-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SAKd2rnqSupaMqaEkehcNkAcybNZvsrBpS32y+5hv3n6OfjsiV2Xq6z1vc9B0gK5 oLWavQPxils2fB8RIoyn1w== 0001017062-96-000230.txt : 19960925 0001017062-96-000230.hdr.sgml : 19960925 ACCESSION NUMBER: 0001017062-96-000230 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19960731 FILED AS OF DATE: 19960924 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROHR INC CENTRAL INDEX KEY: 0000084801 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT PART & AUXILIARY EQUIPMENT, NEC [3728] IRS NUMBER: 951607455 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06101 FILM NUMBER: 96633893 BUSINESS ADDRESS: STREET 1: 850 LAGOON DRIVE CITY: CHULA VISTA STATE: CA ZIP: 91910 BUSINESS PHONE: 6196914111 MAIL ADDRESS: STREET 1: PO BOX 878 CITY: CHULA VISTA STATE: CA ZIP: 91912 FORMER COMPANY: FORMER CONFORMED NAME: ROHR INDUSTRIES INC DATE OF NAME CHANGE: 19911219 FORMER COMPANY: FORMER CONFORMED NAME: ROHR CORP DATE OF NAME CHANGE: 19711220 FORMER COMPANY: FORMER CONFORMED NAME: ROHR AIRCRAFT CORP DATE OF NAME CHANGE: 19710317 10-K 1 10-K DATED 07-31-96 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. ================================================================================ TABLE OF CONTENTS ----------------- PART I
PAGE ---- 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
ii 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 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 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 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 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 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 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 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 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 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 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:
Owned Leased ----------------------------- ---------------------------------- Approximate Approximate Square Feet Square Feet Type of of Facility Approximate of Facility Approximate Location Facility(1) (000) Acreage (000) Acreage - ----------------------------- ----------- ----------- ------------ ----------- ------------ 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 - -------------
(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.
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 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 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 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 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 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 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 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 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 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 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 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 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 (d) Financial Statements required by Regulation S-X ----------------------------------------------- See Subparagraph (a) and (b) above. - --------------- * Exhibits filed with this report. 24 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 ROHR, INC., AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JULY 31, 1996, 1995, AND 1994 (dollars in thousands)
Charged Balance Balance at to Costs at beginning and Accounts end of of period Expenses written off period ________ ________ _______ _______ Reserve for bad debts: 1996 $12,922 $ 128 $ -- $13,050 1995 21,422 (8,500) 12,922 1994 11,122 10,300 -- 21,422
26 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 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.
Signature Title Date - -------------------- --------- ------------------ /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
28 EX-10.2.31 2 THIRTY-FIRST AMEN. TO SUPP. RETIREMENT PLAN 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 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 "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 (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 (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 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 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 (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 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 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 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 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 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 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 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 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 EX-10.2.32 3 THIRTY-SECOND AMEN. TO SUPP. RETIREMENT PLAN 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 EX-10.4.1 4 SIXTEENTH AMEN. TO MGMT INCENTIVE PLAN / 6-7-96 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 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 (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 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 (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 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 EX-10.4.2 5 SEVENTEENTH AMEN. TO MGMT INCENTIVE PLAN / 09-13-9 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 EX-10.7.1 6 FIRST AMEN. TO EMPLOYMENT AGREEMENT - ROBERT RAU 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 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 EX-11.1 7 CALCULATION OF PRIMARY EARNINGS PER SHARE Exhibit 11.1 ROHR, INC. AND SUBSIDIARIES --------------------------- CALCULATION OF PRIMARY NET INCOME PER SHARE OF COMMON STOCK ----------------------------------------------------------- (in thousands except per share data)
Year Ended July 31, ----------------------------------------------------------- 1996 1995 1994 1993 1992 ---------- ------------ ------------ ---------- ----------- 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 ======= ======= ======= ========= =======
EX-11.2 8 CALCULATION OF FULLY DILUTED EARNINGS PER SHARE Exhibit 11.2 ROHR, INC. AND SUBSIDIARIES --------------------------- CALCULATION OF FULLY DILUTED NET INCOME PER SHARE OF COMMON STOCK ----------------------------------------------------------------- (in thousands except per share data)
Year ended July 31, -------------------------------------------------- 1996 1995 1994 1993 1992 --------- -------- --------- -------- -------- 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 ======= ======= ======= ========= =======
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. EX-13 9 ANNUAL REPORT TO SHAREHOLDERS 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.
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: FCTC@delphi.com Shareholders Records and Services: (619) 691-2214 Fax: (619) 691-2801 Telex: 69-5038
STOCK PRICE BY FISCAL QUARTER 1996 1995 High Low High Low - -------------------------------------------------------------------------------- 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 ===============================================================================
1 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 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 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 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 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 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 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 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 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 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 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 CONSOLIDATED BALANCE SHEETS (in thousands)
JULY 31, - --------------------------------------------------------------------------------- 1996 1995 - --------------------------------------------------------------------------------- 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 =================================================================================
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements. 13 CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except for per-share data)
YEAR ENDED JULY 31, - -------------------------------------------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------------------------- 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 ============================================================================================
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements. 14 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands)
- ----------------------------------------------------------------------------------------------------------- COMMON STOCK ADDITIONAL MINIMUM PENSION PAR VALUE PAID-IN RETAINED LIABILITY $1 A SHARE CAPITAL EARNINGS ADJUSTMENT - ----------------------------------------------------------------------------------------------------------- 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) ===========================================================================================================
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements. 15 CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (in thousands)
YEAR ENDED JULY 31, - --------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------- 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 - - ===========================================================================================================================
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements. 16 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 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 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 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 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 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):
JULY 31, - ----------------------------------------------------------------- 1996 1995 - ----------------------------------------------------------------- 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 =================================================================
22 "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 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:
YEAR ENDED JULY 31, - -------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------- 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 - --------------------------------------------------------
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 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):
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) - ------------------------------------------------------------------------------------------------------------------ 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 =============================================================================================================== WORK-IN-PROCESS INVENTORY -------------------------------------------------------- PRE- EXCESS PROGRAM PRODUCTION PRODUCTION OVER AVERAGE TOTAL - ------------------------------------------------------------------------------------------ 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 ===========================================================================================
(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 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 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):
JULY 31, - ------------------------------------------------------------------------------ 1996 1995 - ------------------------------------------------------------------------------ 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 ==============================================================================
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):
JULY 31, - -------------------------------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------------- 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) ================================================================================
27 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):
JULY 31, - ------------------------------------------------------------------------------------ 1996 1995 1994 - ------------------------------------------------------------------------------------ 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) ====================================================================================
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):
JULY 31, - -------------------------------------------------------------------------- 1996 1995 - -------------------------------------------------------------------------- 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 ==========================================================================
28 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 NOTE 7 - INDEBTEDNESS The maturity schedule of the Company's debt is summarized as follows (in thousands, except quantities):
TOTAL AT FISCAL YEAR ENDED JULY 31, JULY 31, - ------------------------------------------------------------------------------------------------------------------------------- 1997 1998 1999 2000 2001 Thereafter 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------- 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 ===============================================================================================================================
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 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 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): - ---------------------------------------------- 1997 $ 6,200 1998 6,300 1999 4,600 2000 4,200 2001 4,100 Thereafter 6,300 - ---------------------------------------------- $31,700 ==============================================
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 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 Defined benefit plans expense consists of the following components (in thousands):
YEAR ENDED JULY 31, - ------------------------------------------------------------------------------------ 1996 1995 1994 - ------------------------------------------------------------------------------------ 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 ====================================================================================
The following table summarizes the funded status of these plans and the amounts recognized in the Consolidated Balance Sheets (in thousands):
JULY 31, - ------------------------------------------------------------------------------------- 1996 1995 - ------------------------------------------------------------------------------------- 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) =====================================================================================
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 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 Post-retirement benefit costs, net of expected retiree contributions, included the following components (in thousands):
YEAR ENDED JULY 31, - --------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------------- 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 =================================================================================================================================
The liability for post-retirement health care benefits included the following components (in thousands):
JULY 31, - --------------------------------------------------------------------------------------------------------------------------------- 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- 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 =================================================================================================================================
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 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 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:
OPTIONS OPTION PRICE - ------------------------------------------------------------------------------- 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 ===============================================================================
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 Authorized, unissued shares of common stock were reserved for the following:
July 31, - -------------------------------------------------------------------------------- 1996 1995 - -------------------------------------------------------------------------------- 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 ================================================================================
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):
YEAR ENDED JULY 31, - -------------------------------------------------------------------------------- 1995 1994 - -------------------------------------------------------------------------------- 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 ================================================================================
39 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS EXCEPT FOR PER-SHARE DATA)
YEAR ENDED JULY 31, 1996 - --------------------------------------------------------------------------------------------------- 1ST 2ND 3RD 4TH - --------------------------------------------------------------------------------------------------- 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) ===================================================================================================
40 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS EXCEPT FOR PER-SHARE DATA)
YEAR ENDED JULY 31, 1995 - ------------------------------------------------------------------------------------------------------- 1ST 2ND 3RD 4TH - ------------------------------------------------------------------------------------------------------- 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 =======================================================================================================
41 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 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 SELECTED FINANCIAL DATA (in thousands except for per-share data, number of employees, percentages and ratios)
YEAR ENDED JULY 31, - ------------------------------------------------------------------------------------------------------------------ 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------ 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 ==================================================================================================================
(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 EX-23 10 CONSENT - DELOITTE & TOUCHE 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 EX-27 11 ARTICLE 5 FINANCIAL DATA SCHEDULE
5 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. 1,000 12-MOS JUL-31-1996 JUL-31-1996 88,403 0 129,523 0 382,367 614,880 519,031 (322,979) 1,032,537 252,280 481,481 0 0 22,330 212,847 1,032,537 0 770,814 0 674,471 44,978 0 45,967 5,398 2,170 3,228 0 0 0 3,228 0.16 0.16
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