FY94: THIRD QUARTER
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MAY 1, 1994
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
(Registrant's Telephone No.)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--- ---
AS OF MAY 31, 1994, THERE WERE 18,030,430 SHARES OF THE REGISTRANT'S COMMON
STOCK OUTSTANDING.
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Page 1 of 17
PART 1. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
ROHR, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(in thousands except for share data)
------------------------------------
MAY 1, JULY 31,
1994 1993
----------- -----------
(UNAUDITED)
ASSETS
- - ------
Cash and short-term investments $ 25,985 $ 42,186
Accounts receivable 91,899 94,140
Inventories:
Work-in-process 463,305 560,139
Raw materials, purchased parts and supplies 28,078 32,575
Less customers' progress payments and advances (105,537) (152,976)
--------- ----------
Inventories - net 385,846 439,738
Prepaid expenses and other current assets 12,091 16,861
Deferred tax asset 13,723 13,654
--------- ----------
TOTAL CURRENT ASSETS 529,544 606,579
PROPERTY, PLANT AND EQUIPMENT 498,784 496,452
Less accumulated depreciation and amortization (273,122) (257,407)
--------- ----------
Property, plant and equipment - net 225,662 239,045
INVESTMENT IN LEASES 37,699 38,233
DEFERRED TAX ASSET 119,123 89,348
OTHER ASSETS 37,616 44,581
--------- ----------
$ 949,644 $1,017,786
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
Trade accounts and other payables $ 127,695 $ 166,916
Salaries, wages and benefits 35,694 38,623
Current portion of long-term debt 15,574 50,719
--------- ----------
TOTAL CURRENT LIABILITIES 178,963 256,258
LONG-TERM DEBT 466,562 480,889
PENSION AND POST-RETIREMENT OBLIGATIONS 131,509 63,040
OTHER OBLIGATIONS 27,058 35,356
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY:
Preferred stock, $1 par value per share, 10 million
shares authorized, none issued - -
Common stock, $1 par value per share, authorized
50,000,000 shares; issued and outstanding
18,009,680 and 17,995,866 shares respectively 18,010 17,996
Additional paid-in capital 102,546 102,312
Retained earnings 80,289 75,241
Minimum pension liability adjustment (55,293) (13,306)
--------- ----------
TOTAL SHAREHOLDERS' EQUITY 145,552 182,243
--------- ----------
$ 949,644 $1,017,786
========= ==========
Page 2 of 17
ROHR, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
-------------------------------------------------
(in thousands except for per share data)
----------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------- ---------------------
MAY 1, MAY 2, MAY 1, MAY 2,
1994 1993 1994 1993
-------- -------- --------- ---------
Sales $231,101 $296,781 $715,924 $ 922,785
Costs and Expenses 209,255 308,934 648,974 903,521
General & Administrative Expenses 7,286 11,214 20,732 33,662
Unusual Items 7,926 7,926
-------- -------- -------- ---------
Operating Income (Loss) 6,634 (23,367) 38,292 (14,398)
Interest Income 395 272 915 677
Interest Expense 11,436 12,890 35,637 36,065
-------- -------- -------- ---------
Income (Loss) before Taxes and Cumulative
Effect of Accounting Changes (4,407) (35,985) 3,570 (49,786)
Taxes (Benefit) on Income (1,720) (13,784) (1,478) (19,070)
-------- -------- -------- ---------
Income (Loss) before Cumulative Effect
of Accounting changes (2,687) (22,201) 5,048 (30,716)
Cumulative Effect through July 31, 1992
of accounting changes, net of taxes - - - (223,950)
-------- -------- -------- ---------
Net Income (Loss) $ (2,687) $(22,201) $ 5,048 $(254,666)
======== ======== ======== =========
Net Income (Loss) per Average
Share of Common Stock:
Before cumulative effect of
accounting changes $(0.15) $(1.24) $ 0.28 $ (1.72)
Effect through July 31, 1992
of accounting changes - - - (12.52)
-------- -------- -------- ---------
Net Income (Loss) $ (0.15) $ (1.24) $ 0.28 $ (14.24)
======== ======== ======== =========
Cash Dividends per Share
of Common Stock - - - -
Total Common Stock and
Common Stock Equivalents 18,063 17,898 18,041 17,889
Page 3 of 17
ROHR, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
-------------------------------------------------
(in thousands)
--------------
NINE MONTHS ENDED
-----------------------
MAY 1, MAY 2,
1994 1993
---------- ----------
OPERATING ACTIVITIES:
Net income (loss) $ 5,048 $(254,666)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Cumulative effect of accounting changes, net of taxes 223,950
Depreciation and amortization 17,041 18,974
Changes due to (increase) decrease in operating assets:
Accounts receivable 21,408 19,218
Net inventories 53,892 43,844
Prepaid expenses and other assets 4,060 8,202
Deferred taxes (1,618) (24,064)
Changes due to increase (decrease) in operating
liabilities:
Payables and Other Liabilities (43,391) 7,322
Other (463) 2,720
--------- ---------
Net cash provided by operating activities 55,977 45,500
--------- ---------
INVESTING ACTIVITIES:
Proceeds from sale-leaseback transactions - 52,247
Purchase of property, plant and equipment - net (3,660) (22,889)
Other 75 (1,274)
--------- ---------
Net cash provided by (used in) investing activities (3,585) 28,084
--------- ---------
FINANCING ACTIVITIES:
Issuance of 9.33% senior notes - 62,000
Annual principal payment on 9.35% senior notes (12,500) (12,500)
Repayment of medium-term notes (35,000) (10,000)
Net short-term borrowings (repayments) - (20,000)
Long-term borrowings under revolving credit
agreement 101,000 90,000
Repayment of borrowings under revolving
credit agreement (101,000) (90,000)
Repayment of other long-term borrowings (1,972) (27,370)
Net repayment of receivable and equivalents - (45,000)
Proceeds from cash values in
insurance policies - 9,984
Cash collateral for receivables sales program (19,167) -
Stock contributions to employee benefit plans - 741
Other 46 20
--------- ---------
Net cash used in financing activities (68,593) (42,125)
--------- ---------
INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS (16,201) 31,459
CASH AND SHORT-TERM INVESTMENTS,
BEGINNING OF PERIOD 42,186 21,122
--------- ---------
CASH AND SHORT-TERM INVESTMENTS,
END OF PERIOD $ 25,985 $ 52,581
========= =========
SUPPLEMENTAL INFORMATION:
Cash paid for interest, net of amounts capitalized $ 36,612 $ 33,990
Cash paid for income taxes, net of refunds 115 5,112
Page 4 of 17
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
The consolidated balance sheet as of May 1, 1994, and statements of
operations for the three month and nine month periods ended May 1, 1994 and
May 2, 1993, and cash flows for the nine month periods ended May 1, 1994,
and May 2, 1993, reflect all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary
for a fair presentation of the results of operations for the interim
periods. Financial results for interim periods are not necessarily
indicative of results to be expected for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These consolidated financial
statements should be read in conjunction with the financial statements
included in the July 31, 1993 Form 10-K.
CONTINGENCIES
In June 1987, the U.S. District Court of Los Angeles, in U.S. et al, vs.
Stringfellow, granted partial summary judgment against the Company and 14
other defendants on the issue of liability under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"). This
suit alleges that the defendants are jointly and severally liable for all
damage in connection with the Stringfellow hazardous waste disposal site in
Riverside County, California. In June 1989, a federal jury and a special
master appointed by the federal court found the State of California also
liable for the cleanup costs. On November 30, 1993, the special master
released his "Findings of Fact, Conclusions of Law and Reporting
Recommendations of the Special Master Regarding the State Share Fact Finding
Hearing". In it, he allocated liability between the State of California and
other parties. As this hearing did not involve the valuation of future
tasks and responsibilities, the order did not specify dollar amounts of
liability. The order, phrased in percentages of liability, recommended
allocating liability on the CERCLA claims as follows: 65% 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. This
special master's finding is subject to a final decision and appeal. The
Company and the other generators of wastes disposed at the Stringfellow
site,
Page 5 of 17
which include numerous companies with assets and equity significantly
greater than the Company, are jointly and severally liable for the share of
cleanup costs for which the generators, as a group, may ultimately be found
to be responsible. Notwithstanding, this 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 wastes by volume disposed at the
site, although it and certain other generators have argued the final
allocation of cleanup costs among generators should not be determined solely
by volume. The largest volume generator of wastes disposed at the
Stringfellow site has indicated it is significantly dependent on insurance
to fund its share of any cleanup costs, and that it is in litigation with
certain of its insurers.
The Company has claims against its comprehensive general liability insurers
for reimbursement of its cleanup costs at the site. These claims are the
subject of separate litigation, although the insurers nevertheless are
paying substantially all of the Company's costs of defense in the CERCLA and
State actions against the generators of wastes disposed at the site.
Certain of these insurance policies have pollution exclusion clauses which
are being argued as a defense and the insurers are alleging various other
defenses to coverage. The Company has entered settlements with some of the
insurance carriers and is engaged in settlement discussions with certain
others.
The Company intends to continue to vigorously defend itself in the
Stringfellow matter and believes, based upon currently available
information, that the ultimate resolution will not have a material adverse
effect on the financial position, liquidity, or results of operations of the
Company.
The Company is also involved in several other proceedings and investigations
related to environmental protection matters. It is difficult to estimate
the ultimate level of environmental expenditures that will be required in
connection with these matters due to a number of uncertainties, including
the complexity of the related laws and their interpretation, alternative
cleanup technologies and methods, insurance and other recoveries, and in
some cases, the extent and uncertainties of the Company's involvement.
However, the Company has heard of preliminary estimates of cleanup costs for
the Rio Bravo, Chatham Brothers and Casmalia waste disposal sites as
approximately $7 million, $30 million and $70 million, respectively, and the
Company's share (based on estimated, respective volumes of discharges into
such sites by all generators, all of which cannot now be known with
certainty) could approximate $0.5 million for the Rio Bravo site, $0 for the
Chatham Brothers site (based on the Company's belief that it never used that
site), and $1.8 million for the Casmalia site. The Company does not yet
know
Page 6 of 17
about the ability of all of the other waste generators using the Casmalia
and Rio Bravo sites to fund their allocable share, and the Company could be
found jointly or severally liable with all waste generators using such
sites. The Company has made claims against its insurance carriers for
certain of these items, and has received claims acknowledgment letters
reserving the rights of such carriers. The insurers have alleged or may
allege various defenses to coverage, although no litigation has been
commenced. Based upon presently available information, the Company believes
that capital expenditures and costs of remedial actions in relation to these
other matters will not have a material adverse effect on the financial
position or results of operations of the Company.
In 1990, the Division of Enforcement of the Securities and Exchange
Commission (the "SEC") began conducting an informal inquiry regarding
various Company production programs, program and contract estimates at
completion and related accounting practices. Following the filing of a
registration statement with the SEC, the Company received on August 17,
1993, and shortly thereafter responded to, a request for documents from the
SEC Division of Enforcement concerning its decision to change its accounting
practices relating to long-term programs and contracts, and its previous
practice of capitalizing pre-certification and certain general and
administrative costs. The Company has received no further comments from the
SEC Division of Enforcement since that date.
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.
EMPLOYEE BENEFIT PLANS AND UNUSUAL ITEMS
The Company reduced the actuarially assumed discount rate for pension plan
valuation to 7.5% for fiscal year 1994 from the 8.5% used for fiscal year
1993 in order to reflect prevailing interest rates. This increased the
Company's accrued pension benefit obligation. This change, along with
increased early retirements and market performance of trust assets,
increased the reported underfunded status of the plan by $66.6 million to a
total of $124.1 million as of May 1, 1994. This $66.6 million increase
resulted in the recognition of such amount as additional pension liability
along with a $42 million reduction to shareholders' equity, net of the
related tax benefits.
Operating income was reduced by unusual items aggregating $7.9 million,
representing the write-off of unamortized pension past service costs related
to the downsizing of employment
Page 7 of 17
levels in line with current business conditions, net of a gain on the sale
of the Auburn, Washington facility, which was closed during the prior fiscal
year.
SUBSEQUENT EVENTS
On May 19, 1994, subsequent to the close of the third quarter, the Company
completed its public offering of $100 million of 11.625% Senior Notes due
May 15, 2003 and the concurrent public offering of $50 million of 7.75%
Convertible Subordinated Notes due May 15, 2004. On June 9, 1994, the
Company was notified that Salomon Brothers Inc, the underwriter for the
offerings, had elected to exercise its over-allotment option to purchase an
additional $7.5 million of Convertible Subordinated Notes.
Approximately $64 million of the net proceeds from these offerings was used
to repay all amounts outstanding under the Company's revolving credit
agreement. The remaining proceeds will be used for general corporate
purposes.
Both series of notes are general unsecured obligations of the Company paying
interest semi-annually commencing November, 1994 and do not have sinking
fund requirements. The Convertible Subordinated Notes are convertible at
the option of the holder at any time prior to maturity into shares of the
Company's common stock at a conversion price of $10.35 per share.
Effective upon the issue date of the new Notes, the Company amended the
revolving credit agreement extending the credit commitment through April,
1997. The revised commitment is initially for $110 million and steps down
by $10 million every six months beginning October 1995 until it reaches $80
million. This credit facility matures in April 1997. This amendment, as
well as amendments to other of the Company's principal financing agreements,
revised the existing financial covenant levels and removed the requirement
that the Company issue $100 million of subordinated debt on or prior to
August 1, 1994.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Presented below is management's analysis of operating results for the three
month and nine month periods ended May 1, 1994 and May 2, 1993. Also
presented are material developments in the Company's liquidity and capital
resources since July 31, 1993. These discussions should be read in
conjunction with the financial statements and management's discussion and
analysis thereof included in the Company's July 31, 1993 Form 10K.
Page 8 of 17
First Nine Months Fiscal 1994 Compared to First Nine Months Fiscal 1993
Total sales for the first nine months of fiscal year 1994 were $715.9
million, down $206.9 million or 22.4% from the first nine months of fiscal
year 1993. Commercial sales during the first nine months of fiscal year
1994 were down compared to the same period of fiscal year 1993 due primarily
to reductions in deliveries. Government sales for the comparative period
declined due primarily to a reduction in the delivery rate on the Titan
program. Commercial sales aggregated 87% and government sales 13% of the
Company's total sales in the first nine months of fiscal year 1994, very
similar to the prior year.
Operating income for the first nine months of fiscal year 1994 was $38.3
million. Operating income was reduced by unusual items aggregating $7.9
million, representing the write-off of unamortized pension past service
costs related to the downsizing of employment levels in line with current
business conditions, net of a gain on the sale of the Auburn, Washington
facility, which was closed during the prior fiscal year. Operating income
before the unusual items was $46.2 million for the first nine months of
fiscal year 1994 compared to an operating loss of $14.4 million for the same
period of fiscal year 1993. A significant contributor to improved operating
income was reduced general and administrative expenses which declined $13.0
million from $33.7 million for the first nine months of fiscal 1993 to $20.7
million in the first nine months of fiscal 1994. The decline was primarily
the result of downsizing and other ongoing cost cutting efforts. Fiscal
1994 results are being adversely impacted by a reduction in sales volume on
several programs. Fiscal 1993 results were impacted by losses on tooling
and design efforts, and cost problems related to certain programs including
the V2500. In addition, fiscal 1993 results were negatively impacted by a
$25.0 million net provision for asset and liability valuations and
litigation uncertainties. During and shortly following the third quarter of
fiscal 1994, several of these litigation uncertainties were settled with the
U.S. Air Force and U.S. Government at amounts in line with provisions
previously established.
Net interest expense was $34.7 million for the first nine months of fiscal
year 1994 compared to $35.4 million for the same period last year. While
total debt has declined, interest rates paid by the Company have increased
primarily due to the replacement of certain variable rate financings with
long-term fixed rate financings.
Net income for the first nine months of fiscal year 1994 was a positive $5.0
million or 28 cents per share compared to a loss of $30.7 million or $1.72
per share (before the cumulative effect of the accounting change described
below) for the same period last year. The net impact of the unusual items
described above was to reduce net income for the nine months of fiscal 1994
by
Page 9 of 17
$4.8 million or 27 cents per share. The increase in federal income tax
rates resulting from the Omnibus Budget Reconciliation Act, implemented in
August 1993, increased net income by $2.8 million and earnings per share or
16 cents. Excluding unusual items and the positive impact of the tax act,
earnings would have been 39 cents per share for the nine months of fiscal
1994.
The first nine months of fiscal year 1993 were also impacted by a loss of
$223.9 million, net of taxes, or $12.52 per share, due to the cumulative
effect for the changes in the application of accounting principles through
July 31, 1992, adopted on a retroactive basis in the third quarter of fiscal
year 1993.
Third Quarter of Fiscal 1994 Compared to Third Quarter of Fiscal 1993
Total sales during the third quarter of fiscal 1994 were $231.1 million
compared to $296.8 million in the third quarter of the fiscal year 1993.
Commercial sales during the third quarter of fiscal 1994 were down compared
to the same period of fiscal 1993 due primarily to reduction in deliveries.
Government sales for the comparable period declined due primarily to a
reduction in the delivery rate on the Titan program. Commercial sales
aggregated 84% and government sales 16% of the Company's total sales in the
third quarter of fiscal year 1994.
Operating income for the third quarter of fiscal 1994, excluding the impact
of unusual items described in the previous section, was $14.5 million,
representing an operating margin of 6.3 percent. Including unusual items of
$7.9 million, operating income was $6.6 million for the third quarter.
Operating income was impacted by the factors discussed in the previous
section.
Additional Items
In fiscal 1993, the IRS issued a Revenue Agent's Report challenging the
Company's adoption in 1984 of the Completed Contract Method of Accounting
("CCMA"), the Company's tax deduction for funding liabilities related to a
Voluntary Employee Benefit Association ("VEBA") and certain other matters.
During the third quarter of fiscal 1994, the IRS conceded that the Company
was entitled to use CCMA. The Company is negotiating a resolution of the
remaining adjustment issues with the IRS. The Company believes that the
resolution of these remaining issues will not have a material adverse effect
on the Company and its financial position.
Government (military and space) sales accounted for approximately 13% of the
Company's total sales for the nine months ended May 1, 1994 and for the
fiscal year ended July 31, 1993. The
Page 10 of 17
Company expects that the percentage of Company revenues attributable to
government sales will decline in future years. The production rate for the
Titan rocket motor casing program, which accounted for 5.9% of revenues in
fiscal 1993, is expected to decline substantially in response to market
demand. In addition, another company's alternative technology casing
approach may allow it to become a leading competitor in the market for this
product in the future. The Company's military sales are primarily
associated with older programs which are being phased out of production.
Following the end of the third quarter, the Company reached an agreement
with International Aero Engines on the V2500 program for Airbus A319, A320,
A321 aircraft under which the Company will continue to manufacture key
program components and provide total system support. Retention of this
program under mutually agreeable contractual terms was a key objective of
the Company.
LIQUIDITY AND CAPITAL RESOURCES
For the first nine months of fiscal year 1994, net cash provided by
operating activities totaled $56.0 million compared to $45.5 million during
the first nine months of fiscal year 1993. Net cash provided by operations
for the three months ended May 1, 1994 totaled $11.0 million. During the
three months ended May 2, 1993, net cash provided by operating activities
totaled $81.1 million due to several large receipts for tooling, engineering
changes and similar non-recurring expenses, as well as the receipt of
certain amounts that had been deferred pending aircraft certification. Net
cash provided by operations is subject to significant variations from period
to period.
The Company's total debt at May 1, 1994 aggregated $482.1 million, a
decrease of $49.5 million from $531.6 million on July 31, 1993. This
reduction was primarily the result of a scheduled repayment of the medium
term note for $35 million in October, 1993 and the annual scheduled
principal payment of $12.5 million in January, 1994 on its 9.35% Senior
Notes due 2000. At May 1, 1994, the Company had $50 million of borrowings
under its committed revolving credit agreement, the same amount borrowed at
July 31, 1993. Total financings, which include balance sheet indebtedness
and off-balance sheet financings, aggregated $572.6 million at May 1, 1994,
down $71.3 million from July 31, 1993. In addition to the decline in debt
reported on the balance sheet, this decrease reflects a temporary reduction
to the receivables financing program as discussed below.
Page 11 of 17
The Company is a party to a $60.0 million accounts receivable facility under
which it sells receivables from specified customers on an on-going basis.
Due to the slow down in the aerospace industry, the amount of outstanding
receivables from these customers has fallen below levels which existed at
the start of the facility. As a result, the Company has elected to deposit
cash collateral from time to time as required to support the facility and
has withdrawn such cash when it is no longer required to be deposited. At
May 1, 1994 the Company had $19.2 million of cash collateral on deposit.
The Company is also a party to certain equipment leases and has granted the
lessors a security interest in selected customer receivables to secure $10
million of obligations. If the parties who lease this equipment to the
Company do not assign approximately one-half of their beneficial interests
in the leased equipment to other parties by January 1995, the equipment
lessors may require the Company to prepay up to $10 million of its equipment
lease obligations.
In order to enhance liquidity and improve its financial flexibility, the
Company adopted a financing plan with the objective of increasing long-term
financing and extending the Company's revolving credit agreement. On May
19, 1994, subsequent to the close of the third quarter, the Company
completed its public offering of $100 million of 11.625% Senior Notes due
May 15, 2003 and the concurrent public offering of $50 million of 7.75%
Convertible Subordinated Notes due May 15, 2004. On June 9, 1994, the
Company was notified that Salomon Brothers Inc, the underwriter for the
offerings, had elected to exercise its over-allotment option to purchase an
additional $7.5 million of Convertible Subordinated Notes.
Approximately $64 million of the net proceeds from these offerings was used
to repay all amounts outstanding under the Company's revolving credit
agreement. The remaining net proceeds will be used for general corporate
purposes.
Both series of notes are general unsecured obligations of the Company paying
interest semi-annually commencing November, 1994 and do not have sinking
fund requirements. The Convertible Subordinated Notes are convertible at
the option of the holder at any time prior to maturity into shares of the
Company's common stock at a conversion price of $10.35 per share.
Effective upon the issue date of the new Notes, the Company amended the
revolving credit agreement extending the credit commitment through April,
1997. The revised commitment is initially for $110 million and steps down
by $10 million every six months beginning October 1995 until it reaches $80
million. This credit facility matures in April 1997. This amendment, as
well as amendments to other of the Company's principal financing agreements,
revised the existing financial covenant levels and removed the requirement
that the Company issue $100 million of subordinated debt on or prior to
August 1, 1994.
Page 12 of 17
During the third quarter, the Company renewed a letter of credit securing
its obligations to the State of California in connection with its self-
insured workers' compensation program. A second letter of credit, which
supports $16.5 million of industrial development bonds, will expire in July,
1994. In connection with this pending expiration, the Company will
repurchase the bonds from the existing holders and is preparing to re-market
the bonds to new holders.
The Company has been negotiating the sale of several non-core assets which
are not material to its business. In March 1994, the Company completed the
sale of its Auburn, Washington plant which had been closed in fiscal year
1993. In addition, on June 13, 1994, subsequent to the end of the fiscal
quarter, the Company completed the sale of its corporate jet product line.
The Company is continuing to negotiate the sale of its business for the
overhaul and repair of nacelle and thrust reverser components. The corporate
jet product line and the overhaul and repair business generated
approximately $25 million and $10 million, respectively, of revenues in the
fiscal year ended July 31, 1993.
As previously announced, the Company reduced the actuarially assumed
discount rate used to calculate the accrued benefit obligation for its
pension plans from 8-1/2% used in the prior year to 7-1/2%. This reduction
was made to reflect prevailing interest rates. This change, along with
increased early retirements and market performance of trust assets,
increased the reported underfunded status of the plans by $66.6 million to a
total of $124.1 million as of May 1, 1994. This $66.6 million increase
resulted in the recognition of such amount as additional pension liability
along with a $42 million reduction to shareholders' equity, net of the
related tax benefits.
The Company's net inventory decreased to $385.8 million at May 1, 1994 from
$439.7 million at July 31, 1993. Production inventory declined as a result
of the claims settlement on the U.S. Air Force contracts, a slowdown in
delivery schedules and the efforts of management to control inventory levels
through shorter lead and cycle times and just-in-time contracts with
suppliers. Excess-over-average inventory declined reflecting the increased
maturity of newer programs. These reductions were partially offset by an
increase in pre-production inventory, primarily in the MD-90, A340, PW4000
and V2500 programs. Customer progress payments and advances declined
primarily as a result of the claims settlement on the U.S. Air Force
contracts.
Capital expenditures for property, plant and equipment totaled $3.7 million
for the first nine months of fiscal year 1994, down from $22.9 million in
the first nine months of fiscal year 1993. Capital expenditures in the
first nine months of fiscal year 1993 were higher due in large part to
expenditures for new office and manufacturing facilities. In addition, the
Company has substantially curtailed its previously planned capital
expenditures for the balance of fiscal year 1994 in line with other cost
cutting efforts and anticipates such expenditures will not exceed an average
of $20 million per year over the subsequent four years. Given its
substantial recent
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investments, the Company believes that the amount it plans to spend on
capital expenditures over the next several years will be sufficient to meet
the Company's production requirements.
The Company's firm backlog, which includes the sales price of all
undelivered units covered by customers' orders for which the Company has
production authorization, was approximately $1.3 billion at May 1, 1994
compared to $1.4 billion at July 31, 1993. Approximately $0.2 billion of
the $1.3 billion backlog is expected to be delivered in the remainder of
fiscal year 1994. (Sales during any period include certain sales which were
not part of backlog at the end of the prior period.) Customer orders in
firm backlog are subject to rescheduling and/or termination for customer
convenience; however, in certain cases the Company is entitled to an
adjustment in contract amounts. The Company has an additional $2.6 billion
in anticipated backlog, which represents the sales price of units which the
Company expects that its customers will order under existing contracts and
the Company will deliver within seven years.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
Under the terms of the Company's three-year revolving credit agreement, as
amended after the end of the third quarter of fiscal 1994, the
Company may not pay dividends on its common stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits:
4.3.2 Second Amendment Agreement, dated as of
September 24, 1993, to Note Agreement dated as
of January 15, 1990.
4.3.3 Third Amendment Agreement, dated as of May 10,
1994, to Note Agreement dated as of January 15,
1990.
4.4.1 Second Amendment Agreement, dated as of
September 24, 1993, to Note Agreement dated as
of December 21, 1992.
4.4.2 Third Amendment Agreement, dated as of May 10,
1994, to Note Agreement dated as of December 21,
1992.
4.5 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.
4.6 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.
10.11.6 Sixth Amendment to Bank Credit Agreement, dated
as of September 24, 1993.
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10.11.7 Seventh Amendment to Bank Credit Agreement,
dated as of May 10, 1994.
10.13.3 Amendment Agreement, dated as of September
24, 1993.
10.13.4 Amendment Agreement, dated as of May 10, 1994.
11.1 Calculation of Primary Net Income Per Share of
Common Stock
11.2 Calculation of Fully Diluted Net Income Per
Share of Common Stock
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during this period. However, on May
4, 1994 a report on Form 8-K, dated May 2, 1994, was filed by the Company
under Item 5, "Other Events" discussing (i) the settlement of all
contractors disputes between the Company and the U.S. Air Force and (ii) the
settlement of the civil and criminal claims concerning an investigation by
the Los Angeles office of the U.S. Attorney.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROHR, INC.
June 13, 1994 By:/S/ A. L. MAJORS
----------------
A. L. Majors
Vice President and Controller
(Chief Accounting Officer)
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