------- -------
Plan assets in excess of projected benefit
obligations............................... 31,331 41,534
Unrecognized net loss....................... 42,720 35,843
Unrecognized prior service cost............. 329 411
Unrecognized net transition assets.......... (190) (594)
Additional minimum liability for one defined
plan...................................... -- (2,166)
------- -------
Prepaid pension cost prior to SFAS 109
implementation............................ 74,190 75,028
Effect of SFAS 109 implementation........... (14,623) (13,400)
------- -------
Prepaid pension cost (a).................... $ 59,567 $ 61,628
======= =======
(a) Does not include excess liabilities over plan assets of $1,405,000, net
of tax, at June 30, 1994.
</TABLE>
Plan assets include Class A Common Stock of the Company valued at
$2,763,000 and $3,172,000 at June 30, 1995 and 1994, respectively.
Substantially all of the plan assets are invested in listed stocks and bonds.
<PAGE>
Postretirement Health Care Benefits
-----------------------------------
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106 ("SFAS 106"), "Employers' Accounting for
Postretirement Benefits Other than Pensions". The standard requires that the
expected cost of postretirement benefits be accrued and charged to expense
during the years the employees render the service. This is a significant
change from the Company's previous policy of expensing these costs for active
employees when paid.
The Company elected the immediate recognition method of adoption of SFAS
106. The unamortized portion of the overstated liability for discontinued
operations was $10,370,000, net of tax, which substantially offset a
$10,904,000, net of tax, charge relating to the transition obligation for
active employees and retirees of continuing operations. The charge to net
earnings as the cumulative effect of this accounting change was $534,000, net
of tax. For the Fiscal year ended June 30, 1994, the effect of the changes
on pretax income from continuing operations was not material.
As a result of Rexnord's adoption of SFAS 106, effective July 1, 1993,
the Company recorded an after-tax charge of $7,481,000 to net earnings, which
represented the Company's share of Rexnord's cumulative effect of this change
in accounting, net of the related tax benefits from the charge.
The Company provides health care benefits for most retired employees.
Postretirement health care expense from continuing operations totaled
$1,388,000, $1,948,000 and $1,366,000 for the years ended June 30, 1995, 1994
and 1993, respectively. The Company has accrued approximately $33,778,000
and $35,386,000 as of June 30, 1995 and 1994, respectively, for
postretirement health care benefits related to discontinued operations. This
represents the cumulative discounted value of the long-term obligation and
includes interest expense of $3,185,000, $3,011,000 and $4,866,000 for the
years ended June 30, 1995, 1994 and 1993, respectively. The components of
expense in Fiscal 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
(In thousands)
1995 1994
------- -------
<S> <C> <C>
Service cost of benefits earned...................$ 321 $ 437
Interest cost on liabilities...................... 4,385 4,526
Net amortization and deferral..................... (133) (4)
------- -------
Net periodic postretirement benefit cost..........$ 4,573 $ 4,959
======= =======
</TABLE>
The following table sets forth the funded status for the Company's
postretirement health care benefit plans at June 30, 1995:
<PAGE>
<TABLE>
<CAPTION>
(In thousands) 1995 1994
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees........................................$ 45,970 $ 48,556
Fully eligible active participants.............. 531 497
Other active participants....................... 5,741 4,962
------- -------
Accumulated postretirement benefit obligation..... 52,242 54,015
Unrecognized net loss............................. 223 113
------- -------
Accrued postretirement benefit liability..........$ 52,019 $ 53,902
======= =======
</TABLE>
The accumulated postretirement benefit obligation was determined using
a discount rate of 8.5%, and a health care cost trend rate of 8.0% and 7.5%
for pre-age-65 and post-age-65 employees, respectively, gradually decreasing
to 4.5% and 4.5%, respectively, in the year 2003 and thereafter.
Increasing the assumed health care cost trend rates by 1% would increase
the accumulated postretirement benefit obligation as of June 30, 1995, by
approximately $2,385,000, and increase the net periodic postretirement
benefit cost by approximately $263,000 for Fiscal 1995.
9. INCOME TAXES
------------
Effective July 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by
Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting
for Income Taxes".
Under the liability method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities, and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Prior
to the adoption of SFAS 109, income tax expense was determined using the
deferred method. Deferred tax expense was based on items of income and
expense that were reported in different years in the financial statements and
tax returns and were measured at the tax rate in effect in the year the
difference originated.
As permitted under SFAS 109, prior years' financial statements have not
been restated. The Company elected the immediate recognition method and
recorded a $2,412,000 charge representing the prior years' cumulative effect.
This charge represents deferred taxes that had to be recorded related
primarily to fixed assets, prepaid pension expenses, and inventory basis
differences.
As a result of Rexnord's adoption of SFAS 109 effective July 1, 1993,
the Company recorded an after-tax charge to net earnings of $523,000, which
represented the Company's share of Rexnord's cumulative effect for this
change in accounting.
The provision (benefit) for income taxes from continuing operations is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.......................... $ (45) $ 4,976 $ (12,823)
State............................ 1,720 735 2,031
Foreign.......................... 1,808 204 1,152
-------- -------- --------
3,483 5,915 (9,640)
Deferred:
Federal......................... (19,450) 18,851 (533)
State........................... (2,052) 243 (1,003)
-------- -------- --------
(21,502) 19,094 (1,536)
-------- -------- --------
Net tax provision (benefit)........ $ (18,019) $ 25,009 $ (11,176)
======== ======== ========
</TABLE>
The income tax provision (benefit) for continuing operations differs
from that computed using the statutory Federal income tax rate of 35% in
Fiscal 1995 and 1994 and 34% in Fiscal 1993 for the following reasons (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Computed statutory amount......... $ (18,179) $ 18,477 $ (18,578)
State income taxes, net of
applicable federal tax benefit.. (934) 720 679
Foreign Sales Corporation benefit. -- (228) (222)
Nondeductible acquisition
valuation items................. 1,993 4,431 2,053
Equity income and dividends....... -- -- (2,979)
Tax on foreign earnings, net of
tax credits..................... 3,234 352 3,337
Difference between book and tax
basis of assets acquired and
liabilities assumed............. 1,366 1,366 582
Tax benefit of operating losses
not currently recognizable...... -- -- 4,964
Revision of estimate for tax
accruals........................ (5,000) -- --
Other............................. (499) (109) (1,012)
--------- --------- --------
Net tax provision(benefit)........ $ (18,019) $ 25,009 $ (11,176)
========= ========= ========
</TABLE>
The following table is a summary of the significant components of the
Company's deferred tax assets and liabilities as of June 30, 1995 and 1994.
<TABLE>
<CAPTION>
(In thousands) 1995 1994
Deferred Deferred
June 30, (Provision) June 30, (Provision)
1995 Benefit 1994 Benefit
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Deferred tax assets:
Accrued expenses..................... $ 7,579 $ (2,218) $ 9,797 $ 1,960
Asset basis differences.............. 277 (7,292) 7,569 (8,428)
Employee compensation and benefits... 5,434 106 5,328 (859)
Environmental reserves............... 5,249 (1,202) 6,451 (267)
Loss and credit carryforwards........ 32,025 17,991 14,034 2,499
Postretirement benefits.............. 20,607 514 20,093 (124)
Other................................ 3,333 1,530 1,803 (4,145)
------- ------- ------- -------
74,504 9,429 65,075 (9,364)
Deferred tax liabilities:
Asset basis differences.............. (39,167) 4,129 (43,296) 1,638
Inventory............................ (6,694) 3,176 (9,870) 1,310
Pensions............................. (19,759) 1,074 (20,833) 20
Other................................ (11,982) 3,694 (15,676) (11,411)
------- ------- ------- -------
(77,602) 12,073 (89,675) (8,443)
------- ------- ------- -------
(3,098) 21,502 (24,600) (17,807)
Less amount related to accounting change -- -- -- 1,287
------- ------- ------- -------
Net deferred tax liability............. $ (3,098) $ 21,502 $(24,600) $(19,094)
======= ======= ======= =======
</TABLE>
The amounts included in the balance
sheet are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Prepaid expenses and other current assets:
Current deferred..................... $ 7,117 $ --
Taxes receivable (payable)........... (1,849) 1,922
------- -------
$ 5,268 $ 1,922
======= =======
Notes receivable and other assets:
Tax receivable....................... $ -- $ 16,982
======= =======
Income taxes (receivable) payable:
Current deferred..................... $ -- $ (4,976)
Taxes payable........................ -- 17,689
------- -------
$ -- $ 12,713
======= =======
Noncurrent income tax liabilities:
Noncurrent deferred.................. $ 10,215 $ 29,576
Other noncurrent..................... 27,789 23,586
------- -------
$ 38,004 $ 53,162
======= =======
</TABLE>
For Fiscal 1993, prior to the change in method of accounting for taxes,
the deferred income tax component of the income tax provision for continuing
operations consists of the effect of timing differences related to:
<PAGE>
<TABLE>
<CAPTION>
(In thousands) 1993
-------
<S> <C>
Pension expense and employee benefits...... $ 9,062
Depreciation............................... (17,549)
Investment earnings (loss)................. (880)
Various reserves and accruals.............. 6,078
Other...................................... 1,753
-------
$ (1,536)
=======
</TABLE>
The 1995 net tax benefit includes the result of reversing $5,000,000 of
federal income taxes previously provided due to a change in the estimate of
required tax accruals.
For tax purposes, the Company had available, at June 30, 1995, net
operating loss ("NOL") carryforwards for regular Federal income tax purposes
of approximately $91,500,000, which will expire as follows: $45,600,000 in
year 2008 and $45,900,000 in year 2010.
Domestic income taxes, less available credits, are provided on the
unremitted income of foreign subsidiaries and affiliated companies, to the
extent that such earnings are intended to be repatriated. No domestic income
taxes or foreign withholding taxes are provided on the undistributed earnings
of foreign subsidiaries and affiliates, which are considered permanently
invested, or which would be offset by allowable foreign tax credits. At June
30, 1995, the amount of domestic taxes payable upon distribution of such
earnings was not significant.
In the opinion of management, adequate provision has been made for all
income taxes and interest, and any liability that may arise for prior periods
will not have a material effect on the financial condition or results of
operations of the Company.
10. MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES
----------------------------------------------
The Company includes $23,804,000 and $23,981,000 of minority interest on
its balance sheet at June 30, 1995 and 1994, respectively, represented by the
Series C Preferred Stock of FII. The Series C Preferred Stock of FII has an
annual dividend requirement of $4.25 per share through July 21, 1999, and
$7.00 per share thereafter. The Company purchased 4,100 and 800 shares of
FII's Series C Preferred Stock in Fiscal 1995 and 1994, respectively. There
were 553,460 and 557,560 shares outstanding at June 30, 1995 and 1994,
respectively. Series C Preferred Stock is listed on the New York Stock
Exchange ("NYSE").
11. REDEEMABLE PREFERRED STOCK OF SUBSIDIARY
----------------------------------------
The Company has classified the outstanding shares of Series A Preferred
Stock of FII as a long-term liability. The Series A Preferred Stock has a
mandatory redemption value of $45.00 per share and an annual dividend
requirement of $3.60 per share. Annual mandatory redemptions of 165,564
shares at $45.00 per share plus any dividend in arrears began in January
1989. FII has the option of redeeming any or all of its shares, at $45.00
per share. Due to the merger of FII in August 1989 with a subsidiary of the
Company, holders of the Series A Preferred Stock are entitled, at their
option, but subject to compliance with certain covenants under FII's Credit
Agreement, to redeem their shares for $27.18 in cash.
The Company purchased 26,900 and 4,000 shares of FII's Series A
Preferred Stock in Fiscal 1995 and 1994, respectively. Effectively, there
were 393,801 and 420,701 shares outstanding at June 30, 1995 and June 30,
1994, respectively. Series A Preferred Stock is listed on the NYSE.
Annual maturity redemption requirements for redeemable preferred stock,
as of June 30, 1995, are as follows: $2,820,000 for 1996, $7,450,000 for
1997, and $7,450,000 for 1998.
12. EQUITY SECURITIES
-----------------
The Company had 13,406,109 shares of Class A common stock and 2,696,886
shares of Class B common stock outstanding at June 30, 1995. Class A common
stock is traded on both the New York and Pacific Stock Exchanges. There is
no public market for the Class B common stock. Shares of Class A common
stock are entitled to one vote per share and cannot presently be exchanged
for shares of Class B common stock. Shares of Class B common stock are
entitled to ten votes per share and can be exchanged, at any time, for shares
of Class A common stock on a share-for-share basis. Shareholders did not
convert any shares of Class B common stock into Class A common stock during
Fiscal 1995.
RHI holds an investment in the Company's Class A common stock of
approximately $44,606,000. The Company accounts for the Class A common stock
held by RHI as Treasury Stock.
13. STOCK OPTIONS, WARRANTS, AND DEFERRED PERFORMANCE INCENTIVE PLAN
----------------------------------------------------------------
The Company has reserved 4,320,000 shares of Class A common stock for
issue to key employees under the Company's 1986 Stock Option Plan. This plan
authorizes the granting of options over a ten-year period at not less than
the market value of the common stock at the time of the grant. The option
price is payable in cash or, with the approval of the stock option committee
of the Board of Directors, in shares of common stock, valued at fair market
value at the time of exercise. The options normally terminate five years
from their date of grant, subject to extension of up to 10 years or for a
stipulated period of time after an employee's death or termination of
employment.
<PAGE>
Stock Options Granted to Directors
----------------------------------
On May 19, 1988, the Board of Directors approved the grant of 180,000
shares of stock options to six outside Directors of the Company at an
exercise price of $6.04 per share. In Fiscal 1990 and 1991, the Company
granted and approved 75,000 and 60,000 options, respectively, to certain
Directors. These stock options expire five years from the date of the grant.
On November 17, 1994, shareholders approved the grant of stock options of
190,000 shares to outside Directors of the Company to replace expired stock
options.
Stock option transactions are summarized below:
<TABLE>
<CAPTION>
(In thousands Shares Shares under option plan
except per share available --------------------------
data) for grant 1986 Other Price
-----------------------------------------
<S> <C> <C> <C> <C>
July 1,1992........ 374 1,643 191 $4.625-11.00
Granted............ (291) 101 190 $4.125-4.25
Canceled........... 537 (387) (150) $5.16-9.125
---------------------------
June 30, 1993...... 620 1,357 231 $4.125-11.00
Granted............ (57) 27 30 $3.50-4.125
Canceled........... 124 (64) (60) $4.25-9.125
---------------------------
June 30, 1994...... 687 1,320 201 $3.50-11.00
Granted............ (332) 332 -- $3.50-3.875
Canceled........... 178 (148) (30) $3.50-11.00
---------------------------
June 30, 1995...... 533 1,474 171 $3.50-9.125
===========================
</TABLE>
Warrants
--------
At June 30, 1995, the Company had outstanding warrants to purchase
375,000 shares of the Company's common stock for $7.67 per share. The
warrants can be used to purchase either Class A or B common stock and will
expire on March 13, 1997.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
Statement of Financial Accounting Standards No. 107, ("SFAS 107")
"Disclosures about Fair Value of Financial Instruments", requires disclosures
of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used,
including discount rate and estimates of future cash flows. In that regard,
the derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS 107 excludes certain financial
instruments and all non-financial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
The carrying amount reported in the balance sheet approximates the fair
value for cash and cash equivalents, short-term borrowings, current
maturities of long-term debt, and all other variable rate debt (including
borrowings under the Credit Agreement).
Fair values for equity securities, long-term public debt issued by the
Company, and publicly issued preferred stock of FII are based on quoted
market prices, where available. For equity securities not actively traded,
fair values are estimated by using quoted market prices of comparable
instruments or, if there are no relevant comparables, on pricing models or
formulas using current assumptions. The fair value of limited partnerships,
other investments, and notes receivable are estimated by discounting expected
future cash flows using a current market rate applicable to the yield,
considering the credit quality and maturity of the investment.
The fair value for the Company's other fixed rate long-term debt is
estimated using discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
Fair values for the Company's off-balance-sheet instruments (letters of
credit, commitments to extend credit, and lease guarantees) are based on fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counter parties' credit standing.
The fair value of the Company's off-balance-sheet instruments at June 30,
1995, is not material.
The carrying amounts and fair values of the Company's financial
instruments at June 30, 1995 and 1994, are as follows:
<PAGE>
<TABLE>
<CAPTION>
June 30, 1995 June 30, 1994
---------------------- ------------------------
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Cash and cash equivalents......... $ 71,182 $ 71,812 $102,368 $102,368
Investment Securities:
Short-term equity securities.... 3,968 3,968 2,969 2,969
Short-term limited partnerships. 12 12 2,899 2,899
Short-term other investments.... 148 182 781 874
Long-term equity securities..... 492 492 2,748 3,147
Long-term limited partnerships.. 346 346 3,396 3,508
Long-term Bidermann investment.. -- -- 9,314 9,314
Notes Receivable:
Current......................... 271 248 1,426 1,362
Long-term....................... 970 940 6,873 7,234
Short-term debt................... 5,489 5,489 3,974 3,974
Long-term debt:
Bank credit agreement........... 126,396 126,396 97,315 97,315
Senior notes and subordinated
debentures.................... 411,279 384,139 425,016 419,404
Industrial revenue bonds........ 1,500 1,500 1,500 1,500
Capitalized leases.............. 1,253 1,253 3,302 3,302
Other........................... 4,787 4,787 6,278 6,278
Minority interest in FII.......... 23,804 20,755 23,981 21,675
Redeemable preferred stock of
subsidiary...................... 16,342 14,571 17,552 15,461
</TABLE>
15. RESTRUCTURING CHARGES
---------------------
In Fiscal 1994 and 1993, the Company recorded the restructuring charges
in the Aerospace Fasteners segment in the categories shown below. Except for
the costs included in the other category (see note (d) below), all costs
classified as restructuring were the direct result of formal plans to close
plants, to terminate employees, or to exit product lines. Substantially all
of these plans have been executed. These charges were either incurred during
the year shown or shortly after each year end. Other than a reduction in the
Company's existing cost structure and manufacturing capacity, none of the
restructuring charges resulted in future increases in earnings or represented
an accrual of future costs. The costs included in restructuring were
predominately non-recurring in nature and to a large degree, non-cash
charges.
<PAGE>
<TABLE>
<CAPTION>
(In thousands)
SIGNIFICANT COMPONENTS 1994 1993
- ---------------------- ------ ------
<S> <C> <C>
Write off of goodwill related to discontinued
products lines................................ $ 6,959 $ --
Write down of inventory to net realizable value
related to discontinued product lines (a)...... 2,634 540
Write down of fixed assets related to
discontinued product lines..................... 3,000 3,465
Severance benefits for terminated employees
(substantially all paid within twelve months).. 471 4,213
Plant closings facility costs (b)............... 851 3,164
Relocation of business from closed plant in
New Jersey to California (c)................... 1,795 1,884
Contract termination claims..................... 128 --
Lease penalty for closed plant.................. -- 388
Other (d)....................................... 3,022 1,815
------ ------
$18,860 $15,469
====== ======
(a) Write down was required because product line was discontinued, otherwise
inventory would have been sold at prices in excess of book value.
(b) Includes lease settlements, write offs of leasehold improvements,
maintenance, restorations and clean up costs.
(c) Principally consists of costs to move equipment, inventory, tooling and
personnel.
(d) Includes costs associated with a requalification of product lines by a
customer, nonrecurring costs of cellularization and reengineering of
manufacturing processes and methods.
</TABLE>
16. UNUSUAL ITEMS
-------------
On January 17, 1994, the Company's Chatsworth, California Aerospace
Fasteners manufacturing facility suffered extensive damage from the Southern
California earthquake. As a result, the Company relocated the Chatsworth
manufacturing operations to its other Southern California facilities. This
disruption caused increased costs and reduced revenues in the Fiscal 1994,
and has negatively affected Fiscal 1995 as well. While the Company carries
insurance for both business interruption and property damage caused by
earthquakes, the policy has a 5% deductible. The Company recorded an unusual
pretax loss of $4,000,000 in Fiscal 1994 to cover the estimated net cost of
the damages and related business interruption caused by the earthquake. In
addition, the Company recorded a write down of $2,000,000 in Fiscal 1994,
relating to this real estate which is now included in net assets held for
sale.
<PAGE>
17. RELATED PARTY TRANSACTIONS
--------------------------
Corporate office administrative expense recorded by FII was billed to
the Company on a monthly basis during 1995, 1994 and 1993. These costs
represent the cost of services incurred on behalf of affiliated companies.
Each of these affiliated companies has reimbursed FII for such services.
The Company and its subsidiaries are all parties to a tax sharing
agreement whereby the Company files a consolidated federal income tax return
and the subsidiaries make payments to the Company based on the amount of
federal income taxes, if any, the subsidiary would have paid if it had filed
a separate tax return.
The Aerospace Fasteners segment had sales to Banner Aerospace, Inc. a
47.2% affiliate of RHI, of $5,494,000, $5,680,000 and $8,750,000 in Fiscal
1995, 1994 and 1993, respectively.
18. COMMITMENTS AND CONTINGENCIES
-----------------------------
Leases
------
The Company leases certain of its facilities and equipment under capital
and operating leases. The following is an analysis of the assets under
capital leases included in property, plant and equipment:
<TABLE>
<CAPTION>
(In thousands)
June 30,
Description 1995
----------- --------
<S> <C>
Buildings and improvements......... $ 422
Machinery and equipment............ 12,688
Furniture and fixtures............. 297
Less: Accumulated depreciation.... (7,167)
-------
$ 6,240
=======
</TABLE>
<PAGE>
Future minimum lease payments:
<TABLE>
<CAPTION>
Operating Capital
(In thousands) Leases Leases
------ ------
<S> <C> <C>
1996.............................. $ 8,508 $ 1,109
1997.............................. 7,516 244
1998.............................. 7,428 8
1999.............................. 6,812 --
2000.............................. 7,284 --
------ ------
$37,548 1,361
======
Less: Amount representing interest............... (108)
------
Present value of capital lease obligations........ $ 1,253
======
</TABLE>
Rental expense on operating leases for the years ended June 30, 1995,
1994, and 1993 was $10,811,000, $7,193,000 and $9,575,000, respectively.
In connection with the sale of Metro Credit Corporation, the Company
remained contingently liable as a guarantor of the payment and performance of
obligations of third party lessees under aircraft leases, which call for
aggregate annual base lease payments of approximately $3,094,000 in 1996, and
approximately $7,942,000 over the remaining 4-year guaranty period. In each
case, the Company has been indemnified by the purchasers and lessors from any
losses related to such guaranties.
CL Motor ("CL") Freight Litigation
- ----------------------------------
The Workers Compensation Bureau of the State of Ohio is seeking
reimbursement from the Company for up to $5,400,000 for CL workers
compensation claims which were insured under a self-insured program of CL.
The Company has contested a significant portion of this claim.
Government Claims
- -----------------
The Corporate Administrative Contracting Officer (the "ACO"), based upon
the advice of the United States Defense Contract Audit Agency, has made a
determination that FII did not comply with Federal Acquisition Regulations
and Cost Accounting Standards in accounting for (i) the 1985 reversion to FII
of certain assets of terminated defined benefit pension plans, and (ii)
pension costs upon the closing of segments of FII's business. The ACO has
directed FII to prepare cost impact proposals relating to such plan
terminations and segment closings and, following receipt of such cost impact
proposals, may seek adjustments to contract prices. The ACO alleges that
substantial amounts will be due if such adjustments are made. The Company
believes it has properly accounted for the asset reversions in accordance
with applicable accounting standards. The Company had discussions with the
government to attempt to resolve these pension accounting issues.
Civil Litigation
- ----------------
Maurice Bidermann Litigation
----------------------------
The Company obtained a judgment in the United States District for the
Southern District of New York, for $12,947,000, plus interest, against
Maurice Bidermann ("Bidermann") for breach of an agreement under which
Bidermann was to have acquired the Company's interest in Bidermann Industries
USA, Inc. ("BIUSA"), for approximately $22,500,000, of which Bidermann paid
$10,000,000, and then defaulted. In June 1995, the Company settled this
claim for approximately $12,000,000, in addition to the $10,000,000
previously collected, and transferred its interest in BIUSA to third parties.
Environmental Matters
- ---------------------
The Company and other aerospace fastener and industrial product
manufacturers are subject to stringent Federal, state and local environmental
laws and regulations concerning, among other things, the discharge of
materials into the environment and the generation, handling, storage,
transportation and disposal of waste and hazardous materials. To date, such
laws and regulations have not had a material effect on the financial
condition of the Company, although the Company has expended, and can be
expected to expend in the future, significant amounts for investigation of
environmental conditions and installation of environmental control
facilities, remediation of environmental conditions and other similar
matters, particularly in the Aerospace Fasteners segment.
In connection with its plans to dispose of certain real estate, the
Company must investigate environmental conditions and may be required to take
certain corrective action prior or pursuant to any such disposition. In
addition, management has identified several areas of potential contamination
at or from other facilities owned, or previously owned, by the Company, that
may require the Company either to take corrective action or to contribute to
a clean-up. The Company is also a defendant in certain lawsuits and
proceedings seeking to require the Company to pay for investigation or
remediation of environmental matters and has been alleged to be a potentially
responsible party at various "Superfund" sites, Management of the Company
believes that it has recorded adequate reserves in its financial statements
to complete such investigation and take any necessary corrective actions or
make any necessary contributions. No amounts have been recorded as due from
third parties, including insurers, or set off against, any liability of the
Company, unless such parties are contractually obligated to contribute and
are not disputing such liability.
As of June 30, 1995, the consolidated total recorded liabilities of the
Company for environmental matters totalled $14,087,000. As of June 30, 1995,
the estimated probable exposures for these matters was $13,918,000. It is
reasonably possible the Company's total exposure for these matters could be
approximately $22,870,000.
Other Matters
- -------------
The Company is involved in various other claims and lawsuits incidental
to its business, some of which involve substantial amounts. The Company,
either on its own or through its insurance carriers, is contesting these
matters.
In the opinion of management, the ultimate resolution of the legal
proceedings, including those discussed above, will not have a material
adverse effect on the financial condition or the future operating results of
the Company.
19. BUSINESS SEGMENT INFORMATION
----------------------------
The Company's operations are conducted in three principal business
segments. The Aerospace Fasteners segment includes the manufacture of high
performance specialty fasteners and fastening systems. The Industrial
Products segment is engaged in (i) the manufacture of tooling and injection
control systems for the plastic injection molding and die casting industries,
(ii) the supply of modems for use in high speed digitized voice and data
communications, and (iii) the designing and manufacturing of wet processing
tools, equipment and systems. The Communications Services segment provides
telecommunication services to office buildings and sells, installs and
maintains telecommunications systems for business and government customers.
Intersegment sales are insignificant to the sales of any segment.
Identifiable assets represent assets that are used in the Company's
operations in each segment at year end. Corporate assets are principally in
cash, marketable securities, prepaid pension costs, assets held for sale, and
property maintained for general corporate purposes.
The Company's financial data by business segment is as follows:
<PAGE>
<TABLE>
<CAPTION>
(In thousands)
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Sales by Business Segment:
Aerospace Fasteners.............. $ 219,129 $ 203,456 $ 247,080
Industrial Products (b).......... 218,484 166,499 148,449
Communications Services.......... 108,710 74,190 68,038
--------- --------- ---------
Total Segment Sales................ $ 546,323 $ 444,145 $ 463,567
========= ========= =========
Operating Income (Loss) by Segment:
Aerospace Fasteners (a).......... $ (14,073) $ (32,208) $ (15,398)
Industrial Products (b).......... 21,112 21,024 19,081
Communications Services.......... 18,498 16,483 14,688
--------- --------- ---------
Total Segment Operating Income..... 25,537 5,299 18,371
Corporate Administrative Expense. (13,179) (16,868) (19,506)
Other Corporate Income (expense). (2,152) 2,231 5,309
--------- --------- ---------
Total Consolidated Operating
Income (Loss).................... $ 10,206 $ (9,338) $ 4,174
========= ========= =========
Capital Expenditures:
Aerospace Fasteners.............. $ 4,974 $ 4,320 $ 5,711
Industrial Products.............. 4,931 3,997 4,002
Communications Services.......... 10,349 7,775 5,792
Corporate and Other.............. 446 187 91
--------- --------- ---------
Total Capital Expenditures......... $ 20,700 $ 16,279 $ 15,596
========= ========= =========
Depreciation and Amortization:
Aerospace Fasteners.............. $ 15,619 $ 14,373 $ 14,280
Industrial Products.............. 7,394 6,765 6,154
Communications Services.......... 10,329 8,948 7,936
Corporate and Other.............. 4,828 6,141 5,585
--------- --------- ---------
Total Depreciation and Amortization $ 38,170 $ 36,227 $ 33,955
========= ========= =========
Identifiable Assets at June 30,:
Aerospace Fasteners.............. $ 290,465 $ 306,008 $ 337,185
Industrial Products.............. 189,798 164,632 146,754
Communications Services.......... 108,666 79,087 78,752
Corporate and Other.............. 292,953 363,802 398,191
--------- --------- ---------
Total Identifiable Assets.......... $ 881,882 $ 913,529 $ 960,882
========= ========= =========
(a) - Includes charges to reflect the cost of restructuring of $18,860,000
and $15,469,000 in Fiscal 1994 and 1993, respectively, and an unusual loss
from earthquake damage and business interruption of $4,000,000 in Fiscal
1994.
(b) - Included in Fiscal 1995 and 1994 are the results of Fairchild Data
Corporation. Sales from this division, formerly included in net assets held
for sale, and not included in the results of operations, were $15,432,000 for
Fiscal 1993. The impact of this division's earnings on the Fiscal 1993
period was immaterial.
</TABLE>
<PAGE>
20. FOREIGN OPERATIONS AND EXPORT SALES
-----------------------------------
The Company's operations are located primarily in the United States and
Europe. Inter-area sales are not significant to the total sales of any
geographic area. The Company's financial data by geographic area is as
follows:
<TABLE>
<CAPTION>
(In thousands)
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Sales by Geographic Area:
United States.................... $ 413,362 $ 358,614 $ 369,343
Europe........................... 122,182 76,366 85,479
Other............................ 10,779 9,165 8,745
--------- --------- ---------
Total Sales........................ $ 546,323 $ 444,145 $ 463,567
========= ========= =========
Operating Income by Geographic Area:
United States.................... $ 9,285 $ (1,011) $ 15,390
Europe........................... (384) 5,847 2,034
Other............................ 1,305 463 947
--------- --------- ---------
Total Segment Operating Income..... $ 10,206 $ 5,299 $ 18,371
========= ========= =========
Identifiable Assets by Geographic
Area at June 30,:
United States.................... $ 479,086 $ 458,621 $ 479,751
Europe........................... 110,768 86,545 78,176
Other............................ 9,465 4,561 4,764
Corporate and other assets....... 282,563 363,802 398,191
--------- --------- ---------
Total Identifiable Assets.......... $ 881,882 $ 913,529 $ 960,882
========= ========= =========
</TABLE>
Export sales are defined as sales to customers in foreign countries by
the Company's domestic operations. Export sales amounted to the following:
<TABLE>
<CAPTION>
(In thousands)
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Export Sales
Europe........................... $ 16,547 $ 12,692 $ 15,297
Other............................ 18,469 16,593 13,546
--------- --------- ---------
Total Export Sales................. $ 35,016 $ 29,285 $ 28,843
========= ========= =========
</TABLE>
21. QUARTERLY FINANCIAL DATA (UNAUDITED)
------------------------------------
The following table of quarterly financial data has been prepared from
the financial records of the Company without audit, and reflects all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results of operations for the interim periods presented:
<TABLE>
<CAPTION>
(In thousands, except per share data)
- ----------------------------------------------------------------------------------------------
Fiscal 1995 quarters ended Oct. 2 Jan. 1 April 2 June 30
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales.......................... $121,393 $125,929 $150,755 $148,246
Gross profit....................... 32,253 28,397 35,734 30,649
Loss from continuing operations.... (6,660) (10,665) (10,757) (5,838)
per share...................... (0.42) (0.67) (0.67) (0.36)
Loss from disposal of discontinued
operations, net.................. (25) (25) (184) (25)
per share...................... (0.00) (0.00) (0.01) (0.00)
Extraordinary items, net........... -- (23) 378 --
per share...................... -- (0.00) 0.02 --
Net loss........................... (6,685) (10,713) (10,563) (5,863)
per share...................... (0.42) (0.67) (0.66) (0.36)
Market price range of Class A Stock
High............................. 4 1/8 4 1/8 3 3/4 3 3/8
Low.............................. 3 1/8 2 5/8 2 3/8 2
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Fiscal 1994 quarters ended Oct. 3 Jan. 2 April 3 June 30
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales.......................... $110,491 $108,830 $112,836 $111,988
Gross profit....................... 22,962 25,875 27,138 30,289
Earnings (loss) from continuing
operations....................... (11,151) 70,467 (11,195) (20,338)
per share...................... (0.69) 4.37 (0.69) (1.26)
Loss from disposal of discontinued
operations, net.................. (29) (29) (259) (51)
per share...................... (0.00) (0.00) (0.02) (0.01)
Extraordinary items, net........... -- -- (147) (496)
per share...................... -- -- (0.01) (0.03)
Cumulative effects of changes in
accounting principles, net....... (10,950) -- -- --
per share...................... (0.68) -- -- --
Net earnings (loss)................ (22,130) 70,438 (11,601) (20,885)
per share...................... (1.37) 4.37 (0.72) (1.30)
Market price range of Class A Stock
High............................. 4 1/8 4 1/8 4 7/8 4 5/8
Low.............................. 3 2 3/4 3 7/8 3 1/2
</TABLE>
Earnings (loss) from continuing operations in the fourth quarter of
Fiscal 1995, includes adjustments to inventories and receivables of the
Company's Aerospace Fasteners Segment, to reflect required valuation
allowances against these assets. Charges to reflect the cost of
restructuring the Company's Aerospace Fasteners Segment, of $9,903,000 and
$8,957,000 in the second and fourth quarters of Fiscal 1994, respectively,
are included in earnings (loss) from continuing operations. The Company
recorded an unusual loss in the third and fourth quarter of Fiscal 1994, of
$3,200,000 and $3,493,000, respectively, to cover the estimated net cost of
the damages and related business interruption caused by an earthquake and the
related write down of real estate and other assets.
The second quarter of Fiscal 1994 includes non-recurring income of
$129,094,000, net pre-tax, from the gain on the sale of the Company's 43.9%
stock interest in Rexnord.
Extraordinary items relate to the early extinguishment of debt by the
Company. (See Note 4).
The Fiscal 1994 first and second quarter data presented vary from the
amounts previously reported in each of their respective Form 10-Q filings due
to the Company's decision not to sell a division which was included in net
assets held for sale, and not included in the results of operations. Sales
from the division were $4,141,000 and $3,438,000 in the first and second
quarters, respectively, of Fiscal 1994. Earnings from the division had no
material effect during these periods.
<PAGE>
Report of Independent Public Accountants
----------------------------------------
To The Fairchild Corporation:
We have audited the accompanying consolidated balance sheets of The Fairchild
Corporation (a Delaware corporation) and subsidiaries as of June 30, 1995 and
1994, and the related consolidated statements of earnings, stockholders'
equity and cash flows for the years ended June 30, 1995, 1994 and 1993.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Fairchild Corporation
and subsidiaries as of June 30, 1995 and 1994, and the results of their
operations and their cash flows for the years ended June 30, 1995, 1994 and
1993, in conformity with generally accepted accounting principles.
As discussed in Notes 8 and 9 to the consolidated financial statements,
effective July 1, 1993, the Company changed its methods of accounting for
postretirement benefits other than pensions, and income taxes.
Arthur Andersen LLP
Washington, D.C.
September 15, 1995
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
- -------------------------------------------------------------
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
- ---------------------------------------------------------
The information required by this Item is incorporated herein by
reference from the 1995 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
The information required by this Item is incorporated herein by
reference from the 1995 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The information required by this Item is incorporated herein by
reference from the 1995 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information required by this Item is incorporated herein by
reference from the 1995 Proxy Statement.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
The following documents are filed as part of this Report:
(a)(1) Financial Statements.
All financial statements of the registrant as set forth under Item 8 of
this report on Form 10-K (see index on Page 30).
(a)(2) Financial Statement Schedules and Report of Independent Public
Accountants.
Schedule Number Description Page Number
--------------- ----------- -----------
II Valuation and Qualifying Accounts 85
All other schedules are omitted because they are not required.
<PAGE>
Report of Independent Public Accountants
----------------------------------------
To The Fairchild Corporation:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of The Fairchild Corporation and
subsidiaries included in this Form 10-K and have issued our report thereon
dated September 15, 1995. Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule
listed in the index on the preceeding page is the responsibility of the
Company's management and is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in
our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
60
Arthur Andersen LLP
Washington, D.C.
September 15, 1995
<PAGE>
(a)(3) Exhibits.
3 (a) Registrant's Restated Certificate of Incorporation
(incorporated by reference to Exhibit "C" of Registrant's
Proxy Statement dated October 27, 1989).
(b) Registrant's Amended and Restated By-Laws (incorporated by
reference from Registrant's Annual Report on Form 10-K for fiscal
year ended June 30, 1990 (the "1990 10-K")).
4 (a) Specimen of Class A Common Stock certificate (incorporated by
reference to Registration Statement No. 33-15359 on Form S-2).
(b) Specimen of Class B Common Stock certificate (incorporated by
reference from Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1989 (the "1989 10-K")).
(c) Form of Indenture between Registrant and J. Henry Schroder Bank
& Trust Company, pursuant to which Registrant's 13-1/8%
Subordinated Debentures due 2006 (the "Senior Debentures") were
issued (the "Debenture Indenture"), and specimen of Senior
Debenture (incorporated by reference to Registration Statement
No. 33-3521 on Form S-2).
(d) First Supplemental Indenture dated as of November 26, 1986, to
the Debenture Indenture (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1986 (the "December 1986 10-Q").
(e) Form of Indenture between Registrant and Manufacturers Hanover
Trust Company pursuant to which Registrant's 12-1/4% Senior
Subordinated Notes due 1996 (the "Senior Notes") were issued (the
"Note Indenture"), and specimen of Senior Note (incorporated by
reference to Registration Statement No. 33-03521 on Form S-2).
(f) First Supplemental Indenture dated as of November 26, 1986, to
the Note Indenture (incorporated by reference to the December
1986 10-Q).
(g) Indenture between Registrant and Connecticut National Bank (as
successor to National Westminster Bank) dated as of October 15,
1986, pursuant to which Registrant's Intermediate Subordinated
Debentures due 2001 (the "Intermediate Debentures") were issued,
and specimen of Intermediate Debenture (incorporated by reference
to Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1986 (the "September 1986 10-Q")).
(h) Indenture between Rexnord Acquisition Corp. ("RAC") and Bank of
New York (as successor to Irving Trust Company) dated as of March
2, 1987, pursuant to which RAC's Senior Subordinated Debentures
due 1999 (the "Rexnord Senior Debentures") were issued (the
"Rexnord Senior Indenture"), and specimen of Rexnord Senior
Debenture incorporated by reference from Registrants Annual
Report on Form 10-K for fiscal year ended June 30, 1987 (the
"1987 10-K").
(i) First Supplemental Indenture between Rexnord Inc. ("Rexnord")
(as successor to RAC) and Irving Trust Company dated as of July
1, 1987, to the Rexnord Senior Indenture (incorporated by
reference to Registration Statement No. 33-15359 on Form S-2).
(j) Second Supplemental Indenture between Rexnord Holdings Inc., now
know as RHI Holdings, Inc. ("RHI") (as successor to Rexnord) and
Irving Trust Company dated as of August 16, 1988, to the Rexnord
Senior Indenture (incorporated by reference to Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30,
1988 (the "1988 10-K")).
(k) Indenture between Registrant and Norwest Bank Minneapolis, N.A.
dated as of March 2, 1987, pursuant to which Registrant's Junior
Subordinated Debentures due 2007 (the "Junior Debentures") were
issued, and specimen of Junior Debenture (incorporated by
reference to Final Amendment to Tender Offer Statement on
Schedule 14D-1 of Banner Acquisition Corp. ("BAC") dated March 9,
1987).
(l) First Supplemental Indenture between Registrant and Norwest
Bank, Minnesota Bank, N.A., dated as of February 28, 1991, to
Indenture dated as of March 2, 1987, relating to the Junior
Debentures (incorporated by reference to the 1991 10-K).
(m) Securities Purchase Agreement dated as of October 15, 1986, by
and among Registrant and each of the Purchasers of the
Intermediate Debentures (incorporated by reference to the
September 1986 10-Q).
(n) Securities Purchase Agreement dated as of March 2, 1987, by and
among Registrant, RAC and each of the Purchasers of the Junior
Debentures, the Rexnord Senior Debentures and other securities
(incorporated by reference to the 1987 10-K).
(o) Registration Rights Agreement dated as of October 15, 1986, by
and among Registrant and each of the purchasers of the
Intermediate Debentures (incorporated by reference to the
September 1986 10-Q).
(p) Registration Rights Agreement dated as of March 2, 1987, by and
among Registrant, RAC and each of the purchasers of the Junior
Debentures, the Rexnord Senior Debentures and other securities
(incorporated by reference to Registrant's Report on Form 8-K
dated March 17, 1987).
(q) Indenture between Rexnord and First Wisconsin Trust Company
dated as of June 1, 1983 (the "Rexnord Indenture"), First
Supplemental Indenture between Rexnord and First Wisconsin Trust
Company dated as of October 1, 1984 to the Rexnord Indenture,
pursuant to which Rexnord's Debentures due 1995 (the "Rexnord
Debentures") were issued, and specimen of Rexnord Debenture
(incorporated by reference to Form 8-A of Rexnord, dated October
3, 1984).
(r) Second Supplemental Indenture among Rexnord, RHI and First
Wisconsin Trust Company dated as of August 16, 1988, to the
Rexnord Indenture (incorporated by reference to the 1988 10-K).
(s) Indenture dated as of November 1, 1982, between Fairchild
Industries, Inc. ("Fairchild") and Continental Illinois National
Bank and Trust Company of Chicago, pursuant to which certain debt
securities of Fairchild were issued (incorporated by reference to
Registration Statement No. 2-80009 on Form S-3).
(t) Indenture dated as of January 1, 1978 between Fairchild and
Bankers Trust Company, pursuant to which Fairchild's 9-3/4%
Subordinated Debentures due April 1, 1988 were issued
(incorporated by reference to Registration Statement No.
2-60451 on Form S-7).
(u) Indenture dated as of March 1, 1991, between Registrant and
Sovran Bank, N.A., pursuant to which the Registrant's 14% Senior
Secured Notes were issued (incorporated by reference to the
1991 10-K).
(v) Indenture date as of August 1, 1992, between Fairchild and
NationsBank, N.A. pursuant to which Fairchild's 12 1/4% Senior
Secured Notes were issued (incorporated by reference to the
1992 10-K).
10 (a) Restated and Amended Credit Agreement dated as of July 27, 1992
(incorporated by reference to the 1992 10-K).
(a)(i) Amendment No. 1, dated as of June 30, 1993, to the Restated
and Amended Credit Agreement dated as of July 27, 1992
(incorporated by reference to the 1993 10-K).
(a)(ii) Amendment No. 2, dated as of October 1, 1993, to Restated and
Amended Credit Agreement dated as of July 27, 1992 (incorporated
by reference to the 1994 10-K).
(a)(iii) Amendment No. 3, dated as of December 23, 1993, to Restated and
Amended Credit Agreement dated as of July 27, 1992 (incorporated
by reference to the 1994 10-K).
(a)(iv) Amendment No. 4, dated as of March 31, 1994, to Restated and
Amended Credit Agreement dated as of July 27, 1992 (incorporated
by reference to the 1994 10-K).
*(a)(v) Amendment No. 5, dated as of July 29, 1994, to Restated and
Amended Credit Agreement dated as of July 27, 1992.
*(a)(vi) Amendment No. 6, dated as of October 15, 1994, to Restated and
Amended Credit Agreement dated as of July 27, 1992.
*(a)(vii) Amendment No. 7, dated as of January 18, 1995, to Restated and
Amended Credit Agreement dated as of July 27, 1992.
*(a)(viii)Amendment No. 8, dated as of February 15, 1995, to Restated and
Amended Credit Agreement dated as of July 27, 1992.
*(a)(ix) Amendment No. 9, dated as of May 25, 1995, to Restated and
Amended Credit Agreement dated as of July 27, 1992.
*(a)(x) Amendment No. 10, dated as of June 30, 1995, to Restated and
Amended Credit Agreement dated as of July 27, 1992.
(b) Securities Purchase Agreement dated as of August 15, 1988, by
and among Registrant, Rex-PT, Inc. ("Rex-PT"), Rex-PT Holdings
Inc. ("Rex-PT Holdings") and certain Purchasers, including (i) as
Exhibit 2, Debt Registration Rights Agreement dated as of August
15, 1988, by and among Rex-PT and certain Purchasers, (ii) as
Exhibit 3, Common Stock Registration Rights Agreement dated as of
August 16, 1988, by and among Rex-PT Holdings and certain
Purchasers, and (iii) as Exhibit 4, Stockholders' Agreement dated
as of August 16, 1988, by and among Registrant, Rex-PT Holdings,
RHI and certain holders of Rex-PT Holdings common stock
(incorporated by reference to the August 16, 1988 8-K).
(c) Form of Securities Purchase Agreement among Rex-PT Holdings,
Rex-PT, Registrant and Rex-PT Investors Inc. ("Rex-PT
Investors") (incorporated by reference to Registrant's Current
Report on Form 8-K dated September 29, 1988 (the "September 29,
1988 8-K")).
(d) Form of Agreement of Merger between Rex-PT Holdings and Rex-PT
Investors (incorporated by reference to the September 29, 1988
8-K).
(e) Form of Securities Purchase Agreement among Rex-PT Investors,
Rex-PT Holdings, Rex-PT, Registrant and certain purchasers
(incorporated by reference to the September 29, 1988 8-K).
(f) Form of Stockholders' Agreement among Rex-PT Holdings,
Registrant, RHI and Rex-PT Investors (incorporated
by reference to the September 29, 1988 8-K).
(g) Form of Voting Trust Agreement among certain holders of Rex-PT
Holdings common stock (incorporated by reference to the September
29, 1988 8-K).
(h) Form of Amended and Restated Common Stock Registration Rights
Agreement among Rex-PT Holdings and certain purchasers
(incorporated by reference to the September 29, 1988 8-K).
(i) Form of Common Stock Registration Rights Agreement between
Rex-PT Holdings and Rex-PT Investors (incorporated by reference
to the September 29, 1988 8-K).
(j) Form of Common Stock Registration Rights Agreement between
Rex-PT Holdings and RHI (incorporated by reference to the
September 29, 1988 8-K).
(k) Form of Registration Rights Agreement among Rex-PT Holdings,
RHI and Rex-PT Investors (incorporated by reference to the
September 29, 1988 8-K).
(l) Form of Registration Rights Agreement among Rex-PT Holdings,
RHI and certain purchasers (incorporated by reference to the
September 29, 1988 8-K).
(m) Form of Amended and Restated Stockholders' Agreement among
Rex-PT Holdings, Registrant, RHI and certain investors
(incorporated by reference to the 1988 10-K).
(n) Share Purchase Agreement dated October 4, 1988, by and between
RHI, Registrant, ChemRex Inc. and SKY Alloys, Inc., ABM
Investments Ltd., SKW Bauchemie GmbH and SKW Trostberg AG
(incorporated by reference to Registrant's Current Report on Form
8-K dated November 15, 1988 (the "November 15, 1988 8-K)).
(o) Asset Purchase Agreement dated November 15, 1988, by and among
RHI, ChemRex Inc. and J.W. Brett, Inc. (incorporated by reference
to the November 15, 1988 8-K).
(p) Asset Purchase Agreement dated as of December 16, 1988, between
RHI and Ilium Industries, Inc. (the "Ilium Agreement"); Amendment
to the Ilium Agreement dated as of February 21, 1989; and Second
Amendment to the Ilium Agreement dated as of March 15, 1989)
(incorporated by reference to Registrant's Current Report on Form
8-K dated March 17, 1989).
(q) Agreement and Plan of Merger dated as of May 7, 1989, among
Registrant, Specialty Fastener Holdings, Inc. and Fairchild, and
Amendment thereto dated May 12, 1989 (incorporated by reference
to Registrant's Current Report on Form 8-K dated June 19, 1989).
(r) Assets Purchase Agreement dated May 31, 1989, among Matra S.A.,
AERO Acquisition Corp., Registrant and Fairchild Acquisition
Corp. ("FAC") (incorporated by reference to Exhibit (a)(10) to
Amendment No. 2 to Tender Offer Statement on Schedule 14D-1 and
Schedule 13D of Registrant and FAC, dated May 31, 1989).
(s) Share Purchase Agreement dated as of October 31, 1990, among
Registrant, Banner Investments, Inc., North West Water Inc. and
North West Water Group PLC (the "Envirex Agreement")
(incorporated by reference to Form 8-K dated November 30, 1990).
(t) Amendments 1 - 6 to the Envirex Agreement (incorporated by
reference to 1991 10-K).
(u) Stock Purchase Agreement dated as of November 13, 1990, by and
between Registrant, Thompson Holding Company, Inc., Thompson
Aircraft Tire Corporation, a Delaware corporation, Thompson
Aircraft Tire Corporation, a Florida corporation and Bridgestone
Corporation (incorporated by reference to Form 8-K dated January
18, 1991).
(v) Option Sale Agreement dated December 26, 1990 by and between
RHI and Zaria, Inc. (incorporated by reference to 1991 10-K).
(w) Stock Purchase Agreement dated as of June 28, 1991 by and
between Sovereign Air Limited and S.A. Holdings, Inc.
(incorporated by reference to 1991 10-K).
(x) Agreement dated as of June 28, 1991 between Banner
Investments, Inc. and RHI (incorporated by reference to 1991
10-K).
(y) Agreement dated November 8, 1990, by and among Registrant and
Columbia Savings and Loan (incorporated by reference to 1991
10-K).
(z) Escrow and Amendment to Purchase Agreement as entered on
January 24, 1991 among Registrant, Columbia Savings and Loan and
Citibank, N.A. (incorporated by reference to 1991 10-K).
(a)(a) Stock Purchase Agreement dated as of February 7, 1992 among
Registrant, Thompson Aircraft Tire Corporation and Aero Tires
& Brakes, Inc. (incorporated by reference to 1993 10-K).
(a)(b) Exchange and Standstill Agreement dated June 19, 1992 by and
among Registrant, RHI and Rex-PT Holdings, Inc. (incorporated by
reference to 1992 10-K).
(a)(c) Registration Rights Agreement dated July 9, 1992 between
Rexnord Corporation and RHI (incorporated by reference 1993
10-K).
(a)(d) Allocation Agreement dated April 13, 1992 by and among The
Fairchild Corporation, RHI, Rex-PT Holdings, Rexnord
Corporation, Rexnord Puerto Rico, Inc. and Rexnord Canada
Limited (incorporated by reference to 1992 10-K).
(a)(e) Trademark Purchase Agreement dated April 13, 1992 by and
between Rexnord Corporation and RHI (incorporated by reference to
1992 10-K).
(a)(f) Deferred Compensation Agreement between Registrant and Samuel J.
Krasney dated July 14, 1972, as amended November 17, 1978,
September 3, 1985 (the "Krasney Deferred Compensation Agreement")
(incorporated by reference to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1985).
(a)(g) Amendment to the Krasney Deferred Compensation Agreement dated
September 6, 1990 (incorporated by reference to 1991 10-K).
(a)(h) Incentive Compensation Bonus Arrangement (description
incorporated by reference to Registrant's Proxy Statement dated
October 26, 1988).
(a)(i) Amended and Restated Employment Agreement between Registrant
and Samuel J. Krasney dated April 24, 1990 (incorporated by
reference to the 1990 10-K).
(a)(j) Letter Agreements dated August 4, 1993 among Samuel J. Krasney,
The Fairchild Corporation and Jeffrey J. Steiner (incorporated
by reference to 1993 10-K).
(a)(k) Amendment to the Krasney Option dated October 18, 1985
(incorporated by reference to the 1989 10-K).
(a)(l) Second Amendment to the Krasney Option dated April 30, 1986
(incorporated by reference to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1986).
(a)(m) Amended and Restated 1986 Deferred Performance Incentive Plan
of Banner Industries, Inc. (the "Deferred Incentive Plan")
(incorporated by reference to the 1988 10-K).
(a)(n) 1988 U.K. Stock Option Plan of Banner Industries, Inc.
(incorporated by reference to the 1988 10-K).
(a)(o) Description of grants of stock options to non-employee
directors of Registrant (incorporated by reference to the 1988
10-K).
(a)(p) Amended and Restated Employment Agreement between Registrant
and Jeffrey J. Steiner dated September 10, 1992 (incorporated
by reference to 1993 10-K).
(a)(q) Agreement dated as of November 8, 1988 between Samuel J.
Krasney and Registrant, and Amendment No. 1 thereto dated as of
January 23, 1989, regarding exercise of performance incentive
units granted under the Deferred Incentive Plan (incorporated by
reference to the 1989 10-K).
(a)(r) Agreement dated as of November 8, 1988 between Jeffrey J.
Steiner and Registrant, and Amendment No. 1 thereto dated as of
January 23, 1989, regarding exercise of performance incentive
units granted under the Deferred Incentive Plan (incorporated by
reference to the 1989 10-K).
(a)(s) Letter Agreement dated October 23, 1991 between Registrant and
Eric I. Steiner (incorporated by reference to 1992 10-K).
(a)(t) Letter Agreement dated October 23, 1991 between Registrant and
John D. Jackson (incorporated by reference to 1992 10-K).
(a)(u) Letter Agreement dated October 23, 1991 between Registrant and
Michael T. Alcox (incorporated by reference to 1992 10-K).
(a)(v) Letter Agreement dated October 23, 1991 between Registrant and
Donald E. Miller (incorporated by reference to 1992 10-K).
(a)(w) Letter Agreement dated October 23, 1991 between Registrant and
John L. Flynn (incorporated by reference to 1992 10-K).
(a)(x) Letter Agreement dated April 8, 1993 between Registrant and
Thomas Flaherty (incorporated by reference to 1993 10-K).
(a)(y) Purchase Agreement by and between BTR Dunlop Holdings, Inc.,
RHI Holdings, Inc., and Registrant, dated as of December 2,
1993 (incorporated by reference to Registrant's current
report on Form 8-K dated December 23, 1993.
*(a)(z) Letter Agreement dated October 21, 1994, as amended December
21, 1994, between Registrant and Eric I. Steiner.
*(b)(a) Letter Agreement dated October 21, 1994, as amended December
21, 1994, between Registrant and Michael T. Alcox.
*(b)(b) Letter Agreement dated October 21, 1994, as amended December
21, 1994, between Registrant and Donald E. Miller.
*(b)(c) Letter Agreement dated October 21, 1994, as amended December
21, 1994, between Registrant and John L Flynn.
*(b)(d) Letter Agreement dated October 21, 1994, as amended December
21, 1994, between Registrant and Jerry Lirette.
*(b)(e) Letter Agreement dated October 21, 1994, as amended December
21, 1994, between Registrant and Mel D. Borer.
*(b)(f) Letter Agreement dated October 21, 1994, as amended December
21, 1994, between Registrant and Thomas J. Flaherty.
11 Computation of earnings per share (found at Note to
Registrant's Consolidated Financial Statements for the fiscal
year ended June 30, 1994).
*22 List of significant subsidiaries of Registrant.
*23 Consent of Arthur Andersen LLP, independent public
accountants.
28 Financial statements, related notes thereto and Auditors'
Report of Banner Aerospace, Inc. for the fiscal year ended March
31, 1995 (incorporated by reference to the Banner Aerospace,
Inc. Form 10-K for fiscal year ended March 31, 1994).
99(a) Registrant's press release, dated December 23, 1993
(incorporated by reference to Registrants Form 8-K dated
December 23, 1993).
*Filed herewith.
(b) Reports on Form 8-K
Registrant filed no reports on Form 8-K during the last quarter of
Fiscal 1995.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE FAIRCHILD CORPORATION
By: Michael T. Alcox
-------------------------
Senior Vice President and
Chief Financial Officer
By: Christopher Colavito
-------------------------
Vice President and
Controller
Date: September 26, 1995
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant, in their capacities and on the dates indicated.
Name, Title, Capacity Date
--------------------- ----
Jeffrey J. Steiner
------------------------------- September 26, 1995
Chairman, Chief Executive
Officer, President and Director
Samuel J. Krasney
------------------------------- September 26, 1995
Vice Chairman and Director
Michael T. Alcox
------------------------------- September 26, 1995
Senior Vice President, Chief
Financial Officer and Director
Philip David
------------------------------- September 26, 1995
Director
Christopher Colavito
------------------------------- September 26, 1995
Vice President and Controller
Harold J. Harris
------------------------------- September 26, 1995
Director
Herbert S. Richey
------------------------------- September 26, 1995
Director
Frederick W. McCarthy
------------------------------- September 26, 1995
Director
Eric I. Steiner
-------------------------------- September 26, 1995
Senior Vice President and
Director
Mortimer M. Caplin
------------------------------- September 26, 1995
Director
Thomas J. Flaherty
------------------------------- September 26, 1995
Chief Operating Officer and
Director
Robert A. Sharpe, II
------------------------------- September 26, 1995
Director
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- -----------------------------------------------
Changes in the allowance for doubtful accounts are as follows:
<TABLE>
<CAPTION>
For the Years Ended June 30,
(In thousands) ----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Beginning balance................. $ 3,468 $ 1,900 $ 2,275
Charged to cost and expenses...... 2,676 1,124 820
Charges to other accounts (1)..... 114 1,410 (926)
Amounts written off............... (648) (966) (269)
------- ------- -------
Ending balance.................... $ 5,610 $ 3,468 $ 1,900
======= ======= =======
(1) Recoveries of amounts written off in prior periods, foreign currency
translation and the change in related noncurrent taxes. Included in Fiscal
1994 is $1,179,000 relating to the acquisition of a subsidiary.
</TABLE>
Consent and Amendment No. 5
Dated as of July 29, 1994
to
RESTATED AND AMENDED CREDIT AGREEMENT
Dated as of July 27, 1992
This Consent and Amendment No. 5 ("Amendment No. 5")
dated as of July 29, 1994, is entered into among RHI Holdings,
Inc., a Delaware corporation ("RHI"), and Citicorp North America,
Inc., a Delaware corporation and the sole "Senior Lender" (as
defined in the Credit Agreement referred to below) of RHI.
PRELIMINARY STATEMENT. RHI and Citicorp North America,
Inc., as a Senior Lender of RHI, are parties, among others, to
that certain Restated and Amended Credit Agreement dated as of
July 27, 1992, as amended (the "Credit Agreement"). Capitalized
terms used herein without definition are used herein as defined
in the Credit Agreement.
RHI has formed a Subsidiary, Fairchild Germany, Inc., a
Delaware corporation ("FGI"), and FGI has acquired 100% of the
Capital Stock of Convac GmbH, a corporation organized under the
laws of Germany ("Convac Germany"), which at the time of such
acquisition had certain Subsidiaries including Convac Equipment
for Semiconductor Technology Ltd., a corporation organized under
the laws of the United Kingdom; Convac USA, Inc., a Delaware
corporation ("Convac USA"); Convac France S.A., a corporation
organized under the laws of France; and Convac Trading AG, a
corporation organized under the laws of Switzerland. Following
the consummation of such acquisition, 100% of the Capital Stock
of Convac USA was transferred to FGI, whereupon Convac USA and
Applied Process Technology, Inc., a California corporation
("APT") in which Convac USA owns a 90% equity interest, became
Subsidiaries of FGI.
In connection with the transactions described above, RHI has
requested (i) the amendment of certain negative covenants in the
Credit Agreement and (ii) certain consents with respect to
certain Indebtedness of Convac Germany and its Subsidiaries and
the acquisition by Convac USA of an additional 10% of the Capital
Stock of APT as more particularly described in that certain
letter dated July 19, 1994, a copy of which is attached hereto as
Exhibit A (the "Consent Request") and made a part hereof.
Subject to the terms and conditions stated herein, RHI
and its Senior Lender have agreed to further amend the Credit
Agreement as hereinafter set forth and the Senior Lender has
agreed to consent to the transactions described in Section 2
hereof.
<PAGE>
SECTION 1. Amendments to the Credit Agreement.
Subject to the satisfaction of the conditions precedent
set forth in Section 3 below, the Credit Agreement is hereby
amended as follows:
1.1 Section 11.14 is amended to delete clause (a) thereof in
its entirety and to substitute the following therefor:
(a) in the case of RHI, in any Fiscal Year of RHI, in an
aggregate amount in excess of the sum of (i)
$1,250,000 plus leasehold improvements made with
respect to the Virginia Real Property and (ii) RHI's
Selling Price of Fixed Assets for such Fiscal Year,
1.2 Section 11.01B(h) of the Credit Agreement is amended to
delete the provisions thereof in their entirety and to substitute
the following therefor:
(h) Indebtedness of a Foreign Subsidiary of RHI; provided
that the proceeds of such Indebtedness are used by
such Foreign Subsidiary or RHI in the routine conduct
of its business;
1.4 Section 11.06B is amended to delete the number
"$500,000" at the end thereof and to substitute therefor the
number "$2,000,000".
SECTION 2. Consent. (A) Subject to the satisfaction
of the conditions precedent set forth in Section 3 below, the
sole Senior Lender of RHI hereby consents to the following:
(a) the Indebtedness of Subsidiaries of RHI identified on
Exhibits 1 through 5 attached to the Consent Request,
notwithstanding any provision in Section 11.01B of the Credit
Agreement to the contrary; and
(b) RHI's advance of approximately $300,000 in cash to
Convac USA to facilitate Convac USA's acquisition of the balance
of the issued and outstanding Capital Stock of APT representing
ten percent (10%) of all issued and outstanding Capital Stock of
APT as more particularly described in the Consent Request and
such acquisition by Convac USA.
SECTION 3. Conditions Precedent to Amendment No. 5;
Effectiveness. The amendments set forth in SECTION 1 above shall
become effective and be deemed effective as of the date hereof,
and the consents set forth in SECTION 2 above shall become
effective as of June 10, 1994, if, and only if, the
Administrative Agent shall have received on or before August 8,
1994: (i) a facsimile or original executed copy of this
Amendment executed by RHI and Citicorp North America, Inc. as the
sole Senior Lender of RHI and (ii) an amendment to the Rexnord
Holdings Pledge Agreement executed by RHI for delivery to the
Collateral Trustee pursuant to which the Capital Stock of FGI is
pledged as additional security for RHI's Obligations.
SECTION 4. Representations and Warranties. RHI hereby
represents and warrants as follows:
4.1 This Amendment No. 5 and the Credit Agreement as
previously executed and amended and as amended hereby, constitute
legal, valid and binding obligations of RHI and are enforceable
against RHI in accordance with their terms.
4.2 No Event of Default or Potential Event of Default
exists or would result from any of the transactions contemplated
by this Amendment No. 5, except Events of Default or Potential
Events of Default which would arise but for the consents granted
herein.
4.3 Upon the effectiveness of this Amendment No. 5, RHI
hereby reaffirms all covenants, representations and warranties
made in the Credit Agreement to the extent the same are not
amended hereby, and agrees that all such covenants,
representations and warranties shall be deemed to have been
remade as of the date this Amendment No. 5 becomes effective
(unless a representation and warranty is stated to be given on
and as of a specific date, in which case such representation and
warranty shall be true, correct and complete as of such date).
SECTION 5. Reference to and Effect on the Credit
Agreement.
5.1 Upon the effectiveness of this Amendment No. 5,
each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import shall
mean and be a reference to the Credit Agreement, as amended
hereby, and each reference to the Credit Agreement in any other
document, instrument or agreement executed and/or delivered in
connection with the Credit Agreement shall mean and be a
reference to the Credit Agreement as amended hereby.
5.2 Except as specifically amended above, the Credit
Agreement, the Notes and all other Loan Documents shall remain in
full force and effect and are hereby ratified and confirmed.
5.3 The execution, delivery and effectiveness of this
Amendment No. 5 shall not operate as a waiver of any right, power
or remedy of any Senior Lender or Agent or the Administrative
Agent under the Credit Agreement, the Notes or any of the other
Loan Documents, nor constitute a waiver of any provision
contained therein, except as specifically set forth herein.
SECTION 6. Execution in Counterparts. This Amendment
No. 5 may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which
when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the
same instrument. Delivery of an executed counterpart of this
Amendment No. 5 by telecopier shall be effective as delivery of a
manually executed counterpart of this Amendment No. 5.
SECTION 7. Governing Law. This Amendment No. 5 shall
be governed by and construed in accordance with the laws of the
State of New York.
SECTION 8. Headings. Section headings in this
Amendment No. 5 are included herein for convenience of reference
only and shall not constitute a part of this Amendment No. 5 for
any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 5 to be executed by their respective officers
thereunto duly authorized as of the date first above written.
RHI HOLDINGS, INC.
By: Karen Schneckenburger
Title: Treasurer
CITICORP NORTH AMERICA, INC.,
individually as a Senior Lender of
RHI
By: Emily Rosensheck
Title: Vice President
Consent and Amendment No. 6
Dated as of October 15, 1994
to
RESTATED AND AMENDED CREDIT AGREEMENT
Dated as of July 27, 1992
This Consent and Amendment No. 6 ("Amendment No. 6")
dated as of October 15, 1994, is entered into among VSI
Corporation, a Delaware corporation ("VSI"), RHI Holdings, Inc.,
a Delaware corporation ("RHI"), the "Senior Lenders" (as defined
in the Credit Agreement referred to below) of VSI a party hereto
comprising at least the "Requisite Senior Lenders" of VSI, and
the sole Senior Lender of RHI.
PRELIMINARY STATEMENT. VSI, RHI, certain financial
institutions in the capacity of Senior Lenders of VSI, Citicorp
North America, Inc., a Delaware corporation ("Citicorp"), as the
sole Senior Lender of RHI, Citicorp, The Bank of Nova Scotia, a
Canadian chartered bank ("Scotiabank"), and NationsBank of
Virginia, N.A., a national banking association ("NationsBank"),
as agents for the Senior Lenders of VSI and RHI (Citicorp,
Scotiabank and NationsBank being sometimes hereinafter
collectively referred to as the "Agents"), and Citicorp, as
administrative agent for the Senior Lenders of VSI and RHI (the
"Administrative Agent") are parties, among others, to that
certain Restated and Amended Credit Agreement dated as of July
27, 1992, as amended (the "Credit Agreement"). Capitalized terms
used herein without definition are used herein as defined in the
Credit Agreement.
VSI has informed the Administrative Agent of the
intention of Fairchild Communications Services Company, a
Subsidiary of VSI ("VSI"), to acquire selected assets of JWP
Telecom Inc., a Delaware corporation ("JWP"), subject to certain
liabilities for a purchase price of $14,800,000, up to
$11,000,000 of which purchase price is to be paid in cash, and to
obtain up to $11,000,000 as a cash capital contribution from RHI
to enable it to consummate such acquisition of the JWP assets
and, in connection therewith, requested the consent of the
Requisite Senior Lenders of VSI to such acquisition and exclusion
of the purchase of such assets from Consolidated Capital
Expenditures for purposes of compliance with Section 11.14(c) of
the Credit Agreement.
VSI has further informed the Administrative Agent that,
as of January 30, 1994, RAM was merged with and into VSI, with
VSI being the surviving corporation, and that RAM now operates as
part of the Camloc USA division of VSI. Therefore, VSI has
requested that separate reporting for RAM as has heretofore been
provided pursuant to the requirements of the Credit Agreement no
longer be required and that Section 11.08A be deleted from the
Credit Agreement in its entirety.
In response to the requests of VSI set forth above, the
parties hereto, hereby agree as follows:
SECTION 1. Amendments to the Credit Agreement.
Subject to the satisfaction of the conditions precedent
set forth in Section 3 below, the Credit Agreement is hereby
amended as follows:
1.1 Section 11.14 is amended to add the following
third proviso at the end thereof:
and (iii) in no event shall Consolidated Capital
Expenditures of VSI and its Subsidiaries include the amounts
expended in Fiscal Year 1995 in connection with the purchase of
selected assets of JWP Telecom Inc. by Fairchild Communications
Services Company.
1.2 Section 11.08A of the Credit Agreement is deleted
in its entirety.
SECTION 2. Consent. Subject to the satisfaction of the
conditions precedent set forth in Section 3 below, the Requisite
Senior Lenders of VSI hereby consent to FCS's acquisition of
selected assets of JWP Telecom Inc., subject to certain
liabilities as previously disclosed to the Senior Lenders of VSI,
the Agents, and the Administrative Agent, for a purchase price of
$14,800,000, up to $11,000,000 of which will be paid in cash.
SECTION 3. Conditions Precedent to Effectiveness. The
amendments set forth in SECTION 1 above and the consent set forth
in SECTION 2 above shall become effective and be deemed effective
as of the date hereof, if, and only if, the Administrative Agent
shall have received (i) on or before October 15, 1994, a
facsimile or original executed copy of this Amendment No. 6
executed by VSI and Senior Lenders of VSI constituting at least
the Requisite Lenders of VSI and (ii) within ten (10) Business
Days after consummation of such acquisition of JWP Telecom Inc.
assets, such agreements and documents as the Agent shall request
in order to grant and perfect Liens on such assets for the
benefit of the Senior Lenders and Issuing Banks of VSI.
SECTION 4. Representations and Warranties. Each of
VSI and RHI hereby represents and warrants as follows:
4.1 This Amendment No. 6 and the Credit
Agreement as previously executed and amended and as amended
hereby, constitute legal, valid and binding obligations of VSI
and are enforceable against VSI and RHI in accordance with their
terms.
4.2 No Event of Default or Potential Event of
Default exists or would result from any of the transactions
contemplated by this Amendment No. 6, except Events of Default or
Potential Events of Default which would arise but for the
consents granted herein.
4.3 Upon the effectiveness of this Amendment No. 6,
VSI hereby reaffirms all covenants, representations and
warranties made by such Person in the Credit Agreement to the
extent the same are not amended hereby, and agrees that all such
covenants, representations and warranties shall be deemed to have
been remade as of the date this Amendment No. 6 becomes effective
(unless a representation and warranty is stated to be given on
and as of a specific date, in which case such representation and
warranty shall be true, correct and complete as of such date).
SECTION 5. Reference to and Effect on the Credit
Agreement.
5.1 Upon the effectiveness of this Amendment No. 6,
each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import shall
mean and be a reference to the Credit Agreement, as amended
hereby, and each reference to the Credit Agreement in any other
document, instrument or agreement executed and/or delivered in
connection with the Credit Agreement shall mean and be a
reference to the Credit Agreement as amended hereby.
5.2 Except as specifically amended above, the
Credit Agreement, the Notes and all other Loan Documents shall
remain in full force and effect and are hereby ratified and
confirmed.
5.3 The execution, delivery and effectiveness of this
Amendment No. 6 shall not operate as a waiver of any right, power
or remedy of any Senior Lender or Agent or the Administrative
Agent under the Credit Agreement, the Notes or any of the other
Loan Documents, nor constitute a waiver of any provision
contained therein, except as specifically set forth herein.
SECTION 6. Execution in Counterparts. This Amendment
No. 6 may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which
when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the
same instrument. Delivery of an executed counterpart of this
Amendment No. 6 by telecopier shall be effective as delivery of a
manually executed counterpart of this Amendment No. 6.
SECTION 7. Governing Law. This Amendment No. 6 shall
be governed by and construed in accordance with the laws of the
State of New York.
SECTION 8. Headings. Section headings in this
Amendment No. 6 are included herein for convenience of reference
only and shall not constitute a part of this Amendment No. 6 for
any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 6 to be executed by their respective officers
thereunto duly authorized as of the date first above written.
VSI CORPORATION
By: Karen L. Schneckenburger
Title: Treaurer
CITICORP NORTH AMERICA, INC.
By: Emily Rosensheck
Title: Vice President
THE BANK OF NOVA SCOTIA
By: F.C.H. Ashby
Title: Senior Manager Loan
Operations
CANADIAN IMPERIAL BANK OF COMMERCE
By: Mary Kate Miller
Title: Authorized Signatory
GENERALE BANK
By: Eddie Mathews
Title: Senior Vice President
WELLS FARGO BANK, N.A.
By: Stanley Jeppsen
Title: Vice President
NATIONSBANK OF VIRGINIA, N.A.
By:Michael Fluedia
Title: Vice President
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED
By: Brady Sadek
Title: Vice President and Deputy
General Manager
THE MITSUBISHI BANK, LIMITED
By:
Title:
CAISSE NATIONALE DE CREDIT AGRICOLE
By: Dean Balice
Title: Senior Vice President
Branch Manager
UNION BANK
By: Patrick M. Cassidy
Title: Vice President
PILGRIM PRIME RATE TRUST
By: Kathleen Lenarici
Title: Senior Credit Analyzer
EATON VANCE PRIME RATE RESERVES
By: Barbara Campbell
Title: Assistant Treasurer
Amendment No. 7
Dated as of January 18, 1995
to
RESTATED AND AMENDED CREDIT AGREEMENT
Dated as of July 27, 1992
This Amendment No. 7 ("Amendment No. 7") dated as of
January 18, 1995, is entered into between RHI Holdings, Inc., a
Delaware corporation ("RHI") and Citicorp North America, Inc., a
Delaware corporation (the "RHI Senior Lender"), the sole Senior
Lender of RHI.
PRELIMINARY STATEMENT. RHI, the RHI Senior Lender,
certain financial institutions in the capacities of Agents and
Administrative Agent for the Senior Lenders are parties, among
others, to that certain Restated and Amended Credit Agreement
dated as of July 27, 1992, as amended (the "Credit Agreement").
Capitalized terms used herein without definition are used herein
as defined in the Credit Agreement.
RHI has requested that Section 11.07B(b) of the Credit
Agreement be amended to increase the amount of permitted recourse
obligations of RHI's Foreign Subsidiaries resulting from sales,
discounts, and other transfers of Accounts of such Foreign
Subsidiaries and the RHI Senior Lender has agreed to such request
on the terms and conditions set forth herein.
SECTION 1. Amendment to the Credit Agreement.
Subject to the satisfaction of the conditions precedent
set forth in Section 2 below, Section 11.07B(b) of the Credit
Agreement is hereby amended to delete the provisions thereof in
their entirety and substitute the following therefor:
(b) RHI shall not permit any of its Foreign
Subsidiaries to, directly or indirectly, sell or discount or
otherwise sell any of its Accounts or any of its notes or
obligations receivable in any amount with recourse, except
Accounts, notes or obligations receivable which result in
recourse obligations of such Foreign Subsidiaries in an aggregate
amount not in excess of $2,500,000.
SECTION 2. Conditions Precedent to Effectiveness. The
amendment set forth in SECTION 1 above shall become effective and
be deemed effective as of the date hereof, if, and only if, the
Administrative Agent shall have received on or before January 23,
1995, a facsimile or original executed copy of this Amendment No.
7 executed by RHI and the RHI Senior Lender.
SECTION 3. Representations and Warranties. RHI hereby
represents and warrants as follows:
3.1 This Amendment No. 7 and the Credit Agreement as
previously executed and amended and as amended hereby, constitute
legal, valid and binding obligations of RHI and are enforceable
against RHI in accordance with their terms.
3.2 No Event of Default or Potential Event of
Default exists or would result from any of the transactions
contemplated by this Amendment No. 7.
3.3 Upon the effectiveness of this Amendment No. 7,
RHI hereby reaffirms all covenants, representations and
warranties made by such Person in the Credit Agreement to the
extent the same are not amended hereby, and agrees that all such
covenants, representations and warranties shall be deemed to have
been remade as of the date this Amendment No. 7 becomes effective
(unless a representation and warranty is stated to be given on
and as of a specific date, in which case such representation and
warranty shall be true, correct and complete as of such date).
SECTION 4. Reference to and Effect on the Credit
Agreement.
4.1 Upon the effectiveness of this Amendment No. 7,
each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import shall
mean and be a reference to the Credit Agreement, as amended
hereby, and each reference to the Credit Agreement in any other
document, instrument or agreement executed and/or delivered in
connection with the Credit Agreement shall mean and be a
reference to the Credit Agreement as amended hereby.
4.2 Except as specifically amended above, the
Credit Agreement, the Notes and all other Loan Documents shall
remain in full force and effect and are hereby ratified and
confirmed.
4.3 The execution, delivery and effectiveness of this
Amendment No. 7 shall not operate as a waiver of any right, power
or remedy of any Senior Lender or Agent or the Administrative
Agent under the Credit Agreement, the Notes or any of the other
Loan Documents, nor constitute a waiver of any provision
contained therein, except as specifically set forth herein.
SECTION 5. Execution in Counterparts. This Amendment
No. 7 may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which
when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the
same instrument. Delivery of an executed counterpart of this
Amendment No. 7 by telecopier shall be effective as delivery of a
manually executed counterpart of this Amendment No. 7.
SECTION 6. Governing Law. This Amendment No. 7 shall
be governed by and construed in accordance with the laws of the
State of New York.
SECTION 7. Headings. Section headings in this
Amendment No. 7 are included herein for convenience of reference
only and shall not constitute a part of this Amendment No. 7 for
any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 7 to be executed by their respective officers
thereunto duly authorized as of the date first above written.
CITICORP NORTH AMERICA, INC.
By: Emily rosensheck
Title: Vice President
RHI HOLDINGS, INC.
By: Karen L. Schneckenburger
Title: Treasurer
Amendment No. 8
Dated as of February 15, 1995
to
RESTATED AND AMENDED CREDIT AGREEMENT
Dated as of July 27, 1992
This Amendment No. 8 ("Amendment No. 8") dated as of
February 15, 1995, is entered into between RHI Holdings, Inc., a
Delaware corporation ("RHI") and Citicorp North America, Inc., a
Delaware corporation (the "RHI Senior Lender"), the sole Senior
Lender of RHI.
PRELIMINARY STATEMENT. RHI, the RHI Senior Lender,
certain financial institutions in the capacities of Agents and
Administrative Agent for the Senior Lenders are parties, among
others, to that certain Restated and Amended Credit Agreement
dated as of July 27, 1992, as amended (the "Credit Agreement").
Capitalized terms used herein without definition are used herein
as defined in the Credit Agreement.
RHI has requested that the Facility Commitment Period
for Facility A be extended to February 28, 1996 and the RHI
Senior Lender has agreed to such request on the terms and
conditions set forth herein.
SECTION 1. Amendment to the Credit Agreement.
Subject to the satisfaction of the conditions precedent
set forth in Section 2 below, the definition of "Facility
Commitment Period" set forth in Section 1.01 is hereby amended to
to delete the provisions of clause (i) thereof in their entirety
and substitute "(i) in the case of Facility A, on February 28,
1996" therefor.
SECTION 2. Conditions Precedent to Effectiveness. The amendment
set forth in SECTION 1 above shall become effective and be deemed
effective as of the date hereof, if, and only if, the
Administrative Agent shall have received on or before February
15, 1995, a facsimile or original executed copy of this Amendment
No. 8 executed by RHI and the RHI Senior Lender.
SECTION 3. Representations and Warranties. RHI hereby
represents and warrants as follows:
3.1 This Amendment No. 8 and the Credit Agreement as
previously executed and amended and as amended hereby, constitute
legal, valid and binding obligations of RHI and are enforceable
against RHI in accordance with their terms.
3.2 No Event of Default or Potential Event of
Default exists or would result from any of the transactions
contemplated by this Amendment No. 8.
3.3 Upon the effectiveness of this Amendment No. 8,
RHI hereby reaffirms all covenants, representations and
warranties made by such Person in the Credit Agreement to the
extent the same are not amended hereby, and agrees that all such
covenants, representations and warranties shall be deemed to have
been remade as of the date this Amendment No. 8 becomes effective
(unless a representation and warranty is stated to be given on
and as of a specific date, in which case such representation and
warranty shall be true, correct and complete as of such date).
SECTION 4. Reference to and Effect on the Credit
Agreement.
4.1 Upon the effectiveness of this Amendment No. 8,
each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import shall
mean and be a reference to the Credit Agreement, as amended
hereby, and each reference to the Credit Agreement in any other
document, instrument or agreement executed and/or delivered in
connection with the Credit Agreement shall mean and be a
reference to the Credit Agreement as amended hereby.
4.2 Except as specifically amended above, the Credit
Agreement, the Notes and all other Loan Documents shall remain in
full force and effect and are hereby ratified and confirmed.
4.3 The execution, delivery and effectiveness of this
Amendment No. 8 shall not operate as a waiver of any right, power
or remedy of any Senior Lender or Agent or the Administrative
Agent under the Credit Agreement, the Notes or any of the other
Loan Documents, nor constitute a waiver of any provision
contained therein, except as specifically set forth herein.
SECTION 5. Execution in Counterparts. This Amendment
No. 8 may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which
when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the
same instrument. Delivery of an executed counterpart of this
Amendment No. 8 by telecopier shall be effective as delivery of a
manually executed counterpart of this Amendment No. 8.
SECTION 6. Governing Law. This Amendment No. 8 shall
be governed by and construed in accordance with the laws of the
State of New York.
SECTION 7. Headings. Section headings in this
Amendment No. 8 are included herein for convenience of reference
only and shall not constitute a part of this Amendment No. 8 for
any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 8 to be executed by their respective officers
thereunto duly authorized as of the date first above written.
CITICORP NORTH AMERICA, INC.
By: Emily Rosensheck
Title: Vice President
RHI HOLDINGS, INC.
By:Karen L. Schneckenburger
Title: Treasurer
Amendment No. 9
Dated as of May 25, 1995
RESTATED AND AMENDED CREDIT AGREEMENT
Dated as of July 27, 1992
This Amendment No. 9 ("Amendment No. 9") dated as of
May 25, 1995, is entered into between RHI Holdings, Inc., a
Delaware corporation ("RHI") and Citicorp North America, Inc., a
Delaware corporation (the "RHI Senior Lender"), the sole Senior
Lender of RHI.
PRELIMINARY STATEMENT. RHI, the RHI Senior Lender,
certain financial institutions in the capacities of Agents and
Administrative Agent for the Senior Lenders are parties, among
others, to that certain Restated and Amended Credit Agreement
dated as of July 27, 1992, as amended (the "Credit Agreement").
Capitalized terms used herein without definition are used herein
as defined in the Credit Agreement.
RHI has requested certain consents and certain
amendments to the Credit Agreement to permit (i) limited sales of
Accounts by RHI and its domestic subsidiaries and (ii) the
increase to $17,300,000 of RHI's combined permitted investment in
Fairchild Convac GmbH ("Convac") and SBC; and RHI Senior Lender
has agreed to such request on the terms and conditions set forth
herein.
SECTION 1. Amendment to the Credit Agreement. Subject
to the satisfaction of the conditions precedent set forth in
Section 3 below, Section 11.07B(a) is hereby deleted in its
entirety and replaced with the following new Section 11.07B(a):
"SECTION 11.07B Sale of Accounts. Except as otherwise
permitted hereunder:
(a) RHI shall not, and shall not permit any of its
Domestic Subsidiaries to, directly or indirectly, sell, with
recourse or without, or discount or otherwise sell to any Person,
any of its Accounts or any of its notes or obligations receivable
in any amount other than (i) up to a total of $18,000,000 face
amount of Accounts in the aggregate during the term of this
Agreement, without recourse to RHI or any of its Subsidiaries,
<PAGE>
and (ii) up to an additional $12,000,000 face amount of
Accounts in the aggregate during the term of this Agreement, with
recourse, provided such recourse is only to Convac and not to any
other Person."
SECTION 2. Consent. The limitations on investments by
RHI and its subsidiaries in Convac and SBC are set forth in
consent letters between RHI and the RHI Senior Lender dated June
10, 1994 and August 12, 1994, respectively. The RHI Senior
Lender hereby consents to the combination of such investment
limitations, into a single limit, and to the increase of such
combined limit from $15,300,000 to $17,300,000, provided,
however, that the calculation of such investment limitation shall
be based upon a nonfluctuating DM/$US exchange rate of 1.666 (the
spot rate as of June 10, 1994). To the extent that this Section
2 shall be in any way inconsistent with the provisions of Section
11.03B of the Credit Agreement (re: investments permitted to be
made by RHI), the provisions of this Section 2 shall be the
governing and controlling provisions.
SECTION 3. Conditions Precedent to Effectiveness. The
amendment and consent set forth in Sections 1 and 2 above shall
become effective and be deemed effective as of the date hereof,
if, and only if, the Administrative Agent shall have received on
or before May 25, 1995, a facsimile or original executed copy of
this Amendment No. 9 executed by RHI and the RHI Senior Lender.
SECTION 4. Representations and Warranties. RHI hereby
represents and warrants as follows:
4.1 This Amendment No. 9 and the Credit Agreement as
previously executed and amended and as amended hereby, constitute
legal, valid and binding obligations of RHI and are enforceable
against RHI in accordance with their terms.
4.2 No Event of Default or Potential Event of Default
exists or would result from any of the transactions contemplated
by this Amendment No. 9.
4.3 Upon the effectiveness of this Amendment No. 9,
RHI hereby reaffirms all covenants, representations and
warranties made by such Person in the Credit Agreement to the
extent the same are not amended hereby, and agrees that all such
covenants, representations and warranties shall be deemed to have
been remade as of the date this Amendment No. 9 becomes effective
(unless a representation and warranty is stated to be given on
and as of a specific date, in which case such representation and
warranty shall be true, correct and complete as of such date).
SECTION 5. Reference to and Effect on the Credit
Agreement.
5.1 Upon the effectiveness of this Amendment No. 9,
each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import shall
mean and be a reference to the Credit Agreement, as amended
hereby, and each reference to the Credit Agreement in any other
document, instrument or agreement executed and/or delivered in
connection with the Credit Agreement shall mean and be a
reference to the Credit Agreement as amended hereby.
5.2 Except as specifically amended above, the Credit
Agreement, the Notes and all other Loan Documents shall remain in
full force and effect and are hereby ratified and confirmed.
5.3 The execution, delivery and effectiveness of this
Amendment No. 9 shall not operate as a waiver of any right, power
or remedy of any Senior Lender or Agent or the Administrative
Agent under the Credit Agreement, the Notes or any of the other
Loan Documents, nor constitute a waiver of any provision
contained therein, except as specifically set forth herein.
SECTION 6. Execution in Counterparts. This Amendment
No. 9 may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which
when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the
same instrument. Delivery of an executed counterpart of this
Amendment No. 9 by telecopier shall be effective as delivery of a
manually executed counterpart of this Amendment No. 9.
SECTION 7. Governing Law. This Amendment No. 9 shall
be governed by and construed in accordance with the laws of the
State of New York.
SECTION 8. Headings. Section headings in this
Amendment No. 9 are included herein for convenience of reference
only and shall not constitute a part of this Amendment No. 9 for
any other purpose.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 9 to be executed by their respective officers
thereunto duly authorized as of the date first above written.
CITICORP NORTH AMERICA, INC.
By: Emily Rosensheck
Title: Vice President
RHI HOLDINGS, INC.
By: Karen L. Schneckenburger
Title: Treasurer
CONSENT AND AMENDMENT NO. 10
Dated as of June 30, 1995
to
RESTATED AND AMENDED CREDIT AGREEMENT
Dated as of July 27, 1992
This Consent and Amendment No. 10 ("Amendment") dated
as of June 30, 1995 is entered into among VSI Corporation, a
Delaware corporation ("VSI"), Fairchild Industries, Inc., a
Delaware corporation ("FII"), RHI Holdings, Inc., a Delaware
corporation ("RHI") and the undersigned "Senior Lenders" (as
defined in the Credit Agreement identified below). Capitalized
terms used herein without definition are used herein as defined
in the Credit Agreement.
PRELIMINARY STATEMENT. VSI, FII, RHI, the Senior
Lenders, the Agents, and the Administrative Agent are parties to
that certain Restated and Amended Credit Agreement dated as of
July 27, 1992, as amended (the "Credit Agreement"). VSI has
requested the amendment of the Credit Agreement in certain
respects as more particularly described in the letter dated
August 15, 1995, a copy of which is attached hereto as Exhibit 1
and made a part hereof (the "Amendment Request") and RHI, FII and
VSI have requested the consent of their respective Requisite
Senior Lenders to certain cash capital contributions to FII and
VSI and the use by VSI thereof for Consolidated Capital
Expenditures, as more particularly described in the Amendment
Request.
Subject to the terms and conditions stated herein, (i)
the undersigned Senior Lenders of VSI, FII and RHI comprising at
least the Requisite Senior Lenders of VSI, FII and RHI,
respectively, have agreed to further amend the Credit Agreement
as set forth in Section 1 hereof and (ii) the Senior Lenders of
FII comprising at least the Requisite Senior Lenders of FII, the
Senior Lender of RHI, and the Senior Lenders of VSI comprising at
least the Requisite Senior Lenders of VSI have agreed to consent
to certain matters as described in Section 2 hereof.
SECTION 1. Amendments to the Credit Agreement.
Effective as of June 30, 1995, subject to the satisfaction of the
conditions precedent set forth in Section 3 hereof, the Credit
Agreement is hereby amended as follows:
1.1 Article IX is amended to add the following
provision at the end thereof:
SECTION 9.13 TFC/RHI Consolidated Liquidity. RHI
shall deliver to the Administrative Agent and the Senior Lenders,
within ten (10) days after the end of each fiscal quarter of each
Fiscal Year, commencing with the fiscal quarter ending on
December 31, 1995, an Officers' Certificate of RHI in the form
attached to Amendment No. 10 to this Agreement as Exhibit 2
setting forth the calculation of the sum of the amounts set forth
in Section 14.01(r) for such fiscal quarter.
1.2 Section 12.07 is amended to delete that portion of
the schedule of covenant test dates commencing with Fourth
Quarter, 1995 and ending with Fourth Quarter, 1996 in its
entirety and substitute the following therefor:
Fourth Quarter, 1995 60,000,000
First Quarter, 1996 60,000,000
Second Quarter, 1996 65,000,000
Third Quarter, 1996 70,000,000
Fourth Quarter, 1996 80,000,000
1.3 Section 14.01 is amended to add the following
provisions at the end thereof:
(q) Sale of Fairchild Communications Services Company;
Equity and Debt Offerings. VSI and/or Fairchild Communications
Services Company shall have failed to notify the Administrative
Agent in writing on or before October 31, 1995 that the
appropriate Borrower or Subsidiary of a Borrower has engaged one
or more investment bankers of recognized national standing with
respect to accomplishing and consummating an initial public
offering of equity securities and/or a public offering of debt
securities of Fairchild Communications Services Company, or a
Subsidiary of FII or VSI holding the equity securities or assets
of Fairchild Communications Services Company, and a public
offering of debt securities of a Subsidiary of FII or VSI holding
directly or indirectly those assets which comprise VSI's D-M-E
division.
(r) TFC/RHI Consolidated Liquidity. The sum, as of
any given date of determination, of (i) the amount of
consolidated Cash and Cash Equivalents of TFC and RHI plus (ii)
that portion of the VSI Directed Reduction Amount then available
for borrowing and permitted to be transferred or remitted to RHI
minus (iii) the amount of Cash and Cash Equivalents of TFC and
RHI which is then required to secure Contractual Obligations of
TFC or RHI (a) as of December 31, 1995 shall be less than
$30,000,000 or (b) as of March 31, 1996 or the last day of each
fiscal quarter of TFC thereafter shall be less than $10,000,000.
<PAGE>
(s) VSI Default as to Publicly Held Indebtedness of
Affiliates. If such Borrower is VSI, (i) TFC shall fail to make
any payment when due on any Indebtedness of TFC owing with
respect to its (A) 12 1/4% Senior Subordinated Notes due 1996,
(B) 12% Intermediate Subordinated Debentures due 2001, (C) 13
1/8% Subordinated Debentures due 2006, or (D) 13% Junior
Subordinated Debentures due 2007, (ii) RHI shall fail to make any
payment when due on any Indebtedness of RHI owing with respect to
the Senior Subordinated Debentures, or (iii) FII shall fail to
make any payment when due on any Indebtedness of FII owing with
respect to the FII Senior Notes; or any breach, default or event
of default shall occur under any instrument, agreement or
indenture pertaining to any Indebtedness described in clause (i),
(ii), or (iii) above, if the effect thereof (with or without the
giving of notice or lapse of time or both) is to accelerate (as
distinguished from imposing a requirement to offer to purchase),
or permit the holder(s) of such Indebtedness to accelerate (as
distinguished from imposing a requirement to offer to purchase),
the maturity of any such Indebtedness.
SECTION 2. Consents.
2.1 The undersigned Senior Lender of RHI hereby
consents to RHI's cash contribution, in exchange for FII Series B
Preferred, to FII of the amount required, not to exceed $500,000,
by VSI to make the incremental Consolidated Capital Expenditures
referenced in the parenthetical exception to the provisions of
clause (i)(A) of the proviso at the end of Section 11.14 of the
Agreement and the undersigned Senior Lenders of FII hereby
consent to the contribution of such amount received by FII as
aforesaid to VSI as paid-in capital; provided that (i) such
amount received by VSI is used to make Consolidated Capital
Expenditures for the Fiscal Year ending in 1995 and (ii) the FII
Series B Preferred issued in exchange for such capital
contribution is pledged to secure the FII Senior Notes under the
Senior Note Collateral Documents.
2.2 The undersigned Senior Lenders of VSI hereby
consent to VSI's use of up to $500,000 received by VSI as a cash
contribution from FII to VSI's paid-in capital, as referenced in
Section 2.1 above, to make Consolidated Capital Expenditures for
the Fiscal Year ending in 1995 in excess of the amount that would
otherwise be permissible pursuant to clause (A) of the proviso
included in Section 11.14 of the Credit Agreement.
SECTION 3. Conditions Precedent to Effectiveness of
this Amendment. This Amendment shall become effective as of June
30, 1995 if, and only if, (i) the Administrative Agent shall have
received on or before September 15, 1995, (a) a facsimile or
original executed copy of this Amendment executed by RHI, FII,
VSI, and Senior Lenders comprising at least the Requisite Senior
Lenders of each of RHI, FII and VSI and (b) a facsimile or
original executed copy of a Reaffirmation Agreement and
Acknowledgment in the form attached hereto as Exhibit 3 executed
by the parties referenced therein and (ii) the Administrative
Agent shall have received on September 15, 1995, for the benefit
of each Senior Lender executing and delivering this Amendment on
or before such date, payment of a fee in the amount of one-
quarter of one percent (0.25%) of the sum of (a) the Facility G
Commitment of such Senior Lender plus (b) the outstanding
principal balance as of September 15, 1995 of the Series VII Term
Loans payable to such Senior Lender plus (c) the outstanding
principal balance as of September 15, 1995 of the Series VIII
Term Loans payable to such Senior Lender.
SECTION 4. Representations and Warranties. RHI, FII
and VSI hereby represent and warrant as follows:
4.1 This Amendment and the Credit Agreement as
previously executed and amended and as amended hereby constitute
legal, valid and binding obligations of RHI, FII and VSI and are
enforceable against RHI, FII and VSI in accordance with their
terms.
4.2 No Event of Default or Potential Event of Default
exists or would result from any of the transactions contemplated
by this Amendment.
4.3 Upon the effectiveness of this Amendment, RHI, FII
and VSI each hereby reaffirms all covenants, representations and
warranties made in the Credit Agreement to the extent the same
are not amended hereby and agrees that all such covenants,
representations and warranties shall be deemed to have been
remade as of the date this Amendment becomes effective (unless a
representation and warranty is stated to be given on and as of a
specific date, in which case such representation and warranty
shall be true, correct and complete as of such date).
<PAGE>
SECTION 5. Reference to and Effect on the Credit
Agreement.
5.1 Upon the effectiveness of this Amendment, each
reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import shall
mean and be a reference to the Credit Agreement, as amended
hereby, and each reference to the Credit Agreement in any other
document, instrument or agreement executed and/or delivered in
connection with the Credit Agreement shall mean and be a
reference to the Credit Agreement as amended hereby.
5.2 Except as specifically amended above, the Credit
Agreement, the Notes and all other Loan Documents shall remain in
full force and effect and are hereby ratified and confirmed.
5.3 The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or
remedy of any Senior Lender or Agent or the Administrative Agent
under the Credit Agreement, the Notes or any of the other Loan
Documents, nor constitute a waiver of any provision contained
therein, except as specifically set forth herein.
SECTION 6. Execution in Counterparts. This Amendment
may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all
of which taken together shall constitute but one and the same
instrument. Delivery of an executed counterpart of this Amendment
by telecopier shall be effective as delivery of a manually
executed counterpart of this Amendment.
SECTION 7. Governing Law. This Amendment shall be
governed by and construed in accordance with the laws of the
State of New York.
SECTION 8. Headings. Section headings in this
Amendment are included herein for convenience of reference only
and shall not constitute a part of this Amendment for any other
purpose.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto
duly authorized as of the date first above written.
FAIRCHILD INDUSTRIES, INC.
By: Karen L. Schneckenburger
Title: Treasurer
VSI CORPORATION
By: Karen L. Schneckenburger
Title: Treasurer
RHI HOLDINGS, INC.
By: Karen L. Schneckenburger
Title: Treasurer
CITICORP NORTH AMERICA, INC.
By: Emily Rosensheck
Title: Vice President
BANK OF NOVA SCOTIA
By: A. S. Norsworthy
Title: Assistant Agent
NATIONSBANK, N.A.
By: John D. Mindnick
Title: Senior Vice President
GENERALE BANK NEW YORK
By: Eddie Matthews
By: F. Mauchant
Title: Senior Vice President
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, CHICAGO BRANCH
By: Brady S. Sadek
Title: Vice President & General
Manager
THE MITSUBISHI BANK, LIMITED
By: Toshinori Yagura
Title: General Manager
CANADIAN IMPERIAL BANK OF COMMERCE
By: Mary Kate Miller
Title: Authorized Signatory
PILGRIM PRIME RATE TRUST
By: Kathleen Lenarici
Title: Assistant Portfolio Manager
UNION BANK
By: Patrick M. Cassidy
Title: Vice President
WELLS FARGO BANK, N.A.
By: Linda Spradling
Title: Vice President
SENIOR DEBT PORTFOLIO
By: Jeffrey S. Garner
Title: Vice President
CAISSE NATIONALE DE CREDIT AGRICOLE
By: David Bouhl, F.V.P.
Title: Head of Corporate Banking
Chaicago
<PAGE>
EXHIBIT 1
to Consent and Amendment No. 10
Dated as of June 30, 1995
AMENDMENT REQUEST
Attached
<PAGE>
EXHIBIT 2
to Consent and Amendment No. 10
Dated as of June 30, 1995
FORM OF TFC/RHI CONSOLIDATED LIQUIDITY OFFICERS' CERTIFICATE
To: Citicorp North America, Inc.,
as Administrative Agent and
the Senior Lenders under the
Restated and Amended Credit
Agreement dated as of July 27, 1992
(the "Credit Agreement")
Dated: [insert date]
The undersigned hereby certifies that the calculation set
forth below evidencing compliance with Section 14.01(r) of the
Credit Agreement is complete and accurate as of the fiscal
quarter of The Fairchild Corporation ending on ________, 199_.
TFC/RHI consolidated Cash and
Cash Equivalents $____________
plus
Non-Restricted VSI Directed
Reduction Amount $____________
minus
Restricted Cash and Cash Equivalents
of TFC/RHI ($____________)
$_____________
_____________________
Name:
Title:
EXHIBIT 3
to Consent and Amendment No. 10
Dated as of June 30, 1995
FORM OF REAFFIRMATION AGREEMENT AND ACKNOWLEDGMENT
Attached
AMENDMEN.10 September 15, 1995
List of Significant Subsidiaries of The Fairchild Corporation
Fairchild Communications Services, Inc.
Fairchild Communications Services Company [Partnership]
Fairchild Convac GmbH
Fairchild Data Corporation
Fairchild Industries, Inc.
RHI Holdings, Inc.
VSI Corporation
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 71,182
<SECURITIES> 4,116
<RECEIVABLES> 99,217
<ALLOWANCES> 5,610
<INVENTORY> 104,909
<CURRENT-ASSETS> 291,930
<PP&E> 286,585
<DEPRECIATION> 115,659
<TOTAL-ASSETS> 881,882
<CURRENT-LIABILITIES> 179,336
<BONDS> 509,715
<COMMON> 2,235
16,342
0
<OTHER-SE> 42,808
<TOTAL-LIABILITY-AND-EQUITY> 881,882
<SALES> 546,323
<TOTAL-REVENUES> 546,979
<CGS> 419,290
<TOTAL-COSTS> 536,773
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,770
<INCOME-PRETAX> (51,939)
<INCOME-TAX> (18,019)
<INCOME-CONTINUING> (33,920)
<DISCONTINUED> (259)
<EXTRAORDINARY> 355
<CHANGES> 0
<NET-INCOME> (33,824)
<EPS-PRIMARY> (2.10)
<EPS-DILUTED> (2.10)
</TABLE>
October 21, 1994
Mr. Eric I. Steiner
The Fairchild Corporation
300 West Service Road
P.O. Box #10803
Chantilly, VA 22021
Dear Eric:
This letter agreement supersedes the letter agreement dated
October 23, 1991 between The Fairchild Corporation (Fairchild)
and you and any other agreements between you and Fairchild relating
to severance and change of control payments, each of which shall be
deemed terminated, effective upon your acceptance hereof.
In exchange for your continued services as an executive of
Fairchild, and subject to your having been, on the date of
termination, an employee of Fairchild for at least five years and
an officer of Fairchild for at least three years, Fairchild hereby
agrees that, in the event Fairchild terminates your employment
without cause during a three year period, commencing on the date of
this letter, you shall receive on date of termination a severance
payment consisting of one year of then current base salary. In
addition, if, but for such termination, a bonus would have been
earned by you for the year in which termination takes place, you
shall be entitled at year-end to such bonus, pro-rated, however,
from the beginning of the fiscal year to date of termination. Any
portion of the bonus that is based on individual goals shall be
deemed to be fully earned.
In addition, and notwithstanding whether the conditions for
severance pay have been met, if a change of control (as defined in
the attached Exhibit A) of Fairchild occurs during a three year
period from the date of this letter while you are still an employee
of Fairchild, you shall be entitled to receive a sum equal to two
times your then current total annual compensation (including base
salary and incentive compensation target, earned or unearned),
payable one-half on the date of change of control (the first
change payment) and, as long as your employment continues, one-half
over a one year period in four equal quarterly installments,
Mr. Eric I. Steiner
October 21, 1994
Page 2
commencing three months after the date of change of control (the
second change payments), except that in the event your employment
is terminated without cause during said one year period (or in the
event you terminate your employment during said one year period for
good reason as defined below), you shall be entitled to receive
immediately the first change payment (if not already paid), any
second change payments accrued to date of termination but not yet
paid, and the severance payment, if applicable, referred to in the
preceding paragraph of this letter, but shall not be entitled to
any further second change payments not then due and payable. Good
reason includes any action by Fairchild (or a successor company)
which results in a reduction in your compensation, position,
authority, duties or responsibilities such that your senior
management opportunities are substantially lessened, or which
results in your primary place of employment being relocated more
than 35 miles from the current Dulles Airport location. No sum
payable to you upon change of control shall limit or affect your
entitlement to base salary or incentive compensation for all
periods during which you are employed by Fairchild.
Please acknowledge your agreement with the terms of this letter
agreement by signing the attached copy and returning same to this
office, which shall be effective as of the date of your acceptance.
Very truly yours,
THE FAIRCHILD CORPORATION
By: John D. Jackson
ACCEPTED AND AGREED:
By: Eric I. Steiner
Date: December 19, 1994
<PAGE>
EXHIBIT A
"Change of Control" means the occurrence of any of the
following events;
(i) any "Person", other than one or more "Permitted Holders",
is or becomes the "Beneficial Owner", directly or indirectly, of
more than 20% of the total voting power (the "Vote") of the "Voting
Stock" of the Company, and the Permitted Holders "beneficially
own", directly or indirectly, in the aggregate a lesser percentage
of the Vote of all the Voting Stock of the Company than such other
Person; provided, however, such other person shall be deemed to
beneficially own all Voting Stock of a corporation held by any
other corporation (the "parent corporation"), if such other Person
"beneficially owns", directly or indirectly, more than 20% of the
Vote of the Voting Stock of such parent corporation, and the
Permitted Holders "beneficially own", directly or indirectly, in
the aggregate a lesser percentage of the Vote of the Voting Stock
of such parent corporation;
(ii) during any period of two consecutive years, individuals
who at the beginning of any such period constituted the Board of
Directors of the Company (together with any new directors whose
election by such Board or whose nomination for election by the
shareholders of the Company was approved by a vote of a majority of
the directors of the Company then still in office who were either
directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the
Company then in office;
(iii) The Company consolidates with or merges with or into
another Person, pursuant to a transaction (a) in which the
outstanding Voting Stock of the Company is changed into or
exchanged for cash, securities or other property (other than any
such transaction where the outstanding Voting Stock of the Company
is changed into or exchanged for Voting Stock of the surviving
corporation), and (b) in which the holders of the Vote of the
Voting Stock of the Company immediately prior to such transaction
own, directly or indirectly, less than a majority of the Vote of
the Voting Stock of the surviving Person immediately after such
transaction, and (c) by which an event described in Section (i)
shall have occurred ; or
(iv) the Company is liquidated or dissolved, or all or
substantially all of its directly or indirectly held assets are
sold or otherwise conveyed to a third party other than one or more
Permitted Holders.
"Beneficial Owner" has the meaning set forth in Rules 13d-3
and 13d-5 under the Exchange Act, except that a Person shall be
deemed to be the Beneficial Owner of all shares that any such
Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time; and the terms
"beneficial ownership" and "beneficially owns" have meanings
correlative to the foregoing.
"Permitted Holders" means Jeffrey J. Steiner and his
"associates" (as defined in Rule 12b-2 under the Exchange Act) or
any other Person directly or indirectly controlled by Jeffrey J.
Steiner.
"Person" shall be as defined in Section 13(d) and 14(d) of
the Exchange Act.
"Voting Stock" means, with respect to a corporation, (i) all
classes of capital stock then outstanding of such corporation
normally entitled to vote in elections of directors, and (ii) any
security which may, at the option of the holder, be converted into
or exchanged for Voting Stock. <PAGE>
December 21, 1994
Mr. Eric I. Steiner
The Fairchild Corporation
300 West Service Road
P.O. Box 10803
Chantilly, VA 22021
Dear Eric:
By letter dated October 21, 1994, The Fairchild Corporation
agreed to make certain payments to you in the event a "change of
control" occurred under certain conditions ("letter agreement").
In order to avoid excess parachute payments that would have
adverse tax consequences under Section 280G of the Internal Revenue
Code, the letter agreement is hereby amended to include the
following paragraph just prior to the last paragraph of the letter
agreement:
"In no event shall any amounts payable pursuant to this letter
agreement which are deemed to constitute 'parachute payments' (as
defined in Section 280G of the Internal Revenue Code, as amended by
the Tax Reform Act of 1986, and as thereafter amended ('the
Code')), when added to any other payments which are deemed to
constitute 'parachute payments,' as defined in the Code, exceed
2.99 times your 'base amount' (as defined in the Code)."
Except as modified by the terms set forth above, the terms of
the letter agreement shall remain in full force and effect.
Please acknowledge your agreement with the terms set forth
above by signing the attached copy and returning same to this
office, which shall be effective as of the date of your acceptance.
Very truly yours,
THE FAIRCHILD CORPORATION
By: John D. Jackson
ACCEPTED AND AGREED:
By: Eric I. Steiner
Date: December 22, 1994
October 21, 1994
Mr. Michael T. Alcox
The Fairchild Corporation
300 West Service Road
P.O. Box #10803
Chantilly, VA 22021
Dear Mike:
This letter agreement supersedes the letter agreement dated
October 23, 1991 between The Fairchild Corporation (Fairchild) and
you and any other agreements between you and Fairchild relating to
severance and change of control payments, each of which shall be
deemed terminated, effective upon your acceptance hereof.
In exchange for your continued services as an executive of
Fairchild, and subject to your having been, on the date of
termination, an employee of Fairchild for at least five years and
an officer of Fairchild for at least three years, Fairchild hereby
agrees that, in the event Fairchild terminates your employment
without cause during a three year period, commencing on the date of
this letter, you shall receive on date of termination a severance
payment consisting of one year of then current base salary. In
addition, if, but for such termination, a bonus would have been
earned by you for the year in which termination takes place, you
shall be entitled at year-end to such bonus, pro-rated, however,
from the beginning of the fiscal year to date of termination. Any
portion of the bonus that is based on individual goals shall be
deemed to be fully earned.
In addition, and notwithstanding whether the conditions for
severance pay have been met, if a change of control (as defined in
the attached Exhibit A) of Fairchild occurs during a three year
period from the date of this letter while you are still an employee
of Fairchild, you shall be entitled to receive a sum equal to two
times your then current total annual compensation (including base
salary and incentive compensation target, earned or unearned),
payable one-half on the date of change of control (the first change
payment) and, as long as your employment continues, one-half over
a one year period in four equal quarterly installments,
Mr. Michael T. Alcox
October 21, 1994
Page 2
commencing three months after the date of change of control (the
second change payments), except that in the event your employment
is terminated without cause during said one year period (or in the
event you terminate your employment during said one year period for
good reason as defined below), you shall be entitled to receive
immediately the first change payment (if not already paid), any
second change payments accrued to date of termination but not yet
paid, and the severance payment, if applicable, referred to in the
preceding paragraph of this letter, but shall not be entitled to
any further second change payments not then due and payable. Good
reason includes any action by Fairchild (or a successor company)
which results in a reduction in your compensation, position,
authority, duties or responsibilities such that your senior
management opportunities are substantially lessened, or which
results in your primary place of employment being relocated more
than 35 miles from the current Dulles Airport location. No sum
payable to you upon change of control shall limit or affect your
entitlement to base salary or incentive compensation for all
periods during which you are employed by Fairchild.
Please acknowledge your agreement with the terms of this
letter agreement by signing the attached copy and returning same to
this office, which shall be effective as of the date of your
acceptance.
Very truly yours,
THE FAIRCHILD CORPORATION
By: John D. Jackson
ACCEPTED AND AGREED:
By: Michael T. Alcox
December 16, 1994
<PAGE>
EXHIBIT A
"Change of Control" means the occurrence of any of the
following events;
(i) any "Person", other than one or more "Permitted Holders",
is or becomes the "Beneficial Owner", directly or indirectly, of
more than 20% of the total voting power (the "Vote") of the "Voting
Stock" of the Company, and the Permitted Holders "beneficially
own", directly or indirectly, in the aggregate a lesser percentage
of the Vote of all the Voting Stock of the Company than such other
Person; provided, however, such other person shall be deemed to
beneficially own all Voting Stock of a corporation held by any
other corporation (the "parent corporation"), if such other Person
"beneficially owns", directly or indirectly, more than 20% of the
Vote of the Voting Stock of such parent corporation, and the
Permitted Holders "beneficially own", directly or indirectly, in
the aggregate a lesser percentage of the Vote of the Voting Stock
of such parent corporation;
(ii) during any period of two consecutive years, individuals
who at the beginning of any such period constituted the Board of
Directors of the Company (together with any new directors whose
election by such Board or whose nomination for election by the
shareholders of the Company was approved by a vote of a majority of
the directors of the Company then still in office who were either
directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the
Company then in office;
(iii) The Company consolidates with or merges with or into
another Person, pursuant to a transaction (a) in which the
outstanding Voting Stock of the Company is changed into or
exchanged for cash, securities or other property (other than any
such transaction where the outstanding Voting Stock of the Company
is changed into or exchanged for Voting Stock of the surviving
corporation), and (b) in which the holders of the Vote of the
Voting Stock of the Company immediately prior to such transaction
own, directly or indirectly, less than a majority of the Vote of
the Voting Stock of the surviving Person immediately after such
transaction, and (c) by which an event described in Section (i)
shall have occurred ; or
(iv) the Company is liquidated or dissolved, or all or
substantially all of its directly or indirectly held assets are
sold or otherwise conveyed to a third party other than one or more
Permitted Holders.
"Beneficial Owner" has the meaning set forth in Rules 13d-3
and 13d-5 under the Exchange Act, except that a Person shall be
deemed to be the Beneficial Owner of all shares that any such
Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time; and the terms
"beneficial ownership" and "beneficially owns" have meanings
correlative to the foregoing.
"Permitted Holders" means Jeffrey J. Steiner and his
"associates" (as defined in Rule 12b-2 under the Exchange Act) or
any other Person directly or indirectly controlled by Jeffrey J.
Steiner.
"Person" shall be as defined in Section 13(d) and 14(d) of
the Exchange Act.
"Voting Stock" means, with respect to a corporation, (i) all
classes of capital stock then outstanding of such corporation
normally entitled to vote in elections of directors, and (ii) any
security which may, at the option of the holder, be converted into
or exchanged for Voting Stock. <PAGE>
December 21, 1994
Mr. Michael T. Alcox
The Fairchild Corporation
300 West Service Road
P.O. Box 10803
Chantilly, VA 22021
Dear Mike:
By letter dated October 21, 1994, The Fairchild Corporation
agreed to make certain payments to you in the event a "change of
control" occurred under certain conditions ("letter agreement").
In order to avoid excess parachute payments that would have
adverse tax consequences under Section 280G of the Internal Revenue
Code, the letter agreement is hereby amended to include the
following paragraph just prior to the last paragraph of the letter
agreement:
"In no event shall any amounts payable pursuant to this letter
agreement which are deemed to constitute 'parachute payments' (as
defined in Section 280G of the Internal Revenue Code, as amended by
the Tax Reform Act of 1986, and as thereafter amended ('the
Code')), when added to any other payments which are deemed to
constitute 'parachute payments,' as defined in the Code, exceed
2.99 times your 'base amount' (as defined in the Code)."
Except as modified by the terms set forth above, the terms of
the letter agreement shall remain in full force and effect.
Please acknowledge your agreement with the terms set forth
above by signing the attached copy and returning same to this
office, which shall be effective as of the date of your acceptance.
Very truly yours,
THE FAIRCHILD CORPORATION
By: John D. Jackson
ACCEPTED AND AGREED:
By: Michael T. Alcox
Date: January 4, 1995
October 21, 1994
Mr. Donald E. Miller
The Fairchild Corporation
300 West Service Road
P.O. Box #10803
Chantilly, VA 22021
Dear Donald:
This letter agreement supersedes the letter agreement dated
October 23, 1991 between The Fairchild Corporation (Fairchild) and
you and any other agreements between you and Fairchild relating to
severance and change of control payments, each of which shall be
deemed terminated, effective upon your acceptance hereof.
In exchange for your continued services as an executive of
Fairchild, and subject to your having been, on the date of
termination, an employee of Fairchild for at least five years and
an officer of Fairchild for at least three years, Fairchild hereby
agrees that, in the event Fairchild terminates your employment
without cause during a three year period, commencing on the date of
this letter, you shall receive on date of termination a severance
payment consisting of one year of then current base salary. In
addition, if, but for such termination, a bonus would have been
earned by you for the year in which termination takes place, you
shall be entitled at year-end to such bonus, pro-rated, however,
from the beginning of the fiscal year to date of termination. Any
portion of the bonus that is based on individual goals shall be
deemed to be fully earned.
In addition, and notwithstanding whether the conditions for
severance pay have been met, if a change of control (as defined in
the attached Exhibit A) of Fairchild occurs during a three year
period from the date of this letter while you are still an employee
of Fairchild, you shall be entitled to receive a sum equal to two
times your then current total annual compensation (including base
salary and incentive compensation target, earned or unearned),
payable one-half on the date of change of control (the first change
payment) and, as long as your employment continues, one-half over
a one year period in four equal quarterly installments,
Mr. Donald E. Miller
October 21, 1994
Page 2
commencing three months after the date of change of control (the
second change payments), except that in the event your employment
is terminated without cause during said one year period (or in the
event you terminate your employment during said one year period for
good reason as defined below), you shall be entitled to receive
immediately the first change payment (if not already paid), any
second change payments accrued to date of termination but not yet
paid, and the severance payment, if applicable, referred to in the
preceding paragraph of this letter, but shall not be entitled to
any further second change payments not then due and payable. Good
reason includes any action by Fairchild (or a successor company)
which results in a reduction in your compensation, position,
authority, duties or responsibilities such that your senior
management opportunities are substantially lessened, or which
results in your primary place of employment being relocated more
than 35 miles from the current Dulles Airport location. No sum
payable to you upon change of control shall limit or affect your
entitlement to base salary or incentive compensation for all
periods during which you are employed by Fairchild.
Please acknowledge your agreement with the terms of this
letter agreement by signing the attached copy and returning same to
this office, which shall be effective as of the date of your
acceptance.
Very truly yours,
THE FAIRCHILD CORPORATION
By: John D. Jackson
ACCEPTED AND AGREED:
By: Donald E. Miller
Date: October 26, 1994
<PAGE>
EXHIBIT A
"Change of Control" means the occurrence of any of the
following events;
(i) any "Person", other than one or more "Permitted Holders",
is or becomes the "Beneficial Owner", directly or indirectly, of
more than 20% of the total voting power (the "Vote") of the "Voting
Stock" of the Company, and the Permitted Holders "beneficially
own", directly or indirectly, in the aggregate a lesser percentage
of the Vote of all the Voting Stock of the Company than such other
Person; provided, however, such other person shall be deemed to
beneficially own all Voting Stock of a corporation held by any
other corporation (the "parent corporation"), if such other Person
"beneficially owns", directly or indirectly, more than 20% of the
Vote of the Voting Stock of such parent corporation, and the
Permitted Holders "beneficially own", directly or indirectly, in
the aggregate a lesser percentage of the Vote of the Voting Stock
of such parent corporation;
(ii) during any period of two consecutive years, individuals
who at the beginning of any such period constituted the Board of
Directors of the Company (together with any new directors whose
election by such Board or whose nomination for election by the
shareholders of the Company was approved by a vote of a majority of
the directors of the Company then still in office who were either
directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the
Company then in office;
(iii) The Company consolidates with or merges with or into
another Person, pursuant to a transaction (a) in which the
outstanding Voting Stock of the Company is changed into or
exchanged for cash, securities or other property (other than any
such transaction where the outstanding Voting Stock of the Company
is changed into or exchanged for Voting Stock of the surviving
corporation), and (b) in which the holders of the Vote of the
Voting Stock of the Company immediately prior to such transaction
own, directly or indirectly, less than a majority of the Vote of
the Voting Stock of the surviving Person immediately after such
transaction, and (c) by which an event described in Section (i)
shall have occurred ; or
(iv) the Company is liquidated or dissolved, or all or
substantially all of its directly or indirectly held assets are
sold or otherwise conveyed to a third party other than one or more
Permitted Holders.
"Beneficial Owner" has the meaning set forth in Rules 13d-3
and 13d-5 under the Exchange Act, except that a Person shall be
deemed to be the Beneficial Owner of all shares that any such
Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time; and the terms
"beneficial ownership" and "beneficially owns" have meanings
correlative to the foregoing.
"Permitted Holders" means Jeffrey J. Steiner and his
"associates" (as defined in Rule 12b-2 under the Exchange Act) or
any other Person directly or indirectly controlled by Jeffrey J.
Steiner.
"Person" shall be as defined in Section 13(d) and 14(d) of
the Exchange Act.
"Voting Stock" means, with respect to a corporation, (i) all
classes of capital stock then outstanding of such corporation
normally entitled to vote in elections of directors, and (ii) any
security which may, at the option of the holder, be converted into
or exchanged for Voting Stock. <PAGE>
December 21, 1994
Mr. Donald E. Miller
The Fairchild Corporation
300 West Service Road
P.O. Box 10803
Chantilly, VA 22021
Dear Donald:
By letter dated October 21, 1994, The Fairchild Corporation
agreed to make certain payments to you in the event a "change of
control" occurred under certain conditions ("letter agreement").
In order to avoid excess parachute payments that would have
adverse tax consequences under Section 280G of the Internal Revenue
Code, the letter agreement is hereby amended to include the
following paragraph just prior to the last paragraph of the letter
agreement:
"In no event shall any amounts payable pursuant to this letter
agreement which are deemed to constitute 'parachute payments' (as
defined in Section 280G of the Internal Revenue Code, as amended by
the Tax Reform Act of 1986, and as thereafter amended ('the
Code')), when added to any other payments which are deemed to
constitute 'parachute payments,' as defined in the Code, exceed
2.99 times your 'base amount' (as defined in the Code)."
Except as modified by the terms set forth above, the terms of
the letter agreement shall remain in full force and effect.
Please acknowledge your agreement with the terms set forth
above by signing the attached copy and returning same to this
office, which shall be effective as of the date of your acceptance.
Very truly yours,
THE FAIRCHILD CORPORATION
By: John D. Jackson
ACCEPTED AND AGREED:
By: Donald E. Miller
Date: December 22, 1994
October 21, 1994
Mr. John L. Flynn
The Fairchild Corporation
300 West Service Road
P.O. Box #10803
Chantilly, VA 22021
Dear John:
This letter agreement supersedes the letter agreement dated
October 23, 1991 between The Fairchild Corporation (Fairchild) and
you and any other agreements between you and Fairchild relating to
severance and change of control payments, each of which shall be
deemed terminated, effective upon your acceptance hereof.
In exchange for your continued services as an executive of
Fairchild, and subject to your having been, on the date of
termination, an employee of Fairchild for at least five years and
an officer of Fairchild for at least three years, Fairchild hereby
agrees that, in the event Fairchild terminates your employment
without cause during a three year period, commencing on the date of
this letter, you shall receive on date of termination a severance
payment consisting of one year of then current base salary. In
addition, if, but for such termination, a bonus would have been
earned by you for the year in which termination takes place, you
shall be entitled at year-end to such bonus, pro-rated, however,
from the beginning of the fiscal year to date of termination. Any
portion of the bonus that is based on individual goals shall be
deemed to be fully earned.
In addition, and notwithstanding whether the conditions for
severance pay have been met, if a change of control (as defined in
the attached Exhibit A) of Fairchild occurs during a three year
period from the date of this letter while you are still an employee
of Fairchild, you shall be entitled to receive a sum equal to two
times your then current total annual compensation (including base
salary and incentive compensation target, earned or unearned),
payable one-half on the date of change of control (the first change
payment) and, as long as your employment continues, one-half over
a one year period in four equal quarterly installments,
Mr. John L. Flynn
October 21, 1994
Page 2
commencing three months after the date of change of control (the
second change payments), except that in the event your employment
is terminated without cause during said one year period (or in the
event you terminate your employment during said one year period for
good reason as defined below), you shall be entitled to receive
immediately the first change payment (if not already paid), any
second change payments accrued to date of termination but not yet
paid, and the severance payment, if applicable, referred to in the
preceding paragraph of this letter, but shall not be entitled to
any further second change payments not then due and payable. Good
reason includes any action by Fairchild (or a successor company)
which results in a reduction in your compensation, position,
authority, duties or responsibilities such that your senior
management opportunities are substantially lessened, or which
results in your primary place of employment being relocated more
than 35 miles from the current Dulles Airport location. No sum
payable to you upon change of control shall limit or affect your
entitlement to base salary or incentive compensation for all
periods during which you are employed by Fairchild.
Please acknowledge your agreement with the terms of this
letter agreement by signing the attached copy and returning same to
this office, which shall be effective as of the date of your
acceptance.
Very truly yours,
THE FAIRCHILD CORPORATION
By: John D. Jackson
ACCEPTED AND AGREED:
By: John L. Flynn
Date: October 26, 1994
<PAGE>
EXHIBIT A
"Change of Control" means the occurrence of any of the
following events;
(i) any "Person", other than one or more "Permitted Holders",
is or becomes the "Beneficial Owner", directly or indirectly, of
more than 20% of the total voting power (the "Vote") of the "Voting
Stock" of the Company, and the Permitted Holders "beneficially
own", directly or indirectly, in the aggregate a lesser percentage
of the Vote of all the Voting Stock of the Company than such other
Person; provided, however, such other person shall be deemed to
beneficially own all Voting Stock of a corporation held by any
other corporation (the "parent corporation"), if such other Person
"beneficially owns", directly or indirectly, more than 20% of the
Vote of the Voting Stock of such parent corporation, and the
Permitted Holders "beneficially own", directly or indirectly, in
the aggregate a lesser percentage of the Vote of the Voting Stock
of such parent corporation;
(ii) during any period of two consecutive years, individuals
who at the beginning of any such period constituted the Board of
Directors of the Company (together with any new directors whose
election by such Board or whose nomination for election by the
shareholders of the Company was approved by a vote of a majority of
the directors of the Company then still in office who were either
directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the
Company then in office;
(iii) The Company consolidates with or merges with or into
another Person, pursuant to a transaction (a) in which the
outstanding Voting Stock of the Company is changed into or
exchanged for cash, securities or other property (other than any
such transaction where the outstanding Voting Stock of the Company
is changed into or exchanged for Voting Stock of the surviving
corporation), and (b) in which the holders of the Vote of the
Voting Stock of the Company immediately prior to such transaction
own, directly or indirectly, less than a majority of the Vote of
the Voting Stock of the surviving Person immediately after such
transaction, and (c) by which an event described in Section (i)
shall have occurred ; or
(iv) the Company is liquidated or dissolved, or all or
substantially all of its directly or indirectly held assets are
sold or otherwise conveyed to a third party other than one or more
Permitted Holders.
"Beneficial Owner" has the meaning set forth in Rules 13d-3
and 13d-5 under the Exchange Act, except that a Person shall be
deemed to be the Beneficial Owner of all shares that any such
Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time; and the terms
"beneficial ownership" and "beneficially owns" have meanings
correlative to the foregoing.
"Permitted Holders" means Jeffrey J. Steiner and his
"associates" (as defined in Rule 12b-2 under the Exchange Act) or
any other Person directly or indirectly controlled by Jeffrey J.
Steiner.
"Person" shall be as defined in Section 13(d) and 14(d) of
the Exchange Act.
"Voting Stock" means, with respect to a corporation, (i) all
classes of capital stock then outstanding of such corporation
normally entitled to vote in elections of directors, and (ii) any
security which may, at the option of the holder, be converted into
or exchanged for Voting Stock. <PAGE>
December 21, 1994
Mr. John L. Flynn
The Fairchild Corporation
300 West Service Road
P.O. Box 10803
Chantilly, VA 22021
Dear John:
By letter dated October 21, 1994, The Fairchild Corporation
agreed to make certain payments to you in the event a "change of
control" occurred under certain conditions ("letter agreement").
In order to avoid excess parachute payments that would have
adverse tax consequences under Section 280G of the Internal Revenue
Code, the letter agreement is hereby amended to include the
following paragraph just prior to the last paragraph of the letter
agreement:
"In no event shall any amounts payable pursuant to this letter
agreement which are deemed to constitute 'parachute payments' (as
defined in Section 280G of the Internal Revenue Code, as amended by
the Tax Reform Act of 1986, and as thereafter amended ('the
Code')), when added to any other payments which are deemed to
constitute 'parachute payments,' as defined in the Code, exceed
2.99 times your 'base amount' (as defined in the Code)."
Except as modified by the terms set forth above, the terms of
the letter agreement shall remain in full force and effect.
Please acknowledge your agreement with the terms set forth
above by signing the attached copy and returning same to this
office, which shall be effective as of the date of your acceptance.
Very truly yours,
THE FAIRCHILD CORPORATION
By: John D. Jackson
ACCEPTED AND AGREED:
By: John L. Flynn
Date: December 22, 1994
October 21, 1994
Mr. Jerry R. Lirette
D-M-E Company
29111 Stephenson Highway
Madison Heights, MI 48071
Dear Jerry:
This letter agreement supersedes any agreements between you
and The Fairchild Corporation (Fairchild) relating to severance
payments, including, if applicable, the letter agreement dated
October 23, 1991 between Fairchild and you, each of which shall be
deemed terminated, effective upon your acceptance hereof.
In exchange for your continued services as an executive of
Fairchild, Fairchild hereby agrees that, in the event Fairchild
terminates your employment without cause during a three year
period, commencing on the date of this letter, you shall receive on
date of termination a severance payment consisting of one year of
then current base salary. In addition, if, but for such
termination, a bonus would have been earned by you for the year in
which termination takes place, you shall be entitled at year-end to
such bonus, pro-rated, however, from the beginning of the fiscal
year to date of termination. Any portion of the bonus that is
based on individual goals shall be deemed to be fully earned.
Please acknowledge your agreement with the terms of this
letter agreement by signing the attached copy and returning same to
this office, which shall be effective as of the date of your
acceptance.
Very truly yours,
THE FAIRCHILD CORPORATION
By: Thomas J. Flaherty
ACCEPTED AND AGREED:
By: Jerry R. Lirette
Date: November 1, 1994
October 21, 1994
Mr. Mel D. Borer
Fairchild Communications Services Company
300 West Service Road
P.O. Box #10804
Chantilly, VA 22021
Dear Mel:
This letter agreement supersedes any agreements between you
and The Fairchild Corporation (Fairchild) relating to severance
payments, including, if applicable, the letter agreement dated
October 23, 1991 between Fairchild and you, each of which shall be
deemed terminated, effective upon your acceptance hereof.
In exchange for your continued services as an executive of
Fairchild, Fairchild hereby agrees that, in the event Fairchild
terminates your employment without cause during a three year
period, commencing on the date of this letter, you shall receive on
date of termination a severance payment consisting of one year of
then current base salary. In addition, if, but for such
termination, a bonus would have been earned by you for the year in
which termination takes place, you shall be entitled at year-end to
such bonus, pro-rated, however, from the beginning of the fiscal
year to date of termination. Any portion of the bonus that is
based on individual goals shall be deemed to be fully earned.
Please acknowledge your agreement with the terms of this
letter agreement by signing the attached copy and returning same to
this office, which shall be effective as of the date of your
acceptance.
Very truly yours,
THE FAIRCHILD CORPORATION
By: Thomas J. Flaherty
ACCEPTED AND AGREED:
By: Mel D. Borer
Date: October 24, 1994
December 21, 1994
Mr. Thomas J. Flaherty
The Fairchild Corporation
300 West Service Road
P.O. Box 10803
Chantilly, VA 22021
Dear Tom:
This letter agreement modifies and supplements the Employment
Agreement dated April 8, 1993 between The Fairchild Corporation
("Fairchild") and you ("Agreement") as follows:
Change of Control:
If a "Change of Control" (as defined in the attached Exhibit A)
of Fairchild occurs during a three year period from the date of
this letter while you are still an employee of Fairchild, you
shall be entitled to receive a sum equal to two times your then
current total annual compensation (including base salary and
incentive compensation target, earned or unearned), payable one-
half on the date of change of control (the "first change
payment") and, as long as your employment continues, one-half
over a one year period in four equal quarterly installments,
commencing three months after the date of change of control (the
"second change payments"), except that in the event your
employment is terminated without cause during said one year
period (or in the event you terminate your employment during said
one year period for "good reason" as defined below), you shall be
entitled to receive immediately the first change payment (if not
already paid), any second change payments accrued to date of
termination but not yet paid, and any severance payments payable
to you under the Agreement, but shall not be entitled to any
further second change payments not then due and payable. "Good
reason" includes any action by Fairchild (or a successor company)
which results in a reduction in your compensation, position,
authority, duties or responsibilities such that your senior
management opportunities are substantially lessened, or which
results in your primary place of employment being relocated more
than 35 miles from the current Dulles Airport location. No sum
payable to you upon change of control shall limit or affect your
entitlement to base salary or incentive compensation for all
periods during which you are employed by Fairchild.
In no event shall any amounts payable pursuant to this letter
agreement which are deemed to constitute "parachute payments" (as
defined in Section 280G of the Internal Revenue Code, as amended
by the Tax Reform Act of 1986, and as thereafter amended ("the
Code")), when added to any other payments which are deemed to
constitute "parachute payments", as defined in the Code, exceed
2.99 times your "base amount" (as defined in the Code).
Except as supplemented by the terms set forth above, the terms of
the Agreement shall remain in full force and effect. Thus, the
terms of severance compensation set forth in the "Termination"
section of the Agreement shall govern such events, rather than
the severance policy recently adopted by the Compensation
Committee of the Board of Directors requiring, among other
things, five years of Fairchild employment and three years of
service as an Officer /General Manager of Fairchild to be
eligible for severance compensation.
Please acknowledge your agreement with the terms of this letter
agreement by signing the attached copy and returning same to this
office, which shall be effective as of the date of your
acceptance.
Very truly yours,
THE FAIRCHILD CORPORATION
By: John D. Jackson
ACCEPTED AND AGREED:
By: Thomas J. Flaherty
Date: January 11, 1995
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the
incorporation of our report on the consolidated financial
statements of The Fairchild Corporation and Subsidiaries for the
year ended June 30, 1995 included in this Form 10-K into the
Company's previously filed Form S-8 Registration Statements Nos.
35-27317, 33-21698 and 33-06183.
Washington, DC
September 26\, 1995
