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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994. Commission file number 1-892
THE B.F.GOODRICH COMPANY
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(Exact name of registrant as specified in its charter)
New York 34-0252680
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3925 Embassy Parkway
Akron, Ohio 44333-1799
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (216) 374-3985
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange on
Title of Each Class Which Registered
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<S> <C>
Convertible Preferred Stock, Series D,
$1 par value New York Stock Exchange
Common Stock, $5 par value New York Stock Exchange
9 5/8% Notes, maturing in 2001
7% Subordinated Debentures,
maturing to 1997 New York Stock Exchange
</TABLE>
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
The aggregate market value of the voting stock, consisting solely of
common stock, held by non-affiliates of the registrant based upon the New York
Stock Exchange - Composite Transaction Listing as of February 14, 1995 was
$1,144.7 million ($44.375 per share). On such date, 25,795,706 of such shares
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1994 Annual Report to Shareholders are incorporated by
reference into Parts I, II and IV.
Portions of the proxy statement dated March 2, 1995 are incorporated by
reference into Part III.
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PART I
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ITEM 1. BUSINESS
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GENERAL DEVELOPMENT OF BUSINESS
The B.F.Goodrich Company ("BFGoodrich" or the "Company") manufactures and
supplies a wide variety of supplies and component parts for the aerospace
industry and provides maintenance, repair and overhaul services on commercial,
regional and general aviation aircraft. The Company also manufactures
specialty plastics, specialty additives, sealants, coatings and adhesives
products for a variety of end user applications and designs, builds and
services water purification systems for large applications in industries such
as mining, refinery and power generation. In addition the Company produces
chlor-alkali and olefins. A further description of the Company's business is
provided below.
BFGoodrich, with 1994 sales of $2.2 billion, is organized into two principal
business segments: BFGoodrich Aerospace ("Aerospace") and BFGoodrich Specialty
Chemicals ("Specialty Chemicals"). The chlor-alkali and olefins operation,
principally a commodities business, is reported as "Other Operations." The
Company maintains patent and technical assistance agreements, licenses and
trademarks on its products, process technologies and expertise in most of the
countries in which it operates. The Company conducts its business through
numerous business groups of BFGoodrich and over 66 wholly- and majority-owned
subsidiaries worldwide.
The principal executive offices of BFGoodrich are located in Bath Township,
Summit County, Ohio with a mailing address at 3925 Embassy Parkway, Akron, Ohio
44333-1799 (telephone (216) 374-3985).
The Company was incorporated under the laws of the State of New York on May 2,
1912 as the successor to a business founded in 1870.
During 1994, the Company acquired two small specialty chemical businesses which
manufacture coatings and products for the textile industry. Operations of
these businesses are included in the Specialty Chemicals business segment since
the dates of acquisition.
In 1993, the Company acquired certain assets and assumed certain liabilities of
eight businesses and acquired the minority interest in a previously
majority-owned subsidiary, for approximately $528.5 million. Acquisitions of
Aerospace businesses amounted to approximately $504.8 million. These
acquisitions included the Cleveland Pneumatic Company Division and Cleveland
Pneumatic Product Service Division (collectively referred to as "Cleveland
Pneumatic") for approximately $193.4 million from Pneumo Abex Corporation, a
wholly-owned subsidiary
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of Abex Inc. and the aerospace business ("Rosemount Aerospace") of Rosemount
Inc., a wholly-owned subsidiary of Emerson Electric Company for approximately
$301.1 million.
Cleveland Pneumatic designs, develops and manufactures landing gear for
commercial and military aircraft and also provides overhaul service for
commercial aircraft landing gear. Principal manufacturing facilities are
located in Cleveland, Ohio and Tullahoma, Tenn.
Rosemount Aerospace designs and manufactures aerospace sensors and related
equipment in facilities located in Burnsville and Eagan, Minn. and Bognor
Regis, England.
The other Aerospace acquisitions, which were, in the aggregate, not
significant, include a specialty heating and avionics power business and a
manufacturer of automated test equipment for aircraft.
The three Specialty Chemicals businesses acquired in 1993 included a water
management business, a manufacturer of urethane polymer resins and a small
reaction injection molding business. These acquisitions in the aggregate were
not significant.
In December 1993, the Company disposed of its remaining investment in The Geon
Company. The Geon Company ("Geon") was formed in early 1993 from the business
(other than the chlor-alkali, ethylene and utilities operations primarily
located at Calvert City, Ky.) that was previously included in the former Geon
Vinyl Division of BFGoodrich. The disposition of Geon through public offerings
of stock generated net cash proceeds of $470.4 million and a financial gain of
$110.9 million after tax. Prior to the sale of Geon, the Company received a
special distribution of $160.0 million from Geon. Net assets of Geon,
including equity in earnings of the business to the dates of disposition, were
approximately $247.0 million.
In 1992, the Company's Aerospace business acquired ATIS Cabine S.A., France, an
overhaul service center for aircraft emergency evacuation systems. In the same
year the Company also formed a joint venture for an aircraft wheel and brake
repair and overhaul center which refurbishes carbon brakes in Hong Kong. Also
in 1992, an adhesives company was acquired and a concrete additives company was
sold. In 1991, the Company acquired the Stormscope(R) weather mapping systems
product line from 3M. Also in 1991, the Company acquired Godfrey Engineering,
Inc., a manufacturer of electro-optical systems, used primarily in airport and
aircraft lighting.
At the end of 1990, the Company acquired various business units of the Hercules
Aircraft and Electronics Group. These businesses supply aircraft
fuel-measurement and management systems; speed and torque-sensing devices; jet
engine electrical and ignition
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systems; electromechanical actuators; and aircraft engine sensors. Also in
1990, the Company acquired Safeway Products Inc., a privately-held manufacturer
of electrothermal products.
In 1992, the Company sold the BFGoodrich Aerospace Display Systems and Rivnut
Engineered Fasteners business units.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
In 1994, 1993 and 1992 sales to U.S. government departments and agencies,
principally in the Aerospace business segment, totalled approximately 10
percent, 10 percent and 12 percent, respectively, of consolidated sales.
As a result of declines in defense spending and sales increases in commercial
businesses, the Company believes that U.S. Government sales, as a percent of
total consolidated sales will continue to decline in the foreseeable future.
For financial information concerning the Company's sales, operating income,
identifiable assets, property additions, depreciation and amortization of
property and geographic information, see Note H of the Notes to Consolidated
Financial Statements appearing beginning on page 35 of the Company's 1994
Annual Report to Shareholders, which is incorporated herein by reference.
NARRATIVE DESCRIPTION OF BUSINESS
Aerospace
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The Company's Aerospace business is conducted through four major business
groups.
Landing Systems Group manufactures landing gear and aircraft wheels and brakes
for commercial, military, regional and business aviation customers.
Sensors and Integrated Systems Group manufactures sensors and related
equipment; fuel and integrated utility measurement and management systems;
engine ignition system components; electromechanical actuators; and aircraft
windshield wiper systems for commercial, military, regional and business
aviation customers.
Safety Systems Group manufactures aircraft evacuation slides and rafts;
aircraft and helicopter de-icing systems; navigation, traffic alert and
collision avoidance systems; weather detection systems; and airport and
aircraft lighting components.
Maintenance, Repair and Overhaul Group ("MRO") provides maintenance, repair and
overhaul of commercial airframes and components including wheels and brakes,
and instruments and avionics for commercial, regional and general aviation
customers.
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The Company is among the largest suppliers of aircraft components and parts and
aircraft maintenance repair and overhaul service businesses in the world. It
competes with other aerospace manufacturers to supply parts and provides
service on specific fleets of aircraft, frequently on a program-by-program bid
basis. Competition is primarily based on product performance, service
capability and price. Contracts to supply components and parts and provide
service are generally with aircraft manufacturers, airlines and airfreight
businesses worldwide. The Company also competes on U.S. government contracts,
generally as a subcontractor. Competition is principally based on product
performance and price.
Specialty Chemicals
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The Company's Specialty Chemicals business is conducted through four major
business groups.
Specialty Plastics Group manufactures thermoplastic polyurethane; high-heat,
corrosion-resistant and low-combustibility plastics; and thermoset resins for
reaction liquid polymer molded parts. Products are marketed and sold to
manufacturers for film and sheet applications; fabric coatings; wire and cable
coating and magnetic media. Specialty plastics are also used in the
manufacture of automotive products; recreational vehicles and products; lawn
and garden equipment; plumbing and industrial pipe; fire sprinkler systems and
building material components.
Specialty Additives Group manufactures synthetic thickeners and emulsifiers;
controlled release and suspension agents; polymer emulsions; dissolvable films;
rubber and lubricant additives and plastic and adhesive modifiers. These
products are used by manufacturers of personal care products; pharmaceuticals;
liquid soaps and detergents; water treatment products; electronics; tires and
petroleum products and molded plastics. Specialty additives are also used in
textile printing manufacturing; non-woven manufacturing; paper coating and
saturation; graphic arts; and paints and industrial coatings.
Sealants, Coatings and Adhesives Group manufactures insulating glass sealants;
construction sealants and water proofing coatings; commercial glazing products
and roofing products. This Group also manufactures automotive sealants;
adhesives and paint products; structural adhesives; laminating adhesives and
rust paints and primers. Products are sold to manufacturers of windows; the
construction and building maintenance industry and automotive and aircraft
assembly industries. Other products are sold in the automotive repair and
residential maintenance markets.
Water Systems and Services Group designs and builds permanent,
owned-and-operated water purification systems and rapid-response mobile water
purification systems. This Group also provides operating services for these
systems under longer-term service
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contracts. Principal users of these systems include customers in the
semiconductor, mining, refinery and power generation industries.
The Company competes with other major chemical manufacturers. Products are
sold primarily based on product performance. Frequently, products are
manufactured or formulated to order for specific customer applications and
often involve considerable technical assistance from the Company.
Other Operations
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Other operations consist of the chlor-alkali and ethylene operations located at
Calvert City, Ky. The chlor-alkali and olefins business participates in a
highly cyclical chlorine, caustic soda, ethylene and olefin co-product
commodity market. Sales and operating results are largely dependent on
industry supply and demand. The Company believes it does not have a
significant market share and, as a result, products produced by this business
are sold at established market prices.
BACKLOGS
At December 31, 1994, the Company had a backlog of approximately $850 million,
principally related to the Aerospace business segment, of which approximately
64 percent is expected to be filled during 1995. The amount of backlog at
December 31, 1993 was approximately $884 million. Backlogs in the Aerospace
business are subject to delivery delays or program cancellations, which are
beyond the Company's control.
RAW MATERIALS
Raw materials used in the manufacture of Aerospace products including steel and
carbon are available from a number of manufacturers and are generally in
adequate supply.
Availability of all major monomers and chemicals used in the Specialty
Chemicals business is anticipated to be adequate for 1995. While chemical
feedstocks are currently in adequate supply, in past years, from time-to-time
for limited periods, various chemical feedstocks were in short supply.
However, the effect of any future shortages on the Company's operations will
depend upon the duration of any such shortages and possibly on future U.S.
government policy, which cannot be determined at this time.
ENVIRONMENTAL
Federal, state and local statutes and regulations relating to the protection of
the environment and the health and safety of employees and other individuals
have resulted in higher operating costs and capital investments by the
industries in which the Company operates. Because of the continuing trend
toward greater environmental awareness and increasingly stringent environmental
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regulations, the Company believes that expenditures for compliance with
environmental, health and safety regulations will continue to have a
significant impact on the conduct of its business. Although it cannot predict
accurately how these developments will affect future operations and earnings,
the Company does not believe these costs will vary significantly from those of
its competitors.
For additional information concerning environmental matters, see Note O of the
Notes to Consolidated Financial Statements appearing on page 41 of the
Company's 1994 Annual Report to Shareholders, which is incorporated herein by
reference.
RESEARCH AND DEVELOPMENT
The Company conducts research and development programs which are directed
toward the development of new products and processes and improvement in
existing products and manufacturing technology. Research and development
expense amounted to $75.5 million, $67.9 million and $67.9 million for the
years ended December 31, 1994, 1993 and 1992, respectively.
PATENTS AND LICENSES
The Company has many patents of its own and has acquired licenses under patents
of others. While such patents in the aggregate are important to the Company,
neither the primary business of the Company nor any of its industry segments is
dependent on any single patent or group of related patents. The Company uses a
number of trademarks important either to its business as a whole or to its
industry segments considered separately. The Company believes that these
trademarks are adequately protected.
HUMAN RESOURCES
As of December 31, 1994, the Company had 12,456 employees in the United States
and Canada. An additional 936 people were employed overseas. Approximately
6,900 employees were hourly paid. The Company believes it has good
relationships with its employees.
The hourly employees who are unionized are covered by collective bargaining
agreements with a number of labor unions and with varying contract termination
dates ranging from March, 1995 to September, 1999. There were no material work
stoppages during 1994.
FOREIGN OPERATIONS
The Company is engaged in business in foreign markets. Manufacturing and
service facilities for Aerospace and Specialty Chemicals are located in
Australia, Belgium, Canada, England, France, Germany, Hong Kong, The
Netherlands, Singapore and Sweden. A plant in Korea manufactures specialty
chemicals for BFGoodrich. The Company also markets its products and services
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through sales subsidiaries and distributors in a number of foreign countries.
The Company also has technical fee and patent royalty agreements with various
foreign companies.
Outside North America, no single foreign geographic area is currently
significant. Currency fluctuations, tariffs and similar import limitations,
price controls and labor regulations can affect the Company's foreign
operations, including foreign affiliates. Other potential limitations on the
Company's foreign operations include expropriation, nationalization,
restrictions on foreign investments or their transfers, and additional
political and economic risks. In addition, the transfer of funds from foreign
operations could be impaired by the unavailability of dollar exchange or other
restrictive regulations that foreign governments could enact. The Company does
not believe that these restrictions or regulations have a materially adverse
effect on its business, in the aggregate.
For additional financial information about foreign and domestic operations and
export sales, see Note H of the Notes to Consolidated Financial Statements
appearing beginning on page 35 of the Company's 1994 Annual Report to
Shareholders, which is incorporated herein by reference.
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ITEM 2. PROPERTIES
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The manufacturing and service operations of the Company are carried on at
facilities, all of which are owned, unless otherwise indicated, at the
following locations:
Aerospace Specialty Chemicals
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Amelot, France* Akron, Ohio
Austin, Texas* Apeldoorn, The Netherlands
Basingstoke, England* Ashland, Ohio
Bognor Regis, England** Avon Lake, Ohio
Burnsville, Minnesota Barbourville, Kentucky
Cedar Knolls, New Jersey Baton Rouge, Louisiana*
Chester, New Jersey* Brighton, Michigan
Cleveland, Ohio Calvert City, Kentucky
Columbus, Ohio Cleveland, Ohio
Dallas, Texas* Columbus, Ohio*
East Brunswick, New Jersey* Conroe, Texas
Eagan, Minnesota Dijon, France
Everett, Washington** El Cajon, California*
Fort Lauderdale, Florida Elk Grove, Illinois*
Grand Rapids, Michigan Fallsington, Pennsylvania*
Grantsville, West Virginia* Gastonia, North Carolina
Greensburg, Ohio** Gothenburg, Sweden
Harrow, England* Greenville, South Carolina
Industrial Airport, Kansas** Henry, Illinois
Jacksonville, Florida Hindley, England
Louisville, Kentucky* Leominster, Massachusetts
Lynnwood, Washington* London, England*
Marlboro, Massachusetts* Los Angeles, California
Melbourne, Florida Louisville, Kentucky
Miami, Florida* Milpitas, California
Middletown, Connecticut* Montreal, Quebec, Canada
Mississauga, Ontario, Canada* Oevel, Belgium
Norwich, New York Pedricktown, New Jersey
Oldsmar, Florida Sydney, Australia*
Ontario, California* Toronto, Ontario, Canada
Ottawa, Canada* Vernon, California
Paris, France*
Phoenix, Arizona Other Operations
Pueblo, Colorado ----------------
Santa Fe Springs, California Calvert City, Kentucky
Santa Fe Springs, California*
Singapore* Research Facilities and
Spencer, West Virginia Administrative Office Other Than
Taipo, Hong Kong* Manufacturing Facility Offices
Tempe, Arizona* --------------------------------
Toulouse, France* Avon Lake, Ohio*
Troy, Ohio Bath, Ohio*
Tullahoma, Tennessee Beachwood, Ohio
Union, West Virginia Brecksville, Ohio
Vergennes, Vermont Brussels, Belgium*
Wessling, Germany* Cleveland, Ohio*
Wilmington, North Carolina Houston, Texas*
Wokingham, England Lincolnshire, Illinois*
Zevenaar, The Netherlands Milan, Italy
Montrose, Ohio
New York, New York*
Paris, France
Uniontown, Ohio*
Washington, D.C.*
Waterloo, Ontario, Canada
* Leased
** Leased in part
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The Company considers that its properties are well maintained and in good
operating condition.
The Company and its subsidiaries are lessees under a number of cancelable and
non-cancelable leases for certain real properties, used primarily for
administrative, retail, maintenance, repair and overhaul of aircraft, aircraft
wheels and brakes and evacuation systems and warehouse operations, and for
certain equipment.
ITEM 3. LEGAL PROCEEDINGS
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There are pending or threatened against BFGoodrich or its subsidiaries various
claims, lawsuits and administrative proceedings, all arising from the ordinary
course of business with respect to commercial, product liability and
environmental matters, which seek remedies or damages. BFGoodrich believes
that any liability that may finally be determined should not have a material
effect on the Company's consolidated financial position.
The Company has been named a potentially responsible party by the U.S.
Environmental Protection Agency in connection with approximately 39 locations
most of which relate to businesses that the Company has previously divested.
The Company believes it may have continuing liability with respect to not more
than 22 sites. Sites for which successor companies have assumed liability are
not included. The Company does not believe that any of the matters either
individually or in the aggregate will have a material adverse financial effect
on the Company.
One of the sites at which the Company has been designated as a potentially
responsible party is at the Industrial Excess Landfill in Uniontown, Ohio. The
Company, with certain other parties, has formed a coalition and has contributed
towards the cost of a community water system. The coalition offered to perform
certain additional remediation efforts at the site, but this offer was rejected
and the EPA has commenced litigation seeking past and future clean-up and
oversight costs. The defendants have joined approximately 68 third party
defendants from which they are seeking cost recovery and contribution. In
December 1991 the State of Ohio filed a suit in the U.S. District Court for the
Northern District of Ohio seeking to recover oversight costs as well as seeking
civil penalties for contamination of waters of the state (groundwater) without
a permit since 1971. The Company believes the action for penalties is without
merit. The Company believes it has adequately accrued for liabilities arising
from this matter.
Another site, Beacon Heights landfill in Beacon Falls, CT, has been the subject
of a suit and consent decree. Under the consent decree the Company and a
coalition of others have substantially performed the EPA selected remedy.
However, construction was not completed before winter weather set in in 1993
and the deadline for completion of construction was not met. Subsequently the
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work has been substantially completed. As a result, stipulated penalties have
been accruing under the terms of the decree. A settlement of the penalties may
be as much as $1 million. If settlement does not occur, a force majeure claim
has been made. It is anticipated that these penalties may be settled for a
reduced amount. The Company's share of this liability is approximately 41%.
The Company believes it has adequately accrued for liabilities arising from
this matter.
In 1991 the Company agreed to participate in the U.S. Environmental Protection
Agency Compliance Audit Program ("CAP") under Section 8(e) of the Toxic
Substances Control Act. That section requires reporting of information
indicating a substantial risk of injury to health or the environment from a
chemical substance or mixture. Under the CAP, the Company agreed to conduct an
audit of its files and report any information that should have been reported
previously. The total potential maximum liability of the Company and its
subsidiaries under the CAP is $1 million. The first part of the CAP required
reporting of substantial risk information concerning health effects. This part
of the audit was completed and the Company anticipates it may be subject to
civil penalties of approximately $175,000 that will be payable at the
conclusion of the second phase. The remaining part of the CAP involves
substantial risk information concerning the environment. The Company will
perform its obligations under this portion of the CAP after the U.S.
Environmental Protection Agency issues guidance concerning the kinds of
environmental information that it believes are reportable. The Company
believes that any civil penalties arising from this portion would not be
substantially different than those incurred under the first portion of the CAP.
The Company believes it has adequately accrued for liabilities arising from
this matter.
On March 10, 1993, Westlake Monomers Corporation ("Westlake") brought an action
in the District Court of Harris County, Texas, alleging that pursuant to a
Right of First Refusal Agreement, it has a right to compel an appraisal and a
right then to elect to purchase all of the common stock of The Geon Company
which was the subject of an initial public offering. Westlake sought to enjoin
the proposed offering and asked for specific performance of the Right of First
Refusal Agreement, attorneys' fees and damages.
The court denied Westlake's application for temporary injunction to enjoin the
sale of the Geon common stock and enjoined BFGoodrich and Geon from encumbering
or transferring the facilities subject to the Right of First Refusal (the
"Facilities") to third parties and ordered BFGoodrich and Geon to maintain and
operate the Facilities in accordance with industry standards until a final
disposition of the lawsuit has been reached. BFGoodrich has not transferred
the Facilities to Geon and continues to operate the Facilities itself.
BFGoodrich has agreed to indemnify and hold Geon harmless from and against any
liabilities and expenses arising directly from the lawsuit. The
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lawsuit has been stayed pending arbitration pursuant to the Master Conveyance
Agreement by which the Company transferred the vinyl chloride monomer
facilities at Calvert City to Westlake in 1990. Westlake also sought to
arbitrate a claim that the aforesaid Amended and Restated Assumption of
Liabilities and Indemnification Agreement relating to certain liabilities at
Calvert City is violative of the assignment clause of the Master Conveyance
Agreement, but has abandoned that claim.
On October 31, 1994, the arbitrator ruled that the Right of First Refusal was
triggered, but the decision did not identify whether the trigger applied to
assets or shares, and did not specify a remedy. Further proceedings with
respect to the scope of the remedy are underway.
The Company has filed a counterclaim against Westlake for tortious interference
with business relations, business disparagement and business defamation. The
counterclaim is not likely to be heard until after the conclusion of the
arbitration proceeding.
In 1991 the Company instituted suit in the United States District Court for the
District of Delaware against Allied-Signal Incorporated and Aircraft Braking
Systems Corporation, alleging infringement of two Company patents relating to
extended disk life brakes and their application in carbon aircraft brakes. The
defendants deny infringement and allege the patents are invalid. The Company
is seeking substantial damages. The trial court issued a decision in November
1994 that Allied-Signal did infringe the patents, but held the patents were
invalid on two separate grounds. The court also determined that Aircraft
Braking Systems did not infringe the patents. The court denied defendant's
request for attorney fees. All parties have appealed the decision.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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Not applicable.
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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Common Stock Prices and Dividends are on page 42 of the Company's 1994 Annual
Report to Shareholders. The number of common shareholders at December 31,
1994, is included in "Other Data: Number of common shareholders at end of
year" on page 44 of the Company's 1994 Annual Report to Shareholders and is
based on the number of shareholders of record at that date. The discussions of
the limitations and restrictions on the payment of dividends on Common Stock
are included in Note C on pages 31 and 32, and Note L on pages 38 and 39 of the
Company's 1994 Annual Report to Shareholders. All of these sections are
incorporated herein by reference.
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ITEM 6. SELECTED FINANCIAL DATA
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Sales from continuing operations, income from continuing operations before
cumulative effect of change in method of accounting, total assets, non-current
long-term debt and capital lease obligations, redeemable preferred stock,
income from continuing operations per share of common stock, and dividends per
share of common stock as of and for each of the years in the five year period
ended December 31, 1994, on page 44 of the Company's 1994 Annual Report to
Shareholders, are incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS
- ----------------------
Management's Discussion and Analysis on pages 16-21, 23, 25 and 27 of the
Company's 1994 Annual Report to Shareholders, is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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An index to the consolidated financial statements and supplementary data
contained in the Company's 1994 Annual Report to Shareholders, which is
incorporated herein by reference is contained on page F-1 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE
- ---------------------
None.
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PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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Biographical information concerning the Company's Directors appearing under the
caption "Election of Directors" in the Company's proxy statement dated March 2,
1995 is incorporated herein by reference. Biographical information concerning
the Company's Executive Officers is as follows:
John D. Ong, Age 61, Chairman, President and Chief Executive Officer
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Mr. Ong joined the Company in 1961 as Assistant Counsel. Mr. Ong progressed
through a number of business positions. He was elected Group Vice President of
the Company in 1972, Executive Vice President and a Director in June 1973, Vice
Chairman of the Board in April 1974, President in April 1975, President and
Chief Operating Officer in 1977, and Chairman, and Chief Executive Officer in
July 1979. Mr. Ong has a B.A. and M.A. in history from Ohio State University
and an LL.B. from Harvard Law School.
David L. Burner, Age 55, Executive Vice President and President and Chief
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Operating Officer, BFGoodrich Aerospace
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Mr. Burner joined the Company in 1983 as Vice President, Finance, for the
Company's Engineered Products Group. He served in several other management
positions before being named Executive Vice President of BFGoodrich Aerospace
in 1985. He was appointed President of BFGoodrich Aerospace in 1987. Mr.
Burner was elected a Senior Vice President in 1990 and an Executive Vice
President in 1993. Before joining BFGoodrich he was Executive Vice President
and Chief Financial Officer of ABS Industries in Willoughby, Ohio. Mr. Burner
received a B.S.C. degree in accounting from Ohio University.
Wayne O. Smith, Age 51, Executive Vice President and President and Chief
- ------------------------------------------------------------------------
Operating Officer, BFGoodrich Specialty Chemicals
- -------------------------------------------------
Mr. Smith joined the Company in April 1994 as Executive Vice President and
President, BFGoodrich Specialty Chemicals. Prior to joining the Company, Mr.
Smith was employed as Group Vice President-Gasses Americas, The BOC Group, Ltd.
from 1990 to 1993 and earlier in 1990, as President and Chief Operating
Officer, Chemical Lime, Inc. Between 1974 and 1990 he held various assignments
at Air Products and Chemicals, his last as General Manager of their Specialty
Chemicals Division. He was formerly a Captain and fighter pilot serving eight
years in the Air Force. Mr. Smith has a B.S. in Engineering Sciences from the
United States Air Force Academy.
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D. Lee Tobler, Age 61, Executive Vice President and Chief Financial Officer
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Mr. Tobler joined the Company in January 1985 as Executive Vice President and
Chief Financial Officer and was elected a Director in April 1988. Prior to
coming with the Company, Mr. Tobler had been Group Vice President and Chief
Administrative and Financial Officer of Zapata Corporation from 1981 to 1984.
Mr. Tobler has a B.A. from Brigham Young University and an M.B.A. from
Northwestern University.
Jon V. Heider, Age 60, Executive Vice President and General Counsel
- -------------------------------------------------------------------
Mr. Heider joined the Company in June 1984 as Vice President and General
Counsel. He was elected Senior Vice President in 1988 and Executive Vice
President in 1994. Prior to coming with the Company, Mr. Heider was employed
by Air Products and Chemicals Inc., Allentown, Pa., where he held several posts
including that of General Counsel. His last assignment there was as Vice
President of Corporate Development. His association with Air Products and
Chemicals spanned 18 years. Mr. Heider has a B.A. from the University of
Wisconsin and a J.D. from Harvard Law School.
Nicholas J. Calise, Age 53, Vice President, Associate General Counsel and
- -------------------------------------------------------------------------
Secretary
- ---------
Mr. Calise joined the Company in October 1984 as Secretary and was also
appointed Staff Vice President and Assistant General Counsel. In January 1989
he was elected Vice President and Associate General Counsel. Prior to joining
BFGoodrich, he was with the Richardson-Vicks Inc. Home Care Products Division,
Memphis, Tennessee, where he was Division Counsel, Director - Planning and
Business Development and Marketing Director. Mr. Calise has an A.B. from
Middlebury College and an M.B.A. and LL.B. from Columbia University.
Robert A. McMillan, Age 52, Vice President and Treasurer
- --------------------------------------------------------
Mr. McMillan joined the Company in July 1974 as an Economist. He progressed
through a number of positions and was elected Vice President and Treasurer
effective August 1, 1986. Mr. McMillan has a B.A. from the University of
California at Santa Barbara and a Ph.D. in economics from the University of
California at Berkeley and was an Economist at the Federal Reserve Bank of
Cleveland and the Bank of America before joining BFGoodrich.
- 14 -
<PAGE> 16
Steven G. Rolls, Age 40, Vice President and Controller
- ------------------------------------------------------
Mr. Rolls joined the Company in September 1981 as a Financial Analyst. He
subsequently served in various capacities in the Treasury department, becoming
an Assistant Treasurer in 1985. In 1987 he joined BFGoodrich Canada as Vice
President, Finance and Treasurer. In 1989 he was appointed Vice President -
Finance for the Aerospace business. Mr. Rolls was elected Vice President and
Controller in 1993. He has a B.S. in business administration from Miami
University and an M.B.A. from Ohio State University.
George K. Sherwood, Age 56, Vice President - Tax Administration
- ---------------------------------------------------------------
Mr. Sherwood joined the Company in July 1985 as Staff Vice President - Taxes
and was elected Vice President - Tax Administration in April 1986. Prior to
joining BFGoodrich, Mr. Sherwood was Vice President - Tax Administration for
Zapata Corporation. Mr. Sherwood has a B.S. in business administration from
Kansas State College and an M.B.A. in management from The University of Tulsa.
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
Information concerning executive compensation appearing under the captions
"Compensation Committee Report" and "Compensation of Directors" in the
Company's proxy statement dated March 2, 1995, is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
Security ownership data appearing under the captions "Holdings of Company
Equity Securities by Directors and Executive Officers" and "Beneficial
Ownership of Securities" in the Company's proxy statement dated March 2,
1995, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
Information appearing under the caption "Transactions With Directors" in the
Company's proxy statement dated March 2, 1995, is incorporated herein by
reference.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
- -------- ------------------------------------------------------
FORM 8-K
- ---------
(a) (1) and (2) - The response to this portion of Item 14 is
submitted as a separate section of this Form 10-K on page F-1.
(3) - Listing of Exhibits:
A listing of exhibits is on pages II-1 to II-3 of this
Form 10-K.
- 15 -
<PAGE> 17
(b) Reports on Form 8-K filed in the fourth quarter of 1994.
None.
- 16 -
<PAGE> 18
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 February 20, 1995.
The BFGoodrich Company
(Registrant)
By /S/JOHN D. ONG
-------------------------------------
(John D. Ong, Chairman, President and
and Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on February 20, 1995 by the following persons
(including a majority of the Board of Directors) on behalf of the registrant
and in the capacities indicated.
/S/STEVEN G. ROLLS /S/JOSEPH A. PICHLER
- ------------------------------------ ------------------------------
(Steven G. Rolls) (Joseph A. Pichler)
Vice President and Controller Director
(Principal Accounting Officer)
/S/ALFRED M. RANKIN, JR.
-----------------------------
(Alfred M. Rankin, Jr.)
/S/JEANETTE GRASSELLI BROWN Director
- ------------------------------------
(Jeanette Grasselli Brown)
Director
/S/IAN M. ROSS
-----------------------------
(Ian M. Ross)
Director
/S/GEORGE A. DAVIDSON, JR.
- ------------------------------------
(George A. Davidson, Jr.)
Director /S/D. LEE TOBLER
-----------------------------
(D. Lee Tobler)
Executive Vice President and
/S/JAMES J. GLASSER Chief Financial Officer and
- ------------------------------------ (Principal Financial Officer)
(James J. Glasser)
Director
/S/WILLIAM L. WALLACE
-----------------------------
/S/THOMAS H. O'LEARY (William L. Wallace)
- ------------------------------------ Director
(Thomas H. O'Leary)
Director
/S/JOHN L. WEINBERG
-----------------------------
/S/JOHN D. ONG (John L. Weinberg)
- ------------------------------------ Director
(John D. Ong)
Chairman, President
Chief Executive Office and Director
(Principal Executive Officer)
- 17 -
<PAGE> 19
APPENDIX
PART II, ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information appears in graphic form on pages 17 and 19 of the
Company's 1994 Annual Report to Shareholders:
1994 Aerospace Sales by Group:
Landing Systems 29%
Sensors and Integrated Systems 28%
Safety Systems 18%
Maintenance, Repair and Overhaul 25%
1994 Specialty Chemicals Sales by Group:
Specialty Plastics 23%
Specialty Additives 37%
Sealants, Coatings and Adhesives 35%
Water Systems and Services 5%
<PAGE> 20
THE B.F.GOODRICH COMPANY
INDEX TO FINANCIAL INFORMATION
Item 14(a)(1)-(2)
<TABLE>
<CAPTION>
Reference
------------
1994
Annual
Report to
Shareholders
(page)
------------
<S> <C>
Data incorporated by reference from the 1994
Annual Report to Shareholders of The BFGoodrich
Company:
Consolidated Statement of Income for the years
ended December 31, 1994, 1993 and 1992 22
Consolidated Balance Sheet at December 31,
1994 and 1993 24
Consolidated Statement of Cash Flows for the
years ended December 31, 1994, 1993 and 1992 26
Consolidated Statement of Shareholders' Equity
for the years ended December 31, 1994, 1993
and 1992 28
Notes to Consolidated Financial Statements 29 - 41
Quarterly Financial Data (Unaudited) 42
Report of Independent Auditors 43
</TABLE>
Schedules have been omitted since the required information is not present, or
not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the above listed financial
statements or notes thereto.
F-1
<PAGE> 21
Item 14 (a)(3) Index to Exhibits
Table II
Exhibit No.
- -----------
3(A) The Company's Restated Certificate of Incorporation, as
amended through August 5, 1988. This exhibit was filed
with the same designation as an exhibit to the Company's
Form 10-Q for the quarter ended September 30, 1988, and is
incorporated herein by reference.
(B) The Company's By-Laws, as amended, through February 18,
1991. This exhibit was filed with the same designation as
an exhibit to the Company's Form 10-K Annual Report for the
year ended December 31, 1990, and is incorporated herein by
reference.
4 Information relating to the Company's long-term debt is set
forth in Note C - "Financing Arrangements" on pages 31 and
32 of the Company's 1994 Annual Report to Shareholders, and
is incorporated herein by reference. Instruments defining
the rights of holders of such long-term debt are not filed
herewith since no single debt item exceeds 10% of
consolidated assets. Copies of such instruments will be
furnished to the Commission upon request.
10(A) Key Employees' Stock Option Plan. This exhibit was filed
with the same designation as an exhibit to the Company's
Form 10-K Annual Report for the year ended December 31,
1991, and is incorporated herein by reference.
10(B)(4) Form of Disability Income Agreement. This exhibit was
filed with the same designation as an exhibit to the
Company's Form 10-K Annual Report for the year ended
December 31, 1988, and is incorporated herein by reference.
10(B)(5) Form of Supplemental Executive Retirement Plan Agreement.
This exhibit was filed with the same designation as an
exhibit to the Company's Form 10-K Annual Report for the
year ended December 31, 1989 and is incorporated herein by
reference.
10(C) Performance Share Plan. This exhibit was filed with the
same designation as an exhibit to the Company's Form 10-K
Annual Report for the year ended December 31, 1991, and is
incorporated herein by reference.
10(E) Management Incentive Program. This exhibit was filed with
the same designation as an exhibit to the Company's Form
10-Q for the quarter ended September 30, 1989, and is
incorporated herein by reference.
II-1
<PAGE> 22
Item 14 (a)(3) Index to Exhibits
Table II
Exhibit No.
- -----------
10(F) Form of Management Continuity Agreement entered into by The
B.F.Goodrich Company and certain of its employees. This
exhibit was filed with the same designation as an exhibit
to the Company's Form 10-K Annual Report for the year ended
December 31, 1992, and is incorporated herein by reference.
10(G) Performance Unit Plan of The B.F.Goodrich Company. This
exhibit was filed with the same designation as an exhibit
to the Company's Form 10-Q for the quarter ended September
30, 1989, and is incorporated herein by reference.
10(H) Rights Agreement between The B.F.Goodrich Company and
Morgan Shareholder Services Trust Company, as Rights Agent,
dated as of July 20, 1987, and amended and restated as of
December 7, 1987 which includes: as Exhibit A thereto, the
form of Designation, Preferences and Rights of Cumulative
Participating Preferred Stock, Series E; as Exhibit B
thereto, the Form of Rights Certificate; as Exhibit C
thereto, the Summary of Rights to Purchase Preferred Stock;
and the Supplement to the Summary of Rights to Purchase
Preferred Stock. This exhibit was filed with the same
designation as an exhibit to the Company's Form 10-K Annual
Report for the year ended December 31, 1987, and is
incorporated herein by reference. Agreement dated as of
August 1, 1989, substituting The Bank of New York as Rights
Agent and Agreement dated as of August 1, 1989 with The
Bank of New York amending the Rights Agreement. This
exhibit was filed with the same designation as an exhibit
to the Company's Form 10-K Annual Report for the year ended
December 31, 1989 and is incorporated herein by reference.
10(I) Employee Protection Plan. This exhibit was filed with the
same designation as an exhibit to the Company's Form 10-Q
for the quarter ended September 30, 1989, and is
incorporated herein by reference.
10(J) Benefit Restoration Plan. This exhibit was filed with the
same designation as an exhibit to the Company's Form 10-K
Annual Report for the year ended December 31, 1992, and is
incorporated herein by reference.
10(K) Long-Term Incentive Plan. This exhibit was filed with the
same designation as an exhibit to the Company's Form 10-K
Annual Report for the year ended December 31, 1992, and is
incorporated herein by reference.
10(L) Amended and Restated Separation Agreement between the
Company and The Geon Company, which was filed as exhibit
10.1 to Registration Statement No. 33-70998 on Form S-1 of
The Geon Company, is incorporated herein by reference.
II-2
<PAGE> 23
Item 14 (a)(3) Index to Exhibits
Table II
Exhibit No.
- -----------
10(M) Amended and Restated General Assignment and Bill of Sale
between the Company and The Geon Company, which was filed
as exhibit 10.2 to Registration Statement No. 33-70998 on
Form S-1 of The Geon Company, is incorporated herein by
reference.
10(N) Amended and Restated Assumption of Liabilities and
Indemnification Agreement between the Company and The Geon
Company, which was filed as exhibit 10.3 to Registration
Statement No. 33-70998 on Form S-1 of The Geon Company, is
incorporated herein by reference.
11 Statement re Computation of per share earnings
13 Annual Report to Shareholders. The Company's 1994 Annual
Report to Shareholders (only those portions incorporated by
reference in the Form 10-K).
21 Subsidiaries
23 Consent of Independent Auditors
27 Financial Data Schedule
The Company will supply copies of the foregoing exhibits to any shareholder
upon receipt of a written request addressed to the Secretary of The
B.F.Goodrich Company, 3925 Embassy Parkway, Akron, Ohio 44333-1799, and the
payment of $.50 per page to help defray the costs of handling, copying and
postage.
II-3
<PAGE> 1
THE BF GOODRICH COMPANY AND SUBSIDIARIES
EXHIBIT 11 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended
------------------------------------
1994 1993 1992
---- ---- ----
PRIMARY (Dollars in millions,
except per share amounts)
<S> <C> <C> <C>
Number of Shares:
----------------
Average number of shares outstanding 25,766,376 25,687,816 25,552,397
========== ========== ==========
Income:
------
Income from continuing operations $ 65.7 $ 15.3 $ 11.9
Dividends on Preferred Stocks (8.0) (8.2) (8.3)
Income (loss) from discontinued operations 10.0 113.0 (21.3)
Cumulative effect of change in method of
accounting for post retirement benefits
other than pensions - - (286.5)
------ ------ ------
Net income (loss) applicable to Common Stock $ 67.7 $ 120.1 $(304.2)
====== ====== ======
Per Share Amounts:
-----------------
Continuing operations $ 2.24 $ .28 $ .14
Discontinued operations .39 4.40 (.83)
Cumulative effect of change in method of
accounting for post retirement benefits
other than pensions - - (11.21)
------- ------- -------
Net income (loss) $ 2.63 $ 4.68 $ (11.90)
======= ======= =======
FULLY DILUTED
Number of Shares:
----------------
Average number of common shares
outstanding 25,738,110 25,643,172 25,552,397
Effect of dilutive stock options -
based on the treasury method using
last day's market price, if higher
than average market price 28,758 44,713 - (A)
Average number of shares of Common
Stock issuable if Convertible Preferred
Stock was converted - (A) 1,999,800 - (A)
---------- --------- ----------
Total average number of common and common
equivalent shares outstanding 25,766,868 27,687,685 25,552,397
========== ========== ==========
Income:
------
Income from continuing operations $ 65.7 $ 15.3 $ 11.9
Dividends on Preferred Stocks (8.0) (8.2) (8.3)
Restore dividend on Convertible
Preferred Stock - (A) 7.7 - (A)
Income (loss) from discontinued operations 10.0 113.0 (21.3)
Cumulative effect of change in method of
accounting for post retirement benefits
other than pensions - - (286.5)
------ ------ ------
Net income (loss) applicable to Common Stock $ 67.7 $ 127.8 $(304.2)
====== ====== ======
Per Share Amounts:
-----------------
Continuing operations $ 2.24 $ .53 $ .14
Discontinued operations .39 4.09 (.83)
Cumulative effect of change in method of
accounting for post retirement benefits
other than pensions - - (11.21)
------- ------- -------
Net income (loss) $ 2.63 $ 4.62 $ (11.90)
======= ======= =======
<FN>
(A) Anti-Dilutive
</TABLE>
<PAGE> 1
EXHIBIT 13
<PAGE> 2
<TABLE>
BFGOODRICH CONSOLIDATED
<CAPTION>
(In millions) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES $ 2,199.2 $ 1,818.3 $ 1,647.9
OPERATING INCOME:
SEGMENTS 232.7 140.3 138.6
CORPORATE EXPENSES (53.0) (57.6) (63.6)
- --------------------------------------------------------------------------------------------------------------------------
TOTAL $ 179.7 $ 82.7 $ 75.0
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
CONSOLIDATED OPERATIONS
1994 RESULTS: Sales in 1994 reached record levels in each of the Company's
business segments, increasing 21 percent over 1993 to $2,199.2 million. Adjusted
for acquisitions made in 1993 and 1994, sales increased 10 percent.
Factors contributing to this increase include improved sales volume in the
Specialty Chemicals businesses due to expanded product applications and
acquisitions. Price increases announced in late 1994 to counter rising raw
materials costs generally will begin to take effect in 1995. Continued softness
in new aircraft manufacturing reduced the demand for landing systems and many
safety systems products. Improving demand, coupled with a major expansion of
hangar capacity, led to significantly higher sales of maintenance, repair and
overhaul services. Businesses acquired in 1993 also contributed significantly to
the record 1994 sales. Sales of chlor-alkali and olefins products added to the
year's sales growth, as both volume and selling prices increased from the prior
year.
Cost of sales as a percent of sales decreased to 69 percent in 1994 from 70
percent in 1993. Stable raw materials prices and favorable utility costs in the
chlor-alkali and olefins business contributed to the improvement in consolidated
margins. Improving labor efficiencies in the Seattle-based maintenance, repair
and overhaul facility helped to improve overall gross profit. Increases in raw
material prices for many specialty chemicals dampened this improvement. While
not precisely measured, benefits derived from 1993 restructuring actions helped
to counter the increase in manufacturing costs.
Selling and administrative expenses increased $52.2 million to $496.2
million, remaining essentially flat as a percentage of sales. Cost control
measures have contributed to maintaining stable overall costs. Acquisitions made
in late 1993 and in 1994 increased total costs. Lower postretirement benefit
costs and lower pension expense in 1994 resulted from a reduced discount rate
and higher levels of pension funding made during 1993. As a result of rising
interest rates in 1994, however, the Company expects these benefit costs to
increase in 1995.
1993 RESULTS: Sales in 1993 increased to $1,818.3 million, 10 percent over 1992
levels. Increases resulted principally from acquisitions made in Aerospace
businesses. Adjusted for acquisitions made in 1993, sales increased 4 percent
over the prior year. Stronger replacement and service markets mitigated to some
extent the weak conditions that existed throughout 1993 in the Aerospace
original-equipment market.
Higher Specialty Chemicals volume in 1993 reflected improved market results
for many of this segment's products. Generally stronger North American economic
conditions contributed to the sales improvement. Continued weakness in specific
markets such as high-rise commercial construction and poor European market
conditions restricted the overall rate of sales growth.
The sales growth in the chlor-alkali and olefins business resulted almost
entirely from the sale of vinyl chloride monomer to The Geon Company (Geon).
Prior to the initial public offering of about 50.4 percent of Geon's common
stock in May 1993, these sales were eliminated as intrasegment activity.
Cost of sales as a percent of 1993 sales increased to 70 percent, primarily
influenced by the increase in the chlor-alkali and olefins business.
Continued competitive pressures in both the Aerospace and Specialty Chemicals
segments led to slight declines in overall margins. Increasing raw materials
costs for Specialty Chemicals' products also negatively affected profit margins.
The benefits derived from restructuring actions taken in both business segments
in mid-1993 helped to counterbalance these difficult market factors.
Selling and administrative expenses declined to 24 percent of 1993 sales,
compared to 26 percent in 1992. Higher total 1993 costs reflect higher Aerospace
expenses for acquired businesses, however, the incremental sales of acquired
businesses without the need to add duplicate administrative costs significantly
improved this cost relationship.
<PAGE> 3
AEROSPACE
The Aerospace segment of BFGoodrich has, through acquisition and internal
development over the years, diversified its business mix, achieving important
business balance among the original-equipment, replacement and service markets
it serves. This has been an important factor for continued sales growth in an
environment where original-equipment markets remain weak. Commercial aircraft
production has declined significantly over the last four years, which reduces
our sales of original-equipment components. This reduced aircraft build rate is
a reflection of lower orders from the commercial airline industry. In
replacement and service markets, however, BFGoodrich Aerospace is benefiting
from changes in the industry. In fact, many commercial airlines are increasingly
outsourcing various maintenance requirements to reduce operating costs and
simplify business processes. This has led to growth in the segment's
Maintenance, Repair and Overhaul Group (MRO). This Group accounted for
one-fourth of segment revenues in 1994. Replacement markets, such as for the
Company's wheel and brake businesses, also continue to be strong.
The military market has contracted significantly in recent years due to the
end of the Cold War and reduced military budgets. New military aircraft programs
have been either cancelled or delayed. However, the impact of that contraction
has been far less dramatic for BFGoodrich Aerospace since sales to the U.S.
government represent only about 20 percent of Aerospace segment revenues. In
addition, while many new military aircraft are not being built today, the
Company has been successful in winning contracts to retrofit old aircraft with
new technology that can improve performance, such as changing from steel to
carbon brakes.
Overall, the market environment was challenging for the Aerospace segment in
1994. Despite the difficult market conditions, the segment's diversity of
aircraft programs, its mix of original-equipment, aftermarket and service
business, and 1993 acquisitions contributed to the segment's growth in 1994.
<TABLE>
BFGOODRICH AEROSPACE
<CAPTION>
(In millions) 1994 1993 1992
- ------------------------------------------------------------
<S> <C> <C> <C>
SALES $ 1,050.3 $ 855.4 $ 750.0
OPERATING INCOME 121.9 91.3 83.2
NET ASSETS(1) 1,018.9 1,060.1 508.3
- ------------------------------------------------------------
<FN>
(1) Segment assets less segment liabilities, other than debt.
</TABLE>
1994 AEROSPACE SALES BY GROUP
Landing Systems .................................................... 29%
Sensors and Integrated Systems ..................................... 28%
Safety Systems ..................................................... 18%
Maintenance, Repair and Overhaul ................................... 25%
1994 RESULTS: Sales for the Aerospace segment increased 23 percent to $1,050.3
million as a result of internal growth and acquisitions. Adjusted for the effect
of the 1993 acquisitions of the Landing Gear Division, Landing Gear Services
Division and Rosemount Aerospace, sales increased 4 percent.
The Landing Systems Group manufactures landing gear and wheels and brakes.
Sales increased 16 percent to $302.0 million. Adjusted for the acquisition of
the Landing Gear Division, sales increased 2 percent. Increased demand for
replacement wheels and brakes for the Boeing 737 and 747 programs and sales of
wheels and brakes to regional and commuter aircraft manufacturers more than
offset declines in wheel and brake shipments for older, out-of-production
aircraft, where utilization is declining.
The Sensors and Integrated Systems Group manufactures sensors and related
equipment, fuel and integrated utility measurement and management systems,
engine ignition components and electromagnetic actuators and associated
controls. Sales increased by 55 percent to $290.8 million. Adjusted for the 1993
acquisition of Rosemount Aerospace, sales declined 8 percent from 1993 levels.
The sales decline primarily was due to reduced commercial aircraft production
and lower military expenditures.
The Safety Systems Group manufactures aircraft evacuation slides, ice
protection systems, aircraft and airport lighting components, collision warning
and weather detection systems. Sales were $188.6 million, a decline of 2 percent
from 1993. Reduced sales of evacuation slides due to lower commercial aircraft
production and replacement demand accounts for this sales decline.
The BFGoodrich Company and Subsidiaries 17
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The MRO Group provides maintenance, repair and overhaul services for
commercial airframes and components, including landing gear, wheels and brakes,
instruments and avionics. The Group also produces test systems for commercial
avionic systems. Sales increased 25 percent in 1994 to $268.9 million. Adjusted
for the acquisition of Landing Gear Services business in 1993, sales increased
20 percent. During the fourth quarter of 1993, the opening of a new hangar
significantly increased the capacity to provide commercial airframe maintenance.
The trend toward outsourcing of maintenance by airlines resulted in higher
demand for wheel and brake and landing gear repair and overhauls, which also
contributed to revenue growth in 1994.
Aerospace segment operating income increased 34 percent over 1993 to $121.9
million. Excluding 1993 acquisitions and a $3.3 million restructuring charge
recorded in 1993, income increased 17 percent on a comparable 4 percent increase
in sales. Overall, the segment successfully improved operating margins, as the
favorable impact of volume growth, productivity improvements and
cost-containment activities, primarily in the MRO and Landing Systems Groups,
more than offset softness in commercial aircraft manufacturing and military
markets. In those businesses most affected by market-driven volume reductions,
BFGoodrich has aggressively pursued business realignment strategies in order to
preserve and, where possible, expand margins.
1993 RESULTS: In 1993, Aerospace segment results were affected by weak market
conditions. Aerospace sales were $855.4 million in 1993, a 14 percent increase
over 1992. Excluding the acquisitions during the year of the Landing Gear
Division, Landing Gear Services Division and Rosemount Aerospace, sales
increased 1 percent.
Landing Systems sales increased 48 percent to $260.7 million. Excluding the
acquisition of Landing Gear, sales declined 4 percent. Sales of wheels and
brakes for military aircraft declined from the prior year, primarily due to the
completion of the C-5 retrofit program.
Sensors and Integrated Systems sales increased 1 percent to $187.4 million.
Excluding the acquisition of Rosemount Aerospace in late December, sales were
essentially even with 1992. Increased sales of fuel measurement and management
systems offset declining sales of engine components.
Safety Systems sales increased 2 percent over 1992 to $191.9 million.
Increased demand for ice protection systems, increased service to customers in
the Far East, and sales of new collision warning products caused this increase.
Maintenance, Repair and Overhaul sales increased 15 percent from 1992 levels
to $215.4 million. Excluding the acquisition of the Landing Gear Services
business in 1993, sales increased 13 percent. Higher sales of airframe
maintenance services, coupled with increasing demand in international markets,
accounted for the growth in 1993 revenues. In addition, in November 1993, the
Company opened a new hangar, which increased capacity for commercial airframe
maintenance.
Operating income improved 10 percent in 1993 to $91.3 million. Excluding 1993
acquisitions and a $3.3 million restructuring charge related to work force
reductions in the Sensors and Integrated Systems business, operating income
declined 2 percent. The income decline reflected margin erosion due to a weak
industry environment and lower sales of replacement and spare parts as airlines
idled older aircraft. To a lesser extent, declining military sales also
contributed to this income decline.
OUTLOOK: Aerospace industry market conditions, particularly for commercial and
military aircraft production, will remain challenging in 1995. Commercial
aircraft production rates are expected to decline from 1994 levels. The balance
BFGoodrich Aerospace has achieved in its businesses by serving the MRO and
replacement markets should provide for continued growth in 1995. In 1995 and
beyond, most industry analysts are predicting annual long-term growth in
worldwide commercial air traffic of approximately 5 percent. That level of
growth, coupled with the likelihood of increasing retirement of older aircraft,
suggests a rebound in aircraft production rates beginning in late 1996. The
timing and extent of the eventual rebound in aircraft production will largely
depend on the airlines' ability to finance the acquisition of new aircraft. To
the extent that airlines elect to continue to use older aircraft, the demand for
spare parts, and for maintenance, repair and overhaul services on those
aircraft, should increase. In addition, airlines are likely to continue to
outsource portions of their maintenance, repair and overhaul work. The Company
believes that its MRO businesses will continue to grow in this environment.
The outlook for the regional and commuter aircraft market is favorable, with
expected long-term growth rates of approximately 9 percent. BFGoodrich supplies
components for numerous aircraft models serving that market. With ongoing lower
<PAGE> 5
levels of defense spending anticipated, BFGoodrich Aerospace will continue to
pursue retrofit and life-extension programs for older military aircraft, and
should benefit from the sale of spare parts for older aircraft, while targeting
selected new military aircraft and missile programs.
The Company will also continue to pursue cost reduction and productivity
improvement programs in response to the difficult market environment. These
internal programs, coupled with Aerospace's diversity of markets and aircraft
programs, will provide the opportunity for continued sales and income growth.
SPECIALTY CHEMICALS
Total sales and operating income reached record levels in 1994. Leverage of
BFGoodrich Specialty Chemicals' fundamental strength--delivery of value-added
products and technical support as solutions to customers' cost and performance
objectives--was the foundation for this growth. Continued focus on market niches
where the Company believes its products and technology hold a leadership
position, such as specialty plastics and specialty additives, was instrumental
in achieving double-digit growth. Demand in most markets served improved in
1994. Volume improvements were recognized across most of the Company's broad
array of specialty plastic and specialty additive products. While steady
domestic economic growth and recovery in Europe aided this improvement,
development of new product applications enhanced this growth.
Capacity additions for specialty plastic products were brought on-line in
late 1993 and early 1994 to meet higher 1994 demand. Expansion of the business
in 1994 also reflected the benefit of strategic acquisitions, focused on
enhancing technology and industry position in identified growth markets. In late
1993, the Company acquired Sanncor Industries, a manufacturer of environmentally
friendly water-based emulsions used in printing inks, coatings, adhesives and
coated fabrics. Two additional acquisitions, in mid-1994, enhanced the Company's
leadership position in the textile industry. These businesses manufacture
coatings and compounds used in apparel, upholstery, drapery, automotive fabrics
and textile printing.
International expansion of the Specialty Chemicals' businesses also occurred
in 1994. Sales to customers in Europe, the Middle East and Far East increased,
supported by both European and North American manufacturing facilities. Demand
for specialty plastic and specialty additive products was particularly
encouraging.
Products sold into building maintenance, window manufacturing and
construction industries are partially dependent upon the economic environment.
As economic conditions improved in North America and Europe, sales growth to
these industry sectors has generally followed. However, competitive pressures,
particularly in construction sealants markets, continued to negatively affect
income performance.
<TABLE>
BFGOODRICH SPECIALTY CHEMICALS
<CAPTION>
(In millions) 1994 1993 1992
- ------------------------------------------------------------
<S> <C> <C> <C>
SALES $ 988.6 $ 829.6 $ 825.1
OPERATING INCOME 86.7 45.0 40.9
NET ASSETS(1) 536.4 477.6 466.9
- ------------------------------------------------------------
<FN>
(1) Segment assets less segment liabilities, other than debt.
</TABLE>
1994 SPECIALTY CHEMICALS SALES BY GROUP
Specialty Plastics .............................................. 23%
Specialty Additives ............................................. 37%
Sealants, Coatings and Adhesives ................................ 35%
Water Systems and Services ...................................... 5%
1994 RESULTS: Sales in 1994 increased to $988.6 million, or 19 percent over last
year. Volume increases in each Specialty Chemicals Group were largely the reason
for this sales growth. Led by strong European demand for specialty plastic and
specialty additive products, sales outside of North America increased 13 percent
over 1993. Three acquisitions also contributed to the general sales growth.
Excluding acquisitions made in 1994 and late 1993, sales increased 13 percent
over 1993.
The BFGoodrich Company and Subsidiaries 19
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The Specialty Plastics Group manufactures plastic materials for a wide range
of applications, including film and sheet products, wire and cable jacketing,
magnetic media, plumbing and industrial pipe, fire sprinkler systems and
building material components, recreational vehicles and products and
agricultural equipment. Specialty Plastics Group sales increased by 28 percent
from 1993 to $228.1 million. Strong demand across most market sectors
significantly increased North American volume of thermoplastic polyurethane
sales. Higher European demand for this product also improved sales volume. Sales
volume of heat-resistant plastics to the North American plumbing and industrial
markets significantly improved in 1994 aided by improved economic conditions.
The Specialty Additives Group manufactures chemical additives used in
personal-care products, pharmaceuticals, soaps and detergents, water-treatment
products, electronics, tires, petroleum products and molded plastics. Specialty
additives are also used in textile printing, non-woven manufacturing, paper
coating and saturation, graphic arts, paints and industrial coatings. As
previously discussed, during 1994, the Company acquired two separate businesses
serving the textile industry and in December 1993, acquired a water-based
emulsions business. Specialty Additives Group sales increased 28 percent during
1994 to $363.2 million. Adjusted for these acquisitions, sales increased 11
percent. Higher volumes across all product lines were primarily responsible for
the improved sales. In particular, sales volumes for acrylic emulsions sold to
the paper and textile industry sectors showed strong improvement over last year.
Sales of film-forming polymers to textile printing and graphic arts markets also
showed significant improvement. Stronger European economic conditions helped to
increase demand for synthetic thickeners used in personal-care and industrial
applications.
The Sealants, Coatings and Adhesives Group manufactures insulating glass
sealants for window manufacture, construction sealants, waterproofing coatings,
commercial glazing products and commercial roofing products. This Group also
manufactures automotive sealants, adhesives and paint products. Sealants,
Coatings and Adhesives Group sales increased by 8 percent in 1994 to $349.5
million. Improved sales volume in insulating glass sealants was the major
contributor to the overall sales increase. Sales of construction sealants and
roofing products generally were unchanged compared to 1993.
The Water Systems and Services Group designs and builds permanent,
owned-and-operated industrial water purification systems and operates mobile
water purification systems. This group also provides operating services of these
systems under monthly and longer-term service contracts. Sales of this Group
increased by 13 percent in 1994 to $47.8 million. New service contracts put in
place in 1994, coupled with the sale of equipment to several customers,
accounted for this increase.
Operating income for 1994 increased 93 percent to $86.7 million. Operating
income in 1993 included an $8.0 million restructuring charge to mothball a
high-cost manufacturing facility and consolidate European operations. Without
the effect of this charge and the effect of acquisitions, operating income
increased by 55 percent. Sales volume increases accounted for substantially all
of this increase. Announced price increases in specialty additives and plastics
products late in 1994 generally will begin to take effect in 1995. Increases in
raw material prices during 1994 and incremental costs to manufacture products
under third-party contracts to meet customer demand have reduced overall product
margins. The Company achieved, however, improved manufacturing efficiencies and
rationalized a high-cost facility to help counter the effects of rising raw
material prices.
1993 RESULTS: Specialty Chemicals sales were $829.6 million, an increase of 1
percent over the prior year. Higher sales resulted from improved volumes across
most Specialty Chemicals businesses. Generally stronger North American economic
conditions contributed to this volume improvement. Continued weakness in
specific markets, such as high-rise commercial construction, and poor European
economic and market conditions, restricted the growth.
The Specialty Plastics Group sales increased 3 percent in 1993, to $178.5
million. Increased sales volume of heat-resistant plastics into the construction
industry sector was a large contributor to this increase. Lower thermoplastic
polyurethane sales in Europe due to economic conditions there, detracted from
this growth.
The Specialty Additives Group sales increased 3 percent in 1993, to $284.5
million. Higher sales volume of polymer emulsions, primarily to customers in the
paper and textile sectors, caused this growth.
<PAGE> 7
The Sealants, Coatings and Adhesives Group sales declined from 1992 levels by
3 percent to $324.4 million. Lower sales volumes of high-rise construction
products, coupled with the generally weak European market, were leading factors
contributing to this decline.
The Water Systems and Services sales increased 8 percent in 1993 to $42.2
million. New water management service contracts entered into during 1993 led to
the improvement.
Operating income for 1993 increased to $45.0 million, a 10 percent increase
over 1992, despite an $8.0 million restructuring charge. Without the effect of
this charge and a 1992 charge of $5.5 million, operating income increased by 14
percent. Sales volume improvements, discussed previously, were the primary
factors in improved operating income results.
OUTLOOK: Demand for specialty plastic and specialty additive products should
remain strong through 1995 with a strong domestic and an improving European
economy. Actions are under way to enhance domestic manufacturing capacity and
expand European manufacturing volumes to meet improving worldwide demand.
Acquisitions to enhance technological and market strengths may also contribute
to the Company's future global business expansion.
General price increases initiated in late 1994 should continue to improve
both sales growth and profitability. Management continues to evaluate
cost-efficiency alternatives to address competitive pressures on margins and
increasing raw material prices.
OTHER OPERATIONS
Other Operations consists of the chlor-alkali, ethylene and utility operations
located at Calvert City, Ky. Chlorine and ethylene are sold under long-term
contract with selling prices largely dependent on industry supply and demand.
Other products and co-products such as high-purity caustic soda, propylene for
specialty applications and other olefin products are sold into local and
regional markets. The Company believes it does not have a significant market
share and, as a result, products produced by this business are sold at
established market prices.
1994 RESULTS: Sales in 1994 increased 20 percent to $160.3 million. Sales in
1994 include two months of vinyl chloride monomer sales during which a chlorine
and ethylene conversion agreement existed and ten months of chlorine and
ethylene sales subsequent to the expiration of that agreement. The sales
increase in 1994 is a result of higher ethylene and chlorine sales volumes and
higher selling prices, particularly during the last six months of 1994.
Operating income increased to $24.1 million from $4.0 million in 1993. This
increase is attributable to higher selling prices, stable raw material costs and
favorable utility costs during the second half of 1994.
1993 RESULTS: Sales in 1993 were $133.3 million, an 83 percent increase over
1992. Beginning in 1993, as a result of the Company's divestiture of the former
Geon Vinyl Division, the Company entered into an agreement to supply vinyl
chloride monomer to Geon at established market prices. As a result, virtually
all of the sales increase in 1993 represents sales of vinyl chloride monomer to
Geon. These sales were previously eliminated as intrasegment activity.
Operating income of $4.0 million in 1993 declined significantly from the 1992
level of $14.5 million. This decrease was a result of depressed caustic soda
market prices which were 30 percent lower than the previous year. The increase
in vinyl chloride monomer sales contributed only marginally to operating income
as costs and sales prices were essentially the same.
OUTLOOK: Demand for chlor-alkali and olefins products is expected to remain at
current levels during the first half of 1995. However, the Company believes it
does not have a significant market share and selling prices will be determined
by market influences. With high production volumes expected in early 1995, cost
per unit produced should remain at favorable levels, although the continued
beneficial effect on margins of favorable utility costs is uncertain.
The BFGoodrich Company and Subsidiaries 21
<PAGE> 8
<TABLE>
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
(Dollars in millions, except per share amounts)
Year Ended December 31 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES $ 2,199.2 $ 1,818.3 $ 1,647.9
Operating costs and expenses:
Cost of sales 1,523.3 1,278.3 1,133.1
Selling and administrative expenses 496.2 444.0 429.1
Restructuring costs (Note B) - 13.3 10.7
- --------------------------------------------------------------------------------------------------------------------------
2,019.5 1,735.6 1,572.9
- --------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 179.7 82.7 75.0
Interest expense (47.7) (38.3) (39.3)
Interest income 1.8 5.2 3.9
Other expense--net (Note I) (25.2) (34.3) (25.2)
- --------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes and cumulative
effect of change in method of accounting 108.6 15.3 14.4
Income tax (expense) (Note G) (42.9) - (2.5)
- --------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS
BEFORE CUMULATIVE EFFECT OF CHANGE IN
METHOD OF ACCOUNTING 65.7 15.3 11.9
Income (loss) from discontinued operations--net (Note B) 10.0 113.0 (21.3)
Cumulative effect to January 1, 1992, of change in
method of accounting for postretirement
benefits other than pensions (Note A) - - (286.5)
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) 75.7 128.3 (295.9)
Dividends on preferred stocks (8.0) (8.2) (8.3)
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ 67.7 $ 120.1 $ (304.2)
- --------------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE (Note A)
PRIMARY
Continuing operations $ 2.24 $ .28 $ .14
Discontinued operations .39 4.40 (.83)
Cumulative effect of change in method of accounting - - (11.21)
- --------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 2.63 $ 4.68 $ (11.90)
- --------------------------------------------------------------------------------------------------------------------------
FULLY DILUTED
Continuing operations $ 2.24 $ .53 $ .14
Discontinued operations .39 4.09 (.83)
Cumulative effect of change in method of accounting - - (11.21)
- --------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 2.63 $ 4.62 $ (11.90)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS--STATEMENT OF INCOME
RESTRUCTURING COSTS
The Company did not incur restructuring costs in 1994. Restructuring costs in
1993 principally reflect expenses for work force reductions in Aerospace and
Specialty Chemicals businesses and in Central Research. Restructuring costs in
1993 also include a provision for mothballing a plant and relocating equipment
to other plants. Included in the 1993 charge was $11.8 million for work force
reduction and plant mothballing costs and $1.5 million for a non-cash write-off
of fixed assets. As of year-end 1994, the balance remaining of this original
restructuring liability was $2.1 million. Work force reductions are expected to
be completed in the first half of 1995 and no significant change to this
estimate is anticipated.
Restructuring costs reported in 1992 and 1991 all relate to work force
reduction programs and have been completed without significant adjustments to
original estimates.
The Company continues to evaluate employment levels and facility cost
structures in relation to economic and competitive conditions.
INTEREST
Interest expense increased by $9.4 million in 1994 to $47.7 million. Interest
capitalized on qualifying capital projects in 1993 was $5.0 million compared to
$.6 million in 1994. This decrease accounted for approximately half of the
increase in interest expense. Interest costs on the industrial development
revenue bonds issued to fund the 1993 Aerospace hangar facility and generally
higher short-term borrowing during 1994 accounted for the remaining increase.
In May 1993, the Company received $222.7 million from the sale of the first
tranche of The Geon Company stock. These proceeds, along with a $160.0 million
special dividend from Geon, helped to maintain lower average short-term
borrowing during 1993. Temporary investment of these proceeds also benefited
interest income in 1993.
OTHER EXPENSE-NET
Other expense-net includes the cost of health-care benefits for retirees and
environmental costs of previously discontinued businesses, interest on
Company-owned life insurance, gains on sale of Corporate assets and other minor
items. Beginning in 1993, the Company included the equity in loss of an
unconsolidated subsidiary. These losses resulted from development expenses
related to a new technology venture.
Other expense-net decreased $9.1 million in 1994 to $25.2 million. This
decrease resulted from lower health-care benefit costs for retirees of
previously discontinued businesses and a $7.2 million gain recognized on the
sale of certain Corporate assets during the fourth quarter of 1994.
INCOME TAXES
Income tax expense in 1994 was slightly higher than the federal statutory income
tax rate primarily because of state and local income taxes.
In 1993, income tax expense was lower than the domestic statutory rate,
principally due to a $7.4 million benefit resulting from the resolution of
federal tax issues relating to a prior year's return, and a state tax issue
relating to a prior year's return, also settled in 1993. The passage of the
Revenue Reconciliation Act of 1993 caused the Company to adjust its deferred tax
assets and liabilities. Because the Company was in a net deferred tax asset
position, a $1.5 million tax benefit was recorded which also reduced the overall
tax rate.
The lower-than-expected income tax rate in 1992 was primarily the result of
the recognition of tax benefits on foreign losses in excess of statutory tax
rates.
DISCONTINUED OPERATIONS
In the third quarter of 1994, the Company realized a $10.0 million tax benefit
as a result of utilizing, in 1994, excess foreign tax credits resulting from the
1993 sale of The Geon Company. This tax benefit was reported as an additional
gain from the 1993 discontinued operation.
In December 1993, the Company disposed of its remaining investment in The
Geon Company. The disposition of The Geon Company, through public stock
offerings, generated net cash proceeds of $470.4 million and a special dividend
of $160.0 million. The financial gain after tax was $110.9 million. After-tax
equity in earnings of The Geon Company of $2.1 million are also included in
discontinued operations in 1993. Operating losses of $21.3 million in 1992
represent the after-tax results of operations of The Geon Company in that year.
The BFGoodrich Company and Subsidiaries 23
<PAGE> 10
<TABLE>
CONSOLIDATED BALANCE SHEET
<CAPTION>
(Dollars in millions, except per share amounts)
December 31 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 35.8 $ 33.4
Accounts and notes receivable (Note J) 384.5 320.6
Inventories (Note J) 358.8 340.6
Deferred income tax assets (Note G) 64.9 69.1
Prepaid expenses 34.8 30.1
- --------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 878.8 793.8
- --------------------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAX ASSETS (Note G) 57.0 62.1
PROPERTY (Note J) 873.3 836.0
GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS (Notes A, B and J) 549.5 545.9
INTANGIBLE PENSION ASSET (Note E) 49.5 56.1
OTHER ASSETS 60.8 66.0
- --------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,468.9 $ 2,359.9
- --------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Short-term bank debt (Note C) $ 70.4 $ 23.9
Accounts payable 239.1 181.4
Accrued expenses (Note J) 246.9 230.4
Income taxes payable 26.4 18.5
Current maturities of long-term debt and capital lease
obligations (Notes C and D) 55.2 15.2
- --------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 638.0 469.4
- --------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (Notes C and D) 427.1 486.5
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (Note F) 353.6 346.2
OTHER NON-CURRENT LIABILITIES (Note J) 127.6 158.7
REDEEMABLE PREFERRED STOCK (Note L) - 3.8
SHAREHOLDERS' EQUITY
$3.50 Cumulative Convertible Preferred Stock, Series D
(stated at involuntary liquidation value of $50 per share)
2,200,000 shares issued and outstanding 110.0 110.0
Common Stock--$5 par value
Authorized, 100,000,000 shares; issued, 25,950,722
shares in 1994 and 25,758,533 shares in 1993 129.8 128.8
Additional capital 401.7 393.8
Income retained in the business (Note C) 305.7 294.6
Cumulative unrealized translation adjustments 4.9 (.3)
Amount related to recording minimum pension liability (18.6) (21.7)
Unearned portion of restricted stock awards (3.9) (4.8)
Common stock held in treasury, at cost (160,566
shares in 1994 and 114,870 shares in 1993) (7.0) (5.1)
- --------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 922.6 895.3
- --------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,468.9 $ 2,359.9
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS-BALANCE SHEET
CAPITAL RESOURCES AND LIQUIDITY
Current assets less current liabilities at December 31, 1994 decreased $83.6
million to $240.8 million. An increase in current assets of 11 percent was more
than offset by a 36 percent increase in current liabilities. The current asset
increase resulted from a 20 percent increase in accounts receivable generated by
a 22 percent increase in fourth quarter 1994 sales, compared to the prior year's
quarter. The increase in current liabilities resulted from increases in accounts
payable and accrued expenses related to the higher business activity at year-end
1994 and to the higher level of capital projects currently in process.
Short-term debt also increased $46.5 million from the prior year to finance
generally higher investment in current assets. Current maturities of long-term
debt were $40.0 million higher than year-end 1993, as two of the notes payable
to banks will mature in the first half of 1995.
The Company's quick ratio also declined from .75X to .66X at December 31,
1994. More liquid assets (cash and cash equivalents and accounts receivable)
increased by $66.3 million. Increases in current liabilities, however,
negatively affected this ratio. The Company intends to finance short-term bank
debt and currently maturing long-term debt on a longer-term basis. This action
will improve near-term liquidity in 1995.
Beyond the revolving credit agreements described below, the Company has
available $95.3 million of foreign credit lines and uncommitted money market
lines of credit at December 31, 1994. Based on the current working capital
position and these credit facilities, the Company believes it has adequate
working capital for its operating requirements.
Total long-term debt and capital lease obligations decreased $59.4 million
from the prior year to $427.1 million. This decrease resulted from scheduled
payments of maturing debt and the classification of 1995 maturities to current
liabilities as previously discussed. Total shareholders' equity also increased
$27.3 million in 1994 to $922.6 million. Income retained in the business (net
income less dividends) increased by $11.1 million. Common stock and additional
capital increased $8.9 million as a result of the issuance of $6.3 million of
common stock to effect a small acquisition and shares issued under employee
compensation plans. Non-cash increases in shareholders' equity resulted from a
$5.2 million increase in foreign currency translation adjustments because of a
weaker U.S. dollar. Also, a decrease in the minimum pension liability adjustment
resulted from higher plan funding in prior years and an increase in the discount
rate assumption at December 31, 1994.
As a result of the above changes, the Company's debt-to-capital ratio was
37.4 percent (32.1 percent adjusted for the after-tax effect of SFAS No. 106) at
December 31, 1994, a small increase from the 1993 ratio of 36.9 percent (31.5
percent adjusted for the after-tax effect of SFAS No. 106). A rise in total debt
of 5 percent caused this increase. While net income was negatively affected by
the interest cost on this slightly higher debt level, the additional borrowing
was short-term debt at favorable interest rates during 1994. The Company's
higher earnings and cash flow in 1994, coupled with planned continued operating
improvements in 1995, should stabilize or decrease this ratio in future years.
At December 31, 1994, the Company had available $300.0 million of borrowing
capacity under revolving credit agreements with various banks. These credit
facilities remain in place through mid-1997, unless extended by the Company with
approval of the banks. In addition, the Company has an effective shelf
registration statement with the Securities and Exchange Commission with respect
to $250.0 million of public debt securities. The Company believes that these
credit facilities are sufficient to meet longer-term capital requirements,
including normal maturities of long-term debt.
RETURN ON EQUITY
The Company's return on common shareholders' equity, a measure of net income
adjusted for preferred dividend requirements as a percentage of average common
shareholders' equity, was 8.5 percent in 1994. The comparable return for 1993
was 16.0 percent. Although return on equity declined in 1994, net income in 1993
included a discontinued operations gain on the sale of The Geon Company of
$110.9 million, compared to only $10.0 million in 1994. Excluding these gains
from net income in each year, return on equity would have been 7.2 percent and
1.2 percent in 1994 and 1993. This return, while not acceptable, showed
significant improvement. Management's objective is to achieve a return on equity
in the mid-teens by the end of 1997, in order to enhance shareholder value.
Management actions to contain operating costs and improve product sales prices
and volumes should improve this return in 1995.
The BFGoodrich Company and Subsidiaries 25
<PAGE> 12
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
(Dollars in millions)
Year Ended December 31 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 75.7 $ 128.3 $ (295.9)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of change in method of accounting - - 286.5
Restructuring costs - 13.3 25.1
Depreciation and amortization 112.1 109.2 137.7
Deferred income taxes 21.2 5.4 (12.3)
Gain on sale of business - (110.9) -
Change in assets and liabilities, net of effects of acquisitions
and dispositions of businesses:
Receivables (62.8) (77.2) 29.0
Inventories (4.9) (13.2) 40.2
Other current assets (2.3) (20.3) .2
Accounts payable 57.6 2.6 10.9
Accrued expenses 9.5 (28.1) 27.4
Income taxes payable (5.6) (29.2) (8.2)
Other non-current assets and liabilities (16.9) 2.7 (5.8)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 183.6 (17.4) 234.8
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property (129.3) (146.2) (200.2)
Proceeds from sale of property 10.5 3.0 6.9
Payments made in connection with acquisitions
net of cash acquired (20.2) (528.5) (5.9)
Proceeds and dividends from sales of businesses - 568.1 11.0
Other transactions - 17.0 (.5)
- --------------------------------------------------------------------------------------------------------------------------
Net cash (used) by investing activities (139.0) (86.6) (188.7)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term debt 46.7 20.2 (4.0)
Proceeds from issuance of long-term debt - 111.5 137.0
Repayment of long-term debt and capital lease obligations (20.5) (26.5) (71.0)
Proceeds from issuance of capital stock 1.4 4.3 3.6
Purchases of treasury stock (1.1) (.8) (7.9)
Dividends (64.6) (64.6) (64.5)
Retirement of preferred stock (4.9) (2.5) (.1)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (43.0) 41.6 (6.9)
EFFECT OF EXCHANGE RATE CHANGES ON CASH .8 (1.6) (2.9)
- --------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2.4 (64.0) 36.3
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 33.4 97.4 61.1
- --------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 35.8 $ 33.4 $ 97.4
- --------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS--CASH FLOWS
CASH FLOWS
"Net operating cash flow" is cash from operations remaining after the Company
has satisfied its capital expenditures commitments to enhance manufacturing
efficiencies, expand productive capacity and avail itself of competitive
opportunities. The Company's strategy is to maximize cash flow and to reinvest
in opportunities that will create shareholder value as well as return to
shareholders a portion of that value through dividend payments. The Consolidated
Statement of Cash Flows, summarized to show sources and uses of Net operating
cash flow follows:
<TABLE>
<CAPTION>
(In millions)
Year Ended December 31 1994 1993 1992
- ----------------------------------------------------------
<S> <C> <C> <C>
Cash flows from (used for):
Operating $ 183.6 $ (17.4) $ 234.8
Acquisitions and
divestitures - net (20.2) 39.6 5.1
Other investing activities (118.8) (126.2) (193.8)
- ----------------------------------------------------------
"Net operating cash flow" 44.6 (104.0) 46.1
Used for:
Dividends (64.6) (64.6) (64.5)
Other financing activities 21.6 106.2 57.6
Effect of foreign exchange .8 (1.6) (2.9)
- ----------------------------------------------------------
Increase (decrease) in cash
and cash equivalents $ 2.4 $ (64.0) $ 36.3
- ----------------------------------------------------------
</TABLE>
Operating cash flow improved significantly as net income, adjusted for the
gain on discontinued operations in 1993, increased $58.3 million. This increase,
along with the reduced investment in working capital, was more than adequate to
finance capital expenditures. Investment in fixed assets has exceeded annual
depreciation in recent years as a result of facility expansion and higher cost
of asset replacements. Capital additions of $129.3 million declined from 1993.
Planned capital programs will require higher capital spending in 1995.
Acquisitions and divestitures generated cash of $39.6 million in 1993, as the
proceeds from the sale of The Geon Company exceeded the cost of companies
acquired. In 1994, businesses acquired with cash cost $20.2 million. The Company
had planned to balance acquisitions with divestitures to achieve a neutral cash
flow position after payment of dividends. While no divestitures took place in
1994, the Company continues to evaluate divestiture alternatives for certain
businesses that do not meet strategic or income return goals.
Financing activity in 1994, other than dividend payments, was near 1993
levels as net borrowing increased $26.2 million. This modest increase in debt
was used to support working capital increases and acquisitions.
ENVIRONMENTAL MATTERS
Federal, state and local statutes and regulations relating to the protection
of the environment and the health and safety of employees and other individuals
have resulted in higher operating costs and capital investments by the
industries in which the Company operates. Because of the continuing trend toward
greater environmental awareness and increasingly stringent environmental
regulations, the Company believes that expenditures for compliance with
environmental, health and safety regulations will continue to have a significant
impact on the conduct of its business. Although it cannot predict accurately how
these developments will affect future operations and earnings, the Company does
not believe its costs will vary significantly from those of its competitors.
The Company expects to incur capital expenditures and future costs for
environmental, health and safety improvement programs. These expenditures are
customary operational costs and are not expected to have a material adverse
effect on the financial position, liquidity or results of operations of the
Company.
BFGoodrich and its subsidiaries are generators of both hazardous wastes and
non-hazardous wastes, the treatment, storage, transportation and disposal of
which are subject to various laws and government regulations. Although past
operations were in substantial compliance with the then-applicable regulations,
the Company has been designated as a potentially responsible party by the U.S.
Environmental Protection Agency in connection with approximately 39 sites, most
of which relate to businesses previously disposed. The Company believes it may
have continuing liability only with respect to not more than 22 sites.
A significant portion of the environmental liability relates to six sites of
which five sites relate to businesses previously divested. Two of the most
significant variables in determining the Company's ultimate liability are the
remediation method ultimately adopted for the site and the Company's share of
the total site remediation cost. With respect to these sites, the Company's
maximum percentage share of the ultimate remediation costs is fixed. The five
sites relating to businesses previously divested are all in the design or
construction phases. While estimates of the ultimate completion cost can be
made, the final cost at completion can vary significantly as a result of changes
made during the construction phase and changed regulatory agency requirements,
all of which are difficult to predict. As an example, during the fourth quarter
of 1994, the Company accrued an additional $7.2 million, primarily for
construction cost overruns related to one of the above sites nearing completion.
Management believes that further changes in estimates that may occur as a result
of new information should not be material to the Company's financial condition.
The BFGoodrich Company and Subsidiaries 27
<PAGE> 14
<TABLE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<CAPTION>
(Dollars in millions, except per share amounts)
Year Ended December 31 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$3.50 CUMULATIVE CONVERTIBLE PREFERRED STOCK,
SERIES D (Note L) $110.0 $110.0 $ 110.0
- -----------------------------------------------------------------------------------------------------------
COMMON STOCK--$5 PAR VALUE (Note M)
Balance at beginning of year 128.8 128.2 127.8
Common Stock issued for:
Acquisitions .7 - -
Employee award programs .3 .6 .4
- -----------------------------------------------------------------------------------------------------------
Balance at end of year 129.8 128.8 128.2
- -----------------------------------------------------------------------------------------------------------
ADDITIONAL CAPITAL
Balance at beginning of year 393.8 391.5 385.9
Capital share transactions 7.9 2.3 5.6
- -----------------------------------------------------------------------------------------------------------
Balance at end of year 401.7 393.8 391.5
- -----------------------------------------------------------------------------------------------------------
INCOME RETAINED IN THE BUSINESS (Note C)
Balance at beginning of year 294.6 230.9 591.3
Net income (loss) 75.7 128.3 (295.9)
Dividends:
Preferred Stock:
Series A, $7.85 a share (.3) (.5) (.6)
Series D, $3.50 a share (7.7) (7.7) (7.7)
Common Stock--$2.20 a share in each year (56.6) (56.4) (56.2)
- -----------------------------------------------------------------------------------------------------------
Total Dividends (64.6) (64.6) (64.5)
- -----------------------------------------------------------------------------------------------------------
Balance at end of year 305.7 294.6 230.9
- -----------------------------------------------------------------------------------------------------------
CUMULATIVE UNREALIZED TRANSLATION ADJUSTMENTS
Balance at beginning of year (.3) (7.8) 7.5
Effect of disposition of foreign operations - 16.7 4.8
Aggregate adjustments for the year 5.2 (9.2) (20.1)
- -----------------------------------------------------------------------------------------------------------
Balance at end of year 4.9 (.3) (7.8)
- -----------------------------------------------------------------------------------------------------------
AMOUNT RELATED TO RECORDING MINIMUM PENSION
LIABILITY (Note E) (18.6) (21.7) (10.9)
- -----------------------------------------------------------------------------------------------------------
UNEARNED PORTION OF RESTRICTED STOCK AWARDS (Note N) (3.9) (4.8) (11.9)
- -----------------------------------------------------------------------------------------------------------
COMMON STOCK HELD IN TREASURY, AT COST (Note M) (7.0) (5.1) (1.2)
- -----------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $922.6 $895.3 $ 828.8
- -----------------------------------------------------------------------------------------------------------
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements reflect the
accounts of The BFGoodrich Company (BFGoodrich or the Company) and its
controlled affiliates. Investments of 20 to 50 percent owned affiliates and
majority-owned companies in which investment is considered temporary are
accounted for using the equity method. Equity in earnings from these businesses
is included in Other expense-net. Gains and losses on the sale of stock of
subsidiaries are recognized when realization is reasonably assured. Intercompany
accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS: Cash equivalents consist of highly liquid investments
with a maturity of three months or less at the time of purchase.
INVENTORIES: Inventories are stated at the lower of cost or market. Certain
domestic inventories are valued by the last-in, first-out (LIFO) cost method.
Inventories not valued by the LIFO method are valued principally by the average
cost method.
LONG-LIVED ASSETS: Property, plant and equipment, including amounts
recorded under capital leases, are recorded at cost with depreciation and
amortization principally computed by the straight-line method. Property is
generally depreciated on accelerated methods for income tax purposes. Repairs
and maintenance costs are expensed as incurred.
Goodwill represents the excess of the purchase price over the fair value of
the net assets of acquired businesses and is being amortized by the
straight-line method, in most cases over forty years.
Identifiable intangible assets are recorded at cost, or when acquired as a
part of a business combination, at estimated fair value. These assets include
patents and other technology agreements, licenses and non-compete agreements.
They are amortized using the straight-line method over estimated useful lives of
five to twenty-five years.
Beginning in the first quarter of 1994, identifiable intangible assets have
been reclassified from Other Assets to Goodwill and Identifiable Intangible
Assets. For comparison purposes, a similar reclassification of $23.0 million was
made to the 1993 balance sheet. In addition, amortization of Goodwill and
Identifiable Intangible Assets has been combined with depreciation expense on
the Statement of Cash Flows.
Impairment of long-lived assets is recognized when events or changes in
circumstances indicate that the carrying amount of the asset, or related group
of assets, may not be recoverable. Measurement of the amount of impairment may
be based on appraisal, market values of similar assets or estimated undiscounted
future cash flows resulting from use and ultimate disposition of the asset.
REVENUE RECOGNITION: The Company recognizes revenues from sale of products at
the point of passage of title, which is generally at the time of shipment.
Revenues earned from providing maintenance service is recognized when the
service is complete and customer approval is received.
FINANCIAL INSTRUMENTS: The Company's financial instruments recorded on the
balance sheet include cash and cash equivalents and debt. Because of their short
maturity, the carrying amount of cash and cash equivalents and short-term bank
debt approximates fair value. Fair value of long-term debt is based on rates
available to the Company for debt with similar terms and maturities.
Off balance sheet derivative financial instruments include interest rate swap
agreements and foreign currency exchange agreements. Interest rate swap
agreements are used by the Company to manage interest rate risk on its floating
rate debt portfolio. Each interest rate swap is matched as a hedge against a
specific debt instrument and has the same notional amount as the related debt
instrument principal. These financial instruments were entered into at the time
the related floating rate debt was issued in order to convert the floating rate
debt to fixed rates. Fair value of these instruments is based on estimated
current settlement cost.
In the normal course of business, the Company sells chemical inventory
manufactured in the United States to subsidiaries in Europe for resale to
customers. In order to fix the intercompany transfer price, the Company
purchases foreign currency exchange contracts. These agreements reduce the risk
that unusual adverse foreign currency fluctuations will reduce profitability to
unacceptably low margins on resale of the products. Foreign currency exchange
agreements are purchased from banks, generally to hedge European currencies.
They mature in amounts equivalent to monthly purchases of product over a
three-month period. Deferred gains and losses, which were not significant in any
period, are included as part of the cost of inventory and are recognized in
operating income when inventory is sold to third parties.
EARNINGS (LOSS) PER SHARE: Primary earnings per share of common stock are
computed after recognition of preferred stock dividend requirements, based on
the weighted average number of common stock and common stock equivalents
out-
The BFGoodrich Company and Subsidiaries 29
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE A: SIGNIFICANT ACCOUNTING POLICIES (continued)
standing of 25,766,376 for 1994, 25,687,816 for 1993 and 25,552,397 for 1992.
Earnings per share, assuming full dilution, give effect to the assumed exercise
of dilutive stock options in each year and, if dilutive, the assumed conversion
of Series D Cumulative Convertible Preferred Stock. The weighted average number
of shares used for the fully diluted calculation for 1993 is 27,687,685. Fully
diluted earnings per share for 1994 and 1992 are the same as primary earnings
per share, since the effect of conversion of the Series D Cumulative Convertible
Preferred Stock is anti-dilutive.
RECENTLY ISSUED ACCOUNTING STANDARDS: In November 1992, the Financial Accounting
Standards Board issued SFAS No. 112--"Employers' Accounting for Postemployment
Benefits," which addresses the accounting for benefits to former or inactive
employees after employment, but before retirement. This new standard, which was
adopted on January 1, 1994, did not affect the Company's financial position or
results of operations. In October 1994, SFAS No. 119 "Disclosure about
Derivative Financial Instruments" was issued, which addresses disclosure issues
only. The Company adopted this Standard upon issuance and has included the
required disclosure in the Accounting Policy and Supplemental Balance Sheet
Information footnotes.
Effective January 1, 1992, BFGoodrich adopted SFAS No. 106--"Employers'
Accounting for Postretirement Benefits Other Than Pensions." The adoption, which
requires that the projected future cost of providing postretirement benefits,
such as health-care and life insurance, be recognized as an expense as employees
render service, instead of when claims are incurred, resulted in a charge to
1992 net income of $286.5 million ($434.0 million before tax), or $11.21 per
share.
Other recently issued standards of the Financial Accounting Standards Board
are not expected to affect the Company as conditions to which those standards
apply are absent.
RECLASSIFICATIONS: Certain amounts presented in prior years' financial
statements have been reclassified to conform with the 1994 presentation.
NOTE B: ACQUISITIONS, DISPOSITIONS AND RESTRUCTURINGS
ACQUISITIONS: During 1994, the Company acquired two small specialty chemical
businesses which manufacture coatings and products for the textile industry.
These acquisitions, which were not material, were accounted for as purchases,
with operations included in the Company's results from the dates of acquisition.
On June 10, 1993, BFGoodrich acquired certain assets and assumed certain
liabilities of the now Landing Gear Division and Landing Gear Services Division
for a cash purchase price of $193.4 million. The Landing Gear Division designs,
develops and manufactures landing gear for commercial and military aircraft.
On December 15, 1993, BFGoodrich acquired certain assets and assumed certain
liabilities of Rosemount Aerospace for $301.1 million in cash. Rosemount
Aerospace designs and manufactures aerospace sensors and related equipment.
Also during 1993, BFGoodrich acquired the assets and assumed certain
liabilities of six other businesses and the minority interest in a previously
majority-owned subsidiary. The aggregate purchase price of these businesses was
$34.0 million.
These acquisitions were recorded using the purchase method of accounting.
Their results of operations have been included in the consolidated financial
statements since the dates of acquisition. Initial goodwill recorded in 1993
resulting from these acquisitions was $350.5 million, which was being amortized
using the straight-line method principally over forty years.
During 1994, upon completion of asset fair value studies, purchase price
allocation adjustments were made affecting various balance sheet accounts. These
adjustments had the effect of reducing goodwill by $18.4 million. Identifiable
intangible assets, principally intellectual property, were increased by $32.7
million. Adjustments to other balance sheet accounts were individually not
significant. Intellectual property is being amortized using the straight-line
method over estimated lives of five to twenty-five years. The effect of these
adjustments on operations was not significant.
During 1992, BFGoodrich acquired three minor businesses all of which were
recorded using the purchase method of accounting.
DISPOSITIONS: On May 6, 1993, the Company received $222.7 million by selling
13.1 million shares of The Geon Company stock at $17 per share (net of
commissions). This represented approximately 50.4 percent of its interest in The
Geon Company. On December 1, 1993, the Company sold its remaining investment in
The Geon Company (12.9 million shares) for $19.20 per share (net of commissions)
and received $247.7 million. Prior to the sale of The Geon Company, the Company
received a special distribution of $160.0 million from Geon. Of this amount,
$50.0 million was received in cash prior to the initial public offering.
Subsequently, the Company received $110.0 million in cash. The Geon Company
represented the Company's only polyvinyl chloride manufacturing business.
<PAGE> 17
As a result of these transactions, The Geon Company results of operations and
related gain on the sales of securities have been reported as discontinued
operations in the Consolidated Statement of Income. The results of discontinued
operations include:
<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
- ----------------------------------------------------------------
<S> <C> <C> <C>
Sales $ - $ - $ 877.9
- ----------------------------------------------------------------
Income (loss) from operations $ - $ .1 $ (30.7)
Equity in earnings
(from May 6, 1993) - 3.2 -
Income tax (expense) benefit - (1.2) 9.4
Net income (loss)
from operations - 2.1 (21.3)
Gain on disposal of
The Geon Company
(net of tax of $104.3 in 1993) 10.0 110.9 -
- ----------------------------------------------------------------
Income (loss) from
Discontinued Operations $ 10.0 $ 113.0 $ (21.3)
- ----------------------------------------------------------------
</TABLE>
The gain on disposal in 1993 includes $16.7 million and $3.1 million of
foreign currency translation losses and minimum pension liability, respectively,
recognized at the dates of sale.
In 1994, the Company recognized a $10.0 million tax benefit as a result of
realizing the benefit of utilizing excess foreign tax credits resulting from the
1993 sale. This tax benefit is reported as a discontinued operation in 1994.
RESTRUCTURINGS: During 1993, the Company announced several restructuring
programs, the aggregate cost of which was $13.3 million. This amount includes
$8.0 million for severance, mothballing and moving costs associated with
streamlining certain Specialty Chemicals businesses; $3.3 million of severance
costs relating to cost-reduction programs in certain Aerospace businesses; and
$2.0 million of severance costs relating to realignment of the Central Research
organization.
Under these programs, employment was permanently reduced by approximately 300
salaried and wage positions. At December 31, 1994, $2.1 million of the initial
restructuring cost remains, which principally relates to work force reduction
actions. Because of management changes made during 1994, it is expected that the
remainder of these programs will be completed during the first half of 1995.
In 1992, the Company had restructuring costs of $10.7 million. This amount
includes $5.5 million related to streamlining Specialty Chemicals operations by
reducing employment; $1.6 million related to employment reductions in Other
Operations; and $3.6 million, primarily related to a voluntary retirement
program to reduce Corporate administrative costs. These programs were completed
during 1993 without significant adjustment.
NOTE C: FINANCING ARRANGEMENTS
SHORT-TERM BANK DEBT: At December 31, 1994, the Company had separate revolving
credit agreements with certain banks providing for domestic lines of credit
aggregating $300.0 million. Borrowings under these agreements can be for periods
of up to 364 consecutive days and bear interest, at the Company's option, at
rates tied to the banks' certificate of deposit, Eurodollar or prime rate. The
lines expire on June 30, 1997, unless extended by the banks at the request of
the Company. Under the agreements, the Company is required to pay a commitment
fee of 1/4 of 1 percent per annum on the average daily unused amount of the
commitment. At December 31, 1994, no amounts were outstanding pursuant to these
agreements.
In addition, the Company had available formal foreign lines of credit and
overdraft facilities of $45.7 million at December 31, 1994, of which $11.9
million was used. The Company also maintains uncommitted domestic money market
facilities with various banks aggregating $170.0 million under which $108.5
million was outstanding at December 31, 1994. Weighted average interest rates on
outstanding short-term borrowings were 6.6 percent and 5.1 percent at December
31, 1994 and 1993. Average interest rates on short-term borrowings were 4.9, 7.6
and 11.1 percent in 1994, 1993 and 1992, respectively.
In connection with $50.0 million of the floating rate borrowings, the Company
has designated as a hedge an interest rate swap agreement effectively fixing the
interest rate at 9.8 percent. This borrowing has been classified as long-term
debt as it is the Company's intent to refinance the obligation on a long-term
basis under the revolving credit agreement previously discussed.
At December 31, 1994 and 1993, long-term debt and capital lease obligations
payable after one year consisted of:
<TABLE>
<CAPTION>
(In millions) 1994 1993
- ------------------------------------------------------------
<S> <C> <C>
Short-term debt expected
to be refinanced $ 50.0 $ 50.0
9.625% Notes, maturing in 2001 175.0 175.0
9.04% Notes, maturing in 1996 50.0 50.0
Notes payable to banks 59.8 112.2
7.00% Subordinated Debentures
(effective interest rate of 7.85%),
maturing to 1997 9.1 9.1
Other debt, maturing to 2023
(interest rates from 6.0% to 14.5%) 78.8 85.0
Unamortized debt discounts (.2) (.3)
- ------------------------------------------------------------
422.5 481.0
Capital lease obligations (Note D) 4.6 5.5
- ------------------------------------------------------------
Total $ 427.1 $ 486.5
- ------------------------------------------------------------
</TABLE>
The BFGoodrich Company and Subsidiaries 31
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE C: FINANCING ARRANGEMENTS (continued)
NOTES PAYABLE TO BANKS: Notes payable to banks include both fixed and floating
rate instruments which have principal maturing in various years from 1995
through 1997. The floating rate instruments have been fixed as a result of
entering into interest rate swap agreements. Fixed interest rates on all notes
payable to banks range from 6.45 percent to 8.10 percent.
OTHER DEBT: Other debt principally includes industrial development revenue
bonds. In 1993, a development authority issued $60.0 million of 6.0 percent
bonds due 2023 to finance the construction of a hangar facility used in the
Aerospace business. As a result of a guarantee of repayment by the Company,
this obligation has been reported as debt of the Company.
The Company has an effective shelf registration filed with the Securities and
Exchange Commission which enables the Company to issue up to $250.0 million of
debt securities in the public markets.
Aggregate maturities of long-term debt, exclusive of capital lease
obligations, during the five years subsequent to December 31, 1994, are as
follows (in millions): 1995--$53.5; 1996--$130.6; 1997--$42.5; 1998--$4.3 and
1999--$.5.
The Company's debt agreements contain various restrictive covenants that,
among other things, place limitations on the payment of cash dividends and the
repurchase of the Company's capital stock. Under the most restrictive of these
agreements, income retained in the business in the amount of $257.4 million was
free from such limitations at December 31, 1994.
NOTE D: LEASING ARRANGEMENTS
The Company leases certain of its office and manufacturing facilities as well as
machinery and equipment under various leasing arrangements. The future minimum
lease payments, by year and in the aggregate, under capital leases and under
noncancelable operating leases with initial or remaining noncancelable lease
terms in excess of one year, consisted of the following at December 31, 1994:
<TABLE>
<CAPTION>
Capital Noncancelable
(In millions) Leases Operating Leases
- ------------------------------------------------------------
<S> <C> <C>
1995 $ 2.1 $ 14.8
1996 1.5 11.4
1997 1.0 6.5
1998 .9 4.0
1999 .8 3.0
Thereafter 1.4 20.8
- ------------------------------------------------------------
Total minimum payments 7.7 $ 60.5
Amounts representing interest 1.4 -----------
- ---------------------------------------
Present value of net minimum
lease payments 6.3
Less current portion of
capital lease obligations 1.7
- ---------------------------------------
Total $ 4.6
- ---------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Net rent expense consisted of the following:
(In millions) 1994 1993 1992
- ------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals $ 24.6 $ 22.7 $ 24.1
Contingent rentals 2.4 1.1 1.5
Sublease rentals (.1) (.1) (1.9)
- ------------------------------------------------------------
Total $ 26.9 $ 23.7 $ 23.7
- ------------------------------------------------------------
</TABLE>
NOTE E: PENSIONS
BFGoodrich and its subsidiaries have several contributory and noncontributory
defined benefit pension plans covering substantially all employees. Plans
covering salaried employees generally provide benefit payments using a formula
that is based on an employee's compensation and length of service. Plans
covering hourly employees generally provide benefit payments of stated amounts
for each year of service.
The Company's general funding policy for pension plans is to contribute
amounts at least sufficient to satisfy regulatory funding standards. For
underfunded plans, plan assets were approximately 91 percent of the accumulated
benefit obligation at December 31, 1994. The Company's intention is to fully
fund these plans by 1997. Assets for these plans consist principally of
corporate and government obligations and commingled funds invested in equities,
debt and real estate.
The components of net periodic pension cost, which includes pension cost
allocated to the former Geon Vinyl Division in 1992 of $13.5 million, are as
follows:
<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
- ---------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned $ 11.1 $ 11.7 $ 11.8
Interest cost on projected benefit
obligation 44.0 44.3 56.2
Actual return on plan assets (16.3) (41.5) (33.7)
Net amortization and deferral (18.9) 8.9 (3.4)
- ---------------------------------------------------------------
Net pension cost $ 19.9 $ 23.4 $ 30.9
- ---------------------------------------------------------------
</TABLE>
<PAGE> 19
Amortization of unrecognized transition assets and liabilities, prior service
cost and gains and losses (if applicable) are recorded using the straight-line
method over the average remaining service period of active employees, or
approximately twelve years.
In 1993, BFGoodrich recorded a prepaid pension asset for Cleveland Pneumatic
of $2.3 million. In 1992, the Company recognized, as part of the restructuring
cost, a $1.7 million expense related to a voluntary retirement program offered
to employees in its Corporate administrative and research functions.
The table that follows sets forth the status of the Company's funded defined
benefit pension plans as of December 31, 1994 and 1993, and the amounts
recognized in the Consolidated Balance Sheet at those dates. This table excludes
accrued pension costs for unfunded, non-qualified pension plans of $7.0 million
in 1994 and $7.4 million in 1993, and the related projected benefit obligations
of $6.5 million in 1994 and $8.5 million in 1993.
<TABLE>
<CAPTION>
(In millions) 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
Plans with Plans with Plans with Plans with
Assets Exceeding Accumulated Benefit Assets Exceeding Accumulated Benefit
Accumulated Obligation Accumulated Obligation
Benefit Obligation Exceeding Assets Benefit Obligation Exceeding Assets
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of
accumulated benefit obligation:
Vested $ 8.1 $ 467.5 $ 10.1 $ 517.5
Non-vested .4 25.1 .5 27.0
- ------------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 8.5 492.6 10.6 544.5
Plan assets at fair value 15.7 448.7 17.5 475.7
- ------------------------------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than)
accumulated benefit obligation $ 7.2 $ (43.9) $ 6.9 $ (68.8)
- ------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation $ 10.9 $ 531.1 $ 13.6 $ 581.6
Plan assets at fair value 15.7 448.7 17.5 475.7
- ------------------------------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation $ 4.8 $ (82.4) $ 3.9 $(105.9)
- ------------------------------------------------------------------------------------------------------------------------------
Consisting of:
Unrecognized transition asset (liability) $ .8 $ (28.3) $ .9 $ (32.0)
Unrecognized prior service cost (.6) (20.0) (.6) (24.1)
Unrecognized net gain (loss) 3.8 (67.1) 2.9 (69.8)
Adjustment required to
recognize minimum liability - 76.9 - 88.8
Prepaid (accrued) pension cost
recognized in the balance sheet .8 (43.9) .7 (68.8)
- ------------------------------------------------------------------------------------------------------------------------------
Total $ 4.8 $ (82.4) $ 3.9 $(105.9)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Major assumptions used in accounting for BFGoodrich's defined benefit pension
plans are as follows:
1994 1993 1992
- -----------------------------------------------------------
<S> <C> <C> <C>
Discount rate for obligations 8.75% 7.4% 8.5%
Rate of increase in
compensation levels 5.0% 4.5% 5.0%
Expected long-term rate
of return on plan assets 9.0% 9.0% 9.5%
- -----------------------------------------------------------
</TABLE>
The Company also maintains voluntary retirement savings plans for U.S.
salaried and wage employees. Under provisions of these plans, eligible employees
can receive Company matching contributions on up to the first 6 percent of their
eligible earnings.
The Company matches one dollar for each one dollar of employee contributions
(up to 6 percent of earnings) invested in BFGoodrich common stock, or 50 cents
for each dollar of eligible employee contributions invested in other available
investment options. For 1994, 1993 and 1992, Company contributions amounted to
$12.2 million, $11.1 million and $10.0 million, respectively.
The BFGoodrich Company and Subsidiaries 33
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE F: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company sponsors several unfunded defined benefit postretirement plans that
provide certain health-care and life insurance benefits to eligible employees.
The health-care plans are contributory, with retiree contributions adjusted
periodically, and contain other cost-sharing features such as deductibles and
coinsurance. The life insurance plans are generally noncontributory.
The following table sets forth the combined status of the plans as recognized
in the Consolidated Balance Sheet at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
(In millions) 1994 1993
- ------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit
obligation (APBO):
Retirees $ 281.7 $ 315.4
Fully eligible active plan participants 24.7 26.2
Other active plan participants 38.3 40.4
Unrecognized gain (loss) 34.4 (9.5)
Unrecognized prior service credit - 2.2
- ------------------------------------------------------------------
Accrued postretirement cost $ 379.1 $ 374.7
- ------------------------------------------------------------------
</TABLE>
Net periodic postretirement benefit expense (including $9.9 million allocated
to the former Geon Vinyl Division in 1992) included the following components:
<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
- ------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned $ 2.9 $ 2.4 $ 2.8
Interest cost on APBO 27.0 30.4 37.6
Net amortization and deferral - (.1) -
- ------------------------------------------------------------------
Net periodic postretirement cost $ 29.9 $ 32.7 $ 40.4
- ------------------------------------------------------------------
</TABLE>
In 1993, the Company recorded the accumulated benefit obligations of
Cleveland Pneumatic and Rosemount Aerospace aggregating $4.5 million. The net
periodic postretirement cost for 1992 excludes a $2.9 million curtailment loss.
For measurement purposes, the annual rate of increase in the per capita cost
of covered health-care benefits of 9 percent was assumed for 1995, decreasing
gradually to 5.75 percent through the year 2002 and remaining at that level
thereafter. The health-care cost trend rate assumption has a significant effect
on the amount of the obligation and periodic cost reported. An increase in the
assumed health-care cost trend rate by 1 percentage point in each year would
increase the APBO as of December 31, 1994, by $27.3 million and the aggregate of
the service and interest cost components of net periodic postretirement benefit
cost for 1994 by $2.7 million. The weighted average discount rates used in
determining the APBO were 8.75 percent, 7.4 percent and 9 percent as of December
31, 1994, 1993 and 1992, respectively.
NOTE G: INCOME TAXES
Income from continuing operations before income taxes and cumulative effect of
change in method of accounting as shown in the Consolidated Statement of Income
consists of the following:
<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
- ------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $ 88.9 $ 10.3 $ 3.5
Foreign 19.7 5.0 10.9
- ------------------------------------------------------------------
Total $ 108.6 $ 15.3 $ 14.4
- ------------------------------------------------------------------
</TABLE>
A summary of income tax (expense) benefit included in the Consolidated
Statement of Income is as follows:
<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
- ------------------------------------------------------------------
<S> <C> <C> <C>
Continuing Operations
Current:
Federal $ (10.3) $ 2.5 $(10.1)
Foreign (6.4) (1.9) (5.3)
State (5.0) 4.8 (.2)
- ------------------------------------------------------------------
(21.7) 5.4 (15.6)
- ------------------------------------------------------------------
Deferred:
Federal (20.7) (7.0) 9.4
Effect of enacted change
in tax rates - 1.5 -
Foreign (.5) .1 3.7
- ------------------------------------------------------------------
(21.2) (5.4) 13.1
- ------------------------------------------------------------------
Total (42.9) - (2.5)
- ------------------------------------------------------------------
Discontinued operations 10.0 (105.5) 9.4
Change in method of accounting - - 147.5
- ------------------------------------------------------------------
Total $ (32.9) $(105.5) $154.4
- ------------------------------------------------------------------
</TABLE>
Significant components of deferred income tax assets and liabilities at
December 31, 1994 and 1993, are as follows:
<TABLE>
<CAPTION>
(In millions) 1994 1993
- --------------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Accrual for postretirement benefits
other than pensions $ 131.6 $ 130.1
Other nondeductible accruals 65.1 60.2
Tax credit and net operating
loss carryovers 36.0 25.7
Other 31.4 32.6
- --------------------------------------------------------------------
Total deferred income tax assets 264.1 248.6
- --------------------------------------------------------------------
Deferred income tax liabilities:
Tax over book depreciation (88.3) (81.4)
Other (53.9) (36.0)
- --------------------------------------------------------------------
Total deferred income tax liabilities (142.2) (117.4)
- --------------------------------------------------------------------
Net deferred income taxes $ 121.9 $ 131.2
- --------------------------------------------------------------------
</TABLE>
<PAGE> 21
Management has determined, based on the Company's history of prior operating
earnings and its expectations for the future, that operating income of the
Company will more likely than not be sufficient to recognize fully these net
deferred tax assets. In addition, management's analysis indicates that the
turnaround periods for certain of these assets are for long periods of time or
are indefinite. In particular, the turnaround of the largest deferred tax asset
related to accounting for postretirement benefits other than pensions will occur
over an extended period of time and as a result will be realized for tax
purposes over those future periods and beyond. In addition, the tax credit
carryovers are principally comprised of alternative minimum tax credits of $24.3
million which have indefinite carryover periods and other tax credits of $8.2
million which will expire from 1999 through 2009. The remaining deferred tax
assets and liabilities approximately match each other in terms of timing and
amounts and should be realizable in the future given the Company's operating
history.
The effective income tax rate from continuing operations for the years ended
December 31, 1994, 1993 and 1992, varied from the statutory federal income tax
rate as set forth in the following table:
<TABLE>
<CAPTION>
Percent of Pretax Income 1994 1993 1992
- ----------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 34.0%
Corporate-owned life insurance
investments (1.9) (11.6) (14.6)
Amortization of nondeductible
goodwill 1.8 10.8 11.1
Difference in rates on
consolidated foreign subsidiaries (.5) (3.0) (17.2)
State and local taxes
net of federal benefit 3.0 5.0 .9
Foreign withholding taxes .4 5.6 4.5
Adjustment of prior years'
estimated liabilities - (48.2) -
Other items 1.7 6.4 (1.3)
- ----------------------------------------------------------------
Effective income tax rate for the year 39.5% - 17.4%
- ----------------------------------------------------------------
</TABLE>
BFGoodrich has not provided for U.S. federal and foreign withholding taxes on
$108.5 million of foreign subsidiaries' undistributed earnings as of December
31, 1994, because such earnings are intended to be reinvested indefinitely. It
is not practical to determine the amount of income tax liability that would
result had such earnings actually been repatriated. On repatriation, certain
foreign countries impose withholding taxes. The amount of withholding tax that
would be payable on remittance of the entire amount of undistributed earnings
would approximate $5.6 million.
NOTE H: BUSINESS SEGMENT INFORMATION
The Company's operations are classified into two reportable business segments.
BFGoodrich Aerospace (Aerospace) includes: Landing Systems; Sensors and
Integrated Systems; Safety Systems; and Maintenance, Repair and Overhaul (MRO)
business groups. They serve commercial, military, regional, business and general
aviation markets. BFGoodrich Specialty Chemicals (Specialty Chemicals) includes:
Specialty Additives; Specialty Plastics; Sealants, Coatings and Adhesives; and
Water Systems and Services business groups. They serve various markets, such as
pharmaceuticals, printing, textiles, automotive, building maintenance and
construction.
Other Operations currently include the manufacture of chlor-alkali and
olefins. Corporate includes general corporate administrative costs and research
expenses. Segment operating income is total segment revenue reduced by operating
expenses directly identifiable with that business segment. Intersegment
eliminations are included in Corporate and are not significant in any year.
Sales are generally not concentrated in any one customer. Sales, principally
in the Aerospace business segment, represented 10 percent, 10 percent and 12
percent of consolidated sales in 1994, 1993 and 1992, respectively, to various
United States government agencies and departments.
Operating income includes restructuring costs as follows:
<TABLE>
<CAPTION>
(In millions) 1993 1992
- ------------------------------------------------------------
<S> <C> <C>
Aerospace $ 3.3 $ -
Specialty Chemicals 8.0 5.5
Other Operations - 1.6
Corporate 2.0 3.6
- ------------------------------------------------------------
Total $13.3 $10.7
- ------------------------------------------------------------
</TABLE>
The BFGoodrich Company and Subsidiaries 35
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE H: BUSINESS SEGMENT INFORMATION (continued)
The Company's business is conducted on a global basis with manufacturing,
service and sales undertaken in various locations throughout the world. Net
assets of consolidated foreign subsidiaries amounted to $174.5 million, $159.7
million and $284.2 million in 1994, 1993 and 1992, respectively. The Company
does not believe that business risks in countries in which it operates,
including currency restrictions, would have a significant adverse effect on cash
flow, liquidity or capital resources.
The Company also exports products manufactured in the United States to
affiliated and unaffiliated companies worldwide. Intercompany transfers made at
prevailing prices to foreign subsidiaries amounted to $84.0 million, $69.4
million and $61.3 million in 1994, 1993 and 1992, respectively. Sales to
unaffiliated foreign customers amounted to $264.1 million, $216.9 million and
$198.3 million in 1994, 1993 and 1992, respectively.
Corporate identifiable assets in 1992, include amounts relating to the former
Geon Vinyl Division which was sold in 1993.
<TABLE>
<CAPTION>
Sales Operating Income
- -----------------------------------------------------------------------------------------------------------------
(In millions) 1994 1993 1992 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aerospace $1,050.3 $ 855.4 $ 750.0 $121.9 $ 91.3 $ 83.2
Specialty Chemicals 988.6 829.6 825.1 86.7 45.0 40.9
- -----------------------------------------------------------------------------------------------------------------
Total Reportable Segments 2,038.9 1,685.0 1,575.1 208.6 136.3 124.1
Other Operations 160.3 133.3 72.8 24.1 4.0 14.5
Corporate - - - (53.0) (57.6) (63.6)
- -----------------------------------------------------------------------------------------------------------------
Total $2,199.2 $1,818.3 $1,647.9 $179.7 $ 82.7 $ 75.0
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Property Property Depreciation and Identifiable
Additions Amortization Expense Assets
- ------------------------------------------------------------------------------------------------------------------------------
(In millions) 1994 1993 1992 1994 1993 1992 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aerospace $ 36.8 $ 74.2 $ 49.7 $38.2 $30.0 $ 26.2 $1,287.0 $1,292.5 $ 691.6
Specialty Chemicals 78.4 51.8 64.1 40.9 37.3 36.7 788.5 687.0 661.2
- ------------------------------------------------------------------------------------------------------------------------------
Total Reportable Segments 115.2 126.0 113.8 79.1 67.3 62.9 2,075.5 1,979.5 1,352.8
Other Operations 4.9 4.1 7.4 7.1 6.9 5.3 120.1 100.9 86.5
Corporate 10.2 16.1 79.0 5.8 25.3 60.0 273.3 279.5 1,012.4
- ------------------------------------------------------------------------------------------------------------------------------
Total $130.3 $146.2 $200.2 $92.0 $99.5 $128.2 $2,468.9 $2,359.9 $2,451.7
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Operating Income Identifiable
Sales (Loss) Assets
- ------------------------------------------------------------------------------------------------------------------------------
(In millions) 1994 1993 1992 1994 1993 1992 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Geographic Areas:
North America $1,961.6 $1,617.9 $1,430.4 $220.3 $138.0 $134.9 $2,002.3 $1,917.7 $1,285.1
Europe 202.1 168.2 187.7 14.0 2.4 3.3 178.3 148.0 138.5
Other Foreign 35.5 32.2 29.8 (1.8) (.5) .2 18.0 17.9 19.3
Inter-area eliminations - - - .2 .4 .2 (3.0) (3.2) (3.6)
- ------------------------------------------------------------------------------------------------------------------------------
Total $2,199.2 $1,818.3 $1,647.9 $232.7 $140.3 $138.6 $2,195.6 $2,080.4 $1,439.3
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 23
<TABLE>
NOTE I: SUPPLEMENTAL STATEMENT OF INCOME INFORMATION
<CAPTION>
(In millions) 1994 1993 1992
- -------------------------------------------------------------------
<S> <C> <C> <C>
Other Expenses--Net
Cost of health-care benefits
for retirees of previously
discontinued businesses $(14.0) $(16.5) $(16.0)
Gain on sale of
corporate assets 7.2 - -
Equity in loss of
unconsolidated subsidiary (4.3) (6.9) -
Interest on Company-owned
life insurance (10.1) (10.3) (8.9)
Environmental costs of previously
discontinued businesses (7.2) (6.9) (1.2)
Other--net 3.2 6.3 .9
- -------------------------------------------------------------------
Total $(25.2) $(34.3) $(25.2)
- -------------------------------------------------------------------
</TABLE>
The unconsolidated subsidiary had assets of $8.6 million and liabilities of
$8.2 million at December 31, 1994, and revenue of $8.9 million and $9.7 million
in 1994 and 1993, respectively.
RESEARCH AND DEVELOPMENT EXPENSE: In 1994, 1993 and 1992, research and
development expenses were $75.5 million, $67.9 million and $67.9 million,
respectively.
<TABLE>
NOTE J: SUPPLEMENTAL BALANCE SHEET INFORMATION
<CAPTION>
(In millions ) 1994 1993
- -------------------------------------------------------------
<S> <C> <C>
Allowance for Doubtful Accounts $ 10.4 $ 8.0
- -------------------------------------------------------------
</TABLE>
Amounts charged to expense during 1994, 1993 and 1992 were $4.3 million, $2.1
million and $5.2 million, respectively.
<TABLE>
<CAPTION>
(In millions) 1994 1993
- ------------------------------------------------------------
<S> <C> <C>
Inventories
FIFO or average cost (which
approximates current costs):
Finished products $ 163.9 $ 125.7
In process 114.9 135.7
Raw materials and supplies 141.1 135.4
- ------------------------------------------------------------
419.9 396.8
Reserve to reduce certain inventories
to LIFO basis (61.1) (56.2)
- ------------------------------------------------------------
Total $ 358.8 $ 340.6
- ------------------------------------------------------------
</TABLE>
At December 31, 1994 and 1993, approximately 46 percent of the pre-LIFO
inventory amounts have been valued by the LIFO method.
<TABLE>
<CAPTION>
(In millions) 1994 1993
- -------------------------------------------------------------
<S> <C> <C>
Property
Land $ 21.4 $ 20.0
Buildings 405.7 322.2
Machinery and equipment 964.8 885.1
Construction in progress 72.2 134.4
- -------------------------------------------------------------
1,464.1 1,361.7
Less allowances for depreciation
and amortization 590.8 525.7
- -------------------------------------------------------------
Total $ 873.3 $ 836.0
- -------------------------------------------------------------
</TABLE>
Property includes assets acquired under capital leases, principally buildings
and machinery and equipment, of $21.4 million and $22.0 million at December 31,
1994 and 1993, respectively. Related allowances for depreciation and
amortization are $9.8 million and $9.7 million, respectively. Interest costs
capitalized were $.6 million in 1994, $5.0 million in 1993 and $3.8 million in
1992.
<TABLE>
<CAPTION>
(In millions) 1994 1993
- -----------------------------------------------------------------
<S> <C> <C>
Goodwill and Identifiable Intangible Assets
Goodwill, less accumulated amortization
(1994, $46.1; 1993, $31.9) $497.9 $524.6
Identifiable Intangible Assets,
less accumulated amortization
(1994, $25.3; 1993, $19.2) 51.6 21.3
- -----------------------------------------------------------------
Total $549.5 $545.9
- -----------------------------------------------------------------
</TABLE>
Amortization of goodwill and identifiable intangible assets was $20.1
million, $9.7 million and $9.5 million in 1994, 1993 and 1992, respectively.
<TABLE>
<CAPTION>
(In millions) 1994 1993
- -----------------------------------------------------------------
<S> <C> <C>
Accrued Expenses
Wages, vacations, pensions and
other employment costs $ 75.6 $ 72.0
Postretirement benefits other than pensions 25.5 28.5
Taxes, other than federal and foreign
taxes on income 30.2 19.6
Accrued environmental liabilities 15.7 13.1
Other 99.9 97.2
- -----------------------------------------------------------------
Total $246.9 $230.4
- -----------------------------------------------------------------
(In millions) 1994 1993
- -----------------------------------------------------------------
Other Non-current Liabilities
Accrued pension liability $ 70.0 $ 96.4
Accrued environmental liabilities 10.1 13.5
Other 47.5 48.8
- -----------------------------------------------------------------
Total $127.6 $158.7
- -----------------------------------------------------------------
</TABLE>
The BFGoodrich Company and Subsidiaries 37
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE J: SUPPLEMENT BALANCE SHEET INFORMATION (continued)
Fair Values of Financial Instruments
The Company's accounting policies with respect to financial instruments is
described in Note A.
The carrying amounts and fair values of the Company's significant on balance
sheet financial instruments at December 31, 1994 and 1993, are as follows:
<TABLE>
<CAPTION>
1994 (In millions) Carrying Amount Fair Values
- -------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 35.8 $ 35.8
Short-term bank debt 70.4 70.4
Long-term debt (including
current portion) 476.0 478.9
<CAPTION>
1993 (In millions) Carrying Amount Fair Values
- -------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 33.4 $ 33.4
Short-term bank debt 23.9 23.9
Long-term debt (including
current portion) 494.4 537.7
Redeemable preferred stock 3.8 3.9
</TABLE>
Off balance sheet derivative financial instruments at December 31, 1994 and
1993, held for purposes other than trading, were as follows:
<TABLE>
<CAPTION>
1994 1993
Contract/ Contract/
Notional Fair Notional Fair
(In millions) Amount Value Amount Value
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate swaps $90.0 $(.9) $98.0 $(6.5)
Foreign currency
exchange agreements 26.0 (.1) 14.4 .2
</TABLE>
With respect to interest rate swap agreements, the Company pays a fixed rate
of interest and receives a LIBOR-based floating rate. These contracts mature on
various dates through 1997. At December 31, 1994, the Company had no deferred
gains or losses relating to terminated interest rate swap agreements.
Foreign currency exchange agreements mature over the next three months
coincident with intercompany transfers of products. No additional cash
requirements are necessary with respect to outstanding agreements. Net gains
included in inventory at December 31, 1994 were $.6 million.
The counterparties to each of these agreements are major commercial banks.
Management believes that losses related to credit risk are remote.
NOTE K: SUPPLEMENTAL CASH FLOW INFORMATION
The following tables set forth non-cash financing and investing activities and
other cash flow information.
Acquisitions accounted for under the purchase method are summarized as
follows:
<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
- ------------------------------------------------------------------
<S> <C> <C> <C>
Estimated fair value of
assets acquired $ 23.1 $ 241.1 $ 8.7
Goodwill and identifiable
intangible assets 4.5 359.4 2.2
Cash paid/stock issued (26.5) (528.5) (5.9)
- ------------------------------------------------------------------
Liabilities assumed or created $ 1.1 $ 72.0 $ 5.0
- ------------------------------------------------------------------
Liabilities disposed in connection
with sales of businesses $ - $ 393.0 $ 6.0
Interest paid (net of amount
capitalized) 44.7 36.2 35.3
Income taxes paid 12.8 33.2 16.6
</TABLE>
NOTE L: PREFERRED STOCK
There are 10,000,000 authorized shares of Series Preferred Stock--$1 par value.
Shares of Series Preferred Stock that have been redeemed are deemed retired and
extinguished and may not be reissued. As of December 31, 1994, 659,174 shares of
Series Preferred Stock have been redeemed. The Board of Directors establishes
and designates the series and fixes the number of shares and the relative
rights, preferences and limitations of the respective series of the Series
Preferred Stock.
Whenever dividends on Cumulative Series Preferred Stock are in arrears six
quarters or more, holders of such stock (voting as a class) have the right to
elect two Directors of the Company until all cumulative dividends have been
paid. Dividends on outstanding Series Preferred Stock must be declared and paid
or set apart for payment, and funds required for sinking-fund payments, if any,
on Series Preferred Stock must be paid or set apart for payment before any
dividends may be paid or set apart for payment on the Common Stock.
<PAGE> 25
REDEEMABLE PREFERRED STOCK--SERIES A (stated at involuntary liquidation value of
$100 per share): In August 1994, the Company redeemed the remaining 49,120
shares of outstanding Series A Stock at par value plus accrued dividends.
CONVERTIBLE PREFERRED STOCK--SERIES D: The Series D Stock is convertible at any
time into shares of BFGoodrich's Common Stock at a conversion rate, which is
subject to certain anti-dilution provisions, of 0.909 shares of Common Stock for
each share of Series D Stock. At BFGoodrich's option, the Series D Stock may be
redeemed, in whole or in part, at any time. The redemption price is $50.70 a
share until January 2, 1996, $50.35 a share until January 2, 1997, and $50.00 a
share thereafter, plus accrued and unpaid dividends.
CUMULATIVE PARTICIPATING PREFERRED STOCK--SERIES E: The Company has authorized
350,000 shares of Cumulative Participating Preferred Stock-Series E, $1 par
value. Series E shares have preferential voting, dividend and liquidation rights
over the Company's Common Stock. At December 31, 1994, no Series E shares were
issued or outstanding and 338,187 shares were reserved for issuance.
Series E shares may be acquired only through the exercise of Rights attached
to the Company's Common Stock. Each Right, when exercisable, entitles the
registered holder thereof to purchase from BFGoodrich one one-hundredth of a
share of Series E Stock at a price of $200 per one one-hundredth of a share
(subject to adjustment). The one one-hundredth of a share is intended to be the
functional equivalent of one share of the Company's Common Stock.
The Rights will not be exercisable or transferable apart from the Common
Stock until an Acquiring Person, as defined in the Rights Agreement, as amended,
without the prior consent of BFGoodrich's Board of Directors, acquires 20
percent or more of the voting power of the Company's stock or announces a tender
offer that would result in 20 percent ownership. BFGoodrich is entitled to
redeem the Rights at five cents per Right any time before a 20 percent position
has been acquired or in connection with certain transactions thereafter
announced. Under certain circumstances, including the acquisition of 20 percent
of the Company's stock, each Right not owned by a potential Acquiring Person
will entitle its holder to purchase, at the Right's then-current exercise price,
shares of Series E Stock having a market value of twice the Right's exercise
price.
Holders of the Right will be entitled to buy stock of an Acquiring Person at
a similar discount if, after the acquisition of 20 percent or more of the
Company's voting power, BFGoodrich is involved in a merger or other business
combination transaction with another person in which its common shares are
changed or converted, or BFGoodrich sells 50 percent or more of its assets or
earning power to another person.
The Rights expire on August 2, 1997.
NOTE M: COMMON STOCK
BFGoodrich acquired 25,846, 20,776 and 158,873 shares of treasury stock in 1994,
1993 and 1992, respectively, and reissued 10,000, 5,000 and 287,775 shares,
respectively, in connection with the Key Employees' Stock Option Plan, the
Performance Share Plan and other employee stock ownership plans. In 1994 and
1993, 29,850 and 71,317 shares of Common Stock previously awarded to employees
were forfeited and restored to treasury stock. In addition, during 1994, 1993
and 1992, 52,726, 111,667 and 92,239 shares, respectively, of authorized but
unissued shares were issued under the Key Employees' Stock Option Plan and other
employee stock ownership plans.
Shares reserved for future issuance at December 31, 1994 were as follows:
<TABLE>
- ------------------------------------------------------------
<S> <C>
Stock options under Key Employees'
Stock Option Plan 2,217,990
Performance Share Plan 89,108
Various Company stock ownership plans 3,561,069
Series D, Convertible Preferred Stock 1,999,800
- ------------------------------------------------------------
Total 7,867,967
- ------------------------------------------------------------
</TABLE>
The BFGoodrich Company and Subsidiaries 39
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE N: STOCK OPTION AND STOCK INCENTIVE PLANS
KEY EMPLOYEES' STOCK OPTION PLAN: The Key Employees' Stock Option Plan, which
will expire on April 15, 1997, unless renewed, provides for the awarding of or
the granting of options to purchase Common Stock of the Company. Generally,
options granted become exercisable at the rate of 35 percent after one year, 70
percent after two years and 100 percent after three years. Certain options are
fully exercisable immediately after grant. The term of each option cannot exceed
ten years from the date of the grant. All options granted under the Plan have
been granted at not less than 100 percent of market value (as defined) on the
date of grant.
During 1994, 1993 and 1992, restricted stock awards for 10,000, 5,000 and
75,900 shares, respectively, were made under this plan. During 1994, 1993 and
1992, stock awards for 1,600, 12,959 and 1,800 shares, respectively, were
forfeited. At December 31, 1994, there were 1,037,257 shares reserved for the
future granting of stock options or stock awards. Stock awards may be subject to
conditions established by the Board of Directors. The following table does not
include options granted on January 3, 1995, for 408,550 shares at $43.5625 per
share.
Under the terms of the restricted stock awards, the granted stock vests three
years after the award date. The cost of these awards, determined as the market
value of the shares at the date of grant, is being amortized over the three-year
period. In 1994, 1993 and 1992, $1.2 million, $1.2 million and $.9 million,
respectively, were charged to expense under stock award plans.
PERFORMANCE SHARE PLAN: In 1991, the shareholders adopted the Performance Share
Plan (PSP), a stock-based incentive program. The PSP provides that up to 250,000
shares of Common Stock may be awarded as performance shares to certain key
executives having a critical impact on the long-term performance of the Company.
The Compensation Committee of the Board of Directors awarded 220,475 shares in
1992 and 25,950 shares in 1991, and established performance objectives that are
based on attainment of an average return on equity over the initial plan cycle
of three years. During 1994, 1993 and 1992, 28,250, 58,358 and 6,800 performance
shares, respectively, were forfeited.
The market value of shares awarded under the plan is recorded as unearned
restricted stock. The unearned amount is charged to compensation expense based
upon the extent performance objectives are expected to be met. In 1994, $.5
million was credited to expense for restricted performance shares. In 1993 and
1992, $1.4 million and $2.6 million were charged to expense for restricted
performance shares.
<TABLE>
The following tabulation summarizes certain information relative to stock
options:
<CAPTION>
Year Ended December 31 1994 1993
- ------------------------------------------------------------------------------------------------------------------
Number of Option Price Number of Option Price
Shares Range Per Share Shares Range Per Share
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,065,391 $29.50 to $56.3125 1,332,595 $29.50 to $56.625
Granted 226,150 40.00 to 42.625 286,000 48.875
Exercised (37,278) 29.50 to 42.9375 (110,825) 29.50 to 49.3125
Surrendered (3,000) 32.875 (5,000) 29.50 to 36.625
Terminated (70,530) 38.1875 to 56.3125 (437,379) 29.50 to 56.625
- ------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 1,180,733 29.50 to 56.3125 1,065,391 29.50 to 56.3125
- ------------------------------------------------------------------------------------------------------------------
Exercisable at end of year 928,132 29.50 to 56.3125 823,336 29.50 to 56.3125
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 27
NOTE O: COMMITMENTS AND CONTINGENCIES
BFGoodrich and its subsidiaries have numerous purchase commitments for
materials, supplies and energy incident to the ordinary course of business.
There are pending or threatened against BFGoodrich or its subsidiaries
various claims, lawsuits and administrative proceedings, all arising from the
ordinary course of business with respect to commercial, product liability and
environmental matters, which seek remedies or damages. BFGoodrich believes that
any liability that may finally be determined should not have a material effect
on the Company's consolidated financial position or results of operations. The
Company is also involved in legal proceedings as a plaintiff involving contract,
patent protection, environmental and other matters. Gain contingencies, if any,
are recognized when they are realized.
At December 31, 1994, the Company was a party to various obligations assumed
or issued by others, including guarantees of debt and lease obligations,
principally relating to businesses previously disposed. The aggregate contingent
liability, should the various third parties fail to perform, is approximately
$127.0 million. The Company has not previously been required to assume any
responsibility for these financial obligations as a result of defaults and is
not currently aware of any existing conditions which would cause a financial
loss. As a result, the Company believes that risk of loss relative to these
contingent obligations is remote.
The Company and its subsidiaries are generators of both hazardous wastes and
non-hazardous wastes, the treatment, storage, transportation and disposal of
which are subject to various laws and governmental regulations. Although past
operations were in substantial compliance with the then-applicable regulations,
the Company has been designated as a potentially responsible party by the U.S.
Environmental Protection Agency in connection with approximately 39 sites, most
of which relate to businesses previously disposed. The Company believes it may
have continuing liability only with respect to not more than 22 sites.
The Company initiates corrective and/or preventative environmental projects
of its own to ensure safe and lawful activities at its current operations. The
Company believes that compliance with current governmental regulations will not
have a material adverse effect on its capital expenditures, earnings or
competitive position. The Company's environmental engineers and consultants
review and monitor past and existing operating sites. This process includes
investigation of National Priority List sites, where the Company is considered a
potentially responsible party, review of remediation methods and negotiation
with other potentially responsible parties and governmental agencies.
At December 31, 1994, the Company had recorded as Accrued expenses and as
Other Non-current Liabilities a total of $25.8 million to cover future
environmental expenditures, principally for remediation of the sites discussed
above and other environmental matters. A significant portion of the
environmental liability relates to six sites of which five sites relate to
businesses previously divested. Two of the most significant variables in
determining the Company's ultimate liability are the remediation method
ultimately adopted for the site and the Company's share of the total site
remediation cost. With respect to these sites, the Company's maximum percentage
share of the ultimate remediation costs is fixed. The five sites relating to
businesses previously divested are all in the design or construction phases, and
as a result, the remediation plan is generally known. While reasonable estimates
of the ultimate completion cost can be made, the final cost at completion can
vary significantly as a result of changes made during the construction phase and
changed regulatory agency requirements, all of which are difficult to predict.
Management believes that it is reasonably possible that additional costs may
be incurred beyond the amount accrued as a result of new information. However,
the amounts, if any, cannot be estimated and management believes that they would
not be material to the Company's financial condition.
In addition, the Company expects to incur capital expenditures and future
costs for environmental, health and safety improvement programs. These
expenditures relate to anticipated projects to change process systems or to
install new equipment to reduce ongoing emissions, improve efficiencies and
promote greater worker health and safety. These expenditures are customary
operational costs and are not expected to have a material adverse effect on the
financial position, liquidity or results of operations of the Company.
The BFGoodrich Company and Subsidiaries 41
<PAGE> 28
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA (UNAUDITED)
1994 Quarters 1993 Quarters
- --------------------------------------------------------------------------------------------------------------------
(Dollars in millions except
per share amounts) First Second Third Fourth First Second Third Fourth
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BUSINESS SEGMENT SALES:
Aerospace $255.8 $263.0 $247.7 $283.8 $176.0 $201.6 $234.2 $243.6
Specialty Chemicals 209.7 247.1 272.9 258.9 183.5 215.7 224.9 205.5
Other Operations 36.9 30.4 40.9 52.1 17.0 35.4 41.7 39.2
- --------------------------------------------------------------------------------------------------------------------
TOTAL SALES $502.4 $540.5 $561.5 $594.8 $376.5 $452.7 $500.8 $488.3
- --------------------------------------------------------------------------------------------------------------------
GROSS PROFIT $143.4 $171.3 $181.0 $180.2 $112.7 $138.6 $152.1 $136.6
- --------------------------------------------------------------------------------------------------------------------
BUSINESS SEGMENT
OPERATING INCOME (LOSS):
Aerospace $ 28.7 $ 31.0 $ 28.2 $ 34.0 $ 16.6 $ 18.4 $ 27.4 $ 28.9
Specialty Chemicals 10.1 29.1 31.6 15.9 .3 12.6 22.5 9.6
Other Operations (1.2) 1.6 9.1 14.6 2.6 1.1 .8 (.5 )
Corporate (11.4) (13.6) (13.2) (14.8) (13.2) (13.0) (14.5) (16.9 )
- --------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME $ 26.2 $ 48.1 $ 55.7 $ 49.7 $ 6.3 $ 19.1 $ 36.2 $ 21.1
- --------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM:
CONTINUING OPERATIONS $ 4.9 $ 18.5 $ 23.3 $ 19.0 $ (6.9) $ 6.0 $ 15.5 $ .7
DISCONTINUED OPERATIONS - - 10.0 - (.7) 50.2 1.7 61.8
- --------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 4.9 $ 18.5 $ 33.3 $ 19.0 $ (7.6) $ 56.2 $ 17.2 $ 62.5
- --------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) PER SHARE:
CONTINUING OPERATIONS:
Primary $ .11 $ .64 $ .82 $ .66 $ (.35) $ .15 $ .53 $ (.05)
Fully diluted .11 .64 .84 .66 (.35) .21 .53 .02
Net income:
Primary .11 .64 1.21 .66 (.38) 2.11 .59 2.36
Fully diluted .11 .64 1.20 .66 (.38) 2.02 .59 2.26
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Income from continuing operations in the fourth quarter of 1994 was affected
by a $7.2 million gain from the sale of certain corporate assets, offset by a
$7.2 million charge for environmental costs relating to businesses previously
divested. In the third quarter of 1994, the Company realized a $10.0 million tax
benefit as a result of utilizing, in 1994, foreign tax credits resulting from
the 1993 sale of The Geon Company. This tax benefit is reported in discontinued
operations.
In December 1993, BFGoodrich sold its remaining interest in The Geon Company,
recognizing a net gain of $62.7 million (pretax gain of $123.3 million). As a
result, Geon has been reclassified as a discontinued operation. Sales in 1993
have not been affected as Geon was accounted for using the equity method in
1993. Income from continuing operations for each quarter of 1993 has been
adjusted by the amounts reclassified to discontinued operations. Second quarter
1993 operating income includes restructuring costs of $3.3 million for work
force reductions in Aerospace and $8.0 million related to employee severance and
plant mothballing costs in Specialty Chemicals. Fourth quarter 1993 operating
income includes restructuring costs of $2.0 million related to employee
severance costs included in Corporate costs.
COMMON STOCK PRICES AND DIVIDENDS: The table below lists dividends per share and
quarterly price ranges for the common stock of The BFGoodrich Company based on
New York Stock Exchange prices as reported on the consolidated tape.
<TABLE>
<CAPTION>
1994 1993
- -------------------------------------------------------------------------------------------
Quarter High Low Dividend Quarter High Low Dividend
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
First $43-3/4 $39-1/8 $.55 First $53-7/8 $40-3/4 $.55
Second 48 41-1/2 .55 Second 50 42-1/4 .55
Third 47-7/8 41-1/4 .55 Third 49 42 .55
Fourth 44-7/8 41-1/2 .55 Fourth 45-3/8 39-1/2 .55
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 29
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The consolidated financial statements and notes to consolidated financial
statements of The BFGoodrich Company and subsidiaries have been prepared by
management. These statements have been prepared in accordance with generally
accepted accounting principles and accordingly include amounts based upon
informed judgments and estimates. Management is responsible for the selection of
appropriate accounting principles and the fairness and integrity of such
statements.
BFGoodrich maintains a system of internal controls designed to provide
reasonable assurances that accounting records are reliable for the preparation
of financial statements and for safeguarding assets. The Company's system of
internal controls includes: written policies, guidelines and procedures;
organizational structures, staffed through the careful selection of people that
provide an appropriate division of responsibility and accountability; and an
internal audit program.
Ernst & Young LLP, independent auditors, were engaged to audit and to render
an opinion on the consolidated financial statements of The BFGoodrich Company
and subsidiaries. Their opinion is based on procedures believed by them to be
sufficient to provide reasonable assurance that the consolidated financial
statements are not materially misstated and do not contain material error. The
report of Ernst & Young LLP follows.
The Board of Directors pursues its oversight responsibility for the financial
statements through its Audit Committee composed of Directors who are not
employees of BFGoodrich. The Audit Committee meets regularly to review with
management and Ernst & Young LLP the Company's accounting policies, internal and
external audit plans and results of audits. To ensure complete independence,
Ernst & Young LLP and the internal auditors have full access to the Audit
Committee and meet with the Committee without the presence of management.
J. D. Ong
Chairman and Chief Executive Officer
D. L. Tobler
Executive Vice President and Chief Financial Officer
S. G. Rolls
Vice President and Controller
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of The BFGoodrich Company:
We have audited the accompanying consolidated balance sheet of The BFGoodrich
Company and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1994. These financial
statements, which appear on pages 22, 24, 26 and 28 through 41, are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The BFGoodrich
Company and subsidiaries at December 31, 1994 and 1993, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in Note A to the consolidated financial statements, in 1992 the
Company changed its method of accounting for postretirement benefits other than
pensions.
Cleveland, Ohio Ernst & Young LLP
February 3, 1995
The BFGoodrich Company and Subsidiaries 43
<PAGE> 30
<TABLE>
<CAPTION>
SELECTED SIX-YEAR FINANCIAL DATA
(Dollars in millions, except per share amounts) 1994 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales from continuing operations $2,199.2 $1,818.3 $1,647.9 $1,572.5 $1,420.5 $1,263.6
Cost of sales 1,523.3 1,278.3 1,133.1 1,098.4 964.8 852.8
Gross profit 675.9 540.0 514.8 474.1 455.7 410.8
Selling and administrative expenses 496.2 444.0 429.1 369.5 335.0 309.8
Total operating income 179.7 82.7 75.0 93.1 120.7 101.0
Interest expense 47.7 38.3 39.3 37.1 21.5 30.0
Interest income 1.8 5.2 3.9 10.7 24.8 29.4
Income tax (expense) (42.9) - (2.5) (22.5) (4.4) (26.0)
Income from continuing operations before cumulative
effect of change in method of accounting 65.7 15.3 11.9 21.6 99.8 53.8
Income (loss) from discontinued operations 10.0 113.0 (21.3) (102.2) 36.5 118.6
Cumulative effect of change in method of accounting - - (286.5) - - -
Net income (loss) 75.7 128.3 (295.9) (80.6) 136.3 172.4
- -------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Current assets $ 878.8 $ 793.8 $ 797.1 $ 775.9 $ 947.6 $1,040.4
Current liabilities 638.0 469.4 565.5 530.0 667.2 486.0
Net working capital 240.8 324.4 231.6 245.9 280.4 554.4
Net property 873.3 836.0 1,215.8 1,171.0 1,155.3 991.5
Total assets 2,468.9 2,359.9 2,451.7 2,270.6 2,414.2 2,274.4
Non-current long-term debt and capital lease
obligations 427.1 486.5 403.1 344.2 209.8 289.0
Redeemable preferred stock - 3.8 6.3 7.5 8.7 11.3
Total shareholders' equity 922.6 895.3 828.8 1,214.0 1,358.9 1,277.2
- -------------------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL DATA:
Total segment operating income $ 232.7 $ 140.3 $ 138.6 $ 138.3 $ 169.6 $ 144.9
Depreciation and amortization of property 92.0 99.5 128.2 125.2 103.9 98.5
Capital expenditures 130.3 146.2 200.2 219.4 243.0 240.4
Dividends (common and preferred) 64.6 64.6 64.5 64.2 62.3 59.2
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE OF COMMON STOCK:
Income from continuing operations $ 2.24 $ .28 $ .14 $ .52 $ 3.60 $ 1.79
Net income (loss) 2.63 4.68 (11.90) (3.50) 5.04 6.48
Dividends per share 2.20 2.20 2.20 2.20 2.12 2.00
Book value 31.51 30.62 28.06 43.47 49.28 46.07
- -------------------------------------------------------------------------------------------------------------------------
RATIOS:
As a percent of sales:
Gross profit (%) 30.7 29.7 31.2 30.1 32.1 32.5
Selling and administrative expenses (%) 22.6 24.4 26.0 23.5 23.6 24.5
Return on common shareholders' equity (%) 8.5 16.0 (33.4) (7.6) 10.6 14.8
Current ratio 1.4 1.7 1.4 1.5 1.4 2.1
Debt-to-capital ratio (%) 37.4 36.9 34.6 23.9 22.2 19.6
Earnings to fixed charges 2.6 1.2 1.2 1.8 4.2 3.1
Dividend payout--Common Stock (%) 83.7 47.0 N.A. N.A. 42.1 30.9
- -------------------------------------------------------------------------------------------------------------------------
OTHER DATA:
Number of common shareholders at end of year 11,711 12,066 12,785 12,954 13,937 14,710
Common shares outstanding at end of year (millions) 25.8 25.6 25.6 25.4 25.3 25.3
Number of employees at end of year 13,392 13,416 13,375 14,415 14,701 11,892
- -------------------------------------------------------------------------------------------------------------------------
<FN>
All Statement of Income Data and related ratios have been restated to exclude
results of the former Geon Vinyl Division which was divested in 1993 and is now
accounted for as discontinued operations.
</TABLE>
<PAGE> 1
EXHIBIT 21
Page 1 of 2
<TABLE>
<CAPTION>
THE B.F.GOODRICH COMPANY
Parent And Subsidiaries Of Registrant
- -------------------------------------
Percentage Of
Place Of Voting Securities
Consolidated Subsidiary Companies Incorporation Owned
- --------------------------------- ------------- -----------------
<S> <C> <C>
The B.F.Goodrich Company (Registrant;
there are no parents of the registrant) New York -
Arrowhead Industrial Water, Inc. Delaware 100.00
BFGoodrich Asia-Pacific, Limited Hong Kong 51.00
BFGoodrich Aerospace Component
Overhaul & Repair, Inc. Delaware 100.00
BFGoodrich Aerospace Component
Overhaul & Repair Ltd. Canada 100.00
BFGoodrich Aerospace Pte. Ltd. Singapore 100.00
B.F.Goodrich Chemical (Far East) Limited Hong Kong 100.00
B.F.Goodrich Chemical Holding B.V. The Netherlands 100.00
B.F.Goodrich Chemical (Belgie) N.V. Belgium 100.00
B.F.Goodrich Europe Coordination Center N.V. Belgium 55.00
B.F.Goodrich Chemical Sales Company B.V. The Netherlands 100.00
B.F.Goodrich Europe Coordination Center N.V. Belgium 45.00
BFGoodrich Holding S.A. France 100.00
BFGoodrich Aerospace Services S.A. France 100.00
Rosemount Aerospace S.A.R.L. France 100.00
H&P Extrusions B.V. The Netherlands 100.00
H&P Mixing B.V. The Netherlands 100.00
JcAir, B.V. The Netherlands 100.00
Pen-Got AB Sweden 100.00
Anders L. Zetterberg International AB Sweden 100.00
Gotakemi AB Sweden 100.00
Wennergrens Kittfabrik AB Sweden 100.00
Tremco, B.V. The Netherlands 100.00
B.F.Goodrich Chemical Italia, S.R.L. Italy 100.00
The B.F.Goodrich Company of Japan, Ltd. Japan 100.00
BFGoodrich FlightSystems, Inc. Ohio 100.00
E.P.P.C. Polyplastic S.A. France 100.00
First Charter Insurance Company Vermont 100.00
Godfrey Engineering, Inc. Florida 100.00
Goodrich Canada Inc. Canada 100.00
Goodrich Holding Corporation Delaware 100.00
Goodrich Holding UK Limited England 100.00
BFGoodrich Aerospace UK Limited England 100.00
B.F.Goodrich Chemical (U.K.) Limited England 100.00
BFGoodrich Component Services Limited England 100.00
Rosemount Aerospace Limited England 100.00
Rosemount Aerospace GmbH Germany 2.00
Simmonds Precision Limited England 100.00
Goodron Realty, Inc. Delaware 100.00
<PAGE> 2
EXHIBIT 21
Page 2 of 2
<CAPTION>
THE B.F.GOODRICH COMPANY
Parent And Subsidiaries Of Registrant
- -------------------------------------
Percentage Of
Place Of Voting Securities
Consolidated Subsidiary Companies Incorporation Owned
- --------------------------------- ------------- -----------------
<S> <C> <C>
International BFGoodrich Technology Corporation Delaware 100.00
Jet Electronics and Technology, Incorporated Delaware 100.00
JcAir, Inc. Kansas 100.00
Atlantic Instruments Inc. Florida 100.00
QSI, Inc. South Carolina 100.00
Rosemount Aerospace Inc. Delaware 100.00
Rosemount Aerospace Canada Inc. Canada 100.00
Safeway Products Inc. Connecticut 100.00
Siltown Realty, Inc. Alabama 100.00
Simmonds Precision Products, Inc. New York 100.00
Simmonds Precision Engine Systems, Inc. New York 99.94
Simmonds Precision Motion Controls, Inc. New Jersey 100.00
TRAMCO, INC. Washington 100.00
Tremco Incorporated Ohio 100.00
62514 Investment Limited Canada 100.00
Tremco Ltd. (Canada) Canada 100.00
Tremco Ltd. (U.K.) England 100.00
Tremco Australia Pty. Limited Australia 100.00
Tremco Glazing Systems Pty. Ltd. Australia 100.00
Tremco Pty. Limited Australia 100.00
Tremco Chemdet Pty. Limited Australia 100.00
Tremco Autobody Technologies Inc. Ohio 100.00
Tremco Far East Limited Hong Kong 100.00
Tremco GmbH Germany 100.00
B.F.Goodrich Chemical (Deutschland) GmbH Germany 100.00
Kamia Chemical GmbH Germany 100.00
Rosemount Aerospace GmbH Germany 98.00
Tremco de Mexico, S.A. de C.V. Mexico 100.00
The Tremco Service Corporation Delaware 100.00
Tremco, S.A. (France) France 100.00
Tremco Italia S.R.L. Italy 100.00
</TABLE>
All of the above subsidiaries are included in the 1994 consolidated financial
statements.
The Registrant also owns 91.56 percent of DTM Corporation, incorporated
in Texas; 50.00 percent of BFGoodrich - Messier, Inc., incorporated in
Delaware; 50.00 percent of Messier - BFGoodrich S.A., incorporated in France;
50.00 percent of Interpure L.L.C., incorporated in Delaware; 49.00 percent of
SIME Tremco Sdn. Bhd., incorporated in Malaysia; 50.00 percent of Telenor S.A.,
incorporated in France; and indirectly, through subsidiaries, owns 33.33
percent of PABCO Contracting Services Pty. Limited, incorporated in Australia.
DTM Corporation owns 100.0 percent of DTM GmbH, incorporated in Germany. These
companies are accounted for on the equity method.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of The BFGoodrich Company of our report dated February 3, 1995, included in the
1994 Annual Report to Shareholders of The BFGoodrich Company.
We also consent to the incorporation by reference of our report dated February
3, 1995, with respect to the consolidated financial statements incorporated
herein by reference, in the following Registration Statements and in the
related Prospectuses:
<TABLE>
<CAPTION>
Registration
Number Description of Registration Statement Filing Date
- ------------ ------------------------------------- -----------
<S> <C> <C>
2-77756 The B.F.Goodrich Company Key Employees' May 20, 1982
Stock Option Plan - Form S-8
33-9814 $3.50 Cumulative Convertible Preferred November 21, 1986
Stock, Series D - Amendment No. 1 to
Form S-3
33-20421 The B.F.Goodrich Company Key Employees' March 1, 1988
Stock Option Plan - Form S-8
2-88940 The B.F.Goodrich Company Retirement Plus April 28, 1989
Savings Plan - Post-Effective Amendment
No. 2 to Form S-8
33-49052 The B.F.Goodrich Company Key Employees' June 26, 1992
Stock Option Plan - Form S-8
33-49054 The B.F.Goodrich Company Performance June 26, 1992
Share Plan - Form S-8
33-59580 The B.F.Goodrich Company Retirement March 15, 1993
Plus Savings Plan for Wage Employees
- Form S-8
33-53289 Tramco, Inc. Profit-Funded Retirement April 26, 1994
Savings Plan - Form S-8
33-53217 Common Stock - Form S-3 May 4, 1994
33-40127 and Debt Securities - Post-Effective Amendment August 17, 1994
33-65658 No. 2 to Form S-3
</TABLE>
ERNST & YOUNG LLP
Cleveland, Ohio
February 20, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS LISTED ON F.1 OF THIS FORM 10-K AND ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 35,800
<SECURITIES> 0
<RECEIVABLES> 394,900
<ALLOWANCES> 10,400
<INVENTORY> 358,800
<CURRENT-ASSETS> 878,800
<PP&E> 1,464,100
<DEPRECIATION> 590,800
<TOTAL-ASSETS> 2,468,900
<CURRENT-LIABILITIES> 638,000
<BONDS> 427,100
0
110,000
<COMMON> 129,800
<OTHER-SE> 682,800
<TOTAL-LIABILITY-AND-EQUITY> 2,468,900
<SALES> 2,199,200
<TOTAL-REVENUES> 2,199,200
<CGS> 1,523,300
<TOTAL-COSTS> 1,523,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,700
<INCOME-PRETAX> 108,600
<INCOME-TAX> 42,900
<INCOME-CONTINUING> 65,700
<DISCONTINUED> 10,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75,700
<EPS-PRIMARY> 2.63
<EPS-DILUTED> 2.63
</TABLE>
