-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P/4mZTN7AId+pVCD4Us0Wz7OdaQsHW/DGp+QeCgZkXtmvdk882C6o2uef0yJs342 nk/5GK6aMKfco1sZLCgf5A== 0000009779-95-000006.txt : 19951002 0000009779-95-000006.hdr.sgml : 19951002 ACCESSION NUMBER: 0000009779-95-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950926 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAIRCHILD CORP CENTRAL INDEX KEY: 0000009779 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MACHINERY, EQUIPMENT & SUPPLIES [5080] IRS NUMBER: 340728587 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06560 FILM NUMBER: 95576128 BUSINESS ADDRESS: STREET 1: 300 W SERVICE RD STREET 2: PO BOX 10803 CITY: CHANTILLY STATE: VA ZIP: 22021 BUSINESS PHONE: 7034785800 FORMER COMPANY: FORMER CONFORMED NAME: BANNER INDUSTRIES INC /DE/ DATE OF NAME CHANGE: 19901118 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 -------------------- FORM 10-K -------------------- ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended June 30, 1995 Commission File Number: 1-6560 ------------- ------ THE FAIRCHILD CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 34-0728587 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Washington Dulles International Airport 300 West Service Road, P.O. Box 10803 Chantilly, Virginia 22021-9998 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (703) 478-5800 ---------------------------------------------------- (Registrant's Telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of exchange on Title of each class which registered - ------------------- ------------------- Class A Common Stock, par value $.10 per share New York and Pacific Stock Exchange - ------------------------------- ----------------------------------- 12 1/4% Senior Subordinated Notes due 1996 New York Stock Exchange - ------------------------------- ----------------------------------- 13 1/8% Subordinated Debentures due 2006 New York Stock Exchange - ------------------------------- ----------------------------------- 12% Intermediate Subordinated Debentures due 2001 New York Stock Exchange - ------------------------------- ----------------------------------- 13% Junior Subordinated Debentures due 2007 New York Stock Exchange - ------------------------------- ----------------------------------- Securities registered pursuant to Section 12(g) of the Act: None ---- Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10- K or any amendment to this Form 10-K [ ]. As of September 1, 1995, the aggregate market value of the common shares (based upon the closing price of these shares on the New York Stock Exchange) of the Registrant held by nonaffiliates was $28.8 million (excluding shares deemed beneficially owned by affiliates of the Registrant under Commission Rules). As of September 1, 1995, the number of shares outstanding of each of the Registrant's classes of common stock were as follows: Class A common stock, $.10 par value 13,406,109 ------------ Class B common stock, $.10 par value 2,696,886 ------------ DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's definitive proxy statement for the 1995 Annual Meeting of Stockholders' to be held on November 2, 1995 (the "1995 Proxy Statement"), which the Registrant intends to file within 120 days after June 30, 1995, are incorporated by reference into Parts III and IV. THE FAIRCHILD CORPORATION INDEX TO ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED JUNE 30, 1995 PART I Page Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . 4 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . 13 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . 14 Item 4. Submission of Matters to a Vote of Stockholders . . . . . . . . . . . . . . . . 16 PART II Item 5. Market for the Company's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . 17 Item 6. Selected Financial Data . . . . . . . . . . . . . . . 18 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . . . . . . . . . . . 18 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . 30 Item 9. Disagreements on Accounting and Financial Disclosure . . . . . . . . . . . . . . . 71 PART III Item 10. Directors and Executive Officers of the Company . . . . . . . . . . . . . . . . . . . . 71 Item 11. Executive Compensation . . . . . . . . . . . . . . . . 71 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . 71 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . 71 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . 72 PART I ------ ITEM 1. BUSINESS - ----------------- (a) General Development of Business The Fairchild Corporation (the "Company") was incorporated under the laws of the State of Delaware in October 1969. The Company changed its name from Banner Industries, Inc. to The Fairchild Corporation on November 15, 1990. The Company is a holding company which owns all of the issued and outstanding stock of RHI Holdings, Inc. ("RHI"), and through RHI all of the issued and outstanding common stock of Fairchild Industries, Inc. ("FII"). The Company conducts its operations through RHI and VSI Corporation ("VSI"), a wholly owned subsidiary of FII, in three business segments: Aerospace Fasteners, Industrial Products, and Communications Services. The Aerospace Fasteners segment designs, manufactures and markets high performance, specialty fastening systems, primarily for aerospace applications. The Industrial Products segment designs, manufactures and markets tooling and electronic control systems for the plastic injection molding and die casting industries and wet processing tools, equipment and systems required for the manufacture of semiconductor chips and related products. The Communications Services segment furnishes telecommunications services and equipment to tenants of commercial office buildings, and sells, installs, and maintains telecommunications systems for business and government customers. For a comparison of the sales of each of the Company's three business segments for each of the last three fiscal years, see "Management Discussion and Analysis of Results of Operations and Financial Condition". Through RHI, the Company is the largest stockholder of Banner Aerospace, Inc. ("Banner"), which is a leading international distributor to the aerospace industry. The Company also owns a significant equity interest in Nacanco Paketleme ("Nacanco"), which manufactures customized cans for soft drinks and beer in Turkey. Fiscal 1995 Developments - ------------------------ Overall sales increased by 23.0% in Fiscal 1995, compared to sales in Fiscal 1994, which reflected stronger sales performances from all three business segments. Operating income was $10.2 million in Fiscal 1995, compared to an operating loss of $9.3 million in Fiscal 1994. Operating income in the current year was up in both the Industrial Products segment and the Communications Services segment. The Aerospace Fasteners segment reported an operating loss of $14.1 million in Fiscal 1995, compared to a loss of $32.2 million in Fiscal 1994. The Fiscal 1995 loss in the Aerospace Fasteners segment resulted primarily from excess costs incurred to reduce the past due sales backlog, which included many orders of small quantities at low profit margins. Certain products have yielded negative margins due to labor inefficiencies and low prices. Management has taken steps to cancel any such orders remaining in the backlog unless improved pricing can be negotiated. Significant provisions for excess and slow moving inventory were also recorded in Fiscal 1995 contributing to the operating loss. Management will also continue to reduce the capacity of the Aerospace Fasteners segment as necessary to bring the breakeven point in line with demand. These actions may result in further restructuring charges in the future. Restructuring charges of $18.9 million and $15.5 million were recorded in the Fiscal 1994 and Fiscal 1993 periods, respectively, for nonrecurring costs related to exiting certain aircraft engine bolt lines, the consolidation of a major manufacturing facility and further downsizing. An unusual loss of $4.0 million was recorded in the Fiscal 1994 period for earthquake damage. (b) Financial Information about Business Segments The Company's business segment information is hereby incorporated by reference from Note 19 of the Company's consolidated financial statements included in Item 8 Financial Statements and Supplementary Data. (c) Narrative Description of Business Segments Aerospace Fasteners - ------------------- The Company, through its Aerospace Fasteners segment, is a leading worldwide manufacturer and supplier of fastening systems used in the construction and maintenance of commercial and military aircraft. The Aerospace Fasteners segment accounted for 40.1% of total Company sales for the year ended June 30, 1995. Products -------- In general, aerospace fasteners produced by the Company are used to join materials in applications that are not critical to flight. Products range from standard aerospace screws, to more complex systems that fasten airframe structures, and sophisticated latching or quick disconnect mechanisms that allow efficient access to internal parts which require regular servicing or monitoring. The Aerospace Fasteners segment also manufactures and supplies fastening systems used in non-aerospace industrial and electronic niche applications. The Aerospace Fasteners segment produces and sells products under various trade names and trademarks including Voi-Shan (fasteners for aerospace structures), Screwcorp (standard externally threaded products for aerospace applications), RAM (custom designed mechanisms for aerospace applications), Camloc (components for the industrial, electronic, automotive and aerospace markets), Tridair and Rosan (fastening systems for highly- engineered aerospace, military and industrial applications). In addition to these manufacturing operations, the Aerospace Fasteners segment includes HARCO, which is a leading stocking distributor of self-locking nuts for the aerospace fasteners industry. Principal product lines of the Aerospace Fasteners segment include: Standard Aerospace Airframe Fasteners - These fasteners consist of standard externally threaded fasteners used in non-critical airframe applications on a wide variety of aircraft. These fasteners include Hi- Torque Speed Drive, Tri-Wing, Torq-Set, Phillips and Hex Heads. Commercial Aerospace Structural and Engine Fasteners - These fasteners consist of more highly engineered, permanent or semi-permanent fasteners used in non-critical but more sophisticated airframe and engine applications, which could involve joining more than two materials. These fasteners are generally engineered to specific customer requirements or manufactured to specific customer specifications for special applications, often involving exacting standards. These fasteners include Hi-Lok, Veri-Lite, Eddie-Bolt2 and customer proprietary engine nuts. Proprietary Products and Fastening Systems - These very highly engineered, proprietary fasteners are designed by the Company for specific customer applications and include high performance structural latches and hold down mechanisms. These fasteners are usually proprietary in nature and are primarily used in either commercial aerospace or military applications. These fasteners include Visu-Lok, Composi-Lok, Keen-serts, Mark IV, Flatbeam and Ringlock. Highly Engineered Fastening Systems for Industrial Applications - These highly engineered fasteners are designed by the Company for specific niche applications in the electronic, automotive and durable goods markets and are sold under the Camloc trade name. Gas Springs for Automotive and Industrial/Commercial Applications - These are designed to assist in the raising, lowering or moving of heavy loads such as the tailgate of a vehicle, sunbeds, printer canopies, acoustic hoods and like items. Sales and Markets ----------------- The products of the Aerospace Fasteners segment are sold primarily to domestic and foreign original equipment manufacturers, the maintenance and repair market through distributors, and to the United States government. 74.9% of its sales are domestic. The products of the Aerospace Fasteners segment are marketed by a direct sales force and technical engineering support personnel who are responsible for identifying new product applications, obtaining the approval of new products and maintaining ongoing relationships with customers. Major customers include Boeing, McDonnell Douglas, Airbus, Lockheed and Northrop, and their subcontractors, as well as major distributors such as Burbank Aircraft. No single customer accounts for more than 10% of consolidated sales. The Company anticipates that non-aerospace and commercial aerospace applications as a percentage of sales will increase over time as the Company brings to market new products and military spending declines. Research and Development ------------------------ Research and development and its engineering related support functions are an important part of the Company's strategy of providing its customers quality products, prompt service and overall value. Company sponsored research and development expense in the Aerospace Fasteners segment for the years ended June 30, 1995, 1994 and 1993 amounted to $974,000, $1,435,000 and $2,204,000, respectively. Manufacturing and Production ---------------------------- The Aerospace Fasteners segment has seven major manufacturing facilities, of which four are located in the United States and three are located in Europe. Each facility has virtually complete production capability, and subcontracts only those orders which exceed capacity. Each plant is oriented to produce a specified product or group of products, depending on the production process involved. On January 17, 1994, the Aerospace Fasteners' Chatsworth, California manufacturing facility suffered extensive damage from the Southern California earthquake. As a result, the Company relocated the Chatsworth manufacturing operations to its other Southern California facilities. See Note 16 of the Company's consolidated financial statements, included in Item 8 Financial Statements and Supplementary Data. The Company is continuing to extensively re-engineer the way it produces fasteners, shifting from a process orientation to a product orientation by forming focused discrete work groups, each having broader responsibilities. Competition ----------- The Aerospace Fasteners segment's major competitors include Hi-Shear, Inc., Monogram, Inc., Air Industries, Inc., SPS, Inc., Kaynar, Valley Todeco, and Huck International, with regard to aerospace fasteners, and Southco, Inc., with regard to specialized industrial applications. In addition, competition comes from stocking distributors who may offer reduced lead times to customers as a result of their inventory investment. Industrial Products - ------------------- The Industrial Products segment consists primarily of three distinct companies operating under the trade names D-M-E Company ("DME"), Fairchild Data Corporation ("Data") and Convac GmbH ("Convac"). DME is a leading manufacturer and supplier of tooling and electronic control products for the plastic injection molding industry worldwide. The principal end-users of DME's products are the transportation, packaging, communications, housewares, commercial and industrial products, medical products, toy, appliance, furniture and building industries. 66.2% of DME's sales for the year ended June 30, 1995, were in North America and 33.8% were attributable to sales outside North America. In June 1994, as part of the Company's strategy of diversifying into new, high growth industries, the Company, through RHI, acquired 100% of the outstanding common stock of Convac, a German corporation. Convac is a leading designer and manufacturer of wet processing tools, equipment and systems in multiple modular design, required for the manufacture of semiconductor chips and related products, and for compact and optical storage discs and liquid crystal displays. See Note 2 of the Company's consolidated financial statements, included in Item 8 Financial Statements and Supplementary Data. The Industrial Products segment accounted for 40.0% of total Company sales for the year ended June 30, 1995. Products -------- DME provides an extensive line of standardized and special order products as well as electronic control systems. Principal product lines include: Mold Bases - Mold bases are used to retain the cavity and core of a plastic mold. These products consist of a number of high alloy, precision- machined steel plates put together in combination with other mold components into a mold base assembly available either as a standard dimensioned catalog product or as a specially machined mold base made to customer specifications. Mold Components - Mold components are utilized within a mold base to facilitate the mechanical action of the individual steel plates. These products include such items as leader pins and bushings to guide and align the plates, ejector pins and sleeves to eject the finished plastics product from the mold, and other specialized products such as collapsible cores to mold complex geometries involving difficult under-cuts and threads. Moldmaking Tools/Supplies - Tooling and miscellaneous supplies allow the moldmaker to manufacture and "finish" the actual cavity and core of a plastic mold. These products range from ultrasonic polishing equipment and abrasives to specialized tooling for the milling and drilling of steel. Runnerless Molding/Process Control - DME's internally and externally heated runnerless molding systems with thermal and/or mechanical gate shut-off devices produce high quality plastic products while minimizing labor content and reducing scrap in the manufacturing process. DME's trademark runnerless molding systems are called The Hot One and The Cool One. DME also provides sensor and computer technology, allowing processors Statistical Process Control (SPC) of their entire molding cycle. CAD/CAM - DME offers a unique line of Computer Aided Design (CAD) and Computer Aided Manufacturing (CAM) hardware and software for the plastics industry. DME sells computer hardware as a value-added reseller for some of the industry's best known computer suppliers. Additionally, DME has developed copyrighted software programs which are specific to the plastics industry. These systems enable mold designers to design mold bases utilizing a combination of most of the popular products offered by DME, including runnerless molding systems. Data is a supplier of modems for use in high-speed digitized voice and data communications. The four primary product groups of Convac include wafer track systems/cluster, photomask processing equipment, liquid crystal display process equipment and compact disc coating equipment. Sales and Markets ----------------- DME's sales efforts in North America are led by direct field sales representatives and regional managers, who call directly on key mold makers, molders and designers. In addition, a telemarketing group supplements the sales representatives' efforts and reaches the smaller or low activity accounts. Additionally, DME utilizes distributors in key product market segments to focus on sales of items such as temperature controls. Sales of highly technical products, such as complete runnerless manifold systems, are aided by technical service representatives located in the various sales regions. Internationally, sales are handled by direct sales representatives in England, France, Belgium and Germany. In a number of countries in Europe and in Asia and the South Pacific, joint venture partners sell DME products through full-time sales representatives and secondary distribution outlets. DME utilizes stocking distributors to serve the rest of the world. Manufacturing and Production ---------------------------- Local production facilities are a strategic advantage to sales in the custom mold base markets DME serves. Accordingly, DME maintains regional production facilities in North America and Europe to service customers of its custom-manufactured products. DME has ten manufacturing facilities in the United States, Canada, Mexico, Belgium and Germany and licenses four other companies to manufacture products in Brazil, Hungary, Japan and India. Competition ----------- DME competes with different companies with respect to each of its major product categories. DME's competition principally consists of privately-held manufacturers operating primarily in local markets. DME believes it is the leading supplier of mold bases, mold components and electronic control systems for the plastic injection molding industry. DME is one of six major competitors in North America, and one of four major competitors in Europe, in the runnerless molding/process controls market. The Company believes the runnerless molding/process controls market is a growth market with competition based primarily on product technology and service. A significant portion of DME's research and development is aimed at this market. DME faces competition from various companies with respect to each of the individual products in the resale products segment of its business. Competition in this segment is based primarily on price and delivery time. Communications Services - ----------------------- Fairchild Communications Services Company ("Fairchild Communications") provides telecommunications equipment and services to tenants of commercial office buildings, under the trade name Telecom 2000 Services. As a result of its acquisition of JWP Telecom, Inc. in the second fiscal quarter, Fairchild Communications also sells, installs, and maintains telecommunications systems for business and government customers, under the name Telecom 2000 Systems. Fairchild Communications is a distributor for Northern Telecom, NEC, Octel, Centigram and Active Voice, all leading manufacturers of telephone systems, voice mail systems and other equipment. Fairchild Communications was founded as a start-up venture in 1985 and has grown rapidly through expansions and acquisitions. Sales have grown from $1.4 million in Fiscal 1986 to $110 million in Fiscal 1995. Approximately $80 million of such increase was attributable to acquisitions (determined on an annualized basis at the date of acquisition), primarily the acquisition of the telecommunications assets of Amerisystems and JWP Telecom. The JWP Telecom acquisition contributed sales of approximately $30 million in Fiscal 1995. The Communication Services segment accounted for 19.9% of total Company sales for Fiscal 1995. Services -------- Fairchild Communications negotiates long-term telecommunications franchises with owners and developers of office buildings. Under these arrangements, Fairchild Communications installs switching equipment, cable and telephone equipment, and subsequently contracts directly with individual tenants in the buildings to provide multi-year, single-point-of-contact telecommunications services. Telecom 2000 Services include access to services provided by regulated communications companies including local, long distance, international and 800 telephone services. Fairchild Communications also provides telephone switching equipment and telephones as well as voice mail, telephone calling cards, local area networks and voice and data cable installation and customized billing services that assist customers in controlling their telecommunications expense. Fairchild Communications typically provides its services at rates equal to or below those which customers could otherwise obtain, in part due to discounts it can obtain as a high volume purchaser of telephone services. Systems ------- Fairchild Communications' Telecom 2000 Systems business sells telecommunications equipment directly to end-users and installs, services and maintains the equipment after the sale. Systems installations include PBX and key telephone systems, voice mail and automated call distribution systems and entire call centers. Fairchild Communications systems business employs a staff of field and design engineers capable of assisting customers in planning and implementation of all of their telecommunications plant needs. Customer service options range from basic business hour response to 24 hour a day, 365 days per year maintenance contracts. Fairchild Communications will also contract with customers to staff their facilities with dedicated service personnel under long term contracts. Customers --------- Telecom 2000 Services' and Systems' customers consist of small to medium size businesses as well as larger organizations and governmental agencies. As of June 30, 1995, Fairchild Communications had offices in 23 cities serving over 10,000 customers. Contract terms with Telecom 2000 Services customers typically have a term of three to five years with provision for automatic renewal. Contracts with Telecom 2000 Systems customers for maintenance services typically have a term of one year with provision for automatic renewal. Competition ----------- Fairchild Communications services business competes with regulated major carriers that may provide a portion of the services that Fairchild Communications provides, but are typically not structured to provide all of a customers telecommunications requirements. Fairchild Communications also competes with small independent operators serving local markets. Fairchild Communications also competes with other shared communications services providers in order to secure telecommunications franchises with office building owners. Principal competitors include Metropolitan Fiber Systems' Realcom unit and Shared Technologies. Once a franchise has been obtained, Fairchild Communications competes with equipment manufacturers and distributors and long distance companies for the provision of telephone and other telecommunications equipment and services to building tenants. The principal competitors of Fairchild Communications' business systems include manufacturers such as AT&T and Rolm and distributors of equipment manufactured by such companies as Northern Telecom and NEC. Growth ------ Management believes that future growth in the Communications segment will come primarily from four sources: acquisitions operating in the same or related businesses; new customers as a result of increased occupancy of space currently vacant in office buildings already under franchise or those being added; an increase in equipment dealer territory; and additional services to the existing customer base. Foreign Operations - ------------------ The Company's operations are located primarily in the United States and Europe. Inter-area sales are not significant to the total revenue of any geographic area. Export sales are made by U.S. subsidiaries and divisions to customers in non-U.S. countries, whereas foreign sales are made by the Company's non-U.S. subsidiaries. For the Company's sales results by geographic area and export sales, see Note 20 of the Company's consolidated financial statements included in Item 8, Financial Statements and Supplementary Data. Major Customers - --------------- No single customer accounted for more than 10% of consolidated sales in any of the Company's business segments for the year ended June 30, 1995. Backlog of Orders - ----------------- Backlog is significant in the Company's Aerospace Fasteners segment, due to long-term production requirements of its customers. Backlog of unfilled orders is not material in the Industrial Products segment and the Communications Services segment, where most orders are filled within a few weeks. The Company's backlog of orders as of June 30, 1995 in the Aerospace Fasteners, Industrial Products and Communications Services segments amounted to $100.6 million, $41.3 million and $4.2 million, respectively. The Company anticipates that approximately 88.1% of the aggregate backlog at June 30, 1995 will be delivered by June 30, 1996. Suppliers - --------- The Company does not consider itself to be materially dependent upon any one supplier, but is dependent upon a wide range of subcontractors, vendors and suppliers of materials to meet its commitments to its customers. Research and Patents - -------------------- The Company's research and development activities have included: applied research; development of new products; testing and evaluation of, and improvements to, existing products; improvements in manufacturing techniques and processes; development of product innovations designed to meet government safety and environmental requirements; and development of technical services for manufacturing and marketing. The Company's sponsored research and development expenditures amounted to $4,100,000, $3,940,000 and $3,262,000 for the years ended June 30, 1995, 1994 and 1993, respectively. The Company owns patents relating to the design and manufacture of certain of its products and is a licensee of technology covered by the patents of other companies. The Company does not believe that any of its business segments are dependent upon any single patent. Personnel - --------- As of June 30, 1995, the Company had approximately 3,800 employees. Approximately 5% of these employees were covered by collective bargaining agreements. The Company believes that its relations with its employees are good. Environmental Matters - --------------------- See discussion of Environmental Matters under Item 3 "Legal Proceedings" below. ITEM 2. PROPERTIES - -------------------- As of June 30, 1995, the Company owned or leased properties totalling approximately 1,771,000 square feet, approximately 1,164,000 square feet of which was owned and 575,000 square feet was leased. The Aerospace Fasteners segment's properties consisted of approximately 677,000 square feet, with principal operating facilities of approximately 535,000 square feet concentrated in southern California. The Industrial Products segment's properties consisted of approximately 783,000 square feet, with principal operating facilities of approximately 451,000 square feet located in Arizona, Michigan, Pennsylvania and Belgium. The Company owns its corporate headquarters at Washington-Dulles International Airport. The Company has several parcels of property which it is attempting to market, lease and/or develop, including: (i) an 88 acre parcel located in Farmingdale, New York, (ii) a 6 acre parcel in Temple City, California, (iii) an 8 acre parcel in Chatsworth, California, and (iv) several other parcels of real estate primarily located throughout the continental United States. The following table sets forth the location of the larger properties used in the continuing operations of the Company, their square footage, the business segment or groups they serve and their primary use. Each of the properties owned or leased by the Company is, in management's opinion, generally well maintained, is suitable to support the Company's business and is adequate for the Company's present needs. All of the Company's occupied properties are maintained and updated on a regular basis.
Owned or Square Business Segment/ Location Leased Footage Group Use - -------- -------- ------- ----------------- ------------- Torrance, California Owned 284,000 Aerospace Fasteners Manufacturing Youngwood, Pennsylvania Owned 135,000 Industrial Products Manufacturing Chantilly, Virginia Owned 125,000 Corporate Office City of Industry, California Owned 120,000 Aerospace Fasteners Manufacturing Madison Hts, Michigan Owned 69,000 Industrial Products Manufacturing Industriepark Noord, Belgium Owned 69,000 Industrial Products Manufacturing Santa Ana, California Owned 50,000 Aerospace Fasteners Manufacturing Scottsdale, Arizona Leased 120,000 Industrial Products Manufacturing
Information concerning long-term rental obligations of the Company at June 30, 1995, is set forth in Note 18 to the Company's consolidated financial statements, included in Item 8 Financial Statements and Supplementary Data. ITEM 3. LEGAL PROCEEDINGS - --------------------------- CL Motor Freight Litigation - --------------------------- The Workers Compensation Bureau of the State of Ohio is seeking reimbursement from the Company for up to $5,400,000 for CL workers compensation claims which were insured under a self-insured program of CL. The Company has contested a significant portion of this claim. Government Claims - ----------------- The Corporate Administrative Contracting Officer (the "ACO"), based upon the advice of the United States Defense Contract Audit Agency, has made a determination that FII did not comply with Federal Acquisition Regulations and Cost Accounting Standards in accounting for (i) the 1985 reversion to FII of certain assets of terminated defined benefit pension plans, and (ii) pension costs upon the closing of segments of FII's business. The ACO has directed FII to prepare cost impact proposals relating to such plan terminations and segment closings and, following receipt of such cost impact proposals, may seek adjustments to contract prices. The ACO alleges that substantial amounts will be due if such adjustments are made. The Company believes it has properly accounted for the asset reversions in accordance with applicable accounting standards. The Company had discussions with the government to attempt to resolve these pension accounting issues. Civil Litigation - ---------------- Maurice Bidermann Litigation ---------------------------- The Company obtained a judgment in the United States District for the Southern District of New York, for $12,947,000, plus interest, against Maurice Bidermann ("Bidermann") for breach of an agreement under which Bidermann was to have acquired the Company's interest in Bidermann Industries USA, Inc. ("BIUSA"), for approximately $22,500,000, of which Bidermann paid $10,000,000, and then defaulted. On June, 1995, the Company settled this claim for approximately $12,000,000, in addition to the $10,000,000 previously collected, and transferred its interest in BIUSA to third parties. Environmental Matters - --------------------- The Company and other aerospace fastener and industrial product manufacturers are subject to stringent Federal, state and local environmental laws and regulations concerning, among other things, the discharge of materials into the environment and the generation, handling, storage, transportation and disposal of waste and hazardous materials. To date, such laws and regulations have not had a material effect on the financial condition of the Company, although the Company has expended, and can be expected to expend in the future, significant amounts for investigation of environmental conditions and installation of environmental control facilities, remediation of environmental conditions and other similar matters, particularly in the Aerospace Fasteners segment. In connection with its plans to dispose of certain real estate, the Company must investigate environmental conditions and may be required to take certain corrective action prior or pursuant to any such disposition. In addition, management has identified several areas of potential contamination at or from other facilities owned, or previously owned, by the Company, that may require the Company either to take corrective action or to contribute to a clean-up. The Company is also a defendant in certain lawsuits and proceedings seeking to require the Company to pay for investigation or remediation of environmental matters and has been alleged to be a potentially responsible party at various "Superfund" sites, Management of the Company believes that it has recorded adequate reserves in its financial statements to complete such investigation and take any necessary corrective actions or make any necessary contributions. No amounts have been recorded as due from third parties, including insurers, or set off against, any liability of the Company, unless such parties are contractually obligated to contribute and are not disputing such liability. As of June 30, 1995, the consolidated total recorded liabilities of the Company for environmental matters referred to above totalled $14,087,000. As of June 30, 1995, the estimated probable exposures for these matters was $13,918,000. It is reasonably possible the Company's total exposure for these matters could be approximately $22,870,000. Other Matters - ------------- The Company is involved in various other claims and lawsuits incidental to its business, some of which involve substantial amounts. The Company, either on its own or through its insurance carriers, is contesting these matters. In the opinion of management, the ultimate resolution of the legal proceedings, including those discussed above, will not have a material adverse effect on the financial condition or the future operating results of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS - -------------------------------------------------------- None. PART II ------- ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER - ---------------------------------------------------------------------- MATTERS ------- (a) Market Information The Company's Class A Common Stock is traded on the New York Stock Exchange and Pacific Stock Exchange under the symbol FA. The Company's Class B Common Stock is not listed on any exchange and is not publicly traded. Class B Common Stock can be converted to Class A Common Stock at any time. Information regarding the quarterly price range of the Company's Class A Common Stock is hereby incorporated by reference from Note 21 of the Company's consolidated financial statements included in Item 8 Financial Statements and Supplementary Data. (b) Holders The Company had approximately 1,658 and 64 record holders of its Class A and Class B Common Stock, respectively, at September 1, 1995. (c) Dividends The Company suspended its regular dividend payments in Fiscal 1988. The Company's present intention is to resume regular dividend payments when deemed prudent by its Board of Directors. ITEM 6. SELECTED FINANCIAL DATA - -------------------------------- Five-Year Financial Summary (In thousands, except per share data) For the years ended June 30, 1995 1994 1993 1992 1991 - --------------------------- ---------- ---------- ---------- ---------- ---------- Summary of Operations: Net sales........................ $ 546,323 $ 444,145 $ 463,567 $ 489,780 $ 515,652 Earnings (loss) from continuing operations..................... (33,920) 27,783 (43,465) (20,168) 22,447 Earnings (loss) per share from continuing operations: Primary...................... (2.11) 1.72 (2.70) (1.24) 1.31 Fully diluted................ (2.11) 1.72 (2.70) (1.24) 1.30 Cash dividends per common share: Class A........................ -- -- -- .20 -- Class B........................ -- -- -- .10 -- Balance Sheet Data: Total assets..................... $ 881,882 $ 913,529 $ 960,882 $1,009,376 $1,068,818 Long-term debt, less current maturities..................... 509,715 522,406 566,491 533,820 527,228 Redeemable preferred stock of subsidiary..................... 16,342 17,552 17,732 42,858 49,468 Stockholders' equity............. 45,043 71,968 56,865 115,605 142,795 per outstanding common share... 2.80 4.47 3.53 7.15 8.46
Fiscal 1994 includes the gain on the sale of Rexnord Corporation stock. This transaction materially affects the comparability of the information reflected in the selected financial data. ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND - ------------------------------------------------------------------------ FINANCIAL CONDITION ------------------- The Fairchild Corporation (the "Company") was incorporated under the laws of the State of Delaware in October, 1969. The Company changed its name from Banner Industries, Inc. to The Fairchild Corporation on November 15, 1990. RHI Holdings, Inc. ("RHI") is a direct subsidiary of the Company. RHI is the owner of all of the common stock of Fairchild Industries, Inc. ("FII") which, in turn, is the 100% owner of VSI Corporation ("VSI"). The Company's operations are conducted through VSI and RHI. The Company also holds significant equity interests in Banner Aerospace, Inc. ("Banner") and Nacanco Paketleme ("Nacanco"). RESULTS OF OPERATIONS The Company currently operates in three principal business segments: Aerospace Fasteners, Industrial Products and Communications Services. The following table illustrates the historical sales and operating income of the Company's continuing operations for the past three years.
For the years ended June 30, (In thousands) -------------------------------- 1995 1994 1993 -------- -------- -------- Sales by Business Segment: Aerospace Fasteners............... $219,129 $203,456 $247,080 Industrial Products............... 218,484 166,499 148,449 Communications Services........... 108,710 74,190 68,038 ------- ------- ------- Total $546,323 $444,145 $463,567 ======= ======= ======= Operating Income (Loss) by Business Segment: Aerospace Fasteners*.............. $(14,073) $(32,208) $(15,398) Industrial Products............... 21,112 21,024 19,081 Communications Services........... 18,498 16,483 14,688 ------- ------- ------- Total 25,537 5,299 18,371 Corporate administrative expense.. (13,179) (16,868) (19,506) Other corporate (expense) income.. (2,152) 2,231 5,309 ------- ------- ------- Operating Income (loss)............. $ 10,206 $ (9,338) $ 4,174 ======= ======= ======= *Includes restructuring charges of $18.9 million and $15.5 million in Fiscal 1994 and Fiscal 1993, respectively, and an unusual loss from earthquake damage and related business interruption of $4.0 million in Fiscal 1994.
FISCAL 1995 VERSUS FISCAL 1994 General - ------- Overall sales increased by 23.0% in Fiscal 1995, compared to sales in Fiscal 1994, which reflected stronger sales performances from all three business segments. Operating income increased $19.5 million in Fiscal 1995, compared to operating losses in Fiscal 1994. During Fiscal 1995, operating losses decreased significantly in the Aerospace Fasteners segment primarily due to the Fiscal 1994 period having included a restructuring charge of $18.9 million and a $4.0 million charge for earthquake damage and related business interruption. Operating income in the current year was up in both the Industrial Products segment and the Communications Services segment. (See discussion below). Aerospace Fasteners - ------------------- Sales in the Aerospace Fasteners segment increased 7.7% in Fiscal 1995, compared to the Fiscal 1994 period, primarily resulting from aggressive management efforts during the current year to reduce backlog caused by quality problems and earthquake disruption, which have diminished. Operating losses in the Aerospace Fasteners segment decreased $18.1 million for the Fiscal 1995 period, over the corresponding Fiscal 1994 period; however, this segment continues to be affected by soft demand and severe price erosion and higher quality control costs resulting from customers' requirements. The Fiscal 1995 loss resulted primarily from excess costs incurred to reduce the past due sales backlog, which included many orders of small quantities at low profit margins. Certain products have yielded negative margins due to labor inefficiencies and low prices. Management has taken steps to cancel any such orders remaining in the backlog unless improved pricing can be negotiated. Significant provisions for excess and slow moving inventories were also recorded in Fiscal 1995, contributing to the operating loss. Management will also continue to reduce the capacity of the Aerospace Fasteners segment as necessary to bring the breakeven point in line with demand. These actions may result in further restructuring charges in the future. A restructuring charge of $18.9 million was recorded in the prior year for nonrecurring costs related to exiting certain aircraft engine bolt lines, and an unusual loss of $4.0 million was recorded in the prior year for earthquake damage (see below). In January of 1994, the Company's Chatsworth, California Aerospace Fasteners manufacturing facility suffered extensive damage from the Southern California Earthquake. This disruption caused increased costs and reduced revenues in Fiscal 1994 and has negatively affected Fiscal 1995 as well. In June of 1995, the Company reached final settlement of its insurance claim and recovered a total of $17.0 million for property damages and business interruption. (See further discussion in the Fiscal 1994 versus 1993 discussion). Industrial Products - ------------------- Sales in the Industrial Products segment increased 31.2% in Fiscal 1995, compared to the Fiscal 1994 period. $15.1 million of the net increase in sales in Fiscal 1995 was at the D-M-E Company ("D-M-E"), which provides tooling to the plastics industry, reflecting customer response to D-M-E's fast delivery programs, new products, and growth of the domestic economy. Domestic demand for tooling for plastics has been strong while foreign demand has shown signs of improvement as a result of the strengthening European economy. Expansion into selected new foreign markets is being pursued and appears to have potential. Also included in the Industrial Products segment were sales from Convac, a semiconductor equipment manufacturing company acquired at the end of Fiscal 1994, another small acquisition made early in Fiscal 1995 and Fairchild Data Corporation. The combined sales of these companies was $50.7 million in the Fiscal 1995 period. Operating income in the Industrial Products segment was flat in Fiscal 1995, compared to Fiscal 1994. A $4.2 million improvement in operating income at D-M-E in Fiscal 1995 was offset by operating losses from the other operations which incurred significant R&D and start-up costs. The improved results at D-M-E resulted from a higher sales volume and improved operating margins. In recent years D-M-E has implemented several cost savings steps, including overhead reduction, plant consolidation and improved inventory management programs, which have contributed to the higher operating margins. In addition, D-M-E has continued to implement improved manufacturing methods that have reduced cycle time and costs. Communications Services - ----------------------- Sales in the Communications Services segment increased 46.5% in Fiscal 1995, compared to Fiscal 1994, primarily due to the inclusion of sales from the acquisition of specified assets of JWP Telecom, Inc., ("JWP") made during the Fiscal 1995 second quarter, as well as sales to new customers, the addition of telecommunications franchises in new office buildings, and growth at existing sites. Operating income in the Communications Services segment increased 12.2% in Fiscal 1995, compared to Fiscal 1994, primarily due to increased sales resulting from the reasons given above and related economies of scale. Operating income as a percent of sales was 17.0% in Fiscal 1995. This lower return was anticipated as a result of the JWP acquisition, which has lower gross margins due to the nature of the business. Other Expenses/Income - --------------------- Corporate Administrative Expense - During Fiscal 1995, corporate administrative expense decreased 21.9%. This decline resulted primarily from cost controls, including a reduction in work force and wage and salary caps that were in effect for most corporate employees and sale of the Company airplane during Fiscal 1994. Other Corporate Income - Other corporate income decreased $4.4 million in Fiscal 1995, compared to Fiscal 1994, primarily due to increased carrying costs and losses reported on net assets held for sale. In addition, start up costs related to a corporate sponsored joint venture are included in this category. Gain on sale of a trademark was recognized in the prior year period. Net Interest Expense - Net interest expense decreased 2.7% in Fiscal 1995, compared to the prior year period, due primarily to lower borrowings and increased interest income earned on higher cash and cash equivalents average balances during the Fiscal 1995 period. Investment income, net - Investment Income decreased by 7.5%, primarily as a result of higher dividends realized on participating annuity contracts in the prior year period. Equity in earnings of affiliates increased $3.3 million in Fiscal 1995, compared to Fiscal 1994. Earnings from Nacanco, in which the Company holds a 31.9% interest, were down $2.6 million for the year, primarily due to a large tax adjustment taken during the current year. The Fiscal 1994 period included a $5.7 million loss from Banner Aerospace which included losses on discontinued operations and restructuring charges. Minority interest expense includes dividend expense on FII's Series C Preferred Stock. Non-Recurring Income - Non-recurring income in the Fiscal 1994 period includes the net pre-tax gain of $129.1 million on the Company's 43.9% stock interest in Rexnord Corporation, which was sold to BTR Dunlop Holdings, Inc. on December 23, 1993. Income Taxes - For Fiscal 1995, the Company recorded a tax benefit of $18.0 million at a 34.7% effective tax rate. Accounting Changes: - ------------------- 1) Postretirement Benefits - Using the immediate recognition method, the Fiscal 1994 after-tax charge to earnings for the cumulative effect of this accounting change was $.5 million, which represents the unamortized portion of an overstated liability for discontinued operations, which substantially offset the transition obligation for active employees and retirees of continuing operations. In addition, in Fiscal 1994, a $7.5 million charge, net of the Company's related tax benefit, was recorded for the Company's share of Rexnord Corporation's cumulative charge resulting from this change in accounting. 2) Accounting for Income Taxes - The Company elected the immediate recognition method and recorded, in Fiscal 1994, a $2.4 million charge, representing the cumulative effect on prior years. This charge represents deferred taxes related primarily to fixed assets, prepaid pension expenses, and inventory differences. In addition, a $.5 million charge was recorded for the Company's share of Rexnord Corporation's ("Rexnord") cumulative charge resulting from this change in accounting. Net Earnings (Loss) - The net earnings (loss) decreased $49.6 million in Fiscal 1995, compared to the Fiscal 1994 period, primarily due to the $129.1 million net pre-tax gain on the sale of the Company's interest in Rexnord recognized in the Fiscal 1994 period. Offsetting the decrease were: (1) the $19.5 million increase in operating income and the $3.3 million increase in equity earnings in Fiscal 1995, (2) the $11.0 million charge, net of tax, for the cumulative effect of accounting changes, which was recorded in Fiscal 1994, and (3) a decrease in taxes of $43.0 million. FISCAL 1994 VERSUS FISCAL 1993 General - ------- Overall sales declined by 4.2% for Fiscal 1994, compared to Fiscal 1993, primarily caused by price erosion due to excess capacity in the aerospace fasteners industry, reduced order rates from commercial and military aerospace customers in the Aerospace Fasteners segment and lower revenues due to the disruption caused by the earthquake. Reduced order rates were principally due to reductions in defense spending and reduced build rates of commercial airplane original equipment manufacturers, due to conditions in the airline industry. The decline in sales at the Aerospace Fasteners segment was partially offset by significant sales increases at the Industrial Products and Communication Services segments in the Fiscal 1994 period. The Industrial Products segment included sales in the Fiscal 1994 period by Fairchild Data Corporation which had been classified as a discontinued operation in the Fiscal 1993 period. Operating income decreased by $13.5 million in Fiscal 1994, compared to Fiscal 1993. A restructuring charge of $18.9 million was recorded in Fiscal 1994, to further implement the Aerospace Fasteners segment restructuring plan. A $4.0 million charge for earthquake damage and related business interruption also affected this segment in Fiscal 1994. Operating income was up in the Industrial Products and Communications Services business segments for Fiscal 1994; however, in the Aerospace Fasteners segment operating income declined $16.8 million for Fiscal 1994, compared to Fiscal 1993. Other corporate income also decreased in Fiscal 1994. (See discussion below.) Aerospace Fasteners - ------------------- Sales in the Aerospace Fasteners segment decreased 17.7% in Fiscal 1994, compared to Fiscal 1993, primarily due to the reduced order rates. The operating loss in the Aerospace Fasteners segment increased by $16.8 million in Fiscal 1994, compared to the Fiscal 1993 period. During the Fiscal 1994 period, sustained soft worldwide demand for aircraft and aircraft engines caused a decline in new order rates and in prices for aerospace fasteners. In response, the Company continued to undertake restructuring actions to further downsize, reduce costs, reduce cycle times and improve margins. These restructuring efforts included discontinuance of certain aircraft engine bolt and other product lines, increased cellularization of manufacturing processes, relocation of its New Jersey operations to California and re-engineering certain manufacturing processes and methods to meet more stringent customer quality standards. The Company recorded a pretax restructuring charge of $18.9 million in Fiscal 1994 to cover the cost of the above mentioned restructuring activities, including the write down of goodwill and surplus assets related to certain product lines, severance benefits and the nonrecurring costs associated with the cellularization and reengineering of manufacturing processes and methods. The Fiscal 1993 period included a restructuring charge of $15.5 million to downsize fastener operations in Europe and the United States. Operating income in Fiscal 1994 was also affected by (1) reduced demand and price erosion; and (2) higher quality control costs resulting from customer quality requirements. The segment has implemented programs to comply with customer quality requirements, which resulted in one time start- up costs and increased recurring quality costs, each of which negatively affected the Fiscal 1994 operating results, and will likely negatively affect the future profit margins of this segment. On January 17, 1994, the Company's Chatsworth, California Aerospace Fasteners manufacturing facility suffered extensive damage from the Southern California earthquake. As a result, the Company relocated the Chatsworth manufacturing operations to its other Southern California facilities. This disruption caused increased costs and reduced revenues in Fiscal 1994. While the Company carries insurance for both business interruption and property damage caused by earthquakes, the policy has a 5% deductible. The Company recorded an unusual pretax loss in Fiscal 1994 of $4.0 million to cover the estimated net cost of the damages and business interruption caused by the earthquake. Industrial Products - ------------------- Sales in the Industrial Products segment increased 12.2% in Fiscal 1994 compared to Fiscal 1993. The inclusion of Fairchild Data Corporation sales in Fiscal 1994 accounted for 76.5% of the increased sales in this segment. Sales increased by $4.2 million at D-M-E Company in Fiscal 1994, reflecting customer response to D-M-E's fast delivery programs, new products, and growth of the domestic economy. Operating income in the Industrial Products segment increased 10.2% in Fiscal 1994, compared to Fiscal 1993. The inclusion of Fairchild Data Corporation operating income in Fiscal 1994 accounted for 48.9% of the increase in operating income in this segment. The improved results at D-M-E in the Fiscal 1994 period resulted from a higher sales volume and improved operating margins. In recent years the Industrial Products segment has implemented several cost savings steps, including overhead reduction and improved inventory management programs, which have contributed to the higher operating margins. The improvements in inventory management and delivery systems resulted in faster deliveries, reduction in inventory, and higher inventory turnover. In addition, D-M-E has continued to implement improved manufacturing methods that have reduced cycle times and costs. Communications Services - ----------------------- Sales in the Communications Services segment increased 9.0% in Fiscal 1994, compared to Fiscal 1993, primarily due to the inclusion of sales from acquisitions, the addition of telecommunications franchises in new office buildings, and growth at existing sites. Operating income in the Communications Services segment increased 12.2% in Fiscal 1994 compared to Fiscal 1993, primarily due to increased sales resulting from the reasons given above and related economies of scale. Operating income as a percent of sales in Fiscal 1994 was slightly higher than in Fiscal 1993. Other Expenses/Income - --------------------- Corporate Administrative Expense - Corporate administrative expense decreased by 13.5% in Fiscal 1994, as compared to Fiscal 1993. This decline resulted primarily from cost controls, including a reduction in work force and wage and salary caps that were in effect for most corporate employees, and the sale of the Company airplane during Fiscal 1994. Excluding severance payouts, corporate administrative expense declined over 15.9% in Fiscal 1994 compared to Fiscal 1993. Other Corporate Income - Other corporate income decreased $3.1 million in Fiscal 1994 compared to Fiscal 1993, primarily due to the absence of amortization of over accrued retiree health care expense, and the write down of a corporate facility held for sale. Net Interest Expense - Net interest expense decreased 1.0% in Fiscal 1994, compared to Fiscal 1993, primarily due to higher interest income in the Fiscal 1994 period as a result of higher cash balances. Investment Income - Investment income was higher by $3.5 million in Fiscal 1994 compared to Fiscal 1993, primarily as a result of gains realized on the liquidation of investments in Fiscal 1994. Also included in Fiscal 1994 were $2.8 million of dividends realized on participating pension annuity contracts. Equity in Earnings of Affiliates - Equity in earnings of affiliates decreased $12.1 million in Fiscal 1994 compared to Fiscal 1993, due to the lower earnings of Banner, after recording nonrecurring charges for discontinued operations, and of Rexnord prior to the Company selling its interest in Rexnord. Consequently, Fiscal 1994 includes no earnings for Rexnord subsequent to the sale date. Minority Interest - Minority interest includes dividend expense on FII's Series C Preferred Stock, issued August 22, 1992 by FII. Non-Recurring Income - Non-recurring income in Fiscal 1994 includes the net pre-tax gain of $129.1 million on the Company's 43.9% stock interest in Rexnord, which was sold to BTR Dunlop Holdings, Inc. for $22.50 per share on December 23, 1993. Income Taxes - For Fiscal 1994, the Company provided an income tax provision at a rate of 47.4%. The provision tax rate was higher than the statutory rate, largely due to the write off and amortization of goodwill, which is not deductible for tax purposes. Accounting Changes: 1) Postretirement Benefits - Using the immediate recognition method, the after-tax charge to earnings representing the cumulative effect of the accounting change was $.5 million in Fiscal 1994. The unamortized portion of an overstated liability of $10.4 million for discontinued operations substantially offset the transition obligation of $10.9 million for active employees and retirees of continuing operations. In addition, a $7.5 million charge, net of the Company's related tax benefit, was recorded in Fiscal 1994 for the Company's share of Rexnord's cumulative charge resulting from this change in accounting. 2) Accounting for Income Taxes - The Company elected the immediate recognition method and recorded a $2.4 million charge in Fiscal 1994 representing the cumulative effect on prior years. This charge represents deferred taxes related primarily to differences between the tax basis and book basis of fixed assets, prepaid pension expense, and inventory. In addition, a $.5 million charge was recorded in Fiscal 1994 for the Company's share of Rexnord's cumulative charge resulting from this accounting change. Extraordinary items - net included in Fiscal 1993 is an extraordinary charge of $11.8 million, net of tax, which is 42% of the Rexnord extraordinary charge related to premiums paid to repurchase debt and the write off of deferred loan costs. In addition, FII recorded a charge of $.8 million, net of tax, for deferred loan fees written off when a portion of the term loan was repaid. Net Earnings (Loss) - The $71.9 million increase in the Fiscal 1994 net earnings compared to Fiscal 1993 was primarily due to the $129.1 million pre- tax gain on the sale of shares of Rexnord, offset partially by a $13.5 million drop in operating income, decreased equity earnings of $12.0 million, an $11.0 million charge, net of tax, for the cumulative effect of changes in accounting principles, and increased taxes on the higher level of income. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Working capital at June 30, 1995 was $112.6 million, which was $33.2 million lower than at June 30, 1994. The primary reasons for this decrease included a $31.2 million reduction in cash, primarily required to service debt and meet operating cash requirements during the year, and a $26.0 million increase in current debt resulting from long term debt becoming current and an increase in accounts payable of $12.8 million, primarily as a result of acquisitions. These decreases in working capital were partially offset by a $34.3 million increase in accounts receivable and inventory, reflecting acquisitions, slower customer payments, and inventory build and increased sales to reduce backlog. The Company's principal sources of liquidity are cash generated from operations and borrowings under its credit agreement. The Company also expects to generate cash from the sale of certain assets and liquidation of investments. Net assets held for sale at June 30, 1995 had a book value of $51.6 million and included two parcels of real estate in California and an 88 acre parcel of real estate located in Farmingdale, New York, which the Company plans to sell,lease or develop, subject to the resolution of certain environmental matters and market conditions. At the end of 1995, it was determined to reclassify to this classification, several investments and properties now being marketed, including two landfills in Pennsylvania, and a real estate joint venture in California. The Company's principal cash requirements include debt service, capital expenditures, acquisitions, payment of other liabilities and payment of dividends on preferred stock. The level of the Company's capital expenditures varies from year to year, depending upon the timing of capital spending for new production equipment, periodic plant and facility expansion, acquisition of high growth companies, as well as cost reduction and labor efficiency programs. For Fiscal 1995, capital expenditures including the cost of acquisitions, were $32.9 million. Capital expenditures, for Fiscal 1994 and Fiscal 1993 were $18.2 million and $22.9 million, respectively. The Company anticipates that capital expenditures in Fiscal 1996 will approximate $18.8 million. Long term investments declined $14.6 million as a result of: (1) recovering proceeds in excess of book value on the Maurice Bidermann litigation, and (2) reclassifying a real estate joint venture to net assets held for sale. Notes receivable and other assets declined $28.3 million, due primarily to reclassifying noncurrent taxes to the noncurrent tax liability caption on the balance sheet, and reclassifying several properties to net assets held for sale. Long term debt decreased $12.7 million during Fiscal 1995, as a result of the Company repurchasing some of its senior and intermediate debt, and senior debt due in 1996 being reclassified to current liabilities. Other liabilities that require the use of cash include post-employment benefits for retirees, environmental investigation and remediation obligations, and litigation settlements and related costs. The Company expects that cash on hand, cash generated from operations, borrowings, and asset sales, will be adequate to satisfy cash requirements. Management intends to take appropriate actions to refinance portions of its debt, if necessary to meet cash requirements. The Company's Credit Agreement, as amended, requires the Company to comply with certain financial covenants, including achieving cumulative earnings before interest, taxes, depreciation and amortization, ("EBITDA Covenant"), and maintaining certain coverage ratios. The Company was in compliance with the Credit Agreement, as amended, as of June 30, 1995. To comply with the minimum EBITDA Covenant requirements (as amended) the Company's subsidiary, VSI must earn for the cumulative total of the trailing four quarters, EBITDA as follows: $60.0 million for the first quarter of Fiscal 1996, $65.0 million for the second quarter of Fiscal 1996, $70.0 million for the third quarter of Fiscal 1996, and $80.0 millon for the fourth quarter of Fiscal 1996. VSI's ability to meet the minimum requirements under the EBITDA covenant in Fiscal 1996 is uncertain, and there can be no assurance that the Company will be able in the future to comply with the minimum requirements under the EBITDA Covenant and other financial covenants under the Credit Agreement. Noncompliance with any of the financial covenants, without cure or waiver, would constitute an event of default under the Credit Agreement. An event of default resulting from a breach of a financial covenant may result, at the option of lenders holding a majority of the loans, in acceleration of the principal and interest outstanding, and termination of the revolving credit line. However, if necessary, management believes a waiver can be obtained. The Company's subsidiaries may transfer available cash as dividends to the Company if the purpose of such dividends is to provide the Company with funds necessary to meet its debt service requirements under specified notes and debentures. However, all other dividends from FII to RHI are subject to certain limitations under the Credit Agreement. As of June 30, 1995, FII was unable to provide dividends to RHI. The Credit Agreement also restricts FII from additional borrowings under the Credit Facilities for the payment of any dividends. IMPACT OF FUTURE ACCOUNTING CHANGES Accounting For The Impairment Of Long-Lived Assets - -------------------------------------------------- And For Long-Lived Assets To Be Disposed Of - ------------------------------------------- It is the Company's policy to review its long-lived assets, including property, plant and equipment, identifiable intangible assets and goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine the recoverability of its long-lived assets, the Company evaluates the probability that future undiscounted net cash flows, without interest charges will be less than the carrying amount of the assets. Impairment is measured at fair value. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 ("SFAS 121") "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. SFAS 121 is required to be implemented by the Company on, or before, July 1, 1996. Since the Company's present policy is identical to the policy prescribed by SFAS 121, there will be no effect from implementation. As noted above, the Company's Aerospace Fasteners segment has suffered dramatic reductions in sales in the past three years resulting from both reduced defense spending and the severe downturn in the build rate of commercial airliners. These sales reductions have created excess capacity in the industry and have caused price erosion and margin deterioration. The Company has responded to these market conditions with several restructuring actions, including significant reductions in selling, general and administrative expenses, personnel reductions, plant closings and consolidations, discontinuance of unprofitable product lines and re- engineering of manufacturing processes. Despite these actions, the Aerospace Fasteners segment lost from operations (excluding restructuring and earthquake charges) $14.1 million in Fiscal 1995, $9.3 million in Fiscal 1994 and was breakeven in Fiscal 1993. Most of these losses were concentrated in two of the segments operating units while the other five units were predominately profitable during the periods. As part of restructuring and earthquake charges totaling $38.3 over the past three fiscal years, the Company wrote off $7.0 million of goodwill, related to exiting product lines. In light of recent industry conditions and the losses suffered in the Aerospace Fasteners segment in the past three fiscal years, the Company has reviewed its long-lived assets for potential impairment. The Company has concluded, based on the following, that no impairment currently exists. Projections of future aircraft build rates published by the major airframe manufacturers, show the rates close to doubling in the next few years. The Company believes the operating units within the Aerospace Fasteners segment which have incurred operating losses are likely to return to profitability. Therefore, positive cash flow is likely to be generated in the next several years within the Aerospace Fastener segment, enabling it to recover the carrying value of the segment's long-lived assets, including goodwill. However, if industry conditions do not improve or the Company does not participate in the improvement as it occurs, it may be necessary to further write-down long-lived assets in the Aerospace Fasteners segment in the next few years. Such write-downs could be significant in amount. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- The following consolidated financial statements of the Company and the report of the Company's independent public accountants with respect thereto, are set forth below. Page ---- Consolidated Balance Sheets as of June 30, 1995 and 1994...... 31 Consolidated Statements of Earnings - The Three Years Ended June 30, 1995, 1994, and 1993................................. 33 Consolidated Statements of Stockholders' Equity - The Three Years Ended June 30, 1995, 1994, and 1993..................... 35 Consolidated Statements of Cash Flows - The Three Years Ended June 30, 1995, 1994, and 1993........................... 36 Notes to Consolidated Financial Statements.................... 38 Report of Independent Public Accountants...................... 70 Supplementary data regarding "Quarterly Financial Information (Unaudited)" is set fourth under this Item 8 in Note 21 to Consolidated Financial Statements. THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands)
June 30, June 30, ASSETS 1995 1994 - ------ -------- -------- Current Assets: Cash and cash equivalents..................... $ 71,182 $ 102,368 (of which $5,968 and $4,745 is restricted) Short-term investments........................ 4,116 6,649 Accounts receivable-trade, less allowances of $5,610 and $3,468........................ 93,607 74,196 Inventories: Finished goods............................. 53,771 47,120 Work-in-process............................ 27,704 30,907 Raw materials.............................. 23,434 11,988 --------- --------- 104,909 90,015 Prepaid expenses and other current assets..... 18,116 20,128 --------- --------- Total Current Assets.......................... 291,930 293,356 Property, plant and equipment, net............ 170,926 174,147 Net assets held for sale...................... 51,573 36,375 Cost in excess of net assets acquired, (Goodwill) less accumulated amortization of $35,779 and $29,622.......................... 209,959 205,395 Investments and advances - affiliated companies.................................... 73,670 71,532 Deferred loan costs........................... 12,013 15,952 Prepaid pension assets........................ 59,567 61,628 Long-term investments......................... 838 15,458 Notes receivable and other assets............. 11,406 39,686 --------- --------- $ 881,882 $ 913,529 ========= ========= The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands)
June 30, June 30, LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994 - ------------------------------------ -------- -------- Current Liabilities: Bank notes payable and current maturities of long-term debt........................... $ 40,989 $ 14,978 Accounts payable............................. 48,100 35,271 Accrued liabilities: Salaries, wages and commissions........... 16,466 14,932 Employee benefit plan costs............... 1,481 2,120 Insurance................................. 16,802 15,014 Interest.................................. 16,309 16,936 Other..................................... 39,189 35,620 --------- --------- 90,247 84,622 Income taxes payable......................... -- 12,713 --------- --------- Total Current Liabilities.................... 179,336 147,584 Long-term debt............................... 509,715 522,406 Other long-term liabilities.................. 19,435 25,116 Retiree health care liabilities.............. 49,474 51,189 Noncurrent income taxes...................... 38,004 53,162 Minority interest in subsidiaries............ 24,533 24,552 Redeemable preferred stock of subsidiary..... 16,342 17,552 ------- ------- Total liabilities............................ 836,839 841,561 Stockholders' Equity: Class A common stock, 10 cents par value; authorized 40,000,000 shares, 19,647,705 shares issued and 13,406,109 shares outstanding................................ 1,965 1,965 Class B common stock, 10 cents par value; authorized 20,000,000 shares, 2,696,886 shares issued and outstanding.............. 270 270 Paid-in capital.............................. 67,011 66,775 Retained earnings............................ 18,912 52,736 Cumulative translation adjustment............ 8,724 3,346 Additional minimum liability for pensions, net of tax................................. -- (1,405) Net unrealized holding loss on available-for- sale securities............................ (120) -- Treasury Stock, at cost, 6,241,596 shares of Class A common stock....................... (51,719) (51,719) --------- --------- Total Stockholders' Equity................... 45,043 71,968 --------- --------- Total Liabilities and Stockholders' Equity... $ 881,882 $ 913,529 ========= ========= The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data)
For the Years Ended June 30, -------------------------------- 1995 1994 1993 -------- -------- -------- Revenue: Sales................................. $546,323 $444,145 $463,567 Other income.......................... 656 5,742 6,889 ------- ------- ------- 546,979 449,887 470,456 Costs and Expenses: Cost of sales......................... 419,290 337,881 351,001 Selling, general & administrative..... 107,226 85,831 90,485 Research and development.............. 4,100 3,940 3,262 Amortization of goodwill.............. 6,157 6,020 6,065 Restructuring......................... -- 18,860 15,469 Unusual items......................... -- 6,693 -- ------- ------- ------- 536,773 459,225 466,282 Operating income (loss)................. 10,206 (9,338) 4,174 Interest expense........................ 71,159 73,071 72,110 Interest income......................... (3,389) (3,388) (1,692) ------- ------- ------- Net interest expense.................... 67,770 69,683 70,418 Investment income, net.................. 5,705 6,165 2,696 Equity in earnings (loss) of affiliates. 2,369 (882) 11,196 Minority interest....................... (2,449) (2,552) (2,289) Non-recurring income.................... -- 129,082 -- ------- ------- ------- Earnings (loss) from continuing operations before taxes............... (51,939) 52,792 (54,641) Income tax (benefit) provision.......... (18,019) 25,009 (11,176) ------- ------- ------- Earnings (loss) from continuing operations............................ (33,920) 27,783 (43,465) Loss on disposal of discontinued operations, net....................... (259) (368) (25) ------- ------- ------- Earnings (loss) before extraordinary items and cumulative effect of accounting changes.................... (34,179) 27,415 (43,490) Extraordinary items, net................ 355 (643) (12,614) Cumulative effect of change in accounting for postretirement benefits, net......................... -- (8,015) -- Cumulative effect of change in accounting for income taxes, net..... -- (2,935) -- ------- ------- ------- Net earnings (loss)..................... $(33,824) $ 15,822 $(56,104) ======= ======= ======= The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. /TABLE THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data)
For the Years Ended June 30, -------------------------------- 1995 1994 1993 -------- -------- -------- Earnings (Loss) per Common Share: Primary and Fully Diluted: Earnings (loss) from continuing operations........................... $ (2.11) $ 1.72 $ (2.70) Loss from discontinued operations, net. (.01) (.02) -- Earnings (loss) before extraordinary items and cumulative effect of accounting changes................... (2.12) 1.70 (2.70) Extraordinary items, net............... .02 (.04) (.78) Cumulative effect of change in accounting for postretirement benefits, net........................ -- (.50) -- Cumulative effect of change in accounting for income taxes, net..... -- (.18) -- ------- ------- ------- Net earnings (loss) per share.......... $ (2.10) $ .98 $ (3.48) ======= ======= ======= Weighted Average Number of Shares used in Computing Earnings Per Share: Primary.................................. 16,103 16,103 16,113 Fully diluted............................ 16,103 16,103 16,113 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands)
Class A Class B Cumulative Common Common Paid-in Retained Translation Treasury Stock Stock Capital Earnings Adjustment Stock Other Total ----- ----- ------- -------- ----------- ------- ----- ------- BALANCE, July 1, 1992 $1,964 $271 $65,658 $93,018 $6,169 $(51,475) $ - $115,605 - ---------------------- Net loss.............. - - - (56,104) - - - (56,104) Cumulative translation adjustment, net...... - - - - (3,471) - - (3,471) Exchange of Class B for Class A common stock................ 1 (1) - - - - - - Purchase of treasury stock................ - - - - - (244) - (244) Gain on Initial Public Offering of Rexnord Corporation.......... - - 1,079 - - - - 1,079 ----- ---- ------ ------ ----- ------- ------ ------ BALANCE, June 30, 1993 1,965 270 66,737 36,914 2,698 (51,719) - 56,865 - ---------------------- Net earnings.......... - - - 15,822 - - - 15,822 Cumulative translation adjustment, net...... - - - - 648 - - 648 Gain on purchase of preferred stock of subsidiary........... - - 38 - - - - 38 Additional minimum liability for pensions............. - - - - - - (1,405) (1,405) ----- ---- ------ ------ ----- ------- ------ ------ BALANCE, June 30, 1994 1,965 270 66,775 52,736 3,346 (51,719) (1,405) 71,968 - ---------------------- Net loss.............. - - - (33,824) - - - (33,824) Cumulative translation adjustment, net...... - - - - 5,378 - - 5,378 Gain on purchase of preferred stock of subsidiary........... - - 236 - - - - 236 Reduction of minimum liability for pensions - - - - - - 1,405 1,405 Net unrealized holding loss on available-for- sale securities...... - - - - - - (120) (120) ----- ---- ------ ------ ----- ------- ------ ------ BALANCE, June 30, 1995 $1,965 $ 270 $67,011 $18,912 $8,724 $(51,719) $ (120) $45,043 ===== ==== ====== ====== ===== ======= ====== ====== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. /TABLE THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
For the Years Ended June 30, -------------------------------- 1995 1994 1993 -------- -------- -------- Cash flows from operating activities: Net earnings (loss)............................... $ (33,824) $ 15,822 $ (56,104) Adjustments to reconcile net earnings (loss) to net cash used for operating activities: Cumulative effect of accounting changes, net.. -- 10,950 -- Extraordinary loss on recapitalization of Rexnord Corporation......................... -- -- 11,808 Depreciation and amortization................. 38,170 36,227 33,955 Accretion of discount on long-term liabilities................................. 4,773 4,453 3,355 Net gain on sale of Rexnord investment........ -- (129,082) -- Provision for restructuring and unusual items (excluding cash payments of $6,020 in 1994 and $7,896 in 1993)......................... -- 19,533 7,573 Loss on sale of property, plant and equipment. 713 214 2,294 Undistributed (earnings) loss of affiliates... (950) 1,193 (10,945) Minority interest............................. 2,449 2,552 2,289 Change in trading securities.................. 1,879 -- -- Change in receivables......................... (16,165) (2,803) 7,252 Change in inventories......................... (14,000) 4,246 9,444 Change in other current assets................ (3,517) (4,498) 30,092 Change in other non-current assets............ 6,022 (3,366) (8,637) Change in accounts payable, accrued liabilities, and other long-term liabilities (10,958) 11,288 (53,496) -------- -------- -------- Net cash used for operating activities............ (25,408) (33,271) (21,120) Cash flows from investing activities: Change in investments............................. 12,281 1,574 31,845 Purchase of property, plant and equipment......... (20,700) (16,279) (15,596) Proceeds from sale of property, plant and equipment....................................... 1,243 7,982 1,301 Equity investments in affiliates.................. (1,264) (3,393) (19,527) Acquisition of subsidiaries, net of cash acquired. (12,157) (1,905) (7,313) Net proceeds from sale of Rexnord Corporation..... -- 178,089 -- -------- -------- -------- Net cash (used for) provided by investing activities...................................... (20,597) 166,068 (9,290) The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (In thousands)
For the Years Ended June 30, -------------------------------- 1995 1994 1993 -------- -------- -------- Cash flows from financing activities: Proceeds from issuance of debt.................... $ 71,712 $ 68,558 $ 223,038 Debt repayments and repurchase of debentures, net. (59,367) (169,948) (165,363) Purchases of treasury shares...................... -- -- (244) -------- -------- -------- Net cash provided by (used for) financing activities...................................... 12,345 (101,390) 57,431 Effect of exchange rate changes on cash........... 2,474 862 (2,868) Net (decrease) increase in cash and cash equivalents..................................... (31,186) 32,269 24,153 Cash and cash equivalents, beginning of the year.. 102,368 70,099 45,946 -------- -------- -------- Cash and cash equivalents, end of the year........ $ 71,182 $ 102,368 $ 70,099 ======== ======== ======== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: ------------------------------------------ Corporate Structure: The Fairchild Corporation (the "Company") was incorporated under the laws of the State of Delaware in October, 1969. RHI Holdings, Inc. ("RHI") is a direct subsidiary of the Company. RHI is the owner of all of the common stock of Fairchild Industries, Inc. ("FII") which, in turn, is the 100% owner of VSI Corporation ("VSI"). The Company's operations are conducted through VSI and RHI. The Company also holds significant equity interests in Banner Aerospace, Inc. ("Banner") and Nacanco Paketleme ("Nacanco"). Fiscal Year: The fiscal year ("Fiscal") of the Company ends June 30. All references herein to "1995", "1994", and "1993" mean the fiscal years ended June 30, 1995, 1994 and 1993, respectively. Principles of Consolidation: The consolidated financial statements are prepared in accordance with generally accepted accounting principles and include the accounts of the Company and its majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Investments in companies owned between 20 percent and 50 percent are recorded using the equity method (see Note 6). Cash Equivalents/Statements of Cash Flows: For purposes of the statements of cash flows, the Company considers all highly liquid investments with original maturity dates of three months or less as cash equivalents. Total net cash disbursements (receipts) made by the Company for income taxes and interest were as follows:
(In thousands) 1995 1994 1993 -------- -------- -------- Interest....................... $ 66,334 $ 66,788 $ 63,567 Income Taxes................... (3,056) (16) (23,171)
June 30, June 30, (In thousands) 1995 1994 -------- -------- Last-in, first-out (LIFO).................. $ 69,211 $ 69,829 First-in, first-out (FIFO)................. 35,698 20,186 -------- -------- Total inventories.......................... $ 104,909 $ 90,015 ======== ========
For inventories valued on the LIFO method, the excess of current FIFO value over stated LIFO value was approximately $7,447,000 and $7,924,000 at June 30, 1995 and 1994, respectively. The LIFO decrement was immaterial for Fiscal 1995. Properties and Depreciation: Properties are stated at cost and depreciated over estimated useful lives, generally on a straight-line basis. For Federal income tax purposes, accelerated depreciation methods are used. No interest costs were capitalized in any of the years presented. Property, plant and equipment consisted of the following:
June 30, June 30, (In thousands) 1995 1994 -------- -------- Land....................................... $ 14,022 $ 17,811 Buildings and improvements................. 47,397 47,376 Machinery and equipment.................... 208,970 184,171 Transportation vehicles.................... 649 618 Furniture and fixtures..................... 10,965 7,501 Construction in progress................... 4,582 6,358 ------- ------- 286,585 263,835 Less: Accumulated depreciation............ (115,659) (89,688) ------- ------- Net property, plant and equipment.......... $170,926 $174,147 ======= =======
Amortization of Goodwill: The excess of the cost of purchased businesses over the fair value of their net assets at acquisition dates (goodwill) is being amortized on a straight-line basis over 40 years. Deferred Loan Costs: Deferred loan costs associated with various debt issues are being amortized over the terms of the related debt, based on the amount of outstanding debt, using the effective interest method. Amortization expense for these loan costs for Fiscal 1995, 1994 and 1993 was $3,794,000, $4,253,000 and $3,355,000, respectively. Impairment of Long-Lived Assets: The Company reviews its long-lived assets, including property, plant and equipment, identifiable intangibles and goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of its long-lived assets the Company evaluates the probability that future undiscounted net cash flows, without interest charges, will be less than the carrying amount of the assets. Impairment is measured at fair value. Despite three consecutive years of operating losses in the Company's Aerospace Fasteners segment, the Company believes that future net cash flows from this segment will be sufficient to permit recovery of the segment's long-lived assets, including the remaining goodwill. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. SFAS 121 is required to be implemented by the Company on, or before, July 1, 1996. Since the Company's present policy is identical to the policy prescribed by SFAS 121, there will be no effect from implementation. (For further discussion see "Impact of Future Accounting Changes" included in Item 7, Management Discussion and Analysis of Results of Operations and Financial Condition). Foreign Currency Translation: All balance sheet accounts of foreign subsidiaries are translated at current exchange rates at the end of the accounting period. Income statement items are translated at average exchange rates during the period. The resulting translation adjustment is recorded as a separate component of stockholders' equity. Foreign transaction gains and losses are included in other income and were insignificant in Fiscal 1995, 1994 and 1993. Research and Development: Company-sponsored research and development expenditures are expensed as incurred. Non-Recurring Items: Non-recurring income for Fiscal 1994 consists of the net pretax gain of $129,082,000 on the sale of Rexnord Corporation ("Rexnord") stock (see Note 6). Earnings Per Share: Primary and fully diluted earnings per share are computed by dividing net income available to common shareholders by the weighted average number of shares and share equivalents outstanding during the period. To compute the incremental shares resulting from stock options and warrants for primary earnings per share, the average market price of the Company's stock during the period is used. To compute the incremental shares resulting from stock options and warrants for fully diluted earnings per share, the greater of the ending market price or the average market price of the Company's stock is used. In computing earnings per share for Fiscal 1995, 1994 and 1993, the conversion of options and warrants was not assumed, as the effect was anti-dilutive. Reclassifications: Certain amounts in prior years' financial statements have been reclassified to conform to the 1995 presentation. In October 1994, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 119 ("SFAS 119"), "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments". SFAS 119, which is effective for the Company's Fiscal 1995 financial statements, requires certain disclosure about all derivative financial instruments. Management has determined that the requirements of SFAS 119 are immaterial to the Company's Fiscal 1995 financial statements. 2. ACQUISITIONS ------------ On June 10, 1994, the Company acquired 100% of the Common Stock of Convac GmbH ("Convac")for approximately $4,700,000. Convac is a leading designer and manufacturer of high precision state-of-the-art wet processing tools, equipment and systems required for the manufacture of semiconductor chips and related products, compact and optical storage discs and liquid crystal displays. The Company reports the results of Convac as part of its Industrial Products segment. On September 9, 1994, the Company acquired all of the outstanding Common Stock of Scandinavian Bellyloading Company AB ("SBC"). SBC is the designer and manufacturer of patented cargo loading systems, which are installed in the cargo area of commercial aircraft. Several major airlines are expected to equip existing fleets with the SBC system over the next three to four years. The Company reports the results of SBC as part of its Industrial Products segment. On November 28, 1994, Fairchild Communications Services Company ("Fairchild Communications"), a partnership whose partners are indirect subsidiaries of the Company, completed the acquisition of substantially all of the telecommunications assets of JWP Telecom, Inc. ("JWP") for approximately $11,000,000, plus the assumption of approximately $3,000,000 of liabilities. JWP is a telecommunications system integrator, specializing in the distribution, installation and maintenance of voice and data communications equipment. In the first quarter of Fiscal 1995, Fairchild Communications acquired all the shared telecommunications assets of Eaton & Lauth Co., Inc., for approximately $550,000. In Fiscal 1993, Fairchild Communications acquired all the telecommunication assets of Office Networks, Inc., for approximately $7,300,000. Proforma statements are not required for these acquisitions on an individual basis. 3. DISCONTINUED OPERATIONS AND NET ASSETS HELD FOR SALE ---------------------------------------------------- The Company recorded after tax losses on the disposal of discontinued operations, of $259,000, $368,000 and $25,000 in 1995, 1994 and 1993, respectively. These losses related primarily to (i) liability insurance premiums paid for properties of discontinued operations, and workers' compensation claims for employees of operations which were previously discontinued. The Company has decided not to sell Fairchild Data Corporation ("Data"), which previously was included in net assets held for sale. The Company is recording the Fiscal 1995 and 1994 results from Data with the Company's Industrial Products Segment. Sales from Data formerly included in net assets held for sale, and not included in results of operations, were $15,432,000 for the twelve months ended June 30, 1993. The impact of Data's earnings on the Fiscal 1993 period was immaterial. Net assets held for sale at June 30, 1995, includes two parcels of real estate in California, an 88 acre parcel of real estate located in Farmingdale, New York, and several other parcels of real estate located primarily throughout the continental United States, which the Company plans to sell, lease or develop, subject to the resolution of certain environmental matters and market conditions. Also included in net assets held for sale are limited partnership interests in (i) a real estate development joint venture, and (ii) a landfill development partnership. Net assets held for sale are stated at the lower of cost or at estimated net realizable value, which reflect anticipated sales proceeds, and other carrying costs to be incurred during the holding period. Interest is not allocated to net assets held for sale. 4. EXTRAORDINARY ITEMS ------------------- The Company recognized extraordinary gains and losses from the early extinguishment of debt resulting from repurchases of its debentures on the open market or in negotiated transactions, and the write-offs of certain deferred costs associated with the issuance of securities repurchased. Total repurchases executed by the Company were: $13,600,000 face value purchased for $12,541,000 in Fiscal 1995, $33,658,000 face value purchased for $34,016,000 in Fiscal 1994, and $559,000 face value purchased for $495,000 in Fiscal 1993. In Fiscal 1993, FII wrote-off $1,262,000 of deferred loan costs in association with certain amendments to the Company's credit agreement. Early extinguishment of the Company's debt resulted in extraordinary income (loss) of $355,000, net of a $191,000 tax provision, $(643,000), net of a $347,000 tax benefit, and $(810,000), net of a $435,000 tax benefit in Fiscal 1995, 1994 and 1993, respectively. In Fiscal 1993, in conjunction with an initial public offering and recapitalization of Rexnord Corporation ("Rexnord"), the Company recorded an extraordinary charge of $11,804,000, relating to 42.0% (its previous ownership percentage share) of Rexnord's extraordinary charge relating to premiums paid to repurchase debt and write off deferred loan costs. 5. INVESTMENTS ----------- Short-term investments at June 30, 1995, primarily consist of common stock investments in public corporations, which are classified as trading securities. All other short-term investments and all long-term investments do not have readily determinable fair values and consist of investments in limited partnerships and certain preferred and common stocks. A summary of investments held by the Company consist of the following:
(In thousands) 1995 1994 ------------------- ------------------ Aggregate Aggregate Name of Issuer or Fair Cost Market Cost Type of Each Issue Value Basis Value Basis - ------------------- ---------- -------- ---------- -------- Short-term investments: - ----------------------- Trading Securities: Common Stock.................... $ 3,968 $ 5,088 $ 2,969 $ 4,053 Other Investments................. 148 148 3,680 3,920 ------ ------ ------ ------ $ 4,116 $ 5,236 $ 6,649 $ 7,973 ====== ====== ====== ====== Other long-term investments: - ---------------------------- Preferred Stock................... $ 492 $ 492 $ 2,748 $ 2,748 Real Estate Development Joint Venture Limited Partnership (a). -- -- 3,396 3,396 Bidermann Industries USA, Inc (b). -- -- 9,314 9,314 Other Investments................. 346 346 -- -- ------ ------ ------ ------ $ 838 $ 838 $15,458 $15,458 ====== ====== ====== ====== (a) Represents a former plant site in Redondo Beach, California, which was contributed to a joint venture with a developer that has built and partially leased a retail center. This investment was reclassified to net assets held for sale in 1995. (b) The Company received proceeds of approximately $12,000,000 relating to the sale of collateral and liquidation of the assets attached in the Maurice Bidermann litigation. (See Note 18).
Investment income is summarized as follows:
(In thousands) 1995 1994 1993 ------- ------- ------- Gross realized gains from sales...... $ 3,948 $ 4,320 $ 962 Change in unrealized holdings loss on trading securities................. (36) -- -- Lower of cost or market valuation adjustment......................... -- (1,084) 288 Gross realized loss from impairments. (652) (426) (320) Dividend income...................... 2,445 3,355 1,502 Interest income...................... -- -- 264 ------- ------- ------- $ 5,705 $ 6,165 $ 2,696 ======= ======= =======
6. INVESTMENTS AND ADVANCES - AFFILIATED COMPANIES ----------------------------------------------- The following table presents summarized financial information on a combined 100% basis of Banner and Nacanco, the Company's principal investments, which are accounted for using the equity method.
(In thousands) Statement of Earnings: 1995 1994 1993 ------- ------- ------- Net sales.................... $313,888 $283,055 $313,594 Gross profit................. 100,644 98,689 81,352 Earnings from continuing operations................. 9,623 17,231 281 Discontinued operations, net. -- (12,996) (712) Net earnings (loss).......... 9,623 4,235 (431) Balance Sheet at June 30,: Current assets................ $257,314 $280,144 Non-current assets............ 61,348 57,881 Total assets.................. 318,662 338,025 Current liabilities........... 61,174 60,753 Non-current liabilities....... 101,256 126,920
On June 30, 1995, the Company owned approximately 47.2% of Banner common stock, which is included in investments and advances - affiliated companies. The Company recorded equity earnings (loss) of $138,000, $(5,697,000) and $(1,380,000) on its investment in Banner for Fiscal 1995, 1994 and 1993, respectively. At the close of trading on June 30, 1995, Banner stock was quoted at $5.00 per share. Based on this price, the Company's equity investment in Banner had an approximate market value of $42,500,000 versus a carrying value of $51,146,000. The Company does not believe that this decline in market value is a permanent impairment. On June 30, 1995, the Company owned approximately 31.9% of Nacanco common stock. The Company recorded equity earnings of $2,859,000, $5,429,000 and $820,000 from this investment for Fiscal 1995, 1994 and 1993, respectively. On December 23, 1993, the Company completed a sale of its 43.9% stock interest in Rexnord to BTR Dunlop Holdings, Inc. ("BTR"). Accordingly, the Company received $181,873,000 in gross proceeds and realized a pre-tax gain on the sale of $129,082,000 in Fiscal 1994. Prior to the sale of Rexnord, the Company recorded equity earnings (loss) of $(905,000) and $10,828,000 from this investment for Fiscal 1994 and 1993, respectively. The net earnings for Fiscal 1994, were decreased by recording the Company's 43.9% share of the cumulative charge which resulted from the adoption of SFAS No. 106 and SFAS No. 109 at Rexnord. (See Notes 8 and 9). The Company is accounting for an investment in a public fund, which is controlled by an affiliated investment group of the Company, at market value. Accordingly, the amortized cost basis of the investment was $923,000 and had been written down by $185,000, before tax, to market value. The Company's gross unrealized loss was $120,000, net of tax from this investment in 1995. The Company's share of equity in earnings (loss) of all unconsolidated affiliates for 1995, 1994 and 1993 was $2,369,000, $(882,000) and $11,196,000, respectively. The carrying value of investments and advances - affiliated companies consists of the following:
(In thousands) June 30, June 30, 1995 1994 -------- -------- Banner Aerospace................... $ 51,146 $ 51,008 Nacanco............................ 16,312 14,598 Other.............................. 6,212 5,926 ------- ------- $ 73,670 $ 71,532 ======= =======
On June 30, 1995, approximately $12,766,000 of the Company's $18,912,000 consolidated retained earnings was from undistributed earnings of 50 percent or less currently owned affiliates accounted for by the equity method. In connection with the sale of its interest in Rexnord, the Company has placed shares of Banner, with a fair market value of $25,000,000, in escrow to secure the Company's indemnification of BTR against a contingent liability. Once the contingent liability is resolved, the shares will be released. 7. NOTES PAYABLE AND LONG-TERM DEBT -------------------------------- At June 30, 1995 and 1994, notes payable and long-term debt consisted of the following:
(In thousands, except for percents) June 30, June 30, 1995 1994 -------- -------- Short-term notes payable (weighted average interest rates of 8.32% and 8.89% in 1995 and 1994, respectively).. $ 5,489 $ 3,974 ======= ======= Bank credit agreement.................... $126,396 $ 97,315 12.25% Senior secured notes due 1999..... 125,000 125,000 Subordinated notes and debentures interest from 9.75% to 13.125%......... 286,279 300,016 10.65% Industrial revenue bonds.......... 1,500 1,500 Capital lease obligations interest from 5.85% to 15.50% (See Note 18).......... 1,253 3,302 Other notes payable, collateralized by property, plant and equipment, interest from 5.5% to 10.65%........... 4,787 6,277 ------- ------- 545,215 533,410 Less: Current maturities................ (35,500) (11,004) ------- ------- Net long-term debt....................... $509,715 $522,406 ======= =======
The Company maintains a credit agreement (the "Credit Agreement") with a consortium of banks, which provides a revolving credit facility and two term loans to FII, and a revolving credit facility to RHI (collectively the "Credit Facilities"). The revolving credit facility provided to RHI generally bears interest at 1.0% over the prime rate, and matures February 28, 1996. The revolving credit facility and Term Loan VIII, provided to FII, generally bears interest at 3.75% over the London Interbank Offered Rate ("LIBOR") and at 2.75% over LIBOR for Term Loan VII, respectively. The Credit Facilities provided to FII mature on March 31, 1997. The commitment fee on the unused portion of the revolving credit facilities was 1.0% at June 30, 1995. The Credit Facilities are secured by substantially all of FII's assets. The following table summarizes the credit facilities under the credit agreement at June 30, 1995:
(In thousands) Outstanding Total as of Available June 30, 1995 Facilities ------------- ---------- RHI Holdings, Inc. Revolving credit facility (a)....... $ 100 $ 5,000 Fairchild Industries, Inc ======= ======= Revolving credit facility (b)....... $ 34,700 $ 50,250 Term Loan VII....................... 49,696 49,696 Term Loan VIII...................... 42,000 42,000 ------- ------- $126,396 $141,946 ======= ======= Total Revolving credit facilities......... $ 34,800 $ 55,250 Term loans.......................... 91,696 91,696 ------- ------- $126,496 $146,946 ======= ======= (a) This amount is included in short-term notes payable. (b) In the first quarter of Fiscal 1995, the revolving credit facility at FII was reduced by $9,250,000 to $50,250,000. In addition, the borrowing rate increased by 1.0% to generally bear interest at 3.75% over LIBOR and the commitment fee increased by 0.5% to 1.0%.
At June 30, 1995, the Company had outstanding letters of credit of $11,598,000, which were supported by the Credit Agreement and other bank facilities on an unsecured basis. At June 30, 1995, the Company had unused short-term bank lines of credit aggregating $8,852,000 at interest rates slightly higher than the prime rate. The Company also has short-term lines of credit relating to foreign operations aggregating $9,529,000 against which the Company owed $5,349,000 at June 30, 1995. Summarized below are certain items and other information relating to the debt outstanding at June 30, 1995:
12.25% 12% 13% (In thousands) Senior 13.125% Intermediate Junior Subordinated Subordinated Subordinated Subordinated Notes Debentures Debentures Debentures ------------ ------------ ------------ ------------ Date Issued March 1986 March 1986 Oct. 1986 March 1987 Face Value $ 60,000 $ 75,000 $160,000 $102,000 Balance, June 30, 1995 $ 24,146 $ 34,943 $113,735 $ 24,769 Percent Issued at 95.864 95.769 93.470 98.230 Bond Discount $ 2,482 $ 3,173 $ 10,448 $ 1,805 Amortization 1995 $ 171 $ 103 $ 687 $ 27 1994 $ 279 $ 90 $ 621 $ 23 1993 $ 265 $ 79 $ 547 $ 20 Yield to Maturity 13.00% 13.800% 13.06% 13.27% Interest Payments Semi-Annual Semi-Annual Semi-Annual Semi-Annual Sinking Fund Start Date N/A 3/15/97 10/15/97 3/1/98 Sinking Fund Installments N/A $ 7,500 $ 32,000 $ 10,200 Fiscal Year Maturity 1996 2006 2002 2007 Redeemable by the Company after 3/15/89 3/15/89 10/15/89 3/1/92
11.875% 12.25% 9.75% RHI Senior FII FII Subordinated Senior Subordinated Debentures Notes Debentures ------------ ----------- ------------ Date Issued March 1987 Aug. 1992 Jan. 1978 Face Value $126,000 $125,000 $ 16,082 Balance, June 30, 1995 $ 85,687 $125,000 $ 2,999 Percent Issued at 99.214 100.0 95.784 Bond Discount $ 990 N/A $ 678 Amortization 1995 $ 94 -- $ 6 1994 $ 80 -- $ 6 1993 $ 43 -- $ 11 Yield to Maturity 12.01% 12.25% 9.75% Interest Payments Semi-Annual Semi-Annual Annual Sinking Fund Start Date 3/1/97 N/A 4/1/83 Sinking Fund Installments $ 31,500 N/A $1,005 Fiscal Year Maturity 1999 1999 1998 Redeemable by the Company after 3/1/92 7/31/97 1/1/98
Under the most restrictive covenants of the above indentures, the Company's consolidated net worth, as defined, must not be less than $35,000,000. However, the Company believes that computation of consolidated net worth under the indentures would be undertaken in accordance with Generally Accepted Accounting Principles in effect at the date of the execution and delivery of each indenture by the Company. Such computation would yield a consolidated net worth for the Company approximately $2,946,000 higher than presented above, as a result of changes in accounting principles, primarily Statement of Financial Accounting Standards Nos. 106 and 109, which were adopted subsequent to the Company's execution and delivery of the indenture. RHI's consolidated net worth must not be less than $125,000,000. At the present time, none of the Company's consolidated retained earnings are available for capital distributions due to a cumulative earnings restriction. The indentures also provide restrictions on the amount of additional borrowings by the Company. The Credit Agreement, as amended, contains certain covenants, including a material adverse change clause, and restrictions on dividends, capital expenditures, capital leases, operating leases, investments and indebtedness. It requires the Company to comply with certain financial covenants, including achieving cumulative earnings before interest, taxes, depreciation and amortization ("EBITDA Covenant"), and maintaining certain coverage ratios, including a requirement for the Company and RHI to maintain unrestricted holding company cash and cash equivalent balances of $30,000,000 for the quarter ended December 31, 1995, and $10,000,000 at the end of each fiscal quarter thereafter (including any non-restricted VSI directed reduction amounts contributed). The Company was in compliance with the Credit Agreement, as amended, at June 30, 1995. To comply with the minimum EBITDA Covenant requirements (as amended), the Company's subsidiary, VSI, must earn for the cumulative total of the trailing four quarters, EBITDA as follows: $60,000,000 for the first quarter of Fiscal 1996, $65,000,000 for the second quarter of Fiscal 1996, $70,000,000 for the third quarter of Fiscal 1996, and $80,000,000 for the fourth quarter of Fiscal 1996. VSI's ability to meet the minimum requirements under the EBITDA Covenant in Fiscal 1996 is uncertain, and there can be no assurance that the Company will be able in the future to comply with the minimum requirements under the EBITDA Covenant and other financial covenants under the Credit Agreement. Noncompliance with any of the financial covenants, without cure or waiver, would constitute an event of default under the Credit Agreement. An event of default resulting from a breach of a financial covenant may result, at the option of lenders holding a majority of the loans, in an acceleration of the principal and interest outstanding, and a termination of the revolving credit line. However, if necessary, management believes a waiver can be obtained. For FII's operating subsidiary, VSI, capital expenditures are limited during the remaining term of the Credit Agreement to the lower of (i) an annual ceiling of $25,200,000 to $26,500,000 per year, or (ii) 30% of the prior fiscal year's earnings before interest, taxes, depreciation and amortization. Capital expenditure reductions can be offset by cash contributions from the Company. Capital expenditures can also be increased if cash proceeds are received from the sale of other property, subject to approval by the senior lenders under the Credit Agreement. FII's sale of property, plant, and equipment is limited during the remaining term of the Credit Agreement. The Company's subsidiaries may transfer available cash as dividends to the Company if the purpose of such dividends is to provide the Company with funds necessary to meet its debt service requirements under specified notes and debentures. However, all other dividends from FII to RHI are subject to certain limitations under the Credit Agreement. As of June 30, 1995, FII was unable to provide dividends to RHI. The Credit Agreement also restricts FII from additional borrowings under the Credit Facilities for the payment of any dividends. Annual maturities of long-term debt obligations (exclusive of capital lease obligations) for each of the five years following June 30, 1995, are as follows: $39,975,000 for 1996, $122,506,000 for 1997, $23,723,000 for 1998, $206,605,000 for 1999, and $31,551,000 for 2000. 8. PENSIONS AND POSTRETIREMENT BENEFITS ------------------------------------ Pensions -------- The Company and its subsidiaries have defined benefit pension plans covering substantially all employees. Employees in foreign subsidiaries may participate in local pension plans, which are in the aggregate insignificant and are not included in the following disclosures. The Company's funding policy is to make the minimum annual contribution required by applicable regulations. The following table provides a summary of the components of net periodic pension expense (income) for the plans:
(In thousands) 1995 1994 1993 -------- -------- -------- Service cost of benefits earned during the period...................... $ 3,917 $ 3,827 $ 4,184 Interest cost of projected benefit obligation............................. 14,860 14,552 14,166 Return on plan assets.................... (14,526) (5,051) (31,490) Amortization of prior service cost....... 81 126 111 Net amortization and deferral............ (4,341) (15,007) 13,488 ------- ------- ------- (9) (1,553) 459 Net periodic pension expense (income) for other plans including foreign plans.... 78 (745) (1,654) ------- ------- ------- Net periodic pension expense (income).... $ 69 $ (2,298) $ (1,195) ======= ======= ======= /TABLE Assumptions used in accounting for the plans were:
1995 1994 1993 -------- -------- -------- Discount Rate............................ 8.5% 8.5% 8.5% Expected rate of increase in salaries.... 4.5% 4.5% 4.5% Expected long-term rate of return on plan assets............................ 9.0% 9.0% 9.0%
The following table sets forth the funded status and amounts recognized in the Company's consolidated balance sheets at June 30, 1995, and 1994 for the plans:
(In thousands) June 30, June 30, 1995 1994 -------- -------- Projected benefit obligation: Vested benefit obligation................. $168,843 $183,120 Non-vested benefits....................... 6,488 10,684 ------- ------- Accumulated benefit obligation............ 175,331 193,804 Effect of projected future compensation levels.................................. 5,815 4,418 ------- ------- 181,146 198,222 Plan assets at fair value................... 212,477 239,756 ------- ------- Plan assets in excess of projected benefit obligations............................... 31,331 41,534 Unrecognized net loss....................... 42,720 35,843 Unrecognized prior service cost............. 329 411 Unrecognized net transition assets.......... (190) (594) Additional minimum liability for one defined plan...................................... -- (2,166) ------- ------- Prepaid pension cost prior to SFAS 109 implementation............................ 74,190 75,028 Effect of SFAS 109 implementation........... (14,623) (13,400) ------- ------- Prepaid pension cost (a).................... $ 59,567 $ 61,628 ======= ======= (a) Does not include excess liabilities over plan assets of $1,405,000, net of tax, at June 30, 1994.
Plan assets include Class A Common Stock of the Company valued at $2,763,000 and $3,172,000 at June 30, 1995 and 1994, respectively. Substantially all of the plan assets are invested in listed stocks and bonds. Postretirement Health Care Benefits ----------------------------------- Effective July 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106 ("SFAS 106"), "Employers' Accounting for Postretirement Benefits Other than Pensions". The standard requires that the expected cost of postretirement benefits be accrued and charged to expense during the years the employees render the service. This is a significant change from the Company's previous policy of expensing these costs for active employees when paid. The Company elected the immediate recognition method of adoption of SFAS 106. The unamortized portion of the overstated liability for discontinued operations was $10,370,000, net of tax, which substantially offset a $10,904,000, net of tax, charge relating to the transition obligation for active employees and retirees of continuing operations. The charge to net earnings as the cumulative effect of this accounting change was $534,000, net of tax. For the Fiscal year ended June 30, 1994, the effect of the changes on pretax income from continuing operations was not material. As a result of Rexnord's adoption of SFAS 106, effective July 1, 1993, the Company recorded an after-tax charge of $7,481,000 to net earnings, which represented the Company's share of Rexnord's cumulative effect of this change in accounting, net of the related tax benefits from the charge. The Company provides health care benefits for most retired employees. Postretirement health care expense from continuing operations totaled $1,388,000, $1,948,000 and $1,366,000 for the years ended June 30, 1995, 1994 and 1993, respectively. The Company has accrued approximately $33,778,000 and $35,386,000 as of June 30, 1995 and 1994, respectively, for postretirement health care benefits related to discontinued operations. This represents the cumulative discounted value of the long-term obligation and includes interest expense of $3,185,000, $3,011,000 and $4,866,000 for the years ended June 30, 1995, 1994 and 1993, respectively. The components of expense in Fiscal 1995 and 1994 are as follows:
(In thousands) 1995 1994 ------- ------- Service cost of benefits earned...................$ 321 $ 437 Interest cost on liabilities...................... 4,385 4,526 Net amortization and deferral..................... (133) (4) ------- ------- Net periodic postretirement benefit cost..........$ 4,573 $ 4,959 ======= =======
The following table sets forth the funded status for the Company's postretirement health care benefit plans at June 30, 1995:
(In thousands) 1995 1994 ------- ------- Accumulated postretirement benefit obligations: Retirees........................................$ 45,970 $ 48,556 Fully eligible active participants.............. 531 497 Other active participants....................... 5,741 4,962 ------- ------- Accumulated postretirement benefit obligation..... 52,242 54,015 Unrecognized net loss............................. 223 113 ------- ------- Accrued postretirement benefit liability..........$ 52,019 $ 53,902 ======= =======
The accumulated postretirement benefit obligation was determined using a discount rate of 8.5%, and a health care cost trend rate of 8.0% and 7.5% for pre-age-65 and post-age-65 employees, respectively, gradually decreasing to 4.5% and 4.5%, respectively, in the year 2003 and thereafter. Increasing the assumed health care cost trend rates by 1% would increase the accumulated postretirement benefit obligation as of June 30, 1995, by approximately $2,385,000, and increase the net periodic postretirement benefit cost by approximately $263,000 for Fiscal 1995. 9. INCOME TAXES ------------ Effective July 1, 1993, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes". Under the liability method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Prior to the adoption of SFAS 109, income tax expense was determined using the deferred method. Deferred tax expense was based on items of income and expense that were reported in different years in the financial statements and tax returns and were measured at the tax rate in effect in the year the difference originated. As permitted under SFAS 109, prior years' financial statements have not been restated. The Company elected the immediate recognition method and recorded a $2,412,000 charge representing the prior years' cumulative effect. This charge represents deferred taxes that had to be recorded related primarily to fixed assets, prepaid pension expenses, and inventory basis differences. As a result of Rexnord's adoption of SFAS 109 effective July 1, 1993, the Company recorded an after-tax charge to net earnings of $523,000, which represented the Company's share of Rexnord's cumulative effect for this change in accounting. The provision (benefit) for income taxes from continuing operations is summarized as follows (in thousands):
1995 1994 1993 -------- -------- -------- Current: Federal.......................... $ (45) $ 4,976 $ (12,823) State............................ 1,720 735 2,031 Foreign.......................... 1,808 204 1,152 -------- -------- -------- 3,483 5,915 (9,640) Deferred: Federal......................... (19,450) 18,851 (533) State........................... (2,052) 243 (1,003) -------- -------- -------- (21,502) 19,094 (1,536) -------- -------- -------- Net tax provision (benefit)........ $ (18,019) $ 25,009 $ (11,176) ======== ======== ========
The income tax provision (benefit) for continuing operations differs from that computed using the statutory Federal income tax rate of 35% in Fiscal 1995 and 1994 and 34% in Fiscal 1993 for the following reasons (in thousands):
1995 1994 1993 -------- -------- -------- Computed statutory amount......... $ (18,179) $ 18,477 $ (18,578) State income taxes, net of applicable federal tax benefit.. (934) 720 679 Foreign Sales Corporation benefit. -- (228) (222) Nondeductible acquisition valuation items................. 1,993 4,431 2,053 Equity income and dividends....... -- -- (2,979) Tax on foreign earnings, net of tax credits..................... 3,234 352 3,337 Difference between book and tax basis of assets acquired and liabilities assumed............. 1,366 1,366 582 Tax benefit of operating losses not currently recognizable...... -- -- 4,964 Revision of estimate for tax accruals........................ (5,000) -- -- Other............................. (499) (109) (1,012) --------- --------- -------- Net tax provision(benefit)........ $ (18,019) $ 25,009 $ (11,176) ========= ========= ========
The following table is a summary of the significant components of the Company's deferred tax assets and liabilities as of June 30, 1995 and 1994.
(In thousands) 1995 1994 Deferred Deferred June 30, (Provision) June 30, (Provision) 1995 Benefit 1994 Benefit -------- ----------- -------- ----------- Deferred tax assets: Accrued expenses..................... $ 7,579 $ (2,218) $ 9,797 $ 1,960 Asset basis differences.............. 277 (7,292) 7,569 (8,428) Employee compensation and benefits... 5,434 106 5,328 (859) Environmental reserves............... 5,249 (1,202) 6,451 (267) Loss and credit carryforwards........ 32,025 17,991 14,034 2,499 Postretirement benefits.............. 20,607 514 20,093 (124) Other................................ 3,333 1,530 1,803 (4,145) ------- ------- ------- ------- 74,504 9,429 65,075 (9,364) Deferred tax liabilities: Asset basis differences.............. (39,167) 4,129 (43,296) 1,638 Inventory............................ (6,694) 3,176 (9,870) 1,310 Pensions............................. (19,759) 1,074 (20,833) 20 Other................................ (11,982) 3,694 (15,676) (11,411) ------- ------- ------- ------- (77,602) 12,073 (89,675) (8,443) ------- ------- ------- ------- (3,098) 21,502 (24,600) (17,807) Less amount related to accounting change -- -- -- 1,287 ------- ------- ------- ------- Net deferred tax liability............. $ (3,098) $ 21,502 $(24,600) $(19,094) ======= ======= ======= =======
The amounts included in the balance sheet are as follows:
Prepaid expenses and other current assets: Current deferred..................... $ 7,117 $ -- Taxes receivable (payable)........... (1,849) 1,922 ------- ------- $ 5,268 $ 1,922 ======= ======= Notes receivable and other assets: Tax receivable....................... $ -- $ 16,982 ======= ======= Income taxes (receivable) payable: Current deferred..................... $ -- $ (4,976) Taxes payable........................ -- 17,689 ------- ------- $ -- $ 12,713 ======= ======= Noncurrent income tax liabilities: Noncurrent deferred.................. $ 10,215 $ 29,576 Other noncurrent..................... 27,789 23,586 ------- ------- $ 38,004 $ 53,162 ======= =======
For Fiscal 1993, prior to the change in method of accounting for taxes, the deferred income tax component of the income tax provision for continuing operations consists of the effect of timing differences related to:
(In thousands) 1993 ------- Pension expense and employee benefits...... $ 9,062 Depreciation............................... (17,549) Investment earnings (loss)................. (880) Various reserves and accruals.............. 6,078 Other...................................... 1,753 ------- $ (1,536) =======
The 1995 net tax benefit includes the result of reversing $5,000,000 of federal income taxes previously provided due to a change in the estimate of required tax accruals. For tax purposes, the Company had available, at June 30, 1995, net operating loss ("NOL") carryforwards for regular Federal income tax purposes of approximately $91,500,000, which will expire as follows: $45,600,000 in year 2008 and $45,900,000 in year 2010. Domestic income taxes, less available credits, are provided on the unremitted income of foreign subsidiaries and affiliated companies, to the extent that such earnings are intended to be repatriated. No domestic income taxes or foreign withholding taxes are provided on the undistributed earnings of foreign subsidiaries and affiliates, which are considered permanently invested, or which would be offset by allowable foreign tax credits. At June 30, 1995, the amount of domestic taxes payable upon distribution of such earnings was not significant. In the opinion of management, adequate provision has been made for all income taxes and interest, and any liability that may arise for prior periods will not have a material effect on the financial condition or results of operations of the Company. 10. MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES ---------------------------------------------- The Company includes $23,804,000 and $23,981,000 of minority interest on its balance sheet at June 30, 1995 and 1994, respectively, represented by the Series C Preferred Stock of FII. The Series C Preferred Stock of FII has an annual dividend requirement of $4.25 per share through July 21, 1999, and $7.00 per share thereafter. The Company purchased 4,100 and 800 shares of FII's Series C Preferred Stock in Fiscal 1995 and 1994, respectively. There were 553,460 and 557,560 shares outstanding at June 30, 1995 and 1994, respectively. Series C Preferred Stock is listed on the New York Stock Exchange ("NYSE"). 11. REDEEMABLE PREFERRED STOCK OF SUBSIDIARY ---------------------------------------- The Company has classified the outstanding shares of Series A Preferred Stock of FII as a long-term liability. The Series A Preferred Stock has a mandatory redemption value of $45.00 per share and an annual dividend requirement of $3.60 per share. Annual mandatory redemptions of 165,564 shares at $45.00 per share plus any dividend in arrears began in January 1989. FII has the option of redeeming any or all of its shares, at $45.00 per share. Due to the merger of FII in August 1989 with a subsidiary of the Company, holders of the Series A Preferred Stock are entitled, at their option, but subject to compliance with certain covenants under FII's Credit Agreement, to redeem their shares for $27.18 in cash. The Company purchased 26,900 and 4,000 shares of FII's Series A Preferred Stock in Fiscal 1995 and 1994, respectively. Effectively, there were 393,801 and 420,701 shares outstanding at June 30, 1995 and June 30, 1994, respectively. Series A Preferred Stock is listed on the NYSE. Annual maturity redemption requirements for redeemable preferred stock, as of June 30, 1995, are as follows: $2,820,000 for 1996, $7,450,000 for 1997, and $7,450,000 for 1998. 12. EQUITY SECURITIES ----------------- The Company had 13,406,109 shares of Class A common stock and 2,696,886 shares of Class B common stock outstanding at June 30, 1995. Class A common stock is traded on both the New York and Pacific Stock Exchanges. There is no public market for the Class B common stock. Shares of Class A common stock are entitled to one vote per share and cannot presently be exchanged for shares of Class B common stock. Shares of Class B common stock are entitled to ten votes per share and can be exchanged, at any time, for shares of Class A common stock on a share-for-share basis. Shareholders did not convert any shares of Class B common stock into Class A common stock during Fiscal 1995. RHI holds an investment in the Company's Class A common stock of approximately $44,606,000. The Company accounts for the Class A common stock held by RHI as Treasury Stock. 13. STOCK OPTIONS, WARRANTS, AND DEFERRED PERFORMANCE INCENTIVE PLAN ---------------------------------------------------------------- The Company has reserved 4,320,000 shares of Class A common stock for issue to key employees under the Company's 1986 Stock Option Plan. This plan authorizes the granting of options over a ten-year period at not less than the market value of the common stock at the time of the grant. The option price is payable in cash or, with the approval of the stock option committee of the Board of Directors, in shares of common stock, valued at fair market value at the time of exercise. The options normally terminate five years from their date of grant, subject to extension of up to 10 years or for a stipulated period of time after an employee's death or termination of employment. Stock Options Granted to Directors ---------------------------------- On May 19, 1988, the Board of Directors approved the grant of 180,000 shares of stock options to six outside Directors of the Company at an exercise price of $6.04 per share. In Fiscal 1990 and 1991, the Company granted and approved 75,000 and 60,000 options, respectively, to certain Directors. These stock options expire five years from the date of the grant. On November 17, 1994, shareholders approved the grant of stock options of 190,000 shares to outside Directors of the Company to replace expired stock options. Stock option transactions are summarized below:
(In thousands Shares Shares under option plan except per share available -------------------------- data) for grant 1986 Other Price ----------------------------------------- July 1,1992........ 374 1,643 191 $4.625-11.00 Granted............ (291) 101 190 $4.125-4.25 Canceled........... 537 (387) (150) $5.16-9.125 --------------------------- June 30, 1993...... 620 1,357 231 $4.125-11.00 Granted............ (57) 27 30 $3.50-4.125 Canceled........... 124 (64) (60) $4.25-9.125 --------------------------- June 30, 1994...... 687 1,320 201 $3.50-11.00 Granted............ (332) 332 -- $3.50-3.875 Canceled........... 178 (148) (30) $3.50-11.00 --------------------------- June 30, 1995...... 533 1,474 171 $3.50-9.125 ===========================
Warrants -------- At June 30, 1995, the Company had outstanding warrants to purchase 375,000 shares of the Company's common stock for $7.67 per share. The warrants can be used to purchase either Class A or B common stock and will expire on March 13, 1997. 14. FAIR VALUE OF FINANCIAL INSTRUMENTS ----------------------------------- Statement of Financial Accounting Standards No. 107, ("SFAS 107") "Disclosures about Fair Value of Financial Instruments", requires disclosures of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. SFAS 107 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: The carrying amount reported in the balance sheet approximates the fair value for cash and cash equivalents, short-term borrowings, current maturities of long-term debt, and all other variable rate debt (including borrowings under the Credit Agreement). Fair values for equity securities, long-term public debt issued by the Company, and publicly issued preferred stock of FII are based on quoted market prices, where available. For equity securities not actively traded, fair values are estimated by using quoted market prices of comparable instruments or, if there are no relevant comparables, on pricing models or formulas using current assumptions. The fair value of limited partnerships, other investments, and notes receivable are estimated by discounting expected future cash flows using a current market rate applicable to the yield, considering the credit quality and maturity of the investment. The fair value for the Company's other fixed rate long-term debt is estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. Fair values for the Company's off-balance-sheet instruments (letters of credit, commitments to extend credit, and lease guarantees) are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counter parties' credit standing. The fair value of the Company's off-balance-sheet instruments at June 30, 1995, is not material. The carrying amounts and fair values of the Company's financial instruments at June 30, 1995 and 1994, are as follows:
June 30, 1995 June 30, 1994 ---------------------- ------------------------ Carrying Fair Carrying Fair (In thousands) Amount Value Amount Value -------- ----- -------- ----- Cash and cash equivalents......... $ 71,182 $ 71,812 $102,368 $102,368 Investment Securities: Short-term equity securities.... 3,968 3,968 2,969 2,969 Short-term limited partnerships. 12 12 2,899 2,899 Short-term other investments.... 148 182 781 874 Long-term equity securities..... 492 492 2,748 3,147 Long-term limited partnerships.. 346 346 3,396 3,508 Long-term Bidermann investment.. -- -- 9,314 9,314 Notes Receivable: Current......................... 271 248 1,426 1,362 Long-term....................... 970 940 6,873 7,234 Short-term debt................... 5,489 5,489 3,974 3,974 Long-term debt: Bank credit agreement........... 126,396 126,396 97,315 97,315 Senior notes and subordinated debentures.................... 411,279 384,139 425,016 419,404 Industrial revenue bonds........ 1,500 1,500 1,500 1,500 Capitalized leases.............. 1,253 1,253 3,302 3,302 Other........................... 4,787 4,787 6,278 6,278 Minority interest in FII.......... 23,804 20,755 23,981 21,675 Redeemable preferred stock of subsidiary...................... 16,342 14,571 17,552 15,461
15. RESTRUCTURING CHARGES --------------------- In Fiscal 1994 and 1993, the Company recorded the restructuring charges in the Aerospace Fasteners segment in the categories shown below. Except for the costs included in the other category (see note (d) below), all costs classified as restructuring were the direct result of formal plans to close plants, to terminate employees, or to exit product lines. Substantially all of these plans have been executed. These charges were either incurred during the year shown or shortly after each year end. Other than a reduction in the Company's existing cost structure and manufacturing capacity, none of the restructuring charges resulted in future increases in earnings or represented an accrual of future costs. The costs included in restructuring were predominately non-recurring in nature and to a large degree, non-cash charges.
(In thousands) SIGNIFICANT COMPONENTS 1994 1993 - ---------------------- ------ ------ Write off of goodwill related to discontinued products lines................................ $ 6,959 $ -- Write down of inventory to net realizable value related to discontinued product lines (a)...... 2,634 540 Write down of fixed assets related to discontinued product lines..................... 3,000 3,465 Severance benefits for terminated employees (substantially all paid within twelve months).. 471 4,213 Plant closings facility costs (b)............... 851 3,164 Relocation of business from closed plant in New Jersey to California (c)................... 1,795 1,884 Contract termination claims..................... 128 -- Lease penalty for closed plant.................. -- 388 Other (d)....................................... 3,022 1,815 ------ ------ $18,860 $15,469 ====== ====== (a) Write down was required because product line was discontinued, otherwise inventory would have been sold at prices in excess of book value. (b) Includes lease settlements, write offs of leasehold improvements, maintenance, restorations and clean up costs. (c) Principally consists of costs to move equipment, inventory, tooling and personnel. (d) Includes costs associated with a requalification of product lines by a customer, nonrecurring costs of cellularization and reengineering of manufacturing processes and methods.
16. UNUSUAL ITEMS ------------- On January 17, 1994, the Company's Chatsworth, California Aerospace Fasteners manufacturing facility suffered extensive damage from the Southern California earthquake. As a result, the Company relocated the Chatsworth manufacturing operations to its other Southern California facilities. This disruption caused increased costs and reduced revenues in the Fiscal 1994, and has negatively affected Fiscal 1995 as well. While the Company carries insurance for both business interruption and property damage caused by earthquakes, the policy has a 5% deductible. The Company recorded an unusual pretax loss of $4,000,000 in Fiscal 1994 to cover the estimated net cost of the damages and related business interruption caused by the earthquake. In addition, the Company recorded a write down of $2,000,000 in Fiscal 1994, relating to this real estate which is now included in net assets held for sale. 17. RELATED PARTY TRANSACTIONS -------------------------- Corporate office administrative expense recorded by FII was billed to the Company on a monthly basis during 1995, 1994 and 1993. These costs represent the cost of services incurred on behalf of affiliated companies. Each of these affiliated companies has reimbursed FII for such services. The Company and its subsidiaries are all parties to a tax sharing agreement whereby the Company files a consolidated federal income tax return and the subsidiaries make payments to the Company based on the amount of federal income taxes, if any, the subsidiary would have paid if it had filed a separate tax return. The Aerospace Fasteners segment had sales to Banner Aerospace, Inc. a 47.2% affiliate of RHI, of $5,494,000, $5,680,000 and $8,750,000 in Fiscal 1995, 1994 and 1993, respectively. 18. COMMITMENTS AND CONTINGENCIES ----------------------------- Leases ------ The Company leases certain of its facilities and equipment under capital and operating leases. The following is an analysis of the assets under capital leases included in property, plant and equipment:
(In thousands) June 30, Description 1995 ----------- -------- Buildings and improvements......... $ 422 Machinery and equipment............ 12,688 Furniture and fixtures............. 297 Less: Accumulated depreciation.... (7,167) ------- $ 6,240 =======
Future minimum lease payments:
Operating Capital (In thousands) Leases Leases ------ ------ 1996.............................. $ 8,508 $ 1,109 1997.............................. 7,516 244 1998.............................. 7,428 8 1999.............................. 6,812 -- 2000.............................. 7,284 -- ------ ------ $37,548 1,361 ====== Less: Amount representing interest............... (108) ------ Present value of capital lease obligations........ $ 1,253 ======
Rental expense on operating leases for the years ended June 30, 1995, 1994, and 1993 was $10,811,000, $7,193,000 and $9,575,000, respectively. In connection with the sale of Metro Credit Corporation, the Company remained contingently liable as a guarantor of the payment and performance of obligations of third party lessees under aircraft leases, which call for aggregate annual base lease payments of approximately $3,094,000 in 1996, and approximately $7,942,000 over the remaining 4-year guaranty period. In each case, the Company has been indemnified by the purchasers and lessors from any losses related to such guaranties. CL Motor ("CL") Freight Litigation - ---------------------------------- The Workers Compensation Bureau of the State of Ohio is seeking reimbursement from the Company for up to $5,400,000 for CL workers compensation claims which were insured under a self-insured program of CL. The Company has contested a significant portion of this claim. Government Claims - ----------------- The Corporate Administrative Contracting Officer (the "ACO"), based upon the advice of the United States Defense Contract Audit Agency, has made a determination that FII did not comply with Federal Acquisition Regulations and Cost Accounting Standards in accounting for (i) the 1985 reversion to FII of certain assets of terminated defined benefit pension plans, and (ii) pension costs upon the closing of segments of FII's business. The ACO has directed FII to prepare cost impact proposals relating to such plan terminations and segment closings and, following receipt of such cost impact proposals, may seek adjustments to contract prices. The ACO alleges that substantial amounts will be due if such adjustments are made. The Company believes it has properly accounted for the asset reversions in accordance with applicable accounting standards. The Company had discussions with the government to attempt to resolve these pension accounting issues. Civil Litigation - ---------------- Maurice Bidermann Litigation ---------------------------- The Company obtained a judgment in the United States District for the Southern District of New York, for $12,947,000, plus interest, against Maurice Bidermann ("Bidermann") for breach of an agreement under which Bidermann was to have acquired the Company's interest in Bidermann Industries USA, Inc. ("BIUSA"), for approximately $22,500,000, of which Bidermann paid $10,000,000, and then defaulted. In June 1995, the Company settled this claim for approximately $12,000,000, in addition to the $10,000,000 previously collected, and transferred its interest in BIUSA to third parties. Environmental Matters - --------------------- The Company and other aerospace fastener and industrial product manufacturers are subject to stringent Federal, state and local environmental laws and regulations concerning, among other things, the discharge of materials into the environment and the generation, handling, storage, transportation and disposal of waste and hazardous materials. To date, such laws and regulations have not had a material effect on the financial condition of the Company, although the Company has expended, and can be expected to expend in the future, significant amounts for investigation of environmental conditions and installation of environmental control facilities, remediation of environmental conditions and other similar matters, particularly in the Aerospace Fasteners segment. In connection with its plans to dispose of certain real estate, the Company must investigate environmental conditions and may be required to take certain corrective action prior or pursuant to any such disposition. In addition, management has identified several areas of potential contamination at or from other facilities owned, or previously owned, by the Company, that may require the Company either to take corrective action or to contribute to a clean-up. The Company is also a defendant in certain lawsuits and proceedings seeking to require the Company to pay for investigation or remediation of environmental matters and has been alleged to be a potentially responsible party at various "Superfund" sites, Management of the Company believes that it has recorded adequate reserves in its financial statements to complete such investigation and take any necessary corrective actions or make any necessary contributions. No amounts have been recorded as due from third parties, including insurers, or set off against, any liability of the Company, unless such parties are contractually obligated to contribute and are not disputing such liability. As of June 30, 1995, the consolidated total recorded liabilities of the Company for environmental matters totalled $14,087,000. As of June 30, 1995, the estimated probable exposures for these matters was $13,918,000. It is reasonably possible the Company's total exposure for these matters could be approximately $22,870,000. Other Matters - ------------- The Company is involved in various other claims and lawsuits incidental to its business, some of which involve substantial amounts. The Company, either on its own or through its insurance carriers, is contesting these matters. In the opinion of management, the ultimate resolution of the legal proceedings, including those discussed above, will not have a material adverse effect on the financial condition or the future operating results of the Company. 19. BUSINESS SEGMENT INFORMATION ---------------------------- The Company's operations are conducted in three principal business segments. The Aerospace Fasteners segment includes the manufacture of high performance specialty fasteners and fastening systems. The Industrial Products segment is engaged in (i) the manufacture of tooling and injection control systems for the plastic injection molding and die casting industries, (ii) the supply of modems for use in high speed digitized voice and data communications, and (iii) the designing and manufacturing of wet processing tools, equipment and systems. The Communications Services segment provides telecommunication services to office buildings and sells, installs and maintains telecommunications systems for business and government customers. Intersegment sales are insignificant to the sales of any segment. Identifiable assets represent assets that are used in the Company's operations in each segment at year end. Corporate assets are principally in cash, marketable securities, prepaid pension costs, assets held for sale, and property maintained for general corporate purposes. The Company's financial data by business segment is as follows:
(In thousands) 1995 1994 1993 --------- --------- --------- Sales by Business Segment: Aerospace Fasteners.............. $ 219,129 $ 203,456 $ 247,080 Industrial Products (b).......... 218,484 166,499 148,449 Communications Services.......... 108,710 74,190 68,038 --------- --------- --------- Total Segment Sales................ $ 546,323 $ 444,145 $ 463,567 ========= ========= ========= Operating Income (Loss) by Segment: Aerospace Fasteners (a).......... $ (14,073) $ (32,208) $ (15,398) Industrial Products (b).......... 21,112 21,024 19,081 Communications Services.......... 18,498 16,483 14,688 --------- --------- --------- Total Segment Operating Income..... 25,537 5,299 18,371 Corporate Administrative Expense. (13,179) (16,868) (19,506) Other Corporate Income (expense). (2,152) 2,231 5,309 --------- --------- --------- Total Consolidated Operating Income (Loss).................... $ 10,206 $ (9,338) $ 4,174 ========= ========= ========= Capital Expenditures: Aerospace Fasteners.............. $ 4,974 $ 4,320 $ 5,711 Industrial Products.............. 4,931 3,997 4,002 Communications Services.......... 10,349 7,775 5,792 Corporate and Other.............. 446 187 91 --------- --------- --------- Total Capital Expenditures......... $ 20,700 $ 16,279 $ 15,596 ========= ========= ========= Depreciation and Amortization: Aerospace Fasteners.............. $ 15,619 $ 14,373 $ 14,280 Industrial Products.............. 7,394 6,765 6,154 Communications Services.......... 10,329 8,948 7,936 Corporate and Other.............. 4,828 6,141 5,585 --------- --------- --------- Total Depreciation and Amortization $ 38,170 $ 36,227 $ 33,955 ========= ========= ========= Identifiable Assets at June 30,: Aerospace Fasteners.............. $ 290,465 $ 306,008 $ 337,185 Industrial Products.............. 189,798 164,632 146,754 Communications Services.......... 108,666 79,087 78,752 Corporate and Other.............. 292,953 363,802 398,191 --------- --------- --------- Total Identifiable Assets.......... $ 881,882 $ 913,529 $ 960,882 ========= ========= ========= (a) - Includes charges to reflect the cost of restructuring of $18,860,000 and $15,469,000 in Fiscal 1994 and 1993, respectively, and an unusual loss from earthquake damage and business interruption of $4,000,000 in Fiscal 1994. (b) - Included in Fiscal 1995 and 1994 are the results of Fairchild Data Corporation. Sales from this division, formerly included in net assets held for sale, and not included in the results of operations, were $15,432,000 for Fiscal 1993. The impact of this division's earnings on the Fiscal 1993 period was immaterial.
20. FOREIGN OPERATIONS AND EXPORT SALES ----------------------------------- The Company's operations are located primarily in the United States and Europe. Inter-area sales are not significant to the total sales of any geographic area. The Company's financial data by geographic area is as follows:
(In thousands) 1995 1994 1993 --------- --------- --------- Sales by Geographic Area: United States.................... $ 413,362 $ 358,614 $ 369,343 Europe........................... 122,182 76,366 85,479 Other............................ 10,779 9,165 8,745 --------- --------- --------- Total Sales........................ $ 546,323 $ 444,145 $ 463,567 ========= ========= ========= Operating Income by Geographic Area: United States.................... $ 9,285 $ (1,011) $ 15,390 Europe........................... (384) 5,847 2,034 Other............................ 1,305 463 947 --------- --------- --------- Total Segment Operating Income..... $ 10,206 $ 5,299 $ 18,371 ========= ========= ========= Identifiable Assets by Geographic Area at June 30,: United States.................... $ 479,086 $ 458,621 $ 479,751 Europe........................... 110,768 86,545 78,176 Other............................ 9,465 4,561 4,764 Corporate and other assets....... 282,563 363,802 398,191 --------- --------- --------- Total Identifiable Assets.......... $ 881,882 $ 913,529 $ 960,882 ========= ========= =========
Export sales are defined as sales to customers in foreign countries by the Company's domestic operations. Export sales amounted to the following:
(In thousands) 1995 1994 1993 --------- --------- --------- Export Sales Europe........................... $ 16,547 $ 12,692 $ 15,297 Other............................ 18,469 16,593 13,546 --------- --------- --------- Total Export Sales................. $ 35,016 $ 29,285 $ 28,843 ========= ========= =========
21. QUARTERLY FINANCIAL DATA (UNAUDITED) ------------------------------------ The following table of quarterly financial data has been prepared from the financial records of the Company without audit, and reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim periods presented:
(In thousands, except per share data) - ---------------------------------------------------------------------------------------------- Fiscal 1995 quarters ended Oct. 2 Jan. 1 April 2 June 30 - ---------------------------------------------------------------------------------------------- Net sales.......................... $121,393 $125,929 $150,755 $148,246 Gross profit....................... 32,253 28,397 35,734 30,649 Loss from continuing operations.... (6,660) (10,665) (10,757) (5,838) per share...................... (0.42) (0.67) (0.67) (0.36) Loss from disposal of discontinued operations, net.................. (25) (25) (184) (25) per share...................... (0.00) (0.00) (0.01) (0.00) Extraordinary items, net........... -- (23) 378 -- per share...................... -- (0.00) 0.02 -- Net loss........................... (6,685) (10,713) (10,563) (5,863) per share...................... (0.42) (0.67) (0.66) (0.36) Market price range of Class A Stock High............................. 4 1/8 4 1/8 3 3/4 3 3/8 Low.............................. 3 1/8 2 5/8 2 3/8 2
- ---------------------------------------------------------------------------------------------- Fiscal 1994 quarters ended Oct. 3 Jan. 2 April 3 June 30 - ---------------------------------------------------------------------------------------------- Net sales.......................... $110,491 $108,830 $112,836 $111,988 Gross profit....................... 22,962 25,875 27,138 30,289 Earnings (loss) from continuing operations....................... (11,151) 70,467 (11,195) (20,338) per share...................... (0.69) 4.37 (0.69) (1.26) Loss from disposal of discontinued operations, net.................. (29) (29) (259) (51) per share...................... (0.00) (0.00) (0.02) (0.01) Extraordinary items, net........... -- -- (147) (496) per share...................... -- -- (0.01) (0.03) Cumulative effects of changes in accounting principles, net....... (10,950) -- -- -- per share...................... (0.68) -- -- -- Net earnings (loss)................ (22,130) 70,438 (11,601) (20,885) per share...................... (1.37) 4.37 (0.72) (1.30) Market price range of Class A Stock High............................. 4 1/8 4 1/8 4 7/8 4 5/8 Low.............................. 3 2 3/4 3 7/8 3 1/2
Earnings (loss) from continuing operations in the fourth quarter of Fiscal 1995, includes adjustments to inventories and receivables of the Company's Aerospace Fasteners Segment, to reflect required valuation allowances against these assets. Charges to reflect the cost of restructuring the Company's Aerospace Fasteners Segment, of $9,903,000 and $8,957,000 in the second and fourth quarters of Fiscal 1994, respectively, are included in earnings (loss) from continuing operations. The Company recorded an unusual loss in the third and fourth quarter of Fiscal 1994, of $3,200,000 and $3,493,000, respectively, to cover the estimated net cost of the damages and related business interruption caused by an earthquake and the related write down of real estate and other assets. The second quarter of Fiscal 1994 includes non-recurring income of $129,094,000, net pre-tax, from the gain on the sale of the Company's 43.9% stock interest in Rexnord. Extraordinary items relate to the early extinguishment of debt by the Company. (See Note 4). The Fiscal 1994 first and second quarter data presented vary from the amounts previously reported in each of their respective Form 10-Q filings due to the Company's decision not to sell a division which was included in net assets held for sale, and not included in the results of operations. Sales from the division were $4,141,000 and $3,438,000 in the first and second quarters, respectively, of Fiscal 1994. Earnings from the division had no material effect during these periods. Report of Independent Public Accountants ---------------------------------------- To The Fairchild Corporation: We have audited the accompanying consolidated balance sheets of The Fairchild Corporation (a Delaware corporation) and subsidiaries as of June 30, 1995 and 1994, and the related consolidated statements of earnings, stockholders' equity and cash flows for the years ended June 30, 1995, 1994 and 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Fairchild Corporation and subsidiaries as of June 30, 1995 and 1994, and the results of their operations and their cash flows for the years ended June 30, 1995, 1994 and 1993, in conformity with generally accepted accounting principles. As discussed in Notes 8 and 9 to the consolidated financial statements, effective July 1, 1993, the Company changed its methods of accounting for postretirement benefits other than pensions, and income taxes. Arthur Andersen LLP Washington, D.C. September 15, 1995 ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - ------------------------------------------------------------- None. PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY - --------------------------------------------------------- The information required by this Item is incorporated herein by reference from the 1995 Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION - -------------------------------- The information required by this Item is incorporated herein by reference from the 1995 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------------------ The information required by this Item is incorporated herein by reference from the 1995 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- The information required by this Item is incorporated herein by reference from the 1995 Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------- The following documents are filed as part of this Report: (a)(1) Financial Statements. All financial statements of the registrant as set forth under Item 8 of this report on Form 10-K (see index on Page 30). (a)(2) Financial Statement Schedules and Report of Independent Public Accountants. Schedule Number Description Page Number --------------- ----------- ----------- II Valuation and Qualifying Accounts 85 All other schedules are omitted because they are not required. Report of Independent Public Accountants ---------------------------------------- To The Fairchild Corporation: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements of The Fairchild Corporation and subsidiaries included in this Form 10-K and have issued our report thereon dated September 15, 1995. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index on the preceeding page is the responsibility of the Company's management and is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. 60 Arthur Andersen LLP Washington, D.C. September 15, 1995 (a)(3) Exhibits. 3 (a) Registrant's Restated Certificate of Incorporation (incorporated by reference to Exhibit "C" of Registrant's Proxy Statement dated October 27, 1989). (b) Registrant's Amended and Restated By-Laws (incorporated by reference from Registrant's Annual Report on Form 10-K for fiscal year ended June 30, 1990 (the "1990 10-K")). 4 (a) Specimen of Class A Common Stock certificate (incorporated by reference to Registration Statement No. 33-15359 on Form S-2). (b) Specimen of Class B Common Stock certificate (incorporated by reference from Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1989 (the "1989 10-K")). (c) Form of Indenture between Registrant and J. Henry Schroder Bank & Trust Company, pursuant to which Registrant's 13-1/8% Subordinated Debentures due 2006 (the "Senior Debentures") were issued (the "Debenture Indenture"), and specimen of Senior Debenture (incorporated by reference to Registration Statement No. 33-3521 on Form S-2). (d) First Supplemental Indenture dated as of November 26, 1986, to the Debenture Indenture (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1986 (the "December 1986 10-Q"). (e) Form of Indenture between Registrant and Manufacturers Hanover Trust Company pursuant to which Registrant's 12-1/4% Senior Subordinated Notes due 1996 (the "Senior Notes") were issued (the "Note Indenture"), and specimen of Senior Note (incorporated by reference to Registration Statement No. 33-03521 on Form S-2). (f) First Supplemental Indenture dated as of November 26, 1986, to the Note Indenture (incorporated by reference to the December 1986 10-Q). (g) Indenture between Registrant and Connecticut National Bank (as successor to National Westminster Bank) dated as of October 15, 1986, pursuant to which Registrant's Intermediate Subordinated Debentures due 2001 (the "Intermediate Debentures") were issued, and specimen of Intermediate Debenture (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1986 (the "September 1986 10-Q")). (h) Indenture between Rexnord Acquisition Corp. ("RAC") and Bank of New York (as successor to Irving Trust Company) dated as of March 2, 1987, pursuant to which RAC's Senior Subordinated Debentures due 1999 (the "Rexnord Senior Debentures") were issued (the "Rexnord Senior Indenture"), and specimen of Rexnord Senior Debenture incorporated by reference from Registrants Annual Report on Form 10-K for fiscal year ended June 30, 1987 (the "1987 10-K"). (i) First Supplemental Indenture between Rexnord Inc. ("Rexnord") (as successor to RAC) and Irving Trust Company dated as of July 1, 1987, to the Rexnord Senior Indenture (incorporated by reference to Registration Statement No. 33-15359 on Form S-2). (j) Second Supplemental Indenture between Rexnord Holdings Inc., now know as RHI Holdings, Inc. ("RHI") (as successor to Rexnord) and Irving Trust Company dated as of August 16, 1988, to the Rexnord Senior Indenture (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1988 (the "1988 10-K")). (k) Indenture between Registrant and Norwest Bank Minneapolis, N.A. dated as of March 2, 1987, pursuant to which Registrant's Junior Subordinated Debentures due 2007 (the "Junior Debentures") were issued, and specimen of Junior Debenture (incorporated by reference to Final Amendment to Tender Offer Statement on Schedule 14D-1 of Banner Acquisition Corp. ("BAC") dated March 9, 1987). (l) First Supplemental Indenture between Registrant and Norwest Bank, Minnesota Bank, N.A., dated as of February 28, 1991, to Indenture dated as of March 2, 1987, relating to the Junior Debentures (incorporated by reference to the 1991 10-K). (m) Securities Purchase Agreement dated as of October 15, 1986, by and among Registrant and each of the Purchasers of the Intermediate Debentures (incorporated by reference to the September 1986 10-Q). (n) Securities Purchase Agreement dated as of March 2, 1987, by and among Registrant, RAC and each of the Purchasers of the Junior Debentures, the Rexnord Senior Debentures and other securities (incorporated by reference to the 1987 10-K). (o) Registration Rights Agreement dated as of October 15, 1986, by and among Registrant and each of the purchasers of the Intermediate Debentures (incorporated by reference to the September 1986 10-Q). (p) Registration Rights Agreement dated as of March 2, 1987, by and among Registrant, RAC and each of the purchasers of the Junior Debentures, the Rexnord Senior Debentures and other securities (incorporated by reference to Registrant's Report on Form 8-K dated March 17, 1987). (q) Indenture between Rexnord and First Wisconsin Trust Company dated as of June 1, 1983 (the "Rexnord Indenture"), First Supplemental Indenture between Rexnord and First Wisconsin Trust Company dated as of October 1, 1984 to the Rexnord Indenture, pursuant to which Rexnord's Debentures due 1995 (the "Rexnord Debentures") were issued, and specimen of Rexnord Debenture (incorporated by reference to Form 8-A of Rexnord, dated October 3, 1984). (r) Second Supplemental Indenture among Rexnord, RHI and First Wisconsin Trust Company dated as of August 16, 1988, to the Rexnord Indenture (incorporated by reference to the 1988 10-K). (s) Indenture dated as of November 1, 1982, between Fairchild Industries, Inc. ("Fairchild") and Continental Illinois National Bank and Trust Company of Chicago, pursuant to which certain debt securities of Fairchild were issued (incorporated by reference to Registration Statement No. 2-80009 on Form S-3). (t) Indenture dated as of January 1, 1978 between Fairchild and Bankers Trust Company, pursuant to which Fairchild's 9-3/4% Subordinated Debentures due April 1, 1988 were issued (incorporated by reference to Registration Statement No. 2-60451 on Form S-7). (u) Indenture dated as of March 1, 1991, between Registrant and Sovran Bank, N.A., pursuant to which the Registrant's 14% Senior Secured Notes were issued (incorporated by reference to the 1991 10-K). (v) Indenture date as of August 1, 1992, between Fairchild and NationsBank, N.A. pursuant to which Fairchild's 12 1/4% Senior Secured Notes were issued (incorporated by reference to the 1992 10-K). 10 (a) Restated and Amended Credit Agreement dated as of July 27, 1992 (incorporated by reference to the 1992 10-K). (a)(i) Amendment No. 1, dated as of June 30, 1993, to the Restated and Amended Credit Agreement dated as of July 27, 1992 (incorporated by reference to the 1993 10-K). (a)(ii) Amendment No. 2, dated as of October 1, 1993, to Restated and Amended Credit Agreement dated as of July 27, 1992 (incorporated by reference to the 1994 10-K). (a)(iii) Amendment No. 3, dated as of December 23, 1993, to Restated and Amended Credit Agreement dated as of July 27, 1992 (incorporated by reference to the 1994 10-K). (a)(iv) Amendment No. 4, dated as of March 31, 1994, to Restated and Amended Credit Agreement dated as of July 27, 1992 (incorporated by reference to the 1994 10-K). *(a)(v) Amendment No. 5, dated as of July 29, 1994, to Restated and Amended Credit Agreement dated as of July 27, 1992. *(a)(vi) Amendment No. 6, dated as of October 15, 1994, to Restated and Amended Credit Agreement dated as of July 27, 1992. *(a)(vii) Amendment No. 7, dated as of January 18, 1995, to Restated and Amended Credit Agreement dated as of July 27, 1992. *(a)(viii)Amendment No. 8, dated as of February 15, 1995, to Restated and Amended Credit Agreement dated as of July 27, 1992. *(a)(ix) Amendment No. 9, dated as of May 25, 1995, to Restated and Amended Credit Agreement dated as of July 27, 1992. *(a)(x) Amendment No. 10, dated as of June 30, 1995, to Restated and Amended Credit Agreement dated as of July 27, 1992. (b) Securities Purchase Agreement dated as of August 15, 1988, by and among Registrant, Rex-PT, Inc. ("Rex-PT"), Rex-PT Holdings Inc. ("Rex-PT Holdings") and certain Purchasers, including (i) as Exhibit 2, Debt Registration Rights Agreement dated as of August 15, 1988, by and among Rex-PT and certain Purchasers, (ii) as Exhibit 3, Common Stock Registration Rights Agreement dated as of August 16, 1988, by and among Rex-PT Holdings and certain Purchasers, and (iii) as Exhibit 4, Stockholders' Agreement dated as of August 16, 1988, by and among Registrant, Rex-PT Holdings, RHI and certain holders of Rex-PT Holdings common stock (incorporated by reference to the August 16, 1988 8-K). (c) Form of Securities Purchase Agreement among Rex-PT Holdings, Rex-PT, Registrant and Rex-PT Investors Inc. ("Rex-PT Investors") (incorporated by reference to Registrant's Current Report on Form 8-K dated September 29, 1988 (the "September 29, 1988 8-K")). (d) Form of Agreement of Merger between Rex-PT Holdings and Rex-PT Investors (incorporated by reference to the September 29, 1988 8-K). (e) Form of Securities Purchase Agreement among Rex-PT Investors, Rex-PT Holdings, Rex-PT, Registrant and certain purchasers (incorporated by reference to the September 29, 1988 8-K). (f) Form of Stockholders' Agreement among Rex-PT Holdings, Registrant, RHI and Rex-PT Investors (incorporated by reference to the September 29, 1988 8-K). (g) Form of Voting Trust Agreement among certain holders of Rex-PT Holdings common stock (incorporated by reference to the September 29, 1988 8-K). (h) Form of Amended and Restated Common Stock Registration Rights Agreement among Rex-PT Holdings and certain purchasers (incorporated by reference to the September 29, 1988 8-K). (i) Form of Common Stock Registration Rights Agreement between Rex-PT Holdings and Rex-PT Investors (incorporated by reference to the September 29, 1988 8-K). (j) Form of Common Stock Registration Rights Agreement between Rex-PT Holdings and RHI (incorporated by reference to the September 29, 1988 8-K). (k) Form of Registration Rights Agreement among Rex-PT Holdings, RHI and Rex-PT Investors (incorporated by reference to the September 29, 1988 8-K). (l) Form of Registration Rights Agreement among Rex-PT Holdings, RHI and certain purchasers (incorporated by reference to the September 29, 1988 8-K). (m) Form of Amended and Restated Stockholders' Agreement among Rex-PT Holdings, Registrant, RHI and certain investors (incorporated by reference to the 1988 10-K). (n) Share Purchase Agreement dated October 4, 1988, by and between RHI, Registrant, ChemRex Inc. and SKY Alloys, Inc., ABM Investments Ltd., SKW Bauchemie GmbH and SKW Trostberg AG (incorporated by reference to Registrant's Current Report on Form 8-K dated November 15, 1988 (the "November 15, 1988 8-K)). (o) Asset Purchase Agreement dated November 15, 1988, by and among RHI, ChemRex Inc. and J.W. Brett, Inc. (incorporated by reference to the November 15, 1988 8-K). (p) Asset Purchase Agreement dated as of December 16, 1988, between RHI and Ilium Industries, Inc. (the "Ilium Agreement"); Amendment to the Ilium Agreement dated as of February 21, 1989; and Second Amendment to the Ilium Agreement dated as of March 15, 1989) (incorporated by reference to Registrant's Current Report on Form 8-K dated March 17, 1989). (q) Agreement and Plan of Merger dated as of May 7, 1989, among Registrant, Specialty Fastener Holdings, Inc. and Fairchild, and Amendment thereto dated May 12, 1989 (incorporated by reference to Registrant's Current Report on Form 8-K dated June 19, 1989). (r) Assets Purchase Agreement dated May 31, 1989, among Matra S.A., AERO Acquisition Corp., Registrant and Fairchild Acquisition Corp. ("FAC") (incorporated by reference to Exhibit (a)(10) to Amendment No. 2 to Tender Offer Statement on Schedule 14D-1 and Schedule 13D of Registrant and FAC, dated May 31, 1989). (s) Share Purchase Agreement dated as of October 31, 1990, among Registrant, Banner Investments, Inc., North West Water Inc. and North West Water Group PLC (the "Envirex Agreement") (incorporated by reference to Form 8-K dated November 30, 1990). (t) Amendments 1 - 6 to the Envirex Agreement (incorporated by reference to 1991 10-K). (u) Stock Purchase Agreement dated as of November 13, 1990, by and between Registrant, Thompson Holding Company, Inc., Thompson Aircraft Tire Corporation, a Delaware corporation, Thompson Aircraft Tire Corporation, a Florida corporation and Bridgestone Corporation (incorporated by reference to Form 8-K dated January 18, 1991). (v) Option Sale Agreement dated December 26, 1990 by and between RHI and Zaria, Inc. (incorporated by reference to 1991 10-K). (w) Stock Purchase Agreement dated as of June 28, 1991 by and between Sovereign Air Limited and S.A. Holdings, Inc. (incorporated by reference to 1991 10-K). (x) Agreement dated as of June 28, 1991 between Banner Investments, Inc. and RHI (incorporated by reference to 1991 10-K). (y) Agreement dated November 8, 1990, by and among Registrant and Columbia Savings and Loan (incorporated by reference to 1991 10-K). (z) Escrow and Amendment to Purchase Agreement as entered on January 24, 1991 among Registrant, Columbia Savings and Loan and Citibank, N.A. (incorporated by reference to 1991 10-K). (a)(a) Stock Purchase Agreement dated as of February 7, 1992 among Registrant, Thompson Aircraft Tire Corporation and Aero Tires & Brakes, Inc. (incorporated by reference to 1993 10-K). (a)(b) Exchange and Standstill Agreement dated June 19, 1992 by and among Registrant, RHI and Rex-PT Holdings, Inc. (incorporated by reference to 1992 10-K). (a)(c) Registration Rights Agreement dated July 9, 1992 between Rexnord Corporation and RHI (incorporated by reference 1993 10-K). (a)(d) Allocation Agreement dated April 13, 1992 by and among The Fairchild Corporation, RHI, Rex-PT Holdings, Rexnord Corporation, Rexnord Puerto Rico, Inc. and Rexnord Canada Limited (incorporated by reference to 1992 10-K). (a)(e) Trademark Purchase Agreement dated April 13, 1992 by and between Rexnord Corporation and RHI (incorporated by reference to 1992 10-K). (a)(f) Deferred Compensation Agreement between Registrant and Samuel J. Krasney dated July 14, 1972, as amended November 17, 1978, September 3, 1985 (the "Krasney Deferred Compensation Agreement") (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1985). (a)(g) Amendment to the Krasney Deferred Compensation Agreement dated September 6, 1990 (incorporated by reference to 1991 10-K). (a)(h) Incentive Compensation Bonus Arrangement (description incorporated by reference to Registrant's Proxy Statement dated October 26, 1988). (a)(i) Amended and Restated Employment Agreement between Registrant and Samuel J. Krasney dated April 24, 1990 (incorporated by reference to the 1990 10-K). (a)(j) Letter Agreements dated August 4, 1993 among Samuel J. Krasney, The Fairchild Corporation and Jeffrey J. Steiner (incorporated by reference to 1993 10-K). (a)(k) Amendment to the Krasney Option dated October 18, 1985 (incorporated by reference to the 1989 10-K). (a)(l) Second Amendment to the Krasney Option dated April 30, 1986 (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1986). (a)(m) Amended and Restated 1986 Deferred Performance Incentive Plan of Banner Industries, Inc. (the "Deferred Incentive Plan") (incorporated by reference to the 1988 10-K). (a)(n) 1988 U.K. Stock Option Plan of Banner Industries, Inc. (incorporated by reference to the 1988 10-K). (a)(o) Description of grants of stock options to non-employee directors of Registrant (incorporated by reference to the 1988 10-K). (a)(p) Amended and Restated Employment Agreement between Registrant and Jeffrey J. Steiner dated September 10, 1992 (incorporated by reference to 1993 10-K). (a)(q) Agreement dated as of November 8, 1988 between Samuel J. Krasney and Registrant, and Amendment No. 1 thereto dated as of January 23, 1989, regarding exercise of performance incentive units granted under the Deferred Incentive Plan (incorporated by reference to the 1989 10-K). (a)(r) Agreement dated as of November 8, 1988 between Jeffrey J. Steiner and Registrant, and Amendment No. 1 thereto dated as of January 23, 1989, regarding exercise of performance incentive units granted under the Deferred Incentive Plan (incorporated by reference to the 1989 10-K). (a)(s) Letter Agreement dated October 23, 1991 between Registrant and Eric I. Steiner (incorporated by reference to 1992 10-K). (a)(t) Letter Agreement dated October 23, 1991 between Registrant and John D. Jackson (incorporated by reference to 1992 10-K). (a)(u) Letter Agreement dated October 23, 1991 between Registrant and Michael T. Alcox (incorporated by reference to 1992 10-K). (a)(v) Letter Agreement dated October 23, 1991 between Registrant and Donald E. Miller (incorporated by reference to 1992 10-K). (a)(w) Letter Agreement dated October 23, 1991 between Registrant and John L. Flynn (incorporated by reference to 1992 10-K). (a)(x) Letter Agreement dated April 8, 1993 between Registrant and Thomas Flaherty (incorporated by reference to 1993 10-K). (a)(y) Purchase Agreement by and between BTR Dunlop Holdings, Inc., RHI Holdings, Inc., and Registrant, dated as of December 2, 1993 (incorporated by reference to Registrant's current report on Form 8-K dated December 23, 1993. *(a)(z) Letter Agreement dated October 21, 1994, as amended December 21, 1994, between Registrant and Eric I. Steiner. *(b)(a) Letter Agreement dated October 21, 1994, as amended December 21, 1994, between Registrant and Michael T. Alcox. *(b)(b) Letter Agreement dated October 21, 1994, as amended December 21, 1994, between Registrant and Donald E. Miller. *(b)(c) Letter Agreement dated October 21, 1994, as amended December 21, 1994, between Registrant and John L Flynn. *(b)(d) Letter Agreement dated October 21, 1994, as amended December 21, 1994, between Registrant and Jerry Lirette. *(b)(e) Letter Agreement dated October 21, 1994, as amended December 21, 1994, between Registrant and Mel D. Borer. *(b)(f) Letter Agreement dated October 21, 1994, as amended December 21, 1994, between Registrant and Thomas J. Flaherty. 11 Computation of earnings per share (found at Note to Registrant's Consolidated Financial Statements for the fiscal year ended June 30, 1994). *22 List of significant subsidiaries of Registrant. *23 Consent of Arthur Andersen LLP, independent public accountants. 28 Financial statements, related notes thereto and Auditors' Report of Banner Aerospace, Inc. for the fiscal year ended March 31, 1995 (incorporated by reference to the Banner Aerospace, Inc. Form 10-K for fiscal year ended March 31, 1994). 99(a) Registrant's press release, dated December 23, 1993 (incorporated by reference to Registrants Form 8-K dated December 23, 1993). *Filed herewith. (b) Reports on Form 8-K Registrant filed no reports on Form 8-K during the last quarter of Fiscal 1995. SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE FAIRCHILD CORPORATION By: Michael T. Alcox ------------------------- Senior Vice President and Chief Financial Officer By: Christopher Colavito ------------------------- Vice President and Controller Date: September 26, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant, in their capacities and on the dates indicated. Name, Title, Capacity Date --------------------- ---- Jeffrey J. Steiner ------------------------------- September 26, 1995 Chairman, Chief Executive Officer, President and Director Samuel J. Krasney ------------------------------- September 26, 1995 Vice Chairman and Director Michael T. Alcox ------------------------------- September 26, 1995 Senior Vice President, Chief Financial Officer and Director Philip David ------------------------------- September 26, 1995 Director Christopher Colavito ------------------------------- September 26, 1995 Vice President and Controller Harold J. Harris ------------------------------- September 26, 1995 Director Herbert S. Richey ------------------------------- September 26, 1995 Director Frederick W. McCarthy ------------------------------- September 26, 1995 Director Eric I. Steiner -------------------------------- September 26, 1995 Senior Vice President and Director Mortimer M. Caplin ------------------------------- September 26, 1995 Director Thomas J. Flaherty ------------------------------- September 26, 1995 Chief Operating Officer and Director Robert A. Sharpe, II ------------------------------- September 26, 1995 Director SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS - ----------------------------------------------- Changes in the allowance for doubtful accounts are as follows:
For the Years Ended June 30, (In thousands) ---------------------------------- 1995 1994 1993 -------- -------- -------- Beginning balance................. $ 3,468 $ 1,900 $ 2,275 Charged to cost and expenses...... 2,676 1,124 820 Charges to other accounts (1)..... 114 1,410 (926) Amounts written off............... (648) (966) (269) ------- ------- ------- Ending balance.................... $ 5,610 $ 3,468 $ 1,900 ======= ======= ======= (1) Recoveries of amounts written off in prior periods, foreign currency translation and the change in related noncurrent taxes. Included in Fiscal 1994 is $1,179,000 relating to the acquisition of a subsidiary.
EX-10 2 Consent and Amendment No. 5 Dated as of July 29, 1994 to RESTATED AND AMENDED CREDIT AGREEMENT Dated as of July 27, 1992 This Consent and Amendment No. 5 ("Amendment No. 5") dated as of July 29, 1994, is entered into among RHI Holdings, Inc., a Delaware corporation ("RHI"), and Citicorp North America, Inc., a Delaware corporation and the sole "Senior Lender" (as defined in the Credit Agreement referred to below) of RHI. PRELIMINARY STATEMENT. RHI and Citicorp North America, Inc., as a Senior Lender of RHI, are parties, among others, to that certain Restated and Amended Credit Agreement dated as of July 27, 1992, as amended (the "Credit Agreement"). Capitalized terms used herein without definition are used herein as defined in the Credit Agreement. RHI has formed a Subsidiary, Fairchild Germany, Inc., a Delaware corporation ("FGI"), and FGI has acquired 100% of the Capital Stock of Convac GmbH, a corporation organized under the laws of Germany ("Convac Germany"), which at the time of such acquisition had certain Subsidiaries including Convac Equipment for Semiconductor Technology Ltd., a corporation organized under the laws of the United Kingdom; Convac USA, Inc., a Delaware corporation ("Convac USA"); Convac France S.A., a corporation organized under the laws of France; and Convac Trading AG, a corporation organized under the laws of Switzerland. Following the consummation of such acquisition, 100% of the Capital Stock of Convac USA was transferred to FGI, whereupon Convac USA and Applied Process Technology, Inc., a California corporation ("APT") in which Convac USA owns a 90% equity interest, became Subsidiaries of FGI. In connection with the transactions described above, RHI has requested (i) the amendment of certain negative covenants in the Credit Agreement and (ii) certain consents with respect to certain Indebtedness of Convac Germany and its Subsidiaries and the acquisition by Convac USA of an additional 10% of the Capital Stock of APT as more particularly described in that certain letter dated July 19, 1994, a copy of which is attached hereto as Exhibit A (the "Consent Request") and made a part hereof. Subject to the terms and conditions stated herein, RHI and its Senior Lender have agreed to further amend the Credit Agreement as hereinafter set forth and the Senior Lender has agreed to consent to the transactions described in Section 2 hereof. SECTION 1. Amendments to the Credit Agreement. Subject to the satisfaction of the conditions precedent set forth in Section 3 below, the Credit Agreement is hereby amended as follows: 1.1 Section 11.14 is amended to delete clause (a) thereof in its entirety and to substitute the following therefor: (a) in the case of RHI, in any Fiscal Year of RHI, in an aggregate amount in excess of the sum of (i) $1,250,000 plus leasehold improvements made with respect to the Virginia Real Property and (ii) RHI's Selling Price of Fixed Assets for such Fiscal Year, 1.2 Section 11.01B(h) of the Credit Agreement is amended to delete the provisions thereof in their entirety and to substitute the following therefor: (h) Indebtedness of a Foreign Subsidiary of RHI; provided that the proceeds of such Indebtedness are used by such Foreign Subsidiary or RHI in the routine conduct of its business; 1.4 Section 11.06B is amended to delete the number "$500,000" at the end thereof and to substitute therefor the number "$2,000,000". SECTION 2. Consent. (A) Subject to the satisfaction of the conditions precedent set forth in Section 3 below, the sole Senior Lender of RHI hereby consents to the following: (a) the Indebtedness of Subsidiaries of RHI identified on Exhibits 1 through 5 attached to the Consent Request, notwithstanding any provision in Section 11.01B of the Credit Agreement to the contrary; and (b) RHI's advance of approximately $300,000 in cash to Convac USA to facilitate Convac USA's acquisition of the balance of the issued and outstanding Capital Stock of APT representing ten percent (10%) of all issued and outstanding Capital Stock of APT as more particularly described in the Consent Request and such acquisition by Convac USA. SECTION 3. Conditions Precedent to Amendment No. 5; Effectiveness. The amendments set forth in SECTION 1 above shall become effective and be deemed effective as of the date hereof, and the consents set forth in SECTION 2 above shall become effective as of June 10, 1994, if, and only if, the Administrative Agent shall have received on or before August 8, 1994: (i) a facsimile or original executed copy of this Amendment executed by RHI and Citicorp North America, Inc. as the sole Senior Lender of RHI and (ii) an amendment to the Rexnord Holdings Pledge Agreement executed by RHI for delivery to the Collateral Trustee pursuant to which the Capital Stock of FGI is pledged as additional security for RHI's Obligations. SECTION 4. Representations and Warranties. RHI hereby represents and warrants as follows: 4.1 This Amendment No. 5 and the Credit Agreement as previously executed and amended and as amended hereby, constitute legal, valid and binding obligations of RHI and are enforceable against RHI in accordance with their terms. 4.2 No Event of Default or Potential Event of Default exists or would result from any of the transactions contemplated by this Amendment No. 5, except Events of Default or Potential Events of Default which would arise but for the consents granted herein. 4.3 Upon the effectiveness of this Amendment No. 5, RHI hereby reaffirms all covenants, representations and warranties made in the Credit Agreement to the extent the same are not amended hereby, and agrees that all such covenants, representations and warranties shall be deemed to have been remade as of the date this Amendment No. 5 becomes effective (unless a representation and warranty is stated to be given on and as of a specific date, in which case such representation and warranty shall be true, correct and complete as of such date). SECTION 5. Reference to and Effect on the Credit Agreement. 5.1 Upon the effectiveness of this Amendment No. 5, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import shall mean and be a reference to the Credit Agreement, as amended hereby, and each reference to the Credit Agreement in any other document, instrument or agreement executed and/or delivered in connection with the Credit Agreement shall mean and be a reference to the Credit Agreement as amended hereby. 5.2 Except as specifically amended above, the Credit Agreement, the Notes and all other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. 5.3 The execution, delivery and effectiveness of this Amendment No. 5 shall not operate as a waiver of any right, power or remedy of any Senior Lender or Agent or the Administrative Agent under the Credit Agreement, the Notes or any of the other Loan Documents, nor constitute a waiver of any provision contained therein, except as specifically set forth herein. SECTION 6. Execution in Counterparts. This Amendment No. 5 may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Delivery of an executed counterpart of this Amendment No. 5 by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment No. 5. SECTION 7. Governing Law. This Amendment No. 5 shall be governed by and construed in accordance with the laws of the State of New York. SECTION 8. Headings. Section headings in this Amendment No. 5 are included herein for convenience of reference only and shall not constitute a part of this Amendment No. 5 for any other purpose. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 5 to be executed by their respective officers thereunto duly authorized as of the date first above written. RHI HOLDINGS, INC. By: Karen Schneckenburger Title: Treasurer CITICORP NORTH AMERICA, INC., individually as a Senior Lender of RHI By: Emily Rosensheck Title: Vice President EX-10 3 Consent and Amendment No. 6 Dated as of October 15, 1994 to RESTATED AND AMENDED CREDIT AGREEMENT Dated as of July 27, 1992 This Consent and Amendment No. 6 ("Amendment No. 6") dated as of October 15, 1994, is entered into among VSI Corporation, a Delaware corporation ("VSI"), RHI Holdings, Inc., a Delaware corporation ("RHI"), the "Senior Lenders" (as defined in the Credit Agreement referred to below) of VSI a party hereto comprising at least the "Requisite Senior Lenders" of VSI, and the sole Senior Lender of RHI. PRELIMINARY STATEMENT. VSI, RHI, certain financial institutions in the capacity of Senior Lenders of VSI, Citicorp North America, Inc., a Delaware corporation ("Citicorp"), as the sole Senior Lender of RHI, Citicorp, The Bank of Nova Scotia, a Canadian chartered bank ("Scotiabank"), and NationsBank of Virginia, N.A., a national banking association ("NationsBank"), as agents for the Senior Lenders of VSI and RHI (Citicorp, Scotiabank and NationsBank being sometimes hereinafter collectively referred to as the "Agents"), and Citicorp, as administrative agent for the Senior Lenders of VSI and RHI (the "Administrative Agent") are parties, among others, to that certain Restated and Amended Credit Agreement dated as of July 27, 1992, as amended (the "Credit Agreement"). Capitalized terms used herein without definition are used herein as defined in the Credit Agreement. VSI has informed the Administrative Agent of the intention of Fairchild Communications Services Company, a Subsidiary of VSI ("VSI"), to acquire selected assets of JWP Telecom Inc., a Delaware corporation ("JWP"), subject to certain liabilities for a purchase price of $14,800,000, up to $11,000,000 of which purchase price is to be paid in cash, and to obtain up to $11,000,000 as a cash capital contribution from RHI to enable it to consummate such acquisition of the JWP assets and, in connection therewith, requested the consent of the Requisite Senior Lenders of VSI to such acquisition and exclusion of the purchase of such assets from Consolidated Capital Expenditures for purposes of compliance with Section 11.14(c) of the Credit Agreement. VSI has further informed the Administrative Agent that, as of January 30, 1994, RAM was merged with and into VSI, with VSI being the surviving corporation, and that RAM now operates as part of the Camloc USA division of VSI. Therefore, VSI has requested that separate reporting for RAM as has heretofore been provided pursuant to the requirements of the Credit Agreement no longer be required and that Section 11.08A be deleted from the Credit Agreement in its entirety. In response to the requests of VSI set forth above, the parties hereto, hereby agree as follows: SECTION 1. Amendments to the Credit Agreement. Subject to the satisfaction of the conditions precedent set forth in Section 3 below, the Credit Agreement is hereby amended as follows: 1.1 Section 11.14 is amended to add the following third proviso at the end thereof: and (iii) in no event shall Consolidated Capital Expenditures of VSI and its Subsidiaries include the amounts expended in Fiscal Year 1995 in connection with the purchase of selected assets of JWP Telecom Inc. by Fairchild Communications Services Company. 1.2 Section 11.08A of the Credit Agreement is deleted in its entirety. SECTION 2. Consent. Subject to the satisfaction of the conditions precedent set forth in Section 3 below, the Requisite Senior Lenders of VSI hereby consent to FCS's acquisition of selected assets of JWP Telecom Inc., subject to certain liabilities as previously disclosed to the Senior Lenders of VSI, the Agents, and the Administrative Agent, for a purchase price of $14,800,000, up to $11,000,000 of which will be paid in cash. SECTION 3. Conditions Precedent to Effectiveness. The amendments set forth in SECTION 1 above and the consent set forth in SECTION 2 above shall become effective and be deemed effective as of the date hereof, if, and only if, the Administrative Agent shall have received (i) on or before October 15, 1994, a facsimile or original executed copy of this Amendment No. 6 executed by VSI and Senior Lenders of VSI constituting at least the Requisite Lenders of VSI and (ii) within ten (10) Business Days after consummation of such acquisition of JWP Telecom Inc. assets, such agreements and documents as the Agent shall request in order to grant and perfect Liens on such assets for the benefit of the Senior Lenders and Issuing Banks of VSI. SECTION 4. Representations and Warranties. Each of VSI and RHI hereby represents and warrants as follows: 4.1 This Amendment No. 6 and the Credit Agreement as previously executed and amended and as amended hereby, constitute legal, valid and binding obligations of VSI and are enforceable against VSI and RHI in accordance with their terms. 4.2 No Event of Default or Potential Event of Default exists or would result from any of the transactions contemplated by this Amendment No. 6, except Events of Default or Potential Events of Default which would arise but for the consents granted herein. 4.3 Upon the effectiveness of this Amendment No. 6, VSI hereby reaffirms all covenants, representations and warranties made by such Person in the Credit Agreement to the extent the same are not amended hereby, and agrees that all such covenants, representations and warranties shall be deemed to have been remade as of the date this Amendment No. 6 becomes effective (unless a representation and warranty is stated to be given on and as of a specific date, in which case such representation and warranty shall be true, correct and complete as of such date). SECTION 5. Reference to and Effect on the Credit Agreement. 5.1 Upon the effectiveness of this Amendment No. 6, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import shall mean and be a reference to the Credit Agreement, as amended hereby, and each reference to the Credit Agreement in any other document, instrument or agreement executed and/or delivered in connection with the Credit Agreement shall mean and be a reference to the Credit Agreement as amended hereby. 5.2 Except as specifically amended above, the Credit Agreement, the Notes and all other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. 5.3 The execution, delivery and effectiveness of this Amendment No. 6 shall not operate as a waiver of any right, power or remedy of any Senior Lender or Agent or the Administrative Agent under the Credit Agreement, the Notes or any of the other Loan Documents, nor constitute a waiver of any provision contained therein, except as specifically set forth herein. SECTION 6. Execution in Counterparts. This Amendment No. 6 may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Delivery of an executed counterpart of this Amendment No. 6 by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment No. 6. SECTION 7. Governing Law. This Amendment No. 6 shall be governed by and construed in accordance with the laws of the State of New York. SECTION 8. Headings. Section headings in this Amendment No. 6 are included herein for convenience of reference only and shall not constitute a part of this Amendment No. 6 for any other purpose. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 6 to be executed by their respective officers thereunto duly authorized as of the date first above written. VSI CORPORATION By: Karen L. Schneckenburger Title: Treaurer CITICORP NORTH AMERICA, INC. By: Emily Rosensheck Title: Vice President THE BANK OF NOVA SCOTIA By: F.C.H. Ashby Title: Senior Manager Loan Operations CANADIAN IMPERIAL BANK OF COMMERCE By: Mary Kate Miller Title: Authorized Signatory GENERALE BANK By: Eddie Mathews Title: Senior Vice President WELLS FARGO BANK, N.A. By: Stanley Jeppsen Title: Vice President NATIONSBANK OF VIRGINIA, N.A. By:Michael Fluedia Title: Vice President THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED By: Brady Sadek Title: Vice President and Deputy General Manager THE MITSUBISHI BANK, LIMITED By: Title: CAISSE NATIONALE DE CREDIT AGRICOLE By: Dean Balice Title: Senior Vice President Branch Manager UNION BANK By: Patrick M. Cassidy Title: Vice President PILGRIM PRIME RATE TRUST By: Kathleen Lenarici Title: Senior Credit Analyzer EATON VANCE PRIME RATE RESERVES By: Barbara Campbell Title: Assistant Treasurer EX-10 4 Amendment No. 7 Dated as of January 18, 1995 to RESTATED AND AMENDED CREDIT AGREEMENT Dated as of July 27, 1992 This Amendment No. 7 ("Amendment No. 7") dated as of January 18, 1995, is entered into between RHI Holdings, Inc., a Delaware corporation ("RHI") and Citicorp North America, Inc., a Delaware corporation (the "RHI Senior Lender"), the sole Senior Lender of RHI. PRELIMINARY STATEMENT. RHI, the RHI Senior Lender, certain financial institutions in the capacities of Agents and Administrative Agent for the Senior Lenders are parties, among others, to that certain Restated and Amended Credit Agreement dated as of July 27, 1992, as amended (the "Credit Agreement"). Capitalized terms used herein without definition are used herein as defined in the Credit Agreement. RHI has requested that Section 11.07B(b) of the Credit Agreement be amended to increase the amount of permitted recourse obligations of RHI's Foreign Subsidiaries resulting from sales, discounts, and other transfers of Accounts of such Foreign Subsidiaries and the RHI Senior Lender has agreed to such request on the terms and conditions set forth herein. SECTION 1. Amendment to the Credit Agreement. Subject to the satisfaction of the conditions precedent set forth in Section 2 below, Section 11.07B(b) of the Credit Agreement is hereby amended to delete the provisions thereof in their entirety and substitute the following therefor: (b) RHI shall not permit any of its Foreign Subsidiaries to, directly or indirectly, sell or discount or otherwise sell any of its Accounts or any of its notes or obligations receivable in any amount with recourse, except Accounts, notes or obligations receivable which result in recourse obligations of such Foreign Subsidiaries in an aggregate amount not in excess of $2,500,000. SECTION 2. Conditions Precedent to Effectiveness. The amendment set forth in SECTION 1 above shall become effective and be deemed effective as of the date hereof, if, and only if, the Administrative Agent shall have received on or before January 23, 1995, a facsimile or original executed copy of this Amendment No. 7 executed by RHI and the RHI Senior Lender. SECTION 3. Representations and Warranties. RHI hereby represents and warrants as follows: 3.1 This Amendment No. 7 and the Credit Agreement as previously executed and amended and as amended hereby, constitute legal, valid and binding obligations of RHI and are enforceable against RHI in accordance with their terms. 3.2 No Event of Default or Potential Event of Default exists or would result from any of the transactions contemplated by this Amendment No. 7. 3.3 Upon the effectiveness of this Amendment No. 7, RHI hereby reaffirms all covenants, representations and warranties made by such Person in the Credit Agreement to the extent the same are not amended hereby, and agrees that all such covenants, representations and warranties shall be deemed to have been remade as of the date this Amendment No. 7 becomes effective (unless a representation and warranty is stated to be given on and as of a specific date, in which case such representation and warranty shall be true, correct and complete as of such date). SECTION 4. Reference to and Effect on the Credit Agreement. 4.1 Upon the effectiveness of this Amendment No. 7, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import shall mean and be a reference to the Credit Agreement, as amended hereby, and each reference to the Credit Agreement in any other document, instrument or agreement executed and/or delivered in connection with the Credit Agreement shall mean and be a reference to the Credit Agreement as amended hereby. 4.2 Except as specifically amended above, the Credit Agreement, the Notes and all other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. 4.3 The execution, delivery and effectiveness of this Amendment No. 7 shall not operate as a waiver of any right, power or remedy of any Senior Lender or Agent or the Administrative Agent under the Credit Agreement, the Notes or any of the other Loan Documents, nor constitute a waiver of any provision contained therein, except as specifically set forth herein. SECTION 5. Execution in Counterparts. This Amendment No. 7 may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Delivery of an executed counterpart of this Amendment No. 7 by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment No. 7. SECTION 6. Governing Law. This Amendment No. 7 shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. Headings. Section headings in this Amendment No. 7 are included herein for convenience of reference only and shall not constitute a part of this Amendment No. 7 for any other purpose. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 7 to be executed by their respective officers thereunto duly authorized as of the date first above written. CITICORP NORTH AMERICA, INC. By: Emily rosensheck Title: Vice President RHI HOLDINGS, INC. By: Karen L. Schneckenburger Title: Treasurer EX-10 5 Amendment No. 8 Dated as of February 15, 1995 to RESTATED AND AMENDED CREDIT AGREEMENT Dated as of July 27, 1992 This Amendment No. 8 ("Amendment No. 8") dated as of February 15, 1995, is entered into between RHI Holdings, Inc., a Delaware corporation ("RHI") and Citicorp North America, Inc., a Delaware corporation (the "RHI Senior Lender"), the sole Senior Lender of RHI. PRELIMINARY STATEMENT. RHI, the RHI Senior Lender, certain financial institutions in the capacities of Agents and Administrative Agent for the Senior Lenders are parties, among others, to that certain Restated and Amended Credit Agreement dated as of July 27, 1992, as amended (the "Credit Agreement"). Capitalized terms used herein without definition are used herein as defined in the Credit Agreement. RHI has requested that the Facility Commitment Period for Facility A be extended to February 28, 1996 and the RHI Senior Lender has agreed to such request on the terms and conditions set forth herein. SECTION 1. Amendment to the Credit Agreement. Subject to the satisfaction of the conditions precedent set forth in Section 2 below, the definition of "Facility Commitment Period" set forth in Section 1.01 is hereby amended to to delete the provisions of clause (i) thereof in their entirety and substitute "(i) in the case of Facility A, on February 28, 1996" therefor. SECTION 2. Conditions Precedent to Effectiveness. The amendment set forth in SECTION 1 above shall become effective and be deemed effective as of the date hereof, if, and only if, the Administrative Agent shall have received on or before February 15, 1995, a facsimile or original executed copy of this Amendment No. 8 executed by RHI and the RHI Senior Lender. SECTION 3. Representations and Warranties. RHI hereby represents and warrants as follows: 3.1 This Amendment No. 8 and the Credit Agreement as previously executed and amended and as amended hereby, constitute legal, valid and binding obligations of RHI and are enforceable against RHI in accordance with their terms. 3.2 No Event of Default or Potential Event of Default exists or would result from any of the transactions contemplated by this Amendment No. 8. 3.3 Upon the effectiveness of this Amendment No. 8, RHI hereby reaffirms all covenants, representations and warranties made by such Person in the Credit Agreement to the extent the same are not amended hereby, and agrees that all such covenants, representations and warranties shall be deemed to have been remade as of the date this Amendment No. 8 becomes effective (unless a representation and warranty is stated to be given on and as of a specific date, in which case such representation and warranty shall be true, correct and complete as of such date). SECTION 4. Reference to and Effect on the Credit Agreement. 4.1 Upon the effectiveness of this Amendment No. 8, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import shall mean and be a reference to the Credit Agreement, as amended hereby, and each reference to the Credit Agreement in any other document, instrument or agreement executed and/or delivered in connection with the Credit Agreement shall mean and be a reference to the Credit Agreement as amended hereby. 4.2 Except as specifically amended above, the Credit Agreement, the Notes and all other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. 4.3 The execution, delivery and effectiveness of this Amendment No. 8 shall not operate as a waiver of any right, power or remedy of any Senior Lender or Agent or the Administrative Agent under the Credit Agreement, the Notes or any of the other Loan Documents, nor constitute a waiver of any provision contained therein, except as specifically set forth herein. SECTION 5. Execution in Counterparts. This Amendment No. 8 may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Delivery of an executed counterpart of this Amendment No. 8 by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment No. 8. SECTION 6. Governing Law. This Amendment No. 8 shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. Headings. Section headings in this Amendment No. 8 are included herein for convenience of reference only and shall not constitute a part of this Amendment No. 8 for any other purpose. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 8 to be executed by their respective officers thereunto duly authorized as of the date first above written. CITICORP NORTH AMERICA, INC. By: Emily Rosensheck Title: Vice President RHI HOLDINGS, INC. By:Karen L. Schneckenburger Title: Treasurer EX-10 6 Amendment No. 9 Dated as of May 25, 1995 RESTATED AND AMENDED CREDIT AGREEMENT Dated as of July 27, 1992 This Amendment No. 9 ("Amendment No. 9") dated as of May 25, 1995, is entered into between RHI Holdings, Inc., a Delaware corporation ("RHI") and Citicorp North America, Inc., a Delaware corporation (the "RHI Senior Lender"), the sole Senior Lender of RHI. PRELIMINARY STATEMENT. RHI, the RHI Senior Lender, certain financial institutions in the capacities of Agents and Administrative Agent for the Senior Lenders are parties, among others, to that certain Restated and Amended Credit Agreement dated as of July 27, 1992, as amended (the "Credit Agreement"). Capitalized terms used herein without definition are used herein as defined in the Credit Agreement. RHI has requested certain consents and certain amendments to the Credit Agreement to permit (i) limited sales of Accounts by RHI and its domestic subsidiaries and (ii) the increase to $17,300,000 of RHI's combined permitted investment in Fairchild Convac GmbH ("Convac") and SBC; and RHI Senior Lender has agreed to such request on the terms and conditions set forth herein. SECTION 1. Amendment to the Credit Agreement. Subject to the satisfaction of the conditions precedent set forth in Section 3 below, Section 11.07B(a) is hereby deleted in its entirety and replaced with the following new Section 11.07B(a): "SECTION 11.07B Sale of Accounts. Except as otherwise permitted hereunder: (a) RHI shall not, and shall not permit any of its Domestic Subsidiaries to, directly or indirectly, sell, with recourse or without, or discount or otherwise sell to any Person, any of its Accounts or any of its notes or obligations receivable in any amount other than (i) up to a total of $18,000,000 face amount of Accounts in the aggregate during the term of this Agreement, without recourse to RHI or any of its Subsidiaries, and (ii) up to an additional $12,000,000 face amount of Accounts in the aggregate during the term of this Agreement, with recourse, provided such recourse is only to Convac and not to any other Person." SECTION 2. Consent. The limitations on investments by RHI and its subsidiaries in Convac and SBC are set forth in consent letters between RHI and the RHI Senior Lender dated June 10, 1994 and August 12, 1994, respectively. The RHI Senior Lender hereby consents to the combination of such investment limitations, into a single limit, and to the increase of such combined limit from $15,300,000 to $17,300,000, provided, however, that the calculation of such investment limitation shall be based upon a nonfluctuating DM/$US exchange rate of 1.666 (the spot rate as of June 10, 1994). To the extent that this Section 2 shall be in any way inconsistent with the provisions of Section 11.03B of the Credit Agreement (re: investments permitted to be made by RHI), the provisions of this Section 2 shall be the governing and controlling provisions. SECTION 3. Conditions Precedent to Effectiveness. The amendment and consent set forth in Sections 1 and 2 above shall become effective and be deemed effective as of the date hereof, if, and only if, the Administrative Agent shall have received on or before May 25, 1995, a facsimile or original executed copy of this Amendment No. 9 executed by RHI and the RHI Senior Lender. SECTION 4. Representations and Warranties. RHI hereby represents and warrants as follows: 4.1 This Amendment No. 9 and the Credit Agreement as previously executed and amended and as amended hereby, constitute legal, valid and binding obligations of RHI and are enforceable against RHI in accordance with their terms. 4.2 No Event of Default or Potential Event of Default exists or would result from any of the transactions contemplated by this Amendment No. 9. 4.3 Upon the effectiveness of this Amendment No. 9, RHI hereby reaffirms all covenants, representations and warranties made by such Person in the Credit Agreement to the extent the same are not amended hereby, and agrees that all such covenants, representations and warranties shall be deemed to have been remade as of the date this Amendment No. 9 becomes effective (unless a representation and warranty is stated to be given on and as of a specific date, in which case such representation and warranty shall be true, correct and complete as of such date). SECTION 5. Reference to and Effect on the Credit Agreement. 5.1 Upon the effectiveness of this Amendment No. 9, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import shall mean and be a reference to the Credit Agreement, as amended hereby, and each reference to the Credit Agreement in any other document, instrument or agreement executed and/or delivered in connection with the Credit Agreement shall mean and be a reference to the Credit Agreement as amended hereby. 5.2 Except as specifically amended above, the Credit Agreement, the Notes and all other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. 5.3 The execution, delivery and effectiveness of this Amendment No. 9 shall not operate as a waiver of any right, power or remedy of any Senior Lender or Agent or the Administrative Agent under the Credit Agreement, the Notes or any of the other Loan Documents, nor constitute a waiver of any provision contained therein, except as specifically set forth herein. SECTION 6. Execution in Counterparts. This Amendment No. 9 may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Delivery of an executed counterpart of this Amendment No. 9 by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment No. 9. SECTION 7. Governing Law. This Amendment No. 9 shall be governed by and construed in accordance with the laws of the State of New York. SECTION 8. Headings. Section headings in this Amendment No. 9 are included herein for convenience of reference only and shall not constitute a part of this Amendment No. 9 for any other purpose. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 9 to be executed by their respective officers thereunto duly authorized as of the date first above written. CITICORP NORTH AMERICA, INC. By: Emily Rosensheck Title: Vice President RHI HOLDINGS, INC. By: Karen L. Schneckenburger Title: Treasurer EX-10 7 CONSENT AND AMENDMENT NO. 10 Dated as of June 30, 1995 to RESTATED AND AMENDED CREDIT AGREEMENT Dated as of July 27, 1992 This Consent and Amendment No. 10 ("Amendment") dated as of June 30, 1995 is entered into among VSI Corporation, a Delaware corporation ("VSI"), Fairchild Industries, Inc., a Delaware corporation ("FII"), RHI Holdings, Inc., a Delaware corporation ("RHI") and the undersigned "Senior Lenders" (as defined in the Credit Agreement identified below). Capitalized terms used herein without definition are used herein as defined in the Credit Agreement. PRELIMINARY STATEMENT. VSI, FII, RHI, the Senior Lenders, the Agents, and the Administrative Agent are parties to that certain Restated and Amended Credit Agreement dated as of July 27, 1992, as amended (the "Credit Agreement"). VSI has requested the amendment of the Credit Agreement in certain respects as more particularly described in the letter dated August 15, 1995, a copy of which is attached hereto as Exhibit 1 and made a part hereof (the "Amendment Request") and RHI, FII and VSI have requested the consent of their respective Requisite Senior Lenders to certain cash capital contributions to FII and VSI and the use by VSI thereof for Consolidated Capital Expenditures, as more particularly described in the Amendment Request. Subject to the terms and conditions stated herein, (i) the undersigned Senior Lenders of VSI, FII and RHI comprising at least the Requisite Senior Lenders of VSI, FII and RHI, respectively, have agreed to further amend the Credit Agreement as set forth in Section 1 hereof and (ii) the Senior Lenders of FII comprising at least the Requisite Senior Lenders of FII, the Senior Lender of RHI, and the Senior Lenders of VSI comprising at least the Requisite Senior Lenders of VSI have agreed to consent to certain matters as described in Section 2 hereof. SECTION 1. Amendments to the Credit Agreement. Effective as of June 30, 1995, subject to the satisfaction of the conditions precedent set forth in Section 3 hereof, the Credit Agreement is hereby amended as follows: 1.1 Article IX is amended to add the following provision at the end thereof: SECTION 9.13 TFC/RHI Consolidated Liquidity. RHI shall deliver to the Administrative Agent and the Senior Lenders, within ten (10) days after the end of each fiscal quarter of each Fiscal Year, commencing with the fiscal quarter ending on December 31, 1995, an Officers' Certificate of RHI in the form attached to Amendment No. 10 to this Agreement as Exhibit 2 setting forth the calculation of the sum of the amounts set forth in Section 14.01(r) for such fiscal quarter. 1.2 Section 12.07 is amended to delete that portion of the schedule of covenant test dates commencing with Fourth Quarter, 1995 and ending with Fourth Quarter, 1996 in its entirety and substitute the following therefor: Fourth Quarter, 1995 60,000,000 First Quarter, 1996 60,000,000 Second Quarter, 1996 65,000,000 Third Quarter, 1996 70,000,000 Fourth Quarter, 1996 80,000,000 1.3 Section 14.01 is amended to add the following provisions at the end thereof: (q) Sale of Fairchild Communications Services Company; Equity and Debt Offerings. VSI and/or Fairchild Communications Services Company shall have failed to notify the Administrative Agent in writing on or before October 31, 1995 that the appropriate Borrower or Subsidiary of a Borrower has engaged one or more investment bankers of recognized national standing with respect to accomplishing and consummating an initial public offering of equity securities and/or a public offering of debt securities of Fairchild Communications Services Company, or a Subsidiary of FII or VSI holding the equity securities or assets of Fairchild Communications Services Company, and a public offering of debt securities of a Subsidiary of FII or VSI holding directly or indirectly those assets which comprise VSI's D-M-E division. (r) TFC/RHI Consolidated Liquidity. The sum, as of any given date of determination, of (i) the amount of consolidated Cash and Cash Equivalents of TFC and RHI plus (ii) that portion of the VSI Directed Reduction Amount then available for borrowing and permitted to be transferred or remitted to RHI minus (iii) the amount of Cash and Cash Equivalents of TFC and RHI which is then required to secure Contractual Obligations of TFC or RHI (a) as of December 31, 1995 shall be less than $30,000,000 or (b) as of March 31, 1996 or the last day of each fiscal quarter of TFC thereafter shall be less than $10,000,000. (s) VSI Default as to Publicly Held Indebtedness of Affiliates. If such Borrower is VSI, (i) TFC shall fail to make any payment when due on any Indebtedness of TFC owing with respect to its (A) 12 1/4% Senior Subordinated Notes due 1996, (B) 12% Intermediate Subordinated Debentures due 2001, (C) 13 1/8% Subordinated Debentures due 2006, or (D) 13% Junior Subordinated Debentures due 2007, (ii) RHI shall fail to make any payment when due on any Indebtedness of RHI owing with respect to the Senior Subordinated Debentures, or (iii) FII shall fail to make any payment when due on any Indebtedness of FII owing with respect to the FII Senior Notes; or any breach, default or event of default shall occur under any instrument, agreement or indenture pertaining to any Indebtedness described in clause (i), (ii), or (iii) above, if the effect thereof (with or without the giving of notice or lapse of time or both) is to accelerate (as distinguished from imposing a requirement to offer to purchase), or permit the holder(s) of such Indebtedness to accelerate (as distinguished from imposing a requirement to offer to purchase), the maturity of any such Indebtedness. SECTION 2. Consents. 2.1 The undersigned Senior Lender of RHI hereby consents to RHI's cash contribution, in exchange for FII Series B Preferred, to FII of the amount required, not to exceed $500,000, by VSI to make the incremental Consolidated Capital Expenditures referenced in the parenthetical exception to the provisions of clause (i)(A) of the proviso at the end of Section 11.14 of the Agreement and the undersigned Senior Lenders of FII hereby consent to the contribution of such amount received by FII as aforesaid to VSI as paid-in capital; provided that (i) such amount received by VSI is used to make Consolidated Capital Expenditures for the Fiscal Year ending in 1995 and (ii) the FII Series B Preferred issued in exchange for such capital contribution is pledged to secure the FII Senior Notes under the Senior Note Collateral Documents. 2.2 The undersigned Senior Lenders of VSI hereby consent to VSI's use of up to $500,000 received by VSI as a cash contribution from FII to VSI's paid-in capital, as referenced in Section 2.1 above, to make Consolidated Capital Expenditures for the Fiscal Year ending in 1995 in excess of the amount that would otherwise be permissible pursuant to clause (A) of the proviso included in Section 11.14 of the Credit Agreement. SECTION 3. Conditions Precedent to Effectiveness of this Amendment. This Amendment shall become effective as of June 30, 1995 if, and only if, (i) the Administrative Agent shall have received on or before September 15, 1995, (a) a facsimile or original executed copy of this Amendment executed by RHI, FII, VSI, and Senior Lenders comprising at least the Requisite Senior Lenders of each of RHI, FII and VSI and (b) a facsimile or original executed copy of a Reaffirmation Agreement and Acknowledgment in the form attached hereto as Exhibit 3 executed by the parties referenced therein and (ii) the Administrative Agent shall have received on September 15, 1995, for the benefit of each Senior Lender executing and delivering this Amendment on or before such date, payment of a fee in the amount of one- quarter of one percent (0.25%) of the sum of (a) the Facility G Commitment of such Senior Lender plus (b) the outstanding principal balance as of September 15, 1995 of the Series VII Term Loans payable to such Senior Lender plus (c) the outstanding principal balance as of September 15, 1995 of the Series VIII Term Loans payable to such Senior Lender. SECTION 4. Representations and Warranties. RHI, FII and VSI hereby represent and warrant as follows: 4.1 This Amendment and the Credit Agreement as previously executed and amended and as amended hereby constitute legal, valid and binding obligations of RHI, FII and VSI and are enforceable against RHI, FII and VSI in accordance with their terms. 4.2 No Event of Default or Potential Event of Default exists or would result from any of the transactions contemplated by this Amendment. 4.3 Upon the effectiveness of this Amendment, RHI, FII and VSI each hereby reaffirms all covenants, representations and warranties made in the Credit Agreement to the extent the same are not amended hereby and agrees that all such covenants, representations and warranties shall be deemed to have been remade as of the date this Amendment becomes effective (unless a representation and warranty is stated to be given on and as of a specific date, in which case such representation and warranty shall be true, correct and complete as of such date). SECTION 5. Reference to and Effect on the Credit Agreement. 5.1 Upon the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import shall mean and be a reference to the Credit Agreement, as amended hereby, and each reference to the Credit Agreement in any other document, instrument or agreement executed and/or delivered in connection with the Credit Agreement shall mean and be a reference to the Credit Agreement as amended hereby. 5.2 Except as specifically amended above, the Credit Agreement, the Notes and all other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. 5.3 The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any Senior Lender or Agent or the Administrative Agent under the Credit Agreement, the Notes or any of the other Loan Documents, nor constitute a waiver of any provision contained therein, except as specifically set forth herein. SECTION 6. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Delivery of an executed counterpart of this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment. SECTION 7. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 8. Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the date first above written. FAIRCHILD INDUSTRIES, INC. By: Karen L. Schneckenburger Title: Treasurer VSI CORPORATION By: Karen L. Schneckenburger Title: Treasurer RHI HOLDINGS, INC. By: Karen L. Schneckenburger Title: Treasurer CITICORP NORTH AMERICA, INC. By: Emily Rosensheck Title: Vice President BANK OF NOVA SCOTIA By: A. S. Norsworthy Title: Assistant Agent NATIONSBANK, N.A. By: John D. Mindnick Title: Senior Vice President GENERALE BANK NEW YORK By: Eddie Matthews By: F. Mauchant Title: Senior Vice President THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, CHICAGO BRANCH By: Brady S. Sadek Title: Vice President & General Manager THE MITSUBISHI BANK, LIMITED By: Toshinori Yagura Title: General Manager CANADIAN IMPERIAL BANK OF COMMERCE By: Mary Kate Miller Title: Authorized Signatory PILGRIM PRIME RATE TRUST By: Kathleen Lenarici Title: Assistant Portfolio Manager UNION BANK By: Patrick M. Cassidy Title: Vice President WELLS FARGO BANK, N.A. By: Linda Spradling Title: Vice President SENIOR DEBT PORTFOLIO By: Jeffrey S. Garner Title: Vice President CAISSE NATIONALE DE CREDIT AGRICOLE By: David Bouhl, F.V.P. Title: Head of Corporate Banking Chaicago EXHIBIT 1 to Consent and Amendment No. 10 Dated as of June 30, 1995 AMENDMENT REQUEST Attached EXHIBIT 2 to Consent and Amendment No. 10 Dated as of June 30, 1995 FORM OF TFC/RHI CONSOLIDATED LIQUIDITY OFFICERS' CERTIFICATE To: Citicorp North America, Inc., as Administrative Agent and the Senior Lenders under the Restated and Amended Credit Agreement dated as of July 27, 1992 (the "Credit Agreement") Dated: [insert date] The undersigned hereby certifies that the calculation set forth below evidencing compliance with Section 14.01(r) of the Credit Agreement is complete and accurate as of the fiscal quarter of The Fairchild Corporation ending on ________, 199_. TFC/RHI consolidated Cash and Cash Equivalents $____________ plus Non-Restricted VSI Directed Reduction Amount $____________ minus Restricted Cash and Cash Equivalents of TFC/RHI ($____________) $_____________ _____________________ Name: Title: EXHIBIT 3 to Consent and Amendment No. 10 Dated as of June 30, 1995 FORM OF REAFFIRMATION AGREEMENT AND ACKNOWLEDGMENT Attached AMENDMEN.10 September 15, 1995 EX-22 8 List of Significant Subsidiaries of The Fairchild Corporation Fairchild Communications Services, Inc. Fairchild Communications Services Company [Partnership] Fairchild Convac GmbH Fairchild Data Corporation Fairchild Industries, Inc. RHI Holdings, Inc. VSI Corporation EX-27 9
5 1,000 YEAR JUN-30-1995 JUN-30-1995 71,182 4,116 99,217 5,610 104,909 291,930 286,585 115,659 881,882 179,336 509,715 2,235 16,342 0 42,808 881,882 546,323 546,979 419,290 536,773 0 0 67,770 (51,939) (18,019) (33,920) (259) 355 0 (33,824) (2.10) (2.10)
EX-10 10 October 21, 1994 Mr. Eric I. Steiner The Fairchild Corporation 300 West Service Road P.O. Box #10803 Chantilly, VA 22021 Dear Eric: This letter agreement supersedes the letter agreement dated October 23, 1991 between The Fairchild Corporation (Fairchild) and you and any other agreements between you and Fairchild relating to severance and change of control payments, each of which shall be deemed terminated, effective upon your acceptance hereof. In exchange for your continued services as an executive of Fairchild, and subject to your having been, on the date of termination, an employee of Fairchild for at least five years and an officer of Fairchild for at least three years, Fairchild hereby agrees that, in the event Fairchild terminates your employment without cause during a three year period, commencing on the date of this letter, you shall receive on date of termination a severance payment consisting of one year of then current base salary. In addition, if, but for such termination, a bonus would have been earned by you for the year in which termination takes place, you shall be entitled at year-end to such bonus, pro-rated, however, from the beginning of the fiscal year to date of termination. Any portion of the bonus that is based on individual goals shall be deemed to be fully earned. In addition, and notwithstanding whether the conditions for severance pay have been met, if a change of control (as defined in the attached Exhibit A) of Fairchild occurs during a three year period from the date of this letter while you are still an employee of Fairchild, you shall be entitled to receive a sum equal to two times your then current total annual compensation (including base salary and incentive compensation target, earned or unearned), payable one-half on the date of change of control (the first change payment) and, as long as your employment continues, one-half over a one year period in four equal quarterly installments, Mr. Eric I. Steiner October 21, 1994 Page 2 commencing three months after the date of change of control (the second change payments), except that in the event your employment is terminated without cause during said one year period (or in the event you terminate your employment during said one year period for good reason as defined below), you shall be entitled to receive immediately the first change payment (if not already paid), any second change payments accrued to date of termination but not yet paid, and the severance payment, if applicable, referred to in the preceding paragraph of this letter, but shall not be entitled to any further second change payments not then due and payable. Good reason includes any action by Fairchild (or a successor company) which results in a reduction in your compensation, position, authority, duties or responsibilities such that your senior management opportunities are substantially lessened, or which results in your primary place of employment being relocated more than 35 miles from the current Dulles Airport location. No sum payable to you upon change of control shall limit or affect your entitlement to base salary or incentive compensation for all periods during which you are employed by Fairchild. Please acknowledge your agreement with the terms of this letter agreement by signing the attached copy and returning same to this office, which shall be effective as of the date of your acceptance. Very truly yours, THE FAIRCHILD CORPORATION By: John D. Jackson ACCEPTED AND AGREED: By: Eric I. Steiner Date: December 19, 1994 EXHIBIT A "Change of Control" means the occurrence of any of the following events; (i) any "Person", other than one or more "Permitted Holders", is or becomes the "Beneficial Owner", directly or indirectly, of more than 20% of the total voting power (the "Vote") of the "Voting Stock" of the Company, and the Permitted Holders "beneficially own", directly or indirectly, in the aggregate a lesser percentage of the Vote of all the Voting Stock of the Company than such other Person; provided, however, such other person shall be deemed to beneficially own all Voting Stock of a corporation held by any other corporation (the "parent corporation"), if such other Person "beneficially owns", directly or indirectly, more than 20% of the Vote of the Voting Stock of such parent corporation, and the Permitted Holders "beneficially own", directly or indirectly, in the aggregate a lesser percentage of the Vote of the Voting Stock of such parent corporation; (ii) during any period of two consecutive years, individuals who at the beginning of any such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; (iii) The Company consolidates with or merges with or into another Person, pursuant to a transaction (a) in which the outstanding Voting Stock of the Company is changed into or exchanged for cash, securities or other property (other than any such transaction where the outstanding Voting Stock of the Company is changed into or exchanged for Voting Stock of the surviving corporation), and (b) in which the holders of the Vote of the Voting Stock of the Company immediately prior to such transaction own, directly or indirectly, less than a majority of the Vote of the Voting Stock of the surviving Person immediately after such transaction, and (c) by which an event described in Section (i) shall have occurred ; or (iv) the Company is liquidated or dissolved, or all or substantially all of its directly or indirectly held assets are sold or otherwise conveyed to a third party other than one or more Permitted Holders. "Beneficial Owner" has the meaning set forth in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to be the Beneficial Owner of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time; and the terms "beneficial ownership" and "beneficially owns" have meanings correlative to the foregoing. "Permitted Holders" means Jeffrey J. Steiner and his "associates" (as defined in Rule 12b-2 under the Exchange Act) or any other Person directly or indirectly controlled by Jeffrey J. Steiner. "Person" shall be as defined in Section 13(d) and 14(d) of the Exchange Act. "Voting Stock" means, with respect to a corporation, (i) all classes of capital stock then outstanding of such corporation normally entitled to vote in elections of directors, and (ii) any security which may, at the option of the holder, be converted into or exchanged for Voting Stock. December 21, 1994 Mr. Eric I. Steiner The Fairchild Corporation 300 West Service Road P.O. Box 10803 Chantilly, VA 22021 Dear Eric: By letter dated October 21, 1994, The Fairchild Corporation agreed to make certain payments to you in the event a "change of control" occurred under certain conditions ("letter agreement"). In order to avoid excess parachute payments that would have adverse tax consequences under Section 280G of the Internal Revenue Code, the letter agreement is hereby amended to include the following paragraph just prior to the last paragraph of the letter agreement: "In no event shall any amounts payable pursuant to this letter agreement which are deemed to constitute 'parachute payments' (as defined in Section 280G of the Internal Revenue Code, as amended by the Tax Reform Act of 1986, and as thereafter amended ('the Code')), when added to any other payments which are deemed to constitute 'parachute payments,' as defined in the Code, exceed 2.99 times your 'base amount' (as defined in the Code)." Except as modified by the terms set forth above, the terms of the letter agreement shall remain in full force and effect. Please acknowledge your agreement with the terms set forth above by signing the attached copy and returning same to this office, which shall be effective as of the date of your acceptance. Very truly yours, THE FAIRCHILD CORPORATION By: John D. Jackson ACCEPTED AND AGREED: By: Eric I. Steiner Date: December 22, 1994 EX-10 11 October 21, 1994 Mr. Michael T. Alcox The Fairchild Corporation 300 West Service Road P.O. Box #10803 Chantilly, VA 22021 Dear Mike: This letter agreement supersedes the letter agreement dated October 23, 1991 between The Fairchild Corporation (Fairchild) and you and any other agreements between you and Fairchild relating to severance and change of control payments, each of which shall be deemed terminated, effective upon your acceptance hereof. In exchange for your continued services as an executive of Fairchild, and subject to your having been, on the date of termination, an employee of Fairchild for at least five years and an officer of Fairchild for at least three years, Fairchild hereby agrees that, in the event Fairchild terminates your employment without cause during a three year period, commencing on the date of this letter, you shall receive on date of termination a severance payment consisting of one year of then current base salary. In addition, if, but for such termination, a bonus would have been earned by you for the year in which termination takes place, you shall be entitled at year-end to such bonus, pro-rated, however, from the beginning of the fiscal year to date of termination. Any portion of the bonus that is based on individual goals shall be deemed to be fully earned. In addition, and notwithstanding whether the conditions for severance pay have been met, if a change of control (as defined in the attached Exhibit A) of Fairchild occurs during a three year period from the date of this letter while you are still an employee of Fairchild, you shall be entitled to receive a sum equal to two times your then current total annual compensation (including base salary and incentive compensation target, earned or unearned), payable one-half on the date of change of control (the first change payment) and, as long as your employment continues, one-half over a one year period in four equal quarterly installments, Mr. Michael T. Alcox October 21, 1994 Page 2 commencing three months after the date of change of control (the second change payments), except that in the event your employment is terminated without cause during said one year period (or in the event you terminate your employment during said one year period for good reason as defined below), you shall be entitled to receive immediately the first change payment (if not already paid), any second change payments accrued to date of termination but not yet paid, and the severance payment, if applicable, referred to in the preceding paragraph of this letter, but shall not be entitled to any further second change payments not then due and payable. Good reason includes any action by Fairchild (or a successor company) which results in a reduction in your compensation, position, authority, duties or responsibilities such that your senior management opportunities are substantially lessened, or which results in your primary place of employment being relocated more than 35 miles from the current Dulles Airport location. No sum payable to you upon change of control shall limit or affect your entitlement to base salary or incentive compensation for all periods during which you are employed by Fairchild. Please acknowledge your agreement with the terms of this letter agreement by signing the attached copy and returning same to this office, which shall be effective as of the date of your acceptance. Very truly yours, THE FAIRCHILD CORPORATION By: John D. Jackson ACCEPTED AND AGREED: By: Michael T. Alcox December 16, 1994 EXHIBIT A "Change of Control" means the occurrence of any of the following events; (i) any "Person", other than one or more "Permitted Holders", is or becomes the "Beneficial Owner", directly or indirectly, of more than 20% of the total voting power (the "Vote") of the "Voting Stock" of the Company, and the Permitted Holders "beneficially own", directly or indirectly, in the aggregate a lesser percentage of the Vote of all the Voting Stock of the Company than such other Person; provided, however, such other person shall be deemed to beneficially own all Voting Stock of a corporation held by any other corporation (the "parent corporation"), if such other Person "beneficially owns", directly or indirectly, more than 20% of the Vote of the Voting Stock of such parent corporation, and the Permitted Holders "beneficially own", directly or indirectly, in the aggregate a lesser percentage of the Vote of the Voting Stock of such parent corporation; (ii) during any period of two consecutive years, individuals who at the beginning of any such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; (iii) The Company consolidates with or merges with or into another Person, pursuant to a transaction (a) in which the outstanding Voting Stock of the Company is changed into or exchanged for cash, securities or other property (other than any such transaction where the outstanding Voting Stock of the Company is changed into or exchanged for Voting Stock of the surviving corporation), and (b) in which the holders of the Vote of the Voting Stock of the Company immediately prior to such transaction own, directly or indirectly, less than a majority of the Vote of the Voting Stock of the surviving Person immediately after such transaction, and (c) by which an event described in Section (i) shall have occurred ; or (iv) the Company is liquidated or dissolved, or all or substantially all of its directly or indirectly held assets are sold or otherwise conveyed to a third party other than one or more Permitted Holders. "Beneficial Owner" has the meaning set forth in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to be the Beneficial Owner of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time; and the terms "beneficial ownership" and "beneficially owns" have meanings correlative to the foregoing. "Permitted Holders" means Jeffrey J. Steiner and his "associates" (as defined in Rule 12b-2 under the Exchange Act) or any other Person directly or indirectly controlled by Jeffrey J. Steiner. "Person" shall be as defined in Section 13(d) and 14(d) of the Exchange Act. "Voting Stock" means, with respect to a corporation, (i) all classes of capital stock then outstanding of such corporation normally entitled to vote in elections of directors, and (ii) any security which may, at the option of the holder, be converted into or exchanged for Voting Stock. December 21, 1994 Mr. Michael T. Alcox The Fairchild Corporation 300 West Service Road P.O. Box 10803 Chantilly, VA 22021 Dear Mike: By letter dated October 21, 1994, The Fairchild Corporation agreed to make certain payments to you in the event a "change of control" occurred under certain conditions ("letter agreement"). In order to avoid excess parachute payments that would have adverse tax consequences under Section 280G of the Internal Revenue Code, the letter agreement is hereby amended to include the following paragraph just prior to the last paragraph of the letter agreement: "In no event shall any amounts payable pursuant to this letter agreement which are deemed to constitute 'parachute payments' (as defined in Section 280G of the Internal Revenue Code, as amended by the Tax Reform Act of 1986, and as thereafter amended ('the Code')), when added to any other payments which are deemed to constitute 'parachute payments,' as defined in the Code, exceed 2.99 times your 'base amount' (as defined in the Code)." Except as modified by the terms set forth above, the terms of the letter agreement shall remain in full force and effect. Please acknowledge your agreement with the terms set forth above by signing the attached copy and returning same to this office, which shall be effective as of the date of your acceptance. Very truly yours, THE FAIRCHILD CORPORATION By: John D. Jackson ACCEPTED AND AGREED: By: Michael T. Alcox Date: January 4, 1995 EX-10 12 October 21, 1994 Mr. Donald E. Miller The Fairchild Corporation 300 West Service Road P.O. Box #10803 Chantilly, VA 22021 Dear Donald: This letter agreement supersedes the letter agreement dated October 23, 1991 between The Fairchild Corporation (Fairchild) and you and any other agreements between you and Fairchild relating to severance and change of control payments, each of which shall be deemed terminated, effective upon your acceptance hereof. In exchange for your continued services as an executive of Fairchild, and subject to your having been, on the date of termination, an employee of Fairchild for at least five years and an officer of Fairchild for at least three years, Fairchild hereby agrees that, in the event Fairchild terminates your employment without cause during a three year period, commencing on the date of this letter, you shall receive on date of termination a severance payment consisting of one year of then current base salary. In addition, if, but for such termination, a bonus would have been earned by you for the year in which termination takes place, you shall be entitled at year-end to such bonus, pro-rated, however, from the beginning of the fiscal year to date of termination. Any portion of the bonus that is based on individual goals shall be deemed to be fully earned. In addition, and notwithstanding whether the conditions for severance pay have been met, if a change of control (as defined in the attached Exhibit A) of Fairchild occurs during a three year period from the date of this letter while you are still an employee of Fairchild, you shall be entitled to receive a sum equal to two times your then current total annual compensation (including base salary and incentive compensation target, earned or unearned), payable one-half on the date of change of control (the first change payment) and, as long as your employment continues, one-half over a one year period in four equal quarterly installments, Mr. Donald E. Miller October 21, 1994 Page 2 commencing three months after the date of change of control (the second change payments), except that in the event your employment is terminated without cause during said one year period (or in the event you terminate your employment during said one year period for good reason as defined below), you shall be entitled to receive immediately the first change payment (if not already paid), any second change payments accrued to date of termination but not yet paid, and the severance payment, if applicable, referred to in the preceding paragraph of this letter, but shall not be entitled to any further second change payments not then due and payable. Good reason includes any action by Fairchild (or a successor company) which results in a reduction in your compensation, position, authority, duties or responsibilities such that your senior management opportunities are substantially lessened, or which results in your primary place of employment being relocated more than 35 miles from the current Dulles Airport location. No sum payable to you upon change of control shall limit or affect your entitlement to base salary or incentive compensation for all periods during which you are employed by Fairchild. Please acknowledge your agreement with the terms of this letter agreement by signing the attached copy and returning same to this office, which shall be effective as of the date of your acceptance. Very truly yours, THE FAIRCHILD CORPORATION By: John D. Jackson ACCEPTED AND AGREED: By: Donald E. Miller Date: October 26, 1994 EXHIBIT A "Change of Control" means the occurrence of any of the following events; (i) any "Person", other than one or more "Permitted Holders", is or becomes the "Beneficial Owner", directly or indirectly, of more than 20% of the total voting power (the "Vote") of the "Voting Stock" of the Company, and the Permitted Holders "beneficially own", directly or indirectly, in the aggregate a lesser percentage of the Vote of all the Voting Stock of the Company than such other Person; provided, however, such other person shall be deemed to beneficially own all Voting Stock of a corporation held by any other corporation (the "parent corporation"), if such other Person "beneficially owns", directly or indirectly, more than 20% of the Vote of the Voting Stock of such parent corporation, and the Permitted Holders "beneficially own", directly or indirectly, in the aggregate a lesser percentage of the Vote of the Voting Stock of such parent corporation; (ii) during any period of two consecutive years, individuals who at the beginning of any such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; (iii) The Company consolidates with or merges with or into another Person, pursuant to a transaction (a) in which the outstanding Voting Stock of the Company is changed into or exchanged for cash, securities or other property (other than any such transaction where the outstanding Voting Stock of the Company is changed into or exchanged for Voting Stock of the surviving corporation), and (b) in which the holders of the Vote of the Voting Stock of the Company immediately prior to such transaction own, directly or indirectly, less than a majority of the Vote of the Voting Stock of the surviving Person immediately after such transaction, and (c) by which an event described in Section (i) shall have occurred ; or (iv) the Company is liquidated or dissolved, or all or substantially all of its directly or indirectly held assets are sold or otherwise conveyed to a third party other than one or more Permitted Holders. "Beneficial Owner" has the meaning set forth in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to be the Beneficial Owner of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time; and the terms "beneficial ownership" and "beneficially owns" have meanings correlative to the foregoing. "Permitted Holders" means Jeffrey J. Steiner and his "associates" (as defined in Rule 12b-2 under the Exchange Act) or any other Person directly or indirectly controlled by Jeffrey J. Steiner. "Person" shall be as defined in Section 13(d) and 14(d) of the Exchange Act. "Voting Stock" means, with respect to a corporation, (i) all classes of capital stock then outstanding of such corporation normally entitled to vote in elections of directors, and (ii) any security which may, at the option of the holder, be converted into or exchanged for Voting Stock. December 21, 1994 Mr. Donald E. Miller The Fairchild Corporation 300 West Service Road P.O. Box 10803 Chantilly, VA 22021 Dear Donald: By letter dated October 21, 1994, The Fairchild Corporation agreed to make certain payments to you in the event a "change of control" occurred under certain conditions ("letter agreement"). In order to avoid excess parachute payments that would have adverse tax consequences under Section 280G of the Internal Revenue Code, the letter agreement is hereby amended to include the following paragraph just prior to the last paragraph of the letter agreement: "In no event shall any amounts payable pursuant to this letter agreement which are deemed to constitute 'parachute payments' (as defined in Section 280G of the Internal Revenue Code, as amended by the Tax Reform Act of 1986, and as thereafter amended ('the Code')), when added to any other payments which are deemed to constitute 'parachute payments,' as defined in the Code, exceed 2.99 times your 'base amount' (as defined in the Code)." Except as modified by the terms set forth above, the terms of the letter agreement shall remain in full force and effect. Please acknowledge your agreement with the terms set forth above by signing the attached copy and returning same to this office, which shall be effective as of the date of your acceptance. Very truly yours, THE FAIRCHILD CORPORATION By: John D. Jackson ACCEPTED AND AGREED: By: Donald E. Miller Date: December 22, 1994 EX-10 13 October 21, 1994 Mr. John L. Flynn The Fairchild Corporation 300 West Service Road P.O. Box #10803 Chantilly, VA 22021 Dear John: This letter agreement supersedes the letter agreement dated October 23, 1991 between The Fairchild Corporation (Fairchild) and you and any other agreements between you and Fairchild relating to severance and change of control payments, each of which shall be deemed terminated, effective upon your acceptance hereof. In exchange for your continued services as an executive of Fairchild, and subject to your having been, on the date of termination, an employee of Fairchild for at least five years and an officer of Fairchild for at least three years, Fairchild hereby agrees that, in the event Fairchild terminates your employment without cause during a three year period, commencing on the date of this letter, you shall receive on date of termination a severance payment consisting of one year of then current base salary. In addition, if, but for such termination, a bonus would have been earned by you for the year in which termination takes place, you shall be entitled at year-end to such bonus, pro-rated, however, from the beginning of the fiscal year to date of termination. Any portion of the bonus that is based on individual goals shall be deemed to be fully earned. In addition, and notwithstanding whether the conditions for severance pay have been met, if a change of control (as defined in the attached Exhibit A) of Fairchild occurs during a three year period from the date of this letter while you are still an employee of Fairchild, you shall be entitled to receive a sum equal to two times your then current total annual compensation (including base salary and incentive compensation target, earned or unearned), payable one-half on the date of change of control (the first change payment) and, as long as your employment continues, one-half over a one year period in four equal quarterly installments, Mr. John L. Flynn October 21, 1994 Page 2 commencing three months after the date of change of control (the second change payments), except that in the event your employment is terminated without cause during said one year period (or in the event you terminate your employment during said one year period for good reason as defined below), you shall be entitled to receive immediately the first change payment (if not already paid), any second change payments accrued to date of termination but not yet paid, and the severance payment, if applicable, referred to in the preceding paragraph of this letter, but shall not be entitled to any further second change payments not then due and payable. Good reason includes any action by Fairchild (or a successor company) which results in a reduction in your compensation, position, authority, duties or responsibilities such that your senior management opportunities are substantially lessened, or which results in your primary place of employment being relocated more than 35 miles from the current Dulles Airport location. No sum payable to you upon change of control shall limit or affect your entitlement to base salary or incentive compensation for all periods during which you are employed by Fairchild. Please acknowledge your agreement with the terms of this letter agreement by signing the attached copy and returning same to this office, which shall be effective as of the date of your acceptance. Very truly yours, THE FAIRCHILD CORPORATION By: John D. Jackson ACCEPTED AND AGREED: By: John L. Flynn Date: October 26, 1994 EXHIBIT A "Change of Control" means the occurrence of any of the following events; (i) any "Person", other than one or more "Permitted Holders", is or becomes the "Beneficial Owner", directly or indirectly, of more than 20% of the total voting power (the "Vote") of the "Voting Stock" of the Company, and the Permitted Holders "beneficially own", directly or indirectly, in the aggregate a lesser percentage of the Vote of all the Voting Stock of the Company than such other Person; provided, however, such other person shall be deemed to beneficially own all Voting Stock of a corporation held by any other corporation (the "parent corporation"), if such other Person "beneficially owns", directly or indirectly, more than 20% of the Vote of the Voting Stock of such parent corporation, and the Permitted Holders "beneficially own", directly or indirectly, in the aggregate a lesser percentage of the Vote of the Voting Stock of such parent corporation; (ii) during any period of two consecutive years, individuals who at the beginning of any such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; (iii) The Company consolidates with or merges with or into another Person, pursuant to a transaction (a) in which the outstanding Voting Stock of the Company is changed into or exchanged for cash, securities or other property (other than any such transaction where the outstanding Voting Stock of the Company is changed into or exchanged for Voting Stock of the surviving corporation), and (b) in which the holders of the Vote of the Voting Stock of the Company immediately prior to such transaction own, directly or indirectly, less than a majority of the Vote of the Voting Stock of the surviving Person immediately after such transaction, and (c) by which an event described in Section (i) shall have occurred ; or (iv) the Company is liquidated or dissolved, or all or substantially all of its directly or indirectly held assets are sold or otherwise conveyed to a third party other than one or more Permitted Holders. "Beneficial Owner" has the meaning set forth in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to be the Beneficial Owner of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time; and the terms "beneficial ownership" and "beneficially owns" have meanings correlative to the foregoing. "Permitted Holders" means Jeffrey J. Steiner and his "associates" (as defined in Rule 12b-2 under the Exchange Act) or any other Person directly or indirectly controlled by Jeffrey J. Steiner. "Person" shall be as defined in Section 13(d) and 14(d) of the Exchange Act. "Voting Stock" means, with respect to a corporation, (i) all classes of capital stock then outstanding of such corporation normally entitled to vote in elections of directors, and (ii) any security which may, at the option of the holder, be converted into or exchanged for Voting Stock. December 21, 1994 Mr. John L. Flynn The Fairchild Corporation 300 West Service Road P.O. Box 10803 Chantilly, VA 22021 Dear John: By letter dated October 21, 1994, The Fairchild Corporation agreed to make certain payments to you in the event a "change of control" occurred under certain conditions ("letter agreement"). In order to avoid excess parachute payments that would have adverse tax consequences under Section 280G of the Internal Revenue Code, the letter agreement is hereby amended to include the following paragraph just prior to the last paragraph of the letter agreement: "In no event shall any amounts payable pursuant to this letter agreement which are deemed to constitute 'parachute payments' (as defined in Section 280G of the Internal Revenue Code, as amended by the Tax Reform Act of 1986, and as thereafter amended ('the Code')), when added to any other payments which are deemed to constitute 'parachute payments,' as defined in the Code, exceed 2.99 times your 'base amount' (as defined in the Code)." Except as modified by the terms set forth above, the terms of the letter agreement shall remain in full force and effect. Please acknowledge your agreement with the terms set forth above by signing the attached copy and returning same to this office, which shall be effective as of the date of your acceptance. Very truly yours, THE FAIRCHILD CORPORATION By: John D. Jackson ACCEPTED AND AGREED: By: John L. Flynn Date: December 22, 1994 EX-10 14 October 21, 1994 Mr. Jerry R. Lirette D-M-E Company 29111 Stephenson Highway Madison Heights, MI 48071 Dear Jerry: This letter agreement supersedes any agreements between you and The Fairchild Corporation (Fairchild) relating to severance payments, including, if applicable, the letter agreement dated October 23, 1991 between Fairchild and you, each of which shall be deemed terminated, effective upon your acceptance hereof. In exchange for your continued services as an executive of Fairchild, Fairchild hereby agrees that, in the event Fairchild terminates your employment without cause during a three year period, commencing on the date of this letter, you shall receive on date of termination a severance payment consisting of one year of then current base salary. In addition, if, but for such termination, a bonus would have been earned by you for the year in which termination takes place, you shall be entitled at year-end to such bonus, pro-rated, however, from the beginning of the fiscal year to date of termination. Any portion of the bonus that is based on individual goals shall be deemed to be fully earned. Please acknowledge your agreement with the terms of this letter agreement by signing the attached copy and returning same to this office, which shall be effective as of the date of your acceptance. Very truly yours, THE FAIRCHILD CORPORATION By: Thomas J. Flaherty ACCEPTED AND AGREED: By: Jerry R. Lirette Date: November 1, 1994 EX-10 15 October 21, 1994 Mr. Mel D. Borer Fairchild Communications Services Company 300 West Service Road P.O. Box #10804 Chantilly, VA 22021 Dear Mel: This letter agreement supersedes any agreements between you and The Fairchild Corporation (Fairchild) relating to severance payments, including, if applicable, the letter agreement dated October 23, 1991 between Fairchild and you, each of which shall be deemed terminated, effective upon your acceptance hereof. In exchange for your continued services as an executive of Fairchild, Fairchild hereby agrees that, in the event Fairchild terminates your employment without cause during a three year period, commencing on the date of this letter, you shall receive on date of termination a severance payment consisting of one year of then current base salary. In addition, if, but for such termination, a bonus would have been earned by you for the year in which termination takes place, you shall be entitled at year-end to such bonus, pro-rated, however, from the beginning of the fiscal year to date of termination. Any portion of the bonus that is based on individual goals shall be deemed to be fully earned. Please acknowledge your agreement with the terms of this letter agreement by signing the attached copy and returning same to this office, which shall be effective as of the date of your acceptance. Very truly yours, THE FAIRCHILD CORPORATION By: Thomas J. Flaherty ACCEPTED AND AGREED: By: Mel D. Borer Date: October 24, 1994 EX-10 16 December 21, 1994 Mr. Thomas J. Flaherty The Fairchild Corporation 300 West Service Road P.O. Box 10803 Chantilly, VA 22021 Dear Tom: This letter agreement modifies and supplements the Employment Agreement dated April 8, 1993 between The Fairchild Corporation ("Fairchild") and you ("Agreement") as follows: Change of Control: If a "Change of Control" (as defined in the attached Exhibit A) of Fairchild occurs during a three year period from the date of this letter while you are still an employee of Fairchild, you shall be entitled to receive a sum equal to two times your then current total annual compensation (including base salary and incentive compensation target, earned or unearned), payable one- half on the date of change of control (the "first change payment") and, as long as your employment continues, one-half over a one year period in four equal quarterly installments, commencing three months after the date of change of control (the "second change payments"), except that in the event your employment is terminated without cause during said one year period (or in the event you terminate your employment during said one year period for "good reason" as defined below), you shall be entitled to receive immediately the first change payment (if not already paid), any second change payments accrued to date of termination but not yet paid, and any severance payments payable to you under the Agreement, but shall not be entitled to any further second change payments not then due and payable. "Good reason" includes any action by Fairchild (or a successor company) which results in a reduction in your compensation, position, authority, duties or responsibilities such that your senior management opportunities are substantially lessened, or which results in your primary place of employment being relocated more than 35 miles from the current Dulles Airport location. No sum payable to you upon change of control shall limit or affect your entitlement to base salary or incentive compensation for all periods during which you are employed by Fairchild. In no event shall any amounts payable pursuant to this letter agreement which are deemed to constitute "parachute payments" (as defined in Section 280G of the Internal Revenue Code, as amended by the Tax Reform Act of 1986, and as thereafter amended ("the Code")), when added to any other payments which are deemed to constitute "parachute payments", as defined in the Code, exceed 2.99 times your "base amount" (as defined in the Code). Except as supplemented by the terms set forth above, the terms of the Agreement shall remain in full force and effect. Thus, the terms of severance compensation set forth in the "Termination" section of the Agreement shall govern such events, rather than the severance policy recently adopted by the Compensation Committee of the Board of Directors requiring, among other things, five years of Fairchild employment and three years of service as an Officer /General Manager of Fairchild to be eligible for severance compensation. Please acknowledge your agreement with the terms of this letter agreement by signing the attached copy and returning same to this office, which shall be effective as of the date of your acceptance. Very truly yours, THE FAIRCHILD CORPORATION By: John D. Jackson ACCEPTED AND AGREED: By: Thomas J. Flaherty Date: January 11, 1995 EX-23 17 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation of our report on the consolidated financial statements of The Fairchild Corporation and Subsidiaries for the year ended June 30, 1995 included in this Form 10-K into the Company's previously filed Form S-8 Registration Statements Nos. 35-27317, 33-21698 and 33-06183. Washington, DC September 26\, 1995 -----END PRIVACY-ENHANCED MESSAGE-----