<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1995
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Commission file number 1-892
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THE B.F.GOODRICH COMPANY
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NEW YORK 34-0252680
- ------------------------------- -------------------
(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
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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As of September 30, 1995 there were 26,132,139 shares of common stock
outstanding. There is only one class of common stock.
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
THE B.F.GOODRICH COMPANY
CONSOLIDATED STATEMENT OF INCOME
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ------------------------
1995 1994 1995 1994
--------- ------- ---------- --------
<S> <C> <C> <C> <C>
Sales $ 606.0 $ 561.5 $ 1,800.6 $1,604.4
Operating Costs and Expenses:
Cost of sales 408.8 380.5 1,234.1 1,108.7
Selling and administrative expenses 124.6 125.3 382.8 365.7
--------- ------- ---------- --------
533.4 505.8 1,616.9 1,474.4
--------- ------- ---------- --------
Total operating income 72.6 55.7 183.7 130.0
Interest expense (11.0) (12.5) (35.3) (36.0)
Interest income 0.8 0.7 2.6 1.5
Other income (expense) - net (5.7) (5.7) 6.6 (19.1)
--------- ------- ---------- --------
Income from continuing operations
before income taxes 56.7 38.2 157.6 76.4
Income tax expense (21.2) (14.9) (60.2) (29.7)
Minority interest (2.6) -- (2.6) --
--------- ------- ---------- --------
Income from continuing operations 32.9 23.3 94.8 46.7
Income from discontinued operations -- 10.0 -- 10.0
--------- ------- ---------- --------
Net Income 32.9 33.3 94.8 56.7
Dividends and call premium on preferred stock (1.7) (2.0) (5.6) (6.0)
--------- ------- ---------- --------
Net income applicable to common stock $ 31.2 $ 31.3 $ 89.2 $ 50.7
========= ======= ========== ========
Earnings per share
Primary
Continuing operations $ 1.19 $ 0.82 $ 3.42 $ 1.58
Discontinued operations -- 0.39 -- 0.39
--------- ------- ---------- --------
Net income $ 1.19 $ 1.21 $ 3.42 $ 1.97
========= ======= ========== ========
Fully Diluted
Continuing operations $ 1.18 $ 0.84 $ 3.40 $ 1.58
Discontinued operations -- 0.36 -- 0.39
--------- ------- ---------- --------
Net income $ 1.18 $ 1.20 $ 3.40 $ 1.97
========= ======= ========== ========
Weighted average number of common shares -
in millions
Primary 26.3 25.8 26.1 25.7
Fully Diluted 26.4 27.8 26.2 25.7
Dividends paid per common share $ 0.55 $ 0.55 $ 1.65 $ 1.65
</TABLE>
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THE B.F.GOODRICH COMPANY
CONSOLIDATED BALANCE SHEET
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------ -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 53.9 $ 35.8
Accounts and notes receivable, less allowances
for doubtful receivables (September 30, 1995
$11.7; December 31, 1994 - $10.4) 415.5 384.5
Inventories 392.7 358.8
Deferred income tax assets 64.9 64.9
Prepaid expenses and other assets 32.9 34.8
-------- --------
Total Current Assets 959.9 878.8
-------- --------
Deferred Income Tax Assets 37.4 57.0
Property
Land, buildings and machinery and equipment 1,469.4 1,464.1
Allowances for depreciation and amortization (637.9) (590.8)
-------- --------
Total Property 831.5 873.3
-------- --------
Goodwill 484.3 497.9
Identifiable Intangible Assets 51.4 51.6
Intangible Pension Asset 49.8 49.5
Other Assets 75.4 60.8
-------- --------
$2,489.7 $2,468.9
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term bank debt $ 80.6 $ 70.4
Accounts payable 209.9 239.1
Accrued expenses 242.8 246.9
Income taxes payable 43.5 26.4
Current maturities of long-term debt
and capital lease obligations 80.0 55.2
-------- --------
Total Current Liabilities 656.8 638.0
-------- --------
Long-term Debt and Capital Lease Obligations 385.5 427.1
Postretirement Benefits Other Than Pensions 353.0 353.6
Other Non-current Liabilities 98.8 127.6
Company-obligated Minority Interest in Trust 122.1 --
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
at December 31, 1994 -- 110.0
Common Stock - $5 par value
Authorized 100,000,000 shares; issued 26,637,849
shares at September 30, 1995 and 25,950,722
shares at December 31, 1994 133.2 129.8
Additional capital 439.0 401.7
Income retained in the business 352.1 305.7
Cumulative unrealized translation adjustments 12.4 4.9
Amount related to recording minimum pension liability (18.6) (18.6)
Unearned portion of restricted stock awards (17.6) (3.9)
Common stock held in treasury, at cost (505,710
shares at September 30, 1995 and 160,566 shares
at December 31, 1994) (27.0) (7.0)
-------- --------
Total Shareholders' Equity 873.5 922.6
-------- --------
$2,489.7 $2,468.9
======== ========
</TABLE>
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THE B.F.GOODRICH COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1995 1994
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 94.8 $ 56.7
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 86.8 85.1
Deferred income taxes 19.6 (2.9)
Gain on sale of business (5.0) --
Change in assets and liabilities, net of effects
of acquisitions and dispositions of businesses:
Receivables (30.2) (72.7)
Inventories (31.5) 5.2
Other current assets 1.0 (10.4)
Accounts payable (25.1) 30.4
Accrued expenses (5.3) 6.6
Income taxes payable 17.7 3.4
Other non-current assets and liabilities (40.9) (4.7)
-------- -------
Net cash provided by operating activities 81.9 96.7
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property (93.9) (80.7)
Proceeds from sale of property 2.0 3.3
Proceeds from sale of business 80.0 --
Payments made in connection with acquisitions
net of cash acquired (10.4) (20.9)
-------- -------
Net cash used by investing activities (22.3) (98.3)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in short-term debt 10.1 66.5
Proceeds from issuance of long-term debt 39.0 --
Repayment of long-term debt and capital lease obligations (55.8) (11.3)
Proceeds from issuance of capital stock 11.0 1.0
Proceeds from issuance of quarterly income preferred
securities from trust, net of issuance costs 122.1 --
Purchases of treasury stock (33.3) --
Dividends (47.1) (48.5)
Retirement of preferred stock (88.3) (4.9)
-------- -------
Net cash provided (used) by financing activities (42.3) 2.8
EFFECT OF EXCHANGE RATE CHANGES ON CASH 0.8 0.6
-------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 18.1 1.8
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 35.8 33.4
-------- -------
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $ 53.9 $ 35.2
======== =======
Supplemental Cash Flow Information
Income taxes paid $ 18.4 $ 12.5
======== =======
Interest paid, net of amounts capitalized $ 37.7 $ 37.0
======== =======
</TABLE>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A: BASIS OF INTERIM FINANCIAL STATEMENT PREPARATION - The accompanying
unaudited condensed consolidated financial statements of The BFGoodrich Company
(BFGoodrich or Company) have been prepared in accordance with the instructions
to Form 10-Q and do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. For
further information, refer to the consolidated financial statements and
footnotes included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
NOTE B: INVENTORY - Inventories included in the accompanying condensed
consolidated balance sheet consist of:
<TABLE>
<CAPTION>
(Dollars in Millions)
-----------------------------
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
FIFO or average cost
(which approximates
current costs):
Finished Products $186.4 $163.9
In Process 120.9 114.9
Raw Materials & Supplies 150.6 141.1
------ ------
457.9 419.9
Reserve to reduce certain
inventories to LIFO (65.2) (61.1)
------ ------
Total $392.7 $358.8
====== ======
</TABLE>
NOTE C: DEBT - In March and May, 1995, the Company issued $19.0 million and
$20.0 million, respectively, of fixed-rate non-callable notes due in 2025 at
average interest rates of approximately 8.6 percent and 7.8 percent,
respectively. The proceeds were used to replace long-term debt that matured
during the period. During the first nine months of 1995, the Company repaid
$55.8 million of scheduled maturing debt and capital lease obligations. In
addition, $80.6 million of long-term debt and capital lease obligations maturing
in 1996 have been reclassified as current maturities of long-term debt and
capital lease obligations. Furthermore, the Company issued $20.0 million of
fixed-rate non-callable notes in October 1995 and another $20.0
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<PAGE> 6
million in November 1995, all due in 2025, at average interest rates of
approximately 7.4 percent and 7.3 percent, respectively. The proceeds will be
used to replace current maturities of long-term debt.
NOTE D: CAPITAL STOCK - During the first nine months of 1995, 271,321 shares of
authorized but previously unissued shares of common stock were issued under
various employee compensation plans. In addition, 379,750 shares of treasury
stock were issued under a stock award plan and 65,125 unearned shares under this
plan were forfeited and returned to treasury stock. Also, 415,806 shares of
common stock were issued to holders of Series D Preferred Stock who exercised
their conversion privileges. During the first nine months of 1995, purchases of
659,769 shares of treasury stock were made.
On July 31, 1995, the Company redeemed all of the outstanding shares of the
$3.50 Cumulative Convertible Preferred Stock, Series D at a redemption price of
$50.70 per share plus accrued dividends of approximately $0.30 per share.
On July 6, 1995, BFGoodrich Capital, a Delaware statutory business trust (the
Trust) which is consolidated by the Company, received $122.5 million, net of the
underwriting commission, from the issuance of 8.30% Cumulative Quarterly Income
Preferred Securities, Series A (QUIPS). The Trust invested the proceeds in
8.30% Junior Subordinated Debentures, Series A, due 2025 (Junior Subordinated
Debentures) issued by the Company. The Company used the proceeds from the
Junior Subordinated Debentures primarily to redeem all of the outstanding shares
of the $3.50 Cumulative Convertible Preferred Stock, Series D. The QUIPS have a
liquidation value of $25 per Preferred Security, mature in 2025 and are subject
to mandatory redemption upon repayment of the Junior Subordinated Debentures.
The Company has the option at any time on or after July 6, 2000 to redeem, in
whole or in part, the Junior Subordinated Debentures with the proceeds from the
issuance and sale of the Company's common stock within two years preceding the
date fixed for redemption.
NOTE E: 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. Other
income(expense)-net for the nine months of 1995 includes $19.1
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<PAGE> 7
million of insurance recoveries from the settlement of certain insurance issues
relating to past environmental claims, principally for previously discontinued
businesses.
A significant portion of accrued environmental liabilities is in connection with
five sites which relate to businesses previously divested. Two of the most
significant variables in determining the Company's ultimate liability are the
remediation method finally 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. Four of the five
sites are in the design or construction phases and one site is essentially in
the maintenance and operation phase; 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.
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 38 sites, most
of which related to businesses previously disposed. The Company believes it may
have continuing liability with respect to not more than 22 sites. Management
believes that any changes in estimates that may occur as a result of new
information will not be material to the Company's financial condition.
NOTE F: OTHER
On May 4, 1995, the Company sold its wholly-owned subsidiary, Arrowhead
Industrial Water, Inc. (Arrowhead) to United States Filter Corporation for a
price of $80.0 million, resulting in a pretax gain of $5.0 million, which is
included in other income (expense)-net. Arrowhead represented substantially all
of the Specialty Chemicals' Water Systems and Services business group and
accounted for approximately 4 percent of that business segment's 1994 sales.
The Company recorded a charge of $3.1 million during the second quarter of 1995
to reflect the termination benefits paid under a voluntary early retirement
program for eligible salaried employees at the Company's corporate headquarters,
Advanced Technology Group research facilities and Aerospace segment
headquarters.
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<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATIONS
COMPARISON OF THE THIRD QUARTER AND FIRST NINE MONTHS OF 1995
TO THE THIRD QUARTER AND FIRST NINE MONTHS OF 1994
TOTAL COMPANY
Sales in the third quarter of 1995 increased to $606.0 million, or 8 percent
over the same period of 1994, as a result of internal volume growth, price
increases and an acquisition. Excluding the effects of a 1994 acquisition and
the Arrowhead divestiture, sales increased 9 percent.
Sales for the first nine months of 1995 increased to $1,800.6 million, or 12
percent over the corresponding period of 1994. Adjusted for 1994 acquisitions
and the Arrowhead divestiture, sales increased 10 percent.
Cost of sales as a percent of sales in the third quarter of 1995 compared to the
same period of 1994 declined by 0.3 percentage points. Total cost of sales
increased to $408.8 million in the third quarter of 1995 from $380.5 million in
the same period of 1994, largely reflecting internal growth.
Cost of sales as a percent of sales for the first nine months of 1995 increased
by 0.6 percentage points from the first nine months of 1994. Total cost of
sales increased to $1,234.1 million in the first nine months of 1995 from
$1,108.7 million in the same period of 1994, also largely due to internal
growth.
Selling and administrative expenses for the third quarter of 1995 remained
virtually unchanged compared to the corresponding period of 1994. Selling and
administrative expense as a percent of sales declined from 22 percent to 21
percent due to increased sales.
Selling and administrative expenses for the first nine months of 1995 increased
5 percent over the same period of 1994, primarily attributable to increased
costs to expand and globalize strategic businesses, 1994 acquisitions, and
various employee compensation plans that are based on the Company's stock price
which increased 52 percent during the nine-month period. As a percent of sales,
selling and administrative expenses decreased from 23 percent to 21 percent due
to increased sales and continued cost containment.
An expanded analysis of sales and operating income by business segment is
discussed below.
The Company's operations are classified into two reportable business segments:
BFGoodrich Aerospace (Aerospace) and BFGoodrich Specialty Chemicals (Specialty
Chemicals). Aerospace consists of four business groups: Landing Systems;
Sensors and
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<PAGE> 9
Integrated Systems; Safety Systems; and Maintenance, Repair and Overhaul (MRO).
They serve commercial, military, regional, business and general aviation
markets. Specialty Chemicals consists of three business groups: Specialty
Additives; Specialty Plastics; and Sealants, Coatings and Adhesives. They serve
various markets, such as personal care, pharmaceuticals, printing, textiles,
automotive, building maintenance and construction. A fourth group, the Water
Systems and Services business group, ceased to exist upon the disposition of
Arrowhead Industrial Water, Inc. (Arrowhead) on May 4, 1995.
Other Operations currently include the manufacture of chlor-alkali and olefins.
Corporate includes general corporate administrative costs and Advanced
Technology Group 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 period.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
------ ------ ------ ------
(Dollars In Millions)
<S> <C> <C> <C> <C>
Net Sales:
Aerospace $286.7 $247.7 $ 847.7 $ 766.5
Specialty Chemicals 271.2 272.9 805.2 729.7
------ ------ -------- --------
Total Reportable Segments 557.9 520.6 1,652.9 1,496.2
Other Operations 48.1 40.9 147.7 108.2
------ ------ -------- --------
Total $606.0 $561.5 $1,800.6 $1,604.4
====== ====== ======== ========
Operating Income:
Aerospace $ 40.4 $ 28.2 $ 105.6 $ 87.9
Specialty Chemicals 32.2 31.6 70.5 70.8
------ ------ -------- --------
Total Reportable Segments 72.6 59.8 176.1 158.7
Other Operations 13.7 9.1 47.7 9.5
Corporate (13.7) (13.2) (40.1) (38.2)
------ ------ -------- --------
Total $ 72.6 $ 55.7 $ 183.7 $ 130.0
====== ====== ======== ========
</TABLE>
AEROSPACE
Third Quarter 1995 Versus Third Quarter 1994
Sales of the Aerospace business segment increased by 16 percent to $286.7
million in the third quarter of 1995 over the same quarter of 1994 as a result
of internal growth, with every group contributing to the year-to-year growth.
The Landing Systems Group sales increased by 12 percent to $80.4 million in the
third quarter of 1995 compared to the same period of 1994. The Group
experienced strong demand in several wheel and brake programs, including Boeing
737 and 747, Airbus A-320 and Cessna Citation X. The Group also experienced
continued strong
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<PAGE> 10
demand for landing gear spares, recognizing volume gains in the military and
commercial markets. These gains more than offset continued softness in original
equipment landing gear sales resulting from reductions in commercial and
military aircraft build rates.
The Sensors and Integrated Systems Group reported sales of $69.7 million, an
increase of 3 percent from the same period last year. The negative impacts of
reductions in commercial and military aircraft build rates were more than offset
by demand for commercial sensors and flight actuators, and introductions of new
fuel measurement management systems.
The Safety Systems Group reported sales of $52.6 million, an increase of 17
percent over the third quarter of 1994. Continued strong demand for pneumatic
and propeller deicing products and aviation collision warning systems provided
most of this growth.
Sales of the MRO Group increased by 33 percent to $84.0 million, reflecting
stronger demand in all businesses. Particularly strong revenue growth in the
Landing Gear Services and the Transport, Repair and Maintenance Divisions
resulted from new contract awards with Continental Airlines, Alaska Airlines
and Western Pacific Airlines.
Operating income of the Aerospace segment increased by 43 percent to $40.4
million in the third quarter of 1995 over the same period last year. Increased
sales of replacement parts, particularly wheels and brakes and ice protection
systems, and maintenance, repair and overhaul services accounted for much of
the operating income improvement. These gains more than offset the effects of
reduced commercial and military aircraft build rates.
Production workers at The Boeing Company (Boeing) went on strike October 6,
1995, over job security issues. The impact to the Company will be in direct
proportion to the length of the Boeing work stoppage. The 1995 impact is
believed to be minimal as production of landing gear, the largest individual
component sold to Boeing by Aerospace, is currently scheduled to continue
throughout 1995. Other produced components are facing interruptions prior to
1996, but are not believed to have a material impact on 1995 earnings.
First Nine Months 1995 Versus First Nine Months 1994
Sales of the Aerospace business segment increased year-to-date 1995 over the
same period of 1994 as a result of internal growth. Sales increased by 11
percent to $847.7 million.
Sales of the Landing Systems Group increased by 5 percent to $238.0 million. The
Group experienced increased demand from airlines for several wheel and brake
programs, including Boeing 737 and 747,
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<PAGE> 11
Airbus A-320 and A-330/340, and out-of-production programs. These gains,
combined with initial shipments for the Boeing 777 program, more than offset
slower landing gear sales for new commercial and military aircraft production.
The Sensors and Integrated Systems Group reported sales of $203.0 million, a
decrease of 2 percent from the same period of 1994. The sales decline was
primarily due to reduced production rates by Boeing and Airbus and reduced
military aircraft production, particularly for the B-2 program. These
shortfalls were partially offset by higher shipments of new fuel management
systems.
The Safety Systems Group reported sales of $160.4 million, an increase of 17
percent over the same period of 1994. The majority of the increase is
attributable to continued higher sales of deicing products and collision warning
systems, which more than offset reduced sales of aircraft evacuation slides as a
result of reduced commercial aircraft build rates.
Sales of the MRO Group increased by 26 percent to $246.3 million. Increased
demand for MRO services for commercial airframes and components, landing gear
and wheels and brakes accounted for most of the sales growth, and reflects the
continuing trend toward outsourcing of maintenance by airlines. New contract
awards with Continental Airlines, Alaska Airlines and Western Pacific Airlines
contributed to the revenue growth.
Operating income for the Aerospace business segment increased by 20 percent to
$105.6 million. Replacement and spares sales improvements, particularly in the
Landing Systems and Safety Systems Groups, along with strong demand for MRO
services, accounted for most of the incremental earnings.
SPECIALTY CHEMICALS
Third Quarter 1995 Versus Third Quarter 1994
Sales of the Specialty Chemicals business segment were $271.2 million for the
third quarter of 1995, virtually unchanged from the same quarter of 1994.
Adjusted for a 1994 acquisition and the Arrowhead divestiture in May 1995 sales
increased 1 percent.
The Specialty Plastics Group sales increased by 3 percent to $59.4 million
compared to the same period last year. Price increases helped offset lower
sales volumes of certain plastics product lines.
The Specialty Additives Group sales increased by 12 percent to $107.0 million.
Adjusted for a 1994 acquisition, sales increased by 4 percent. Higher sales
resulted principally from higher volumes for most product lines, and from price
increases
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<PAGE> 12
implemented to offset significant increases in raw material costs.
Sales of the Sealants, Coatings and Adhesives Group were $104.8 million,
reflecting a 3 percent decline over the same quarter of 1994. Sales growth for
roofing and autoglass sealant products in the U.S. and sealant sales in Europe,
was more than offset by weaker demand for Canadian roofing and sealant products
reflective of weaker economic conditions. Lower sealant demand in the U.S.
construction and windows markets also contributed to the sales decline. Despite
slowing construction activity, the Group continues to achieve cost reductions
and operating efficiencies.
The Water Systems and Services Group ceased to exist upon the divestiture of
Arrowhead in May 1995.
Operating income of the Specialty Chemicals business segment increased by 2
percent to $32.2 million compared to the third quarter of 1994. Adjusted for a
1994 acquisition and the Arrowhead divestiture, operating income increased by 5
percent. Operating income was impacted by weaker demand in several markets,
significantly higher raw material costs for the Specialty Plastics and Specialty
Additives Groups and increased costs to expand and globalize strategic
businesses.
First Nine Months 1995 Versus First Nine Months 1994
Sales for the first nine months of 1995 increased to $805.2 million or by 10
percent compared to the same period last year, driven by internal volume growth,
price increases and acquisitions. Adjusted for 1994 acquisitions and the
Arrowhead divestiture, sales increased by 6 percent.
The Specialty Plastics Group sales increased by 10 percent to $185.0 million.
Most product lines experienced sales improvements resulting from volume gains
and price increases to help offset significant increases in raw material costs.
The Specialty Additives Group sales increased by 26 percent to $336.9 million.
Adjusted for 1994 acquisitions, sales increased by 7 percent. Higher volume
across most product lines and price increases were primarily responsible for the
improved sales.
Sales of the Sealants, Coatings and Adhesives Group increased by 2 percent to
$268.7 million. Higher U.S. roofing and European sealant sales were partially
offset by softness for sealant and roofing products in Canada. Higher sales of
adhesive and autobody products in the U.S. also contributed to the modest sales
growth.
The Water Systems and Services Group reported sales of $14.6 million for the
year-to-date period until it was divested in May 1995.
The Specialty Chemicals business segment operating income of $70.5 million for
the first nine months of 1995 remained virtually
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<PAGE> 13
unchanged from the corresponding period last year. Excluding the effects of
1994 acquisitions and the Arrowhead divestiture, operating income decreased by 2
percent. Operating income was impacted by the same reasons as for the third
quarter.
OTHER OPERATIONS
CHLOR-ALKALI & OLEFINS
Third quarter 1995 sales increased 18 percent to $48.1 million compared to the
same period last year. Operating income increased to $13.7 million in the third
quarter from $9.1 million in the same period last year. The increases in sales
and operating income primarily resulted from strong price and volume increases
in ethylene, propylene, chlorine and caustic products, although ethylene and
propylene pricing declined somewhat during the quarter.
Sales for the first nine months of 1995 increased 37 percent to $147.7 million
compared to the same period last year. Operating income increased to $47.7
million in the first nine months from $9.5 million in the same period last year.
The increases in sales and operating income are attributable to the same reasons
as for the third quarter of 1995.
CORPORATE
Third quarter 1995 Corporate expenses increased 4 percent to $13.7 million
compared to the same period last year. This increase is largely attributable to
various employee compensation plans that are based on the Company's stock price
which increased 23 percent during the third quarter of 1995. Corporate expenses
for the first nine months of 1995 increased 5 percent to $40.1 million compared
to the same period last year. The year-to-date 1995 result included a charge of
$3.1 million to reflect the termination benefits paid under a voluntary early
retirement program for eligible salaried employees at the Company's corporate
headquarters, Advanced Technology Group research facilities and Aerospace
segment headquarters. Excluding the effect of the early retirement charge,
Corporate expenses for the first nine months decreased 3 percent reflecting
management's continuing overhead expense control activities.
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<PAGE> 14
INTEREST EXPENSE/INCOME
Third quarter 1995 interest expense decreased 12 percent to $11.0 million
compared to the same period in 1994 due to lower debt levels. Interest income
for the third quarter 1995 remained virtually unchanged from the same period
last year, at $0.8 million. Year-to-date interest income includes $1.0 million
as a result of interest received from an insurance settlement related to past
environmental issues.
OTHER INCOME/EXPENSE
Other income(expense)-net for the third quarter of 1995 reflected an expense of
$5.7 million, unchanged from the same period of 1994. The 1995 year-to-date
result includes a $19.1 million benefit from the settlement of certain insurance
issues relating to past environmental claims, principally for previously
discontinued businesses. Year-to-date 1995 also includes a $5.0 million gain
from the sale of Arrowhead and a $1.5 million lower expense for retiree
health-care benefits for previously discontinued businesses compared to the same
period in the prior year, resulting from updated actuarial calculations.
TAXES
For the third quarter of 1995, an income tax provision of $21.2 million was
recorded on pretax income of $56.7 million, an effective tax rate of 37.4
percent. For the same period last year, an income tax provision of $14.9
million was recorded on pretax income of $38.2 million, an effective tax rate of
39.0 percent. For each year, the effective tax rate was higher than the federal
statutory rate principally due to state and local income taxes.
For the first nine months of 1995, an income tax provision of $60.2 million was
recorded on pretax income of $157.6 million, an effective tax rate of 38.2
percent. For the same period last year, an income tax provision of $29.7
million was recorded on pretax income of $76.4 million, an effective tax rate of
38.9 percent. For each year, the effective tax rate was higher than the federal
statutory rate principally due to state and local income taxes.
CAPITAL RESOURCES AND LIQUIDITY
During the first nine months of 1995, working capital increased to $303.1
million from $240.8 million at the end of 1994. This increase was largely
attributable to a $33.9 million increase in inventory, a $31.0 million increase
in accounts receivable, and a $29.2 million decrease in accounts payable,
partially offset by a
- 14 -
<PAGE> 15
net increase of $24.8 million in current maturities of long-term debt and
capital lease obligations. The inventory increase reflected significantly higher
raw material costs, predominantly in the Specialty Plastics and Specialty
Additives Groups, and higher inventory levels required to meet sales growth and
business seasonality. The increase in accounts receivable reflects higher
international sales. The decrease in accounts payable primarily reflects higher
than normal accounts payable at the end of 1994. In connection with the
Company's sale of Arrowhead on May 4, 1995, the Company received proceeds of
$80.0 million.
The Company maintains $325.0 million of uncommitted money market facilities with
various banks to meet its short-term borrowing requirements. As of September
30, 1995, $208.6 million of these lines were unused and available to meet
working capital requirements.
The Company also maintains $300.0 million of committed domestic revolving credit
agreements with various banks. At September 30, 1995 and throughout the first
nine months of the year, these facilities were not in use. In July 1995, the
Company renegotiated its revolving credit agreements, maintaining the same
$300.0 million committed line but extending the expiration date to mid-2000.
In addition, the Company has an effective shelf registration statement with the
Securities and Exchange Commission providing the ability to issue up to $250.0
million of public debt securities. During the first nine months of 1995, the
Company made two issues under this shelf registration. In March and May, 1995,
the Company issued $19.0 million and $20.0 million, respectively, of fixed-rate
non-callable notes due in 2025 at average interest rates of approximately 8.6
percent and 7.8 percent, respectively. The proceeds were used to replace
long-term debt that matured during the period. During the first nine months of
1995, the Company repaid $55.8 million of scheduled maturing debt and capital
lease obligations. In addition, $80.6 million of long-term debt and capital
lease obligations maturing in 1996 have been reclassified as current maturities
of long-term debt and capital lease obligations. Furthermore, the Company
issued $20.0 million of fixed-rate non-callable notes in October 1995 and
another $20.0 million in November 1995, all due in 2025, at average interest
rates of approximately 7.4 percent and 7.3 percent, respectively. The proceeds
will be used to replace current maturities of long-term debt.
On July 6, 1995, BFGoodrich Capital, a Delaware statutory business trust (the
Trust) which is consolidated by the Company, received $122.5 million, net of the
underwriting commission, from the issuance of 8.30% Cumulative Quarterly Income
Preferred Securities, Series A (QUIPS). The Trust invested the proceeds in
8.30% Junior Subordinated Debentures, Series A, due 2025 (Junior Subordinated
Debentures) issued by the Company. The Company used the proceeds from the
Junior Subordinated Debentures primarily to redeem all of the outstanding shares
of the $3.50 Cumulative Convertible
- 15 -
<PAGE> 16
Preferred Stock, Series D. The QUIPS have a liquidation value of $25 per
Preferred Security, mature in 2025 and are subject to mandatory redemption upon
repayment of the Junior Subordinated Debentures. The Company has the option at
any time on or after July 6, 2000 to redeem, in whole or in part, the Junior
Subordinated Debentures with the proceeds from the issuance and sale of the
Company's common stock within two years preceding the date fixed for redemption.
The Series D Preferred Stock was redeemed on July 31, 1995, for $50.70 per share
plus accrued dividends of approximately $0.30 per share.
The Company believes that its credit facilities are sufficient to meet
longer-term capital requirements including normal maturities of long-term debt.
The Company's debt to capitalization ratio decreased from 37.4 percent at
December 31, 1994 to 35.4 percent at September 30, 1995, due to lower levels of
long-term debt and a greater equity base reflecting the significant earnings
improvement in 1995. For purposes of this ratio, the QUIPS issued in July 1995
are considered capital.
CASH FLOW
Cash flow from operating activities in the first nine months of 1995 decreased
to $81.9 million from $96.7 million during the same period of 1994, primarily
due to higher inventory levels required to meet the increased sales demand and a
reduction of accounts payable. The Company is striving to achieve a neutral
cash flow position in 1995, after payment of dividends but excluding
acquisitions and proceeds from divestitures.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In August 1995, USEPA Region 4 issued a civil complaint and proposed a penalty
of $137,500 for air emission violations under North Carolina law applicable to
the Company's Wilmington plant. The Company believes that this matter will be
dismissed due to inaccurate or incomplete facts upon which the complaint is
based.
- 16 -
<PAGE> 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 - Statement re Computation of Per Share Earnings is filed
as part of this report.
Exhibit 27 - Financial data schedule.
(b) Reports on Form 8-K - None.
- 17 -
<PAGE> 18
SIGNATURE
Pursuant to the requirements 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.
November 9, 1995 The B.F.Goodrich Company
/S/D. LEE TOBLER
---------------------------------------
D. Lee Tobler
Executive Vice President and
Chief Financial Officer
/S/STEVEN G. ROLLS
---------------------------------------
Steven G. Rolls
Vice President & Controller
(Chief Accounting Officer)
- 18 -
<PAGE> 1
THE BF GOODRICH COMPANY
EXHIBIT 11 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three months ended Sept. 30, Nine months ended Sept. 30,
---------------------------- -----------------------------
1995 1994 1995 1994
----------- ----------- ----------- ------------
(Dollars in millions, except per share amounts)
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Number of Shares:
Average number of shares outstanding 26,069,928 25,796,146 25,922,917 25,712,957
Effect of dilutive stock options 221,282 34,500 135,749 29,106
----------- ----------- ----------- ------------
Total average number of common and common
equivalent shares outstanding 26,291,210 25,830,646 26,058,666 25,742,063
=========== =========== =========== ============
Income:
Income from continuing operations $ 32.9 $ 23.3 $ 94.8 $ 46.7
Dividends on preferred stocks (0.5) (2.0) (4.4) (6.0)
Premium on preferred stocks redeemed (1.2) -- (1.2) --
Income from discontinued operations -- 10.0 -- 10.0
----------- ----------- ----------- ------------
Net income applicable to Common Stock $ 31.2 $ 31.3 $ 89.2 $ 50.7
=========== =========== =========== ============
Per share amounts:
Continuing operations $ 1.19 $ 0.82 $ 3.42 $ 1.58
Discontinued operations -- 0.39 -- 0.39
----------- ----------- ----------- ------------
Net income per share $ 1.19 $ 1.21 $ 3.42 $ 1.97
=========== =========== =========== ============
FULLY DILUTED EARNINGS PER SHARE:
Number of Shares:
Average number of common shares
outstanding from above 26,069,928 25,796,146 25,922,917 25,712,957
Effect of dilutive stock options -
based on the treasury method using
last day's market price, if higher
than average market price 292,374 34,623 306,079 29,586
Average number of shares of Common
Stock issuable if Convertible Preferred
Stock was converted -- (A) 1,999,800 -- (A) -- (A)
----------- ----------- ----------- ------------
Total average number of common and common
equivalent shares outstanding 26,362,302 27,830,569 26,228,996 25,742,543
=========== =========== =========== ============
Income:
Income from continuing operations $ 32.9 $ 23.3 $ 94.8 $ 46.7
Dividends on Preferred Stocks (0.5) (2.0) (4.4) (6.0)
Restore dividend on Convertible
Preferred Stock -- (A) 2.0 -- (A) -- (A)
Premium on preferred stock redeemed (1.2) -- (1.2) --
Restore premium on preferred stock redeemed -- (A) -- -- (A) --
Income from discontinued operations -- 10.0 -- 10.0
----------- ----------- ----------- ------------
Net income applicable to Common Stock $ 31.2 $ 33.3 $ 89.2 $ 50.7
=========== =========== =========== ============
Per share amounts:
Continuing operations $ 1.18 $ 0.84 $ 3.40 $ 1.58
Discontinued operations -- 0.36 -- 0.39
----------- ----------- ----------- ------------
Net income per share $ 1.18 $ 1.20 $ 3.40 $ 1.97
=========== =========== =========== ============
</TABLE>
(A) Anti-Dilutive
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME OF THIS FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 53,900
<SECURITIES> 0
<RECEIVABLES> 427,200
<ALLOWANCES> 11,700
<INVENTORY> 392,700
<CURRENT-ASSETS> 959,900
<PP&E> 1,469,400
<DEPRECIATION> 637,900
<TOTAL-ASSETS> 2,489,700
<CURRENT-LIABILITIES> 656,800
<BONDS> 385,500
<COMMON> 133,200
0
0
<OTHER-SE> 740,300
<TOTAL-LIABILITY-AND-EQUITY> 2,489,700
<SALES> 1,800,600
<TOTAL-REVENUES> 1,800,600
<CGS> 1,234,100
<TOTAL-COSTS> 1,234,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,300
<INCOME-PRETAX> 157,600
<INCOME-TAX> 60,200
<INCOME-CONTINUING> 94,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 94,800
<EPS-PRIMARY> 3.42
<EPS-DILUTED> 3.40
</TABLE>
