<PAGE>
FY97: FIRST QUARTER
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended November 3, 1996
Commission File Number 1-6101
ROHR, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-1607455
(State of other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
850 LAGOON DRIVE, CHULA VISTA, CALIFORNIA 91910-2098
(Address of principal executive offices)
(619) 691-4111
(Registrant's Telephone No.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
As of November 29, 1996, there were 25,279,558 shares of the Registrant's common
stock outstanding.
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROHR, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(in thousands except for share data)
------------------------------------
<TABLE>
<CAPTION>
NOV. 3, JULY 31,
1996 1996
----------- -----------
ASSETS (Unaudited)
- ------
<S> <C> <C>
Cash and cash equivalents $ 57,420 $ 88,403
Short-term investments 12,913 -
Accounts receivable 142,989 129,523
Inventories:
Work-in-process 436,764 423,312
Raw materials, purchased parts and supplies 27,002 26,220
Less customers' progress payments and advances (51,513) (67,165)
---------- ----------
Inventories - net 412,253 382,367
Prepaid expenses and other current assets 11,891 14,587
---------- ----------
TOTAL CURRENT ASSETS 637,466 614,880
PROPERTY, PLANT, AND EQUIPMENT - Net 193,706 196,052
DEFERRED TAX ASSET 139,095 156,863
PREPAID PENSION COSTS 85,697 -
OTHER ASSETS 35,957 64,742
---------- ----------
$1,091,921 $1,032,537
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Trade accounts and other payables $ 150,937 $ 125,974
Salaries, wages, and benefits 30,188 44,094
Deferred income tax liability 56,250 56,250
Short-term debt and current portion of long-term debt 23,294 25,962
---------- ----------
TOTAL CURRENT LIABILITIES 260,669 252,280
LONG-TERM DEBT 481,153 481,481
PENSION AND POST-RETIREMENT OBLIGATIONS - Long-Term 18,656 46,096
OTHER OBLIGATIONS 16,500 17,503
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $1 par value per share,
10 million shares authorized, none issued - -
Common stock, $1 par value per share,
authorized 50,000,000 shares; issued and outstanding
25,278,559 and 22,329,793 shares, respectively 25,278 22,330
Additional paid-in capital 189,685 142,656
Retained earnings 99,980 96,622
Minimum pension liability adjustment - (26,431)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 314,943 235,177
---------- ----------
$1,091,921 $1,032,537
========== ==========
</TABLE>
1
<PAGE>
ROHR, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF EARNINGS - UNAUDITED
-----------------------------------------------
(in thousands except for per share data)
----------------------------------------
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
-------------------
NOV. 3, OCT. 29,
1996 1995
-------- --------
<S> <C> <C>
Sales $201,905 $150,400
Costs and Expenses 178,354 131,533
General & Administrative Expenses 7,447 6,728
-------- --------
Operating Income 16,104 12,139
Interest Income 1,458 1,052
Interest Expense 11,946 12,386
-------- --------
Income Before Taxes on Income 5,616 805
Taxes on Income 2,258 323
-------- --------
Net Income $ 3,358 $ 482
======== ========
Net Income per Average
Share of Common Stock $ 0.14 $ 0.03
======== ========
Cash Dividends per Share
of Common Stock - -
Weighted Average Common Stock and Common
Stock Equivalents Used to Compute Net Income Per Share 23,434 18,682
======== ========
</TABLE>
2
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ROHR, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
-------------------------------------------------
(in thousands)
--------------
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
--------------------------
NOV. 3, OCT. 29,
1996 1995
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,358 $ 482
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 5,065 5,326
Changes due to (increase) decrease in operating assets:
Accounts receivable (23,608) (16,956)
Inventories - net (29,886) (43,975)
Prepaid expenses and other assets 2,850 2,426
Changes due to increase (decrease) in operating
liabilities:
Accounts payable and other liabilities 19,274 16,576
Pension and post-retirement obligations (2,111) 1,806
Taxes on income and deferred taxes 2,276 14
Other (532) (145)
-------- --------
Net cash used in operating activities (23,314) (34,446)
-------- --------
INVESTING ACTIVITIES:
Purchase of short-term investments (12,913)
Purchase of property, plant, and equipment (3,343) (2,486)
Collection of note receivable on sale of Rohr Credit Corporation 20,142 -
Other 337 (820)
-------- --------
Net cash provided by (used in) investing activities 4,223 (3,306)
-------- --------
FINANCING ACTIVITIES:
Repayment of long-term borrowings (314) (396)
Cash collateral for receivable sales program (10,000) 2,000
Net repayment of short-term debt (2,665) -
Other 1,087 429
-------- --------
Net cash provided by (used in) financing activities (11,892) 2,033
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (30,983) (35,719)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 88,403 84,584
-------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 57,420 $ 48,865
======== ========
SUPPLEMENTAL INFORMATION:
Cash paid for interest, net of amounts capitalized $ 14,222 $ 13,885
Cash paid for income taxes 37 262
Rohr common stock contribution to defined benefit pension plans 48,000 -
</TABLE>
3
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ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
The consolidated balance sheet as of November 3, 1996, and statements of
earnings and cash flows for the first quarters ended November 3, 1996, and
October 29, 1995, reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the results of operations for the interim periods. Financial
results for interim periods are not necessarily indicative of results to be
expected for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These consolidated financial statements should
be read in conjunction with the financial statements included in the Form 10-K
for the year ended July 31, 1996.
CONTINGENCIES
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 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 percent to the State of California and 10
percent to the Stringfellow entities, leaving 25 percent to the
generator/counterclaimants (including the Company) and other users of the site
(or a maximum of up to 28 percent depending on the allocation of any
Stringfellow entity orphan share). On the state law claims, the special master
recommended a 95 percent share for the State of California, and 5 percent for
the Stringfellow entities, leaving 0 percent for the generator/counterclaimants.
This special master's finding is subject to a final decision and appeal. 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 found to be
responsible. Notwithstanding, CERCLA liability is
4
<PAGE>
sometimes allocated among hazardous waste generators who used a waste disposal
site based on the volume of hazardous waste they disposed at the site. The
Company is the second largest generator of waste 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 has reached settlement agreements with its primary comprehensive
general liability insurers for reimbursement of its cleanup costs at the site
and has retained the right to file future claims against its excess carriers.
The Company intends to continue to vigorously defend itself in the Stringfellow
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 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's analysis of operating results for the first quarters ended November
3, 1996, and October 29, 1995, is presented below. Material developments in the
Company's liquidity and capital resources since July 31, 1996, are also
presented. These discussions should be read in conjunction with the financial
statements and notes thereto and Management's Discussion and Analysis thereof
included in the Company's Annual Report on Form 10-K for the fiscal year ended
July 31, 1996.
COMPANY OUTLOOK
As a result of the growth in air travel, and the need to replace aging aircraft,
the demand for new commercial aircraft has been increasing. Airlines have
improved their utilization of aircraft which, combined with stable fare
structures and aggressive cost reduction measures, has substantially improved
airline profitability. Airline operators have responded to the improved market
conditions and profitability by ordering large quantities of new commercial
aircraft. Industry orders for new commercial jet aircraft in calendar 1996,
through November 21, 1996,
5
<PAGE>
were 1,125 compared to 679 and 321 in all of calendar 1995 and 1994,
respectively. Industry analysts continue to predict a potentially large
replacement market for commercial aircraft driven by noise legislation and the
need to replace aging fleets.
McDonnell Douglas recently announced that it would not pursue the launch of a
new wide body commercial jet aircraft, initially labeled the MD-XX. Some
aerospace analysts perceive that this decision could affect McDonnell Douglas'
continued production of commercial aircraft over the long term. Historically,
the McDonnell Douglas family of aircraft has provided a significant market for
the Company's products. The Company has accepted certain market risks on the
MD-90 program, now in production, and the MD-95 program, now in development. In
the event of a significant reduction in the number of aircraft expected to be
sold under these programs, the Company's investment in preproduction and excess
over average inventory may not be fully recovered. However, McDonnell Douglas
has a backlog of unfilled orders on existing programs and the Company believes
that production on existing programs will continue. Furthermore, the Company
produces nacelles and/or components for many aircraft that compete with the MD-
90 and MD-95, which could lessen the impact in the long term from reduced sales
on these programs.
RESULTS OF OPERATIONS
First Quarter Fiscal Year 1997 Compared to First Quarter Fiscal Year 1996
Sales for the first quarter of fiscal 1997 were $201.9 million up from $150.4
million in the first quarter of fiscal 1996. The increased sales resulted
primarily from the MD-90 and A340 programs, reflecting increased customer
delivery schedules.
The Company's operating income for the first quarter of fiscal 1997 was $16.1
million, an operating margin of 8.0 percent. Operating income for the same
period of the prior fiscal year was $12.1 million, an operating margin of 8.1
percent. Operating income has improved due to the increase in sales, while
margins have remained relatively flat compared to the first quarter of 1996, but
are down compared to the fourth quarter of 1996, before unusual items, due to a
change in the sales mix. The Company's operating profit margin varies from
program to program, so the sales mix in a given period can have a significant
effect upon overall profit margins.
Net interest expense was $10.5 million for the first quarter of fiscal 1997
compared to $11.3 million for the first quarter of fiscal 1996. Interest
expense declined primarily as a result of the conversion of $37.8 million of the
7.75% Convertible Subordinated Notes during the prior year.
6
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Net income for the first quarter of fiscal 1997 was $3.4 million or 14 cents per
share. This compares to net income of $0.5 million or 3 cents per share for the
first quarter of fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
On November 3, 1996, the Company had $70.3 million of cash, cash equivalents,
and short term investments. In addition, the Company had a $66.2 million
revolving credit agreement with no amounts outstanding. The total amount
available under the credit agreement is reduced by a $16.9 million letter of
credit. The Company has entered into discussions with banks to replace the
existing revolving credit agreement, which matures in April 1997, and expects to
have a new facility in place prior to expiration.
Over the next several years, the Company expects to increase its investment in
program inventory in connection with developmental expenditures on new programs,
increased deliveries, and anticipated new business opportunities. The Company
believes that its financial resources will be adequate to meet its requirements
during this period.
Net cash used in operating activities for the first quarter of fiscal year 1997
was $23.3 million compared to $34.4 million for the first quarter of the prior
fiscal year. Contributing to the use of cash in the first quarter of fiscal
1997 was an increase in inventory and receivables. Net cash provided by
operations is subject to significant variations from period to period.
Contributing to cash flow from investing activities in the first quarter of
fiscal 1997 was the collection of a note receivable of $20.1 million from the
sale of Rohr Credit Corporation, which was completed in the fourth quarter of
fiscal 1996.
The Company's total financings were $555.6 million on November 3, 1996, compared
to $569.2 million on July 31, 1996. Total financings include balance sheet
debt, a $40.0 million ongoing accounts receivable sales program (of which $30.0
million was utilized on November 3, 1996) and $21.1 million of equipment leases.
Accounts receivable increased from $129.5 million on July 31, 1996, to $143.0
million on November 3, 1996. This increase is due primarily to customer mix and
the high volume of sales in the last month of the quarter.
The Company's net inventory increased from $382.4 million on July 31, 1996, to
$412.3 million on November 3, 1996. The inventory increase is primarily due to
a build up of production inventory in anticipation of higher deliveries in the
latter part of fiscal 1997 and the liquidation of advances from customers.
7
<PAGE>
On October 31, 1996, the Company completed the previously announced contribution
of Company common stock valued at $48.0 million to its primary pension plans.
This contribution resulted in the Company's primary pension plans achieving a
fully funded status predicated upon the May 1, 1996, valuation of pension
obligations. This contribution, which is reflected as a prepaid asset, allowed
the Company to reverse the liability and deferred asset related to the
underfunded position, and to eliminate the $26.4 million charge to shareholders'
equity, net of the tax benefit of $17.8 million. In addition to the stock
contribution, the Company also made a cash contribution of $3.9 million during
the first quarter. The pension plans' funded status is primarily impacted by
discount rates (which are periodically changed to reflect then prevailing market
interest rates), market performance of plan assets, the granting of additional
benefits, changes in actuarial assumptions, including mortality assumptions, and
funding made by the Company during the year.
The Company's contribution of stock to its pension plans increased shareholders'
equity by $73.9 million, net of the anticipated registration cost. This
resulted in an improvement to the Company's debt-to-equity ratio to 1.6 on
November 3, 1996, down from 2.2 on July 31, 1996. This improved ratio enhances
the Company's ability to negotiate a new bank credit agreement (currently in
process) under more favorable terms. In addition, the stock contribution will
improve the Company's future liquidity by reducing future cash funding
requirements and also by reducing the benefit plans' annual expense due to the
expected return on the increased assets and reduced future Pension Benefit
Guarantee Corporation insurance premiums.
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 $1.2 billion on both November 3, 1996, and July
31, 1996. Approximately $555 million of the $1.2 billion backlog is expected to
be delivered in the remainder of fiscal 1997. (Sales during any period 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
equitable adjustment in contract amounts.
8
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Index to Exhibits:
*11.1 Calculation of Primary Net Income Per Share of Common Stock
*11.2 Calculation of Fully Diluted Net Income Per Share of Common
Stock
*27. Financial Data Schedule (Filed with EDGAR filing only.)
(b) Reports on Form 8-K
There were no reports on Form 8-K during this period.
___________________________
*Exhibits filed with this report.
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
ROHR, INC.
December 6, 1996 By: /s/ L. A. CHAPMAN
----------------------------
L. A. Chapman
Senior Vice President and Chief
Financial Officer
December 6, 1996 By: /s/ A. L. MAJORS
----------------------------
A. L. Majors
Vice President and Controller
(Chief Accounting Officer)
10
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EXHIBIT 11.1
ROHR, INC. AND SUBSIDIARIES
---------------------------
CALCULATION OF PRIMARY NET INCOME PER SHARE
-------------------------------------------
OF COMMON STOCK
---------------
(in thousands except for per share data)
----------------------------------------
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
-------------------
NOV. 3, OCT. 29,
1996 1995
-------- --------
<S> <C> <C>
Net income applicable to primary
earnings per common share $ 3,358 $ 482
======= =======
Common stock and common stock equivalents:
Average shares of common stock
outstanding during the period 22,500 18,093
Net effect of common stock equivalents
(principally stock options and rights) 934 589
------- -------
Total common stock and common stock equivalents 23,434 18,682
======= =======
Primary net income per average share of common stock $ 0.14 $ 0.03
======= =======
</TABLE>
11
<PAGE>
EXHIBIT 11.2
ROHR, INC. AND SUBSIDIARIES
---------------------------
CALCULATION OF FULLY DILUTED NET INCOME PER SHARE
-------------------------------------------------
OF COMMON STOCK - UNAUDITED
---------------------------
(in thousands except for per share data)
----------------------------------------
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
-------------------
NOV. 3, OCT. 29,
1996 1995
-------- --------
<S> <C> <C>
Net income applicable to primary earnings per
common share $ 3,358 $ 482
Add back interest and issue expense on
convertible debentures and notes - net of tax adjustment 250 1,888
------- -------
Net income applicable to fully diluted earnings per share $ 3,608 $ 2,370
======= =======
Average number of shares outstanding on a fully diluted basis:
Shares used in calculating primary earnings per share 23,434 18,682
Shares issuable on conversion of debentures and notes 1,905 8,225
------- -------
Average number of shares outstanding on
a fully diluted basis 25,339 26,907
======= =======
Fully diluted net income per average common share $ 0.14 $ 0.09
======= =======
</TABLE>
Note:
Fully diluted net income per average share is not presented in the Company's
Consolidated Statements of Operations as the effect of the assumed conversion of
the Company's convertible debentures and notes was anti-dilutive.
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> NOV-03-1996
<CASH> 57,420
<SECURITIES> 12,913
<RECEIVABLES> 142,989
<ALLOWANCES> 0
<INVENTORY> 412,253
<CURRENT-ASSETS> 637,466
<PP&E> 519,368
<DEPRECIATION> (325,662)
<TOTAL-ASSETS> 1,091,921
<CURRENT-LIABILITIES> 260,669
<BONDS> 481,153
0
0
<COMMON> 25,278
<OTHER-SE> 289,665
<TOTAL-LIABILITY-AND-EQUITY> 1,091,921
<SALES> 0
<TOTAL-REVENUES> 201,905
<CGS> 0
<TOTAL-COSTS> 178,354
<OTHER-EXPENSES> 7,447
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,488
<INCOME-PRETAX> 5,616
<INCOME-TAX> 2,258
<INCOME-CONTINUING> 3,358
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,358
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
