FY95: SECOND 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 JANUARY 29, 1995
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 ___
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AS OF FEBRUARY 17, 1995, THERE WERE 18,053,932 SHARES OF THE REGISTRANT'S COMMON
STOCK OUTSTANDING.
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PART 1. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
ROHR, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(in thousands except for share data)
------------------------------------
JAN. 29, JULY 31,
1995 1994
----------- -----------
ASSETS (Unaudited)
- ------
Cash and cash equivalents $ 68,426 $ 115,996
Short-term investments - 17,568
Accounts receivable 102,680 93,143
Inventories:
Work-in-process 445,525 444,076
Raw materials, purchased parts and supplies 22,089 23,441
Less customers' progress payments and advances (77,587) (104,321)
---------- ----------
Inventories - net 390,027 363,196
Deferred tax asset 36,353 36,353
Prepaid expenses and other current assets 13,017 18,493
---------- ----------
TOTAL CURRENT ASSETS 610,503 644,749
PROPERTY, PLANT AND EQUIPMENT 525,012 500,037
Less accumulated depreciation and amortization (299,141) (277,974)
---------- ----------
Property, plant and equipment - net 225,871 222,063
INVESTMENT IN LEASES 35,477 37,145
DEFERRED TAX ASSET 96,278 97,135
OTHER ASSETS 55,126 55,755
---------- ----------
$1,023,255 $1,056,847
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Trade accounts and other payables $ 133,682 $ 129,674
Salaries, wages and benefits 29,971 37,100
Taxes on income 2,746 2,343
Current portion of long-term debt 14,212 14,952
---------- ----------
TOTAL CURRENT LIABILITIES 180,611 184,069
LONG-TERM DEBT 574,237 574,038
LONG-TERM PENSION AND POST-RETIREMENT OBLIGATIONS 98,070 125,004
OTHER OBLIGATIONS 17,736 26,827
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY:
Preferred stock, $1 par value per share, authorized 10 million
shares; none issued - -
Common stock, $1 par value per share, authorized
50,000,000 shares; issued and outstanding
18,053,932 and 18,041,680 shares respectively 18,054 18,042
Additional paid-in capital 102,822 102,598
Retained earnings 87,624 82,168
Minimum pension liability adjustment (55,899) (55,899)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 152,601 146,909
---------- ----------
$1,023,255 $1,056,847
========== ==========
2
ROHR, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF EARNINGS - UNAUDITED
-----------------------------------------------
(in thousands except for per share data)
----------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- ---------------------
JAN. 29, JAN. 30, JAN. 29, JAN. 30,
1995 1994 1995 1994
-------- ---------- --------- ----------
(Restated) (Restated)
Sales $219,774 $234,800 $411,930 $471,891
Costs and expenses 195,499 214,766 365,742 427,830
General & administrative expenses 6,289 5,986 12,849 13,446
-------- -------- -------- --------
Operating income 17,986 14,048 33,339 30,615
Interest income 861 208 1,976 520
Interest expense 13,409 12,050 27,587 24,201
-------- -------- -------- --------
Income from continuing operations
before taxes on income 5,438 2,206 7,728 6,934
Taxes (benefit) on income 2,186 865 3,107 (168)
-------- -------- -------- --------
Income from continuing operations 3,252 1,341 4,621 7,102
Income from discontinued operations -
net of taxes 337 331 835 633
-------- -------- -------- --------
Net income $ 3,589 $ 1,672 $ 5,456 $ 7,735
======== ======== ======== ========
NET INCOME PER SHARE:
PRIMARY:
Income from continuing operations $ 0.18 $ 0.07 $ 0.26 $ 0.39
Income from discontinued operations 0.02 0.02 0.04 0.04
-------- -------- -------- --------
Net income $ 0.20 $ 0.09 $ 0.30 $ 0.43
======== ======== ======== ========
ASSUMING FULL DILUTION:
Income from continuing operations $ 0.17 $ 0.07 $ 0.25 $ 0.39
Income from discontinued operations 0.01 0.02 0.04 0.04
-------- -------- -------- --------
Net income $ 0.18 $ 0.09 $ 0.29 $ 0.43
======== ======== ======== ========
Cash dividends per share
of common stock $ - $ - $ - $ -
======== ======== ======== ========
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ROHR, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
-------------------------------------------------
(in thousands)
--------------
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- --------------------
JAN. 29, JAN. 30, JAN. 29, JAN. 30,
1995 1994 1995 1994
--------- --------- --------- ---------
OPERATING ACTIVITIES:
Net income $ 3,589 $ 1,672 $ 5,456 $ 7,735
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 5,589 6,048 10,775 11,693
Changes due to (increase) decrease in operating assets:
Accounts receivable (7,309) 4,435 (4,040) 6,998
Inventories - net 4,004 19,600 (21,786) 27,584
Prepaid expenses and other assets 1,324 2,711 5,466 1,322
Changes due to increase (decrease) in operating liabilities:
Trade accounts and other payables (5,326) (12,070) (2,506) (18,453)
Pension and post-retirement obligations 3,360 2,768 (29,896) 6,184
Taxes on income and deferred taxes 152 1,061 1,260 364
Other 1,693 1,436 4,406 2,316
-------- -------- -------- --------
Net cash provided by (used in) operating activities 7,076 27,661 (30,865) 45,743
-------- -------- -------- --------
INVESTING ACTIVITIES:
Sale of short-term investments 17,568 - 17,568 -
Repurchase of sale/leaseback assets (21,782) - (21,782) -
Purchase of property, plant and equipment (1,401) (1,474) (2,940) (2,949)
Net advances on discontinued operations (776) - (5,045) -
Other 1,261 840 1,953 (390)
-------- -------- -------- --------
Net cash used in investing activities (5,130) (634) (10,246) (3,339)
-------- -------- -------- --------
FINANCING ACTIVITIES:
Repayment of medium-term notes - - - (35,000)
Annual principal payment on 9.35% senior notes - (12,500) - (12,500)
Long-term borrowings under revolving credit agreement - 25,000 - 81,000
Repayment of borrowings under revolving credit agreement - (35,000) - (81,000)
Repayment of other long-term borrowings (969) (943) (1,617) (649)
Cash collateral for receivable financing program (4,692) (6,984) 14,503 (6,984)
Reduction in sales of receivable financing program - - (20,000) -
Other (124) (310) 655 (689)
-------- -------- -------- --------
Net cash used in financing activities (5,785) (30,737) (6,459) (55,822)
-------- -------- -------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (3,839) (3,710) (47,570) (13,418)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 72,265 32,478 115,996 42,186
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 68,426 $ 28,768 $ 68,426 $ 28,768
======== ======== ======== ========
SUPPLEMENTAL INFORMATION:
Cash paid for interest, net of amounts capitalized $ 11,439 $ 5,253 $ 26,095 $ 21,353
Cash paid (refunded) for income taxes 1,336 113 1,149 (178)
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ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
The consolidated balance sheet as of January 29, 1995, and statements of
earnings and cash flows for the second quarter and six months ended January
29, 1995, and January 30, 1994, reflect all adjustments (consisting only of
normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the results of operations for the
interim periods. Financial results for interim periods are not necessarily
indicative of results to be expected for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These consolidated financial
statements should be read in conjunction with the financial statements
included in the Form 10-K for the year ended July 31, 1994.
The consolidated statements of earnings for the second quarter and six-
months ended January 30, 1994, have been restated to separately reflect
discontinued operations.
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 damages
in connection with the Stringfellow hazardous waste disposal site in
Riverside County, California. A federal jury and a special master appointed
by the federal court found the State of California also liable for the
cleanup costs and, subsequently, the special master allocated a high
percentage of liability to the State of California. On January 23, 1995,
the U.S. District Court judge confirmed the special master's finding;
however, this decision is subject to appeal. 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 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 have been
paying substantially all of the Company's costs of defense in the actions by
the government against the generators of wastes disposed at the site.
Certain of these insurance policies have pollution exclusion clauses which
have been argued as a defense and the insurers have alleged various other
defenses to coverage. The Company has entered settlements with some of the
insurance carriers and has reached agreement in principle with all of
5
the remaining primary carriers. The Company is also engaged in discussions
with certain of the excess carriers to resolve the existing litigation.
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.
During November 1994 through January 1995, inspections of commercial
aircraft revealed a cracked spar cap on two wing pylons. The Company has
warranted these applications to its customer. Investigation indicates that
the wing pylon spar caps, which were sourced, assembled and supplied by a
major subcontractor to the Company, did not receive a required process step.
Analysis and testing show that there are no airworthiness or safety of
flight concerns with continued aircraft operations. A replacement program
will be implemented in a timely manner. The Company expects that replacement
would ordinarily occur during regular scheduled maintenance. The spar caps
will require replacement on approximately 120 aircraft over a period of two
years. The wing pylon is warranted to Rohr by its subcontractor and the
Company believes that the cost of removing and replacing the spar cap
components for the wing pylon, which is expected to approximate $325,000 per
aircraft, will be primarily the responsibility of the subcontractor. The
Company, its customer and the subcontractor are still investigating repair
alternatives and costs.
In addition, the Company acquired materials directly from the spar cap
materials supplier, a small company with limited financial resources. Some
of these materials were not processed to specifications before use in
various aircraft applications. The Company has warranted these applications.
With respect to these other applications, no failures have been noted to
date and no determination has been made relative to the need for replacement
or repair, if any, that may be required.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's analysis of operating results for the second quarter and six-
months ended January 29, 1995, and January 30, 1994, is presented below.
Material developments in the Company's liquidity and capital resources since
July 31, 1994, are also presented. These discussions should be read in
conjunction with the financial statements and management's discussion and
analysis thereof included in the Company's Form 10-K for the fiscal year
ended July 31, 1994.
6
RESULTS OF OPERATIONS
First Six-Months Fiscal Year 1995 Compared to First Six-Months Fiscal Year
1994
Sales from continuing operations declined 13% from $471.9 million in the
first six months of fiscal 1994 to $411.9 million for the same period in
fiscal 1995, primarily due to previously announced delivery rate reductions
on several commercial programs. Commercial sales aggregated 86% and
government sales 14% of the Company's total sales in the first six months of
fiscal year 1995 compared to 88% commercial and 12% government for the
comparable period the prior year. The Titan program, which is included in
government sales and which accounted for approximately 5% of the Company's
sales in the first six months of fiscal 1995, is scheduled to end in fiscal
1996.
The Company reported operating income of $33.3 million, an operating margin
of 8.1%, for the first six months of fiscal 1995 compared to $30.6 million,
an operating margin of 6.5%, for the same period of the prior year. This
increase in operating income reflects improved results on some programs and
the Company's continuing cost cutting efforts. Results were negatively
impacted by cost problems on the CF6-80E1 program. General and
administrative expenses declined $0.6 million from $13.4 million for the
first six months of fiscal 1994 to $12.8 million for the first six months of
fiscal 1995.
Net interest expense was $25.6 million for the first six months of fiscal
1995 compared to $23.7 million for the first six months of fiscal 1994. The
increase of $1.9 million was due primarily to the Company's new long-term
debt.
Net income from continuing operations for the first six-months of fiscal
1995 was $4.6 million or 26 cents per share compared to $7.1 million or 39
cents per share for the first six months of fiscal 1994. The first six
months of the prior fiscal year was positively impacted by the Omnibus
Budget Reconciliation Act, which reduced tax expense and correspondingly
increased net income by $2.8 million or 16 cents a share.
During the fourth quarter of the prior fiscal year, the Company sold and
commenced the transfer of its business jet line of business and accounted
for the sale as a discontinued operation. The purchase agreement requires
the Company to manufacture and deliver certain components and transfer
engineering and tooling through fiscal 1995. Residual income from
discontinued operations totaled $0.8 million or 4 cents per share for the
first six months of fiscal 1995 compared with $0.6 million or 4 cents per
share for the same period of the prior fiscal year.
7
Total net income for the first six months of fiscal 1995 was $5.4 million or
30 cents per share as compared with $7.7 million or 43 cents per share for
the same period of the prior fiscal year.
Second Quarter Fiscal Year 1995 Compared to Second Quarter Fiscal Year 1994.
Sales during the second quarter of fiscal 1995 were $219.8 million, compared
to $234.8 million in the same period of fiscal 1994 due primarily to
previously announced delivery rate reductions on several commercial
programs. Commercial sales aggregated 90% and government sales 10% of the
Company's total sales in the second quarter of fiscal year 1995 compared to
86% commercial and 14% government for the comparable period of the prior
year.
The Company reported operating income of $18.0 million, an operating margin
of 8.2% for the second quarter of fiscal 1995 compared to $14.0 million, an
operating margin of 6.0%, for the same period of the prior fiscal year.
Operating income increased $4.0 million from the second quarter of fiscal
1994 due to improved results on some programs and the Company's continuing
cost cutting efforts, which more than offset cost problems on the CF6-80E1
program.
Net interest expense was $12.5 million for the second quarter of fiscal 1995
compared to $11.8 million for the second quarter of fiscal 1994. The
increase of $0.7 million was due primarily to the Company's new long-term
debt.
Net income from continuing operations for the second quarter of fiscal 1995
was $3.3 million or 18 cents per share compared to $1.3 million or 7 cents
per share for the second quarter of fiscal 1994.
Total net income for the second quarter of fiscal 1995 was $3.6 million or
20 cents per share compared to $1.6 million or 9 cents per share for the
same period of the prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
At January 29, 1995, the Company had $68.4 million of cash and cash
equivalents and had a $110 million revolving credit agreement with no
amounts outstanding. The total amount available under the credit agreement
is reduced by a $16.9 million letter of credit.
Net cash used in operating activities for the first six months of fiscal
1995 was $30.9 million compared to net cash provided by operating activities
of $45.7 million for the first six months of the prior fiscal year. Fiscal
1995 use of cash included a $36 million contribution to the
8
Company's pension plans and an increase in inventory caused by investments
in preproduction engineering and tooling, discussed below. Net cash provided
by operating activities in the second quarter of fiscal 1995 totaled $7.1
million compared with net cash used in operating activities of $37.9 million
for the first quarter of fiscal 1995. Net cash provided by operations is
subject to significant variations from period to period.
The Company's total financings (balance sheet debt plus off-balance sheet
financings) aggregated $641.9 million at January 29, 1995, a decrease of
$29.2 million from July 31, 1994.
The Company is a party to certain equipment leases, treated as off-balance
sheet financings, totaling $25.5 million at January 29, 1995. During the
second quarter of fiscal 1995, the Company restructured a major sale
leaseback agreement, reducing the size of this financing by approximately
$22 million. In connection with this restructuring, the equipment lessors
released their interest in certain Company equipment and receivables and
released the Company from its potential obligation to prepay up to $10
million of equipment lease rentals.
The Company is also a party to a $40.0 million accounts receivable facility,
treated as an off-balance sheet financing, under which it sells receivables
from specified customers on an on-going basis. Due to the slowdown in the
aerospace industry, the amount of outstanding receivables from these
customers falls from time to time below levels required to support the
facility. As a result, the Company has elected to deposit cash collateral
when necessary to support the facility and has withdrawn such cash when it
is no longer required to be deposited. At January 29, 1995, $12.0 million
of cash collateral was on deposit.
The Company's net inventory increased from $363.2 million at July 31, 1994
to $390.0 million at January 29, 1995. Production inventory has declined,
however, this decline has been offset by an increase in pre-production
inventory primarily due to the start up of the MD-90 program, change
activity on the A340 program, and investment in cost reduction efforts on
the PW4000 program. Unliquidated progress payments have declined due
primarily to the phase-out of the Space Division.
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 $1.0 billion at January 29,
1995, compared to $1.2 billion at July 31, 1994. Approximately $0.3 billion
of the $1.0 billion backlog is expected to be delivered in the remainder of
fiscal 1995. (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 equitable adjustment
in contract amounts. The Company has an additional $2.7 billion in
anticipated backlog, which
9
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 1. LEGAL PROCEEDINGS
The French subsidiary of the Company received an unfavorable result in
litigation filed against it during the second quarter in the Counseil des
Prud-hommes in Toulouse, France. The action was brought by 24 employees
asking that they be restored to their employment, which had been terminated
a year earlier due to reduced workload at the plant. The total number who
had been terminated was approximately 100. This decision is now on appeal
before the Tribunal de Grand Instance de Toulouse, France, the Superior
Court. These proceedings involve a new trial, as this court is not bound by
the decision of the lower court. The employees are still seeking
reinstatement and/or damages in this proceeding before the Superior Court.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Index to Exhibits:
* 3.8 Bylaws of Rohr, Inc., as amended December 3, 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.
*27. Financial Data Schedule. (Filed with EDGAR filing only.)
(b) Reports on Form 8-K
There were no reports on Form 8-K during this period.
(c) Exhibits required by Item 601 of Regulation S-K:
See subparagraph (a) above.
(d) Financial Statements required by Regulation S-X:
See subparagraphs (a) and (b) above.
___________________________
*Exhibits filed with this report.
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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.
February [ ], 1995 By:/S/ L. A. CHAPMAN
-----------------------
L. A. Chapman
Senior Vice President, Chief Financial
Officer and Treasurer
February [ ], 1995 By:/S/ A. L. MAJORS
-----------------------
A. L. Majors
Vice President and Controller
(Chief Accounting Officer)
13