-----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, Nf75BTrehFRqSdVLGIZScLJ30mW+8FYc6i8DmoJmFBx8knYH0i+V7+ev0hkNSoga wn9S+C8EaPSW9jP6Wc3SOQ== 0001017062-97-001718.txt : 19970918 0001017062-97-001718.hdr.sgml : 19970918 ACCESSION NUMBER: 0001017062-97-001718 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19970731 FILED AS OF DATE: 19970916 SROS: NYSE 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: SEC FILE NUMBER: 001-06101 FILM NUMBER: 97680824 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 FORM 10-K / DATED JULY 31, 1997 1997 ================================================================================ 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 For the fiscal year ended July 31, 1997 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 Identification Number) incorporation or organization) 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 New York Stock Exchange Notes due 2004 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 5, 1997, the aggregate market value of the voting stock held by nonaffiliates of the registrant, based on market quotations as of that date, was approximately $682,076,515. As of September 5, 1997, there were 25,366,613 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, 1997. 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............................................... 9 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 Item Executive Officers of the 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 7a. Quantitative and Qualitative Disclosures About Market Risk........................................... 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................ 18 Part IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................................... 19 SIGNATURES Signature Page................................................ 26
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 70 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 major commercial airframe manufacturers (Boeing and McDonnell Douglas, which have merged, and Airbus) and to the five major jet engine manufacturers (General Electric, Pratt & Whitney, Rolls-Royce, CFM International, and International Aero Engines). In addition, the Company on several programs provides customer and product support directly to over 200 airline operators and service centers around the world, including on-site field services and the sale of spare parts. The Company also overhauls and repairs nacelles and thrust reversers for airlines operating virtually anywhere in the world. 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 V2500-A5 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 International Aero Engines V2500-D5 for 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 the McDonnell Douglas MD-11; the nacelle without thrust reverser for the CF6-80E1, which is the General Electric engine option for the Airbus A330; nacelle components, including the inlet cowl, fan cowl, and extension ring for the Boeing 737-300, -400, -500 and the inlet and fan cowl for the Boeing 737-600, -700 and -800. 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 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". 2 In February 1996, BMW Rolls-Royce Aero Engines selected the Company to be the nacelle system integrator for the new MD-95 aircraft , a new 100 passenger aircraft currently under development. Delivery of development hardware was made in July 1997. The aircraft's flight test program is scheduled to commence in April 1998 and its scheduled Federal Aviation Administration certification date is mid 1999. The Company manufactures and sells 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. The Company also manufactures other components for commercial jet aircraft, including the common nozzle used on the Rolls-Royce-powered versions of the Boeing 747 and 767, the aft fan case nozzle and plug for the General Electric GE 90 engine option for the Boeing 777, the common nozzle assembly used on the Rolls Royce powered 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. 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 contracts with Boeing for additional nacelles and with the Company for additional modification and integration services. The Company also provides nacelles (essentially the same as those used on the Rolls Royce powered version of the 757) to Rolls Royce for its program to install Rolls Royce engines on the former Soviet Union's TU-204 aircraft. Government (Military and Space). For military aircraft, the Company ------------------------------- manufactures nacelle components for re-engining of existing Boeing KC-135 military aerial refueling tankers and spares components for "out of production" aircraft such as the P-3, C130, F-14 and C-5. The Company developed and has delivered the engine bay doors for the U.S. Air Force F-22 tactical fighter aircraft being built under a development contract for the U. S. Air Force . 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. Spares. The Company sells spare parts for both military and commercial ------ aircraft, including those for aircraft in use but no longer in production and such sales were approximately $187.2 million in fiscal 1997, $178.5 million in fiscal 1996, and $142.5 million in fiscal 1995. Under several major programs, the Company sells spare parts directly to airlines (although on certain programs, royalty payments are required). On these programs the Company also provides technical and product support directly to the airlines. On other programs, the Company sells such spares to the airframe or engine manufacturer who then resells them to the airlines together with manuals and product support. 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. 3 Contracts Most of the Company's major commercial contracts establish a firm unit price, subject to cost escalation, over a number of years or deliveries or, in certain cases, over the life of the related program. Life-of-program agreements generally entitle the Company to work as a subcontractor on 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. Although most of the Company's contracts are long-term, fixed-price contracts, from time to time, the Company has experienced pressures from customers 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 over a specified period of time. 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 (such as the MD-90, MD-95 and the 737). 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. Some 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 several 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 several of these contracts, based on its analysis of the potential market for the 4 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. In addition, to reduce such funding requirements and, in certain cases, 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. 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. In addition, 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 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. 5 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 other cases, 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 1997 Annual Report to Shareholders. 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 1997 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 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) is a reasonable price estimate. The Company's firm backlog at July 31, 1997, was approximately $1.5 billion, compared to $1.2 billion at July 31, 1996. Of such backlog, approximately $950 million is scheduled for delivery on or before July 31, 1998, with the balance to be delivered in subsequent periods. A portion of the Company's expected sales for fiscal 1998 is not included in firm backlog. 6 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 significant customer to the Company, also manufactures nacelle systems and pylons for its own aircraft), other significant aerospace corporations which 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. 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 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. 7 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, including currently, shortages have been encountered, particularly during periods of 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. Employees At July 31, 1997, the Company had approximately 4,600 full-time employees, of whom approximately 1,380 were represented by the International Association of Machinists and Aerospace Workers under agreements which expire on February 15, 2000; approximately 170 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 20 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 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 1997 Annual Report to Shareholders. See, also, Item 3, "Legal Proceedings," in this report. 8 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 reduce 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 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 9 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 four overhaul and repair facilities which give it the capability to overhaul and repair nacelles and thrust reversers for airlines operating virtually anywhere in the world The facilities are located in Fairhope, Alabama; Toulouse, France; Prestwick, Scotland; and Singapore. The Singapore facility is jointly owned by the Company and Singapore Aerospace Manufacturing Pte., Ltd. 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, the Company does have excess manufacturing capacity. All significant leases are renewable at the Company's option on substantially similar terms, except for increases of rent which must be negotiated in some cases. 10 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 12 57.5 Riverside.............. A,B,C,D 1,159 75.3 4 -- 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 -- -- SCOTLAND Prestwick.............. A,B -- -- 58 -- SINGAPORE Singapore(4)........... A,B 44 -- -- 2.3 TEXAS San Marcos............. A,B 172 55.0 -- -- ----- ----- ---- ---- Approximate Totals..... 5,863 766.8 92 63.0
_____________ (1) The letters indicated for each location describe the principal activities conducted at that location: A-Office B-Manufacturing C-Warehouse D-Research and Testing (2) Subject to a capital lease (3) The completion of construction of this facility has been deferred. The Company has taken an impairment write down on the facility. (4) This facility is jointly owned 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 the Grumman F-14 subcontract and the Company filed Appeal No. 47139 (filed February 7, 1994) before the Armed Service Board of Contract Appeals ("ASBCA"). In the above appeal the Company's customer is the sponsor 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 this matter will be resolved. The resolution of this matter may take more than one year. 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 was substantially approved by the federal judge but that decision is subject to a final 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 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 12 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 has reached settlements with its primary comprehensive general liability insurance carriers concerning the Stringfellow site 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. On February 21, 1997, the Company and Fairchild jointly submitted to MDE a Study Area Feasibility Report. MDE has responded favorably to the report but requested some additional groundwater sampling. 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. In April 1997, DTSC certified completion of the remediative action conducted at the site. In July 1997, DTSC made a demand of $30,000 on the PRPs for oversight costs related for the site. 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. 13 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. Since the entry of the Consent Decree, the cooperating generators (including the Company) have agreed to perform certain remedial actions at the site. 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 $2.0 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. In December, 1996, the Company and the Department settled this matter based on pounds of carbon the Company shipped to the site. 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 that the Company respond to an information request concerning the Company's use of the facility between 1963 and 1989. In June 1997, the Company and EPA executed a Settlement Agreement based on the number of pounds of material allegedly sent by the Company to the site. 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, 14 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 REGISTRANT - ------------------------------------------------------ As of September 15, 1997, 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 48, 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-owned subsidiary of Westinghouse. Prior to that, Mr. Chapman held positions in Corporate Finance and Corporate Planning with Westinghouse. 15 John R. Johnson, Senior Vice President, Programs, Technical Resources, and Quality Assurance, age 60, 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 58, 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 57, 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 46, 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 55, 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 6, 1997. 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 - ------------------------------------------------------------------------------ The Company has not paid a cash dividend since 1975. The Company is restricted from paying cash dividends by the indenture governing its 11 5/8% Senior Notes until its fixed charge coverage ratio exceeds 2.25 to 1 and by the agreement governing its 9.33% and 9.35% Senior Notes until its ratio of debt to tangible net worth is less than 2.5 to 1. The Company does not currently meet these ratios. 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, 1997, 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, 1997, 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, 1997, and such information is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK - ------------------------------------------------------------------ The information required by this Item is set forth in "Footnote 1 -- Summary of Significant Accounting Policies" and "Footnote 4 -- Inventories" in the "Notes to the Consolidated Financial Statements" in the Company's Annual Report to Shareholders for the fiscal year ended July 31, 1997, 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, 1997, 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 1997 Annual Meeting of Shareholders for fiscal year ended July 31, 1997, 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 1997, all filing requirements applicable to its officers, directors, and greater than 10-percent beneficial owners were met. 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 1997 Annual Meeting of Shareholders for fiscal year ended July 31, 1997, 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 1997 Annual Meeting of Shareholders for fiscal year ended July 31, 1997, and such information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- There is no information required to be submitted by the Company under this Item. 18 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 1997 Annual Report to Shareholders, are incorporated by reference in Item 8: (a) 1. Financial Statements -------------------- Consolidated Balance Sheets at July 31, 1997, and 1996 Consolidated Statements of Operations for Years Ended July 31, 1997, 1996, and 1995 Consolidated Statements of Shareholders' Equity for Years Ended July 31, 1997, 1996, and 1995 Consolidated Statements of Cash Flows for Years Ended July 31, 1997, 1996, and 1995 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, incorporated herein by reference to Exhibit 3.2, filed with Form 10-K for fiscal year ended July 31, 1986. 19 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. *4.5.1 First Amendment to Amended and Restated Note Agreement dated as of July 31, 1997, 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. 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. 20 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. 10.1 Rohr, 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, Inc., Supplemental Retirement Plan (Restated 1997), incorporated herein by reference to Exhibit 10.2, as set forth in Form 10-Q for the quarterly period ended May 4, 1997. 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, incorporated herein by reference to Exhibit 10.4.1, filed with Form 10-K for fiscal year ended July 31, 1996. 10.4.2 Seventeenth Amendment to Rohr Industries, Inc. Management Incentive Plan (Restated 1982), dated September 13, 1996, incorporated herein by reference to Exhibit 10.4.2, filed with form 10-K for fiscal year ended July 31, 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. 10.7 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, incorporated herein by reference to Exhibit 10.7.1, filed with Form 10-K for fiscal year ended July 31, 1996. 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. 21 10.9 Rohr, Inc., Executive Deferred Compensation Plan incorporated herein by reference to Exhibit 10.9, filed with Form 10-Q, for quarterly period ended May 4, 1997. 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. 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. *10.15.10 Seventh Amendment Agreement, dated as of July 18, 1997, to Sublease Agreement, dated as of September 14, 1992. 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. 22 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, 1997. (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. *23.1 Deloitte & Touche Preferability Letter. *27. Financial Data Schedule. (Filed with EDGAR filing only.) (b) Reports on Form 8-K for Fourth Quarter of Fiscal 1997 ----------------------------------------------------- There were no reports on Form 8-K filed by the Company for the fourth quarter of fiscal 1997. (c) Exhibits required by Item 601 of Regulation S-K ----------------------------------------------- See Subparagraph (a) above. (d) Financial Statements required by Regulation S-X ----------------------------------------------- See Subparagraph (a) and (b) above. - ------------- * Exhibits filed with this report. 23 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, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended July 31, 1997. 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 audition 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, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended July 31, 1997, in conformity with generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements in fiscal 1997, the Company changed its accounting principle related to long-term contracts and retroactively restated the fiscal 1996 and 1995 financial statements for the change. San Diego, California September 11, 1997 24 ROHR, INC., AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JULY 31, 1997, 1996, AND 1995 (dollars in thousands)
Charged Balance Balance at to Costs at beginning of and Accounts end of period Expenses written off period ------------ -------- ----------- ------- Reserve for bad debts: 1997 $13,050 $ -- $(4,700) $ 8,350 1996 12,922 128 -- 13,050 1995 21,422 -- (8,500) 12,922
25 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) /s/ R. H. RAU By:______________________________________ R. H. Rau President and Chief Executive Officer /s/ L. A. CHAPMAN By:______________________________________ L. A. Chapman Senior Vice President and Chief Financial Officer /s/ A. L. MAJORS By:______________________________________ A. L. Majors Vice President and Controller (Chief Accounting Officer) Date: September 15, 1997 26 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 15, 1997 W. Barnes /s/ E. E. COVERT _______________________ Director SEPTEMBER 15, 1997 E. E. Covert /s/ D. C. CREEL _______________________ Director SEPTEMBER 15, 1997 D. C. Creel /s/ S. F. IACOBELLIS _______________________ Director SEPTEMBER 15, 1997 S. F. Iacobellis /s/ V. N. MARAFINO _______________________ Director SEPTEMBER 15, 1997 V. N. Marafino /s/ D. LARRY MOORE _______________________ Director SEPTEMBER 15, 1997 D. Larry Moore /s/ R. M. PRICE _______________________ Director SEPTEMBER 15, 1997 R. M. Price /s/ R. H. RAU _______________________ Director SEPTEMBER 15, 1997 R. H. Rau /s/ W. P. SOMMERS _______________________ Director SEPTEMBER 15, 1997 W. P. Sommers /s/ J. R. WILSON _______________________ Director SEPTEMBER 15, 1997 J. R. Wilson
27 EX-4.5.1 2 AMENDED NOTE AGREEMENT DATED JULY 31, 1997 EXHIBIT 4.5.1 FIRST AMENDMENT TO AMENDED AND RESTATED NOTE AGREEMENT FIRST AMENDMENT TO AMENDED AND RESTATED NOTE AGREEMENT (this "Amendment"), dated as of July 31, 1997, among ROHR, INC. (together with its successors, the "Company"), and each of the holders of Notes whose name appears on the signature pages hereof (individually, a "Holder" and, collectively, the "Holders"). RECITALS: WHEREAS, the Company entered into that certain Amended and Restated Note Agreement (the "Note Agreement"), dated as of January 1, 1996, between the Company and the purchasers identified on Annex 1 thereto; and WHEREAS, the Company has requested that the Holders modify certain terms of the Note Agreement; and WHEREAS, the Holders are agreeable to such modifications on the terms and conditions hereinafter set forth; NOW THEREFORE, in consideration of the premises and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. DEFINITIONS. Capitalized terms used in this Amendment and not otherwise defined herein shall have the respective meanings ascribed to them in the Note Agreement. 2. AMENDMENTS. Subject to the satisfaction of the conditions set forth in paragraph 3 hereof, the Note Agreement shall be amended as set forth below: 2A. Paragraph 6E of the Note Agreement shall be amended as follows: (i) The "." at the end of subparagraph (iii) thereof shall be deleted and replaced with the term "; less", and (ii) New subparagraphs (iv)and (v) shall be added thereto in appropriate numerical order as follows: "(iv) an amount equal, on an after tax basis, to the provisions and charges established 1 by the Company at one time in fiscal 1998 or earlier in connection with the MD-90 program, assuming a forty percent (40%) effective tax rate, such amount not to exceed Forty Eight Million Dollars ($48,000,000); less "(v) an amount equal, on an after tax basis, to the provisions and charges established by the Company at one time in fiscal 1998 or earlier in connection with the cessation of the use of the program method of accounting, assuming a forty percent (40%) effect tax rate, such amount not to exceed Forty Two Million Dollars ($42,000,000)." 2B. Paragraph 10B of the Note Agreement shall be amended by adding to subparagraph (ii) of the definition of "Consolidated Net Income Available for Fixed Charges" the following clauses in appropriate alphabetical order: "(i) the provisions and charges, if any, not in excess of Eighty Million Dollars ($80,000,000), established by the Company at one time in fiscal 1998 or earlier in connection with the MD-90 program; and (j) the provisions and charges, if any, not in excess of Seventy Million Dollars ($70,000,000), established by the Company at one time in fiscal 1998 or earlier in connection with the cessation of the use of the program method of accounting." 2C. The first sentence of paragraph 11F of the Note Agreement shall be amended and restated to read as follows: "All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1997." 3. CONDITIONS TO EFFECTIVENESS. The amendments set forth in Paragraph 2 shall become effective only upon the satisfaction in all respects of the conditions set forth below (the date on which such conditions are so satisfied being the "Effective Date"): 3A. The Required Holders and the Company shall have caused this Amendment to be executed and delivered on their behalf by duly authorized officers thereof and the Note Agreement, as amended hereby, shall be in full force and effect. 2 3B. Sections XVII (j) and (k) of the Sublease Agreement, dated as of September 14, 1992, between the Company and State Street Bank and Trust Company of California, National Association, and an individual trustee, not in their individual capacities but solely as owner trustees under a trust for the benefit of General Electric Capital Corporation, as amended through the date hereof, shall have been amended, in substance and effect, in the same manner as set forth in paragraphs 2A, 2B and 2C hereof, and each of the Holders shall have received a copy of such amendment. 3C. The Company shall have paid all amounts which are payable pursuant to paragraph 4 hereof. 4. COSTS AND EXPENSES. Whether or not the conditions to effectiveness set forth in paragraph 3 of this Amendment are satisfied, the Company shall pay all out-of-pocket expenses of the Holders in connection with the negotiation, preparation, execution and delivery of this Amendment, including, without limitation, all the fees and expenses of special counsel engaged by the Holders in connection therewith. Without limiting the generality of the foregoing, the Company will pay, on the Effective Date, the reasonable fees and disbursements of the Holders' special counsel presented on such date, and shall also pay, upon receipt of any statement thereof, each additional statement for reasonable fees and disbursements of the Holders' special counsel rendered after the Effective Date in connection with this Amendment. 5. MISCELLANEOUS. 5A. All provisions of this Amendment by or for the benefit of the parties hereto shall bind and inure to the benefit of their respective successors and assigns hereunder. 5B. This Amendment may be executed in one or more counterparts, all of which taken together shall constitute a single instrument. 5C. THIS AMENDMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF NEW YORK. 5D. Except as expressly provided herein, (i) no other terms and provisions of the Note Agreement shall be modified or changed by this Amendment and (ii) the terms and provisions of the Note Agreement shall continue in full force and effect. The Company hereby acknowledges and reaffirms all of its obligations and duties under the Note 3 Agreement, as amended by this Amendment, and under the notes, as amended to date, issued thereunder. 5E. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the day and year fist above written. ROHR, INC. By:/s/ Ken Scholz -------------- Name: Ken Scholz Title: Treasurer PRINCIPAL MUTUAL LIFE INSURANCE COMPANY By: /s/ Warren Shank ---------------- Name: Warren Shank Title: Counsel By: /s/ Fredrick A. Bell -------------------- Name: Fredrick A. Bell Title: Second Vice President - Securities Investment 4 EX-10.15.10 3 AMENDED SUBLEASE AGREEMENT DATED JULY 18, 1997 EXHIBIT 10.15.10 SEVENTH AMENDMENT AGREEMENT This Seventh Amendment Agreement (this "Amendment"), dated as of July 18, 1997, is entered into by Rohr, Inc., a Delaware corporation ("Rohr), State Street Bank and Trust Company of California, National Association, a national banking association, not in an individual capacity but solely as owner trustee ("Trustee"), and General Electric Capital Corporation ("GE Capital"). WITNESSETH: WHEREAS, Rohr is a party to a Sublease Agreement, dated as of September 14, 1992, with the Trustee and an individual trustee, as owner trustees under that certain Trust Agreement for the benefit of GE Capital (such Sublease Agreement as amended to date, being hereinafter referred to as the "GE Capital Sublease"); and WHEREAS, Rohr has requested that the GE Capital Sublease be modified; NOW, THEREFORE, for and in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Amendment to GE Capital Sublease. The GE Capital Sublease is -------------------------------- amended as follows: (a) The definition of "Net Income Available For Fixed Charges" in Section 1.01 of the Credit Agreement, dated as of April 26, 1989, among Sublessee, the Lenders parties thereto and Citicorp USA, Inc., as agent (as in effect on January 19, 1996, after giving effect to the Eleventh Amendment thereto dated as of January 19, 1996; the "Credit Agreement), incorporated by Section XVII (j) into the GE Capital Sublease, is amended and restated to read as follows: 'Net Income Available for Fixed Charges' means, for any ---------------------------------------- period, net income (or net deficit, as the case may be) before taxes for such period, as determined in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 4.01(e), plus amounts which, in the determination of net income for such period, have been deducted for (i) the items referred to in the definition of "Fixed Charges" in this Section 1.01, (ii) depreciation, (iii) in the case of any such period that includes the month of April 1992, the $50,000,000 1 special provision which was established by the Borrower in the third quarter of Fiscal Year 1992, (iv) in the case of any such period that includes the fiscal month ending May 2, 1993 (A) the cumulative effect through May 2, 1993 of the accounting changes adopted by the Borrower, effective as of August 1, l992, as described in the Borrower's Form 10-Q filed with the Securities and Exchange Commission for third Fiscal Quarter 1993, and (B) the provisions and charges, not in excess of $38 million in the aggregate, established by the Borrower in the third Fiscal Quarter of Fiscal Year 1993, (v) non-cash expenses, in an amount not to exceed $10 million in the aggregate from November 1, 1995 through the Termination Date, that are incurred by Borrower in connection with one or more exchanges by Borrower of shares of its common stock for all or any portion of Borrower's Convertible Subordinated Notes due 2004 or Borrower's Convertible Subordinated Debentures due 2012, (vi) non-cash expenses, in an amount not to exceed Six Million Dollars ($6,000,000), incurred by the Borrower in connection with the sale of Rohr Credit Corporation, (vii) the provisions and charges, not in excess of Eighty Million Dollars ($80,000,000), established by the Company at one time in fiscal 1998 or earlier in connection with the MD-90 program, and (viii) the provisions and charges, not in excess of Seventy Million Dollars ($70,000,000), established by the Company at one time in fiscal 1998 or earlier in connection with the cessation of the use of the program method of accounting. (b) The provisions of Sections 5.01(c) of the Credit Agreement, incorporated by Section XVII (j) into the GE Capital Sublease, are amended by adding the following clauses to the end thereof: less, (iv) an amount equal, on an after tax basis, to the ---- provisions and charges established by the Company at one time in fiscal 1998 or earlier in connection with the MD-90 program, assuming a forty percent (40%) effective tax rate, such amount not to exceed Forty Eight Million Dollars ($48,000,000); less, ---- (v) an amount equal, on an after tax basis, to the provisions and charges established by the Company at one time in fiscal 1998 or earlier in connection with the cessation of the use of the program method of accounting, assuming a forty percent (40%) effective tax rate, such amount not to exceed Forty Two Million Dollars ($42,000,000). (c) The first sentence of Section XVII (k) into the GE Capital Sublease, is amended and restated to read as follows: 2 "With respect to the provisions incorporated herein pursuant to the provisions of Section XVII(j), all accounting terms not defined herein or therein shall be construed in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements contained in the Sublessee's Annual Report on Form 10-K for the fiscal year ended July 31, 1997." 2. Jury Trial Waiver. EACH OF THE PARTIES HERETO HEREBY ----------------- UNCONDITIONALLY WAIVES THEIR RESPECTIVE RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS AMENDMENT, ANY DEALINGS AMONG ANY OF THEM RELATING TO THE SUBJECT MATTER HEREOF, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED AMONG THEM. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AMENDMENT. IN THE EVENT OF LITIGATION, THIS AMENDMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 3. Direction to Trustee. GE Capital hereby joins in this Amendment -------------------- to acknowledge its consent to the terms and provisions hereof and to direct the Trustee to enter into this Amendment and any other agreements, instruments and documents to be executed in connection herewith in its capacity as owner trustee. 4. Expenses. Rohr agrees to pay all reasonable costs and expenses of -------- the Trustee and GE Capital in connection with the preparation, execution, delivery and enforcement of this Amendment and any other agreements, instruments and documents executed in connection herewith. 5. Further Assurances. Each of the parties hereto agrees that at any ------------------ time it shall execute and deliver all further instruments and documents, and take all further action, in order to effectuate or otherwise document the transactions contemplated hereby or otherwise implement the intention of the parties under this Amendment, as any of the parties hereto and their successors and assigns reasonably may request. 6. Further Modifications. NO VARIATION OR MODIFICATION OF THIS --------------------- AMENDMENT OR ANY WAIVER OF ANY OF ITS PROVISIONS OR CONDITIONS, SHALL BE VALID UNLESS IN WRITING AND SIGNED BY AN AUTHORIZED REPRESENTATIVE OF EACH OF THE PARTIES HERETO. 3 7. Multiple Counterparts. This Amendment may be executed in two or --------------------- more counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall constitute one and the same instrument. 8. Conditions to Effectiveness. This Amendment shall become --------------------------- effective, as of the date first written above, when it has been executed and delivered by each of the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their duly authorized representatives as of the date first above written. Rohr, Inc. State Street Bank and Trust Company of California, National Association, not in its individual capacity but solely as Corporate Trustee By: /s/ By: /s/ Name: Kenneth W. Scholz Name: Scott C. Emmons Title: Treasurer Title: Assistant Vice President General Electric Capital Corporation By: /s/ Name: Moira Duncan Title: Region Credit Analyst 4 EX-11.1 4 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, ------------------------------------------------------------ 1997 1996 1995 1994 1993 ------- ---------- ---------- ---------- ---------- (Restated) (Restated) (Restated) (Restated) Net income (loss) from continuing operations before cumulative effect of accounting changes ($3,368) $22,278 $20,211 $23,341 ($26,488) Income (loss) from discontinued operations, net of taxes 3,879 2,259 (6,324) Loss from extraordinary item, net of taxes (2,654) (1,146) Cumulative effect of accounting changes -- net of taxes (223,950) ------- ------- ------- ------- --------- Net income (loss) applicable to primary earnings per common share ($6,022) $22,278 $22,944 $25,600 ($256,762) ======= ======= ======= ======= ========= Common stock and common stock equivalents: Average shares of common stock outstanding during the year 24,567 20,157 18,055 18,017 17,908 Net effect of common stock equivalents (principally stock options and rights) 900 657 158 45 1 ------- ------- ------- ------- --------- Total common stock and common stock equivalents 25,467 20,814 18,213 18,062 17,909 ======= ======= ======= ======= ========= Net income (loss) per average share of common stock: Net income (loss) from continuing operations before cumulative effect of accounting changes ($0.13) $1.07 $1.11 $1.29 (1.48) Income (loss) from discontinued operations, net of taxes 0.21 0.12 (0.36) Extraordinary item, net of taxes (0.11) (0.06) Cumulative effect of accounting changes -- net of taxes (12.50) ------- ------- ------- ------- --------- Primary net income (loss) per share ($0.24) $1.07 $1.26 $1.41 ($14.34) ======= ======= ======= ======= =========
EX-11.2 5 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, ------------------------------------------------------------ 1997 1996 1995 1994 1993 -------- ---------- ---------- ---------- --------- (Restated) (Restated) (Restated) (Restated) Net income (loss) from continuing operations before cumulative effect of accounting changes applicable to primary earnings per common share ($3,368) $22,278 $20,211 $23,341 ($26,488) Add back interest and issue expense on convertible debentures, net of tax adjustment 961 1,856 2,720 5,477 4,941 -------- ------- ------- ------- --------- Adjusted income (loss) from continuing operations before cumulative effect of accounting changes applicable to common stock on a fully diluted basis (2,407) 24,134 22,931 28,818 (21,547) Income (loss) from discontinued operations, net of taxes 3,879 2,259 (6,324) Loss from extraordinary item, net of taxes (2,654) (1,146) Cumulative effect of accounting changes - net of taxes (223,950) -------- ------- ------- ------- --------- Net income (loss) applicable to fully diluted earnings per share ($5,061) $24,134 $25,664 $31,077 ($251,821) ======= ======= ======= ======= ========= Average number of shares outstanding on a fully diluted basis: Shares used in calculating primary earnings per share 25,467 20,814 18,213 18,062 17,909 Unexercised options 259 280 375 Shares on conversion of 7.00% debentures 2,674 2,674 Shares on conversion of 7.75% debentures 1,903 1,905 5,556 1,157 -------- ------- ------- ------- --------- Average number of shares outstanding on a fully diluted basis 27,629 22,999 24,144 21,893 20,583 ======= ======= ======= ======= ========= Fully diluted net income (loss) per common share before extraordinary item and cumulative effect of accounting changes ($0.09) $1.05 $0.95 $1.32 ($1.04) Income (loss) from discontinued operations, net of taxes 0.16 0.10 (0.31) Extraordinary item, net of taxes (0.09) (0.05) Loss from cumulative effect of accounting changes - net of taxes (10.88) ------- ------- ------- ------- --------- Fully diluted net income (loss) per average common share ($0.18) $1.05 $1.06 $1.42 ($12.23) ======= ======= ======= ======= =========
Note: The fully diluted net income (loss) per average share for the twelve months ended July 31, 1996 and 1995, excludes the assumed conversion of those securities that results in improvement of earnings per share. The assumed conversion of the 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 6 ANNUAL REPORT DATED JULY 31, 1997 EXHIBIT 13 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, 1997. Years prior to 1997 have been restated for the effects of the accounting change, as described below. These discussions should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto. Industry Outlook Commercial aircraft orders rose dramatically in calendar 1996 and have continued at a strong pace in calendar 1997. In the first seven months of calendar 1997, airlines ordered 460 new commercial aircraft (seating 70 or more passengers), compared to a full years orders of 1,113 in 1996 and 662 in 1995. Analysts expect commercial aircraft manufacturers to deliver approximately 600 aircraft in 1997, compared to 440 in 1996 and 443 in 1995. Based on production rate increases recently announced by The Boeing Company and Airbus Industrie and their respective order books, the Company expects commercial aircraft deliveries to increase. Orders for commercial aircraft are based in large part on consumer demand for air travel and the financial condition of airline operators. Over the last several years, airline passenger traffic has increased over 6 percent per year on average and airline analysts expect that traffic will grow approximately 5 percent per year for the next 20 years. As a result, airlines are expected to expand their fleets to meet the increased demand for travel. In addition, airline operators are expected to purchase large numbers of aircraft in the next five years to meet existing aircraft noise regulations and to replace aging aircraft in their fleets. There are approximately 3,000 Stage Two aircraft in operation throughout the world, many of which must be replaced or modified to Stage Three noise requirements by 1999 in the United States and by mid-2002 in most other developed countries. Historically, the financial condition of airlines and their demand for new aircraft has been related to the health of the world economies. Healthy world economies, increases in demand for air travel, relatively stable fare structures, aggressive cost reductions, increased load factors, and improved utilization of aircraft have raised airline profitability to high levels over the last several years and have enabled airlines to order and purchase new aircraft. 2 Overall, the conditions of the market suggest that the commercial aircraft industry is strong and poised for continued expansion. Material and component shortages have been noted as an increasing problem throughout the industry, as the rate of production of commercial aircraft has rapidly accelerated. The Company has also encountered shortages and has taken various steps to minimize the impact on its operations. Company Outlook As a result of increased production of new commercial aircraft and increased deliveries of spare parts, the Company's sales increased 23 percent in fiscal 1997 as compared with the prior year. Predicated upon customer scheduled delivery requirements, the Company expects its sales in fiscal 1998 to be approximately 15 percent higher than in fiscal 1997. The Company continued to realize improved efficiency in its manufacturing processes, maintained its existing level of general and administrative expenses in spite of the growth in sales, participated in new programs, and expanded its level of support in the overhaul and repair market by opening a new repair facility in Prestwick, Scotland. In addition, the Company improved its capital structure by reducing debt and by contributing common stock and cash to fully fund its pension plans. These activities are expected to strengthen the Company to meet the growth in the industry and the future challenges and opportunities. Management continues to focus on reducing cost and improving quality. For example, the Company has implemented concurrent product development and is continuing to implement its lean manufacturing initiative. Lean manufacturing is a focused attack on non-value-added steps in the manufacturing process. Lean enterprise techniques involve defining the value stream for each product and eliminating the unnecessary steps from every value stream. The Company's firm backlog, which includes the sales price of all undelivered units covered by customers' orders, was approximately $1.5 billion at July 31, 1997, compared to $1.2 billion at July 31, 1996. Approximately $950 million of the $1.5 billion backlog is scheduled to be delivered in fiscal 1998. (Sales during any period includes 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. 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 1998 may be materially less than the sales projected in the "Company Outlook" section 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. In addition, capital expenditures may exceed those projected in the "Liquidity and Capital Resources" section if the Company obtains significant new business. 4 Results of Operations Change in Accounting In the fourth quarter of fiscal 1997, the Company changed its accounting principle related to long-term programs and contracts and restated its historical results to reflect the application of the changed principle. The change eliminated the use of program accounting so that all current and future programs will be accounted for under the contract method of accounting as described in "Notes to the Consolidated Financial Statements - Note 1." Prior to the change, approximately half of the Company's revenues were accounted for under the program method of accounting and approximately half were accounted for under the contract method of accounting. Under contract accounting, the Company accounts for the direct sale of spare parts to airlines separately from the sale of production units. Previously, on programs that were accounted for under the program method of accounting, the Company combined the estimated costs and revenues associated with a program's production units and spare parts into a single profit center. While the Company's previous method of accounting was in accordance with generally accepted accounting principles, the Company believes that the new principle is preferable. By accounting for spare parts sales separately from long-term production contracts, the amount of deferred costs included in inventory has been reduced. The change will also decrease the significance of the projections used in calculating the Company's financial results by eliminating the need to project spare parts sales into the future. Instead, spare parts sales will be accounted for as they occur and will not be aggregated with the costs and expenses of multi-year production contracts. In addition, under the changed principle, the Company's financial results will more clearly reflect its current operating activities and cash flow. The Company also believes that the change in accounting principle will enhance internal accountability by allowing the Company to emphasize internal responsibility for production and spare parts profitability. The effect of this change in accounting for the periods through July 31, 1996, was a charge of $59.6 million, net of income tax benefits of $40.0 million. In accordance with Accounting Principles Board Opinion No. 20, "Accounting Changes," prior year financial statements have been restated to reflect this change on a retroactive basis. The effect of the change on fiscal 1997 results was to increase operating income by $15.1 million (composed of $25.5 million of additional operating income less $10.4 million of additional loss on the MD-90 contract, in each case arising from the change in accounting). The effect of the change in accounting on fiscal 1997 net income was to increase net income by $9.0 million, or 35 cents per share (composed of $15.3 million, or 60 cents per share, of additional net income less $6.3 million, or 25 cents per share, arising from the additional loss on the 5 MD-90 program). The total impact on fiscal 1996 and fiscal 1995 was to increase net income by $19.1 million (92 cents per share) and $11.7 million (64 cents per share), respectively. The discussion in the remainder of "Results of Operations" reflects the impact of the accounting change. Fiscal 1997 Compared to Fiscal 1996 Fiscal 1996 has been restated to reflect the accounting change made during the fourth quarter of fiscal 1997. See "Notes to Consolidated Financial Statements - - Note 2." Fiscal 1997 sales increased 23 percent to $944.4 million, up from $770.8 million in the prior fiscal year. Contributing to increased sales were accelerated delivery rates on most commercial programs. The A340, MD-90, CFM56- 5, and RB211-535 programs all reflected significant increases in sales. The Company reported an operating profit of $34.4 million, an operating margin of 3.6 percent for fiscal 1997 as compared with operating profit of $88.6 million, an operating margin of 11.5 percent for fiscal 1996. Fiscal 1997 operating results were favorably impacted by the effects of the change in accounting principle described above, and adversely impacted by the recognition of a $84.5 million loss on the MD-90 production contract, as discussed below, which reduced the fiscal 1997 overall operating margin by 9.0 percent. In addition, fiscal 1997 results were also negatively impacted by the decision made earlier in the year (and prior to the recognition of the $84.5 million loss) not to record profit on the MD-90 production contract, on which profit was recognized in the prior fiscal year. In fiscal 1997, operating results on other programs benefited from increased delivery rates and improved operating efficiencies. Fiscal 1996 operating results were also favorably effected by the accounting change, but were adversely impacted by one-time charges of $12.4 million, which reduced the operating margin by 1.6 percent. This $12.4 million represented a loss on the sale of an aircraft leasing subsidiary and an impairment write-down on the Company's Arkadelphia, Arkansas facility to net realizable value. Operating results will vary from period to period, in part depending on the amount and mix of direct spare sales and the ratio of direct spare sales to production sales. Direct spare sales generally carry a higher margin than production sales. The Company entered into a contract with International Aero Engines to produce nacelles for McDonnell Douglas Corporation's ("McDonnell Douglas") MD-90 aircraft in 1990. Under the terms of the contract, the Company agreed to recover its preproduction costs, and the higher than average production costs associated with early production shipments, over a specified number of deliveries. In light of the wide market acceptance of the MD-80 series, which was the predecessor aircraft, the Company believed sufficient MD-90 aircraft would be sold to allow it to recover its costs. 6 Over the last year, however, a series of developments created market uncertainties regarding future sales of the MD-90 aircraft. The most significant of these developments included: McDonnell Douglas' termination of the MD-XX program and the doubts this action raised regarding McDonnell Douglas' continued presence in the commercial aircraft industry; the decision of several large airlines that have traditionally operated McDonnell Douglas aircraft to order aircraft that compete with the MD-90; the announced (and subsequently completed) acquisition of McDonnell Douglas by The Boeing Company, which produces a family of competing aircraft; the announcement by Delta Airlines, launch customer for the MD-90, of its intent to replace its existing fleet of MD-90s and to seek a business resolution with McDonnell Douglas with respect to its remaining orders for the aircraft; and the lack of significant MD-90 orders during the past year. In recognition of these developments, the Company reduced its estimates of future MD-90 aircraft deliveries in the second quarter of fiscal 1997 to include only deliveries which were supported by firm orders, options, and letters of intent for the aircraft. During the fourth quarter of fiscal 1997, the Company further reduced its market estimate of future MD-90 sales to existing firm aircraft orders (excluding firm orders from Delta Airlines). Based on its reduced estimate of future aircraft deliveries, the Company believes that future MD-90 sales will not be sufficient to recover its existing contract investment plus the costs it will be required to spend in the future to complete the contract. As a result, the Company recognized a $84.5 million operating loss on the contract in fiscal 1997 (which included a $10.4 million increase in the loss as a result of the change in accounting). The change in accounting principle adopted in the fourth quarter of fiscal 1997 resulted in $49.3 million of the loss being reported in the second quarter of fiscal 1997 and $35.2 million being reported in the fourth quarter of fiscal 1997. The MD-90 contract accounted for 13.9 percent and 11.2 percent of fiscal 1997 and 1996 sales, respectively. The McDonnell Douglas MD-95 program is a new 100-passenger aircraft currently under development. The Company has invested $51.7 million for design and development costs on the MD-95 contract through July 31, 1997. The Company anticipates spending approximately $23 million more for preproduction costs through mid 1999, the aircraft's scheduled Federal Aviation Administration (FAA) certification date. Most of this remaining $23 million of expenditures will occur prior to the flight test program, which is scheduled to commence in April 1998. If the contract is canceled prior to FAA certification, the Company expects substantial recovery of these costs. If the aircraft is certified and actively marketed, the amount of these costs and initial production start-up costs recovered by the Company will depend upon the number of aircraft delivered. To date, McDonnell Douglas has announced 50 firm orders and 50 options from the launch customer, ValuJet. 7 Net interest expense was $40.1 million in fiscal 1997 compared to $46.0 million for fiscal 1996. Interest expense declined primarily as a result of reduced debt levels while interest income increased due to a higher level of invested funds. Net loss before the extraordinary item, noted below, was $3.4 million or 13 cents per share for fiscal 1997, compared to net income of $22.3 million or $1.07 per share for fiscal 1996. The loss associated with the MD-90 contract adversely impacted fiscal 1997 net income by $50.5 million or $1.99 per share. Fiscal 1996 results were adversely impacted by the charge for the exchange of the convertible notes, the loss from the sale of an aircraft leasing subsidiary, and an impairment write-down which, in the aggregate, totaled $10.6 million or 51 cents per share. Extraordinary Item In line with the Company's objective of reducing its debt and interest expense, the Company used existing funds to prepay a significant portion of its 9.33% and 9.35% Senior Notes during the fourth quarter of fiscal 1997. The premium and certain other expenses associated with the early extinguishment of this debt have been reported as an extraordinary item. The cost of the prepayment, net of income tax benefit of $1.8 million, was $2.6 million or 11 cents per share for fiscal 1997. See "Notes to the Consolidated Financial Statements -- Note 7." Fiscal 1996 compared to Fiscal 1995 Fiscal 1996 and 1995 have been restated to reflect the accounting change made during the fourth quarter of fiscal 1997. See "Notes to Consolidated Financial Statements - Note 2." 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 contracts. Overall, sales declined from fiscal 1995 levels 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's operating income for fiscal 1996 was $88.6 million, an operating margin of 11.5 percent. Fiscal 1996 operating results were adversely impacted by a $12.4 million loss, which reduced operating margin by 1.6 percent, as a result of the sale of an aircraft leasing subsidiary and an impairment write- down on the Company's Arkadelphia, Arkansas facility to estimated net realizable value. Operating results in fiscal 1995, were $84.2 million, a margin of 10.5 percent. Operating results 8 in fiscal 1996 were impacted by the change in sales described above, several one-time items, and the positive settlement of outstanding contract terms on the IL96 and the A340 contracts, some of which will have a favorable on-going impact. During fiscal 1996, the Company negotiated the sale of its aircraft leasing subsidiary. This subsidiary's principal assets were beneficial interests in two aircraft (an A300 and a DC-10) 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 in fiscal 1997) and a secured note in the amount of $7.5 million in connection with the sale. 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 during fiscal 1996, the Company recognized a $7.2 million pre-tax impairment write-down on its Arkadelphia, Arkansas facility to estimated net realizable value. Many of the Company's facilities are operating below capacity and the Company intends to continue to review its site strategy and facilities with respect to its current and projected needs. 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 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 remained 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 percent, 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. 9 Net income from operations for fiscal 1996 was $22.3 million or $1.07 per share. Fiscal 1996 results were adversely impacted by the charge for the exchange of the convertible notes, the loss from the sale of an aircraft leasing subsidiary, and an impairment write-down which, in the aggregate, totaled $10.6 million or 51 cents per share. Fiscal 1995 income from continuing operations was $20.2 million or $1.11 per share. Fiscal 1995 net income included $3.8 million or 21 cents per share from the discontinuance of the business jet line of business and a loss associated with the prepayment of debt as described below of $1.1 million or 6 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 in fiscal 1995. Income from discontinued operations, net of income tax benefit, was $3.8 million or 21 cents per share for fiscal 1995. See "Notes to the Consolidated Financial Statements - Note 13." 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." Liquidity and Capital Resources The primary factors that affect the Company's liquidity are cash flow from operations and investment in new programs (which depending upon contract terms may require significant developmental expenditures and inventory buildup that may be partially offset through the participation of major subcontractors). Delivery levels under existing contracts, payment terms with customers, capital facilities expenditures, debt service, and the timing of defined benefit plan and federal income tax payments also affect the Company's liquidity and cash flow. 10 Over the next several years, the Company expects to increase its investment in production inventory in connection with increased deliveries on existing contracts. Additionally, the Company continues to seek business opportunities which would require future investments. The Company believes that its financial resources will be adequate to meet its requirements during such period. The Company is in the process of implementing a new revolving credit agreement as a replacement to the credit agreement that expired on April 25, 1997. The Company has engaged two banks as agents and expects to have a satisfactory credit agreement in place prior to any need for funds from such agreement. At July 31, 1997, the Company had $43.1 million of cash, cash equivalents, and short-term investments. Cash provided by operating activities during fiscal 1997 totaled $34.7 million, compared to $7.8 million for the prior fiscal year. Contributing to the positive cash flow in fiscal 1997 was cash generated from the higher level of deliveries on mature programs, an increase in spare parts sales, and several one-time payments received for non-recurring tasks. This was partially offset by the investment in preproduction costs on the MD-95 contract. Cash provided by operations is subject to significant variation from period to period. Receivables were up $31.8 million to $161.3 million at July 31, 1997. This increase was primarily due to an increase in sales, customer mix, and the timing of deliveries. The Company's net inventories decreased to $227.2 million at July 31, 1997, from $282.8 million at July 31, 1996. As its contracts mature, the Company's inventory is declining through amortization of cost over unit deliveries. In fiscal 1997, preproduction and excess-over-average inventory declined primarily due to the loss recognized on the MD-90 contract. In addition, preproduction inventory declined on the A340 contract due to amortization of cost over unit deliveries. Preproduction inventory increased on the MD-95 contract due to design and tooling expenditures which are expected to be recovered as units are delivered. Production inventory increased due to a build up for scheduled future deliveries. Over the next several years, the Company expects to increase its investments in inventory in connection with expenditures on new contracts, increased deliveries on existing contracts, and anticipated new business opportunities. Cash flow used in investing activities was $5.5 million in fiscal 1997 compared to $9.9 million in the prior fiscal year. Included in cash flow from investing activities in fiscal 1997 was the collection of a note receivable of $20.1 million from the sale of an aircraft leasing subsidiary. Cash of $11.2 million was used in investing activities for the purchase of short-term investments. Capital expenditures for property, plant, and equipment totaled $17.1 million for fiscal 1997, up from $13.0 million for fiscal 1996. Capital expenditures for property, plant, and equipment are projected to approximate $20 million for fiscal 1998 and are expected to be financed by internally generated cash flow. 11 The Company's total financings declined to $483.5 million at July 31, 1997, compared to $569.2 million at July 31, 1996. Total financings decreased due to $12.0 million and $8.9 million of scheduled principle payments made during the year on the Company's 9.35% Senior Notes and 9.33% Senior Notes, respectively. In line with the Company's objective of reducing debt and interest expense, the Company used existing funds to make additional voluntary prepayments of $22.4 million on its 9.35% Senior Notes and $34.3 million on its 9.33% Senior Notes. Total financings at July 31, 1997, included balance sheet debt, a $40.0 million accounts receivable sales program, and $19.1 million of equipment leases. The Company's $40 million accounts receivable sales program will begin to phase-out, as scheduled in October 1997, and is scheduled to be repaid in full by December 1997. If the Company obtains a substantial amount of new business, it may seek additional financing which may include a replacement receivable facility. The Company has been striving to improve the funding of its defined benefit pension plans. During fiscal 1997, the Company contributed 2.9 million shares of common stock valued at $48.0 million and made cash contributions of $10.3 million to its defined benefit pension plans. The plans also benefited from substantial market gains on plan assets and the use of an increased discount rate. Reflecting the increase in market interest rates, the Company increased its pension plan discount rate to 8.25 percent in fiscal 1997, up from the 7.75 percent used for the prior year's valuation. The Company also updated its mortality rate assumptions which increased the plans' accrued benefit obligation. Primarily as a result of the Company's contributions to the plan and market gains, the market value of plan assets exceeded plan benefit obligations. As a result, the Company was able to reverse the liability and deferred asset related to the underfunded position and to eliminate a related $26.4 million charge to shareholders' equity, net of the tax benefit of $17.8 million. 12 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's 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 1997 were approximately $0.4 million and are expected to be approximately the same during fiscal 1998. From inception to July 31, 1997, the Company has expended approximately $4.1 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, 13 alternative cleanup technologies and methods, insurance, and other recoveries, and in some cases the extent or uncertainty of the Company's involvement. Included is the Casmalia waste disposal site wherein, estimated cleanup costs approximate $70 million, 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 $2.0 million. The Company does not yet know about the ability of all of the other waste generators using the Casmalia site to fund their allocable share, and the Company could be found jointly and severally liable with all waste generators using such site. 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, 1997, 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 $7.0 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 1998 as in fiscal 1997, which the Company anticipates costs for these elements in fiscal 1998 should be comparable to the current rate of expenditure for fiscal 1997. 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, 1997, the Company's net deferred tax asset was $130.4 million, consisting of $112.4 million for federal tax purposes and $18.0 million for state tax purposes. 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 net operating loss ("NOL") carryforward periods. Management expects that the Company will report a sufficient level of taxable income prior to the expiration of the NOLs to realize the deferred tax asset recorded as of July 31, 1997. 14 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 1980s and early 1990s, 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. 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, 1997, the Company must generate approximately $340 million of future taxable income (net of $119 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 2004 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 significant 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 challenged the timing of various deductible items, some of which are significant. The Company is contesting 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. 15
CONSOLIDATED BALANCE SHEETS (in thousands) July 31, - -------------------------------------------------------------------------------- 1997 1996 - -------------------------------------------------------------------------------- (restated) Assets Cash and cash equivalents $ 31,881 $ 88,403 Short-term investments 11,190 - Accounts receivable 161,275 129,523 Inventories: Work-in-process 264,356 323,715 Raw materials, purchased parts, and supplies 22,909 26,220 Less customers' progress payments and advances (60,066) (67,165) - -------------------------------------------------------------------------------- Inventories - net 227,199 282,770 Deferred tax asset 45,998 - Prepaid expenses and other current assets 12,315 14,587 - -------------------------------------------------------------------------------- Total Current Assets 489,858 515,283 Property, Plant, and Equipment - Net 188,764 196,052 Deferred Tax Asset 84,358 156,863 Prepaid Pension Costs 84,386 - Other Assets 36,612 64,742 - -------------------------------------------------------------------------------- $883,978 $932,940 ================================================================================ Liabilities and Shareholders' Equity Trade accounts and other payables $138,342 $125,974 Salaries, wages, and benefits 38,197 44,094 Deferred tax liability - 16,213 Short-term debt and current portion of long-term debt 12,928 25,962 - -------------------------------------------------------------------------------- Total Current Liabilities 189,467 212,243 Long-Term Debt 411,467 481,481 Pension and Post-Retirement Obligations - Long-term 20,449 46,096 Other Obligations 16,315 17,503 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 25,329,725 and 22,329,793 shares, respectively 25,330 22,330 Additional paid-in capital 189,910 142,656 Retained earnings 31,040 37,062 Minimum pension liability adjustment - (26,431) - -------------------------------------------------------------------------------- Total Shareholders' Equity 246,280 175,617 - -------------------------------------------------------------------------------- $883,978 $932,940 ================================================================================
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements. 16
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except for per share data) Year ended July 31, - ------------------------------------------------------------------------------------------------------- 1997 1996 1995 - ------------------------------------------------------------------------------------------------------- (restated) (restated) Sales $944,357 $770,814 $805,000 Costs and Expenses 797,691 642,614 694,576 Charge for MD-90 Contract (Note 12) 84,541 - - Loss on Sale of Aircraft Leasing Subsidiary and Impairment Write-down (Note 12) - 12,395 - General and Administrative Expenses 27,704 27,233 26,198 - ------------------------------------------------------------------------------------------------------- Operating Income 34,421 88,572 84,226 Interest Income 4,509 2,735 4,015 Interest Expense 44,562 48,702 54,001 Charge for Exchange of Convertible Notes (Note 7) - 5,350 - - ------------------------------------------------------------------------------------------------------- Income (Loss) from Continuing Operations Before Taxes (Benefit) on Income (5,632) 37,255 34,240 Taxes (Benefit) on Income (2,264) 14,977 14,029 - ------------------------------------------------------------------------------------------------------- Income (Loss) from Continuing Operations (3,368) 22,278 20,211 Income from Discontinued Operations - Net of Taxes (Note 13) - - 3,879 - ------------------------------------------------------------------------------------------------------- Income (Loss) before Extraordinary Item (3,368) 22,278 24,090 Loss from Extraordinary Item - Net of Taxes (Note 7) (2,654) - (1,146) - ------------------------------------------------------------------------------------------------------- Net Income (Loss) $ (6,022) $ 22,278 $ 22,944 ======================================================================================================= Primary Earnings (Loss) Per Average Share of Common Stock from: Continuing Operations $ (0.13) $ 1.07 $ 1.11 Discontinued Operations - - 0.21 Extraordinary Item (0.11) - (0.06) - ------------------------------------------------------------------------------------------------------- Net Primary Earnings (Loss) Per Average Share $ (0.24) $ 1.07 $ 1.26 ======================================================================================================= Fully Diluted Earnings (Loss) Per Average Share of Common Stock from: Continuing Operations $ (0.13) $ 1.05 $ 0.95 Discontinued Operations - - 0.16 Extraordinary Item (0.11) - (0.05) - ------------------------------------------------------------------------------------------------------- Net Fully Diluted Earnings (Loss) Per Average Share $ (0.24) $ 1.05 $ 1.06 =======================================================================================================
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements. 17
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands) - ----------------------------------------------------------------------------------------------------------------------------------- Common Stock Additional Minimum Pension Par Value Paid-In Retained Liability $1 per Share Capital Earnings Adjustment - ------------------------------------------------------------------------------------------------------------------------------------ Balance at July 31, 1994 as previously reported $18,042 $102,598 $ 82,168 $(55,899) Change in accounting (Note 2) - - (90,328) - - ----------------------------------------------------------------------------------------------------------------------------------- Balance at July 31, 1994 (restated) 18,042 102,598 (8,160) (55,899) Stock plans activity 26 289 - - Net Income - - 22,944 - Minimum pension liability adjustment (Note 9) - - - 17,481 - ----------------------------------------------------------------------------------------------------------------------------------- Balance at July 31, 1995 (restated) 18,068 102,887 14,784 (38,418) Stock plans activity 253 1,472 - - Conversion of 7.75% Convertible Subordinated Notes 4,009 38,297 - - Net Income - - 22,278 - Minimum pension liability adjustment (Note 9) - - - 11,987 - ----------------------------------------------------------------------------------------------------------------------------------- Balance at July 31, 1996 (restated) 22,330 142,656 37,062 (26,431) Stock plans activity 133 2,621 - - Pension retirement contribution 2,867 44,633 - - Net Loss - - (6,022) - Minimum pension liability adjustment (Note 9) - - - 26,431 - ----------------------------------------------------------------------------------------------------------------------------------- Balance at July 31, 1997 $25,330 $189,910 $ 31,040 $ - ====================================================================================================================================
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements. 18
CONSOLIDATED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents (in thousands) Year ended July 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ (restated) (restated) Operating Activities: Net income (loss) $ (6,022) $ 22,278 $ 22,944 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 21,751 21,442 22,148 Loss on sale of subsidiary and impairment write-down - 12,395 - Charge for exchange of 7.75% Convertible Notes - 5,350 - Changes due to (increase) decrease in operating assets: Accounts receivable (51,894) (50,729) 29,059 Inventories - net 55,571 (23,949) (41,631) Prepaid expenses and other assets 3,241 (28) 5,291 Changes due to increase (decrease) in operating liabilities: Trade accounts, salaries and wages, and other payables 16,252 13,186 (10,206) Pension and post-retirement obligations 993 (8,544) (26,642) Deferred taxes (4,732) 14,541 16,211 Other (426) 1,895 10,373 - ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 34,734 7,837 27,547 - ----------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Proceeds from sale of aircraft leasing subsidiary 20,142 - - Purchase of property, plant, and equipment (17,124) (13,029) (8,135) Sale (purchase) of short-term investments (11,190) - 17,568 Proceeds from sale of assets 2,480 2,905 - Repurchase of sale-leaseback transactions - - (21,782) Net advances on discontinued operations - - (5,045) Other 148 269 1,280 - ----------------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (5,544) (9,855) (16,114) - ----------------------------------------------------------------------------------------------------------------------------------- Financing Activities: Annual principal payment of 9.33% and 9.35% Senior Notes (20,875) (12,025) (12,500) Net prepayment of 9.33% and 9.35% Senior Notes (59,324) - (22,481) Net short-term borrowings (3,615) 3,615 - Repayment of other long-term borrowings (858) (1,678) (2,323) Reduction in sales of receivable sales program - - (20,000) Cash collateral for receivable sales program - 13,500 13,003 Long-term borrowings - 1,106 - Other (1,040) 1,319 1,456 - ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (85,712) 5,837 (42,845) - ----------------------------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents (56,522) 3,819 (31,412) Cash and Cash Equivalents, Beginning of Year 88,403 84,584 115,996 - ----------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents, End of Year $ 31,881 $ 88,403 $84,584 =================================================================================================================================== Supplemental Cash Flow Information: Cash Paid (Received) During the Year for: Interest, net of amount capitalized $ 44,821 $ 48,436 $ 52,010 Income taxes 565 367 (1,958) Non-Cash Investing and Financing Activities Aircraft leasing subsidiary sold for notes receivable (Note 12) - 27,594 - Exchange of 7.75% Convertible Notes - (37,780) - Change in equity due to exchange of 7.75% Convertible Notes - 43,130 - Stock contributions to pension plans 48,000 - - ====================================================================================================================================
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements. 19 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. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. On an ongoing basis, predicated upon information then available, management reviews and updates its estimates to reflect changes in facts and circumstances including those related to inventories and contracts along with litigation, taxes, environmental, pensions, and other matters. c. Sales and operating income The Company's sales are primarily under fixed-priced contracts, many of which contain escalation clauses, requiring delivery of products over several years and frequently provide the buyer with option pricing on follow-on orders. Sales and profits on each contract are recognized primarily in accordance with the percentage-of-completion method of accounting, using the units-of-delivery method. As discussed in Note 2, following the change in accounting made in the fourth quarter of fiscal 1997, 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 commercial and 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. 20 Profit is estimated based on the difference between total estimated revenue and total estimated cost of a contract excluding that reported in prior periods and is recognized evenly in the current and future periods as a uniform percentage of sales value on all remaining units to be delivered. Current revenue does not anticipate higher or lower future prices, but includes units delivered at actual sales prices. A constant contract 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 preproduction effort (primarily tooling and design), plus the estimated cost of manufacturing a specified number of production units. The specified number of production units used to establish the profit margin is predicated upon contractual terms adjusted for market forecasts and does not exceed the lesser of those quantities assumed in original contract pricing or those quantities which the Company now expects to deliver in the periods assumed in the original contract pricing. Option quantities are combined with prior orders when follow-on orders are released. Any anticipated losses on contracts and overruns of preproduction costs are charged to earnings when identified. The contract method of accounting involves the use of various estimating techniques to project costs at completion and includes estimates of recoveries asserted against the customer for changes in specifications. These estimates involve various assumptions and projections relative to the outcome of future events including the quantity and timing of product deliveries. Also included are assumptions relative to future labor performance and rates, and projections relative to material and overhead costs. These assumptions involve various levels of expected performance improvements. The Company reevaluates its contract estimates periodically and reflects changes in estimates 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 1d. 21 d. 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 include certain preproduction 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, 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 preproduction) cost overruns, builds during the early years of the contract when the efficiencies resulting from learning are not yet fully realized and declines as the contract 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. 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 exceeds the anticipated remaining sales value of such contract, 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 contracts with long production cycles, some of which is not expected to be realized within one year. e. 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 12). 22 f. 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. g. Research and development, general and administrative expenses Research and development costs incurred for the development of proprietary products (which have not been material to operations during the periods presented) and general and administrative expenses are charged to operating income as incurred. 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. h. 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). i. 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. j. 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 at date of purchase to be cash equivalents. Cash equivalents are stated at cost which approximates market. k. 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. 23 l. Industry segments The Company considers itself to operate in one industry segment. m. New accounting standards Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," 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 continues, to apply Accounting Principles Board (APB) Opinion No. 25 with the required disclosure for the pro forma effect on net income and earnings per share (see Note 11). In February 1997, the Financial Accounting Standard Board issued SFAS No. 128 "Earnings per Share." This statement specifies the computation, presentation, and disclosure requirements for earnings per share for entities with publicly held common stock. SFAS No. 128 is not in effect for the Company in fiscal 1997, but will be in effect for financial statements issued for periods ending after December 15, 1997, including interim periods. The Company does not expect the adoption of SFAS No. 128 to have a material effect on its net income per share. 24 Note 2 - Change in Accounting In the fourth quarter of fiscal 1997, the Company changed its accounting principle related to long-term programs and contracts and restated its historical results to reflect the application of the new principle. The change eliminated the use of program accounting so that all current and future programs will be accounted for under the contract method of accounting as described in Note 1. Prior to the change, approximately half of the Company's revenues were accounted for under the program method of accounting and approximately half were accounted for under the contract method of accounting. Under contract accounting, the Company accounts for the direct sale of spare parts to airlines separately from the sale of production units. Previously, on programs that were accounted for under the program method of accounting, the Company combined the estimated costs and revenues associated with a program's production units and spare parts into a single profit center. While the Company's previous method of accounting was in accordance with generally accepted accounting principles, the Company believes that the new principle is preferable. By accounting for spare parts sales separately from long-term production contracts, the amount of deferred costs included in inventory has been reduced. The change will also decrease the significance of the projections used in calculating the Company's financial results by eliminating the need to project spare parts sales into the future. In addition, under the changed principle, the Company's financial results will more clearly reflect its current operating activities and cash flow. The Company also believes that the change in accounting principle will enhance internal accountability. The effect of this change in accounting for the periods through July 31, 1996, was a charge of $59.6 million, net of income tax benefits of $40.0 million. In accordance with Accounting Principles Board Opinion No. 20, "Accounting Changes," prior year financial statements have been restated to reflect this change on a retroactive basis. The effect of the change on fiscal 1997 results was to increase operating income by $15.1 million (composed of $25.5 million of additional operating income less $10.4 million of additional loss on the MD-90 contract, in each case arising from the change in accounting). The effect of the change in accounting on fiscal 1997 net income was to increase net income by $9.0 million, or 35 cents per share (composed of $15.3 million, or 60 cents per share, of additional net income less $6.3 million, or 25 cents per share, arising from the additional loss on the MD-90 program). The total impact on fiscal 1996 and fiscal 1995 was to increase net income by $19.1 million (92 cents per share) and $11.7 million (64 cents per share), respectively. 25 Note 3 - Accounts Receivable Accounts receivable, which relate primarily to long-term contracts, consist of the following (in thousands):
July 31, - -------------------------------------------------------------------------------- 1997 1996 - -------------------------------------------------------------------------------- Amount billed $143,710 $ 80,661 Receivable for sale of aircraft leasing subsidiary (see Note 12) - 20,142 Recoverable costs and accrued profit on units delivered but not billed 6,090 6,504 Recoverable costs and accrued profit on progress completed but not billed 30 8,276 Unrecovered costs and estimated profit subject to future negotiations 11,445 13,940 - -------------------------------------------------------------------------------- $161,275 $129,523 ================================================================================
"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. Of these recoverable costs, $0.4 million is 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. "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, 1997, are estimated recoveries on constructive change claims related to government imposed redefined acceptance criteria on the Grumman F-14 contract, which may not be collected within one year. Management believes that amounts reflected in the financial statements are reasonable estimates of the ultimate settlements. 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 26 the amount of receivables owned by the trust from time to time. 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, $3.0 million, and $3.6 million in fiscal 1997, 1996, and 1995, respectively. The Company's accounts receivable sales program begins to phase out as scheduled in October 1997 and is scheduled to be repaid in full by December 1997. If the Company obtains a substantial amount of new business, it may seek additional financing which may include a replacement receivable facility. 27 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, - -------------------------------------------------------------------------------- 1997 1996 1995 - -------------------------------------------------------------------------------- International Aero Engines 23% 22% 14% CFM International 17 12 11 The Boeing Company 15 19 17 Airbus Industrie 9 6 6 Rolls-Royce 8 7 13 Pratt & Whitney 7 8 10 General Electric 6 7 7 McDonnell Douglas* 6 7 8 United Technology 1 1 4 Lockheed 0 3 5 Other 8 8 5 ================================================================================
*In August 1997, McDonnell Douglas Corporation was acquired by The Boeing Company. Total sales to the U.S. Government (including direct sales and indirect sales through some of the prime contractors shown above) accounted for 3 percent, 8 percent, and 12 percent of sales from continuing operations in the years ended July 31, 1997, 1996, and 1995, 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 42 percent, 39 percent, and 38 percent of total sales for fiscal 1997, 1996, and 1995, respectively. Of the total sales, 37 percent, 31 percent, and 33 percent, were ultimately delivered to customers in Europe for fiscal 1997, 1996, and 1995, respectively. 28 Note 4 - Inventories Work-in-process inventories as of July 31, 1997, with a detail break-out of contracts which have significant deferred costs, are summarized as follows (in thousands, except quantities which are number of aircraft):
Aircraft Order Status (1) Company Order Status Work-in-Process Inventory ------------------------------- ------------------------------------------- ------------------------- (3) (5) Delivered (2) Firm Fiscal to Unfilled Unfilled Contract Unfilled Year Pre- Contract Airlines Orders Options Quantity Delivered Orders Complete Production Production - --------------------------------------------------------------------------------------------------------------------------------- A340 (4) 115 69 75 267 124 44 2003 $ 15,760 $ 6,390 PW4000 for the A300/A310 and MD-11 (4) 275 19 31 319 288 18 2003 24,490 12,945 GE90 (4) 20 74 24 55 31 24 1998 2,106 10,450 737-700 - 627 1,028 TBD(6) 11 239 TBD(6) 5,755 4,990 MD-95 - 50 50 TBD(6) - 5 TBD(6) 3,828 51,723 Others 91,048 439 - --------------------------------------------------------------------------------------------------------------------------------- Balance at July 31, 1997 $142,987 $ 86,937 ================================================================================================================================= Balance at July 31, 1996 $114,349 $151,540 =================================================================================================================================
Work-in-Process Inventory -------------------------- Excess- Contract Over-Average Total - ------------------------------------------------------- A340 (4) $ - $ 22,150 PW4000 for the A300/A310 and MD-11 (4) 30,682 68,117 GE90 (4) - 12,556 737-700 2,273 13,018 MD-95 - 55,551 Others 1,477 92,964 - ------------------------------------------------------ Balance at July 31, 1997 $34,432 $264,356 ====================================================== Balance at July 31, 1996 $57,826 $323,715 ======================================================
(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. (3) Represents the number of aircraft for which the Company has firm unfilled orders. (4) Contract quantity represents the lesser of those quantities assumed in original contract pricing or those quantities which the Company now expects to deliver in the periods assumed in original contract pricing. (5) The year presented represents the fiscal year in which the final production units included in the contract quantity will be delivered. The contract may continue in effect beyond this date. (6) "To Be Determined" - New contracts on which the amortization quantity is yet to be determined. Contractual terms on certain contracts provide varying levels of recovery commitments often over a specified number of deliveries for specified amounts of costs (primarily tooling and design). 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. Certain contracts 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 contracts. 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 contract 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. 29 The excess of deferred contract 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, 1997, is $2.3 million on the 737-700 contract. The MD-95 contract which is currently in development has preproduction inventory of $51.7 million. If the contract is cancelled prior to FAA certification, the Company expects substantial recovery of these costs. If the aircraft is certified and actively marketed, the Company estimates that it would require orders for approximately 300 aircraft to fully recover its costs. To date, McDonnell Douglas has received orders for 50 firm and 50 options from ValuJet . The Company has firm orders for five aircraft. Excess-over-average inventory represents the costs of in-process and delivered units less, for each such unit, the current estimated average cost of the units in the contract. Recovery of these inventoried costs assumes certain production efficiencies and the sale of the contract quantity used in estimating the profit margin. If these contract assumptions are not attained, such will be reflected as a change in estimate and impact future operating margins. To the extent that a forward loss is encountered on a contract, the amount of such loss is offset against the inventory of such contract, (until such inventory has been depleted). The loss is offset first against excess-over- average inventory, followed by preproduction inventory, then production inventory. 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 evaluation of current and projected foreign currency exchange rates, but the Company does not acquire forward contracts in excess of its current hedging requirements. At July 31, 1997, the Company had $16.5 million of foreign exchange contracts outstanding to purchase foreign currencies. There were no significant deferred gains or losses associated with these foreign exchange contracts. 30 Note 5 - Property, Plant, and Equipment Property, plant, and equipment consist of the following (in thousands):
July 31, - -------------------------------------------------------------------------------- 1997 1996 - -------------------------------------------------------------------------------- Land $ 24,348 $ 24,660 Buildings 194,996 195,153 Machinery and equipment 294,375 287,035 Construction in progress 11,583 12,183 - -------------------------------------------------------------------------------- 525,302 519,031 Less accumulated depreciation and amortization (336,538) (322,979) - -------------------------------------------------------------------------------- Property, plant, and equipment - net $ 188,764 $ 196,052 ================================================================================
Included in the above categories are assets recorded under capitalized leases with original costs totaling $50.6 million at July 31, 1997, and 1996. Note 6 - Taxes (Benefit) on Income Taxes (benefit) on income is comprised of the following (in thousands):
July 31, - ------------------------------------------------------------------- 1997 1996 1995 - ------------------------------------------------------------------- (restated) (restated) Currently Payable: Federal income taxes $ 1,080 $ 80 $ 900 Foreign income taxes (290) 350 (90) State income taxes 440 130 240 Deferred: Federal income taxes (1,754) 12,239 9,169 State income taxes (1,740) 2,178 3,810 - ------------------------------------------------------------------- $(2,264) $14,977 $14,029 ===================================================================
31 The difference between the tax (benefit) on income computed at the federal statutory rate and the actual tax (benefit) on income is as follows (in thousands):
July 31, - -------------------------------------------------------------------------------- 1997 1996 1995 - -------------------------------------------------------------------------------- (restated) (restated) Taxes computed at the federal statutory tax rate $(1,971) $13,039 $11,984 Increase (decrease) resulting from: State income taxes, net of federal tax benefit (293) 1,937 1,780 Tax-exempt income from Foreign Sales Corporation (152) (152) (395) Non-deductible items 402 1,453 922 Corporate-owned life insurance (387) (433) (236) Sale of investment leases - (1,048) - Other 137 181 (26) - -------------------------------------------------------------------------------- $(2,264) $14,977 $14,029 ================================================================================
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, - -------------------------------------------------------------------------------- 1997 1996 - -------------------------------------------------------------------------------- (restated) Current: Inventories $ 48,750 $ 15,186 Employee benefits 3,100 3,597 State taxes (5,852) (7,180) Sale of investment leases - (27,816) - -------------------------------------------------------------------------------- Net deferred tax asset (liabilities) - current $ 45,998 $(16,213) ================================================================================ Long-term: Depreciation $ 761 $ 9,332 Deferred gain on sale/leaseback 7,502 7,876 Minimum pension liability adjustment - 17,767 Net operating loss carryforward 91,415 120,485 Tax credit carryforward 9,549 8,432 Investment in leases (3,151) (3,525) Other - net (21,718) (3,504) - -------------------------------------------------------------------------------- Net deferred tax asset - long-term $ 84,358 $156,863 ================================================================================
The Company has federal NOLs totaling approximately $233 million at July 31, 1997, which expire in the years 2004 through 2012, and tax credit carryforwards totaling $9.5 million which expire in the years 2003 through 2013. 32 When tax effected at the rates in effect July 31, 1997, the net deductible temporary differences, tax credit carryforwards, and NOLs result in a deferred tax asset of $130.4 million, consisting of $112.4 million for federal tax purposes and $18.0 million for state tax purposes. Based on rates in effect July 31, 1997, approximately $340 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 challenged the timing of various deductible items, some of which are significant. The Company is contesting 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. 33 Note 7 - Indebtedness The maturity schedule of the Company's debt is summarized as follows (in thousands):
Total at Fiscal Year Ended July 31, July 31, - ------------------------------------------------------------------------------------------------------------------------------- 1998 1999 2000 2001 2002 Thereafter 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------- 11.625% Senior Notes $100,000 $100,000 $100,000 9.35% Senior Notes $ 2,287 $ 2,287 $ 695 5,269 39,732 9.33% Senior Notes 1,713 1,713 1,713 $ 1,713 $ 1,372 8,224 51,343 Other Debt 417 236 241 196 202 17,318 18,610 21,935 - ------------------------------------------------------------------------------------------------------------------------------- 4,417 4,236 2,649 1,909 1,574 117,318 132,103 213,010 Capital Leases 1,611 1,522 1,433 1,344 1,256 2,989 10,155 13,502 Less Imputed Interest (600) (518) (436) (356) (276) (372) (2,558) (3,789) - ------------------------------------------------------------------------------------------------------------------------------- 1,011 1,004 997 988 980 2,617 7,597 9,713 Subordinated Debt: 7.75% Convertible Notes 19,695 19,695 19,720 9.25% Debentures 7,500 7,500 7,500 7,500 7,500 112,500 150,000 150,000 7.00% Convertible Debentures 5,750 5,750 5,750 5,750 92,000 115,000 115,000 - ------------------------------------------------------------------------------------------------------------------------------- 7,500 13,250 13,250 13,250 13,250 224,195 284,695 284,720 - ------------------------------------------------------------------------------------------------------------------------------- Total Indebtedness $12,928 $18,490 $16,896 $16,147 $15,804 $344,130 $424,395 $507,443 - ------------------------------------------------------------------------------------------------------------------------------- Less Current Portion (12,928) (25,962) - ------------------------------------------------------------------------------------------------------------------------------- Long-Term Debt $411,467 $481,481 ===============================================================================================================================
The fair value of the Company's total indebtedness as of July 31, 1997, is estimated to be $445.2 million compared to the carrying value of $424.4 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 $483.5 million and $569.2 million at July 31, 1997, and 1996, respectively. The Company's total financings at July 31, 1997, 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 $19.1 million. The Company's privately placed 9.35% Senior Notes require principal payments of approximately $2.3 million in January 1998 and 1999, and a final payment of $0.7 million in January 2000. The Company's privately placed 9.33% Senior Notes require principal payments of approximately $1.7 million in December 1997 through 2000, and a final payment of $1.4 million in December 2001. In the fourth quarter of fiscal 1997, the Company voluntarily prepaid $34.3 million of its 9.33% Senior Notes and $22.4 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 $2.6 million or 11 cents per share, net of income tax benefit of $1.8 million. The noteholders can require the Company to purchase the remaining principal amount of the 34 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 noteholders 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. 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 currently 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. The Company's principal financing agreements contain certain 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, 1997. 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. 35 Note 8 - Commitments and Contingencies Minimum rental commitments under operating leases with non-cancelable terms of more than one year as of July 31, 1997, are as follows (in thousands):
- ------------------------------------------------------ 1998 $ 7,900 1999 6,100 2000 4,400 2001 4,100 2002 4,000 Thereafter 2,300 - ------------------------------------------------------ $28,800 ======================================================
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 $7.2 million, $6.3 million, and $8.5 million for fiscal 1997, 1996, and 1995, 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, 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 was substantially approved by the federal judge but that decision is subject to an appeal. The Company and the other generators of wastes disposed at the Stringfellow site, which include numerous 36 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. From inception to date, the Company has expended approximately $4.1 million on clean-up costs for this site. The Company also estimates that its future clean- up expenditures for this site are likely to range from $5 million to $8 million over and above the sums spent to date, as explained in greater detail in "Management's Discussion and Analysis of Financial Condition and Results of Analysis - Environmental Matters." The Company intends to continue to vigorously defend itself in the Stringfellow matter. Based upon the information currently available to it, including the fact that the Company has reached settlement agreements with its primary comprehensive general liability insurers with respect to this matter and has established reserves in connection with its expected future clean-up liabilities, the Company believes that the ultimate resolution of this matter 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 pension plan covering certain union employees are based on a negotiated amount per year of service. The Company has made contributions to independent trusts in excess of the minimum funding requirements of these plans under IRS regulations. The 37 Company also has supplemental retirement plans which are generally unfunded. Defined benefit plans expense consists of the following components (in thousands):
Year ended July 31, - -------------------------------------------------------------------------------- 1997 1996 1995 - -------------------------------------------------------------------------------- Service cost $ 8,031 $ 8,336 $ 9,574 Interest cost on projected benefit obligation 40,201 38,726 36,462 Actual gain on plan assets (69,809) (90,646) (43,245) Net amortization and deferral 33,791 59,173 12,118 - -------------------------------------------------------------------------------- Total $12,214 $15,589 $14,909 ================================================================================
The following table summarizes the funded status of these plans and the amounts recognized in the Consolidated Balance Sheets (in thousands):
July 31, - -------------------------------------------------------------------------------- 1997 1996 - -------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested $528,905 $507,659 Non-vested 19,364 20,714 - -------------------------------------------------------------------------------- Accumulated benefit obligation 548,269 528,373 Effect of projected future salary increases 5,777 5,545 - -------------------------------------------------------------------------------- Projected benefit obligation for service rendered to date 554,046 533,918 Plan assets at fair value, primarily stocks, bonds, other fixed income obligations and real estate 554,135 475,343 - -------------------------------------------------------------------------------- Plan assets greater (less) than projected benefit obligation 89 (58,575) Unrecognized net loss 42,601 52,937 Unrecognized net asset from initial application of SFAS No. 87 being recognized over plans' average remaining service life (6,814) (9,816) Unrecognized prior service cost 29,037 31,859 Additional minimum liability - (72,735) - -------------------------------------------------------------------------------- Net pension asset (liability) recognized in the consolidated balance sheets $64,913 $(56,330) ================================================================================
In fiscal 1997, the Company's defined benefit pension plans' assets exceeded the accumulated benefit obligation primarily due to its contribution of $48 million of common stock and $10.3 million cash in addition to market gain on plan assets, and therefore no additional minimum liability was recorded. The amounts recorded in fiscal 1996 relating to the plans' underfunded position were reversed in fiscal 1997. At July 31, 1996, the plans' accumulated benefit obligations exceeded plan assets and the additional minimum liability for the Company's defined benefit plans was in excess of the unrecognized prior service costs and net transition obligation and was recorded as a reduction 38 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." The weighted-average discount rate used in determining the present value of the projected benefit obligation was 8.25 percent, 7.75 percent, and 8.25 percent for the years ended July 31, 1997, 1996, and 1995, 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 5.0 percent on current salaries through January 1, 1997, 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 $3.8 million, $3.5 million, and $2.8 million in fiscal 1997, 1996, and 1995, 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. 39 Post-retirement benefit costs, net of expected retiree contributions, included the following components (in thousands):
Year ended July 31, - -------------------------------------------------------------------------------- 1997 1996 1995 - -------------------------------------------------------------------------------- Service cost - benefits attributed to service during the period $ 106 $ 125 $ 146 Interest cost on accumulated post-retirement benefit obligation 371 419 408 Net amortization and deferral (10) 13 32 - -------------------------------------------------------------------------------- Net periodic post-retirement benefit cost $ 467 $ 557 $ 586 ================================================================================
The liability for post-retirement health care benefits included the following components (in thousands):
July 31, - -------------------------------------------------------------------------------- 1997 1996 - -------------------------------------------------------------------------------- Accumulated post-retirement benefit obligation: Retirees $1,840 $2,660 Fully eligible active plan participants 310 236 Other active plan participants 2,058 2,159 Unrecognized net loss 421 (380) - -------------------------------------------------------------------------------- Liability for post-retirement health care benefits $4,629 $4,675 ================================================================================
The accumulated post-retirement benefit obligation was determined using weighted average discount rates of 8.25 percent, 7.75 percent, and 8.25 percent, respectively, for the years ended July 31, 1997, 1996, and 1995. The plan is unfunded. Each year the Company funds the benefits paid. 40 Note 10 - Shareholders' Equity The Company has not paid a cash dividend since 1975 and is restricted from paying cash dividends by covenants within its primary loan agreements. 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. Authorized, unissued shares of common stock were reserved for the following:
July 31, - -------------------------------------------------------------------------------- 1997 1996 - -------------------------------------------------------------------------------- Various stock plans 3,598,978 3,983,911 Conversion of subordinated debentures and notes 4,577,318 4,579,732 Warrants 600,000 600,000 - -------------------------------------------------------------------------------- 8,776,296 9,163,643 ================================================================================
Note 11 - Stock Based Plans 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, 41 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 ten years. During fiscal 1997, 63,728 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 ten 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 ten years. During fiscal 1996, 26,076 shares were awarded to various employees. At July 31, 1997, 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 ten 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, 30,000 shares remained available for grant at July 31, 1997. 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 of Directors that occurs after the end of each fiscal year. 42 Under the various stock option plans, outstanding options for 2,383,500 and 2,035,452 shares of common stock were exercisable with weighted-average exercise price of $17.015 and $17.479 as of July 31, 1997, and 1996, respectively. Activity in these stock option plans for the three years ended July 31, 1997, is summarized as follows:
Weighted-Average Options Exercise Price - -------------------------------------------------------------------------------- Balance Outstanding at July 31, 1994 2,723,044 $16.618 Granted 19,000 9.717 Relinquished (7,180) 25.812 Forfeited (44,300) 17.861 Exercised (26,000) 10.889 - -------------------------------------------------------------------------------- Balance Outstanding at July 31, 1995 2,664,564 $16.588 Granted 1,123,936 16.120 Relinquished (77,465) 27.470 Forfeited (47,667) 19.026 Exercised (394,707) 11.845 - -------------------------------------------------------------------------------- Balance Outstanding at July 31, 1996 3,268,661 $16.686 Granted 281,705 21.265 Relinquished (34,200) 28.402 Forfeited (33,500) 21.938 Exercised (287,005) 13.368 - -------------------------------------------------------------------------------- Balance Outstanding at July 31, 1997 3,195,661 $17.207 ================================================================================
The following table summarizes information about stock options outstanding at July 31, 1997.
Options Outstanding Options Exercisable - ----------------------------------------------------------------------------------------- Weighted- Average Weighted- Weighted- Remaining Average Average Range of Exercise Contractual Exercise Exercise Price Shares Life (Yrs.) Price Shares Price - ----------------------------------------------------------------------------------------- $8.50 to $13.49 968,166 5.0 $10.47 912,166 $10.53 $13.50 to $18.49 1,018,565 7.6 15.18 646,941 15.14 $18.50 to $23.49 829,780 6.1 21.39 445,243 21.37 $23.50 to $28.49 17,500 2.8 25.49 17,500 25.49 $28.50 to $33.49 361,650 1.4 30.95 361,650 30.95 - ----------------------------------------------------------------------------------------- 3,195,661 2,383,500 =========================================================================================
43 The Company's accounting for stock-based plans is in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." For stock options granted, the option prices is not less than the market value of shares on the grant date; therefore, no compensation expense has been recognized for fixed stock option plans. Had compensation expense for the Company's stock-based plans been accounted for using the fair value method prescribed by SFAS No. 123, net income (loss) and earnings (loss) per share would have been as follows:
1997 1996 - -------------------------------------------------------------------------------- (restated) Net earnings (loss) as reported $(6,022) $22,287 Pro forma net earnings (loss) under SFAS No. 123 $(7,619) $21,552 Earnings (loss) per share as reported $ (0.24) $ 1.07 Pro forma earnings (loss) per share under SFAS No. 123 $ (0.30) $ 1.04 ================================================================================
As required by SFAS No. 123, the Company has determined the weighted-average fair value of each option granted in fiscal 1997 and 1996 to be $10.38 and $7.58, respectively. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1997 and 1996, respectively; risk-free interest rates of 6.6 percent and 5.6 percent; no expected dividends; expected volatility of 43.8 percent and 43.1 percent; and expected lives of 5.3 years for both years. The effects of applying SFAS No. 123 in the above pro forma disclosure are not indicative of future amounts. SFAS No. 123 does not apply to awards granted prior to fiscal 1996. Note 12 - Charge for MD-90, Loss on Sale of Aircraft Leasing Subsidiary, and Impairment Write-down The Company entered into a contract with International Aero Engines to produce nacelles for McDonnell Douglas' MD-90 aircraft in 1990. Under the terms of the contract, the Company agreed to recover its preproduction costs, and the higher than average production costs associated with early production shipments, over a specified number of deliveries. In light of the wide market acceptance of the MD-80 series, which was the predecessor aircraft, the Company believed sufficient MD-90 aircraft would be sold to allow it to recover its costs. Over the last year, however, a series of developments created market uncertainties regarding 44 future sales of the MD-90 aircraft. The most significant of these developments included: McDonnell Douglas' termination of the MD-XX contract and the doubts this action raised regarding McDonnell Douglas' continued presence in the commercial aircraft industry; the decision of several large airlines that have traditionally operated McDonnell Douglas aircraft to order aircraft that compete with the MD-90; the announced (and subsequently completed) acquisition of McDonnell Douglas by The Boeing Company, which produces a family of competing aircraft; the announcement by Delta Airlines, launch customer for the MD-90, of its intent to replace its existing fleet of MD-90s and to seek a business resolution with McDonnell Douglas with respect to its remaining orders for the aircraft; and the lack of significant MD-90 orders during the past year. In the recognition of these developments, the Company reduced its estimates of future MD-90 aircraft deliveries in the second quarter of fiscal 1997 to include only deliveries which were supported by firm orders, options, and letters of intent for the aircraft. During the fourth quarter of fiscal 1997, the Company further reduced its market estimate of future MD-90 sales to existing firm aircraft orders (excluding firm orders from Delta Airlines). Based on its reduced estimate of future aircraft deliveries, the Company now believes that future MD-90 sales will not be sufficient to recover its existing contract investment plus the costs it will be required to spend in the future to complete the contract. As a result, the Company realized an $84.5 million operating loss on the contract in fiscal 1997 (which included a $10.4 million increase in the loss as a result of the change in accounting). The change in accounting principles adopted in the fourth quarter of fiscal 1997 resulted in $49.3 million of the loss being reported in the second quarter of fiscal 1997 and $35.2 million being reported in the fourth quarter of fiscal 1997. The MD-90 contract accounted for 13.9 percent and 11.2 percent of fiscal 1997 and 1996 sales, respectively. During fiscal 1996, the Company negotiated the sale of its aircraft leasing subsidiary, whose principal assets were beneficial interests in two aircraft (an A300 and a DC-10), 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 in fiscal 1997) and a secured note in the amount of $7.5 million in connection with the sale. 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. During fiscal 1996, the Company recognized a $7.2 million pre-tax impairment write-down on its Arkadelphia, Arkansas facility to its estimated net realizable value. The Company intends to continue to review its site strategy and facilities with respect to its current and projected needs. 45 Note 13 - 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 - ------------------------------------------------------------- Net sales $22,287 Income before taxes 6,486 Taxes on income 2,607 - ------------------------------------------------------------- Net income $ 3,879 ============================================================= Net income per average share of common stock $ 0.21 =============================================================
46 Note 14 - Quarterly Results of Operations (Unaudited) (In thousands except for per share data)
Year ended July 31, 1997 - ----------------------------------------------------------------------------------------------------- 1st 2nd 3rd 4th - ----------------------------------------------------------------------------------------------------- (restated) (restated) (restated) Sales $201,905 $213,274 $249,308 $279,870 Cost & expenses 172,621 182,238 212,761 230,071 Charge on MD-90 contract -- 49,357 -- 35,184 General and administrative expenses 7,447 6,352 7,127 6,778 Income (loss) from operations 21,837 (24,673) 29,420 7,837 Income (loss) before extraordinary items 6,787 (20,769) 11,774 (1,160) Loss from extraordinary item - net of tax -- -- -- (2,654) Net income (loss) 6,787 (20,769) 11,774 (3,814) Primary earnings (loss) per average share of common stock $ 0.29 $ (0.79) $ 0.45 $ (0.15) Fully diluted earnings (loss) per average share of common stock $ 0.28 $ (0.79) $ 0.43 $ (0.15) =====================================================================================================
Proforma quarterly results (prior to accounting change as described in Note 2)
Year ended July 31, 1997 - ----------------------------------------------------------------------------------------------------- 1st 2nd 3rd 4th - ----------------------------------------------------------------------------------------------------- Sales $201,905 $213,274 $249,308 $279,870 Cost and expenses 178,354 188,700 214,360 241,738 Charge on MD-90 contract -- -- -- 74,105 General and administrative expenses 7,447 6,352 7,127 6,778 Income (loss) from operations 16,104 18,222 27,821 (42,751) Income (loss) before extraordinary items 3,358 4,883 10,818 (31,411) Loss from extraordinary item - net of tax -- -- -- (2,654) Net income (loss) 3,358 4,883 10,818 (34,065) Primary earnings (loss) per average share of common stock $ 0.14 $ 0.19 $ 0.42 $ (1.30) Fully diluted earnings (loss) per average share of common stock $ 0.14 $ 0.18 $ 0.39 $ (1.30) ====================================================================================================
47 (In thousands except for per share data)
Year ended July 31, 1996 - ---------------------------------------------------------------------------------------------------------------------------- 1st 2nd 3rd 4th - ---------------------------------------------------------------------------------------------------------------------------- (restated) (restated) (restated) (restated) Sales $150,400 $180,702 $203,711 $236,001 Cost and expenses 136,015 144,596 170,377 191,626 Loss on sale of aircraft subsidiary and impairment write-down - - - 12,395 General and administrative 6,728 5,247 7,336 7,922 Operating income 7,657 30,859 25,998 24,058 Net income (loss) (2,199) 8,861 8,576 7,040 Primary earnings (loss) per average share of common stock $ (0.12) $ 0.45 $ 0.38 $ 0.31 Fully diluted earnings (loss) per average share of common stock $ (0.12) $ 0.42 $ 0.36 $ 0.30 ==========================================================================================================================
Pro forma quarterly results (prior to accounting change as described in Note 2)
Year ended July 31, 1996 - ---------------------------------------------------------------------------------------------------------------------------- 1st 2nd 3rd 4th - ---------------------------------------------------------------------------------------------------------------------------- Sales $150,400 $180,702 $203,711 $236,001 Cost and expenses 131,533 159,071 177,810 206,057 Loss on sale of aircraft Subsidiary and impairment write-down - - - 12,395 General and administrative 6,728 5,247 7,336 7,922 Operating income 12,139 16,384 18,565 9,627 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) ========================================================================================================================
48 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 five meetings during fiscal 1997. L. A. Chapman R. H. Rau Senior Vice President and President and Chief Executive Officer Chief Financial Officer A. L. Majors Vice President and Controller (Chief Accounting Officer) ================================================================================ 49 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, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended July 31, 1997. 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, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended July 31, 1997, in conformity with generally accepted accounting principles. As discussed in Note 2 to the Consolidated Financial Statements, in fiscal 1997 the Company changed its accounting principle related to long-term contracts and retroactively restated the fiscal 1996 and 1995 financial statements for the change. ================================================================================ San Diego, California September 11, 1997 50 ================================================================================ SELECTED FINANCIAL DATA (in thousands except for per share data, number of employees, percentages, and ratios)
Year ended July 31, - --------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------- (restated) (restated) (restated) (restated) Results of continuing operations : Sales $ 944,357 $ 770,814 $ 805,000 $ 918,141 $1,149,503 Operating income (1) $ 34,421 $ 88,572 $ 84,226 $ 79,911 $ 4,887 Operating profit margin (1) 3.6% 11.5% 10.5% 8.7% 0.4% Income (loss) $ (3,368) $ 22,278 $ 20,211 $ 23,341 $ (26,488) Primary earnings (loss) per average share of common stock $ (0.13) $ 1.07 $ 1.11 $ 1.29 $ (1.48) Cash dividends per share of common stock - - - - - ==================================================================================================================== Financial Position at July 31: Total assets $ 883,978 $ 932,940 $ 897,930 $ 966,519 $ 908,785 Indebtedness 424,395 507,443 554,777 588,990 531,608 Net financings (2) 440,428 480,828 520,970 537,567 601,669 Shareholders' equity 246,280 175,617 97,321 56,581 73,242 Debt-to-equity ratio 1.72:1 2.89:1 5.70:1 10.41:1 7.26:1 Return on average equity - 16.3% 29.8% 39.4% - Book value per common share $ 9.72 $ 7.86 $ 5.39 $ 3.14 $ 4.07 Number of full-time employees at year end 4,600 3,800 4,000 4,900 6,500 Backlog $1,500,000 $1,200,000 $1,000,000 $1,200,000 $1,400,000 =====================================================================================================================
(1) Operating income and operating profit margin was adversely impacted by certain items and special provisions of $84.5 million in fiscal 1997, $12.4 million in fiscal 1996, $7.9 million in fiscal 1994, and $25.0 million in fiscal 1993. (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.) 51 EX-23 7 CONSENT OF 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, and 33-65447); and Form S-16 (Nos. 2-76538 and 2-76656) of Rohr, Inc., of our report dated September 11, 1997, appearing and incorporated by reference in this Annual Report on Form 10-K of Rohr, Inc., for the year ended July 31, 1997. Deloitte & Touche LLP San Diego, California September 15, 1997 EX-23.1 8 REPORT OF DELOITTE & TOUCHE EXHIBIT 23.1 September 11, 1997 To the Shareholders and Board of Directors of Rohr, Inc. We have audited the consolidated financial statements of Rohr, Inc. and its subsidiaries as of July 31, 1997 and 1996, and for each of the three years in the period ended July 31, 1997, included in your Annual Report on Form 10-K as of July 31, 1997 to the Securities and Exchange Commission and have issued our report thereon dated September 11, 1997. Note 2 to such consolidated financial statements contains a description of your adoption during the fourth quarter of the year ended July 31, 1997 of a change in accounting principle from the program method of accounting to the contract method of accounting. In our judgement, such change is to an alternative accounting principle that is preferable under the circumstances. Yours truly, DELOITTE & TOUCHE LLP EX-27 9 FINANCIAL DATA SCHEDULE
5 THIS 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-31-1997 JUL-31-1997 31,881 11,190 161,275 0 227,199 489,858 525,302 (336,538) 883,978 189,467 411,467 0 0 25,330 220,950 883,978 0 944,357 0 882,232 27,704 0 40,053 (5,632) (2,264) (3,368) 0 (2,654) 0 (6,022) (0.24) (0.24)
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