<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 13, 1994
REGISTRATION NO. 33-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
ROHR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-1607455
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
850 LAGOON DRIVE
CHULA VISTA, CALIFORNIA 91910
(619) 691-4111
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
R. W. MADSEN
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
ROHR, INC.
850 LAGOON DRIVE
CHULA VISTA, CALIFORNIA 91910
(619) 691-2025
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
RHONDA S. WAGNER, ESQ. THOMAS C. SADLER, ESQ.
GIBSON, DUNN & CRUTCHER LATHAM & WATKINS
750 B STREET, SUITE 3300 633 WEST FIFTH STREET, SUITE 4000
SAN DIEGO, CALIFORNIA 92101 LOS ANGELES, CALIFORNIA 90071-2007
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of the Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
- --------------------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
% Senior Notes due 2003........ $100,000,000 100% $100,000,000 $34,483
% Convertible Subordinated
Notes due 2004.................. 57,500,000(2) 100% 57,500,000(2) 19,828
Common Stock..................... (3) -- -- --
Total............................ $157,500,000 $157,500,000 $54,311
- --------------------------------- -------------- -------------- -------------- --------------
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes $7,500,000 aggregate principal amount of Convertible Subordinated
Notes that the Underwriter has an option to purchase to cover over-
allotments, if any.
(3) Such indeterminate number of shares of Common Stock as may be issuable
upon the conversion of the Convertible Subordinated Notes registered
hereby.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
The Prospectus relating to the Senior Notes being registered hereby (the
"Senior Notes Prospectus") is set forth following this page. The Prospectus to
be used in connection with a concurrent offering by Rohr, Inc. of Convertible
Subordinated Notes consists of the alternative pages set forth following the
Senior Notes Prospectus and the balance of the pages included in the Senior
Notes Prospectus for which no alternative is provided.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
APRIL 13, 1994
PROSPECTUS
$100,000,000
ROHR, INC. [LOGO OF ROHR]
% SENIOR NOTES DUE 2003
The % Senior Notes due 2003 (the "Senior Notes") are being issued by Rohr,
Inc. ("Rohr" or the "Company") and will mature on , 2003. Interest on
the Senior Notes is payable semiannually, on and of each year,
commencing , 1994. The Senior Notes are redeemable at the option of
the Company, in whole or in part, at any time on and after , 1999, at
the redemption prices specified herein, plus accrued interest. The Senior Notes
do not provide for any sinking fund. Upon a Change of Control (as defined), the
holders of the Senior Notes will have the right, subject to certain
restrictions and conditions, to require the Company to purchase all or any part
of the Senior Notes at 101% of the principal amount thereof, plus accrued and
unpaid interest to the date of purchase.
In connection with the offering of the Senior Notes (the "Offering"), the
Company is concurrently offering, pursuant to a separate prospectus (together
with the Offering, the "Offerings"), $50 million aggregate principal amount
(assuming no exercise of the Underwriter's over-allotment option) of its %
Convertible Subordinated Notes due 2004 (the "Convertible Subordinated Notes"
and, together with the Senior Notes, the "Securities"). See "Description of
Concurrent Financing."
The Senior Notes will be general unsecured obligations of the Company, senior
in right of payment to all existing and future subordinated indebtedness of the
Company and pari passu in right of payment with all other existing and future
senior indebtedness of the Company. The Senior Notes will be effectively
subordinated to all indebtedness and other liabilities of the Company's
subsidiaries. As of January 30, 1994, after giving effect to the Offerings and
the anticipated use of the proceeds therefrom, the Company would have had
approximately $157.8 million of pari passu indebtedness (excluding the Senior
Notes), and $315.0 million of subordinated indebtedness, outstanding (assuming
no exercise of the Underwriter's over-allotment option). In addition, there
would have been approximately $32.7 million of indebtedness and other
liabilities of the Company's subsidiaries at such date.
AN INVESTMENT IN THE SENIOR NOTES INVOLVES A SIGNIFICANT DEGREE OF RISK. SEE
"RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE SENIOR NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT COMPANY(2)
<S> <C> <C> <C>
Per Note..................................... % % %
Total........................................ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from , 1994 to the date of
delivery.
(2) Before deducting expenses payable by the Company, estimated at $ .
The Senior Notes are offered subject to receipt and acceptance by the
Underwriter, to prior sale and to the Underwriter's right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the Senior Notes will be made at the office of
Salomon Brothers Inc, Seven World Trade Center, New York, New York or through
the facilities of The Depository Trust Company, on or about , 1994.
_____________________
SALOMON BROTHERS INC
- --------------------------------------------------------
The date of this Prospectus is , 1994.
<PAGE>
INSERT PICTURES
2
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR NOTES
AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Securities and Exchange
Commission (the "Commission") by Rohr pursuant to the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), are incorporated herein by reference
and made a part hereof:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
July 31, 1993; and
(2) The Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended October 31, 1993 and January 30, 1994.
Each document filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Offering made hereby shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such document.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER OF SENIOR NOTES, TO WHOM THIS PROSPECTUS IS DELIVERED, UPON
THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL OF THE
DOCUMENTS WHICH HAVE BEEN INCORPORATED BY REFERENCE IN THIS PROSPECTUS (OTHER
THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY
REFERENCE INTO SUCH DOCUMENTS). SUCH REQUESTS SHOULD BE DIRECTED TO: ROHR,
INC., ATTN.: SHAREHOLDER SERVICES, P.O. BOX 878, CHULA VISTA, CALIFORNIA 91912-
0878, (619) 691-2808.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-3 (together with all
amendments and exhibits thereto, the "Registration Statement") with the
Commission under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Securities. This Prospectus does not contain all of the
information set forth in such Registration Statement, certain portions of which
have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, files
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information can be inspected, without
charge, and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
the following regional offices of the Commission: Chicago Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and New York Regional Office, 7 World Trade Center, 13th Floor,
New York, New York 10048. Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.
Washington, D.C. 20549, at prescribed rates. Such reports, proxy statements and
other information can also be inspected at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005 and The Pacific Stock
Exchange Incorporated, 301 Pine Street, San Francisco, California 94104.
3
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
3--1
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere or incorporated by reference in this Prospectus. Investors should
carefully consider the information set forth under the heading "Risk Factors."
Market discussions and references to aircraft production exclude consideration
of markets in the former U.S.S.R.
THE COMPANY
Rohr, Inc. ("Rohr" or the "Company") designs, develops, manufactures, sells
and supports complete nacelle and pylon systems for large aircraft engines. The
Company has over 50 years of experience in the aerospace industry and is the
leading independent supplier of nacelle and pylon systems to the world's major
commercial airframe and engine manufacturers ("OEMs"). Rohr manages projects
from the early design stage through production and systems integration to
lifetime customer support. In addition, the Company has the right to provide
customer and product support directly to approximately 145 airlines around the
world, including on-site field services and the sale of spare parts.
Nacelles are aerodynamic structures which surround jet engines. A nacelle
system generally includes the nose cowl or inlet, fan cowl, nozzle systems,
thrust reverser and engine build-up ("EBU"). Pylons (sometimes referred to as
struts) are the structures that attach the jet engines to the aircraft. Nacelle
and pylon systems are highly engineered, critical to fuel efficiency and
integral to all of the key interfaces between the jet engine and the airframe.
The Company believes that it is competitively well-positioned in its core
business. Management estimates that the Company supplied approximately 45% of
the nacelle systems and 25% of the pylons for all large commercial aircraft
produced worldwide in 1993, including products represented on the Boeing 737,
747, 757 and 767, the Airbus A300, A310, A320, A321, A330 and A340, and the
McDonnell Douglas MD-80 and MD-11. The Company attributes its strong market
position to its leading technologies, its focus on a specific product line and
its competitive cost structure. Management believes that this market position
is protected by (i) Rohr's long-term contracts, including some "life-of-
program" agreements, (ii) the substantial costs required for the airframe or
engine OEMs to change supply sources, (iii) the significant up-front design,
development, tooling and certification costs which must be borne before
production on a program may begin and (iv) a strong reluctance by airlines to
support different nacelle systems manufactured by more than one supplier.
Rohr's management intends to maintain the Company's leading market position
by supplying its customers with high-quality, technically-advanced products at
competitive prices while improving profitability and returns to investors.
Management plans to accomplish this goal by (i) focusing on its core product
line and on customer satisfaction, (ii) continuing to reduce costs and improve
productivity, (iii) capitalizing on past investments in product lines and fixed
assets and (iv) implementing a financing plan to improve the Company's capital
structure and liquidity.
Focus on Core Business: Over the past year, the Company has increased its
focus on its core business within the commercial aerospace industry--the design
and manufacture of nacelle and pylon systems for large commercial aircraft. The
Company intends to focus exclusively on these products and to be the low cost
producer in this segment. The Company is currently in negotiations to sell two
non-core businesses, its business jet product line and its overhaul and repair
business. These two businesses generated approximately $35 million of revenue
in fiscal 1993.
4
<PAGE>
In April 1993, Robert H. Rau was recruited from outside the Company and
appointed President and Chief Executive Officer. Under his leadership, new
management has placed increased emphasis on enhancing its customers'
satisfaction. Management believes these efforts have contributed to the strong
relationships that the Company currently has with customers.
Cost Improvement Program: New management has taken aggressive actions to
increase competitiveness, improve earnings, maximize cash flow and reduce debt.
From April 30, 1993 (the end of the third quarter of fiscal 1993) to January
30, 1994 (the end of the second quarter of fiscal 1994), total employment was
reduced over 30% from 7,450 employees to 5,154. The ratio of indirect employees
to direct employees has improved from 1-to-2.0 to 1-to-2.6 over this same time
frame. Management has targeted a ratio of 1-to-2.8 by July 31, 1994. Management
has established a total overhead expense budget equal to 29% of sales for
fiscal 1994, which compares to a high of 41% of sales in fiscal 1989 and 32% of
sales for the 12 months ended January 30, 1994. Total overhead peaked at $477
million in fiscal 1991, was reduced to $327 million for the 12 months ended
January 30, 1994, and is budgeted for $267 million in fiscal 1994.
Coincident with these overhead reductions, the Company has increased its
effort to streamline its operations and reduce material costs. To reduce excess
capacity and to increase overall production efficiencies through higher
utilization of its remaining facilities, the Company has closed the Auburn,
Washington plant, is closing the Hagerstown, Maryland plant and has deferred
completion of a new facility in Arkadelphia, Arkansas.
Modest Future Investment Requirements: During the five-year period ended July
31, 1993, the Company invested significantly in the design, development,
tooling, certification and other start-up costs associated with new aircraft
programs. Although the Company intends to aggressively pursue all important new
nacelle programs, management anticipates that few program introductions will be
made by airframe and engine manufacturers during the next five years.
Management believes that this slow down in new product introductions will
enable the Company to focus on efficiencies in existing programs, protect its
current market share and generate increased cash flow without the investments
required for new product development.
In addition, capital expenditures (including expenditures funded by
industrial revenue bonds and capital leases) averaged $45 million per year over
the past five fiscal years. During that period, the Company spent $109 million
for upgraded production and office facilities. No new facilities will be
required over the next five years. Management anticipates that capital
expenditures will total approximately $7 million in fiscal 1994 and that
capital expenditures over the subsequent four years will average less than $20
million per year.
Financing Plan: The Company has adopted a financing plan to enhance its
liquidity, extend the maturity of its bank credit facility and improve its
financial flexibility. The financing plan is comprised of three components: (i)
amendments to a three-year revolving credit agreement (the "Revolving Credit
Agreement"), providing an initial commitment of $110 million, (ii) amendments
to certain other financing agreement and (iii) the offering of $100 million of
Senior Notes and the offering of $50 million of Convertible Subordinated Notes
(assuming no exercise of the Underwriter's over-allotment option).
5
<PAGE>
RECENT FINANCIAL PERFORMANCE
The Company believes that its performance for the three most recent fiscal
quarters represents meaningful evidence of the Company's financial turnaround.
For the nine-month period ended January 30, 1994, the Company recorded an
operating profit margin of 6.0%, net income margin of 1.1% and EBITDA of $62.7
million. During the same nine-month period, the Company generated $78.1 million
in cash from operating activities and reduced total financings (debt plus off-
balance sheet financings) by $94.4 million from $681.4 million at May 2, 1993
to $587.0 million at January 30, 1994.
SELECTED UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JULY 31, 1994 FISCAL YEAR ENDED JULY 31, 1993
----------------- ----------------------------------------
SECOND FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Operating Income (Loss). $ 14,594 $ 17,064 $ 12,710 $(23,367) $ (7,534) $ 16,503
Operating Margin........ 6.1% 7.0% 5.0% (7.9)% (2.2)% 5.8%
EBITDA(1)............... $ 20,642 $ 22,709 $ 19,314 $ 7,959 (2) $ (1,330) $ 22,947
Capital Expenditures.... 1,474 1,475 4,647 4,011 6,993 11,885
Cash Provided by (Used
In) Operating Activi-
ties................... 27,284 17,644 33,168 81,071 (19,814) (15,757)
Total Financings(3)..... $586,982 $618,380 $643,855 $681,412 $740,490 $601,987
Employee Data:
Direct Employees....... 3,727 4,081 4,334 4,994 5,823 6,047
Indirect Employees..... 1,427 1,705 2,130 2,456 2,678 2,795
-------- -------- -------- -------- -------- --------
Total Employees...... 5,154 5,786 6,464 7,450 8,501 8,842
</TABLE>
- --------
(1) EBITDA represents earnings before the cumulative effect of the accounting
changes, interest and other income, interest expense, taxes on income
(benefit), depreciation, amortization and the impact of the special
provisions referred to in note (2) below. EBITDA is presented here to
provide additional information about the Company's ability to meet its
future debt service, capital expenditure, and working capital requirements
and should not be construed as a substitute for or a better indicator of
results of operations or liquidity than net income or cash flow from
operating activities computed in accordance with generally accepted
accounting principles.
(2) EBITDA is adjusted for the impact of the net provision of $25.0 million for
plant closure, inventory obsolescence and other asset valuation, other
costs related to the planned consolidation process and various items of
litigation.
(3) Includes off-balance sheet financings. See "Capitalization."
----------------
The Company's principal executive offices are located at 850 Lagoon Drive,
Chula Vista, California. The Company's mailing address is P. O. Box 878, Chula
Vista, California 91912-0878, and its telephone number is (619) 691-4111.
6
<PAGE>
THE OFFERING
Issue....................... $100,000,000 principal amount of % Senior
Notes due 2003.
Maturity.................... , 2003.
Interest Payment Dates...... and of each year,
commencing , 1994.
Optional Redemption......... The Senior Notes are redeemable, at the Company's
option, in whole or from time to time in part, on
and after , 1999, at the redemption prices
specified herein, plus accrued interest. See
"Description of Senior Notes--Optional
Redemption."
Ranking..................... The Senior Notes will be general unsecured
obligations of the Company ranking senior in
right of payment to all existing and future
subordinated indebtedness of the Company and pari
passu in right of payment with the Company's
other existing and future senior indebtedness.
The Senior Notes will be effectively subordinated
to all indebtedness and other liabilities of the
Company's subsidiaries. As of January 30, 1994,
after giving effect to the Offerings and the
anticipated use of proceeds therefrom, the
Company would have had approximately $157.8
million of pari passu indebtedness (excluding the
Senior Notes) and $315 million of subordinated
indebtedness outstanding (assuming no exercise of
the Underwriter's over-allotment option). In
addition, there would have been approximately
$32.7 million of indebtedness and other
liabilities of the Company's subsidiaries at such
date.
Change of Control........... In the event of a Change of Control, the Company
will be required, subject to certain conditions
and limitations, to offer to purchase all Senior
Notes then outstanding at a purchase price equal
to 101% of the aggregate principal amount of the
Senior Notes plus accrued and unpaid interest to
the date of purchase. There can be no assurance
that the Company will have sufficient cash to pay
the Change of Control purchase price in the event
that a Change of Control occurs. See "Description
of Senior Notes--Change of Control."
Sale of Assets.............. The Company may be required, subject to certain
conditions and limitations, to offer to purchase
certain of the Senior Notes at 100% of the
aggregate principal amount thereof, plus accrued
and unpaid interest, in the event of an Asset
Sale (as defined). See "Description of Senior
Notes--Certain Covenants--Limitation on Sale of
Assets."
Certain Covenants........... The Indenture will contain certain covenants,
which, among other things, will limit the
Company's ability to incur additional
indebtedness, pay dividends, make certain other
distributions and create liens, sell assets,
enter into certain transactions
7
<PAGE>
with affiliates or merge, consolidate or transfer
substantially all of its assets. The provisions
of the Indenture would not necessarily afford
holders of the Senior Notes protection in the
event of a highly leveraged transaction,
reorganization, restructuring, merger or similar
transaction that may adversely affect the holders
of Senior Notes. See "Description of Senior
Notes--Certain Covenants."
Use of Proceeds............. Proceeds from the sale of the Senior Notes will
be used to repay all outstanding amounts under
the Company's Revolving Credit Agreement to the
extent necessary after application of the net
proceeds of the offering of Convertible
Subordinated Notes, and for general corporate
purposes. See "Use of Proceeds."
Risk Factors................ An investment in the Senior Notes involves a
significant degree of risk. For a discussion of
certain material factors to be considered by
potential investors, see "Risk Factors."
Concurrent Offering......... The Company is concurrently offering, pursuant to
a separate prospectus, $50 million in aggregate
principal amount of Convertible Subordinated
Notes (assuming no exercise of the Underwriter's
over-allotment option). See "Description of
Concurrent Financing." The sale of the Senior
Notes will be conditioned on the simultaneous
sale of the Convertible Subordinated Notes.
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth a summary of selected financial and operating
data of the Company for each of the periods indicated in the five-year period
ended July 31, 1993, which were derived, except as otherwise noted, from the
audited Consolidated Financial Statements of the Company. The table also sets
forth selected financial and operating data for the six-month periods ended
January 30, 1994, and January 31, 1993, which were derived from unaudited
interim Consolidated Financial Statements of the Company.
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31,
------------------- ---------------------------------------------------------------
JAN. 30, JAN. 31,
1994 1993 1993(A) 1992 1991 1990 1989
-------- --------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales......................... $484,823 $626,004 $1,175,152 $1,279,656 $1,385,086 $1,078,712 $1,044,677
Operating Income (Loss)....... 31,658 8,969 (1,688)(b) 45,558(c) 100,578 31,605 75,044
Income (Loss) Before Taxes and
Cumulative Effect of
Accounting Changes........... 7,977 (13,801) (49,571) (17,815) 46,877 (9,001) 46,080
Income (Loss) Before
Cumulative Effect of
Accounting Changes........... 7,735 (8,515) (30,581) 1,455 30,517 39 33,480
Net Income (Loss)............. 7,735 (232,465)(d) (254,531)(d) 1,455 30,517 39 33,480
Net Income (Loss) Per Share:
Income (Loss) Before
Cumulative Effect of
Accounting Changes.......... $ 0.43 $ (0.48) $ (1.71) $ 0.08 $ 1.74 $ 0.00 $ 1.90
Net Income (Loss)(d)......... $ 0.43 $ (13.00) $ (14.21) $ 0.08 $ 1.74 $ 0.00 $ 1.90
BALANCE SHEET DATA AT
PERIOD END:
Working Capital............... $358,453 $ 447,476 $ 350,321 $ 700,774 $ 712,520 $ 640,461 $ 549,799
Property, Plant and Equipment,
Net.......................... 230,849 245,948 239,045 270,283 237,434 234,166 204,911
Total Assets.................. 967,566 1,130,164 1,017,786 1,363,958 1,411,498 1,329,308 1,166,828
Total Debt(e)................. 483,425 628,243 531,608 572,594 636,070 551,227 426,390
Total Shareholders' Equity.... 190,229 217,336 182,243 448,866 441,401 413,713 412,387
OTHER DATA:
EBITDA(f)..................... $ 43,351 $ 21,617 $ 48,890 $ 123,413 $ 128,299 $ 58,645 $ 99,880
Capital Expenditures(g)....... 2,949 18,878 27,536 62,933 32,383 28,923 39,005
Ratio of Earnings to Fixed
Charges(h)................... 1.31x 0.40x 0.01x 0.72x 1.81x 0.83x 2.27x
EBITDA to Interest Expense(f). 1.79x 0.93x 1.00x 1.84x 2.34x 1.09x 3.13x
PRO FORMA DATA TO REFLECT
ACCOUNTING CHANGES
(UNAUDITED)(I):
Pro Forma Net Income
(Loss)(i).................... $ 7,735 $ (8,515) $ (30,581) $ (36,271) $ (22,898) $ (58,469) $ (8,680)
Pro Forma Net Income (Loss)
per Share.................... 0.43 (0.48) (1.71) (2.05) (1.31) (3.29) (0.49)
Pro Forma EBITDA(f)(j)........ 43,351 21,617 48,890 62,269 41,727 (36,182) 31,549
ADJUSTED DATA TO REFLECT
OFFERINGS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGES
(UNAUDITED)(K):
Net Income (Loss)............. $ 4,679 $ (35,955)
Net Income (Loss) per Share... 0.26 (2.01)
Ratio of Earnings to Fixed
Charges(h)(l)................ 1.09x 0.01x
EBITDA to Interest Expense(f). 1.50x 0.86x
</TABLE>
9
<PAGE>
- --------
(a) Fiscal 1993 results reflect the Company's adoption, in the third quarter,
of changes to certain elements in the application of accounting principles
relating to long-term programs and contracts, including the expensing of
general and administrative costs that were previously carried in inventory
for amortization over future deliveries. The amounts also reflect the
Company's adoption of SFAS No. 106, "Employers' Accounting for Post-
Retirement Benefits Other Than Pensions," and SFAS No. 109, "Accounting for
Income Taxes." The accounting changes described above were effective August
1, 1992. As a result, periods prior to August 1, 1992 are not comparable.
(b) Includes the impact of net provisions of $25.0 million for plant closure,
inventory obsolescence and other asset valuations, other costs related to
the planned consolidation process and various items of litigation. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations--Fiscal 1993 Compared to Fiscal 1992."
The impact of the accounting change on fiscal 1993 was a reduction to
operating profit of $39.9 million.
(c) Includes the impact of special provisions approximately $50.0 million for
the termination of the Lockheed C-5 spare pylon program, the Valsan 727 re-
engining program, an investigation by government agencies concerning
production of parts and a provision for the closing of the Auburn plant.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations--Fiscal 1992 Compared to
Fiscal 1991."
(d) In the third quarter of fiscal 1993, the Company changed certain of its
accounting principles as described in note (a) above. These changes
required the Company to calculate the effect of the change in accounting
principles on retained earnings as of the first day in the fiscal year of
change.
(e) Excludes off-balance sheet financing. See "Capitalization."
(f) EBITDA is defined as earnings before the cumulative effect of the
accounting changes, interest and other income, interest expense and taxes
on income (benefit) and depreciation, amortization and the impact of the
special provisions referred to in notes (b) and (c) above. EBITDA is
presented here to provide additional information about the Company's
ability to meet its future debt service, capital expenditure, and working
capital requirements and should not be construed as substitute for or a
better indicator of results of operations or liquidity than net income or
cash flow from operating activities computed in accordance with generally
accepted accounting principles.
(g) Includes capitalized interest; excludes additions to property, plant and
equipment financed by industrial revenue bonds and capital leases.
(h) For purposes of determining the ratio of earnings to fixed charges, the
term "earnings" represents income (loss) before cumulative effect of
accounting changes, plus income tax (benefit) and fixed charges excluding
capitalized interest. The term "fixed charges" represents interest expense,
capitalized interest, amortization of debt issue expense and the portion of
operating lease rental expense considered to be representative of an
interest factor. Historical earnings were insufficient to cover fixed
charges by $14,886 for the six months ended January 31, 1993 and $51,184
for fiscal 1993, $19,312 for fiscal 1992 and $9,604 for fiscal 1990.
(i) The Pro Forma Data to Reflect Accounting Changes (Unaudited) assumes the
changes in the application of accounting principles for long-term programs
and contracts adopted by the Company effective August 1, 1992, are applied
retroactively. The pro forma amounts presented also reflect the retroactive
application of SFAS No. 109, "Accounting for Income Taxes" to the periods
presented--periods which predate both the Company's adoption of SFAS No.
109 and the release of that standard. Tax benefits arising pursuant to SFAS
No. 109, "Accounting for Income Taxes", are allocated ratably over the pro
forma restated periods. The pro forma restated effect of the Company's
adoption of SFAS No. 106, "Employers' Accounting for Post-Retirement
Benefits Other Than Pensions" are not material and are not presented. The
pro forma financial data should not be considered indicative of actual
results that would have been achieved had the accounting changes adopted by
the Company effective August 1, 1992 been in effect for the periods
indicated and do not purport to indicate results of operations as of any
future date or for any future period. The following information should be
read in conjunction with "Selected Consolidated Financial and Operating
Data," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the "Consolidated Financial Statements of Rohr,
Inc. and Subsidiaries" and the Notes thereto, included elsewhere in this
Prospectus.
10
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31,
----------------- ----------------------------------------------------------------
JAN. 30, JAN. 31,
1994 1993 1993 1992 1991 1990 1989
-------- -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA INCOME STATE-
MENT DATA (UNAUDITED):
Sales.................. $484,823 $626,004 $1,175,152 $1,279,656 $1,385,086 $1,078,712 $1,044,677
Cost and Expenses...... 439,719 594,568 1,133,040 1,242,240 1,321,792 1,092,150 996,313
General and Adminis-
trative Expenses(a)... 13,446 22,467 43,800 53,002 49,288 49,784 41,651
-------- -------- ---------- ---------- ---------- ---------- ----------
Operating Income
(Loss)................ 31,658 8,969 (1,688)(b) (15,586)(c) 14,006 (63,222) 6,713
Interest Net........... 23,681 22,770 47,883 63,373 53,701 40,606 28,964
-------- -------- ---------- ---------- ---------- ---------- ----------
Income (Loss) before
Taxes................. 7,977 (13,801) (49,571) (78,959) (39,695) (103,828) (22,251)
Taxes (Benefit) on
Income................ 242 (5,286) (18,990) (42,688) (16,797) (45,359) (13,571)
-------- -------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss).... $ 7,735 $ (8,515) $ (30,581) $ (36,271) $ (22,898) $ (58,469) $ (8,680)
======== ======== ========== ========== ========== ========== ==========
</TABLE>
- --------
(j) The calculation of pro forma EBITDA is shown below (unaudited):
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31,
----------------- ---------------------------------------------------
JAN. 30, JAN. 31,
1994 1993 1993 1992 1991 1990 1989
-------- -------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Income, as
Reported............... $31,658 $ 8,969 $(1,688)(b) $ 45,558 (c) $100,578 $ 31,605 $75,044
Less Changes in the Ap-
plication of Account-
ing Principles for
Long-Term Programs and
Contracts............. -- -- -- 61,144 86,572 94,827 68,331
------- ------- ------- -------- -------- -------- -------
Pro Forma Operating In-
come (Loss)............ 31,658 8,969 (1,688) (15,586) 14,006 (63,222) 6,713
Add Depreciation and
Amortization........... 11,693 12,648 25,578 27,855 27,721 27,040 24,836
------- ------- ------- -------- -------- -------- -------
Pro Forma Earnings...... 43,351 21,617 23,890 12,269 41,727 (36,182) 31,549
Add Special Provisions.. -- -- 25,000 50,000 -- -- --
------- ------- ------- -------- -------- -------- -------
Pro Forma EBITDA........ $43,351 $21,617 $48,890 $ 62,269 $ 41,727 $(36,182) $31,549
======= ======= ======= ======== ======== ======== =======
</TABLE>
- --------
(k) The unaudited adjusted data to reflect the Offerings assumes the financial
data has been adjusted for the effect of the Offerings and the
corresponding repayment of the outstanding balance under the Revolving
Credit Agreement and short-term bank debt as of the first day of each
fiscal period, and assumes no exercise of the Underwriter's over-allotment
option.
(l) Ratio of earnings to fixed charges as adjusted to reflect the Offerings,
reflects the issuance of Senior Notes and the Convertible Subordinated
Notes (assuming no exercise of the underwriter's over-allotment option) and
the application of proceeds therefrom, as if the Offerings had been
consummated as of the first day of each fiscal period. On such basis,
earnings were insufficient to cover the pro forma fixed charges by $59,894
for fiscal 1993.
11
<PAGE>
RISK FACTORS
An investment in the Securities involves a significant degree of risk. A
prospective investor should consider carefully all of the information contained
in this Prospectus before deciding whether to purchase the Securities and, in
particular, should consider the following:
HIGH LEVERAGE; DEBT SERVICE REQUIREMENTS
The Company is highly leveraged. At January 30, 1994, after giving pro forma
effect to the sale of the Securities and the repayment of certain indebtedness
with a portion of the estimated net proceeds of the Offerings, the Company
would have had consolidated total financings of approximately $687.0 million
(including $583.4 million of indebtedness and $103.6 million of off-balance
sheet sale-leaseback and accounts receivable financings and assuming no
exercise of the Underwriter's over-allotment option) and $123.1 million of
cash. See "Capitalization" and "Use of Proceeds." At January 30, 1994, the
Company's shareholders' equity was approximately $190.2 million, which does not
reflect certain anticipated charges to shareholders' equity in connection with
the Company's underfunded pension plans. In addition, at January 30, 1994, the
Company had a $102.6 million net deferred tax asset recorded in accordance with
SFAS No. 109, "Accounting for Income Taxes." See "--Deferred Tax Assets" and"--
Underfunded Pension Plans."
The Company has reported net income for each of the last three fiscal
quarters. On a pro forma basis, however, after giving effect to the accounting
changes adopted by the Company effective August 1, 1992, the Company would have
reported losses for each of the last five fiscal years and its pro forma
earnings would have been insufficient to cover fixed charges for each of such
fiscal years. See "Selected Consolidated Financial and Operating Data." The
Company's ability to make interest payments on the Securities and its other
financing obligations depends upon its future financial performance, including
earnings and cash flow from operations. On an adjusted basis, after giving
effect to the issuance of the Securities and the application of the proceeds
therefrom (assuming no exercise of the Underwriter's over-allotment option),
earnings (pre-tax income plus fixed charges) would have been $59.9 million less
than the adjusted fixed charges (which represent interest expense, capitalized
interest, amortization of debt issue expense and the portion of operating lease
rental expense considered to be representative of an interest factor) in fiscal
1993. For the six months ended January 30, 1994, however, adjusted earnings
would have been $2.7 million greater than adjusted fixed charges. Available
cash flow to service debt could be adversely affected by certain pension
funding requirements. See "--Underfunded Pension Plans." The degree to which
the Company is leveraged could have important consequences to holders of the
Securities, including the following: (1) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures or
general corporate purposes may be impaired; (2) a substantial portion of the
Company's cash flow from operations must be dedicated to the payment of
interest on its indebtedness; and (3) the Company's leverage may make it more
vulnerable to future economic downturns and may limit its ability to withstand
competitive pressures. Based upon current levels of operations and anticipated
future business, the Company believes that cash flow from operations together
with available cash, borrowings under the Revolving Credit Agreement and other
sources of liquidity, will be adequate to meet the Company's anticipated
requirements for working capital, capital expenditures, interest payments and
scheduled principal payments. There can be no assurance, however, that the
Company's business will continue to generate cash flow at or above current
levels. If the Company is unable to generate sufficient cash flow from
operations in the future, it may be required to refinance all or a portion of
its existing debt or to obtain additional financing. There can be no assurance
that any such refinancing would be possible or that any additional financing
could be obtained on terms that are favorable or acceptable to the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
UNDERFUNDED PENSION PLANS
The Company has substantial obligations related to its defined benefit
pension plans (the "Pension Plans"). As of July 31, 1993, the Company's
actuaries have determined that the Pension Plans were
12
<PAGE>
underfunded by $65.6 million on an ongoing plan basis. The underfunding
resulted from a combination of factors, including benefit increases, increased
levels of early retirement, less than actuarially-assumed returns on plan
assets and a reduction in the discount rate used to calculate the present value
of future liabilities of the Pension Plans for financial reporting purposes.
The Company is currently assessing certain additional decisions and actions
affecting the Pension Plans. It is anticipated that the unfunded liabilities
with respect to the Pension Plans will be increased by approximately $75
million on an ongoing basis due to an anticipated reduction in the discount
rate used to calculate the present value of future liabilities under the
Pension Plans from 8.5% to 7.5% and to a higher-than-previously-expected level
of early retirements. As a result of the anticipated increase in the unfunded
liabilities, the Company expects to take a direct charge to shareholders'
equity estimated at $45 million and to increase its deferred tax account by
approximately $30 million. In addition, the Company and its actuaries are
evaluating the extent to which the downsizing of personnel may necessitate the
expensing of certain unamortized pension benefit past service costs related to
the terminated employees. This would not increase the underfunded status of the
Pension Plans, but would result in an additional charge to earnings for
financial statement purposes. The Company expects that the evaluation of the
above described items and the recognition of the financial impact will be
completed by the end of the third quarter of fiscal 1994. Concurrent with the
consummation of the Offerings, the financial covenants in several of the
Company's principal financing agreements will be amended to accommodate the
anticipated impact of these matters on its reported financial results. See
"Description of Certain Financings."
IRS regulations will require the Company to increase its contribution to the
Pension Plans. Consistent with these IRS requirements, it is the Company's
current intention to have the Pension Plans fully funded within approximately
five years. The Company's minimum cash contributions to its Pension Plans,
based on current IRS regulations, are therefore expected to increase from the
current level of approximately $17 million in fiscal 1994 to an average of
approximately $35 million per year in fiscal years 1995, 1996 and 1997 and to
decline thereafter. The Company expects to have sufficient liquidity to make
these contributions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." In
addition, minimum cash contributions for these years may increase as a result
of legislation which has been introduced in Congress. The prospects for the
passage of such legislation are uncertain.
The calculation of the amount of underfunding of the Pension Plans for
financial reporting and IRS minimum funding purposes assumes continued
employment with projections for retirements, mortality, resignations and
discharges and also includes assumptions relating to the discount rate, plan
asset values and other matters. The Company and its actuaries review these
assumptions on a regular basis. If it were to become necessary to make
additional reductions in the discount rate, or to make certain other changes in
the existing assumptions, the Pension Plans' liabilities and underfunded status
might be increased. Such changes could adversely affect the Company because of
the increase in recorded liabilities, decreases in shareholders' equity and
increases in IRS minimum funding requirements.
INDUSTRY CYCLES; CURRENT BUSINESS OUTLOOK
The commercial aerospace industry is a cyclical business and the demand by
commercial airlines for new aircraft is highly dependent upon a variety of
factors, which historically have been related to the stability and health of
the United States and world economies. The industry typically lags behind the
general economic cycle because it can take up to two years to manufacture an
aircraft. Although the United States economy entered a period of slow growth
and recession in 1989 and 1990, the aerospace industry made record deliveries
of large commercial aircraft, by revenue, during these years. In fact, aircraft
deliveries continued to grow through 1991 and only decreased slightly in 1992.
In 1990 through 1992, United States scheduled airlines suffered record
operating losses of more than $2 billion per year. Non-United States scheduled
airlines also reported significantly reduced profits during this period. As a
result of the losses incurred by the airlines, the high levels of debt incurred
to
13
<PAGE>
purchase new aircraft and the excess capacity within the commercial airline
sector, airlines and leasing companies deferred existing orders for new
aircraft to an unprecedented extent and, to a lesser degree, canceled such
orders. All of the Company's major customers received numerous requests for
deferrals and cancellations from the airlines and leasing companies and slowed
their aircraft delivery rates. In response to the deferrals and cancellations
from their customers, airframe and engine manufacturers reacted by rescheduling
future production levels, laying off workers and passing production slow-downs
on to their customers, including the Company. The large number of aircraft
delivered over the last several years has created an excess capacity in the air
carrier system, as evidenced by the fact that a substantial number of new and
used aircraft are currently inactive. Reactivated aircraft could replace or
postpone new aircraft deliveries in the future. The Company expects that orders
from and deliveries of large commercial aircraft will continue to be affected
through calendar 1995 by the adverse United States and world economic
conditions which have existed in recent periods. It appears, however, that the
health of the airline industry is improving. In calendar 1993, United States
scheduled airlines reported operating income of approximately $1 billion. There
can be no assurance that the improved operating health of the commercial
airlines will continue or that deliveries of large commercial aircraft will not
continue to be affected beyond calendar 1995.
In connection with the current contraction in the commercial aircraft
industry, subcontractors such as Rohr have been experiencing pressures from
their customers to reduce prices. The Company, in turn, is exerting similar
pressure on its own suppliers to reduce prices and thus enable the Company to
manufacture products at lower costs. There can be no assurance that such
reductions in prices by Rohr's suppliers will be achieved. See "Business--
Markets."
RECOVERY OF PROGRAM INVESTMENTS
The development of a new aircraft, or a variation of an existing aircraft,
requires significant investments for pre-production costs such as design and
engineering, tooling, testing and certification. Competitive pressures forced
suppliers such as the Company to bear a significant amount of the cost and
investment risk associated with the large number of new programs under
development in the 1980s. During this period, the Company also experienced
substantial production inventory increases as it began to produce and deliver
products under new programs.
In response to these competitive market pressures, the Company agreed on
several of its significant contracts to finance a substantial portion of its
pre-production costs, with such costs to be recovered ratably as a specified
number of units, including spare equivalents, are sold. As a result of these
agreements, the Company's inventory included $199.4 million of capitalized pre-
production costs at January 30, 1994. See "Notes to the Consolidated Financial
Statements--Note 4." On some of these contracts, the prime contractor has
agreed to pay the Company for a portion of its pre-production costs if a
specified number of units is not sold by an agreed upon date or if the contract
is terminated before the specified number of units is delivered. However, on
other programs, the Company agreed, based upon its market analysis, to amortize
its pre-production costs over a specified number of units without receiving
such reimbursement protections from its customer if the specified number of
units is not sold. Based on its analysis of the demand for specific products,
the Company has also agreed on certain programs to a unit price which may not
be profitable, even after recovery of pre-production costs, if fewer units are
sold than the Company assumed for pricing purposes. If the Company's market
analysis with respect to these programs is incorrect, the Company could incur
substantial losses with respect to these programs. See "Business--Contracts,"
"Business--Program Funding" and "Notes to the Consolidated Financial
Statements--Notes 1.c and 4."
DEFERRED TAX ASSET
SFAS No. 109, "Accounting for Income Taxes," requires businesses to recognize
possible future tax benefits if it is "more likely than not" that the tax
benefits will be realized. Under this standard, on January 30, 1994, the
Company had a net deferred tax asset of $102.6 million, consisting of $85.4
14
<PAGE>
million for federal tax purposes and $17.2 million for state tax purposes.
(This net deferred tax asset is anticipated to increase by an additional $30
million in the third quarter of the current fiscal year as a result of an
increase in the Company's underfunded pension liabilities.) Based on current
tax rates, the Company must generate approximately $286 million of future
taxable income (net of $240 million of taxable income that the Company will
report as a result of the automatic reversal of existing taxable temporary
differences between asset and liability values for financial reporting and
income tax purposes) prior to the expiration of the Company's net operating
loss carryforwards ("NOLs") in 2003 through 2008 for full realization of the
net deferred tax asset. After the anticipated third quarter increase in the net
deferred tax asset, the amount of future taxable income the Company must
generate will be approximately $360 million. As with its other assets, the
Company will regularly re-evaluate the value of its net deferred tax asset. If
the Company were to determine that full realization of this asset is no longer
"more likely than not," it would be required to reduce the value of the asset
by establishing a valuation allowance. Such an allowance would reduce the
Company's earnings in the relevant period and, if it causes a loss in such
period, would reduce shareholders' equity. In addition, reductions in state or
federal tax rates, or limitations on the use of NOLs, as well as adjustments
resulting from any audit of the Company's tax returns, could reduce the value
of the Company's net deferred tax asset, again affecting earnings and
shareholders' equity. See "--Underfunded Pension Plans," "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Income Taxes" and "Notes to the Consolidated Financial Statements--Note 6."
RESTRICTIVE COVENANTS
The Company's major financing agreements, as amended effective upon the
completion of the Offerings, require it to maintain specified financial
covenants, including a minimum Consolidated Tangible Net Worth (as defined in
such agreements to include the Company's net deferred tax asset), a minimum
ratio of Consolidated Net Income Available for Fixed Charges to Fixed Charges
(as defined in such agreements) and a maximum ratio of Debt (as defined in such
agreements to include the Company's underfunded pension liabilities) to
Consolidated Tangible Net Worth (each as defined in such agreements). Covenants
in these agreements also impose additional requirements on the Company,
including restrictions on its ability to create liens, enter into leases,
engage in mergers, consolidations and acquisitions, sell assets, declare and
pay dividends, acquire company securities, and change the nature of its
business. A failure by the Company to maintain such financial ratios or to
comply with the restrictions contained in its Revolving Credit Agreement or
other financing agreements could result in a default thereunder, which in turn
could cause such indebtedness (and by reason of cross-default provisions, other
indebtedness) to become immediately due and payable, and would prevent the
Company from drawing any further amounts under its Revolving Credit Agreement.
As a result, any such default could have a material adverse effect on the
Company and its ability to make principal and interest payments on the
Securities. See "Description of Certain Financings" and "Description of Senior
Notes."
ENVIRONMENTAL MATTERS
As an international aerospace manufacturing corporation, the Company is
subject to foreign, federal, state and local laws and regulations that limit
the discharge of pollutants into the air, soil and water and establish
standards for the treatment, storage and disposal of hazardous wastes. As a
result, the Company is involved from time to time in administrative and
judicial proceeding and inquiries related to environmental matters. These
include several currently pending matters. The Company does not believe that
its environmental risks are materially different from those of comparable
manufacturing companies. Nevertheless, the Company cannot provide assurances
that environmental issues will not adversely affect the Company's operations
and financial condition in the future. Environmental risks are generally
excluded from coverage under the Company's current insurance policies. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Legal and Environmental Matters."
15
<PAGE>
LIMITED CUSTOMER BASE
The Company conducts substantial business with each of the three major
commercial airframe manufacturers: The Boeing Company ("Boeing"), Airbus
Industrie ("Airbus") and McDonnell Douglas Corporation ("McDonnell Douglas").
In addition, the Company conducts business with each of the major commercial
jet engine manufacturers: General Electric Company ("General Electric"), Rolls-
Royce, plc ("Rolls-Royce"), United Technologies Corporation ("Pratt &
Whitney"), CFM International, Inc. (a corporation jointly owned by General
Electric and Societe Nationale d'Etude et de Construction de Moteurs
d'Aviation; "CFM International"), and International Aero Engines AG (a
corporation owned by Rolls-Royce, Pratt & Whitney, Fiat Aviazione, SpA,
Japanese Aero Engines Corporation and MTU Motoren-und Turbinen-Union Munchen
GmbH; "International Aero Engines"). Commercial products sold by the Company to
jet engine manufacturers are installed ultimately on aircraft produced by one
of the three major commercial airframe manufacturers. The Company's financial
condition and operations could be materially adversely affected if one or more
of its major customers were to reduce operations materially, shift a
significant amount of work from the Company or cease conducting operations. See
"Business."
COMPETITION
The Company's principal competition is Boeing (which, in addition to being a
customer, also manufactures nacelle systems and pylons for its own aircraft),
other significant aerospace companies who have development and production
experience with respect to portions of the nacelle system and the companies to
whom the Company has subcontracted various components and who could (and have)
bid on contracts in competition with the Company. See "Business--
Subcontractors." Military aerospace contractors are also potential competitors,
as excess capacity created by reductions in defense spending could cause some
of these contractors to look to expand in commercial markets.
Because of recent reductions in demand in the aircraft manufacturing
industry, excess production capacity exists in the market for a number of the
Company's principal products. While the Company has a significant share of the
market for commercial aircraft nacelles and pylons, there can be no assurance
that the Company can maintain its share of the market at existing levels. See
"Business-- Market Share and Competition."
REDUCED GOVERNMENT SALES
Government (military and space) sales accounted for approximately 12% of the
Company's total sales in the six months ended January 30, 1994, and 13% in the
fiscal year ended July 31, 1993. The Company expects that the percentage of
Company revenues attributable to government sales will continue to decline in
future years. The production rate for the Titan rocket motor casing program,
which accounted for 5.9% of revenues in fiscal 1993, is expected to decline
substantially in response to market demand. In addition, another company's
alternative technology casing approach may allow it to become a leading
competitor in the market for this product in the future. The Company's military
sales are primarily associated with older programs which are being phased out
of production.
RANKING OF THE SENIOR NOTES
The Senior Notes will be general unsecured obligations of the Company ranking
senior in right of payment to all existing and future subordinated indebtedness
of the Company and pari passu in right of payment with the Company's other
existing and future senior indebtedness. The Senior Notes will be effectively
subordinated to all indebtedness and other liabilities of the Company's
subsidiaries. As of January 30, 1994, after giving effect to the Offerings and
the anticipated use of the proceeds therefrom, the Company would have had
approximately $157.8 million of pari passu indebtedness (excluding the Senior
Notes) and $315 million of subordinated indebtedness outstanding (assuming no
exercise of the Underwriter's over-allotment option). None of the pari passu
indebtedness which was outstanding at January 30, 1994 was secured by assets of
the Company. In addition, there would have been approximately $32.7 million of
indebtedness and other liabilities of the Company's subsidiaries
16
<PAGE>
(excluding certain subsidiary indebtedness guaranteed by Rohr which is included
in the amount of pari passu indebtedness) and $103.6 million of off-balance
sheet sale-leaseback and accounts receivable financings outstanding. The
Company will have the ability to incur additional pari passu indebtedness,
including pursuant to its Revolving Credit Agreement under which no borrowings
are expected to be outstanding upon the completion of the Offerings.
In the event of any bankruptcy, liquidation or reorganization of the Company,
the assets of the Company will be available to pay the obligations under the
Senior Notes and any other unsecured pari passu indebtedness only after all
secured indebtedness of the Company and any other secured or priority claims,
including secured claims relating to the Company's underfunded pension
liabilities, as described below, have been paid in full. See "--Underfunded
Pension Plans" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources." After such
payments, there may not be sufficient assets remaining to pay amounts
outstanding under the Senior Notes, other unsecured pari passu indebtedness and
the Company's other unsecured and unsubordinated liabilities. In addition, the
assets of the Company's subsidiaries will be available to creditors of the
Company only after such subsidiaries obligations are satisfied in full.
Certain rights of the Pension Benefit Guaranty Corporation (the "PBGC") could
also affect the Company in connection with any such bankruptcy, liquidation or
reorganization. In general, the PBGC (an agency of the federal government)
guarantees certain benefits provided under defined benefit plans, such as the
Company's Pension Plans. If a plan is terminated (by either the sponsor or the
PBGC) and the sponsor of such plan does not pay the guaranteed benefits, the
PBGC will pay those benefits and then seek recovery of all unfunded benefits
from any company which contributes to such a plan and certain of its
affiliates. If the PBGC has a right to such a recovery, it also has a statutory
lien on all assets of such companies, up to a maximum of 30% of the net worth
of all companies liable for such amounts. Any claim in excess of the PBGC's
secured claim would be a general unsecured claim. The actuarial assumptions
used by the PBGC in assessing funding liabilities reflect a termination of the
plan rather than continued funding by the plan sponsor. This may result in a
substantially greater liability for benefits under the Company's Pension Plans
than is reflected in actuarial valuations for such plans prepared on an ongoing
basis.
ABSENCE OF PUBLIC MARKET FOR THE SECURITIES
The Securities comprise new issues of securities for which there is currently
no public market. If the Securities are traded after their initial issuance,
they may trade at a discount from their initial offering price as a result of
prevailing interest rates, the market for similar securities, the performance
of the Company and other factors. The Company does not intend to apply for the
listing of the Senior Notes on any securities exchange. Salomon Brothers Inc
(the "Underwriter") has informed the Company that its current intent is to make
a market in the Senior Notes. The Underwriter is not obligated to do so,
however, and any such market making may be discontinued at any time without
notice. The Company, therefore, cannot provide assurances as to whether an
active trading market will develop or will be maintained for the Securities.
See "Underwriting."
FINANCING PLAN
The Company has adopted a financing plan to enhance its liquidity, extend the
maturity of its Revolving Credit Agreement and improve its financial
flexibility. To meet these objectives, the Company is offering the Senior Notes
and the Convertible Subordinated Notes and, effective upon the completion of
the Offerings, amending its Revolving Credit Agreement and certain of its other
principal financing agreements.
Upon completion of the Offerings, the Company's existing unsecured Revolving
Credit Agreement will be amended to provide for an extended three-year term. As
part of this amendment, the principal financial covenants in the Revolving
Credit Agreement will be modified to provide the Company with greater financial
flexibility and to eliminate the previous requirement that the Company sell
additional subordinated debt. For a summary of the principal covenants to be
contained in the amended Revolving Credit Agreement, see "Description of
Certain Financings--Revolving Credit Agreement."
17
<PAGE>
The Company will also amend, effective upon the completion of the Offerings,
the financial covenants in the agreements governing its existing 9.35% and
9.33% Senior Notes in substantially the same manner as the financial covenants
in the Revolving Credit Agreement. For a summary of the principal covenants
contained in such agreements, see "Description of Certain Financings--9.35%
Senior Notes due 2000 and 9.33% Senior Notes due 2002."
USE OF PROCEEDS
The Company intends to use all of the net proceeds of the Convertible
Subordinated Notes offering and, to the extent necessary, a portion of the net
proceeds of the Senior Notes offering to repay, on the date of issuance of the
Securities, all of the amounts outstanding under the Company's Revolving Credit
Agreement. This repayment will not reduce the lenders' three-year commitment
under that agreement. The Revolving Credit Agreement will have an initial
availability of $110 million. As of February 28, 1994, the Company had $60
million borrowed under its Revolving Credit Agreement. The Company intends to
use the remaining net proceeds for general corporate purposes. For additional
information concerning the term, interest rate and other provisions of the
Revolving Credit Agreement, see "Description of Certain Financings--Revolving
Credit Agreement."
18
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company
and its subsidiaries as of January 30, 1994, and as adjusted to give effect to
(i) the sale of the Senior Notes, (ii) the sale of the Convertible Subordinated
Notes and (iii) the repayment of amounts outstanding under the Revolving Credit
Agreement. This table should be read in conjunction with the financial
statements and the notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JANUARY 30, 1994
-------------------
AS
ACTUAL(1) ADJUSTED
--------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash and Short-Term Investments.......................... $ 28,768 $123,068
======== ========
Debt:
Revolving Credit Agreement(2).......................... $ 50,000 $ --
9.35% Senior Notes due 2000............................ 75,000 75,000
9.33% Senior Notes due 2002............................ 62,000 62,000
Senior Notes due 2003.................................. -- 100,000
Capital leases......................................... 11,102 11,102
Convertible Subordinated Notes due 2004................ -- 50,000(3)
9.25% Subordinated Debentures due 2017................. 150,000 150,000
7.00% Convertible Subordinated Debentures due 2012..... 115,000 115,000
Other debt............................................. 20,323 20,323
-------- --------
Total Debt(4)........................................ 483,425 583,425(3)
Shareholders' Equity:
Preferred Stock, $1 par value, 10,000,000 shares
authorized, no shares issued.......................... -- --
Common Stock, $1 par value, 50,000,000 shares autho-
rized, 18,017,930 shares issued(5).................... 18,018 18,018
Additional paid-in capital............................. 102,541 102,541
Retained earnings...................................... 82,976 82,976
Minimum pension liability adjustment(6)................ (13,306) (13,306)
-------- --------
Total Shareholders' Equity........................... 190,229 190,229
-------- --------
Total Capitalization................................. $673,654 $773,654
======== ========
</TABLE>
- --------
(1) See "Notes to the Consolidated Financial Statements--Notes 7 and 10" for
additional information concerning indebtedness and shareholders' equity.
(2) Borrowings under the Revolving Credit Agreement were $60 million as of
February 28, 1994. All outstanding amounts under the Revolving Credit
Agreement will be repaid with a portion of the net proceeds of the
Offerings. See "Use of Proceeds."
(3) Assuming the Underwriter does not exercise any part of its over-allotment
option.
(4) The Company's total financings include indebtedness, shown in the table
above, and off-balance sheet financings consisting of a $60 million
accounts receivable sales facility, which is reported as a reduction to
accounts receivable, and certain sale-leaseback transactions, accounted for
as operating leases, with an outstanding balance of $50.5 million as of
January 30, 1994. At January 31, 1994, the Company had deposited
approximately $7 million of cash into a reserve fund to support the
accounts receivable facility. See "Description of Certain Financings." The
Company's total financings were $587 million at January 30, 1994, and $687
million as adjusted for the Offerings.
(5) Excludes 2,674,418 shares reserved for issuance upon conversion of the
7.00% Convertible Subordinated Debentures due 2012, 3,058,175 shares
reserved for issuance upon exercise of outstanding or issuable stock
options, and 600,000 shares reserved for issuance upon exercise of
outstanding warrants.
(6) See "Notes to the Consolidated Financial Statements--Note 9a" and "Risk
Factors--Underfunded Pension Plan."
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth the selected financial and operating data of
the Company for each of the periods indicated in the five-year period ended
July 31, 1993, which were derived, except as otherwise noted, from the audited
Consolidated Financial Statements of the Company. The table also sets forth
selected financial and operating data for the six-month periods ended January
30, 1994, and January 31, 1993, which were derived from unaudited interim
Consolidated Financial Statements of the Company.
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31,
-------------------- -------------------------------------------------------------
JAN. 30, JAN. 31,
1994 1993 1993(A) 1992 1991 1990 1989
-------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales.................. $484,823 $ 626,004 $1,175,152 $1,279,656 $1,385,086 $1,078,712 $1,044,677
Cost and Expenses...... 439,719 594,568 1,133,040 1,223,931 1,275,269 1,038,501 969,240
General and Adminis-
trative Expenses(b)... 13,446 22,467 43,800 10,167 9,239 8,606 393
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating Income
(Loss)................ 31,658 8,969 (1,688)(c) 45,558(d) 100,578 31,605 75,044
Interest--Net.......... 23,681 22,770 47,883 63,373 53,701 40,606 28,964
-------- ---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) Before
Taxes and Cumulative
Effect of Accounting
Changes............... 7,977 (13,801) (49,571) (17,815) 46,877 (9,001) 46,080
Taxes (Benefit) on In-
come.................. 242 (5,286) (18,990) (19,270) 16,360 (9,040) 12,600
-------- ---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) Before
Cumulative Effect of
Accounting Changes.... 7,735 (8,515) (30,581) 1,455 30,517 39 33,480
Cumulative Effect
Through July 31, 1992
of Accounting
Changes--Net of
Taxes(e).............. -- (223,950) (223,950) -- -- -- --
-------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss)...... $ 7,735 $ (232,465) $ (254,531) $ 1,455 $ 30,517 $ 39 $ 33,480
======== ========== ========== ========== ========== ========== ==========
Net Income (Loss) Per
Share:
Income (Loss) Before
Cumulative Effect of
Accounting Changes.. $ 0.43 $ (0.48) $ (1.71) $ 0.08 $ 1.74 $ 0.00 $ 1.90
Cumulative Effect
Through July 31,
1992 of Accounting
Changes--Net of
Taxes............... -- (12.52) (12.50) -- -- -- --
-------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss).... $ 0.43 $ (13.00) $ (14.21) $ 0.08 $ 1.74 $ 0.00 $ 1.90
======== ========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA AT
PERIOD END:
Working Capital........ $358,453 $ 447,476 $ 350,321 $ 700,774 $ 712,520 $ 640,461 $ 549,799
Property, Plant and
Equipment, Net........ 230,849 245,948 239,045 270,283 237,434 234,166 204,911
Total Assets........... 967,566 1,130,164 1,017,786 1,363,958 1,411,498 1,329,308 1,166,828
Total Debt(f).......... 483,425 628,243 531,608 572,594 636,070 551,227 426,390
Total Shareholders'
Equity................ 190,229 217,336 182,243 448,866 441,401 413,713 412,387
OTHER DATA:
EBITDA(g).............. $ 43,351 $ 21,617 $ 48,890 $ 123,413 $ 128,299 $ 58,645 $ 99,880
Depreciation and Amor-
tization.............. 11,693 12,648 25,578 27,855 27,721 27,040 24,836
Net Cash Provided by
(Used in)
Operating Activities.. 44,928 (35,571) 78,668 110,342 (62,770) (155,644) (106,747)
Capital
Expenditures(h)....... 2,949 18,878 27,536 62,933 32,383 28,923 39,005
Ratio of Earnings to
Fixed Charges(i)...... 1.31x 0.40x 0.01x 0.72x 1.81x 0.83x 2.27x
EBITDA to Interest
Expense(g)............ 1.79x 0.93x 1.00x 1.84x 2.34x 1.09x 3.13x
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31,
------------------ -----------------------------------------------
JAN. 30, JAN. 31,
1994 1993 1993(A) 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- -------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA DATA TO REFLECT
ACCOUNTING CHANGES:
(UNAUDITED)(j):
Pro Forma Net Income
(Loss)(j).................. $ 7,735 $(8,515) $(30,581) $(36,271) $(22,898) $(58,469) $(8,680)
Pro Forma Net Income (Loss)
per Share.................. $ 0.43 $ (0.48) $ (1.71) $ (2.05) $ (1.31) $ (3.29) $ (0.49)
Pro Forma EBITDA(g)(k)...... $43,351 $21,617 $ 48,890 $ 62,269 $ 41,727 $(36,182) $31,549
Pro Forma EBITDA to Inter-
est Expense................ 1.79x 0.93x 1.00x 0.93x 0.76x (l) 0.99x
ADJUSTED DATA TO REFLECT
OFFERINGS BEFORE CUMULA-
TIVE EFFECT OF ACCOUNTING
CHANGES: (UNAUDITED)(m)
Net Income (Loss)(m)........ $ 4,679 $(35,955)
Net Income (Loss) per
Share...................... $ 0.26 $ (2.01)
Ratio of Earnings to Fixed
Charges(n)................. 1.09x 0.01x
EBITDA to Interest
Expense(g)................. 1.50x 0.86x
</TABLE>
- --------
(a) Fiscal 1993 results reflect the Company's adoption, in the third quarter,
of changes to certain elements in the application of accounting principles
relating to long-term programs and contracts, including the expensing of
general and administrative costs that were previously carried in inventory
for amortization over future deliveries. The amounts also reflect the
Company's adoption of SFAS No. 106, "Employers Accounting for Post-
Retirement Benefits Other Than Pensions," and SFAS No. 109, "Accounting
for Income Taxes." The accounting changes described above were effective
August 1, 1992. As a result, periods prior to August 1, 1992 are not
comparable.
(b) Fiscal 1993 results reflect the Company's changed accounting policy to
expense general and administrative expenses as incurred; these expenses
were previously inventoried.
(c) Includes the impact of net provisions of $25.0 million for plant closure,
inventory obsolescence and other asset valuations, other costs related to
the planned consolidation process and various items of litigation. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Results of Operations--Fiscal 1993 Compared to Fiscal
1992." The impact of the accounting change on fiscal 1993 was a reduction
to operating profit of $39.9 million.
(d) Includes the impact of special provisions of approximately $50.0 million
for the termination of the Lockheed C-5 spare pylon program, the Valsan
727 re-engining program, an investigation by government agencies
concerning production of parts and a provision for the closing of the
Auburn plant. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations--Fiscal 1992
Compared to Fiscal 1991."
(e) In the third quarter of fiscal 1993, the Company changed certain of its
accounting principles as described in note (a) above. These changes
required the Company to calculate the effect of the change in accounting
principles on retained earnings as of the first day in the fiscal year of
change.
(f) Excludes off-balance sheet financing. See "Capitalization."
(g) EBITDA is defined as earnings before the cumulative effect of the
accounting changes, interest and other income, interest expense and taxes
on income (benefit) and depreciation, amortization and the impact of the
special provisions referred to in notes (b) and (c) above. EBITDA is
presented here to provide additional information about the Company's
ability to meet its future debt service, capital expenditure, and working
capital requirements and should not be construed as substitute for or a
better indicator of results of operations or liquidity than net income or
cash flow from operating activities computed in accordance with generally
accepted accounting principles.
(h) Includes capitalized interest; excludes additions to property, plant and
equipment financed by industrial revenue bonds and capital leases.
(i) For purposes of determining the ratio of earnings to fixed charges, the
term "earnings" represents income (loss) before cumulative effect of
accounting changes, plus income tax (benefit) and fixed charges excluding
capitalized interest. The term "fixed charges" represents interest
expense, capitalized interest, amortization of debt issue expense and the
portion of operating lease rental expense considered to be representative
of an interest factor. Historical earnings were insufficient to cover
fixed charges by $14,886 for the six months ended January 31, 1993 and
$51,184 for fiscal 1993, $19,312 for fiscal 1992 and $9,604 for fiscal
1990.
21
<PAGE>
(j) The Pro Forma Data to Reflect Accounting Changes (Unaudited), assumes the
changes in the application of accounting principles for long-term programs
and contracts adopted by the Company effective August 1, 1992, are applied
retroactively. The pro forma amounts presented also reflect the
retroactive application of SFAS No. 109, "Accounting for Income Taxes" to
the periods presented--periods which predate both the Company's adoption
of SFAS No. 109 and the release of that standard. Tax benefits arising
pursuant to SFAS No. 109, "Accounting for Income Taxes," are allocated
ratably over the pro forma restated periods. The pro forma restated effect
of the Company's adoption of SFAS No. 106, "Employers' Accounting for
Post-Retirement Benefits Other Than Pensions" are not material and are not
presented. The pro forma financial data should not be considered
indicative of actual results that would have been achieved had the
accounting changes adopted by the Company effective August 1, 1992 been in
effect for the periods indicated and do not purport to indicate result of
operations as of any future date or for any future period. The following
information should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations", and the
"Consolidated Financial Statements of Rohr, Inc. and Subsidiaries" and the
Notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31,
------------------ ----------------------------------------------------------------
JAN. 30, JAN. 31,
1994 1993 1993 1992 1991 1990 1989
-------- -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA INCOME
STATEMENT DATA
(UNAUDITED):
Sales.................. $484,823 $626,004 $1,175,152 $1,279,656 $1,385,086 $1,078,712 $1,044,677
Cost and Expenses...... 439,719 594,568 1,133,040 1,242,240 1,321,792 1,092,150 996,313
General and
Administrative
Expenses.............. 13,446 22,467 43,800 53,002 49,288 49,784 41,651
-------- -------- ---------- ---------- ---------- ---------- ----------
Operating Income
(loss)................ 31,658 8,969 (1,688)(c) (15,586)(d) 14,006 (63,222) 6,713
Interest Net........... 23,681 22,770 47,883 63,373 53,701 40,606 28,964
-------- -------- ---------- ---------- ---------- ---------- ----------
Income (Loss) Before
Taxes................. 7,977 (13,801) (49,571) (78,959) (39,695) (103,828) (22,251)
Tax (Benefit) on
Income................ 242 (5,286) (18,990) (42,688) (16,797) (45,359) (13,571)
-------- -------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss)...... $ 7,735 $ (8,515) $ (30,581) $ (36,271) $ (22,898) $ (58,469) $ (8,680)
======== ======== ========== ========== ========== ========== ==========
Pro Forma Ratio of
Earnings to Fixed
Charges............... 1.31x 0.40x 0.01x (l) 0.30x (l) 0.33x
</TABLE>
(k) The calculation of pro forma EBITDA is shown below (unaudited):
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31,
----------------- ---------------------------------------------------
JAN. 30, JAN. 31,
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Income, as Re-
ported................. $31,658 $ 8,969 $ (1,688)(c) $ 45,558(d) $100,578 $ 31,605 $75,044
Less Changes in the Ap-
plication of Account-
ing Principles for
Long-Term Programs and
Contracts............. -- -- -- 61,144 86,572 94,827 68,331
------- ------- -------- -------- -------- -------- -------
Pro forma Operating In-
come (Loss)............ 31,658 8,969 (1,688) (15,586) 14,006 (63,222) 6,713
Add Depreciation and Am-
ortization............. 11,693 12,648 25,578 27,855 27,721 27,040 24,836
------- ------- -------- -------- -------- -------- -------
Pro Forma Earnings...... 43,351 21,617 23,890 12,269 41,727 (36,182) 31,549
Add Special Provisions.. -- -- 25,000 50,000 -- -- --
------- ------- -------- -------- -------- -------- -------
Pro Forma EBITDA........ $43,351 $21,617 $ 48,890 $ 62,269 $ 41,727 $(36,182) $31,549
======= ======= ======== ======== ======== ======== =======
</TABLE>
(l) Negative numbers as losses were incurred.
(m) The unaudited adjusted data to reflect the Offerings assumes the financial
data has been adjusted for the effect of the Offerings and the
corresponding repayment of the outstanding balance under the Revolving
Credit Agreement and short-term bank debt as of the first day of each
fiscal period and assumes no exercise of the Underwriter's over-allotment
option.
(n) Ratio of earnings to fixed charges as adjusted to reflect the Offerings,
reflect the issuance of the Senior Notes and the Convertible Subordinated
Notes (assuming no exercise of the Underwriter's over-allotment option),
and the application of the proceeds therefrom, as if the Offerings had
been consummated as of the first day of each fiscal period. On such basis,
earnings were insufficient to cover the pro forma fixed charges by $59,894
for fiscal 1993.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis presents management's assessment of
material developments affecting the Company's results of operations, liquidity
and capital resources for the three years ended July 31, 1993 and the six
months ended January 30, 1994. These discussions should be read in conjunction
with the Company's Consolidated Financial Statements and the Notes thereto.
Comparisons between periods may not be meaningful because of significant
changes the Company made in certain of its accounting policies, effective
August 1, 1992, as discussed in "--Accounting Changes," and the substantial
provisions taken in the third quarters of fiscal 1992 and 1993.
On certain long-term programs under which the Company sells spares directly
to the airlines, the Company accounts for profit and loss under the program
method of accounting. Under the program method of accounting, the quantity of
units in the profit center includes existing and anticipated contracts and is
predicated upon market forecasts, which have inherent uncertainties. Included
within the program quantity are spares anticipated to be sold concurrent with
production units which, as a percentage of total deliveries, increase as a
program matures and historically have been sold at higher prices than
production units. As spares and production units are both included in the
program quantity, higher margins are reported in the early program years based
upon anticipated production and spare orders in the future. Programs for which
the Company uses the program method of accounting and for which spares are
significant are as follows: V2500, CF6-80C, CFM56-5, A340 and MD-90. Market
forecasts continue to support the reasonableness of the projected spares
included in program quantities. See "Notes to Consolidated Financial
Statements--Note 1b."
COMPANY OUTLOOK
As a result of the slow down in the commercial aerospace industry and
reductions in the Company's military and space programs (see "Risk Factors--
Industry Cycles; Current Business Outlook" and "Business--Markets"), the
Company's revenues decreased approximately 8% from fiscal 1991 to fiscal 1992
and approximately 8% from fiscal 1992 to fiscal 1993. Revenues for the first
six months of fiscal 1994 were approximately 23% less than for the comparable
period in fiscal 1993. In response to these conditions, management has taken
aggressive actions to increase competitiveness, improve earnings, maximize cash
flow and reduce debt.
The Company has reduced its workforce from a peak of approximately 12,100 at
July 31, 1989, to approximately 6,500 at July 31, 1993, and 5,154 at January
30, 1994. The Company's new management has also focused on reducing the ratio
of indirect employees to direct employees. From April 30, 1993 to January 30,
1994, this ratio improved from 1-to-2.0 to 1-to-2.6. Management has targeted a
ratio of 1-to-2.8 by July 31, 1994. Management has also established a total
overhead expense budget equal to 29% of sales for fiscal 1994, which compares
to a high of 41% of sales in fiscal 1989 and 32% of sales for the 12 months
ended January 30, 1994.
To reduce excess capacity and to increase overall production efficiencies
through higher utilization of its remaining facilities, the Company has closed
its Auburn, Washington plant, is closing its Hagerstown, Maryland plant and has
deferred completion of a new facility in Arkadelphia, Arkansas. The Company
also has reduced capital expenditures from an average of $45 million per year
over the last five fiscal years to a planned expenditure of $7 million in
fiscal 1994. Average expenditures over the next four years are not expected to
exceed $20 million per year.
The Company has also increased its focus on its core business within the
commercial aerospace industry--the design and manufacture of nacelle and pylon
systems for large commercial aircraft. The Company intends to focus exclusively
on these products and to be the low cost producer in this
23
<PAGE>
segment. The Company is currently in negotiations to sell two non-core
businesses, its business jet product line and its overhaul and repair business.
These two businesses generated approximately $35 million of revenue in fiscal
1993.
RESULTS OF OPERATIONS
First Six Months Fiscal 1994 Compared to First Six Months Fiscal 1993
Total sales for the first six months of fiscal year 1994 were $484.8 million,
down $141.2 million or 22.6% from the first six months of fiscal year 1993.
Commercial sales during the first six months of fiscal year 1994 were down
compared to the same period of fiscal year 1993 due primarily to reductions in
deliveries. Government sales for the comparative period declined due primarily
to a reduction in the delivery rate on the Titan program. Commercial sales
aggregated 88% and government sales 12% of the Company's total sales in the
first six months of fiscal year 1994.
Operating income increased to $31.7 million for the first six months of
fiscal year 1994, up from $9.0 million for the same period of fiscal year 1993.
A significant contributor was reduced general and administrative expenses which
declined $9.1 million from $22.5 million for the first six months of fiscal
1993 to $13.4 million for the first six months of fiscal 1994. The decline was
primarily the result of work force reductions and other ongoing cost cutting
efforts. Fiscal 1994 results were adversely impacted by a reduction in sales
volume on several programs. Fiscal 1993 results were impacted by losses on
tooling and design efforts and cost problems related to certain programs, a
loss on the 727 re-engining program, and $5 million for additional provisions
related to various litigation uncertainties. Operating income in the first six
months of fiscal year 1994 was also impacted by a less favorable follow-on
contract on the Titan program.
Net interest expense was $23.7 million for the first six months of fiscal
year 1994 compared to $22.8 million for the same period last year. While total
financings have declined, interest rates paid by the Company have increased
primarily due to the replacement of certain variable rate financings with long-
term fixed rate financing.
Earnings for the first six months of fiscal year 1994 were a positive $7.7
million or 43 cents per share compared to a loss of $8.5 million or 48 cents
per share (before the cumulative effect of the accounting change) for the same
period last year. The Omnibus Budget Reconciliation Act, adopted in August
1993, increased federal tax rates, thus causing the deferred tax asset shown on
the balance sheet to increase and taxes on income to decrease for the first
six-months of fiscal year 1994. This resulted in a one time increase in net
income of $2.8 million and earnings per share of 16 cents.
The first six-months of fiscal year 1993 were additionally impacted by a loss
of $223.9 million, net of taxes, or $12.52 per share, due to the cumulative
effect for the changes in the application of accounting principles through July
31, 1992, adopted on a retroactive basis in the third quarter of fiscal year
1993.
Additional Items
The Company is still experiencing softness in orders by airlines for spare
components, which caused the Company to revise its spares delivery forecast in
the near term on certain programs. See "--Fiscal 1993 Compared with Fiscal
1992."
The Company has notified its customer on the V2500 program that it has
exercised its contractual right to terminate the contract in 1995 so the
Company will not be required to accept orders under the current contract terms
after mid-year 1995. The Company is discussing possible alternative contractual
arrangements with its customer under which it would continue with the program.
In addition, anticipated spares deliveries for the V2500 program have been
revised downward in the near term and the Company now expects to incur the
total loss previously booked on this program.
24
<PAGE>
The Company and its actuary are evaluating the extent to which the downsizing
of personnel may necessitate the expensing of unamortized pension benefit past
service costs related to the termination of employees. This evaluation and the
recognition of its financial impact is expected to be complete by the end of
the third quarter of fiscal 1994. See "Risk Factors--Underfunded Pension
Plans."
Fiscal 1993 Compared with Fiscal 1992
Sales declined from $1,279.7 million in fiscal 1992 to $1,175.2 million in
fiscal 1993. Commercial sales benefited from deliveries on the Airbus A340
program, and start-up of the MD-90 program. However, commercial sales in fiscal
1993 were negatively impacted by reductions in the delivery rate of large
commercial aircraft. See "Risk Factors--Industry Cycles; Current Business
Outlook" and "Business--Markets." Government sales for the comparable period
declined due to events in the previous year, including the termination of the
C-5 spare pylon program and completion of F-14 production deliveries.
Commercial sales aggregated 87% and government sales 13% of total sales.
Total general and administrative expenditures declined $9.2 million from
$53.0 million in fiscal 1992 to $43.8 million in fiscal 1993. The decline was
primarily the result of work force reductions, postponement of annual wage
increases, and other ongoing cost cutting efforts. General and administrative
expenses in fiscal 1993 were charged as a period expense. General and
administrative expenditures for fiscal 1992 were, in part, inventoried and
relieved through cost of sales as units were delivered. This change was made as
part of the change in application of accounting principles discussed in "--
Accounting Changes."
The Company reported an operating loss of $1.7 million for fiscal 1993
compared to an operating profit of $45.6 million for fiscal 1992. Fiscal 1993
operating income was negatively impacted by $39.9 million due to the change in
application of accounting principles relating to long-term programs and
contracts. See "--Accounting Changes." These changes will also continue to
impact results negatively in the near term, but are expected to positively
impact operating results in the long-term. Results for the year were also
adversely affected by net provisions aggregating $25.0 million for plant
closure, inventory obsolescence and other asset valuations, other costs related
to the planned consolidation process, and various items of litigation. In
addition, results reflect a reduction in anticipated sale of spare parts on the
V2500, CF6-80C, CFM56-5 and A340 programs. The Company generally attributes
recent reductions in spares sales to the surplus aircraft in the current market
place. As a result of such surplus, aircraft deliveries have declined and the
initial spares sold to support newly delivered aircraft have also declined. In
addition, airlines are maintaining lower spares levels; the existence of
surplus aircraft has reduced the need for spares supplies sufficient to keep an
airline's entire fleet in operation. Also, improved production quality appears
to have reduced spares requirements. In addition, fiscal 1993 results reflected
increased costs associated with assembly labor performance and subcontractor
changes on the PW300 program and certain out-of-production spare programs.
Operating results in fiscal 1992 were adversely impacted by a number of special
provisions approximating $50 million. Paramount was a provision for potential
losses arising as a result of the government's termination for default of the
C-5 spare pylon program. See "Notes to the Consolidated Financial Statements--
Note 8." Operating results for fiscal 1992 were also impacted by provisions
relating to the Company's investment in the Valsan 727 re-engining program,
which was negatively impacted by delayed implementation of U.S. noise
regulations, and by provisions for closure of the Company's Auburn facility and
future settlement of possible criminal and civil proceedings concerning certain
government programs. In fiscal year 1992, operating results were also impacted
by cost problems on certain "out-of production" spares programs.
In fiscal 1993, the Company achieved better labor performance than in fiscal
1992. This is attributed, in part, to the generally higher seniority level of
the Company's work force as a result of the Company's recent downsizing
activities.
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Estimates of anticipated spare part sales were reduced on the McDonnell
Douglas MD-90 program resulting in a decline of projected operating income from
this program in future years. Negotiation of a new long-term agreement on the
PW4000 program resulted in revised cash flow estimates that delayed recovery of
the Company's investment on that program.
Net interest expense was $47.9 million for the year ended July 31, 1993, as
compared to $63.4 million for the same period the previous year. The 1992
period included a charge of $18.3 million during the third quarter of fiscal
1992 for interest cost attributed to the IRS audit adjustment to the Company's
1984 and 1985 federal tax returns. The 1993 period also includes interest
expenses for income tax liabilities. Net of the interest for income tax
liabilities, interest expense in 1993 was lower than in fiscal 1992 due to
lower average borrowings and lower interest rates.
Net loss was $254.5 million for the year ended July 31, 1993, as compared to
income of $1.5 million for fiscal 1992, primarily as a result of the $224.0
million charge for the cumulative effect of the accounting changes described
under "--Accounting Changes," the effect of the accounting change in 1993 of
$39.9 million ($24.6 million after tax) and the $25.0 million ($15.4 million
after tax) special provision.
The net loss for the year ended July 31, 1993 is net of tax benefits totaling
$158.0 million. These tax benefits offset existing deferred tax liabilities at
July 31, 1992 and resulted in a net deferred tax asset of $103.0 million at
July 31, 1993.
Fiscal 1992 Compared With Fiscal 1991
Commercial sales declined during fiscal 1992 compared to fiscal 1991 due to a
reduction in deliveries on certain programs reflecting changing economic
conditions and a reduction in sales resulting from a subcontractor delivering
directly to the customer. Government sales declined due to the termination of
the C-5 spare pylon program and the completion of F-14 production deliveries.
Commercial sales aggregated 86% and government sales 14% of total sales
compared to 80% and 20% for fiscal 1991.
The Company reported an operating profit of $45.6 million for fiscal 1992
compared to an operating profit of $100.6 million for fiscal 1991. Fiscal 1992
operating results were adversely impacted by a number of third quarter special
provisions approximating $50.0 million, plus approximately $5.5 million during
the third quarter related to the state franchise tax effect of special charges.
The special provisions included charges for the termination of the Lockheed C-5
spare pylon program, the Valsan 727 re-engining program, an investigation by
government agencies concerning production of parts, and a provision for the
closing of the Auburn plant. In addition, commercial programs during fiscal
1992 benefited from some improved pricing and, based on aircraft orders and
options placed by airlines, an increase in the program quantity and spare part
sales estimates for the General Electric CF6-80C and CFM International CFM56-5
nacelle programs, which were in turn offset by a reduction in sales volume.
Government programs during fiscal 1992 continued to be adversely impacted by
disruption from redefined acceptance criteria by the government. Also of
significance was the completion of the F-14 production program and the benefit
from improved cost performance at the Space division. The Company revised its
overhead cost rates used in its program cost estimates to reflect a declining
production base anticipated in future years.
Fiscal 1992 operating results included an estimate of recovery on the KC-135
program for constructive change claims related to government redefined
acceptance criteria. Fiscal 1991 operating results included an additional
estimate of recovery on the Boeing E3/E6 program and an initial estimate of
recovery on the Lockheed C-5 production and spare pylon programs related to
government redefined acceptance criteria, as well as an estimate of recovery on
the PW4000 program related to tooling and design change activity.
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Operating results were limited by the inability to achieve profitable results
on several major programs. Among these were the V2500, MD-11 pylon and PW4000
programs, which have been impacted by delays and increased labor cost estimates
for bonding and assembly operations plus tooling and design support services.
An A320 order by United Airlines improved the market outlook for the V2500
program, although spares sales were still below original expectations delaying
recovery of the Company's program investment. Negotiations on the PW4000
contract and the resolution of major design changes for the MD-11 program
improved the financial status during the fourth quarter of fiscal 1992 of these
major programs.
Program estimates on the Airbus A340 nacelle program continued to be
negatively influenced by delays in delivery of the initial program quantity, a
reduction in anticipated spare part sales, increased start-up costs and higher
than planned bonding and assembly costs. These revised estimates indicate a
less than planned return in the future on investment for this program.
Interest expense was increased $18.3 million during the third quarter of
fiscal 1992 to reflect the interest cost of federal income tax adjustments.
These tax adjustments have offset previously expected tax deductions, and the
related interest income accrual. Interest on indebtedness was lower than for
fiscal 1991 due to lower average borrowings and lower rates.
An income tax benefit was recorded during fiscal 1992 as a result of the
pretax loss. The benefit was higher than the amount computed at statutory tax
rates due to additional benefits from tax planning items and, most importantly,
utilization of tax reserves in connection with the federal income tax interest
adjustment discussed above. The effective income tax rate, which is expressed
as a ratio of tax expense to pretax income, was substantially higher in fiscal
1992 compared to fiscal 1991 because benefits from utilization of tax reserves
and tax planning items increase the rate when there is a pretax loss.
LIQUIDITY AND CAPITAL RESOURCES
For the first six months of fiscal year 1994, net cash provided by operating
activities totaled $44.9 million compared with a use of cash of $35.6 million
for the same period of the prior year. Net cash provided by operating
activities was $78.7 million in fiscal 1993 and $110.3 million in fiscal 1992.
In recent periods, net cash provided by operating activities included one-time
receipts by the Company for design and tooling efforts and similar non-
recurring tasks. Net cash from operating activities also included accelerated
payments for delivered production hardware in the first six months of fiscal
1994, and the receipt of certain amounts that had been deferred pending
aircraft certification in fiscal 1993 and 1992. Net cash provided by operations
is subject to significant variations from period to period.
The Company's total financings (balance sheet debt plus off-balance sheet
financings) aggregated $587 million at January 30, 1994, down $56.9 million
from July 31, 1993. Total indebtedness as reflected on the Company's balance
sheet decreased by $48.2 million from $531.6 million on July 31, 1993 to $483.4
million on January 30, 1994. During the first six months of fiscal year 1994,
the Company repaid its $35 million medium term note and made the annual $12.5
million principal payment on its 9.35% senior notes.
The Company's liquidity has improved over the last year, primarily as a
result of cash flow generated from operating activities. However, as a result
of its credit rating and the financial community's concerns about the aerospace
industry, the Company has generally been unable to utilize uncommitted and
certain other credit facilities which historically have been available to it.
Two letters of credit which secure certain of the Company's obligations will
expire in April and July, 1994. The Company is seeking the renewal of both
letters of credit in amounts expected to aggregate approximately $25 million.
If the Company does not obtain renewals or substitute letters of credit, it
will be required to use some portion of the existing availability under its
Revolving Credit Agreement or to utilize a portion of its cash balances.
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On January 30, 1994, the Company had $50 million of borrowings under its
committed Revolving Credit Agreement, no change from borrowings of $50 million
on July 31, 1993. Upon completion of the Offerings, the Revolving Credit
Agreement will be amended to provide for a three-year commitment and will
contain revised financial covenants which were negotiated to permit the
Offerings contemplated by this Prospectus and the expected increases in
underfunded pension liabilities (which are discussed in greater detail below).
See "Risk Factors--Underfunded Pension Plans" and "Description of Certain
Financings."
The Company is a party to a $60 million accounts receivable facility under
which it sells receivables from specified customers on an on-going basis. As a
result of the slow-down in the aerospace industry, the amount of outstanding
receivables from these customers has fallen below levels which existed at the
start of the facility. As a result, the Company has deposited cash collateral
from time to time as required to support the facility and has withdrawn such
cash when it is no longer required to be deposited. At January 30, 1994, the
Company had $7 million of cash collateral on deposit.
The Company is also a party to certain equipment leases and has granted the
lessors a security interest in selected customer receivables to secure $10
million of obligations. If the parties who lease this equipment to the Company
do not assign approximately one-half of their beneficial interests in the
leased equipment to other parties by January 1995, the equipment lessors may
require the Company to prepay up to $10 million of its equipment lease
obligations.
The Company's existing debt level reflects the substantial investments made
by the Company in the late 1980s and early 1990s to design and begin production
on several major long-term programs. Except for the MD-90, the Company has
substantially completed the large investments required by these programs and
most are now well into production. The industry is expected to introduce
relatively few new programs in the next several years and, accordingly, the
Company believes that its financing requirements for new programs have been
reduced as compared to prior periods.
At July 31, 1993, the underfunded status (excess of projected benefit
obligations over plan assets) of the Company's defined benefit plans had
increased to $65.6 million. This underfunded status resulted from a combination
of factors including benefit increases, increased levels of early retirements,
less than the actuarially-assumed returns on plan assets and a reduction in the
discount rate used to calculate the present value of future pension plan
liabilities for financial reporting purposes. Considering current interest rate
levels, the Company anticipates reducing its discount rate to 7.5% for its
fiscal year 1994 valuation from the 8.5% used for its 1993 valuation, which
will substantially increase the Company's accrued pension benefit obligation.
In addition, the Company has continued to experience a higher level of early
retirements than actuarially anticipated which is also expected to
significantly increase the accrued pension benefit obligation. The Company
anticipates that the expected increases in the underfunded pension liabilities
will approximate $75 million and will result in a charge to shareholders'
equity estimated at $45 million and an estimated $30 million increase to the
Company's deferred tax asset account. The Company and its actuary are also
evaluating the extent to which the downsizing of personnel may necessitate the
expensing of unamortized pension benefit past service costs related to
terminated employees. This matter does not affect the underfunded status of the
plans but would result in a charge to earnings. The evaluation of all of these
items and the recognition of the related financial impact is expected to be
completed by the end of the third quarter of fiscal 1994. See "Risk Factors--
Underfunded Pension Plans."
The Company's required minimum annual contribution to its defined benefit
plan, which is directly impacted by the plans' funded status, has increased
from $15.3 million for calendar year 1992 to $19.0 million for calendar year
1993. The Company expects that IRS regulations will require it to increase its
annual cash contributions to the Pension Plans for several years. These
regulations are designed to
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substantially eliminate pension plan underfunding within five years. The
Company expects to have sufficient liquidity to make these increased
contributions.
The Company's principal financing agreements have covenants pertaining to
indebtedness (which is defined to include the underfunded pension liabilities),
to shareholders' equity (which would be affected by any charge to equity caused
by an increase in underfunded pension liabilities), and to the ratio of net
income to fixed charges (which would be affected by any increase in pension
expense). However, the Company and the lenders under these agreements have
agreed on revised financial covenants to accommodate the financial effect of
the pension issues described above. The revised financial covenants will become
effective upon the sale of the Securities.
On January 21, 1994, the Company announced that it had signed letters of
intent to sell its business jet product line and certain assets of a wholly
owned subsidiary, Rohr Aero Services, Inc. The revenue generated from these
operations has approximated $35 million in each of the last two fiscal years.
In preparation for the sale of the assets of Rohr Aero Services, Inc., the
Company adjusted carrying values of assets downward by $0.7 million during the
second quarter of fiscal 1994. In the aggregate, a net gain is anticipated upon
sale of these assets. In March 1994, the purchaser of these two lines of
business placed a $7.8 million deposit in escrow. One-half of this deposit is
nonrefundable under certain circumstances. The Company is in the process of
selling its Auburn, Washington plant (which was closed in fiscal year 1993) and
is seeking to sell its Hagerstown, Maryland manufacturing facility which is
excess to projected capacity needs.
The Company's net inventory decreased to $412.2 million at January 30, 1994
from $439.7 million at July 31, 1993. Excess-over-average and production
inventory declined reflecting the increased maturity of newer programs, the
reduced sales volume and the efforts of management to control inventory levels
through shorter lead times and just-in-time contracts. These reductions were
partially offset by an increase in pre-production inventory, primarily in the
MD-90 and A340 programs and in a new application of the V2500 program. The
changes in the application of accounting principles adopted by the Company in
fiscal 1993 substantially decreased net inventory from its level at July 31,
1992. See "--Accounting Changes" and "Notes to the Consolidated Financial
Statements--Note 2."
The Company's receivables decreased from $133.2 million on July 31, 1992 to
$94.1 million at both July 31, 1993, and January 30, 1994, due to several large
receipts by the Company for tooling, design changes and similar non-recurring
tasks, as well as the receipt of certain amounts deferred pending aircraft
certification. This decrease was net of a $45 million reduction in the
receivables sales arrangement which, by itself, would have increased
receivables by $45 million. See "Notes to the Consolidated Financial
Statements--Note 3."
Capital expenditures (including expenditures funded by industrial revenue
bonds and capital leases) averaged $45 million per year over the past five
fiscal years. Capital expenditures for property, plant and equipment totaled
$2.9 million for the first six months of fiscal year 1994, down from $18.9
million in the first six months of fiscal year 1993. Capital expenditures in
the first six months of fiscal year 1993 were higher due in large part to
expenditures for new office and manufacturing facilities. In addition, the
Company has substantially curtailed its previously planned capital expenditures
for the balance of fiscal year 1994 in line with other cost cutting efforts and
anticipates such expenditures will not exceed an average of $20 million per
year over the subsequent four years. Given its substantial recent investments,
the Company believes that the amount it plans to spend on capital expenditures
over the next several years will be sufficient to meet the Company's production
requirements.
The Company's firm backlog, which includes the sales price of all undelivered
units covered by customers' orders for which the Company has production
authorization, was approximately $1.3 billion at January 30, 1994 compared to
$1.4 billion at July 31, 1993. Approximately $0.4 billion of the $1.3 billion
backlog is expected to be delivered in the remainder of fiscal year 1994.
(Sales during any period
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include sales which were not part of backlog at the end of the prior period.)
Customer orders in firm backlog are subject to rescheduling and/or termination
for customer convenience; however, in certain cases the Company is entitled to
an adjustment in contract amounts. The Company has an additional $2.7 billion
in anticipated backlog, which represents the sales price of units which the
Company expects that its customers will order under existing contracts and the
Company will deliver within seven years.
The Company believes that, after the completion of the Offerings, its
principal sources of liquidity over the next several years will be cash flow
from operations, available cash, borrowings under the Revolving Credit
Agreement and the pending asset sales. Based upon current levels of operations
and anticipated future business, the Company believes that these sources will
be adequate to meet its anticipated requirements for working capital, capital
expenditures and debt service during that period.
ENVIRONMENTAL MATTERS
The Company has been identified as a potentially responsible party ("PRP")
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("CERCLA" or "Superfund"), and under certain analogous
state laws for the cleanup of contamination resulting from past disposal of
hazardous substances at several sites to which the Company, among others, sent
such substances in the past. CERCLA requires the cleanup of sites from which
there has been a release or threatened release of hazardous substances, and
authorizes the Environmental Protection Agency ("EPA") to take any necessary
response actions at such sites, including ordering PRPs to cleanup or
contribute to the cleanup of a Superfund site. Courts have interpreted CERCLA
to impose strict, joint and several liability upon all persons liable for
response cost.
In June 1987, the U.S. District Court of Los Angeles, in U.S. et al, vs.
Stringfellow, granted partial summary judgment against the Company and 14 other
defendants on the issue of liability under CERCLA. On November 30, 1993, the
special master released his "Findings of Fact, Conclusions of Law and Reporting
Recommendations of the Special Master Regarding the State Share Fact Finding
Hearing," allocating liability between the State of California and other
parties. See "Legal and Environmental Proceedings--Stringfellow." The most
recent estimate the Company has made of its liability, assuming the court order
allocating substantial liability to the State of California is upheld, assuming
the 1989 EPA estimate of total cleanup costs is not exceeded (although the EPA
cautioned the actual costs could have a variation of 30% less or 50% higher
than its estimate), and assuming tentative allocations among the Company and
all other users of the site will approximate the final allocation of aggregate
user liability, shows a Company expenditure ranging from $5 to $8 million over
and above sums spent to date. This amount is within the sums accrued on the
books of the Company for potential offsite environmental liability. However,
the Company estimates further assume that the EPA selects a final remedial
action of moderate technology and cost, rather than one of several more radical
ones previously suggested, but apparently discarded at this point, by the EPA.
The decision on the final remedial action is still being studied and may be
made in 1994 or later.
Expenditures by the Company for cleanup of this site during fiscal 1993 were
not material, although cleanup costs for Stringfellow are expected to be
approximately $1 million during fiscal 1994. From inception to July 31, 1993,
the Company has expended approximately $2.5 million on cleanup costs for this
site. Amounts within the above estimated $5 to $8 million range of future
liability are expected to be paid for remedial work over the next several years
under agreements and consent decrees entered into between the EPA, the Company
and numerous other PRPs. Applicable law provides for continuing liability for
future remedial work beyond these agreements and consent decrees, although the
Company believes its reserves are adequate for its portion of such liability if
all of the above assumptions are correct. The Company also has claims against
its comprehensive general liability insurers for insurance reimbursement, for
past and future costs, none of which has yet been recorded in the financial
records of the Company except for sums actually paid in certain insurance
settlements and certain legal fees which the insurers have been reimbursing.
Based on the foregoing analysis, the Company believes that costs of remedial
actions for the Stringfellow site will not have a material effect on the
Company's financial condition, liquidity or results of operation.
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The Company is also involved in several other proceedings and investigations
related to waste disposal sites and other environmental matters. The Company
has made claims against its insurance carriers for certain of these items, and
has received claims acknowledgment letters reserving the rights of such
carriers. As in the case of the Stringfellow site, the insurers have alleged or
may allege defenses to coverage, although no litigation has been commenced. It
is difficult to estimate the ultimate level of environmental expenditures for
these various other environmental matters due to a number of uncertainties at
this early stage, including the complexity of the related laws and their
interpretation, alternative cleanup technologies and methods, insurance and
other recoveries, and in some cases the extent or uncertainty of the Company's
involvement. See "Legal and Environmental Proceedings" for a more detailed
discussion of the range of the Company's potential liability.
During the year ended July 31, 1993, the Company expended, for the
environmental items described above and also for other environmental matters
(including environmental protection activities in the normal operation of its
plants), a total of approximately $6 million. These expenditures covered
various environmental elements, including hazardous waste treatment and
disposal costs, environmental permits, environmental consultants, fines or
donations (which were not material, either individually or in the aggregate)
and environmental remediation (including Stringfellow), no significant part of
which was capitalized. Assuming the usage of all of these various environmental
elements remains substantially the same for fiscal 1994 as in fiscal 1993,
which the Company anticipates, costs for these elements in fiscal year 1994
should be comparable to the expenditures for fiscal 1993, except for the
indicated higher sum expected to be paid for Stringfellow remediation in fiscal
1994.
Based upon presently available information, the Company believes that
aggregate costs in relation to all environmental matters of the Company will
not have a material adverse effect on the Company's financial condition,
liquidity, results of operations or capital expenditures.
ACCOUNTING CHANGES
In the third quarter of fiscal 1993, the Company changed certain elements of
its application of accounting principles relating to long-term programs and
contracts, effective August 1, 1992. As a result of these changes, certain
costs previously carried in inventory for amortization over future deliveries
are now being expensed. These costs include certain pre-certification costs,
consisting primarily of tooling and design expenses in excess of negotiated
contractual values, that are now expensed as identified. In addition, general
and administrative costs that were previously capitalized are now being
expensed as incurred. Following a thorough review of its accounting policies,
the Company concluded there was a need, particularly in light of the current
aerospace environment, to have financial results more closely reflect near-term
program economics (cash flow and internal rate of return). As a result, these
changes generally reduce the number of production units and spares used in the
calculation of overall profit margins. While the previous methods of applying
the Company's accounting principles were in accordance with generally accepted
accounting principles (GAAP), the changed policies are preferable. The
application of these policies produces program and contract estimates that are
based on shorter delivery periods, allowing a better matching of revenues and
expenses. The cumulative effect of these changes for the periods through July
31, 1992 was a charge of $219.7 million, net of income tax benefits of $136.3
million. The effect of these changes on the year ended July 31, 1993 was to
increase the net loss before the cumulative effect of the changes in accounting
principles by $24.6 million ($1.37 per average common share), net of income tax
benefits of $15.3 million.
In accordance with Accounting Principles Board Opinion No. 20, "Accounting
Changes," pro forma amounts are shown for net loss and net loss per average
share of common stock for all prior periods presented. The pro forma amounts
presented in the Consolidated Statements of Operations reflect the retroactive
application of these accounting changes, net of income tax benefits (which were
allocated ratably over the pro forma restated periods) for each period
presented. Primarily as a result of these changes, excess-over-average
inventory decreased from $323.7 million at July 31, 1992 to $75.4 million at
July 31, 1993. Pre-production inventory also decreased from $258.4 million at
July 31, 1992 to $181.0 million at July 31, 1993, primarily as a result of the
accounting changes. See "Notes to the Consolidated Financial Statements--Note
4."
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In the third quarter of fiscal 1993, the Company also adopted, effective
August 1, 1992, SFAS No. 106, "Employers' Accounting for Post-Retirement
Benefits Other than Pensions." The accumulated post-retirement benefit
obligation for active employees and retirees was recorded using the immediate
recognition transition option. See "Notes to the Consolidated Financial
Statements--Note 9b." This standard requires companies to accrue the expected
cost of providing health care benefits to retired employees and their
dependents during the employees' service periods. The Company previously
charged the cost of providing these benefits on a pay-as-you-go basis. The
cumulative effect of this change for the periods through July 31, 1992, was a
charge of $4.3 million, net of income tax benefits of $2.7 million. The effect
of the change on the year ended July 31, 1993 was not material.
In the third quarter of fiscal 1993, the Company also adopted, effective
August 1, 1992, SFAS No. 109, "Accounting for Income Taxes." See "Notes to the
Consolidated Financial Statements--Note 6." The cumulative effect of this
change for periods through July 31, 1992, was not material by itself. However,
under this standard, the Company recorded a substantial net deferred tax asset
as a result of the other changes in accounting principles and certain other
charges recorded in the year ended July 31, 1993. See "Notes to the
Consolidated Financial Statements--Note 6."
The combined effect of adopting the new accounting changes for the year ended
July 31, 1993 was a charge to net income of $24.6 million ($1.37 per average
common share). The cumulative effect through July 31, 1992 of adopting the new
accounting changes was a one-time charge of $224.0 million, net of income taxes
($12.50 per average common share), with a corresponding reduction in
shareholders' equity. As a result of adopting the accounting changes, combined
with the results of operations for the year ended July 31, 1993, the Company
reported a loss of $254.5 million ($14.21 per average common share).
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 112, Employers' Accounting for Post-Employment
Benefits. The new standard is effective for fiscal years beginning after
December 15, 1993 and requires employers to recognize the obligation to provide
post-employment benefits to former or inactive employees, their beneficiaries,
and covered dependents, when certain conditions are met. The Company does not
expect there to be a material adverse effect on its financial position or
results of operations in the year of adoption.
INCOME TAXES
First Six Months of Fiscal 1994
The Company provided $3.1 million for income taxes during the first six
months of fiscal year 1994, offset by a tax benefit of $2.8 million due to the
change in federal tax rates under the Omnibus Budget Reconciliation Act of
1993. The Company's deferred tax asset of $102.6 million remained substantially
unchanged from the amount at July 31, 1993 but is expected to increase by
approximately $30 million due to increased pension liability by the end of
fiscal year 1994. See "Risk Factors--Underfunded Pension Plans," "Risk
Factors--Deferred Tax Asset" and "--Liquidity and Capital Resources." Based on
currently available information, the Company believes that sufficient future
taxable income will be generated to fully utilize the increased deferred tax
asset. The Company's ability to utilize its deferred tax asset is discussed in
greater detail below.
The IRS has audited the Company's tax returns through fiscal 1985. In fiscal
1993, the IRS issued a Revenue Agent's Report challenging the Company's
adoption in 1984 of the completed contract method of accounting ("CCMA"), the
Company's tax deduction for funding liabilities related to a Voluntary Employee
Benefit Association ("VEBA") and certain other matters. The Company filed a
protest with the Appeals Office of the IRS and, subsequent to the end of the
second quarter of fiscal 1994, the IRS conceded that the Company was entitled
to use CCMA. The Company is negotiating a resolution of the remaining
adjustment issues with the IRS. The Company believes that the resolution
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of these remaining issues will not have a material adverse effect on the
Company and its financial position, even if the IRS were to prevail with
respect to all of such issues.
Fiscal 1993
In the third quarter of fiscal 1993, the Company adopted, effective August 1,
1992, SFAS No. 109, "Accounting for Income Taxes." This standard requires the
recognition of future tax benefits, predicated upon current tax law,
attributable to tax credit carryforwards, temporary differences, and NOLs that
will result in deductible amounts in the future. The value of the tax asset is
effectively reduced through the establishment of a valuation allowance if,
based on the weight of available evidence, it is "more likely than not" that
some or all of the deferred tax asset will not be realized.
When tax effected at July 31, 1993 tax rates, the Company's deductible
temporary differences, tax credit carryforwards and NOLs result in a deferred
tax asset of $103.0 million, consisting of $85.3 million for federal tax
purposes and $17.7 million for state tax purposes. Based on tax rates in effect
on July 31, 1993, the Company must generate approximately $271 million of
future taxable income (net of $233 million of taxable income that the Company
will report as a result of the automatic reversal of existing taxable temporary
differences between asset and liability values for financial reporting and
income tax purposes) prior to the expiration of the Company's NOLs in 2003
through 2008 for full realization of the net deferred tax asset. The Company
believes it will be able to generate, on average, at least $27 million in net
income for each of the next 10 years, in order to fully utilize the deferred
tax asset (assuming all temporary differences between asset and liability
values for financial reporting and income tax purposes reverse during that
period). This level of net income would be $57.6 million in excess of reported
fiscal 1993 net loss of $30.6 million before the effect of the accounting
changes.
The ultimate realization of the Company's deferred tax asset is dependent
upon the generation of sufficient future taxable income during the available
federal and state NOL carryforward periods. Although the Company has reported
taxable losses during recent fiscal years primarily as a result of the
significant non-recurring events described below, management expects that a
sufficient level of taxable income will result in years subsequent to fiscal
1993 and prior to the expiration of the NOLs to realize the deferred tax asset
recorded at July 31, 1993. The Company's long-term contracts and programs
require long range sales and profit forecasts, but also provide the Company
opportunities to generate future taxable income necessary to realize the
deferred tax asset recorded. Following is a summary of the positive evidence
which leads the Company to believe that a valuation allowance is not necessary,
as it is more likely than not that the deferred tax assets will be realized:
. During fiscal years 1990 through 1993, there were a number of highly
unusual and unpredictable events and other industry factors that caused
the Company to have poor financial results. These items are generally
described below.
The aerospace industry was experiencing unprecedented growth in the
late 1980s and through 1991. The Company was required to deliver its
products more rapidly and was involved in several new product
development efforts for a number of engine nacelles and pylons. The
Company added a significant number of engineers to handle design
changes for new products under development, and experienced even
greater engineering demands due mostly to difficulties in changing the
PW4000 nacelle from the Airbus A300/A310 configuration to the new MD-
11 configuration and in developing the MD-11 pylon.
The Company's rapid expansion of its work force, introduction of new
programs and start-up of satellite facilities were extremely
disruptive and cost consuming. As the Company worked to produce
initial units under new programs, a substantial portion of work was
being performed by relatively inexperienced employees. Additionally,
there were significant start-up costs in relocating production among
facilities. The Company also experienced difficulties on its
government programs as a result of disagreements over redefined
acceptance criteria.
33
<PAGE>
. The conditions leading to an expanding work force, transfers to satellite
plants and heavy use of engineers on new programs have drastically
changed. Currently, the Company and the industry are in a downturn with
orders being delayed and/or cancelled. The Company has been downsizing
and will continue to do so in response to the market. Management has
implemented and will continue to make significant cost reductions in
response to the industry downturn in order to enhance overall
profitability. Additionally, the Company should be able to utilize its
resources in a more balanced and stable manner. Engineering needs have
been drastically reduced as most of the programs that were in the
development stage throughout the late 1980s and early 1990s have been
introduced to the market. Significant design costs for new product
development are not anticipated over the next several years.
. The Company's direct sales of spare parts to the airlines are expected to
increase as nacelle programs on which the Company sells spare parts
directly to the airlines mature. Generally, the Company earns a higher
margin on the direct sales of spare parts to airlines than it does on the
sales of spare parts to prime contractors (for resale to the airlines).
Prices for direct spare part sales are higher than prices for spare parts
sold to prime contracts, in part, because of additional costs related to
the technical and customer support activities provided to the airlines.
. The Company's assets present significant opportunities to accelerate
taxable income into the NOL carryforward period. Tax planning strategies
such as leveraged lease transactions, the sale-leaseback of certain
property, the revision of depreciation methods for tax purposes and
reductions in foreign sales corporation commissions could generate
taxable income of approximately $16 million, $32 million, $28 million and
$35 million, respectively.
The following table shows the taxable income that will need to be generated
over the next 20 years in order to realize the deferred tax asset:
<TABLE>
<CAPTION>
5-YEAR TIME INTERVAL
---------------------------------------
1994-98 1999-2003 2004-08 2009 & BEYOND
------- --------- ------- -------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C>
NOLs................................... $ 0 $27 $159 $ 0
Tax credits............................ 0 14 8 0
Future deductible temporary differ-
ences................................. 0 0 0 296
--- --- ---- ----
Total.............................. $ 0 $41 $167 $296
=== === ==== ====
</TABLE>
Future deductible temporary differences begin to reverse in fiscal 1994.
Taxable income needed to realize the portion of the deferred tax asset related
to future deductible temporary differences will need to be generated before the
end of the 15-year period following the reversal of those temporary
differences.
The availability of the Company's NOLs may be limited under the Tax Reform
Act of 1986 as a result of changes that may occur in the ownership of the
Company's stock in the future, principally relating to a change in control.
Management has considered this factor in reaching its conclusion that it is
"more likely than not" that future taxable income will be sufficient to realize
fully the deferred tax asset reflected on the Balance Sheet.
34
<PAGE>
BUSINESS
GENERAL
The Company designs, develops, manufactures, sells and supports complete
nacelle and pylon systems for large aircraft engines. The Company has over 50
years of experience in the aerospace industry and is the leading independent
supplier of nacelle and pylon systems to the world's major commercial airframe
and engine manufactures ("OEMs"). Rohr manages projects from the early design
stage through production and systems integration to lifetime customer support.
In addition, the Company has the right to provide customer and product support
directly to approximately 145 airlines around the world, including on-site
field services and the sale of spare parts.
Nacelles are aerodynamic structures which surround and attach jet engines to
aircraft. A nacelle system generally includes the nose cowl or inlet, fan cowl,
nozzle systems, thrust reverser and engine build-up. Pylons (sometimes referred
to as struts) are structures that attach the jet engines to the aircraft.
Nacelle and pylon systems are highly engineered, critical to fuel efficiency
and integral to all of the key interfaces between the jet engine and the
airframe.
The Company believes that it is competitively well-positioned in its core
business. Management estimates that the Company supplied, by value,
approximately 45% of the nacelle systems and 25% of the pylons for all large
commercial aircraft produced worldwide in 1993, including products represented
on the Boeing 737, 747, 757 and 767, the Airbus A300, A310, A320, A321, A330
and A340, and the McDonnell Douglas MD-80, and MD-11. The Company attributes
its strong market position to its leading technologies, its focus on a narrow
product line and its competitive cost structure. Management believes that this
market position is protected by (i) long-term contracts including some life-of-
program agreements, (ii) substantial costs for the airframe or engine OEMs to
change supply sources, (iii) significant up-front design, development, tooling
and certification costs which must be borne before production on a program may
begin and (iv) a strong reluctance by airlines to support different nacelle
systems manufactured by more than one supplier in their fleets.
MARKETS
Commercial Airline Industry
Commercial airlines' demand for new aircraft is highly dependent upon
consumer demand for air travel, stability of fuel and ticket prices,
replacement of older aircraft (which is influenced by the time required for,
and the economics of, compliance with noise and maintenance regulations), the
availability of temporarily deactivated aircraft, and the financial
capabilities of the airlines and leasing companies to accept ordered aircraft
and to exercise aircraft purchase options. Such demands and capabilities
historically have been related to the stability and health of the United States
and world economies. Since the production of aircraft can take up to two years,
production in the aircraft manufacturing industry (including production by
subcontractors such as the Company) can lag behind changes in the general
economy.
In 1990 through 1992, airlines' passenger capacity increased rapidly as the
commercial aircraft industry produced record numbers of aircraft, peaking with
830 aircraft in 1991. During this same period, the United States and world
economies experienced recession and slow growth, United States scheduled
airlines reported operating losses averaging approximately $2 billion per year,
while non-United States scheduled airlines reported significantly reduced
profits. In 1991, United States and world airline passenger traffic decreased
by 1.9% and 2.8%, respectively. This was the first year in the history of the
industry that world airline passenger traffic had decreased. As a result of
these conditions, orders for new aircraft slowed substantially and some
existing orders and options for new commercial aircraft were cancelled or
rescheduled to later dates.
35
<PAGE>
In 1993, United States scheduled airlines achieved approximately $1 billion
of operating profit. In addition, world airline passenger traffic grew by 6.9%
in 1992 and 4.5% in 1993. Industry analysts have predicted that worldwide
airline passenger traffic will grow approximately 5% to 6% per year over the
long-term.
The following table sets forth the worldwide revenue passenger miles ("RPMs")
and the percentage growth in RPMs, as reported in the March 1993 Boeing Current
Market Outlook--World Market Demand and Airplane Supply Requirements, and the
number of commercial aircraft (over 100 passengers), as reflected in Boeing
World Jet Airplane Inventory Year-End 1992 (after adjustment for deliveries of
aircraft to the military), delivered during each of the last 15 calendar years.
<TABLE>
<CAPTION>
COMMERCIAL
AIRCRAFT
PERCENT (OVER 100
WORLD RPMS GROWTH PASSENGERS)
YEAR (IN BILLIONS) IN RPMS DELIVERED
---- ------------- ------- -----------
<S> <C> <C> <C>
1979................................... 645.4 12.0% 407
1980................................... 652.0 1.0 442
1981................................... 662.4 1.6 431
1982................................... 683.7 3.2 287
1983................................... 714.9 4.6 320
1984................................... 771.2 7.9 265
1985................................... 831.1 7.8 346
1986................................... 888.0 6.8 393
1987................................... 983.9 10.8 418
1988................................... 1061.2 7.9 511
1989................................... 1097.6 3.4 563
1990................................... 1165.7 6.2 671
1991................................... 1133.6 (2.8) 830
1992................................... 1211.8 6.9 785
1993................................... 1298.7(a) 4.5(a) 628(b)
</TABLE>
- --------
(a) Estimated by the Company based upon data for the first eight months of
fiscal 1993 as reported by The Airline Monitor.
(b) Based upon Company estimates.
Commercial Aircraft Manufacturing Industry
As shown above, aircraft deliveries have been declining. The industry
delivered 830 new commercial transport aircraft in 1991, 785 in 1992 and 628 in
1993. In response to the deferral and cancellation of orders from their
customers, airframe and engine manufacturers have rescheduled future production
levels, laid off workers, shortened employee work periods, and passed
production slowdowns on to their suppliers, including the Company. Although
aircraft order backlog remains relatively high, excess capacity currently
exists in the airline industry due to the high number of deliveries in the
early 1990s, unused aircraft which were previously delivered and the weakened
condition of the airline industry. In connection with the current contraction
in the commercial aircraft industry, subcontractors such as the Company have
been experiencing pressures from their customers to reduce prices. The Company,
in turn, is exerting similar pressure on its own suppliers to reduce prices and
thus enable the Company to manufacture products at lower costs. The Company's
commercial airline customers have also reduced their spare parts inventory
levels. The Company expects that orders for and deliveries of commercial
aircraft will continue to be affected through calendar 1995 by the adverse
United States and world economic conditions which existed in recent periods.
36
<PAGE>
Government Sales
The Company's government business is declining as a result of the completion
of older production programs and, in the case of the Titan rocket motor casing
program, reduced demand. Government business represented 12% of the Company's
sales for the six months ended January 30, 1994, as compared to 13% in fiscal
1993, 14% in fiscal 1992 and 20% in fiscal 1991.
CONTRACTS
Most of the Company's major commercial contracts establish a firm unit price,
subject to cost escalation, over a number of years or, in certain cases, over
the life of the related program. Life-of-program agreements generally entitle
the Company to work as a subcontractor in the program during the entire period
the customer produces its aircraft or engine. While the customer retains the
right to terminate these long-term and life-of-program arrangements, there are
generally significant costs for doing so.
The Company's long-term contracts generally contain escalation clauses for
revising prices based on published indices which reflect increases in material
and labor costs. Furthermore, in almost all cases, when a customer orders
production schedule revisions (outside of a range provided in the contract) or
design changes, the contract price is subject to adjustment. These long-term
contracts provide the Company with an opportunity to obtain increased profits
if the Company can improve production efficiencies over time, and the potential
for significant losses if it cannot produce the product for the agreed upon
price.
The Company's other commercial contracts generally provide a fixed price for
a specified number of units which, in many cases, are to be delivered over a
specified period of time. Under these contracts, prices are re-negotiated for
each new order. As a result, the Company has the opportunity to negotiate price
increases for subsequent units ordered if production costs are higher than
expected. The Company's customers, however, may seek price reductions from the
Company in connection with any new orders they place.
On its longer-term contracts, the Company bases initial production prices on
estimates of the average cost for a portion of the units which it and its
customer believe will be ordered. Generally, production costs on initial units
are substantially higher during the early years of a new contract or program,
when the efficiencies resulting from learning are not yet fully realized, and
decline as the program matures. Learning typically occurs on a program as tasks
and production techniques become more efficient through repetition of the same
manufacturing operation and as management implements actions to simplify
product design and improve tooling and manufacturing techniques. If the
customer orders fewer than the expected number of units within a specified time
period, certain of the Company's contracts have repricing clauses which
increase the prices for units that have already been delivered. However, other
contracts do not include such repricing provisions and force the Company to
bear certain market risks. The Company analyzed the potential market for the
products under such contracts and agreed to prices based on its estimate of the
average costs for the units it expected to deliver under the program.
Many of the Company's contracts have provided for the recovery of a specified
amount of nonrecurring, pre-production costs, consisting primarily of design
and tooling costs. In some cases, a significant portion of such pre-production
costs have been advanced by the customer. However, in negotiating some
contracts, the Company has agreed to defer recovery of pre-production costs and
instead to recover a certain amount of such costs with the sale of each
production unit over an agreed number of production units plus spare
equivalents. In addition, on some of these contracts, based on its analysis of
the potential market for the products covered by such contracts, the Company
agreed to amortize pre-production costs over a number of units which was larger
than the anticipated initial fabrication orders without the protection of a
repricing clause or guaranteed quantities of orders. On
37
<PAGE>
other commercial contracts, the Company receives advance payments with orders,
or other progress or advance payments, which assist the Company in meeting its
working capital requirements for inventories. In government contracts, the
Company receives progress payments for both pre-production and inventory costs.
To reduce its pre-production and inventory requirements and market risks, the
Company has subcontracted substantial portions of several of its programs. See
"--Subcontractors."
In accordance with practices in the aircraft industry, most of the Company's
commercial orders and contracts are subject to termination at the convenience
of the customer and on many programs the tooling and design prepared by the
Company are either owned by the customer or may be purchased by it at a nominal
cost. The contracts generally provide, upon termination of firm orders, for
reimbursement of costs incurred by the Company, plus a reasonable profit on the
work performed. The costs of terminating an entire contract or program can be
significantly greater for the customer than the costs of terminating specific
firm orders. All of the Company's government contracts are subject to
termination at the convenience of the government. In such a situation, the
Company is entitled to recover the costs it incurred prior to termination, plus
a reasonable profit on the work performed. If a government contract is
terminated for default, the government's remedies against the Company are
similar to those for breach of a commercial contract.
PRODUCTS
General
The Company designs and manufactures nacelle systems, nacelle components,
pylons, non-rotating components for jet engines, and other components for
commercial, military and business aircraft. A nacelle system generally includes
the nose cowl or inlet, fan cowl, nozzle systems, thrust reverser and EBU. The
nacelle houses electrical, mechanical, fluid and pneumatic systems together
with various panels, firewalls and supporting structures; the aircraft engine
(which is provided by the customer); and engine equipment such as electrical
generators, starters, fuel pumps and oil coolers (which are purchased or
customer-furnished). The Company also performs EBU by assembling nacelle
systems and the related electrical, mechanical, fluid and pneumatic systems
onto core aircraft engines.
38
<PAGE>
[Insert Picture of Propulsion System Components]
39
<PAGE>
During fiscal 1993, sales to the commercial (including business jets) and
government (military and space) aerospace industries were approximately 87% and
13% of sales, respectively.
Commercial
The Company manufactures nacelle systems (including thrust reversers),
nacelle components and related parts for commercial aircraft pursuant to the
customer's design or to the Company's design based on the customer's
specifications. In addition, beginning in approximately 1985, the Company
expanded its role and became a systems integrator for nacelle systems on
several programs, with responsibility for the integration and management of the
design, tooling, manufacture and delivery of the complete nacelle system.
Approximately 85% of the existing commercial aircraft fleet contain one or more
Company products as part of their nacelle, thrust reverser or pylon systems.
The following tables identify all of the large commercial aircraft currently
in production or committed to production, list all of the engine options
available on such aircraft, and identify with an "X" the components which the
Company delivers on each aircraft and engine combination.
CURRENT NARROW-BODY AIRCRAFT
<TABLE>
<CAPTION>
NACELLE
- -------------------------------------------------------------------------------------
NOSE FAN CORE NOZZLE THRUST
AIRCRAFT ENGINE COWL COWL COWL & PLUG EBU REVERSER PYLON
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Boeing 737-3/4/500 CFM56-3 X X .
- -------------------------------------------------------------------------------------
Boeing 737-700 CFM56-7 * * .
- -------------------------------------------------------------------------------------
Boeing 757 RB211-535 X . X X X
------------------------------------------------------
PW2037 X
- -------------------------------------------------------------------------------------
McDonnell Douglas MD-80/-87 JT8D-209/-217 X X . . X X X
- -------------------------------------------------------------------------------------
McDonnell Douglas MD-90 V2500 X X . X X X
- -------------------------------------------------------------------------------------
Airbus A319 CFM56-5 X X . X X X
------------------------------------------------------
V2500 X X . X X X
- -------------------------------------------------------------------------------------
Airbus A320 CFM56-5 X X . X X X
------------------------------------------------------
V2500 X X . X X X
- -------------------------------------------------------------------------------------
Airbus A321 CFM56-5 X X . X X X
------------------------------------------------------
V2500 X X . X X X
- -------------------------------------------------------------------------------------
British Aerospace BAe 146 ALF502
- -------------------------------------------------------------------------------------
Fokker 100 RR TAY
</TABLE>
* The Company is negotiating with Boeing to supply these components under a
directed procurement.
. This nacelle configuration does not contain this component.
40
<PAGE>
CURRENT WIDE-BODY AIRCRAFT
<TABLE>
<CAPTION>
NACELLE
- ------------------------------------------------------------------------------
NOSE FAN CORE NOZZLE THRUST
AIRCRAFT ENGINE COWL COWL COWL & PLUG EBU REVERSER PYLON
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Boeing 747 CF6-80C X X X
---------------------------------------------------
PW4000
---------------------------------------------------
RB211-524G X
- ------------------------------------------------------------------------------
Boeing 767 CF6-80C X X X
---------------------------------------------------
PW4000
---------------------------------------------------
RB211-524H X
- ------------------------------------------------------------------------------
Boeing 777 GE90 X
---------------------------------------------------
PW4084
---------------------------------------------------
TRENT 800
- ------------------------------------------------------------------------------
Airbus A300 CF6-80C X X X X
---------------------------------------------------
PW4000 X X . X X X
- ------------------------------------------------------------------------------
Airbus A310 CF6-80C X X X X
---------------------------------------------------
PW4000 X X . X X X
- ------------------------------------------------------------------------------
Airbus A330 CF6-80E X X X X
---------------------------------------------------
PW4168
---------------------------------------------------
TRENT 700 X
- ------------------------------------------------------------------------------
Airbus A340 CFM56-5C2 X X . X X X
- ------------------------------------------------------------------------------
McDonnell Douglas MD-11 CF6-80C2 X X X X X
---------------------------------------------------
PW4000 X X . X X X X
</TABLE>
. This nacelle configuration does not contain this component.
41
<PAGE>
Principal Programs
- ------------------
The following descriptions provide more information on certain of the
Company's major programs. For more detailed financial data (including the
amounts of pre-production and excess-over average inventories at January 30,
1994) for certain programs, see "Notes to the Consolidated Financial
Statements--Note 4."
A340
The Company's 1989 contract with CFM International, the manufacturer of the
jet engine used on the Airbus A340, is a life-of-program contract. The Company
has delivered 182 production units to CFM International through January 30,
1994. The Company's contract establishes prices for the entire contract period,
subject to adjustment based on labor and material cost changes in the industry,
for each nacelle delivered. If the Company does not recover a contractually
specified amount of its nonrecurring costs by June 1997, CFM International will
reimburse it for the unamortized portion of such costs (and, correspondingly,
the Company will reimburse its subcontractors for the unamortized portions of
their investments, to contractually specified amounts, in nonrecurring tooling
and design). Although the contract provides for the recovery of recurring costs
over 600 units, CFM International only guaranteed the recovery of such costs
for the first 200 units. Accordingly, if the Company sells fewer than 600
units, it would not have manufactured enough units to bring its costs down to
anticipated levels and in such case would not recover all of its recurring
manufacturing costs. This is the only nacelle installed on the A340 aircraft.
The Company acts as the systems integrator on this program and has
subcontracted most of the A340 nacelle production to third parties. Generally,
the Company's subcontractors have assumed the market risk associated with the
failure to sell sufficient units to permit full recovery of all of their
manufacturing costs if less than 600 units are delivered. The Company performs
engine build-up for the CFM International engine used with this nacelle at its
factory in Toulouse, France. The Company has the right to sell A340 nacelle
spare parts directly to the airlines.
CF6-80C
Under the contract for the CF6-80C nacelle program entered in 1982 with
General Electric, the Company supplies the nacelle system, excluding the thrust
reverser, nozzle and plug, for installation with the General Electric CF6-80C
engine on the Airbus A300 and A310 and the McDonnell Douglas MD-11. In total,
the Company has delivered 1,499 production units through January 30, 1994. This
is a life-of-program agreement, although General Electric retains the right to
seek bids on the design and production of significantly modified CF6-80C
components. In addition, since 1983, the Company has sold CF6-80C nacelle
components directly to Boeing (under a license agreement with General Electric)
for installation with General Electric engines on Boeing 747 and 767 aircraft.
The Company's contract with Boeing runs through 1995; Boeing has an option to
renew the contract at that time. The sales prices to General Electric and
Boeing are established for the life of the program, subject to adjustment based
on material and labor cost changes in the industry. The Company has the right
to sell CF6-80C spare parts directly to the airlines. Although the Company
subcontracts some portion of this contract, most of the production effort is
performed by the Company.
CFM56
The Company acts as a systems integrator to provide the nacelle system to
Airbus for the CFM International engine installed on the A320 and A321 aircraft
and to be installed on the future A319 aircraft. Since entering the contract in
1984, the Company has delivered 626 production CFM56 nacelles through January
30, 1994. As on other programs in which the Company acts as systems integrator,
the Company subcontracts a major portion of the CFM56 nacelle system effort to
third parties. The Company also manufactures the inlet barrels for the nacelle.
It also performs engine build-up for this engine and nacelle combination at its
factory in Toulouse, France and intends to perform
42
<PAGE>
engine build-up for a version of this engine and nacelle combination at its
factory in Hamburg, Germany. The Company's sales prices to Airbus are
determined for a combined total of 2,000 units, subject to adjustment based on
labor and material cost changes in the industry. The Company has the right to
sell CFM56 nacelle system spare parts directly to airlines.
MD-11
Under its 1988 contract with McDonnell Douglas for the MD-11 pylon, the
Company supplies the wing and tail pylons that attach the General Electric CF6-
80C and Pratt & Whitney PW4000 nacelles onto the McDonnell Douglas MD-11 jumbo
jet. In total, the Company has delivered 364 production units through January
30, 1994. The contract entitles the Company to supply the first 900 pylons
(i.e. 300 shipsets) required by McDonnell Douglas. The contract establishes
prices for the units to be delivered, subject to adjustment based on labor and
material cost changes in the industry. On the basis of its market analysis of
demand for the MD-11 aircraft, the Company accepted certain market risks with
respect to the engineering, development and flight test costs on the MD-11
pylon program. The Company subcontracts the wing pylon structure and
aerodynamic pylon fairings. The Company's subcontractor assumed the market risk
associated with the pre-production costs for the subcontracted work. The
Company produces the tail pylon structure, installs all electrical, hydraulic
and pneumatic systems on the wing and tail pylons and provides pylon product
support (including the sale of spare parts) directly to the airlines who
purchase the MD-11.
MD-90
The Company acts as a systems integrator for the nacelle used with the
International Aero Engines V2500 engine on the McDonnell Douglas MD-90, an
aircraft currently undergoing flight certification. The Company has delivered
only the initial certification units on this program. The first production
units are scheduled for delivery in mid-1994. As with other programs on which
it acts as a systems integrator, the Company subcontracts a substantial portion
of the MD-90 nacelle effort to third parties, retaining production of the
nozzle and other parts and engine build-up services. The Company's 1990
contract with International Aero Engines specifies that the Company shall be
the sole source for the first 750 MD-90 nacelles. The Company's contract
establishes prices, subject to adjustments based on labor and material cost
changes in the industry, for MD-90 nacelles through the year 2010. This is the
only engine and nacelle combination used on the MD-90. Based upon its analysis
of the market for the MD-90, the Company accepted certain market risks in the
contract for this nacelle. As a result, if the Company sells fewer MD-90
nacelles than it assumed for pricing purposes, it would not receive sufficient
payments from International Aero Engines to offset its pre-production costs and
would not receive retroactive price increases to compensate it for production
costs on delivered units that are higher than expected average production costs
over the life of the program. The Company's subcontractors on the MD-90 nacelle
have assumed those market risks associated with pre-production and higher-than-
average initial production costs on the components they manufacture. The
Company has the right to sell MD-90 nacelle spare parts directly to the
airlines.
PW4000
Under the PW4000 nacelle program, the Company produces substantially the
entire nacelle system, including thrust reverser (except for the tail fan cowl
for the MD-11, which is subcontracted). An existing contract was amended in
1985 to include this program, and the Company has delivered 556 production
units to its customer, Pratt & Whitney, through January 30, 1994. The Company
is currently developing design changes intended to result in cost savings on
this program. The PW4000 nacelle is installed on the Airbus A300 and A310 and
the McDonnell Douglas MD-11. The Company has the right to produce PW4000
nacelles through 2002 and has negotiated prices, subject to adjustment based on
cost changes in the industry, through the 1,117th unit (or through the year
2002,
43
<PAGE>
if sooner). The contract provides for an equitable price adjustment if 500
units are not delivered after January 1993 and prior to December 31, 2002. The
Company sells PW4000 spare parts to Pratt & Whitney, which remarkets them to
the airlines.
RB211-535
Since entering a production contract with Rolls-Royce in 1978, the Company
has delivered approximately 708 production units of the RB211-535 nacelle
through January 30, 1994. The Company manufactures substantially all of the
components under this program, which includes the fan cowl, nozzle and plug and
thrust reverser for installation on Boeing 757 aircraft. Under the contract,
the Company has the right to produce the nacelle through the earlier of January
2001 or the delivery of 1,000 units. The Company's contract gives it the right
to compete to produce variations of RB211-535 nacelle components for
installation on other aircraft. It is possible that the RB211-535 engine and
nacelle may be installed as replacement equipment on the Tupolov 204 to improve
its performance and efficiency. The Company's contract with Rolls-Royce
establishes prices for the entire contract period, subject to adjustment based
on labor and material cost changes in the industry. The Company has the right
to sell RB211-535 nacelle spare parts directly to the airlines.
V2500
The Company also acts as a systems integrator on the nacelle it provides for
the International Aero Engines V2500 engine. It subcontracts a major portion of
the V2500 nacelle effort to third parties. The Company manufactures the thrust
reverser inner fixed structure and the nozzle and plug, and performs engine
build-up for this engine and nacelle combination at its factories in Toulouse,
France and Hamburg, Germany. This engine and nacelle combination is installed
on the Airbus A320 and A321 aircraft. Since entering the contract in 1985, the
Company has delivered 327 production V2500 nacelles to International Aero
Engines through January 30, 1994. The Company's sales prices to International
Aero Engines are established for the entire contract period, subject to
adjustment based on labor and material cost changes in the industry. Based upon
its analysis of the market for this engine and nacelle combination, the Company
accepted certain market risks in the contract for this nacelle. As a result, if
the Company sells fewer V2500 nacelles than it assumed for pricing purposes, it
may not receive sufficient payments from International Aero Engines to offset
its pre-production costs (primarily tooling and design). In addition, the
Company would have delivered units at prices below the expected average
production costs over the life of the program and may not receive retroactive
price increases on the delivered units to reflect their actual costs. The
Company's subcontractors on the V2500 nacelle have assumed those market risks
associated with pre-production and higher-than-average initial production costs
for the components they manufacture. The contract, which was entered into in
March of 1985, provides that it may be terminated by either party upon two
years' written notice, but not earlier than ten years from the contract date.
In accordance with that provision, the Company has notified International Aero
Engines that it will not continue the program under the current contractual
terms for orders received after mid-year 1995. The Company and International
Aero Engines are discussing possible alternative contractual arrangements under
which the Company would continue on this program. The Company has the right to
sell V2500 nacelle spare parts directly to the airlines.
Government (Military and Space)
For military aircraft, the Company manufactures nacelles for the Lockheed
Corporation ("Lockheed") C-130 propjet transport aircraft and nacelle
components for re-engining of existing Boeing KC-135 military aerial refueling
tankers. For the U.S. space program, the Company is delivering solid fuel
rocket motor nozzles and insulated casings for boosters which are used on the
Titan Space Launch Vehicle.
44
<PAGE>
Spare Parts
The Company sells spare parts for both commercial and military aircraft,
including those for aircraft in use but no longer in production. Such sales
were approximately $227 million in fiscal 1991, $192 million in fiscal 1992,
$169 million in fiscal 1993 and $66 million in the first six months of fiscal
1994. The Company generally attributes recent reductions in spares sales to the
surplus aircraft in the current marketplace. As a result of such surplus,
aircraft deliveries have declined and the initial spares sold to support newly
delivered aircraft have also declined. In addition, airlines are maintaining
lower spares levels; the existence of surplus aircraft has reduced the need for
spares supplies sufficient to keep an airline's entire fleet in operation.
Also, improved production quality appears to have reduced spares requirements.
Historically, the Company has sold spare parts for commercial programs to
airframe or engine manufacturers which then resold them to the end user.
However, in recent years, under certain programs, the Company has acquired the
right from its customers to sell spare parts directly to airlines (although on
certain programs royalty payments to its customers are required). The contracts
that grant these rights to the Company generally require that the Company
provide technical and product support directly to the airlines. Thus, the
Company has the right to provide customer and product support directly to
approximately 145 airlines worldwide. The Company's direct sales of spare parts
to the airlines are expected to increase in the future as nacelle programs on
which the Company sells spare parts directly to the airlines mature and as the
aircraft using those nacelles age. Generally, the Company earns a higher margin
on the direct sale of spare parts to airlines than it does on the sale of spare
parts to prime contractors (for resale to the airlines). Prices for direct
spare part sales are higher than prices for spare parts sold to prime
contractors, in part, because of additional costs related to the technical and
customer support activities provided to the airlines. The Company's direct
sales of spare parts as a percentage of total sales of spare parts were 48.7%,
36.6%, 27.4% and 18.8% in the first half of fiscal 1994 and in fiscal 1993,
1992 and 1991, respectively.
PROGRAM FUNDING
The highly competitive nature of the aerospace market has required the
Company to commit substantial financial resources, largely for working capital,
to participate with its customers on certain long-term programs. Those working
capital requirements consist primarily of nonrecurring pre-production costs
such as design and tooling, recurring costs for inventories and accounts
receivable.
In some cases, a significant portion of the pre-production costs have been
advanced by the customer. However, in negotiating some contracts, the Company
has agreed to defer recovery of pre-production costs and instead to recover a
certain amount of such costs with the sale of each production unit over an
agreed number of production units plus spares equivalents. On some commercial
contracts, the Company receives advance payments with orders, or other progress
or advance payments, which assist the Company in meeting its working capital
requirements for inventories. In government contracts, the Company receives
progress payments for both pre-production and inventory costs. To reduce both
its pre-production funding requirements and the build-up of program
inventories, the Company has entered into agreements with subcontractors to
provide a portion of the program funding needs and has subcontracted to these
entities substantial portions of many of its programs. See "--Subcontractors."
Advances and progress payments have varied in the past and are subject to
change in the future based on changes in both commercial and government
procurement practices and governmental regulations. Any future change could
affect the Company's need for program funding.
Accounts receivable balances vary in accordance with various payment terms
and other factors including the periodic receipt of large payments from
customers for reimbursement of nonrecurring costs or for amounts which had been
deferred pending aircraft certification.
45
<PAGE>
Given the large number of major commercial aircraft programs introduced since
1985, and the present industry environment, the Company expects few new
programs to be introduced within the next several years and, accordingly, the
Company believes that its financing requirements for new programs have been
reduced as compared to prior periods.
The Company's primary sources of program funding have been funds generated
from operations and borrowings. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
MANUFACTURING
The Company's products are manufactured and assembled at its facilities in
the United States and Europe by an experienced workforce. The Company considers
its facilities and equipment generally to be in good operating condition and
adequate for the purpose for which they are being used. In addition, it has a
substantial number of raw material suppliers and numerous subcontractors to
produce components, and in some cases, major assemblies.
The Company has state-of-the-art capabilities, and one of the largest
capacities in the aircraft industry, for metal and composite bonding of
lightweight honeycomb panels used in its nacelles, pylons and thrust reversers.
In its bonding process, the Company uses autoclaves (industrial ovens), which
are up to 20 feet in diameter and 35 feet long, to cure adhesives and
composites under controlled pressures up to 20 atmospheres and temperatures up
to 850 degrees Fahrenheit. The Company also employs other heavy equipment, such
as fluid forming presses which use highly pressurized oil to form sheet metal
against single-sided dies at pressures up to 20,000 pounds per square inch and
other traditional hydraulic forming equipment, to create the highly specialized
parts used in its products. The Company uses state-of-the-art superplastic
forming to heat metal until it is pliable and then to form it under gas
pressure into a complex part; utilizes advanced laser cutting in a variety of
applications; and has established modern assembly operations in its satellite
plants.
The Company's European final assembly sites, which are located adjacent to
the Company's major European customer, Airbus, allow the Company to respond
quickly to this customer's needs. The Company believes that these European
sites provide it with advantages in obtaining certain contracts with Airbus
because they allow the Company to perform a portion of the required work in
Europe.
PRINCIPAL CUSTOMERS
Rohr conducts substantial business with each of the three major commercial
airframe manufacturers: Boeing, Airbus and McDonnell Douglas. In addition, Rohr
conducts business with each of the major commercial jet engine manufacturers:
General Electric, Rolls-Royce, Pratt & Whitney, CFM International (a
corporation jointly owned by General Electric and Societe Nationale d'Etude et
de Construction de Moteurs d'Aviation) and International Aero Engines (a
corporation owned by Rolls-Royce, Pratt & Whitney, Fiat Aviazione, SpA,
Japanese Aero Engines Corporation and MTU Motoren und Turbinen Union Munchen
GmbH). With respect to government (military and spares) sales, the Company's
major customers include Boeing, Lockheed, United Technologies Corporation
(Chemical Systems Division) and the United States government.
46
<PAGE>
The Company's direct sales to its major customers, including related program
spares, expressed as a percentage of total sales, during the following periods
are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED JULY 31,
----------------------- ----------------
JANUARY 30, JANUARY 31,
1994 1993 1993 1992 1991
----------- ----------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Pratt & Whitney....................... 17% 19% 17% 15% 16%
General Electric...................... 16 12 14 12 12
International Aero Engines............ 15 8 9 7 4
CFM International..................... 9 8 8 2 --
McDonnell Douglas..................... 8 13 11 18 14
Boeing................................ 8 11 11 15 14
Rolls-Royce........................... 8 6 8 7 8
Lockheed.............................. 4 2 3 3 3
Airbus Industrie...................... 2 8 6 8 12
U.S. Government*...................... 1 1 1 2 4
Grumman............................... 0 0 0 1 6
Other................................. 12 12 12 10 7
--- --- --- --- ---
100% 100% 100% 100% 100%
</TABLE>
- --------
* Total sales to the U.S. Government (including direct sales and indirect
sales through prime contractors) accounted for 12%, 11%, 13%, 14% and 20%
for the first six months in fiscal 1994 and 1993, and in fiscal 1993,
1992 and 1991, respectively.
The Company's percentage of total sales by customer varies from period to
period based upon the mix of products delivered in such periods.
Commercial products sold by the Company to jet engine manufacturers are
ultimately installed on aircraft produced by one of the three major commercial
airframe manufacturers. Sales to foreign customers accounted for 23%, 25%,
25%, 22% and 21% for the first six months of fiscal 1994 and 1993, and for
fiscal 1993, 1992 and 1991, respectively.
BACKLOG
The Company's backlog is significant to its business because the production
of most Company products involves a long lead time from order to shipment
date. Firm backlog represents the sales price of all undelivered units for
which the Company has fabrication authority. Firm backlog includes units
ordered by a customer although the Company and the customer have not yet
agreed upon a sales price. In such cases, the Company records in backlog an
amount it believes (based upon all available information) is a reasonable
price estimate. The Company also reports anticipated backlog, which represents
the sales price of units which the Company expects (based upon all available
information) that its customers will order under existing contracts and the
Company will deliver within the next seven years.
The Company's firm backlog at January 30, 1994, was approximately $1.3
billion, compared to $1.4 billion at July 31, 1993. Of such backlog,
approximately $0.4 billion is scheduled for delivery on or before July 31,
1994, with the balance to be delivered in subsequent periods. A portion of the
Company's expected sales from January 30, 1994, through July 31, 1994, is not
included in firm backlog. Anticipated backlog approximated $2.7 billion at
January 30, 1994 compared to $2.6 billion at July 31, 1993.
All of the Company's firm and anticipated backlog is subject to termination
or rescheduling at the customer's convenience. The Company's contracts
generally provide for reimbursement of costs incurred, plus a reasonable
profit on such costs, with respect to any firm orders that are terminated.
Historically, it has been rare for a customer to cancel units in firm backlog
because of its obligations to the Company with respect to such units and its
obligations to suppliers of components other than nacelles and pylons, who
frequently are producing concurrently components for use with the units
ordered from the Company.
47
<PAGE>
MARKET SHARE AND COMPETITION
The Company believes that, based upon its estimates of market values, it
supplied approximately 45% of the nacelle, thrust reverser and engine build-up
products (approximately 70% excluding products produced by Boeing for its own
aircraft), and over 25% of the jet engine pylons (approximately 90% excluding
pylons produced by Boeing and a partner of Airbus for Boeing and Airbus
aircraft, respectively), delivered to the commercial aircraft market in 1993.
The Company's share of these market segments includes the value of products
produced by the Company's subcontractors and is subject to fluctuation each
year depending upon the mix of aircraft models delivered to customers.
Approximately 85% of the existing commercial aircraft fleet contain one or more
Company products on their nacelle, thrust reverser or pylon systems. The
Company sells products and services to the three major commercial airframe
manufacturers, to the five major jet engine manufacturers and, in the case of
spare parts and certain product support services, to a substantial number of
airlines. The Company's commercial products represented 87% of its business in
the fiscal year ended July 31, 1993. Market discussions and references to
aircraft production exclude consideration of the markets in the former U.S.S.R.
Over the next several years, the Company expects its key subcontractors to
produce components and, in some cases, major assemblies, representing
approximately one-third of the value of the products and services to be
delivered by the Company during such period. See "Subcontractors."
The Company's principal competition is Boeing (which in addition to being a
Company customer also manufactures nacelle systems and pylons for its own
aircraft), other significant aerospace corporations who have development and
production experience with respect to portions of the nacelle system and the
companies to whom the Company has subcontracted various components and who
could (and have) bid on contracts in competition with the Company. See "--
Subcontractors." Military aerospace contractors are also potential competitors,
as excess capacity created by reductions in defense spending could cause some
of these contractors to look to expand in commercial markets.
The Company believes that its capabilities and technology, which range from
research and development through component design and testing, flight
certification assistance, component production and integration and airframe
production line assistance, contribute significantly to its market position.
The Company also believes that its contractual rights to participate on
programs for long periods of time or, in some cases, over the life of programs
also contribute to the maintenance of its market position. See "--Contracts."
Even with respect to its shorter term contracts, the Company is very likely
to continue working as a subcontractor for the prime contractors well beyond
the end of the existing shorter term contracts. The Company has long standing
relationships with all of its significant customers. The Company's continued
participation on existing programs provides cost advantages to the prime
contractors because it avoids the cost of disassembling, moving, reassembling
and recalibrating the customized tooling used to manufacture aerospace products
which would be necessary if a program were transferred to a new subcontractor
at the end of a short-term contract. In addition, the delays inherent in such
transfer are likely to disrupt the prime contractor's own production schedule
as the flow of deliveries from the subcontractor is interrupted during the
transfer. It is also generally more expensive for a new subcontractor to begin
producing products in the middle of an existing program than it is for the
Company to continue producing the required products. A new subcontractor's
employees must learn program specific tasks with which the Company's employees
will already be familiar. See "Contracts." As a result of all of these factors,
it is very unusual for a prime contractor to shift a major aerospace
subcontract from one manufacturer to another at the end of a short-term
contract.
Competitive factors include price, quality of product, design and development
capability, ability to consistently achieve scheduled delivery dates,
manufacturing capabilities and capacity, technical
48
<PAGE>
expertise of employees, the desire or lack thereof of airframe and engine
manufacturers to produce certain components in-house, and the willingness, and
increasingly the ability, of the Company and other nacelle manufacturers to
accept financial and other risks in connection with new programs.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are designed to improve its
existing products and manufacturing processes, to enhance the competitiveness
of its new products, and to broaden the Company's aerospace product base.
Most of its product development is funded through regular production
contracts. The Company developed the world's first all composite nacelle and
its large cascade thrust reverser technology under such contracts. The Company
also performs self-funded research and development through which it developed
proprietary products which control noise and prevent ice formation on nacelles.
The Company seeks research and development contracts from the U.S. government
and from commercial customers in targeted areas of interest such as composite
materials and advanced low-cost processing and joining of new materials. From
time to time, the Company also enters into joint research and development
programs with its customers, such as its existing laminar flow nacelle study,
which seeks to significantly reduce the aerodynamic drag of nacelles and
thereby reduce fuel consumption.
PATENTS AND PROPRIETARY INFORMATION
The Company has obtained patents and developed proprietary information which
it believes provide it with a competitive advantage. For example, the Company
holds patents on the DynaRohr family of honeycomb sound attenuation structures,
the state-of-the-art RohrSwirl system which prevents ice formation on the
leading edges of nacelles and bonding processes for titanium and other metals.
In addition, the Company has developed proprietary information covering such
matters as nacelle design, sound attenuation, bonding of metallic and advanced
composite structures, material specifications and manufacturing processes. The
Company protects this information through invention agreements and
confidentiality agreements with its employees and other third parties. Although
the Company believes that its patents and proprietary information allow it to
produce superior products, it also believes that the loss of any such patent or
disclosure of any item of proprietary information would not have a material
adverse effect on the Company.
RAW MATERIALS AND SUPPLIERS
The principal raw materials used by the Company are sheet, plate, rod, bar,
tubing, and extrusions made of aluminum, steel, Inconel and titanium;
electrical wire; rubber; adhesives; and advanced composite products. The
principal purchased components are aircraft engine equipment, custom machined
parts, sheet metal details, and castings and forgings. All of these items are
procured from commercial sources. Supplies of raw materials and purchased parts
historically have been adequate to meet the requirements of the Company.
However, from time to time, shortages have been encountered, particularly
during high industry production and demand. While the Company endeavors to
assure the availability of multiple sources of supply, there are many instances
in which, either because of a customer requirement or the complexity of the
item, the Company may rely on a single source. The failure of any of these
single source suppliers or subcontractors to meet the Company's needs could
seriously delay production on a program. The Company monitors the delivery
performance, product quality and financial health of its critical suppliers,
including all of its single source suppliers. Over the last ten years, which
includes the period from 1987 through 1991 when the Company's sales grew
rapidly, there have been occasions of periodic, short-term delays from
suppliers, but none of these delays has had a material adverse effect on the
Company or its ability to deliver products to its customers.
49
<PAGE>
SUBCONTRACTORS
Both to reduce the burden and risk of program investments, and also in some
cases to participate in foreign programs, the Company has subcontracted the
design, development and production of substantial portions of several of its
major contracts to other foreign and domestic corporations. In return, those
companies provided a portion of the investment and assumed a portion of the
risk associated with various of the Company's contracts. See "--Products--
Commercial," "--Market Share and Competition" and "--Program Funding."
The Company's performance and ultimate profitability on these programs is
dependent on the performance of its subcontractors, including the timeliness
and quality of their work, as well as the ability of the Company to monitor and
manage its subcontractors.
EMPLOYEES
At January 30, 1994, the Company had approximately 5,150 full-time employees,
of whom approximately 1,710 were represented by the International Association
of Machinists and Aerospace Workers, and approximately 190 were represented by
the International Union, United Automobile, Aerospace and Agricultural
Implement Workers of America. Collective bargaining agreements between the
Company and these labor unions expire on February 11, 1996 and October 29,
1995, respectively. The Company considers its relationship with its employees
generally to be satisfactory.
PROPERTIES
All owned and leased properties of the Company are generally well maintained,
in good operating condition, and adequate and sufficient for the Company's
business. The Company's properties are substantially utilized; however, due to
the downturn in the aerospace industry, the Company has excess manufacturing
capacity. All significant leases (except for leases associated with industrial
revenue bond financings) are renewable at the Company's option on substantially
similar terms, except for increases of rent which must be negotiated in some
cases. See "Notes to the Consolidated Financial Statements--Note 8."
50
<PAGE>
The following table sets forth the location, principal use, approximate size
and acreage of the Company's major production facilities. Those which are
owned by the Company and it subsidiaries are owned free of material
encumbrances, except as noted below:
<TABLE>
<CAPTION>
OWNED LEASED
----------------------- -----------------------
APPROXIMATE APPROXIMATE
TYPE OF SQUARE FEET APPROXIMATE SQUARE FEET APPROXIMATE
FACILITY(1) OF FACILITY ACREAGE OF FACILITY ACREAGE
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Alabama
Fairhope(2)(3)........ A,B 123,000 70.6 -- --
Foley(2).............. A,B 341,000 163.7 -- --
Arkansas
Arkadelphia(4)........ A,B 225,000 65.2 -- --
Heber Springs(2)...... A,B 161,000 70.5 -- --
Sheridan(2)........... A,B 155,000 79.4 -- --
California
Chula Vista........... A,B,C,D 2,789,000 98.5 215,000 78.4
Moreno Valley......... A,B,C 244,000 37.5 -- --
Riverside............. A,B,C,D 1,150,000 75.3 152,000 15.1
France
Toulouse/St. Martin... A,B 132,000 7.0 18,000 3.2
Toulouse/Gramont(2)... A,B 170,000 23.0 -- --
Germany
Hamburg............... A,B 28,000 5.3 -- --
Maryland
Hagerstown(3)(5)...... A,B 423,000 56.8 6,200 --
Texas
San Marcos............ A,B 169,000 55.0 -- --
Washington
Auburn(3)(6).......... A,B 87,000 23.8 -- --
--------- ----- ------- ----
Approximate Totals.... 6,197,000 831.6 391,200 96.7
========= ===== ======= ====
</TABLE>
- --------
(1) The letters indicated for each location describe the principal activities
conducted at that location: A-Office; B-Manufacturing; C-Warehouse; and D-
Research and Testing.
(2) Subject to a capital lease.
(3) The Company is in the process of selling or seeking to sell this facility.
(4) The completion of construction of this facility has been deferred.
(5) The Company has announced that it will close this facility.
(6) The Company has closed this facility.
51
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The names, ages and positions of the directors and officers of the Company
are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James J. Kerley............. 71 Chairman of the Board
Robert H. Rau............... 57 President, Chief Executive Officer and Director
Wallace Barnes.............. 68 Director
Wallace W. Booth............ 71 Director
Prof. Eugene E. Covert...... 68 Director
Wayne M. Hoffman............ 71 Director
Dr. D. Larry Moore.......... 57 Director
Robert M. Price............. 63 Director
Dr. William P. Sommers...... 60 Director
Dr. Jack D. Steele.......... 69 Director
John R. Johnson............. 56 Senior Vice President, Programs and Support
Graydon A. Wetzler.......... 52 Senior Vice President, Operations
Richard W. Madsen........... 55 Vice President, General Counsel and Secretary
Alvin L. Majors............. 53 Vice President and Controller
Ronald M. Miller............ 49 Vice President and Treasurer
</TABLE>
MR. KERLEY became Chairman of the Board, Chief Executive Officer and Chief
Financial Officer on January 7, 1993. On April 19, 1993, he relinquished the
title of Chief Executive Officer and on October 31, 1993, he relinquished the
title of Chief Financial Officer when he ceased being an employee of the
Company. He chairs the Finance Committee of the Company's Board of Directors,
is a member of its Nomination and Management Succession Committee, and, as the
non-employee Chairman of the Board, serves on all other committees of the Board
as an ad-hoc, non-voting, member. He retired as Vice Chairman of Emerson
Electric Company, St. Louis, Missouri, at the end of 1985, and from its Board
of Directors in February 1987, positions he had held since September 1981. He
also served as the Chief Financial Officer at Emerson Electric Company from
September 1981 to March 1984 and as the Chief Financial Officer of Monsanto
Company from September 1971 to August 1981. He has served on the Board of
Directors of approximately 25 publicly held companies during his career and
currently serves as a director of Sterling Chemicals, Inc.; Kellwood Company;
ESCO Electronics Corporation, Borg Warner Automotive, Inc. and DTI Industries,
Inc. He has been a director of Rohr since October 1980, and previously served
as a director from June 1976 to February 1980.
MR. RAU was elected President and Chief Executive Officer of the Company in
April 1993. Prior to joining the Company, Mr. Rau was an Executive Vice
President of Parker Hannifin Corporation and for the past ten years served as
President of the Parker Bertea Aerospace segment of Parker Hannifin. Parker
Bertea designs and produces a broad line of hydraulic, fuel and pneumatic
systems and components for commercial, military and general aviation aircraft.
He joined Parker Hannifin in 1969, and held positions in finance, program
management and general management. Mr. Rau has extensive experience in the
aerospace industry. In addition, Mr. Rau is a member of the Board of Governors
of the Aerospace Industries Association. He was appointed a director of the
Company in April 1993.
MR. BARNES has been the Chairman of Barnes Group Inc. since March 1977, was
Chief Executive Officer from 1977 to 1991, and served as President of that
company from 1964 to 1977. Barnes Group, headquartered in Bristol, Connecticut,
is a publicly traded Fortune 500 company with three groups involved in
automotive maintenance and repair parts, precision springs and custom metal
parts, and aerospace components for gas turbine engines. He was appointed a
director of the Company in February 1989. He is also a director of Aetna Life &
Casualty Co., Loctite Corporation, Rogers Corp., and BGI. He serves on the
Audit and Ethics Committee of the Company's Board of Directors, its
Compensation and Benefits Committee and its Technology Committee.
52
<PAGE>
MR. BOOTH retired as Chairman of the Board of Ducommun Incorporated, Los
Angeles, California, in December 1988. From June 1978 until July 1988 he served
as Chairman of the Board, President and Chief Executive Officer and a director
of that company. Mr. Booth has been a director of Rohr since February 1982. He
is also a director of Litton Industries, Inc.; First Interstate Bank of
California; and Navistar International Corporation. He is a Trustee of the
University of Chicago. Mr. Booth is also a director of the Children's Bureau
Foundation of Southern California. He serves on the Compensation and Benefits
Committee of the Company's Board of Directors and its Finance Committee.
PROFESSOR COVERT has been a Professor in the Department of Aeronautics and
Astronautics of the Massachusetts Institute of Technology, Cambridge,
Massachusetts, since 1968, and from 1985 to 1990, he served as Department Head.
Professor Covert is also a consultant to a number of major corporations as well
as to agencies of the United States and foreign governments. He is a director
of Allied-Signal Corp. and Physical Sciences, Inc., and a member of the
American Institute of Aeronautics and Astronautics. He has been a director of
Rohr since December 1986, and serves on the Audit and Ethics Committee of the
Company's Board of Directors and its Technology Committee.
MR. HOFFMAN is the former Chairman of Tiger International, Inc., and Flying
Tiger Line, Los Angeles, California, having served in those positions beginning
in September 1967 until his retirement in March 1986. Between March 1978 and
August 1985, he also served as Chief Executive Officer and from August 1973 to
August 1985, he served as President of Tiger International, Inc. He is also a
director of SunAmerica, Inc., and trustee of Aerospace Corporation. He has been
a director of Rohr since December 1982, and serves on the Audit and Ethics
Committee of the Company's Board of Directors and its Nomination and Management
Succession Committee.
DR. MOORE has been the President and Chief Operating Officer of Honeywell,
Inc., a provider of electronic automation and control systems located in
Minneapolis, Minnesota, since April 1993. From December 1990, until assuming
his current position, he served as Executive Vice President and Chief Operating
Officer of that company. Dr. Moore has been employed by Honeywell, Inc., since
December 1986 having also served as President of its Space Aviation Division.
Dr. Moore was appointed a director of the Company on December 7, 1991. He is
also a director of Honeywell, Inc.; the General Aviation Manufacturing
Association; the Aerospace Industries Association; the National Association of
Manufacturers; and Abbott Northwestern Hospital in Minneapolis, Minnesota. He
serves on the Finance Committee of the Company's Board of Directors and its
Nomination and Management Succession Committee.
MR. PRICE has been a business consultant to a number of major American
corporations since January 1990, when he retired as Chairman of Control Data
Corporation (now renamed Ceridian), Minneapolis, Minnesota. He was named
President and Chief Operating Officer of Control Data Corporation in 1980, and
Chairman and Chief Executive Officer in 1986, continuing as President until
1988. He is also a director of International Multifoods, Premark International,
and Public Service Co. of New Mexico. Additionally, he is a Chairman of the
Alpha Center for Public and Private Initiatives and serves on the boards of the
Minnesota Opera, the Minneapolis United Way, and the Duke University's Fuqua
School of Business Board of Visitors. He was appointed a director of the
Company on June 7, 1991. He serves on the Compensation and Benefits Committee
of the Company's Board of Directors and its Technology Committee.
DR. SOMMERS has served as the President and Chief Executive Officer of SRI
International since January 1994. SRI International is one of the world largest
contract research firms, employing more than 2,000 professionals engaged in
research in areas including engineering, science and technology, business and
policy. Prior to joining SRI International, Dr. Sommers was Executive Vice
President of Iameter, Inc., a firm specializing in health care quality and cost
control. From 1973 until joining Iameter in 1972, he served as a Senior Vice
President, director and member of the Office of the Chairman of Booz.Allen &
Hamilton, Inc., San Francisco, California, having served in other senior
management positions with that firm since 1963. Dr. Sommers has extensive
experience as a management
53
<PAGE>
consultant to some of the world's largest technology-based manufacturing and
service firms. He was appointed a director of the Company on September 9, 1992.
He is a member of the board of trustees of the Kemper Mutual Funds and a
director of Therapeutic Discovery Corp. He serves on the Finance Committee of
the Company's Board of Directors and its Technology Committee.
DR. STEELE is the former Chairman, Board Services Division, Korn Ferry
International, Los Angeles, California, a position he assumed in June 1987.
From 1975 to 1986, he was the Dean, School of Business Administration,
University of Southern California, Los Angeles, California. He has held
professorships at Texas Tech University, the University of Kansas, Stanford
University, and Harvard University. He is an author in the marketing and
business fields and a consultant to a number of major American corporations. He
is also a director of Glendale Federal Bank; Storage Properties, Inc.; and
Public Storage, Inc. He has been a director of Rohr since December 1976, and
serves on the Finance Committee of the Company's Board of Directors and its
Nomination and Management Succession Committee.
MR. JOHNSON has served as Senior Vice President, Programs and Support since
March 1, 1993. Prior to that and since April 1982, he has served in other
senior management positions. He joined the Company in September 1979.
MR. WETZLER has served as Senior Vice President, Operations since January
1994. Prior to that and since April 1986, he has served as Vice President of
Technology, Assembly Plant Operations and Information Systems at various times.
He has been an employee of the Company since 1979.
MR. MADSEN has served as Vice President, General Counsel and Secretary since
December 5, 1987. Prior to that and since August 1979, he served as Secretary
and Corporate Counsel and has been an employee of the Company since 1974.
MR. MAJORS has served as Vice President and Controller (Chief Accounting
Officer) since May 1989. Prior to that and since December 1987, he served as
the Company's Controller. Prior to that and since 1971, he has served in other
senior management positions. He has been an employee of the Company since 1971.
MR. MILLER has served as Vice President and Treasurer since May 1989. Prior
to that and since December 1987, he served as the Company's Treasurer and has
been an employee of the Company since February 1969.
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LEGAL AND ENVIRONMENTAL PROCEEDINGS
C-5 LITIGATION
During fiscal year 1992, the U.S. Air Force filed a termination notice for
alleged default under the C-5 spare pylon contract, and the Company then
commenced the appeal process to convert the termination to one for convenience
of the government. Contemporaneously, the Company filed a notice of breach of
contract with the government on the C-5 spare pylon contract. The Company also
filed a variety of actions before the Armed Services Board of Contract Appeals
("ASBCA") requesting payment of sums owed the Company due to the government's
imposition of redefined acceptance criteria under the C-5 pylon program and the
KC-135 re-engining program. The Company also recorded special provisions for
this matter in prior periods.
Following the end of the Company's fiscal 1994 second quarter, the Company
and the U.S. Air Force settled all of these disputes. The most significant
aspects of this settlement were:
(1) The C-5 spare pylon contract will be converted to termination for
government convenience, and the Company will retain approximately $27.3
million of unliquidated progress payments previously made by the U.S. Air
Force.
(2) The Company will retain most of the C-5 spare pylon work-in-process
and raw material inventories.
(3) The Company will provide a warranty on certain, specified C-5 pylon
panels which will end for each panel seven years after the original
delivery date for such panel to the Air Force. The original delivery dates
for the warranted panels range from 1989 to 1991. The Company has
established a reserve for this warranty obligation.
U.S. ATTORNEY INVESTIGATION
Contemporaneously with the C-5 settlement with the U. S. Air Force discussed
above, the Company and the United States Attorney for the Central District of
California settled the civil aspects of an investigation, which had been on-
going since 1990, concerning the production of parts, the recording of
information which is a part of that production process, and the testing
practices utilized by the Company on many programs. The Company cooperated
fully in the investigation and does not believe there was any adverse effect on
the safety or utilization of its products. The Company recorded special
provisions in prior periods reflecting its assessment of the ultimate costs
which it believed would be incurred. Under this settlement the Company will pay
$4 million to the U.S Attorney's office. In connection with these settlements,
a recently unsealed qui tam lawsuit filed by former employees against the
Company on behalf of the U.S. Government with respect to certain of the
activities that had been under investigation has been dismissed with prejudice.
The criminal aspects of this matter are pending a pre-sentencing report to a
judge in the U.S. District Court in Los Angeles. The Company's plea of making
eight false statements, under which it has agreed to pay approximately $3.7
million, is conditioned upon judicial approval of the settlement agreement. In
connection with this matter, the Company is also engaged in discussions with
government officials who have the discretion to temporarily suspend or to debar
the Company from entering into government contracts in the future. The
discussions are designed to demonstrate that the Company is a presently-
responsible contractor and that it should be entitled to continue to be
eligible to receive additional governmental contracts.
RECEIVABLES AND INVENTORIES
Accounts receivable and inventories include estimated recoveries on
constructive change claims the Company has asserted against the United States
Navy with respect to the F-14 and E3/E6 programs because of costs the Company
incurred as a result of government imposed redefined acceptance criteria.
Management believes that the amounts reflected in the financial statements are
a reasonable estimate of the amount for which these matters will be settled.
The resolution of these
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matters may take several years. See "Notes to the Consolidated Financial
Statements--Note 3." The Company is vigorously pursuing these claims and
believes, based on currently available information, that the ultimate
resolution will not have a material adverse effect on the financial position or
results of operations of the Company.
STRINGFELLOW SITE
In June 1987, the U.S. District Court of Los Angeles, in U. S. et al. vs.
Stringfellow (United States District Court for the Central District of
California, Civil Action No. 83-2501 (JMI)), granted partial summary judgment
against the Company and 14 other defendants on the issue of liability under the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"). This suit alleges that the defendants are jointly and severally
liable for all damage in connection with the Stringfellow hazardous waste
disposal site in Riverside County, California. In June 1989, a federal jury and
a special master appointed by the federal court found the State of California
also liable for the cleanup costs. On November 30, 1993, the special master
released his "Findings of Fact, Conclusions of Law and Reporting
Recommendations of the Special Master Regarding the State Share Fact Finding
Hearing." In it, he allocated liability between the State of California and
other parties. As this hearing did not involve the valuation of future tasks
and responsibilities, the order did not specify dollar amounts of liability.
The order, phrased in percentages of liability, recommended allocating
liability on the CERCLA claims as follows: 65% to the State of California and
10% to the Stringfellow entities, leaving 25% for the
generator/counterclaimants (including the Company) and other users of the site
(or a maximum of up to 28% depending on the allocation of any Stringfellow
entity orphan share). On the state law claims, the special master recommended a
95% share for the State of California, and 5% for the Stringfellow entities,
leaving 0% for the generator/counterclaimants. The special master's finding is
subject to a final decision and appeal. The Company and other defendants for
the Stringfellow site, which include numerous companies with assets and equity
significantly larger than the Company, are jointly and severally liable for the
cleanup. Notwithstanding this, CERCLA liability is sometimes allocated among
hazardous waste generators who used a waste disposal site based on the volume
of hazardous substances they disposed at the site. The Company is the second
largest generator of wastes by volume disposed at the site, although it and
certain other generators have argued the final allocation of cleanup costs
among generators should not be determined solely by volume. The largest volume
generator of wastes disposed at the Stringfellow site has indicated it is
significantly dependent on insurance to fund its share of any cleanup costs,
and that it is in litigation with certain of its insurers. The Company and the
other generators of wastes disposed at the Stringfellow site, which include
numerous companies with assets and equity significantly greater than the
Company, are jointly and severally liable for the share of cleanup costs for
which the generators, as a group, may ultimately be responsible. The Company
intends to continue to vigorously defend this matter and believes, based upon
currently available information, that the ultimate resolution will not have a
material adverse effect on the financial position or results of operations of
the Company.
The Company has claims against its comprehensive general liability insurers
for reimbursement of its cleanup costs at the site. These claims are the
subject of separate litigation, although the insurers nevertheless are paying
substantially all of the Company's costs of defense in the CERCLA and State
actions against the generators of wastes disposed at the site. Certain of these
insurance policies have pollution exclusion clauses which are being argued as a
defense and the insurers are alleging various other defenses to coverage. The
Company has entered settlements with some of the insurance carriers and is
engaged in settlement discussions with certain others. The Company intends to
continue to vigorously defend this matter and believes, based upon currently
available information, that the ultimate resolution will not have a material
adverse effect on the financial position, liquidity or results of operations of
the Company.
SEC INQUIRY
In 1990, the Division of Enforcement of the Securities and Exchange
Commission (the "Enforcement Division") began conducting an informal inquiry
regarding various Company production
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programs, program and contract estimates at completion and related accounting
practices. Following the filing of a registration statement with the
Commission, the Company received on August 17, 1993, and shortly thereafter
responded to, a request for documents from the Enforcement Division concerning
its decision to change its accounting practices relating to long-term programs
and contracts, and its previous practice of capitalizing pre-certification and
certain general and administrative costs. There have been no further comments
from the Enforcement Division since that date. The Enforcement Division's
request for documents indicated that the inquiry "should not be construed as an
indication by the Commission or its staff that any violation of the law has
occurred; nor should it be considered a reflection on any person, entity, or
security." The Company cooperated fully with the Enforcement Division's
requests and cannot predict the ultimate result of the inquiry or its impact,
if any, on the Company. The Company has been advised by the Division of
Corporation Finance of the Commission that because the Company's use of program
accounting is based in significant part on practices which it believes are
generally followed and/or accepted, rather than on the basis of authoritative
literature, the Staff is not in a position presently to object or concur with
the Company's utilization of such accounting method. The Staff informed the
Company last August that it intends to survey practice and conduct other
inquiries regarding generally accepted practices relating to long-term
contracts and program accounting. The Company has not received any indication
from the Commission of the likely outcome of this survey. By declaring
effective the Registration Statement of which this Prospectus is a part, the
Commission is not passing upon the adequacy or accuracy of the information
contained herein including, without limitation, the appropriateness of the
Company's accounting methods and practices.
MARYLAND CONSENT ORDER
In December 1989, the Maryland Department of the Environment ("MDE") served
the Company with a Letter and Consent Order No. CO-90-093. The Consent Order
calls for investigation and remediation of chemicals detected in soil and
ground water at the Company's bonding facility in Hagerstown, Maryland. The
Company and MDE subsequently negotiated a mutually acceptable Consent Order
under which the Company has developed a work plan to determine the nature and
extent of the pollution at the bonding plant. The Company had acquired the
bonding plant from Fairchild Industries, Inc. ("Fairchild"), in September 1987
and Fairchild had agreed to retain responsibility for and to indemnify the
Company against any claims and fees in connection with any hazardous materials
or pollutants released into the environment at or near the bonding plant or any
other property before the closing date of the sale. In October 1990, after
initially-unsuccessful negotiations with Fairchild, the Company filed a lawsuit
in the United States District Court for the Central District of California
requesting, among other things, a declaration that it is entitled to
indemnification under the Purchase and Sale Agreement for the costs associated
with conducting the work requested by MDE. On March 11, 1993, the Company and
Fairchild executed a settlement agreement pursuant to which Fairchild
substantially reimbursed the Company for past costs relating to environmental
investigations at the bonding plant. The parties agreed to dismiss the lawsuit
and agreed on a procedure to perform the work required under the MDE Consent
Order. Based on currently available information, the Company believes that the
resolution of this matter will not have a material adverse effect on the
financial position or results of operation of the Company.
PROPOSITION 65 MATTERS
On March 23, 1992, a Deputy Attorney General for the State of California
advised the Company that it may be subject to suit pursuant to Proposition 65
on the basis of data contained in a health risk assessment ("HRA") of the
Company's Chula Vista facility conducted pursuant to the Air Toxics Hot Spots
Act, also known as California Assembly Bill AB-2588. Proposition 65 requires
manufacturers who expose any person to a chemical resulting in an increased
risk of cancer to issue a clear and reasonable warning to such person and
imposes substantial penalties for non-compliance. AB-2588 requires
manufacturers to inventory their air emissions and to submit an HRA to assess
and quantify health risks associated with those emissions. On April 9, 1993,
representatives of the Company met with the Deputy
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Attorney General to discuss this matter and agreed to supply certain requested
data to the government. The Company is presently working on the procedures
required to produce this data. Based on currently available information, the
Company believes that the resolution of this matter will not have a material
adverse effect on the financial position or results of operation of the
Company.
RIO BRAVO SITE
In January 1993, the Department of Toxic Substances Control of the State of
California Environmental Protection Agency ("DTSC") notified the Company and
approximately 25 other individuals and companies that the DTSC expected a
payment of approximately $1.1 million within thirty days of its notice. The
demand for payment, which is joint and several, was for expenses allegedly
incurred by DTSC personnel in the oversight of the cleanup of the Rio Bravo
deep injection well disposal site in Shafter, California. The cleanup is
currently being conducted by a group of cooperating potentially responsible
parties ("PRPs"), including the Company ("the Cooperating PRPs"). The DTSC
advised that failure to pay said sum within the specified time limit would
result in a referral of the matter to its legal office for collection. The
Company was further advised that it could submit objections to this action by
contacting DTSC's Cost Recovery Unit. In February 1993, the Cooperating PRP
group wrote to DTSC and advised them, among other things, of the Cooperating
PRPs' continuing efforts at the site and suggested that DTSC seek recovery of
the oversight funds from the non-cooperating PRPs. Since the demand of the DTSC
was joint and several, and would arguably cover all generators including the
non-cooperating PRPs, none of the $1.1 million demanded by the DTSC has been
allocated to the Cooperating PRPs. Some PRPs estimate the potential cost of
cleanup to be approximately $7 million and the Company's share (based on
estimated, respective volumes of discharge into such site by all generators,
all of which cannot now be known with certainty) could approximate $450,000.
The Company and other PRPs could face joint and several liability for the
entire amount of clean-up costs, regardless of Cooperating PRP or non-
cooperating PRP status. Based on currently available information, the Company
believes that the resolution of this matter will not have a material adverse
effect on the financial position or results of operation of the Company.
CHATHAM SITE
The Company previously reported that the DTSC informed the Company and
approximately 100 other individuals and companies that DTSC considered the
recipients to be potentially PRPs liable for cleanup at the Chatham Brothers
Barrel Yard Site located in Escondido, California (the "Chatham Site"). By
letter dated April 13, 1993, DTSC again notified the Company that it believed
the Company was one of a number of companies who were liable for the cleanup of
the Chatham Site. After a thorough review of the Company's records and
information possessed by DTSC, and interviews of present and former Company
employees, the Company remains convinced that it has no relationship whatsoever
with the Chatham Site and, therefore, is not liable for the cleanup of that
site. In addition, the Company has discussed this matter with a group of PRPs
for the Chatham Site and has indicated its lack of involvement with the site.
If the Company fails to persuade DTSC that it is not a PRP with regard to the
Chatham Site, the Company could face joint and several liability for the
amounts involved. The potential cost of cleanup for the Chatham Site is
estimated by some PRPs to be approximately $30 million. If suit is filed
against the Company, the Company intends to defend vigorously this matter.
Based on currently available information, the Company believes that the
resolution of this matter will not have a material adverse effect on the
financial position or results of operation of the Company.
SCAQMD COMPLIANCE
The Company's Riverside, California facility is working along with the
California Aerospace Group ("CAG") to meet the South Coast Air Quality
Management District ("SCAQMD") compliance deadline for adhesive bonding
primers. The deadline for compliant primers was originally January 1, 1992. It
has been extended and is now set for January 1, 1997. The Company and the CAG
continue to work with
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manufacturers of adhesive bonding primers to see if a compliant primer can be
developed and tested, and although no compliant primers currently exist, five
potential candidates have been identified for extensive testing. The Company
believes the ultimate resolution of the matter will not have a material adverse
impact on the financial condition or results of operations of the Company.
CASMALIA SITE
During the third quarter of fiscal year 1993, Region IX of the United States
Environmental Protection Agency ("EPA") named the Company as a first-tier
generator of hazardous wastes that were transported to the Casmalia Resources
Hazardous Waste Management Facility (the "Casmalia Site") in Casmalia,
California. Approximately 80 other companies and individuals have also been
identified as first-tier generators. First-tier generators are the top 82
generators by volume of waste disposed of at the Casmalia Site. The size of
this group was chosen by the EPA. The EPA has given the first-tier generators a
list of work-related elements needing to be addressed in a good faith offer to
investigate and remediate the site. The first-tier generators believe a
collaborative approach early in the site cleanup and closure process offers all
parties an opportunity to help determine a technical course of action at this
site before the EPA has made final decisions on the matter. The Company has
joined approximately 49 other companies in the Casmalia Resources Site Steering
Committee which recently made a good faith offer to the EPA. The Company could
be found jointly and severally liable for the total amount of cleanup cost. The
Company does not yet know the ability of all other PRPs at this site, which
include companies of substantial assets and equity, to fund their allocable
share. Some PRPs have made preliminary estimates of cleanup costs at this site
of approximately $60 to $70 million and the Company's share (based on
estimated, respective volumes of discharge into such site by all generators,
all of which cannot now be known with certainty) could approximate $1,750,000.
Based on currently available information, the Company believes that the
resolution of this matter will not have a material adverse effect on the
financial position or results of operation of the Company.
CHULA VISTA SITE
From time to time, various environmental regulatory agencies request that the
Company conduct certain investigations on the nature and extent of pollution,
if any, at its various facilities. For example, such a request may follow the
spill of a reportable quantity of certain chemicals. At other times, the
request follows the removal, replacement or closure of an underground storage
tank pursuant to applicable regulations. At present, the Company's Chula Vista
facility is conducting certain investigations pursuant to discussions with the
San Diego County Department of Health Services, Hazardous Materials Management
Division and the San Diego Regional Water Quality Control Board. The Company
intends to cooperate fully with the various regulatory agencies.
GENERAL
In addition to the litigation discussed above, from time to time the Company
is a defendant in lawsuits involving claims based on the Company's alleged
negligence or strict liability as a manufacturer in the design or manufacture
of various products and also claims based upon environmental protection laws.
The Company believes that in those types of cases now pending, or in claims
known by the Company to be asserted against it whether or not reduced to a
legal proceeding, it either has no material liability or any such liability is
adequately covered by its reserves or its liability insurance, subject to
certain deductible amounts. The Company is aware that various of its insurers
may assert, and in some such cases have asserted, that their insurance coverage
does not provide protection against punitive damages in any specific lawsuit.
While there can be no assurances that the Company will not ultimately be found
liable for material punitive damages, the Company does not now believe that it
has an exposure to any material liability for punitive damages.
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DESCRIPTION OF CERTAIN FINANCINGS
The following is a summary of certain terms of the Company's principal
financing agreements, effective on the Closing Date of the sale of the
Securities. For more complete information regarding these agreements, reference
is made to the definitive agreements, copies of which have been filed as
exhibits to the registration statement on Form S-3 (together with all
amendments and exhibits thereto, the "Registration Statement") and which are
incorporated by reference herein.
REVOLVING CREDIT AGREEMENT
Effective upon the completion of the Offerings, the Company's unsecured
Revolving Credit Agreement with a group of banks will provide the following
loan commitments during the indicated periods:
<TABLE>
<CAPTION>
PERIOD COMMITMENT
------ ------------
<S> <C>
Through October 24, 1995..................................... $110 million
October 25, 1995 to April 24, 1996........................... $100 million
April 25, 1996 to October 24, 1996........................... $ 90 million
October 25, 1996 to April 24, 1997........................... $ 80 million
</TABLE>
This Revolving Credit Agreement is immediately available for borrowing (or to
support the issuance of up to $30 million of letters of credit). Borrowings
under this agreement incur interest at an annual rate equal to one of the
following at the Company's option: (1) prime rate plus 0% to 2.25%; (2) London
Interbank Offered Rate plus 0.75% to 3.25%; (3) or a Domestic Money Market Bid
Rate plus 0.875% to 3.375%; or (4) competitive bid. The weighted average
interest rate for borrowings under this credit agreement was 5.22% per annum
during the second quarter of fiscal 1994. The agreement provides a facility fee
payable on a monthly basis, at the rate of 0.35% to 0.75% on each lender's
total commitment. The specific interest rate and facility fee payable at any
time is based upon the Company's credit rating and various other factors.
Effective upon the completion of the Offerings, the Revolving Credit
Agreement will require the Company to maintain Consolidated Tangible Net Worth
(as defined) of $125 million plus 50% of positive consolidated net income
beginning on August 1, 1994. At January 30, 1994, the Company's Consolidated
Tangible Net Worth was $184.6 million. Consolidated Tangible Net Worth is
expected to decrease in the third quarter of fiscal 1994 in connection with
anticipated increases in the Company's underfunded pension liabilities. See
"Risk Factors--Underfunded Pension Plans." The agreement will also require the
Company to maintain a ratio of Consolidated Net Income Available for Fixed
Charges for each period of 365 days to Fixed Charges (each as defined) for such
period, after completion of the offering, at least equal to the following:
<TABLE>
<CAPTION>
MINIMUM
PERIOD RATIO
------ -------
<S> <C>
Through July 31, 1994............................................. 1.40:1
August 1, 1994 through July 31, 1995.............................. 1.55:1
August 1, 1995 through July 31, 1996.............................. 1.90:1
August 1, 1996 and thereafter..................................... 2.00:1
</TABLE>
For purposes of this test, Consolidated Net Income Available for Fixed
Charges is calculated without regard to the cumulative effect through May 2,
1993, of the accounting changes adopted by the Company effective August 1,
1992, and $38 million of provisions and charges taken by the Company in the
third quarter of fiscal 1993. For the 365-day period ended at January 30, 1994,
the Company's ratio of Consolidated Net Income Available for Fixed Charges to
Fixed Charges was 2.04:1.
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Effective upon the completion of the Offerings, the Revolving Credit
Agreement will also require the Company to maintain a ratio of Debt (as
defined) to Consolidated Tangible Net Worth not to exceed the following:
<TABLE>
<CAPTION>
MAXIMUM
PERIOD RATIO
------ -------
<S> <C>
Through July 31, 1994............................................. 5.60:1
August 1, 1994 through July 31, 1995.............................. 5.00:1
August 1, 1995 through July 31, 1996.............................. 4.10:1
August 1, 1996 and thereafter..................................... 3.20:1
</TABLE>
In calculating this ratio, Debt includes the Company's underfunded pension
liabilities, but does not include the Company's off-balance sheet financings.
See "Capitalization." At January 30, 1994, the Company's ratio of Debt to
Consolidated Tangible Net Worth was 2.82:1.
Other covenants in the Revolving Credit Agreement prohibit the Company from
adding collateral to or otherwise supporting its existing debt, accelerating
the maturity of such debt, or revising any covenant or other term of such debt
to make it materially more restrictive for the Company or any of its
subsidiaries.
9.35% SENIOR NOTES DUE 2000 AND 9.33% SENIOR NOTES DUE 2002
The Company's 9.35% senior notes due 2000 mature on January 29, 2000 and
require principal payments of $12.5 million in January of each year until
repaid. The Company's 9.33% senior notes due 2002 mature on December 15, 2002
and require principal payments of approximately $8.9 million in December of
each year commencing in 1996 until repaid. With respect to each of these issues
of senior notes, the Company may make principal prepayments at its option,
which may include a premium for yield adjustment. The holders of these notes
can require the Company to purchase the remaining principal amount of the
respective notes, plus accrued interest and premium for yield adjustment, in
the event of certain changes in control or ownership of the Company. A covenant
in the agreements governing these two issuances of senior notes prohibits the
Company from amending its Revolving Credit Agreement to reduce the amount or
availability of the bank's commitment to lend to the Company under such
agreement. Other covenants in these senior note agreements are substantially
similar to the covenants in the Revolving Credit Agreement.
9.25% SUBORDINATED DEBENTURES
The Company's 9.25% subordinated debentures mature in 2017. These debentures
are subject to mandatory annual sinking-fund payments of $7.5 million beginning
March 1998. The Company may redeem an additional $15 million on each sinking-
fund date. The subordinated debentures are redeemable at the Company's option,
at 106.5% of the outstanding principal amount at May 2, 1993, declining
annually to 100.5% in 2006, plus accrued interest. However, no such redemption
may be effected prior to March 1997, directly or indirectly, from borrowed
money having an interest cost of less than 9.25% per annum. These debentures
will be subordinated to the Senior Notes and pari passu with the Convertible
Subordinated Notes.
7% CONVERTIBLE SUBORDINATED DEBENTURES
The Company's 7% convertible subordinated debentures mature in 2012. These
debentures are convertible prior to maturity, unless previously redeemed, at a
conversion price of $43 per share, subject to adjustment under certain
conditions. The debentures are redeemable at the option of the Company, in
whole or in part, at a redemption price of 102.8% declining annually to 100.7%
in 1996, together with accrued interest to the date of redemption. Annual
sinking-fund payments of 5% of the aggregate principal amount of the debentures
originally issued are to be applied to the redemption of debentures
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at 100% of principal amount plus accrued interest, commencing October 1998. The
Company has the option of delivering repurchased debentures to the sinking-fund
in lieu of cash. The mandatory sinking-fund is calculated to retire 70% of the
aggregate principal amount of the debentures originally issued prior to
maturity. The debentures are subordinated to all existing or future senior debt
of the Company and rank on equal terms with the Company's outstanding 9.25%
subordinated debentures due 2017. These debentures will be subordinated to the
Senior Notes and pari passu with the Convertible Subordinated Notes.
ACCOUNTS RECEIVABLE FACILITY
The Company is a party to an accounts receivable facility under which it
sells all of its accounts receivable from specified customers through a
subsidiary to a trust on an on-going basis. Investors purchased beneficial
interests in the trust for $60 million, which was paid indirectly to the
Company for the accounts receivable initially transferred to the trust. The
Company sells additional accounts receivable through its subsidiary to the
trust to maintain the investor's beneficial interest at $60 million. The
Company's subsidiary holds the residual beneficial interest in the trust. Under
the arrangement, the Company acts as an agent for the trust by performing all
record keeping and collection functions with respect to the accounts receivable
that have been sold. The investors' beneficial interest in the trust is
reflected as a decrease in accounts receivable. The cost associated with the
sale of accounts receivable under the facility is 7.57% per year (calculated as
a percentage of the investors' $60 million beneficial interest) and is
reflected as a reduction in sales. As a result of the slow-down in the
aerospace industry, the amount of outstanding receivables owned by the trust
has fallen below levels which existed at the start of the facility. If the
outstanding receivables owned by the trust fall below levels required to
support the investors' $60 million beneficial interest in the trust, the
Company may deposit certain receivables collections and the proceeds of
receivables sales in a reserve fund or may allow receivables collections to
reduce the investors' interest in the trust. From time to time the Company has
deposited amounts into the reserve fund and has withdrawn such amounts when
they are no longer required to be deposited. The Company does not believe any
changes in the receivables facility resulting from a decrease in the total
amount of receivables sold to the trust or in the outstanding receivables
balance will have a material adverse effect on the Company's liquidity or
financial condition.
SALE-LEASEBACK TRANSACTIONS
The Company is also a party to a group of sale-leaseback transactions
pursuant to which it sold furniture and certain significant items of the
equipment utilized in its manufacturing processes for approximately $52.3
million and leased such furniture and equipment back from the investors who
purchased it. The Company has granted the equipment lessors a security interest
in all of the Company's accounts receivable from a particular customer and/or
cash securing $10 million of obligations. At January 30, 1994, the balance of
these accounts receivable was $15.8 million. The security interest will be
released at such time as the existing equipment lessors assign approximately
one-half of their beneficial interests in the leased equipment. If such
assignments do not occur by January 1995, the existing equipment lessors may
apply the collateral against the Company's then remaining lease obligations.
The Company's leases are treated as operating leases for financial reporting
purposes. The costs of the lease transactions average approximately 6.8%
annually over the term of the leases (calculated as a percentage of the $52.3
million sales price of the leased furniture and equipment). The agreements
governing the equipment lease transactions contain the same consolidated
tangible net worth, fixed charge coverage ratio and debt to consolidated
tangible net worth ratio covenants as are in the Revolving Credit Agreement.
The agreements governing these transactions permit the Company to purchase the
investors' interest in the equipment before the investors can repossess upon a
default by the Company, subject to certain time limitations. The investors'
repossession of any substantial portion of such equipment would have a material
adverse effect on the Company's ability to meet its production contract
commitments.
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DESCRIPTION OF SENIOR NOTES
The Senior Notes will be issued under an indenture to be dated as of ,
1994 (the "Indenture") between the Company and , as trustee (the
"Trustee"), a form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The terms of the Senior Notes
will include those stated in the Indenture and those made a part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"TIA"), as in effect on the date of the Indenture. The Senior Notes will be
subject to all such terms, and Holders of the Senior Notes are referred to the
Indenture and the TIA for a statement of such terms. The following is a summary
of important terms of the Senior Notes and does not purport to be complete.
Reference should be made to all provisions of the Indenture, including the
definitions therein of certain terms and all terms made a part of the Indenture
by reference to the TIA. Certain definitions of terms used in the following
summary are set forth under "--Certain Definitions" below.
As used in this section, the "Company" means Rohr, Inc., but not any of its
Subsidiaries, unless the context requires otherwise.
GENERAL
The Senior Notes will be general unsecured senior obligations of the Company,
will mature on , 2003 (the "Maturity Date"), and will be limited to
an aggregate principal amount of $100,000,000. The Senior Notes will be issued
in denominations of $1,000 and integral multiples of $1,000 in fully registered
form. The Senior Notes are exchangeable and transfers thereof will be
registrable without charge therefor, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge in connection
therewith.
The Senior Notes will accrue interest at a rate of % per annum from
, 1994, or from the most recent interest payment date to which
interest has been paid or duly provided for, and accrued and unpaid interest
will be payable semi-annually on and of each year beginning
, 1994. Interest will be paid to the Person in whose name each Senior
Note is registered at the close of business on the or immediately
preceding the relevant interest payment date. Interest will be computed on the
basis of a 360-day year of twelve 30-day months and the actual number of days
elapsed. Interest on overdue principal and (to the extent permitted by law) on
overdue installments of interest will accrue at a rate equal to % per annum.
Initially, the Trustee will act as paying agent and registrar of the Senior
Notes. The Company may change any paying agent and registrar without notice.
OPTIONAL REDEMPTION
The Senior Notes will be subject to redemption at any time on or after
, 1999, and prior to maturity at the option of the Company, in whole
or in part, for cash on not less than 30 days', nor more than 60 days', prior
written notice, mailed by first class mail to each holder at its last address
as it appears in the register of the Senior Notes, at the following redemption
prices (expressed as percentages of the principal amount), plus accrued and
unpaid interest to the date fixed for redemption, if redeemed during the
twelve-month period beginning on of each year indicated below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
1999..................................................... %
2000..................................................... %
2001 and thereafter...................................... 100.00%
</TABLE>
If less than all of the Senior Notes are to be redeemed, the Trustee will
select the Senior Notes to be redeemed by lot or pro rata or by any other
method that the Trustee considers fair and appropriate.
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The Trustee may select for redemption a portion of the principal of any Senior
Note that has a denomination larger than $1,000. Senior Notes and portions
thereof will be redeemed in the amount of $1,000 or integral multiples of
$1,000. The Trustee will make the selection from Senior Notes outstanding and
not previously called for redemption.
Provisions of the Indenture that apply to Senior Notes called for redemption
also apply to portions of Senior Notes called for redemption. If any Senior
Note is to be redeemed in part, the notice of redemption will state the portion
of the principal amount to be redeemed. Upon surrender of a Senior Note that is
redeemed in part only, the Company will execute and the Trustee will
authenticate and deliver to the holder a new Senior Note equal in principal
amount to the unredeemed portion of the Senior Note surrendered. On and after
the redemption date, unless the Company shall default in the payment of the
redemption price, interest will cease to accrue on the principal amount of the
Senior Notes or portions thereof called for redemption and for which funds have
been set apart for payment.
The Company's Revolving Credit Agreement and certain of its other principal
financing agreements limit the Company's ability to redeem or to otherwise
repurchase the Senior Notes and other future agreements governing Indebtedness
of the Company may provide the same. See "Description of Certain Financings."
CHANGE OF CONTROL
Following a Change of Control (as defined below), the Company shall comply
with each of the procedures set forth in the Indenture in respect of such
event, and pursuant to the Indenture shall make an offer (a "Change of Control
Offer") to purchase all Senior Notes then outstanding at a purchase price equal
to 101% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of such purchase. Each such offer to purchase
shall be made as of a date (the "Change of Control Offer Date") promptly after
(but in no event later than three business days after) the first business day
which is sixty days following the applicable Change of Control, and shall
remain open until the close of business on a date (the "Change of Control
Payment Date") which is at least 20 business days following such Change of
Control Offer Date. The Company shall deliver notice of any Change of Control,
specifying the applicable Change of Control Offer Date and Change of Control
Payment Date, to each holder of Senior Notes not less than 30 days nor more
than 45 days before the applicable Change of Control Payment Date.
If a Change of Control were to occur, there can be no assurance that the
Company would have sufficient funds to pay the redemption price for all Senior
Notes that the Company would be required to redeem.
In addition, in the event of any Change of Control, the Company may not, and
may not permit any of its Subsidiaries to, purchase, redeem or otherwise
acquire any Indebtedness subordinated or junior to the Senior Notes pursuant to
any analogous provisions relating to such Indebtedness on or prior to the
payment in full in cash or Cash Equivalents of all Senior Notes, together with
accrued and unpaid interest thereon, with respect to which the Change of
Control Offer was accepted.
"Change of Control" means the occurrence of one or more of the following
events (whether or not approved by the Board of Directors of the Company): (a)
an event or series of events by which any Person or other entity or group of
Persons or other entities acting in concert as determined in accordance with
Section 13(d) of the Exchange Act, whether or not applicable (a "Group of
Persons"), together with its or their Affiliates and Associates shall, as a
result of a tender or exchange offer, open market purchases, privately
negotiated purchases, merger or otherwise (i) be or become, directly or
indirectly, the beneficial owner (within the meaning of Rule 13d-3 and 13d-5
under the Exchange Act, whether or not applicable) of 50% or more of the
combined voting power of the then outstanding Voting Stock of the Company or
(ii) have the ability to elect, directly or indirectly, a majority of the
members of
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the Board of Directors of the Company or other equivalent governing body
thereof, (b) the stockholders of the Company shall approve any plan or proposal
for the liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of the Indenture), (c) individuals who at the
beginning of any period of two consecutive calendar years constituted the Board
of Directors of the Company (together with any new directors whose election or
appointment by the Board of Directors of the Company or whose nomination for
election by the Company's stockholders was approved by a vote of at least a
majority of the members of the Board of Directors of the Company then still in
office who either were members of the Board of Directors of the Company at the
beginning of such period or whose election, appointment or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the members of the Board of Directors of the Company then in
office, or (d) the direct or indirect sale, lease, exchange or other transfer,
in one transaction or a series of related transactions, of all or substantially
all of the property or assets of the Company to any Person or Group of Persons
together with any Affiliates thereof (whether or not otherwise in compliance
with the provisions of the Indenture).
None of the provisions relating to a redemption upon a Change of Control is
waivable by the Board of Directors of the Company or the Trustee. In the event
that the Company were required to purchase outstanding Senior Notes pursuant to
a Change of Control Offer, the Company expects that it would need to seek
third-party financing to the extent it does not have available funds to meet
its purchase obligations. However, there can be no assurance that the Company
would be able to obtain such financing. The occurrence of a Change of Control
would constitute an event of default under the Revolving Credit Agreement and
the agreements governing the Company's 9.33% Senior Notes and 9.35% Senior
Notes, and would permit the holders of that Indebtedness to declare all amounts
outstanding thereunder to be immediately due and payable. Also, in the event of
a Change of Control, the Company would be required to make an offer to purchase
all Convertible Subordinated Notes then outstanding at a purchase price equal
to 101% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of such purchase. On January 30, 1994, after
giving pro forma effect to the Offerings and the use of proceeds therefrom
(assuming no exercise of the Underwriters over-allotment option), there would
have been $157.8 million outstanding of Pari Passu Indebtedness (excluding the
Senior Notes). See "Capitalization." The Company could, in the future, enter
into certain transactions, including certain recapitalizations of the Company,
that would not constitute a Change of Control with respect to the Change of
Control redemption feature of the Senior Notes, but would increase the amount
of Indebtedness outstanding at such time.
Failure by the Company to redeem the Senior Notes when required constitutes
an Event of Default with respect to the Senior Notes. See "--Events of
Default."
If an offer is made to redeem Senior Notes as a result of a Change of
Control, the Company will be required to comply with all tender offer rules
under state and Federal securities laws, including, but not limited to, Section
14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent
applicable to such offer.
The Change of Control redemption feature of the Senior Notes may in certain
circumstances make more difficult or discourage a takeover of the Company and
thus the removal of incumbent management. The Change of Control redemption
feature is not, however, the result of management's knowledge of any specific
effort to obtain control of the Company by means of a merger, tender offer,
solicitation or otherwise, or part of a plan by management to adopt a series of
anti-takeover provisions.
CERTAIN COVENANTS
The Indenture will contain, among others, the covenants set forth below.
There can be no assurance that these covenants would afford the holders of the
Senior Notes any protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction that may adversely
affect the holders of the Senior Notes.
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Limitation on Indebtedness
The Company shall not, directly or indirectly, incur any Indebtedness
(including Acquired Indebtedness) other than Permitted Indebtedness, unless (a)
no Default or Event of Default shall have occurred and be continuing at the
time of the proposed incurrence thereof or shall occur as a result of such
proposed incurrence thereof and (b) after giving effect to such proposed
incurrence, the Company's Consolidated Fixed Charge Coverage Ratio would be
greater than 2.0-to-1.0 on or prior to July 31, 1995, 2.25-to-1.0 on or prior
to July 31, 1997 and 2.5-to-1.0 on or after August 1, 1997.
Limitation on Subsidiary Indebtedness and Preferred Stock
The Company shall not permit any Subsidiary to, directly or indirectly, incur
any Indebtedness or issue any Preferred Stock other than: (a) Indebtedness or
Preferred Stock issued to and held by the Company or a Wholly Owned Subsidiary
of the Company, provided that (i) such Indebtedness is not subordinated to any
other Indebtedness of such Subsidiary and (ii) any subsequent issuance or
transfer of Capital Stock of a Wholly Owned Subsidiary of the Company (the
"Obligee Subsidiary") to whom a Subsidiary of the Company is indebted (the
"Obligor Subsidiary") that results in such Obligee Subsidiary ceasing to be a
Wholly Owned Subsidiary of the Company or any subsequent transfer of such
Indebtedness or Preferred Stock of such Obligor Subsidiary by such Obligee
Subsidiary (other than to the Company or another Wholly Owned Subsidiary of the
Company) shall be deemed in each case to be the incurrence of such Indebtedness
or the issuance of such Preferred Stock by each Obligor Subsidiary owing to or
issued to, as the case may be, such Obligee Subsidiary to the extent
outstanding as of such date; (b) Indebtedness or Preferred Stock of a
Subsidiary of the Company which represents the assumption by such Subsidiary of
Indebtedness or Preferred Stock of another Subsidiary of the Company in
connection with a merger of such Subsidiaries, provided that no Subsidiary of
the Company or any successor (by way of merger or otherwise) thereto existing
on the Issue Date may assume or otherwise become responsible for any
Indebtedness or Preferred Stock of an entity which is not a Subsidiary of the
Company on the Issue Date except to the extent that such Subsidiary would
otherwise be permitted to incur such Indebtedness or Preferred Stock as
provided under this "--Limitation on Subsidiary Indebtedness and Preferred
Stock" covenant; (c) Indebtedness or Preferred Stock of any corporation (other
than a corporation that has acquired, directly or indirectly, assets from the
Company) existing at the time such corporation becomes a Subsidiary of the
Company, provided that (i) such Indebtedness or Preferred Stock was not
incurred or issued as a result of or in connection with or in anticipation of
such corporation becoming a Subsidiary of the Company and (ii) immediately
after giving effect to such corporation becoming a Subsidiary of the Company
(as if such Indebtedness and Preferred Stock were incurred and issued on the
first day of the Reference Period) the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under "--Limitation on
Indebtedness" above (assuming a market rate of interest with respect thereto);
(d) Indebtedness and Preferred Stock of any Subsidiary of the Company, provided
that (i) immediately after giving effect thereto (as if the incurrence or
issuance thereof occurred on the first day of the Reference Period) the Company
could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under "--Limitation on Indebtedness" above (assuming a market
rate of interest with respect thereto), and (ii) the total of the aggregate
principal amount of the Indebtedness and the aggregate liquidation value of
Preferred Stock proposed to be issued and incurred by such Subsidiary plus the
total of the aggregate principal amount of Indebtedness and the aggregate
liquidation value of Preferred Stock incurred and issued by all Subsidiaries of
the Company under this clause (d) does not exceed, when added to Indebtedness
of the Company incurred under clause (f) of the definition of "Permitted
Indebtedness," 10% of Consolidated Net Worth; (e) Permitted Indebtedness
incurred by any Subsidiary of the Company under clauses (a) and (g) of the
definition of "Permitted Indebtedness"; or (f) Indebtedness or Preferred Stock
that is Permitted Refinancing Indebtedness incurred or issued to Refinance any
Indebtedness or Preferred Stock incurred or issued by a Subsidiary of the
Company prior to the Issue Date or in accordance with the Indenture.
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Limitation on Restricted Payments
The Company shall not, and shall not permit or cause any of its Subsidiaries
to, directly or indirectly, make any Restricted Payment unless, at the time of
such proposed Restricted Payment, and on a pro forma basis immediately after
giving effect thereto:
A. no Default or Event of Default has occurred and is continuing;
B. the aggregate amount expended for all Restricted Payments subsequent
to the Issue Date, would not exceed the sum of:
(1) (a) 50% of aggregate Consolidated Net Income of the Company (or
if such Consolidated Net Income is a loss, minus 100% of such loss)
earned on a cumulative basis during the period beginning on ,
1994 and ending on the last date of the Company's fiscal quarter
immediately preceding such proposed Restricted Payment minus (b) 100%
of the amount of any write-downs, write-offs, other negative valuations
and other negative extraordinary charges not otherwise reflected in
Consolidated Net Income of the Company during such period; plus
(2) 100% of the aggregate Net Equity Proceeds received by the Company
from any Person (other than from a Subsidiary of the Company) from the
issuance and sale subsequent to the Issue Date of Qualified Capital
Stock of the Company (excluding (a) any Qualified Capital Stock of the
Company paid as a dividend on any Capital Stock of the Company or of
any of its Subsidiaries or as interest on any Indebtedness of the
Company or of any of its Subsidiaries, (b) the issuance of Qualified
Capital Stock upon the conversion of, or in exchange for, any Capital
Stock of the Company or of any of its Subsidiaries and (c) any
Qualified Capital Stock of the Company with respect to which the
purchase price thereof has been financed directly or indirectly using
funds (i) borrowed from the Company or from any of its Subsidiaries,
unless and until and to the extent such borrowing is repaid or (ii)
contributed, guaranteed or advanced by the Company or by any of its
Subsidiaries (including, without limitation, in respect of any employee
stock ownership or benefit plan)); and
C. The Company would be able to incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) under "--Limitation on
Indebtedness" above (assuming a market rate of interest with respect
thereto).
The foregoing provisions of this covenant will not prevent: (a) the payment
of any dividend within 60 days after the date of its declaration if at such
date of declaration the payment of such dividend would comply with the
provisions set forth above, provided that (i) such dividend will be deemed to
have been paid as of its date of declaration for the purposes of this covenant
and (ii) at the time of payment of such dividend no other Default or Event of
Default shall have occurred and be continuing or would result therefrom, (b) if
no Default or Event of Default shall have occurred and be continuing or would
occur as a consequence thereof, the purchase, redemption, retirement or
acquisition of any shares of Capital Stock of the Company or of any Subsidiary
or any Indebtedness of the Company that is subordinated to the Senior Notes
solely with or out of the net cash proceeds of the substantially concurrent
sale (other than to a Subsidiary of the Company) of shares of Qualified Capital
Stock of the Company and neither such purchase, redemption, retirement or
acquisition nor the proceeds of any such sale will be included in any
computation made under clause (B)(2) above, or (c) the making of a Permitted
Payment. The amounts expended pursuant to clauses (a) and (c) of this paragraph
will be included in computing the amounts available for Restricted Payments for
purposes of the immediately preceding paragraph.
For purposes of this covenant a distribution to holders of the Company's
Capital Stock of (a) shares of Capital Stock of any of its Subsidiaries or (b)
other assets of the Company or of any of its Subsidiaries, without, in either
case, the receipt of equivalent consideration therefor shall be deemed to be
the equivalent of a cash dividend equal to the excess of the Fair Market Value
of the shares or other assets
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being so distributed at the time of such distribution over the consideration,
if any, received therefor; provided that the Company may grant shares of
Capital Stock to its directors, officers or employees pursuant to any director,
officer or employee benefit plan or agreement without any amount attributable
to such grant being considered a cash dividend hereunder.
Limitation on Sale of Assets
The Company will not, and will not permit any of its Subsidiaries to,
consummate any Asset Sale unless such Asset Sale is for at least Fair Market
Value and at least 85% of the consideration therefrom received by the Company
or such Subsidiary is in the form of cash or Cash Equivalents.
Following any Asset Sale, an amount equal to the Net Cash Proceeds of such
Asset Sale shall be applied by the Company or such Subsidiary within 365 days
of the date of the Asset Sale, at its election, to either: (a) the payment of
Pari Passu Indebtedness in an amount equal to such payment with a concurrent
reduction in the commitment related to such Pari Passu Indebtedness, if
applicable, provided any Net Cash Proceeds which are applied on such pro rata
basis to reduce Indebtedness under the Revolving Credit Agreement shall result
in a permanent reduction of the borrowing availability thereunder; or (b) to
make any Permitted Program Investment or any investment in capital assets
usable in the Company's or its Subsidiaries' lines of business or in an asset
or business in the same line of business as the Company; or (c) a combination
of payment and investment permitted by the foregoing clauses (a) and (b). On
the earlier of (A) the 366th day after the date of an Asset Sale or (B) such
date as the Board of Directors of the Company or of such Subsidiary determines
(as evidenced by a written resolution of said Board of Directors) not to apply
an amount equal to the Net Cash Proceeds relating to such Asset Sale as set
forth in the immediately preceding sentence (each of (A) and (B), an "Asset
Sale Offer Trigger Date"), an amount equal to the aggregate amount of Net Cash
Proceeds which have not been applied on or before such Asset Sale Offer Trigger
Date as permitted in clauses (a), (b) and (c) of the immediately preceding
sentence (each an "Asset Sale Offer Amount") shall be applied by the Company or
such Subsidiary to all holders of Pari Passu Indebtedness on a pro rata basis
to purchase or pay-down such Pari Passu Indebtedness, which shall include
making an offer (the "Asset Sale Offer") to purchase for cash promptly after,
but in no event more than three business days after, a business day not less
than 30 nor more than 60 days following the applicable Asset Sale Offer Trigger
Date, from all holders on a pro rata basis that amount of Senior Notes equal to
the Asset Sale Offer Amount at a price equal to 100% of the principal amount of
the Senior Notes to be repurchased, plus accrued and unpaid interest thereon to
the date of repurchase. Notwithstanding the foregoing, if an Asset Sale Offer
Amount is less than $10 million, the application of such Asset Sale Offer
Amount to an Asset Sale Offer may be deferred until such time as such Asset
Sale Offer Amount plus the aggregate amount of all Asset Sale Offer Amounts
arising subsequent to such Asset Sale Offer Trigger Date from all Asset Sales
by the Company and its Subsidiaries aggregates at least $10 million, at which
time the Company or such Subsidiary shall apply all Asset Sale Offer Amounts
that have been so deferred to make an Asset Sale Offer (the first date the
aggregate of all such deferred Asset Sale Offer Amounts is equal to $10 million
or more shall be deemed to be an "Asset Sale Offer Trigger Date").
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company as an entirety to a Person in a transaction
permitted under "--Merger, Consolidation, Etc." below, the successor Person
shall be deemed to have sold the properties and assets of the Company not so
transferred for purposes of this covenant, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
Each Asset Sale Offer will be mailed to the record holders as shown on the
register of holders of the Senior Notes, with a copy to the Trustee, within ten
days following the Asset Sale Offer Trigger Date, and shall comply with each of
the procedures for notice set forth in the Indenture. Upon receiving notice of
the Asset Sale Offer, holders may elect to tender their Senior Notes in whole
or in part in integral multiples of $1,000 in exchange for cash. To the extent
holders properly tender Senior Notes
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in an amount exceeding the Asset Sale Offer Amount, Senior Notes of tendering
holders will be repurchased on a pro rata basis (based on amounts tendered). An
Asset Sale Offer shall remain open for a period of 20 business days or such
longer period as may be required by law.
If an offer is made to repurchase the Senior Notes pursuant to an Asset Sale
Offer, the Company will and will cause its Subsidiaries to comply with all
tender offer rules under state and federal securities laws, including, but not
limited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to
the extent applicable to such offer.
Any event which would require the Company or a Subsidiary to offer to
purchase Senior Notes after an Asset Sale would constitute an event of default
under the Revolving Credit Agreement and the agreements governing the Company's
9.35% Senior Notes and 9.33% Senior Notes, and would permit the holders of that
indebtedness to declare all amounts outstanding thereunder to be immediately
due and payable.
The Company's and the Subsidiaries' ability to repurchase the Senior Notes in
an Asset Sale Offer may also be restricted or otherwise limited by the terms of
other then-existing borrowing agreements and by the Company's financial
position.
Limitation on Liens
The Company may not, and may not permit any of its Subsidiaries to,
voluntarily or involuntarily, create, incur, or assume any Liens upon any of
their respective properties or assets, whether owned on the Issue Date or
acquired thereafter, or on any income or profits therefrom, or assign or
otherwise convey any right to receive income or profits thereon, securing any
Indebtedness of the Company or of any of its Subsidiaries other than, without
duplication: (a) Liens granted by the Company securing Indebtedness of the
Company that is incurred in accordance with the indenture and that is Pari
Passu Indebtedness; provided that the Senior Notes are secured on an equal and
ratable basis to such Liens, (b) Liens granted by the Company securing
Indebtedness of the Company incurred in accordance with the Indenture and that
is subordinated to the Senior Notes; provided that the Senior Notes are secured
by Liens ranking prior to such Liens, (c) Liens existing on the Issue Date to
the extent and in the manner such Liens are in effect on the Issue Date, (d)
Permitted Liens, (e) Liens relating to other Indebtedness and Sale-Leaseback
Financings in an aggregate amount not to exceed 5% of the Company's
Consolidated Net Worth, (f) Liens in respect of Acquired Indebtedness incurred
by the Company in accordance with "--Limitation on Indebtedness" above and in
respect of Acquired Indebtedness incurred by a Subsidiary of the Company in
accordance with clause (d) of "--Limitation on Subsidiary Indebtedness and
Preferred Stock" above, provided that the Lien in respect of such Acquired
Indebtedness secured such Acquired Indebtedness at the time of the incurrence
of such Acquired Indebtedness by the Company or by one of its Subsidiaries and
such Lien and the Acquired Indebtedness were not incurred by the Company or any
of its Subsidiaries or by the Person being acquired or from whom the assets are
proposed to be acquired in connection with, or in anticipation of, the
incurrence of such Acquired Indebtedness by the Company or by one of its
Subsidiaries, and provided, further that such Liens in respect of such Acquired
Indebtedness do not extend to or cover any property or assets of the Company or
of any of its Subsidiaries other than the property or assets that secured the
Acquired Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of the Company or of one of its Subsidiaries, (g) Liens granted by
a corporation, which Liens are in existence at the time such corporation
becomes a Subsidiary of the Company, provided that (1) the Indebtedness related
thereto is incurred by the Company in accordance with the Indenture and (2)
such Liens were not created by such corporation in connection with or in
anticipation of such corporation becoming a Subsidiary of the Company, and (h)
Liens in respect of New Indebtedness that is Permitted Refinancing Indebtedness
incurred to Refinance any of the Indebtedness set forth in clauses (a), (b),
(c), (e), (f) and (g) above, provided that such Liens in respect of such New
Indebtedness are no less favorable to the holders of the Senior Notes than the
Liens in respect of the Indebtedness
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being Refinanced and such Liens in respect of New Indebtedness do not extend to
or cover any properties or assets of the Company or of any of the Company's
Subsidiaries other than the property or assets that secured the Indebtedness
being Refinanced.
Limitation on Sale and Leaseback Financing
The Indenture will provide that the Company will not, and will not permit any
of its Subsidiaries to, enter into any sale and leaseback transaction, provided
that the Company (and not a Subsidiary of the Company) may enter into such sale
and leaseback transaction if (a) with respect to any such transaction involving
the incurrence of Capitalized Lease Obligations, the Company could have (i)
incurred Indebtedness in an amount equal to debt relating to such sale and
leaseback transaction pursuant to the Consolidated Fixed Charge Coverage Ratio
test set forth in the covenant entitled "--Limitation on Indebtedness" and (ii)
incurred a Lien to secure such Indebtedness pursuant to the covenant entitled
"--Limitation on Liens," (b) the proceeds of such sale and leaseback
transaction are at least equal to the Fair Market Value of the property that is
the subject of such sale and leaseback transaction and (c) the Company shall
apply or cause to be applied the proceeds of such transaction in compliance
with the covenant entitled "--Limitation on Sale of Assets."
Limitation on Payment Restrictions Affecting Subsidiaries
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create or become (after the Issue Date) subject to or
allow to become effective any consensual encumbrance or restriction of any kind
(a) on the ability of any such Subsidiary to (i) pay dividends, in cash or
otherwise, or make other payments or distributions on its Capital Stock or any
other equity interest or participation in, or measured by, its profits, owned
by the Company or by any of its Subsidiaries, or make payments on any
Indebtedness owed to the Company or to any of its Subsidiaries, (ii) make loans
or advances to the Company or to any of its Subsidiaries or (iii) transfer any
of their respective property or assets to the Company or to any of its
Subsidiaries or (b) on the ability of the Company or any of its Subsidiaries to
receive or retain any such (i) dividends, payments or distributions, (ii) loans
or advances or (iii) transfer of property or assets, except for such
encumbrances or restrictions existing under or by reason of (1) customary
provisions restricting subletting, transfer or assignment of any lease
governing a leasehold interest of the Company or of any of its Subsidiaries,
(2) applicable law, (3) reasonable covenants set forth in the agreements
governing the formation of a joint venture otherwise permitted by this
Indenture, (4) Acquired Indebtedness incurred in accordance with this
Indenture, provided that such encumbrance or restriction in respect of such
Acquired Indebtedness is not applicable to any Person, or the property of any
Person, other than the Person, or the property of the Person, so acquired and
that such Acquired Indebtedness was not incurred by the Company or any of its
Subsidiaries or by the Person being acquired in connection with or anticipation
of such acquisition, (5) with respect to clause (a)(iii) and (b)(ii) above,
purchase money obligations for property acquired in the ordinary course of
business, (6) Indebtedness outstanding immediately after the Issue Date (as in
effect on the Issue Date), (7) the Revolving Credit Agreement as in effect on
the Issue Date or (8) any new Indebtedness that is Permitted Refinancing
Indebtedness incurred to Refinance any of the Indebtedness set forth in clauses
(4), (5) and (6) above to the extent such encumbrance or restriction in respect
of the New Indebtedness is no less favorable to the holders of the Senior Notes
and no more restrictive than such encumbrances or restrictions contained in the
Indebtedness being Refinanced as of the date of such Refinancing and do not
extend to or cover any other Person or the property of any other Person other
than the Person in respect of whom such encumbrance or restriction relating to
the Indebtedness being Refinanced applied.
Limitation on Transactions with Affiliates
The Company shall not, nor shall the Company permit any of its Subsidiaries
to, (a) sell, lease, transfer or otherwise dispose of any of its property or
assets to, (b) purchase any property or assets from, (c) make any Investment in
or (d) enter into or amend any contract, agreement or understanding
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with or for the benefit of, any Affiliate of the Company or of any Subsidiary
of the Company (an "Affiliate Transaction"), other than Affiliate Transactions
that, in its reasonable judgment are necessary or desirable for the Company or
such Subsidiary in the conduct of its business and that (i) a majority of the
members of the Board of Directors of the Company reasonably and in good faith
determines are in the best interests of the Company or such Subsidiary and (ii)
are on terms (which terms are in writing) that are fair and reasonable to the
Company or the Subsidiary and that are no less favorable to the Company or such
Subsidiary than those that could be obtained in a comparable arm's length
transaction by the Company or such Subsidiary from an unaffiliated party, as
determined reasonably and in good faith by the Board of Directors of the
Company, provided that if the Company or any Subsidiary of the Company enters
into an Affiliate Transaction or series of Affiliate Transactions involving or
having an aggregate value of more than $10 million such Affiliate Transaction
shall, prior to the consummation thereof, have been approved by a majority of
the disinterested directors of the Company (or by a majority of the
disinterested directors on any committee of director's authorized to consider
such matter; provided that the delegation of such matter to such committee has
been approved by a majority of disinterested directors of the Company), and,
provided further, that with respect to any such transaction or series of
related transactions that involve an aggregate value of more than $20 million
the Company or such Subsidiary shall, prior to the consummation thereof, obtain
a favorable opinion as to the fairness to itself of such transaction or series
of related transactions from a financial point of view from an Independent
Financial Advisor and file the same with the Trustee. The foregoing restriction
shall not apply to (x) any transaction between Wholly Owned Subsidiaries of the
Company, or between the Company and any Wholly Owned Subsidiary of the Company
if such transaction is not otherwise prohibited by the terms of the Indenture
and (y) any Restricted Payment made in accordance with "--Limitation on
Restricted Payments" above. Notwithstanding the foregoing, the term "Affiliate
Transaction" shall not include any contract, agreement or understanding with or
for the benefit of, or a plan for the benefit of, any or all employees of the
Company or its Subsidiaries (in their capacity as such) that has been approved
by the Company's Board of Directors or a disinterested committee thereof, or a
stock issuance to directors pursuant to plans approved by stockholders of the
Company.
REPORTS
So long as any Senior Note is outstanding, the Company shall file with the
Commission and, within 15 days after it files them with the Commission, file
with the Trustee and thereafter promptly mail or promptly cause the Trustee to
mail to the holders of the Senior Notes at their addresses as set forth in the
register of the Senior Notes, copies of the annual reports and of the
information, documents and other reports which the Company is required to file
with Commission pursuant to Section 13 or 15(d) of the Exchange Act or which
the Company would be required to file with the Commission if the Company then
had a class of securities registered under the Exchange Act. In addition, the
Company shall cause its annual report to stockholders and any quarterly or
other financial reports furnished to its stockholders generally to be filed
with the Trustee no later than the date such materials are mailed or made
available to the Company's stockholders, and thereafter mailed promptly to the
holders of the Senior Notes at their addresses as set forth in the register of
Senior Notes.
MERGER, CONSOLIDATION, ETC.
The Company will not, in a single transaction or series of related
transactions, consolidate or merge with or into, or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its assets
to, any Person or adopt a Plan of Liquidation unless: (a) either (i) the
Company shall be the surviving or continuing corporation or (ii) the Person (if
other than the Company) formed by such consolidation or into which the Company
is merged or the Person which acquires by conveyance, transfer or lease the
properties and assets of the Company substantially as an entirety or in the
case of a Plan of Liquidation, or the Person to which all or substantially all
of the assets of the Company have been transferred (1) shall be a corporation
organized and validly existing under the laws of the United
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States or any State thereof or the District of Columbia and (2) shall expressly
assume, by supplemental indenture executed and delivered to the Trustee, the
due and punctual payment of the principal of, and premium, if any, and interest
on all of the Senior Notes and the performance of every covenant of the Senior
Notes and the Indenture on the part of the Company to be performed or observed;
(b) immediately after giving effect to such transaction and the assumption
contemplated by clause (2) above (including giving effect to any Indebtedness
and Acquired Indebtedness incurred or anticipated to be incurred in connection
with or in respect of such transaction), the Company (in the case of clause (i)
of the foregoing clause (a)) or such Person (in the case of clause (ii)
thereof) (i) shall have a Consolidated Net Worth (immediately after the
transaction but prior to any purchase accounting adjustments relating to such
transaction) equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction and (ii) shall be able to incur (assuming
a market rate of interest with respect thereto) at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under "--Limitation on
Indebtedness" above, provided that in determining the "Consolidated Fixed
Charge Coverage Ratio" of the resulting transferee or surviving Person, such
ratio shall be calculated as if the transaction (including the incurrence of
any Indebtedness or Acquired Indebtedness) occurred on the first day of the
Reference Period; (c) immediately before and after giving effect to such
transaction and the assumption contemplated by clause (a)(ii)(2) above
(including giving effect to any Indebtedness and Acquired Indebtedness incurred
or anticipated to be incurred in connection with or in respect of the
transaction) no Default or Event of Default shall have occurred and be
continuing; (d) the Company or such Person shall have delivered to the Trustee
(i) an officers' certificate and an opinion of counsel (which may be in-house
counsel of the Company), each stating that such consolidation, merger,
conveyance, transfer or lease or Plan of Liquidation and, if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture, comply with the provisions of the Indenture and that all conditions
precedent in the Indenture relating to such transaction have been satisfied and
(ii) a certification from the Company's independent certified public
accountants stating that the Company has made the calculations required by
clause (b) above in accordance with the terms of the Indenture; and (e) neither
the Company nor any Subsidiary of the Company nor such Person, as the case may
be, would thereupon become obligated with respect to any Indebtedness
(including Acquired Indebtedness), nor any of its property or assets subject to
any Lien, unless the Company or such Subsidiary or such Person, as the case may
be, could incur such Indebtedness (including Acquired Indebtedness) or create
such Lien under the Indenture (giving effect to such Person being bound by all
the terms of the Indenture).
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Subsidiaries of
the Company, the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.
Upon any such consolidation, merger, sale, assignment, conveyance, lease or
transfer in accordance with the foregoing, the successor Person formed by such
consolidation or into which the Company is merged or to which such sale,
assignment, conveyance, lease or transfer is made will succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture with the same effect as if such successor had been named as the
Company therein, and thereafter (except in the case of a sale, assignment,
transfer, lease, conveyance or other disposition) the predecessor corporation
will be relieved of all further obligations and covenants under the Indenture
and the Senior Notes.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture:
a. default in the payment of principal of, or premium, if any, on, the
Senior Notes when due at maturity, upon repurchase, upon acceleration or
otherwise, including, without limitation, failure of the Company to
repurchase the Senior Notes on the date required pursuant to "--Certain
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Covenants--Limitation on Sale of Assets" above or following a Change of
Control or failure to make any optional redemption payment when due, or
b. default in the payment of any installment of interest on the Senior
Notes when due (including any interest payable in connection with any
optional redemption payment) and continuance of such default for more than
30 days, or
c. failure to observe, perform or comply with any of the provisions
described under "--Change of Control," "--Certain Covenants--Limitation on
Liens," "--Certain Covenants--Limitation on Sale of Assets" and "--Merger,
Consolidation, Etc." above, or
d. default (other than default set forth in clauses (a), (b) and (c)
above) in the performance of, or breach of, any other covenant or warranty
of the Company in the Indenture or the Senior Notes and failure to remedy
such default or breach within a period of 45 days after written notice from
the Trustee or the holders of at least 25% in aggregate principal amount of
the then outstanding Senior Notes; or
e. (i) failure to pay at maturity or default in the obligation to pay
when due the principal of, interest on, or any other payment obligation on
one or more classes of Indebtedness (other than the Senior Notes) of the
Company or of any Subsidiary of the Company, whether such Indebtedness
exists on the Issue Date or shall be incurred thereafter, having,
individually or in the aggregate, an outstanding principal amount of $15
million or more or (ii) one or more classes of Indebtedness (other than the
Senior Notes) of the Company or of any Subsidiary of the Company, whether
such Indebtedness exists on the Issue Date or shall be incurred thereafter,
having individually or in the aggregate an outstanding principal amount of
$15 million or more, is declared due and payable prior to its stated
maturity; or
f. entry by a court of competent jurisdiction of one or more judgments or
orders against the Company or any Subsidiary of the Company or any of their
respective property or assets in an aggregate amount in excess of $15
million and that are not covered by insurance written by third parties,
which judgments or orders have not been vacated, discharged, satisfied or
stayed pending appeal within 60 days from the entry thereof; or
g. certain events of bankruptcy, insolvency or reorganization involving
the Company or any material Subsidiary of the Company.
If an Event of Default (other than an Event of Default specified in clause
(g) above) occurs and is continuing, then and in every such case the Trustee,
by written notice to the Company, or the holders of not less than 25% in
aggregate principal amount of the then outstanding Senior Notes, by written
notice to the Company and the Trustee, may declare the unpaid principal of,
premium, if any, and accrued and unpaid interest on, all the Senior Notes then
outstanding to be due and payable and upon such declaration such principal
amount, premium, if any, and accrued and unpaid interest will become
immediately due and payable, notwithstanding anything contained in the
Indenture or the Senior Notes to the contrary. If an Event of Default specified
in clause (g) above occurs, all unpaid principal of, and premium, if any, and
accrued and unpaid interest on, the Senior Notes then outstanding will
automatically become due and payable without any declaration or other act on
the part of the Trustee or any holder of Senior Notes.
Holders of the Senior Notes may not enforce the Indenture or the Senior Notes
except as provided in the Indenture. Subject to the provisions of the Indenture
relating to the duties of the Trustee, the Trustee is under no obligation to
exercise any of its rights or powers under the Indenture at the request, order
or direction of any of the holders of Senior Notes, unless such holders have
offered to the Trustee an indemnity satisfactory to it against any loss,
liability or expense. Subject to all provisions of the Indenture and applicable
law, the holders of a majority in aggregate principal amount of the then
outstanding Senior Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the
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Trustee. If a Default or Event of Default occurs and is continuing and is known
to the Trustee, the Indenture requires the Trustee to mail a notice of Default
or Event of Default to each holder of Senior Notes within 60 days of the
occurrence of such Default or Event of Default, provided, however, that the
Trustee may withhold from such holders notice of any continuing Default or
Event of Default (except a Default or Event of Default in the payment of
principal of or interest on the Senior Notes) if it determines that withholding
notice is in their interest. The holders of a majority in aggregate principal
amount of the Senior Notes then outstanding by notice to the Trustee may
rescind any acceleration of the Senior Notes and its consequences if all
existing Events of Default (other than the nonpayment of principal of and
premium, if any, and interest on the Senior Notes which has become due solely
by virtue of such acceleration) have been cured or waived and if the rescission
would not conflict with any judgment or decree of any court of competent
jurisdiction. No such rescission shall affect any subsequent Default or impair
any right consequent thereto.
The holders of a majority in aggregate principal amount of the Senior Notes
then outstanding may, on behalf of the holders of all the Senior Notes, waive
any past Default or Event of Default under the Indenture and its consequences,
except Default or an Event of Default in the payment of principal of or
premium, if any, or interest on the Senior Notes (other than the non-payment of
principal of and premium, if any, and interest on the Senior Notes which has
become due solely by virtue of an acceleration which has been duly rescinded,
as provided above), or in respect of a covenant or provision of the Indenture
which cannot be modified or amended without the consent of all holders of
Senior Notes.
Under the Indenture, two officers of the Company are required to provide a
certificate to the Trustee promptly upon any such officer obtaining knowledge
of any Default or Event of Default (provided that such officers shall provide
such certification at least annually whether or not they know of any Default or
Event of Default) that has occurred and, if applicable, describe such Default
or Event of Default and the status thereof. In addition, for each fiscal year,
the Company's independent certified public accountants are required to certify
to the Trustee that they have reviewed the terms of the Indenture and the
Senior Notes as they relate to accounting matters and whether, during the
course of their audit examination, any Default or Event of Default has come to
their attention, and specifying the nature and period of existence of any such
Default or Event of Default.
AMENDMENT, SUPPLEMENT AND WAIVER
The Indenture (including the terms and conditions of the Senior Notes) may be
modified or amended by the Company and the Trustee, without the consent of the
holders of any Senior Notes, for the purposes of (a) adding to the covenants of
the Company for the benefit of the holders of Senior Notes; (b) surrendering
any right or power conferred upon the Company; (c) evidencing the succession of
another Person to the Company and the assumption by such successor of the
covenants and obligations of the Company thereunder and in the Senior Notes as
permitted by the Indenture; (d) curing any ambiguity or correcting or
supplementing any defective provision contained in the Indenture; or (e) making
any changes in any other provisions of the Indenture which the Company and the
Trustee may deem necessary or desirable and which will not adversely affect the
interests of the holders of Senior Notes.
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority in aggregate
principal amount of the then outstanding Senior Notes, to enter into any
supplemental indenture for the purpose of adding, changing or eliminating any
of the provisions of the Indenture, or of modifying in any manner the rights of
the holders under the Indenture, provided that no such supplemental indenture
may without the consent of the holder of each outstanding Senior Note affected
thereby: (a) reduce the amount of Senior Notes whose Holders must consent to an
amendment or waiver; (b) reduce the rate of, or extend the time for payment of,
interest, including defaulted interest, on any Senior Note; (c) reduce the
principal of or premium on or change
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the fixed maturity of any Senior Note or alter the redemption provisions with
respect thereto; (d) make the principal of, or premium, if any, or interest on,
any Senior Note payable in money other than as provided for in the Indenture
and the Senior Notes; (e) waive continuing default in the payment of the
principal of or premium, if any, or interest on, or redemption or repurchase
payment with respect to, any Senior Notes, including, without limitation, a
continuing failure to make payment when required upon a Change of Control or
after an Asset Sale Offer Trigger Date; (f) affect the ranking of the Senior
Notes; (g) after the Company's obligation to purchase the Senior Notes arises
under the Indenture amend, modify or change the obligation of the Company to
make or consummate a Change of Control Offer in the event of a Change of
Control or an Asset Sale Offer in the event of an Asset Sale Offer Trigger Date
or waive any default in the performance thereof or modify any of the provisions
or definitions with respect to any such offers; or (h) make any change in
provisions relating to waivers of defaults, the ability of holders to enforce
their rights under the Indenture or the matters discussed in these clauses (a)
through (h).
DEFEASANCE
The Indenture will provide that the Company may terminate its obligations
under the Senior Notes and the Indenture if: (a) all Senior Notes previously
authenticated and delivered have been delivered to the Trustee for cancellation
or the Company has paid all sums payable by it thereunder, or (b) the Company
has irrevocably deposited or caused to be deposited with the Trustee or the
Paying Agent and conveyed all right, title and interest for the benefit of the
holders of such Senior Notes, under the terms of an irrevocable trust agreement
form and substance satisfactory to the Trustee, as trust funds in trust solely
for the benefit of such holders for that purpose, money (in U.S. currency) or
United States government obligations maturing as to principal and interest in
such amounts and at such times as are sufficient without consideration of any
reinvestment of such interest to pay principal of, premium, if any, and
interest on such outstanding Senior Notes to maturity, provided that, among
other things, the Company shall have delivered to the Trustee (x) either (i) a
ruling directed to the Trustee received from the IRS to the effect that the
holders of such Senior Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of the Company's exercise of its option
under the defeasance provision of the Indenture and will be subject to Federal
income tax on the same amount and in the same manner and at the same times as
would have been the case if such option had not been exercised or (ii) an
opinion of counsel to the same effect as the ruling described in the clause (i)
above accompanied by a ruling to that effect published by the IRS, unless there
has been a change in the applicable Federal income tax law since the date of
the Indenture such that a ruling from the IRS is no longer required, and (y) an
opinion of counsel to the effect that, after the passage of 90 days following
the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally. Certain obligations of the Company under the
Indenture or the Senior Notes, including the payment of interest and principal,
shall remain in full force and effect until such Senior Notes have been paid in
full.
GOVERNING LAW
The Indenture will provide that the Senior Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law.
THE TRUSTEE
The Indenture will provide that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the continuance of an Event of Default, the
Trustee will exercise such rights and powers vested in it by the Indenture, and
use the same degree of care and skill in its exercise as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs.
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The Indenture and the TIA contain certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received in respect
of any such claim as security or otherwise. Subject to the TIA, the Trustee
will be permitted to engage in other transactions, provided that if the Trustee
acquires any conflicting interest as described in the TIA it must eliminate
such conflict or resign.
CERTAIN DEFINITIONS
"Accounting Changes" means the accounting changes adopted by the Company
effective as of August 1, 1992, as described in the Company's Form 10-Q filed
with the Commission for the third fiscal quarter of 1993.
"Acquired Indebtedness" of any specified Person means Indebtedness of any
other Person and its Subsidiaries existing at the time such other Person merged
with or into or became a Subsidiary of such specified Person or assumed by the
specified Person in connection with the acquisition of assets from such other
Person including, without limitation, Indebtedness of such other Person and its
Subsidiaries incurred by the specified Person in connection with or in
anticipation of (a) such other Person and its Subsidiaries being merged with or
into or becoming a Subsidiary of such specified Person or (b) such acquisition
by the specified Person.
"Affiliate" means, when used with reference to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, the referent Person, as the case may be, or any Person who
beneficially owns, directly or indirectly, 10% or more of the equity interests
of the referent Person or warrants, options or other rights (exercisable within
90 days) to acquire or hold more than 10% of any class of equity interests of
the referent Person. For the purposes of this definition, "control" when used
with respect to any specified Person means the power to direct or cause the
direction of management or policies of the referent Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative of the foregoing. Notwithstanding the foregoing, neither the Agent
nor the lenders party to the Revolving Credit Agreement nor other holders of
notes evidencing the Company's Pari Passu Indebtedness nor any of their
respective Affiliates shall be deemed to be an Affiliate of the Company or a
Subsidiary of the Company.
"Asset Sale" means any sale, lease, transfer, exchange or other disposition
in excess of $500,000 (or series of related sales, leases, transfers, exchanges
or dispositions), including, without limitation, dispositions pursuant to
merger, consolidation or sale and leaseback transactions, of (a) shares of
Capital Stock of a Subsidiary of the Company (pro-rated to the extent of the
Company's interest therein), whether by such Subsidiary or another Person, (b)
all or substantially all of the properties and assets of any division or line
of business of the Company or any Subsidiary of the Company or (c) any other
property or assets of the Company (pro-rated to the extent of the Company's
interest therein), or of any Subsidiary of the Company (pro-rated to the extent
of the Company's interest therein), outside the ordinary course of business of
the Company or such Subsidiary (each referred to for purposes of this
definition as a "disposition") by the Company or by any of its Subsidiaries
(other than (a) dispositions by the Company to a Wholly Owned Subsidiary of the
Company or by a Subsidiary of the Company to the Company or to a Wholly Owned
Subsidiary of the Company, (b) sales or other dispositions of inventory in the
ordinary course of business, (c) any disposition of properties or assets that
is consummated in accordance with the provisions of "--Merger, Consolidation,
Etc." above, (d) any disposition of any account receivable pursuant to the
Pooling and Servicing Agreement not in excess of $60 million, (e) dispositions
by the Company or any Subsidiary of the Company of the business jet product
line, the overhaul and repair business, the Hagerstown, Maryland plant and the
Auburn, Washington plant, in each case, including related assets and (f) the
disposition by the Company or any Subsidiary of the Company of interests owned
on the Issue Date in two trusts which own an Airbus A300 aircraft and a
McDonnell Douglas DC10 aircraft, respectively).
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"Associate" of, or a Person "associated" with, any person, means (a) any
trust or other estate in which such Person has a beneficial interest of at
least 50% or as to which such Person serves as trustee or in a similar
fiduciary capacity and (b) any relative or spouse of such Person, or any member
of the immediate family of such Person's spouse, who has the same home as such
person.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or security, the quotient obtained by dividing (a) the sum of the
product of (i) the number of years from such date to the date of each
successive scheduled principal or redemption payment of such Indebtedness or
security multiplied by (ii) the amount of such principal or redemption payment
by (b) the sum of all such principal or redemption payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting or non-voting) of such Person's capital stock, including
each class of Common Stock or Preferred Stock of such Person, whether
outstanding on the Issue Date or issued after the Issue Date, and any and all
rights, warrants or options exchangeable for or convertible into such capital
stock (but excluding any debt security that is exchangeable for or convertible
into such capital stock).
"Capitalized Lease Obligation" means any obligation under a lease that is
required to be classified and accounted for as capital lease obligation under
GAAP and, for purposes of the Indenture, the amount of such obligations at any
date shall be the capitalized amount of such obligations at such date,
determined in accordance with GAAP. The Stated Maturity of such obligation
shall be the date of the last payment of rent or any other amount due under
such lease prior to the first date upon which such lease may be terminated by
the lessee without penalty.
"Cash Equivalents" means (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof, (b)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc., (c) commercial paper maturing no more than one year from the
date of creation thereof and, at the time of acquisition, having a rating of at
least A-1 from Standard & Poor's Corporation or at least P-1 from Moody's
Investors Service, Inc., (d) certificates of deposit or bankers' acceptances
maturing within one year from the date of acquisition thereof issued by any
commercial bank organized under the laws of the United States of America or any
state thereof or the District of Columbia or any United States branch of a
foreign bank having at the date of acquisition thereof combined capital and
surplus of not less than $250 million, (e) repurchase obligations with a term
of not more than seven days for underlying securities of the types described in
clause (a) above entered into with any bank meeting the qualifications
specified in clause (d) above and (f) investments in money market funds which
invest substantially all their assets in securities of the types described in
clauses (a) through (e) above.
"Change of Control" has the meaning assigned to it under "--Change of
Control."
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of any Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any Person,
the ratio of (a) the aggregate amount of EBITDA of such Person for the four
full fiscal quarters ending on or immediately prior to the date of the
transaction (the "Transaction Date") giving rise to the need to
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calculate the Consolidated Fixed Charge Coverage Ratio (such four full fiscal
quarter period being referred to herein as the "Four Quarter Period") to (b)
the aggregate Consolidated Fixed Charges of such Person for such Four Quarter
Period. For purposes of this definition, if the Transaction Date occurs prior
to the first anniversary of the Issue Date, EBITDA and Consolidated Fixed
Charges shall be calculated, in the case of the Company, after giving effect on
a pro forma basis as if the issuance of the Securities and the application of
the net proceeds therefrom occurred on the first day of the Four Quarter
Period. In addition to and without limitation of the foregoing, for purposes of
this definition, EBITDA and Consolidated Fixed Charges shall be calculated
after giving effect on a pro forma basis for the period of such calculation to
(x) the incurrence or retirement, as the case may be, of any Indebtedness
(including Acquired Indebtedness) of such Person or of any of its Subsidiaries
during the Four Quarter Period commencing on the first day of the Four Quarter
Period to and including the Transaction Date (the "Reference Period"),
including, without limitation, the incurrence of the Indebtedness giving rise
to the need to make such calculation, as if such incurrence or retirement, as
the case may be, occurred on the first day of the Reference Period and (y) the
EBITDA during the Reference Period attributable to any acquired or divested
Person, business, property or asset (provided that with respect to any such
acquisition, only to the extent the EBITDA of such Person is otherwise
includable in the referent Person's EBITDA) as if such transaction occurred on
the first day of the Reference Period. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (i)
interest on Indebtedness determined on a fluctuating basis as of the
Transaction Date and which will continue to be so determined thereafter shall
be deemed to have accrued at a fixed rate per annum equal to the rate of
interest on such Indebtedness in effect on the Transaction Date; (ii) if
interest on any Indebtedness actually incurred on the Transaction Date may be
optionally determined at an interest rate based upon a factor of a prime or
similar rate, a eurocurrency interbank offered rate or other rates, then the
interest rate in effect on the Transaction Date will be deemed to have been in
effect during the entire Reference Period; and (iii) notwithstanding the
foregoing, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by Interest Rate Protection Agreements, shall
be deemed to accrue at the rate per annum resulting after giving effect to the
operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum of, without duplication, the amounts for such period, taken as
a single accounting period, of (a) Consolidated Interest Expense and (b) the
product of (i) the amount of all dividend requirements, whether in cash or
otherwise (except dividends payable in shares of Common Stock) paid, accrued or
scheduled to be paid or accrued during such period multiplied by (ii) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current effective consolidated Federal, state, local and foreign
tax rate (expressed as a decimal number between 1 and 0) of such Person (as
reflected in the audited consolidated financial statements of such Person for
the most recently completed fiscal year).
"Consolidated Interest Expense" means, with respect to any Person for any
period, the aggregate of the interest expense (without deduction of interest
income) of such Person and its Consolidated Subsidiaries for such period, on a
consolidated basis, as determined in accordance with GAAP, including all
amortization of original issue discount, the interest component of Capitalized
Lease Obligations, net cash costs under all Interest Rate Protection Agreements
(including amortization of fees), all capitalized interest, the interest
portion of any deferred payment obligations for such period and cash
contributions to any employee stock ownership plan to the extent such
contributions are used by such employee stock ownership plan to pay interest or
fees to any Person (other than the referent Person or one of its Wholly Owned
Subsidiaries) in connection with loans incurred by such employee stock
ownership plan to purchase capital stock of the referent Person, but net of any
amortization of any debt issuance costs. If the Person for whom this
calculation is being made or any of its Subsidiaries directly or indirectly
guarantees Indebtedness of a third person, the calculation shall give effect to
the
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incurrence of such guaranteed Indebtedness as if such Person or Subsidiary of
such Person had directly incurred or to otherwise assumed such guaranteed
Indebtedness as of the first day of the Reference Period.
"Consolidated Net Income" means, with respect to any Person for any period,
the consolidated net income (or deficit) of such Person and its Consolidated
Subsidiaries for such period, on a consolidated basis, as determined in
accordance with GAAP consistently applied, provided that the net income of any
other Person (other than a Subsidiary) in which the referent Person or any
Subsidiary of the referent Person has a joint interest with a third party
(which interest does not cause the net income of such other Person to be
consolidated into the net income of the referent Person in accordance with
GAAP) shall be included only to the extent of the lesser of (a) such net income
that has been actually received by the referent Person or Wholly Owned
Subsidiary of the referent Person in the form of cash dividends or similar cash
distributions (subject to, in the case of a dividend or other distribution to a
Wholly Owned Subsidiary of the referent Person, the limitations set forth in
clause (i)(1) of the next proviso hereof) or (b) the net income of such other
Person (which in no event shall be less than zero); provided further that there
shall be excluded (i)(1) the net income (but not loss) of any Subsidiary of the
referent Person to the extent that the declaration or payment of dividends or
similar distributions by such Subsidiary is not permitted by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such Subsidiary and (2)
the net income of any Person acquired in a pooling of interests transaction
accrued prior to the date it became a Subsidiary of the referent Person; (ii)
any restoration to income of any contingency reserve, except to the extent that
provision for such reserve was made out of Consolidated Net Income accrued at
any time following the Issue Date; (iii) any gain (but not loss), net of any
related provisions for taxes, realized upon the sale or to other disposition
(including, without limitation, dispositions pursuant to Sale-Leaseback
Financings) of any property or assets which are not sold or otherwise disposed
of in the ordinary course of business and upon the sale or other disposition of
any Capital Stock of any Subsidiary of the referent Person; (iv) any gain
arising from the acquisition of any securities, or the extinguishment, under
GAAP, of any Indebtedness of the referent Person; (v) any extraordinary gain
(but not extraordinary loss) net of any related provision for taxes on any such
extraordinary gain and any one time gains or losses (including, without
limitation, those resulting from litigation settlements and those related to
the adoption of new accounting standards), realized by the referent Person or
any of its Subsidiaries during the period for which such determination is made;
(vi) any amounts paid or accrued as dividends on Preferred Stock of such Person
or Preferred Stock of any Subsidiary of such Person; (vii) income or loss
attributable to discontinued operations (including operations disposed of
during such period whether or not such operations were classified as
discontinued); and (viii) in the case of a successor to the Company by
consolidation or merger or as a transferee of the Company's assets, any
earnings of the successor corporation prior to such consolidation, merger or
transfer of assets.
"Consolidated Net Worth" of a Person at any date means the Consolidated
Stockholders' Equity of such Person less (a) the amount of any gain resulting,
directly or indirectly, from the extinguishment, retirement or repurchase of
any Indebtedness of such Person or of any of its Subsidiaries, (b) any
revaluation or other write-ups subsequent to the Issue Date in the book value
of any asset owned by such Person or a Consolidated Subsidiary and (c) any
amounts attributable to the cost of treasury stock and the principal amount of
any promissory notes receivable from the sale of Capital Stock of such Person
or of any of its Subsidiaries. Notwithstanding any of the foregoing, net
deferred income tax assets recorded in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"), shall
be calculated without regard to any valuation allowance with respect to such
net deferred tax asset recorded by the Company in accordance with SFAS 109.
"Consolidated Stockholders' Equity" as of any date means with respect to any
Person the amount by which the assets of such Person and of its Subsidiaries on
a consolidated basis exceed (a) the total
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liabilities of such Person and of its Subsidiaries on a consolidated basis plus
(b) any redeemable Preferred Stock (including Disqualified Capital Stock) of
such Person or any redeemable Preferred Stock (including Disqualified Capital
Stock) of any Subsidiary of such Person issued to any Person other than to such
Person or to a Wholly Owned Subsidiary of such Person, in each case determined
in accordance with GAAP.
"Consolidated Subsidiary" of any Person means a Subsidiary which for
financial reporting purposes is or, in accordance with GAAP, should be,
accounted for by such Person as a consolidated Subsidiary.
"Consolidated Tax Expense" means, with respect to any Person for any period,
the aggregate of the U.S. Federal, state and local tax expense attributable to
taxes based on income and foreign income tax expenses of such Person and its
Consolidated Subsidiaries for such period (net of any income tax benefit),
determined in accordance with GAAP, other than taxes (either positive or
negative) attributable to extraordinary, unusual or nonrecurring gains or
losses, or taxes attributable to Asset Sales.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Subsidiaries against fluctuations in currency values to
or under which the Company or any of its Subsidiaries is a party or a
beneficiary on the date of the Indenture or becomes a party or a beneficiary
thereafter.
"Default" means any event that is, or after notice or passage of time or both
would be, an Event of Default.
"Disqualified Capital Stock" means any Capital Stock that, other than solely
at the option of the issuer thereof, by its terms (or by the terms of any
security into which it is convertible or exchangeable) is, or upon the
happening of an event or the passage of time would be, required to be redeemed
or repurchased, in whole or in part, or has, or upon the happening of an event
or the passage of time would have, a redemption or similar payment due on or
prior to the first anniversary of the Maturity Date of the Senior Notes or is
convertible into or exchangeable for debt securities at the option of the
holder thereof at any time prior to such Maturity Date.
"EBITDA" for any Person means for any period for which it is to be determined
the sum of, without duplication, the amounts for such period, taken as a single
accounting period, of (a) Consolidated Net Income of such Person for such
period, plus (b) only to the extent Consolidated Net Income has been reduced
thereby, (i) Consolidated Tax Expense of such Person paid or accrued in
accordance with GAAP for such period, (ii) Consolidated Interest Expense of
such Person for such period, (iii) depreciation and amortization expenses
(including, without limitation, amortization of capitalized debt issuance
costs) and other similar non-cash expenses (other than any non-cash expense
which requires the accrual of or a reserve for cash charges for any future
period and excluding any non-cash charge constituting an extraordinary item of
loss) of such Person and its Consolidated Subsidiaries for such period, (iv) in
the case of the Company, for any 12-month period that includes the third
quarter of fiscal 1993, without duplication, the cumulative effect through May
2, 1993 of the Accounting Changes; less (c) (i) the amount of consolidated non-
cash items increasing Consolidated Net Income of such Person for such period
and (ii) the amount of all cash payments made by such Person and its
Consolidated Subsidiaries during such period to the extent such payments relate
to non-cash charges that were added back in determining EBITDA for such period
or any prior period, all as determined on a consolidated basis in conformity
with GAAP consistent with those principles applied in the preparation of the
audited financial statements of such Person and its Consolidated Subsidiaries
on the Issue Date; provided that if a Person has any Subsidiary that is not a
Wholly Owned Subsidiary, EBITDA of such Person shall be reduced by an amount
equal to (1) the Consolidated Net Income of such Subsidiary for such period
multiplied by (2) the quotient of (A) the number of shares of outstanding
Common Stock of such Subsidiary not owned on the last day of such period by
such Person or by any Wholly Owned Subsidiary of such Person that is not
subject to any encumbrance or restriction on the payment of
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dividends to such Person divided by (B) the total number of shares of
outstanding Common Stock of such Subsidiary on the last day of such period.
"Existing Indebtedness" has the meaning set forth in the definition of
Permitted Refinancing Indebtedness.
"Fair Market Value" or "fair value" means, with respect to any asset or
property or Capital Stock, the price which could be negotiated in an arm's-
length, free market transaction, for cash, between an informed and willing
seller and an informed, willing and able buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value shall be
determined by the Board of Directors of the Company acting reasonably and in
good faith and shall be evidenced by a written resolution of said Board of
Directors (certified by the Secretary or Assistant Secretary of the Company)
delivered to the Trustee, provided that if the aggregate non-cash consideration
to be received by the Company or any of its Subsidiaries from any Asset Sale
shall exceed $10,000,000 then Fair Market Value shall be determined by an
Independent Financial Advisor.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such Person (and
"incurrence," "incurred," "incurable" and "incurring" shall have meanings
correlative to the foregoing), provided that the accrual of interest (whether
such interest is payable in cash or in kind) and the accretion of original
issue discount shall not be deemed an incurrence of Indebtedness, provided,
further that (a) any Indebtedness or Disqualified Capital Stock of a Person
existing at the time such Person becomes (after the Issue Date) a Subsidiary
(whether by merger, consolidation, acquisition or otherwise) of the Company
shall be deemed to be incurred by such Subsidiary at the time it becomes a
Subsidiary of the Company and (b) any amendment, modification or waiver of any
document pursuant to which Indebtedness was previously incurred shall be deemed
to be an incurrence of Indebtedness unless such amendment, modification or
waiver does not (i) increase the principal or premium thereof or interest rate
thereon (including by way of original issue discount), (ii) change to an
earlier date the Stated Maturity thereof or the date of any scheduled or
required principal payment thereon or the time or circumstances under which
such Indebtedness may or shall be redeemed, (iii) if such Indebtedness is
subordinated to the Senior Notes, modify or affect, in any manner adverse to
the holders, such subordination, (iv) if the Company is the obligor thereon,
provide that a Subsidiary of the Company not already an obligor thereon shall
be an obligor thereon or (v) violate, or cause the Indebtedness to violate, the
provisions described under "--Certain Covenants--Limitation on Liens" and "--
Certain Covenants--Limitation on Payment Restrictions Affecting Subsidiaries"
above.
"Indebtedness" means, with respect to any Person, at any date, any of the
following, without duplication, (a) any liability, contingent or otherwise, of
such Person (i) for borrowed money (whether or not the recourse of the lender
is to the whole of the assets of such Person or only to a portion thereof),
(ii) evidenced by a note, bond, debenture or similar instrument (including a
purchase money obligation) or (iii) for the payment of money relating to a
Capitalized Lease Obligation or other obligation (whether issued or assumed)
relating to the deferred purchase price of property; (b) all conditional sale
obligations and all obligations under any title retention agreement (even if
the rights and remedies of the seller under such agreement in the event of
default are limited to repossession or sale of such property), but excluding
trade accounts payable arising in the ordinary course of business that are not
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overdue by 180 days or more or are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted; (c) all obligations
for the reimbursement of obligations in respect of any letter of credit issued
and drawn from time to time for such Person's account (except that the stated
amount of any undrawn letter of credit issued for the account of the Company in
support of Indebtedness of any Subsidiary of the Company shall for all purposes
of this Indenture be Indebtedness of the Company), and all obligations of such
Person in respect of any banker's acceptance or similar credit transaction
entered into in the ordinary course of business; (d) all Indebtedness of others
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on any asset or property
(including, without limitation, leasehold interests and any other tangible or
intangible property) of such Person, whether or not cash Indebtedness is
assumed by such Person or is not otherwise such Person's legal liability,
provided that if the obligations so secured have not been assumed in full by
such Person or are otherwise not such Person's legal liability in full, the
amount of such Indebtedness for the purposes of this definition shall be
limited to the lesser of the amount such Indebtedness secured by such Lien or
the Fair Market Value of the assets or property securing such Lien; (e) all
Indebtedness of others guaranteed (including all dividends of other Persons the
payment of which is guaranteed), directly or indirectly, by such Person or that
is otherwise its legal liability or which such Person has agreed to purchase or
repurchase or in respect of which such Person has agreed contingently to supply
or advance funds; (f) all Disqualified Capital Stock issued by such Person
(other than, in the case of a Subsidiary of the referent Person, such
Disqualified Capital Stock owned by the referent Person or by any Wholly Owned
Subsidiary of the referent Person, provided that if any Wholly Owned Subsidiary
of the referent Person shall cease to be a Wholly Owned Subsidiary of the
referent Person or shall transfer such Disqualified Capital Stock (other than
to the referent Person or another Wholly Owned Subsidiary of the referent
Person) the date on which such Wholly Owned Subsidiary so ceases to be a Wholly
Owned Subsidiary of the referent Person or so transfers such Disqualified
Capital Stock shall be deemed to be the issuance of such Disqualified Capital
Stock by the Subsidiary issuer thereof) with the amount of Indebtedness
represented by such Disqualified Capital Stock being equal to the greater of
its voluntary or involuntary liquidation preference and its maximum fixed
repurchase price, but excluding accrued dividends, if any; and (g) all
obligations under Currency Agreements and Interest Rate Protection Agreements
other than those entered into for the purpose of protection against risk of
currency fluctuations affecting the Company in its ordinary course of business.
For purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date, provided that the
amount outstanding at any time of any Indebtedness issued with original issue
discount is the full amount of such Indebtedness less the remaining unamortized
portion of the original issue discount of such Indebtedness at such time as
determined in conformity with GAAP.
"Independent Financial Advisor" means an accounting, appraisal or investment
banking firm of nationally recognized standing that is, in the reasonable and
good faith judgment of the Board of Directors of the Company, qualified to
perform the task for which such firm has been engaged and disinterested and
independent with respect to the Company and its Affiliates.
"Interest Rate Protection Agreement" means any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedge agreement or other similar agreement or
arrangement designed to protect a Person or any of its Subsidiaries against
fluctuations in interest rates to or under which such Person or any of its
Subsidiaries is a party or a beneficiary on the Issue Date or becomes a party
or a beneficiary thereafter.
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"Investment" by any Person means (a) any direct or indirect loan, advance or
other extension of credit or capital contribution to (by means of transfers of
cash or other property (valued at the Fair Market Value thereof as of the date
of transfer) to others or payments for property or services for the account or
use of others, or otherwise), (b) any direct or indirect purchase or
acquisition of Capital Stock, bonds, notes, debentures, or other securities or
evidences of Indebtedness issued by any other Person (whether by merger,
consolidation, amalgamation or otherwise and whether or not purchased directly
from the issuer of such securities or evidences of Indebtedness), (c) any
direct or indirect guarantee or assumption of the Indebtedness of any other
Person and (d) all other items that would be classified as investments
(including, without limitation, purchases of assets outside of the ordinary
course of business) on a balance sheet of such Person prepared in accordance
with GAAP. The amount of any Investment shall be the original cost of such
Investment plus the cost of all additions thereto, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment.
"Issue Date" means the date on which the Senior Notes are originally issued
under the Indenture.
"Lien" means, with respect to any Person, any mortgage, pledge, lien,
encumbrance, easement, restriction, covenant, right-of-way, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property of such Person, or a security interest of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, including any Sale-Leaseback Financing, any option or other similar
agreement to sell, in each case securing obligations of such Person and any
filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statute or statutes) of any jurisdiction other
than to reflect ownership by a third party of property leased to the referent
Person or any of its Subsidiaries under a lease that is not in the nature of a
conditional sale or title retention agreement).
"Maturity Date" means , 2003.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds of
such Asset Sale in the form of cash or Cash Equivalents, including payments in
respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or Cash Equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Subsidiary of the Company) and
proceeds from the conversion of other property received when converted to cash
or Cash Equivalents, net of (a) reasonable third-party brokerage commissions
and other reasonable third-party fees and expenses (including fees and expenses
of counsel and investment bankers) related to such Asset Sale, (b) provisions
for all taxes as a result of such Asset Sale computed without regard to the
consolidated results of operations of the Company and its Subsidiaries, taken
as a whole, (c) payments made to repay Indebtedness or any other obligation
outstanding at the time of such Asset Sale that was incurred in accordance with
the Indenture and that either (i) is secured by a Lien incurred in accordance
with the Indenture on the property or assets sold or (ii) is required to be
paid as a result of such sale, in each case to the extent actually repaid in
cash and (d) appropriate amounts to be provided by the Company or any
Subsidiary of the Company as a reserve against liabilities associated with such
Asset Sale, including without limitation pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale, all as determined in conformity with generally accepted accounting
principles as then in effect. For purposes of this definition and "--Certain
Covenants--Limitation on Sale of Assets," "cash" means U.S. dollars or such
money as is freely and readily convertible into U.S. dollars.
"Net Equity Proceeds" means (a) in the case of any sale by the Company of
Qualified Capital Stock of the Company, the aggregate net proceeds received by
the Company, after payment of expenses, commissions and the like incurred in
connection therewith, whether such proceeds are in cash or in other property
(valued as determined reasonably and in good faith by the Board of Directors of
the
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Company, as evidenced by a written resolution of said Board of Directors, at
the Fair Market Value thereof at the time of receipt) and (b) in the case of
any exchange, exercise, conversion or surrender of any outstanding Indebtedness
of the Company or any Subsidiary for or into shares of Qualified Capital Stock
of the Company, the amount of such Indebtedness (or, if such Indebtedness was
issued at an amount less than the stated principal amount thereof, the accrued
amount thereof as determined in accordance with generally accepted accounting
principles as then in effect) as reflected in the consolidated financial
statements of the Company prepared in accordance with generally accepted
accounting principles as then in effect as of the most recent date next
preceding the date of such exchange, exercise, conversion or surrender (plus
any additional amount required to be paid by the holder of such Indebtedness of
the Company or to any Wholly Owned Subsidiary of the Company upon such
exchange, exercise, conversion or surrender) and less any and all payments made
to the holders of such Indebtedness, and all other expenses incurred by the
Company in connection therewith), in the case of each of clauses (a) and (b) to
the extent consummated after the Issue Date, provided that the exchange,
exercise, conversion or surrender of any Indebtedness outstanding on the Issue
Date which is subordinated (whether pursuant to its terms or by operation of
law) to the Senior Notes shall not be or be deemed to be included in Net Equity
Proceeds.
"New Indebtedness" has the meaning set forth in the definition of Permitted
Refinancing Indebtedness.
"Pari Passu Indebtedness" means the Senior Notes and any Indebtedness under
the Company's Revolving Credit Agreement, its 9.33% Senior Notes, its 9.35%
Senior Notes, and any Permitted Refinancing Indebtedness relating thereto.
"Permitted Indebtedness" means, without duplication, (a) Indebtedness of the
Company and its Subsidiaries remaining outstanding immediately after the Issue
Date (as in effect on the Issue Date) after giving effect to the consummation
of the transactions described in the Prospectus under "Use of Proceeds" above;
(b) $100 million of Indebtedness of the Company evidenced by or arising under
the Revolving Credit Agreement; (c) Indebtedness of the Company evidenced by or
arising under the Senior Notes and the Indenture; (d) Permitted Refinancing
Indebtedness incurred by the Company or by any of its Subsidiaries; (e)
unsecured Indebtedness of the Company to a Wholly Owned Subsidiary of the
Company, provided that (i) any Indebtedness of the Company to a Wholly Owned
Subsidiary of the Company shall be evidenced by an intercompany promissory note
that is subordinated in right of payment to the payment and performance of the
Company's obligations under the Indenture and the Senior Notes and (ii) any
subsequent issuance or transfer of Capital Stock of a Wholly Owned Subsidiary
of the Company (the "Creditor Subsidiary") that results in such Creditor
Subsidiary ceasing to be a Wholly Owned Subsidiary of the Company or any
subsequent transfer of Indebtedness owing from the Company to such Creditor
Subsidiary (other than a transfer to another Wholly Owned Subsidiary of the
Company) shall be deemed in each case to constitute the incurrence of
Indebtedness by the Company to the extent of any such Indebtedness then
outstanding; (f) Indebtedness of the Company [and its Subsidiaries] in an
aggregate principal amount not to exceed, when added to Indebtedness and
Preferred Stock of Subsidiaries of the Company incurred under clause (d) of
"Certain Covenants--Limitation on Subsidiary Indebtedness and Preferred Stock"
above, 10% of Consolidated Net Worth of the Company, provided, however, that no
Default or Event of Default shall have occurred and be continuing at the time
of or as a consequence of the incurrence of such Indebtedness; and (g)
Indebtedness (1) of the Company or of any Subsidiary of the Company in respect
of performance bonds, bankers' acceptances and surety or appeal bonds provided
in the ordinary course of business, (2) of the Company under Currency
Agreements and Interest Rate Protection Agreements that are related to payment
obligations of the Company otherwise permitted under the Indenture, provided
that in the case of Currency Agreements that relate to other Indebtedness, such
Currency Agreements do not increase the obligations of the Company outstanding
at any time other than as a result of fluctuations in foreign
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currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder and (3) of the Company or of any Subsidiary of the Company
arising from agreements providing for indemnification, adjustment of purchase
price or similar obligations, or from guarantees or letters of credit, surety
bonds or performance bonds securing any obligations of the Company or of any of
its Subsidiaries pursuant to such agreements, in any case incurred in
connection with the disposition effected in accordance with the Indenture of
any business, assets or Subsidiary of the Company (other than guarantees or
similar credit support of Indebtedness incurred by any Person acquiring all or
any portion of such business, assets or Subsidiary of the Company for the
purpose of financing such acquisition) in a principal amount not to exceed the
gross proceeds actually received by the Company or by any of its Subsidiaries
in connection with such disposition.
"Permitted Investments" means (a) investments held in the form of cash and
Cash Equivalents; (b) Investments in any Wholly Owned Subsidiary of the Company
by the Company or by any other Wholly Owned Subsidiary of the Company provided
that (i) any Indebtedness evidencing an Investment in a Wholly Owned Subsidiary
of the Company shall not be subordinated or junior to any other Indebtedness or
other obligation of such Wholly Owned Subsidiary and (ii) such Investment shall
only be a Permitted Investment so long as any such Wholly Owned Subsidiary in
which the Investment has been made or which has made such Investment remains a
Wholly Owned Subsidiary of the Company; (c) Investments, not exceeding $20
million at any one time in excess of Investments made as Restricted Payments,
in joint ventures, partnerships or Persons that are not Wholly Owned
Subsidiaries of the Company that are made solely for the purpose of acquiring
or furthering businesses related to the Company's business; (d) Investments of
the Company and its Subsidiaries arising as a result of any Asset Sale
otherwise complying with the terms of the Indenture, provided that for each
Asset Sale the maximum aggregate amount of Investments permitted under this
clause (d) shall not exceed 15% of the total consideration received for such
Asset Sale by the Company or any Subsidiary of the Company; (e) Investments in
the Company by any Subsidiary of the Company, provided that any Indebtedness
evidencing such Investment is subordinated to the Senior Notes and (f)
Investments (other than loans or advances to actual or potential customers or
suppliers that are not made as part of the purchase or sale of goods or
services by the Company or any of its Subsidiaries) made from time to time by
the Company or any Subsidiary in the ordinary course of business and consistent
with practices in the industry of the Company.
"Permitted Liens" means (a) Liens for taxes, assessments and governmental
charges or levies (other than any Lien imposed by the Employee Retirement
Income Security Act of 1974, as amended) that are not yet subject to penalties
for non-payment or are being contested in good faith by appropriate proceedings
and for which adequate reserves, if required, have been established or other
provisions have been made in accordance with GAAP; (b) statutory mechanics',
workmen's, materialmen's, operators', warehousemen's, repairmen's and bankers'
liens, and similar Liens imposed by law and arising in the ordinary course of
business for sums which are not overdue by more than 15 days or, if so overdue,
are being contested in good faith by appropriate proceedings and for which
adequate reserves, if required, have been established or other provisions have
been made in accordance with GAAP; (c) minor imperfections of, or encumbrances
on, title that do not impair the value of property for its intended use; (d)
Liens (other than any Lien under the Employee Retirement Income Security Act of
1974, as amended) incurred or deposits made in the ordinary course of business
in connection with (or made to secure reinsurance obligations of the Company or
any of its Subsidiaries incurred in connection with its or their obligations
with respect to) workers' compensation, unemployment insurance and other types
of social security; (e) Liens incurred or deposits made to secure the
performance of tenders, bids, leases, statutory or regulatory obligations,
bankers' acceptances, surety and appeal bonds, government contracts,
performance and return of money bonds and other obligations of a similar nature
incurred in the ordinary course of business (exclusive of obligations for the
payment of borrowed money); (f) easements, rights-of-way, municipal and zoning
ordinances and similar charges, encumbrances, title defects or other
irregularities that do not materially interfere with the ordinary course of
business of the
85
<PAGE>
Company or of any of its Subsidiaries; (g) Liens (including extensions and
renewals thereof) upon real or tangible personal property acquired after the
Issue Date, provided that (1) any such Lien is created solely for the purpose
of securing Indebtedness (other than Permitted Indebtedness) (A) that is
incurred in accordance with "Certain Covenants--Limitation on Indebtedness" or
"Certain Covenants--Limitation on Subsidiary Indebtedness and Preferred Stock"
above to finance the cost (including the cost of improvement or construction)
of the item of property or assets subject thereto and such Lien is created
prior to, at the time of or within 365 days after the later of the acquisition,
the completion of construction or the commencement of full operation of such
property or (B) that is Permitted Refinancing Indebtedness to Refinance any
Indebtedness previously so secured, (2) the principal amount of the
Indebtedness secured by such Lien does not exceed 100% of such cost, and (3)
any such Lien shall not extend to or cover any property or assets of the
Company or of any of its Subsidiaries other than such item of property or
assets and any improvements on such item; (h) leases or subleases granted to
others that do not materially interfere with the ordinary course of business of
the Company or of any of its Subsidiaries; (i) Liens encumbering property or
assets to secure repayment of advances, deposits or progress or partial
payments by a customer of the Company or of any of its Subsidiaries relating to
such property or assets; (j) Liens arising from filing Uniform Commercial Code
financing statements regarding leases; (k) Liens in favor of the Company or any
Wholly Owned Subsidiary of the Company; (l) Liens securing any real property or
other assets of the Company or of any Subsidiary of the Company in connection
with the financing of industrial revenue and similar bond facilities and
related obligations or of any equipment of other property designed primarily
for the purpose of air or water pollution control, provided that any such Lien
on such facilities, equipment or other property shall not apply to any other
property or assets of the Company or of such Subsidiary of the Company; (m)
Liens arising from the rendering of a final judgment or order against the
Company or any Subsidiary of the Company that does not give rise to an Event of
Default; (n) Liens securing reimbursement obligations with respect to letters
of credit incurred in accordance with the Indenture that encumber documents and
other property relating to such letters of credit and the products and proceeds
thereof; (o) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods; (p) Liens encumbering customary initial deposits and
margin deposits, and other Liens that are within the general parameters
customary in the industry and incurred in the ordinary course of business
securing Indebtedness under Interest Rate Protection Agreements and Currency
Agreements and forward contracts, options, futures contracts, futures options
or fluctuations in the price of commodities; (q) Liens on sales of receivables;
and (r) Liens in favor of the Trustee arising under the Indenture.
"Permitted Payments" means, so long as no Default or Event of Default shall
have occurred and be continuing or would result as a consequence thereof, (a)
the prepayment, acquisition, retirement or decrease of Indebtedness of the
Company that is subordinated (whether pursuant to its terms or by operation of
law) to the Senior Notes that is prepaid, acquired, decreased or retired (i) by
conversion into or in exchange for Qualified Capital Stock of the Company or
(ii) in exchange for or with or out of the net cash proceeds of the
substantially concurrent sale (other than by the Company to a Subsidiary of the
Company) of Permitted Refinancing Indebtedness; (b) travel advances to
employees of the Company or any Subsidiary in the ordinary course of the
Company's business; (c) loans to employees (other than travel advances) not to
exceed $500,000 in the aggregate at any one time outstanding; (d) any
purchases, redemptions, acquisitions, cancellations or other retirement for
value of shares of Capital Stock of the Company or of any Subsidiary of the
Company, options on any such shares or related stock appreciation rights or
similar securities held by officers, directors or employees or former officers
or employees (or their estates or beneficiaries under their estates) and which
were issued pursuant to any stock option plan (or other director, officer or
employee benefit plan or agreement), upon death, disability, retirement,
termination of employment or pursuant to the terms of such plan or agreement
and which in the aggregate do not exceed $1,000,000 in any fiscal year; (e) the
purchase, at a price of not more than $.05 per right, of any rights issued or
issuable pursuant to currently existing or future rights plan of the Company,
provided that such purchase shall not exceed $3 million in the
86
<PAGE>
aggregate; or (f) the retirement of shares of the Company's Capital Stock in
exchange for or out of the proceeds of a substantially concurrent sale (other
than a sale to a Subsidiary of the Company) of other shares of its Capital
Stock (other than Disqualified Capital Stock).
"Permitted Program Investment" means an investment in design, engineering,
tooling or similar costs related to a program undertaken by the Company in the
ordinary course of its business.
"Permitted Refinancing Indebtedness" means Indebtedness of the Company or of
any of the Company's Subsidiaries or Preferred Stock of a Subsidiary of the
Company, the net proceeds of which are used to Refinance outstanding
Indebtedness of the Company or of any of the Company's Subsidiaries that was
outstanding as of the Issue Date or incurred in accordance with the Indenture
or Preferred Stock of a Subsidiary of the Company that was outstanding as of
the Issue Date or issued in accordance with the Indenture, provided that (a) if
the Indebtedness (including the Senior Notes) being Refinanced (the "Existing
Indebtedness") is pari passu with or subordinated to the Senior Notes, then
such Indebtedness Refinancing the Existing Indebtedness (the "New
Indebtedness") shall be pari passu with or subordinated to, as the case may be,
the Senior Notes at least to the same extent and in the same manner as the
existing Indebtedness is to the Senior Notes, (b) such New Indebtedness has a
Stated Maturity no earlier than the Stated Maturity of the Existing
Indebtedness, (c) such New Indebtedness has an Average Life at the time such
New Indebtedness is proposed to be incurred that is equal to or greater than
the Average Life of the Existing Indebtedness as of the date of such proposed
Refinancing, (d) such New Indebtedness is in an aggregate principal amount (or,
if such New Indebtedness is issued at a price less than the principal amount
thereof, the aggregate amount of gross proceeds therefrom is) not in excess of
the aggregate principal amount outstanding under the Existing Indebtedness on
the date of the proposed Refinancing thereof (or if the Existing Indebtedness
was issued at a price less than the principal amount thereof, then not in
excess of the amount of liability in respect thereof determined in accordance
with GAAP as of the date of such proposed Refinancing), (e) with respect to
such Preferred Stock of the Company's Subsidiaries, Preferred Stock issued in
exchange for or the proceeds of which are used to Refinance such existing
Preferred Stock of a Subsidiary ("New Preferred Stock") shall have (i) a Stated
Maturity no earlier than the Stated Maturity of the Preferred Stock being
exchanged or Refinanced, (ii) an Average Life at the time such New Preferred
Stock is proposed to be incurred that is equal to or greater than the Average
Life of the Preferred Stock to be exchanged or Refinanced as of the date of
such proposed exchange or Refinancing and (iii) a liquidation value no greater
than the liquidation value of the Preferred Stock to be exchanged or Refinanced
as of the date of such proposed exchange or Refinancing and (f) if such
Existing Indebtedness is Indebtedness solely of the Company, such New
Indebtedness will only be permitted if it is Indebtedness solely of the
Company.
"Person" means any individual, corporation, partnership, joint venture,
trust, estate, unincorporated organization or government or any agency or
political subdivision thereof.
"Plan of Liquidation" means a plan (including by operation of law) that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously) (a) the sale,
lease, conveyance or other disposition of all or substantially all of the
assets of the Company otherwise than as an entirety or substantially as an
entirety and (b) the distribution of all or substantially all of the proceeds
of such sale, lease, conveyance or other disposition and all or substantially
all or the remaining assets of the Company to holders of Capital Stock of the
Company.
"Pooling and Servicing Agreement" means the Pooling and Servicing Agreement
dated as of December 23, 1992, among the Company, the Company's Wholly Owned
Subsidiary RI Receivables, Inc. and Bankers Trust Company, as trustee on behalf
of the Certificateholders (as defined therein),
87
<PAGE>
and any extension, renewal, modification, restatement or replacement thereof
(in whole or in part), and as the same may be amended, supplemented or
otherwise modified from time to time.
"Preferred Stock" means the Capital Stock of any Person (other than the
Common Stock of such Person) of any class of classes (however designated) that
ranks prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding-up of
such Person, to shares of Capital Stock of any other class of such Person.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms of the Indenture, a calculation in accordance with
Article 11 of Regulation S-X under the Securities Act.
"Qualified Capital Stock" means, with respect to any Person, any Capital
Stock of such Person that is not Disqualified Capital Stock or convertible into
or exchangeable or exercisable for Disqualified Capital Stock, and includes
rights and other securities issuable under the Company's Amended and Restated
Rights Agreement, dated as of April 6, 1990, between the Company and The First
National Bank of Chicago, as Rights Agent, as such agreement may be amended or
supplemented from time to time.
"Reference Period" has the meaning set forth in the definition of
"Consolidated Fixed Charge Coverage Ratio."
"Refinance" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Restricted Payment" means (a) the declaration or payment of any dividend or
the making of any other distribution, including any dividend or distribution
made in connection with the merger or consolidation of the Company (whether in
any such case in cash, securities or other property or assets of the Company or
of any of its Subsidiaries), on the Company's or any of its Subsidiaries'
Capital Stock, or to the holders of the Company's or any of its Subsidiaries'
Capital Stock, whether outstanding on the Issue Date or thereafter, or to any
Affiliate of the Company (other than dividends or distributions payable solely
in Qualified Capital Stock of the Company or of such Subsidiary (subject to the
last paragraph of the covenant described under "Certain Covenants--Limitation
on Restricted Payments") and other than any dividend or distribution declared
or paid by any Wholly Owned Subsidiary of the Company); (b) the making of any
Investment by the Company or any of its Subsidiaries in any Person other than
Permitted Investments; (c) any purchase, redemption, retirement or other
acquisition for value of any Capital Stock of the Company or of any of its
Subsidiaries or of any Affiliate of the Company or any other securities of a
direct or indirect parent of the Company, whether outstanding on the Issue Date
or thereafter, or any warrants, rights or options to purchase or acquire shares
of the Capital Stock of the Company or of any of its Subsidiaries or of any
Affiliate of the Company, whether outstanding on the Issue Date or thereafter,
held by any Person other than the Company or one of its Wholly Owned
Subsidiaries, other than through the issuance in exchange therefor solely of
Qualified Capital Stock of the Company or of such Subsidiary; or (d) the
prepayment, acquisition, decrease or retirement for value prior to maturity,
scheduled repayment or scheduled sinking fund payment of any Indebtedness of
the Company that is subordinated (whether pursuant to its terms or by operation
of law) to the Senior Notes, in each case to the extent not contained within
the definition of "Permitted Payments." The dollar amount of any non-cash
dividend or distribution by the Company or any of its Subsidiaries on the
Company's, any Subsidiary's or any of the Company's Affiliate's Capital Stock
shall be equal to the Fair Market Value of such dividend or distribution at the
time of such dividend or distribution.
88
<PAGE>
"Sale-Leaseback Financing" means an arrangement with any Person providing for
the leasing by the Company or a Subsidiary of the Company of any property which
is to be sold or transferred by the Company or any Subsidiary of the Company to
such Person after the Issue Date.
"Stated Maturity" means, with respect to any security or Indebtedness, the
date specified therein as the fixed date on which any principal of such
security or Indebtedness is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase thereof at the option of the holder thereof).
A "Subsidiary" of a Person means (a) a corporation a majority of whose Voting
Stock is at the time, directly or indirectly, owned by such Person, by one or
more Subsidiaries of such Person or by such Person and one or more Subsidiaries
of such Person or (b) any other Person (other than a corporation) in which such
Person, one or more Subsidiaries of such Person or such Person and one or more
Subsidiaries of such Person, directly or indirectly, at the date of
determination thereof, have (i) at least a majority ownership interest or (ii)
the power to elect or direct the election of the directors or other governing
body of such Person.
"Voting Stock" means, with respect to any Person, securities of any class or
classes of Capital Stock of such Person entitling the holders thereof (whether
at all times or only so long as no senior class of stock has voting power by
reason of any contingency) to vote in the election of members of the board of
directors or other governing body of such Person.
"Wholly Owned Subsidiary" means, with respect to any Person, any subsidiary
of such Person all the outstanding shares of Capital Stock (other than
directors' qualifying shares, if applicable) of which are owned directly by
such Person or another Wholly Owned Subsidiary of such Person.
DESCRIPTION OF CONCURRENT FINANCING
CONVERTIBLE SUBORDINATED NOTES
In connection with the Offering, the Company is concurrently offering,
pursuant to a separate prospectus, the Convertible Subordinated Notes which
will mature on , 2004. The Convertible Subordinated Notes are
convertible at the option of the holder thereof at any time prior to maturity,
unless previously redeemed, into shares of Common Stock of the Company, at a
conversion price of $ per share, subject to adjustment in certain events.
On April 8, 1994, the last reported sale price for the Common Stock on the New
York Stock Exchange (symbol: RHR) was $9.125 per share. The Convertible
Subordinated Notes are redeemable at the option of the Company, in whole or in
part, at any time on and after , 1998 at the prices specified in the
Convertible Subordinated Notes, plus accrued interest. The Convertible
Subordinated Notes do not provide for any sinking fund. Upon a change of
control, the holders of the Convertible Subordinated Notes will have the right,
subject to certain restrictions and conditions, to require the Company to
purchase all or any part of the Convertible Subordinated Notes at 101% of the
principal amount thereof, plus accrued and unpaid interest to the date of
purchase. The Convertible Subordinated Notes will be general unsecured
obligations of the Company and will be subordinate in right of payment to all
existing and future Senior Indebtedness (as defined in the Indenture governing
the Convertible Subordinated Notes) of the Company and pari passu in right of
payment with all existing and future Subordinated Indebtedness (as defined in
such indenture.)
89
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") between the Company and the Underwriter, the
Company has agreed to sell to the Underwriter, and the Underwriter has agreed
to purchase, the principal amount of the Senior Notes set forth below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF SENIOR NOTES
----------- ----------------
<S> <C>
Salomon Brothers Inc..................................... $100,000,000
</TABLE>
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, that the obligations of the Underwriter
are subject to certain conditions precedent and that the Underwriter will be
obligated to purchase the entire principal amount of the Senior Notes offered
hereby if any Senior Notes are purchased.
The Company has been advised by the Underwriter that it proposes to offer the
Senior Notes directly to the public at the initial public offering price set
forth on the cover of this Prospectus and to certain dealers at such price less
a concession of not more than % of the principal amount of the Senior Notes.
The Underwriter may allow, and such dealers may reallow, a concession not in
excess of % of the principal amount of the Senior Notes. After the initial
public offering of the Senior Notes, the public offering price and such
concessions may be changed.
The Company does not intend to list the Senior Notes on any national
securities exchange. The Underwriter has indicated that it intends to make a
market in the Senior Notes, subject to applicable laws and regulations.
However, the Underwriter is not obligated to do so and any market-making may be
discontinued at any time at the sole discretion of the Underwriter without
notice. Accordingly, no assurance can be given that any market for the Senior
Notes will develop, or, if any such market develops, as to the liquidity of
such market. See "Risk Factors--Absence of Public Market for the Securities."
The Underwriting Agreement provides that the Company will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Securities Act, or contribute to payments that the Underwriter may be required
to make in respect thereof.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Securities will
be passed upon for the Company by Gibson, Dunn & Crutcher, San Diego,
California, and for the Underwriter by Latham & Watkins, Los Angeles,
California.
EXPERTS
The financial statements and the related financial statement schedules as of
July 31, 1993 and 1992 and for each of the three years in the period ended July
31, 1993, included and incorporated by reference in this Prospectus, have been
audited by Deloitte & Touche, independent auditors, as stated in their reports
which are included and incorporated by reference herein, and have been so
included and incorporated in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
90
<PAGE>
ROHR, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements:
Independent Auditors' Report F-2
Consolidated Balance Sheets--January 30, 1994, July 31, 1993 and 1992 F-3
Consolidated Statements of Operations--For the Six Months Ended January
30, 1994 and January 31, 1993 and the Years Ended July 31, 1993, 1992
and 1991 F-4
Consolidated Statements of Shareholders' Equity--For the Six Months
Ended January 30, 1994 and the Years Ended July 31, 1993 and 1992 F-5
Consolidated Statements of Cash Flows--For the Six Months Ended January
30, 1994 and January 31, 1993 and for the Years Ended July 31, 1993,
1992 and 1991 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF ROHR, INC.:
We have audited the accompanying consolidated balance sheets of Rohr, Inc.
and its subsidiaries as of July 31, 1993 and July 31, 1992, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended July 31, 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 the 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Rohr, Inc. and its subsidiaries as
of July 31, 1993 and July 31, 1992, and the results of its operations and its
cash flows for each of the three years in the period ended July 31, 1993, in
conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, in fiscal
year 1993 the Company changed certain elements in the application of accounting
principles relating to long-term programs and contracts and changed its method
of accounting for income taxes and for post-retirement benefits other than
pensions.
Deloitte & Touche
San Diego, California
September 17, 1993
(March 28, 1994 as to Notes 7 and 8)
F-2
<PAGE>
ROHR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
ASSETS JULY 31,
------ JAN. 30, ----------------------
1994 1993 1992
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Cash and short-term investments............ $ 28,768 $ 42,186 $ 21,122
Accounts receivable........................ 94,126 94,140 133,153
Inventories:
Work-in-process.......................... 516,483 560,139 972,003
Raw materials, purchased parts and sup-
plies................................... 29,051 32,575 42,549
Less customers' progress payments and ad-
vances.................................. (133,380) (152,976) (181,575)
--------- ---------- ----------
Inventories--net......................... 412,154 439,738 832,977
Prepaid expenses and other current assets.. 15,539 16,861 21,118
Deferred tax asset......................... 13,723 13,654 --
--------- ---------- ----------
Total Current Assets................... 564,310 606,579 1,008,370
Property, Plant and Equipment.............. 499,388 496,452 531,239
Less accumulated depreciation and amorti-
zation.................................. (268,539) (257,407) (260,956)
--------- ---------- ----------
Property, plant and equipment--net....... 230,849 239,045 270,283
Investment in Leases....................... 37,735 38,233 39,446
Deferred Tax Asset......................... 88,915 89,348 --
Other Assets............................... 45,757 44,581 45,859
--------- ---------- ----------
$ 967,566 $1,017,786 $1,363,958
========= ========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Trade accounts and other payables.......... $ 155,691 $ 166,916 $ 162,638
Salaries, wages and benefits............... 33,955 38,623 67,194
Taxes on income............................ -- -- 30,247
Short-term debt............................ -- -- 20,000
Current portion of long-term debt.......... 16,211 50,719 27,517
--------- ---------- ----------
Total Current Liabilities.............. 205,857 256,258 307,596
Long-Term Deferred Taxes on Income......... -- -- 43,458
Long-Term Debt............................. 467,214 480,889 525,077
Pension and Post-Retirement Obligations.... 69,246 63,040 25,785
Other Obligations.......................... 35,020 35,356 13,176
Commitments and Contingencies (Note 8)
Shareholders' Equity:
Preferred stock, $1 par value per share,
10 million shares authorized, none is-
sued.................................... -- -- --
Common stock, $1 par value per share, au-
thorized 50,000,000 shares; issued and
outstanding 18,017,930, 17,995,866 and
17,833,076 shares, respectively......... 18,018 17,996 17,833
Additional paid-in capital............... 102,541 102,312 101,261
Retained earnings........................ 82,976 75,241 329,772
Minimum pension liability adjustment..... (13,306) (13,306) --
--------- ---------- ----------
Total Shareholders' Equity............. 190,229 182,243 448,866
--------- ---------- ----------
$ 967,566 $1,017,786 $1,363,958
========= ========== ==========
</TABLE>
The accompanying notes to the Consolidated Financial Statements are an integral
part of these statements.
F-3
<PAGE>
ROHR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED JULY 31,
------------------- ----------------------------------
JAN. 30, JAN. 31,
1994 1993 1993 1992 1991
-------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales................... $484,823 $ 626,004 $1,175,152 $1,279,656 $1,385,086
Costs and Expenses...... 439,719 594,568 1,133,040 1,223,931 1,275,269
General and
Administrative
Expenses............... 13,446 22,467 43,800 10,167 9,239
-------- ---------- ---------- ---------- ----------
Operating Income (Loss). 31,658 8,969 (1,688) 45,558 100,578
Interest Income......... 520 405 928 3,666 1,119
Interest Expense........ 24,201 23,175 48,811 67,039 54,820
-------- ---------- ---------- ---------- ----------
Income (Loss) Before
Taxes and Cumulative
Effect of
Accounting Changes..... 7,977 (13,801) (49,571) (17,815) 46,877
Taxes (Benefit) on
Income................. 242 (5,286) (18,990) (19,270) 16,360
-------- ---------- ---------- ---------- ----------
Income (Loss) Before
Cumulative Effect of
Accounting Changes..... 7,735 (8,515) (30,581) 1,455 30,517
Cumulative Effect
Through July 31, 1992,
of Accounting Changes,
Net of Taxes........... -- (223,950) (223,950) -- --
-------- ---------- ---------- ---------- ----------
Net Income (Loss)....... $ 7,735 $ (232,465) $ (254,531) $ 1,455 $ 30,517
======== ========== ========== ========== ==========
Net Income (Loss) per
Average Share of Common
Stock:
Income (Loss) Before
Cumulative Effect of
Accounting Changes... $ 0.43 $ (0.48) $ (1.71) $ 0.08 $ 1.74
Cumulative Effect
Through July 31, 1992
of Accounting
Changes, Net of
Taxes................ -- (12.52) (12.50) -- --
-------- ---------- ---------- ---------- ----------
Net Income (Loss)....... $ 0.43 $ (13.00) $ (14.21) $ 0.08 $ 1.74
======== ========== ========== ========== ==========
Pro forma amounts
assuming the changes in
the application of
accounting principles
for
long-term programs and
contracts are applied
retroactively
(unaudited):
Net (Loss)............ $ (30,581) $ (36,271) $ (22,898)
Net (Loss) per Average
Share of Common
Stock................ $ (1.71) $ (2.05) $ (1.31)
</TABLE>
The accompanying notes to the Consolidated Financial Statements are an integral
part of these statements.
F-4
<PAGE>
ROHR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
MINIMUM
COMMON STOCK ADDITIONAL PENSION
PAR VALUE PAID-IN RETAINED LIABILITY
$1 A SHARE CAPITAL EARNINGS ADJUSTMENT
------------ ---------- -------- ----------
<S> <C> <C> <C> <C>
Balance at August 1, 1991......... $17,497 $ 95,587 $328,317 $ --
Common stock issued to employee
benefit plans.................. 319 4,995
Stock plans activity............ 17 679
Net income...................... 1,455
------- -------- -------- --------
Balance at July 31, 1992.......... 17,833 101,261 329,772 --
Common stock issued to employee
benefit plans.................. 67 673
Stock plans activity............ 96 378
Net loss........................ (254,531)
Minimum Pension Liability
Adjustment (See Note 9a)....... (13,306)
------- -------- -------- --------
Balance at July 31, 1993.......... 17,996 102,312 75,241 (13,306)
Stock plans activity............ 22 229
Net Income...................... 7,735
------- -------- -------- --------
Balance at Jan. 30, 1994
(unaudited)...................... $18,018 $102,541 $ 82,976 $(13,306)
======= ======== ======== ========
</TABLE>
The accompanying notes to the Consolidated Financial Statements are an integral
part of these statements.
F-5
<PAGE>
ROHR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED JULY 31,
------------------- -----------------------------
JAN. 30, JAN. 31,
1994 1993 1993 1992 1991
-------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net Income (loss)......... $ 7,735 $(232,465) $(254,531) $ 1,455 $ 30,517
Adjustments to reconcile
net income (loss) to net
cash provided by (used
in) operating
activities:
Cumulative effect of
accounting changes--net
of taxes............... -- 223,950 223,950 -- --
Depreciation and
amortization........... 11,693 12,648 25,578 27,855 27,721
Changes due to
(increase) decrease in
operating assets:
Accounts receivable... 6,998 (34,527) 84,013 53,174 (38,791)
Net inventories....... 27,584 9,954 34,447 5,990 (31,122)
Prepaid expenses and
other assets......... 1,322 8,106 4,514 10,910 (2,392)
Changes due to increase
(decrease) in operating
liabilities:
Trade accounts and
other payables....... (11,817) (13,848) (17,478) 27,362 (47,757)
Taxes on income and
deferred taxes....... 364 (9,717) (29,432) (20,816) (2,684)
Other................... 1,049 328 7,607 4,412 1,738
-------- --------- --------- -------- --------
Net Cash Provided by (Used
in) Operating Activities.. 44,928 (35,571) 78,668 110,342 (62,770)
-------- --------- --------- -------- --------
Investing Activities:
Proceeds from sale-lease-
back transactions........ -- 52,247 52,247 -- --
Purchase of property,
plant and equipment...... (2,949) (18,878) (27,536) (62,933) (32,383)
Other, including
investment in leases..... (390) (2,522) (1,180) 21,789 13,528
-------- --------- --------- -------- --------
Net Cash Provided by (Used
in) Investing Activities.. (3,339) 30,847 23,531 (41,144) (18,855)
-------- --------- --------- -------- --------
Financing Activities:
Issuance of 9.33% senior
notes.................... -- 62,000 62,000 -- --
Annual principal payment
on 9.35% senior notes.... (12,500) (12,500) (12,500) -- --
Issuance (repayment) of
medium-term notes........ (35,000) (10,000) (10,000) (5,000) 50,000
Net short-term borrowings
(repayments)............. -- 5,000 (20,000) (57,000) 17,000
Long-term borrowings
under revolving credit
agreement................ 81,000 80,000 90,000 300,000 180,000
Repayment of borrowings
under revolving credit
agreement................ (81,000) (50,000) (120,000) (290,000) (150,000)
Repayment of other long-
term borrowings.......... (649) (18,712) (36,387) (11,890) (11,883)
Net repayment of
receivable and
equivalents.............. -- (45,000) (45,000) (15,000) --
Proceeds from cash values
in insurance policies.... -- -- 9,984 -- --
Cash collateral for
receivables sales
program.................. (6,984) -- -- -- --
Stock contributions to
employee benefit plans... -- 741 741 5,314 --
Repurchase of common
stock on open market..... -- -- -- -- (3,375)
Other..................... 126 11 27 (58) (77)
-------- --------- --------- -------- --------
Net Cash Provided by (Used
in) Financing Activities.. (55,007) 11,540 (81,135) (73,634) 81,665
-------- --------- --------- -------- --------
Increase (Decrease in Cash
and Short-Term
Investments............... (13,418) 6,816 21,064 (4,436) 40
Cash and Short-Term
Investments, Beginning of
Period.................... 42,186 21,122 21,122 25,558 25,518
-------- --------- --------- -------- --------
Cash and Short-Term
Investments, End of
Period.................... $ 28,768 $ 27,938 $ 42,186 $ 21,122 $ 25,558
======== ========= ========= ======== ========
Supplemental Cash Flow
Information:
Cash paid for interest,
net of amounts
capitalized.............. $ 21,353 $ 20,422 $ 47,758 $ 53,936 $ 81,914
Cash paid (refunded) for
income taxes............. (178) 4,392 9,802 2,243 19,501
Non-Cash Investing and
Financing Activities:
Sale of receivables..... 60,000 20,000
Repurchase of
receivables or
inventory equivalents.. (105,000) (20,000)
</TABLE>
The accompanying notes to the Consolidated Financial Statements are an integral
part of these statements.
F-6
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX-MONTH PERIODS ENDED JANUARY 30, 1994 AND JANUARY 31, 1993,
(UNAUDITED) AND THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
The consolidated balance sheets of the Company as of July 31, 1993 and 1992
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years ended July 31, 1993, 1992 and 1991 have
been audited by Deloitte & Touche, independent auditors. The consolidated
balance sheet as of January 30, 1994, the consolidated statements of operations
and statements of cash flows for the six-month periods ended January 30, 1994,
and January 31, 1993, and the consolidated statement of shareholders' equity
for the six-month period ended January 30, 1994, are unaudited but reflect all
adjustments (including normal recurring accruals) which are, in the opinion of
management, necessary for a fair presentation of the results of operations for
the interim periods. In the third quarter of fiscal 1993, the Company changed,
effective August 1, 1992, certain elements in the application of accounting
principles relating to long-term programs and contracts, as described in Note
2--Accounting Changes. The Summary of Significant Accounting Policies (Note 1)
reflects the changed accounting policies in effect on August 1, 1992.
Financial results for interim periods are not necessarily indicative of
results to be expected for the full year and, particularly in light of the
accounting policy changes referred to above and the substantial provisions
taken in the third quarters of fiscal 1992 and fiscal 1993, a comparison of the
interim periods may not be meaningful.
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation
The consolidated statements include the accounts of Rohr, Inc. and all
subsidiaries ("Company"). Total assets and sales of foreign subsidiaries are
not significant.
Certain reclassifications have been made to prior years to conform to current
year presentation.
b. Sales and Earnings
The Company follows the guidelines of Statement of Position 81-1, "Accounting
for Performance of Construction-Type and Certain Production-Type Contracts"
(the contract method of accounting) for certain commercial and all governmental
contracts, except that the Company's contract accounting policies differ from
the recommendations of SOP 81-1 with respect to the treatment of general and
administrative costs (prior to the accounting change described in Note 2) and
with respect to revisions of estimated profits on contracts which revisions are
included in earnings by the Company under the reallocation method rather than
the cumulative catch-up method recommended by SOP 81-1. Contract accounting
generally places limitations on the combining of contracts and prohibits the
anticipation of future contracts in determining the contract profit center.
Approximately one-half of the Company's sales during the fiscal year 1993 are
accounted for using the contract method of accounting. In the third quarter of
fiscal 1993, the Company made significant changes, effective August 1, 1992, to
certain elements of its application of accounting principles relating to its
long-term contracts as described in Note 2.
Several major commercial programs, under which spares and technical product
support are sold directly to airlines, are accounted for under the program
method of accounting, a method which existed in practice for many years prior
to the issuance of SOP 81-1. Guidelines for use of program accounting have been
developed in practice and are not codified by authoritative accounting
literature. This method
F-7
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of accounting is followed by relatively few public companies in a limited
number of industries. It applies in situations where the economics of producing
and marketing the program product extend beyond the initial production order.
The most significant differences from contract accounting are that (1) the
quantity of units included in the profit center under program accounting
includes existing and anticipated contracts, and (2) program units may be sold
to more than one customer. The Company uses program accounting in those
circumstances where it is able to make reasonably dependable estimates of (1)
the value of anticipated production units and spares sales in future contracts,
(2) the length of time to produce and sell those additional production units
and spares, and (3) the production costs and selling prices associated with
such units and spares. Typically, the Company applies program accounting on
programs for which the Company is responsible for total systems integration and
continuing product support. The Company initially adopted the program method of
accounting in 1988 in response to the changing characteristics of its
contracting environment.
Profit is estimated based on the difference between total estimated revenue
and total estimated cost of a contract or program and is recognized evenly as a
uniform percentage of sales value on all remaining units to be delivered.
Current revenue does not anticipate higher or lower future prices, but includes
units delivered at actual sales prices. A constant contract or program margin
is achieved by deferring or accelerating a portion of the average unit cost on
each unit delivered. Cost includes the estimated cost of the pre-production
effort (primarily tooling and design), plus the cost of manufacturing both a
specified number of production units and, under the program method of
accounting, those spares which are expected to be delivered concurrently with
such production units. The specified number of production units used to
establish the profit margin is predicated upon market forecasts and does not
exceed the lesser of those quantities assumed in original program pricing or
those quantities which the Company now expects to deliver in the periods
assumed in original program pricing. The number of units used to estimate
profit margin is increased when firm orders exceed the number of units used for
pricing purposes (a firm order authorizes the Company to commence production).
Spares, as a percentage of total deliveries, increase as a program matures and
historically have been sold at higher prices than production units. This higher
price reflects, in part, additional costs related to technical and customer
support activities.
Under both the contract and program methods of accounting, the Company's
sales are primarily under fixed-price contracts, many of which contain
escalation clauses and require delivery of products over several years. Sales
and profits on each contract or program are recognized primarily in accordance
with the percentage-of-completion method of accounting, using the units-of-
delivery method. Revisions of estimated profits on contracts or programs are
included in earnings by the reallocation method, which spreads the change in
estimate over current and future deliveries. Any anticipated losses on
contracts or programs are charged to earnings when identified.
Both the contract and program methods of accounting involve the use of
various estimating techniques to project estimated costs at completion. These
estimates involve various assumptions and projections relative to the outcome
of future events. Paramount are assumptions relative to labor performance and
anticipated future labor rates, and projections relative to material and
overhead costs. These assumptions involve various levels of expected
performance improvements. The Company reevaluates its estimates quarterly for
all significant contracts and programs. Changes in estimates are reflected in
the current and future periods.
Included in sales are amounts arising from contract terms that provide for
invoicing a portion of the contract price at a date after delivery. Also
included are: negotiated values for units delivered; and
F-8
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
anticipated price adjustments for contract changes, claims, escalation, and
estimated earnings in excess of billing provisions resulting from the
percentage-of-completion method of accounting. Certain contract costs are
estimated based on the learning curve concept discussed in Note 1c.
c. Inventories
Inventories of raw materials, purchased parts and supplies are stated at the
lower of average cost or estimated realizable value. Inventoried costs on long-
term contracts and programs include certain pre-production costs, consisting
primarily of tooling and design costs, and production costs, including
applicable overhead. As the production costs for early units are charged to
work-in-process inventory at an actual unit cost in excess of the estimated
average cost for all units projected to be delivered over the entire contract
or program, a segment of inventory described as the excess of production costs
over estimated average unit cost (and referred to as excess-over-average
inventory) is created. Generally, excess-over-average inventory, which may
include production (but not pre-production) cost over-runs, builds during the
early years of the contract or program when the efficiencies resulting from
learning are not yet fully realized and declines as the program matures. Under
the learning curve concept, an estimated decrease in unit labor hours is
assumed as tasks and production techniques become more efficient through
repetition of the same manufacturing operation and through management action
such as simplifying product design, improving tooling, purchasing new capital
equipment, improving manufacturing techniques, etc. For programs under the
program method of accounting, excess-over-average inventory also builds until
sales of spares, as a percentage of total sales, equal or exceed the percentage
used for the overall profit margin calculation.
Inventoried costs are reduced by the estimated average cost of deliveries
computed as a uniform percentage of sales value.
In the event that work-in-process inventory plus estimated costs to complete
a specific contract or program exceeds the anticipated remaining sales value of
such contract or program, such excess is charged to current earnings, thus
reducing inventory to estimated realizable value.
In accordance with industry practice, costs in inventory include amounts
relating to programs and contracts with long production cycles, much of which
is not expected to be realized within one year.
See Note 2, which describes certain changes in the application of accounting
principles and the effect of such changes on inventories.
d. Property, Plant and Equipment
Property, plant and equipment is recorded at cost or, in the case of assets
under capital leases, the lower of the present value of minimum lease payments
or fair market value. Depreciation and amortization is computed by the
straight-line method over the estimated useful lives of the various classes of
assets or, in the case of capitalized leased assets, over the lease term if
shorter. When assets are retired or disposed of, the assets and related
accumulated depreciation are eliminated and any resulting gain or loss is
reflected in income.
e. Pension and Health Plans
Pension costs include current costs plus the amortization of transition
assets over periods up to 14 years. The Company funds pension costs in
accordance with plan and legal requirements. The Company adopted, effective
August 1, 1992, the provisions of Statement of Financial Accounting Standards
(SFAS) No. 106, "Employers' Accounting for Post-Retirement Benefits other than
Pensions." This standard requires the Company to accrue the expected cost of
subsidizing an employee's post-retirement health care benefits during the
employee's service period. See Note 9b.
F-9
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
f. Research and Development
Research and development costs incurred for the development of proprietary
products are expensed as incurred. These costs have not been material to
operations during the periods presented. Design efforts performed under
contract generally consist of the adaptation of an existing capability to a
particular customer need and are accounted for as an element of contract costs.
These design efforts do not fall within the definition of Research and
Development as defined in SFAS No. 2, "Accounting for Research and Development
Costs."
g. Income Taxes
The Company adopted, effective August 1, 1992, the provisions of SFAS No.
109, "Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and
liabilities are recognized based upon temporary differences between financial
statement and tax bases of assets and liabilities using presently enacted tax
rates. See Note 6.
h. Net Income Per Average Share of Common Stock
Net income per share was determined by dividing net income by the weighted
average number of common shares and common share equivalents outstanding during
the year. The assumed conversion of the Company's convertible debentures was
anti-dilutive. As a result, only primary earnings per share is presented in the
Company's Consolidated Statements of Operations.
i. Cash Flows
For purpose of the statement of cash flows, the Company considers all
investments and highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
j. Industry Segments
The Company considers itself to operate in one significant industry segment.
NOTE 2--ACCOUNTING CHANGES
a.Introduction
In the third quarter of fiscal year 1993, the Company changed, effective
August 1, 1992, certain elements in the application of accounting principles
relating to long-term programs and contracts. In addition, the Company adopted
the provisions of SFAS No. 106, "Employers' Accounting for Post-Retirement
Benefits Other than Pensions," and SFAS No. 109, "Accounting for Income Taxes."
Each change requires that the Company calculate the effect of the change in
accounting principles on retained earnings as of the first day in the fiscal
year of change. These changes do not affect the Company's cash flow. Each of
these changes is discussed separately below.
Prior year financial statements have not been restated to apply the
provisions of adopting these standards.
b. Long-term Contracts
In fiscal 1993, the Company changed certain elements of its application of
accounting principles relating to long-term programs and contracts, effective
August 1, 1992. Certain costs previously carried in inventory for amortization
over future deliveries will now be expensed. These costs include certain
F-10
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
pre-certification costs, consisting primarily of tooling and design expenses in
excess of negotiated contractual values, that will now be expensed as
identified. In addition, prior to the accounting change, general and
administrative expenses were expensed as period charges, except for (1) such
expenses that were clearly related to production in accordance with Accounting
Research Bulletin No. 43 and had contractual revenue coverage and (2) other
amounts charged to commercial programs which did not have a material impact
upon the results of operations. The financial result of capitalizing these
latter amounts of general and administrative expense was not material due to
the offsetting impact upon operations resulting from their inclusion as an
element of total costs for purposes of determining contract and program gross
margins. Following a thorough review of its accounting policies, the Company
concluded there was a need, particularly in light of the current aerospace
environment, to have financial results more closely reflect near-term program
economics (cash flow and internal rate of return). As a result, these changes
will generally reduce the number of production units and spares used in the
calculation of overall profit margins. While the previous methods of applying
the Company's accounting principles were in accordance with generally accepted
accounting principles (GAAP), the changed policies are preferable. The
application of these policies produces program and contract estimates that are
based on shorter delivery periods, allowing a better matching of revenues and
expenses. The cumulative effect of these changes for the periods through July
31, 1992, was a charge of $219.7 million, net of income tax benefits of $136.3
million. The effect of these changes on the year ended July 31, 1993, was to
increase the net loss before the cumulative effect of the changes in accounting
principles by $24.6 million ($1.37 per average common share), net of income tax
benefits of $15.3 million.
In accordance with Accounting Principles Board Opinion No. 20, "Accounting
Changes," pro forma amounts are shown for net loss and net loss per average
share of common stock for all prior periods presented. The pro forma amounts
presented in the Consolidated Statements of Operations reflect the retroactive
application of these accounting changes, net of income tax benefits (which were
allocated ratably over the pro forma restated periods) for each period
presented. Primarily as a result of these changes, excess-over-average
inventory decreased from $323.7 million at July 31, 1992 to $75.4 million at
July 31, 1993. Pre-production inventory also decreased from $258.4 million at
July 31, 1992 to $181.0 million at July 31, 1993 primarily as a result of the
accounting changes. See Note 4.
c. Post-Retirement Benefits Other Than Pensions
The Company adopted, effective August 1, 1992, SFAS No. 106, "Employers'
Accounting for Post-Retirement Benefits Other than Pensions." The accumulated
post-retirement benefit obligation for active employees and retirees was
recorded using the immediate recognition transition option. See Note 9b. This
standard requires companies to accrue the expected cost of providing health
care benefits to retired employees and their dependents during the employees'
service periods. The Company previously charged the cost of providing these
benefits on a pay-as-you-go basis. The cumulative effect of this change for the
periods through July 31, 1992 was a charge of $4.3 million, net of income tax
benefits of $2.7 million. The effect of the change on the year ended July 31,
1993 was not material.
d. Income Taxes
The Company also adopted, effective August 1, 1992, SFAS No. 109, "Accounting
for Income Taxes." See Note 6. The cumulative effect of this change for periods
through July 31, 1992 was not material by itself. However, under this standard,
the Company recorded a substantial deferred tax asset as a result of the other
changes in accounting principles and certain other charges recorded in the year
ended July 31, 1993. See Note 6.
F-11
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
e. Effect of Changes
The cumulative effect of the changes described in this Note 2, as of August
1, 1992 and the effect of the changes on net loss before the cumulative effect
of the changes in accounting principles on the year ended July 31, 1993 were as
follows ($ in millions except per share data):
<TABLE>
<CAPTION>
CUMULATIVE EFFECT AT EFFECT ON THE YEAR
AUGUST 1, 1992 ENDED JULY 31, 1993
------------------------- ------------------------
(LOSS) PER (LOSS) PER
NET AVERAGE SHARE OF NET AVERAGE SHARE OF
(LOSS) COMMON STOCK (LOSS) COMMON STOCK
------- ---------------- ------ ----------------
<S> <C> <C> <C> <C>
Change in application of
accounting principles
relating to long-term
programs and contracts--net
of taxes................... $(219.7) $(12.26) $(24.6) $(1.37)
Post-retirement benefits
other than pensions--net of
taxes...................... (4.3) (.24) -- --
------- ------- ------ ------
$(224.0) $(12.50) $(24.6) $(1.37)
======= ======= ====== ======
</TABLE>
The cumulative effect of adopting SFAS No. 109, "Accounting for Income
Taxes," for periods through July 31, 1992 and the effect on the year ended July
31, 1993 was not material by itself. However, under this standard, the Company
recorded a substantial deferred tax asset as a result of the other changes in
accounting principles and certain other charges recorded in the year ended July
31, 1993. See Note 6. Quarterly earnings for 1993 have been restated as if the
changes occurred at August 1, 1992.
NOTE 3--ACCOUNTS RECEIVABLE
Accounts receivable, which relate primarily to long-term programs and
contracts, consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 31,
JAN. 30, ----------------
1994 1993 1992
----------- ------- --------
(UNAUDITED)
<S> <C> <C> <C>
Amount billed..................................... $49,962 $40,628 $ 62,405
Recoverable costs and accrued profit on units
delivered but not billed......................... 9,474 13,436 20,903
Recoverable costs and accrued profit on progress
completed but not billed......................... 499 810 3,273
Unrecovered costs and estimated profit subject to
future negotiations.............................. 34,191 39,266 46,572
------- ------- --------
$94,126 $94,140 $133,153
======= ======= ========
</TABLE>
"Recoverable costs and accrued profit on units delivered but not billed"
represent revenue recognized on contracts for amounts not billable to customers
at the balance sheet date. This amount principally represents delayed payment
terms along with escalation and repricing predicated upon deliveries and final
payment after acceptance. Some of these recoverable costs are expected to be
billed and collected in the normal course of business beyond one year.
F-12
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
"Recoverable costs and accrued profit on progress completed but not billed"
represent revenue recognized on contracts based on the percentage-of-completion
method of accounting and is anticipated to be billed and collected in
accordance with contract terms, which may be longer than one year.
"Unrecovered costs and estimated profit subject to future negotiations"
consist of contract tasks completed for which a final price has not been
negotiated with the customer. Amounts in excess of agreed upon contract prices
are recognized when it is probable that the claim will result in additional
contract revenue and the amounts can be reliably estimated. Included in this
amount at January 30, 1994, July 31, 1993 and 1992 are estimated recoveries on
constructive change claims related to government imposed redefined acceptance
criteria on the Grumman F-14, Boeing E3/E6, and the Boeing KC-135 and Lockheed
C-5 production programs. Management believes that amounts reflected in the
financial statements, which in the aggregate are very substantial, are
reasonable estimates of the ultimate settlements. The resolution of these items
may take several years.
The Company entered into an arrangement on December 23, 1992 under which it
sells receivables through a subsidiary to a trust on an ongoing basis.
Investors' beneficial interests in the trust are reported as a reduction to
accounts receivable. Under the arrangement, the Company acts as an agent for
the trust by performing all record keeping and collection functions with
respect to the receivables that have been sold. At January 30, 1994 and July
31, 1993 the investors held a $60 million beneficial interest in the
receivables transferred to the trust. The Company's subsidiary holds the
remaining beneficial interest in the trust which fluctuates in value depending
upon the amount of receivables owned by the trust from time to time. At July
31, 1993 the Company's subsidiary had a 9 percent beneficial interest in the
trust and a zero percent interest at January 30, 1994. The Company has
deposited cash collateral as required to support the facility and has withdrawn
such cash when it is no longer required to be deposited. At January 30, 1994,
the Company had $7 million of cash collateral on deposit. At July 31, 1992 and
July 31, 1991 the investor in a now terminated predecessor facility held a $105
million and $120 million interest in Company receivables, respectively. The
cost associated with the sales of receivables under the current facility is
7.57 percent per year. The costs and those of the predecessor facility, all of
which have been reflected as a reduction in sales values, were $2.4 million,
$5.3 million, $7.0 million, and $9.2 million for the six months ended January
30, 1994 and in fiscal years 1993, 1992 and 1991, respectively.
Sales
The Company's direct sales to major customers including related program
spares, expressed as a percentage of total sales, during the following periods
are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED JULY 31,
----------------- ----------------
JAN. 30, JAN. 31,
1994 1993 1993 1992 1991
-------- -------- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Pratt & Whitney................................ 17% 19% 17% 15% 16%
General Electric............................... 16 12 14 12 12
International Aero Engines..................... 15 8 9 7 4
CFM International.............................. 9 8 8 2 0
McDonnell Douglas.............................. 8 13 11 18 14
Boeing......................................... 8 11 11 15 14
Rolls Royce.................................... 8 6 8 7 8
Lockheed....................................... 4 2 3 3 3
Airbus Industrie............................... 2 8 6 8 12
U.S. Government................................ 1 1 1 2 4
Grumman........................................ 0 0 0 1 6
Other.......................................... 12 12 12 10 7
</TABLE>
F-13
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Total sales to the U.S. Government (including direct sales and indirect sales
through prime contractors) accounted for 12%, 11%, 13%, 14% and 20% for the six
months ended January 30, 1994, and January 31, 1993, and for fiscal years 1993,
1992 and 1991, respectively.
Commercial products sold by the Company to jet engine manufacturers are
ultimately installed on aircraft produced by the major commercial airframe
manufacturers, Airbus, Boeing and McDonnell Douglas. Sales to foreign customers
accounted for 23%, 25%, 25%, 22% and 21% of total sales for the first six
months of fiscal 1994 and 1993 and for fiscal years 1993, 1992 and 1991,
respectively. Of the total sales 22%, 23%, 23%, 19% and 20% were to Europe for
the first six months of fiscal 1994 and 1993 and for fiscal years 1993, 1992
and 1991, respectively.
NOTE 4--INVENTORIES
Work-in-process inventories, which relate primarily to long-term contracts
and programs as of January 30, 1994, are summarized as follows (in thousands,
except quantities):
(Table and Notes are Unaudited)
<TABLE>
<CAPTION>
AIRCRAFT ORDER
COMPANY ORDER STATUS STATUS(3) WORK-IN-PROCESS INVENTORY
------------------------------- ------------------ --------------------------------------
AS OF 1/30/94 AS OF 12/31/93
FIRM --------------------- ------------------ EXCESS
PROGRAM UNFILLED FISCAL YEAR UNFILLED UNFILLED PRE- OVER
PROGRAM QUANTITY(1) ORDERS(2) DELIVERED COMPLETE(7) ORDERS OPTIONS PRODUCTION PRODUCTION AVERAGE TOTAL
- ------- ----------- --------- --------- ----------- -------- -------- ---------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A340
nacelle(4)(6)... 117 28 45 1997 95 74 $ 15,409 $ 63,794 $ 7,386 $ 86,589
PW4000 nacelle
for the
A300/A310 and
MD-11(4)........ 422 28 251 2000 51 72 27,397 6,920 19,898 54,215
MD-90(4)(6)...... 451 11 3 2006 77 102 8,478 69,518 3,885 81,881
V2500 nacelle for
the A320/
A321(4)(6)...... 270 62 163 1997 155 198 25,245 22,068 0 47,313
CF6-80C nacelle
for the 747/
767, MD-11 and
for the A300/
A310(5)(6)...... 694 117 577 1996 302 319 31,143 2,809 19,915 53,867
CFM56-5 nacelle
for the A320/
A321(5)(6)...... 435 122 313 1999 150 145 23,121 2,723 4,535 30,379
MD-11(4)(6)...... 200 39 121 1997 60 127 6,549 0 0 6,549
PW300(4)(6)...... 164 63 76 1997 40(8) 0(8) 3,910 8,489 0 12,399
Others........... 118,769 23,032 1,490 143,291
-------- -------- ------- --------
Balance at Janu-
ary 30, 1994.... $260,021 $199,353 $57,109 $516,483
======== ======== ======= ========
</TABLE>
- --------
(1) Represents the number of aircraft used to obtain average unit cost. Spares
(which are not included in this quantity) anticipated to be delivered
concurrently with the production units for the above aircraft are also used
in calculating average unit cost. Total spares sales value used in
calculating average unit cost at January 30, 1994 were $91,734 on the A340,
$324,803 on the PW4000, $381,503 on the MD-90, $110,764 on the V2500,
$154,007 on the CF6-80C, $255,179 on the CFM56-5 and $16,986 on the MD-11.
Total spares sales value sold as of January 30, 1994 were $18,667 on the
A340, $193,633 on the PW4000, $0 on the MD-90, $63,196 on the V2500,
$112,295 on the CF6-80C, $113,219 on the CFM56-5 and $13,814 on the MD-11.
(2) Represents the number of aircraft for which the Company has firm unfilled
nacelle orders.
F-14
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) Represents the aircraft order status as announced by the aircraft
manufacturers for the related aircraft and engine option. The Company's
orders frequently are less than the announced orders shown above.
(4) Program quantity represents initial program quantities and does not exceed
the lesser of those quantities assumed in original program pricing or those
quantities which the Company now expects to deliver in the periods assumed
in original program pricing. The Company does not have orders for all of
these units at this time.
(5) Program quantity represents initial plus follow-on program quantities. The
Company has firm orders for all of these units.
(6) Programs accounted for in accordance with the program method of accounting.
(7) The year presented for each program or contract represents the fiscal year
in which the final production and spares units included in the program
quantity are expected to be delivered.
(8) Aircraft order status as of July 31, 1993, subsequent order data not
available.
Work-in-process inventories, which relate primarily to long-term contracts
and programs as of July 31, 1993, are summarized as follows (in thousands,
except quantities):
<TABLE>
<CAPTION>
AIRCRAFT ORDER
COMPANY ORDER STATUS STATUS(3)
------------------------------- -----------------
AS OF 7/31/93 AS OF 6/30/93 WORK-IN-PROCESS INVENTORY
--------------------- ----------------- ---------------------------------------
FIRM EXCESS
PROGRAM UNFILLED FISCAL YEAR UNFILLED UNFILLED PRE- OVER
PROGRAM QUANTITY(1) ORDERS(2) DELIVERED COMPLETE(7) ORDERS OPTIONS PRODUCTION PRODUCTION AVERAGE TOTAL
- ------- ----------- --------- --------- ----------- -------- -------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A340
nacelle(4)(6)... 124 38 35 1997 107 65 $ 24,611 $ 57,181 $ 4,443 $ 86,235
PW4000 nacelle
for the
A300/A310 and
MD-11(4)........ 422 47 234 2002 79 71 45,808 0 33,623 79,431
MD-90(4)(6)...... 454 8 3 2006 77 102 4,670 63,180 4,169 72,019
V2500 nacelle
for the A320/
A321(4)(6)...... 291 52 139 1998 187 202 45,385 18,235 0 63,620
CF6-80C nacelle
for the 747/
767, MD-11 and
A300/
A310(5)(6)...... 647 105 542 1995 368 358 26,204 8,701 25,162 60,067
CFM56-5 nacelle
for the A320/
A321(5)(6)...... 390 79 311 1997 183 175 18,741 4,593 3,535 26,869
MD-11(4)(6)...... 200 47 113 1998 74 143 12,612 0 1,642 14,254
PW300(4)(6)...... 193 63 64 1997 40 0 5,897 7,918 0 13,815
Others........... 119,858 21,180 2,791 143,829
-------- -------- -------- --------
Balance at July
31, 1993........ $303,786 $180,988 $ 75,365 $560,139
======== ======== ======== ========
Balance at July
31, 1992........ $389,904 $258,416 $323,683 $972,003
======== ======== ======== ========
</TABLE>
- --------
(1) Represents the number of aircraft used to obtain average unit cost. Spares
(which are not included in this quantity) anticipated to be delivered
concurrently with the production units for the above aircraft are also used
in calculating average unit cost. Total spares sales value used in
calculating average unit cost at July 31, 1993 were $91,734 on the A340,
$325,151 on the PW4000, $417,588 on the MD-90, $143,550 on the V2500,
$152,664 on the CF6-80C, $190,601 on the CFM56-5 and $16,474 on the MD-11.
Total spares sales value sold as of July 31, 1993 were $13,989 on the A340,
$181,083 on the PW4000, $0 on the MD-90, $51,998 on the V2500, $103,553 on
the CF6-80C, $108,856 on the CFM56-5 and $12,282 on the MD-11.
(2) Represents the number of aircraft for which the Company has firm unfilled
nacelle orders.
F-15
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) Represents the aircraft order status as announced by the aircraft
manufacturers for the related aircraft and engine option. The Company's
orders frequently are less than the announced orders shown above.
(4) Program quantity represents initial program quantities and does not exceed
the lesser of those quantities assumed in original program pricing or those
quantities which the Company now expects to deliver in the periods assumed
in original program pricing. The Company does not have orders for all of
these units at this time.
(5) Program quantity represents initial plus follow-on program quantities. The
Company has firm orders for all of these units.
(6) Programs accounted for in accordance with the program method of accounting.
(7) The year presented for each program or contract represents the fiscal year
in which the final production and spares units included in the program
quantity are expected to be delivered.
The Company's inventories at July 31, 1993 have been significantly reduced as
a result of the changes in the application of accounting principles for long-
term programs and contracts, effective August 1, 1992. See Note 2b.
On certain long-term programs, the Company has agreed to recover pre-
production costs (primarily tooling and design) over an expected number of
deliveries, including spare parts. The number of deliveries over which
production costs are to be amortized is predicated upon initial pricing
agreements and does not exceed the Company's overall assessment of the market
for that program.
Excess-over-average inventory represents the cost of in-process and delivered
units less, for each such unit, the current estimated average cost of the units
in the program. Recovery of these inventoried costs assumes (i) certain
production efficiencies, (ii) the sale of the program quantity used in
estimating the profit margin, (iii) a specified allocation of sales among
production units and spare units, and (iv) the attainment of an estimated
spares margin that is substantially higher than the margin of production units.
Spares prices are higher than production unit prices, in part, due to
additional costs related to technical and customer support activities. If these
program assumptions are not attained, then substantial amounts of unrecoverable
costs may be charged to expense in subsequent periods.
To the extent that a forward loss is encountered on a program, the amount of
such loss is offset against the inventory of such program (until such inventory
has been depleted). The loss is offset first against excess-over-average,
followed by pre-production, then production.
Contractual terms on certain programs provide varying levels of recovery
commitments for specified amounts of pre-production costs. Certain programs
also provide for the repricing of units in the event that less than a specified
quantity is sold, which allows for recovery of additional excess-over-average
inventory in such circumstances. The Company, in turn, has provided certain
subcontractors with similar recovery commitments and repricing provisions on
these programs.
The excess of deferred program costs over the total costs allocated to units
in process and delivered (less recoveries from customers due to repricing
provisions) that would not be recovered based on existing firm orders as of
July 31, 1993 was $6.6 million on the A340, $72.0 million on the MD-90, $9.6
million on the V2500 and $7.9 million on the PW300 and, as of January 30, 1994,
was $2.3 million on the A340, $81.9 million on the MD-90, $7.2 million on the
V2500 and $8.5 million on the PW300.
F-16
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company uses forward contracts to manage its exchange risk on a portion
of its purchase commitments from vendors of aircraft components denominated in
foreign currencies and to manage its exchange risk for sums paid to its French
subsidiary for services. The extent to which the Company utilizes forward
contracts varies and depends upon management's evaluation of current and
projected foreign currency exchange rates, but the Company does not acquire
forward contracts in excess of its current hedging requirements. At January 30,
1994 and July 31, 1993, $25 million and $34 million, respectively, of foreign
exchange contracts were outstanding to purchase foreign currencies. The foreign
exchange contracts generally have maturities which do not exceed 12 months.
Gains and losses on contracts which hedge specific foreign currency denominated
commitments are not recognized currently but are included in the determination
of profit or loss on the contract or program to which they relate. The Company
believes that the credit risk from these instruments is minimal as the
contracts are placed with highly reputable financial institutions.
As described in Note 2, effective August 1, 1992, the Company changed
accounting principles and began expensing certain general and administrative
expenses as incurred; these expenses were previously inventoried. Amounts
charged to inventories as incurred (prior to the accounting change, effective
August 1, 1992), for general and administrative expenses were $42.8 million and
$40.0 million for the years ending July 31, 1992 and 1991. Included in work-in-
process inventories at July 31, 1992 and 1991 were general and administrative
costs aggregating $36.1 and $30.9 million, respectively. These costs were
estimated assuming that they bear the same relationship to total general and
administrative costs incurred during the year as the ending inventory bears to
total costs charged to inventory during the year.
NOTE 5--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 31,
JAN. 30, --------------------
1994 1993 1992
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Land......................................... $ 25,152 $ 24,833 $ 24,883
Buildings.................................... 208,329 188,643 143,809
Machinery and equipment...................... 253,153 251,298 295,627
Construction in progress..................... 12,754 31,678 66,920
--------- --------- ---------
499,388 496,452 531,239
Less accumulated depreciation and amortiza-
tion........................................ (268,539) (257,407) (260,956)
--------- --------- ---------
Property, plant & equipment--net............. $ 230,849 $ 239,045 $ 270,283
========= ========= =========
</TABLE>
Included in the above categories are assets recorded under capital leases
totaling $50.5 million, at January 30, 1994, and July 31, 1993 and 1992.
NOTE 6--TAXES ON INCOME
The Company changed, effective August 1, 1992, its method of accounting for
income taxes from the provisions of APB No. 11 "Accounting for Income Taxes" to
the provisions of SFAS No 109 "Accounting for Income Taxes." The cumulative
effect from the adoption of this standard for periods through July 31, 1992 was
not material by itself. However, under this standard, the Company recorded a
substantial deferred tax asset as a result of the adoption of the other changes
in accounting principles and certain other charges recorded in the year ended
July 31, 1993.
F-17
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes and
(b) operating loss and tax credit carryforwards.
The components of the Company's deferred tax asset reflect the tax effects of
the Company's temporary differences, tax credit carryforwards and net operating
loss carryforwards (NOLs) at July 31, 1993. The components of the Company's
deferred tax asset are listed below (in thousands):
<TABLE>
<S> <C>
Current:
Inventories................................................... $ 11,557
Employee benefits............................................. 6,885
State taxes................................................... (4,788)
--------
Net deferred tax asset--current............................... $ 13,654
========
Long-term:
Depreciation.................................................. $ 31,872
Deferred gain on sale/leaseback............................... 9,201
Minimum pension liability adjustment.......................... 8,259
Net operating loss carryforward............................... 73,053
Tax credit carryforward....................................... 7,949
Investment in leases.......................................... (41,237)
Other--net.................................................... 251
--------
Net deferred tax asset--long-term............................. $ 89,348
========
</TABLE>
The Company has federal NOLs totaling approximately $186 million at July 31,
1993, which expire in the years 2003 through 2008.
When tax effected at the rates in effect July 31, 1993, the net deductible
temporary differences, tax credit carryforwards, and NOLs result in a deferred
tax asset of $103.0 million, consisting of $85.3 million for federal tax
purposes and $17.7 million for state tax purposes. As of January 30, 1994 and
July 31, 1993, based upon rates in effect on such dates, approximately $286
million and $271 million of future taxable income, respectively, is required
prior to expiration of the Company's NOLs and credits for full realization of
the deferred tax asset as of those dates. The Company believes that its
expected future taxable income will be sufficient for full realization of the
deferred tax asset.
During fiscal 1993, a tax benefit of $8.2 million was provided for the charge
recorded as a reduction to shareholders' equity for the additional minimum
liability for the pension plan. See Note 9a.
The provision (benefit) for taxes on income is comprised of the following (in
thousands):
<TABLE>
<CAPTION>
LIABILITY
METHOD DEFERRED METHOD
--------- -----------------
JULY 31,
JULY 31, -----------------
1993 1992 1991
--------- -------- -------
<S> <C> <C> <C>
Currently Payable:
Federal income taxes........................ $ 400 $ 3,500 $ 1,100
Foreign income taxes........................ 1,000 1,700 600
State income taxes.......................... -- 2,300 1,200
Deferred:
Federal income taxes........................ (16,420) (23,000) 10,760
State income taxes.......................... (3,970) (3,770) 2,700
-------- -------- -------
$(18,990) $(19,270) $16,360
======== ======== =======
</TABLE>
F-18
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The deferred portion of the federal income tax provision (benefit) is
comprised of the following (in thousands):
<TABLE>
<CAPTION>
DEFERRED METHOD
-----------------
JULY 31,
-----------------
1992 1991
-------- -------
<S> <C> <C>
Contract profit and loss recognition........................ $ (400) $14,200
Employee benefits........................................... 5,900 (2,900)
Depreciation................................................ (8,400) (9,700)
California franchise tax.................................... 500 (1,400)
General and administrative expenses......................... 2,300 800
Provision for estimated losses and expenses................. (19,800) 1,000
Pre-production costs........................................ -- (400)
Rate differences............................................ (1,100) (280)
Utilization of reserves previously provided for tax
assessments................................................ (9,800)
Offset of loss and credit carryforwards against deferred
taxes...................................................... (3,100) (1,100)
Utilization of loss and credit carryforwards................ 18,600 18,100
Leveraged leasing........................................... (7,900) (8,600)
Other items--net............................................ 200 1,040
-------- -------
$(23,000) $10,760
======== =======
</TABLE>
The difference between the income tax provision (benefit) computed at the
federal statutory rate and the actual tax provision (benefit) is accounted for
as follows (in thousands):
<TABLE>
<CAPTION>
LIABILITY
METHOD DEFERRED METHOD
--------- -----------------
JULY 31,
JULY 31, -----------------
1993 1992 1991
--------- -------- -------
<S> <C> <C> <C>
Taxes (benefit) computed at the federal statutory
tax rate......................................... $(16,854) $ (6,100) $15,900
Increase (reduction) resulting from:
State income taxes, net of federal tax benefit.. (2,617) (500) 2,600
Leveraged leasing............................... (1,300) (1,900)
Tax-exempt income from Foreign Sales
Corporation.................................... (700)
Rate differences................................ (1,100) (280)
Utilization of reserves previously provided for
tax assessments................................ (9,800)
Other........................................... 481 230 40
-------- -------- -------
$(18,990) $(19,270) $16,360
======== ======== =======
</TABLE>
As a result of applying SFAS No. 109, and after effecting the other changes
in accounting principles adopted by the Company, effective August 1, 1992, the
Company has recognized the future tax effects attributable to deductible
temporary differences, NOLs and tax credit carryforwards for financial
statement purposes. Thus, under the provisions of SFAS No. 109, the Company has
recorded a $19.0 million income tax benefit on the net loss for the year ended
July 31, 1993 and a $139.0 million income tax benefit on the cumulative effect
of accounting changes at a 38.3 percent effective tax rate.
The Company's effective tax rate on its net loss was 108 percent for the year
ended July 31, 1992 primarily as a result of the utilization of reserves
previously provided for tax assessments. Net deferred tax liabilities, reduced
by loss and credit carryforwards, approximating $34.5 million and $40.6 million
are included in Taxes on Income in the Consolidated Balance Sheets at July 31,
1992 and 1991, respectively.
F-19
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Internal Revenue Service (IRS) has completed its examination of fiscal
years 1984 and 1985 and proposed additional taxes of $36.6 million, excluding
interest. The most significant adjustments involve the Company's adoption in
fiscal 1984 of the completed contract method of accounting for tax purposes
(which was conceded by the IRS subsequent to the second quarter of fiscal 1994)
and the timing of deductions for employee benefit payments. The Company intends
to vigorously protest the proposed adjustments through the IRS appeals process.
Based upon all the information available to it, the Company believes that the
resolution of this matter will not have a material effect on the financial
position or results of operations of the Company.
The Company has provided $3.1 million for income taxes during the six months
ended January 30, 1994, offset by a tax benefit of $2.8 million due to the
change in federal tax rates under the Omnibus Budget Reconciliation Act of
1993. The Company's deferred tax asset of $102.6 million remains substantially
unchanged from the amount at July 31, 1993 but is expected to increase due to
increased pension liability by the end of fiscal 1994.
NOTE 7--INDEBTEDNESS
The maturity schedule of the Company's indebtedness, which includes debt and
capital lease obligations, is summarized as follows (in thousands):
<TABLE>
<CAPTION>
SCHEDULED MATURITIES
TOTAL AT FISCAL YEAR ENDED JULY 31, TOTAL AT JULY 31,
JAN. 30, ------------------------------------------------------ ------------------
1994 1994 1995 1996 1997 1998 THEREAFTER 1993 1992
----------- ------- ------- ------- ------- ------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Short-Term Debt......... $ 20,000
Current portion of Long-
Term Debt.............. $ 16,211 $50,719 $ 50,719 27,517
Long-Term Debt:
Medium-Term Notes...... 0 35,000
Revolving Credit....... 50,000 $50,000 50,000 80,000
9.35% Senior Notes..... 62,500 $12,500 12,500 $12,500 $12,500 $ 25,000 75,000 87,500
9.33% Senior Notes..... 62,000 8,850 8,850 44,300 62,000
Other Debt............. 17,858 914 337 293 255 16,604 18,403 18,448
-------- ------- ------- ------- ------- -------- -------- --------
192,358 13,414 62,837 21,643 21,605 85,904 205,403 220,948
Capital Leases.......... 14,154 1,849 1,762 1,674 1,588 8,395 15,268 76,876
Less Imputed Interest.. (4,298) (837) (754) (672) (591) (1,928) (4,782) (37,829)
Direct Finance Leases.. 0 -- 82
-------- ------- ------- ------- ------- -------- -------- --------
9,856 1,012 1,008 1,002 997 6,467 10,486 39,129
Subordinated Debentures:
9 1/4%, maturing in
2017.................. 150,000 7,500 142,500 150,000 150,000
7%, maturing in 2012... 115,000 115,000 115,000 115,000
-------- ------- -------- -------- --------
265,000 7,500 257,500 265,000 265,000
-------- ------- -------- -------- --------
Total Long-Term Debt. 467,214 14,426 63,845 22,645 30,102 349,871 480,889 525,077
-------- ------- ------- ------- ------- ------- -------- -------- --------
Total Indebtedness... $483,425 $50,719 $14,426 $63,845 $22,645 $30,102 $349,871 $531,608 $572,594
======== ======= ======= ======= ======= ======= ======== ======== ========
</TABLE>
The Company's total financing includes: indebtedness, shown in the table
above; the receivables sales program, in the amount of $60 million, which is
reported as a reduction to accounts receivable (see Note 3); and two sale-
leaseback transactions, accounted for as operating leases, through which the
Company raised $52.3 million in fiscal 1993. The sale leaseback transactions
resulted in a gain of $20.7 million which was deferred and is being amortized
over the terms of the lease. The Company's total financings were $587.0
million, $643.9 million and $677.6 million at January 30, 1994, July 31, 1993
and July 31, 1992, respectively. These amounts exclude undrawn commitments
under the revolving credit agreement.
F-20
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's unsecured revolving credit agreement with a group of banks
provides a total loan commitment of $150 million, reduced annually by $50
million in April of each of 1994 through 1996. This revolving credit agreement
consists of a bank line, of which a portion is immediately available for
borrowing (or to support the issuance of up to $8.5 million of letters of
credit), and the balance can be made available at the end of any month.
Borrowings under this credit agreement incur interest at an annual rate equal
to one of the following at the Company's option: (1) prime rate plus 0% to
2.25%; (2) London Interbank Offered Rate plus 0.75% to 3.25%; (3) or a Domestic
Money Market Bid Rate plus 0.875% to 3.375%; or (4) competitive bid. The
interest rate at January 30, 1994 and July 31, 1993 was approximately 5.3% and
4.9%, respectively. The agreement provides for a facility fee, payable on a
monthly basis at the rate of 0.35 to 0.75 of 1% on each lender's total
commitment. The specific interest rate and facility fee payable at any time is
based upon the Company's credit rating and the amount drawn under the credit
agreement.
The Company's 9.35% Senior Notes mature in 2000 and require principal
payments of $12.5 million in January of each year until repaid. The Company's
9.33% Senior Notes mature in 2002 and require principal payments of
approximately $8.9 million in December of each year, beginning in 1996, until
repaid. With respect to each of these two Senior Note transactions, the Company
can make principal prepayments at its option, which may include a premium for
yield adjustment. The note holders can require the Company to purchase the
remaining principal amount of the notes plus accrued interest and premium for
yield adjustment in the event of certain changes in control or ownership of the
Company.
The Company's 9 1/4 percent subordinated debentures mature in 2017. These
debentures are subject to mandatory annual sinking-fund payments of $7.5
million beginning March 1998. The Company may redeem an additional $15 million
on each sinking-fund date. The subordinated debentures are redeemable at the
Company's option, at 106.5 percent of the outstanding principal amount at July
31, 1993, 106.01% at March 1, 1994, declining annually to 100.5 percent in
2006, plus accrued interest. However, no such redemption may be effected prior
to March 1997, directly or indirectly, from borrowed money having an interest
cost of less than 9 1/4 percent per annum.
The Company's 7 percent convertible subordinated debentures mature in 2012.
These debentures are convertible prior to maturity, unless previously redeemed,
at a conversion price of $43 per share, subject to adjustment under certain
conditions. The debentures are redeemable at the option of the Company, in
whole or in part, at a redemption price of 102.8 percent declining annually to
100.7 percent in 1996, together with accrued interest to the date of
redemption. Annual sinking-fund payments of 5 percent of the aggregate
principal amount of the debentures originally issued are to be applied to the
redemption of debentures at 100 percent of principal amount plus accrued
interest, commencing October 1998. The Company has the option of delivering
repurchased debentures to the sinking-fund in lieu of cash. The mandatory
sinking-fund is calculated to retire 70 percent of the debentures prior to
maturity. The debentures are subordinated to all existing or future senior debt
of the Company and rank on equal terms with the Company's outstanding 9 1/4
percent subordinated debentures due 2017.
The Company's medium term note, which was privately placed with a bank, was
paid in October, 1993. In fiscal 1993, the Company's debt relating to the
Foley, Alabama, Industrial Revenue Bonds totaling $5.3 million was removed from
the balance sheet as a result of the Company's deposit of U.S. Government
securities in an irrevocable trust. The principal and interest of the
securities deposited with the trustee were sufficient to fund the scheduled
principal and interest payments of the debt. Subsequent to July 31, 1993, the
debt was extinguished in exchange for the securities deposited.
F-21
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Several of the Company's principal financing agreements contain financial
covenants that require it to maintain specified levels of Consolidated Tangible
Net Worth (as defined), specified ratios of Consolidated Net Income Available
for Fixed Charges (as defined) to Fixed Charges (as defined), and specified
ratios of Debt to Consolidated Tangible Net Worth (as defined). Effective upon
the sale of the Securities, these covenants require a Consolidated Tangible Net
Worth of $125 million plus 50% of positive consolidated net income; a ratio of
Consolidated Net Income Available for Fixed Charges (as defined) to Fixed
Charges (as defined) of 1.40 to 1 through July 31, 1994, 1.55 to 1 from August
1, 1994 through July 31, 1995, 1.90 to 1 from August 1, 1995 through July 31,
1996, and 2.00 to 1 thereafter; and a ratio of Debt to Consolidated Tangible
Net Worth (as defined) of 5.60 to 1 through July 31, 1994, 5.00 to 1 from
August 1, 1994 through July 31, 1995, 4.10 to 1 from August 1, 1995 through
July 31, 1996, and 3.20 to 1 thereafter. The Company's principal financing
agreements also contain other restrictions, including restrictions on
indebtedness, liens, lease obligations, mergers, sales of assets, investments
and capital expenditures. If the Company were to breach a covenant in any of
its principal financing agreements, the lenders under such agreement could, at
their option, accelerate the maturity of the debt evidenced by such agreement.
In addition, any such default (or, in some cases, an acceleration after the
occurrence of such a default) would cause defaults under cross-default
provisions (or cross-acceleration provisions) in other Company financing
agreements.
NOTE 8--COMMITMENTS AND CONTINGENCIES
Minimum rental commitments under operating leases with non-cancelable terms
of more than one year as of January 30, 1994 and July 31, 1993 are as follows
(in thousands):
<TABLE>
<CAPTION>
JAN. 30, JULY 31,
1994 1993
----------- --------
(UNAUDITED)
<S> <C> <C>
1994--Six Months..................................... $ 5,700 $ --
1994--Year........................................... -- 11,500
1995................................................. 9,300 8,700
1996................................................. 7,200 6,700
1997................................................. 6,400 6,200
1998................................................. 5,700 6,000
Thereafter........................................... 23,200 23,400
------- -------
$57,500 $62,500
======= =======
</TABLE>
Generally, leases have provisions for rent escalation based on inflation.
Certain leases provide for options to renew with substantially similar terms
(except negotiable rent increases). The total expense under all operating
leases was approximately $6.7 million, $7.7 million, $15.9 million, $15.3
million and $14.9 million for the first six months of fiscal 1994 and 1993 and
for fiscal years 1993, 1992 and 1991, respectively.
During fiscal year 1992, the U.S. Air Force filed a termination notice for
alleged default under the C-5 spare pylon contract, and the Company then
commenced the appeal process to convert the termination to one for convenience
of the government. Contemporaneously, the Company filed a notice of breach of
contract with the government on the C-5 spare pylon contract. The Company also
filed a variety of actions before the Armed Services Board of Contract Appeals
("ASBCA") requesting payment of sums owed the Company due to the government's
imposition of redefined acceptance criteria under the C-5 pylon program and the
KC-135 re-engining program. The Company also recorded special provisions for
this matter in prior periods.
F-22
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Following the end of the Company's fiscal 1994 second quarter, the Company
and the U.S. Air Force settled all of their disputes as well as certain
constructive change claims of the Company against the U.S. Air Force for which
estimated revenues were included in the accounts receivable of the Company at
July 31, 1993. (See Note 3 Accounts Receivable). The most significant aspects
of this settlement were:
(1) The C-5 spare pylon contract will be converted to termination for
government convenience. The Company will retain approximately $27.3 million
of unliquidated progress payments previously made by the U.S. Air Force.
(2) The Company will retain most of the C-5 spare pylon work-in-process and raw
material inventories.
(3) The Company will provide a warranty on certain, specified C-5 pylon panels.
This will end seven years after the original delivery date of each
applicable panel to the Air Force. The original delivery dates for the
warranted panels range from 1989 to 1991. The Company has established a
reserve for this warranty obligation.
Contemporaneously with the settlement with the U.S. Air Force, the Company
and the United States Attorney for the Central District of California settled
the civil aspects of an investigation, which had been ongoing since 1990,
concerning the production of parts, the recording of information which is a
part of that production process, and the testing practices utilized by the
Company on many programs. The Company cooperated fully in the investigation and
does not believe there was any adverse effect on the safety or utilization of
its products. The Company recorded special provisions in prior periods
reflecting its assessment of the ultimate costs which it believed would be
incurred. Under this settlement the Company will pay $4 million to the U.S.
Attorney's office. In connection with these settlements, a recently unsealed
qui tam lawsuit filed by former employees against the Company on behalf of the
U.S. Government with respect to certain of the activities that had been under
investigation has been dismissed with prejudice. The criminal aspects of this
matter are pending a pre-sentencing report to a judge in the U.S. District
Court in Los Angeles. The Company's plea of making eight false statements under
which it has agreed to pay approximately $3.7 million, is conditioned upon
judicial approval of the settlement agreement. In connection with this matter,
the Company is also engaged in discussions with government officials who have
the discretion to temporarily suspend or to debar the Company from entering
into government contracts in the future. The discussions are designed to
demonstrate that the Company is a presently-responsible contractor and that it
should be entitled to continue to be eligible to receive additional
governmental contracts.
In June 1987, the U.S. District Court of Los Angeles, in U.S. et al, vs.
Stringfellow, granted partial summary judgment against the Company and 14 other
defendants on the issue of liability under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"). This suit, along with
related lawsuits, alleges that the defendants are jointly and severally liable
for all damage in connection with the Stringfellow hazardous waste disposal
site in Riverside County, California. In June 1989, a federal jury and a
special master appointed by the federal court found the State of California
also liable for the cleanup costs. On November 30, 1993, the special master
released his "Findings of Fact, Conclusion of Law and Reporting Recommendations
of the Special Master Regarding the State Share Fact Finding Hearing". In it,
he allocates liability between the State of California and other parties. As
this hearing did not involve the valuation of future tasks and
responsibilities, the order did not specify dollar amounts of liability. The
order, phrased in percentages of liability, recommended allocating liability on
the CERCLA claims as follows: 65% to the State of California and 10% to the
Stringfellow entities, leaving 25% to the generator/counter claimants
(including the Company) and other users of the site (or a maximum of up to 28%
depending on the allocation of any Stringfellow entity orphan share). On the
state law claims, the special master recommended a 95% share for the State of
California, and 5%
F-23
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
for the Stringfellow entities, leaving 0% for the generator/counterclaimants.
This special master's recommendation is subject to a final decision and appeal.
The Company is the second largest generator of wastes by volume disposed at the
site, although it and certain other generators have argued the final allocation
of cleanup costs among generators should not be determined solely by volume.
The largest volume generator of wastes disposed at the Stringfellow site has
indicated it is significantly dependent on insurance to fund its share of any
cleanup costs, and that it is in litigation with certain of its insurers. The
Company and the other generators of wastes disposed at the Stringfellow site,
which include numerous companies with assets and equity significantly greater
than the Company, are jointly and severally liable for the share of cleanup
costs for which the generators, as a group, ultimately are found to be
responsible.
The Company has claims against its comprehensive general liability insurers
for reimbursement of its cleanup costs at the site. These claims are the
subject of separate litigation, although the insurers nevertheless are paying
substantially all of the Company's costs of defense in the EPA and State action
against the generators of wastes disposed at the site. Certain of these
insurance policies have pollution exclusion clauses which are being argued as a
defense and the insurers are alleging various other defenses to coverage. The
Company has entered settlements with some of the insurance carriers and is
engaged in settlement discussions with certain others. The Company intends to
continue to vigorously defend this matter and believes, based upon currently
available information, that the ultimate resolution will not have a material
adverse effect on the financial position, liquidity, or results of operations
of the Company.
The Company is also involved in several other proceedings and investigations
related to environmental protection matters. It is difficult to estimate the
ultimate level of environmental expenditures due to a number of uncertainties,
including the complexity of the related laws and their interpretation,
alternative cleanup technologies and methods, insurance and other recoveries,
and in some cases, the extent and uncertainties of the Company's involvement.
However, the Company has heard of very preliminary estimates of cleanup costs
for the Rio Bravo, Chatham Brothers and Casmalia waste disposal sites as
approximately $7 million, $30 million and $70 million, respectively, and the
Company's share (based on estimated, respective volumes of discharges into such
sites by all generators, all of which cannot now be known with certainty) could
approximate $450,000 for the Rio Bravo site, $0 for the Chatham Brothers site
(based on the Company's belief that it never used that site), and $1,750,000),
for the Casmalia site. The Company does not yet know about the ability of other
waste generators using the Casmalia and Rio Bravo sites to fund their allocable
share, and the Company could be found jointly or severally liable with all
waste generators using such sites. The Company has made claims against its
insurance carriers for certain of these items, and has received claims
acknowledgment letters reserving the rights of such carriers. The insurers have
alleged or may allege various defenses to coverage, although no litigation has
been commenced. Based upon presently available information, the Company
believes that capital expenditures and costs of remedial actions in relation to
these other matters will not have a material adverse effect on the financial
position or results of operations of the Company.
In 1990, the Division of Enforcement of the Securities and Exchange
Commission (the "SEC") began conducting an informal inquiry regarding various
Company production programs, program and contract estimates at completion and
related accounting practices. Following the filing of a registration statement
with the SEC, the Company received on August 17, 1993, and shortly thereafter
responded to, a request for documents from the SEC Division of Enforcement
concerning its decision to change its accounting practices relating to long-
term programs and contracts, and its previous practice of capitalizing pre-
certification and certain general and administrative costs. There have been no
further comments from the SEC Division of Enforcement since that date.
F-24
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company is involved as plaintiff or defendant in various other legal and
regulatory actions and inquiries incident to its business, none of which are
believed by management to have a material adverse effect on the financial
position or results of operations of the Company.
Included in trade accounts and other payables at January 30, 1994 and July
31, 1993 and 1992 are allowances aggregating $50.4 million, $49.8 million and
$19.3 million, respectively, for plant closure, other costs related to the
planned downsizing process and various items of litigation.
NOTE 9--EMPLOYEE BENEFIT PLANS
a. Pension Plans
The Company has non-contributory pension plans covering substantially all of
its employees. Benefits for the salaried employees' plan are based on salary
and years of service, while those for the hourly employees' plan are based on
negotiated benefits and years of service. The Company has historically made
contributions to an independent trust for the minimum funding requirements of
these plans under IRS regulations. In addition, the Company has unfunded
supplemental retirement plans.
Pension expense consists of the following components (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------
1993 1992 1991
-------- -------- -------
<S> <C> <C> <C>
Service cost....................................... $ 12,250 $ 8,123 $ 6,873
Interest cost on projected benefit obligation...... 34,601 32,260 29,376
Actual gain on plan assets......................... (29,379) (40,344) (30,716)
Net amortization and deferral...................... 1,605 13,356 1,912
-------- -------- -------
Pension expense.................................... $ 19,077 $ 13,395 $ 7,445
======== ======== =======
</TABLE>
An amendment to the hourly employees' pension plan, reflecting increased
benefits resulting from union negotiations, accounted for approximately $.6
million of additional pension expense in fiscal 1993 and approximately $2.3
million of additional pension expense in fiscal 1991. An amendment to the
salaried employees' retirement plan accounted for approximately $3.6 million of
additional pension expense in fiscal 1992. Pension expense for the first six
months of fiscal 1994 and 1993 was $7.1 million and $7.5 million, respectively.
F-25
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the funded status of these plans and the
amounts recognized in the Consolidated Balance Sheets (in thousands):
<TABLE>
<CAPTION>
JULY 31,
--------------------
1993 1992
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested........................................... $ 413,460 $ 372,714
Non-vested....................................... 18,483 16,982
--------- ---------
Accumulated benefit obligation..................... 431,943 389,696
Effect of projected future salary increases........ 10,145 13,036
--------- ---------
Projected benefit obligation for service rendered
to date........................................... 442,088 402,732
Plan assets at fair value, primarily stocks, bonds,
other fixed income obligations and real estate.... 376,474 346,883
--------- ---------
Plan assets less than projected benefit obligation. (65,614) (55,849)
Unrecognized net loss.............................. 46,140 29,594
Unrecognized net asset from initial application of
SFAS No. 87 being recognized over plans' average
remaining service life............................ (18,202) (21,130)
Unrecognized prior service cost.................... 38,353 36,740
Additional minimum liability....................... (58,550) (34,164)
--------- ---------
Pension liability recognized in the Consolidated
Balance Sheet..................................... $ (57,873) $ (44,809)
========= =========
</TABLE>
At July 31, 1993, the Company's additional minimum liability was in excess of
the unrecognized prior service costs and net transition obligation and recorded
as a reduction of $13.3 million to shareholders' equity, net of tax benefits of
$8.2 million, in accordance with SFAS No. 87, "Employers' Accounting for
Pensions". The remaining portion of the additional minimum liability of $37.0
million was recorded as intangible assets and additional minimum pension
liability and included in Other Assets and Pension and Post-Retirement
Obligations respectively, in the Consolidated Balance Sheets.
The weighted average discount rate used in determining the present value of
the projected benefit obligation was 8.5 percent at July 31, 1993 and 8.75
percent for fiscal 1992. For compensation based plans, the rate of increase in
future compensation levels used in determining the actuarial present value of
the projected benefit obligation and service cost was based upon an experience-
related table and approximated 5.5 percent on current salaries through January
1, 1994, in accordance with plan terms. The expected long-term rate of return
on plan assets was 9 percent for the periods presented.
The Company also has certain defined contribution plans covering most
employees. Expenses for these plans amounted to $0.9 million, $2.1 million,
$3.4 million, $6.7 million and $9.7 million in the first six months of fiscal
1994 and 1993 and fiscal years 1993, 1992 and 1991, respectively.
b. Post-retirement Benefit Obligations Other Than Pensions
The Company has a retirement health care program that pays a specified fixed
amount to supplement the medical insurance payments made by retirees who are
under age 65 and their spouses and covered dependents. Eligibility for and the
amount of the supplement provided by the Company is based on age and years of
service. The program requires deductibles and employee contributions.
F-26
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company, effective August 1, 1992, adopted the provisions of SFAS No.
106, "Employers' Accounting for Post-Retirement Benefits Other Than Pensions"
using the immediate recognition transition option. See Note 2. This standard
requires recognition, during an employee's service with the Company, of the
cost of his or her retiree health care benefits. The Company recognized the
accumulated post-retirement benefit obligation for past service cost as a one-
time charge to earnings (the transition obligation) as of August 1, 1992 of
$4.3 million, net of income tax benefit of $2.7 million ($.24 per average share
of common stock). In fiscal 1993, 1992 and 1991, the Company's cost of
providing post-retirement health care benefits was $2.0 million, $2.9 million
and $2.0 million, respectively, excluding the cumulative effect of adopting
SFAS No. 106. The costs of health care benefits is provided largely under a
self-insured plan, which is scheduled for termination on January 1, 1994. The
effect of adopting the new standard on net periodic post-retirement benefit
expense for the year ended July 31, 1993 was not material. The accumulated
post-retirement benefit obligation was determined using a weighted average
discount rate of 8.5 percent. The plan is unfunded. Each year the Company funds
the benefits paid.
SFAS No. 106 requires disclosure of the effect on the Company's accumulated
post-retirement benefit obligation, and net periodic post-retirement benefit
cost, using the assumption that the health care cost trend will increase by 1
percent each year. This disclosure is not applicable because the Company is not
affected by future health care cost trends since its obligation is to pay a
fixed amount as a health care supplement for retirees entitled to this benefit.
Net periodic post-retirement benefit cost for the year ended July 31, 1993,
included the following components (in thousands):
<TABLE>
<S> <C>
Service cost--benefits attributed to service during the period....... $196
Interest cost on accumulated post-retirement benefit obligation...... 549
----
Net periodic post-retirement benefit cost............................ $745
====
</TABLE>
The liability for post-retirement health care benefits at July 31, 1993,
included the following components (in thousands):
<TABLE>
<S> <C>
Accumulated post-retirement benefit obligation:
Retirees........................................................ $2,749
Fully eligible active plan participants......................... 376
Other active plan participants.................................. 2,929
------
Liability for post-retirement health care benefits................ $6,054
======
</TABLE>
Net periodic post-retirement health care benefit cost for the six months
ended January 30, 1994 and January 31, 1993 was $317 and $373, respectively.
Liability for post-retirement health care benefits was $5,602 and $6,290,
respectively.
c. Post-Employment Benefits
The Financial Accounting Standards Board has issued SFAS No. 112, Employers'
Accounting for Post-Employment Benefits. The new standard is effective for
fiscal years beginning after December 15, 1993 and requires employers to
recognize the obligation to provide post-employment benefits to former or
inactive employees, their beneficiaries, and covered dependents when certain
conditions are met. The Company does not expect there to be a material adverse
effect on the financial position or result of operations in the year of
adoption.
F-27
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--SHAREHOLDERS' EQUITY
Under the terms of the Company's debt covenants of its loan agreements (See
Note 7), no portion of retained earnings is available for payment of cash
dividends until after July 9, 1995. Thereafter, the Company may pay cash
dividends in an amount not to exceed 50 percent of net income for the period
beginning August 1, 1995.
The Company's 1989 Stock Incentive Plan provides that qualified employees are
eligible to receive stock options and various other stock-based awards. Subject
to certain adjustments, the plan provides that up to 2,500,000 shares of common
stock may be sold or issued under the plan. As a result of previous option
grants under this plan, 381,431, 371,281 and 377,147 stock options and other
stock-based awards remained available for grant at January 30, 1994, July 31,
1993 and 1992, respectively. The plan has no specific termination date except
that Incentive Stock Options may not be granted after July 31, 1999. The terms
and conditions of the stock-based awards are determined by a Committee of the
Board of Directors on each grant date and may include provisions for the
exercise price, expiration, vesting, restriction on sale and forfeiture, as
applicable. Restricted shares purchased under this plan are subject to
restrictions on sale or disposal, which lapse in varying installments from one
to 10 years. During fiscal 1992, 6,000 restricted shares were purchased at a
price of $1.00 per share. During fiscal 1993, 115,000 restricted shares were
purchased by grantees and 21,300 restricted shares were repurchased from
grantees, in each case at a price of $1.00 per share. During the six months
ended January 30, 1994, 20,000 stock bonus awards were granted at no cost to
the recipient.
The Company's 1982 Stock Option Plan, under which no future options will be
granted, provided for the issuance of non-qualified stock options at the market
price of the Company's common stock at the date of grant. The options become
exercisable in installments from one to two years after date of grant and
expire 10 years from date of grant.
The Company has a director stock plan under which non-employee directors are
automatically granted, on the first business day following the annual meeting
of shareholders, an option to purchase 1,000 shares of common stock. The option
exercise price is equal to the fair market value of the stock on the date the
option is granted. Options granted under the plan generally becomes exercisable
six months after the date of grant and expire 10 years from the date of grant.
Subject to certain adjustments, the plan provides that up to 100,000 shares of
common stock may be sold or issued under the plan. As a result of previous
option grants under the plan, 50,000, 59,000 and 69,000 stock options remained
available for grant at January 30, 1994, July 31, 1993 and 1992, respectively.
The Company also has a stock compensation plan for non-employee directors
pursuant to which the Company will issue or deliver to each such director, in
partial consideration for the services rendered by such director during the
Company's prior fiscal year, 250 shares of the Company's common stock, subject
to certain adjustments. The shares will be issued or delivered on the date of
the first meeting of the Board that occurs after the end of each fiscal year.
In May 1993, in connection with certain amendments to the financial covenants
of its principal financing agreements, the Company issued warrants to certain
lenders. The warrants are exercisable for 600,000 shares of common stock at
$9.00 per share and expire in seven years.
Under the various stock option plans, outstanding options for 1,771,342,
1,671,947 and 1,113,910 shares of common stock were exercisable as of January
30, 1994, July 31, 1993 and 1992, respectively. Activity in these stock option
plans for the three years and six months ended January 30, 1994 is summarized
as follows:
F-28
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OPTION PRICE
--------- -------------------
<S> <C> <C> <C> <C>
Balance Outstanding at August 1, 1991........... 1,331,420 $12.500 - $31.625
Granted....................................... 1,548,803 10.625 - 22.125
Relinquished.................................. (16,760) 16.500 - 31.625
Forfeited..................................... (33,600) 12.000 - 22.125
Exercised..................................... (34,000) 12.000 - 19.375
--------- -------------------
Balance Outstanding at July 31, 1992............ 2,795,863 $10.625 - $31.625
Granted....................................... 155,000 8.875 - 11.375
Relinquished.................................. (30,880) 16.500 - 31.625
Forfeited..................................... (254,134) 10.625 - 22.125
--------- -------------------
Balance Outstanding at July 31, 1993............ 2,665,849 $ 8.875 - $31.625
Granted....................................... 29,000 0 - 8.875
Bonus Stock Award............................. (20,000) 0
Relinquished.................................. (17,955) 16.500 - 31.625
Forfeited..................................... (30,150) 10.625 - 22.125
--------- -------------------
Balance Outstanding at January 30, 1994 (Unau-
dited)......................................... 2,626,744 $ 8.875 - $31.625
========= ===================
</TABLE>
The Company's stockholder rights plan generally entitles the holder of each
right to purchase one one-hundredths of a share of Series C preferred stock, $1
par value, from the Company for $100, subject to adjustment. A right is
included with, and attaches to, each share of common stock issued and expires
on August 25, 1996 and is redeemable by the Company. The rights become
exercisable and separate from the common stock under certain circumstances
generally when a person or group of affiliated or associated persons has
acquired or obtained the right to acquire 15 percent or more of the Company's
outstanding voting stock or has made a tender offer to acquire 15 percent or
more of such voting stock. Under certain circumstances, each right would
entitle the holder to purchase a certain number of the Company's common stock
at one-half of fair market value.
Authorized, unissued shares of common stock were reserved for the following:
<TABLE>
<CAPTION>
JULY 31,
JAN. 30, -------------------
1994 1993 1992
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Various stock plans............................. 3,058,175 3,096,130 3,242,010
Conversion of subordinated debentures........... 2,674,418 2,674,418 2,674,418
Warrants........................................ 600,000 600,000 --
--------- --------- ---------
6,332,593 6,370,548 5,916,428
========= ========= =========
</TABLE>
F-29
<PAGE>
(PICTURES)
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by Reference........................... 3
Available Information..................................................... 3
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 12
Financing Plan............................................................ 17
Use of Proceeds........................................................... 18
Capitalization............................................................ 19
Selected Consolidated Financial and Operating Data........................ 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Business.................................................................. 35
Directors and Executive Officers of the Company........................... 52
Legal and Environmental Proceedings....................................... 55
Description of Certain Financings......................................... 60
Description of Senior Notes............................................... 63
Description of Concurrent Financing....................................... 89
Underwriting.............................................................. 90
Legal Matters............................................................. 90
Experts................................................................... 90
Index to Financial Statements............................................. F-1
</TABLE>
$100,000,000
ROHR, INC.
% SENIOR NOTES DUE 2003
[LOGO OF ROHR]
- ----------------------------------
SALOMON BROTHERS INC
- ---------------------------------------
PROSPECTUS
DATED , 1994
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
APRIL 13, 1994
PROSPECTUS
$50,000,000
ROHR, INC. [LOGO OF ROHR]
% CONVERTIBLE SUBORDINATED NOTES DUE 2004
The % Convertible Subordinated Notes due 2004 (the "Convertible Subordinated
Notes") are being issued by Rohr, Inc. ("Rohr" or the "Company") and will
mature on , 2004. The Convertible Subordinated Notes are convertible
at the option of the holder thereof at any time prior to maturity, unless
previously redeemed, into shares of Common Stock of the Company, at a
conversion price of $ per share, subject to adjustment in certain events.
On , 1994, the last reported sale price for the Common Stock on the
New York Stock Exchange (symbol: RHR) was $ per share.
The Convertible Subordinated Notes are redeemable at the option of the Company,
in whole or in part, at any time on and after , 1998, at the
redemption prices specified herein, plus accrued interest. The Convertible
Subordinated Notes do not provide for any sinking fund. Upon a Change of
Control (as defined), the holders of the Convertible Subordinated Notes will
have the right, subject to certain restrictions and conditions, to require the
Company to purchase all or any part of the Convertible Subordinated Notes at
101% of the principal amount thereof, plus accrued and unpaid interest to the
date of purchase.
In connection with the offering of the Convertible Subordinated Notes (the
"Offering"), the Company is concurrently offering, pursuant to a separate
prospectus (together with the Offering, the "Offerings"), $100 million
aggregate principal amount of its % Senior Notes due 2003 (the "Senior Notes"
and, together with the Convertible Subordinated Notes, the "Securities"). See
"Description of Concurrent Financing."
The Convertible Subordinated Notes will be general unsecured obligations of the
Company and will be subordinate in right of payment to all existing and future
Senior Indebtedness (as defined) of the Company and pari passu in right to
payment with all existing and future Subordinated Indebtedness (as defined).
The Convertible Subordinated Notes will be effectively subordinated to all
indebtedness and other liabilities of the Company's subsidiaries. As of January
30, 1994, after giving effect to the Offerings and the anticipated use of the
proceeds therefrom, the Company would have had approximately $256.8 million of
Senior Indebtedness outstanding and the indebtedness and other liabilities of
the Company's subsidiaries would have been approximately $32.7 million.
Application will be made to list the Convertible Subordinated Notes on the New
York Stock Exchange.
AN INVESTMENT IN THE CONVERTIBLE SUBORDINATED NOTES INVOLVES A SIGNIFICANT
DEGREE OF RISK. SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CONVERTIBLE SUBORDINATED
NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT COMPANY (2)
<S> <C> <C> <C>
Per Note..................................... % % %
Total (3).................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from , 1994 to the date of delivery.
(2) Before deducting expenses payable by the Company, estimated at $ .
(3) The Company has granted to the Underwriter a 30-day option to purchase up
to $7,500,000 principal amount of the Convertible Subordinated Notes on the
same terms as the Convertible Subordinated Notes offered hereby to cover
over allotments, if any. If all such additional Convertible Subordinated
Notes are purchased by the Underwriter, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $ , and
$ , respectively.
The Convertible Subordinated Notes are offered subject to receipt and
acceptance by the Underwriter, to prior sale and to the Underwriter's right to
reject any order in whole or in part and to withdraw, cancel or modify the
offer without notice. It is expected that delivery of the Convertible
Subordinated Notes will be made at the office of Salomon Brothers Inc, Seven
World Trade Center, New York, New York or through the facilities of The
Depository Trust Company on or about , 1994.
_____________________
SALOMON BROTHERS INC
- ---------------------------------------------------------
The date of this Prospectus is , 1994.
<PAGE>
[ALTERNATE PAGE]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CONVERTIBLE
SUBORDINATED NOTES AND THE COMPANY'S COMMON STOCK AT LEVELS ABOVE THOSE WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED
IN THE OVER-THE-COUNTER MARKET, OR THE NEW YORK STOCK EXCHANGE, OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Securities and Exchange
Commission (the "Commission") by Rohr pursuant to the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), are incorporated herein by reference
and made a part hereof:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
July 31, 1993;
(2) The Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended October 31, 1993 and January 30, 1994; and
(3) The description of the Company's Common Stock contained in the
Registration Statement on Form 8-B, File No. 1-3801.
Each document filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Offering made hereby shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such document.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER OF CONVERTIBLE SUBORDINATED NOTES, TO WHOM THIS PROSPECTUS IS
DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY OR
ALL OF THE DOCUMENTS WHICH HAVE BEEN INCORPORATED BY REFERENCE IN THIS
PROSPECTUS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY
INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS). SUCH REQUESTS SHOULD BE
DIRECTED TO: ROHR, INC., ATTN.: SHAREHOLDER SERVICES, P.O. BOX 878, CHULA
VISTA, CALIFORNIA 91912-0878, (619) 691-2808.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-3 (together with all
amendments and exhibits thereto, the "Registration Statement") with the
Commission under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Securities. This Prospectus does not contain all of the
information set forth in such Registration Statement, certain portions of which
have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, files
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information can be inspected, without
charge, and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
the following regional offices of the Commission: Chicago Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and New York Regional Office, 7 World Trade Center, 13th Floor,
New York, New York 10048. Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.
Washington, D.C. 20549, at prescribed rates. Such reports, proxy statements and
other information can also be inspected at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005 and The Pacific Stock
Exchange Incorporated, 301 Pine Street, San Francisco, California 94104.
2
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THE OFFERING
Issue....................... $50,000,000 principal amount of % Convertible
Subordinated Notes due 2004, assuming no exercise
of the Underwriter's over-allotment option.
Maturity.................... , 2004.
Interest Payment Dates...... and of each year,
commencing , 1994.
Conversion.................. The Convertible Subordinated Notes, unless
previously redeemed, are convertible at the
option of the holder at any time prior to
maturity into shares of Common Stock at a
conversion price of $ per share, subject to
adjustment upon the occurrence of certain events.
See "Description of Notes--Conversion."
Optional Redemption......... The Convertible Subordinated Notes are
redeemable, at the Company's option, in whole or
from time to time in part, on and after ,
1998, at the redemption prices specified herein,
plus accrued interest. See "Description of
Notes--Optional Redemption."
Ranking..................... The Convertible Subordinated Notes will be
general unsecured obligations of the Company,
ranking subordinate in right of payment to all
existing and future Senior Indebtedness and pari
passu with all Subordinated Indebtedness (as
defined). The Convertible Subordinated Notes will
also be effectively subordinated to all
indebtedness and other liabilities of the
Company's subsidiaries. As of January 30, 1994,
after giving effect to the Offerings and the
anticipated use of the proceeds therefrom, the
Company would have had approximately $256.8
million of Senior Indebtedness outstanding and
the indebtedness and other liabilities of the
Company's subsidiaries would have been
approximately $32.7 million at such date.
Change of Control........... In the event of a Change of Control, the Company
will be required, subject to certain conditions
and limitations, to offer to purchase all
Convertible Subordinated Notes then outstanding
at a purchase price equal to 101% of the
aggregate principal amount of the Convertible
Subordinated Notes plus accrued and unpaid
interest to the date of purchase. There can be no
assurance that the Company will have sufficient
cash to pay the Change of Control purchase price
in the event that a Change of Control occurs. See
"Description of Notes--Change of Control."
Sale of Assets.............. The Company may be required, subject to certain
conditions and limitations, to offer to purchase
certain of the Convertible Subordinated Notes at
100% of the aggregate principal amount thereof,
plus accrued and unpaid interest, in the
3
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[ALTERNATE PAGE]
event of an Asset Sale (as defined). See
"Description of Notes--Limitation on Sale of
Assets."
Use of Proceeds............. Proceeds from the sale of the Convertible
Subordinated Notes and, to the extent necessary,
the Senior Notes, will be used to repay all
outstanding amounts under the Company's Revolving
Credit Agreement. The remaining net proceeds of
the Offerings will be used for general corporate
purposes. See "Use of Proceeds."
Risk Factors................ An investment in the Convertible Subordinated
Notes involves a significant degree of risk. For
a discussion of certain material factors to be
considered by potential investors, see "Risk
Factors."
Listing..................... The Common Stock of the Company is listed (symbol
RHR) on the New York Stock Exchange and the
Pacific Stock Exchange. It is also listed on The
Stock Exchange in London. Application will be
made to list the Convertible Subordinated Notes
on the New York Stock Exchange.
Concurrent Offering......... The Company is concurrently offering, pursuant to
a separate prospectus, $100 million in aggregate
principal amount of Senior Notes. See
"Description of Concurrent Financing." The sale
of the Convertible Subordinated Notes will be
conditioned on the simultaneous sale of the
Senior Notes.
4
<PAGE>
[ALTERNATE PAGE]
RISK FACTORS
An investment in the Securities involves a significant degree of risk. A
prospective investor should consider carefully all of the information contained
in this Prospectus before deciding whether to purchase the Securities and, in
particular, should consider the following:
HIGH LEVERAGE; DEBT SERVICE REQUIREMENTS
The Company is highly leveraged. At January 30, 1994, after giving pro forma
effect to the sale of the Securities and the repayment of certain indebtedness
with a portion of the estimated net proceeds of the Offerings, the Company
would have had consolidated total financings of approximately $687.0 million
(including $583.4 million of indebtedness and $103.6 million of off-balance
sheet sale-leaseback and accounts receivable financings and assuming no
exercise of the Underwriter's over-allotment option) and $123.1 million of
cash. See "Capitalization" and "Use of Proceeds." At January 30, 1994, the
Company's shareholders' equity was approximately $190.2 million, which does not
reflect certain anticipated charges to shareholders' equity in connection with
the Company's underfunded pension plans. In addition, at January 30, 1994, the
Company had a $102.6 million net deferred tax asset recorded in accordance with
SFAS No. 109, "Accounting for Income Taxes." See "--Deferred Tax Assets" and
"--Underfunded Pension Plans."
The Company has reported net income for each of the last three fiscal
quarters. On a pro forma basis, however, after giving effect to the accounting
changes adopted by the Company effective August 1, 1992, the Company would have
reported losses for each of the last five fiscal years and its pro forma
earnings would have been insufficient to cover fixed charges for each of such
fiscal years. See "Selected Consolidated Financial and Operating Data." The
Company's ability to make interest payments on the Securities and its other
financing obligations depends upon its future financial performance, including
earnings and cash flow from operations. On an adjusted basis, after giving
effect to the issuance of the Securities and the application of the proceeds
therefrom (assuming no exercise of the Underwriter's over-allotment option),
earnings (pre-tax income plus fixed charges) would have been $59.9 million less
than the adjusted fixed charges (which represent interest expense, capitalized
interest, amortization of debt issue expense and the portion of operating lease
rental expense considered to be representative of an interest factor) in fiscal
1993. For the six months ended January 30, 1994, however, adjusted earnings
would have been $2.7 million greater than adjusted fixed charges. Available
cash flow to service debt could be adversely affected by certain pension
funding requirements. See "--Underfunded Pension Plans." The degree to which
the Company is leveraged could have important consequences to holders of the
Securities, including the following: (1) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions or general corporate purposes may be impaired; (2) a substantial
portion of the Company's cash flow from operations must be dedicated to the
payment of interest on its indebtedness; and (3) the Company's leverage may
make it more vulnerable to future economic downturns and may limit its ability
to withstand competitive pressures. Based upon current levels of operations and
anticipated future business, the Company believes that cash flow from
operations together with available cash, borrowings under the Revolving Credit
Agreement and other sources of liquidity, will be adequate to meet the
Company's anticipated requirements for working capital, capital expenditures,
interest payments and scheduled principal payments. There can be no assurance,
however, that the Company's business will continue to generate cash flow at or
above current levels. If the Company is unable to generate sufficient cash flow
from operations in the future, it may be required to refinance all or a portion
of its existing debt or to obtain additional financing. There can be no
assurance that any such refinancing would be possible or that any additional
financing could be obtained on terms that are favorable or acceptable to the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
UNDERFUNDED PENSION PLANS
The Company has substantial obligations related to its defined benefit
pension plans (the "Pension Plans"). As of July 31, 1993, the Company's
actuaries have determined that the Pension Plans were underfunded by $65.6
million on an ongoing plan basis. This underfunding resulted from a combination
of factors, including benefit increases, increased levels of early retirement,
less than actuarially-
5
<PAGE>
[ALTERNATE PAGE]
assumed returns on plan assets and a reduction in the discount rate used to
calculate the present value of future liabilities of the Pension Plans for
financial reporting purposes. The Company is currently assessing certain
additional decisions and actions affecting the Pension Plans. It is anticipated
that the unfunded liabilities with respect to the Pension Plans will be
increased by approximately $75 million on
an ongoing basis due to an anticipated reduction in the discount rate used to
calculate the present value of future liabilities under the Pension Plans from
8.5% to 7.5% and to a higher-than-previously-expected level of early
retirements. As a result of the anticipated increase in the unfunded
liabilities, the Company expects to take a direct charge to shareholders'
equity estimated at $45 million and to increase its deferred tax account by
approximately $30 million. In addition, the Company and its actuaries are
evaluating the extent to which the downsizing of personnel may necessitate the
expensing of certain unamortized pension benefit past service costs related to
the terminated employees. This would not increase the underfunded status of the
Pension Plans, but would result in an additional charge to earnings for
financial statement purposes. The Company expects that the evaluation of the
above described items and the recognition of the financial impact will be
completed by the end of the third quarter of fiscal 1994. Concurrent with the
consummation of the Offerings, the financial covenants in several of the
Company's principal financing agreements will be amended to accommodate the
anticipated impact of these matters on its reported financial results. See
"Description of Certain Financings."
IRS regulations will require the Company to increase its contribution to the
Pension Plans. Consistent with these IRS requirements it is the Company's
current intention to have the Pension Plans fully funded within approximately
five years. The Company's minimum cash contributions to its Pension Plans,
based on current IRS regulations, are therefore expected to increase from the
current level of approximately $17 million in fiscal 1994 to an average of
approximately $35 million per year in fiscal years 1995, 1996 and 1997 and to
decline thereafter. The Company expects to have sufficient liquidity to make
these contributions. See Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." In
addition, minimum cash contributions for these years may increase as a result
of legislation which has been introduced in Congress. The prospects for the
passage of such legislation are uncertain.
The calculation of the amount of underfunding of the Pension Plans for
financial reporting and IRS minimum funding purposes assumes continued
employment with projections for retirements, mortality, resignations and
discharges and also includes assumptions relating to the discount rate, plan
asset value and other matters. The Company and its actuaries review these
assumptions on a regular basis. If it were to become necessary to make
additional reductions in the discount rate, or to make certain other changes in
the existing assumptions, the Pension Plans' liabilities and underfunded status
might be increased. Such changes could adversely affect the Company because of
the increase in recorded liabilities, decreases in shareholders' equity and
increases in IRS minimum funding requirements.
INDUSTRY CYCLES; CURRENT BUSINESS OUTLOOK
The commercial aerospace industry is a cyclical business and the demand by
commercial airlines for new aircraft is highly dependent upon a variety of
factors, which historically have been related to the stability and health of
the United States and world economies. The industry typically lags behind the
general economic cycle because it can take up to two years to manufacture an
aircraft. Although the United States economy entered a period of slow growth
and recession in 1989 and 1990, the aerospace industry made record deliveries
of large commercial aircraft, by revenue, during these years. In fact, aircraft
deliveries continued to grow through 1991 and only decreased slightly in 1992.
In 1990 through 1992, United States scheduled airlines suffered record
operating losses of more than $2 billion per year. Non-United States scheduled
airlines also reported significantly reduced profits during this period. As a
result of the losses incurred by the airlines, the high levels of debt incurred
to purchase new aircraft and the excess capacity within the commercial airline
sector, airlines and leasing
6
<PAGE>
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companies deferred existing orders for new aircraft to an unprecedented extent
and, to a lesser degree, canceled such orders. All of the Company's major
customers received numerous requests for deferrals and cancellations from the
airlines and leasing companies and have slowed their aircraft delivery rates.
In response to the deferrals and cancellations from their customers, airframe
and engine manufacturers reacted by rescheduling future production levels,
laying off workers and passing production slow-downs on to their customers,
including the Company. The large number of aircraft delivered over the last
several years has created an excess capacity in the air carrier system, as
evidenced by the fact that a substantial number of new and used aircraft are
currently inactive. Reactivated aircraft could replace or postpone new aircraft
deliveries in the future. The Company expects that orders from and deliveries
of large commercial aircraft will continue to be affected through calendar 1995
by the adverse United States and world economic conditions which have existed
in recent periods. It appears, however, that the health of the airline industry
is improving. In calendar 1993, United States scheduled airlines reported
operating income of approximately $1 billion. There can be no assurance that
the improved operating health of the commercial airlines will continue or that
deliveries of large commercial aircraft will not continue to be affected beyond
1995.
In connection with the current contraction in the commercial aircraft
industry, subcontractors such as Rohr have been experiencing pressures from
their customers to reduce prices. The Company, in turn, is exerting similar
pressure on its own suppliers to reduce prices and thus enable the Company to
manufacture products at lower costs. There can be no assurance that such
reductions in prices by Rohr's suppliers will be achieved. See "Business--
Markets."
RECOVERY OF PROGRAM INVESTMENTS
The development of a new aircraft, or a variation of an existing aircraft,
requires significant investments for pre-production costs such as design and
engineering, tooling, testing and certification. Competitive pressures forced
suppliers such as the Company to bear a significant amount of the cost and
investment risk associated with the large number of new programs under
development in the 1980s. During this period, the Company also experienced
substantial production inventory increases as it began to produce and deliver
products under new programs.
In response to these competitive market pressures, the Company agreed on
several of its significant contracts to finance a substantial portion of its
pre-production costs, with such costs to be recovered ratably as a specified
number of units, including spare equivalents, are sold. As a result of these
agreements, the Company's inventory included $199.4 million of capitalized pre-
production costs at January 30, 1994. See "Notes to the Consolidated Financial
Statements--Note 4." On some of these contracts, the prime contractor has
agreed to pay the Company for a portion of its pre-production costs if a
specified number of units is not sold by an agreed upon date or if the contract
is terminated before the specified number of units is delivered. However, on
other programs, the Company agreed, based upon its market analysis, to amortize
its pre-production costs over a specified number of units without receiving
such reimbursement protections from its customer if the specified number of
units is not sold. Based on its analysis of the demand for specific products,
the Company has also agreed on certain programs to a unit price which may not
be profitable, even after recovery of pre-production costs, if fewer units are
sold than the Company assumed for pricing purposes. If the Company's market
analysis with respect to these programs is incorrect, the Company could incur
substantial losses with respect to these programs. See "Business--Contracts."
"Business--Program Funding," and "Notes to the Consolidated Financial
Statements--Notes 1.c and 4."
DEFERRED TAX ASSET
SFAS No. 109, "Accounting for Income Taxes," requires businesses to recognize
possible future tax benefits if it is "more likely than not" that the tax
benefits will be realized. Under this standard, on January 30, 1994, the
Company had a net deferred tax asset of $102.6 million, consisting of $85.4
million for federal tax purposes and $17.2 million for state tax purposes.
(This net deferred tax asset is anticipated to increase by an additional $30
million in the third quarter of the current fiscal year as a result of an
increase in the Company's underfunded pension liabilities.) Based on current
tax rates, the Company must generate approximately $286 million of future
taxable income (net of $240 million of
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taxable income that the Company will report as a result of the automatic
reversal of existing taxable temporary differences between asset and liability
values for financial reporting and income tax purposes) prior to the expiration
of the Company's net operating loss carryforwards ("NOLs") in 2003 through 2008
for full realization of the net deferred tax asset. After the anticipated third
quarter increase in the net deferred tax asset, the amount of future taxable
income the Company must generate will be approximately $360 million. As with
its other assets, the Company will regularly re-evaluate the value of its net
deferred tax asset. If the Company were to determine that full realization of
this asset is no longer "more likely than not," it would be required to reduce
the value of the asset by establishing a valuation allowance. Such an allowance
would reduce the Company's earnings in the relevant period and, if it causes a
loss in such period, would reduce shareholders' equity. In addition, reductions
in state or federal tax rates, or limitations on the use of NOLs, as well as
adjustments resulting from any audit of the Company's tax returns, could reduce
the value of the Company's net deferred tax asset, again affecting earnings and
shareholders' equity. See "--Underfunded Pension Plans," "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Income Taxes" and "Notes to the Consolidated Financial Statements--Note 6."
RESTRICTIVE COVENANTS
The Company's major financing agreements, as amended effective upon the
completion of the Offerings, require it to maintain specified financial
covenants, including a minimum Consolidated Tangible Net Worth (as defined in
such agreements to include the Company's net deferred tax asset), a minimum
ratio of Consolidated Net Income Available for Fixed Charges to Fixed Charges
(as defined in such agreements) and a maximum ratio of Debt (as defined in such
agreements to include the Company's underfunded pension liabilities) to
Consolidated Tangible Net Worth (each as defined in such agreements). Covenants
in these agreements also impose additional requirements on the Company,
including restrictions on its ability to create liens, enter into leases,
engage in mergers, consolidations and acquisitions, sell assets, declare and
pay dividends, acquire company securities, and change the nature of its
business. A failure by the Company to maintain such financial ratios or to
comply with the restrictions contained in its Revolving Credit Agreement or
other financing agreements could result in a default thereunder, which in turn
could cause such indebtedness (and by reason of cross-default provisions, other
indebtedness) to become immediately due and payable, and would prevent the
Company from drawing any further amounts under its Revolving Credit Agreement.
As a result, any such default could have a material adverse effect on the
Company and its ability to make principal and interest payments on the
Securities. See "Description of Certain Financings" and "Description of
Concurrent Financing."
ENVIRONMENTAL MATTERS
As an international aerospace manufacturing corporation, the Company is
subject to foreign, federal, state and local laws and regulations that limit
the discharge of pollutants into the air, soil and water and establish
standards for the treatment, storage and disposal of hazardous wastes. As a
result,
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the Company is involved from time to time in administrative and judicial
proceeding and inquiries related to environmental matters. These include
several currently pending matters. The Company does not believe that its
environmental risks are materially different from those of comparable
manufacturing companies. Nevertheless, the Company cannot provide assurances
that environmental issues will not adversely affect the Company's operations
and financial condition in the future. Environmental risks are generally
excluded from coverage under the Company's current insurance policies. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Legal and Environmental Matters."
LIMITED CUSTOMER BASE
The Company conducts substantial business with each of the three major
commercial airframe manufacturers: The Boeing Company ("Boeing"), Airbus
Industrie ("Airbus") and McDonnell Douglas Corporation ("McDonnell Douglas").
In addition, the Company conducts business with each of the major commercial
jet engine manufacturers: General Electric Company ("General Electric"), Rolls-
Royce, plc ("Rolls-Royce"), United Technologies Corporation ("Pratt &
Whitney"), CFM International, Inc. (a corporation jointly owned by General
Electric and Societe Nationale d'Etude et de Construction de Moteurs
d'Aviation; "CFM International"), and International Aero Engines AG (a
corporation owned by Rolls-Royce, Pratt & Whitney, Fiat Aviazione, SpA,
Japanese Aero Engines Corporation and MTU Motoren-und Turbinen-Union Munchen
GmbH; "International Aero Engines"). Commercial products sold by the Company to
jet engine manufacturers are installed ultimately on aircraft produced by one
of the three major commercial airframe manufacturers. The Company's financial
condition and operations could be materially adversely affected if one or more
of its major customers were to reduce operations materially, shift a
significant amount of work from the Company or cease conducting operations. See
"Business."
COMPETITION
The Company's principal competition is Boeing (which, in addition to being a
customer, also manufactures nacelle systems and pylons for its own aircraft),
other significant aerospace companies who have development and production
experience with respect to portions of the nacelle system and the companies to
whom the Company has subcontracted various components and who could (and have)
bid on contracts in competition with the Company. See "Business--
Subcontractors." Military aerospace contractors are also potential competitors,
as excess capacity created by reductions in defense spending could cause some
of these contractors to look to expand in commercial markets.
Because of recent reductions in demand in the aircraft manufacturing
industry, excess production capacity exists in the market for a number of the
Company's principal products. While the Company has a significant share of the
market for commercial aircraft nacelles and pylons, there can be no assurance
that the Company can maintain its share of the market at existing levels. See
"Business-- Market Share and Competition."
REDUCED GOVERNMENT SALES
Government (military and space) sales accounted for approximately 12% of the
Company's total sales in the six months ended January 30, 1994, and 13% in the
fiscal year ended July 31, 1993. The Company expects that the percentage of
Company revenues attributable to government sales will continue to decline in
future years. The production rate for the Titan rocket motor casing program,
which accounted for 5.9% of revenues in fiscal 1993, is expected to decline
substantially in response to market demand. In addition, another company's
alternative technology casing approach may allow it to become a leading
competitor in the market for this product in the future. The Company's military
sales are primarily associated with older programs which are being phased out
of production.
RANKING OF THE CONVERTIBLE SUBORDINATED NOTES
The Convertible Subordinated Notes will be general unsecured obligations of
the Company ranking subordinated in right of payment to all existing and future
Senior Indebtedness of the Company (as defined) and pari passu with all
Subordinated Indebtedness (as defined), including the Company's 9.25%
subordinated debentures, due in 2017, and its 7% convertible subordinated
debentures, due in 2012. The Convertible Subordinated Notes will also be
effectively subordinated to all indebtedness and
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other liabilities of Company's subsidiaries. As of January 30, 1994, after
giving effect to the Offerings and the anticipated proceeds therefrom (and
assuming no exercise of the Underwriter's over-allotment option), approximately
$256.8 million of Senior Indebtedness and the indebtedness and all other
liabilities of the Company's subsidiaries would have been approximately $32.7
million. In addition, the Company had $103.6 million of off-balance sheet sale-
leaseback and accounts receivable financings then outstanding. See
"Capitalization" and "Description of the Convertible Subordinated Notes--
Subordination."
In the event of any bankruptcy, liquidation or reorganization of the Company,
the assets of the Company will be available to pay the obligations under the
Convertible Subordinated Notes only after all Senior Indebtedness of the
Company, and any other secured or priority claims, including secured claims
relating to the Company's underfunded pension liabilities, as discussed below,
have been paid in full. See "--Underfunded Pension Plans" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources." After such payments, there may not be
sufficient assets remaining to pay amounts then outstanding under the
Convertible Subordinated Notes and the Company's other subordinated
obligations. In addition, the assets of the Company's subsidiaries will be
available to creditors of the Company only after such subsidiaries' obligations
are satisfied in full.
Certain rights of the Pension Benefit Guaranty Corporation (the "PBGC") could
also affect the Company in connection with any such bankruptcy, liquidation or
reorganization. In general, the PBGC (an agency of the federal government)
guarantees certain benefits provided under defined benefit plans, such as the
Company's Pension Plans. If a plan is terminated (by either the sponsor or the
PBGC) and the sponsor of such plan does not pay the guaranteed benefits, the
PBGC will pay those benefits and then seek recovery of all unfunded benefits
from any company which contributes to such a plan and certain of its
affiliates. If the PBGC has a right to such a recovery, it also has a statutory
lien on all assets of such companies, up to a maximum of 30% of the net worth
of all companies liable for such amounts. Any claim in excess of the PBGC's
secured claim would be a general unsecured claim. The actuarial assumptions
used by the PBGC in assessing funding liabilities reflect a termination of the
plan rather than continued funding by the plan sponsor. This may result in a
substantially greater liability for benefits under the Company's Pension Plans
than is reflected in actuarial valuations for such plans prepared on an ongoing
basis.
ABSENCE OF PUBLIC MARKET FOR THE SECURITIES
The Securities comprise new issues of securities for which there is currently
no public market. Although application will be made to list the Convertible
Subordinated Notes on the New York Stock Exchange, there can be no assurance
that an active trading market will be developed or sustained or that
Convertible Subordinated Notes will be able to be resold at or above the public
offering price as a result of prevailing interest rates, the market for similar
securities, the performance of the Company and other factors.
FINANCING PLAN
The Company has adopted a financing plan to enhance its liquidity, extend the
maturity of its Revolving Credit Agreement and improve its financial
flexibility. To meet these objectives, the Company is offering the Senior Notes
and the Convertible Subordinated Notes and, effective upon the completion of
the Offerings, amending its Revolving Credit Agreement and certain of its other
principal financing agreements.
Upon completion of the Offering, the Company's existing unsecured Revolving
Credit Agreement will be amended to provide for an extended three-year term. As
part of this amendment, the principal
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financial covenants in the Revolving Credit Agreement will be modified to
provide the Company with greater financial flexibility and to eliminate the
previous requirement that the Company sell additional subordinated debt. For a
summary of the principal covenants to be contained in the amended Revolving
Credit Agreement, see "Description of Certain Financings--Revolving Credit
Agreement."
The Company will also amend, effective upon the completion of the Offerings,
the financial covenants in the agreements governing its existing 9.35% and
9.33% Senior Notes in substantially the same manner as the financial covenants
in the Revolving Credit Agreement. For a summary of the principal covenants
contained in such agreements, see "Description of Certain Financings--9.35%
Senior Notes due 2000 and 9.33% Senior Notes due 2002."
USE OF PROCEEDS
The Company intends to use all of the net proceeds of the Convertible
Subordinated Notes offering and, to the extent necessary, a portion of the net
proceeds of the Senior Notes offering to repay, on the date of issuance of the
Securities, all of the amounts outstanding under the Company's Revolving Credit
Agreement. This repayment will not reduce the lenders' three-year commitment
under that agreement. The Revolving Credit Agreement will have an initial
availability of $110 million. As of February 28, 1994, the Company had $60
million borrowed under its Revolving Credit Agreement. The Company intends to
use the remaining net proceeds for general corporate purposes. For additional
information concerning the term, interest rate and other provisions of the
Revolving Credit Agreement, see "Description of Certain Financings--Revolving
Credit Agreement."
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is listed on the New York, Pacific and London Stock
Exchanges. The following table sets forth for the fiscal periods indicated, the
high and low sales prices of the Common Stock on the Composite Tape, as
reported by the National Quotation Bureau, Incorporated:
<TABLE>
<CAPTION>
HIGH LOW
------ -------
<S> <C> <C>
1992
First Quarter........................................... $26 $19 3/8
Second Quarter.......................................... 24 1/4 18 1/2
Third Quarter........................................... 21 5/8 14 1/4
Fourth Quarter.......................................... 15 1/8 9 3/8
1993
First Quarter........................................... 12 7/8 10 1/8
Second Quarter.......................................... 13 1/8 9 1/4
Third Quarter........................................... 12 1/2 8 5/8
Fourth Quarter.......................................... 10 1/4 6 1/2
1994
First Quarter........................................... 8 3/4 6 3/4
Second Quarter.......................................... 11 1/2 7 1/8
Third Quarter(1)........................................ 11 1/8 8 1/2
</TABLE>
- --------
(1) Through April 8, 1994, on which date the last reported sale price on the
Composite Tape was $9.125 per share.
At February 28, 1994, there were approximately 4,855 shareholders of record
holding the Company's Common Stock.
11
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The Company has not paid cash dividends on its Common Stock since October
1975. Under the terms of several of the Company's principal financing
agreements, the Company may not pay cash dividends on its Common Stock until
after July 9, 1995. Thereafter, the Company may pay cash dividends in an amount
not to exceed 50% of consolidated net income earned since August 1, 1995. The
Company's current policy is to retain earnings for use in its business rather
than to pay cash dividends on its Common Stock. Future dividends on the Common
Stock will depend on business and financial conditions, earnings and other
factors and are subject to declaration by the Company's Board of Directors at
its discretion.
12
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DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Common Stock of the Company has a par value of $1 per share. Subject to
the preferential dividend rights of the Preferred Stock (no shares of which are
currently outstanding), the holders of Common Stock may from time to time
receive out of assets legally available therefor dividends as and when declared
by the Board of Directors. Several of the Company's principal financing
agreements contain a covenant restricting the Company's right to pay dividends
on, and to redeem, retire or acquire, its stock. See "Dividends and Price Range
of Common Stock."
Each share of Common Stock entitles the holder thereof to one vote, except
that in any election of directors votes may be cumulated. The directors of the
Company are divided into three classes and at each annual meeting of
stockholders only one of these classes is subject to election. The board
presently consists of ten directors, of whom three are subject to election at
the annual meeting in 1994 and each three years thereafter, three at the annual
meeting in 1995 and each three years thereafter and four at the annual meeting
in 1996 and each three years thereafter. The division of the directors into
three classes may make a proposed takeover of the Company which is not
supported by the incumbent directors more difficult to achieve than if the
directors constituted a single class.
In the event of a proposed merger or consolidation with, or a sale of assets
to, a company which itself, or with its affiliates, owns or controls 5% or more
of the outstanding Common Stock of the Company, an affirmative vote of three-
fourths of the total outstanding voting stock is required unless such merger,
consolidation or sale of assets was approved by the Board of Directors prior to
the acquisition of such 5% of Common Stock by such company or its affiliates.
This provision is in the Restated Certificate of Incorporation, as amended (the
"Certificate"), and the provisions for cumulative voting and a three-class
Board of Directors may only be changed by a three-fourths vote of the total
outstanding voting stock. Similarly, before the Company may enter into a merger
or consolidation with, sell a substantial part of its assets to, or agree to
certain other transactions with a company which itself, or with its affiliates,
beneficially owns 10% or more of the Company's outstanding voting stock, the
transaction must be approved by a three-fourths vote of the total outstanding
voting stock and by a majority of the outstanding voting stock which is not
beneficially owned by the other company and its affiliates; provided, however,
that the voting requirements described in this sentence do not apply if the
proposed transaction is approved by a majority of the continuing directors, as
defined in the Certificate, or certain other provisions are met.
PREFERRED STOCK
The Certificate authorizes the Company to issue multiple classes of Preferred
Stock, the substantive rights of which are to be fixed by the directors. The
Board of Directors can authorize, without stockholder approval, the issuance of
Preferred Stock with voting and conversion rights that could adversely affect
the voting power of the holders of Common Stock.
SHAREHOLDER RIGHTS PLAN
The Company has adopted a shareholder rights plan, and on August 15, 1986,
declared a dividend distribution of one purchase right for each outstanding
share of Common Stock of the Company to shareholders of record at the close of
business on August 26, 1986. The Company has issued one purchase right with
each share of Common Stock issued after August 26, 1986, and subject to the
expiration of the rights in 1996, will issue one such right for each share of
Common Stock issued upon conversion of the Convertible Subordinated Notes. Each
right generally entitles the holder thereof to purchase one one-hundredth of a
preferred share from the Company for $100, subject to adjustment. Such
preferred stock purchase rights, which expire on August 25, 1996 and are
redeemable by the
13
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Company, become exercisable and separated from the Common Stock under certain
circumstances generally related to the acquisition (or the right to acquire) by
a person or group of affiliated persons of 15% or more of the Company's
outstanding Common Stock or where such a person or group has made a tender
offer to acquire 15% or more of such stock. Under certain additional
circumstances, each right would entitle the holder to purchase a certain number
of shares of the Company's Common Stock at one-half of the Common Stock's fair
market value.
The provisions discussed above may make it more difficult for a third party
to acquire control of the Company or could discourage such a party from
attempting to acquire control.
GENERAL
Upon liquidation, dissolution or winding up of the Company, the assets
legally available for distribution to stockholders shall be distributed ratably
among the holders of Common Stock at the time outstanding, subject to the
preferential rights of any series of Preferred Stock of the Company then
outstanding. The Common Stock has no preemptive, conversion or redemption
rights, and when fully paid is not subject to assessment.
The outstanding Common Stock of the Company is listed on the New York Stock
Exchange, the Pacific Stock Exchange and The Stock Exchange in London.
The transfer agent and registrar for the Common Stock is the First Chicago
Trust Co. of New York.
14
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DESCRIPTION OF NOTES
The Convertible Subordinated Notes will be issued under an indenture to be
dated as of , 1994 (the "Indenture") between the Company and
, as trustee (the "Trustee"), a form of which has been filed as
an exhibit to the Registration Statement of which this Prospectus forms a part.
The terms of the Convertible Subordinated Notes will include those stated in
the Indenture and those made a part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "TIA"), as in effect on the date of the
Indenture. The Convertible Subordinated Notes will be subject to all such
terms, and holders of the Convertible Subordinated Notes are referred to the
Indenture and the TIA for a statement of such terms. The following is a summary
of important terms of the Convertible Subordinated Notes and does not purport
to be complete. Reference should be made to all provisions of the Indenture,
including the definitions therein of certain terms and all terms made a part of
the Indenture by reference to the TIA. Certain definitions of terms used in the
following summary are set forth under "--Certain Definitions" below.
As used in this section, the "Company" means Rohr, Inc., but not any of its
subsidiaries, unless the context requires otherwise.
GENERAL
The Convertible Subordinated Notes will be general unsecured subordinated
obligations of the Company, will mature on , 2004, and will be
limited to an aggregate principal amount of $50,000,000 (assuming no exercise
of the Underwriter's over-allotment option). The Convertible Subordinated Notes
will be issued in denominations of $1,000 and integral multiples of $1,000 in
fully registered form. The Convertible Subordinated Notes are exchangeable and
transfers thereof will be registrable without charge therefor, but the Company
may require payment of a sum sufficient to cover any tax or other governmental
charge in connection therewith.
The Convertible Subordinated Notes will accrue interest at a rate of % per
annum from , 1994, or from the most recent interest payment date to
which interest has been paid or duly provided for, and accrued and unpaid
interest will be payable semi-annually on and of each
year beginning , 1994. Interest will be paid to the Person in whose
name each Convertible Subordinated Note is registered at the close of business
on the or immediately preceding the relevant interest payment date.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months and the actual number of days elapsed. Interest on overdue principal and
(to the extent permitted by law) on overdue installments of interest will
accrue at a rate equal to % per annum.
Initially, the Trustee will act as paying agent and registrar of the
Convertible Subordinated Notes. The Company may change any paying agent and
registrar without notice.
CONVERSION
The Holders of Convertible Subordinated Notes will have the right,
exercisable at any time prior to maturity, to convert the principal amount
thereof (or any portion thereof that is an integral multiple of $1,000) into
shares of Common Stock at a conversion price of $ per share of Common
Stock, subject to adjustment as described below (the "Conversion Price"),
except that if a Convertible Subordinated Note is called for redemption, the
conversion right will terminate at the close of business on the fifth business
day immediately preceding the date fixed for redemption (unless the Company
defaults in making the redemption payment when due, in which case the
conversion right will terminate at the close of business on the date such
default is cured). Upon conversion, no adjustment or payment will be made for
interest or dividends, but if any holder of a Convertible Subordinated Note
surrenders a Convertible Subordinated Note for conversion after the close of
business on the record date for the
15
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payment of an installment of interest and prior to the opening of business on
the next interest payment date, then, notwithstanding such conversion, the
interest payable on such interest payment date will be paid to such registered
holder. In such event, such Convertible Subordinated Note, when surrendered for
conversion, must be accompanied by payment of an amount equal to the interest
payable on such interest payment date on the portion so converted.
No fractional shares will be issued upon conversion but a cash payment will
be made for any fractional interest.
The Conversion Price is subject to adjustment upon the occurrence of certain
events, including (a) the issuance of shares of Common Stock as a dividend or
distribution on the Common Stock; (b) the subdivision, combination or
reclassification of the outstanding Common Stock; (c) the issuance to all or
substantially all holders of Common Stock of rights or warrants to subscribe
for or purchase Common Stock (or securities convertible into Common Stock) at a
price per share less than the then current market price per share, as defined
in the Indenture; (d) the distribution of shares of Capital Stock of the
Company (other than Common Stock) to all holders of Common Stock, evidences of
indebtedness or other assets (excluding dividends in cash); and (e) the
distribution to all or substantially all holders of Common Stock of rights or
warrants to subscribe for securities (other than those referred to in clause
(c) above). In the event of a distribution to all or substantially all holders
of Common Stock of rights to subscribe for additional shares of the Company's
Capital Stock (other than those referred to in clause (c) above), the Company
may, instead of making an adjustment in the Conversion Price, make proper
provision so that each holder of a Convertible Subordinated Note who converts
such Convertible Subordinated Note after the record date for such distribution
and prior to the expiration or redemption of such rights shall be entitled to
receive upon such conversion, in addition to shares of Common Stock, an
appropriate number of such rights. No adjustment of the Conversion Price will
be made until cumulative adjustments amount to one percent or more of the
Conversion Price as last adjusted. No adjustment of the Conversion Price will
be made for cash dividends.
If the Company reclassifies or otherwise changes its outstanding Common
Stock, or consolidates with or merges into or transfers or leases all or
substantially all its assets to any Person, or is a party to a merger that
reclassifies or changes its outstanding Common Stock, the Convertible
Subordinated Notes will become convertible into the kind and amount of
securities, cash or other assets which the holders of Convertible Subordinated
Notes would have owned immediately after the transaction if the holders had
converted the Convertible Subordinated Notes immediately before the effective
date of the transaction.
SUBORDINATION
The Convertible Subordinated Notes will be subordinate and junior in right of
payment to all "Senior Indebtedness" of the Company to the extent and in the
manner set forth below. The Indenture will define "Senior Indebtedness"
generally as all present or future indebtedness of the Company created,
incurred, assumed or, except to the extent described below, guaranteed (to the
extent of the guarantee) by the Company (and all renewals, modifications,
extensions or refundings thereof), together with all other obligations owing in
connection therewith, including principal, interest (including post-petition
interest), fees, costs, expenses and indemnities, unless the instrument under
which such indebtedness is created, incurred, assumed or guaranteed provides
that such indebtedness is not senior or superior in right of payment to the
Convertible Subordinated Notes and excluding certain existing subordinated
indebtedness of the Company as described below. Senior Indebtedness shall not
include "Subordinated Indebtedness," which shall include (a) any indebtedness
of the Company owing to any of its subsidiaries, (b) any indebtedness of the
Company or guarantees of indebtedness by the Company which by its terms or the
terms of the instrument creating or evidencing it expressly provides that such
indebtedness or guarantee is subordinated in right of payment to any other
indebtedness of the Company, (c) Capitalized Lease Obligations (as defined in
this section), (d) indebtedness in respect of
16
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any the Pooling and Servicing Agreement and (e) the Company's 9.25%
Subordinated Debentures due 2017 or its 7% Convertible Subordinated Debentures
due 2012.
By reason of such subordination, in the event of a liquidation or dissolution
of the Company or a bankruptcy, reorganization, insolvency, receivership or
other similar proceeding or upon assignment for the benefit of creditors
relating to the Company or its property, or a marshalling of assets or
liabilities of the Company, upon any distribution of assets (a) holders of
Senior Indebtedness will be entitled to be paid all obligations owing in
respect thereof in full in cash or Cash Equivalents (as defined in this
section) before payments may be made on or in respect of the Convertible
Subordinated Notes and (b) the holders of Convertible Subordinated Notes (or
the Trustee on their behalf) will be required to pay over their share of any
such distribution directly to the holders of Senior Indebtedness until such
Senior Indebtedness is paid in full in cash or Cash Equivalents, except, in
each case, that Holders of Convertible Subordinated Notes may receive
securities that are subordinated at least to the same extent as the Convertible
Subordinated Notes are to Senior Indebtedness ("Other Subordinated
Securities").
In the event of any acceleration of the Convertible Subordinated Notes, the
holders of any Senior Indebtedness then outstanding shall be entitled to
payment in full of all amounts due on or in respect of such Senior Indebtedness
before the Holders of the Convertible Subordinated Notes are entitled to
receive any payment or distribution in respect thereof.
The Company may not make any payment on or in respect of the Convertible
Subordinated Notes and may not acquire any Convertible Subordinated Notes for
cash or property (other than Other Subordinated Securities) if (a) a default in
the payment of any principal of or other obligations with respect to Designated
Senior Indebtedness (as defined below) has occurred and is continuing beyond
any applicable grace period or (b) a default, other than a payment default, on
Designated Senior Indebtedness has occurred and is continuing that then permits
holders of the Designated Senior Indebtedness to accelerate the maturity of
such indebtedness and the Trustee receives a notice of the default from the
agent under the Revolving Credit Agreement, or such other person permitted to
give such notice under the Indenture, requesting that payment on or in respect
of the Convertible Subordinated Notes be prohibited. Notwithstanding the
foregoing, and so long as the terms of the Indenture otherwise permit such
payment, the Company may resume payments in respect of the Convertible
Subordinated Notes upon the earlier of (x) the date upon which the default is
cured or waived or (y) in the case of a default referred to in (a) above, 179
days pass after notice is received (a "Payment Blockage Period"). Only one
Payment Blockage Period may be commenced within any consecutive 365-day period
with respect to the Convertible Subordinated Notes. "Designated Senior
Indebtedness" will be defined in the Indenture to mean (i) Senior Indebtedness
of the Company permitted by the terms of the Indenture to be incurred under any
institutional credit agreement and (ii) any such other Senior Indebtedness
currently outstanding or permitted by the terms of the Indenture to be
incurred, in one or more substantially concurrent issuances on substantially
similar terms, the aggregate principal amount of which is $50 million or more.
Neither the Trustee nor the holders of the Convertible Subordinated Notes are
required to give notice to any holders of Senior Indebtedness (or their
representatives) prior to acceleration of the obligations evidenced by the
Convertible Subordinated Notes.
Although the Convertible Subordinated Notes rank pari passu in right of
payment to the Company's 9.25% Subordinated Debentures due 2017 and its 7%
Convertible Subordinated Debentures due 2012, such indebtedness may be entitled
to receive principal and interest payments at a time when such payments would
be blocked in respect of the Convertible Subordinated Notes, unless the holders
of the Convertible Subordinated Notes accelerate the maturity of the
obligations owing on the Convertible Subordinated Notes.
In the event that, notwithstanding the foregoing, any payment or distribution
of assets of the Company, whether in cash, property or securities (other than
Other Subordinated Securities), shall be
17
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received by the Trustee or the holders of Convertible Subordinated Notes at a
time when such payment or distribution is prohibited by the foregoing
provisions, such payment or distribution shall be held in trust for the benefit
of the holders of Senior Indebtedness of the Company, and shall be paid or
delivered by the Trustee or such holders, as the case may be, to the holders of
the Senior Indebtedness of the Company remaining unpaid or unprovided for or
their representative or representatives, or to the trustee or trustees under
any indenture pursuant to which any instruments evidencing any of such Senior
Indebtedness of the Company may have been issued, ratably according to the
aggregate amounts remaining unpaid on account of the Senior Indebtedness of the
Company held or represented by each, for application to the payment of all
Senior Indebtedness of the Company remaining unpaid to the extent necessary to
pay or to provide for the payment of all such Senior Indebtedness in full in
cash and Cash Equivalents after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness.
As a result of these subordination provisions, in the event of a liquidation
or dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding or an assignment for the benefit of the
creditors of the Company or a marshalling of assets or liabilities of the
Company, holders of Convertible Subordinated Notes may receive ratably less
than other creditors.
There are no restrictions in the Indenture on the creation of additional
Senior Indebtedness (or any other indebtedness) and, under certain
circumstances, the incurrence of significant amounts of additional indebtedness
could have an adverse effect on the Company's ability to service its
indebtedness, including the Convertible Subordinated Notes.
OPTIONAL REDEMPTION
The Convertible Subordinated Notes may be redeemed at the option of the
Company, in whole or from time to time in part, on and after , 1998,
on not less than 30 nor more than 60 days' prior written notice to the holders
thereof by first class mail, at the following redemption prices (expressed as
percentages of the principal amount), plus accrued and unpaid interest to the
date fixed for redemption, if redeemed during the twelve-month period beginning
of each year indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1998........................................................... %
1999........................................................... %
2000........................................................... %
2001........................................................... %
2002........................................................... %
2003........................................................... %
2004........................................................... 100%
</TABLE>
If less than all the Convertible Subordinated Notes are to be redeemed, the
Trustee will select Convertible Subordinated Notes for redemption pro rata or
by lot or by any other method that the Trustee considers fair and appropriate.
The Trustee may select for redemption a portion of the principal of any
Convertible Subordinated Note that has a denomination larger than $1,000.
Convertible Subordinated Notes and portions thereof will be redeemed in the
amount of $1,000 or integral multiples of $1,000. The Trustee will make the
selection from Subordinated Notes outstanding and not previously called for
redemption.
Provisions of the Indenture that apply to Convertible Subordinated Notes
called for redemption also apply to portions of Convertible Subordinated Notes
called for redemption. If any Convertible Subordinated Note is to be redeemed
in part, the notice of redemption will state the portion of the principal
amount to be redeemed. Upon surrender of a Convertible Subordinated Note that
is redeemed
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in part only, the Company will execute and the Trustee will authenticate and
deliver to the holder a new Convertible Subordinated Note equal in principal
amount to the unredeemed portion of the Convertible Subordinated Note
surrendered. On and after the redemption date, unless the Company shall default
in the payment of the redemption price, interest will cease to accrue on the
principal amount of the Convertible Subordinated Notes or portions thereof
called for redemption and for which funds have been set apart for payment.
The Company's Revolving Credit Agreement and certain of its other principal
financing agreements limit the Company's ability to redeem or to otherwise
repurchase the Convertible Subordinated Notes and other future agreements
governing indebtedness of the Company may provide the same. See "Description of
Certain Financings."
CHANGE IN CONTROL
Following a Change of Control (as defined below), the Company shall comply
with each of the procedures set forth in the Indenture in respect of such
event, and pursuant to the Indenture shall make an offer (a "Change of Control
Offer") to purchase all Convertible Subordinated Notes then outstanding at a
purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest thereon, if any, to the date of such purchase. Each such offer
to purchase shall be made as of a date (the "Change of Control Purchase Date")
promptly after (but in no event later than three business days after) the first
business day which is sixty days following the applicable Change of Control,
and shall remain open until the close of business on a date (the "Change of
Control Payment Date") which is at least 20 business days following such Change
of Control Purchase Date. The Company shall deliver notice of any Change of
Control, specifying the applicable Change of Control Purchase Date and Change
of Control Payment Date, to each holder of Convertible Subordinated Notes not
less than 30 days nor more than 45 days before the applicable Change of Control
Payment Date.
If a Change of Control were to occur, there can be no assurance that the
Company would have sufficient funds to pay the redemption price for all
Convertible Subordinated Notes that the Company would be required to redeem.
"Change of Control" means the occurrence of one or more of the following
events (whether or not approved by the Board of Directors of the Company): (a)
an event or series of events by which any Person or other entity or group of
Persons or other entities acting in concert as determined in accordance with
Section 13(d) of the Exchange Act, whether or not applicable (a "Group of
Persons"), together with its or their affiliates and Associates shall, as a
result of a tender or exchange offer, open market purchases, privately
negotiated purchases, merger or otherwise (i) be or become, directly or
indirectly, the beneficial owner (within the meaning of Rule 13d-5 under the
Exchange Act, whether or not applicable) of 50% or more of the combined voting
power of the then outstanding Voting Stock of the Company or (ii) have the
ability to elect, directly or indirectly, a majority of the members of the
Board of Directors of the Company or other equivalent governing body thereof,
(b) the shareholders of the Company shall approve any plan or proposal for the
liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of the Indenture), (c) individuals who at the
beginning of any period of two consecutive calendar years constituted the Board
of Directors of the Company (together with any new directors whose election or
appointment by the Board of Directors of the Company or whose nomination for
election by the Company's shareholders was approved by a vote of at least a
majority of the members of the Board of Directors of the Company then still in
office who either were members of the Board of Directors of the Company at the
beginning of such period or whose election, appointment or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the members of the Board of Directors of the Company then in office
or (d) the direct or indirect sale, lease, exchange or other transfer, in one
transaction or a series of related transactions, of all or substantially all of
the property or assets of the Company to any Person or Group
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of Persons together with any affiliates thereof (whether or not otherwise in
compliance with the provisions of the Indenture).
None of the provisions relating to a redemption upon a Change of Control is
waivable by the Board of Directors of the Company or the Trustee. In the event
that the Company is required to purchase outstanding Convertible Subordinated
Notes pursuant to a Change of Control Offer, the Company expects that it would
need to seek third-party financing to the extent it does not have available
funds to meet its purchase obligations. However, there can be no assurance that
the Company would be able to obtain such financing. The occurrence of a Change
of Control would constitute an event of default under the Revolving Credit
Agreement and the agreements governing the Company's 9.33% Senior Notes and
9.35% Senior Notes, and would permit the holders of that indebtedness to
declare all amounts outstanding thereunder to be immediately due and payable.
Also, in the event of a Change of Control, the Company would be required to
make an offer to purchase all Senior Notes then outstanding at a purchase price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of such purchase. On January 30, 1994, after
giving pro forma effect to the Offerings and the use of proceeds thereof
(assuming no exercise of the Underwriter's over-allotment option), there would
have been $256.8 million outstanding of Senior Indebtedness. See
"Capitalization." The Company could, in the future, enter into certain
transactions, including certain recapitalizations of the Company, that would
not constitute a Change of Control with respect to the Change of Control
redemption feature of the Convertible Subordinated Notes, but would increase
the amount of indebtedness outstanding at such time. The rights of the holders
of Convertible Subordinated Notes to receive the Change of Control purchase
price for the Convertible Subordinated Notes or any other amount due on the
Convertible Subordinated Notes are subordinated to the rights of the holders of
Senior Indebtedness (including the Revolving Credit Agreement, the 9.33% Senior
Notes, the 9.35% Senior Notes and the Senior Notes) in the manner set forth in
the Indenture. See "--Subordination" and "--Events of Default."
Failure by the Company to redeem the Convertible Subordinated Notes when
required constitutes an Event of Default with respect to the Convertible
Subordinated Notes. If such an Event of Default resulted in a default under any
Senior Indebtedness of the Company, the right of the holders to receive the
Change of Control purchase price (whether at the Change of Control Payment Date
or upon acceleration) or any other amounts due on acceleration of the
Convertible Subordinated Notes would be subordinated to the rights of the
holders of Senior Indebtedness of the Company. See "--Events of Default."
If an offer is made to redeem Convertible Subordinated Notes as a result of a
Change of Control, the Company will be required to comply with all tender offer
rules under state and Federal securities laws, including, but not limited to,
Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent
applicable to such offer.
The Change of Control redemption feature of the Convertible Subordinated
Notes may in certain circumstances make more difficult or discourage a takeover
of the Company and thus the removal of incumbent management. The Change of
Control redemption feature is not, however, the result of management's
knowledge of any specific effort to obtain control of the Company by means of
merger, tender offer, solicitation or otherwise, or part of a plan by
management to adopt a series of anti-takeover provisions.
LIMITATIONS ON SALE OF ASSETS
The Company will not, and will not permit any of its subsidiaries to,
consummate any Asset Sale (as defined in this section) unless such Asset Sale
is for at least Fair Market Value and at least 85% of the consideration
therefrom received by the Company or such subsidiary is in the form of cash or
Cash Equivalents.
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Following any Asset Sale, an amount equal to the Net Cash Proceeds of such
Asset Sale shall be applied by the Company or such subsidiary within 365 days
of the date of the Asset Sale, at its election, to either (a) the payment of
Senior Indebtedness provided, however, any Net Cash Proceeds which are applied
to reduce indebtedness under the Revolving Credit Agreement shall result in a
permanent reduction in the borrowing availability thereunder; or (b) to make
any Permitted Program Investment or to any other investment in capital assets
usable in the Company's or its subsidiaries' lines of business or in an asset
or business in the same line of business as the Company; or (c) a combination
of payment and investment permitted by the foregoing clauses (a) and (b). On
the earlier of (x) the 366th day after the date of an Asset Sale or (y) such
date as the Board of Directors of the Company or of such subsidiary determines
(as evidenced by a written resolution of said Board of Directors) not to apply
an amount equal to the Net Cash Proceeds relating to such Asset Sale as set
forth in clauses (a), (b) and (c) of the immediately preceding sentence (each
of (x) and (y), an "Asset Sale Offer Trigger Date"), an amount equal to the
aggregate amount of Net Cash Proceeds which have not been applied on or before
such Asset Sale Offer Trigger Date as permitted in clauses (a), (b) and (c) of
the immediately preceding sentence (each an "Asset Sale Offer Amount") shall be
applied by the Company or such subsidiary to make an offer (an "Asset Sale
Offer") to purchase for cash promptly after, but in no event more than three
business days after, a business day not less than 30 nor more than 60 days
following the applicable Asset Sale Offer Trigger Date, from all holders on a
pro rata basis that amount of Convertible Subordinated Notes equal to the Asset
Sale Offer Amount at a price equal to 100% of the principal amount of the
Convertible Subordinated Notes to be repurchased, plus accrued and unpaid
interest thereon to the date of repurchase. Notwithstanding the foregoing, if
an Asset Sale Offer Amount is less than $10 million, the application of such
Asset Sale Offer Amount to an Asset Sale Offer may be deferred until such time
as such Asset Sale Offer Amount plus the aggregate amount of all Asset Sale
Offer Amounts arising subsequent to such Asset Sale Offer Trigger Date from all
Asset Sales by the Company and its subsidiaries aggregates at least $10
million, at which time the Company or such subsidiary shall apply all Asset
Sale Offer Amounts that have been so deferred to make an Asset Sale Offer (the
first date the aggregate of all such deferred Asset Sale Offer Amounts is equal
to $10 million or more shall be deemed to be an "Asset Sale Offer Trigger
Date").
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company as an entirety to a Person in a transaction
permitted under "--Merger and Consolidation" below, the successor Person shall
be deemed to have sold the properties and assets of the Company not so
transferred for purposes of this covenant, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
Each Asset Sale Offer will be mailed to the record holders as shown on the
register of holders of the Convertible Subordinated Notes, with a copy to the
Trustee, within ten days following the Asset Sale Offer Trigger Date, and shall
comply with each of the procedures for notice set forth in the Indenture. Upon
receiving notice of the Asset Sale Offer, holders may elect to tender their
Convertible Subordinated Notes in whole or in part in integral multiples of
$1,000 in exchange for cash. To the extent holders properly tender Convertible
Subordinated Notes in an amount exceeding the Asset Sale Offer Amount,
Convertible Subordinated Notes of tendering holders will be repurchased on a
pro rata basis (based on amounts tendered). An Asset Sale Offer shall remain
open for a period of 20 business days or such longer period as may be required
by law.
If an offer is made to repurchase the Convertible Subordinated Notes pursuant
to an Asset Sale Offer, the Company will and will cause its subsidiaries to
comply with all tender offer rules under state and federal securities laws,
including, but not limited to, Section 14(e) under the Exchange Act and Rule
14e-1 thereunder, to the extent applicable to such offer.
Any event which would require the Company or a subsidiary to offer to
purchase Convertible Subordinated Notes after an Asset Sale would constitute an
event of default under the Revolving Credit Agreement and the agreements
governing the Company's 9.35% Senior Notes and 9.33% Senior
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Notes, and would permit the holders of that indebtedness to declare all amounts
outstanding thereunder to be immediately due and payable. The rights of the
holders of the Convertible Subordinated Notes to receive the Asset Sale Offer
Amount or any other amount due on the Convertible Subordinated Notes is
subordinated to the rights of the holders of Senior Indebtedness (including
indebtedness under the Revolving Credit Agreement, the 9.35% Senior Notes and
the 9.33% Senior Notes) in the manner set forth in the Indenture. See "--
Subordination" and "--Events of Default."
The Company's and its subsidiaries' ability to repurchase the Convertible
Subordinated Notes in an Asset Sale Offer may also be restricted or otherwise
limited by the terms of other then-existing borrowing agreements and by the
Company's financial position.
REPORTS
So long as any Convertible Subordinated Note is outstanding, the Company
shall file with the Commission and, within 15 days after it files them with the
Commission, file with the Trustee and thereafter promptly mail or promptly
cause the Trustee to mail to the holders of the Convertible Subordinated Notes
at their addresses as set forth in the register of the Convertible Subordinated
Notes, copies of the annual reports and of the information, documents and other
reports which the Company is required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act or which the Company would be required
to file with the Commission if the Company then had a class of securities
registered under the Exchange Act. In addition, the Company shall cause its
annual report to stockholders and any quarterly or other financial reports
furnished to its stockholders generally to be filed with the Trustee no later
than the date such materials are mailed or made available to the Company's
stockholders, and thereafter mailed promptly to the holders of the Convertible
Subordinated Notes at their addresses as set forth in the register of
Convertible Subordinated Notes.
MERGER AND CONSOLIDATION
Under the terms of the Indenture, the Company shall not, in a single
transaction or series of related transactions, consolidate or merge with or
into, or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its assets to, any Person or adopt a Plan of Liquidation
unless: (a) either (i) the Company shall be the surviving or continuing
corporation or (ii) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged, or the Person which acquires
by conveyance, transfer or lease the properties and assets of the Company
substantially as an entirety or, in the case of a Plan of Liquidation, the
Person to which all or substantially all of the assets of the Company have been
transferred (1) shall be a corporation organized and validly existing under the
laws of the United States or any State thereof or the District of Columbia and
(2) shall expressly assume, by supplemental indenture, executed and delivered
to the Trustee, the due and punctual payment of the principal of, and premium,
if any, and interest on all of the Convertible Subordinated Notes and the
performance of every covenant of the Convertible Subordinated Notes and the
Indenture on the part of the Company to be performed or observed; (b)
immediately after giving effect to such transaction and the assumption
contemplated by clause (2) above (including giving effect to any indebtedness
and Acquired Indebtedness incurred or anticipated to be incurred in connection
with or in respect of such transaction), the Company (in the case of clause (2)
of the foregoing clause (a)) or such Person (in the case of clause (ii)
thereof) shall have a Consolidated Net Worth (immediately after the transaction
but prior to any purchase accounting adjustments relating to such transaction)
equal to or greater than the Consolidated Net Worth of the Company immediately
prior to such transaction; (c) immediately before and after giving effect to
such transaction and the assumption contemplated by clause (a)(i)(2) above
(including giving effect to any indebtedness and Acquired Indebtedness incurred
or anticipated to be incurred in connection with or in respect of the
transaction) no Default and no Event of Default shall have occurred and be
continuing; and (d) the Company or such Person shall have delivered to the
Trustee (i) an officers' certificate and an opinion of counsel (which counsel
may be in-house counsel of the Company), each stating that such consolidation,
merger,
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conveyance, transfer or lease or Plan of Liquidation and, if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture, comply with the Indenture and that all conditions precedent in the
Indenture relating to such transaction have been satisfied and (ii) a
certification from the Company's independent certified public accountants
stating that the Company has made the calculations required by clause (b) above
in accordance with the terms of the Indenture.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more subsidiaries of
the Company, the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.
Upon any such consolidation, merger, sale, assignment, conveyance, lease or
transfer in accordance with the foregoing, the successor Person formed by such
consolidation or into which the Company is merged or to which such sale,
assignment, conveyance, lease or transfer is made will succeed to, and be
substituted for, and any exercise every right and power of, the Company under
the Indenture with the same effect as if such successor had been named as the
Company therein, and thereafter (except in the case of a sale, assignment,
transfer, lease, conveyance or other disposition) the predecessor corporation
will be relieved of all further obligations and covenants under the Indenture
and the Convertible Subordinated Notes.
EVENTS OF DEFAULT
The following are the Events of Default under the Indenture:
a. default in the payment of principal of, or premium, if any, on the
Convertible Subordinated Notes when due at maturity, upon repurchase, upon
acceleration or otherwise, including, without limitation, failure of the
Company to repurchase the Convertible Subordinated Notes on the date
required pursuant to "--Limitation on Sale of Assets" above or following a
Change of Control or failure to make any optional redemption payment when
due, whether or not any such payment is prohibited by the provisions
described under "--Subordination" above, or
b. default in the payment of any installment of interest on the
Convertible Subordinated Notes when due (including any interest payable in
connection with any optional redemption payment) and continuance of such
default for more than 30 days, whether or not such payment is prohibited by
the provisions described under "--Subordination" above, or
c. failure of the Company to observe, perform or comply with any of the
provisions described under "--Change of Control," "--Limitation on Sale of
Assets" "--Merger and Consolidation" above, or
d. default (other than a default set forth in clauses (a), (b) and (c)
above) in the performance of, or breach of, any other covenant or warranty
of the Company in the Indenture or the Convertible Subordinated Notes and
failure to remedy such default or breach within a period of 45 days after
written notice from the Trustee or the holders of at least 25% in aggregate
principal amount of the then outstanding Convertible Subordinated Notes, or
e. (i) failure to pay at maturity or default in the obligation to pay
when due the principal of, interest on, or any other payment obligation
when due on one or more classes of indebtedness (other than the Convertible
Subordinated Notes) of the Company or of any subsidiary of the Company,
whether such indebtedness exists on the Issue Date or shall be incurred
thereafter, having, individually or in the aggregate, an outstanding
principal amount of $15 million or more or (ii) one or more classes of
indebtedness (other than the Convertible Subordinated Notes) of the Company
or of any subsidiary, whether such Indebtedness exists on the Issue Date or
shall be incurred thereafter, having, individually or in the aggregate, an
outstanding principal amount of $15 million or more, is declared due and
payable prior to its stated maturity, or
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f. the entry by a court of competent jurisdiction of one or more
judgments or orders against the Company or any subsidiary of the Company or
any of their respective property or assets in an aggregate amount in excess
of $15 million and that are not covered by insurance written by third
parties, which judgments or orders have not been vacated, discharged,
satisfied or stayed pending appeal within 60 days from the entry thereof,
or
g. certain events of bankruptcy, insolvency or reorganization involving
the Company or any material subsidiary of the Company.
If an Event of Default (other than an Event of Default specified in clause
(g) above) occurs and is continuing, then and in every such case the Trustee,
by written notice to the Company, or the holders of not less than 25% in
aggregate principal amount of the then outstanding Convertible Subordinated
Notes, by written notice to the Company and the Trustee, may declare the unpaid
principal of, premium, if any, and accrued and unpaid interest on, all the
Convertible Subordinated Notes then outstanding to be due and payable, and upon
such declaration such principal amount, premium, if any, and accrued and unpaid
interest will become immediately due and payable, notwithstanding anything
contained in the Indenture or the Convertible Subordinated Notes to the
contrary, but subject to the provisions limiting payment described in "--
Subordination." If any Event of Default specified in clause (g) above occurs,
all unpaid principal of, and premium, if any, and accrued and unpaid interest
on, the Convertible Subordinated Notes then outstanding will automatically
become due and payable, subject to the prior payment in full of all Senior
Indebtedness of the Company, without any declaration or other act on the part
of the Trustee or any holder of Convertible Subordinated Notes.
Holders of the Convertible Subordinated Notes may not enforce the Indenture
or the Convertible Subordinated Notes except as provided in the Indenture.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request, order or direction of any of the
holders, unless such holders have offered to the Trustee an indemnity
satisfactory to it against any loss, liability or expense. Subject to all
provisions of the Indenture and applicable law, the holders of a majority in
aggregate principal amount of the then outstanding Convertible Subordinated
Notes have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustees or exercising any trust or
power conferred on the Trustee. If a Default or Event of Default occurs and is
continuing and is known to the Trustee, the Indenture requires the Trustee to
mail a notice of Default or Event of Default to each holder of Convertible
Subordinated Notes within 60 days of the occurrence of such Default or Event of
Default, provided, however, that the Trustee may withhold from such holders
notice of any continuing Default or Event of Default (except a Default or Event
of Default in the payment of principal of, or premium, if any, or interest on
the Convertible Subordinated Notes) if it determines that withholding notice is
in their interest. The holders of a majority in aggregate principal amount of
the Convertible Subordinated Notes then outstanding by notice to the Trustee
may rescind any acceleration of the Convertible Subordinated Notes and its
consequences if all existing Events of Default (other than the nonpayment of
principal of and premium, if any, and interest on the Convertible Subordinated
Notes which has become due solely by virtue of such acceleration) have been
cured or waived and if the rescission would not conflict with any judgment or
decree of any court of competent jurisdiction. No such rescission shall affect
any subsequent Default or Event of Default or impair any right consequent
thereto.
The holders of a majority in aggregate principal amount of the Convertible
Subordinated Notes then outstanding may, on behalf of the holders of all the
Convertible Subordinated Notes, waive any past Default or Event of Default
under the Indenture and its consequences, except Default in the payment of
principal of or premium, if any, or interest on the Convertible Subordinated
Notes (other than the non-payment of principal of and premium, if any, and
interest on the Convertible Subordinated Notes which has become due solely by
virtue of an acceleration which has been duly rescinded as provided above) or
in respect of a covenant or provision of the Indenture which cannot be modified
or amended without the consent of all holders of Convertible Subordinated
Notes.
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Under the Indenture, two officers of the Company are required to provide a
certificate to the Trustee promptly upon any such officer obtaining knowledge
of any Default or Event of Default (provided that such officers shall provide
such certification at least annually whether or not they know of any Default or
Event of Default) that has occurred and, if applicable, describe such Default
or Event of Default and the status thereof. In addition, for each fiscal year,
the Company's independent certified public accountants are required to certify
to the Trustee that they have reviewed the terms of the Indenture and the
Convertible Subordinated Notes as they relate to accounting matters and
whether, during the course of their audit examination, any Default or Event of
Default has come to their attention, and specifying the nature and period of
existence any such Default or Event of Default.
AMENDMENT, SUPPLEMENT AND WAIVER
The Indenture (including the terms and conditions of the Convertible
Subordinated Notes) may be modified or amended by the Company and the Trustee,
without the consent of the holder of any Convertible Subordinated Notes, for
the purposes of (a) adding to the covenants of the Company for the benefit of
the holders of Convertible Subordinated Notes; (b) surrendering any right or
power conferred upon the Company; (c) providing for conversion rights of
holders of Convertible Subordinated Notes in the event of consolidation, merger
or sale of all or substantially all of the assets of the Company; (d)
evidencing the succession of another Person to the Company and the assumption
by such successor of the covenants and obligations of the Company thereunder
and in the Convertible Subordinated Notes as permitted by the Indenture; (e)
reducing the Conversion Price, provided that such reduction will not adversely
affect the interests of holders of Convertible Subordinated Notes in any
material respect; or (f) curing any ambiguity or correcting or supplementing
any defective provision contained in the Indenture, or making any other changes
in the provisions of the Indenture which the Company and the Trustee may deem
necessary or desirable and which will not adversely affect the interests of the
holders of Convertible Subordinated Notes in any material respect.
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority in aggregate
principal amount of the then outstanding Convertible Subordinated Notes, to
enter into any supplemental indenture for the purpose of adding, changing or
eliminating any of the provisions of the Indenture, or of modifying in any
manner the rights of the holders under the Indenture, provided that no such
supplemental indenture may without the consent of the holder of each
outstanding Convertible Subordinated Note affected thereby: (a) reduce the
amount of Convertible Subordinated Notes whose holders must consent to an
amendment or waiver; (b) reduce the rate of, or extend the time for payment of,
interest, including defaulted interest, on any Convertible Subordinated Note;
(c) reduce the principal of or premium on or change the fixed maturity of any
Convertible Subordinated Note or alter the redemption provisions with respect
thereto; (d) make the principal of, or premium, if any, or interest on, any
Convertible Subordinated Note payable in money other than as provided for in
the Indenture and the Convertible Subordinated Notes; (e) waive continuing
default in the payment of the principal of or premium, if any, or interest on,
or redemption or repurchase payment with respect to, any Convertible
Subordinated Notes, including, without limitation, a continuing failure to make
payment when required upon a Change of Control or after an Asset Sale Offer
Trigger Date; (f) affect the ranking of the Convertible Subordinated Notes; (g)
after the Company's obligation to purchase the Convertible Subordinated Notes
arises under the Indenture amend, modify or change the obligation of the
Company to make or consummate a Change of Control Offer in the event of a
Change of Control or an Asset Sale Offer in the event of an Asset Sale Offer
Trigger Date or waive any default in the performance thereof or modify any of
the provisions or definitions with respect to any such offers; (h) modify the
provisions of the Indenture relating to conversion of or subordination of the
Convertible Subordinated Notes in a manner adverse to the holders thereof; or
(i) make any change in provisions relating to waivers of defaults, the ability
of holders to enforce their rights under the Indenture or the matters discussed
in these clauses (a) through (i).
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An amendment to the Indenture may not adversely affect the rights under the
subordination provisions thereof of the holders of any issue of Senior
Indebtedness (including the Senior Notes) without the consent of such holders.
DEFEASANCE
The Indenture will provide that the Company may terminate its obligations
under the Convertible Subordinated Notes and the Indenture if: (a) all
Convertible Subordinated Notes previously authenticated and delivered have been
delivered to the Trustee for cancellation or the Company has paid all sums
payable by it thereunder, or (b) the Company has irrevocably deposited or
caused to be deposited with the Trustee or the paying agent and conveyed all
right, title and interest for the benefit of the holders of such Convertible
Subordinated Notes, under the terms of an irrevocable trust agreement form and
substance satisfactory to the Trustee, as trust funds in trust solely for the
benefit of such holders for that purpose, money (in U.S. currency) or United
States government obligations maturing as to principal and interest in such
amounts and at such times as are sufficient without consideration of any
reinvestment of such interest to pay principal of, premium, if any, and
interest on such outstanding Convertible Subordinated Notes to maturity,
provided that, among other things, the Company shall have delivered to the
Trustee (x) either (i) a ruling directed to the Trustee received from the IRS
to the effect that the holders of such Convertible Subordinated Notes will not
recognize income, gain or loss for Federal income tax purposes as a result of
the Company's exercise of its option under the defeasance provision of the
Indenture and will be subject to Federal income tax on the same amount and in
the same manner and at the same times as would have been the case if such
option had not been exercised or (ii) an opinion of counsel to the same effect
as the ruling described in the clause (i) above accompanied by a ruling to that
effect published by the IRS, unless there has been a change in the applicable
Federal income tax law since the date of the Indenture such that a ruling from
the IRS is no longer required, and (y) an opinion of counsel to the effect
that, after the passage of 90 days following the deposit, the trust funds will
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally. Certain
obligations of the Company under the Indenture or the Convertible Subordinated
Notes, including the payment of interest and principal, shall remain in full
force and effect until such Convertible Subordinated Notes have been paid in
full.
GOVERNING LAW
The Indenture will provide that the Convertible Subordinated Notes will be
governed by, and construed in accordance with, the laws of the State of New
York without giving effect to applicable principles of conflicts of law.
THE TRUSTEE
The Indenture will provide that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. In case an Event of Default shall occur (and shall not
be cured) and holders of the Convertible Subordinated Notes have notified the
Trustee, the Trustee will be required to exercise its powers with the degree of
care and skill of a prudent person in the conduct of such person's own affairs.
Subject to such provisions, the Trustee is under no obligation to exercise any
of its rights or powers under the Indenture at the request of any of the
holders of Convertible Subordinated Notes, unless they shall have offered to
the Trustee security and indemnity satisfactory to it.
The Indenture and the TIA will contain certain limitations on the rights of
the Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received in respect
of any such claim as security or otherwise. Subject to the TIA, the Trustee
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will be permitted to engage in other transactions, provided, however, that if
it acquires any conflicting interest (as described in the TIA), it must
eliminate such conflict or resign.
CERTAIN DEFINITIONS
"Acquired Indebtedness" of any specified Person means indebtedness of any
other Person and its subsidiaries existing at the time such other Person merged
with or into or became a subsidiary of such specified Person or assumed by the
specified Person in connection with the acquisition of assets from such other
Person including, without limitation, indebtedness of such other Person and its
subsidiaries incurred by the specified Person in connection with or in
anticipation of (a) such other Person and its Subsidiaries being merged with or
into or becoming a Subsidiary of such specified Person or (b) such acquisition
by the specified Person.
"Affiliate" means, when used with reference to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, the referent Person, as the case may be, or any Person who
beneficially owns, directly or indirectly, 10% or more of the equity interests
of the referent Person or warrants, options or other rights (exercisable within
90 days) to acquire or hold more than 10% of any class of equity interests of
the referent Person. For the purposes of this definition, "control" when used
with respect to any specified Person means the power to direct or cause the
direction of management or policies of the referent Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative of the foregoing. Notwithstanding the foregoing, neither the Agent
nor the lenders party to the Revolving Credit Agreement nor other holders of
notes evidencing the Company's Senior Indebtedness nor any of their respective
Affiliates shall be deemed to be an Affiliate of the Company or a subsidiary of
the Company.
"Asset Sale" means any sale, lease, transfer, exchange or other disposition
(or series of related sales, leases, transfers, exchanges or dispositions) in
excess of $500,000, including, without limitation, dispositions pursuant to
merger, consolidation or sale and leaseback transactions of (a) shares of
Capital Stock of a subsidiary of the Company (pro-rated to the extent of the
Company's interest therein), whether by such subsidiary or another Person, (b)
all or substantially all of the properties and assets of any division or line
of business of the Company or any subsidiary of the Company or (c) any other
property or assets of the Company (pro-rated to the extent of the Company's
interest therein) or of any subsidiary of the Company (pro-rated to the extent
of the Company's interest therein), outside the ordinary course of business of
the Company or such subsidiary (each referred to for purposes of this
definition as a "disposition") by the Company or by any of its subsidiaries
(other than (i) dispositions by the Company to a wholly owned subsidiary of the
Company or by a subsidiary of the Company to the Company or to a wholly owned
subsidiary of the Company, (ii) sales or other dispositions of inventory, (iii)
any disposition of properties or assets in connection with a Sale-Leaseback
Financing or that is consummated in accordance with the provisions of "--Merger
and Consolidation" above, (iv) any disposition of any account receivable
pursuant to the Pooling and Servicing Agreement not in excess of $60 million,
(v) dispositions by the Company or any subsidiary of the Company of the
business jet related product line, the overhaul and repair business, the
Hagerstown, Maryland plant and the Auburn, Washington plant, in each case
including related assets and (vi) the disposition by the Company or any
subsidiary of the Company of interests owned on the Issue Date in two trusts
which own an Airbus A300 aircraft and a McDonnell Douglas DC10 aircraft,
respectively).
"Associate" of, or a person "associated" with, any Person, means (a) any
trust or other estate in which such Person has a beneficial interest of at
least % or as to which such Person serves as trustee or in a similar
fiduciary capacity and (b) any relative or spouse of such Person, or any member
of the immediate family of such Person's spouse, who has the same home as such
Person.
27
<PAGE>
[ALTERNATE PAGE]
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participation, rights in, or other equivalents (however designated
and whether voting or non-voting) of such Person's capital stock, including
each class of Common Stock or Preferred Stock of such Person, whether
outstanding on the Issue Date or issued after the Issue Date, and any and all
rights, warrants or options exchangeable for or convertible into such capital
stock (but excluding any debt security that is exchangeable for or convertible
into such capital stock).
"Capitalized Lease Obligation" means any obligation under a lease that is
required to be classified and accounted for as a capital lease obligation under
GAAP and, for purposes of the Indenture, the amount of such obligations at any
date shall be the capitalized amount of such obligations at such date,
determined in accordance with GAAP.
"Cash Equivalents" means (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof, (b)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc., (c) commercial paper maturing no more than one year from the
date of creation thereof and, at the time of acquisition, having a rating of at
least A-1 from Standard & Poor's Corporation or at least P-1 from Moody's
Investors Service, Inc., (d) certificates of deposit or bankers' acceptances
maturing within one year from the date of acquisition thereof issued by any
commercial bank organized under the laws of the United State of America or any
state thereof or the District of Columbia or any United States branch of a
foreign bank having at the date of acquisition thereof combined capital and
surplus of not less than $250 million, (e) repurchase obligations with a term
of not more than seven days for underlying securities of the types described in
clause (a) above entered into with any bank meeting the qualification specified
in clause (d) above and (f) investments in money market funds which invest
substantially all their assets in securities of the types described in clauses
(a) through (e) above.
"Common Stock" of any Person means any and all shares, interests or other
participation in, and other equivalents (however designated and whether voting
or non-voting) of any Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated Net Worth" of a Person at any date means the Consolidated
Stockholders' Equity for such Person less (a) the amount of any gain resulting,
directly or indirectly, from the extinguishment, retirement or repurchase of
any indebtedness of such Person or any of its subsidiaries, (b) any revaluation
or other write-ups subsequent to the Issue Date in the book value of any asset
owned by such Person or a Consolidated Subsidiary and (c) any amounts
attributable to the cost of treasury stock and the principal amount of any
promissory notes receivable from the sale of Capital Stock of such Person or of
any of its subsidiaries. Notwithstanding any of the foregoing, net deferred
income tax assets recorded in accordance with Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("SFAS 109"), shall be
calculated without regard to any valuation allowance with respect to such net
deferred tax asset recorded by the Company in accordance with SFAS 109.
"Consolidated Stockholders' Equity" as of any date means with respect to any
Person the amount by which the assets of such Person and of its subsidiaries on
a consolidated basis exceed (a) the total liabilities of such Person and of its
subsidiaries on a consolidated basis plus (b) any redeemable Preferred Stock of
such Person or any redeemable Preferred Stock of any of such Person issued to
any Person other than to such Person or to a wholly owned subsidiary of such
Person, in each case determined in accordance with GAAP.
28
<PAGE>
[ALTERNATE PAGE]
"Consolidated Subsidiary" of any Person means a subsidiary which for
financial reporting purposes is or, in accordance with GAAP, should be
accounted for by such Person as a consolidated subsidiary.
"Default" means any event that is, or after notice of passage of time or both
would be, an Event of Default.
"Event of Default" has the meaning set forth under "--Events of Default"
herein.
"Fair Market Value" or "fair value" means, with respect to any asset or
property or Capital Stock, the price which could be negotiated in an arm's-
length, free market transaction, for cash, between an informed and willing
seller and an informed, willing and able buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value shall be
determined by the Board of Directors of the Company acting reasonably and in
good faith and shall be evidenced by a written resolution of said Board of
Directors (certified by the Secretary or Assistant Secretary of the Company)
delivered to the Trustee, provided that if the aggregate non-cash consideration
to be received by the Company or any of its subsidiaries from any Asset Sale
shall exceed $10,000,000 then Fair Market Value shall be determined by an
Independent Financial Advisor.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Independent Financial Advisor" means an accounting, appraisal or investment
banking firm of nationally recognized standing that is, in the reasonable and
good faith judgment of the Board of Directors of the Company, qualified to
perform the task for which such firm has been engaged and disinterested and
independent with respect to the Company and its Affiliates.
"Issue Date" means the date on which the Convertible Subordinated Notes are
originally issued under the Indenture.
"Maturity Date" means , 2004.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds of
such Asset Sale in the form of cash or Cash Equivalents, including payments in
respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or Cash Equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any subsidiary of the Company) and
proceeds from the conversion of other property received when converted to cash
or Cash Equivalents, net of (a) reasonable third-party brokerage commissions
and other reasonable third-party fees and expenses (including fees and expenses
of counsel and investment bankers) related to such Asset Sale, (b) provisions
for all taxes as a result of such Asset Sale computed without regard to the
consolidated results of operations of the Company and its Subsidiaries, taken
as a whole, (c) payments made to repay indebtedness or any other obligation
outstanding at the time of such Asset Sale that was incurred in accordance with
the Indenture and that either (i) is secured by a Lien incurred in accordance
with the Indenture on the property or assets sold or (ii) is required to be
paid as a result of such sale, in each case to the extent actually repaid in
cash and (d) appropriate amounts to be provided by the Company or any
subsidiary of the Company as a reserve against liabilities associated with such
Asset Sale, including without limitation pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale, all as determined in conformity with generally accepted accounting
principles as then in effect. For purposes of this definition and "--
Limitations on Sales of Assets" "cash" means U.S. dollars or such money as is
freely and readily convertible into U.S. dollars.
29
<PAGE>
[ALTERNATE PAGE]
"Permitted Program Investment" means an investment in design, engineering,
tooling or similar costs related to a program undertaken by the Company in the
ordinary course of its business.
"Person" means any individual, corporation, partnership, joint venture,
trust, estate, unincorporated organization or government or any agency or
political subdivision thereof.
"Plan of Liquidation" means a plan (including by operation of law) that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously) (i) the sale,
lease, conveyance or other disposition of all or substantially all of the
assets of the Company otherwise than as an entirety or substantially as an
entirety and (ii) the distribution of all or substantially all of the proceeds
of such sale, lease, conveyance or other disposition and all or substantially
all of the remaining assets of the Company to holders of Capital Stock of the
Company.
"Pooling and Servicing Agreement" means the Pooling and Servicing Agreement
dated as of December 23, 1992, among the Company, the Company's wholly owned
Subsidiary, R.I. Receivables, Inc. and Bankers Trust Company, as trustee on
behalf of the Certificateholders (as defined therein) and any extension,
renewal, modification, restatement or replacement thereof (in whole or in
part), and as the same may be amended, supplemented or otherwise modified from
time to time.
"Preferred Stock" means the Capital Stock of any Person (other than the
Common Stock of such Person) of any class or classes (however designated) that
ranks prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding-up of
such Person, to shares of Capital Stock of any other class of such Person.
"Sale-Leaseback Financing" means an arrangement with any Person, providing
for the leasing by the Company or a Subsidiary of the Company after the Issue
Date of any property which is to be sold or transferred by the Company or any
Subsidiary of the Company to such Person.
"subsidiary" of a Person means (a) a corporation a majority of whose Voting
Stock is at the time, directly or indirectly, owned by such Person, by one or
more subsidiaries of such Person or by such Person and one or more subsidiaries
of such Person or (b) any other Person (other than a corporation) in which such
Person, one or more subsidiaries of such Person or such Person and one or more
subsidiaries of such Person, directly or indirectly, at the date of
determination thereof, have (i) at least a majority ownership interest or (ii)
the power to elect or direct the election of the directors or other governing
body of such Person.
"Voting Stock" means, with respect to any Person, securities of any class or
classes of Capital Stock of such Person entitling the holders thereof (whether
at all times or only so long as no senior class of stock has voting power by
reason of any contingency) to vote in the election of members of the board of
directors or other governing body of such Person.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the federal income tax consequences
expected to result to holders of the Convertible Subordinated Notes from the
purchase, ownership and disposition of the Convertible Subordinated Notes. The
summary is based upon current provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), applicable Treasury regulations, judicial authority
and administrative rulings and practice. There can be no assurance that the IRS
will not take a contrary view, and no ruling from the IRS has been or will be
sought. Legislative, judicial or administrative changes or interpretations may
be forthcoming that could alter or modify the statements and conclusions set
forth herein. Any such changes or interpretations may or may not be retroactive
and could affect the tax consequences to holders.
30
<PAGE>
[ALTERNATE PAGE]
The following summary of federal income tax consequences is based on current
law and is for general information only. The tax treatment of a holder of
Convertible Subordinated Notes may vary depending upon his or her particular
situation. Certain holders (including insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, foreign corporations
and persons who are not citizens or residents of the United States) may be
subject to special rules not discussed below. EACH PURCHASER SHOULD CONSULT HIS
OR HER TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF
PURCHASING, HOLDING AND DISPOSING OF THE CONVERTIBLE SUBORDINATED NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
STATED INTEREST
A holder of a Convertible Subordinated Note will be required to report as
income for federal income tax purposes interest earned on a Convertible
Subordinated Note in accordance with the holder's method of tax accounting. A
holder of a Convertible Subordinated Note using the accrual method of
accounting for tax purposes is, as a general rule, required to include interest
in ordinary income as such interest accrues, while a cash basis holder must
include interest in income when cash payments of interest are received (or made
available for receipt).
TAX CONSEQUENCES OF A CONVERSION
A holder of Convertible Subordinated Notes should not recognize gain or loss
on the conversion of the Convertible Subordinated Notes into Common Stock
except with respect to cash, if any, received in lieu of fractional shares. To
the extent the Convertible Subordinated Notes converted are subject to accrued
market discount, the amount of the accrued market discount will carry over to
the Common Stock acquired on conversion and will be treated as interest income
on disposition of that Common Stock. The holding period of the Common Stock
received upon conversion of Convertible Subordinated Notes will include the
period during which the Convertible Subordinated Notes were held (provided the
Convertible Subordinated Notes were capital assets in the hands of the holder
prior to conversion), and the holder's aggregate tax basis in that Common Stock
will be equal to his or her tax basis in the Convertible Subordinated Notes so
converted (less the portion of such tax basis allocable to fractional shares of
Common Stock). A holder of Convertible Subordinated Notes will recognize
taxable gain or loss on cash received in lieu of fractional shares of Common
Stock equal to the difference between the amount of cash received and the
portion of the holder's tax basis in the Convertible Subordinated Notes
attributable to those fractional shares. Such gain or loss should be capital
gain or loss so long as the converted Convertible Subordinated Notes constitute
capital assets in the holder's hands and provided the receipt of the cash is
not essentially equivalent to a dividend.
Adjustments in the Conversion Price of the Convertible Subordinated Notes
made pursuant to the anti-dilution provisions thereof to reflect taxable
distributions of cash or property to holders of Common Stock may result in
constructive distributions to holders of Convertible Subordinated Notes that
could be taxable to them as dividends pursuant to Section 305 of the Code.
MARKET DISCOUNT
Purchasers of Convertible Subordinated Notes should be aware that the tax
consequences of holding and disposing of Convertible Subordinated Notes may be
affected by the market discount provisions of the Code. These rules generally
provide that, subject to a statutorily defined de minimis exception, if a
holder of a debt instrument purchases it for an amount less than its stated
redemption price at maturity (which, in the case of a Convertible Subordinated
Note, should equal its principal amount) (the difference being "market
discount") and thereafter recognizes gain upon a disposition, full or partial
redemption or gift of the debt instrument (or the Common Stock into which it
was converted), the lesser of such gain (or appreciation, in the case of a
gift) or the portion of the market discount that accrued while the debt
instrument was held by such holder will be treated as ordinary interest income
at the time of the disposition. The market discount rules also provide that a
holder who acquires a debt
31
<PAGE>
[ALTERNATE PAGE]
instrument at a market discount (and who does not elect to include such market
discount in income on a current basis) may be required to defer a portion of
any interest expense that may otherwise be deductible on any indebtedness
incurred or maintained to purchase or carry such debt instrument until the
holder disposes of such debt instrument in a taxable transaction.
The Convertible Subordinated Notes provide that they may be redeemed, in
whole or in part, before maturity. If some or all of the Convertible
Subordinated Notes are redeemed in part, each holder of a Convertible
Subordinated Note acquired at a market discount would be required to treat the
principal payment as ordinary interest income to the extent of any accrued
market discount on such Convertible Subordinated Note.
A holder of a debt instrument acquired at a market discount may elect to have
market discount accrue on a constant interest rate basis (as opposed to a
straight line basis). In addition, a holder of a debt instrument acquired at a
market discount may elect to include the market discount in income as the
discount thereon accrues, either on a straight line basis or, if elected, on a
constant interest rate basis. The current inclusion election, once made,
applies to all market discount obligations acquired by such holder on or after
the first day of the first taxable year to which the election applies, and may
not be revoked without the consent of the IRS. If a holder of a Convertible
Subordinated Note elects to include market discount in income as the market
discount accrues, the foregoing rules with respect to the recognition of
ordinary income on a sale or certain other dispositions of such Convertible
Subordinated Note and the deferral of interest deductions on indebtedness
related to such Convertible Subordinated Note would not apply, and the accrued
market discount will be added to the holder's basis in such Convertible
Subordinated Note.
AMORTIZABLE BOND PREMIUM
Generally, if the tax basis of an obligation held as a capital asset exceeds
the amount payable at maturity of the obligation, such excess, to the extent it
is not attributable to the conversion feature of the obligation, may constitute
"amortizable bond premium" that the holder may elect to amortize under the
constant interest rate method and deduct over the period from his or her
acquisition date to the obligation's maturity date. A holder who elects to
amortize bond premium must reduce his or her tax basis in the related
obligation by the amount of the aggregate deductions allowable for amortizable
bond premium.
In the case of a debt instrument, such as a Convertible Subordinated Note,
that may be redeemed at a premium prior to maturity, an earlier redemption date
of the debt instrument is treated as the maturity date of the debt instrument
and the amount of bond premium is determined by treating the amount payable on
such redemption date as the amount payable at maturity if such a calculation
produces a smaller amortizable bond premium for the period prior to the earlier
call date than the method described in the preceding paragraph. If a holder of
a debt instrument is required to amortize and deduct bond premium by reference
to a certain redemption date, the debt instrument will be treated as maturing
on such date for the amount payable, and, if not redeemed on such date, the
debt instrument will be treated as reissued on such date for the amount so
payable. If a debt instrument purchased at a premium is redeemed prior to its
maturity, a purchaser who has elected to deduct bond premium may deduct any
loss as an ordinary loss in the taxable year of redemption to the extent of any
remaining unamortized bond premium.
The amortizable bond premium deduction is treated as an offset to interest
income on the related security for federal income tax purposes. Each
prospective purchaser is urged to consult his or her tax advisor as to the
consequences of the treatment of such bond premium as an offset to interest
income for federal income tax purposes.
DISPOSITION OF CONVERTIBLE SUBORDINATED NOTES OR COMMON STOCK
In general, a holder of a Convertible Subordinated Note (or the Common Stock
into which it was converted) will recognize gain or loss upon the sale,
exchange, redemption, retirement or other taxable
32
<PAGE>
[ALTERNATE PAGE]
disposition of the Convertible Subordinated Note or Common Stock measured by
the difference between (i) the amount of cash and the fair market value of
property received and (ii) the holder's tax basis in the Convertible
Subordinated Note or Common Stock (as increased by any market discount
previously included in income and decreased by any amortizable bond premium
deducted over the term of the Convertible Subordinated Note). Subject to the
market discount and amortizable bond premium rules discussed above, any such
gain or loss will generally be long-term capital or loss, provided the
Convertible Subordinated Notes or Common Stock were capital assets in the hands
of the holder and had been held for more than one year. As stated above, the
holding period of Common Stock generally will include the holding period of the
Convertible Subordinated Note that was converted into such Common Stock.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A holder of Convertible Subordinated Notes or Common Stock may be subject to
backup withholding at the rate of 31% with respect to interest paid on,
dividends paid on and gross proceeds from the sale of the Convertible
Subordinated Notes and Common Stock unless (a) such holder is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact or (b) provides a correct taxpayer identification number, certifies
as to no loss of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules. A holder of
Convertible Subordinated Notes or Common Stock who does not provide the Company
with his or her correct taxpayer identification number may be subject to
penalties imposed by the IRS.
The Company will report to the holders of the Convertible Subordinated Notes
and Common Stock and the IRS the amount of any "reportable payments" (including
any interest paid on the Convertible Subordinated Notes) and any amount
withheld with respect to the Convertible Subordinated Notes and Common Stock
during the calendar year.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH PURCHASER OF
CONVERTIBLE SUBORDINATED NOTES SHOULD CONSULT HIS OR HER TAX ADVISOR WITH
RESPECT TO THE TAX CONSEQUENCES TO HIM OR HER, INCLUDING THE TAX CONSEQUENCES
UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE CONVERTIBLE SUBORDINATED NOTES.
DESCRIPTION OF CONCURRENT FINANCING
SENIOR NOTES DUE 2003
In connection with the offering, the Company is concurrently offering,
pursuant to a separate prospectus, the Senior Notes which will mature on
, 2003. Interest on the Senior Notes is payable semiannually, on
and of each year, commencing , 1994. The Senior
Notes are redeemable at the option of the Company, in whole or in part, at any
time on and after , 1999, at the redemption prices specified in the
Senior Notes, plus accrued interest. The Senior Notes do not provide for any
sinking fund. Upon a Change of Control, the holders of the Senior Notes will
have the right, subject to certain restrictions and conditions, to require the
Company to purchase all or any part of the Senior Notes at 101% of the
principal amount thereof, plus accrued and unpaid interest to the date of
purchase. The Senior Notes will be general unsecured obligations of the
Company, senior in right of payment to all existing and future subordinated
indebtedness of the Company and pari passu in right of payment with all other
indebtedness of the Company.
33
<PAGE>
[ALTERNATE PAGE]
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement"), among the Company and the Underwriter, the
Company has agreed to sell to the Underwriter, and the Underwriter has agreed
to purchase, the principal amount of the Convertible Subordinated Notes set
forth below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF CONVERTIBLE
UNDERWRITER SUBORDINATED NOTES
----------- ------------------
<S> <C>
Salomon Brothers Inc.................................. $50,000,000
</TABLE>
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, that the obligations of the Underwriter
are subject to certain conditions precedent and that the Underwriter will be
obligated to purchase the entire principal amount of the Convertible
Subordinated Notes offered hereby if any Convertible Subordinated Notes are
purchased.
The Company has been advised by the Underwriter that it proposes to offer the
Convertible Subordinated Notes directly to the public at the initial public
offering price set forth on the cover of this Prospectus and to certain dealers
at such price less a concession of not more than % of the principal amount of
the Convertible Subordinated Notes. The Underwriter may allow, and such dealers
may reallow, a concession not in excess of % of the principal amount of the
Convertible Subordinated Notes. After the initial public offering of the
Convertible Subordinated Notes, the public offering price and such concessions
may be changed.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Security Act, or contribute to payments that the Underwriter may be required to
make in respect thereof.
Except for certain exceptions pertaining to certain employee benefit plans,
the Company has agreed that it will not, for a period of 180 days after the
date on which the Underwriting Agreement is executed, directly or indirectly,
offer to sell, sell, grant any option for the sale of or otherwise dispose of
any shares of Common Stock or any securities convertible into or exchangeable
or exercisable for any shares of Common Stock, or any right or option to
acquire any such shares or securities or to register for sale under the
Securities Act any such shares or securities. Sales by the Company to the
Underwriter are exempt from such restriction.
Application will be made to list the Convertible Subordinated Notes on the
New York Stock Exchange. However, no assurance can be given that any market for
the Securities will develop. See "Risk Factors--Absence of Public Market for
the Securities."
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Securities will
be passed upon for the Company by Gibson, Dunn & Crutcher, San Diego,
California, and for the Underwriter by Latham & Watkins, Los Angeles,
California.
34
<PAGE>
[ALTERNATE PAGE]
EXPERTS
The financial statements and the related financial statement schedules as of
July 31, 1993 and 1992 and for each of the three years in the period ended July
31, 1993, included and incorporated by reference in this Prospectus, have been
audited by Deloitte & Touche, independent auditors, as stated
in their reports which are included and incorporated by reference herein, and
have been so included and incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
35
<PAGE>
(PICTURES)
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by Reference...........................
Available Information.....................................................
Prospectus Summary........................................................
Risk Factors..............................................................
Financing Plan............................................................
Use of Proceeds...........................................................
Price Range of Common Stock and Dividends.................................
Capitalization............................................................
Selected Consolidated Financial and Operating Data........................
Management's Discussion and Analysis of Financial Condition and Results of
Operations...............................................................
Business..................................................................
Directors and Executive Officers of the Company...........................
Legal and Environmental Proceedings.......................................
Description of Certain Financings.........................................
Description of Capital Stock..............................................
Description of Notes......................................................
Certain Federal Income Tax Consequences...................................
Description of Concurrent Financing.......................................
Underwriting..............................................................
Legal Matters.............................................................
Experts...................................................................
Index to Financial Statements............................................. F-1
</TABLE>
$50,000,000
ROHR, INC.
% CONVERTIBLE
SUBORDINATED
NOTES DUE 2004
[LOGO OF ROHR]
- -------------------------------------
SALOMON BROTHERS INC
-----------------------------------------
PROSPECTUS
DATED , 1994
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Registration Fee................. $54,311
NASD Fee......................... 16,250
Exchange Listing Fees............
Blue Sky Fees and Expenses*...... 13,000
Printing and Engraving Expenses*.
Legal Fees and Expenses*.........
Accounting Fees and Expenses*....
Trustee's Fees and Expenses*.....
Rating Agency Fees*..............
Miscellaneous*...................
-------
Total Expenses............... $
=======
</TABLE>
- --------
* Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and employees of domestic or foreign corporations under
certain circumstances and subject to certain limitations. Article VII of
Registrant's By-Laws contains a provision for indemnification involving them
because of their positions with the Company, including judgments or amounts
paid in settlement of claims brought by or in the right of the Company. In
addition to maintaining directors' and officers' liability insurance, the
Company has entered into indemnity agreements with certain of its directors and
officers comparable to the directors' and officers' liability insurance
previously maintained by the Company. The form of these agreements has been
approved by the Company's board of directors and stockholders.
ITEM 16. EXHIBITS
The following exhibits are filed as part of this Registration Statement.
<TABLE>
<C> <S>
1.1 Proposed Form of Underwriting Agreement.
4.1 Indenture, including proposed form of Note.*
Opinion of Gibson, Dunn & Crutcher as to legality of securities being
5. registered.*
Consent of Gibson, Dunn & Crutcher (included in their opinion filed
23.1 as Exhibit 5).*
23.2 Consent of Deloitte & Touche
24. Power of Attorney (included on page II-3 hereof).
25.1 Statement of eligibility on Form T-1 of Trustee.*
25.2 Statement of eligibility on Form T-1 of Trustee.*
</TABLE>
- --------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-1
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to Section 145 of the Delaware General
Corporation Law or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF CHULA VISTA, STATE OF CALIFORNIA, ON THE 12TH DAY OF
APRIL, 1994.
ROHR, INC.
/s/ J. J. KERLEY
By: _________________________________
J. J. Kerley
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints J. J. KERLEY and R. W. MADSEN, and each
of them, his true and lawful attorneys-in-fact and agents, each with full power
of substitution and resubstitutions, for him and in his name, place and stead,
in any and all capacities, to sign any or all amendments to this registration
statement, before and after the effective date thereof, and to file the same
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto each of said attorneys-in-
fact and agents full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that either of said attorneys-in-fact and agents,
or his substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ R. H. RAU Director, Chief Executive April 12, 1994
- ------------------------------------ Officer, President and
R. H. Rau Chief Financial Officer
/s/ J. J. KERLEY Director and Chairman of the April 12, 1994
- ------------------------------------ Board
J. J. Kerley
/s/ A. L. MAJORS Vice President and April 12, 1994
- ------------------------------------ Controller
A. L. Majors
/s/ WALLACE BARNES Director April 12, 1994
- ------------------------------------
Wallace Barnes
/s/ WALLACE W. BOOTH Director April 12, 1994
- ------------------------------------
Wallace W. Booth
/s/ EUGENE E. COVERT Director April 12, 1994
- ------------------------------------
Eugene E. Covert
/s/ WAYNE M. HOFFMAN Director April 12, 1994
- ------------------------------------
Wayne M. Hoffman
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ D. LARRY MOORE Director April 12, 1994
- ------------------------------------
D. Larry Moore
/s/ ROBERT M. PRICE Director April 12, 1994
- ------------------------------------
Robert M. Price
/s/ WILLIAM P. SOMMERS Director April 12, 1994
- ------------------------------------
William P. Sommers
Director , 1994
- ------------------------------------
Jack D. Steele
</TABLE>
II-4
<PAGE>
GRAPHIC MATERIAL CROSS-REFERENCE PAGE
THE INSIDE FRONT COVER SHOWS THE FOLLOWING:
Nacelle with cowl doors open.
Commercial aircraft on take-off.
Nacelle on wing in flight.
Worker preparing nose cowl inlet for installation.
United Airlines 737 aircraft.
THE INSIDE BACK COVER SHOWS THE FOLLOWING:
Mechanics providing on-site field service on commercial aircraft engine.
Mechanics installing systems on commercial aircraft engines.
Rear view of commercial aircraft engine nacelle system.
Commercial aircraft in flight.
Time lapse picture of mechanic actuating thrust reverser.
Aircraft in line for take-off.
PAGE 39:
THIS ILLUSTRATION SHOWS THE PROPULSION SYSTEM COMPONENTS
<PAGE>
ROHR, INC.
$100,000,000 % SENIOR NOTES DUE 2003
$50,000,000 % CONVERTIBLE SUBORDINATED NOTES DUE 2004*
UNDERWRITING AGREEMENT
New York, New York
, 1994
Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
Rohr, Inc., a Delaware corporation (the "Company"), proposes to sell to
Salomon Brothers Inc (the "Underwriter") $100,000,000 aggregate principal
amount of its % Senior Notes due 2003 (the "Senior Notes"), to be issued
under an indenture (the "Senior Notes Indenture") to be dated as of ,
1994 between the Company and as trustee (the "Senior Note Trustee").
Concurrently therewith, the Company proposes to sell to the Underwriter
$50,000,000 aggregate principal amount of its % Convertible Subordinated
Notes due 2004 (the "Convertible Subordinated Notes"), to be issued under an
indenture (the "Convertible Subordinated Note Indenture," and together with the
Senior Note Indenture, the "Indentures") to be dated as of , 1994 between
the Company and the as Trustee (the "Convertible Subordinated Note
Trustee," and together with the Senior Note Trustee, the Trustees". The
Convertible Subordinated Notes are convertible into shares of Common Stock, $
par value, of the Company (the "Common Stock"). The Company also proposes to
grant to the Underwriter an option to purchase up to an additional $7,500,000
aggregate principal amount of Convertible Subordinated Notes (the "Option
Notes," with the Option Notes together with the Senior Notes and Convertible
Subordinated Notes hereinafter being called the "Securities"). Terms not
otherwise defined herein have the same meanings as set forth in the Indentures.
1. Representations and Warranties. The Company represents and warrants to,
and agrees with, the Underwriter as set forth below in this Section 1. Certain
terms used in this Section 1 are defined in paragraph (c) hereof.
(a) The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (No. 33- ) on Form S-3, including
related Preliminary Prospectuses, for the registration under the Securities Act
of 1933, as amended (the "Securities Act"), of the offering and sale of the
Securities. The Company may have filed one or more amendments thereto,
including the related Preliminary Prospectuses, each of which has previously
been furnished to you. The Company will next file with the Commission either
(i) prior to effectiveness of such registration statement, a further amendment
to such registration statement (including the forms of final Prospectuses) or
(ii) after effectiveness of such registration statement, final Prospectuses in
accordance with Rules 430A and 424(b)(1) or (4). In the case of clause (ii),
the Company has included in such registration statement, as amended as of the
Effective Date, all information (other than Rule 430A Information) required by
the Securities Act and the rules thereunder to be included in the Prospectuses
with respect to the Securities and the offerings thereof. As filed, such
amendment and forms of final Prospectuses, or such final Prospectuses, shall
contain all Rule 430A Information, together with all other such required
information, with respect to the Securities and the offerings thereof and,
except to the extent the Underwriter shall agree in writing to a modification,
shall be in all substantive respects in the form furnished to you prior
- --------
*Plus an option to purchase from Rohr, Inc. up to $7,500,000 aggregate
principal amount of additional notes to cover over-allotments, if any.
<PAGE>
to the Execution Time or, to the extent not completed at the Execution Time,
shall contain only such specific additional information and other changes
(beyond that contained in the latest Preliminary Prospectuses) as the Company
has advised you, prior to the Execution Time, will be included or made therein.
The Company has also filed the Indentures with the Commission pursuant to the
TIA and the rules and regulations thereunder.
(b) On the Effective Date, the Registration Statement did or will, and when
the Prospectuses are first filed (if required) in accordance with Rule 424(b)
and on the Closing Date, the Prospectuses (and any supplements thereto) will
comply in all material respects with the applicable requirements of the
Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the TIA and the respective rules thereunder; on the Effective Date,
the Registration Statement did not or will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading; on
the Effective Date and on the Closing Date, the Indentures did or will comply
in all material respects with the applicable requirements of the TIA and the
rules thereunder; and, on the Effective Date, the Prospectuses, if not filed
pursuant to Rule 424(b), did not or will not, and, on the date of any filing
pursuant to Rule 424(b) and on the Closing Date, the Prospectuses (together
with any supplement thereto) will not, include any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the Company makes no
representations or warranties as to (i) that part of the Registration Statement
which shall constitute the Statement of Eligibility and Qualification (Form T-
1) under the TIA of the applicable Trustee or (ii) the information contained in
or omitted from the Registration Statement or the Prospectuses (or any
supplement thereto) in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of the Underwriter
specifically for inclusion in the Registration Statement or the Prospectuses
(or any supplement thereto).
(c) The terms which follow, when used in this Agreement, shall have the
meanings indicated. The term "the Effective Date" shall mean each date that the
Registration Statement and any post-effective amendment or amendments thereto
became or become effective. "Execution Time" shall mean the date and time that
this Agreement is executed and delivered by the parties hereto. "Preliminary
Prospectuses" shall mean any preliminary prospectus referred to in paragraph
(a) above and any preliminary prospectus included in the Registration Statement
at the Effective Date that omits Rule 430A Information. "Prospectus" shall mean
each prospectus relating to the respective Securities that is first filed
pursuant to Rule 424(b) after the Execution Time or, if no filing pursuant to
Rule 424(b) is required, shall mean the form of final prospectus relating to
the Securities included in the Registration Statement at the Effective Date.
"Registration Statement" shall mean the registration statement referred to in
paragraph (a) above, including incorporated documents, exhibits and financial
statements, as amended at the Execution Time (or, if not effective at the
Execution Time, in the form in which it shall become effective) and, in the
event any post-effective amendment thereto becomes effective prior to the
Closing Date (as hereinafter defined), shall also mean such registration
statement as so amended. Such term shall include any Rule 430A Information
deemed to be included therein at the Effective Date as provided by Rule 430A.
"Rule 424" and "Rule 430A" refer to such rules under the Securities Act. "Rule
430A Information" means information with respect to the Securities and the
offering thereof permitted to be omitted from the Registration Statement when
it becomes effective pursuant to Rule 430A. Any reference herein to the
Registration Statement, the Preliminary Prospectuses or the Prospectuses shall
be deemed to refer to and include the documents incorporated by reference
therein pursuant to Item 12 of Form S-3 which were filed under the Exchange Act
on or before the Effective Date of the Registration Statement or the issue date
of such Preliminary Prospectuses or the Prospectuses, as the case may be; and
any reference herein to the terms "amend", "amendment" or "supplement" with
respect to the Registration Statement, any Preliminary Prospectuses or the
Prospectuses shall be deemed to refer to and include the filing of any document
2
<PAGE>
under the Exchange Act after the Effective Date of the Registration Statement
or the issue date of any Preliminary Prospectuses or the Prospectuses, as the
case may be, deemed to be incorporated therein by reference.
(d) Deloitte & Touche, who certified the financial statements and supporting
schedules included in the Registration Statement and the Prospectuses, are
independent public accountants as required by the Securities Act and the
regulations promulgated thereunder.
(e) The consolidated financial statements included in the Registration
Statement and the Prospectuses present fairly the financial position of the
Company and each corporation of which the Company owns or will own as of the
Closing Date 50% or more of the outstanding equity securities (individually a
"Subsidiary" and collectively the "Subsidiaries") as of the dates indicated and
the results of their operations for the periods specified; except as otherwise
stated therein, said financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis; and the
supporting schedules included in the Registration Statement present fairly the
information required to be stated therein.
(f) Since the respective dates as of which information is given in the
Registration Statement and the Prospectuses, except as otherwise stated
therein, (i) there has been no material adverse change in the condition
(financial or otherwise) or in the earnings, business affairs or business
prospects of the Company and its Subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business, (ii) there have been
no transactions entered into by the Company or any of its Subsidiaries, other
than those in the ordinary course of business, which are material with respect
to the Company and its Subsidiaries considered as one enterprise, (iii) there
has been no dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock, and (iv) neither the Company nor any
of its Subsidiaries has incurred any liabilities or obligations, direct or
contingent, which are material to the Company and its Subsidiaries considered
as one enterprise.
(g) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware with
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and each
Prospectus; and the Company is duly registered, qualified or licensed to
conduct business in each jurisdiction in which its ownership or leasing of
property or conduct of business legally requires such registration,
qualification or licensure, except for such jurisdictions where, in the
aggregate, the failure to be so registered, qualified or licensed does not have
a material adverse effect on the condition (financial or otherwise) or the
earnings, business affairs or business prospects of the Company and its
Subsidiaries considered as one enterprise; and the Company is in substantial
compliance with all laws, ordinances and regulations of each state in which it
owns properties that are material to the properties and business of the
Company.
(h) As of the Closing Date, the Company's only Subsidiaries are those listed
on Exhibit A hereto. Each of the Subsidiaries has been duly incorporated or
formed and validly existing as a corporation or partnership in good standing
under the laws of the states, countries or territories of their respective
jurisdictions, with corporate or partnership power and authority to own, lease
and operate their properties and to conduct their business as described in the
Registration Statement and each Prospectus; and each of the Subsidiaries is
duly registered, qualified or licensed to conduct business in each jurisdiction
or place in which its ownership or leasing of property or conduct of business
legally requires such registration, qualification or licensure except for such
jurisdictions where, in the aggregate, the failure to be so registered,
qualified or licensed does not have a material adverse effect on the condition
(financial or otherwise) or the earnings, business affairs or business
prospects of such Subsidiary; and each of the Subsidiaries is in substantial
compliance with all laws, ordinances and regulations of each jurisdiction in
which it owns properties that are material to the properties and business of
such Subsidiary.
3
<PAGE>
(i) The authorized, issued and outstanding capital stock of the Company as of
the Closing Date is as set forth in each Prospectus under "Capitalization,"
including the footnotes thereto; and the issued and outstanding shares of
Common Stock of the Company have been duly and validly authorized and issued
and are fully paid and nonassessable; there are no outstanding rights, warrants
or options to acquire, or instruments convertible into or exchangeable for, any
shares of capital stock or other equity interests of the Company, except for
the Convertible Subordinated Notes and as may be set forth elsewhere in the
Prospectuses. As of the Closing Date, all of the outstanding capital stock or
other securities evidencing equity ownership of the Subsidiaries will have been
duly and validly authorized and issued and will be fully paid and
nonassessable, and will be owned, directly or indirectly, by the Company, free
and clear of any security interest, claim, lien or encumbrance; there are no
outstanding rights, warrants or options to acquire, or instruments convertible
into or exchangeable for, any shares of capital stock or other equity interest
in any Subsidiary.
(j) To the best of their knowledge, neither the Company nor any of its
Subsidiaries is engaged in any unfair labor practice which would have a
material adverse effect on the Company and its Subsidiaries considered as one
enterprise. Except for matters which are not material in the aggregate to the
Company and its Subsidiaries, (i) there is (A) no unfair labor practice
complaint pending or, to the best of their knowledge, threatened against the
Company or any of its Subsidiaries before the National Labor Relations Board,
and no grievance or arbitration proceeding arising out of or under collective
bargaining agreements is pending or, to the best of their knowledge,
threatened, and (B) no strike, labor dispute, slowdown or stoppage pending or,
to the best knowledge of the Company or any of its Subsidiaries after due
inquiry, threatened against the Company or any of its Subsidiaries and (ii)
there has been no violation of any federal, state or local law relating to
discrimination in the hiring, promotion or pay of employees, of any applicable
wage or hour laws, nor any provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA") or the rules and regulations promulgated
thereunder.
(k) There is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, which has been served upon
the Company and is now pending, or, to the best knowledge of the Company,
threatened, against or affecting the Company or any of its Subsidiaries, which
is required to be disclosed in the Registration Statement and the Prospectuses
(other than as disclosed therein), or which might result in any material
adverse change in the condition (financial or otherwise) or in the earnings,
business affairs or business prospects of the Company and its Subsidiaries,
considered as one enterprise, or which might materially and adversely affect
the properties or assets thereof, or which could prohibit or limit in any way
the consummation of any of the transactions contemplated by this Agreement, the
Indentures or the Securities; all pending legal or governmental proceedings to
which the Company or any Subsidiary is a party or of which any of their
property is the subject which are not described in the Registration Statement
and the Prospectuses, including ordinary routine litigation incidental to the
business, are, considered in the aggregate, not material; and there are no
contracts or other documents of the Company or any of its Subsidiaries which
are required to be filed as exhibits to the Registration Statement by the
Securities Act or by the regulations promulgated thereunder which have not been
so filed.
(l) The Common Stock issuable upon conversion of the Convertible Subordinated
Notes has been duly authorized and reserved by the Company and, when issued
upon conversion of the Convertible Subordinated Notes, will be validly issued,
fully paid and nonassessable and will conform to the description thereof in the
applicable Prospectus. The Common Stock issuable upon conversion of the
Convertible Subordinated Notes (upon issuance) will be free of preemptive
rights.
(m) No consent, approval, authorization, order, registration, filing,
qualification, license or permit of or with any court or any public,
governmental or regulatory authority or agency or body having jurisdiction over
the Company or any of its Subsidiaries or any of their respective properties or
assets is
4
<PAGE>
required for the execution, delivery and performance of this Agreement, the
Indentures, the Securities and the consummation of the transactions
contemplated hereby and thereby, including the issuance, sale and delivery of
the Securities, except (i) the registration under the Securities Act or the
regulations promulgated thereunder of the Securities, (ii) the qualification of
the Indentures under the TIA, (iii) such consents, approvals, authorizations,
orders, registrations, filings, qualifications, licenses and permits as may be
required under state securities, Blue Sky or real estate syndication laws which
have been obtained or made to the extent required as of the date hereof, and
(iv) such consents, approvals, authorizations, orders, registrations, filings,
qualifications, licenses or permits as have already been obtained or made.
(n) The Company and its Subsidiaries have good and marketable title in fee
simple to or valid and enforceable leasehold interests in all real property or
interests in real property, and all material personal property, owned or leased
by them, in each case free and clear of all liens, encumbrances and defects
except such as are described in the Registration Statement and the Prospectuses
or such as do not materially affect the aggregate value of such property and
interests taken as a whole and do not interfere with the use made and proposed
to be made of such property and interests by the Company or any of its
Subsidiaries; and all real and all material personal properties held under
lease by the Company or any of its Subsidiaries are held by each of them under
valid and enforceable leases and the interests of the Company or any of its
Subsidiaries in such leases are free and clear of all material liens,
encumbrances and defects, and no consent need be obtained under such leases,
except as disclosed in the Prospectuses. The Company and its Subsidiaries are
in compliance in all material respects with the terms and conditions of such
leases, and such leases are in full force and effect. Except for such assets
and facilities as are immaterial in the aggregate to the business of the
Company and its Subsidiaries, all tangible assets and facilities of the Company
and its Subsidiaries are adequate, in the reasonable opinion of the Company,
for the uses to which they are being put or would be put in the ordinary course
of business.
(o) The Company and its Subsidiaries have all governmental licenses,
certificates, permits, authorizations, approvals, franchises or other rights
necessary to carry on their business as such business is presently conducted by
them except as otherwise set forth in the Prospectuses. Neither the Company nor
any of its Subsidiaries has any reason to believe that any governmental body or
agency is considering limiting, suspending or revoking any such license,
certificate, permit, authorization, approval, franchise or right in any
material respect. Neither the Company nor any of its Subsidiaries has any
reason to believe that any such license, permit or approval necessary in the
future to conduct the business of the Company and its Subsidiaries as described
in the Prospectuses will not be granted upon application, or that any other
governmental agencies are investigating the Company or any of its Subsidiaries
other than in ordinary course administrative reviews, an ordinary course review
of the transactions contemplated hereby or as otherwise set forth in the
Prospectuses.
(p) The Company and its Subsidiaries are in compliance with, and conduct
their business in conformity with, all applicable state, federal, local and
foreign laws and regulations, except to the extent that any failure so to
comply or conform would not have a material adverse effect upon the condition
(financial or otherwise) or the earnings, business affairs or business
prospects of the Company and its Subsidiaries, considered as one enterprise.
(q) To the best knowledge of each of the Company and its Subsidiaries, each
of the Company and its Subsidiaries has obtained all permits, licenses and
other authorizations that are required under all environmental laws, including
but not limited to the Federal Water Pollution Control Act (33 U.S.C. (S) 1251
et seq.), Resource Conservation & Recovery Act (42 U.S.C. (S) 6901 et seq.),
Safe Drinking Water Act (21 U.S.C. (S) 349, 42 U.S.C. (S)(S) 201, 300f), Toxic
Substances Control Act (15 U.S.C. (S) 2601 et seq.), Clean Air Act (42 U.S.C.
(S) 7401 et seq.), Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. (S) 9601 et seq.), other appropriate state laws, the
appropriate laws of any other
5
<PAGE>
state in which the Company or any of its Subsidiaries is incorporated or
formed, owns or leases real property and any other laws relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes into the
environment (including, without limitation, ambient air, surface water, ground
water or land), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous
substances or wastes or under any regulation, code, plan, order, decree,
judgment, injunction, notice or demand letter issued, entered, promulgated or
approved thereunder (collectively, the "Environmental Laws"), except as
otherwise set forth in the Prospectuses or to the extent failure to have any
such permit, license or authorization, individually or in the aggregate, does
not have a material adverse effect on the condition (financial or otherwise) or
the earnings, business affairs or business prospects of the Company and its
Subsidiaries, considered as one enterprise. Except as described in the
Prospectuses, each of the Company and its Subsidiaries is in compliance with
all terms and conditions of any required permits, licenses and authorizations,
and is also in compliance with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in the Environmental Laws, except to the extent failure to comply
would not have a material adverse effect on the condition (financial or
otherwise) or the earnings, business affairs or business prospects of the
Company and its Subsidiaries, considered as one enterprise.
(r) To the best knowledge of each of the Company and its Subsidiaries, (i)
there are no past or present events, conditions, circumstances, activities,
practices, incidents, actions, or plans relating to the business as presently
being conducted by the Company or its Subsidiaries that interfere with or
prevent compliance or continued compliance with the Environmental Laws, or
which would be reasonably likely to give rise to any legal liability (whether
statutory or common law) or otherwise would be reasonably likely to form the
basis of any claim, action, demand, suit, proceeding, hearing, notice of
violation, study, investigation, remediation or cleanup based on or related to
the generation, manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release into the
work-place, the community or the environment of any pollutant, contaminant,
chemical or industrial, toxic, or hazardous substance or waste, except for any
liabilities or any claims, demands or other actions specified above that will
not individually or in the aggregate have a material adverse effect on the
Company and its Subsidiaries, considered as one enterprise, and (ii) except as
previously disclosed to the Underwriter or its counsel, no asbestos-containing
material and no underground or above-ground storage tanks are located on
property owned or leased by the Company or its Subsidiaries and none have been
previously removed or filled by the Company or its Subsidiaries or, to the best
of their knowledge, any predecessor of the Company or its Subsidiaries.
(s) Neither the Company nor any of its Subsidiaries is in violation of its
Certificate or Articles of Incorporation or by-laws or in default in the
performance or observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement, note, lease or
other instrument to which any of them is a party or by which any of them or
their property may be bound, or to which any of their property or assets is
subject, which violations or defaults in the aggregate would have a material
adverse effect on the condition (financial or otherwise) or on the earnings,
business affairs or business prospects of the Company and its Subsidiaries,
considered as one enterprise; and the execution, delivery and performance of
this Agreement and the Indentures and the issuance and sale of the Securities
and the consummation of the transactions contemplated herein have been duly
authorized by all necessary corporate action of the Company and, if applicable,
its Subsidiaries, and will not conflict with or constitute a breach of, or
default under, cause the acceleration of the maturity of, require the consent
of any person pursuant to or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of any of the Company or its
Subsidiaries pursuant to, any contract, indenture, mortgage, loan agreement,
note, lease or other instrument to which any of the Company or its Subsidiaries
is a party or by which it or any of them may be bound, or to which any of the
property or assets of any of the Company or its Subsidiaries is subject, nor
will such action result
6
<PAGE>
in any violation of the provisions of the Certificate or Articles of
Incorporation or by-laws of any of the Company or its Subsidiaries or any
applicable law, administrative regulation or administrative or court decree,
order or judgment.
(u) This Agreement has been duly executed and delivered by the Company and,
assuming the due execution and delivery by the other parties hereto and
thereto, each is the legal, valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to or
limiting the enforcement of creditors' rights generally and that the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
(v) The Company has full corporate power and authority to enter into, deliver
and perform its obligations under this Agreement, the Indentures, the
Securities and all other documents or certificates required or contemplated
thereby. The Securities have been duly authorized by the Company for issuance
and sale pursuant to this Agreement, and, when issued, authenticated and
delivered pursuant to this Agreement and the Indentures against payment of the
consideration set forth herein, will constitute valid and legally binding
obligations of the Company enforceable in accordance with their terms, except
as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting enforcement of creditors' rights generally and that
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought; and would be entitled to
the benefits provided by the Indentures, which will be substantially in the
form filed as exhibits to the Registration Statement; the Indentures have been
duly authorized and, at the Closing Time, will be duly qualified under the TIA
and, assuming due execution and delivery by the Trustee[s], when executed and
delivered by the Company will constitute valid and legally binding agreements
of the Company, enforceable in accordance with their respective terms, except
as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting enforcement of creditors' rights generally and that
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought; and the Securities and the
Indentures conform to the descriptions thereof in the Prospectuses.
(w) None of the Company or its Subsidiaries is an "investment company," or a
company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended, or is subject to regulation under
the Public Utility Holding Company Act of 1935, as amended, the Federal Power
Act, the Interstate Commerce Act or to any federal or state statute or
regulation limiting its respective ability to incur indebtedness for borrowed
money, except statutes or regulations applicable generally to business
corporations incorporated or doing business in the respective jurisdictions of
the Company and its Subsidiaries.
(x) All tax returns required to be filed by the Company or any of its
Subsidiaries in any jurisdiction have been filed, other than those filings
being contested in good faith, and all material taxes, including withholding
taxes, penalties and interest, assessments, fees and other charges due or
claimed to be due from such entities have been paid, other than those being
contested in good faith and for which adequate reserves have been provided or
those currently payable without penalty or interest.
(y) The Company and each Subsidiary maintains insurance covering their
properties, operations, personnel and businesses. Such insurance insures
against such losses and risks to an extent which is adequate in accordance with
customary industry practice to protect the Company and its Subsidiaries and
their businesses. All such insurance is outstanding and duly in force on the
date hereof and will be outstanding and duly in force on the Closing Date.
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2. Purchase and Sale.
(a) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company agrees to sell to
the Underwriter, and the Underwriter agrees to purchase from the Company, at a
purchase price of % of the principal amount thereof, 100% of the aggregate
principal amount of the Securities;
(b) subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company hereby grants an
option to the Underwriter to purchase up to $7,500,000 aggregate principal
amount of Option Notes at the same purchase price per share as the Underwriter
shall pay for the Convertible Subordinated Notes. Said option may be exercised
only to cover over-allotments in the sale of the Convertible Subordinated Notes
by the Underwriter. Said option may be exercised in whole or in part at any
time (but not more than once) on or before the 30th day after the day of the
Prospectuses upon written or telegraphic notice by the Underwriter to the
Company setting forth the number of the shares of the Option Note as to which
the Underwriter is exercising the option on the settlement date. Delivery of
certificates for shares of the Convertible Subordinated Notes, and payment
therefor, shall be made as provided in Section 3 hereof.
3. Delivery and Payment. Delivery of and payment for the Securities shall be
made at 10:00 a.m., New York City time, on , 1994, or such later date
(not later than , 1994) as the Underwriter shall designate, which date
and time may be postponed by agreement among the Underwriter and the Company or
as provided in Section 9 hereof (such date and time of delivery and payment for
the Securities being herein called the "Closing Date"). The Underwriter will
make payment for the Securities to be sold hereunder by a certified or official
bank check or checks, drawn on or by a New York or Los Angeles Clearing House
Bank and payable in next day funds, to the order of the Company against
delivery of the Securities therefor for the respective accounts of the
Underwriter. Delivery of the Securities shall be made at such location as the
Underwriter shall reasonably designate at least one business day in advance of
the Closing Date, and payment for the Securities shall be made at the office of
Latham & Watkins, Los Angeles, California, on the Closing Date. Certificates
for the Securities shall be registered in such names and in such denominations
as the Underwriter may request not less than two full business days in advance
of the Closing Date.
The Company agrees to have the Securities available for inspection, checking
and packaging by the Underwriter in New York, New York not later than 1:00 p.m.
on the business day prior to the Closing Date.
If the option provided for in Section 2(b) hereof is exercised after the 3rd
business day prior to the Closing Date, the Company will deliver (at the
expense of the Company) to the Underwriter, at , New York, New York,
on the date specified by the Underwriter (which will be within three business
days after exercise of said option), certificates for the Option Notes with
such names and denominations as the Underwriter shall have requested against
payment of the purchase price thereof to or upon the order of the Company by
certified or official bank check or checks drawn on or by a New York Clearing
House Bank and payable in next day funds. If settlement for the Option Notes
occurs after the Closing Date, the Company will deliver to the Underwriter on
the settlement date for the Option Notes, and the obligation of the Underwriter
to purchase the Option Notes shall be conditioned upon receipt of, supplemental
opinions, certificates and letters confirming as of such date the opinions,
certificates and letters delivered on the Closing Date pursuant to Section 6
hereof.
4. Offering by Underwriter. It is understood that the Underwriter proposes to
offer the Securities for sale to the public as set forth in the Prospectuses.
5. Agreements. The Company agrees with the Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment
thereof, to become effective. Prior to the termination
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<PAGE>
of the offering of the Securities, the Company will not file any amendment
of the Registration Statement or supplement to the Prospectuses without the
prior consent of the Underwriter. Subject to the foregoing sentence, if the
Registration Statement has become or becomes effective pursuant to Rule
430A, or filing of the Prospectuses is otherwise required under Rule
424(b), the Company will cause the Prospectuses, properly completed, and
any supplement thereto to be filed with the Commission pursuant to the
applicable paragraph of Rule 424(b) within the time period prescribed and
will provide evidence satisfactory to the Underwriter of such timely
filing. The Company will promptly advise the Underwriter (i) when the
Registration Statement, if not effective at the Execution Time, and any
amendment thereto, shall have become effective, (ii) when the Prospectuses,
and any supplement thereto, shall have been filed (if required) with the
Commission pursuant to Rule 424(b), (iii) when, prior to termination of the
offering of the Securities, any amendment of the Registration Statement
shall have been filed or become effective, (iv) of any request by the
Commission for any amendment of the Registration Statement or supplement to
the Prospectuses or for any additional information, (v) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or the institution or threatening of any proceeding
for that purpose, and (vi) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Securities for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose. The Company will use its best efforts to
prevent the issuance of any such stop order and, if issued, to obtain as
soon as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Securities Act, any event occurs as a
result of which the Prospectuses as then supplemented would include any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it shall be necessary to
amend the Registration Statement or supplement the Prospectuses to comply
with the Securities Act or the rules or regulations thereunder, the Company
promptly will prepare and file with the Commission, subject to the second
sentence of paragraph (a) of this Section 5, an amendment or supplement
which will correct such statement or omission or which will effect such
compliance.
(c) As soon as practicable, the Company will make generally available to
its security holders and to the Underwriter an earnings statement or
statements of the Company and its Subsidiaries which will satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 under the
Securities Act.
(d) The Company will furnish to the Underwriter and counsel for the
Underwriter, without charge, as many signed copies of the Registration
Statement as originally filed and of each amendment thereof (including
exhibits filed therewith) as the Underwriter may reasonably request and to
the Underwriter a conformed copy of the Registration Statement as
originally filed and of each amendment thereof (without exhibits thereto)
and, so long as delivery of a prospectus by the Underwriter or dealer may
be required by the Act, as many copies of each Preliminary Prospectus and
the Prospectuses and any supplement thereto as the Underwriter may
reasonably request. The Company will pay the expenses of printing or other
production of all documents relating to the offering.
(e) The Company will arrange for the qualification of the Securities for
sale under the laws of such jurisdictions as the Underwriter may designate,
will maintain such qualifications in effect so long as required for the
distribution of the Securities, will arrange for the determination of the
legality of the Securities for purchase by institutional investors and will
pay the fee of the National Association of Securities Dealers, Inc. in
connection with its review of the offering.
(f) The Company will fully comply with the applicable provisions of Rules
424 and 430A under the Securities Act in a timely manner.
9
<PAGE>
(g) The Company will cooperate and assist in any filings required to be
made with the National Association of Securities Dealers, Inc. and in the
performance of any due diligence investigation by any broker-dealer
participating in the sale of the Securities.
(h) The Company waives, to the extent permitted by law, the use of any
usury laws against any holder of Securities.
(i) The Company, during the period when the Prospectuses are required to
be delivered under the Act, will file promptly all documents required to be
filed with the Commission pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), subsequent to the
time the Registration Statement becomes effective.
(j) The Company will apply the proceeds from the issuance and sale of the
Securities as set forth in the Prospectuses under the heading "Use of
Proceeds."
(k) The Company confirms as of the date hereof that it is in compliance
with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act
Relating to Disclosure of Doing Business with Cuba, and the Company further
agrees that if it commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba after the date the
Registration Statement becomes or has become effective with the Securities
and Exchange Commission or with the Florida Department of Banking and
Finance (the "Department"), whichever date is later, or if the information
reported in the Prospectuses, if any, concerning the Company's business
with Cuba or with any person or affiliate located in Cuba changes in any
material way, the Company will provide the Department notice of such
business or change, as appropriate, in a form acceptable to the Department.
(l) The Company will reserve, from time to time, a sufficient number of
shares of Common Stock to permit the issuance of shares of Common Stock
upon the conversion of all of the Convertible Subordinated Notes by the
holders thereof.
(m) The Company will cause the Common Stock issuable upon conversion of
the Convertible Subordinated Notes to be listed on the New York Stock
Exchange.
(n) The Company will use its best efforts to do and perform all things
required to be done and performed under this Agreement by it prior to or
after the Closing Date and to satisfy all conditions precedent on its part
to the delivery of the Securities.
6. Conditions to the Obligations of the Underwriter. The obligations of the
several Underwriter to purchase the Securities shall be subject to the accuracy
of the representations and warranties on the part of the Company contained
herein as of the Execution Time and the Closing Date, to the accuracy of the
statements of the Company made in any certificates delivered pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective prior to the
Execution Time, unless the Underwriter agrees in writing to a later time,
the Registration Statement will become effective not later than (i) 6:00
p.m. New York City time on the date of determination of the public offering
price, if such determination occurred at or prior to 3:00 p.m. New York
City time on such date or (ii) 12:00 noon New York City time on the
business day following the day on which the public offering price was
determined, if such determination occurred after 3:00 p.m. New York City
time on such date; if filing of the Prospectuses, or any supplement
thereto, is required pursuant to Rule 424(b), the Prospectuses, and any
such supplement, will be filed in the manner and within the time period
required by Rule 424(b); and no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for
that purpose shall have been instituted or threatened.
10
<PAGE>
(b) The Company shall have furnished to the Underwriter the opinion of
Gibson, Dunn & Crutcher as counsel for the Company, dated the Closing Date,
in form and substance satisfactory to the Underwriter, and substantially in
the form of Exhibit B hereto.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of another state's law, to the extent they deem
proper and specified in such opinion, upon the opinion of other counsel of
good standing whom they believe to be reliable and who are satisfactory to
counsel for the Underwriter, (B) as to matters of fact, to the extent they
deem proper, on certificates of responsible officers of the Company and
public officials and (C) as to certain matters, upon the opinion of Richard
W. Madsen, general counsel of the Company.
(c) The Underwriter shall have received from Latham & Watkins, counsel
for the Underwriter, such opinion or opinions, dated the Closing Date, with
respect to the issuance and sale of the Securities, the Indentures, the
Registration Statement, the Prospectuses (together with any supplement
thereto) and other related matters as the Underwriter may reasonably
require, and the Company shall have furnished to such counsel such
documents as they request for the purpose of enabling them to pass upon
such matters.
(d) The Company shall have furnished to the Underwriter a certificate of
the Company, signed by the Chairman of the Board, the President or a Vice
President and the principal financial or accounting officer of the Company,
dated the Closing Date, to the effect that the signers of such certificate
have carefully examined the Registration Statement, the Prospectuses, any
supplements to the Prospectuses and this Agreement and that to the best of
their knowledge:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of
the Closing Date with the same effect as if made on the Closing Date,
and the Company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or prior to
the Closing Date;
(ii) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or, to the Company's knowledge, threatened; and
(iii) since the date of the most recent financial statements included
in the Prospectuses (exclusive of any supplement thereto), (A) there
has been no material change in the capital stock or long-term debt of
the Company except as set forth in or contemplated in the Prospectuses,
(B) there has been no material adverse change in the condition
(financial or otherwise), earnings, business or properties of the
Company and its Subsidiaries, considered as one enterprise, whether or
not arising from transactions in the ordinary course of business,
except as set forth in or contemplated in the Prospectuses (exclusive
of any supplement thereto) and (C) the Company shall not have sustained
any material loss or interference with its business from fire,
explosion, earthquake, flood or other calamity or from any court,
legislative or other governmental action, order or decree which is not
set forth in the Prospectuses.
(e) At the Execution Time and at the Closing Date, Deloitte & Touche
shall have furnished to the Underwriter a letter or letters, dated
respectively as of the Execution Time and as of the Closing Date, in form
and substance satisfactory to the Underwriter, confirming that they are
independent accountants within the meaning of the Securities Act and the
applicable published rules and regulations thereunder and stating in effect
that:
(i) in their opinion the audited financial statements and financial
statement schedules included in the Registration Statement and the
Prospectuses and reported on by them comply in form in all material
respects with the applicable accounting requirements of the Securities
Act and the related published rules and regulations;
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<PAGE>
(ii) on the basis of a reading of the latest unaudited financial
statements made available by the Company and its Subsidiaries; their
limited review in accordance with standards established by the American
Institute of Certified Public Accountants of the unaudited interim
financial information for the six-month period ended January 30, 1994,
and as at January 30, 1994; carrying out certain specified procedures
(but not an examination in accordance with generally accepted auditing
standards) which would not necessarily reveal matters of significance
with respect to the comments set forth in such letter; a reading of the
minutes of the meetings of the stockholders and directors of each of
the Company and its Subsidiaries; and inquiries of certain officials of
the Company and its Subsidiaries who have responsibility for financial
and accounting matters of the Company or its Subsidiaries as to
transactions and events subsequent to January 30, 1994, nothing came to
their attention which caused them to believe that:
(1) any unaudited financial statements included in the
Registration Statement and the Prospectuses do not comply in form in
all material respects with applicable accounting requirements of the
Securities Act and with the published rules and regulations of the
Commission with respect to registration statements on Form S-3; and
said unaudited financial statements are not in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial
statements included in the Registration Statement and the
Prospectuses; or
(2) with respect to the period subsequent to January 30, 1994,
there were any changes, at a specified date not more than five
business days prior to the date of the letter, in the long-term debt
of the Company or its Subsidiaries or capital stock of each of the
Company or its Subsidiaries or decreases in the stockholders' equity
of any of the Company or its Subsidiaries, in each case as compared
with the amounts shown on the January 30, 1994 consolidated balance
sheet included in the Registration Statement and the Prospectuses,
or for the period from January 31, 1994 to such specified date there
were any decreases, as compared with the corresponding period in the
preceding year, in net operating revenues, operating income or net
income before income taxes or in total or per share amounts of net
income of each of the Company or its Subsidiaries, except in all
instances for changes or decreases set forth in such letter or
changes or decreases that the Registration Statement discloses have
occurred or may occur, in which case the letter shall be accompanied
by an explanation by the Company as to the significance thereof
unless said explanation is not deemed necessary by the Underwriter;
and
(iii) they have performed certain other specified procedures as a
result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company and its Subsidiaries) set
forth in the Registration Statement and the Prospectuses, including the
information set forth under the captions "Consolidated Capitalization,"
"Summary Consolidated Financial Data" and "Selected Consolidated
Financial Data" in the Prospectuses, agrees with the accounting records
of the Company and its Subsidiaries, excluding any questions of legal
interpretation.
References to the Prospectuses in this paragraph (e) include any
supplement thereto at the date of the letter.
(f) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectuses (exclusive of any supplement
thereto), there shall not have been (i) any change or decrease specified in
the letter or letters referred to in paragraph (e) of this Section 6 or
(ii) any change, or any development involving a prospective change, in or
affecting the business or properties of the Company or its Subsidiaries the
effect of which, in any case referred to in clause (i) or (ii) above, is,
in the judgment of the Underwriter, so material and adverse as to make it
impractical or inadvisable to proceed with the public offering or the
delivery of the Securities as contemplated by the
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<PAGE>
Registration Statement (exclusive of any amendment thereof) and the
Prospectuses (exclusive of any supplement thereto).
(g) Subsequent to the Execution Time, there shall not have been any
decrease in the rating of any of the Company's or any of its Subsidiaries'
debt securities by any "nationally recognized statistical rating
organization" (as defined for purposes of Rule 436(g) under the Securities
Act) or any notice given of any intended or potential decrease in any such
rating or of a possible change in any such rating that does not indicate
the direction of the possible change.
(h) The Company shall have obtained and provided to the Underwriter, in
form and substance satisfactory to the Underwriter and its counsel, certain
amendments, supplements or modifications to certain of the Company's credit
facilities currently in place that shall, among other things, sufficiently
broaden certain restrictive financial covenants contained therein.
(i) Prior to the Closing Date, the Company shall have furnished to the
Underwriter such further information, certificates and documents as the
Underwriter may reasonably request.
If any of the conditions specified in this Section 6 shall not have been
fulfilled in all material respects when and as provided in this Agreement, or
if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Underwriter and its counsel, this Agreement and all
obligations of the Underwriter hereunder may be canceled at, or at any time
prior to, the Closing Date by the Underwriter. Notice of such cancellation
shall be given to the Company in writing or by telephone or telegraph confirmed
in writing.
7. Reimbursement of Underwriter's Expenses.
(a) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, the Company will pay, or reimburse
if paid by or on behalf of the Underwriter, all costs and expenses incident to
the performance of the obligations of the Company hereunder, including those in
connection with: (i) preparing, printing, duplicating, filing and distributing
the Registration Statement as originally filed and all amendments thereto
(including all exhibits thereto), any Preliminary Prospectuses, the
Prospectuses and any amendments thereof or supplements thereto, the Indentures,
any dealer agreements and the underwriting documents (including this Agreement
and all other documents related to the public offering of the Securities,
including those supplied to the Underwriter in quantities as hereinabove
stated); (ii) the issuance, transfer and delivery of the Securities to the
Underwriter, including any transfer or other taxes payable thereon; (iii) the
qualification of the Securities under state and foreign securities or Blue Sky
laws and the eligibility of the Securities for investment under state and
foreign law, including the costs of printing and mailing a preliminary and
final "Blue Sky Survey" and a "Legal Investment Memorandum" and the reasonable
fees and disbursements of Underwriter's counsel in connection therewith; (iv)
the review of the terms of the public offering of the Securities by the
National Association of Securities Dealers, Inc.; and (v) the fees and expenses
of the Trustee and any agent of the Trustee and the fees and disbursements of
counsel for the Trustee in connection with the Indentures and the Securities.
(b) If the sale of the Securities provided for herein is not consummated
because any condition to the obligations of the Underwriter set forth in
Section 6 hereof is not satisfied, because of any termination pursuant to
Section 9 hereof or because of any refusal, inability or failure on the part of
the Company to perform any agreement herein or comply with any provision hereof
other than by reason of a default by the Underwriter, the Company will
reimburse the Underwriter upon demand for all out-of-pocket expenses (including
reasonable fees and disbursements of counsel) that shall have been incurred by
the Underwriter in connection with the proposed purchase and sale of the
Securities.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the Underwriter, the
directors, officers, employees and agents of the Underwriter, and each person
who controls the Underwriter within the
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<PAGE>
meaning of either the Securities Act or the Exchange Act against any and all
losses, claims, damages or liabilities, joint or several, to which they or any
of them may become subject under the Securities Act, the Exchange Act or other
federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement for the
registration of the Securities as originally filed or in any amendments
thereto, or in any Preliminary Prospectus or any Prospectus, or in any
amendments thereof or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
agrees to reimburse each such indemnified party, as incurred, for any legal or
other expenses reasonably incurred by it in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Underwriter specifically for
inclusion therein. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) The Underwriter agrees to indemnify and hold harmless the Company, each
of its directors, each of its officers who signs the Registration Statement,
and each person who controls the Company within the meaning of either the
Securities Act or the Exchange Act, to the same extent as the foregoing
indemnity from the Company to the Underwriter, but only with reference to
written information relating to the Underwriter furnished to the Company by or
on behalf of the Underwriter specifically for inclusion in the documents
referred to in the foregoing indemnity. This indemnity agreement will be in
addition to any liability which the Underwriter may otherwise have. The Company
acknowledges that the statements set forth (i) in the last paragraph of the
cover page and (ii) the information under the heading "Underwriting," relating
to the amount of Securities sold to the Underwriter, the Underwriter's
concession and the dealers' reallowance, in any Preliminary Prospectus and any
Prospectus constitute the only information furnished in writing by or on behalf
of the Underwriter for inclusion in any Preliminary Prospectus or any
Prospectus, and the Underwriter confirms that such statements are correct.
(c) Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
this Section 8, notify the indemnifying party in writing of the commencement
thereof; but the failure so to notify the indemnifying party (i) will not
relieve it from liability under paragraph (a) or (b) above unless and to the
extent it did not otherwise learn of such action and such failure results in
the forfeiture by the indemnifying party of substantial rights and defenses and
(ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification obligation
provided in paragraph (a) or (b) above. The indemnifying party shall be
entitled to appoint counsel of the indemnifying party's choice at the
indemnifying party's expense to represent the indemnified party in any action
for which indemnification is sought (in which case the indemnifying party shall
not thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be satisfactory to the indemnified
party. Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party shall have
the right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses of such
separate counsel, if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the
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<PAGE>
indemnifying party, (iii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of the institution of such action
or (iv) the indemnifying party shall authorize the indemnified party in writing
to employ separate counsel at the expense of the indemnifying party. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b) of this
Section 8 is unavailable to or insufficient to hold harmless an indemnified
party for any reason, the Company and the Underwriter agrees to contribute to
the aggregate losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating or defending
same) (collectively, "Losses") to which the Company and the Underwriter may be
subject in such proportion as is appropriate to reflect the relative benefits
received by the Company and by the Underwriter from the offering of the
Securities; provided, however, that in no case shall the Underwriter (except as
may be provided in any agreement among underwriters relating to the offering of
the Securities) be responsible for any amount in excess of the underwriting
discount or commission applicable to the Securities purchased by the
Underwriter hereunder. If the allocation provided by the immediately preceding
sentence is unavailable for any reason, the Company and the Underwriter shall
contribute in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company and of the
Underwriter in connection with the statements or omissions which resulted in
such Losses as well as any other relevant equitable considerations. Benefits
received by the Company shall be deemed to be equal to the total net proceeds
from the offering (before deducting expenses), and benefits received by the
Underwriter shall be deemed to be equal to the total underwriting discounts and
commissions, in each case as set forth on the cover page of the Prospectuses.
Relative fault shall be determined by reference to whether any alleged untrue
statement or omission relates to information provided by the Company or the
Underwriter. The Company and the Underwriter agrees that it would not be just
and equitable if contribution were determined by pro rata allocation or any
other method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person who controls the
Underwriter within the meaning of either the Securities Act or the Exchange Act
and each director, officer, employee and agent of the Underwriter shall have
the same rights to contribution as the Underwriter, and each person who
controls the Company within the meaning of either the Securities Act or the
Exchange Act, each officer of the Company who shall have signed the
Registration Statement and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to the applicable
terms and conditions of this paragraph (d).
9. Termination. This Agreement shall be subject to termination in the
absolute discretion of the Underwriter, by notice given to the Company prior to
delivery of and payment for the Securities, if prior to such time (a) trading
in securities generally on the New York Stock Exchange or the National
Association of Securities Dealers Automated Quotation National Market System
shall have been suspended or limited or minimum prices shall have been
established on either of such Exchange or Market System, (b) a banking
moratorium shall have been declared either by federal or New York State
authorities, (c) there shall have occurred any outbreak or escalation of
hostilities, declaration by the United States of a national emergency or war or
other calamity or crisis the effect of which on financial markets is such as to
make it, in the judgment of the Underwriter, impracticable or inadvisable to
proceed with the offering or delivery of the Securities as contemplated by the
Prospectuses (exclusive
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of any supplement thereto) or (d) any securities of the Company or any of its
Subsidiaries shall have been downgraded or placed on any "watch list" for
possible downgrading by any nationally recognized statistical rating
organization, provided, that in the case of such "watch list" placement,
termination shall be permitted only if such placement would, in the judgment of
the Underwriter, make it impracticable or inadvisable to market the Securities
or to enforce contracts for the sale of the Securities or materially impair the
investment quality of the Securities.
10. Representations and Indemnities to Survive. The respective agreements,
representations, warranties, indemnities, certificates and other statements of
the Company or its officers and of the Underwriter set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation made by or on behalf of the Underwriter or the Company or any
of the officers, directors or controlling persons referred to in Section 8
hereof, and will survive delivery of and payment for the Securities. The
provisions of Sections 7 and 8 hereof shall survive the termination or
cancellation of this Agreement.
11. Notices. All communications hereunder will be in writing and effective
only on receipt and, if sent to the Underwriter, will be mailed, delivered or
telegraphed and confirmed to Salomon Brothers Inc at Seven World Trade Center,
New York, New York 10048, Attention: Legal Department; or, if sent to the
Company, will be mailed, delivered or telegraphed and confirmed to it at Foot
of "H" Street, Chula Vista, California 92010, Attention: General Counsel.
12. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 8 hereof, and no other
person will have any right or obligation hereunder.
13. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York.
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a binding agreement among the
Company and the Underwriter.
Very truly yours,
Rohr, Inc.
By: _________________________________
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Brothers Inc
By: _________________________________
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EXHIBIT A
SUBSIDIARIES
[TO COME]
17
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EXHIBIT B
OPINION OF
GIBSON, DUNN & CRUTCHER
COUNSEL FOR THE COMPANY
[TO COME]
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EXHIBIT 23.2
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Registration Statement of Rohr, Inc. on Form S-
3 of our reports dated September 17, 1993, incorporated by reference in the
Annual Report on Form 10-K of Rohr, Inc. for the year ended July 31, 1993, and
to the use of our report dated September 17, 1993 (March 28, 1994 as to Notes 7
and 8), appearing in the Prospectus, which is part of this Registration
Statement. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
San Diego, California
April 11, 1994
