ITEM 1. BUSINESS - -----------------
Item 1 of Form 10-K is omitted in accordance with General Instruction J(2)(d), Omission of Information by Certain Wholly-Owned Subsidiaries. A brief description of the business done by RHI Holdings, Inc. and its subsidiaries is furnished in lieu thereof:
(a) Brief Description -----------------
RHI Holdings, Inc. (the "Company"), formerly known as Rexnord Holdings Inc., is essentially a holding company incorporated in Delaware. It has two principal operating subsidiaries, Fairchild Holding Corporation ("FHC") and Banner Aerospace, Inc. ("Banner"). As used herein, the term "Company" refers to RHI Holdings, Inc. and its subsidiaries, unless otherwise indicated. The Company is a wholly-owned subsidiary of The Fairchild Corporation ("TFC"). The Company also holds significant equity interests in Shared Technologies Fairchild, Inc. ("STFI"), which provides telecommunications services and systems domestically, and Nacanco Paketleme ("Nacanco"), which manufactures customized cans for soft drinks and beer in Turkey.
The Company's principal operations are conducted through FHC and Banner, in four business segments: Aerospace Fasteners, Aerospace Distribution, Industrial Products, and prior to March 13, 1996, Communications Services. The Aerospace Fasteners segment designs, manufactures and markets high performance, specialty fastening systems, primarily for aerospace applications. The Aerospace Distribution segment is a leading international distributor to the aerospace industry, providing a wide range of aircraft parts and related support services. The Industrial Products segment designs, manufactures and markets wet processing tools, equipment and systems required for the manufacture of semiconductor chips and related products. The Communications Services segment, which was merged into Shared Technologies Inc. on March 13, 1996, furnished telecommunications services and equipment to tenants of commercial office buildings, and sold, installed, and maintained telecommunications systems for business and government customers. For a comparison of the sales of each of the Company's business segments for each of the last three fiscal years, see "Management Discussion and Analysis of Results of Operations and Financial Condition".
Fiscal 1996 Developments - ------------------------
The Company, RHI and Fairchild Industries, Inc. ("FII," the company's former subsidiary), entered into an Agreement and Plan of Merger dated as of November 9, 1995 (as amended, the "Merger Agreement") with Shared Technologies Inc. ("STI"). On March 13, 1996, in accordance with the Merger Agreement, STI succeeded to the telecommunications systems and services business operated by the Company's Fairchild Communications Services Company ("FCSC").
The transaction was effected by a Merger of FII with and into STI (the "Merger") with the surviving company renamed STFI. Prior to the Merger, FII transferred all of its assets to, and all of its liabilities were assumed by FHC, except for the assets and liabilities of FCSC, and $223.5 million of the FII's existing debt and preferred stock consisting of (i) the $40.0 million liquidation value of the outstanding Series A and Series C Preferred Stock of FII, (ii) the $125.0 million principal amount outstanding of FII 12 1/4% Senior Notes due 1999 (the "Senior Notes"), and (iii) an amount of bank and other indebtedness of approximately $58.5 million (the "Assumed Indebtedness"). The stock of FHC was then distributed to RHI. No taxabale gain or loss was recognized, in the Company's view, on the transfer of the FII assets and liabilities to FHC, and the distribution of FHC stock to RHI. As part of the Merger Agreement, FII made a cash tender offer to purchase all of the outstanding Senior Notes and obtained such holders consent to amend the indenture under which the Senior Notes were issued to remove all covenants which could be amended or deleted by majority vote (the "Tender Offer"). Pursuant to the Merger, an amount sufficient to redeem the Series A and Series C Preferred Stock at their liquidation value ($45.00 per share plus accrued and unpaid dividends) was placed with Chemical Mellon Shareholder Services as Escrow Agent. Also as part of the Merger, STFI (i) purchased the $125.0 million aggregate principal amount of Senior Notes tendered pursuant to the aforesaid tender offer, and (ii) repaid in full the Assumed Indebtedness.
As a result of the Merger, the Company received (i) 6,000,000 shares of Common Stock of STFI (representing approximately 41% of the outstanding shares after giving effect to such issuance), (ii) shares of 6% Cumulative Convertible Preferred Stock of STFI having an aggregate liquidation preference of $25.0 million (subject to upward adjustment) and which are convertible into Common Stock of STFI at a conversion price of $6.375 per share (which, if converted, would represent, together with the other Common Stock issued to the Company, approximately 42% of the Common Stock of STFI on a fully diluted basis), and (iii) shares of a Special Preferred Stock having an initial liquidation preference of $20.0 million (which could accrue up to a maximum of $30.0 million over a ten-year period, if not redeemed earlier). In connection with its stock ownership, the Company has the right to elect four of the eleven members of the Board of Directors of STFI and have agreed, subject to certain exceptions, not to sell any of STFI's shares for a two- year period.
The Merger was structured as a reorganization under section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended. In Fiscal 1996, the Company recorded a $163.1 million non-recurring gain from this transaction.
On February 22, 1996, pursuant to the Asset Purchase Agreement dated January 26, 1996 (the "closing date"), the Company, through its subsidiaries, completed the sale of certain assets, liabilities and the business of the D-M-E Company ("DME") to Cincinnati Milacron Inc. ("CMI") for a sales price of approximately $244.3 million, as adjusted. The sales price consists of $74.0 million in cash, and two 8% promissory notes in the aggregate principal amount of $170.3 million (together, the "8% CMI Notes"). The promissory notes were due to mature one year following the closing date; provided that the Company require prepayment of, and CMI had the right to prepay the 8% CMI Notes after the six-month anniversary of the closing date. On July 29, 1996, CMI paid in full the 8% CMI Notes.
As a result of the sale of DME, the Company recorded an after-tax gain on disposal of discontinued operations of approximately $54.0 million in Fiscal 1996.
On January 27, 1996, FII completed the sale of Fairchild Data Corporation ("Data") to SSE Telecom, Inc. ("SSE") for book value of approximately $4.4 million and 100,000 shares of SSE's common stock valued at $9.0625 per share, or $.9 million, at January 26, 1996, and warrants to purchase an additional 50,000 shares of SSE's common stock at $11.09 per share. In addition, the Company has an opportunity to earn an additional 100,000 shares based on the future performance of SSE during the twelve months following the date of sale. The Company recorded a loss of $.1 million from this transaction in Fiscal 1996.
Effective February 25, 1996, the Company completed a transfer of Harco to Banner in exchange for 5,386,477 shares of Banner common stock. The exchange has increased the Company's ownership of Banner common stock from approximately 47.2% to 59.3%, resulting in the Company becoming the majority shareholder of Banner. Accordingly, the Company consolidated Banner on February 25, 1996. Banner is a leading international supplier to the aerospace industry as a distributor, providing a wide range of aircraft parts and related support services. Harco is a distributor of precision fasteners to the aerospace industry.
Aerospace Fasteners - -------------------
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 42.6% of total Company sales for the year ended June 30, 1996.
Aerospace Distribution - ----------------------
The Company acquired a majority ownership of Banner on February 26, 1996. The Company, through Banner, distributes a wide variety of aircraft parts, which it carries in inventory. In addition to selling products that it has purchased on the open market, Banner also acts as a non-exclusive, authorized distributor of many different product lines. No single distributor arrangement is material to the Company's financial condition taken as a whole. The Aerospace Distribution segment accounted for 26.1% of total Company sales in Fiscal 1996.
Industrial Products - -------------------
The Industrial Products segment consists primarily of three distinct companies operating under the trade names Fairchild Technologies ("FT"), Fairchild Scandinavian Bellyloading Company AB ("SBC") and Fairchild Gas Springs Division ("Gas Springs").
Acquired by the Company in June 1994, FT is a leading designer, manufacturer and marketer of high performance, cost effective production equipment used to manufacture semiconductors, liquid crystal displays and compact disk products.
A Fiscal 1995 start-up operation, Gas Springs is a designer and manufacturer of gas springs for automotive and industrial/commercial applications to assist in the raising, lowering and moving of heavy loads.
Acquired by the Company in September 1994, SBC is the designer and manufacturer of patented cargo loading systems, which are installed in the cargo area of commercial aircraft, enabling cargo to be loaded rapidly and efficiently.
The Industrial Products segment accounted for 13.0% of total Company sales for the year ended June 30, 1996. Approximately 89.1% of the Industrial Products segment revenues is provided by FT.
Communications Services - -----------------------
On March 13, 1996, the Company's Fairchild Communications Services Company was merged with STI. As a result of the Merger, the Company is accounting for its investment in STFI using the equity method. Prior to March 1996, the Company consolidated the results of FCSC. The Communications Services segment accounted for 18.3% of total Company sales for the year ended June 30, 1996. All of the Communications Services segment sales were domestic.
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 21 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, 1996.
Backlog of Orders - -----------------
Backlog is significant in the Company's Aerospace Fasteners segment, Aerospace Distribution segment and Industrial Products segments, due to long- term production requirements of its customers. The Company's backlog of orders as of June 30, 1996 in the Aerospace Fasteners, Aerospace Distribution segment and Industrial Products segments amounted to $109.9 million, $62.2 million, and $22.9 million, respectively. The Company anticipates that approximately 86.8% of the aggregate backlog at June 30, 1996 will be delivered by June 30, 1997.
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.
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 $.1 million, $1.0 million and $1.4 million for the years ended June 30, 1996, 1995, and 1994, 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, 1996, the Company had approximately 2,800 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.
ITEM 2. PROPERTIES - --------------------
As of June 30, 1996, the Company owned or leased properties totalling approximately 1,502,000 square feet, approximately 767,000 square feet of which was owned and 735,000 square feet was leased. The Aerospace Fasteners segment's properties consisted of approximately 563,000 square feet, with principal operating facilities of approximately 516,000 square feet concentrated in Southern California and Germany. The Aerospace Distribution segments properties consisted of approximately 703,000 square feet, with principal operating facilities of approximately 473,000 square feet located in California, Connecticut, Florida, Texas and Utah. The Industrial Products segment's properties consisted of approximately 117,000 square feet, with principal operating facilities of approximately 82,000 square feet located in California and Germany.
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) a 68 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.
Information concerning long-term rental obligations of the Company at June 30, 1996, is set forth in Note 19 to the Company's consolidated financial statements, included in Item 8, Financial Statements and Supplementary Data.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS - ---------------------------
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 has held discussions with the government to attempt to resolve these pension accounting issues.
Environmental Matters - ---------------------
The Company and other aerospace fastener and industrial product manufacturers are subject to stringent Federal, state and local environmental laws and regulations concerning, among other things, the discharge of materials into the environment and the generation, handling, storage, transportation and disposal of waste and hazardous materials. To date, such laws and regulations have not had a material effect on the financial condition, results of operations, or net cash flows of the Company, although the Company has expended, and can be expected to expend in the future, significant amounts for investigation of environmental conditions and installation of environmental control facilities, remediation of environmental conditions and other similar matters, particularly in the Aerospace Fasteners segment.
In connection with its plans to dispose of certain real estate, the Company must investigate environmental conditions and may be required to take certain corrective action prior or pursuant to any such disposition. In addition, management has identified several areas of potential contamination at or from other facilities owned, or previously owned, by the Company, that may require the Company either to take corrective action or to contribute to a clean-up. The Company is also a defendant in certain lawsuits and proceedings seeking to require the Company to pay for investigation or remediation of environmental matters and has been alleged to be a potentially responsible party at various "Superfund" sites. Management of the Company believes that it has recorded adequate reserves in its financial statements to complete such investigation and take any necessary corrective actions or make any necessary contributions. No amounts have been recorded as due from third parties, including insurers, or set off against, any liability of the Company, unless such parties are contractually obligated to contribute and are not disputing such liability.
As of June 30, 1996, the consolidated total recorded liabilities of the Company for environmental matters totalled $11.3 million, which represented the estimated probable exposures for these matters. It is reasonably possible that the Company's total exposure for these matters could be approximately $19.1 million.
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 future results of operations or net cash flows of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS - --------------------------------------------------------
None
PART II -------
ITEM 5.
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED - ---------------------------------------------------------- STOCKHOLDER MATTERS -------------------
All of the Company's outstanding common stock is held by TFC. There is no established public trading market and no dividends have been declared for this class of common stock.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA - --------------------------------
Item 6 of Form 10-K is omitted in accordance with General Instructions J(2)(a), Omission of Information by Certain Wholly-Owned Subsidiaries.
ITEM 7.
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF - ---------------------------------------------- RESULTS OF OPERATIONS AND FINANCIAL CONDITION ---------------------------------------------
Item 7 of Form 10-K is omitted in accordance with General Instruction J(2)(a), Omission of Information by Certain Wholly-Owned Subsidiaries. Management's narrative analysis of the results of operations is furnished in lieu thereof:
MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS - ------------------------------------------------------------
RHI Holdings, Inc. (the "Company"), formerly known as Rexnord Holdings Inc., is essentially a holding company incorporated in the State of Delaware. It has two principal operating subsidiaries, Fairchild Holding Corporation ("FHC") and Banner Aerospace, Inc. ("Banner"). The Company is a wholly-owned subsidiary of The Fairchild Corporation ("TFC"). The Company also holds a significant equity interest in Shared Technologies Fairchild, Inc. ("STFI") and Nacanco Paketleme ("Nacanco").
RECENT DEVELOPMENTS
The Company, TFC and Fairchild Industries, Inc. ("FII," the company's former subsidiary), entered into an Agreement and Plan of Merger dated as of November 9, 1995 (as amended, the "Merger Agreement") with Shared Technologies Inc. ("STI"). On March 13, 1996, in accordance with the Merger Agreement, STI succeeded to the telecommunications systems and services business operated by the Company's Fairchild Communications Services Company ("FCSC").
The transaction was effected by a Merger of FII with and into STI (the "Merger") with the surviving company renamed STFI. Prior to the Merger, FII transferred all of its assets to, and all of its liabilities were assumed by FHC, except for the assets and liabilities of FCSC, and $223.5 million of the FII's existing debt and preferred stock consisting of (i) the $40.0 million liquidation value of the outstanding Series A and Series C Preferred Stock of FII, (ii) the $125.0 million principal amount outstanding of FII 12 1/4% Senior Notes due 1999 (the "Senior Notes"), and (iii) an amount of bank and other indebtedness of approximately $58.5 million (the "Assumed Indebtedness"). The stock of FHC was then distributed to the Company. No taxable gain or loss was recognized, in the Company's view, on the transfer of the FII assets and liabilities to FHC, and the distribution of FHC stock to the Company. As part of the Merger Agreement, FII made a cash tender offer to purchase all of the outstanding Senior Notes and obtained such holders consent to amend the indenture under which the Senior Notes were issued to remove all covenants which could be amended or deleted by majority vote (the "Tender Offer"). Pursuant to the Merger, an amount sufficient to redeem the Series A and Series C Preferred Stock at their liquidation value ($45.00 per share plus accrued and unpaid dividends) was placed with Chemical Mellon Shareholder Services as Escrow Agent. Also as part of the Merger, STFI (i) purchased the $125.0 million aggregate principal amount of Senior Notes tendered pursuant to the aforesaid tender offer and (ii) repaid in full the Assumed Indebtedness.
As a result of the Merger, the Company received (i) 6,000,000 shares of Common Stock of STFI (representing approximately 41% of the outstanding shares after giving effect to such issuance), (ii) shares of 6% Cumulative Convertible Preferred Stock of STFI having an aggregate liquidation preference of $25.0 million (subject to upward adjustment) and which are convertible into Common Stock of STFI at a conversion price of $6.375 per share (which, if converted, would represent, together with the other Common Stock issued to the Company, approximately 42% of the Common Stock of STFI on a fully diluted basis), and (iii) shares of a Special Preferred Stock having an initial liquidation preference of $20.0 million (which could accrue up to a maximum of $30.0 million over a ten-year period, if not redeemed earlier). In connection with its stock ownership, the Company has the right to elect four of the eleven members of the Board of Directors of STFI and have agreed, subject to certain exceptions, not to sell any of STFI's shares for a two- year period.
The Merger was structured as a reorganization under section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended. In Fiscal 1996, the Company recorded a $163.1 million non-recurring gain from this transaction.
On February 22, 1996, pursuant to the Asset Purchase Agreement dated January 26, 1996 (the "closing date"), the Company, through its subsidiaries, completed the sale of certain assets, liabilities and the business of the D-M-E Company ("DME") to Cincinnati Milacron Inc. ("CMI") for a sales price of approximately $244.3 million, as adjusted. The sales price consists of $74.0 million in cash, and two 8% promissory notes in the aggregate principal amount of $170.3 million (together, the "8% CMI Notes"). The promissory notes were due to mature one year following the closing date; provided that the Company had the right to require prepayment of, and CMI had the right to prepay the 8% CMI Notes after the six-month anniversary of the closing date. On July 29, 1996, CMI paid in full the 8% CMI Notes.
As a result of the sale of DME, the Company recorded an after-tax gain on disposal of discontinued operations of approximately $54.0 million in Fiscal 1996.
On January 27, 1996, FII completed the sale of Fairchild Data Corporation ("Data") to SSE Telecom, Inc. ("SSE") for book value of approximately $4.4 million and 100,000 shares of SSE's common stock valued at $9.0625 per share, or $.9 million, at January 26, 1996, and warrants to purchase an additional 50,000 shares of SSE's common stock at $11.09 per share. In addition, the Company has an opportunity to earn an additional 100,000 shares based on the future performance of SSE during the twelve months following the date of sale. There was no material gain or loss from this transaction.
DME and Data have been accounted for as discontinued operations and the prior periods financial statements have been restated to reflect the discontinuance of these companies. The combined net sales of DME and Data totaled $108.1 million (through January 26, 1996), $180.8 million and $166.5 million for Fiscal 1996, 1995 and 1994, respectively. Net earnings from discontinued operations was $9.2 million (through January 26, 1996), $14.0 million and $4.9 million for Fiscal 1996, 1995 and 1994, respectively.
Effective February 25, 1996, the Company completed a transfer of Harco to Banner in exchange for 5,386,477 shares of Banner common stock. The exchange has increased the Company's ownership of Banner common stock from approximately 47.2% to 59.3%, resulting in the Company becoming the majority shareholder of Banner. Accordingly, the Company consolidated Banner on February 25, 1996. Banner is a leading international supplier to the aerospace industry as a distributor, providing a wide range of aircraft parts and related support services. Harco is a distributor of precision fasteners to the aerospace industry.
RESULTS OF OPERATIONS
During Fiscal 1996, the Company operated in four principal business segments: Aerospace Fasteners, Aerospace Distribution, 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.
FISCAL 1996 VERSUS FISCAL 1995
General - -------
Overall sales increased by 36.5% in Fiscal 1996, compared to sales in Fiscal 1995, which reflected strong sales performances from the Aerospace Fasteners, Aerospace Distribution and Industrial Products business segments.
Operating income increased $17.8 million in Fiscal 1996, compared to operating losses in Fiscal 1995. During Fiscal 1996, operating losses decreased significantly in the Aerospace Fasteners segment primarily due to the results being realized from management changes, consolidation of plants, eliminating unprofitable product lines, pricing adjustments, substantial work force downsizing and new productivity programs, quality and marketing programs put in place. Operating income in the current year was up in the Industrial Products segment. The Communications Services segment contributed operating income of $14.6 million through March 13, 1996 when it was deconsolidated and merged with STFI. (See discussion below).
Aerospace Fasteners - -------------------
Sales in the Aerospace Fasteners segment increased 1.3% in Fiscal 1996, compared to the Fiscal 1995 period, reflecting moderate growth in this industry. New orders have been strong in recent months. The Harco division was transferred to the Aerospace Distribution segment on February 25, 1996. Excluding Harco's sales in both periods, sales increased 3.6% in Fiscal 1996.
Operating income was positive in the Aerospace Fasteners segment, which was a $11.6 million improvement in the Fiscal 1996 period over the corresponding Fiscal 1995 period. Management will continue to implement productivity improvements and reduce costs. A restructuring charge of $2.3 million was recorded in Fiscal 1996, primarily for severance pay to employees terminated as a result of further downsizing.
Aerospace Distribution - ----------------------
As a result of the transfer of Harco to Banner effective February 25, 1996, the Company recorded four months of sales and operating income of Banner, including Harco, for four months, as part of the Aerospace Distribution segment. This segment reported $130.0 million in sales and $5.6 million in operating income for this four month period ended June 30, 1996. The first eight months of Harco's sales and operating income are included in the Aerospace Fasteners Segment.
Industrial Products - -------------------
Sales in the Industrial Products segment, which included two start up operations in Fiscal 1995, increased 58.8% in Fiscal 1996, compared to the Fiscal 1995 period. $22.3 million of the sales increase is attributable to the performance of Fairchild Technologies which includes Fairchild Convac, a semiconductor equipment manufacturer which had a strong Fiscal 1996 performance resulting from the shipment of orders included in the prior year end backlog. This was compared to a very slow Fiscal 1995, which was the first period following the acquisition of Fairchild Convac. Also included in this segment is the Gas Spring division, which reported sales of $4.8 million in Fiscal 1996, and the Fairchild Scandinavian Bellyloading Company "SBC" which reported sales of $2.2 million.
Operating income in the Industrial Products segment became positive in Fiscal 1996 and increased $5.6 million in Fiscal 1996, compared to Fiscal 1995. $3.5 million of this net increase was contributed by Fairchild Technologies, primarily the result of its increase in sales and $2.5 million by the Gas Spring start-up which decreased its losses to breakeven.
Communications Services - -----------------------
Sales of $91.3 million were reported for the Communications Services segment in Fiscal 1996 for 8 1/2 months compared to a full 12 months of operating results in Fiscal 1995 as a result of the March 13, 1996 merger of the Communications Services segment into STI. Operating income of $14.6 million was reported for the Communications Services segment in Fiscal 1996 for 8 1/2 months prior to the Merger.
Other Expenses/Income - ---------------------
Corporate Administrative Expense - During Fiscal 1996, corporate administrative expense increased 4.2%. This increase resulted from additional corporate expenses required to complete the Merger and sale of discontinued operations. The Fiscal 1995 expense was lower partially due to reversal of several accruals not required.
Other corporate expense increased $.7 million in Fiscal 1996,compared to Fiscal 1995, primarily due to a favorable settlement of a bankruptcy case.
Net interest expense decreased 20.8% in Fiscal 1996, compared to the prior year period, due primarily to lower borrowings as a result of the sale of DME and the Merger, and higher interest income earned on the 8% CMI Notes.
Investment income, net, decreased by 23.2%, primarily as a result of losses realized on the write-off of two foreign investments.
Equity in earnings of affiliates increased $2.6 million in Fiscal 1996, compared to Fiscal 1995. Earnings from Nacanco, in which the Company holds a 26.7% interest, increased $2.3 million for the year, primarily due to a 25.2% increase in net sales in the current year, and the prior year being effected by a large tax adjustment.
Minority interest expense includes dividend expense on FII's Series C Preferred Stock until it was redeemed on March 13, 1996, offset by approximately 40.7% of Banner's earnings since the consolidation of Banner on February 25, 1996.
Non-Recurring income includes a $163.1 million nontaxable gain resulting from the Merger. Expenses related to other transactions are netted against the above gain.
Income Taxes - For Fiscal 1996, the tax benefit from the continuing operations loss, excluding the nontaxable non-recurring gain, was $4.8 million.
Earnings from discontinued operations, net, include the earnings, net of tax from DME and Data for all periods presented.
Gain (loss) on disposal of discontinued operations resulted primarily from the sale of DME to CMI.
Extraordinary items, net, resulted from premiums paid, redemption costs and consent fees associated with the retirement of the Senior Notes and the write off of deferred loan fees, primarily related to Senior Notes and bank debt extinguished early. This totaled $10.4 million, net of a tax benefit, in Fiscal 1996.
The net earnings increased $224.2 million in Fiscal 1996, compared to Fiscal 1995, primarily due to: (i) the $17.8 million increase in operating income, (ii) the $162.5 million non-recurring pre-tax gain recorded from the Merger, and (iii) the $53.8 million gain, net of tax, from the disposal of discontinued operations. Partially offsetting these increases was a $10.4 million extraordinary loss from the early extinguishment of debt.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1996, was $320.2 million, which was $178.4 million higher than at June 30, 1995. The principal reasons for this increase included a $170.4 million receivable reflecting the 8% CMI Notes. In addition, due primarily to the consolidation of Banner and the deconsolidation of FCSC, there was a net increase in accounts receivable of $34.5 million, and increase in inventory of $193.1 million (the FCSC business, a telecommunication services business had virtually no inventory). Offsetting this increase in working capital were net increases in accounts payable and accrued liabilities of $32.1 million reflecting the reconsolidation of Banner and the deconsolidation of FCSC, and income taxes payable of $60.0 million. The Company's current bank debt borrowings increased $67.9 million reflecting the current debt on the new interim credit agreement at FHC discussed below. Net current assets of discontinued operations decreased $34.6 million reflecting the sale of DME and Data.
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, 1996, had a book value of $43.6 million and included two parcels of real estate in California, a 68 acre parcel of real estate located in Farmingdale, New York, two landfills in Pennsylvania, a real estate joint venture in California, and several other parcels elsewhere, which the Company plans to sell, lease or develop, subject to market conditions or, with respect to certain of the parcels, the resolution of environmental matters. Net assets held for sale decreased $6.1 million primarily resulting from the sale of 20 acres of a larger parcel of real estate, owned by the Company, in Farmingdale, New York. The proceeds were applied against the carrying value of this property.
The Company's principal cash requirements include debt service, capital expenditures, acquisitions, and payment of other liabilities.
Property, plant and equipment ("PP&E") decreased $44.9 million from June 30, 1995, as a result of deconsolidating FCSC and consolidating Banner. At March 13, 1996 FCSC had PP&E of $51.1 million which was deconsolidated, and Banner had $12.9 million which was consolidated.
Investments and advances in affiliated companies increased $13.4 million. Changes in investments and advances in affiliates included a $49.2 million increase in fair market value of the Company's investment in TFC, by recording a $29.0 million investment from the Merger, in which the Company retained a 41% interest in STFI, and recording equity earnings of $4.6 million (primarily Nacanco) during the year, offset partially by a $53.9 million decrease resulting from the consolidation of Banner and a $17.8 million net decrease in the Company's investment in TFC senior notes, which matured in 1996.
Other liabilities that require the use of cash include post-employment benefits for retirees, environmental investigation and remediation obligations, litigation settlements and related costs.
The Company maintains credit agreements (the "Credit Agreements") with a consortium of banks, which provides revolving credit facilities to RHI, FHC and Banner and term loans to FHC and Banner (collectively the "Credit Facilities").
On March 13, 1996, in connection with the Merger, the Company replaced the credit agreement of its former subsidiary, VSI Corporation, (the "Prior Credit Agreement") with an interim credit agreement (the "Interim Credit Agreement") at FHC. The Interim Credit Agreement provided FHC with a $50.0 million revolving credit facility and a $30.0 million term loan, both of which generally had an interest rate of 1/2% over the prime rate, or 1 1/2% over the London Interbank Offered Rate ("LIBOR")and required a commitment fee of 1/2% on the unused portion of the revolving credit facility. The Prior Credit Agreement generally bore interest at 2 3/4% to 3 3/4% over LIBOR and required a commitment fee of 1%.
The Interim Credit Agreement required compliance with certain financial loan covenants, including achieving a minimum of cumulative earnings before interest, taxes, depreciation and amortization ("EBITDA Covenant") at March 31, 1996, and maintaining a certain interest ratio coverage at specified periods. Additionally, the Interim Credit Agreement restricted FHC's capital expenditures during the term of the Interim Credit Agreement to $6.0 million, in the aggregate. The Company was in compliance with these covenants throughout the life of the Interim Credit Agreement.
The Interim Credit Agreement matured on July 29, 1996, at which time the Company repaid in full the loans made under the Interim Credit Agreement. On July 26, 1996, the Company amended and restated the terms and provisions of the Interim Credit Agreement in their entirety (the "Restated Credit Agreement"). The Restated Credit Agreement extends to July 28, 2000, the maturity of FHC's revolving credit termination date, and provides FHC with a revolving credit facility (the "FHC Revolver") that has a borrowing base of up to $52.0 million. The borrowing base is determined monthly based upon specified percentages of FHC's accounts receivable, inventories and the appraised value of equipment and real property. The FHC Revolver consists of up to $40.0 million available for domestic operations and $12.0 million available for European operations. The FHC Revolver generally bears interest at a base rate of 1 1/2% over the greater of (i) Citibank New York's base rate, or (ii) the Federal Funds Rate plus 1/2% for domestic borrowings and at 2 1/2% over Citibank London's base rate for foreign borrowings. FHC's Revolver is subject to a non-use commitment fee of 1/2% on the average unused availability; and outstanding letters of credit are subject to fees of 2 3/4% per annum.
The Restated Credit Agreement requires FHC to comply with certain financial loan covenants, including maintaining a minimum net worth of $150.0 million and maintaining certain interest and fixed charge coverage ratios at the end of each Fiscal Quarter. Additionally, the Restated Credit Agreement restricts the FHC's annual capital expenditures to $12.0 million. Substantially all of FHC's assets are pledged as collateral under the Restated Credit Agreement.
FHC may transfer available dividends to the Company.
The Credit Agreements provide RHI with a $4.3 million revolving credit facility (the "RHI Credit Agreement") which generally bears a base interest of 1/2% over the prime rate, requires a commitment fee of 1/2%, and matures on May 26, 1998. RHI's Credit Agreement requires RHI to comply with specified covenants and maintain a consolidated net worth of $175.0 million. Additionally, RHI's capital expenditures are restricted, except for certain leasehold improvements, to $2.0 million per annum plus the selling price of fixed assets for such Fiscal Year. At June 30, 1996, the Company was in compliance with all the covenants under RHI's Credit Agreement.
Banner has a credit agreement (the "Banner Credit Agreement") which provides Banner and its subsidiaries with funds for working capital and potential acquisitions. On June 30, 1996, The Banner Credit Agreement consisted of a $55.0 million term loan and a $71.5 million revolving credit facility, both of which initially bear interest at prime plus 1 1/4% or LIBOR plus 2 1/2%. Interest rates on Banner's borrowings, whether computed at the prime rate or LIBOR, may increase by 1/4% or decrease by up to 1% based upon certain performance criteria. On June 30, 1995, Banner's performance level resulted in borrowings under the Banner Credit Agreement being at the initial interest rates for the quarter ending September 30, 1996. The Banner Credit Agreement was amended on July 1, 1996, to provide additional financing with a $30.0 million seven-year term loan ("Tranche B Loan") and requires that loans made to Banner do not exceed a defined borrowing base, which is based upon a percentage of inventories and accounts receivable. The Tranche B Loan bears interest at Prime plus 1 3/4% or LIBOR plus 3%. Banner's term loans require certain semiannual loan payments. Banner's revolving credit facility is subject to a non-use fee of 1/2% of the unused availability. Substantially all of Banner's assets are pledged as collateral under the Banner Credit Agreement. The Banner Credit Agreement matures August 2001.
The Banner Credit Agreement requires quarterly compliance with various financial and non-financial loan covenants, including maintaining a minimum net worth, and minimum ratios of interest coverage, fixed charge coverage, and debt to earnings before interest, taxes, depreciation and amortization. Banner also has certain limitations on the incurrence of additional debt. As of June 30, 1996, Banner was in compliance with all covenants under its credit agreement.
Banner has several interest rate hedge agreements ("Hedge Agreements") to manage its exposure to increases in interest rates on its variable rate debt. The Hedge Agreements provide interest rate protection on $60.0 million of debt through September 2000, by providing a cap of 7% if the 90-day LIBOR rate exceeds 7%. If the 90-day LIBOR rate drops below 5%, Banner will be required to pay a floor rate of approximately 6%.
IMPACT OF FUTURE ACCOUNTING CHANGES
Accounting For The Impairment Of Long-Lived Assets - -------------------------------------------------- And For Long-Lived Assets To Be Disposed Of - -------------------------------------------
In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 ("SFAS 121") "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. SFAS 121 is required to be implemented by the Company on, or before, July 1, 1996. The Company's present policy is identical to the policy prescribed by SFAS 121; therefore there will be no effect from implementation.
ITEM 8.
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.
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Consolidated Balance Sheets as of June 30, 1996 and 1995....
Consolidated Statements of Earnings - The three years ended June 30, 1996, 1995 and 1994.............................
Consolidated Statements of Stockholder's Equity - The three years ended June 30, 1996, 1995 and 1994..................
Consolidated Statements of Cash Flows - The three years ended June 30, 1996, 1995 and 1994........................
Notes to Consolidated Financial Statements..................
Report of Independent Public Accountants....................
Supplementary data regarding "Quarterly Financial Information (Unaudited)" is set forth under Item 8 in Note 22 to Consolidated Financial Statements.
RHI HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------
Corporate Structure: RHI Holdings, Inc. (the "Company"), formerly known as Rexnord Holdings Inc., is a holding company incorporated in the State of Delaware. It has two principal operating subsidiaries, Fairchild Holding Corporation ("FHC") and Banner Aerospace, Inc., ("Banner"). The Company is a wholly-owned subsidiary of The Fairchild Corporation ("TFC"). The Company also holds significant equity interests in Shared Technologies Fairchild Inc. ("STFI") and Nacanco Paketleme ("Nacanco").
Fiscal Year: The fiscal year ("Fiscal") of the Company ends June 30. All references herein to "1996", "1995", and "1994" mean the fiscal years ended June 30, 1996, 1995, and 1994, 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 wholly-owned and majority-owned subsidiaries. Prior period financial information has been restated for discontinued operations, which includes the D-M-E Company ("DME") and Fairchild Data Corporation ("Data"). Investments in companies in which ownership interest range from 20 to 50 percent are accounted for using the equity method (see Note 9). All significant intercompany accounts and transactions have been eliminated in consolidation.
Cash Equivalents/Statements of Cash Flows: For purposes of these statements, the Company considers all highly liquid investments with original maturity dates of three months or less as cash equivalents. Total net cash disbursements (receipts) made by the Company for income taxes and interest were as follows:
Restricted Cash: On June 30, 1996 and 1995, the Company had restricted cash of $6,761 and $545, all of which is maintained as collateral for certain debt facilities. Cash investments are in high grade, short-term certificate of deposits.
Investments: On July 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). There was no cumulative effect as a result of adopting SFAS 115 in Fiscal 1995.
Management determines the appropriate classification of its investments at the time of acquisition and reevaluates such determination at each balance sheet date. Trading securities are carried at fair value, with unrealized holding gains and losses included in earnings. Available-for-sale securities are carried at fair value, with unrealized holding gains and losses, net of tax, reported as a separate component of shareholder's equity. Investments in equity securities that do not have readily determinable fair values are stated at cost, adjusted for permanent impairment, and categorized as other investments. At June 30, 1994, the Company used the lower of cost or market method for its investments. In determining realized gains and losses, the cost of securities sold is based on the specific identification method. Interest on corporate obligations, as well as dividends on preferred stock are accrued at the balance sheet date.
Inventories: Inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out ("LIFO") method at principal domestic aerospace manufacturing operations and using the first-in, first-out ("FIFO") method elsewhere. If the FIFO inventory valuation method had been used exclusively, inventories would have been approximately $4,756 and $5,168 higher at June 30, 1996 and 1995, respectively. Inventories from continuing operations are valued as follows:
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:
Amortization of Goodwill: The excess of the cost of purchased businesses over the fair value of their net assets at acquisition dates (goodwill) is being amortized on a straight-line basis over 40 years.
Deferred Loan Costs: Deferred loan costs associated with various debt issues are being amortized over the terms of the related debt, based on the amount of debt outstanding, using the effective interest method. Amortization expense for these loan costs for Fiscal 1996, 1995 and 1994 was $2,925, $2,918, and $2,948, 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 based on the difference between the carrying amount of the assets and 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.
Foreign Currency Translation: All balance sheet accounts of foreign subsidiaries are translated at current exchange rates at the end of the accounting period. Income statement items are translated at average exchange rates during the period. The resulting translation adjustment is recorded as a separate component of stockholder's equity. Foreign transaction gains and losses are included in other income and were not significant in Fiscal 1996, 1995 and 1994.
Research and Development: Company-sponsored research and development expenditures are expensed as incurred.
Non-recurring Items: Non-recurring income for Fiscal 1996 was $162,470 and includes a $163,130 nontaxable gain resulting from the merger of Fairchild Communications Services Company into Shared Technologies Inc. (See Note 2). Expenses related to other alternative transactions considered were netted against the above gain. Non-recurring income for Fiscal consisted of the net pretax gain of $129,082 on the sale of Rexnord Corporation ("Rexnord") stock (see Note 9).
Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assts and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
Reclassification: Certain amounts in prior years' financial statements have been reclassified to conform with the 1996 presentation.
2. MERGER AGREEMENT ----------------
The Company, TFC and Fairchild Industries, Inc. ("FII", the Company's former subsidiary), entered into an Agreement and Plan of Merger dated as of November 9, 1995 (as amended, the "Merger Agreement") with Shared Technologies Inc. ("STI"). On March 13, 1996, in accordance with the Merger Agreement, STI succeeded to the telecommunications systems and services business operated by the Company's Fairchild Communications Services Company ("FCSC").
The transaction was effected by a Merger of FII with and into STI (the "Merger") with the surviving company renamed Shared Technologies Fairchild Inc. ("STFI"). Prior to the Merger, FII transferred all of its assets to, and all of its liabilities were assumed by FHC, except for the assets and liabilities of FCSC, and $223,500 of the FII's existing debt and preferred stock consisting of (i) the $40,027 liquidation value of the outstanding Series A and Series C Preferred Stock of FII, (ii) the $125,000 principal amount outstanding of FII 12 1/4% Senior Notes due 1999 (the "Senior Notes"), and (iii) an amount of bank and other indebtedness of approximately $58,473 (the "Assumed Indebtedness"). The stock of FHC was then distributed to RHI. No taxable gain or loss was recognized, in the Company's view, on the transfer of the FII assets and liabilities to FHC, and distribution of FHC stock to RHI. As part of the Merger Agreement, FII made a cash tender offer to purchase all of the outstanding Senior Notes and obtained such Noteholders' consent to amend the indenture under which the Senior Notes were issued to remove all covenants which could be amended or deleted by majority vote (the "Tender Offer") (see Note 10). Pursuant to the Merger, an amount sufficient to redeem the Series A and Series C Preferred Stock at their liquidation value ($45.00 per share plus accrued and unpaid dividends) was placed with Chemical Mellon Shareholder Services as Escrow Agent. Also as part of the Merger, STFI, (i) purchased the $125,000 aggregate principal amount of Senior Notes tendered pursuant to the Tender Offer, and (ii) repaid in full the Assumed Indebtedness.
As a result of the Merger, the Company received (i) 6,000,000 shares of Common Stock of STFI (representing approximately 41% of the outstanding shares after giving effect to such issuance), (ii) shares of 6% Cumulative Convertible Preferred Stock of STFI having an aggregate liquidation preference of $25,000 (subject to upward adjustment), recorded at a fair value of $20,500, and which are convertible into Common Stock of STFI at a conversion price of $6.375 per share (which, if converted, would represent, together with the other Common Stock issued to the Company, approximately 42% of the Common Stock of STFI on a fully diluted basis), and (iii) shares of a Special Preferred Stock having an initial liquidation preference of $20,000 (which could accrue up to a maximum of $30,000 over a ten-year period, if not redeemed earlier), recorded at a fair value of $8,500. In connection with its stock ownership, the Company has the right to elect four of the eleven members of the Board of Directors of STFI and have agreed, subject to certain exceptions, not to sell any of STFI's shares for a two-year period.
The Merger was structured as a reorganization under section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended. In Fiscal 1996, the Company recorded a $163,130 non-recurring gain from this transaction.
3. ACQUISITIONS ------------
On June 10, 1994, the Company acquired 100% of the Common Stock of Fairchild Convac GmbH ("Fairchild Convac")for approximately $4,700.
Fairchild 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 Fairchild Convac as part of its Industrial Products segment.
On September 9, 1994, the Company acquired all of the outstanding Common Stock of Fairchild Scandinavian Bellyloading Company AB ("SBC"). SBC is a designer and manufacturer of a patented cargo loading system, which is installed in the cargo area of commercial aircraft. Several major airlines are expected to equip existing fleets with the SBC system over the next two to three years. The Company reports the results of SBC as part of its Industrial Products segment.
On November 28, 1994, FCSC completed the acquisition of substantially all of the telecommunications assets of JWP Telecom, Inc. ("JWP") for approximately $11,000, plus the assumption of approximately $3,000 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, FCSC acquired all the shared telecommunications assets of Eaton & Lauth Co., Inc., for approximately $550.
4. MAJORITY INTEREST BUSINESS COMBINATION --------------------------------------
Effective February 25, 1996, the Company completed a transfer of the Company's Harco Division ("Harco") to Banner Aerospace, Inc. ("Banner") in exchange for 5,386,477 shares of Banner common stock. The exchange has increased the Company's ownership of Banner common stock from approximately 47.2% to 59.3%, resulting in the Company becoming the majority shareholder of Banner. Accordingly, the Company consolidated Banner on February 25, 1996. The Company recorded a $427 non-recurring loss from outside expenses incurred for this transaction in 1996. Banner is a leading international supplier to the aerospace industry as a distributor, providing a wide range of aircraft parts and related support services. Harco is a distributor of precision fasteners to the aerospace industry.
5. DISCONTINUED OPERATIONS AND NET ASSETS HELD FOR SALE ----------------------------------------------------
During the Fiscal 1996 second quarter, FII adopted a formal plan to sell DME, a mold equipment manufacturer, and Data, a satellite communications company.
On February 22, 1996, pursuant to the Asset Purchase Agreement dated January 26, 1996 (the "closing date"), the Company, through its subsidiaries, completed the sale of certain assets, liabilities and the business of DME to Cincinnati Milacron Inc. ("CMI") for a sales price of approximately $244,331, as adjusted. The sales price consists of $74,000 in cash, and two 8% promissory notes in the aggregate principal amount of $170,331 (together, the "8% CMI Notes"). The 8% CMI Notes were due to mature one year following the closing date; provided that the Company had the right to require prepayment of, and CMI had the right to prepay the 8% CMI Notes after the six-month anniversary of the closing date. On July 29, 1996, CMI paid in full the 8% CMI Notes.
As a result of the sale of DME, the Company recorded a gain on disposal of discontinued operations, of approximately $54,012, net of a $61,929 tax provision, in Fiscal 1996.
On January 27, 1996, FII completed the sale of Data to SSE Telecom, Inc. ("SSE") for book value of approximately $4,400 and 100,000 shares of SSE's common stock valued at $9.0625 per share, or $906, at January 26, 1996, and warrants to purchase an additional 50,000 shares of SSE's common stock at $11.09 per share. In addition, the Company has an opportunity to earn an additional 100,000 shares based on the future performance of SSE during the twelve months following the date of sale. There was no material gain or loss from this transaction.
DME and Data have been accounted for as discontinued operations and the prior periods financial statements have been restated to reflect the discontinuance of these companies. The combined net sales of DME and Data totaled $108,131, $180,773 and $166,499 for Fiscal 1996, 1995 and 1994, respectively. Earnings from discontinued operations was $9,186, net of $5,695 for taxes in 1996, $13,994, net of $10,183 for taxes in 1995, and $4,942, net of $7,317 for taxes and $9,247 for the net cumulative effect of accounting changes in 1994. The components of net assets of discontinued operations on the consolidated balance sheet are as follows:
The Company recorded after tax losses on the disposal of discontinued operations, of $259 and $368 in 1995 and 1994, 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.
Net assets held for sale at June 30, 1996, includes two parcels of real estate in California, a 68 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.
6. PROFORMA FINANCIAL STATEMENTS (UNAUDITED) -----------------------------------------
The following unaudited pro forma information for the twelve months ended June 30, 1996 and June 30, 1995, provides the results of the Company's operations as though (i) the disposition of DME and Data, (ii) the Merger of FCS, and (iii) the transfer of Harco to Banner, resulting in the consolidation of Banner, had been in effect since the beginning of each period. The pro forma information is based on the historical financial statements of the Company, DME, FCSC and Banner, giving effect to the aforementioned transactions. In preparing the pro forma data, certain assumptions and adjustments have been made which (i) reduce interest expense for revised debt structures, (ii) increase interest income for notes receivable, (iii) reduce minority interest from Series C Preferred Stock of FII being redeemed, and (iv) adjust equity in earnings of affiliates to include the estimated results of STFI.
The following unaudited pro forma financial information is not necessarily indicative of the results of operations that actually would have occurred if the transactions had been in effect since the beginning of each period, nor is it necessarily indicative of future results of the Company.
The pro forma financial information has not been adjusted for non- recurring income and gains from disposal of discontinued operations that have been or are expected to be incurred from these transactions within the ensuing year.
7. EXTRAORDINARY ITEMS -------------------
During Fiscal 1996, the Company used the Merger transaction and cash available to retire fully all of the Senior Notes, FII's 9 3/4% subordinated debentures due 1998, and bank loans under a credit agreement of a former subsidiary of the Company, VSI Corporation. The redemption of the Senior Notes at a premium, consent fees paid to holders of the Senior Notes, the write off of the original issue discount on FII 9 3/4% subordinated debentures and the write off of the remaining deferred loan fees associated with the issuance of the debt retired, resulted in an extraordinary loss of $10,436, net of a tax benefit.
During Fiscal 1994, 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. Early extinguishment of the Company's debt resulted in an extraordinary loss of $243, net of a $131 tax benefit, in Fiscal 1994.
8. INVESTMENTS -----------
Short-term investments at June 30, 1996, consist primarily of common stock investments in public corporations, which are classified as trading securities. All other short-term and all long-term investments do not have readily determinable fair values and primarily consist of investments in limited partnerships and common stocks. A summary of investments held by the Company consists of the following:
Investment income is summarized as follows:
9. INVESTMENTS AND ADVANCES - AFFILIATED COMPANIES -----------------------------------------------
The following table presents summarized financial statement information on a combined 100% basis of the Company's principal investments, which are accounted for using the equity method.
On June 30, 1995 the Company owned approximately 26.7% of Nacanco common stock, which was effectively purchased from TFC on January 2, 1995. The Company recorded equity earnings from its investment in Nacanco of $4,546 in 1996 and $2,248 for the six months ended June 30, 1995.
Since March 13, 1996, as a result of the Merger in which the Company received a 41% interest in STFI, the Company has accounted for its investment in STFI using the equity method. Prior to March 13, 1996, the Company consolidated the results of FCSC, which was merged into STFI (see Note 2). The Company recorded equity earnings of $50 from the investment in STFI during the final 3 1/2 months of Fiscal 1996.
On June 30, 1996, the Company's investments in STFI consisted of (i) $20,988 carrying value for the $25,000 face value 6% cumulative Convertible Preferred Stock, (ii) $9,116 carrying value for the $20,000 face value Special Preferred Stock, and (iii) $455 carrying value for 6,200,000 shares of common stock of STFI. At the close of trading on June 30, 1996, STFI's common stock was quoted at $7.25 per share. Based on this price, the Company's investment in STFI common stock has an approximate market value of $44,950. The Company is amortizing its discounted investment in each of the STFI issuances over the 11 and 12 year life of the issuances. Included in Fiscal 1996 equity earnings was $939 from such amortization.
Effective February 25, 1996, the Company increased its percentage of ownership of Banner Common Stock from 47.2% to approximately 59.3%. Since February 25, 1996, the Company is consolidating Banner's results. Prior to February 25, 1996, the Company accounted for its investment in Banner using the equity method and held its investment in Banner as part of investments and advances-affiliated companies. The Company recorded equity earnings (loss) of $363, $138 and $(5,697) from this investment for 1996, 1995 and 1994, 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 in gross proceeds and realized a pre-tax gain on the sale of $129,082 in Fiscal 1994. Prior to the sale of Rexnord, the Company recorded an equity loss of $905 from this investment for 1994. 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 11 and 12).
In connection with the Company's December 23, 1993 sale of its interest in Rexnord Corporation to BTR Dunlop Holdings, Inc. ("BTR"), the Company placed shares of Banner, with a fair market value of $5,000, in escrow to secure the Company's remaining indemnification of BTR against a contingent liability. Once the contingent liability is resolved, the escrow will be released.
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. The amortized cost basis of the investment was $923 and had been written down by $185, before tax, to market value. The Company's gross unrealized loss was $120, net of tax from this investment in 1995.
The Company is accounting for its investments in TFC at market value. As of June 30, 1996, the carrying value of the Company's investment in 4,369,400 shares of TFC common stock was $63,902 and included an increase of $19,297, before tax, to market value. The Company recorded a gross unrealized gain (loss) of $49,156 and $(2,185) from its investment in TFC common stock in 1996 and 1995, respectively. In addition, the Company's amortized cost basis of its net investment in TFC debt was $5,637 on June 30, 1996, and was increased by $1,005, before tax, to market value in 1996. The carrying value of investments and advances, affiliated companies consists of the following:
On June 30, 1996, none of the Company's $183,355 consolidated retained earnings was from undistributed earnings of 50 percent or less owned affiliates accounted for by the equity method.
10. NOTES PAYABLE AND LONG-TERM DEBT --------------------------------
At June 30, 1996 and 1995, notes payable and long-term debt consisted of the following:
On March 13, 1996, FII consummated the Tender Offer and purchased for cash, upon terms and subject to conditions set forth in an Offer to Purchase and Consent Solicitations and related Letter of Transmittal (the "Offer to Purchase") dated as of December 22, 1995, all $125,000 of the Senior Notes. Terms of the Tender Offer, as amended and restated, required a purchase price of $1,063.90 per $1,000.00 principal amount of the Senior Notes and accrued and unpaid interest up to, but not including, the payment date. During the Tender Offer period, FII received consents solicited (the "Tender Offer Consent Solicitation") of the holders of the Senior Notes to (i) the adoption of the proposed amendments to the indenture pursuant to which the Senior Notes were issued (the "Indenture"), and (ii) the release of the collateral securing FII's obligations under the Senior Notes and the Indenture, upon terms set forth in the Offer to Purchase.
In addition, independent of the Tender Offer and the Tender Offer Consent Solicitation, FII also solicited and received consents to the waiver of any and all violations of the Indenture arising out of or relating to (i) the transfer by VSI Corporation ("VSI"), a wholly-owned subsidiary of FII, of the stock of Harco to Banner (see Note 4), and (ii) the sale by VSI of DME to CMI (see Note 5).
As part of the consummation of the Tender Offer, FII paid holders of Senior Notes who validly tendered Senior Notes pursuant to the Tender Offer and Consent Solicitations a consent fee of $25.00 per $1,000.00 principal amount of Senior Notes tendered. FII paid an early consent fee consisting of $5.00 per $1,000.00 principal amount to holders of Senior Notes who on or prior to January 19, 1996, validly tendered their shares.
The Company maintains credit agreements (the "Credit Agreements") with a consortium of banks, which provides revolving credit facilities to the Company, FHC and Banner and term loans to FHC and Banner (collectively the "Credit Facilities").
On March 13, 1996, in connection with the Merger, the Company replaced the credit agreement of its former subsidiary, VSI Corporation, (the "Prior Credit Agreement") with an interim credit agreement (the "Interim Credit Agreement") at FHC. The Interim Credit Agreement provided FHC with a $50,000 revolving credit facility and a $30,000 term loan, both of which generally had an interest rate of 1/2% over the prime rate or 1 1/2% over the London Interbank Offered Rate ("LIBOR")and required a commitment fee of 1/2% on the unused portion of the revolving credit facility. The Prior Credit Agreement generally bore interest at 2 3/4% to 3 3/4% over LIBOR and required a commitment fee of 1%.
The Interim Credit Agreement required compliance with certain financial loan covenants, including achieving a minimum of cumulative earnings before interest, taxes, depreciation and amortization ("EBITDA Covenant") at March 31, 1996, and maintaining a certain interest ratio coverage at specified periods. Additionally, the Interim Credit Agreement restricted the FHC's capital expenditures during the term of the Interim Credit Agreement to $6,000, in the aggregate. The Company was in compliance with these covenants throughout the life of the Interim Credit Agreement.
The Interim Credit Agreement matured on July 29, 1996, at which time the Company repaid in full the loans made under the Interim Credit Agreement. On July 26, 1996, the Company amended and restated the terms and provisions of the Interim Credit Agreement in their entirety (the "Restated Credit Agreement"). The Restated Credit Agreement extends to July 28, 2000, the maturity of FHC's revolving credit termination date, and provides FHC with a revolving credit facility (the "FHC Revolver") that has a borrowing base of up to $52,000. The borrowing base is determined monthly based upon specified percentages of FHCs accounts receivable, inventories and the appraised value of equipment and real property. The FHC Revolver consists of up to $40,000 available for domestic operations and $12,000 available for European operations. The FHC Revolver generally bears interest at a base rate of 1 1/2% over the greater of (i) Citibank New York's base rate, or (ii) the Federal Funds Rate plus 1/2% for domestic borrowings and at 2 1/2% over Citibank London's base rate for foreign borrowings. FHC's Revolver is subject to a non-use commitment fee of 1/2% on the average unused availability; and outstanding letters of credit are subject to fees of 2 3/4% per annum.
The Restated Credit Agreement requires FHC to comply with certain financial loan covenants, including maintaining a minimum net worth of $150,000 and maintaining certain interest and fixed charge coverage ratios at the end of each Fiscal Quarter. Additionally, the Restated Credit Agreement restricts the FHC's annual capital expenditures to $12,000.
The Credit Agreements provide to the Company with a $4,250 revolving credit facility (the "RHI Credit Agreement") which generally bears a base interest of 1/2% over the prime rate, requires a commitment fee of 1/2%, and matures on May 26, 1998. RHI's Credit Agreement requires the Company to comply with specified covenants and maintain a consolidated net worth of $175,000. Additionally, the Company's capital expenditures are restricted, except for certain leasehold improvements, to $2,000 per annum plus the selling price of fixed assets for such Fiscal Year. The Company was in compliance with all the covenants under RHI's Credit Agreement at June 30, 1996.
Banner has a credit agreement (the "Banner Credit Agreement") which provides Banner and its subsidiaries with funds for working capital and potential acquisitions. On June 30, 1996, The Banner Credit Agreement consisted of a $55,000 term loan and a $71,500 revolving credit facility, both of which initially bear interest at prime plus 1 1/4% or LIBOR plus 2 1/2%. Interest rate on Banner's borrowings whether computed at the prime rate or LIBOR may increase by 1/4% or decrease by up to 1% based upon certain performance criteria. On June 30, 1995, Banner's performance level resulted in borrowings under the Banner Credit Agreement being at the initial interest rates for the quarter ending September 30, 1996. The Banner Credit Agreement was amended on July 1, 1996, to provide additional financing with a $30,000 seven-year term loan ("Tranche B Loan") and requires that loans made to Banner do not exceed a defined borrowing base, which is based upon a percentage of inventories and accounts receivable. The Tranche B Loan bears interest at Prime plus 1 3/4% or LIBOR plus 3%. Banner's term loans require certain semiannual loan payments. Banner's revolving credit facility is subject to a non-use fee of 1/2% of the unused availability. Substantially all of Banner's assets are pledged as collateral under the Banner Credit Agreement. The Banner Credit Agreement matures August 2001.
The Banner Credit Agreement requires quarterly compliance with various financial and non-financial loan covenants, including maintaining a minimum net worth, and minimum ratios of interest coverage, fixed charge coverage, and debt to earnings before interest, taxes, depreciation and amortization. Banner also has certain limitations on the incurrence of additional debt. As of June 30, 1996, Banner was in compliance with all covenants under the Credit Agreement.
Banner has several interest rate hedge agreements ("Hedge Agreements") to manage its exposure to increases in interest rates on its variable rate debt. The Hedge Agreements provide interest rate protection on $60,000 of debt through September 2000, by providing a cap of 7% if the 90-day LIBOR rate exceeds 7%. If the 90-day LIBOR rate drops below 5%, Banner will be required to pay a floor rate of approximately 6%.
The following table summarizes the credit facilities under the credit agreement at June 30, 1996:
At June 30, 1996, the Company had outstanding letters of credit ("LC") of $11,405, which were supported by the Credit Agreement and other bank facilities on an unsecured basis. At June 30, 1996, the Company had unused short-term bank lines of credit aggregating $9,845 at interest rates slightly higher than the prime rate. The Company also has short-term lines of credit relating to foreign operations aggregating $5,454 against which the Company owed $2,821 at June 30, 1996.
Summarized below are certain items and other information relating to the 11 7/8% Senior Subordinated Debentures outstanding at June 30, 1995:
Under the most restrictive covenants of the 11 7/8% Senior Subordinated Debentures, the Company's consolidated net worth as defined must not be less than $125,000. At June 30, the Company's consolidated net worth was $428,772. The indentures also provide restrictions on the amount of additional borrowings by the Company.
Annual maturities of long-term debt obligations (exclusive of capital lease obligations) for each of the five years subsequent to June 30, 1996, are as follows: $8,357 for 1997, $30,314 for 1998, $71,455 for 1999, $9,000 for 2000, and $13,312 for 2001.
11. 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:
Assumptions used in accounting for the plans were:
In Fiscal 1996, the Company recognized one-time charges of $857 from the divestiture of subsidiaries, which resulted in a recognition of prior service costs, and $84 from the early retirement window program at the Company's corporate office. The reduction in liabilities due from the cessation of future salary increases is not immediately recognizable in income, but will be used as an offset against existing unrecognized losses. The Company will have a future savings benefit from a lower net periodic pension cost due to the amortization of a smaller unrecognized loss.
The following table sets forth the funded status and amounts recognized in the Company's consolidated balance sheets at June 30, 1996, and 1995 for the plans:
Plan assets include Class A Common Stock of the Company valued at a fair market value of $11,094 and $2,763 at June 30, 1996 and 1995, respectively. Substantially all of the plan assets are invested in listed stocks and bonds.
Postretirement Health Care Benefits -----------------------------------
Effective July 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106 ("SFAS 106"), "Employers' Accounting for Postretirement Benefits Other than Pensions". The standard requires that the expected cost of postretirement benefits be accrued and charged to expense during the years the employees render the service. This is a significant change from the Company's previous policy of expensing these costs for active employees when paid.
The Company elected the immediate recognition method of adoption of SFAS 106. The unamortized portion of the overstated liability for discontinued operations was $15,172, net of tax, which more than offset a $10,904, net of tax, charge relating to the transition obligation for active employees and retirees of continuing operations. The benefit to net earnings as the cumulative effect of this accounting change was $4,268, net of tax. Included in Fiscal 1994 earnings from discontinued operations is a net charge of $4,802, which represents the portion allocated to DME and Data for the implementation of SFAS 106. 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 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.
A one-time credit of $3,938, resulting from the divestitures of subsidiaries, was offset by $4,361 from DME's accumulated postretirement benefit obligation for active employees, which was transferred to CMI as part of the sale. The Company recognized the net effect of $423 as an expense in 1996.
The Company provides health care benefits for most retired employees. Postretirement health care expense from continuing operations totaled $779, $701, and $1,086 for the years ended June 30, 1996, 1995 and 1994, respectively. The Company has accrued approximately $36,995 and $36,732 as of June 30, 1996 and 1995, 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 $3,877, $3,872, and $3,873 for the years ended June 30, 1996, 1995 and 1994, respectively. The components of expense in Fiscal 1996 and 1995 are as follows:
The following table sets forth the funded status for the Company's postretirement health care benefit plans at June 30, 1996:
The accumulated postretirement benefit obligation was determined using a discount rate of 8.5%, and a health care cost trend rate of 7.5% and 7.0% for pre-age-65 and post-age-65 employees, respectively, gradually decreasing to 4.75% and 5.25%, 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, 1996, by approximately $1,169, and increase the net periodic postretirement benefit cost by approximately $182 for Fiscal 1996.
12. 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 $3,031 charge representing the prior years' cumulative effect, as restated for discontinued operations. Included in 1994 earnings from discontinued operations, is a net charge of $4,445 represented DME's share of the SFAS 109 implementation. These charges 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:
The income tax provision (benefit) for continuing operations differs from that computed using the statutory Federal income tax rate of 35% for the following reasons:
The following table is a summary of the significant components of the Company's deferred tax assets and liabilities, and deferred provision or benefit for the following periods:
The amounts included in the balance sheet are as follows:
Prepaid expense and other current assets:
Domestic income taxes, less allowable credits, are provided on the unremitted income of foreign subsidiaries and affiliated companies, to the extent that such earnings are intended to be repatriated. No domestic income taxes or foreign withholding taxes are provided on the undistributed earnings of foreign subsidiaries and affiliates that are considered permanently invested, or which would be offset by allowable foreign tax credits. At June 30, 1996, 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.
13. MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES ----------------------------------------------
The Company is including $58,647 of minority interest in its balance sheet at June 30, 1996, representing approximately 40.7% of Banner's common stock effectively outstanding on a consolidated basis.
The Company included $23,804 of minority interest on its balance sheet at June 30, 1995, representing 553,460 shares of Series C Preferred Stock of FII. The Series C Preferred Stock was assumed by STFI and redeemed entirely as part of the Merger. (See Note 2).
14. REDEEMABLE PREFERRED STOCK OF SUBSIDIARY ----------------------------------------
The Company classified 393,801 shares of Series A Preferred Stock of FII as a long-term liability at June 30, 1995. The Series A Preferred Stock was assumed by STFI and redeemed entirely as part of the Merger. (See Note 2).
15. 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, 1996, was not material.
The carrying amounts and fair values of the Company's financial instruments at June 30, 1996 and June 30, 1995 are as follows:
16. RESTRUCTURING CHARGES ---------------------
In Fiscal 1996 and 1994, 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. 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.
17. 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 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 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 in Fiscal 1994, relating to this real estate which is now included in net assets held for sale.
18. RELATED PARTY TRANSACTIONS --------------------------
Corporate office administrative expense recorded by FHC and its predecessors was billed to the Company on a monthly basis during 1996, 1995 and 1994. These costs represent the cost of services incurred on behalf of the Company. In addition, TFC billed the Company for services performed by TFC on behalf of the Company in 1996 and 1995. The Company has reimbursed FHC and TFC for these services.
The Company and its wholly-owned subsidiaries has entered into a tax sharing agreement with TFC whereby the Company is included in the consolidated federal income tax return of TFC. The Company makes payments to TFC based on the amount of federal income taxes, if any, it would have paid had it filed a separate federal income tax return.
The Industrial Products segment had intercompany sales to direct subsidiaries of TFC, the Company's parent, of $2,345 and $5,468 in 1996 and 1995, respectively. These sales are included in the total revenues of the Company.
Prior to the consolidation of Banner on February 25, 1996, the Aerospace Fasteners segment had sales to Banner Aerospace, Inc. a 47.2% affiliate of the Company, of $3,663, $5,494 and $5,680 in 1996, 1995 and 1994, respectively.
19. COMMITMENTS AND CONTINGENCIES -----------------------------
Lease Commitments -----------------
The Company holds certain of its facilities and equipment under long- term leases. The minimum rental commitments under non-cancelable operating leases with lease-terms in excess of one year for each of the five years following June 30, 1996, was $5,935 for 1997, $3,638 for 1998, $2,722 for 1999, $1,415 for 2000, and $1,235 for 2001. Commitments under capital leases were not significant to the accompanying financial statements. Rental expense on operating leases from continuing operations for Fiscal 1996, 1995 and 1994 was $6,197, $6,695 and $6,007, respectively.
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 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 has held discussions with the government to attempt to resolve these pension accounting issues.
Environmental Matters - ---------------------
The Company and other aerospace fastener and industrial product manufacturers are subject to stringent Federal, state and local environmental laws and regulations concerning, among other things, the discharge of materials into the environment and the generation, handling, storage, transportation and disposal of waste and hazardous materials. To date, such laws and regulations have not had a material effect on the financial condition, results of operations, or net cash flows of the Company, although the Company has expended, and can be expected to expend in the future, significant amounts for investigation of environmental conditions and installation of environmental control facilities, remediation of environmental conditions and other similar matters, particularly in the Aerospace Fasteners segment.
In connection with its plans to dispose of certain real estate, the Company must investigate environmental conditions and may be required to take certain corrective action prior or pursuant to any such disposition. In addition, management has identified several areas of potential contamination at or from other facilities owned, or previously owned, by the Company, that may require the Company either to take corrective action or to contribute to a clean-up. The Company is also a defendant in certain lawsuits and proceedings seeking to require the Company to pay for investigation or remediation of environmental matters and has been alleged to be a potentially responsible party at various "Superfund" sites. Management of the Company believes that it has recorded adequate reserves in its financial statements to complete such investigation and take any necessary corrective actions or make any necessary contributions. No amounts have been recorded as due from third parties, including insurers, or set off against, any liability of the Company, unless such parties are contractually obligated to contribute and are not disputing such liability.
As of June 30, 1996, the consolidated total recorded liabilities of the Company for environmental matters totalled $11,287, which represented the estimated probable exposures for these matters. It is reasonably possible that the Company's total exposure for these matters could be approximately $19,118.
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 future results of operations or net cash flows of the Company.
20. BUSINESS SEGMENT INFORMATION ----------------------------
The Company's operations were conducted in four principal business segments during Fiscal 1996. The Aerospace Fasteners segment includes the manufacture of high performance specialty fasteners and fastening systems. The Aerospace Distribution segment distributes a wide range of aircraft parts and related support services to the aerospace industry. The Industrial Products segment is primarily engaged in 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.
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:
21. 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:
Export sales are defined as sales to customers in foreign countries by the Company's domestic operations. Export sales amounted to the following:
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 $285, $959 and $1,075 in the second, third and fourth quarters of Fiscal 1996, respectively, are included in earnings (loss) from continuing operations.
The third quarter of Fiscal 1996 includes non-recurring income of $162,544, primarily from the gain on the merger of FCSC with STI.
Earnings from discontinued operations includes the results of DME and Data in each quarter.
Extraordinary items relate to the early extinguishment of debt by the Company. (See Note 2).
The Fiscal 1995 four quarters and the Fiscal 1996 first quarter data varies from that previously reported in each of those quarters' respective Form 10-Q filings, and have been restated to reflect the sale of DME and Data. (See Note 5). The previously reported Fiscal 1996 quarters were restated for adjustments to inventory reserves, which resulted in additional income (expense), net of tax, of $(1,138), $(453) and $494 in the first, second, and third quarters of Fiscal 1996, respectively.
Report of Independent Public Accountants ----------------------------------------
To RHI Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of RHI Holdings, Inc. (a Delaware corporation and wholly-owned subsidiary of The Fairchild Corporation and formerly known as Rexnord Holdings Inc.) and subsidiaries as of June 30, 1996 and 1995, and the related consolidated statements of earnings, stockholder's equity, and cash flows for the years ended June 30, 1996, 1995 and 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of RHI Holdings, Inc. and subsidiaries as of June 30, 1996 and 1995, and the results of their operations and their cash flows for the years ended June 30, 1996, 1995 and 1994, in conformity with generally accepted accounting principles.
As discussed in Notes 11 and 12 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 4, 1996
ITEM 9.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - -------------------------------------------------------------
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------
Item 10 of Form 10-K is omitted in accordance with General Instruction J(2)(c), Omission of Information by Certain Wholly-owned Subsidiaries.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION - --------------------------------
Item 11 of Form 10-K is omitted in accordance with General Instruction J(2)(c), Omission of Information by Certain Wholly-owned Subsidiaries.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ----------------------------------------------------------------- - -------
Item 12 of Form 10-K is omitted in accordance with General Instruction J(2)(c), Omission of Information by Certain Wholly-owned Subsidiaries.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS - -------------------------------------------------------
Item 10 of Form 10-K is omitted in accordance with General Instruction J(2)(c), Omission of Information by Certain Wholly-owned Subsidiaries.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - ----------------------------------------------------------------- - ----------
The following documents are filed as a part of this Form 10-K:
(a)(1) Financial Statements
All financial statements of the registrant as set forth under Item 8 of this report on Form 10-K.
(a)(2) Financial Statement Schedules and Independent Auditors' Report
Schedule Number Description Page Number --------------- ----------- - -----------
II Valuation and Qualifying Accounts
All other schedules are omitted because they are not required, are inapplicable, or the information is included in the consolidated financial statements or notes thereto.
Report of Independent Public Accountants ----------------------------------------
To RHI Holdings, Inc.:
We have audited in accordance with generally accepted auditing standards, the consolidated financial statements of RHI Holdings, Inc. and subsidiaries included in this Form 10-K and have issued our report thereon dated September 4, 1996. 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 preceding page is the responsibility of the Company's management and is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Washington, D.C. September 4, 1996
(a)(3) Exhibits. (The following references to Registrant are The Fairchild Corporation, formerly Banner Industries, Inc., the parent of RHI Holdings).
3. Articles of Incorporation and By-Laws, as amended.
4(a) Indenture between Rexnord Acquisition Corp ("RAC") and Irving Trust Company dated as of March 2, 1987, pursuant to which RAC's Senior Subordinated Debentures due 1990 (the "Rexnord Senior Debentures") were issued (the "Rexnord Senior Indenture"), and specimen of Rexnord Senior Debenture (incorporated by reference from the 1987 10-K).
4(b) First Supplemental Indenture between Rexnord Inc. ("Rexnord") (as successor to RAC) and Irving Trust Company dated as of July 1, 1987, to the Rexnord Senior Indenture (incorporated by reference to Registration Statement No. 33-15359 on Form S-2).
4(c) Second Supplemental Indenture between Rexnord Holdings, Inc., now known as RHI Holdings, Inc. ("RHI") (as successor to Rexnord) and Irving Trust Company dated as of August 16, 1988, to the Rexnord Senior Indenture (incorporated by reference to the 1988 10-K).
4(d) Securities Purchase Agreement dated as of March 2, 1987, by and among Registrant, RAC and each of the Purchasers of the Senior Subordinated Debentures and other securities (incorporated by reference from Exhibit 4(k) of the Registration Statement on Form S-2 of Banner Industries, Inc. filed with the Securities and Exchange Commission on June 26, 1987 (No. 33-15359)).
4(e) Registration Rights Agreement dated as of March 2, 1987 by and among Registrant, RAC and each of the Purchasers of the Senior Subordinated Debentures and other securities (incorporated by reference to Exhibit 4(d) of Report on Form 8-K of Banner Industries, Inc., filed with the Securities and Exchange Commission on March 17, 1987).
4(f) Indenture between Rex-PT, Inc. ("Rex-PT") and Irving Trust Company dated as of August 15, 1988, pursuant to which Rex-PT Senior Subordinated Notes due 1988 ("Rex-PT Notes") were issued, and specimen of Rex-PT Note (incorporated by reference from Registrant's Report on Form 8-K dated August 16, 1988).
4(g) Indenture between Rexnord and First Wisconsin Trust Company dated as of June 1, 1983 (The "Rexnord Indenture"), First Supplemental Indenture between Rexnord and First Wisconsin Trust Company dated as of October 1, 1984, to the Rexnord Indenture, pursuant to which Rexnord's Debentures due (the "Rexnord Debentures") were issued, and specimen of Rexnord Debenture (incorporated by reference to Form 8-A of Rexnord dated October 3, 1984).
4(h) Second Supplemental Indenture among Rexnord, RHI and First Wisconsin Trust Company dated as of August 16, 1988, to the Rexnord Indenture (incorporated by reference to the 10-K).
4(i) Indenture dated as of November 1, 1982, between Fairchild Industries, Inc. ("Fairchild") and Continental Illinois National Bank and Trust Company of Chicago, pursuant to which certain debt securities of Fairchild were issued (incorporated by reference to Registration Statement No. 2-80009 on Form S-3).
4(j) Indenture dated as of January 1, 1978, between Fairchild and Bankers Trust Company, pursuant to which Fairchild's 9-3/4% Subordinated Debentures due April 1, 1988 were issued (incorporated by reference to Registration Statement No. 2-60451 on Form S-7).
10(a) Restated and Amended Credit Agreement dated as of July 27, 1992 (incorporated by reference in the 1993 10-K).
10(a)(i) Amendment No. 1 dated as of June 30, 1993 to Restated and Amended Credit Agreement dated as of July 27, 1992 (incorporated by reference in the 1993 10-K).
10(a)(ii) Amendment No. 2, dated as of October 1, 1993, to Restated and Amended Credit Agreement dated as of July 27, 1992 (incorporated by reference in the 1994 10-K).
10(a)(iii) Amendment No. 3, dated as of December 23, 1993, to Restated and Amended Credit Agreement dated as of July 27, 1992 (incorporated by reference in the 1994 10-K).
10(a)(iv) Amendment No. 4, dated as of March 31, 1994, to Restated and Amended Credit Agreement dated as of July 27, 1992 (incorporated by reference in the 1994 10-K).
10(a)(v) Amendment No. 5, dated as of July 29, 1994, Restated and Amended Credit Agreement dated as of July 27, 1992 (incorporated by reference in the 1995 10-K).
10(a)(vi) Amendment No. 6, dated as of October 15, 1994, to Restated and Amended Credit Agreement dated as of July 27, 1992 (incorporated by reference in the 1995 10-K).
10(a)(vii) Amendment No. 7, dated as of January 18, 1995, to Restated and Amended Credit Agreement dated as of July 27, 1992 (incorporated by reference in the 1995 10-K).
10(a)(viii)Amendment No. 8, dated as of February 15, 1995, to Restated and Amended Credit Agreement dated as of July 27, 1992 (incorporated by reference in the 1995 10-K).
10(a)(ix) Amendment No. 9, dated as of May 25, 1995, to Restated and Amended Credit Agreement dated as of July 27, 1992 (incorporated by reference in the 1995 10-K).
10(a)(x) Amendment No. 10, dated as of June 30, 1995, to Restated and Amended Credit Agreement dated as of July 27, 1992 (incorporated by reference in the 1995 10-K).
*10(a)(xi) Amendment No. 11, dated as of September 6, 1995, to Restated and Amended Credit Agreement dated as of July 17, 1992.
*10(a)(xii)Amendment No. 12, dated as of January 12, 1996, to Restated and Amended Credit Agreement dated as of July 27, 1992.
10(b) Share Purchase Agreement dated January 13, 1989, between Textron, Inc. and Registrant regarding sale to Textron Inc. of all shares of Avdel PLC held by Registrant or Rexnord Holdings (U.K.) PLC (incorporated by reference to the 1989 10-K).
10(c) Form of Agreement among Registrant, Transcontinental Services Group, N.V., Jeffrey J. Steiner, Nathaniel de Rothschild, Robert P. Burrow and Daniel Lebard (incorporated by reference to Schedule 13D of Transcontinental Services Group N.V. dated January 28, 1988).
10(d) Securities Purchase Agreement dated as of August 15, 1988, by and among Registrant, Rex-PT, Inc. ("Rex-PT"), Rex-PT Holdings Inc. ("Rex-PT Holdings") and certain Purchasers, including (i) as Exhibit 2, Debt Registration Rights Agreement dated as of August 15, 1988, by and among Rex-PT and certain Purchasers, (ii) as Exhibit 3, Common Stock Registration Rights Agreement dated as of August 16, 1988, by and among Rex-PT Holdings and certain Purchasers, and (iii) as Exhibit 4, Stockholders' Agreement dated as of August 16, 1988, by and among Registrant, Rex-PT Holdings, RHI and certain holders of Rex-PT Holdings common stock (incorporated by reference to the August 16, 1988 8-K).
10(e) Form of Securities Purchase Agreement among Rex-PT Holdings, Rex-PT, Registrant and Rex-PT Investors Inc. ("Rex-PT Investors") (incorporated by reference to Registrant's Current Report on Form 8-K dated September 29, 1988 (the "September 29, 1988 8-K")).
10(f) Form of Agreement of Merger between Rex-PT Holdings and Rex-PT Investors (incorporated by reference to the September 29, 1988 8-K).
10(g) Form of Securities Purchase Agreement among Rex-PT Investors, Rex-PT Holdings, Rex-PT, Registrant and certain purchasers (incorporated by reference to the September 29, 1988 8-K).
10(h) Form of Stockholders' Agreement among Rex-PT Holdings, Registrant, RHI and Rex-PT Investors (incorporated by reference to the September 29, 1988 8-K).
10(i) Form of Voting Trust Agreement among certain holders of Rex-PT Holdings common stock (incorporated by reference to the September 29, 1988 8-K).
10(j) Form of Amended and Restated Common Stock Registration Rights Agreement among Rex-PT Holdings and certain purchasers (incorporated by reference to the September 29, 1988 8-K).
10(k) Form of Common Stock Registration Rights Agreement between Rex-PT Holdings and Rex-PT Investors (incorporated by reference to the September 29, 1988 8-K).
10(l) Form of Common Stock Registration Rights Agreement between Rex-PT Holdings and RHI (incorporated by reference to the September 29, 1988 8-K).
10(m) Form of Registration Rights Agreement between Rex-PT Holdings, RHI and certain purchasers (incorporated by reference to the September 29, 1988 8-K).
10(n) Form of Registration Rights Agreement between Rex-PT Holdings, RHI and certain purchasers (incorporated by reference to the September 29, 1988 8-K).
10(o) Form of Amended and Restated Stockholders' Agreement between Rex-PT Holdings, Registrant, RHI and certain investors (incorporated by reference to the September 29, 1988 8-K).
10(p) Share Purchase Agreement dated October 4, 1988, by and between Rexnord Holdings, Registrant, ChemRex Inc. and SKW Alloys, Inc., ABM Investments Ltd., SKW Bauchemie GmbH and SKW Trostberg Ag (incorporated by reference to Registrant's Current Report on Form 8-K dated November 15, 1988 (the "November 15, 1988 8-K")).
10(q) Asset Purchase Agreement dated November 15, 1988, by and among RHI, ChemRex Inc. and J.W. Brett, Inc. (incorporated by reference to the September 29, 1988 8-K).
10(r) Asset Purchase Agreement dated as of December 16, 1988, between RHI and Ilium Industries, Inc. (the "Ilium Agreement"); Amendment to the Ilium Agreement dated as of February 21, 1989; and Second Amendment to the Ilium Agreement dated as of March 15, 1989) (incorporated by reference to Registrant's Current Report on Form 8-K dated March 17, 1989).
10(s) Agreement and Plan of Merger dated as of May 7, 1989, among Registrant, Specialty Fastener Holdings, Inc. and Fairchild, and Amendment thereto dated May 12, 1989 (incorporated by reference to Registrant's Current Report on Form 8-K dated June 19, 1989). 10(t) Assets Purchase Agreement dated May 31, 1989, among Matra S.A., AERO Acquisition Corp., Registrant and Fairchild Acquisition Corp. ("FAC") (incorporated by reference to Exhibit (a)(10) to Amendment No. 2 to Tender Offer Statement on schedule 14D-1 and Schedule 13D of Registrant and FAC, dated May 31, 1989).
10(u) Agreement dated as of June 28, 1992, between Banner Investments, Inc. and Registrant (incorporated by reference to 1992 10-K).
10(v) Agreement dated as of June 26, 1993, between Banner Investments, Inc. and Registrant (incorporated by reference to 1993 10-K).
10(w) Exchange and Standstill Agreement dated July 19, 1993, among The Fairchild Corporation, Registrant, RHI and Rex-PT Holdings, Inc. (incorporated by reference to 1993 10-K).
10(x) Registration Rights Agreement dated July 9, 1993 between Rexnord Corporation and RHI (incorporated by reference to 1994 10-K).
10(y) Allocation Agreement dated April 13, 1993 by and among The Fairchild Corporation, RHI, Rex-PT Holdings, Rexnord Corporation, Rexnord Puerto Rico, Inc. and Rexnord Canada Limited (incorporated by reference to 1993 10-K).
10(z) Trademark Purchase Agreement dated April 13, 1993 by and between Rexnord Corporation and RHI (incorporated by reference to 1993 10-K).
10(a)(a) Purchase Agreement by and between BTR Dunlop Holdings, Inc., The Fairchild Corporation and Registrant dated as of December 2, 1993 (incorporated by reference to Registrant's Current Report on Form 8-K dated December 23, 1993).
10(a)(b) Agreement and Plan of Merger dated as of November 9, 1995 by and among The Fairchild Corporation, RHI, FII and Shared Technologies, Inc. ("STI Merger Agreement") (incorporated by reference from the Registrant's Form 8-K dated as of November 9, 1995).
10(a)(b)(i) Amendment No. 1 to STI Merger Agreement dated as of February 2, 1996 (incorporated by reference from the Registrant's Form 8-K dated as of March 13, 1996).
10(a)(b)(ii) Amendment No. 2 to STI Merger Agreement dated as of February 23, 1996 (incorporated by reference from the Registrant's Form 8-K dated as of March 13, 1996).
10(a)(b)(iii) Amendment No. 3 to STI Merger Agreement dated as of March 1, 1996 (incorporated by reference from the Registrant's Form 8-K dated as of March 13, 1996).
10(a)(c) Asset Purchase Agreement dated as of January 23, 1996, between The Fairchild Corporation, RHI and Cincinnati Milacron, Inc. (incorporated by reference from the Registrant's Form 8-K dated as of January 26, 1996).
*10(a)(d) Credit Agreement dated as of March 13, 1996, among Fairchild Holding Corporation ("FHC"), Citicorp USA, Inc. and certain financial institutions.
*10(a)(e) Restated and Amended Credit Agreement dated as of May 27, 1996, (the "RHI Credit Agreement"), among RHI, Citicorp USA, Inc. and certain financial institutions.
*10(a)(e)(i) Amendment No. 1 dated as of July 29, 1996, to the RHI Credit Agreement dated as of May 27, 1996.
*10(a)(f) Restated and Amended Credit Agreement dated as of July 26, 1996, (the "FHC Credit Agreement"), among FHC, Citicorp USA, Inc. and certain financial institutions.
10(a)(g) Stock Exchange Agreement between The Fairchild Corporation and Banner Aerospace, Inc. pursuant to which the Registrant exchanged Harco, Inc. for shares of Banner Aerospace, Inc. (incorporated by reference to the Banner Aerospace, Inc. Definitive Proxy Statement dated and filed with the SEC on February 23, with respect to the Special Meeting of Shareholders of Banner Aerospace, Inc. held on March 12, 1996).
*10(a)(h) Employment Agreement between RHI Holdings, Inc., and Jacques Moskovic, dated as of December 29, 1994.
*10(a)(i) Employment Agreement between RHI Holdings, Inc., and Jacques Moskovic, dated as of December 29, 1994.
*21 List of subsidiaries of RHI Holdings, Inc.
*27 Financial Data Schedules.
28(a) Form 11-K Annual Report of the Rexnord Savings and Investment Plan for the year ended December 31, 1987 (incorporated by reference to 1988 Form 10-K).
99(a) Registrant's press release, dated December 23, 1993 (incorporated by reference to Registrant's Current Report on Form 8-K dated December 23, 1993).
99(b) Financial statements, related notes thereto, financial statement schedules, and Auditors' Reports of Banner Aerospace, Inc. for the fiscal year ended March 31, 1996 (incorporated by reference to Banner Aerospace, Inc.'s Form 10-K for fiscal year ended March 31, 1996). * Filed herewith
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the last quarter of 1994 fiscal year.
28(c) Financial statements, related notes thereto, financial statements schedules, and Auditors.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
RHI HOLDINGS, INC.
Registrant
By: Michael T. Alcox Vice President and Chief Financial Officer
Date: September 26, 1996
Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated:
Name, Title, Capacity Date --------------------- ----
Jeffrey J. Steiner ------------------------------- September 26, 1996 Chairman, Chief Executive Officer, President and Director
Michael T. Alcox ------------------------------- September 26, 1996 Senior Vice President, Chief Financial Officer and Director
Frederick W. McCarthy ------------------------------- September 26, 1996 Director
Irving Levine ------------------------------- September 26, 1996 Director
RHI HOLDINGS, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (In thousands)
Changes in allowance for doubtful accounts are as follows: