<PAGE>
1996
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JULY 31, 1996 COMMISSION FILE NUMBER 1-6101
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 Number)
850 LAGOON DRIVE, CHULA VISTA, CALIFORNIA 91910
(Address of principal executive offices)
(619) 691-4111
(Telephone No.)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE
PACIFIC STOCK EXCHANGE
THE STOCK EXCHANGE, LONDON
7% CONVERTIBLE SUBORDINATED NEW YORK STOCK EXCHANGE
DEBENTURES DUE 2012 PACIFIC STOCK EXCHANGE
THE STOCK EXCHANGE, LONDON
7-3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2004 NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
AT SEPTEMBER 11, 1996, THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY
NONAFFILIATES OF THE REGISTRANT, BASED ON MARKET QUOTATIONS AS OF THAT DATE, WAS
APPROXIMATELY $488,836,132.
AS OF SEPTEMBER 11, 1996, THERE WERE 22,673,290 SHARES OF THE REGISTRANT'S
COMMON STOCK OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE:
------------------------------------
Portions of the following documents are incorporated into this report by
reference:
1. Part II Registrant's Annual Report to Shareholders for fiscal year ended
July 31, 1996.
2. Part III Registrant's definitive Proxy Statement to be filed with the
Securities and Exchange Commission within 120 days after the
close of the fiscal year.
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
PART I
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 1. Business......................... 1
General........................ 1
Products....................... 2
Contracts...................... 4
Subcontractors................. 5
Program Funding................ 6
Principal Customers............ 6
Backlog........................ 6
Competition.................... 7
Raw Materials and Suppliers.... 8
Employees...................... 8
Environmental Matters.......... 8
Research and Development....... 9
Patents and Proprietary
Information.................... 9
Manufacturing.................. 10
Overhaul and Repair Facilities. 10
Miscellaneous.................. 10
Item 2. Properties....................... 10
Item 3. Legal Proceedings................ 12
Item 4. Submission of Matters to a Vote
of Security Holders............. 15
Additional Executive Officers of the
Item Registrant...................... 15
PART II.
Item 5. Market for Registrant's Common
Equity and Related
Stockholder Matters............. 17
Item 6. Selected Financial Data.......... 17
Item 7. Management's Discussion and
Analysis of Financial
Condition and Results of
Operations...................... 17
Item 8. Financial Statements and
Supplementary Data.............. 17
Item 9. Changes in and Disagreements
with Accountants on
Accounting and Financial
Disclosure...................... 17
PART III.
Item 10. Directors and Executive
Officers of the Registrant...... 18
Compliance with
Section 16(a) of the
Securities Exchange
Act of 1934.................... 18
Item 11. Executive Compensation........... 18
Item 12. Security Ownership of Certain
Beneficial Owners and
Management...................... 18
Item 13. Certain Relationships and
Related Transactions............ 19
PART IV.
Item 14. Exhibits, Financial Statement
Schedules, and Reports
on Form 8-K...................... 19
SIGNATURES
Signature Page................... 27
</TABLE>
ii
<PAGE>
PART 1
ITEM 1. BUSINESS
- -----------------
GENERAL
Rohr, Inc., (the "Company"), incorporated in Delaware in 1969, is the
successor to a business originally established in 1940 under the name of Rohr
Aircraft Corporation. The Company, a leading aerospace supplier, provides
nacelle and pylon systems integration, design, development, manufacturing, and
support services to the aerospace industry worldwide. The Company focuses its
efforts on the market for commercial aircraft which seat 100 or more passengers.
Its principal products include nacelles, which are the aerodynamic structures or
pods that surround an aircraft's engines; thrust reversers, which are part of
the nacelle system and assist in the deceleration of jet aircraft after landing;
pylons (sometimes referred to as struts) which are the structures that attach
the jet engines or the propulsion system to the aircraft; noise suppression
systems; engine components; and structures for high-temperature environments. In
addition, the Company conducts product research and development in advanced
composites and metals, high-temperature materials, acoustics, and manufacturing
processes for existing and future applications.
The Company sells products and services to the three major commercial
airframe manufacturers (Boeing, Airbus, and McDonnell Douglas) and to the five
major jet engine manufacturers (General Electric, Pratt & Whitney, Rolls-Royce,
CFM International, and International Aero Engines). In addition, the Company has
the right on certain programs to provide customer and product support directly
to airline operators and service centers around the world, including on-site
field services and the sale of spare parts. The Company's commercial and
government (military and space) products represented 92% and 8%, respectively,
of its sales in the fiscal year ended July 31, 1996.
The Company has over 50 years of experience in the aerospace industry.
Originally, the Company operated as a subcontractor to the airframe
manufacturers, building parts to the customer's design. Later, it began to
build to its own designs based on customer specifications. Eventually, the
Company also began operating as a subcontractor to the engine manufacturers who
then provided the engine with nacelle to the airframe manufacturers. In the
1980s, the Company significantly expanded its role in many newer programs by
becoming a systems integrator for nacelle systems with responsibility for the
integration and management of the design, tooling, manufacture, and delivery of
complete nacelle systems, directing the efforts of international consortia in
some cases. As a result of this range of experience, the Company can provide
many different levels of service to its customers depending upon their needs.
The Company can build to the customer's design, assist in that design, or assume
total responsibility for design, manufacture, integration and product support.
In addition, over the last several years, the Company has expanded its services
to the airlines through the direct sale of spare parts, the provision of
technical support and training, and the operation of repair and overhaul
facilities.
1
<PAGE>
Products
General. The Company designs and manufactures nacelle systems, nacelle
-------
components, pylons or struts, non-rotating components for jet engines, and other
components for commercial and military aircraft. A nacelle system generally
includes the nose cowl or inlet, fan cowl, nozzle systems and thrust reverser.
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 purchased or customer-furnished engine
equipment such as electrical generators, starters, fuel pumps and oil coolers.
The Company also performs engine build-ups ("EBU") by assembling nacelle systems
and the related electrical, mechanical, fluid and pneumatic systems onto core
aircraft engines.
Commercial. The Company has become a systems integrator, with
----------
responsibility for the integration and management of the design, tooling,
manufacture, and delivery of the complete nacelle or pylon system, including in
some cases sale of spare parts directly to the aircraft operator.
The Company has full systems integration responsibility for the complete
nacelle with thrust reverser, and performs substantial manufacturing for the
McDonnell Douglas MD-80, the Pratt & Whitney PW4000 series engine option for the
McDonnell Douglas MD-11 and the Airbus A310 and A300-600. In some cases, while
retaining full systems integration responsibility for the nacelle and thrust
reverser, the company has subcontracted certain major components. These programs
include the CFM International CFM56-5 nacelle program and the International Aero
Engines (an international consortium) nacelle program (excluding inlet and fan
cowl), both of which engines are being competitively marketed for the Airbus
A319, A320 and A321; the CFM International-powered Airbus A340; and the
McDonnell Douglas MD-90 aircraft. The company also has responsibility for the
wing and tail pylon program for the McDonnell Douglas MD-11 aircraft, and has
subcontracted the wing pylon manufacture and assembly.
The Company manufactures the thrust reverser, nozzle, pylons and fan cowl
for Rolls-Royce engine options for the Boeing 757; the pylon for the Pratt
engine option for the Boeing 757; the nacelle without thrust reverser for the
CF6-80C2, which is the General Electric engine option for the Airbus A310 and
A300-600 and McDonnell Douglas MD-11; the nacelle without thrust reverser for
the CF6-80E1, which is the General Electric engine option for the A330; nacelle
components, including the nose cowl, fan cowl, and extension ring, for the
Boeing 737; and the aft fan case nozzle and plug for the General Electric GE 90
engine option for the Boeing 777. Major components produced by the Company for
the General Electric CF6-80C2 nacelle are also used on the Boeing 747 and 767.
The role of systems integrator, while broadening the Company's business
base in the commercial aerospace industry, typically requires a substantial
investment in working capital and subjects the Company to increased market risk
relative to the ultimate success of such programs. In those cases where the
Company has in turn, subcontracted the design and production of major components
(CFM56-5, V2500, MD-90, A340 and the wing pylon for the MD-11) to foreign and
domestic companies, some of the risks associated with such programs have been
passed on to those subcontractors. However, 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. See
"Subcontractors".
In June 1995, the Company finalized an agreement with Boeing to design,
tool and manufacture the inlet and fan cowls for the Boeing 737-700 aircraft. In
July 1996, the Company delivered the first inlets and fan cowls for the
aircraft.
In February 1996, BMW Rolls-Royce Aero Engines selected the Company to be
the nacelle system integrator for the new MD-95 aircraft. Delivery of
development hardware is scheduled to start in fiscal 1997.
2
<PAGE>
In September 1996, the Company announced that it will manufacture
modification kits for the re-engining of existing Boeing 727 aircraft with new
Pratt & Whitney JT8D-217C/219 engines. The program, designated the "Super 27,"
consists of new nacelles, struts, engine mounts and thrust reversers.
Government (Military and Space). For military aircraft, the Company
-------------------------------
manufactures nacelles for the Lockheed C-130 propjet transport aircraft on which
final deliveries of production hardware were completed in fiscal year 1996 and
nacelle components for re-engining of existing Boeing KC-135 military aerial
refueling tankers. For the U.S. space program, the Company substantially
completed deliveries in fiscal year 1996 of solid fuel rocket motor nozzles and
insulated casings which are used on the Titan Space Launch Vehicle. The Company
is providing technical support in designing the engine bay doors for the U.S.
Air Force F-22 tactical fighter aircraft. As a member of the Lockheed Martin
team which was selected in July 1996 by NASA to build and fly a sub-scale
demonstrator X-33 Single-Stage-to-Orbit ("SSTO") reusable launch vehicle, the
Company will be responsible for the SSTO's thermal protection system design,
fabrication and operability improvements. The Company will employ its
proprietary thermal protection system on the entire exterior of the X-33 except
for the rockets, control jets and vertical tails.
The Company's government business has declined in recent years and the
Company expects the percentage of its revenues attributable to government sales
to decline further in future years. The extent of future sales under military
programs is dependent, among other things, upon continued government funding.
Spare Parts. The Company sells spare parts for both military and
-----------
commercial aircraft, including those for aircraft in use but no longer in
production. Such sales from continuing operations were approximately $178.5
million in fiscal 1996, $142.5 million in fiscal 1995, and $148.9 million in
fiscal 1994.
Historically, the Company has sold spare parts for commercial programs to
airframe or engine manufacturers which then resold them to the end user.
However, under several major programs, the Company now has the right 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, on certain programs, the Company has the right
to provide customer and product support directly to approximately 150 airline
operators and service centers 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.
Other Activities. The Company also manufactures other components for
----------------
military and commercial jet aircraft, including the nozzle and plug used on the
Rolls-Royce-powered versions of the Boeing 747 and 767 and the Airbus A330, and
the acoustical ducts and/or acoustic panels for the Pratt & Whitney engine used
on the McDonnell Douglas MD-80 and the Boeing 757.
3
<PAGE>
The Company has been performing nacelle modification and integration
services for Pratt & Whitney, installing Boeing 757 nacelles under a Pratt &
Whitney license, on the PW2000 series engine for use on the former Soviet
Union's IL-96M/T transport aircraft. Pratt & Whitney has entered into a contract
with Boeing for additional nacelles and is negotiating final arrangements with
the Company for additional modification and integration services.
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 has experienced pressures
from customers to reduce prices. In response, the Company has incorporated or
is in the process of incorporating design changes on certain programs, allowing
for a more cost effective manufacture of certain products, and is exerting
pressure on its own suppliers to reduce prices.
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 perform more efficiently than it assumed at the time of pricing.
Conversely, there is 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 block of the units which it believes 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 analyzes the potential market for the products under such contracts and
agrees to prices based on its estimate of the average estimated costs for the
units it expects to deliver under the program.
4
<PAGE>
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 spares
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 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. To reduce such funding 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.
Under all contracts, the Company may encounter, and on several programs from
time to time has encountered, preproduction and/or production cost overruns
caused by increased material, labor or overhead costs, design or production
difficulties, increased quality requirements, redefined acceptance criteria on
government programs, and various other factors such as technical and
manufacturing complexity. The Company seeks recovery of such cost overruns from
the customer if they are caused by the action or inaction of the customer;
otherwise, such cost overruns will be, and in many cases have been, borne by the
Company.
Incident to the manufacture and sale by the Company of its products, the
Company is subject to possible liability by reason of (i) warranties against
defects in design, material and workmanship; (ii) potential product liability
responsibility arising out of the use of its products; and (iii) strict
liability arising from the disposal of certain wastes covered by environmental
protection laws. The Company also has varying contractual obligations to
maintain the ability to produce and service spare parts as long as there are
specified numbers of aircraft still in operation. Many of the Company's
contracts provide remedies ranging from actual damages to specified daily
penalties for late deliveries of products.
SUBCONTRACTORS
The competitive market has required the Company to make substantial financial
investments in programs on which it participates. Both to reduce the burden and
risk of such financial investments, and also in some cases to participate in
foreign programs, the Company has further subcontracted the design, development
and production of substantial portions of several of its major components to
other foreign and domestic corporations. In return, those
5
<PAGE>
companies provided a portion of the investment and assumed a portion of the risk
associated with various of the Company's programs. 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.
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 receivables.
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. On 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 non-recurring costs or for amounts which had been deferred
pending aircraft certification.
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"
in the Company's 1996 Annual Report to Shareholders. With respect to new
programs which are developed, the Company anticipates that it may team with
partners, or obtain financial commitments from one or more qualified
subcontractors, prior to entering bids for work.
PRINCIPAL CUSTOMERS
For a discussion of the Company's sales to its principal customers, see "Notes
to the Consolidated Financial Statements" in the Company's 1996 Annual Report to
Shareholders, Note 3--"Accounts Receivable--Sales."
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
6
<PAGE>
represents the sales price of all undelivered units covered by customer orders.
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's firm backlog at July 31, 1996, was approximately $1.2 billion,
compared to $1.0 billion at July 31, 1995. Of such backlog, approximately $700
million is scheduled for delivery on or before July 31, 1997, with the balance
to be delivered in subsequent periods. A portion of the Company's expected
sales for fiscal 1997 is not included in firm backlog.
All of the Company's firm 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.
COMPETITION
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. 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, which may result in increasingly intense price competition
for orders. While the Company believes it competes effectively, there can be no
assurance that the Company can maintain its share of the market for these
products.
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.
Even with respect to its shorter term contracts, the Company is 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 a
transfer are likely to disrupt the prime contractor's own production schedule as
the flow of deliveries from the subcontractor is
7
<PAGE>
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. As a result of all of these
factors, it is 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 combined with the ability to quickly bring a product to market,
ability to consistently achieve scheduled delivery dates, manufacturing
capabilities and capacity, technical 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.
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.
EMPLOYEES
At July 31, 1996, the Company had approximately 3,800 full-time employees, of
whom approximately 1,016 were represented by the International Association of
Machinists and Aerospace Workers under agreements which expire on February 15,
2000; approximately 110 were represented by the International Union, United
Automobile, Aerospace and Agricultural Implement Workers of America under an
agreement which expires on October 29, 2000; and approximately 15 were
represented by the International Union of Operating Engineers under an agreement
which expires on June 25, 2000. The Company considers its relationship with its
employees generally to be satisfactory.
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
8
<PAGE>
hazardous wastes. If the Company were to violate or otherwise to have liability
pursuant to any of these laws or regulations, it could be subject to judicial or
administrative enforcement proceedings requiring the Company to investigate the
nature and extent of any pollution it caused, to remediate such pollution, to
install control devices in its manufacturing facilities to reduce the amount of
pollutants entering the environment and to otherwise respond to orders and
requests of the courts and the various regulatory agencies. These proceedings
could result in the Company expending additional funds to satisfy judicial or
regulatory decisions. 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 laws 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--Environmental Matters" and
"Notes to the Consolidated Financial Statements, Note 8, Commitments and
Contingencies," in the Company's 1996 annual report to shareholders. See, also,
Item 3, "Legal Proceedings," in this report.
The Company is involved in several proceedings and investigations related to
waste disposal sites and other environmental matters. See Item 3, "Legal
Proceedings," for a discussion of these matters, and additional suits and
matters that are pending or have been threatened against the Company.
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.
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
and other agreements, several of which are funded by the U.S. government. The
Company developed the world's first all composite nacelle and its large cascade
thrust reverser 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.
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
9
<PAGE>
composite structures, material specifications and manufacturing processes. The
Company protects this information through invention agreements with its
employees and confidentiality agreements with 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.
MANUFACTURING
The Company's products are manufactured and assembled at its facilities in the
United States and Europe by an experienced work force. 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's European final assembly sites, which are located adjacent to the
Company's major European customer, Airbus, allow the Company to respond quickly
to customer 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.
OVERHAUL AND REPAIR FACILITIES
The Company has three overhaul and repair facilities which have been
officially certified by the Federal Aviation Administration ("FAA") of the U. S.
Department of Transportation to operate as FAA-approved repair stations. The
facilities are located in Fairhope, Alabama; Toulouse, France; and Loyang,
Singapore. The Singapore facility is jointly owned by the Company and Singapore
Aerospace Manufacturing Pte., Ltd. With the recent authorization of the
Singapore facility by the Civil Aviation Authority of Singapore to perform
overhaul and repair work, the Company has the full capability to overhaul and
repair nacelles and thrust reversers for airlines operating virtually anywhere
in the world.
In September 1996 the Company announced plans to expand its current European
overhaul and repair presence by opening an overhaul and repair facility in
Prestwick, Scotland in December 1996.
MISCELLANEOUS
No material portion of the Company's business is considered to be seasonal.
ITEM 2. PROPERTIES
- -------------------
All owned and leased properties of the Company are generally well maintained,
in good operating condition, and are generally 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
10
<PAGE>
Company's option on substantially similar terms, except for increases of rent
which must be negotiated in some cases.
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 its subsidiaries are owned free of material encumbrances,
except as noted below:
<TABLE>
<CAPTION>
Owned Leased
----------------------------- ----------------------------------
Approximate Approximate
Square Feet Square Feet
Type of of Facility Approximate of Facility Approximate
Location Facility(1) (000) Acreage (000) Acreage
- ----------------------------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
ALABAMA
Fairhope(2)................ A,B 123 70.6 -- --
Foley(2)................... A,B 343 163.7 -- --
ARKANSAS
Arkadelphia(3)............. A,B 224 65.2 -- --
Heber Springs(2)........... A,B 153 70.5 -- --
Sheridan(2)................ A,B 149 78.0 -- --
CALIFORNIA
Chula Vista................ A,B,C,D 2,743 97.5 11.8 57.5
Moreno Valley(4)........... A,B,C 82 8.9 -- --
Riverside.................. A,B,C,D 1,162 75.3 -- --
FRANCE
Toulouse/St. Martin........ A,B,C 132 7.0 18 3.2
Toulouse/Gramont(2)........ A,B 170 23.0 -- --
GERMANY
Hamburg.................... A,B 28 5.3 -- --
MARYLAND
Hagerstown................. A,B 423 55.7 -- --
TEXAS
San Marcos................. A,B 172 55.0 -- --
----------- ------------ ----------- ------------
Approximate Totals......... 5,904 775.7 29.8 60.7
- -------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(1) The letters indicated for each location describe the principal (2) Subject to a capital lease.
activities conducted at that location:
A-Office (3) The completion of construction of this facility has
B-Manufacturing been deferred. The Company has taken an impairment write
C-Warehouse down on the facility and anticipates listing it for sale
D-Research and Testing in the near future.
(4) This facility has been vacated and listed for sale.
</TABLE>
The above table does not include a 44,000 square foot service center located in
Singapore which is owned jointly by the Company and Singapore Aerospace
Manufacturing Pte. Ltd.
11
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
A. Accounts receivable and inventories include estimated recoveries on
constructive change claims that the Company has asserted with respect to costs
it incurred as a result of government imposed redefined acceptance criteria on
several government subcontracts. In connection with the Grumman F-14
subcontract, the Company filed Appeal No. 47139 (filed February 7, 1994) before
the Armed Service Board of Contract Appeals ("ASBCA"). In connection with the
Boeing E3/E6 subcontract, the Company filed Appeal No. 47430, (filed April 11,
1994) before the ASBCA. In the above appeals, the Company's customers are
sponsors of the claims, the U.S. Navy is the defendant, and the Company is
claiming monetary damages. Management believes that the amounts reflected in
the financial statements are within the range of estimates of the amounts for
which these matters will be resolved. The resolution of these matters may take
several years. See "Notes to the Consolidated Financial Statements, Note 3",
contained in the Company's 1996 Annual Report to Shareholders.
B. 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, 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 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% to 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 recommendation is subject to a
final decision and appeal. The Company and 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. Notwithstanding, CERCLA liability is sometimes
allocated among hazardous waste generators who used a waste disposal site based
on the volume of hazardous waste they disposed of at the site. The Company is
the second largest generator of wastes disposed at the site by volume, although
it and certain other generators have argued the final allocation among
generators of their shares of cleanup costs should not be determined solely by
volume. The largest generator of
12
<PAGE>
wastes disposed at the Stringfellow site, by volume, 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 intends to
continue to defend vigorously these matters and believes, based on currently
available information, that the ultimate resolutions of these matters will not
have a material adverse effect on the financial position or results of
operations of the Company.
The Company filed claims against its comprehensive general liability insurers
for reimbursement of its cleanup costs at the Stringfellow site. These claims
are the subject of separate litigation, United Pacific Insurance Co., et al. vs.
Rohr Industries, Inc., et al., No. C634195 in the Los Angeles Superior Court.
The Company has reached settlements with its primary comprehensive general
liability insurance carriers and has retained the right to file future claims
against its excess carriers.
C. 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. 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 also 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 operations of the Company.
D. In July 1994, the Department of Toxic Substances Control of the State of
California Environmental Protection Agency ("DTSC") filed an action against the
Company and other individuals and companies in the U. S. District Court for the
Eastern District of California, Case No. CV-F-94-5683-GEB DLB, seeking, among
other things, recovery of response costs approximating $1.3 million plus
interest and attorney fees. The demand for payment, which is joint and several,
is 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"). In January 1996, the DTSC and the Cooperating PRPs settled
the monetary claim for a reduced amount. In addition, the Cooperating PRPs have
agreed to plug and abandon the deep injection well which will resolve the last
remaining cleanup issues. Based on currently available information,
13
<PAGE>
the Company believes that the resolution of this matter will not have a material
adverse effect on the financial position or results of operations of the
Company.
E. During fiscal 1993, Region IX of the United States Environmental
Protection Agency ("EPA") named the Company as a generator of hazardous wastes
that were transported to the Casmalia Resources Hazardous Waste Management
Facility (the "Casmalia Site") in Casmalia, California. In July 1996 the
Company and approximately 50 other cooperating generators executed a Consent
Decree and an Administrative Order on Consent which obligated the cooperating
generators to perform, jointly and severally, certain responsive actions at the
Casmalia Site prior to the entry of the Consent Decree. 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 $1.8 million. 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
operations of the Company.
F. By letter dated July 14, 1994, the Company was notified by the State of
Washington's Department of Ecology that the Department believes the Company to
be a "potentially liable person" ("PLP") under the Model Toxics Control Act of
the Revised Code of Washington. The Company is alleged to have arranged for the
disposal or treatment of a hazardous substance or arranged with a transporter
for disposal or treatment of a hazardous substance at a facility in Washington
known as the Yakima Railroad Area. The Department has made a written
determination that the Company is a PLP. In June 1996, the Department advised
the Company that it has been drafting a uniform settlement offer to be extended
individually to the PLPs, specifically, those who, like the Company, allegedly
shipped carbon to the site. The settlement will be based on pounds of PCE-
containing carbon shipped to the site. The Department anticipates that the
settlement program will be ready to implement in or about September 1996. 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 operations of the Company.
G. In July 1996 the United States Environmental Protection Agency ('EPA")
advised the Company that it was working under the Superfund program to
investigate and clean up contamination from hazardous substances, particularly
polychlorinated biphenyls (PCBs), volatile organic compounds (VOCs), and waste
oils from the Hayford Bridge Groundwater Superfund Site located in St. Charles,
Missouri. The EPA further advised the Company that business records from the
site operator indicated that the Company sent materials to the facility for
services which may have included recycling, reclamation, generation, disposal,
treatment, storage, chemical processing, manufacture or other handling. The EPA
further requested the Company to respond to an information request concerning
the Company's use of the facility between 1963 and 1989. The Company is
currently researching its records in order to respond to the
14
<PAGE>
information request. 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 operations of the Company.
H. 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.
I. In addition to the litigation discussed above, from time to time the
Company is a defendant in lawsuits involving (i) claims based on the Company's
alleged negligence or strict liability as a manufacturer in the design or
manufacture of various products; (ii) claims based upon environmental protection
laws; and (iii) claims based on the alleged wrongful termination of its
employees due to, among other things, discrimination based on race, age, sex,
national origin, handicap status, sexual preference, etc. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
There is no information required to be submitted by the Company under this
Item.
ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY
- ---------------------------------------------------
As of September 11, 1996, the executive officers of the Company, in addition
to R. H. Rau, President and Chief Executive Officer, referred to at Item 10,
Part III, were as follows:
LAURENCE A. CHAPMAN, Senior Vice President and Chief Financial Officer, age
47, joined the Company in May 1994. Prior to that and since 1981, he worked
for Westinghouse Electric Company ("Westinghouse"). He had been the Vice
President and Treasurer of Westinghouse since January 1992. He was
previously the Chief Financial Officer of Westinghouse Financial Services,
Inc., a wholly-
15
<PAGE>
owned subsidiary of Westinghouse. Prior to that, Mr. Chapman held positions in
Corporate Finance and Corporate Planning with Westinghouse.
JOHN R. JOHNSON, Senior Vice President, Programs, Technical Resources, and
Quality Assurance, age 59, has served in his present position since January
1994. Prior to that and since September 1979, he has served in other senior
management positions, including Senior Vice President, Programs and Support
from March 1993 to January 1994; Vice President, Government Business from
February 1990 to February 1993; Vice President, Planning from May 1989 to
February 1990; and Vice President, Manufacturing, Chula Vista, from April
1986 to May 1989. He joined the Company in September 1979.
RICHARD W. MADSEN, Vice President, General Counsel and Secretary, age 57,
has served in his present position since December 5, 1987. Prior to that and
since August 1979, he served as Secretary and head of the legal function, and
has been an employee of the Company since 1974.
ALVIN L. MAJORS, Vice President and Controller (Chief Accounting Officer),
age 56, has served in his present position 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.
DAVID R. WATSON, Senior Vice President - Customer Support and Business
Development, age 45, has served in his present position since March 1994,
assuming the title of Senior Vice President in June 1994. Prior to that and
since May 1991, he served as Vice President, Commercial Programs. In May
1989, he assumed the position of Vice President and General Manager of the
Company's Riverside facility. He has been an employee since February 1988
when he joined the Company as Vice President, Quality Assurance.
GRAYDON A. WETZLER, Senior Vice President, Operations, age 54, has served
in his present position since January 1994. Prior to that and since July
1993, he served as Vice President, Technical and Quality Assurance. From
November 1990 to July 1993, he served as Vice President Quality/Product
Assurance. From April 1987 to November 1990, he served as Vice President -
Management Information Systems. He has served in other senior management
positions. He has been an employee of the Company since 1979.
The terms of office of Messrs. Chapman and Madsen expire on December 7, 1996.
The initial three-year term of Mr. Rau's Employment Agreement terminated on July
31, 1996; however, the agreement is automatically extended for successive
periods of one year each unless the Board of Directors gives one year's advance
written notice of its intention to terminate the agreement. The other executive
officers named above serve at the pleasure of the Chief Executive Officer.
16
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
Although a cash dividend has not been paid since 1975, a 2-for-1 stock
dividend was paid in December 1985. Currently, under the terms of certain
covenants in several of the Company's principal financing agreements, the
Company may not pay cash dividends until after April 25, 1997. Thereafter, the
Company's ability to pay cash dividends is restricted substantially.
Other information required by this Item is set forth in the section headed
"Rohr Profile" in the Registrant's Annual Report to Shareholders for the fiscal
year ended July 31, 1996, and such information is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
The information required by this Item is set forth in the section headed
"Selected Financial Data" in the Company's Annual Report to Shareholders for the
fiscal year ended July 31, 1996, and such information is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
The information required by this Item is set forth in the section headed
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's Annual Report to Shareholders for the fiscal year
ended July 31, 1996, and such information is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -----------------------------------------------------
The information required by this Item is set forth in the section headed
"Consolidated Balance Sheets," "Consolidated Statements of Operations,"
"Consolidated Statements of Shareholders' Equity," "Consolidated Statements of
Cash Flows," and "Notes to the Consolidated Financial Statements" in the
Company's Annual Report to Shareholders for the fiscal year ended July 31, 1996,
and such information is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
There is no information required to be submitted by the Company under this
Item.
17
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The information required under this Item is set forth in the section headed
"Election of Directors" in the Company's Proxy Statement for the 1996 Annual
Meeting of Shareholders for fiscal year ended July 31, 1996, and such
information is incorporated herein by reference. See also "Additional Item" at
Part I of this report.
Compliance with Section 16(a) of The Securities Exchange Act of 1934
- --------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10 percent of a registered
class of the Company's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission ("SEC") and the
New York Stock Exchange. Officers, directors and greater than 10-percent
shareholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file. Based solely on its review of the copies
of such forms received by it, or written representations from certain reporting
persons that no such forms were required for those persons, the Company believes
that, during fiscal year 1996, all filing requirements applicable to its
officers, directors, and greater than 10-percent beneficial owners were complied
with, except Mr. Rau, the Company's President and Chief Executive Officer, filed
a Form 4 in June 1996 reporting (i) the receipt of a grant of 40,000 shares of
the Company's common stock in 1993 (previously disclosed in the Company's Proxy
Statements since 1993) and (ii) the acquisition of 2,850 shares of the Company's
common stock by his wife in fiscal year 1995.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
The information required by this Item is set forth in the section headed
"Executive Compensation and Other Information" and in the section headed
"Directors' Beneficial Ownership and Compensation" in the Company's Proxy
Statement for the 1996 Annual Meeting of Shareholders for fiscal year ended July
31, 1996, and such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The information required by this Item is set forth in the table headed
"Beneficial Ownership of Shares" in the Company's Proxy Statement for the 1996
Annual Meeting of Shareholders for fiscal year ended July 31, 1996, and such
information is incorporated herein by reference.
18
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
There is no information required to be submitted by the Company under this
Item.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
The following consolidated financial statements of the Company and
consolidated subsidiaries, included in the Company's 1996 Annual Report to
Shareholders, are incorporated by reference in Item 8:
(a) 1. Financial Statements
--------------------
Consolidated Balance Sheets at July 31, 1996, and 1995
Consolidated Statements of Operations for Years Ended
July 31, 1996, 1995, and 1994
Consolidated Statements of Shareholders' Equity for
Years Ended July 31, 1996, 1995, and 1994
Consolidated Statements of Cash Flows for Years
Ended July 31, 1996, 1995, and 1994
Notes to the Consolidated Financial Statements
(a) 2. Financial Statement Schedules
-----------------------------
The following consolidated financial statement schedule of the
Company and subsidiaries is included in Part IV of this report.
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, not
required under the instructions or the information is included in the
financial statements or notes thereto.
(a) 3. Index to Exhibits
-----------------
3.1 Restated Certificate of Incorporation of Rohr Industries, Inc.,
dated December 7, 1985, incorporated herein by reference to
Exhibit 3.1 filed with Form 10-K for fiscal year ended July 31,
1986.
3.2 Certificate of Designations of Series C Junior Participating
Cumulative Preferred Stock $1.00 Par Value of Rohr Industries,
Inc., dated August 15, 1986.
19
<PAGE>
incorporated herein by reference to Exhibit 3.2 filed with Form
10-K for fiscal year ended July 31, 1986.
3.3 Certificate of Amendment to Restated Certificate of
Incorporation, dated December 9, 1986, incorporated herein by
reference to Exhibit 3.3 filed with Form 10-K for fiscal year
ended July 31, 1987.
3.4 Certificate of Amendment to Restated Certificate of
Incorporation, dated December 10, 1991, incorporated herein by
reference to Exhibit II filed with Form 8-K dated as of December
7, 1991.
3.5 Bylaws, as amended December 3, 1994, incorporated herein by
reference to Exhibit 3.8 filed with Form 10-Q for period ended
January 29, 1995.
4.1 Indenture, dated as of March 1, 1987, between Rohr Industries,
Inc., and Bankers Trust Company, trustee, relating to 9 1/4%
subordinated debentures, incorporated herein by reference to
Exhibit 4.1 filed with Form 10-Q for period ended May 2, 1993.
4.2 Indenture, dated as of October 15, 1987, between Rohr Industries,
Inc., and Bankers Trust Company, trustee, relating to 7%
convertible subordinated debentures, incorporated herein by
reference to Exhibit 4.2 filed with Form 10-Q for period ended
May 2, 1993.
4.3 Indenture, dated as of May 15, 1994, between Rohr, Inc., and IBJ
Schroder Bank and Trust Company, trustee, relating to 11 5/8%
senior notes, incorporated herein by reference to Exhibit 4.5
filed with Form 10-Q for period ended May 1, 1994.
4.4 Indenture, dated as of May 15, 1994, between Rohr, Inc., and The
Bank of New York, trustee, relating to 7 3/4% convertible
subordinated notes, incorporated herein by reference to Exhibit
4.6 filed with Form 10-Q for period ended May 1, 1994.
4.5 Amended and Restated Note Agreement, dated as of January 1, 1996,
relating to the 9.35% Series A Senior Notes due January 29, 2000,
the 9.35% Series B Senior Notes due January 29, 2000, and the
9.33% Series C Senior Notes due December 15, 2001, incorporated
herein by reference to Exhibit 4.5.2 filed with Form 10-Q for
period ended January 28, 1996.
4.7 Amended and Restated Rights Agreement, dated as of April 6, 1990,
incorporated herein by reference to Item 7 of Form 8-K dated as
of April 6, 1990.
4.7.1 Amendment No. 1 to Amended and Restated Rights Agreement,
incorporated herein by reference to Exhibit 4.7, filed with Form
10-Q for period ended January 28, 1996.
20
<PAGE>
10.1 Rohr Industries, Inc., Directors Retirement Plan, as amended
through the Seventh Amendment, incorporated herein by reference
to Exhibits 10.1 through 10.7, as set forth in Form 10-K for
fiscal year ended July 31, 1994.
10.2 Rohr Industries, Inc., Supplemental Retirement Plan (Restated
1983), as amended through the Twenty-seventh Amendment,
incorporated herein by reference to Exhibits 10.2.1 through
10.2.27, as set forth in Form 10-K for fiscal year ended July 31,
1994.
10.2.28 Twenty-eighth Amendment to Rohr Industries, Inc., Supplemental
Retirement Plan (Restated 1983), dated April 7, 1995,
incorporated herein by reference to Exhibit 10.2.28, filed with
Form 10-K for fiscal year ended July 31, 1995.
10.2.29 Twenty-ninth Amendment to Rohr Industries, Inc., Supplemental
Retirement Plan (Restated 1983), dated April 7, 1995,
incorporated herein by reference to Exhibit 10.2.29, filed with
Form 10-K for fiscal year ended July 31, 1995.
10.2.30 Thirtieth Amendment to Rohr Industries, Inc., Supplemental
Retirement Plan (Restated 1983), dated July 24, 1995,
incorporated herein by reference to Exhibit 10.2.30, filed with
Form 10-K for fiscal year ended July 31, 1995.
*10.2.31 Thirty-First Amendment to Rohr, Inc. Supplemental Retirement
Plan, dated September 13, 1996.
*10.2.32 Thirty-Second Amendment to Rohr, Inc. Supplemental Retirement
Plan, dated September 13, 1996.
10.3 Rohr, Inc. 1991 Stock Compensation for Non-Employee Directors,
incorporated by reference to Exhibit 10.5 filed with Form 10-K
for fiscal year ended July 31, 1992.
10.4 Rohr Industries, Inc., Management Incentive Plan (Restated 1982),
as amended through the Fifteenth Amendment, incorporated herein
by reference to Exhibits 10.4.1 through 10.4.15, as set forth in
Form 10-K for fiscal year ended July 31, 1994.
*10.4.1 Sixteenth Amendment to Rohr, Inc. Management Incentive Plan
(Restated 1982), dated June 7, 1996.
*10.4.2 Seventeenth Amendment to Rohr Industries, Inc. Management
Incentive Plan (Restated 1982), dated September 13, 1996.
10.5 Rohr Industries, Inc., 1988 Non-Employee Director Stock Option
Plan, incorporated herein by reference to Exhibit 10.17 filed
with Form 10-K for fiscal year ended July 31, 1989.
10.6 Performance Unit Plan as amended through January 7, 1993,
incorporated herein by reference to Exhibit 10.13, filed with
Form 10-Q for period ended May 2, 1993.
21
<PAGE>
10.7 Employment Agreement with Robert H. Rau, incorporated herein by
reference to Exhibit 10.12, filed with Form 10-Q for period ended
May 2, 1993.
*10.7.1 First Amendment to Employment Agreement with Robert H. Rau.
10.8 Employment Agreement with L. A. Chapman, incorporated herein by
reference to Exhibit 10.12, filed with Form 10-K for fiscal year
ended July 31, 1994.
10.13 Credit Agreement, dated as of April 26, 1989, among Rohr
Industries, Inc., as Borrower, and Citibank, N. A., Bankers Trust
Company, The First National Bank of Chicago and Wells Fargo Bank,
N. A., and Citibank, N.A., as Agent, as amended through the
Seventh Amendment, incorporated herein by reference to Exhibits
10.13 through 10.13.7, as set forth in Form 10-K for the fiscal
year ended July 31, 1994.
10.13.8 Eighth Amendment to Credit Agreement, dated as of November 29,
1994, incorporated herein by reference to Exhibit 10.13.8, filed
with Form 10-K for fiscal year ended July 31, 1995.
10.13.9 Ninth Amendment to Credit Agreement, dated as of June 30, 1995,
incorporated herein by reference to Exhibit 10.13.9, filed with
Form 10-K for fiscal year ended July 31, 1995.
10.13.10 Tenth Amendment to Credit Agreement, dated as of November 17,
1995, incorporated herein by reference to Exhibit 10.13.10, filed
with Form 10-Q for period ended January 28, 1996.
10.13.11 Eleventh Amendment to Credit Agreement, dated as of January 15,
1996, incorporated herein by reference to Exhibit 10.13.11, filed
with Form 10-Q for period ended January 28, 1996.
10.14 Lease Agreements, dated as of September 14, 1992, by and between
Rohr, Inc., as lessor, and State Street Bank and Trust Company of
California, National Association and W. Jeffrey Kramer, Trustees,
as lessee, incorporated herein by reference to Exhibit 10.22
filed with Form 10-K for fiscal year ended July 31, 1992.
10.15 Sublease Agreements, dated as of September 14, 1992, by and
between State Street Bank and Trust Company of California,
National Association and W. Jeffrey Kramer, Trustees, as
sublessor, and Rohr, Inc., as sublessee, as amended, supplemented
and modified through July 31, 1994, incorporated herein by
reference to Exhibits 10.15 through 10.15.5, as set forth in Form
10-K for the fiscal year ended July 31, 1994.
10.15.6 Third Amendment Agreement, dated as of November 29, 1994, to
Sublease Agreement, dated as of September 14, 1992, incorporated
herein by reference to Exhibit 10.15.6, filed with Form 10-K for
fiscal year ended July 31, 1995.
22
<PAGE>
10.15.7 Fourth Amendment Agreement, dated as of June 30, 1995, to
Sublease Agreement, dated as of September 14, 1992, incorporated
herein by reference to Exhibit 10.15.7, filed with Form 10-K for
fiscal year ended July 31, 1995.
10.15.8 Fifth Amendment Agreement, dated as of November 17, 1995, to
Sublease Agreement, dated as of September 14, 1992, incorporated
herein by reference to Exhibit 10.15.8, filed with Form 10-Q for
period ended January 28, 1996.
10.15.9 Sixth Amendment Agreement, dated as of January 19, 1996, to
Sublease Agreement, dated as of September 14, 1992, incorporated
herein by reference to Exhibit 10.15.9, filed with Form 10-Q for
period ended January 28, 1996.
10.16 Pooling and Servicing Agreement, dated as of December 23, 1992,
among Rohr, Inc., RI Receivables, Inc., and Bankers Trust
Company, as Trustee, as amended through the Second Amendment,
incorporated herein by reference to Exhibits 10.16, through
10.16.2, as set forth in Form 10-K for the fiscal year ended
July 31, 1994.
10.17 Receivables Purchase Agreement, dated as of December 23, 1992,
among Rohr, Inc., and RI Receivables, Inc., incorporated herein
by reference to Exhibit 10.11, filed with Form 10-Q for period
ended May 2, 1993.
*11.1 Calculation of Primary Earnings per Share.
*11.2 Calculation of Fully Diluted Earnings per Share.
*13 Annual Report to Shareholders for fiscal year ended July 31,
1996. (The Annual Report, except for the portions thereof which
are expressly incorporated by reference in the Form 10-K, is
being furnished for the information of the Commission and is not
to be deemed "filed" as part of the Form 10-K.)
*23. Consent of Deloitte & Touche.
*27. Financial Data Schedule. (Filed with EDGAR filing only.)
(b) Reports on Form 8-K for Fourth Quarter of Fiscal 1996
-----------------------------------------------------
There were no reports on Form 8-K filed by the Company for the fourth
quarter of fiscal 1996.
(c) Exhibits required by Item 601 of Regulation S-K
-----------------------------------------------
See Subparagraph (a) above.
23
<PAGE>
(d) Financial Statements required by Regulation S-X
-----------------------------------------------
See Subparagraph (a) and (b) above.
- ---------------
* Exhibits filed with this report.
24
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Rohr, Inc.:
We have audited the consolidated financial statements of Rohr, Inc., as of July
31, 1996 and 1995, and for each of the three years in the period ended July 31,
1996, and have issued our report thereon dated September 11, 1996; such
consolidated financial statements and report are included in your 1996 Annual
Report to Shareholders and are incorporated herein by reference. Our audits
also included the financial statement schedule of Rohr, Inc., listed in Item
14(a)(2). This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Deloitte & Touche L L P
San Diego, California
September 11, 1996
25
<PAGE>
ROHR, INC., AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JULY 31, 1996, 1995, AND 1994
(dollars in thousands)
<TABLE>
<CAPTION>
Charged Balance
Balance at to Costs at
beginning and Accounts end of
of period Expenses written off period
________ ________ _______ _______
<S> <C> <C> <C> <C>
Reserve for bad debts:
1996 $12,922 $ 128 $ -- $13,050
1995 21,422 (8,500) 12,922
1994 11,122 10,300 -- 21,422
</TABLE>
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ROHR, INC.
(Registrant)
By: /s/ R. H. Rau
-------------
R. H. Rau
President and Chief Executive Officer
By: /s/ L. A. Chapman
-----------------
L. A. Chapman
Senior Vice President and Chief
Financial Officer
By: /s/ A. L. Majors
----------------
A. L. Majors
Vice President and Controller
(Chief Accounting Officer)
Date: September 11, 1996
27
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- -------------------- --------- ------------------
<S> <C> <C>
/s/ W. Barnes Director SEPTEMBER 11, 1996
- -------------
W. Barnes
/s/ E. E. Covert Director SEPTEMBER 11, 1996
- ----------------
E. E. Covert
/s/ S. F. Iacobellis Director SEPTEMBER 11, 1996
- --------------------
S. F. Iacobellis
/s/ V. N. Marafino Director SEPTEMBER 11, 1996
- ------------------
V. N. Marafino
/s/ D. Larry Moore Director SEPTEMBER 11, 1996
- ------------------
D. Larry Moore
/s/ R. M. Price Director SEPTEMBER 11, 1996
- ---------------
R. M. Price
/s/ R. H. Rau Director SEPTEMBER 11, 1996
- -------------
R. H. Rau
/s/ W. P. Sommers Director SEPTEMBER 11, 1996
- -----------------
W. P. Sommers
/s/ J. D. Steele Director SEPTEMBER 11, 1996
- ----------------
J. D. Steele
/s/ J. R. Wilson Director SEPTEMBER 11, 1996
- ----------------
J. R. Wilson
</TABLE>
28
<PAGE>
EXHIBIT 10.2.31
ROHR, INC.
SUPPLEMENTAL RETIREMENT PLAN
THIRTY-FIRST AMENDMENT
Pursuant to Article 6, this amendment to the Supplemental Retirement Plan is
hereby adopted:
1. A new paragraph 1.01 (b) is hereby added as follows:
"1.01 (b) "Board" means the Board of Directors of the Company."
2. Subparagraphs (A) (1) and (2) of paragraph 1.06 are hereby amended to
read in full as follows:
"(A) "Compensation" of a Participant for a particular calendar year shall
be the sum of:
(1) The base cash salary (including any lump sum payment paid in
lieu of annual merit increases under the Company "Pay for
Performance" system) paid during such year, including that
deferred for any reason, including that paid as a pretax
savings contribution under the Pretax Savings Plan, or reduced
and paid as a Company contribution pursuant to a cafeteria plan
described in Internal Revenue Code Section 125. Compensation
shall include restricted stock received in lieu of merit
increases, which stock shall be valued for these purposes as
the closing price on the date of the grant of stock.
(2) The award, if any, paid or credited to the Participant with
respect to such calendar year under the Rohr Management
Incentive Plan, whether paid in cash or in the form of
restricted stock or stock options (in which case, the
restricted stock or stock options shall be valued for these
purposes as the amount of cash surrendered by the Participant
from his award to receive such restricted stock or stock
options).
1
<PAGE>
3. Subparagraph (a) of Paragraph 1.07 is hereby amended to read in full as
follows:
"(a) was an officer of the Company elected by its Board or appointed
by the Chairman of the Board or President, whichever may then
be the Chief Executive Officer;"
4. A new paragraph 1.08 (a) is hereby added as follows:
"1.08(a) "Pretax Savings Plan" means the Pretax Savings Plan for the
Salaried Employees of Rohr, Inc., (Amended and Restated 1994),
as it may be amended from time to time."
5. A new paragraph 1.08 (b) is hereby added as follows:
"1.08(b) "Rohr Management Incentive Plan" means the Rohr, Inc.,
Management Incentive Plan (Restated 1982), as it may be amended
from time to time."
6. Amend paragraph 1.09 to read in full as follows:
"1.09 "Salaried Retirement Plan" shall mean the Salaried Retirement
Plan of Rohr, Inc., (Restated January 1, 1994), as it may be
amended from time to time."
7. A new paragraph 1.09 (a) is hereby added as follows:
"1.09(a) "Severance Compensation Agreement" means any agreement between
a Participant and the Company under which the Participant
receives compensation in connection with a Change in Control."
8. Amend paragraph 1.11 to read in full as follows:
"1.11 "Years of Credited Service" shall mean the number of years and
fractional years of Benefit Service, as that term is defined
and calculated under the provisions of the Salaried Retirement
Plan."
9. Paragraphs 1.13 and 1.14 are deleted in their entirety.
10. Delete subparagraph (d) of paragraph 2.01 and substitute the following:
"(d) a Change Termination (defined at paragraph 2.06) resulting in a
deferred vested retirement benefit."
11. Paragraph 2.03 is hereby amended to read in full as follows:
2
<PAGE>
"2.03 Early Retirement. A Participant may elect to retire at an Early
----------------
Retirement Date which is the first day of any month following the fifty-
fifth (55th) anniversary of the Participant's birth date and completion of
ten (10) or more Years of Credited Service earned while an employee."
12. Paragraph 2.06 is hereby amended to read in full as follows:
"2.06 Deferred Vested Retirement Benefit.
----------------------------------
(A) In the event that, following the Change in Control, a Participant who
is then an elected or appointed officer of the Company has terminated
or is deemed terminated (as, for example, a construction termination
of employment) under the provisions of any Severance Compensation
Agreement, such termination or deemed termination being known as a
"Change Termination," then such Participant shall be eligible for a
deferred vested retirement benefit on
(1) the first day of the month following his 65th birthday or
(2) on the first day of any month following his 55th birthday,
in either case, in the amount set forth at Paragraph 3.03A.
A Change Termination shall not include a Voluntary Termination or a
Termination for Cause, nor shall a deferred vested retirement benefit
under this Paragraph be due if, in connection with said Change in
Control, said officer will have obtained, except proportionately as a
shareholder, a participatory interest in the ownership of the
surviving corporation (in the case of a merger or consolidation), in
the ownership of the entity beneficially-owing the requisite
percentage of company stock (in the case of any entity owning 40% of
the Company), in the receipt of assets or earning power (in the case
of a transfer of 50% or more of the assets or earning power), or in
the loans, advances, guarantees, pledges, or other financial
assistance or tax credits.
(B) For these purposes, the following definitions apply:
(1) "Voluntary Termination" is the voluntary termination of
employment by the Participant not constituting a Constructive
Termination.
(2) "Constructive Termination" means any of the following events
unless it occurs with the Participant's express prior written
consent or in connection with the termination of the
Participant's employment for Disability, Retirement or
Termination for Cause.
3
<PAGE>
(For these purposes, "Retirement" means a retirement on or after the
Participant's Normal Retirement Date.)
(a) Any significant change in the Participant's position, duties,
titles, offices, responsibilities and status with the Company as
such existed immediately prior to a Change in Control or the
assignment to the Participant by the Company of any duties
inconsistent therewith, or in derogation thereof.
(b) A reduction within twenty-four (24) months after the occurrence
of a Change in Control in the Participant's base salary as in
effect on the date of the Change in Control, or the Company's
failure to increase the Participant's base salary after a Change
in Control at a rate which is substantially similar to the
average increase in base salary effected during the preceding
twelve (12) months for those executives of the Company who are in
the same compensation category as the Participant;
(c) Any failure by the Company to continue in effect any benefit plan
or arrangement or any material fringe benefit in which the
Participant was participating immediately prior to a Change in
Control, or to substitute and continue other plans providing the
Participant with substantially similar benefits, or any action by
the Company that would adversely affect the Participant's
participation in or materially reduce the Participant's benefits
under any such benefit plan or arrangement or deprive the
Participant of any material fringe benefit enjoyed by the
Participant at the time of the Change in Control;
(d) Any failure by the Company to continue in effect any incentive
plan or arrangement, such as but not limited to the Management
Incentive Plan, in which the Participant is participating at the
time of a Change in Control, or to substitute and continue other
plans or arrangements providing the Participant with
substantially similar benefits, or the taking of any action by
the Company that would adversely affect the Participant's
participation in any such incentive plan or reduce the
Participant's benefits under any such incentive plan in an amount
which is not substantially similar, on a percentage basis, to the
average percentage reduction of benefits under any such incentive
plan effected during the preceding twelve (12) months for all
officers of the Company participating in any such incentive plan;
(e) The Participant's relocation to any place other than the location
at which the Participant performed the Executive's duties prior
to a Change in Control; or
4
<PAGE>
(f) Any material breach by the Company of any provision of this Plan.
(2) "Termination for Cause" means termination of the Participant's
employment by the Company solely by reason of one or more of:
(a) an act by the Participant constituting a felony, and resulting in
a conviction, and resulting or intended to result directly or
indirectly in substantial gain or personal enrichment at the
expense of the Company or any of its affiliated corporations, or
(b) the Participant's willful and deliberate engagement in an act of
gross misconduct that results in demonstrably material and
irreparable injury to the Company or any of its affiliated
corporations, and which was demonstrably (i) done in bad faith
and (ii) without a reasonable belief that such act was in the
best interests of the Company, or
(c) the Participant's willful, deliberate and continued failure
substantially to perform the Participant's duties to the Company,
which is demonstrably committed (i) in bad faith and (ii) without
a reasonable belief that any such breach of duties is in the best
interests of the Company, and which is not remedied within three
months after the written demand notice referred to below. In the
event a Termination for Cause is believed to be justified, then,
in order to effectuate the applicable provisions of the Plan
relative to a Termination for Cause, a written notice thereof
shall be delivered to the Participant by the Company's chief
executive officer (or by the Company's Board of Directors if the
Participant is the chief executive officer) which specifically
and in detail identifies and explains the manner in which it is
believed that the Participant has performed an act which
justifies a Termination for Cause."
13. Subparagraph (b) of Paragraph 3.01 is hereby amended to read in full as
follows:
"(b) The sum of:
(i) The monthly benefit under the Salaried Retirement Plan, if any,
(aa) which Participant is then receiving; or (bb) if he has not
yet applied for such benefit, the amount which the Participant is
then eligible to receive.
The aforesaid reduction on account of the benefit under the
Salaried Retirement Plan shall be determined for these purposes
as of the date such benefit is first payable and shall not be
5
<PAGE>
redetermined thereafter unless (A) the maximum benefit received
under the Salaried Retirement Plan shall be reduced after
payments commence due to governmental requirements, or (B) such
benefits are refused, reduced or suspended in whole or part for
any reason, whatsoever, in either of which cases such a
redetermination shall be made for the purposes of this Plan,
using such reduced (or using no offset for the Salaried
Retirement Plan benefit if such benefit has been suspended or
eliminated in to) Salaried Retirement Plan benefit, for so long
as such circumstances in this subparagraph B continue.
In the event a Participant entitled to receive a benefit under
the Salaried Retirement Plan has elected to take advantage of the
Social Security leveling election provided for at paragraph 5.6
of the Salaried Retirement Plan, the reduction provided for in
this subparagraph 3.02(B)(1) shall be calculated as if such
Social Security leveling election had not occurred.
plus:
----
(ii) The monthly benefit, if any, payable to the Participant under any
long term disability insurance program maintained by the Company.
Any such benefit for which the Participant was eligible but
failed or refused to enroll shall nonetheless be deducted
hereunder;
plus:
----
(iii) An amount which is equal to the monthly life annuity which is the
Actuarial Equivalent of the Predecessor Plan Account of such
Participant under the Salaried Retirement Plan, if any, but only
if the Participant elects to take his Predecessor Plan Account in
a lump sum payment and his monthly benefit under such Salaried
Retirement Plan is accordingly reduced. (For these purposes,
"Actuarial Equivalent" means the determination of a form of
benefit having the same value as the form of benefit which it
replaces. Such determination shall be based on the interest rates
and actuarial tables approved and adopted from time to time by
the Committee.)
plus:
----
(iv) An amount under the Cash Balance Plan equal to the monthly life
annuity, if any, which (a) the Participant is then receiving or
(b) if he has not yet applied for such benefit, the amount of
which the
6
<PAGE>
Participant is then eligible to receive, it being
understood that if the Participant has elected to receive his
benefit as a lump sum, then the Actuarial Equivalent (defined in
subparagraph (iii), above) in the form of a monthly life annuity
of that sum shall be the amount deducted under this provision."
14. Paragraph 3.01 is hereby amended to delete the words "Primary Social
Security Benefit" and to substitute the words "Social Security Benefit".
15. Paragraph 3.02 is hereby amended to delete the words "Primary Social
Security Benefit" and to substitute the words "Social Security Benefit".
16. Paragraph 3.03 is hereby amended to delete the words "Primary Social
Security Benefit" and to substitute the words "Social Security Benefit".
17. Paragraph 3.03 A is hereby amended to read in full as follows:
" 3.03A Deferred Vested Retirement Benefits.
-----------------------------------
(a) Once a Participant is entitled to a deferred vested retirement
benefit, the amount of such benefit shall not necessarily be limited
to the Years of Credited Service or Average Monthly Compensation in
existence on the date of a Change of Control. Accordingly, the
monthly normal retirement benefit of a Participant eligible for a
deferred vested retirement benefit, as provided in Paragraph 2.06,
shall be equal to the benefit described at Paragraph 3.01, above,
except:
(i) using (A) the number of Years of Credited Service accrued as of
the date of his termination or deemed termination plus (B) an
additional three years of Credited Service which will be
credited for all purposes to all Participants entitled to a
Deferred Vested Benefit forthwith upon a Change in Control
(unless a Severance Compensation Agreement entered into between
the Participant and the Company shall provide for a higher
number of Years of Credited Service, which provisions of said
Severance Compensation Agreement will govern and prevail over
the provisions of (A) and (B) above); and
(ii) for purposes of determining his Average Monthly Compensation:
(A) substituting the words "Participant's termination of
employment (or deemed termination)" in place of the words
"Participant's retirement" in the definition of Average Monthly
Compensation at Article I; and (B) using, if higher, the ten
years preceding his said termination (or deemed termination);
and
7
<PAGE>
(iii) assuming the Participant selected a 100 percent Qualified
Joint and Survivor Annuity under Section 5.4 (a) of the Salaried
Retirement Plan.
(b) A Participant may elect to receive an early retirement benefit, in
which case the benefit in Subparagraph (a), above, shall be utilized
and actuarially reduced in the same manner and calculated as set forth
in Paragraph 3.02.
(c) In the event a Participant entitled to a Deferred Vested Benefit
remains an Employee for three years next following a Change in
Control, then for such three years, he shall not receive any
additional Years of Credited Service."
18. Paragraph 3.04 is hereby amended as follows:
(a) Subparagraph (a) is hereby amended to add the word "retirement" after
the words "deferred vested".
(b) Subparagraph (c) is hereby amended to add the word "retirement" after
the words "deferred vested"; to add the word "calendar" before the
word "month"; and to delete the word "termination" and substitute the
words "eligibility therefor under the provisions of paragraph 2.06
and application therefore".
(c) Subparagraph (d) is hereby amended to add, prior to the word "3.06",
the following additional words: "and without intending to affect the
rights of a Spouse's benefit under".
19. Subparagraph (a) of Paragraph 3.05 is hereby amended to add, after the
words "judgment of the Board", the following additional words: "(which is
delivered in writing to the Participant)".
20. Paragraph 4.01 is hereby amended as follows:
(a) Following the words "the Board", where it first appears, add the
following additional words: "or a Committee of the Board".
(b) Following the words "said Board," add the following additional words:
"or Board Committee".
(c) Change the word "shall" in the last sentence to the word "may".
(d) After the word "Board" in the last sentence, add the words "or Board
Committee".
8
<PAGE>
21. Paragraph 4.03 is hereby amended by adding the words "the Plan Trustee"
after the word "actuaries".
22. Paragraph 6.01 is hereby amended to read in full as follows:
"6.01
(a) The Company hopes and expects to continue the Plan and the payment of
benefits hereunder indefinitely, but (except for Participants who have
retired hereunder and for Participants may become entitled to a
deferred vested retirement benefit), such continuance is not assumed
as a contractual obligation. The Company expressly reserves the
right, at any time and from time to time, to modify or amend, in
whole or part, any or all of the provisions of the Plan, or to
terminate or otherwise discontinue the Plan at any time without the
consent of any other party, without liability except as set forth
above, acting by a resolution adopted by action of (i) the Board of
Directors, or (ii) a Committee of the Board of Directors (the "Board
Committee"), to the extent such Board Committee has been delegated
such authority, or (iii) the Committee, to the extent that such
Committee has been delegated such authority as to specific amendments
or issues, by a resolution adopted by the Board of Directors or by the
Board Committee. In any of such cases, such amendment shall be set
forth in an instrument in writing executed in the name of Rohr, Inc.,
by an officer or officers duly authorized to execute such instrument.
Retroactive Plan amendments may not decrease the benefits of any
Employee determined as of the time the amendment was adopted, the same
as if, for this limited purpose, the said benefits were then fully
vested.
(b) Notwithstanding the foregoing, no amendment, modification, termination
or other discontinuance of the Plan shall serve to (i) reduce the
benefits of a person below those which he has been receiving as a
retired Participant, (ii) in the case of a plan amendment, either (x)
reduce the benefit accrual provisions at Paragraph 3.01(a) or
elsewhere for Years of Credited Service earned prior to the date of
such amendment or (y) after the occurrence of a Change in Control,
increase the eligibility requirements at Paragraph 1.10 to be a
Participant, or (iii) in the case of a Plan termination or other
discontinuance, reduce those benefits which a person would have been
entitled to receive if he had been eligible to retire and had retired
on the date immediately prior to the effective date of such
termination or other discontinuance, assuming for these purposes
(conclusively and without regard to such person's actual age) that on
the date of such termination or other discontinuance such person had
reached a retirement date and met the requirements to be a
Participant. In the case of subparagraph (iii), it is the intent
hereby in such event of
9
<PAGE>
termination or other discontinuance to fully vest a benefit equal to
that which would have been earned under the provisions of this Plan as
if such person had then been fully eligible to retire, provided that
(A) in the calculations of the amount of such benefit, the person's
actual Years of Credited Service on the said effective date of
termination or other discontinuance shall be used; and (B) that
payment of these vested benefits under this subparagraph (iii) shall
not be made until the reaching the person's actual Normal Retirement
Date or Early Retirement Date (provided that, in the case of an early
retirement benefit, the actuarial reduction provided for at Paragraph
3.02 shall be applicable), or until the payment date called for the
case of a deferred vested retirement benefit after application
therefor is made."
23. Paragraph 7.01 is hereby amended to add, at the end thereof, the
following additional words: "except as specifically provided in the Plan."
24. A new Paragraph 8.16 is hereby added, to read in full as follows:
"8.16 Robert H. Rau
-------------
(a) The Company and Robert H. Rau ("Rau") have entered into an
employment agreement on or about April 9, 1993, (as amended, the
"Employment Agreement." The Company has also entered into a
Retirement Agreement, executed on the 7th day of May 1996 (the
"Retirement Agreement") with Robert H. Rau, under which it has
agreed to provide a retirement benefit and also has agreed to
provide a life insurance policy with a cash surrender value
build-up that will provide security for such retirement benefit.
The purpose of this paragraph 8.16 is to implement the provision
of the Employment Agreement, as amended, and to supplement in the
fashion set forth below the Retirement Agreement.
(i) In the event that Mr. Rau forfeits his rights under the
Retirement Agreement to a benefit and to the aforementioned
security for a benefit, then the provisions of Section 8.16
(b), below, apply to establish a substitute retirement
benefit (the "SERP Benefit") under the Plan which
supersedes and satisfies all obligations of the Company to
Mr. Rau and his Spouse concerning his retirement from the
Company, other than whatever rights he may have under the
Pretax Savings Plan for Salaried Employees and the Cash
Balance Plan.
(ii) Alternately, in the event that Mr. Rau does not forfeit his
rights under the Retirement Agreement to a benefit and to
the aforesaid security for a benefit, then the provisions
of
10
<PAGE>
Section 8.16 (c), below, apply , so as to provide an
incremental increase (the "SERP Incremental Benefit") in
the benefits to which Mr. Rau and his Spouse are entitled
under the terms of the Retirement Agreement.
(iii) No benefit shall be due to Mr. Rau, however, under either
Section 8.16 (b) or (c) if Mr. Rau voluntarily terminates
his employment with the Company prior to April 19, 1996.
(For these purposes, a voluntary termination does not
include a Constructive Termination, as defined in the
Retirement Agreement.)
(b) Complete Benefit Under the Plan. Mr. Rau is hereby declared
-------------------------------
eligible for the SERP Benefit as set forth below.
(i) Age 62 retirement: $464,400 per year, payable monthly, and
-----------------
reduced by the monthly amounts of all defined benefit
retirement and pension benefits (whether qualified or
unqualified) payable by the Company and by Parker Hannifin,
such amounts calculated as payable in the form of a ten
year certain and life annuity with full survivor benefits
(using the same actuarial equivalent factors for such
reduction as set forth in Paragraph 2.04 of the Retirement
Agreement). This is in lieu of Mr. Rau's early retirement
benefit under paragraph 2.03 of the Plan.
(ii) Retirement after age 62: $464,400 per year, payable monthly
-----------------------
and calculated the same as set forth at subparagraph (i),
next above, plus an additional annual benefit (included in
the aforesaid monthly payments) equal to $2,322 multiplied
by the number of months by which his retirement occurs
after his 62nd birthday. (For example, if Mr. Rau remains
in the employment of the Company until he reaches age 63,
then the $464,400 annual benefit will be increased by
$2,322 X 12, or an additional $27,864.) This is in lieu of
Mr. Rau's normal retirement benefit under paragraph 2.02 of
the Plan
(iii) Survivor's Benefit:
------------------
(A) After benefits have commenced:
Mr. Rau's Spouse shall be entitled to receive the
lifetime monthly benefit provided for at paragraph
8.16 (b) (i) or (ii), above, as applicable; provided,
that such benefit shall be paid to the Spouse (or her
11
<PAGE>
estate) for at least ten years following Mr. Rau's
death and there shall not be an actuarial reduction
from the lifetime annuity set forth above on account
of this ten-year-certain provision.
(B) Death prior to retirement:
Pursuant to the terms of the Retirement Agreement, the
Company has provided for a life insurance policy upon
the life of Mr. Rau, under which his Spouse will
receive an amount at Mr. Rau's death, supplemented, if
necessary, by certain additional sums paid by the
Company so as to enable his Spouse to acquire an
annuity, all as set forth in more detail in the
Retirement Agreement. The aforesaid provisions shall
be in lieu of a Benefit under the Plan.
(iv) Disability Retirement Benefits and Deferred Vested Benefits
-----------------------------------------------------------
The amounts provided for at subparagraphs 8.16 (b) (i) and
(ii), above, shall be used in the calculation of any
disability retirement benefit to which Mr. Rau might become
entitled under paragraph 2.05 of the Plan, and a Deferred
Vested Retirement Benefit under paragraph 2.06 of the Plan.
The amount at subparagraph (i) shall be used in the event
of a benefit under paragraphs 2.05 or 2.06 to which Mr. Rau
becomes entitled at or before age 62 and the amount at
subparagraph (ii) shall be used for such benefit
calculations after age 62.
(c) Partial Benefit Under the Plan. Mr. Rau is hereby declared
------------------------------
eligible for the SERP Incremental Benefit as set forth below.
(i) Age 62 retirement: An amount, payable in the form of a
------------------
ten-year certain and life annuity with full survivor
benefits, equal to the difference between the amounts
described in paragraphs (aa) and (bb) below.
(aa) The amount described under this paragraph (aa) shall be
the product of the annual retirement benefit payable
under paragraph 8.16(b)(i) hereof multiplied by 0.6.
(bb) The amount described under this paragraph (bb) shall be
the after-tax portion of each annuity payment
12
<PAGE>
determined as the sum of (I) and (II) where (I) and
(II) are:
(I) The product of "A" multiplied by "E":
(II) The product of "A" multiplied by (I-E) multiplied
by 0.6.
For purposes of paragraph (bb), "A" shall equal the
annual annuity payment (payable under an annuity
purchased with the after-tax proceeds of the insurance
-------------
and cash payments described in the Retirement
Agreement) and "E" shall equal the exclusion ratio
which is the quotient of the annuity factor (i.e., the
cost per dollar of one dollar of annuity starting at
the annuity starting date) divided by Mr. Rau's life
expectancy at the annuity starting date.
In the event, for the tax year prior to his receiving
the SERP Incremental Benefit, that Rau's combined
federal and state income tax rate (assuming
conclusively for these purposes that his total income
for such year was limited to the payment of the
applicable annual benefit provided for at Section
2.01(b) of the Retirement Agreement) would be different
than .4, then:
(x) such proforma combined tax rate shall be
determined by Deloitte and Touche;
(y) such proforma combined tax rate shall be
subtracted from "1"; and
(z) the resultant after-tax income percentage shall be
used in place of the figure ".6" wherever such
figure appears in this Paragraph 8.16(c)(i).
The SERP Incremental Benefit of this Paragraph
8.16(c)(i) is illustrated by the following example:
Assume that, at the time Mr. Rau starts to receive
annuity payments, each installment is $464,000 per
year. Assume also that the annuity factor is 11.5,
meaning that the annuity costs $11.50 per dollar of
annuity at the starting date and that Rau's life
13
<PAGE>
expectancy is 20 years. Assume finally that the
annuity acquired with the after-tax insurance and cash
proceeds pays an annual amount equal to $278,400. The
annual supplemental payment, therefore, is:
($464,000 X 0.6) - $278,400 X 11.5/20 +
$278,400 X 8.5/20 X 0.6 =
$278,400 - $231,072 =
$47,328, or $3,944 per month.
(ii) Retirement after age 62: An amount determined in the
------------------------
same manner as in subparagraph (i), next above, and payable
in the form of a ten year certain and life annuity with
full survivor benefits, except that in making such
determination and using all of the calculations there
provided, the amount described in subparagraph (c)(i)(aa),
above, and to be multiplied by 0.6 as therein provided,
shall be the annual retirement benefit payable under
paragraph 8.16 (b) (ii), rather than the amount payable
under paragraph 8.16(b)(i).
(iii) Survivor's Benefit:
------------------
Whether occurring as a result of death prior to retirement
or occurring after benefits have commenced:
Mr. Rau's Spouse shall be entitled to receive the
lifetime monthly benefit provided for at paragraph 8.16
(c) (i) or (ii), above, as applicable; provided, that
such benefit shall be paid to the Spouse (or her
estate) for at least ten years following Mr. Rau's
death and there shall not be an actuarial reduction
from the lifetime annuity set forth above on account of
this ten-year-certain provision.
(iv) Disability Retirement Benefits and Deferred Vested Benefits:
-----------------------------------------------------------
The amounts provided for at subparagraphs 8.16 (c) (i) and
(ii), above, shall be used in the calculation of any
disability retirement benefit to which Mr. Rau might become
entitled under paragraph 2.05 of the Plan, and a Deferred
Vested Retirement Benefit under paragraph 2.06 of the Plan.
The amount at subparagraph (i) shall be used in the event
of a benefit under paragraphs 2.05 or 2.06 to which Mr. Rau
becomes entitled at or before age 62 and the amount at
14
<PAGE>
subparagraph (ii) shall be used for such benefit
calculations after age 62.
(d) All other provisions of the Plan not inconsistent with this
paragraph 8.16 shall remain applicable."
25. A new paragraph is added, at both paragraphs 8.14 and 8.15, as
follows:
(a) Change the numeric heading of subparagraphs 8.14(b) and 8.15(b)
to read "8.14(c)" and "8.15(c)," respectively.
(b) Add a new subparagraph 8.14(b), to read in full as follows:
"(b) In the event of a Change in Control, Mr. Ramsay will be
credited for an additional number of Years of Credited
Service, over and above what he has accrued under the
provisions of Section 8.14(a), which is equal to eleven
years minus the number of years he has been an Employee of
the Company; provided that, if he remains an Employee after
the Change of Control, he will be entitled to accrue
additional Years of Service only at the rate of one year for
each year he remains an employee; and further provided that,
if Mr. Ramsay has become entitled to any additional Years of
Credited Service under a Severance Compensation Agreement,
such provisions shall be given full effect (including any
provision in the Severance Compensation Agreement suspending
the accrual of additional Years of Credited Service
following the Change of Control if Mr. Ramsay remains an
Employee)."
c. Add a new subparagraph 8.15(b), to read in full as follows:
"(b) In the event of a Change in Control, Mr. Chapman will be
credited for an additional number of Years of Credited
Service, over and above what he has accrued under the
provisions of Section 8.15(a), which is equal to thirteen
years minus the number of years he has been an Employee of
the Company; provided that, if he remains an Employee after
the Change of Control, he will be entitled to accrue
additional Years of Service only at the rate of one year for
each year he remains an employee; and further provided that,
if Mr. Chapman has become entitled to any additional years
of Credited Service under a Severance Compensation
Agreement, such provisions shall be given full effect
(including any provision in the Severance Compensation
agreement suspending the accrual of additional Years of
15
<PAGE>
Credited Service following the Change of Control if Mr.
Chapman remains an Employee)."
26. In all other respects, the Plan is hereby ratified and confirmed.
IN WITNESS WHEREOF, Rohr, Inc., has caused its duly authorized
officers to execute this Amendment on the 13 day of September 1996.
ROHR, INC.
BY: /s/ R.W. MADSEN
-------------------------------
R. W. Madsen
Vice President, General Counsel
and Secretary
16
<PAGE>
EXHIBIT 10.2.32
ROHR INDUSTRIES, INC.
SUPPLEMENTAL RETIREMENT PLAN
THIRTY-SECOND AMENDMENT
Pursuant to Article 6, this amendment to the Supplemental Retirement Plan is
hereby adopted:
1. A new paragraph 8.17 is hereby added, to read in full as follows:
"8.17 Notwithstanding the provisions of Section 1.07, Emmet Wolfe is
declared to remain eligible as a Participant in the Plan until his
retirement; provided that his Years of Credited Service, his Compensation
and his Average Monthly Compensation shall be determined as of July 31,
1998; and further provided that the determination of his Compensation on
such date shall not include any award under the Management Incentive Plan
for any fiscal year following fiscal year 1996."
2. In all other respects, the Plan is hereby ratified and confirmed.
IN WITNESS WHEREOF, Rohr, Inc., has caused its duly authorized officers to
execute this Amendment on the 13 day of September 1996.
ROHR, INC.
BY: /s/ R.W. MADSEN
-------------------------------
R. W. Madsen
Vice President, General Counsel
and Secretary
1
<PAGE>
EXHIBIT 10.4.1
SIXTEENTH AMENDMENT TO ROHR, INC,
MANAGEMENT INCENTIVE PLAN
(RESTATED, 1982)
Pursuant to the provisions of Section 9, the Rohr, Inc., Management Incentive
Plan (Restated 1982) (the "Plan") is hereby amended as follows:
1. Section 4(b) is hereby amended to delete the entire second, unnumbered
paragraph containing Incentive Targets and substituting the following
language:
"Incentive Targets of Participants will be established by the Committee
each Incentive Year."
2. Section 11 is hereby amended in its entirety to read in full as follows:
"SECTION 11 - VESTING PROVISIONS
--------------------------------
(a) In the event of a Change in Control of the Corporation, all rights
under the Plan for any Participant who was an officer at the time of
the Change in Control shall become fully vested, notwithstanding the
subsequent amendment, suspension or termination of the Plan; and
further provided, however, such vesting will not affect the exact
amount of his award (which shall be determined as provided at Section
4, as modified by Section 11(b) hereof) or accelerate or otherwise
affect the payment of his award (which shall continue to be determined
as provided at Section 6); and further provided, however, that such
vesting shall be conditioned in connection with said change in
control, upon said officer not having obtained, except proportionately
as a shareholder, a participatory interest in the ownership of the
surviving corporation (in the case of merger or consolidation), in the
ownership of the entity beneficially owning the requisite percentage
of company stock (in the case of an entity owning 40 percent of Rohr),
in the receipt of assets or earning power (in the case of a transfer
of 50 percent or more of the assets or earning power) , or in loans,
advances, guarantees, pledges or other financial assistance or tax
credits obtained by the Acquiring Party referred to at sub-paragraph
(c)(i)(D) hereof.
(b) Following the end of the fiscal year in which a change in control
occurs, then notwithstanding any other provision in the Plan,
1
<PAGE>
the award for an officer shall not be less than the full amount of his
Incentive Target, established for his grade at the beginning of the
Incentive Year, multiplied by a fraction whose denominator is twelve
and whose numerator is the number of full and partial months of the
then-current fiscal year which shall have elapsed as of the later of
the date of the Change in Control or of its legal consummation, as for
example, the effective date of a merger. Notwithstanding the
foregoing and notwithstanding the provisions of Section 11(a), in the
event, after a Change in Control and prior to the payment of the
incentive for such fiscal year, that an officer has either (x) a
Voluntary Termination of his employment or (y) a Termination for
Cause, then in either case, no payment shall be due under the Plan for
such officer.
(c) For purposes of this Section, the following definitions will apply:
(i) "Change in Control" shall mean:
(A) An agreement shall have been entered or a document signed
providing for the merger, consolidation or liquidation of
the Company; or
(B) The beneficial ownership (the direct or indirect beneficial
ownership for purposes of Section 13(d) of the Securities
Exchange Act of 1934 (the "1934 Act") and Regulations 13D-G
thereunder, or any comparable or successor law or
regulation) of 20 percent or more of the Company's shares by
any person or associated or affiliated group of persons (as
defined by Rule 12b-2 of the General Rules and Regulations
under the 1934 Act, as in effect on the date hereof); or
(C) An agreement shall have been entered or a document signed
providing for the sale, mortgage, lease or other transfer in
one or more transactions (other than transactions in the
ordinary course of business) of the assets or earning power
aggregating more than 50 percent of the assets or earning
power of the Company and its subsidiaries (taken as a whole)
to any Person or associated or affiliated group of Persons;
or
2
<PAGE>
(D) Any Acquiring Person (as hereinafter defined) shall
receive the benefit, directly or indirectly (except
proportionately as a shareholder or upon terms and
conditions not less favorable to the Company than the
Company would be able to obtain in arm's length
negotiations with an unaffiliated party) of any loans,
advances, guarantees, pledges or other financial
assistance, or any tax credits or other tax advantage
provided by the Company or its subsidiaries; or
(E) Change in Control shall also mean, and a Change of Control
shall be deemed to have occurred, if at any time, the
Board of Directors of the Company shall be composed of a
majority of Directors which are not Continuing Directors.
(ii) "Acquiring Person" shall mean any Person (as defined) who or
which, together with all Affiliates and Associates (as such
terms are defined in Rule 12b-2 of the General Rules and
Regulations under the 1934 Act, as in effect on the date
hereof) of such Person, shall be the Beneficial Owner (as
defined in Rule 13d-3 of the General Rules and Regulations
under the 1934 Act, as in effect on the date hereof) of 15
percent or more of the Voting Shares of the Company then
outstanding; provided, however, that an Acquiring Person shall
not include the Company, any wholly-owned subsidiary of the
Company and any employee benefit plan of the Company or of a
subsidiary of the Company or any Person holding Voting Shares
of the Company for or pursuant to the terms of any such plan.
For purposes of this paragraph, the percentage of the
outstanding shares of Voting Shares of which a Person is a
Beneficial Owner shall be calculated in accordance with said
Rule 13d-3.
(iii) "Continuing Director" shall mean a director if he or she was a
member of the Board of Directors as of the date hereof and any
successor of a Continuing Director or director filling a newly
created position on the Board of Directors who is elected or
nominated to succeed a Continuing Director or to fill such
newly created position by a majority of Continuing Directors
then on the Board.
(iv) "Person" shall mean any individual, firm, partnership,
corporation, trust, estate, association, group (as such term is
used in Rule 13d-5 under the Exchange Act) or other entity, and
any two or more of the foregoing acting in concert or pursuant
to an agreement, arrangement, or understanding for the purpose
of acquiring,
3
<PAGE>
holding, voting or disposing of capital stock of
the Company, and shall include any successor (by merger or
otherwise) of such entity.
(v) "Voting Shares" shall mean (i) shares of the Company's $1 par
value common stock, and (ii) any other share of capital stock
of the Company entitled to vote generally in the election of
directors or entitled to vote in respect of any merger,
consolidation, sale of all or substantially all of the
Company's assets, liquidation, dissolution or winding up.
References to a percentage or portion of the outstanding Voting
Shares shall be deemed a reference to the percentage or portion
of the total votes entitled to be cast by the holders of the
outstanding Voting Shares.
(vi) "Termination for Cause" shall mean termination of the
Participant's employment by the Company solely by reason of one
or more of:
(1) an act by the Participant constituting a felony, and
resulting in a conviction, and resulting or intended to
result directly or indirectly in substantial gain or
personal enrichment at the expense of the Company or any
of its affiliated corporations, or
(2) the Participant's willful and deliberate engagement in an
act of gross misconduct that results in demonstrably
material and irreparable injury to the Company or any of
its affiliated corporations, and which was demonstrably
(A) due in bad faith and
(B) without a reasonable belief that such act was in the
best interests of the Company, or
(3) the Participant's willful, deliberate and continued
failure substantially to perform the Participant's duties
to the Company, which is demonstrably committed
(A) in bad faith,
(B) without a reasonable belief that any such breach of
duties is in the best interests of the Company, and
4
<PAGE>
(C) which is not remedied within three months, after the
written demand notice referred to below.
In the event a Termination for Cause is believed to be
justified, then a written notice thereof shall be delivered
to the Participant by the Company's chief executive officer
(or by the Company's Board of Directors if the Participant
is the chief executive officer) which specifically and in
detail identifies and explains the manner in which it is
believed that the Participant has performed an act which
justifies a Termination for Cause.
(vii) "Voluntary Termination" is the voluntary termination of
employment by the Participant not constituting a Constructive
Termination.
"Constructive Termination" means any of the following events
unless it occurs with the Participant's express prior written
consent or in connection with the termination of the
Participant's employment for Disability, Retirement or
Termination for Cause.
(For these purposes, "Retirement" means a retirement on or
after the Participant's reaching the age of age 65.)
A. Any significant change in the Participant's position,
duties, titles, offices, responsibilities and status with
the Company as such existed immediately prior to a Change in
Control or the assignment to the Participant by the Company
of any duties inconsistent therewith, or in derogation
thereof.
B. A reduction within twenty-four (24) months after the
occurrence of a Change in Control in the Participant's base
salary as in effect on the date of the Change in Control, or
the Company's failure to increase the Participant's base
salary after a Change in Control at a rate which is
substantially similar to the average increase in base salary
effected during the preceding twelve (12) months for those
executives of the Company who are in the same compensation
category as the Participant;
C. Any failure by the Company to continue in effect any benefit
plan or arrangement or any material fringe benefit in which
the Participant was participating immediately prior to a
Change in Control, or to substitute and continue other plans
5
<PAGE>
providing the Participant with substantially similar
benefits, or any action by the Company that would adversely
affect the Participant's participation in or materially
reduce the Participant's benefits under any such benefit
plan or arrangement or deprive the Participant of any
material fringe benefit enjoyed by the Participant at the
time of the Change in Control;
D. Any failure by the Company to continue in effect any
incentive plan or arrangement, such as but not limited to
the Plan, in which the Participant is participating at the
time of a Change in Control, or to substitute and continue
other plans or arrangements providing the Participant with
substantially similar benefits, or the taking of any action
by the Company that would adversely affect the Participant's
participation in any such incentive plan or reduce the
Participant's benefits under any such incentive plan in an
amount which is not substantially similar, on a percentage
basis, to the average percentage reduction of benefits under
any such incentive plan effected during the preceding twelve
(12) months for all officers of the Company participating in
any such incentive plan;
E. The Participant's relocation to any place other than the
location at which the Participant performed the Executive's
duties prior to a Change in Control; or
F. Any material breach by the Company of any provision of this
Plan."
3. In all other respects, the Plan is hereby ratified, confirmed and approved.
IN WITNESS WHEREOF, Rohr, Inc., has caused its duly authorized officer to
execute this Amendment on the 7th day of June 1996.
ROHR, INC.
By: /s/ R.W. MADSEN
-------------------------------
R. W. Madsen
Vice President, General Counsel
and Secretary
6
<PAGE>
EXHIBIT 10.4.2
SEVENTEENTH AMENDMENT TO ROHR INDUSTRIES, INC,
MANAGEMENT INCENTIVE PLAN
(RESTATED, 1982)
Pursuant to the provisions of Section 9, the Rohr Industries, Inc., Management
Incentive Plan (Restated 1982) (the "Plan") is hereby amended effective as of
the 13 day of September, 1996, as follows:
1. Section 2(d) is hereby amended to read in full as follows:
"(d) Committee: The Executive Compensation and Development Committee
----------
of the Corporation, appointed by the Board of Directors to be
responsible for administration of the Plan. Notwithstanding the
foregoing, or any other provision in the Plan, with respect to
the participation in the Plan by, or the settlement in equity
securities rather than cash of an award held by, any Participant
who is then subject to Section 16 of the Securities Exchange Act
of 1934, "Committee" shall mean the Committee that administers
the participation of such individuals in connection with the
Applicable Plans, pursuant to Section 7 thereof."
2. Section 2 is further amended by adding to that section a new Paragraph (j)
to read in full as follows:
"(j) APPLICABLE PLANS: Rohr, Inc., 1989 Stock Incentive Plan, and
the Rohr, Inc., 1995 Stock Incentive Plan."
3. Section 3 is hereby amended by adding to that section a new Paragraph (d)
to read in full as follows:
"(d) In addition to the terms and conditions set forth herein, to the
extent that stock-based awards are made under the Plan, the Plan
shall be administered as a part of, and subject to the terms and
conditions of, the Applicable Plans; and, in the event that the
terms of the Plan shall conflict with the terms of the
Applicable Plans, the terms of the Applicable Plans shall
prevail."
4. In all other respects, the Plan is hereby ratified, confirmed and approved.
IN WITNESS WHEREOF, Rohr, Inc., has caused its duly authorized officers to
execute this Amendment on the 13 day of September 1996.
ROHR, INC.
By: /s/ R.W MADSEN
-------------------------------
R. W. Madsen
Vice President, General Counsel
and Secretary
<PAGE>
FIRST AMENDMENT
TO EMPLOYMENT AGREEMENT
WHEREAS, Robert H. Rau ("Employee") and Rohr, Inc., (the "Company"),
sometimes collectively referred to as the "Parties," entered into an Employment
Agreement dated April 9, 1993, (the "Agreement"); and
WHEREAS, the Employees has fulfilled the expectations of the Company; and
WHEREAS, the Parties wish to amend the Agreement as herein provided;
NOW, THEREFORE, for adequate consideration, the Parties agree as follows:
1. Paragraph 3(h)(i) is hereby amended to delete the words "eight years" and
substitute in their place the words "six years (provided that the sixth
installment will vest on Employee's sixty-second (62nd) (birthday)".
2. Paragraph 6 of the Agreement is hereby amended as follows:
a. Delete the existing language in its entirety, except for the final
paragraph beginning with the words "Any notice of discharge...", and
the following is substituted in its place:
"6. Termination for Cause.
---------------------
Company and Employee agree that Employee may be terminated,
without payment of the severance provision at paragraph 1, by
reason of a Termination for Cause, which is defined as follows:
"Termination for Cause" shall mean termination of Employee's
employment by the Company solely by reason of one or more of: (a)
an act by Employee constituting a felony, resulting in a
conviction, and resulting or intended to result directly or
indirectly in substantial gain or personal enrichment at the
expense of the Company or any of its affiliated corporations,
(b) Employee's willful and deliberate engagement in an act of
gross misconduct that results in demonstrably material and
irreparable injury to the Company or any of its affiliated
corporations, and which was demonstrably (i) done in bad faith
and (ii) without a reasonable belief that such act was in the
best interests of the Company, or (c) Employee's willful,
deliberate and continued failure substantially to perform his
duties to the Company, which is demonstrably committed (i) in bad
faith and (ii) without a reasonable belief that any such breach
of duties is in the best interests of the Company, and which is
not remedied within three months, after the written demand notice
referred to below. In the event a termination for Cause is
believed to be justified, then a written notice thereof shall be
delivered to Employee by the Board which specifically and in
detail identifies and explains the manner in
1
<PAGE>
which it is believed that Employee has performed an act which
justifies a Termination for Cause."
b. The first sentence of the unnumbered paragraph, beginning with the
words "Any notice of discharge..." is deleted and the following
substituted:
"Any notice of discharge which is a Termination for Cause will be
effective when all the events described in (a), (b) or (c), as
applicable, have occurred."
3. In all other respects the Agreement is hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties have executed this Amendment to the
Agreement on the 21st day of April, 1995.
ATTEST: ROHR, INC.
/s/ R.W. MADSEN /s/ WALLACE BARNES
- --------------------------- ------------------------------
Secretary Chairman of the Board
/s/ ROBERT H. RAU
------------------------------
Robert H. Rau
2
<PAGE>
Exhibit 11.1
ROHR, INC. AND SUBSIDIARIES
---------------------------
CALCULATION OF PRIMARY NET INCOME PER SHARE OF COMMON STOCK
-----------------------------------------------------------
(in thousands except per share data)
<TABLE>
<CAPTION>
Year Ended July 31,
-----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Net income (loss) from continuing operations before
extraordinary item and cumulative effect of accounting
changes $ 3,228 $ 8,493 $ 4,669 $ (24,257) $ 996
Income (loss) from discontinued operations, net of taxes 3,879 2,258 (6,324) 459
Loss from extraordinary item, net of taxes (1,146)
Cumulative effect of accounting changes, net of taxes (223,950)
------- ------- ------- --------- -------
Net income (loss) applicable to primary earnings per
common share $ 3,228 $11,226 $ 6,927 $(254,531) $ 1,455
======= ======= ======= ========= =======
Common stock and common stock equivalents:
Average shares of common stock outstanding during the year 20,157 18,055 18,017 17,908 17,647
Net effect of common stock equivalents (principally stock
options and rights) 657 158 45 1 63
------- ------- ------- --------- -------
Total common stock and common stock equivalents 20,814 18,213 18,062 17,909 17,710
======= ======= ======= ========= =======
Net income (loss) per average share of common stock:
Net income (loss) from continuing operations before
extraordinary item and cumulative effect of accounting
changes $ 0.16 $ 0.47 $ 0.26 $ (1.35) $ 0.05
Income (loss) from discontinued operations, net of taxes 0.21 0.12 (0.36) 0.03
Extraordinary item, net of taxes (0.06)
Cumulative effect of accounting changes - net of taxes (12.50)
------- ------- ------- --------- -------
Primary net income (loss) per share $ 0.16 $ 0.62 $ 0.38 $ (14.21) $ 0.08
======= ======= ======= ========= =======
</TABLE>
<PAGE>
Exhibit 11.2
ROHR, INC. AND SUBSIDIARIES
---------------------------
CALCULATION OF FULLY DILUTED NET INCOME PER SHARE OF COMMON STOCK
-----------------------------------------------------------------
(in thousands except per share data)
<TABLE>
<CAPTION>
Year ended July 31,
--------------------------------------------------
1996 1995 1994 1993 1992
--------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Net income (loss) from continuing operations before
extraordinary item and cumulative effect of accounting
changes applicable to primary earnings per common share $ 3,228 $ 8,493 $ 4,669 $ (24,257) $ 996
Add back interest and issue expense on convertible
debentures, net of tax adjustment 1,856 2,720 5,477 4,941 4,941
------- ------- ------- --------- -------
Adjusted income (loss) from continuing operations before
extraordinary item and cumulative effect of accounting
changes applicable to common stock on a fully diluted basis 5,084 11,213 10,146 (19,316) 5,937
Income (loss) from discontinued operations, net of taxes 3,879 2,258 (6,324) 459
Loss from extraordinary item, net of taxes (1,146)
Cumulative effect of accounting changes, net of taxes (223,950)
------- ------- ------- --------- -------
Net income (loss) applicable to fully diluted earnings
per share $ 5,084 $13,946 $12,404 $(249,590) $ 6,396
======= ======= ======= ========= =======
Average number of shares outstanding on a fully diluted basis:
Shares used in calculating primary earnings per share 20,814 18,213 18,062 17,909 17,710
Unexercised options 280 375 4
Shares on conversion of 7% debentures 2,674 2,674 2,674
Shares on conversion of 7.75% debentures 1,905 5,556 1,157
------- ------- ------- --------- -------
Average number of shares outstanding on a fully diluted basis 22,999 24,144 21,893 20,583 20,388
======= ======= ======= ========= =======
Fully diluted net income (loss) per common share before
extraordinary item and cumulative effect of accounting changes $ 0.22 $ 0.47 $ 0.47 $ (0.94) $ 0.29
Income (loss) from discontinued operations, net of taxes 0.16 0.10 (0.31) 0.02
Extraordinary item, net of taxes (0.05)
Loss from cumulative effect of accounting changes, net
of taxes (10.88)
------- ------- ------- --------- -------
Fully diluted net income (loss) per average common share $ 0.22 $ 0.58 $ 0.57 $ (12.13) $ 0.31
======= ======= ======= ========= =======
</TABLE>
Note:
The fully diluted net income (loss) per average share for the twelve months
ended July 31, 1996, excludes the assumed conversion of those securities that
results in improvement of earnings per share. The assumed conversion of the
Company's convertible debentures for prior years were antidilutive, hence
primary earnings per share are presented for these periods in the Company's
Consolidated Statement of Earnings.
<PAGE>
EXHIBIT 13
ROHR PROFILE
INCORPORATED IN DELAWARE in 1969, Rohr, Inc. is the successor to an aerospace
manufacturing company founded in San Diego in 1940 and is now headquartered in
Chula Vista, California.
The Company had approximately 3,800 full-time employees at the end of fiscal
1996 and is an equal opportunity employer.
SHAREHOLDER INFORMATION
Rohr's common stock is traded principally on the following markets:
. New York Stock Exchange (RHR) . Pacific Stock Exchange (RHR)
. The Stock Exchange, London
The number of common shareholders of record on July 31, 1996 was 4,187. The
Company's fiscal year is from August 1 to July 31.
10-K REPORT REQUESTS
The Company will provide a copy of its most recent report to the Securities and
Exchange Commission on Form 10-K (excluding the exhibits thereto) upon the
written request of any beneficial owner of the Company's securities as of the
record date for the Annual Meeting (October 9, 1996) without charge. Copies of
the exhibits to Form 10-K are also available upon request and after payment of
the cost of reproducing such exhibits. Such requests should be addressed to
Rohr, Inc., Attention: Shareholders Services, 850 Lagoon Drive, Chula Vista, CA
91910-2098.
<TABLE>
<CAPTION>
<S> <C>
TRANSFER AGENT AND REGISTRAR COMMUNICATING WITH ROHR
Rohr's common stock transfer agent and registrar Mailing Address Parcel Deliveries:
is the First Chicago Trust Co. of New York at: 850 Lagoon Drive
Chula Vista, CA 91910-2098
P.O. Box 2500, Jersey City, NJ 07303-2500
(Correspondence and address changes) Main Telephone: (619) 691-4111
P.O. Box 2506, Jersey City, NJ 07303-2506 Employment: (619) 691-3022
(Certificate transfers) Fax: (619) 691-4103
Investor Relations: (619) 691-3002
Telephone: (800) 446-2617 Fax: (619) 691-2222
Internet address http://www.fctc.com Purchasing: (619) 691-2331
Fax: (619) 691-2584
E-Mail address: [email protected]
Shareholders Records
and Services: (619) 691-2214
Fax: (619) 691-2801
Telex: 69-5038
</TABLE>
<TABLE>
<CAPTION>
STOCK PRICE BY FISCAL QUARTER
1996 1995
High Low High Low
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $16-7/8 $14-3/4 $12-1/8 $ 8-5/8
Second Quarter 18-3/8 13-1/2 12-1/4 8-1/4
Third Quarter 18-7/8 15-7/8 12-3/4 10
Fourth Quarter 23 17 15-3/8 10-3/8
===============================================================================
</TABLE>
1
<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 each of the three years in the period ended July 31,
1996. These discussions should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto.
On certain long-term programs under which spares are sold 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 orders and is predicated
upon contractual arrangements with customers and market forecasts. Included
within the program quantity are spares anticipated to be sold concurrent with
production units which historically have increased as a percentage of total
deliveries as a program matures. Generally, spares have been sold at higher
prices than production units. This inclusion of anticipated orders for
production units and spares in the program quantity generally increases margins
in the early program years and decreases margins in the later program years
compared to the margins that would be reported under other methods of
accounting. 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. See "Notes to the Consolidated Financial Statements --
Note 1b."
INDUSTRY OUTLOOK
Demand for new commercial jet aircraft is dependent upon consumer demand for
air travel, the financial condition and earnings of aircraft operators (which is
generally related to the stability of fuel and ticket prices), and the
availability of surplus or "parked" aircraft. In addition, demand is dependent
on the replacement of older aircraft which is influenced by the aging of the
fleet and the time required for, and the economics of, compliance with noise and
maintenance regulations. Historically, such demands and financial conditions
have been related to the stability and health of the United States and world
economies. Since the production of aircraft involves long lead times,
production cycles in the aircraft manufacturing industry typically lag behind
changes in the general economy.
Demand for new commercial aircraft has been growing. Since 1993, airline
traffic has increased over 6 percent per year and analysts expect continued
growth to average approximately 5 percent per year over the next twenty years.
Airlines have improved their utilization of aircraft which, combined with stable
fare structures and aggressive cost reduction measures has resulted in
substantially improved airline profitability. The number of surplus or "parked"
aircraft continues to decline with 682 surplus aircraft at May 31, 1996,
compared to the peak of 1,103 surplus aircraft in 1994. A significant number
2
<PAGE>
of these surplus aircraft are not expected to return to service. In addition,
noise regulations require the replacement or modification of Stage Two aircraft
by 2000 in the United States and shortly thereafter in most other developed
countries.
Aircraft operators have responded to the improved market conditions and their
improved profitability by ordering large quantities of new commercial aircraft.
Orders rose to 679 aircraft in calendar 1995 and 700 through September of 1996,
compared to 321 in all of 1994. Deliveries of new aircraft, which lag behind
orders, decreased in calendar 1995 to 443, down from 495 in 1994 and from the
industry peak of 830 in 1991. Industry analysts also predict a potentially
large replacement market for commercial aircraft driven by noise legislation and
the need to replace aging fleets.
COMPANY OUTLOOK
Predicated upon customer scheduled delivery requirements, the Company expects
sales to increase at least 15 percent in fiscal 1997 as compared to fiscal 1996,
primarily as a result of increased deliveries scheduled in the latter half of
fiscal 1997. Due to the timing and mix of sales, the Company expects that its
operating margins in the first half of fiscal 1997 will be lower than the
operating margin before unusual items in fiscal 1996. Management continues to
work toward improving operating margins and believes that margins for the entire
fiscal year 1997 will approximate those achieved in fiscal 1996.
The Company continues to pursue additional business opportunities with its
customers, and at present is attempting to obtain work on the new Boeing 747
model 500/600 aircraft and also believes, as rates of aircraft deliveries
increase, there will be an opportunity for the Company to obtain additional work
from The Boeing Company on existing aircraft nacelle programs.
In response to the slow-down in the commercial aerospace industry which began
in the early 1990s, and in preparation for an upturn in the industry, management
has taken aggressive actions over the last several years to reduce costs,
improve quality, increase competitiveness, improve margins and maximize cash
flows. The Company has improved the ratio of indirect employees to direct
employees, resulting in a significant reduction in overhead expense. The
Company has also incorporated and is in the process of incorporating design
changes on certain programs to manufacture products on a more cost-effective
basis. In addition, the Company has implemented concurrent product development
and commenced the implementation of a lean manufacturing initiative to further
reduce costs and improve quality. As a result of these actions, and other
actions taken over the last several years, the Company believes it is well-
positioned to respond to the increasing demand for aircraft products.
3
<PAGE>
FORWARD LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY
This document includes forward looking statements, as defined in the Private
Securities Litigation Reform Act of 1995, that involve risk and uncertainty.
Actual sales in fiscal year 1997 may be materially less than the sales projected
in the forward looking statements if the Company's customers cancel or delay
current orders or reduce the rate at which the Company is building or expects to
build products for such customers. Such cancellations, delays or reductions may
occur if there is a substantial change in the health of the airline industry or
in the general economy, or if a customer were to experience major financial
difficulties. Margins may differ from those projected in the forward looking
statements if management does not achieve success in improving margins or if
performance, mix of sales, or other events occur that differ from the estimates
used in preparing the Company's financial statements.
4
<PAGE>
RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
Sales declined to $770.8 million in fiscal 1996 from $805.0 million in fiscal
1995. Sales in fiscal 1996 benefited from increased MD-90 deliveries and
approximately $30 million of one-time sales related to Boeing and International
Aero Engines programs. Overall, sales declined from fiscal 1995 primarily due
to delivery rate reductions on the PW4000, RB211-535 and CF6-80C programs. In
addition, government sales declined due to the near completion of the C-130
and the Titan Space programs.
The Company reported operating income of $69.1 million, an operating margin of
9.0 percent for fiscal 1996, excluding the impact of the unusual items discussed
below. Including the effect of the unusual items of $12.4 million, operating
income was $56.7 million, a margin of 7.4 percent. The unusual items, were a
loss on the sale of Rohr Credit Corporation, a Company subsidiary whose
principal assets were beneficial interests in two aircraft, and an impairment
write-down on the Company's Arkadelphia, Arkansas facility. Operating results
in fiscal 1995 were $64.6 million, a margin of 8.0 percent. Operating results
in fiscal 1996 were impacted by the change in sales described above, several
one-time items, and the resolution of outstanding issues on several programs,
some of which will have a favorable on-going impact.
The Company negotiated the sale of Rohr Credit Corporation, a Company
subsidiary whose principal assets were beneficial interests in two aircraft (an
A300 and a DC10), on lease through 2003 and 2004, respectively. The Company
recorded a $5.2 million pre-tax loss as a result of this sale, but retained an
interest in the residual value of these assets through which it could recover
additional amounts in the future. The Company also recorded a receivable in the
amount of $20.1 million (collected subsequent to year-end) and a secured note in
the amount of $7.5 million in connection with the sale.
As a result of the slowdown over the last several years in the commercial
aerospace industry and reductions in the Company's military and space programs,
many of the Company's facilities are currently operating below capacity. The
Company has been reviewing its long-range site strategy and assessing the
facilities necessary to meet its future needs including the potential favorable
operating effect of lean manufacturing. As a result of the review, the Company
has taken a $7.2 million pre-tax impairment write-down on its Arkadelphia,
Arkansas facility to estimated net realizable value and intends to seek a buyer
for the facility. The Company intends to continue to review its site strategy
and facilities with respect to its current and projected needs.
5
<PAGE>
Net interest expense was $46.0 million in fiscal 1996 compared to $50.0
million for fiscal 1995. Interest expense declined primarily due to principal
payments made in the fourth quarter of fiscal year 1995 on the Company's 9.33%
and 9.35% Senior Notes and the conversion of the Convertible Subordinated Notes,
as discussed below.
During fiscal 1996, the Company exchanged 4.0 million shares of the Company's
common stock for $37.8 million of its 7.75% Convertible Subordinated Notes due
2004. The Convertible Subordinated Notes, of which $19.7 million remain
outstanding at July 31, 1996, are convertible into shares of common stock at a
conversion price of $10.35 per share and are redeemable at the Company's option,
beginning in May 1998, at a price of 104.7%, declining to par at maturity. The
shares of common stock issued in the exchanges in excess of the shares required
for conversion were valued at $5.4 million, which was expensed in fiscal 1996.
The value of the additional shares of common stock issued represents only a
portion of the interest expense the Company would have incurred on the exchanged
notes through May 1998, the first date on which the Company could force
conversion by calling the notes for redemption.
The impact of the charge for the exchange of the convertible notes and the
unusual items described above was to reduce net income for fiscal 1996 by $10.6
million or 51 cents per share. Income from continuing operations for fiscal
1996 after these items was $3.2 million or 16 cents per share compared to income
from continuing operations for fiscal 1995 of $8.5 million or 47 cents per
share. Total net income for fiscal 1995 was $11.2 million or 62 cents per
share, which included $3.8 million or 21 cents per share from the discontinuance
of the business jet line of business and an extraordinary loss, net of income
tax benefit, of $1.1 million or 6 cents per share.
FISCAL 1995 COMPARED TO FISCAL 1994
Sales from continuing operations declined 12 percent from $918.1 million in
fiscal 1994 to $805.0 million in fiscal 1995. Commercial sales declined
primarily as a result of reduced deliveries of commercial aircraft. Government
sales declined due to the near completion of certain military and space
programs.
The Company reported operating income of $64.6 million, a margin of 8 percent,
for fiscal 1995 compared to $59.3 million, a margin of 6.5 percent (excluding
the impact from unusual items), for fiscal 1994. Including the effect of the
unusual items of $7.9 million, operating income for fiscal 1994 was $51.4
million, a margin of 5.6 percent. Operating results in fiscal 1995 benefited
from initial deliveries on the MD-90 program, improved results on several other
programs, and a reduction in general and administrative expense.
6
<PAGE>
Net interest expense was $50.0 million for the year ended July 31, 1995,
compared to $46.8 million for fiscal 1994. Net interest expense increased due
to the $157.5 million of public debt offerings completed in the fourth quarter
of fiscal 1994.
Income from continuing operations for fiscal 1995 was $8.5 million or 47 cents
per share compared to income from continuing operations for fiscal 1994 of $4.7
million or 26 cents per share. In fiscal 1994, the net impact of unusual items
was to reduce income from continuing operations by $4.8 million or 27 cents per
share.
Discontinued Operations
In the fourth quarter of fiscal 1994, the Company sold and commenced the
transfer of its business jet line of business which was accounted for as a
discontinued operation in accordance with Accounting Principles Board Opinion
No. 30. The purchase agreement required the Company to manufacture and deliver
certain components and transfer program engineering and tooling, tasks which
were substantially completed in fiscal 1995. The business jet line of business
sales were approximately $22.3 million and $40.3 million in fiscal 1995 and
fiscal 1994, respectively. Income from discontinued operations, net of income
tax benefit, was $3.8 million or 21 cents per share for fiscal 1995 compared to
$2.2 million or 12 cents per share for fiscal 1994. See "Notes to the
Consolidated Financial Statements -- Note 11."
Extraordinary Item
In line with the objective of reducing its debt and interest expense, the
Company prepaid a portion of its 9.33% and 9.35% Senior Notes during the fourth
quarter of fiscal 1995. The cost associated with the early extinguishment of
this debt has been reported as an extraordinary item. Loss from the
extraordinary item, net of income tax benefit, was $1.1 million or 6 cents per
share for fiscal 1995. See "Notes to the Consolidated Financial Statements --
Note 7."
Net Income
Total net income for fiscal 1995 was $11.2 million or 62 cents per share
compared to $6.9 million or 38 cents per share in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
The primary factors that affect the Company's liquidity are cash flow from
operations and investing in new programs (which require significant development
expenditures and inventory buildup that may be partially offset through the
participation of major subcontractors). Delivery levels under existing
programs, payment terms with customers, capital facilities expenditures, debt
service, and the timing of defined benefit plans and federal income tax payments
also affect the Company's liquidity and cash flow.
7
<PAGE>
At July 31, 1996, the Company had $88.4 million of cash and cash equivalents.
Cash provided by operating activities during fiscal 1996 totaled $7.8 million,
compared to $27.5 million for the prior fiscal year. Cash provided by operating
activities in fiscal year 1995 benefited from improved collection efforts on
receivables. Cash flow from operations in 1996 decreased, in large part, due to
increased receivables caused by the high level of sales in the fourth quarter.
Cash provided by operations is subject to significant variations from period to
period.
The Company's net inventory decreased slightly to $382.4 million at July 31,
1996, from $390.3 million at July 31, 1995. As programs mature, the Company's
pre-production inventory is declining through amortization of cost over unit
deliveries. In fiscal 1996, this decline was partially offset by the increase
in design expenditures and investments on programs early in their production
life such as the BR715-MD95 program. In addition, inventory increased on
several programs due to build up of inventory to support additional deliveries
in fiscal year 1997. Over the next several years, the Company expects to
increase its investments in inventory in connection with developmental
expenditures on new programs, increased deliveries, and anticipated new business
opportunities.
Beginning in November 1994, inspections of certain commercial aircraft
revealed three aircraft with a cracked spar cap on a wing pylon. These wing
pylon spar caps were purchased by a major subcontractor from one of its
suppliers and then assembled and supplied to the Company. The Company has
implemented a replacement program, which is approximately half complete, through
which the spar caps on approximately 120 aircraft are being replaced. The spar
caps are warranted to Rohr by its subcontractor, and subsequent to year end, the
Company reached an agreement with its subcontractor under which the
subcontractor bears the substantial portion of the replacement cost. Costs
borne by the Company are within provision previously provided. In addition, the
Company acquired other materials directly from the supplier who manufactured the
spar cap. The Company has completed testing of this other material and believes
that no replacement or repair is required.
Total financings, which includes balance sheet debt, a $40.0 million on-going
accounts receivable sales program (described below) and $21.8 million of
equipment leases, totaled $569.2 million at July 31, 1996, down from $605.6
million at July 31, 1995. This reduction is due primarily to the negotiated
exchanges during the year of common stock for $37.8 million of the Company's
7.75% Convertible Subordinated Notes, resulting in an increase to stockholders'
equity of $42.3 million. As expected the Company made its annual $12.0 million
principal payment on its 9.35% Senior Notes.
The Company sells certain receivables under a $40 million receivable financing
program. From time to time, the amount of outstanding qualified receivables
falls below levels required to support the facility. As a result, the Company
has elected to deposit cash collateral when necessary to support the facility
and has withdrawn cash when it is not longer required to be deposited. The
Company had no amounts on deposit at July 31, 1996 and cash collateral on
deposit totaling $13.5 million at July 31, 1995.
8
<PAGE>
During fiscal 1996, the Company improved the underfunded status (excess of
accrued benefit obligations over plan assets) of its primary defined benefit
plans to $53.0 million, down $11.0 million from the end of the prior year. The
defined benefit plans' funded status is primarily impacted by discount rates
(which are changed annually to reflect prevailing market interest rates), market
performance of plan assets, the granting of additional benefits, changes in
actuarial assumptions including mortality assumption, and fundings made by the
Company during the year. During fiscal 1996, the funded status of the plans
improved primarily as a result of substantial market gains in plan assets,
partially offset by the use of a lower discount rate and increased benefits
granted on a retroactive basis during recent union negotiations. Reflecting a
decrease in market interest rates, the Company reduced its benefit plan discount
rate to 7.75 percent for its fiscal 1996 valuation from 8.25 percent used for
the prior year's valuation. The decrease in the underfunded status of the plans
resulted in a $12.0 million reduction in the charge to shareholders' equity,
down to $26.4 million from $38.4 million at the end of the prior year. During
fiscal 1996, in light of the improved market performance of plan assets, the
Company made cash contributions of $10.6 million, down from $39.7 million paid
during fiscal 1995. On September 16, 1996, the Company announced it intends to
issue approximately $50 million of its common stock, the proceed of which
(together with additional cash) would be used to fully fund the two pension
plans. The Company is considering either a public offering of registered stock
or a direct contribution of unregistered stock to the two plans. If the stock is
registered, the offering will be made only by means of a prospectus. If the
stock is contributed directly to the plans, it will be contributed pursuant to
an exemption for federal securities registration requirements.
Capital expenditures for property, plant, and equipment totaled $13.0 million
for fiscal 1996, up from $8.1 million for fiscal 1995. The level of spending is
expected to increase over the next several years.
The Company's firm backlog, which includes the sales price of all undelivered
units covered by customers' orders, was approximately $1.2 billion at July 31,
1996, compared to $1.0 billion at July 31, 1995. Approximately $700 million of
the $1.2 billion backlog is scheduled to be delivered in 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 adjustment in contract amounts.
The Company has also entered into preliminary discussions with banks to
replace its existing revolving credit agreement which matures in April, 1997,
and expects to successfully replace such agreement. Accordingly, the Company
believes that its financial resources are adequate to meet its financial
requirements over the next several years.
9
<PAGE>
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 clean up 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, at the Stringfellow site near
Riverside, California. Subsequently, the State of California was found liable
and an allocation of its responsibility was made. 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 percent less or 50 percent 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 million to $8 million
over and above sums spent to date. 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. Expenditures by the Company for
cleanup of this site during fiscal 1996 were approximately $35,000 and are
expected to be approximately $250,000 during fiscal 1997. From inception to
July 31, 1996, the Company has expended approximately $3.7 million on cleanup
costs for this site. Applicable law provides for continuing liability for
future remedial work beyond existing agreements and consent decrees. The
Company has reached settlement agreements with its primary comprehensive general
liability insurers and has retained the right to file future claims against its
excess carriers. The Company recorded the proceeds from such settlements
received from its carriers as reserves. The Company has not recorded any other
amounts with respect to its rights against its insurers.
The Company is also involved in several other proceedings and investigations
related to waste disposal sites and other environmental matters. 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. However, preliminary estimates of cleanup costs for the Rio Bravo
and Casmalia waste disposal sites were approximately $7 million and $70 million
10
<PAGE>
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 $500,000 for the Rio Bravo site and $1.8
million for the Casmalia site. The Company does not yet know about the ability
of all of the other waste generators using the Casmalia and Rio Bravo sites to
fund their allocable share, and the Company could be found jointly and 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.
During the year ended July 31, 1996, 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 $6.1 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 1997 as in fiscal 1996, which
the Company anticipates, costs for these elements in fiscal 1997 should be
comparable to the current rate of expenditure for fiscal 1996.
Based upon presently available information, the Company believes it has
sufficient reserves and 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.
INCOME TAXES
At July 31, 1996, the Company's net deferred tax asset was $100.6 million,
consisting of $87.6 million for federal tax purposes and $13.0 million for state
tax purposes. Statement of Financial Accounting Standards (SFAS)No. 109
requires that deferred income taxes be classified on the balance sheet
predicated upon the categorization of the item to which the deferred tax is
attributed. The resulting classification is not necessarily indicative of when
taxes will be paid or deductions utilized. In addition, the Company has
considerable net operating loss carryforwards and expects that tax payments in
the near term will be minimal. 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.
Management expects that a sufficient level of taxable income will result in
years subsequent to fiscal 1996 and prior to the expiration of the NOLs to
realize the deferred tax asset recorded at July 31, 1996.
11
<PAGE>
The Company's long-term contracts and programs provide the Company
opportunities to generate future taxable income necessary to realize the
deferred tax asset recorded. During the rapid growth cycle in the late 1980's
and early 1990's, the Company made significant investments in new facilities and
in new programs. As programs mature, the Company expects to utilize its
investments, resources, and experience to reduce the cost of production.
Recently the Company has been able to reduce its work force through
consolidation and downsizing. In addition, direct sales of spare parts to the
airlines are expected to increase as a program matures. Generally, the Company
earns a higher margin on the direct sales of spare parts to the airlines. Based
on tax rates in effect on July 31, 1996, the Company must generate approximately
$266 million of future taxable income (net of $294 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 2012 for full realization of the net deferred tax asset.
The availability of the Company's NOLs may be limited under the Tax Reform Act
of 1986 as a result of significate changes that could occur in the ownership of
the Company's stock in the future. 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.
Late in fiscal 1996, the Company received a Revenue Agent's Report ("RAR")
from the Internal Revenue Service in connection with the audit of the Company's
federal income tax returns for fiscal years 1986 through 1989. In the RAR, the
agent has challenged the timing of various deductible items, some of which are
significant. Based upon its review to date, the Company expects to contest
substantially all the proposed adjustments and believes it will prevail on all
material items. The Company anticipates that any adjustment made to its
reported taxable income for the years under audit will increase the amount of
the net operating loss available for carryback purposes and therefore the audit
adjustments will not have a material adverse impact on the financial position of
the Company.
12
<PAGE>
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
JULY 31,
- ---------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 88,403 $ 84,584
Accounts receivable 129,523 72,152
Inventories:
Work-in-process 423,312 429,578
Raw materials, purchased parts and supplies 26,220 23,367
Less customers' progress payments and advances (67,165) (62,670)
- ---------------------------------------------------------------------------------
Inventories - net 382,367 390,275
Deferred tax asset - 6,493
Prepaid expenses and other current assets 14,587 13,685
- ---------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 614,880 567,189
PROPERTY, PLANT AND EQUIPMENT - NET 196,052 217,051
INVESTMENT IN LEASES - 34,657
DEFERRED TAX ASSET 156,863 105,020
OTHER ASSETS 64,742 52,623
- ---------------------------------------------------------------------------------
$1,032,537 $976,540
=================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Trade accounts and other payables $ 125,974 $126,312
Salaries, wages and benefits 44,094 32,011
Deferred income tax liability 56,250 -
Short-term debt and current portion of long-term debt 25,962 14,119
- ---------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 252,280 172,442
LONG-TERM DEBT 481,481 540,658
PENSION AND POST-RETIREMENT OBLIGATIONS - LONG-TERM 46,096 69,386
OTHER OBLIGATIONS 17,503 18,123
COMMITMENTS AND CONTINGENCIES (NOTE 8) - -
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 22,329,793 and 18,068,076 shares,
respectively 22,330 18,068
Additional paid-in capital 142,656 102,887
Retained earnings 96,622 93,394
Minimum pension liability adjustment (26,431) (38,418)
- ---------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 235,177 175,931
- ---------------------------------------------------------------------------------
$1,032,537 $976,540
=================================================================================
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these statements.
13
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except for per-share data)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
- --------------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES $770,814 $805,000 $918,141
COSTS AND EXPENSES 674,471 714,173 830,474
GENERAL AND ADMINISTRATIVE EXPENSES 27,233 26,198 28,352
UNUSUAL ITEMS (NOTE 2) 12,395 - 7,926
- --------------------------------------------------------------------------------------------
OPERATING INCOME 56,715 64,629 51,389
INTEREST INCOME 2,735 4,015 2,236
INTEREST EXPENSE 48,702 54,001 49,072
CHARGE FOR EXCHANGE OF CONVERTIBLE NOTES (NOTE 7) 5,350 - -
- --------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS
BEFORE TAXES (BENEFIT) ON INCOME 5,398 14,643 4,553
TAXES (BENEFIT) ON INCOME 2,170 6,150 (116)
- --------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 3,228 8,493 4,669
INCOME FROM DISCONTINUED OPERATIONS
- NET OF TAXES (NOTE 11) - 3,879 2,258
- --------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEM 3,228 12,372 6,927
LOSS FROM EXTRAORDINARY ITEM - NET OF TAXES (NOTE 7) - (1,146) -
- --------------------------------------------------------------------------------------------
NET INCOME $ 3,228 $ 11,226 $ 6,927
============================================================================================
PRIMARY EARNINGS (LOSS) PER AVERAGE SHARE
OF COMMON STOCK FROM:
Continuing Operations $ 0.16 $ 0.47 $ 0.26
Discontinued Operations - 0.21 0.12
Extraordinary Item - (0.06) -
- --------------------------------------------------------------------------------------------
NET PRIMARY EARNINGS PER AVERAGE SHARE $ 0.16 $ 0.62 $ 0.38
============================================================================================
FULLY DILUTED EARNINGS (LOSS) PER AVERAGE SHARE
OF COMMON STOCK FROM:
Continuing Operations $ 0.16 $ 0.47 $ 0.26
Discontinued Operations - 0.16 0.12
Extraordinary Item - (0.05) -
- --------------------------------------------------------------------------------------------
NET FULLY DILUTED EARNINGS PER AVERAGE SHARE $ 0.16 $ 0.58 $ 0.38
============================================================================================
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these statements.
14
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
COMMON STOCK ADDITIONAL MINIMUM PENSION
PAR VALUE PAID-IN RETAINED LIABILITY
$1 A SHARE CAPITAL EARNINGS ADJUSTMENT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT JULY 31, 1993 $17,996 $102,312 $ 75,241 $(13,306)
Stock plans activity 46 286 --- ---
Net Income --- --- 6,927 ---
Minimum pension liability adjustment (Note 9) --- --- --- (42,593)
- -----------------------------------------------------------------------------------------------------------
BALANCE AT JULY 31, 1994 18,042 102,598 82,168 (55,899)
Stock plans activity 26 289 --- ---
Net Income --- --- 11,226 ---
Minimum pension liability adjustment (Note 9) --- --- --- 17,481
- -----------------------------------------------------------------------------------------------------------
BALANCE AT JULY 31, 1995 18,068 102,887 93,394 (38,418)
Stock plans activity 253 1,472 --- ---
Conversion of 7.75% Convertible Subordinated Notes 4,009 38,297 --- ---
Net Income --- --- 3,228 ---
Minimum pension liability adjustment (Note 9) --- --- --- $11,987
- -----------------------------------------------------------------------------------------------------------
BALANCE AT JULY 31, 1996 $22,330 $142,656 $ 96,622 $(26,431)
===========================================================================================================
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these statements.
15
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (in thousands)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,228 $ 11,226 $ 6,927
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 21,442 22,148 22,538
Unusual items 12,395 - -
Charge for exchange of convertible notes 5,350 - -
Changes due to (increase) decrease in operating assets:
Accounts receivable (50,729) 29,059 27,500
Inventories - net 7,908 (22,034) 71,497
Prepaid expenses and other assets (28) 5,291 (1,459)
Changes due to increase (decrease) in operating liabilities:
Trade accounts and other payables 13,186 (10,206) (56,000)
Pension and post-retirement obligations (8,544) (26,642) 5,517
Taxes on income and deferred income taxes 1,734 8,332 1,176
Other 1,895 10,373 2,837
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,837 27,547 80,533
- ---------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Sale (purchase) of short-term investments - 17,568 (17,568)
Repurchase of sale-leaseback transactions - (21,782) -
Purchase of property, plant and equipment (13,029) (8,135) (5,784)
Net advances on discontinued operations - (5,045) 5,045
Other 3,174 1,280 (907)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (9,855) (16,114) (19,214)
- ---------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net proceeds from 11.625% Senior Notes - - 95,690
Net proceeds from 7.75% convertible Subordinated Notes - - 55,515
Annual principal payment of 9.35% Senior Notes (12,025) (12,500) (12,500)
Net prepayment of 9.33% and 9.35% Senior Notes - (22,481) -
Repayment of medium-term notes - - (35,000)
Net short-term borrowings 3,615 - -
Long-term borrowings under revolving credit agreement - - 115,000
Repayment of borrowings under revolving credit agreement - - (165,000)
Repayment of other long-term borrowings (1,678) (2,323) (2,618)
Repayment of cash values in insurance policies - - (9,907)
Reduction in sales of receivable sales program - (20,000) -
Cash collateral (increase) for receivable sales program 13,500 13,003 (26,503)
Long-term borrowings 1,106 - -
Other 1,319 1,456 (2,186)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 5,837 (42,845) 12,491
- ---------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,819 (31,412) 73,810
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 84,584 115,996 42,186
- ---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 88,403 $ 84,584 $ 115,996
===========================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
CASH PAID (RECEIVED) DURING THE YEAR FOR:
Interest, net of amount capitalized $ 48,436 $ 52,010 $ 41,622
Income taxes 367 (1,958) 174
NON-CASH INVESTING AND FINANCING ACTIVITIES:
RCC sold for notes receivable (Note 2) 27,594 - -
Exchange of 7.75% convertible notes (37,780) - -
Change in Equity due to exchange of 7.75% convertible notes 43,130 - -
===========================================================================================================================
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these statements.
16
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 in that revisions of estimated profits on
contracts are included in earnings by the Company under the reallocation method
rather than the cumulative catch-up method. 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 fiscal years 1996,1995, and 1994 were
accounted for using the contract method of accounting.
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 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.
Profit is estimated based on the difference between total estimated revenue and
total estimated cost of a contract or program and the remaining profit 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
17
<PAGE>
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 estimated 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. Generally, spares, as a percentage of total
deliveries, increase as a program matures and are 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
and overruns of program pre-production costs 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 and
may include estimates of recoveries on claims asserted against the customer for
changes in specifications. 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. Program accounting also
requires estimates of the market for a program and the spares expected to be
ordered. The Company reevaluates its estimates semi-annually 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 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.
18
<PAGE>
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.
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.
The Company periodically assesses its ability to recover the carrying value of
its long-lived assets. If management concludes that the carrying value will not
be recovered, an impairment write-down is recorded to reduce the asset to its
estimated fair value (see Note 2).
19
<PAGE>
E. PENSION
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.
F. RESEARCH AND DEVELOPMENT
Research and development costs incurred for the development of proprietary
products are expensed as incurred as part of general and administrative expense.
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.
G. INCOME TAXES
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
Primary earnings per share was determined by dividing net income by the
weighted average number of common shares and common share equivalents (stock
options and warrants) outstanding during the year. Fully diluted earnings per
share reflect the maximum dilution of per share earnings, if applicable, which
would have occurred if the convertible notes and debentures of the Company which
are dilutive had been converted as of the beginning of the period.
I. CASH EQUIVALENTS
For purpose of the statement of cash flows, the Company considers all
investments and highly liquid debt instruments with a maturity of three months
or less to be cash equivalents. Cash equivalents are stated at cost which
approximates market.
J. SHORT-TERM INVESTMENTS
Short-term investments are highly liquid investments with a maturity of 91 days
to one-year and generally issued by the U.S. Treasury, federal agencies,
municipalities, banks and major corporations. Short-term investments are stated
at cost which approximates market.
20
<PAGE>
K. INDUSTRY SEGMENTS
The Company considers itself to operate in one industry segment.
L. NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
was adopted by the Company in fiscal 1996. The standard requires that
impairment losses be recognized when the carrying value of an asset exceeds its
fair value. The Company periodically assesses its ability to recover the
carrying value of its long-lived assets. If management concludes that the
carrying value will not be recovered, an impairment write-down is recorded to
reduce the asset to its estimated fair value (see Note 2).
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," will be effective for the Company beginning in fiscal
1997. SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages, but does not require, compensation
cost to be measured based on the fair value of the equity instrument awarded.
Corporations are permitted, and the Company will continue to apply Accounting
Principles Board (APB) Opinion No. 25 and will disclose the required pro forma
effect on net income and earnings per share.
21
<PAGE>
NOTE 2 - UNUSUAL ITEMS
The Company negotiated the sale of Rohr Credit Corporation, a Company subsidiary
whose principal assets were beneficial interests in two aircraft (an A300 and a
DC10), on lease through 2003 and 2004, respectively. The Company recorded a
$5.2 million pre-tax loss as a result of this sale, but retained an interest in
the residual value of these assets through which it could recover additional
amounts in the future. The Company also recorded a receivable in the amount of
$20.1 million (collected subsequent to year-end) and a secured note in the
amount of $7.5 million in connection with the sale.
As a result of the slow-down over the last several years in the commercial
aerospace industry and reductions in the Company's military and space programs,
many of the Company's facilities are currently operating below capacity. The
Company has been reviewing its long-range site strategy and assessing the
facilities necessary to meet its future needs including the potential favorable
operating effect of lean manufacturing. As a result of the review, the Company
has taken a $7.2 million pre-tax impairment write-down on its Arkadelphia,
Arkansas facility to its estimated net realizable value and intends to seek a
buyer for the facility. The Company intends to continue to review its site
strategy and facilities with respect to its current and projected needs.
During fiscal 1994, the Company recognized a curtailment loss of $10.6 million
for the write-off of unamortized pension past service costs relating to the
downsizing of employment levels. This loss is reflected as an unusual item for
the 1994 statement of operations net of a gain recognized on the sale of a
facility.
These losses have been recorded as unusual items in the Consolidated
Statements of Operations.
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,
- -----------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------
<S> <C> <C>
Amount billed $ 80,661 $41,884
Receivable for sale of RCC (See Note 2) 20,142 -
Recoverable costs and accrued profit on
units delivered but not billed 6,504 12,422
Recoverable costs and accrued profit on
progress completed but not billed 8,276 4,533
Unrecovered costs and estimated profit
subject to future negotiations 13,940 13,313
- -----------------------------------------------------------------
$129,523 $72,152
=================================================================
</TABLE>
22
<PAGE>
"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.
"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 July 31, 1996, are estimated recoveries on constructive change claims
related to government imposed redefined acceptance criteria on the Grumman F-14
and the Boeing E3/E6 programs. Management believes that amounts reflected in
the financial statements are reasonable estimates of the ultimate settlements.
The resolution of these items may take several years.
The Company has a $40 million accounts receivable sales program under which it
sells qualified receivables through a subsidiary to a trust on an ongoing basis.
The investors' interests in the trust, net of the cash collateral discussed
below, are reported as a reduction to accounts receivable. The Company's
subsidiary holds the remaining interest in the trust which fluctuates in value
depending upon the amount of receivables owned by the trust from time to time.
Due to the slowdown in the aerospace industry and the resulting reduction in the
Company's sales, the amount of outstanding receivables owned by the trust has,
from time to time, fallen below the aggregate amount of the facility. As a
result, the Company has elected to deposit cash collateral when insufficient
qualified receivables exist as required to support the facility. The Company
had no amounts on deposit at July 31, 1996 and cash collateral on deposit
totaling $13.5 million at July 31, 1995. The cost associated with the sale of
receivables under the current facility is 7.57 percent per year. These costs,
which have been reflected as a reduction in sales values, were $3.0 million,
$3.6 million, and $4.5 million in fiscal 1996, 1995, and 1994, respectively.
23
<PAGE>
SALES
The Company's 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 JULY 31,
- --------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------
<S> <C> <C> <C>
International Aero Engines 22% 14% 16%
Boeing 19 17 15
CFM International 12 11 9
Pratt & Whitney 8 10 14
Rolls-Royce 7 13 10
McDonnell Douglas 7 8 7
General Electric 7 7 9
Airbus Industrie 6 6 3
Lockheed 3 5 6
United Technology 1 4 4
Other 8 5 7
- --------------------------------------------------------
</TABLE>
Total sales to the U.S. Government (including direct sales and indirect sales
through some of the prime contractors shown above) accounted for 8 percent, 12
percent, and 14 percent of sales from continuing operations in the years ended
July 31, 1996, 1995, and 1994, respectively.
Commercial products sold by the Company to jet engine manufacturers are
ultimately installed on aircraft produced by the major commercial airframe
manufacturers, Airbus Industrie, Boeing and McDonnell Douglas. Sales to foreign
customers accounted for 44 percent, 38 percent, and 24 percent of total sales
for fiscal 1996, 1995, and 1994, respectively. Of the total sales, 36 percent,
33 percent, and 22 percent, were to Europe for fiscal 1996, 1995, and 1994,
respectively.
24
<PAGE>
NOTE 4 - INVENTORIES
Work-in-process inventories as of July 31, 1996, which relate primarily to
long-term contracts and programs, are summarized as follows (in thousands,
except quantities):
<TABLE>
<CAPTION>
AIRCRAFT ORDER STATUS (1) COMPANY ORDER STATUS
--------------------------------- -------------------------------------------
(2) FIRM (3)
DELIVERED UNFILLED UNFILLED PROGRAM UNFILLED FISCAL YEAR
PROGRAM TO AIRLINES ORDERS OPTIONS QUANTITY DELIVERED ORDERS COMPLETE(6)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A340 nacelle (4) (5) 79 97 87 262 90 38 2003
PW4000 nacelle for the
A300/A310 and
MD-11 (4) 265 23 59 318 279 26 2003
MD-90 (4) (5) 19 119 78 417 33 93 2006
V2500 nacelle for the
A319/A320/A321 (4) (5) 220 132 91 314 230 28 1998
CF6-80C nacelle for the
747/767, MD-11 and
A300/A310 (5) 707 145 233 898 735 137 1999
CFM56-5 nacelle for the
A319/A320/A321 (5) 370 287 137 611 388 203 2000
MD-95 (5) (7) 0 50 50 TBD 0 0 TBD
Others
- ---------------------------------------------------------------------------------------------------------------
BALANCE AT JULY 31, 1996
===============================================================================================================
Balance at July 31, 1995
===============================================================================================================
<CAPTION>
WORK-IN-PROCESS INVENTORY
--------------------------------------------------------
PRE- EXCESS
PROGRAM PRODUCTION PRODUCTION OVER AVERAGE TOTAL
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A340 nacelle (4) (5) $ 19,537 $ 39,646 $ 11,897 $ 71,080
PW4000 nacelle for the
A300/A310 and
MD-11 (4) 22,427 15,465 33,905 71,797
MD-90 (4) (5) 15,061 74,821 21,060 110,942
V2500 nacelle for the
A319/A320/A321 (4) (5) 12,931 4,316 0 17,247
CF6-80C nacelle for the
747/767, MD-11 and
A300/A310 (5) 17,745 0 16,686 34,431
CFM56-5 nacelle for the
A319/A320/A321 (5) 17,392 2,572 29,392 49,356
MD-95 (5) (7) 0 6,874 0 6,874
Others 46,851 14,734 0 61,585
- -------------------------------------------------------------------------------------------
BALANCE AT JULY 31, 1996 $151,944 $158,428 $112,940 $423,312
===========================================================================================
Balance at July 31, 1995 $128,362 $187,527 $113,689 $429,578
===========================================================================================
</TABLE>
(1) Represents the aircraft order status as reported by Airclaims and/or other
sources the Company believes reliable for the related aircraft and engine
option. The Company's orders frequently are less than the announced orders
shown above.
(2) 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 values used in
calculating average unit cost at July 31, 1996, were $215,062 on the A340,
$297,558 on the PW4000, $270,294 on the MD-90, $132,890 on the V2500,
$206,318 on the CF6-80C, and $226,911 on the CFM56-5. Total spares values
sold as of July 31, 1996, were $75,366 on the A340, $223,398 on the PW4000,
$24,493 on the MD-90, $98,188 on the V2500, $156,975 on the CF6-80C, and
$143,762 on the CFM56-5. The Company does not have orders for all of these
units at this time.
(3) Represents the number of aircraft for which the Company has firm unfilled
orders.
(4) Program quantity represents 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.
(5) Programs accounted for in accordance with the program method of accounting.
(6) 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 will be delivered. The expected life of a program is often
significantly longer and as additional orders are received, program
quantity is increased and this date is extended.
(7) Program quantity to be determined. New program; quantity not to exceed that
used by the prime manufacturer.
25
<PAGE>
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
certain programs. The PW4000 contract was revised in 1993 and provides that if
Pratt & Whitney accepts delivery of less than 500 units between 1993 through
2003 an "equitable" adjustment will be made. Recent market projections on the
PW4000 program indicate that less than 500 units will be delivered. The Company
has submitted a "request for equitable adjustment" to the customer and believes
it will achieve a recovery such that there will be no material adverse effect on
the financial position of the Company.
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, 1996, is $11.2 million on the A340, $78.7 million on the MD-90, and $6.9
million on the MD-95.
The Company has used forward contracts, on a limited basis, 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
26
<PAGE>
evaluation of current and projected foreign currency exchange rates and
limitation within existing lending agreements, but the Company does not acquire
forward contracts in excess of its current hedging requirements. At July 31,
1996, the Company had $2.8 million of foreign exchange contracts outstanding to
purchase foreign currencies. There were no significant deferred gains or losses
associated with these foreign exchange contracts.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 31,
- ------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Land $ 24,660 $ 25,132
Buildings 195,153 205,637
Machinery and equipment 287,035 282,427
Construction in progress 12,183 10,400
- ------------------------------------------------------------------------------
519,031 523,596
Less accumulated depreciation and amortization (322,979) (306,545)
- ------------------------------------------------------------------------------
Property, plant and equipment - net $ 196,052 $ 217,051
==============================================================================
</TABLE>
Included in the above categories are assets recorded under capitalized leases
with original cost totaling $50.6 million at July 31, 1996 and 1995.
NOTE 6 - TAXES ON INCOME
The provision (benefit) for taxes on income is comprised of the following (in
thousands):
<TABLE>
<CAPTION>
JULY 31,
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENTLY PAYABLE:
Federal income taxes $ 80 $ 900 $ 1,320
Foreign income taxes 350 (90) 400
State income taxes 130 240 1,200
DEFERRED:
Federal income taxes 1,090 2,310 (3,660)
State income taxes 520 2,790 624
- --------------------------------------------------------------------------------
$2,170 $6,150 $ (116)
================================================================================
</TABLE>
27
<PAGE>
The difference between the income tax provision (benefit) computed at
the federal statutory rate and the actual tax provision (benefit) is as follows
(in thousands):
<TABLE>
<CAPTION>
JULY 31,
- ------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxes computed at the federal statutory tax rate $ 1,889 $5,125 $ 1,594
Increase (reduction) resulting from:
State income taxes, net of federal tax benefit 281 761 237
Effect of statutory rate increase - - (2,870)
Tax-exempt income from Foreign Sales Corporation (152) (395) (680)
Non-deductible items 1,453 922 2,270
Corporate-owned life insurance (433) (236) 154
Sale of investment leases (1,048) - -
Utilization of reserves previously provided
for tax assessments - - (860)
Other 180 (27) 39
- ------------------------------------------------------------------------------------
$ 2,170 $6,150 $ (116)
====================================================================================
</TABLE>
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 (liability) which reflect
the tax effects of the Company's temporary differences, tax credit carryforwards
and net operating loss carryforwards (NOLs) are listed below (in thousands):
<TABLE>
<CAPTION>
JULY 31,
- --------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------
<S> <C> <C>
CURRENT:
Inventories $(27,641) $ 5,546
Employee benefits 3,597 5,235
State taxes (4,390) (4,288)
Sale of investment leases (27,816)
- --------------------------------------------------------------------------
Net deferred tax asset (liabilities) - current $(56,250) $ 6,493
==========================================================================
LONG-TERM:
Depreciation $ 9,332 $ 16,500
Deferred gain on sale/leaseback 7,876 8,249
Minimum pension liability adjustment 17,767 25,826
Net operating loss carryforward 120,485 83,135
Tax credit carryforward 8,432 8,883
Investment in leases (3,525) (35,973)
Other - net (3,504) (1,600)
- --------------------------------------------------------------------------
Net deferred tax asset - long-term $156,863 $105,020
==========================================================================
</TABLE>
28
<PAGE>
Statement of Financial Accounting Standard (SFAS) No. 109 requires that
deferred income taxes be classified on the balance sheet predicated upon the
categorization of the item to which the deferred tax is attributed. The
resulting classification is not necessarily indicative of when taxes will be
paid or deductions utilized. In addition, the Company has considerable NOLs and
expects that tax payments in the near term will be minimal.
The Company has federal NOLs totaling approximately $298 million at July 31,
1996, which expire in the years 2003 through 2012, and tax credit carryforwards
totaling $8.4 million which expire in the years 2003 through 2011.
When tax effected at the rates in effect July 31, 1996, the net deductible
temporary differences, tax credit carryforwards, and NOLs result in a deferred
tax asset of $100.6 million, consisting of $87.6 million for federal tax
purposes and $13.0 million for state tax purposes. Based on rates in effect
July 31, 1996, approximately $266 million of future taxable income is required
prior to expiration of the Company's NOLs and credits for full realization of
the deferred tax asset. The Company believes that its future taxable income
will be sufficient for full realization of the deferred tax asset.
Late in fiscal 1996, the Company received a Revenue Agent's Report ("RAR") from
the Internal Revenue Service in connection with the audit of the Company's
federal income tax returns for fiscal years 1986 through 1989. In the RAR, the
agent has challenged the timing of various deductible items, some of which are
significant. Based upon its review to date, the Company expects to contest
substantially all the proposed adjustments and believes it will prevail on all
material items. The Company anticipates that any adjustment made to its
reported taxable income for the years under audit will increase the amount of
the net operating loss available for carryback purposes and therefore the audit
adjustments will not have a material adverse impact on the financial position of
the Company.
29
<PAGE>
NOTE 7 - INDEBTEDNESS
The maturity schedule of the Company's debt is summarized as follows (in
thousands, except quantities):
<TABLE>
<CAPTION>
TOTAL AT
FISCAL YEAR ENDED JULY 31, JULY 31,
- -------------------------------------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 Thereafter 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
11.625% Senior Notes $100,000 $100,000 $100,000
9.35% Senior Notes $12,025 $12,025 $12,025 $ 3,657 39,732 51,757
9.33% Senior Notes 8,850 8,850 8,850 8,850 $ 8,850 7,093 51,343 51,343
Other Debt 3,941 436 172 175 121 17,090 21,935 17,671
- -------------------------------------------------------------------------------------------------------------------------------
24,816 21,311 21,047 12,682 8,971 124,183 213,010 220,771
CAPITAL LEASES 1,943 1,871 1,766 1,662 1,557 4,703 13,502 16,189
LESS IMPUTED INTEREST (797) (701) (604) (510) (416) (761) (3,789) (4,683)
- -------------------------------------------------------------------------------------------------------------------------------
1,146 1,170 1,162 1,152 1,141 3,942 9,713 11,506
SUBORDINATED DEBT:
7.75% Convertible Notes 19,720 19,720 57,500
9.25% Debentures 7,500 7,500 7,500 7,500 120,000 150,000 150,000
7.00% Convertible Debentures 5,750 5,750 5,750 97,750 115,000 115,000
- -------------------------------------------------------------------------------------------------------------------------------
7,500 13,250 13,250 13,250 237,470 284,720 322,500
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INDEBTEDNESS $25,962 $29,981 $35,459 $27,084 $23,362 $365,595 507,443 554,777
- -------------------------------------------------------------------------------------------------------------------------------
Less Current Portion (25,962) (14,119)
- -------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT $481,481 $540,658
===============================================================================================================================
</TABLE>
The fair value of the Company's total indebtedness as of July 31, 1996 is
estimated to be $505.7 million compared to the carrying value of $507.4 million
reflected in the table above. This fair value was derived using quoted market
prices on publicly traded debt and estimated market value of the privately held
debt.
The Company's total financings were $569.2 million and $605.6 million at July
31, 1996 and 1995, respectively. The Company's total financings at July 31,
1996 included: indebtedness, shown in the table above; the accounts receivable
sales program in the amount of $40.0 million, which is reported as a reduction
to accounts receivable (see Note 3); and two sale-leaseback transactions,
accounted for as operating leases, totaling $21.8 million.
The Company has an unsecured revolving credit agreement with a group of banks,
maturing in April 1997 against which there were no outstanding borrowings at
July 31, 1996. The commitment under this revolving credit agreement was $74.5
million at July 31, 1996, and is reduced by $8.3 million in October 1996. Up to
$30 million of the commitment is available to support the issuance of letters of
credit. At July 31, 1996, $16.9 million of the commitment was used to support
an industrial development bond financing. The Company has entered into
preliminary discussions to replace the existing revolving credit agreement with
a new facility.
30
<PAGE>
Borrowings under this credit agreement generally incur interest at an annual
rate equal to the London Interbank Offered Rate plus 0.75% to 3.25%. In
addition, 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 are based upon the
Company's credit rating.
The Company's privately placed 9.35% Senior Notes require principal payments of
approximately $12.0 million in January 1997, 1998, and 1999 and a final payment
of $3.7 million in January 2000. The Company's privately placed 9.33% Senior
Notes require principal payments of approximately $8.9 million in December 1996
through 2000, and a final payment of $7.1 million in December 2001. In the
fourth quarter of fiscal 1995, the Company voluntarily prepaid $10.7 million of
its 9.33% Senior Notes and $10.7 million of its 9.35% Senior Notes. The Company
used existing funds to extinguish this debt. A premium and certain other
expenses associated with this early extinguishment of debt were recorded as an
extraordinary item. The net loss associated with this early extinguishment
totaled $1.1 million or 6 cents per share, net of income tax benefit of $0.7
million. 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 $100 million of 11.625% Senior Notes due May 2003 are general unsecured
obligations of the Company and do not have sinking fund requirements. These
Senior Notes are redeemable after May 1999, at a premium price of 105.8 percent,
declining annually to par at maturity. The note holders can require the Company
to purchase the principal, plus accrued interest and premium in the event of
certain changes in control or ownership of the Company. The Company's 7.75%
Convertible Subordinated Notes due May 2004 have no sinking fund requirements.
The Convertible Subordinated Notes are convertible at the option of the holder
into shares of the Company's common stock at a conversion price of $10.35 per
share, subject to adjustment under certain conditions. At the Company's option,
the Convertible Subordinated Notes are redeemable after May 1998, at a premium
price of 104.7 percent, declining to par at maturity. During fiscal 1996, the
Company exchanged 4.0 million shares of the Company's common stock for $37.8
million of these notes. At July 31, 1996, $19.7 million of the 7.75% Convertible
Subordinated Notes remained outstanding. The shares of common stock issued in
the exchanges in excess of the share required for conversion were valued at $5.4
million, which was expensed during fiscal 1996.
The Company's 9.25% Subordinated Debentures due March 2017 are subject to
mandatory annual sinking fund payments of $7.5 million beginning March 1998.
The Company's 7.00% Convertible Subordinated Debentures due October 2012 are
subject to mandatory annual sinking fund payments of $5.8 million beginning
October 1998. These debentures are convertible at the option of the holder into
shares of the Company's common stock at a conversion price of $43.00 per share,
subject to adjustment under certain conditions. The 7.00% debentures are
redeemable at the Company's option at a premium price of 102.1 percent and the
9.25% debentures are redeemable at a premium price of 105.6 percent, both
declining to par over specified time periods.
31
<PAGE>
The Company's principal financing agreements contain covenants and ratios, the
most significant of which relate to tangible net worth, debt to equity, and
income available for fixed charges. The Company was in compliance with these
covenants at July 31, 1996. These financing agreements also contain other
restrictions, including restrictions on new indebtedness, prepayments and
redemptions of indebtedness, amendments to debt agreements, liens, dividends,
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 July 31, 1996 are as follows (in thousands):
<TABLE>
- ----------------------------------------------
<S> <C>
1997 $ 6,200
1998 6,300
1999 4,600
2000 4,200
2001 4,100
Thereafter 6,300
- ----------------------------------------------
$31,700
==============================================
</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 $6.3 million, $8.5 million, and $13.1 million for
fiscal 1996, 1995, and 1994, respectively.
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,
32
<PAGE>
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 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.
NOTE 9 - EMPLOYEE BENEFIT PLANS
A. PENSION PLAN
The Company has non-contributory pension plans covering substantially all of
its employees. Benefits for the salaried employees' plan are based on age and
years of service plus interest at specified levels. Benefits under the
retirement plan covering certain union employees are based on a negotiated
amount per year of service. The Company has made contributions to independent
trusts for the minimum funding requirements of these plans under IRS
regulations. The Company also has supplemental retirement plans which are
generally unfunded.
33
<PAGE>
Defined benefit plans expense consists of the following components (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
- ------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 8,336 $ 9,574 $ 7,017
Interest cost on projected benefit obligation 38,726 36,462 36,686
Actual gain on plan assets (90,646) (43,245) (9,168)
Net amortization and deferral 58,865 12,118 (20,093)
- ------------------------------------------------------------------------------------
Total $ 15,281 $ 14,909 $ 14,442
====================================================================================
</TABLE>
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,
- -------------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested $507,659 $459,036
Non-vested 20,714 20,252
- -------------------------------------------------------------------------------------
Accumulated benefit obligation 528,373 479,288
Effect of projected future salary increases 5,545 3,441
- -------------------------------------------------------------------------------------
Projected benefit obligation for service rendered to date 533,918 482,729
Plan assets at fair value, primarily stocks, bonds,
other fixed income obligations and real estate 475,343 415,284
- -------------------------------------------------------------------------------------
Plan assets less than projected benefit obligation (58,575) (67,445)
Unrecognized net loss 52,937 73,255
Unrecognized net asset from initial application
of SFAS No. 87 being recognized over
plans' average remaining service life (9,816) (12,819)
Unrecognized prior service cost 31,859 26,915
Additional minimum liability (72,735) (87,480)
- -------------------------------------------------------------------------------------
Pension liability recognized in the
Consolidated Balance Sheets $(56,330) $(67,574)
=====================================================================================
</TABLE>
At July 31, 1996, the Company's additional minimum liability for its defined
benefit plans was in excess of the unrecognized prior service costs and net
transition obligation and was recorded as a reduction of $26.4 million to
shareholders' equity, net of tax benefits of $17.8 million, in accordance with
SFAS No. 87, "Employers' Accounting for Pensions." At July 31, 1995, the
reduction to shareholders' equity totaled $38.4 million, net of tax benefit of
$25.8 million.
34
<PAGE>
The weighted average discount rate used in determining the present value of the
projected benefit obligation was 7.75 percent, 8.25 percent, and 7.5 percent
for the years ended July 31, 1996, 1995, and 1994, respectively. 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 4.5 percent on current salaries through January 1, 1996, in
accordance with plan terms. The expected long-term rate of return on plan
assets was 9 percent for the periods presented. Plan assets are invested
primarily in stocks, bonds, and real estate.
The Company also has certain defined contribution plans covering most
employees. Expenses for these plans amounted to $3.5 million, $2.8 million and
$1.7 million in fiscal 1996, 1995 and 1994, 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 employee contributions.
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.
35
<PAGE>
Post-retirement benefit costs, net of expected retiree contributions, included
the following components (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
- ---------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits attributed to service during the period $125 $146 $168
Interest cost on accumulated post-retirement benefit obligation 419 408 465
Net amortization and deferral 13 32 -
- ---------------------------------------------------------------------------------------------------------------------------------
Net periodic post-retirement benefit cost $557 $586 $633
=================================================================================================================================
</TABLE>
The liability for post-retirement health care benefits included the following
components (in thousands):
<TABLE>
<CAPTION>
JULY 31,
- ---------------------------------------------------------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees $2,660 $2,722
Fully eligible active plan participants 236 180
Other active plan participants 2,159 2,425
Unrecognized net loss (380) (690)
- ---------------------------------------------------------------------------------------------------------------------------------
Liability for post-retirement health care benefits $4,675 $4,637
=================================================================================================================================
</TABLE>
The accumulated post-retirement benefit obligation was determined using
weighted average discount rates of 7.75 percent, 8.25 percent, and 7.5 percent,
respectively, for the years ended July 31, 1996, 1995, and 1994. The plan is
unfunded. Each year the Company funds the benefits paid.
36
<PAGE>
NOTE 10 - SHAREHOLDERS' EQUITY
Covenants in several of the Company's principal financing agreements restrict
the Company from paying cash dividends until after April 25, 1997. (See Note 7)
Thereafter, the Company's ability to pay cash dividends is substantially
restricted.
The Company's 1995 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 1,800,000 shares of common
stock may be sold or issued under the plan. 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. Under the terms of
the plan, the Company may not change the exercise price of or replace any stock
option previously granted (except pursuant to certain plan adjustments), nor
grant an option with an exercise price less than 100 percent of the fair market
value of the underlying common stock on the date the Committee approves such
stock option. Restricted shares purchased under the plan are subject to
restrictions on sale or disposal, which lapse in varying installments from one
to 10 years. During fiscal 1996, 10,000 restricted shares were awarded to
employees.
The Company's 1982 Stock Option Plan and the 1989 Stock Incentive Plan, under
both of 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
six years after date of grant and expire 10 years from date of grant. Under the
1989 Stock Incentive Plan, restricted shares purchased under the plan are
subject to restrictions on sale or disposal, which lapse in varying installments
from one to 10 years. During fiscal 1996, 26,076 shares were awarded to various
employees. At July 31, 1996, there were no shares available for grants under
these plans.
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 become 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, 34,000 shares remained available for grant at July
31, 1996.
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.
37
<PAGE>
Under the various stock option plans, outstanding options for 2,035,452 and
2,267,359 shares of common stock were exercisable as of July 31, 1996 and 1995,
respectively. Activity in these stock option plans for the three years ended
July 31, 1996, is summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OPTION PRICE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance Outstanding at July 31, 1993 2,665,849 $ 8.875 - $31.625
Granted 109,000 8.375 - 10.250
Relinquished (18,655) 16.500 - 31.625
Forfeited (33,150) 10.625 - 22.125
- -------------------------------------------------------------------------------
Balance Outstanding at July 31, 1994 2,723,044 8.375 - 31.625
Granted 19,000 9.125 - 10.250
Relinquished (7,180) 16.500 - 31.625
Forfeited (44,300) 10.625 - 23.875
Exercised (26,000) 10.625 - 12.000
- -------------------------------------------------------------------------------
Balance Outstanding at July 31, 1995 2,664,564 8.375 - 31.625
Granted 1,123,936 14.875 - 22.000
Relinquished (77,465) 16.500 - 31.625
Forfeited (47,667) 10.625 - 22.125
Exercised (394,707) 8.750 - 19.375
- -------------------------------------------------------------------------------
Balance Outstanding at July 31, 1996 3,268,661 $ 8.375 - $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, 1999, 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.
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 August 2000.
38
<PAGE>
Authorized, unissued shares of common stock were reserved for the following:
<TABLE>
<CAPTION>
July 31,
- --------------------------------------------------------------------------------
1996 1995
<S> <C> <C>
- --------------------------------------------------------------------------------
Various stock plans 3,983,911 2,963,938
Conversion of subordinated debentures and notes 4,579,732 8,229,973
Warrants 600,000 600,000
- --------------------------------------------------------------------------------
9,163,643 11,793,911
================================================================================
</TABLE>
NOTE 11 - DISCONTINUED OPERATIONS
In the fourth quarter of fiscal 1994, the Company sold and commenced the
transfer of its business jet line of business. The purchase agreement required
the Company to manufacture and deliver certain components and transfer program
engineering and tooling which was substantially completed in fiscal 1995. The
operating results of the business jet line of business are included in earnings
from discontinued operations summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Net sales $22,287 $40,286
Income before taxes 6,486 3,777
Taxes on income 2,607 1,519
- --------------------------------------------------------------------------------
Net income $ 3,879 $ 2,258
================================================================================
Net income per average share
of common stock $ 0.21 $ 0.12
================================================================================
</TABLE>
39
<PAGE>
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS EXCEPT FOR PER-SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, 1996
- ---------------------------------------------------------------------------------------------------
1ST 2ND 3RD 4TH
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $150,400 $180,702 $203,711 $236,001
OPERATING INCOME BEFORE UNUSUAL ITEMS 12,139 16,384 18,565 22,022
OPERATING INCOME AFTER UNUSUAL ITEMS 12,139 16,384 18,565 9,627
INCOME (LOSS) FROM CONTINUING OPERATIONS 805 343 6,908 (2,658)
BEFORE TAXES
NET INCOME (LOSS) 482 205 4,130 (1,589)
PRIMARY EARNINGS (LOSS) PER AVERAGE SHARE
OF COMMON STOCK $ 0.03 $ 0.01 $ 0.19 $ (0.07)
- ---------------------------------------------------------------------------------------------------
FULLY DILUTED EARNINGS (LOSS) PER AVERAGE SHARE
OF COMMON STOCK $ 0.03 $ 0.01 $ 0.18 $ (0.07)
===================================================================================================
</TABLE>
40
<PAGE>
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS EXCEPT FOR PER-SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, 1995
- -------------------------------------------------------------------------------------------------------
1ST 2ND 3RD 4TH
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $192,156 $219,774 $210,759 $182,311
OPERATING INCOME 15,353 17,986 16,784 14,506
INCOME FROM CONTINUING OPERATIONS
BEFORE TAXES 2,291 5,438 4,676 2,238
INCOME FROM CONTINUING OPERATIONS 1,370 3,252 2,573 1,298
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAXES 497 337 87 2,958
INCOME BEFORE EXTRAORDINARY ITEMS 1,867 3,589 2,660 4,256
LOSS FROM EXTRAORDINARY ITEM, NET OF TAXES - - - (1,146)
NET INCOME $ 1,867 $ 3,589 $ 2,660 $ 3,110
PRIMARY EARNINGS (LOSS) PER AVERAGE SHARE
OF COMMON STOCK FROM:
CONTINUING OPERATIONS $ 0.08 $ 0.18 $ 0.14 $ 0.07
DISCONTINUED OPERATIONS 0.02 0.02 0.01 0.16
EXTRAORDINARY ITEM - - - (0.06)
NET PRIMARY EARNINGS $ 0.10 $ 0.20 $ 0.15 $ 0.17
FULLY DILUTED EARNINGS (LOSS) PER AVERAGE SHARE
OF COMMON STOCK FROM:
CONTINUING OPERATIONS $ 0.08 $ 0.17 $ 0.14 $ 0.08
DISCONTINUED OPERATIONS 0.02 0.01 - 0.13
EXTRAORDINARY ITEM - - - (.05)
NET FULLY DILUTED EARNINGS $ 0.10 $ 0.18 $ 0.14 $ 0.16
=======================================================================================================
</TABLE>
41
<PAGE>
REPORT BY MANAGEMENT
To the Shareholders and Board of Directors of Rohr, Inc.
The management of the Company has prepared and is responsible for the
consolidated financial statements and all related financial information
contained in this report. The accompanying financial statements have been
prepared in conformity with generally accepted accounting principles and reflect
the effects of certain estimates and judgments made by management.
The Company maintains a system of internal accounting controls designed and
intended to provide reasonable assurance that assets are safeguarded,
transactions are properly executed and recorded in accordance with management's
authorization, and accountability for assets is maintained. The system is
continuously monitored by direct management review, by internal auditors who
conduct an extensive program of audits and by independent auditors in connection
with their annual audit.
Management recognizes its responsibility to foster a strong ethical climate and
has formalized ethics as an integral part of the organization. Management has
issued written policy statements and the importance of ethical behavior is
regularly communicated to all employees. These communications include
distribution of written codes of ethics and standards of business conduct and
through ongoing education and review programs designed to create a strong
compliance environment.
The Company's consolidated financial statements have been audited by Deloitte &
Touche LLP, independent certified public accountants. Their audits were
conducted in accordance with generally accepted auditing standards, and included
a review of financial controls and tests of accounting records and other
procedures as they considered necessary in the circumstances.
The Audit and Ethics Committee of the Board of Directors is composed of five
outside directors. This committee meets periodically with management, the
internal auditors and the independent accountants to review accounting,
reporting auditing internal control and ethics matters. The committee has
direct and private access to both internal and external auditors and held six
meetings during fiscal 1996.
/s/ L. A. CHAPMAN /s/ R. H. RAU
- ------------------------- -------------------------------------
L. A. Chapman R. H. Rau
Senior Vice President and President and Chief Executive Officer
Chief Financial Officer
/s/ A. L. MAJORS
- -----------------------------
A. L. Majors
Vice President and Controller
(Chief Accounting Officer)
42
<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, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended July 31, 1996. 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, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended July 31, 1996, in conformity
with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE
San Diego, California
September 11, 1996
43
<PAGE>
SELECTED FINANCIAL DATA
(in thousands except for per-share data, number of employees, percentages and
ratios)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
- ------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Results of Continuing Operations:
Sales $ 770,814 $ 805,000 $ 918,141 $1,149,503 $1,251,502
Operating income (1) $ 56,715 $ 64,629 $ 51,389 $ 8,562 $ 44,801
Operating Profit margin (1) 7.4% 8.0% 5.6% 0.7% 3.6%
Income (loss) $ 3,228 $ 8,493 $ 4,669 $ (24,257) $ 996
Primary earnings (loss) per average share
of common stock $ 0.16 $ 0.47 $ 0.26 $ (1.35) $ 0.05
Cash dividends per share of
common stock - - - - -
==================================================================================================================
Financial Position at July 31:
Total assets $1,032,537 $ 976,540 $1,056,847 $1,017,786 $1,363,958
Indebtedness 507,443 554,777 588,990 531,608 572,594
Net financings (2) 480,828 520,970 537,567 601,669 656,472
Shareholders' equity 235,177 175,931 146,909 182,243 448,866
Debt-to-equity ratio 2.16:1 3.15:1 4.01:1 2.92:1 1.28:1
Return on average equity 1.6% 7.0% 4.2% - 0.3%
Book value per common share $ 10.53 $ 9.74 $ 8.14 $ 10.13 $ 25.17
Number of full-time employees
at year end 3,800 4,000 4,900 6,500 9,200
Backlog $1,200,000 $1,000,000 $1,200,000 $1,400,000 $1,900,000
==================================================================================================================
</TABLE>
(1) Operating income and operating profit margin was adversely impacted by
unusual items and special provisions of $12.4 million in fiscal 1996, $7.9
million in fiscal 1994, $25.0 million in fiscal 1993 and $50.0 million in
fiscal 1992.
(2) Net financings include indebtedness plus the receivables sales program
(which is reflected as a reduction to accounts receivable) and two sale-
leaseback transactions (accounted for as operating leases), reduced by
cash, including cash equivalents and short-term investments. See Notes 3
and 7 of the Notes to the Consolidated Financial Statements.
44
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements on Form
S-3 (Nos. 33 - 53113, 33-12340, 33-13373 and 33-17536); Form S-8 (Nos. 2-75423,
2-83877, 33-14382, 33-29351, 33-32839, 33-56529, and 33-65447); and Form S-16
(Nos. 2-76538 and 2-76656) of Rohr, Inc., of our report dated September 11,
1996, appearing and incorporated by reference in this Annual Report on Form 10-K
of Rohr, Inc., for the year ended July 31, 1996.
Deloitte & Touche LLP
San Diego, California
September 11, 1996
<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> 12-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 88,403
<SECURITIES> 0
<RECEIVABLES> 129,523
<ALLOWANCES> 0
<INVENTORY> 382,367
<CURRENT-ASSETS> 614,880
<PP&E> 519,031
<DEPRECIATION> (322,979)
<TOTAL-ASSETS> 1,032,537
<CURRENT-LIABILITIES> 252,280
<BONDS> 481,481
0
0
<COMMON> 22,330
<OTHER-SE> 212,847
<TOTAL-LIABILITY-AND-EQUITY> 1,032,537
<SALES> 0
<TOTAL-REVENUES> 770,814
<CGS> 0
<TOTAL-COSTS> 674,471
<OTHER-EXPENSES> 44,978
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,967
<INCOME-PRETAX> 5,398
<INCOME-TAX> 2,170
<INCOME-CONTINUING> 3,228
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,228
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
