ITEM 1 - BUSINESS --------
Bear Stearns Asset Backed Securities, Inc. (the "Company") was organized by, and is a direct wholly-owned limited purpose finance subsidiary of The Bear Stearns Companies Inc. (the "Parent"). The Company was incorporated in the State of Delaware on June 2, 1995.
The Company was formed solely for the purpose of issuing directly or through trusts established by it, in series, debt securities that are secured or collateralized by one or more pools of Compound Interest Securities, Planned Amortization Class ("PAC") Securities, Variable Interest Securities, Zero Coupon Securities, Principal Only Securities, Interest Only Securities, Participants Securities, Senior Securities or Subordinate Securities.
ITEM 2

ITEM 2 - PROPERTIES ----------
The Company owns no physical properties.
ITEM 3

ITEM 3 - LEGAL PROCEEDINGS -----------------
No legal proceedings are pending.
ITEM 4

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ---------------------------------------------------
Pursuant to General Instruction J of Form 10-K, the information required by Item 4 is omitted.
PART II
ITEM 5

ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ---------------------------------------------------------------- ----
There is no established public trading market for the common equity of the Company. All of the issued and outstanding shares of such common equity are owned by the Parent.
ITEM 6

ITEM 6 - SELECTED FINANCIAL DATA -------------------------
Pursuant to General Instruction J of Form 10-K, the information required by Item 6 is omitted.
ITEM 7

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS -----------------------------------
The Company's principal business activity is the issuing, directly or through trust established by it, in series, debt securities that are secured or collateralized by one or more pools of Compound Interest Securities, Planned Amortization Class ("PAC") Securities, Variable Interest Securities, Principal Only Securities, Interest Only Securities, Participants Securities, Senior Securities or Subordinate Securities. The Company's net loss for the fiscal year ended June 30, 1996 was $16,868. During the fiscal year ended June 30, 1996 the Company was the depositor for certificates issued by Champion Home Equity Loan Trust 1996-1 and 1996-2.
ITEM 8

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA --------------------------------------------
The financial statements required by this Item and included in this Report are listed in the index appearing on page.
ITEM 9

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURE --------------------
None
PART III
ITEM 10

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT --------------------------------------------------
Pursuant to General Instruction J of Form 10-K, the information required by Item 10 is omitted.
ITEM 11

ITEM 11 - EXECUTIVE COMPENSATION ----------------------
Pursuant to General Instruction J of Form 10-K, the information required by Item 11 is omitted.
ITEM 12

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT --------------------------------------------------------------
Pursuant to General Instruction J of Form 10-K, the information required by Item 12 is omitted.
ITEM 13

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ----------------------------------------------
Pursuant to General Instruction J of Form 10-K, the information required by Item 13 is omitted.
PART IV
ITEM 14

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K ----------------------------------------------------------------
(a) List of Financial Statements, Financial Statement Schedules and Exhibits:
Financial Statements --------------------
The financial statements required to be filed hereunder are listed on page hereof.
Financial Statement Schedules -----------------------------
The financial statement schedules required to be filed hereunder are listed on page hereof.
Exhibits --------
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Company filed the following current reports on Form 8-K during the last quarter of the period covering this report:
A Current Report on Form 8-K dated April 25, 1996, pertaining to information on Distribution to Certificateholders in connection with the Champion Home Equity Loan Trust 1996-1.
A Current Report on Form 8-K dated May 25, 1996 pertaining to information on Distribution to Certificateholders in connection with the Champion Home Equity Loan Trust 1996-1.
A Current Report of Form 8-K dated June 25, 1996 pertaining to Information on Distribution to Certificateholders in connection with the Champion Home Equity Loan Trust 1996-1.
A Current Report of Form 8-K dated June 25, 1996 pertaining to information on Distribution to Certificateholders in connection with the Champion Home Equity Loan Trust 1996-2.
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, on the 25th day of September, 1996.
Bear Stearns Asset Backed Securities, Inc. (Registrant)
By: /s/ William J. Montgoris William J. Montgoris Executive Vice President and Treasurer (Principal Financial Officer)
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 indicated on the 25th day of September, 1996.
Signatures Title
/s/ Patricia Jehle President and Chief Operating Patricia Jehle Officer; Director
/s/ Warren Spector Warren J. Spector Director
BEAR STEARNS ASSET BACKED SECURITIES INC.
Page
Independent Auditors' Report
Statement of Financial Condition as of June 30, 1996
Statement of Operations for the fiscal year ended June 30, 1996
Statement of Changes in Stockholder's Equity for the fiscal year ended June 30, 1996
Statement of Cash Flows for the fiscal year ended June 30, 1996
Notes to Financial Statements
Financial Statement Schedules are omitted because they are not applicable or the requested information is included in the financial statements or notes thereto.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder, Bear Stearns Asset Backed Securities Inc.:
We have audited the accompanying statement of financial condition of Bear Stearns Asset Backed Securities Inc. (a wholly owned subsidiary of The Bear Stearns Companies Inc.) as of June 30, 1996, and the related statement of income, cash flows, and changes in stockholder's equity for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these finanacial statements based on our audit.
We conducted our audit 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 audit provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of Bear Stearns Asset Backed Securities Inc. at June 30, 1996, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles.
Deloitte & Touche LLP New York, New York September 24, 1996
Page BEAR STEARNS ASSET BACKED SECURITIES, INC. STATEMENT OF FINANCIAL CONDITION
June 30, ASSETS
Assets Receivable from affiliates $ 31,705 Deferred organization costs 137,701 ------- Total Assets 169,406 -------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities Payable to Parent $121,519 Other liabilities 63,755 ------- Total Liabilities $185,274 -------
Stockholder's Equity Common stock, $1.00 par value; 1,000 shares authorized; 1,000 shares outstanding 1,000
Accumulated deficit (16,868) -------- Total Stockholder's Equity (15,868) --------
Total Liabilities and Stockholder's Equity $169,406 ========
See notes to financial statements.
Page BEAR STEARNS ASSET BACKED SECURITIES, INC. STATEMENT OF OPERATIONS
Fiscal Year Ended June 30,
Revenues Principal transactions $(30,000) -------- Total revenues (30,000) --------
Expenses Other expenses 678 -------- Total expenses 678 --------
Loss before benefit from income taxes (30,678) -------- Benefit from income taxes (13,810) -------- Net loss $(16,868) ========
See notes to financial statements.
Page
BEAR STEARNS ASSET BACKED SECURITIES, INC. STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
Common Stock Accumulated $1 Par Value Deficit ------------- -------------
Balance, June 30, 1995 $1,000 $ --
Net loss ______ (16,868) -------
Balance, June 30, 1996 $1,000 $(16,868) ====== ========
See notes to financial statements.
Page BEAR STEARNS ASSET BACKED SECURITIES, INC. STATEMENT OF CASH FLOWS
Fiscal Year Ended June 30,
CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(16,868) Increases in: Deferred organization costs (137,701) Receivable from affiliates (31,705)
Increases in: Other liabilities 63,755 ---------- Cash used in operating activities (122,519) ----------
CASH FLOWS FROM FINANCING ACTIVITIES Payable to Parent 121,519 Capital Contributions from Parent 1,000 ----------
Cash provided by financing activities 122,519 ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ - ==========
See notes to financial statements.
Page BEAR STEARNS ASSET BACKED SECURITIES, INC. NOTES TO FINANCIAL STATEMENTS
Note 1. Organization
Bear Stearns Asset Backed Securities, Inc. (the "Company") was organized by, and is a direct wholly-owned limited purpose finance subsidiary of The Bear Stearns Companies Inc. (the "Parent"). The Company was incorporated in the State of Delaware on June 2, 1995. These financial statement amounts include its operations and cash flows since that date.
The Company was formed solely for the purpose of issuing directly or through trusts established by it, in series, debt securities that are secured or collateralized by one or more pools of Compound Interest Securities, Planned Amortization Class ("PAC") Securities, Variable Interest Securities, Zero Coupon Securities, Principal Only Securities, Interest Only Securities, Participants Securities, Senior Securities or Subordinate Securities.
Note 2. Summary of Significant Accounting Policies
The Company's principal business activity is the issuing, directly or through trust established by it, in series, debt securities that are secured or collateralized by one or more pools of compound Interest Securities, Planned Amortization Class ("PAC") Securities, Variable Interest Securities, Principal Only Securities, Interest Only Securities, Participants Securities, Senior Securities or Subordinate Securities.
The financial statements are prepared in conformity with generally accepted accounting principles which require management to make estimates and assumptions that affect the amounts in the financial statements and accompanying notes. Actual results could differ from those estimates.
The Company is included in the consolidated federal income tax return of the Parent. Income tax expense is computed on a separate company basis. The Company accounts for income taxes under the provision of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109, deferred income taxes are provided based upon the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities. In addition, deferred income taxes are determined using the enacted tax rates and laws which will be in effect when the related temporary differences are expected to be reversed.
For purposes of reporting cash flows, the Company has defined cash equivalents as liquid investments not held for sale in the ordinary course of business.
Note 3. Income Taxes
The difference between the Company's effective tax rate and the statutory federal income tax rate is the effect of state and local income taxes.


ITEM 1. BUSINESS - -----------------
GENERAL
Rohr, Inc., (the "Company"), incorporated in Delaware in 1969, is the successor to a business originally established in 1940 under the name of Rohr Aircraft Corporation. The Company, a leading aerospace supplier, provides nacelle and pylon systems integration, design, development, manufacturing, and support services to the aerospace industry worldwide. The Company focuses its efforts on the market for commercial aircraft which seat 100 or more passengers. Its principal products include nacelles, which are the aerodynamic structures or pods that surround an aircraft's engines; thrust reversers, which are part of the nacelle system and assist in the deceleration of jet aircraft after landing; pylons (sometimes referred to as struts) which are the structures that attach the jet engines or the propulsion system to the aircraft; noise suppression systems; engine components; and structures for high-temperature environments. In addition, the Company conducts product research and development in advanced composites and metals, high-temperature materials, acoustics, and manufacturing processes for existing and future applications.
The Company sells products and services to the three major commercial airframe manufacturers (Boeing, Airbus, and McDonnell Douglas) and to the five major jet engine manufacturers (General Electric, Pratt & Whitney, Rolls-Royce, CFM International, and International Aero Engines). In addition, the Company has the right on certain programs to provide customer and product support directly to airline operators and service centers around the world, including on-site field services and the sale of spare parts. The Company's commercial and government (military and space) products represented 92% and 8%, respectively, of its sales in the fiscal year ended July 31, 1996.
The Company has over 50 years of experience in the aerospace industry. Originally, the Company operated as a subcontractor to the airframe manufacturers, building parts to the customer's design. Later, it began to build to its own designs based on customer specifications. Eventually, the Company also began operating as a subcontractor to the engine manufacturers who then provided the engine with nacelle to the airframe manufacturers. In the 1980s, the Company significantly expanded its role in many newer programs by becoming a systems integrator for nacelle systems with responsibility for the integration and management of the design, tooling, manufacture, and delivery of complete nacelle systems, directing the efforts of international consortia in some cases. As a result of this range of experience, the Company can provide many different levels of service to its customers depending upon their needs. The Company can build to the customer's design, assist in that design, or assume total responsibility for design, manufacture, integration and product support. In addition, over the last several years, the Company has expanded its services to the airlines through the direct sale of spare parts, the provision of technical support and training, and the operation of repair and overhaul facilities.
Products
General. The Company designs and manufactures nacelle systems, nacelle ------- components, pylons or struts, non-rotating components for jet engines, and other components for commercial and military aircraft. A nacelle system generally includes the nose cowl or inlet, fan cowl, nozzle systems and thrust reverser. The nacelle houses electrical, mechanical, fluid, and pneumatic systems together with various panels, firewalls, and supporting structures; the aircraft engine (which is provided by the customer); and purchased or customer-furnished engine equipment such as electrical generators, starters, fuel pumps and oil coolers. The Company also performs engine build-ups ("EBU") by assembling nacelle systems and the related electrical, mechanical, fluid and pneumatic systems onto core aircraft engines.
Commercial. The Company has become a systems integrator, with ---------- responsibility for the integration and management of the design, tooling, manufacture, and delivery of the complete nacelle or pylon system, including in some cases sale of spare parts directly to the aircraft operator.
The Company has full systems integration responsibility for the complete nacelle with thrust reverser, and performs substantial manufacturing for the McDonnell Douglas MD-80, the Pratt & Whitney PW4000 series engine option for the McDonnell Douglas MD-11 and the Airbus A310 and A300-600. In some cases, while retaining full systems integration responsibility for the nacelle and thrust reverser, the company has subcontracted certain major components. These programs include the CFM International CFM56-5 nacelle program and the International Aero Engines (an international consortium) nacelle program (excluding inlet and fan cowl), both of which engines are being competitively marketed for the Airbus A319, A320 and A321; the CFM International-powered Airbus A340; and the McDonnell Douglas MD-90 aircraft. The company also has responsibility for the wing and tail pylon program for the McDonnell Douglas MD-11 aircraft, and has subcontracted the wing pylon manufacture and assembly.
The Company manufactures the thrust reverser, nozzle, pylons and fan cowl for Rolls-Royce engine options for the Boeing 757; the pylon for the Pratt engine option for the Boeing 757; the nacelle without thrust reverser for the CF6-80C2, which is the General Electric engine option for the Airbus A310 and A300-600 and McDonnell Douglas MD-11; the nacelle without thrust reverser for the CF6-80E1, which is the General Electric engine option for the A330; nacelle components, including the nose cowl, fan cowl, and extension ring, for the Boeing 737; and the aft fan case nozzle and plug for the General Electric GE 90 engine option for the Boeing 777. Major components produced by the Company for the General Electric CF6-80C2 nacelle are also used on the Boeing 747 and 767.
The role of systems integrator, while broadening the Company's business base in the commercial aerospace industry, typically requires a substantial investment in working capital and subjects the Company to increased market risk relative to the ultimate success of such programs. In those cases where the Company has in turn, subcontracted the design and production of major components (CFM56-5, V2500, MD-90, A340 and the wing pylon for the MD-11) to foreign and domestic companies, some of the risks associated with such programs have been passed on to those subcontractors. However, the Company's performance and ultimate profitability on these programs is dependent on the performance of its subcontractors, including the timeliness and quality of their work, as well as the ability of the Company to monitor and manage its subcontractors. See "Subcontractors".
In June 1995, the Company finalized an agreement with Boeing to design, tool and manufacture the inlet and fan cowls for the Boeing 737-700 aircraft. In July 1996, the Company delivered the first inlets and fan cowls for the aircraft.
In February 1996, BMW Rolls-Royce Aero Engines selected the Company to be the nacelle system integrator for the new MD-95 aircraft. Delivery of development hardware is scheduled to start in fiscal 1997.
In September 1996, the Company announced that it will manufacture modification kits for the re-engining of existing Boeing 727 aircraft with new Pratt & Whitney JT8D-217C/219 engines. The program, designated the "Super 27," consists of new nacelles, struts, engine mounts and thrust reversers.
Government (Military and Space). For military aircraft, the Company ------------------------------- manufactures nacelles for the Lockheed C-130 propjet transport aircraft on which final deliveries of production hardware were completed in fiscal year 1996 and nacelle components for re-engining of existing Boeing KC-135 military aerial refueling tankers. For the U.S. space program, the Company substantially completed deliveries in fiscal year 1996 of solid fuel rocket motor nozzles and insulated casings which are used on the Titan Space Launch Vehicle. The Company is providing technical support in designing the engine bay doors for the U.S. Air Force tactical fighter aircraft. As a member of the Lockheed Martin team which was selected in July 1996 by NASA to build and fly a sub-scale demonstrator X-33 Single-Stage-to-Orbit ("SSTO") reusable launch vehicle, the Company will be responsible for the SSTO's thermal protection system design, fabrication and operability improvements. The Company will employ its proprietary thermal protection system on the entire exterior of the X-33 except for the rockets, control jets and vertical tails.
The Company's government business has declined in recent years and the Company expects the percentage of its revenues attributable to government sales to decline further in future years. The extent of future sales under military programs is dependent, among other things, upon continued government funding.
Spare Parts. The Company sells spare parts for both military and ----------- commercial aircraft, including those for aircraft in use but no longer in production. Such sales from continuing operations were approximately $178.5 million in fiscal 1996, $142.5 million in fiscal 1995, and $148.9 million in fiscal 1994.
Historically, the Company has sold spare parts for commercial programs to airframe or engine manufacturers which then resold them to the end user. However, under several major programs, the Company now has the right to sell spare parts directly to airlines (although on certain programs royalty payments to its customers are required). The contracts that grant these rights to the Company generally require that the Company provide technical and product support directly to the airlines. Thus, on certain programs, the Company has the right to provide customer and product support directly to approximately 150 airline operators and service centers worldwide. The Company's direct sales of spare parts to the airlines are expected to increase in the future as nacelle programs on which the Company sells spare parts directly to the airlines mature and as the aircraft using those nacelles age. Generally, the Company earns a higher margin on the direct sale of spare parts to airlines than it does on the sale of spare parts to prime contractors (for resale to the airlines). Prices for direct spare part sales are higher than prices for spare parts sold to prime contractors, in part, because of additional costs related to the technical and customer support activities provided to the airlines.
Other Activities. The Company also manufactures other components for ---------------- military and commercial jet aircraft, including the nozzle and plug used on the Rolls-Royce-powered versions of the Boeing 747 and 767 and the Airbus A330, and the acoustical ducts and/or acoustic panels for the Pratt & Whitney engine used on the McDonnell Douglas MD-80 and the Boeing 757.
The Company has been performing nacelle modification and integration services for Pratt & Whitney, installing Boeing 757 nacelles under a Pratt & Whitney license, on the PW2000 series engine for use on the former Soviet Union's IL-96M/T transport aircraft. Pratt & Whitney has entered into a contract with Boeing for additional nacelles and is negotiating final arrangements with the Company for additional modification and integration services.
CONTRACTS
Most of the Company's major commercial contracts establish a firm unit price, subject to cost escalation, over a number of years or, in certain cases, over the life of the related program. Life-of-program agreements generally entitle the Company to work as a subcontractor in the program during the entire period the customer produces its aircraft or engine. While the customer retains the right to terminate these long-term and life-of-program arrangements, there are generally significant costs for doing so. The Company has experienced pressures from customers to reduce prices. In response, the Company has incorporated or is in the process of incorporating design changes on certain programs, allowing for a more cost effective manufacture of certain products, and is exerting pressure on its own suppliers to reduce prices.
The Company's long-term contracts generally contain escalation clauses for revising prices based on published indices which reflect increases in material and labor costs. Furthermore, in almost all cases, when a customer orders production schedule revisions (outside of a range provided in the contract) or design changes, the contract price is subject to adjustment. These long-term contracts provide the Company with an opportunity to obtain increased profits if the Company can perform more efficiently than it assumed at the time of pricing. Conversely, there is the potential for significant losses if it cannot produce the product for the agreed upon price.
The Company's other commercial contracts generally provide a fixed price for a specified number of units which, in many cases, are to be delivered over a specified period of time. Under these contracts, prices are re-negotiated for each new order. As a result, the Company has the opportunity to negotiate price increases for subsequent units ordered if production costs are higher than expected. The Company's customers, however, may seek price reductions from the Company in connection with any new orders they place.
On its longer-term contracts, the Company bases initial production prices on estimates of the average cost for a block of the units which it believes will be ordered. Generally, production costs on initial units are substantially higher during the early years of a new contract or program, when the efficiencies resulting from learning are not yet fully realized, and decline as the program matures. Learning typically occurs on a program as tasks and production techniques become more efficient through repetition of the same manufacturing operation and as management implements actions to simplify product design and improve tooling and manufacturing techniques. If the customer orders fewer than the expected number of units within a specified time period, certain of the Company's contracts have repricing clauses which increase the prices for units that have already been delivered. However, other contracts do not include such repricing provisions and force the Company to bear certain market risks. The Company analyzes the potential market for the products under such contracts and agrees to prices based on its estimate of the average estimated costs for the units it expects to deliver under the program.
Many of the Company's contracts have provided for the recovery of a specified amount of nonrecurring, pre-production costs, consisting primarily of design and tooling costs. In some cases, a significant portion of such pre-production costs have been advanced by the customer. However, in negotiating some contracts, the Company has agreed to defer recovery of pre-production costs and instead to recover a certain amount of such costs with the sale of each production unit over an agreed number of production units plus spares equivalents. In addition, on some of these contracts, based on its analysis of the potential market for the products covered by such contracts, the Company agreed to amortize pre-production costs over a number of units which was larger than the anticipated initial fabrication orders without the protection of a repricing clause or guaranteed quantities of orders. On other commercial contracts, the Company receives advance payments with orders, or other progress or advance payments, which assist the Company in meeting its working capital requirements for inventories. To reduce such funding requirements and market risks, the Company has subcontracted substantial portions of several of its programs. See "Subcontractors".
In accordance with practices in the aircraft industry, most of the Company's commercial orders and contracts are subject to termination at the convenience of the customer and on many programs the tooling and design prepared by the Company are either owned by the customer or may be purchased by it at a nominal cost. The contracts generally provide, upon termination of firm orders, for reimbursement of costs incurred by the Company, plus a reasonable profit on the work performed. The costs of terminating an entire contract or program can be significantly greater for the customer than the costs of terminating specific firm orders. All of the Company's government contracts are subject to termination at the convenience of the government. In such a situation, the Company is entitled to recover the costs it incurred prior to termination, plus a reasonable profit on the work performed.
Under all contracts, the Company may encounter, and on several programs from time to time has encountered, preproduction and/or production cost overruns caused by increased material, labor or overhead costs, design or production difficulties, increased quality requirements, redefined acceptance criteria on government programs, and various other factors such as technical and manufacturing complexity. The Company seeks recovery of such cost overruns from the customer if they are caused by the action or inaction of the customer; otherwise, such cost overruns will be, and in many cases have been, borne by the Company.
Incident to the manufacture and sale by the Company of its products, the Company is subject to possible liability by reason of (i) warranties against defects in design, material and workmanship; (ii) potential product liability responsibility arising out of the use of its products; and (iii) strict liability arising from the disposal of certain wastes covered by environmental protection laws. The Company also has varying contractual obligations to maintain the ability to produce and service spare parts as long as there are specified numbers of aircraft still in operation. Many of the Company's contracts provide remedies ranging from actual damages to specified daily penalties for late deliveries of products.
SUBCONTRACTORS
The competitive market has required the Company to make substantial financial investments in programs on which it participates. Both to reduce the burden and risk of such financial investments, and also in some cases to participate in foreign programs, the Company has further subcontracted the design, development and production of substantial portions of several of its major components to other foreign and domestic corporations. In return, those
companies provided a portion of the investment and assumed a portion of the risk associated with various of the Company's programs. The Company's performance and ultimate profitability on these programs is dependent on the performance of its subcontractors, including the timeliness and quality of their work, as well as the ability of the Company to monitor and manage its subcontractors.
PROGRAM FUNDING
The highly competitive nature of the aerospace market has required the Company to commit substantial financial resources, largely for working capital, to participate with its customers on certain long-term programs. Those working capital requirements consist primarily of nonrecurring pre-production costs such as design and tooling, recurring costs for inventories and accounts receivables.
In some cases, a significant portion of the pre-production costs have been advanced by the customer. However, in negotiating some contracts, the Company has agreed to defer recovery of pre-production costs and instead to recover a certain amount of such costs with the sale of each production unit over an agreed number of production units plus spares equivalents. On some commercial contracts, the Company receives advance payments with orders, or other progress or advance payments, which assist the Company in meeting its working capital requirements for inventories. On government contracts, the Company receives progress payments for both pre-production and inventory costs. To reduce both its pre-production funding requirements and the build-up of program inventories, the Company has entered into agreements with subcontractors to provide a portion of the program funding needs and has subcontracted to these entities substantial portions of many of its programs. See "Subcontractors." Advances and progress payments have varied in the past and are subject to change in the future based on changes in both commercial and government procurement practices and governmental regulations. Any future change could affect the Company's need for program funding.
Accounts receivable balances vary in accordance with various payment terms and other factors including the periodic receipt of large payments from customers for reimbursement of non-recurring costs or for amounts which had been deferred pending aircraft certification.
The Company's primary sources of program funding have been funds generated from operations and borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" in the Company's 1996 Annual Report to Shareholders. With respect to new programs which are developed, the Company anticipates that it may team with partners, or obtain financial commitments from one or more qualified subcontractors, prior to entering bids for work.
PRINCIPAL CUSTOMERS
For a discussion of the Company's sales to its principal customers, see "Notes to the Consolidated Financial Statements" in the Company's 1996 Annual Report to Shareholders, Note 3--"Accounts Receivable--Sales."
BACKLOG
The Company's backlog is significant to its business because the production of most Company products involves a long lead time from order to shipment date. Firm backlog
represents the sales price of all undelivered units covered by customer orders. Firm backlog includes units ordered by a customer although the Company and the customer have not yet agreed upon a sales price. In such cases, the Company records in backlog an amount it believes (based upon all available information) is a reasonable price estimate.
The Company's firm backlog at July 31, 1996, was approximately $1.2 billion, compared to $1.0 billion at July 31, 1995. Of such backlog, approximately $700 million is scheduled for delivery on or before July 31, 1997, with the balance to be delivered in subsequent periods. A portion of the Company's expected sales for fiscal 1997 is not included in firm backlog.
All of the Company's firm backlog is subject to termination or rescheduling at the customer's convenience. The Company's contracts generally provide for reimbursement of costs incurred, plus a reasonable profit on such costs, with respect to any firm orders that are terminated. Historically, it has been rare for a customer to cancel units in firm backlog because of its obligations to the Company with respect to such units and its obligations to suppliers of components other than nacelles and pylons, who frequently are producing concurrently components for use with the units ordered from the Company.
COMPETITION
The Company's principal competition is Boeing (which in addition to being a Company customer also manufactures nacelle systems and pylons for its own aircraft), other significant aerospace corporations who have development and production experience with respect to portions of the nacelle system, and the companies to whom the Company has subcontracted various components and who could (and have) bid on contracts in competition with the Company. Military aerospace contractors are also potential competitors, as excess capacity created by reductions in defense spending could cause some of these contractors to look to expand in commercial markets.
Because of recent reductions in demand in the aircraft manufacturing industry, excess production capacity exists in the market for a number of the Company's principal products, which may result in increasingly intense price competition for orders. While the Company believes it competes effectively, there can be no assurance that the Company can maintain its share of the market for these products.
The Company believes that its capabilities and technology, which range from research and development through component design and testing, flight certification assistance, component production and integration and airframe production line assistance, contribute significantly to its market position. The Company also believes that its contractual rights to participate on programs for long periods of time or, in some cases, over the life of programs also contribute to the maintenance of its market position.
Even with respect to its shorter term contracts, the Company is likely to continue working as a subcontractor for the prime contractors well beyond the end of the existing shorter term contracts. The Company has long standing relationships with all of its significant customers. The Company's continued participation on existing programs provides cost advantages to the prime contractors because it avoids the cost of disassembling, moving, reassembling and recalibrating the customized tooling used to manufacture aerospace products which would be necessary if a program were transferred to a new subcontractor at the end of a short-term contract. In addition, the delays inherent in such a transfer are likely to disrupt the prime contractor's own production schedule as the flow of deliveries from the subcontractor is
interrupted during the transfer. It is also generally more expensive for a new subcontractor to begin producing products in the middle of an existing program than it is for the Company to continue producing the required products. A new subcontractor's employees must learn program specific tasks with which the Company's employees will already be familiar. As a result of all of these factors, it is unusual for a prime contractor to shift a major aerospace subcontract from one manufacturer to another at the end of a short-term contract.
Competitive factors include price, quality of product, design and development capability combined with the ability to quickly bring a product to market, ability to consistently achieve scheduled delivery dates, manufacturing capabilities and capacity, technical expertise of employees, the desire or lack thereof of airframe and engine manufacturers to produce certain components in- house, and the willingness, and increasingly the ability, of the Company and other nacelle manufacturers to accept financial and other risks in connection with new programs.
RAW MATERIALS AND SUPPLIERS
The principal raw materials used by the Company are sheet, plate, rod, bar, tubing, and extrusions made of aluminum, steel, Inconel and titanium; electrical wire; rubber; adhesives; and advanced composite products. The principal purchased components are aircraft engine equipment, custom machined parts, sheet metal details, and castings and forgings. All of these items are procured from commercial sources. Supplies of raw materials and purchased parts historically have been adequate to meet the requirements of the Company. However, from time to time, shortages have been encountered, particularly during high industry production and demand. While the Company endeavors to assure the availability of multiple sources of supply, there are many instances in which, either because of a customer requirement or the complexity of the item, the Company may rely on a single source. The failure of any of these single source suppliers or subcontractors to meet the Company's needs could seriously delay production on a program. The Company monitors the delivery performance, product quality and financial health of its critical suppliers, including all of its single source suppliers. Over the last ten years, which includes the period from 1987 through 1991 when the Company's sales grew rapidly, there have been occasions of periodic, short-term delays from suppliers, but none of these delays has had a material adverse effect on the Company or its ability to deliver products to its customers.
EMPLOYEES
At July 31, 1996, the Company had approximately 3,800 full-time employees, of whom approximately 1,016 were represented by the International Association of Machinists and Aerospace Workers under agreements which expire on February 15, 2000; approximately 110 were represented by the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America under an agreement which expires on October 29, 2000; and approximately 15 were represented by the International Union of Operating Engineers under an agreement which expires on June 25, 2000. The Company considers its relationship with its employees generally to be satisfactory.
ENVIRONMENTAL MATTERS
As an international aerospace manufacturing corporation, the Company is subject to foreign, federal, state and local laws and regulations that limit the discharge of pollutants into the air, soil and water and establish standards for the treatment, storage and disposal of
hazardous wastes. If the Company were to violate or otherwise to have liability pursuant to any of these laws or regulations, it could be subject to judicial or administrative enforcement proceedings requiring the Company to investigate the nature and extent of any pollution it caused, to remediate such pollution, to install control devices in its manufacturing facilities to reduce the amount of pollutants entering the environment and to otherwise respond to orders and requests of the courts and the various regulatory agencies. These proceedings could result in the Company expending additional funds to satisfy judicial or regulatory decisions. The Company does not believe that its environmental risks are materially different from those of comparable manufacturing companies. Nevertheless, the Company cannot provide assurances that environmental laws will not adversely affect the Company's operations and financial condition in the future. Environmental risks are generally excluded from coverage under the company's current insurance policies. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Environmental Matters" and "Notes to the Consolidated Financial Statements, Note 8, Commitments and Contingencies," in the Company's 1996 annual report to shareholders. See, also, Item 3, "Legal Proceedings," in this report.
The Company is involved in several proceedings and investigations related to waste disposal sites and other environmental matters. See Item 3, "Legal Proceedings," for a discussion of these matters, and additional suits and matters that are pending or have been threatened against the Company.
Based upon presently available information, the Company believes that aggregate costs in relation to all environmental matters of the Company will not have a material adverse effect on the Company's financial condition, liquidity, results of operations or capital expenditures.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are designed to improve its existing products and manufacturing processes, to enhance the competitiveness of its new products, and to broaden the Company's aerospace product base.
Most of its product development is funded through regular production contracts and other agreements, several of which are funded by the U.S. government. The Company developed the world's first all composite nacelle and its large cascade thrust reverser under such contracts. The Company also performs self-funded research and development through which it developed proprietary products which control noise and prevent ice formation on nacelles.
The Company seeks research and development contracts from the U.S. government and from commercial customers in targeted areas of interest such as composite materials and advanced low-cost processing and joining of new materials. From time to time, the Company also enters into joint research and development programs with its customers.
PATENTS AND PROPRIETARY INFORMATION
The Company has obtained patents and developed proprietary information which it believes provide it with a competitive advantage. For example, the Company holds patents on the DynaRohr family of honeycomb sound attenuation structures, the state-of-the-art RohrSwirl system which prevents ice formation on the leading edges of nacelles, and bonding processes for titanium and other metals. In addition, the Company has developed proprietary information covering such matters as nacelle design, sound attenuation, bonding of metallic and advanced
composite structures, material specifications and manufacturing processes. The Company protects this information through invention agreements with its employees and confidentiality agreements with third parties. Although the Company believes that its patents and proprietary information allow it to produce superior products, it also believes that the loss of any such patent or disclosure of any item of proprietary information would not have a material adverse effect on the Company.
MANUFACTURING
The Company's products are manufactured and assembled at its facilities in the United States and Europe by an experienced work force. The Company considers its facilities and equipment generally to be in good operating condition and adequate for the purpose for which they are being used. In addition, it has a substantial number of raw material suppliers and numerous subcontractors to produce components, and in some cases, major assemblies.
The Company's European final assembly sites, which are located adjacent to the Company's major European customer, Airbus, allow the Company to respond quickly to customer needs. The Company believes that these European sites provide it with advantages in obtaining certain contracts with Airbus because they allow the Company to perform a portion of the required work in Europe.
OVERHAUL AND REPAIR FACILITIES
The Company has three overhaul and repair facilities which have been officially certified by the Federal Aviation Administration ("FAA") of the U. S. Department of Transportation to operate as FAA-approved repair stations. The facilities are located in Fairhope, Alabama; Toulouse, France; and Loyang, Singapore. The Singapore facility is jointly owned by the Company and Singapore Aerospace Manufacturing Pte., Ltd. With the recent authorization of the Singapore facility by the Civil Aviation Authority of Singapore to perform overhaul and repair work, the Company has the full capability to overhaul and repair nacelles and thrust reversers for airlines operating virtually anywhere in the world.
In September 1996 the Company announced plans to expand its current European overhaul and repair presence by opening an overhaul and repair facility in Prestwick, Scotland in December 1996.
MISCELLANEOUS
No material portion of the Company's business is considered to be seasonal.
ITEM 2.

ITEM 2. PROPERTIES - -------------------
All owned and leased properties of the Company are generally well maintained, in good operating condition, and are generally adequate and sufficient for the Company's business. The Company's properties are substantially utilized; however, due to the downturn in the aerospace industry, the Company has excess manufacturing capacity. All significant leases (except for leases associated with industrial revenue bond financings) are renewable at the
Company's option on substantially similar terms, except for increases of rent which must be negotiated in some cases.
The following table sets forth the location, principal use, approximate size and acreage of the Company's major production facilities. Those which are owned by the Company and its subsidiaries are owned free of material encumbrances, except as noted below:
The above table does not include a 44,000 square foot service center located in Singapore which is owned jointly by the Company and Singapore Aerospace Manufacturing Pte. Ltd.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS - --------------------------
A. Accounts receivable and inventories include estimated recoveries on constructive change claims that the Company has asserted with respect to costs it incurred as a result of government imposed redefined acceptance criteria on several government subcontracts. In connection with the Grumman subcontract, the Company filed Appeal No. 47139 (filed February 7, 1994) before the Armed Service Board of Contract Appeals ("ASBCA"). In connection with the Boeing E3/E6 subcontract, the Company filed Appeal No. 47430, (filed April 11, 1994) before the ASBCA. In the above appeals, the Company's customers are sponsors of the claims, the U.S. Navy is the defendant, and the Company is claiming monetary damages. Management believes that the amounts reflected in the financial statements are within the range of estimates of the amounts for which these matters will be resolved. The resolution of these matters may take several years. See "Notes to the Consolidated Financial Statements, Note 3", contained in the Company's 1996 Annual Report to Shareholders.
B. In June 1987, the U.S. District Court of Los Angeles, in U.S. et al. vs. Stringfellow (United States District Court for the Central District of California, Civil Action No. 83-2501 (JMI)), granted partial summary judgment against the Company and 14 other defendants on the issue of liability under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"). This suit, along with related lawsuits, alleges that the defendants are jointly and severally liable for all damage in connection with the Stringfellow hazardous waste disposal site in Riverside County, California. In June 1989, a federal jury and a special master appointed by the federal court found the State of California also liable for the cleanup costs. On November 30, 1993, the special master released his "Findings of Fact, Conclusion of Law and Reporting Recommendations of the Special Master Regarding the State Share Fact Finding Hearing". In it, he allocated liability between the State of California and other parties. As this hearing did not involve the valuation of future tasks and responsibilities, the order did not specify dollar amounts of liability. The order, phrased in percentages of liability, recommended allocating liability on the CERCLA claims as follows: 65% to the State of California and 10% to the Stringfellow entities, leaving 25% to the generator/counterclaimants (including the Company) and other users of the site (or a maximum of up to 28% depending on the allocation of any Stringfellow entity orphan share). On the state law claims, the special master recommended a 95% share for the State of California, and 5% for the Stringfellow entities, leaving 0% for the generator/counterclaimants. The special master's recommendation is subject to a final decision and appeal. The Company and other generators of wastes disposed at the Stringfellow site, which include numerous companies with assets and equity significantly greater than the Company, are jointly and severally liable for the share of cleanup costs for which the generators, as a group, ultimately are found to be responsible. Notwithstanding, CERCLA liability is sometimes allocated among hazardous waste generators who used a waste disposal site based on the volume of hazardous waste they disposed of at the site. The Company is the second largest generator of wastes disposed at the site by volume, although it and certain other generators have argued the final allocation among generators of their shares of cleanup costs should not be determined solely by volume. The largest generator of
wastes disposed at the Stringfellow site, by volume, has indicated it is significantly dependent on insurance to fund its share of any cleanup costs, and that it is in litigation with certain of its insurers. The Company intends to continue to defend vigorously these matters and believes, based on currently available information, that the ultimate resolutions of these matters will not have a material adverse effect on the financial position or results of operations of the Company.
The Company filed claims against its comprehensive general liability insurers for reimbursement of its cleanup costs at the Stringfellow site. These claims are the subject of separate litigation, United Pacific Insurance Co., et al. vs. Rohr Industries, Inc., et al., No. C634195 in the Los Angeles Superior Court. The Company has reached settlements with its primary comprehensive general liability insurance carriers and has retained the right to file future claims against its excess carriers.
C. In December 1989, the Maryland Department of the Environment ("MDE") served the Company with a Letter and Consent Order No. CO-90-093. The Consent Order calls for investigation and remediation of chemicals detected in soil and ground water at the Company's bonding facility in Hagerstown, Maryland. The Company and MDE subsequently negotiated a mutually acceptable Consent Order under which the Company has developed a work plan to determine the nature and extent of the pollution at the bonding plant. The Company had acquired the bonding plant from Fairchild Industries, Inc. ("Fairchild"), in September 1987 and Fairchild had agreed to retain responsibility for and to indemnify the Company against any claims and fees in connection with any hazardous materials or pollutants released into the environment at or near the bonding plant or any other property before the closing date of the sale. On March 11, 1993, the Company and Fairchild executed a settlement agreement pursuant to which Fairchild substantially reimbursed the Company for past costs relating to environmental investigations at the bonding plant. The parties also agreed on a procedure to perform the work required under the MDE Consent Order. Based on currently available information, the Company believes that the resolution of this matter will not have a material adverse effect on the financial position or results of operations of the Company.
D. In July 1994, the Department of Toxic Substances Control of the State of California Environmental Protection Agency ("DTSC") filed an action against the Company and other individuals and companies in the U. S. District Court for the Eastern District of California, Case No. CV-F-94-5683-GEB DLB, seeking, among other things, recovery of response costs approximating $1.3 million plus interest and attorney fees. The demand for payment, which is joint and several, is for expenses allegedly incurred by DTSC personnel in the oversight of the cleanup of the Rio Bravo deep injection well disposal site in Shafter, California. The cleanup is currently being conducted by a group of cooperating potentially responsible parties ("PRPs"), including the Company ("the Cooperating PRPs"). In January 1996, the DTSC and the Cooperating PRPs settled the monetary claim for a reduced amount. In addition, the Cooperating PRPs have agreed to plug and abandon the deep injection well which will resolve the last remaining cleanup issues. Based on currently available information,
the Company believes that the resolution of this matter will not have a material adverse effect on the financial position or results of operations of the Company.
E. During fiscal 1993, Region IX of the United States Environmental Protection Agency ("EPA") named the Company as a generator of hazardous wastes that were transported to the Casmalia Resources Hazardous Waste Management Facility (the "Casmalia Site") in Casmalia, California. In July 1996 the Company and approximately 50 other cooperating generators executed a Consent Decree and an Administrative Order on Consent which obligated the cooperating generators to perform, jointly and severally, certain responsive actions at the Casmalia Site prior to the entry of the Consent Decree. The Company does not yet know the ability of all other PRPs at this site, which include companies of substantial assets and equity, to fund their allocable share. Some PRPs have made preliminary estimates of cleanup costs at this site of approximately $60 to $70 million and the Company's share (based on estimated, respective volumes of discharge into such site by all generators, all of which cannot now be known with certainty) could approximate $1.8 million. Based on currently available information, the Company believes that the resolution of this matter will not have a material adverse effect on the financial position or results of operations of the Company.
F. By letter dated July 14, 1994, the Company was notified by the State of Washington's Department of Ecology that the Department believes the Company to be a "potentially liable person" ("PLP") under the Model Toxics Control Act of the Revised Code of Washington. The Company is alleged to have arranged for the disposal or treatment of a hazardous substance or arranged with a transporter for disposal or treatment of a hazardous substance at a facility in Washington known as the Yakima Railroad Area. The Department has made a written determination that the Company is a PLP. In June 1996, the Department advised the Company that it has been drafting a uniform settlement offer to be extended individually to the PLPs, specifically, those who, like the Company, allegedly shipped carbon to the site. The settlement will be based on pounds of PCE- containing carbon shipped to the site. The Department anticipates that the settlement program will be ready to implement in or about September 1996. Based on currently available information, the Company believes that the resolution of this matter will not have a material adverse effect on the financial position or results of operations of the Company.
G. In July 1996 the United States Environmental Protection Agency ('EPA") advised the Company that it was working under the Superfund program to investigate and clean up contamination from hazardous substances, particularly polychlorinated biphenyls (PCBs), volatile organic compounds (VOCs), and waste oils from the Hayford Bridge Groundwater Superfund Site located in St. Charles, Missouri. The EPA further advised the Company that business records from the site operator indicated that the Company sent materials to the facility for services which may have included recycling, reclamation, generation, disposal, treatment, storage, chemical processing, manufacture or other handling. The EPA further requested the Company to respond to an information request concerning the Company's use of the facility between 1963 and 1989. The Company is currently researching its records in order to respond to the
information request. Based on currently available information, the Company believes that the resolution of this matter will not have a material adverse effect on the financial position or results of operations of the Company.
H. From time to time, various environmental regulatory agencies request that the Company conduct certain investigations on the nature and extent of pollution, if any, at its various facilities. For example, such a request may follow the spill of a reportable quantity of certain chemicals. At other times, the request follows the removal, replacement or closure of an underground storage tank pursuant to applicable regulations. At present, the Company's Chula Vista facility is conducting certain investigations pursuant to discussions with the San Diego County Department of Health Services, Hazardous Materials Management Division and the San Diego Regional Water Quality Control Board. The Company intends to cooperate fully with the various regulatory agencies.
I. In addition to the litigation discussed above, from time to time the Company is a defendant in lawsuits involving (i) claims based on the Company's alleged negligence or strict liability as a manufacturer in the design or manufacture of various products; (ii) claims based upon environmental protection laws; and (iii) claims based on the alleged wrongful termination of its employees due to, among other things, discrimination based on race, age, sex, national origin, handicap status, sexual preference, etc. The Company believes that in those types of cases now pending, or in claims known by the Company to be asserted against it whether or not reduced to a legal proceeding, it either has no material liability or any such liability is adequately covered by its reserves or its liability insurance, subject to certain deductible amounts. The Company is aware that various of its insurers may assert, and in some such cases have asserted, that their insurance coverage does not provide protection against punitive damages in any specific lawsuit. While there can be no assurances that the Company will not ultimately be found liable for material punitive damages, the Company does not now believe that it has an exposure to any material liability for punitive damages.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------
There is no information required to be submitted by the Company under this Item.
ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY - ---------------------------------------------------
As of September 11, 1996, the executive officers of the Company, in addition to R. H. Rau, President and Chief Executive Officer, referred to at Item 10, Part III, were as follows:
LAURENCE A. CHAPMAN, Senior Vice President and Chief Financial Officer, age 47, joined the Company in May 1994. Prior to that and since 1981, he worked for Westinghouse Electric Company ("Westinghouse"). He had been the Vice President and Treasurer of Westinghouse since January 1992. He was previously the Chief Financial Officer of Westinghouse Financial Services, Inc., a wholly-
owned subsidiary of Westinghouse. Prior to that, Mr. Chapman held positions in Corporate Finance and Corporate Planning with Westinghouse.
JOHN R. JOHNSON, Senior Vice President, Programs, Technical Resources, and Quality Assurance, age 59, has served in his present position since January 1994. Prior to that and since September 1979, he has served in other senior management positions, including Senior Vice President, Programs and Support from March 1993 to January 1994; Vice President, Government Business from February 1990 to February 1993; Vice President, Planning from May 1989 to February 1990; and Vice President, Manufacturing, Chula Vista, from April 1986 to May 1989. He joined the Company in September 1979.
RICHARD W. MADSEN, Vice President, General Counsel and Secretary, age 57, has served in his present position since December 5, 1987. Prior to that and since August 1979, he served as Secretary and head of the legal function, and has been an employee of the Company since 1974.
ALVIN L. MAJORS, Vice President and Controller (Chief Accounting Officer), age 56, has served in his present position since May 1989. Prior to that and since December 1987 he served as the Company's Controller. Prior to that and since 1971, he has served in other senior management positions. He has been an employee of the Company since 1971.
DAVID R. WATSON, Senior Vice President - Customer Support and Business Development, age 45, has served in his present position since March 1994, assuming the title of Senior Vice President in June 1994. Prior to that and since May 1991, he served as Vice President, Commercial Programs. In May 1989, he assumed the position of Vice President and General Manager of the Company's Riverside facility. He has been an employee since February 1988 when he joined the Company as Vice President, Quality Assurance.
GRAYDON A. WETZLER, Senior Vice President, Operations, age 54, has served in his present position since January 1994. Prior to that and since July 1993, he served as Vice President, Technical and Quality Assurance. From November 1990 to July 1993, he served as Vice President Quality/Product Assurance. From April 1987 to November 1990, he served as Vice President - Management Information Systems. He has served in other senior management positions. He has been an employee of the Company since 1979.
The terms of office of Messrs. Chapman and Madsen expire on December 7, 1996. The initial three-year term of Mr. Rau's Employment Agreement terminated on July 31, 1996; however, the agreement is automatically extended for successive periods of one year each unless the Board of Directors gives one year's advance written notice of its intention to terminate the agreement. The other executive officers named above serve at the pleasure of the Chief Executive Officer.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - ------------------------------------------------------------------------------
Although a cash dividend has not been paid since 1975, a 2-for-1 stock dividend was paid in December 1985. Currently, under the terms of certain covenants in several of the Company's principal financing agreements, the Company may not pay cash dividends until after April 25, 1997. Thereafter, the Company's ability to pay cash dividends is restricted substantially.
Other information required by this Item is set forth in the section headed "Rohr Profile" in the Registrant's Annual Report to Shareholders for the fiscal year ended July 31, 1996, and such information is incorporated herein by reference.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA - --------------------------------
The information required by this Item is set forth in the section headed "Selected Financial Data" in the Company's Annual Report to Shareholders for the fiscal year ended July 31, 1996, and such information is incorporated herein by reference.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - -------------------------------------------------------------------------------- OF OPERATIONS - -------------
The information required by this Item is set forth in the section headed "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report to Shareholders for the fiscal year ended July 31, 1996, and such information is incorporated herein by reference.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - -----------------------------------------------------
The information required by this Item is set forth in the section headed "Consolidated Balance Sheets," "Consolidated Statements of Operations," "Consolidated Statements of Shareholders' Equity," "Consolidated Statements of Cash Flows," and "Notes to the Consolidated Financial Statements" in the Company's Annual Report to Shareholders for the fiscal year ended July 31, 1996, and such information is incorporated herein by reference.
ITEM 9.

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.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------
The information required under this Item is set forth in the section headed "Election of Directors" in the Company's Proxy Statement for the 1996 Annual Meeting of Shareholders for fiscal year ended July 31, 1996, and such information is incorporated herein by reference. See also "Additional Item" at Part I of this report.
Compliance with Section 16(a) of The Securities Exchange Act of 1934 - --------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than 10 percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission ("SEC") and the New York Stock Exchange. Officers, directors and greater than 10-percent shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons that no such forms were required for those persons, the Company believes that, during fiscal year 1996, all filing requirements applicable to its officers, directors, and greater than 10-percent beneficial owners were complied with, except Mr. Rau, the Company's President and Chief Executive Officer, filed a Form 4 in June 1996 reporting (i) the receipt of a grant of 40,000 shares of the Company's common stock in 1993 (previously disclosed in the Company's Proxy Statements since 1993) and (ii) the acquisition of 2,850 shares of the Company's common stock by his wife in fiscal year 1995.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION - --------------------------------
The information required by this Item is set forth in the section headed "Executive Compensation and Other Information" and in the section headed "Directors' Beneficial Ownership and Compensation" in the Company's Proxy Statement for the 1996 Annual Meeting of Shareholders for fiscal year ended July 31, 1996, and such information is incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------------------
The information required by this Item is set forth in the table headed "Beneficial Ownership of Shares" in the Company's Proxy Statement for the 1996 Annual Meeting of Shareholders for fiscal year ended July 31, 1996, and such information is incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - --------------------------------------------------------
There is no information required to be submitted by the Company under this Item.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - --------------------------------------------------------------------------
The following consolidated financial statements of the Company and consolidated subsidiaries, included in the Company's 1996 Annual Report to Shareholders, are incorporated by reference in Item 8:
(a) 1. Financial Statements --------------------
Consolidated Balance Sheets at July 31, 1996, and 1995
Consolidated Statements of Operations for Years Ended July 31, 1996, 1995, and 1994
Consolidated Statements of Shareholders' Equity for Years Ended July 31, 1996, 1995, and 1994
Consolidated Statements of Cash Flows for Years Ended July 31, 1996, 1995, and 1994
Notes to the Consolidated Financial Statements
(a) 2. Financial Statement Schedules -----------------------------
The following consolidated financial statement schedule of the Company and subsidiaries is included in Part IV of this report.
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, not required under the instructions or the information is included in the financial statements or notes thereto.
(a) 3. Index to Exhibits -----------------
3.1 Restated Certificate of Incorporation of Rohr Industries, Inc., dated December 7, 1985, incorporated herein by reference to Exhibit 3.1 filed with Form 10-K for fiscal year ended July 31, 1986.
3.2 Certificate of Designations of Series C Junior Participating Cumulative Preferred Stock $1.00 Par Value of Rohr Industries, Inc., dated August 15, 1986.
incorporated herein by reference to Exhibit 3.2 filed with Form 10-K for fiscal year ended July 31, 1986.
3.3 Certificate of Amendment to Restated Certificate of Incorporation, dated December 9, 1986, incorporated herein by reference to Exhibit 3.3 filed with Form 10-K for fiscal year ended July 31, 1987.
3.4 Certificate of Amendment to Restated Certificate of Incorporation, dated December 10, 1991, incorporated herein by reference to Exhibit II filed with Form 8-K dated as of December 7, 1991.
3.5 Bylaws, as amended December 3, 1994, incorporated herein by reference to Exhibit 3.8 filed with Form 10-Q for period ended January 29, 1995.
4.1 Indenture, dated as of March 1, 1987, between Rohr Industries, Inc., and Bankers Trust Company, trustee, relating to 9 1/4% subordinated debentures, incorporated herein by reference to Exhibit 4.1 filed with Form 10-Q for period ended May 2, 1993.
4.2 Indenture, dated as of October 15, 1987, between Rohr Industries, Inc., and Bankers Trust Company, trustee, relating to 7% convertible subordinated debentures, incorporated herein by reference to Exhibit 4.2 filed with Form 10-Q for period ended May 2, 1993.
4.3 Indenture, dated as of May 15, 1994, between Rohr, Inc., and IBJ Schroder Bank and Trust Company, trustee, relating to 11 5/8% senior notes, incorporated herein by reference to Exhibit 4.5 filed with Form 10-Q for period ended May 1, 1994.
4.4 Indenture, dated as of May 15, 1994, between Rohr, Inc., and The Bank of New York, trustee, relating to 7 3/4% convertible subordinated notes, incorporated herein by reference to Exhibit 4.6 filed with Form 10-Q for period ended May 1, 1994.
4.5 Amended and Restated Note Agreement, dated as of January 1, 1996, relating to the 9.35% Series A Senior Notes due January 29, 2000, the 9.35% Series B Senior Notes due January 29, 2000, and the 9.33% Series C Senior Notes due December 15, 2001, incorporated herein by reference to Exhibit 4.5.2 filed with Form 10-Q for period ended January 28, 1996.
4.7 Amended and Restated Rights Agreement, dated as of April 6, 1990, incorporated herein by reference to Item 7 of Form 8-K dated as of April 6, 1990.
4.7.1 Amendment No. 1 to Amended and Restated Rights Agreement, incorporated herein by reference to Exhibit 4.7, filed with Form 10-Q for period ended January 28, 1996.
10.1 Rohr Industries, Inc., Directors Retirement Plan, as amended through the Seventh Amendment, incorporated herein by reference to Exhibits 10.1 through 10.7, as set forth in Form 10-K for fiscal year ended July 31, 1994.
10.2 Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), as amended through the Twenty-seventh Amendment, incorporated herein by reference to Exhibits 10.2.1 through 10.2.27, as set forth in Form 10-K for fiscal year ended July 31, 1994.
10.2.28 Twenty-eighth Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), dated April 7, 1995, incorporated herein by reference to Exhibit 10.2.28, filed with Form 10-K for fiscal year ended July 31, 1995.
10.2.29 Twenty-ninth Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), dated April 7, 1995, incorporated herein by reference to Exhibit 10.2.29, filed with Form 10-K for fiscal year ended July 31, 1995.
10.2.30 Thirtieth Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), dated July 24, 1995, incorporated herein by reference to Exhibit 10.2.30, filed with Form 10-K for fiscal year ended July 31, 1995.
*10.2.31 Thirty-First Amendment to Rohr, Inc. Supplemental Retirement Plan, dated September 13, 1996.
*10.2.32 Thirty-Second Amendment to Rohr, Inc. Supplemental Retirement Plan, dated September 13, 1996.
10.3 Rohr, Inc. 1991 Stock Compensation for Non-Employee Directors, incorporated by reference to Exhibit 10.5 filed with Form 10-K for fiscal year ended July 31, 1992.
10.4 Rohr Industries, Inc., Management Incentive Plan (Restated 1982), as amended through the Fifteenth Amendment, incorporated herein by reference to Exhibits 10.4.1 through 10.4.15, as set forth in Form 10-K for fiscal year ended July 31, 1994.
*10.4.1 Sixteenth Amendment to Rohr, Inc. Management Incentive Plan (Restated 1982), dated June 7, 1996.
*10.4.2 Seventeenth Amendment to Rohr Industries, Inc. Management Incentive Plan (Restated 1982), dated September 13, 1996.
10.5 Rohr Industries, Inc., 1988 Non-Employee Director Stock Option Plan, incorporated herein by reference to Exhibit 10.17 filed with Form 10-K for fiscal year ended July 31, 1989.
10.6 Performance Unit Plan as amended through January 7, 1993, incorporated herein by reference to Exhibit 10.13, filed with Form 10-Q for period ended May 2, 1993.
10.7 Employment Agreement with Robert H. Rau, incorporated herein by reference to Exhibit 10.12, filed with Form 10-Q for period ended May 2, 1993.
*10.7.1 First Amendment to Employment Agreement with Robert H. Rau.
10.8 Employment Agreement with L. A. Chapman, incorporated herein by reference to Exhibit 10.12, filed with Form 10-K for fiscal year ended July 31, 1994.
10.13 Credit Agreement, dated as of April 26, 1989, among Rohr Industries, Inc., as Borrower, and Citibank, N. A., Bankers Trust Company, The First National Bank of Chicago and Wells Fargo Bank, N. A., and Citibank, N.A., as Agent, as amended through the Seventh Amendment, incorporated herein by reference to Exhibits 10.13 through 10.13.7, as set forth in Form 10-K for the fiscal year ended July 31, 1994.
10.13.8 Eighth Amendment to Credit Agreement, dated as of November 29, 1994, incorporated herein by reference to Exhibit 10.13.8, filed with Form 10-K for fiscal year ended July 31, 1995.
10.13.9 Ninth Amendment to Credit Agreement, dated as of June 30, 1995, incorporated herein by reference to Exhibit 10.13.9, filed with Form 10-K for fiscal year ended July 31, 1995.
10.13.10 Tenth Amendment to Credit Agreement, dated as of November 17, 1995, incorporated herein by reference to Exhibit 10.13.10, filed with Form 10-Q for period ended January 28, 1996.
10.13.11 Eleventh Amendment to Credit Agreement, dated as of January 15, 1996, incorporated herein by reference to Exhibit 10.13.11, filed with Form 10-Q for period ended January 28, 1996.
10.14 Lease Agreements, dated as of September 14, 1992, by and between Rohr, Inc., as lessor, and State Street Bank and Trust Company of California, National Association and W. Jeffrey Kramer, Trustees, as lessee, incorporated herein by reference to Exhibit 10.22 filed with Form 10-K for fiscal year ended July 31, 1992.
10.15 Sublease Agreements, dated as of September 14, 1992, by and between State Street Bank and Trust Company of California, National Association and W. Jeffrey Kramer, Trustees, as sublessor, and Rohr, Inc., as sublessee, as amended, supplemented and modified through July 31, 1994, incorporated herein by reference to Exhibits 10.15 through 10.15.5, as set forth in Form 10-K for the fiscal year ended July 31, 1994.
10.15.6 Third Amendment Agreement, dated as of November 29, 1994, to Sublease Agreement, dated as of September 14, 1992, incorporated herein by reference to Exhibit 10.15.6, filed with Form 10-K for fiscal year ended July 31, 1995.
10.15.7 Fourth Amendment Agreement, dated as of June 30, 1995, to Sublease Agreement, dated as of September 14, 1992, incorporated herein by reference to Exhibit 10.15.7, filed with Form 10-K for fiscal year ended July 31, 1995.
10.15.8 Fifth Amendment Agreement, dated as of November 17, 1995, to Sublease Agreement, dated as of September 14, 1992, incorporated herein by reference to Exhibit 10.15.8, filed with Form 10-Q for period ended January 28, 1996.
10.15.9 Sixth Amendment Agreement, dated as of January 19, 1996, to Sublease Agreement, dated as of September 14, 1992, incorporated herein by reference to Exhibit 10.15.9, filed with Form 10-Q for period ended January 28, 1996.
10.16 Pooling and Servicing Agreement, dated as of December 23, 1992, among Rohr, Inc., RI Receivables, Inc., and Bankers Trust Company, as Trustee, as amended through the Second Amendment, incorporated herein by reference to Exhibits 10.16, through 10.16.2, as set forth in Form 10-K for the fiscal year ended July 31, 1994.
10.17 Receivables Purchase Agreement, dated as of December 23, 1992, among Rohr, Inc., and RI Receivables, Inc., incorporated herein by reference to Exhibit 10.11, filed with Form 10-Q for period ended May 2, 1993.
*11.1 Calculation of Primary Earnings per Share.
*11.2 Calculation of Fully Diluted Earnings per Share.
*13 Annual Report to Shareholders for fiscal year ended July 31, 1996. (The Annual Report, except for the portions thereof which are expressly incorporated by reference in the Form 10-K, is being furnished for the information of the Commission and is not to be deemed "filed" as part of the Form 10-K.)
*23. Consent of Deloitte & Touche.
*27. Financial Data Schedule. (Filed with EDGAR filing only.)
(b) Reports on Form 8-K for Fourth Quarter of Fiscal 1996 -----------------------------------------------------
There were no reports on Form 8-K filed by the Company for the fourth quarter of fiscal 1996.
(c) Exhibits required by Item 601 of Regulation S-K -----------------------------------------------
See Subparagraph (a) above.
(d) Financial Statements required by Regulation S-X -----------------------------------------------
See Subparagraph (a) and (b) above.
- --------------- * Exhibits filed with this report.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Rohr, Inc.:
We have audited the consolidated financial statements of Rohr, Inc., as of July 31, 1996 and 1995, and for each of the three years in the period ended July 31, 1996, and have issued our report thereon dated September 11, 1996; such consolidated financial statements and report are included in your 1996 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the financial statement schedule of Rohr, Inc., listed in Item 14(a)(2). This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
Deloitte & Touche L L P
San Diego, California September 11, 1996
ROHR, INC., AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JULY 31, 1996, 1995, AND 1994 (dollars in thousands)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ROHR, INC. (Registrant)
By: /s/ R. H. Rau ------------- R. H. Rau President and Chief Executive Officer
By: /s/ L. A. Chapman ----------------- L. A. Chapman Senior Vice President and Chief Financial Officer
By: /s/ A. L. Majors ---------------- A. L. Majors Vice President and Controller (Chief Accounting Officer)
Date: September 11, 1996
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.