<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________________ to ____________________
Commission file number 1-892
THE B.F.GOODRICH COMPANY
(Exact name of registrant as specified in its charter)
New York 34-0252680
(State of incorporation) (I.R.S. Employer Identification No.)
3925 Embassy Parkway
Akron, Ohio 44333-1799
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 374-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
Name of Each Exchange on
Title of Each Class Which Registered
------------------- -----------------------------
<S> <C>
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
8.30% Cumulative Quarterly Income Preferred
Securities, Series A* New York Stock Exchange
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</TABLE>
* Issued by BFGoodrich Capital and the payments of trust distributions and
payments on liquidation or redemption are guaranteed under certain
circumstances by The B.F.Goodrich Company. The B.F.Goodrich Company is the
owner of 100% of the common securities issued by BFGoodrich Capital, a Delaware
statutory business trust.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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
--------- ---------
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. [ ]
The aggregate market value of the voting stock, consisting solely of common
stock, held by nonaffiliates of the registrant as of February 5, 1996 was
$1,952.9 million ($74.125 per share). On such date, 26,345,956 of such shares
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1995 Annual Report to Shareholders are incorporated by
reference into Parts I, II and IV.
Portions of the proxy statement dated February 29, 1996 are incorporated by
reference into Part III.
<PAGE> 2
PART I
------
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 systems 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 and sealants, coatings and adhesives
products for a variety of end-user applications. In addition, the Company
produces chlor-alkali and olefins products. A further description of the
Company's business is provided below.
BFGoodrich, with 1995 sales of $2.4 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 63 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) 374-2000).
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 1995, the Company acquired four small aerospace businesses and two small
specialty chemical businesses for an aggregate price of $15.4 million.
Operations of these businesses are included in the Company's results from the
dates of acquisition.
In 1995, the Company sold Arrowhead Industrial Water, Inc., which represented
substantially all of the Water Systems and Services Group. The adjusted
selling price of $84.3 million resulted in a pretax gain of $3.6 million.
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
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<PAGE> 3
$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 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, Tennessee.
Rosemount Aerospace designs and manufactures aerospace sensors and related
equipment in facilities located in Burnsville and Eagan, Minnesota.
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 (which was subsequently included in and sold along with
Arrowhead Industrial Water, Inc.), 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, Kentucky) 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.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
In 1995, 1994 and 1993 sales to U.S. government departments and agencies,
principally in the Aerospace business segment, totaled approximately 8 percent,
10 percent and 10 percent, respectively, of consolidated sales.
For financial information concerning the Company's sales, operating income,
identifiable assets, property additions, depreciation and amortization and
geographic information, see Note H of the Notes to Consolidated Financial
Statements appearing beginning on page 34 of the Company's 1995 Annual Report
to Shareholders, which is incorporated herein by reference.
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<PAGE> 4
NARRATIVE DESCRIPTION OF BUSINESS
Aerospace
- ---------
The Company's Aerospace business is conducted through four major business
groups.
Landing Systems Group manufactures aircraft landing gear; aircraft wheels and
brakes; and high-temperature composites for commercial, military, regional and
business aviation customers, and for aircraft engine and space programs.
Sensors and Integrated Systems Group manufactures sensors and sensor-based
systems; fuel measurement and management systems; engine electrical and
ignition system components; electromechanical actuators; aircraft windshield
wiper systems; health and usage management systems and electronic test
equipment for commercial, military, regional and business aviation customers,
and space programs.
Safety Systems Group manufactures aircraft evacuation slides and rafts; ice
protection systems; specialty heated products; collision warning systems;
weather detection systems; standby attitude indicators; airport and aircraft
lighting components; and polymer and composite products for commercial,
military, regional, business and general aviation customers.
Maintenance, Repair and Overhaul Group ("MRO") provides maintenance, repair and
overhaul of commercial airframes, components, wheels and brakes, landing gear,
instruments and avionics for commercial, regional, business and general
aviation customers.
The Company is among the largest suppliers of aircraft systems and components
and aircraft maintenance repair and overhaul service businesses in the world.
It competes with other aerospace industry manufacturers to supply parts and
provide 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 systems and
components 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
- -------------------
The Company's Specialty Chemicals business is conducted through three major
business groups.
Specialty Plastics Group manufactures thermoplastic polyurethane and alloys;
high-heat-resistant and low-combustibility plastics; static-dissipating
polymers; and reaction-injection molding resins. Products are marketed and
sold to manufacturers for film and sheet applications; wire and cable
jacketing; and magnetic media. Specialty plastics are also used in the
manufacture of automotive products; recreational vehicles and products;
agricultural equipment; industrial 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; rubber and
lubricant additives and plastic and adhesive
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<PAGE> 5
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.
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
- ----------------
Other Operations consist of the chlor-alkali and olefins operations located at
Calvert City, Kentucky. 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, 1995, the Company had a backlog of approximately $980 million,
principally related to the Aerospace business segment, of which approximately
60 percent is expected to be filled during 1996. The amount of backlog at
December 31, 1994 was approximately $850 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 1996. 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.
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<PAGE> 6
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
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 P of the
Notes to Consolidated Financial Statements appearing on page 40 of the
Company's 1995 Annual Report to Shareholders, which is incorporated herein by
reference.
RESEARCH AND DEVELOPMENT
The Company conducts research and development under Company-funded programs for
commercial products and under contracts with others. Research and development
expense amounted to $130.9 million in 1995, which includes amounts funded by
customers. For additional information concerning research and development
expense, see Note I of the Notes to Consolidated Financial Statements appearing
on page 36 of the Company's 1995 Annual Report to Shareholders, which is
incorporated herein by reference.
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, 1995, the Company had 12,287 employees in the United States
and Canada. An additional 988 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 May 1996 to September 1999. There were no material work
stoppages during 1995.
- 6 -
<PAGE> 7
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, Hong Kong, The Netherlands,
Singapore and Sweden. A plant in Korea manufactures specialty chemicals for
BFGoodrich. The Company also markets its products and services 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, although the Company is expanding its business in Europe.
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 such
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 34 of the Company's 1995 Annual Report to
Shareholders, which is incorporated herein by reference.
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<PAGE> 8
ITEM 2. PROPERTIES
- --------------------
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
- --------- -------------------
Amelot, France* Akron, Ohio
Austin, Texas* Apeldoorn, The Netherlands
Basingstoke, England* Ashland, Ohio
Bedford, Massachusetts Avon Lake, Ohio
Burnsville, Minnesota Barbourville, Kentucky
Cedar Knolls, New Jersey Brighton, Michigan
Cleveland, Ohio** Calvert City, Kentucky
Columbus, Ohio Cleveland, Ohio
Dallas, Texas* Columbus, Ohio*
East Brunswick, New Jersey* Dijon, France
Eagan, Minnesota Elyria, Ohio
Everett, Washington** Gastonia, North Carolina
Fort Lauderdale, Florida Gothenburg, Sweden
Grand Rapids, Michigan Greenville, South Carolina
Grantsville, West Virginia* Henry, Illinois
Green, Ohio** Hindley, England
Harrow, England* Leominster, Massachusetts
Jacksonville, Florida Louisville, Kentucky
Louisville, Kentucky* Montreal, Quebec, Canada
Lynnwood, Washington* Oevel, Belgium
Marlboro, Massachusetts* Pedricktown, New Jersey
Miami, Florida* Somersby, Australia*
Middletown, Connecticut* Toronto, Ontario, Canada
New Century, Kansas** Vernon, California
Norwich, New York
Oldsmar, Florida Other Operations
Ontario, California* ----------------
Phoenix, Arizona Calvert City, Kentucky
Pueblo, Colorado
Santa Fe Springs, California** Research Facilities and
Singapore* Administrative Offices Other Than
Spencer, West Virginia Manufacturing Facility Offices
Taipo, Hong Kong* ------------------------------
Tempe, Arizona* Avon Lake, Ohio*
Troy, Ohio Bath, Ohio*
Tullahoma, Tennessee Beachwood, Ohio
Union, West Virginia Brecksville, Ohio
Vergennes, Vermont Brussels, Belgium*
Wilmington, North Carolina Cleveland, Ohio*
Wokingham, England Houston, Texas*
Zevenaar, The Netherlands London, England*
Milan, Italy
Montrose, Ohio
North Canton, Ohio*
Paris, France
Uniontown, Ohio*
* Leased Washington, D.C.*
**Leased in part Waterloo, Ontario, Canada*
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<PAGE> 9
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
- ---------------------------
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 with respect to commercial
and product liability claims, should not have a material effect on the
Company's consolidated financial position or results of operations.
The Company has been named a potentially responsible party by the U.S.
Environmental Protection Agency in connection with 42 locations most of which
relate to businesses that the Company has previously discontinued. The Company
believes it may have continuing liability with respect to not more than 25
sites, most of which relate to previously discontinued businesses. Sites for
which successor companies have assumed liability are not included. Based on
information currently available, the Company has adequately accrued for future
environmental expenditures. However, management believes that it is reasonably
possible that additional environmental costs may be incurred beyond the amounts
accrued as a result of new information. The amounts, if any, however, cannot
be estimated and management believes that they would not be material to the
Company's financial condition, but could be material to the Company's results
of operations in a given period.
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 in the Federal District Court for the
Northern District of Ohio 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, Connecticut, has been
the subject of a suit and consent decree in the Federal District Court for the
District of Connecticut. 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 work
has been substantially completed. The Government asserted stipulated penalties
for failing to complete the remediation project on time, which penalties the
generators disputed. Penalties of as much as
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<PAGE> 10
$500,000 are anticipated. 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.
The Company, among others, has been sued by the State of Oklahoma Department of
Environmental Quality in State District Court in Ottawa County, Oklahoma,
concerning environmental conditions at the Company's former tire plant site in
Miami, Oklahoma. Liability relating to further investigation of potential soil
and groundwater contamination at the site have been assumed by The Uniroyal
Goodrich Tire Company. Since the Company transferred title to the facility in
1993, demolition without complete abatement of asbestos has occurred at the
site due to actions of the current owner or its demolition contractor. The
Company does not believe it will have any material liability at this site.
In August 1995, the U.S. Environmental Protection Agency Region 4 issued an
administrative complaint and proposed a penalty of $137,000 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.
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 dated March 1, 1990 and related to the Company's
Calvert City ethylene and chlor-alkali facilities (the "Facilities"), it had a
right to compel an appraisal and a right then to elect to purchase at the
appraised value the common stock of The Geon Company ("Geon") that 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 Right of First Refusal Agreement,
among other things, provides Westlake with the right to acquire the Facilities
at fair market value as determined by an appraisal under certain circumstances.
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<PAGE> 11
The court denied Westlake's application for temporary injunction to enjoin the
sale of the Geon common stock, it enjoined BFGoodrich and Geon from encumbering
or transferring the Facilities to third parties, and it 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 did not transfer the Facilities to Geon as originally expected and
continues to operate the Facilities. BFGoodrich has agreed to indemnify and
hold Geon harmless from and against any liabilities and expenses arising
directly from the lawsuit. The lawsuit has been stayed pending arbitration
pursuant to the arbitration clause in 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
Amended and Restated Assumption of Liabilities and Indemnification Agreement
between the Company and Geon relating to certain liabilities at Calvert City
was 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. On March 27, 1995, the
arbitrator ruled that Westlake's Right of First Refusal did not involve shares
of Geon common stock. Westlake then argued that it was entitled to buy the
Facilities at the February 15, 1993 fair market value, which it asserted is as
low as $40 million. Further, Westlake alleges that it is entitled to lost
profits from the Facilities and lost profits and opportunity costs due to
alleged inability to expand and modernize certain operations of up to
approximately $325 million plus interest and attorney fees. Goodrich denies
that Westlake is entitled to purchase the Facilities pursuant to the Right of
First Refusal and further denies that Westlake is entitled to any recovery.
Goodrich and Westlake agreed to an appraiser to value the Facilities as of
February 15, 1993. The appraiser has determined that the fair market value of
the Facilities as of February 15, 1993 was approximately $170 million,
including working capital. As of December 31, 1995 the book value of the
Facilities was approximately $60 million.
While still maintaining that Westlake is not entitled to purchase the
Facilities pursuant to the Right of First Refusal, Goodrich has tendered the
Facilities to Westlake at the February 15, 1993 appraised value. Westlake has
stated it intends to purchase the Facilities regardless of whether Westlake is
awarded any recovery. Any acquisition is subject to the negotiation and
execution of a definitive purchase agreement and governmental approval. The
Right of First Refusal Agreement provides that any definitive agreement shall
generally be consistent with the terms and provisions of the March 1, 1990
Master Conveyance Agreement by which Westlake acquired Goodrich's vinyl
chloride monomer facility at Calvert City, Kentucky. There can be no assurance
that a definitive agreement will be reached.
Final oral arguments were held before the Arbitrator on January 22, 1996, and
briefs have been filed. Although no specific date has been set, the Arbitrator
is expected to issue his decision within the next few months.
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 denied infringement and alleged the patents are invalid. The
Company sought substantial damages. The trial court issued a decision in
November 1994
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<PAGE> 12
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. The Court of Appeals has affirmed the decision of the trial
court in all respects.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
- -----------------------------------------------------------
STOCKHOLDER MATTERS
-------------------
Common stock prices and dividends are on page 41 of the Company's 1995 Annual
Report to Shareholders. The number of common shareholders at December 31,
1995, is included in "Other Data: Common shareholders of record at end of year"
on page 43 of the Company's 1995 Annual Report to Shareholders. The
discussions of the limitations and restrictions on the payment of dividends on
common stock are included in Note C on pages 30 and 31, and Note N on pages 38
and 39 of the Company's 1995 Annual Report to Shareholders. All of these
sections are incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
- ---------------------------------
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, mandatorily redeemable preferred
securities of Trust, 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,
1995, on page 43 of the Company's 1995 Annual Report to Shareholders, are
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- -----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------
Management's Discussion and Analysis on pages 16-23 of the Company's 1995
Annual Report to Shareholders, is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -----------------------------------------------------
The consolidated financial statements and the related notes thereto, together
with the report thereon of Ernst & Young LLP dated February 2, 1996, and
supplementary data, appearing on pages 24-42 of the Company's 1995 Annual
Report to Shareholders, are incorporated herein by reference.
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<PAGE> 13
Subsequent Event -- Stock Split (Unaudited)
- -------------------------------------------
On February 19, 1996, the Board of Directors authorized a stock split in the
form of a stock dividend (the "Stock Split") of one share of the Company's
common stock, $5.00 par value (the "Common Stock") for every share of Common
Stock outstanding to holders of record on March 11, 1996. The Company intends
to mail the certificates for the additional shares to shareholders on or
about April 1, 1996.
As of close of business on March 11, 1996, the Company will transfer $5 per
share for each share of Common Stock to be issued pursuant to the Stock Split
from its surplus capital in its Additional Capital account to its Common Stock
account to effect the increase in its stated capital resulting from the Stock
Split.
By reason of the Stock Split, the number of shares of Common Stock reserved for
issuance upon exercise of stock options or other stock-based awards granted or
to be granted under the Company's employee benefit plans will be increased
accordingly, effective March 11, 1996.
The preferred stock purchase rights (the "Rights" or individually a "Right")
associated with each share of Common Stock under the Rights Agreement, dated as
of July 20, 1987, and as amended as of December 7, 1987, and August 1, 1989,
between the Company and The Bank of New York, as Rights Agent, will be adjusted
automatically, so that, effective March 11, 1996, each share of Common Stock
will be accompanied by one-half of a Right instead of a full Right. The
exercise and redemption prices of a full Right will remain unchanged.
Pro forma primary earnings per share, giving retroactive effect to the
two-for-one split, are presented below for each of the three years in the
period ended December 31, 1995:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma earnings per share:
Continuing operations $2.15 $1.12 $ .14
Net income 2.15 1.31 2.34
- -------------------------------------------------------------------
</TABLE>
Financial information contained elsewhere in this Form 10-K has not been
adjusted to reflect the impact of the common stock split.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
- 13 -
<PAGE> 14
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------------------------------------------------------------
Biographical information concerning the Company's Directors appearing under the
caption "Election of Directors" in the Company's proxy statement dated February
29, 1996 is incorporated herein by reference. Biographical information
concerning the Company's Executive Officers is as follows:
John D. Ong, Age 62, Chairman and Chief Executive Officer
- ---------------------------------------------------------
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 56, President
- ----------------------------------
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, an Executive Vice President
in 1993, and President in December 1995. 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.
Jon V. Heider, Age 61, 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.
- 14 -
<PAGE> 15
Marshall O. Larsen, Age 47, Executive Vice President and President and Chief
- ----------------------------------------------------------------------------
Operating Officer, BFGoodrich Aerospace
- ---------------------------------------
Mr. Larsen joined the Company in 1977 as an Operations Analyst. He served in
various management positions until 1986 when he became Assistant to the
President of the Company. He later served as General Manager of several
divisions of BFGoodrich Aerospace. In 1994, Mr. Larsen was elected a Vice
President of the Company and named Group Vice President, Safety Systems,
BFGoodrich Aerospace. In December 1995 he was elected Executive Vice President
of the Company and named President and Chief Operating Officer of BFGoodrich
Aerospace. Mr. Larsen has a B.S. in engineering from the U.S. Military Academy
and an M.S. in industrial administration from the Krannert Graduate School of
Management at Purdue University.
Wayne O. Smith, Age 52, 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-Gases 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.
D. Lee Tobler, Age 62, Executive Vice President and Chief Financial Officer
- ---------------------------------------------------------------------------
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.
Nicholas J. Calise, age 54, 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 53, 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 in
August 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.
- 15 -
<PAGE> 16
Steven G. Rolls, Age 41, 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 57, 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 February 29, 1996, 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 February 29,
1996, 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 February 29, 1996, 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.
(b) Reports on Form 8-K filed in the fourth quarter of 1995.
None.
- 16 -
<PAGE> 17
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 19, 1996.
The BFGoodrich Company
(Registrant)
By /S/ JOHN D. ONG
-------------------------------
(John D. Ong, Chairman and
and Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on February 19, 1996 by the following persons
(including a majority of the Board of Directors) on behalf of the registrant
and in the capacities indicated.
/S/ JOHN D. ONG /S/ THOMAS H. O'LEARY
- --------------------------------------- -----------------------------
(John D. Ong) (Thomas H. O'Leary)
Chairman and Chief Executive Director
Officer and Director
(Principal Executive Officer)
------------------------------
/S/ DAVID L. BURNER (Joseph A. Pichler)
- --------------------------------------- Director
(David L. Burner)
President and Director
/S/ ALFRED M. RANKIN, JR.
-----------------------------
/S/ D. LEE TOBLER (Alfred M. Rankin, Jr.)
- --------------------------------------- Director
(D. Lee Tobler)
Executive Vice President and
Chief Financial Officer and Director /S/ IAN M. ROSS
(Principal Financial Officer) ------------------------------
(Ian M. Ross)
Director
/S/ STEVEN G. ROLLS
- ---------------------------------------
(Steven G. Rolls) /S/ WILLIAM L. WALLACE
Vice President and Controller ---------------------------
(Principal Accounting Officer) (William L. Wallace)
Director
/S/ JEANETTE GRASSELLI BROWN /S/ JOHN L. WEINBERG
- ---------------------------- ------------------------------
(Jeanette Grasselli Brown) (John L. Weinberg)
Director Director
/S/ GEORGE A. DAVIDSON, JR. /S/ A. THOMAS YOUNG
- ---------------------------------- ------------------------------
(George A. Davidson, Jr.) (A. Thomas Young)
Director Director
/S/ JAMES J. GLASSER
- ---------------------------------------
(James J. Glasser)
Director
17
<PAGE> 18
THE B.F.GOODRICH COMPANY
INDEX TO FINANCIAL INFORMATION
Item 14(a)(1)-(2)
<TABLE>
<CAPTION>
Reference
--------------
1995
Annual
Report to
Shareholders
(page)
--------------
<S> <C>
Data incorporated by reference from the 1995
Annual Report to Shareholders of The BFGoodrich Company:
Consolidated Statement of Income for the years
ended December 31, 1995, 1994 and 1993 24
Consolidated Balance Sheet at December 31,
1995 and 1994 25
Consolidated Statement of Cash Flows for the
years ended December 31, 1995, 1994 and 1993 26
Consolidated Statement of Shareholders' Equity
for the years ended December 31, 1995, 1994
and 1993 27
Notes to Consolidated Financial Statements 28 - 40
Quarterly Financial Data (Unaudited) 41
Report of Independent Auditors 42
</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 is included in the above listed financial statements or
notes thereto.
F-1
<PAGE> 19
Item 14 (a)(3) Index to Exhibits
<TABLE>
<CAPTION>
Table II
Exhibit No.
- -----------
<S> <C>
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 30 and 31
of the Company's 1995 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.
</TABLE>
II-1
<PAGE> 20
Item 14 (a)(3) Index to Exhibits
<TABLE>
<CAPTION>
Table II
Exhibit No.
- -----------
<S> <C>
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) Senior Executive Management Incentive Plan. This exhibit was filed as Appendix B to the Company's 1995 Proxy Statement
dated March 2, 1995 and is incorporated herein by references.
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 and form of award.
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.
</TABLE>
II-2
<PAGE> 21
Item 14 (a)(3) Index to Exhibits
<TABLE>
<CAPTION>
Table II
Exhibit No.
- -----------
<S> <C>
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.
10(O) Outside Directors' Phantom Share Plan
11 Statement re Computation of per share earnings
13 Annual Report to Shareholders. The Company's 1995 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
</TABLE>
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 (except for the Annual Report to Shareholders which is
complimentary) to help defray the costs of handling, copying and postage.
II-3
<PAGE> 1
EXHIBIT 10(K)
1995 - 1997
BFGOODRICH LONG-TERM INCENTIVE PLAN
-----------------------------------
This is a summary of the benefits to which you are entitled under the
BFGoodrich Long-Term Incentive Plan. The complete details of the Plan are
contained in the text of the Key Employees' Stock Option Plan, the Performance
Share Plan and the Long-Term Incentive Plan. This summary is qualified by the
terms and conditions contained in those plan documents.
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
PURPOSE
- -------
The Long-Term Incentive Plan is designed to provide a long-term incentive to
key executives who are in positions to influence the performance of the Company
and its individual business units, and thereby enhance shareholder value over
time. The Plan provides a significant additional financial opportunity and
complements other parts of the Company's total compensation program for
executives (base salary, Management Incentive Program, stock options and
benefits).
PLAN OVERVIEW
- -------------
The Long-Term Incentive Plan rewards financial performance over three-year
cycles, which do not overlap. At the beginning of each three-year cycle, two
types of awards of BFGoodrich common stock may be granted to you -- Restricted
Shares and Performance Shares. However, you will not obtain full ownership
privileges to any of the shares awarded to you until the end of the three-year
cycle. At that time, if you are still employed by the Company, you will become
entitled to receive the Restricted Shares awarded to you. Additionally, you
will be entitled to receive the Performance Shares awarded to you at the end of
the cycle, if you meet certain financial performance targets established for
you at the beginning of the three-year cycle. If actual financial performance
differs from your financial performance target, the number of Performance
Shares that you actually receive, if any, will differ from the number awarded
to you at the beginning of the three-year cycle. Your participation, the
number of shares granted to you, your financial performance targets, and all
other aspects of the Long-Term Incentive Plan will be determined by the
Compensation Committee of the Board of Directors of the Company, which has full
authority to administer the Plan.
<PAGE> 2
BFGOODRICH COMMON STOCK AWARDS
- ------------------------------
The Long-Term Incentive Plan provides additional compensation to key executives
through the granting of shares of BFGoodrich common stock. The common stock
granted shall be in two forms -- Restricted Shares and Performance Shares.
Each is described below.
* RESTRICTED SHARES. At the beginning of each three-year cycle, you
may be awarded a specified number of shares of BFGoodrich common
stock which shall be classified as Restricted Shares. You will
not become the owner of these Restricted Shares when they are
awarded to you. During the three-year cycle, they will be held by
the Secretary of the Company. You will receive dividends each
quarter and have voting rights based on the number of shares
granted at the beginning of the three-year performance period, but
you will not have any ability to sell, pledge, or otherwise
transfer them. On January 2, immediately following the end of the
three-year cycle, you will become the owner of these shares, as
long as you are actively employed by the Company through the last
day of the Plan cycle. If you are not then employed by the
Company, you or your beneficiary may still be entitled to receive
your shares, if the reason you are not employed is because of your
death, or permanent and total disability. If you retire before
the end of the three-year cycle, the Compensation Committee, in
its' sole discretion, will determine whether to grant ownership to
you of some or all of the shares. There are restrictions on your
ability to sell or transfer these shares even after you become the
owner of them. You may not sell or transfer the Restricted Shares
you receive (net of withholding taxes) for two years after
completion of the three-year cycle.
* PERFORMANCE SHARES. At the beginning of each three-year cycle,
you may also be awarded a number of shares of BFGoodrich common
stock which shall be classified as Performance Shares. During the
three-year cycle, they will be held by the Secretary of the
Company. You will receive dividends each quarter and have voting
rights based on the number of shares granted at the beginning of
the three-year performance period, but you will not have any
ability to sell, pledge, or otherwise transfer them. At the end
of the three-year cycle, if you are still employed by the Company,
you will become the owner of these shares after the Compensation
Committee determines the final payout based upon specific
financial performance targets established for you. Your financial
performance targets will be disclosed to you at the beginning of
the three-year cycle. If actual financial performance differs
from the financial performance target set for you, the number of
shares of common stock which you will receive, if any, will differ
from the number awarded to you at the beginning of the cycle. If
the financial performance is less than the target, you will
receive fewer shares; if the financial performance is better than
target, you will receive more shares. If actual financial
performance fails to meet a threshold financial target, then no
Performance Shares will be conveyed to you. The information given
to you by letter at the beginning of the cycle will describe these
variations to you.
-2-
<PAGE> 3
Unlike the Restricted Shares, all of the Performance Shares that
you receive at the end of the three-year cycle will be free of all
restrictions and you may do with them as you wish. If you die,
retire, or become permanently and totally disabled during the
cycle, such that you are not an active employee of the Company at
the end of the cycle, you or your beneficiary will receive a
prorated portion of the shares awarded to you, based upon the time
portion of the cycle during which you were employed. The actual
payout will not occur until after the end of the three-year cycle,
at which time the financial performance for the entire three-year
cycle will be used to determine the size of your award in that
event. If you terminate for other reasons prior to the end of the
three-year cycle, you will forfeit all the Performance Shares.
The performance target used to determine the number of Performance
Shares you will receive at the end of the Plan cycle will be based
upon the following:
* FOR OPERATING SEGMENTS: Three-year average segment operating
income return on net capital employed (OIRONCE).
* FOR CORPORATE STAFF PARTICIPANTS: Three-year average total
Company return on equity (ROE).
* FOR OPERATING SEGMENT PRESIDENTS: One-half of original
Performance Share grant related to the president's own segment
performance (OIRONCE); one-half of original Performance Share
grant related to total Company performance (ROE).
Your performance target can be adjusted by the Compensation Committee of the
Board of Directors, in its' sole discretion, at any time during the three-year
cycle, if doing so is warranted by extraordinary events such as an acquisition,
divestiture, restructuring, change in accounting practice, or any other unusual
or extraordinary financial or operational event.
Generally, you will not receive full ownership of any shares granted to you
under the Plan until the end of the three-year cycle. An exception will occur,
however, if there is a Change in Control of the Company. A Change in Control
is defined in the Key Employees' Stock Option Plan. If one occurs, you shall
immediately receive all Restricted Shares awarded to you at the beginning of
the cycle. The effect of a Change in Control on your ability to receive
Performance Shares is described in the Performance Share Plan. Generally, that
plan provides that, as of the date of the Change in Control, you will become
entitled to a prorated portion of the shares originally awarded to you, based
upon financial performance for the portion of the cycle which ends on the date
of the Change in Control. Your entitlement to additional shares will be based
upon financial performance for the portion of the three-year cycle which occurs
after the Change in Control.
- 3 -
<PAGE> 4
If you transfer to another position in the Company during the three-year cycle,
you will be entitled to the following:
* RESTRICTED SHARES. The transfer will have no effect whatsoever on
the Restricted Shares awarded to you. You will receive these
shares at the end of the three-year period, provided you are still
employed by the Company.
* PERFORMANCE SHARES. The performance target for a particular
position will apply to you if you are employed in that position
during any portion of the three-year cycle. The total number of
shares that you will be entitled to receive at the end of the
cycle will be based upon the following formula:
<TABLE>
<Capttion>
<S> <C> <C> <C> <C> <C> <C>
Percent of Percentage Payout Number of
Original Three-Year Cycle Relative to Shares Earned
Performance X Cycle Spent X Performance Target = Based On
Share Award In Particular for Particular Particular
Position Position Position
</TABLE>
The total shares earned based on each position you hold during the
three-year cycle will be summed to arrive at the total number of
shares you are entitled to receive at the end of the cycle.
When you transfer to a new position, the Compensation Committee
reserves the right to adjust the award of Performance Shares to
you upward or downward, as appropriate to reflect the duties and
responsibilities of the new position.
For new hires and employees promoted into positions that make them eligible to
participate in the program, the Compensation Committee of the Board of
Directors, upon recommendation from management, may grant an award on a
prorated basis. The amount of the award will be based on the time remaining in
the three-year performance cycle, but the performance targets will be the same
as for other participants.
TAX INFORMATION
- ---------------
Restricted Shares and Performance Shares are taxed similarly under current tax
law. However, you may make a special election regarding the taxation of your
Restricted Shares.
Generally, you are not taxed on either Restricted Shares or Performance Shares
until the date on which any restrictions of ownership lapse or the date on
which you become entitled to your Performance Shares. Under current tax law,
on the date you become entitled to receive the shares following completion of
the three-year performance cycle, the market value of the shares at that time
is considered to be ordinary income and you will be taxed on that amount. If
you hold the shares and later sell them, any appreciation over the market value
of the shares when you received them at the end of the three-year cycle will be
taxed at capital gains rates.
- 4 -
<PAGE> 5
There is one difference in the taxation of Restricted Shares. You may make a
special "Section 83(b)" election under Section 83(b) of the Internal Revenue
Code. Such an election will permit you to elect to be taxed on the market
value of the shares as of the date on which they are first awarded to you.
The tax would then become payable for the year in which shares are originally
granted. Any appreciation after that date will be taxed at capital gains
rates. If, however, you later forfeit your Restricted Shares before the end of
the three-year cycle (e.g., by leaving the Company), none of the tax that you
already have paid may be recovered or used as a tax deduction. The election
must be made within 30 days after the Compensation Committee makes the award.
If you want to make this election, you should contact Richard N. Jacobson in
the Law Department at (216) 374-2874.
Dividends paid on both Restricted Shares and Performance Shares are income to
you. These dividends will be paid each quarter by your payroll department.
Under the Internal Revenue Code, these payments are considered compensation and
not dividends and will be included on your W-2 statement. Normal payroll
withholding taxes will be deducted from these payments. Any income you derive
from either Restricted Shares or Performance Shares will not be considered
eligible earnings for Company or subsidiary pension plans, savings plans or
profit sharing plans.
WITHHOLDING TAX INFORMATION
- ---------------------------
At the end of the three-year performance period, the number of Restricted
Shares and Performance Shares you will receive will be net of an amount of
shares sufficient to satisfy any federal, state and local withholding tax
requirements with which the Company must comply.
You should consult your tax advisor for a complete explanation of the tax
impact of your participation in the Long-Term Incentive Plan.
January 4, 1996
- 5 -
<PAGE> 6
1995 - 1997
BFGOODRICH LONG-TERM INCENTIVE PLAN
-----------------------------------
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
Name:
Corporate Staff Participant
You have been granted the following Long-Term Incentive Plan shares for the
three-year performance period 1995 through 1997:
Restricted Shares: X,XXX shares of BFG common stock
Performance Shares: X,XXX shares of BFG common stock
RESTRICTED STOCK
- ----------------
On January 2, 1998, you will receive the X,XXX Restricted Shares (less the
number of shares sufficient to satisfy any federal, state and local withholding
tax requirements), provided you are actively employed by the Company through
December 31, 1997. You may not sell or transfer these shares until January 1,
2000.
PERFORMANCE SHARES
- ------------------
The number of Performance Shares you receive will depend on the three-year
performance of the total Company, as measured against specific Return on Equity
(ROE) targets. At the end of the three-year performance period, you will
receive Performance Shares based on the following schedule. This schedule only
applies to your Performance Shares.
<TABLE>
<CAPTION>
Total Company Percent Payout
Three-Year Performance
Average ROE Share Grant
------------------ ----------------
<S> <C> <C> <C>
Below X.X% 0%
(Threshold) Y.Y% 50%
(Target) Z.Z% 100%
(Maximum) A.A% and above 150%
</TABLE>
(Note: If performance for the three-year period is between the percentage
attainment levels listed on this chart, your Performance Share award
will be prorated accordingly. For example, an average ROE of XX.X%
will pay out Performance Shares equal to XXX.X% of the grant amount.)
- 6 -
<PAGE> 7
OTHER IMPORTANT INFORMATION
- ---------------------------
* You will not receive any Performance Shares if the Company's
average ROE during the 1995-1997 period is below X.X%. You
nevertheless will receive the Restricted Shares, provided you still
are actively employed by the Company at the end of 1997.
* New share grants and performance targets are expected to be
established for another three-year Plan period beginning in 1998.
* You will receive quarterly cash dividends throughout the three-year
Plan period on your initial award for both Restricted Shares and
Performance Shares. These dividends will be paid by your payroll
department until December 31, 1997. Under the Internal Revenue
Code, these payments are considered compensation and not dividends
and will be included on your W-2. Normal payroll withholding taxes
will be deducted from these payments. In the event performance
does not meet the threshold required for payout of the Performance
Shares, the dividends you already received are yours to keep.
* You will have voting rights during the three-year Plan period on
both Restricted Shares and Performance Shares.
* Any income you derive from either Restricted Shares or Performance
Shares will not be considered eligible earnings for Company or
subsidiary pension plans, savings plans or profit sharing plans.
FOR MORE INFORMATION
- --------------------
If you have questions about the Long-Term Incentive Plan or need additional
information, contact Gary Habegger at (216) 374-2155.
February 23, 1995
- 7 -
<PAGE> 1
Exhibit 10(O)
DIRECTORS' PHANTOM SHARE PLAN
-----------------------------
ADOPTED BY THE BOARD OF DIRECTORS ON SEPTEMBER 18, 1995
WHEREAS, the Board of Directors has previously established a retirement income
program for certain Directors of the Company by resolution adopted on February
17, 1982 ("1982 Directors' Retirement Plan"); and
WHEREAS, the Board of Directors wishes to replace the 1982 Directors'
Retirement Plan with a phantom share plan and establish certain transitional
provisions;
NOW THEREFORE, BE IT RESOLVED, that the following plan, to be known as the
Directors' Phantom Share Plan is hereby established with the following terms
and conditions:
Directors who are not and have not been executive officers of the
Company ("Outside Directors") shall receive annual grants of phantom
shares ("Phantom Shares") (each Phantom Share to equal the fair market
value of one share of Company common stock) equal in value to one
times the then current annual cash retainer for Outside Directors on
each Board service anniversary date (as hereinafter defined) through
the tenth Board service anniversary date. No further awards of
Phantom Shares shall be made following the tenth Board service
anniversary date.
With respect to the current Outside Directors:
* Outside Directors with ten or more years of Board
service as of the date hereof shall receive no grant
of Phantom Shares but shall continue to be eligible
to receive benefits under the 1982 Directors'
Retirement Plan.
* Outside Directors with at least five years but less
than ten years of Board service as of the date hereof
shall receive an annual grant of Phantom Shares equal
in value to one times the then current annual cash
retainer for Outside Directors on each Board service
anniversary date commencing on their next Board
service anniversary date through their tenth Board
service anniversary date. Such Directors shall
continue to be eligible to receive benefits under the
1982 Directors' Retirement Plan to the extent such
benefits are accrued for benefit computation purposes
as of the date hereof (rounded to completed years of
Board service).
<PAGE> 2
* Outside Directors with less than five years of Board
service as of the date hereof shall receive an
initial grant of Phantom Shares equal to the current
annual cash retainer for Outside Directors times the
number of years (rounded to completed years) of Board
service. Such Directors shall thereafter receive an
annual grant of Phantom Shares equal to one times the
then current annual cash retainer for Outside
Directors on each Board service anniversary date
commencing on their next Board service anniversary
date through their tenth Board service anniversary
date. Such Directors shall not be eligible for any
benefits under the 1982 Directors' Retirement Plan.
Dividend equivalents will be accrued on all Phantom Shares granted
under this Plan. Upon the payment date of each dividend declared on
the Company's common stock, that number of additional Phantom Shares
will be credited to each Outside Directors' account which is
equivalent in value to the aggregate amount of dividends which would
be paid if the number of Phantom Shares credited to each Outside
Directors' account were actual shares of the Company's common stock.
All Phantom Shares become fully vested at the earlier of:
(i) five years from the date of grant;
(ii) upon the Director's termination of service on the
Board on or after age 55; or
(iii) a "Change in Control" as defined in the Company's Key
Employees' Stock Option Plan.
Upon termination of Board service (the "termination date") the fair
market value of all vested Phantom Shares shall be paid to each
Outside Director in cash, subject to applicable withholding taxes, as
follows:
The value of each Outside Directors' account shall be paid in
12 installments commencing on the first day of the month
coincident with or next following the Directors termination
date, and on the first day of the next 11 months thereafter
(each an "installment date"). Each installment shall equal a
fractional amount of each Outside Directors' account, the
numerator of which is one and the denominator of which is
equal to the number of months remaining between the
installment date and 12 months after the first installment
date.
<PAGE> 3
For all purposes of this Plan, the fair market value for the Company's
common stock and Phantom Shares shall be the mean of the high and low
prices of the Company's common stock on the relevant date as reported
on the New York Stock Exchange - Composite Transactions Listing (or
similar report) or if no sale was made on such date, then on the next
preceding day on which such sale was made.
The first Board service anniversary date for each Outside Director
shall mean the date of the first Annual Meeting of Shareholders
following election as a Director. Each Board service anniversary
thereafter shall be the date of the next Annual Meeting of
Shareholders.
Any person who is entitled to benefits under the 1982 Director's
Retirement Plan as of the date hereof shall be fully vested in the
right to receive such benefits. No additional accrual of years of
service for benefit calculation purposes shall be made under the 1982
Directors' Retirement Plan. Other than as expressly provided in these
Directors' Phantom Share Plan resolutions, the resolutions of February
17, 1982 are hereby rescind and are of no further force and effect.
No award of Phantom Shares shall be assignable or transferable by the
Outside Directors, except by will or by the laws of descent and
distribution.
The number of Phantom Shares credited to an Outside Directors' account
shall be adjusted to reflect any stock split, stock dividend,
combination of shares, merger, consolidation, reorganization, or other
change in the structure of the Company or the nature of the Company's
common stock (the "event") in the same manner as the event affects the
Company's common stock.
The Board of Directors may alter or amend this Plan, in whole or in
part, from time to time, or terminate the Plan at any time, provided,
however, no such action shall adversely affect any rights or
obligations with respect to awards of Phantom Shares previously made
under the Plan, without consent of the individual Outside Director.
FURTHER RESOLVED, that the officers of the Company be and they severally are
authorized to do and perform each and every act and thing and to execute and
deliver any and all documents as, on the advice of legal counsel of the
Company, such officers may deem necessary or advisable to implement the intent
and purpose of the preceding resolutions, such officer's execution thereof to
be conclusive evidence of the exercise of the discretionary authority herein
conferred.
<PAGE> 1
THE B.F.GOODRICH COMPANY AND SUBSIDIARIES
EXHIBIT 11 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------
1995 1994 1993
------------- ------------- -------------
(Dollars in millions, except per share amounts)
<S> <C> <C> <C>
PRIMARY
Number of Shares:
----------------
Average number of shares outstanding
(including common stock equivalent shares
outstanding) 26,169,570 25,766,376 25,687,816
Income:
-------
Income from continuing operations $ 118.0 $ 65.7 $ 15.3
Dividends on Preferred Stocks (4.4) (8.0) (8.2)
Premium on Preferred Stocks redeeemed (1.2) - -
Income (loss) from discontinued operations - 10.0 113.0
------------- ------------- -------------
Net income (loss) applicable to Common Stock $ 112.4 $ 67.7 $ 120.1
============= ============= =============
Per Share Amounts:
------------------
Continuing operations $ 4.30 $ 2.24 $ 0.28
Discontinued operations - 0.39 4.40
------------- ------------- -------------
Net income (loss) $ 4.30 $ 2.63 $ 4.68
============= ============= =============
FULLY DILUTED
Number of Shares:
-----------------
Average number of common shares
outstanding 25,999,724 25,738,110 25,643,172
Effect of dilutive stock options -
based on the treasury method using
last day's market price, if higher
than average market price 310,398 28,758 44,713
Average number of shares of Common
Stock issuable if Convertible Preferred
Stock was converted - (A) - (A) 1,999,800
------------- ------------- -------------
Total average number of common and common
equivalent shares outstanding 26,310,122 25,766,868 27,687,685
============= ============= =============
Income:
-------
Income from continuing operations $ 118.0 $ 65.7 $ 15.3
Dividends on Preferred Stocks (4.4) (8.0) (8.2)
Restore dividend on Convertible
Preferred Stock - (A) - (A) 7.7
Premium on Preferred Stocks redeemed (1.2) - -
Restore premium on Preferred Stocks redeemed - (A) - -
Income (loss) from discontinued operations - 10.0 113.0
------------- ------------- -------------
Net income (loss) applicable to Common Stock $ 112.4 $ 67.7 $ 127.8
============= ============= =============
Per Share Amounts:
------------------
Continuing operations $ 4.27 $ 2.24 $ 0.53
Discontinued operations - 0.39 4.09
------------- ------------- -------------
Net income (loss) $ 4.27 $ 2.63 $ 4.62
============= ============= =============
</TABLE>
(A) Anti-Dilutive
<PAGE> 1
EXHIBIT 13
16
MANAGEMENT'S DISCUSSION
AND ANALYSIS
RESULTS OF OPERATIONS
1995 Compared with 1994
CONSOLIDATED OPERATIONS: Record sales and operating income in 1995 for each of
the Company's segments culminated a year of solid growth, despite continuing
challenging conditions in certain markets. Sales of $2,408.6 million in 1995
increased 10 percent compared with 1994. Adjusted for acquisitions and a
divestment, consolidated sales increased 9 percent. Total segment operating
income increased by 27 percent to $296.3 million. Adjusted for acquisitions and
a divestment, total segment operating income increased 26 percent. The gross
profit ratio improved to 32 percent from 31 percent in 1994. Net income of
$118.0 million in 1995 included an after-tax gain of $12.5 million from the
settlement of certain insurance issues relating to past environmental claims, a
$2.2 million after-tax gain on the sale of a business, and a $1.9 million
after-tax charge for a voluntary early retirement program. Excluding these
items, net income would have been $105.2 million, or $3.80 per share.
Several factors contributed to these achievements. Despite continued
weakness in original-equipment markets, BFGoodrich Aerospace successfully
achieved sales increases in the aftermarket and service markets it serves.
Growth was particularly strong for maintenance, repair and overhaul services as
airlines increasingly outsourced various maintenance requirements. In addition,
higher aftermarket demand for ice protection, avionics and wheels and brakes
products contributed significantly to the sales growth. BFGoodrich Specialty
Chemicals experienced volume growth in most U.S. markets, reflecting increased
demand for existing products, expansion of product applications and entries into
new markets. Strategic expansion in international regions, predominantly Europe
and the Far East, complemented the domestic growth. Weak sales in
construction-related markets in North America dampened the segment's revenue
growth rate in 1995. The increase in consolidated sales was also aided by higher
volumes and selling prices for chlor-alkali and olefins products.
Selling and administrative expenses were 21 percent of sales, down from 23
percent in 1994. This improvement reflects continuing successful efforts to
reduce costs. Corporate expenses remained virtually unchanged from 1994. This
result excludes a $3.1 million pretax charge for a voluntary early retirement
program in 1995. Management will continue its efforts to reduce Corporate
expenses.
Cash flow from operations improved, largely due to an increase of $42.3
million in net income. This favorable cash flow result is after a pension
contribution of $38.5 million in 1995 ($32.5 million in 1994) which achieved a
94 percent funded status on an ABO basis for the Company's underfunded defined
benefit pension plans, compared with 91 percent in 1994. The Company's goal is
to fund these plans fully by 1997.
Return on equity increased to 13.3 percent in 1995 (11.8 percent excluding
the effect of the aforementioned special items) from 7.2 percent in 1994 on a
continuing operations basis. Total debt to capitalization decreased to 33.9
percent in 1995 from 37.4 percent in 1994, due to lower levels of total debt and
a greater equity base.
Outlook: The Company expects continued growth in sales and earnings in 1996 and
1997, excluding special items. Management's objective is to achieve a return on
equity in the mid-teens by 1997, with much less variability around that level
in the future. The Company has the financial capability to continue to evaluate
potential acquisitions in strategic markets. Divestiture of businesses that do
not meet strategic or income return goals will also be under evaluation. Cash
flow from operations is expected to continue to improve in 1996, with
significant positive net cash flow anticipated by 1997. The Company will
continue its cost-containment actions to reduce selling and administrative
expenses as a percent of sales.
<TABLE>
The BFGoodrich Company
SALES (In millions)
<S> <C>
93 $ 1,818.3
94 $ 2,199.2
95 $ 2,408.6
<FN>
Sales increased 10 percent, reflecting solid growth in most markets.
</TABLE>
<TABLE>
The BFGoodrich Company
INCOME FROM CONTINUING OPERATIONS (In millions)
<S> <C>
93 $ 15.3
94 $ 65.7
95 $ 118.0
<FN>
BFGoodrich continues to lengthen its earnings growth record.
</TABLE>
<PAGE> 2
17
The BFGoodrich Company and Subsidiaries
<TABLE>
BFGOODRICH AEROSPACE
SALES BY GROUP
<CAPTION>
(In millions) 1995 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Landing Systems $ 311.2 $ 302.0 $260.7
Sensors and Integrated Systems 284.8 290.8 187.4
Safety Systems 221.5 188.6 191.9
MRO 332.1 268.9 215.4
- -------------------------------------------------------------------------
TOTAL $1,149.6 $1,050.3 $855.4
=========================================================================
OPERATING INCOME $ 146.6 $ 121.9 $ 91.3
=========================================================================
</TABLE>
AEROSPACE: Record sales and operating income in 1995 for the Aerospace segment
were achieved, despite continued weakness in original-equipment markets. The
sales growth was primarily attributable to the continued outsourcing of
maintenance, repair and overhaul services by airlines and to higher aftermarket
demand for ice protection, avionics and wheels and brakes products.
The Landing Systems Group continued to experience increased demand from
airlines for several wheel and brake programs, including Boeing 737 and 747,
Airbus A320 and A330/340 and out-of-production programs. Initial shipments for
the Boeing 777 program and strong commercial and military landing gear spares
sales also contributed to the sales increase. These gains more than offset
lower landing gear sales for new commercial and military aircraft production.
Reduced production rates by Boeing and Airbus, and reduced military
aircraft production, were primarily responsible for the modest decline in sales
of the Sensors and Integrated Systems Group. These shortfalls were partially
offset by increased commercial retrofit business.
Strong demand for pneumatic and propeller deicing products and collision
avoidance systems accounted for the higher sales in the Safety Systems Group.
This growth more than offset reduced sales of aircraft evacuation slides,
resulting from lower commercial aircraft build rates.
The Maintenance, Repair and Overhaul (MRO) Group experienced significant
sales growth over 1994 levels. Increased demand for maintenance, repair and
overhaul services for commercial airframes and components, landing gear and
wheels and brakes accounted for most of the sales growth. This growth 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.
Aerospace segment operating income increased 20 percent over 1994 on a 9
percent increase in sales. The improved operating margins reflect the favorable
impact of volume growth in aircraft services and aftermarket products. In
addition, operating margins benefited from improved capacity utilization and the
successful implementation of productivity and cost-containment initiatives,
primarily in the Landing Systems and Safety Systems Groups.
Production workers at The Boeing Company went on strike on October 6, 1995
over job security issues. Boeing and its workers reached an agreement on
December 14, 1995. The impact of the strike to 1995 Aerospace segment operating
income was minimal, since production and sales of landing gear, the largest
individual component sold to Boeing by Aerospace, continued throughout the
strike. Production of other components sold to Boeing experienced
interruptions. The impact, however, on 1995 segment operating income was not
material. The strike's impact on 1996 Aerospace segment operating income should
not be material due to the resolution of the strike in December 1995 and
Boeing's subsequent announcement that it will increase its build rates in 1996
in order to recover lost production.
Outlook: BFGoodrich Aerospace's strong position in civil aircraft markets, and
the balance that the Company has achieved in its businesses between
original-equipment, service and aftermarket products and services, should
provide for continued growth in 1996 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 increasing
retirement of older aircraft, should cause a rebound in the demand for new
aircraft. While 1995 showed a significant increase in orders for new commercial
aircraft, industry aircraft production rates are not expected to increase until
late 1996. In the meantime, the demand for spare parts and for maintenance,
repair and overhaul of aging aircraft should increase. In addition, BFGoodrich
will benefit from continued airline outsourcing of airframe and component
maintenance, repair and overhaul, driven by the airlines' focus on reducing
cost and capital investment.
The outlook for the regional aircraft market is also favorable, with
expected growth rates approaching 10 percent. BFGoodrich supplies components
for numerous aircraft models serving that market. With ongoing lower 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 continue to pursue cost-reduction, productivity
improvement and asset management programs. These internal initiatives provide
the opportunity to leverage the Company's cost and asset position for continued
sales and income growth as market conditions improve.
<PAGE> 3
18
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
SPECIALTY CHEMICALS: Segment sales and operating income surpassed the
record levels achieved in 1994. Sales in 1995 increased to $1,070.1 million, or
8 percent higher than last year. Excluding acquisitions and a divestment, sales
increased 6 percent.
Sales growth primarily reflected an 11 percent increase in domestic sales,
resulting from higher volume and pricing in most U.S. markets. International
sales were 3 percent higher as growth in the Far East and Europe was partially
offset by lower sales in Canada. Volume growth reflected increased demand for
existing products, continued expansion of product applications and entries into
new markets. Sales were weak in construction-related markets, but strong for
products supporting electronics, textile and automotive applications. Price
increases were implemented in 1995 in response to a significant rise in raw
material costs late in 1994 and during the first half of 1995.
The Specialty Plastics Group sales increase reflected continued strong
demand for thermoplastic polyurethane and price increases across major product
lines. The price increases helped offset the significant rise in raw material
costs experienced during the first half of 1995. Weakness in the Middle East
and U.S. housing markets dampened sales growth of heat-resistant plastics.
Demand for the relatively new reaction-injection-molded plastics continued to
improve, and prospects for future growth are excellent. In 1995, the Group also
benefited from a favorable foreign exchange effect on sales.
The Specialty Additives Group sales increased 21 percent over the prior
year. Excluding two acquisitions made in 1994, sales increased 6 percent,
reflecting both volume gains and price increases across most major product
lines. Polymer resin, emulsion and compound sales to the electronic, textile
and do-it-yourself markets were especially strong. Sales of synthetic
thickeners for personal-care applications also grew significantly.
<TABLE>
BFGOODRICH SPECIALTY CHEMICALS
SALES BY GROUP
<CAPTION>
(In millions) 1995 1994 1993
- --------------------------------------------------------------
<S> <C> <C> <C>
Specialty Plastics $ 250.2 $228.1 $178.5
Specialty Additives 445.8 367.0 288.3
Sealants, Coatings and Adhesives 359.5 349.5 324.4
Water Systems and Services 14.6 44.0 38.4
- --------------------------------------------------------------
TOTAL $1,070.1 $988.6 $829.6
==============================================================
OPERATING INCOME $ 92.2 $ 86.7 $ 45.0
==============================================================
</TABLE>
The increase in roofing sales was the primary contributor to the sales
growth of the Sealants, Coatings and Adhesives Group. The roofing business in
the U.S. increased significantly through improved sales coverage, expanded
services and an expansion of the product line. European sealant sales also
increased well over 1994 levels. Sealant sales in North America, however,
declined as housing starts and commercial construction slowed, particularly in
Canada. Market growth in the Asia Pacific region was accomplished through joint
ventures in Singapore and Malaysia. Increased demand for adhesives in the
aerospace and automotive markets contributed to the Group's sales growth.
The Water Systems and Services Group (Arrowhead Industrial Water, Inc.
[Arrowhead]) was divested on May 4, 1995. The $84.3 million adjusted sales
price resulted in a pretax gain of $3.6 million. Arrowhead accounted for
approximately 4 percent of the Specialty Chemicals segment's 1994 sales, but
less than 2 percent of that segment's 1994 operating income.
Specialty Chemicals segment operating income increased 6 percent to $92.2
million. Adjusted for 1994 acquisitions and the Arrowhead divestment in 1995,
operating income increased 2 percent. Sales volume accounted for most of the
growth in operating income. Significant increases in raw material costs for
many specialty additives and specialty plastics negatively affected earnings,
despite implementation of cost-control initiatives and price increases. The
effect of higher raw material costs and increased spending to support volume
growth dampened the income contribution of higher sales.
Outlook: Growth in sales, largely reflecting higher volumes, is expected to
continue in 1996 and beyond. Expanded product offerings are expected to
establish a larger sales base and income opportunity globally. The fastest
growth is expected from international markets. Added European production
capacity coming on line in 1996 and 1998 for specialty additives and specialty
plastics products will enhance competitiveness in that region. Geographic
expansion within the Asia Pacific region, particularly in mainland China and
India, will also be emphasized. A recovery in housing starts should benefit
North American sales.
OTHER OPERATIONS: Other Operations consists of the chlor-alkali, olefins and
utility operations located at Calvert City, Kentucky.
Sales of chlor-alkali and olefins products added to the year's gain in
consolidated sales, as both volume and selling prices for all products
increased significantly over the prior year. Sales in 1995 increased 18 percent
to $188.9 million.
Operating income in 1995 increased 139 percent to $57.5 million,
reflecting the volume and price gains over 1994, stable raw material costs and
favorable utility costs.
<PAGE> 4
19
The BFGoodrich Company and Subsidiaries
Outlook: Demand for chlor-alkali products is expected to remain at current
levels during 1996, while demand for olefins products is expected to continue
to soften during the first half of 1996. The Company does not have a
significant market share, and selling prices are determined by market
influences. Olefins product prices are expected to remain weak at least during
the first half of 1996, and, as a result, operating income from Other
Operations could be significantly less in 1996 compared with 1995.
BFGoodrich has tendered the Calvert City chlor-alkali and olefins
facilities (Facilities) to Westlake Monomers Corporation (Westlake) at the
February 15, 1993 fair market value of approximately $170.0 million, as
determined by an independent appraiser. Westlake has stated it intends to
purchase the Facilities at the appraised value. Such an acquisition by Westlake
is subject to the negotiation and execution of a definitive purchase agreement
and governmental approval. There can be no assurance that a definitive
agreement will be reached. See also Note P to the Consolidated Financial
Statements for further discussion.
1994 Compared with 1993
CONSOLIDATED OPERATIONS: Sales in 1994 increased 21 percent over 1993 to
$2,199.2 million. Adjusted for acquisitions made in 1993 and 1994, sales
increased 10 percent. Total segment operating income increased 66 percent over
1993 to $232.7 million. Adjusted for acquisitions, total segment operating
income increased 61 percent.
The consolidated gross profit ratio increased to 31 percent in 1994 from
30 percent in 1993. Improved labor efficiencies at the Everett-based
maintenance, repair and overhaul facility and other productivity improvements
and cost-containment activities in the landing systems businesses helped to
improve overall gross profit and more than offset softness in commercial
aircraft manufacturing. This improvement was partially offset by increases in
raw material prices for many specialty chemicals. Improved manufacturing
efficiencies and the rationalization of a high-cost facility, however, helped
to counter the effects of these rising raw material prices. Rising prices
combined with stable raw material costs and favorable utility costs in the
chlor-alkali and olefins business also contributed to the improvement in
consolidated margins.
Selling and administrative expenses remained essentially flat as a
percentage of sales, reflecting management's control of overhead expenses.
Acquisitions made in late 1993 and in 1994 increased total costs. Lower
postretirement benefit costs and lower pension expense in 1994 reflected a
reduced discount rate and higher levels of pension funding made during 1993.
AEROSPACE: Sales increased 23 percent over 1993 to $1,050.3 million.
Adjusted for the effect of the 1993 acquisitions of the Landing Gear Division,
Landing Gear Services Division and Rosemount Aerospace, sales increased 4
percent. Continued softness in new aircraft manufacturing reduced the demand
for landing systems and many safety systems products. Increased demand,
however, for replacement wheels and brakes for the Boeing 737 and 747 programs
and sales of wheels and brakes to regional and commuter aircraft manufacturers
helped offset the negative impact of reduced original-equipment demand. During
the fourth quarter of 1993, the opening of a new hangar at the Everett-based
maintenance, repair and overhaul facility significantly increased the capacity
to provide commercial airframe maintenance. This expansion coupled with higher
demand for wheel and brake and landing gear repair and overhauls contributed to
revenue growth in 1994.
Overall, the Aerospace segment successfully improved operating margins.
The favorable impact of volume growth, productivity improvements and
cost-containment activities, primarily in the Maintenance, Repair and Overhaul
and Landing Systems Groups, more than offset softness in commercial aircraft
manufacturing and military markets. Excluding 1993 acquisitions and a $3.3
million restructuring charge recorded in 1993, Aerospace segment operating
income increased 17 percent on a 4 percent increase in sales.
SPECIALTY CHEMICALS: Sales increased to $988.6 million, or 19 percent over
1993. Excluding acquisitions made in 1994 and late 1993, sales increased 13
percent over 1993. Factors contributing to the increase include improved sales
volume due to expanded product applications, particularly for specialty plastic
and specialty additive products, and increased demand for insulating-glass
sealants. International expansion of the Specialty Plastics and Specialty
Additives businesses also occurred in 1994, contributing to the revenue growth.
Led by strong European demand for specialty plastic and specialty additive
products, sales outside North America increased 13 percent.
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. Cost increases for several key raw materials dampened this
improvement somewhat. Improved manufacturing efficiencies and the
rationalization of a high-cost facility, however, helped to counter the effects
of rising raw material costs.
<PAGE> 5
20
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
OTHER OPERATIONS: Chlor-alkali and olefins sales in 1994 increased 20 percent
to $160.3 million. This increase reflected higher ethylene and chlorine sales
volumes and higher selling prices, particularly during the last six months of
1994.
Operating income in 1994 increased to $24.1 million from $4.0 million in
1993. This increase was attributable to higher selling prices, stable raw
material costs and favorable utility costs during the second half of 1994.
RESTRUCTURING COSTS
In 1995, the Company recorded a $3.1 million pretax charge 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.
In January 1996, the Company offered a voluntary early retirement program
to eligible employees of the Specialty Plastics and Specialty Additives Groups.
Employees have until February 29, 1996 to decide whether or not to elect the
program. A total of 82 employees are eligible for the program. The Company
estimates it will recognize a pretax charge in the range of $3 million to $5
million in the first quarter of 1996.
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 the Advanced Technology Group.
Restructuring costs in 1993 also included 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 1995, $.6 million of
the original restructuring liability remains. The remaining restructuring
activities are expected to be completed during 1996, and no significant change
to this liability is anticipated.
The Company continues to evaluate employment levels and facility cost
structures in relation to economic and competitive conditions.
INTEREST
Interest expense decreased to $45.1 million in 1995 from $47.7 million in 1994
due to lower levels of total debt, reflecting the proceeds from the sale of
Arrowhead. Interest income in 1995 included $1.0 million of interest received
from an insurance settlement related to past environmental issues. Interest
expense in 1994 increased by $9.4 million over 1993. More than half of this
increase was due to nearly $5.0 million more interest being capitalized on
qualifying projects in 1993 than in 1994. New 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, until applied to new
acquisitions, along with a $160.0 million special dividend from Geon, helped to
maintain lower average short-term borrowing during 1993.
OTHER INCOME(EXPENSE)-NET
Other income(expense)-net for 1995 reflected income of $.3 million compared to
an expense of $25.2 million in 1994. The 1995 amount included $19.1 million of
income from the settlement of certain insurance issues relating to past
environmental claims, principally for previously discontinued businesses, and a
$3.6 million gain from the sale of Arrowhead.
The 1994 amount was $9.1 million lower than the 1993 expense of $34.3
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.
DISCONTINUED OPERATIONS
In the third quarter of 1994, the Company realized a $10.0 million tax benefit
as a result of utilizing 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. See also Note B to the Consolidated
Financial Statements.
RETURN ON EQUITY
Management's objective is to achieve a return on equity in the mid-teens by the
end of 1997. In 1995, the Company achieved a return on equity on a continuing
operations basis of 13.3 percent (11.8 percent excluding the effect of special
items), compared with 7.2 percent in 1994 and 1.2 percent in 1993.
<TABLE>
THE BFGOODRICH COMPANY
RETURN ON EQUITY*
<S> <C>
93 1.2%
94 7.2%
95 13.3%
<FN>
* Continuing Operations
The Company is on target to achieve a mid-teens return on equity by 1997.
</TABLE>
<PAGE> 6
21
The BFGoodrich Company and Subsidiaries
CAPITAL RESOURCES AND LIQUIDITY
The Company's liquidity position improved significantly at December 31, 1995
compared with December 31, 1994. Current assets less current liabilities
increased by approximately $109.0 million. This result reflects proceeds of
$80.0 million received in connection with the sale of Arrowhead, with the
remaining $4.3 million in proceeds received in 1996. The Company's current
ratio improved to 1.6X at December 31, 1995 from 1.4X at December 31, 1994. In
addition, the quick ratio improved to .76X from .66X in 1994. The Company
intends to continue to finance short-term bank debt and currently maturing
long-term debt on a longer-term basis. The Company has adequate cash flow from
operations to satisfy its operating requirements and capital spending programs.
In addition, the Company has the credit facilities described in the following
paragraphs to finance growth opportunities as they arise.
The Company maintains $310.0 million of uncommitted domestic money market
facilities with various banks to meet its short-term borrowing requirements. As
of December 31, 1995, $260.0 million of these facilities were unused and
available. Over 90 percent of the Company's uncommitted credit facilities are
provided by a small number of commercial banks that also provide the Company
with all of its domestic committed lines of credit and the majority of its cash
management, trust and investment management requirements. As a result of these
established relationships, the Company believes that its uncommitted facilities
are a highly reliable and cost-effective source of liquidity.
The Company also maintains $300.0 million of committed domestic revolving
credit agreements with various banks. At December 31, 1995 and throughout 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 $171.0 million of public debt securities as of December 31, 1995 (referred
to as the MTN program). During 1995, the Company made four issues of fixed-rate
non-callable MTN notes under this shelf registration and received a total of
$79.0 million in proceeds. The MTN notes are due in 2025 at interest rates
ranging from 7.3 percent to 8.7 percent. The proceeds were used to replace
scheduled 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 percent Cumulative
Quarterly Income Preferred Securities, Series A (QUIPS). The Trust invested the
proceeds in 8.30 percent 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 on July 31, 1995, for $50.70 per share plus accrued dividends of
approximately $0.30 per share. 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.
Prior to the redemption of the Series D Preferred Stock, holders of some
Series D Preferred Stock exercised their conversion privileges and received
415,806 shares of common stock. Shortly thereafter, the Company completed the
repurchase of all of the common stock issued upon conversion of the Series D
Preferred Stock. The Company's total cash cost to repurchase the shares issued
upon conversion of the Series D Preferred Stock was approximately $.4 million
less than what the total cash cost would have been to redeem the Series D
Preferred Stock.
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 objective is to achieve an "A" credit rating within the
following two- to three-year period. This accomplishment would reduce the
Company's cost of debt capital and strengthen the Company's financial
flexibility to achieve its growth plans.
The Company has continued to manage its debt-to-capitalization ratio
within the long-term target range of 35 to 40 percent. For purposes of this
ratio the QUIPS are treated as capital.
<TABLE>
THE BFGOODRICH COMPANY
DEBT TO CAPITALIZATION
(DECEMBER 31)
<S> <C>
93 36.9%
94 37.4%
95 33.9%
<FN>
BFGoodrich has the financial resources to achieve its growth plans.
</TABLE>
<PAGE> 7
22
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
CASH FLOWS
"Net operating cash flow" is cash from operations remaining after satisfying
capital expenditures, dividend payments and the effects of acquisitions and
divestitures. The Company's longer-term strategy is to maximize cash flow
through profitable business growth and to reinvest in opportunities that will
build shareholder value as well as return to shareholders a portion of that
value through dividend payments. The Company's short-term objective is to
achieve cash neutrality after satisfying capital expenditures and payment of
dividends, but excluding the effects of acquisitions and divestitures.
In 1995, operating working capital (defined as accounts receivable plus
pre-LIFO inventory less accounts payable) increased to $617.6 million from
$565.3 million at the end of 1994. Average operating working capital as a
percent of sales was 26 percent in 1995, compared to a ratio of 25 percent in
1994. Higher raw material costs, predominantly for specialty plastics and
specialty additives, contributed to the increase in operating working capital.
In 1996, the Company will be pursuing initiatives to reduce the investment in
operating working capital.
Net operating cash flow is summarized as follows:
<TABLE>
<CAPTION>
(In millions)
- -----------------------------------------------------------------
Year Ended December 31 1995 1994 1993
- -----------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from (used for):
Operations $ 193.5 $ 183.6 $ (17.4)
Capital expenditures - net (146.4) (118.8) (126.2)
- -----------------------------------------------------------------
47.1 64.8 (143.6)
Dividends and
QUIPS distributions (66.7) (64.6) (64.6)
- -----------------------------------------------------------------
(19.6) .2 (208.2)
Acquisitions and
divestitures - net 66.9 (20.2) 39.6
=================================================================
Net operating cash flow $ 47.3 $ (20.0) $(168.6)
=================================================================
</TABLE>
Cash flow from operations in 1995 improved as net income increased $42.3
million. This cash flow was more than adequate to finance capital expenditures
in 1995. Planned capital programs will require higher capital spending in 1996
as the Company continues its investment in international expansion,
particularly in Europe by the Specialty Chemicals segment. The Company intends
to finance these programs largely by cash flow from operations.
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 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
42 sites, most of which related to businesses previously discontinued. The
Company believes it may have continuing liability with respect to not more than
25 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.
<PAGE> 8
23
The BFGoodrich Company and Subsidiaries
At December 31, 1995, the Company had recorded as Accrued expenses and as
Other Non-current Liabilities a total of $22.6 million to cover future
environmental expenditures, principally for remediation of the aforementioned
sites and other environmental matters. A significant portion of accrued
environmental liabilities is in connection with six sites, five of which relate
to businesses previously discontinued. 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 the five previously discontinued sites, the Company's
maximum percentage share of the ultimate remediation costs is fixed. Three of
the five sites are in the design or construction phases and two sites are
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.
With respect to the sixth site, the investigation and determination of remedial
alternatives is just beginning, and it is not currently possible to determine
the total cost of remediation or the Company's share of those future costs.
Management believes that it is reasonably possible that additional costs
may be incurred beyond the amounts 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, but could be
material to the Company's results of operations in a given period.
NEW ACCOUNTING STANDARDS
In 1995, the Financial Accounting Standards Board issued two new accounting
standards that will be applicable to the Company, each being effective for
1996. SFAS No. 121 "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed Of," establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used, and for long-lived assets and
certain identifiable intangibles to be disposed of. The Company has determined
the effect upon its adoption to be immaterial to results of operations.
SFAS No.123 "Accounting for Stock-Based Compensation," establishes new
accounting standards for the measurement and recognition of stock-based awards.
SFAS No. 123 permits entities to continue to use the traditional accounting for
stock-based awards prescribed by APB Opinion No. 25 "Accounting for Stock
Issued to Employees." The Company intends to continue using the provisions of
APB Opinion No. 25 in accounting for stock-based awards. Under this option,
however, the Company will be required to disclose the pro forma effect of
stock-based awards on net income and earnings per share as if SFAS No. 123 had
been adopted.
<PAGE> 9
24
CONSOLIDATED
STATEMENT OF INCOME
<TABLE>
<CAPTION>
(Dollars in millions, except per share amounts)
Year Ended December 31 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES $2,408.6 $2,199.2 $1,818.3
Operating costs and expenses:
Cost of sales 1,649.7 1,523.3 1,278.3
Selling and administrative expenses 516.0 496.2 444.0
Restructuring costs (Note B) 3.1 -- 13.3
- -------------------------------------------------------------------------------
2,168.8 2,019.5 1,735.6
- -------------------------------------------------------------------------------
OPERATING INCOME 239.8 179.7 82.7
Interest expense (45.1) (47.7) (38.3)
Interest income 3.3 1.8 5.2
Other income (expense)--net (Note I) .3 (25.2) (34.3)
- -------------------------------------------------------------------------------
Income from continuing operations
before income taxes and Trust distributions 198.3 108.6 15.3
Income tax expense (Note G) (75.2) (42.9) --
Distributions on Trust preferred securities (Note N) (5.1) -- --
- -------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 118.0 65.7 15.3
Income from discontinued operations--net (Note B) -- 10.0 113.0
- -------------------------------------------------------------------------------
NET INCOME 118.0 75.7 128.3
Dividends and call premium on preferred stocks (5.6) (8.0) (8.2)
- -------------------------------------------------------------------------------
NET INCOME APPLICABLE TO COMMON STOCK $ 112.4 $ 67.7 $ 120.1
===============================================================================
EARNINGS PER SHARE (Note A)
Continuing operations $ 4.30 $ 2.24 $ .28
Discontinued operations -- .39 4.40
- -------------------------------------------------------------------------------
Net income $ 4.30 $ 2.63 $ 4.68
===============================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 10
25
<TABLE>
The BFGoodrich Company and Subsidiaries
CONSOLIDATED
BALANCE SHEET
(Dollars in millions, except per share amounts)
<CAPTION>
December 31 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 60.3 $ 35.8
Accounts and notes receivable (Note J) 399.0 384.5
Inventories (Note J) 390.1 358.8
Deferred income tax assets (Note G) 67.9 64.9
Prepaid expenses and other assets 32.7 34.8
- ----------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 950.0 878.8
- ----------------------------------------------------------------------------------------------
DEFERRED INCOME TAX ASSETS (Note G) 28.3 57.0
PROPERTY (Note J) 859.2 873.3
GOODWILL (Notes B and J) 481.4 497.9
IDENTIFIABLE INTANGIBLE ASSETS (Note J) 51.5 51.6
INTANGIBLE PENSION ASSET (Note E) 44.2 49.5
OTHER ASSETS 75.0 60.8
- ----------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,489.6 $ 2,468.9
==============================================================================================
CURRENT LIABILITIES
Short-term bank debt (Note C) $ 11.3 $ 70.4
Accounts payable 235.9 239.1
Accrued expenses (Note J) 239.9 246.9
Income taxes payable 33.3 26.4
Current maturities of long-term debt and capital lease
obligations (Notes C and D) 80.3 55.2
- ----------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 600.7 638.0
- ----------------------------------------------------------------------------------------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (Notes C and D) 422.3 427.1
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (Note F) 351.9 353.6
OTHER NON-CURRENT LIABILITIES (Note J) 113.9 127.6
MANDATORILY REDEEMABLE PREFERRED SECURITIES OF TRUST (Note N) 122.2 --
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, 26,789,260
shares in 1995 and 25,950,722 shares in 1994 (Note M) 133.9 129.8
Additional capital 447.5 401.7
Income retained in the business (Note C) 360.9 305.7
Cumulative unrealized translation adjustments 9.6 4.9
Amount related to recording minimum pension liability (28.8) (18.6)
Unearned portion of restricted stock awards (16.2) (3.9)
Common stock held in treasury, at cost (522,568
shares in 1995 and 160,566 shares in 1994) (28.3) (7.0)
- ----------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 878.6 922.6
- ----------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,489.6 $ 2,468.9
==============================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 11
26
<TABLE>
CONSOLIDATED
STATEMENT OF CASH FLOWS
(Dollars in millions)
<CAPTION>
Year Ended December 31 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 118.0 $ 75.7 $ 128.3
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Restructuring costs -- -- 13.3
Depreciation and amortization 113.9 112.1 109.2
Deferred income taxes 29.5 21.2 5.4
Gain on sales of businesses (3.6) -- (110.9)
Change in assets and liabilities, net of effects
of acquisitions and dispositions of businesses:
Receivables (16.8) (62.8) (77.2)
Inventories (27.9) (4.9) (13.2)
Other current assets 1.3 (2.3) (20.3)
Accounts payable 2.2 57.6 2.6
Accrued expenses (8.0) 9.5 (28.1)
Income taxes payable 9.1 (5.6) (29.2)
Other non-current assets and liabilities (24.2) (16.9) 2.7
- ---------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 193.5 183.6 (17.4)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property (147.7) (129.3) (146.2)
Proceeds from sale of property 3.2 10.5 3.0
Payments made in connection with acquisitions,
net of cash acquired (15.4) (20.2) (528.5)
Proceeds and dividends from sales of businesses 82.3 -- 568.1
Other transactions (1.9) -- 17.0
- ---------------------------------------------------------------------------------------------------------
Net cash used by investing activities (79.5) (139.0) (86.6)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in short-term debt (59.2) 46.7 20.2
Proceeds from issuance of long-term debt 80.8 -- 111.5
Repayment of long-term debt and capital lease obligations (62.0) (20.5) (26.5)
Proceeds from issuance of capital stock 16.6 1.4 4.3
Proceeds from issuance of Trust preferred securities,
net of issuance costs 122.1 -- --
Purchases of treasury stock (33.4) (1.1) (.8)
Dividends (61.6) (64.6) (64.6)
Distributions on Trust preferred securities (5.1) -- --
Retirements of preferred stock (88.3) (4.9) (2.5)
- ---------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (90.1) (43.0) 41.6
EFFECT OF EXCHANGE RATE CHANGES ON CASH .6 .8 (1.6)
- ---------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 24.5 2.4 (64.0)
- ---------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 35.8 33.4 97.4
- ---------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 60.3 $ 35.8 $ 33.4
=========================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 12
27
<TABLE>
The BFGoodrich Company and Subsidiaries
CONSOLIDATED
STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in millions, except per share amounts)
<CAPTION>
Year Ended December 31 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$3.50 CUMULATIVE CONVERTIBLE PREFERRED STOCK,
SERIES D (Note L) $ -- $ 110.0 $ 110.0
- ---------------------------------------------------------------------------------------------------------
COMMON STOCK--$5 PAR VALUE (Note M)
Balance at beginning of year 129.8 128.8 128.2
Common stock issued for:
Acquisitions -- .7 --
Conversion of Series D Preferred Stock 2.0 -- --
Employee award programs 2.1 .3 .6
- ---------------------------------------------------------------------------------------------------------
Balance at end of year 133.9 129.8 128.8
- ---------------------------------------------------------------------------------------------------------
ADDITIONAL CAPITAL
Balance at beginning of year 401.7 393.8 391.5
Acquisitions -- 5.6 --
Conversion of Series D Preferred Stock 20.8 -- --
Employee award programs 23.6 2.3 2.3
Other capital share transactions 1.4 -- --
- ---------------------------------------------------------------------------------------------------------
Balance at end of year 447.5 401.7 393.8
- ---------------------------------------------------------------------------------------------------------
INCOME RETAINED IN THE BUSINESS (Note C)
Balance at beginning of year 305.7 294.6 230.9
Net income 118.0 75.7 128.3
Premium on redemption of Series D Preferred Stock (Note L) (1.2) -- --
Dividends:
Preferred Stock:
Series A, $7.85 a share -- (.3) (.5)
Series D, $3.50 a share (4.4) (7.7) (7.7)
Common stock--$2.20 a share in each year (57.2) (56.6) (56.4)
- ---------------------------------------------------------------------------------------------------------
Total dividends (61.6) (64.6) (64.6)
- ---------------------------------------------------------------------------------------------------------
Balance at end of year 360.9 305.7 294.6
- ---------------------------------------------------------------------------------------------------------
CUMULATIVE UNREALIZED TRANSLATION ADJUSTMENTS
Balance at beginning of year 4.9 (.3) (7.8)
Effect of disposition of foreign operations -- -- 16.7
Aggregate adjustments for the year 4.7 5.2 (9.2)
- ---------------------------------------------------------------------------------------------------------
Balance at end of year 9.6 4.9 (.3)
- ---------------------------------------------------------------------------------------------------------
AMOUNT RELATED TO RECORDING MINIMUM PENSION
LIABILITY (Note E) (28.8) (18.6) (21.7)
- ---------------------------------------------------------------------------------------------------------
UNEARNED PORTION OF RESTRICTED STOCK AWARDS (Note O) (16.2) (3.9) (4.8)
- ---------------------------------------------------------------------------------------------------------
COMMON STOCK HELD IN TREASURY, AT COST (Note M) (28.3) (7.0) (5.1)
- ---------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 878.6 $ 922.6 $ 895.3
=========================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 13
28
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 income (expense)-net. 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. 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. The carrying amount of
goodwill is reviewed if facts and circumstances suggest that it may be
impaired. If this review indicates that goodwill will not be recoverable, as
determined based on the estimated undiscounted cash flows of the entity
acquired over the remaining amortization period, the carrying amount of the
goodwill is reduced by the estimated short-fall of cash flows.
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.
Impairment of long-lived assets is recognized when events or changes in
circumstances indicate that the carrying amount of the asset, or related groups
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 are recognized when the
service is complete.
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, from
time to time, 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. Deferred gains and losses are included as part of the cost
of inventory and are recognized in operating income when inventory is sold to
third parties.
EARNINGS PER SHARE: Primary earnings per share of common stock are computed
after recognition of preferred stock dividend requirements and premiums
associated with the redemption of preferred stock, based on the weighted
average number of common stock and common stock equivalents outstanding of
26,169,570 for 1995, 25,766,376 for 1994 and 25,687,816 for 1993. Fully diluted
earnings per share are not presented, since dilution is less than 3 percent.
<PAGE> 14
29
The BFGoodrich Company and Subsidiaries
RECENTLY ISSUED ACCOUNTING STANDARDS: In March 1995, the Financial Accounting
Standards Board (FASB) issued SFAS No. 121--"Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed Of." SFAS No. 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. The Company is required to adopt the provisions of SFAS No.
121 for 1996, and the Company has determined the effect upon its adoption to be
immaterial to results of operations.
In November 1995, the FASB also issued SFAS No. 123--"Accounting for
Stock-Based Compensation," which establishes new accounting standards for the
measurement and recognition of stock-based awards. SFAS No. 123 permits
entities to continue to use the traditional accounting for stock-based awards
prescribed by APB Opinion No. 25--"Accounting for Stock Issued to Employees";
however, under this option, the Company will be required to disclose the pro
forma effect of stock-based awards on net income and earnings per share as if
SFAS No. 123 had been adopted. SFAS No. 123 is effective for 1996. The Company
intends to continue using the provisions of APB Opinion No. 25 in accounting
for stock-based awards.
Other recently issued standards of the FASB are not expected to affect the
Company as conditions to which those standards apply are absent.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS: Certain amounts presented in prior years' financial
statements have been reclassified to conform with the 1995 presentation.
NOTE B
ACQUISITIONS, DISPOSITIONS AND RESTRUCTURINGS
ACQUISITIONS: During 1995, BFGoodrich acquired four small aerospace businesses
and two small specialty chemical businesses. The aggregate purchase price of
these businesses was $15.4 million.
During 1994, the Company acquired two small specialty chemical businesses
which manufacture coatings and products for the textile industry. The aggregate
purchase price of these businesses was $26.5 million.
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.
DISPOSITIONS: On May 4, 1995, the Company sold its wholly-owned subsidiary,
Arrowhead Industrial Water, Inc. (Arrowhead), for an adjusted price of $84.3
million, resulting in a pretax gain of $3.6 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, but less than 2
percent of the segment's 1994 operating income.
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> 15
30
NOTE B: ACQUISITIONS, DISPOSITIONS AND
RESTRUCTURINGS (continued)
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) 1995 1994 1993
- -----------------------------------------------------------
<S> <C> <C> <C>
Sales $ - $ - $ -
- -----------------------------------------------------------
Income from operations $ - $ - $ .1
Equity in earnings
(from May 6, 1993) - - 3.2
Income tax expense - - (1.2)
- -----------------------------------------------------------
Net income from operations - - 2.1
Gain on disposal of
The Geon Company
(net of tax of $104.3 in 1993) - 10.0 110.9
- -----------------------------------------------------------
Income from
discontinued operations $ - $10.0 $113.0
===========================================================
</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: In 1995, the Company recorded a $3.1 million pretax charge 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.
In January 1996, the Company offered a voluntary early retirement program
to eligible employees of the Specialty Plastics and Specialty Additives Groups.
Employees have until February 29, 1996 to decide whether or not to elect the
program. A total of 82 employees are eligible for the program. The Company
estimates it will recognize a pretax charge in the range of $3 million to $5
million in the first quarter of 1996.
The Company did not incur restructuring costs in 1994. 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 Advanced Technology Group. At December 31, 1995, $.6
million of the original restructuring liability remains. The remaining
restructuring activities are expected to be completed during 1996, and no
significant change to this liability is anticipated.
NOTE C
FINANCING ARRANGEMENTS
SHORT-TERM BANK DEBT: At December 31, 1995, 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 any
period of time until the expiration date 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, 2000, unless extended by the banks at the
request of the Company. Under the agreements, the Company is required to pay a
commitment fee of 12 basis points per annum on the total $300.0 million
committed line. At December 31, 1995, no amounts were outstanding pursuant to
these agreements.
In addition, the Company had available formal foreign lines of credit and
overdraft facilities of $42.0 million at December 31, 1995, of which $11.3
million was used.
The Company also maintains uncommitted domestic money market facilities
with various banks aggregating $310.0 million of which $260.0 million of these
lines were unused and available at December 31, 1995. Weighted average interest
rates on outstanding short-term borrowings were 7.1 percent and 6.6 percent at
December 31, 1995 and 1994, respectively. Average interest rates on short-term
borrowings were 6.5 percent, 4.9 percent and 7.6 percent in 1995, 1994 and
1993, 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 Company's existing financing arrangements. The swap
is scheduled to expire in April 1996.
<PAGE> 16
31
The BFGoodrich Company and Subsidiaries
At December 31, 1995 and 1994, long-term debt and capital lease
obligations payable after one year consisted of:
<TABLE>
<CAPTION>
(In millions) 1995 1994
- ----------------------------------------------------------------
<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
MTN notes payable, maturing in 2025 79.0 --
Notes payable to banks 32.4 59.8
7.00% Subordinated Debentures
(effective interest rate of 7.85%),
maturing to 1997 9.0 9.1
Other debt, maturing to 2023
(interest rates from 6.0% to 14.5%) 73.6 78.8
Unamortized debt discounts (.1) (.2)
- ----------------------------------------------------------------
418.9 422.5
Capital lease obligations (Note D) 3.4 4.6
- ----------------------------------------------------------------
Total $ 422.3 $ 427.1
================================================================
</TABLE>
MTN NOTES PAYABLE: 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 long-term debt securities in the public markets (referred to
as the MTN program). During 1995, the Company made four issues of fixed-rate
non-callable MTN notes under this shelf registration and received a total of
$79.0 million in proceeds. The MTN notes are due in 2025 at interest rates
ranging from 7.3 percent to 8.7 percent. The proceeds are being used to replace
scheduled maturities of long-term debt.
NOTES PAYABLE TO BANKS: Notes payable to banks include both fixed and floating
rate instruments which have principal maturing in 1997. One of the floating
rate instruments has been fixed as a result of entering into an interest rate
swap agreement. 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, the most significant of which is $60.0 million of 6.0 percent bonds due
in 2023.
Aggregate maturities of long-term debt, exclusive of capital lease
obligations, during the five years subsequent to December 31, 1995, are as
follows (in millions): 1996 - $79.2; 1997 - $42.9; 1998 - $2.4; 1999 - $.3 and
2000 - $.3.
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 $330.7 million was
free from such limitations at December 31, 1995.
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,
1995:
<TABLE>
<CAPTION>
Capital Noncancelable
(In millions) Leases Operating Leases
- -----------------------------------------------------------------------------
<S> <C> <C>
1996 $ 1.4 $ 14.5
1997 1.0 10.0
1998 .9 6.5
1999 .8 4.5
2000 .5 3.9
Thereafter .9 18.0
- -----------------------------------------------------------------------------
Total minimum payments 5.5 $ 57.4
========
Less amounts representing interest 1.0
- ------------------------------------------------
Present value of net minimum
lease payments 4.5
Less current portion of
capital lease obligations 1.1
- ------------------------------------------------
Total $ 3.4
================================================
</TABLE>
Net rent expense consisted of the following:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals $ 24.2 $ 24.6 $ 22.7
Contingent rentals 3.5 2.4 1.1
Sublease rentals (.2) (.1) (.1)
- ----------------------------------------------------------------------
Total $ 27.5 $ 26.9 $ 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.
<PAGE> 17
32
NOTE E: PENSIONS (continued)
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 94 percent of the accumulated
benefit obligation at December 31, 1995. 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 are as follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned $ 11.3 $ 11.1 $ 11.7
Interest cost on projected benefit
obligation 47.3 44.0 44.3
Actual return on plan assets (101.5) (16.3) (41.5)
Net amortization and deferral 62.1 (18.9) 8.9
- --------------------------------------------------------------------------
Net pension cost $ 19.2 $ 19.9 $ 23.4
==========================================================================
</TABLE>
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.
The table that follows sets forth the status of the Company's funded
defined benefit pension plans as of December 31, 1995 and 1994, 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
$7.9 million in 1995 and $7.0 million in 1994, and the related projected
benefit obligations of $11.0 million in 1995 and $6.5 million in 1994.
<TABLE>
<CAPTION>
(In millions) 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
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 $ 11.2 $ 546.9 $ 8.1 $ 467.5
Non-vested .6 32.7 .4 25.1
- --------------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 11.8 579.6 8.5 492.6
Plan assets at fair value 17.8 545.7 15.7 448.7
- --------------------------------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than)
accumulated benefit obligation $ 6.0 $ (33.9) $ 7.2 $ (43.9)
================================================================================================================================
Projected benefit obligation $ 14.3 $ 620.0 $ 10.9 $ 531.1
Plan assets at fair value 17.8 545.7 15.7 448.7
- --------------------------------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation $ 3.5 $ (74.3) $ 4.8 $ (82.4)
================================================================================================================================
Consisting of:
Unrecognized transition asset (liability) $ .7 $ (24.6) $ .8 $ (28.3)
Unrecognized prior service cost (.5) (18.0) (.6) (20.0)
Unrecognized net gain (loss) 2.2 (84.8) 3.8 (67.1)
Adjustment required to
recognize minimum liability -- 87.0 -- 76.9
Prepaid (accrued) pension cost
recognized in the balance sheet 1.1 (33.9) .8 (43.9)
- --------------------------------------------------------------------------------------------------------------------------------
Total $ 3.5 $ (74.3) $ 4.8 $ (82.4)
================================================================================================================================
</TABLE>
<PAGE> 18
33
The BFGoodrich Company and Subsidiaries
Major assumptions used in accounting for BFGoodrich's defined benefit
pension plans are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate for obligations 7.25% 8.75% 7.4%
Rate of increase in
compensation levels 5.0% 5.0% 4.5%
Expected long-term rate
of return on plan assets 9.0% 9.0% 9.0%
====================================================================
</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 1995, 1994 and 1993, Company
contributions amounted to $14.6 million, $12.2 million and $11.1 million,
respectively.
In addition, the Company contributed $10.0 million, $8.5 million and $4.2
million in 1995, 1994 and 1993, respectively, under other defined contribution
plans covering employees not covered under the aforementioned defined benefit
pension and voluntary retirement savings plans. Contributions are determined
based on various percentages of eligible earnings and a profit sharing formula.
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, 1995 and 1994:
<TABLE>
<CAPTION>
(In millions) 1995 1994
- -------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit
obligation (APBO):
Retirees $ 282.2 $ 281.7
Fully eligible active plan participants 23.3 24.7
Other active plan participants 31.0 38.3
Unrecognized gain 40.9 34.4
- -------------------------------------------------------------
Accrued postretirement cost $ 377.4 $ 379.1
=============================================================
</TABLE>
Net periodic postretirement benefit expense included the following
components:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned $ 1.7 $ 2.9 $ 2.4
Interest cost on APBO 25.3 27.0 30.4
Net amortization and deferral (2.9) -- (.1)
- ----------------------------------------------------------------------
Net periodic postretirement cost $24.1 $29.9 $32.7
======================================================================
</TABLE>
For measurement purposes, the annual rate of increase in the per capita
cost of covered health-care benefits of 9.0 percent was assumed for 1996,
decreasing gradually to 5.0 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, 1995, by $18.6 million and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1995 by $2.8 million. The weighted average
discount rates used in determining the APBO were 7.25 percent, 8.75 percent and
7.40 percent as of December 31, 1995, 1994 and 1993, respectively.
NOTE G
INCOME TAXES
Income from continuing operations before income taxes and Trust distributions
as shown in the Consolidated Statement of Income consists of the following:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $173.0 $ 88.9 $ 10.3
Foreign 25.3 19.7 5.0
- ----------------------------------------------------------------------
Total $198.3 $108.6 $ 15.3
======================================================================
</TABLE>
<PAGE> 19
34
NOTE G: INCOME TAXES (continued)
A summary of income tax (expense) benefit in the Consolidated Statement of
Income is as follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- -----------------------------------------------------------------------
<S> <C> <C> <C>
CONTINUING OPERATIONS
Current:
Federal $(28.9) $(10.3) $ 2.5
Foreign (9.9) (6.4) (1.9)
State (6.9) (5.0) 4.8
- ----------------------------------------------------------------------
(45.7) (21.7) 5.4
- ----------------------------------------------------------------------
Deferred:
Federal (29.6) (20.7) (7.0)
Effect of enacted change
in tax rates -- -- 1.5
Foreign .1 (.5) .1
- ----------------------------------------------------------------------
(29.5) (21.2) (5.4)
- ----------------------------------------------------------------------
Total (75.2) (42.9) --
- ----------------------------------------------------------------------
DISCONTINUED OPERATIONS -- 10.0 (105.5)
- ----------------------------------------------------------------------
Total $(75.2) $(32.9) $(105.5)
======================================================================
</TABLE>
Significant components of deferred income tax assets and liabilities at
December 31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Accrual for postretirement benefits
other than pensions $ 130.9 $ 131.6
Other nondeductible accruals 60.7 65.1
Tax credit and net operating
loss carryovers 28.5 36.0
Other 35.8 31.4
- ----------------------------------------------------------------------
Total deferred income tax assets 255.9 264.1
- ----------------------------------------------------------------------
Deferred income tax liabilities:
Tax over book depreciation (83.6) (88.3)
Other (76.1) (53.9)
- ----------------------------------------------------------------------
Total deferred income tax liabilities (159.7) (142.2)
- ----------------------------------------------------------------------
Net deferred income taxes $ 96.2 $ 121.9
======================================================================
</TABLE>
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 comprised of alternative minimum tax credits of $25.3 million
which have indefinite carryover periods. 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, 1995, 1994 and 1993, varied from the statutory federal
income tax rate as set forth in the following table:
<TABLE>
<CAPTION>
PERCENT OF PRETAX INCOME 1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
Corporate-owned life insurance
investments (1.2) (1.9) (11.6)
Amortization of nondeductible
goodwill 1.0 1.8 10.8
Difference in rates on
consolidated foreign subsidiaries (.1) (.5) (3.0)
State and local taxes,
net of federal benefit 2.3 3.0 5.0
Foreign withholding taxes .3 .4 5.6
Adjustment of prior years'
estimated liabilities -- -- (48.2)
Other items .6 1.7 6.4
- ----------------------------------------------------------------------
Effective income tax rate 37.9% 39.5% --
======================================================================
</TABLE>
BFGoodrich has not provided for U.S. federal and foreign withholding taxes
on $120.3 million of foreign subsidiaries' undistributed earnings as of
December 31, 1995, 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 $5.9 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;
<PAGE> 20
35
The BFGoodrich Company and Subsidiaries
Specialty Plastics; and Sealants, Coatings and Adhesives business groups. They
serve various markets such as 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 on
May 4, 1995.
Other Operations currently includes 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 8 percent, 10
percent and 10 percent of consolidated sales in 1995, 1994 and 1993,
respectively, to various United States government agencies and departments.
Operating income includes restructuring costs as follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Aerospace $ - $ - $ 3.3
Specialty Chemicals - - 8.0
Other Operations - - -
Corporate 3.1 - 2.0
- ------------------------------------------------------------------------
Total $ 3.1 $ - $ 13.3
========================================================================
</TABLE>
The Company's business is conducted on a global basis with manufacturing,
service and sales undertaken in various locations throughout the world.
Aerospace's products and services and Specialty Chemicals' products are
principally sold to customers in North America and Europe. Aerospace and
Specialty Chemicals accounted for 48 percent and 44 percent, respectively, of
1995 consolidated sales. Net assets of consolidated foreign subsidiaries
amounted to $188.3 million, $174.5 million and $159.7 million in 1995, 1994 and
1993, 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.
<TABLE>
<CAPTION>
Sales Operating Income
- -------------------------------------------------------------------------------------------------------------------
(In millions) 1995 1994 1993 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aerospace $ 1,149.6 $ 1,050.3 $ 855.4 $ 146.6 $ 121.9 $ 91.3
Specialty Chemicals 1,070.1 988.6 829.6 92.2 86.7 45.0
- -------------------------------------------------------------------------------------------------------------------
Total Reportable Segments 2,219.7 2,038.9 1,685.0 238.8 208.6 136.3
Other Operations 188.9 160.3 133.3 57.5 24.1 4.0
Corporate -- -- -- (56.5) (53.0) (57.6)
- -------------------------------------------------------------------------------------------------------------------
Total $ 2,408.6 $ 2,199.2 $ 1,818.3 $ 239.8 $ 179.7 $ 82.7
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Property Depreciation and Identifiable
Additions Amortization Expense Assets
- ---------------------------------------------------------------------------------------------------------------------
(In millions) 1995 1994 1993 1995 1994 1993 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aerospace $ 38.3 $ 36.8 $ 74.2 $ 56.9 $ 54.7 $ 37.4 $1,334.2 $1,287.0 $1,292.5
Specialty Chemicals 99.3 78.4 51.8 47.2 44.5 39.6 809.3 788.5 687.0
- ---------------------------------------------------------------------------------------------------------------------
Total Reportable Segments 137.6 115.2 126.0 104.1 99.2 77.0 2,143.5 2,075.5 1,979.5
Other Operations 5.6 4.9 4.1 7.1 7.1 6.9 113.1 120.1 100.9
Corporate 4.5 10.2 16.1 2.7 5.8 25.3 233.0 273.3 279.5
- ---------------------------------------------------------------------------------------------------------------------
Total $ 147.7 $ 130.3 $ 146.2 $ 113.9 $ 112.1 $ 109.2 $2,489.6 $2,468.9 $2,359.9
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Operating Income Identifiable
Sales (Loss) Assets
- ---------------------------------------------------------------------------------------------------------------------
(In millions) 1995 1994 1993 1995 1994 1993 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Geographic Areas:
North America $2,140.3 $1,961.6 $1,617.9 $ 277.0 $ 220.3 $ 138.0 $2,038.0 $2,002.3 $1,917.7
Europe 226.4 202.1 168.2 18.8 14.0 2.4 202.7 178.3 148.0
Other Foreign 41.9 35.5 32.2 1.4 (1.8) (.5) 19.8 18.0 17.9
Inter-area eliminations -- -- -- (.9) .2 .4 (3.9) (3.0) (3.2)
- ---------------------------------------------------------------------------------------------------------------------
Total $2,408.6 $2,199.2 $1,818.3 $ 296.3 $ 232.7 $ 140.3 $2,256.6 $2,195.6 $2,080.4
=====================================================================================================================
</TABLE>
<PAGE> 21
36
NOTE H: BUSINESS SEGMENT INFORMATION (continued)
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 $86.7 million, $84.0
million and $69.4 million in 1995, 1994 and 1993, respectively. Sales to
unaffiliated foreign customers amounted to $295.3 million, $264.1 million and
$216.9 million in 1995, 1994 and 1993, respectively.
NOTE I
SUPPLEMENTAL STATEMENT OF
INCOME INFORMATION
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- -----------------------------------------------------------------------
<S> <C> <C> <C>
OTHER INCOME (EXPENSE)-NET
Cost of health-care benefits
for retirees of previously
discontinued businesses $ (12.1) $ (14.0) $ (16.5)
Gain on sale of business 3.6 -- --
Gain on sale of
corporate assets -- 7.2 --
Equity in loss of
unconsolidated subsidiary (4.4) (4.3) (6.9)
Interest on Company-owned
life insurance (10.0) (10.1) (10.3)
Environmental recoveries
(costs) of previously
discontinued businesses 19.1 (7.2) (6.9)
Other-net 4.1 3.2 6.3
- -----------------------------------------------------------------------
Total $ .3 $ (25.2) $ (34.3)
=======================================================================
</TABLE>
The unconsolidated subsidiary had assets of $10.8 million and $8.6 million
and liabilities of $14.8 million and $8.2 million at December 31, 1995 and
1994, respectively, and revenues of $13.9 million, $8.9 million and $9.7
million in 1995, 1994 and 1993, respectively.
In 1995, the Company recognized $19.1 million of income from the
settlement of certain insurance issues relating to past environmental claims of
previously discontinued businesses.
RESEARCH AND DEVELOPMENT EXPENSE: The Company performs research and development
under Company-funded programs for commercial products, and under contracts with
others. Research and development under contracts with others is performed by
the Aerospace segment for military and commercial products. Total research and
development expenditures in 1995, 1994 and 1993 were $130.9 million, $123.3
million and $104.6 million, respectively. Of these amounts, $37.6 million,
$30.0 million and $20.9 million, respectively, were funded by customers.
Research and development expense for 1994 and 1993 has been restated primarily
to reflect expenditures incurred under customer-funded programs.
NOTE J
SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
(In millions) 1995 1994
- -------------------------------------------------------------
<S> <C> <C>
Allowance for Doubtful Accounts $ 11.8 $ 10.4
=============================================================
</TABLE>
Amounts charged to expense during 1995, 1994 and 1993 were $4.2 million,
$4.3 million and $2.1 million, respectively.
<TABLE>
<CAPTION>
(In millions) 1995 1994
- --------------------------------------------------------------
<S> <C> <C>
INVENTORIES
FIFO or average cost (which
approximates current costs):
Finished products $ 186.2 $ 163.9
In process 114.0 114.9
Raw materials and supplies 154.3 141.1
- --------------------------------------------------------------
454.5 419.9
Reserve to reduce certain inventories
to LIFO basis (64.4) (61.1)
- --------------------------------------------------------------
Total $ 390.1 $ 358.8
==============================================================
</TABLE>
At December 31, 1995 and 1994, approximately 46 percent of the pre-LIFO
inventory amounts have been valued by the LIFO method.
<TABLE>
<CAPTION>
(In millions) 1995 1994
- --------------------------------------------------------------
<S> <C> <C>
PROPERTY
Land $ 18.6 $ 21.4
Buildings 415.8 405.7
Machinery and equipment 962.8 964.8
Construction in progress 115.5 72.2
- --------------------------------------------------------------
1,512.7 1,464.1
Less allowances for depreciation
and amortization 653.5 590.8
- --------------------------------------------------------------
Total $ 859.2 $ 873.3
==============================================================
</TABLE>
Property includes assets acquired under capital leases, principally
buildings and machinery and equipment, of $21.3 million and $21.4 million at
December 31, 1995 and 1994, respectively. Related allowances for depreciation
and amortization are $11.7 million and $9.8 million, respectively. Interest
costs capitalized were $2.7 million in 1995, $.6 million in 1994 and $5.0
million in 1993. Amounts charged to expense for depreciation and amortization
during 1995, 1994 and 1993 were $93.5 million, $92.0 million and $99.5 million,
respectively.
<PAGE> 22
37
<TABLE>
The BFGoodrich Company and Subsidiaries
<CAPTION>
(In millions) 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
GOODWILL
Accumulated amortization $ 58.9 $ 46.1
=============================================================================
(In millions) 1995 1994
- -----------------------------------------------------------------------------
IDENTIFIABLE INTANGIBLE ASSETS
Accumulated amortization $ 26.1 $ 25.3
=============================================================================
</TABLE>
Amortization of goodwill and identifiable intangible assets was $20.4
million, $20.1 million and $9.7 million in 1995, 1994 and 1993, respectively.
<TABLE>
<CAPTION>
(In millions) 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
ACCRUED EXPENSES
Wages, vacations, pensions and
other employment costs $ 82.0 $ 75.6
Postretirement benefits other than pensions 25.5 25.5
Taxes, other than federal and foreign
taxes on income 37.0 30.2
Accrued environmental liabilities 12.9 15.7
Other 82.5 99.9
- -----------------------------------------------------------------------------
Total $239.9 $246.9
=============================================================================
</TABLE>
<TABLE>
<CAPTION>
(In millions) 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
OTHER NON-CURRENT LIABILITIES
Accrued pension liability $ 62.5 $ 70.0
Accrued environmental liabilities 9.7 10.1
Other 41.7 47.5
- -----------------------------------------------------------------------------
Total $113.9 $127.6
=============================================================================
</TABLE>
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company's accounting policies with respect to financial instruments are
described in Note A.
The carrying amounts and fair values of the Company's significant on
balance sheet financial instruments at December 31, 1995 and 1994, are as
follows:
<TABLE>
<CAPTION>
1995 (In millions) Carrying Amount Fair Values
- -----------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 60.3 $ 60.3
Short-term bank debt 11.3 11.3
Long-term debt (including
current portion) 498.1 530.0
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
</TABLE>
Off balance sheet derivative financial instruments at December 31, 1995
and 1994, held for purposes other than trading, were as follows:
<TABLE>
<CAPTION>
1995 1994
Contract/ Contract/
Notional Fair Notional Fair
(In millions) Amount Value Amount Value
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate swaps $ 65.0 $ (1.2) $ 90.0 $ (.9)
Foreign currency
exchange agreements $ 28.0 $ (.1) $ 26.0 $ (.1)
</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, 1995, the Company had no
deferred gains or losses relating to terminated interest rate swap agreements.
Foreign currency exchange agreements mature over the next four 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, 1995 and 1994, were not significant.
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) 1995 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Estimated fair value of
assets acquired $ 3.6 $ 23.1 $241.1
Goodwill and identifiable
intangible assets 12.7 4.5 359.4
Cash paid/stock issued (15.4) (26.5) (528.5)
- -----------------------------------------------------------------------------
Liabilities assumed or created $ .9 $ 1.1 $ 72.0
=============================================================================
Liabilities disposed in connection
with sales of businesses $ 9.2 $ -- $393.0
Interest paid (net of amount
capitalized) 43.3 44.7 36.2
Income taxes paid 32.2 12.8 33.2
Conversion of Series D
Convertible Preferred Stock
into common stock 22.9 -- --
</TABLE>
<PAGE> 23
38
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, 1995,
2,401,673 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.
CONVERTIBLE PREFERRED STOCK - SERIES D: In July 1995, the Company redeemed the
remaining 1,742,499 shares of outstanding Series D Stock at a redemption price
of $50.70 per share plus accrued dividends of approximately $0.30 per share.
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, 1995, no Series E
shares were issued or outstanding and 319,105 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
earnings power to another person.
The Rights expire on August 2, 1997.
NOTE M
COMMON STOCK
BFGoodrich acquired 682,827, 25,846 and 20,776 shares of treasury stock in
1995, 1994 and 1993, respectively, and reissued 387,950, 10,000 and 5,000
shares, respectively, in connection with the Key Employees' Stock Option Plan,
the Performance Share Plan and other employee stock ownership plans. In 1995,
1994 and 1993, 67,125, 29,850 and 71,317 shares, respectively, of common stock
previously awarded to employees were forfeited and restored to treasury stock.
During 1995, 1994 and 1993, 421,781, 52,726 and 111,667 shares,
respectively, of authorized but unissued shares were issued under the Key
Employees' Stock Option Plan and other employee stock ownership plans. In
addition, in 1995, 415,806 shares of authorized but unissued shares were issued
to holders of Series D Preferred Stock who exercised their conversion
privileges. Shortly thereafter, the Company completed the repurchase of all of
the common stock issued upon conversion of the Series D Preferred Stock.
Shares reserved for future issuance at December 31, 1995 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
<S> <C>
Stock options under Key Employees'
Stock Option Plan 1,560,195
Various Company stock ownership plans 3,561,069
- -------------------------------------------------------------------------------
Total 5,121,264
===============================================================================
</TABLE>
NOTE N
PREFERRED SECURITIES OF TRUST
On July 6, 1995, BFGoodrich Capital, a wholly-owned 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 percent
Cumulative Quarterly Income Preferred Securities, Series A (QUIPS). The Trust
invested the proceeds in 8.30 percent Junior Subordinated Debentures, Series A,
Due 2025 (Junior Subordinated Debentures) issued by the Company, which
represent approximately 97 percent of the total assets of the Trust. 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
<PAGE> 24
39
The BFGoodrich Company and Subsidiaries
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 Company has unconditionally guaranteed all distributions
required to be made by the Trust, but only to the extent the Trust has funds
legally available for such distributions. The only source of funds for the
Trust to make distributions to preferred security holders is the payment by the
Company of interest on the Junior Subordinated Debentures. The Company has the
right to defer such interest payments for up to five years. If the Company
defers any interest, the Company may not, among other things, pay any dividends
on its capital stock until all interest in arrears is paid to the Trust.
NOTE O
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 1995, 1994 and 1993, restricted stock awards for 104,850, 10,000
and 5,000 shares, respectively, were made under this plan. During 1995, 1994
and 1993, stock awards for 600, 1,600 and 12,959 shares, respectively, were
forfeited. Stock awards may be subject to conditions established by the Board
of Directors.
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 1995, 1994 and 1993, $1.7 million, $1.2 million and $1.2
million, respectively, were charged to expense for restricted stock awards.
PERFORMANCE SHARE PLAN: The Performance Share Plan (PSP), a stock-based
incentive program, provides that 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. Under this plan, 87,625 shares were
earned for the three-year cycle ending December 31, 1994. In 1995, the
Compensation Committee of the Board of Directors awarded 283,100 shares and
established performance objectives that are based on attainment of an average
return on equity over the next plan cycle of three years. During 1995, 1994 and
1993, 66,525, 28,250 and 58,358 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 1995 and
1993, $6.9 million and $1.4 million, respectively, were charged to expense for
restricted performance shares. In 1994, $.5 million was credited to expense for
restricted performance shares.
<TABLE>
The following tabulation summarizes certain information relative to stock options:
<CAPTION>
Year Ended December 31 1995 1994
- --------------------------------------------------------------------------------------------------------------------
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 1,223,078 $ 29.50 to $ 56.3125 1,065,391 $ 29.50 to $ 56.3125
Granted 412,950 43.5625 to 49.5625 226,150 40.00 to 42.625
Exercised (420,778) 29.50 to 56.3125 (37,278) 29.50 to 42.9375
Surrendered (5,300) 29.50 to 42.9325 (3,000) 32.875
Terminated (36,248) 40.00 to 56.3125 (28,185) 38.1875 to 56.3125
- --------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 1,173,702 $ 38.1875 to $ 56.3125 1,223,078 $ 29.50 to $ 56.3125
====================================================================================================================
Exercisable at end of year 777,716 $ 38.1875 to $ 56.3125 960,842 $ 29.50 to $ 56.3125
====================================================================================================================
</TABLE>
<PAGE> 25
40
NOTE P
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 with respect to commercial and
product liability claims, 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, 1995, 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 $108.0 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 42 sites, most
of which related to previously discontinued businesses. The Company believes it
may have continuing liability with respect to not more than 25 sites.
At December 31, 1995, the Company had recorded as Accrued expenses and as
Other Non-current Liabilities a total of $22.6 million to cover future
environmental expenditures, principally for remediation of the aforementioned
sites and other environmental matters. A significant portion of accrued
environmental liabilities is in connection with six sites, five of which relate
to businesses previously discontinued. 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 the five previously discontinued sites, the Company's
maximum percentage share of the ultimate remediation costs is fixed. Three of
the five sites are in the design or construction phases and two sites are
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.
With respect to the sixth site, the investigation and determination of remedial
alternatives is just beginning, and it is not currently possible to determine
the total cost of remediation or the Company's share of those future costs.
Management believes that it is reasonably possible that additional
environmental costs may be incurred beyond the amounts 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, but could be material to the Company's results of operations in a
given period.
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.
BFGoodrich has tendered the Calvert City chlor-alkali and olefins
facilities (Facilities) to Westlake Monomers Corporation (Westlake) at the
February 15, 1993 fair market value of approximately $170.0 million, as
determined by an independent appraiser. Westlake has stated it intends to
purchase the Facilities at the appraised value. Such an acquisition by Westlake
is subject to the negotiation and execution of a definitive purchase agreement
and governmental approval. There can be no assurance that a definitive
agreement will be reached. As of December 31, 1995, the book value of the net
assets of the Facilities was approximately $60.0 million. In addition, Westlake
alleges that, pursuant to the Right of First Refusal, it is entitled to
approximately $325.0 million for lost profits and opportunity costs due to
alleged inability to integrate and expand its current operations fully, plus
interest and attorney fees. BFGoodrich denies that Westlake is entitled to
purchase the Facilities pursuant to the Right of First Refusal and further
denies that Westlake is entitled to any recovery. The proceedings are currently
in arbitration. Although no specified date has been set, the arbitrator is
expected to issue his decision within the next few months.
<PAGE> 26
41
<TABLE>
<CAPTION>
The BFGoodrich Company and Subsidiaries
QUARTERLY
FINANCIAL DATA (UNAUDITED)
1995 Quarters 1994 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 $ 276.6 $ 284.4 $ 286.7 $ 301.9 $ 255.8 $ 263.0 $ 247.7 $ 283.8
Specialty Chemicals 261.5 272.5 271.2 264.9 209.7 247.1 272.9 258.9
Other Operations 55.9 43.7 48.1 41.2 36.9 30.4 40.9 52.1
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL SALES $ 594.0 $ 600.6 $ 606.0 $ 608.0 $ 502.4 $ 540.5 $ 561.5 $ 594.8
============================================================================================================================
GROSS PROFIT $ 177.9 $ 191.4 $ 197.2 $ 192.4 $ 143.4 $ 171.3 $ 181.0 $ 180.2
============================================================================================================================
BUSINESS SEGMENT
OPERATING INCOME (LOSS):
Aerospace $ 27.8 $ 37.4 $ 40.4 $ 41.0 $ 28.7 $ 31.0 $ 28.2 $ 34.0
Specialty Chemicals 12.0 26.3 32.2 21.7 10.1 29.1 31.6 15.9
Other Operations 19.4 14.6 13.7 9.8 (1.2) 1.6 9.1 14.6
Corporate (11.7) (14.7) (13.7) (16.4) (11.4) (13.6) (13.2) (14.8)
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME $ 47.5 $ 63.6 $ 72.6 $ 56.1 $ 26.2 $ 48.1 $ 55.7 $ 49.7
============================================================================================================================
INCOME FROM:
CONTINUING OPERATIONS $ 17.6 $ 44.3 $ 32.9 $ 23.2 $ 4.9 $ 18.5 $ 23.3 $ 19.0
DISCONTINUED OPERATIONS -- -- -- -- -- -- 10.0 --
- ----------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 17.6 $ 44.3 $ 32.9 $ 23.2 $ 4.9 $ 18.5 $ 33.3 $ 19.0
============================================================================================================================
INCOME PER SHARE:
Continuing operations $ .61 $ 1.63 $ 1.19 $ .88 $ .11 $ .64 $ .82 $ .66
Net income .61 1.63 1.19 .88 .11 .64 1.21 .66
============================================================================================================================
</TABLE>
In the second quarter of 1995, operating income was affected by a $3.1
million charge for the termination benefits paid under a voluntary early
retirement program. In addition, second quarter 1995 operating income benefited
by $9.3 million from adjustments primarily due to the favorable decision
related to a certain litigation matter, lower expense for pension and retiree
health-care benefits resulting from updated actuarial calculations, improved
product claims management and continued favorable product claims experience.
Also, second quarter 1995 income from continuing operations included a pretax
gain of $5.0 million from the sale of Arrowhead, prior to a fourth quarter
adjustment, and a $20.1 million pretax benefit from the settlement of certain
insurance issues relating to past environmental claims, principally for
previously discontinued businesses.
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 discontinued. 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.
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>
1995 1994
- --------------------------------------------------------------------------------
Quarter High Low Dividend Quarter High Low Dividend
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
First $45 5/8 $41 5/8 $.55 First $43 3/4 $39 1/8 $.55
Second 54 3/4 44 3/8 .55 Second 48 41 1/2 .55
Third 66 1/4 53 1/4 .55 Third 47 7/8 41 1/4 .55
Fourth 72 5/8 61 .55 Fourth 44 7/8 41 1/2 .55
================================================================================
</TABLE>
<PAGE> 27
42
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. 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, 1995 and 1994, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements 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, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
Cleveland, Ohio
February 2, 1996 ERNST & YOUNG LLP
<PAGE> 28
43
<TABLE>
<CAPTION>
The BFGoodrich Company and Subsidiaries
SELECTED FIVE-YEAR
FINANCIAL DATA
(Dollars in millions, except per share amounts) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales from continuing operations $ 2,408.6 $ 2,199.2 $ 1,818.3 $ 1,647.9 $ 1,572.5
Cost of sales 1,649.7 1,523.3 1,278.3 1,133.1 1,098.4
Gross profit 758.9 675.9 540.0 514.8 474.1
Selling and administrative expenses 516.0 496.2 444.0 429.1 369.5
Total operating income 239.8 179.7 82.7 75.0 93.1
Interest expense 45.1 47.7 38.3 39.3 37.1
Interest income 3.3 1.8 5.2 3.9 10.7
Income tax expense 75.2 42.9 - 2.5 22.5
Income from continuing operations before cumulative
effect of change in method of accounting 118.0 65.7 15.3 11.9 21.6
Income (loss) from discontinued operations - 10.0 113.0 (21.3) (102.2)
Cumulative effect of change in method of accounting - - - (286.5) -
Net income (loss) 118.0 75.7 128.3 (295.9) (80.6)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Current assets $ 950.0 $ 878.8 $ 793.8 $ 797.1 $ 775.9
Current liabilities 600.7 638.0 469.4 565.5 530.0
Working capital 349.3 240.8 324.4 231.6 245.9
Net property 859.2 873.3 836.0 1,215.8 1,171.0
Total assets 2,489.6 2,468.9 2,359.9 2,451.7 2,270.6
Non-current long-term debt and capital lease obligations 422.3 427.1 486.5 403.1 344.2
Mandatorily redeemable preferred securities of Trust 122.2 - - - -
Redeemable preferred stock - - 3.8 6.3 7.5
Total shareholders' equity 878.6 922.6 895.3 828.8 1,214.0
- --------------------------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL DATA:
Total segment operating income $ 296.3 $ 232.7 $ 140.3 $ 138.6 $ 138.3
Capital expenditures 147.7 130.3 146.2 200.2 219.4
Dividends (common and preferred) 61.6 64.6 64.6 64.5 64.2
Distributions on Trust preferred securities 5.1 - - - -
- --------------------------------------------------------------------------------------------------------------------------------
PER SHARE OF COMMON STOCK:
Income from continuing operations $ 4.30 $ 2.24 $ .28 $ .14 $ .52
Net income (loss) 4.30 2.63 4.68 (11.90) (3.50)
Dividends per share 2.20 2.20 2.20 2.20 2.20
Book value 33.45 31.51 30.62 28.06 43.47
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS:
As a percent of sales:
Gross profit (%) 31.5 30.7 29.7 31.2 30.1
Selling and administrative expenses (%) 21.4 22.6 24.4 26.0 23.5
Return on common shareholders' equity (%) 13.3 8.5 16.0 (33.4) (7.6)
Current ratio 1.6 1.4 1.7 1.4 1.5
Debt-to-capital ratio (%) 33.9 37.4 36.9 34.6 23.9
Earnings to fixed charges 3.7 2.6 1.2 1.2 1.8
Dividend payout--common stock (%) 51.2 83.7 47.0 N.A. N.A.
- --------------------------------------------------------------------------------------------------------------------------------
OTHER DATA:
Common shareholders of record at end of year 11,073 11,711 12,066 12,785 12,954
Common shares outstanding at end of year (millions) 26.3 25.8 25.6 25.6 25.4
Number of employees at end of year 13,275 13,392 13,416 13,375 14,415
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 21
Page 1 of 2
THE B.F.GOODRICH COMPANY
Parent And Subsidiaries Of Registrant
- -------------------------------------
<TABLE>
<CAPTION>
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
BFGoodrich Holding S.A. France 60.82
BFGoodrich Aerospace Asia-Pacific, Limited Hong Kong 51.00
BFGoodrich Aerospace Component
Overhaul & Repair, Inc. Delaware 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 Realty Europe N.V. Belgium 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 39.18
BFGoodrich Aerospace Services S.A. France 100.00
Rosemount Aerospace S.A.R.L. France 100.00
E.P.P.C. Polyplastic S.A. 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
Tremco 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
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
International BFGoodrich Technology Corporation Delaware 100.00
JcAir, Inc. Kansas 100.00
Jet Electronics and Technology, Incorporated Delaware 100.00
QSI, Inc. South Carolina 100.00
Rosemount Aerospace Inc. Delaware 100.00
</TABLE>
<PAGE> 2
EXHIBIT 21
Page 2 of 2
THE B.F.GOODRICH COMPANY
Parent And Subsidiaries Of Registrant
- -------------------------------------
<TABLE>
<CAPTION>
Percentage Of
Place Of Voting Securities
Consolidated Subsidiary Companies Incorporation Owned
- --------------------------------- ------------- ------------------
<S> <C> <C>
Rosemount Aerospace Canada Inc. Canada 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
Tremco Limited Canada 100.00
BFGoodrich Aerospace Component Overhaul
& Repair Ltd. Canada 100.00
Tremco Ltd. (U.K.) England 100.00
Oy Tremco Ltd. Finland Finland 100.00
Tremco Asia Pacific Pty. Limited Australia 100.00
Pabco Products Pty. Ltd. Australia 100.00
Tremco Pty. Limited Australia 100.00
Tremco New Zealand Pty. Ltd. New Zealand 100.00
Tremco Autobody Technologies Inc. Ohio 100.00
Tremco Far East Limited Hong Kong 100.00
Tremco Far East (Malaysia) Malaysia 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
BFGoodrich de Mexico, S.A. de C.V. Mexico 100.00
Tremco Service Corporation Delaware 100.00
Tremco, S.A. (France) France 100.00
Tremco Italia S.R.L. Italy 100.00
BFGoodrich Capital Statutory trust 100.00
in Delaware
</TABLE>
All of the above subsidiaries are included in the 1995 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 SIME Tremco Private Ltd., incorporated in Singapore; 49.00 percent
of SIME Tremco Sdn. Bhd., incorporated in Malaysia; 50.00 percent of Telenor
S.A., incorporated in France. DTM Corporation owns 100.00 percent of DTM GmbH,
incorporated in Germany. SIME Tremco Sdn. Bhd. owns 100.00 percent of SIME
Tremco Malaysia Sdn. Bhd. and MBP Sdn. Bhd., both of which are incorporated in
Malaysia. 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 2, 1996, included in the
1995 Annual Report to Shareholders of The BFGoodrich Company.
We also consent to the incorporation by reference of our report dated February
2, 1996, 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
33-20421 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
33-65658 Debt Securities - Post-Effective Amendment August 17, 1994
No. 2 to Form S-3
33-59953 and BFGoodrich Capital 8.3% Cumulative Quarterly June 29, 1995
33-59953-01 Income Preferred Securities, Series A -
Amendment No. 1 to Form S-3
</TABLE>
ERNST & YOUNG LLP
Cleveland, Ohio
February 19, 1996
<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 IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 60,300
<SECURITIES> 0
<RECEIVABLES> 410,800
<ALLOWANCES> 11,800
<INVENTORY> 390,100
<CURRENT-ASSETS> 950,000
<PP&E> 1,512,700
<DEPRECIATION> 653,500
<TOTAL-ASSETS> 2,489,600
<CURRENT-LIABILITIES> 600,700
<BONDS> 422,300
<COMMON> 133,900
122,200
0
<OTHER-SE> 744,700
<TOTAL-LIABILITY-AND-EQUITY> 2,489,600
<SALES> 2,408,600
<TOTAL-REVENUES> 2,408,600
<CGS> 1,649,700
<TOTAL-COSTS> 1,649,700
<OTHER-EXPENSES> 3,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,100
<INCOME-PRETAX> 198,300
<INCOME-TAX> 75,200
<INCOME-CONTINUING> 118,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 118,000
<EPS-PRIMARY> 4.30
<EPS-DILUTED> 4.27
</TABLE>
