<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 16, 1997
----------------
THE B.F.GOODRICH COMPANY
------------------------------------------------------
(Exact name of registrant as specified in charter)
New York 1-892 34-0252680
- --------------------------------------------------------------------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
4020 Kinross Lakes Parkway, Richfield, Ohio 44286-9368
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code 330-659-7600
------------
Not Applicable
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE> 2
Item 5. Other Events
- ------- ------------
On August 15, 1997, The B.F.Goodrich Company sold its chlor-alkali and
olefins business. The Company reported that business as a discontinued operation
in the Form 10-Q it filed for the quarter ended June 30, 1997. The Company will
shortly file a joint proxy statement/registration statement in connection with
the proposed merger with Rohr, Inc., announced on September 22, 1997. The joint
proxy statement/registration statement will incorporate the past three years of
audited financial statements of the Company. Because the chlor-alkali and
olefins business is considered a discontinued operation for financial reporting
purposes, the Company has to restate its historical financial statements.
Reference is made to Exhibit 99 for the restated financial statements for the
Company for the years ended December 31, 1996, 1995 and 1994.
Item 7. Financial Statements and Exhibits
- ------- ---------------------------------
Exhibit 11 Statement re Computation of Per Share Earnings
Exhibit 23 Consent of Ernst & Young LLP
Exhibit 27 Financial Data Schedule
Exhibit 99 Report of Independent Auditors
Consolidated Statement of Income for years ended December 31,
1996, 1995 and 1994
Consolidated Balance Sheet as of December 31, 1996 and 1995
Consolidated Statement of Cash Flows for years ended December
31, 1996, 1995 and 1994
Consolidated Statement of Shareholders' Equity for years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Selected Five-Year Financial Data
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE B.F.GOODRICH COMPANY
By /s/ Nicholas J. Calise
----------------------
Nicholas J. Calise, Secretary
Dated: October 16, 1997
<PAGE> 1
THE B.F.GOODRICH COMPANY AND SUBSIDIARIES
EXHIBIT 11 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------
1996 1995 1994
--------------- ------------------ -------------
(Dollars in millions, except per share amounts)
PRIMARY
<S> <C> <C> <C>
Number of Shares:
-----------------
Average number of shares outstanding (including
common stock equivalent shares outstanding) 53,979,757 52,339,140 51,532,752
Income:
-------
Income from continuing operations $ 93.2 $ 74.6 $ 43.0
Income from discontinued operations 58.5 43.4 32.7
Dividends on Preferred Stocks - (4.4) (8.0)
Premium on Preferred Stocks redeeemed - (1.2) -
------------- --------------- --------------
Net income applicable to Common Stock $ 151.7 $ 112.4 $ 67.7
============= =============== ==============
Per Share Amounts:
------------------
Continuing operations $ 1.73 $ 1.32 $ 0.68
Discontinued operations 1.08 0.83 0.63
------------- --------------- --------------
Net income $ 2.81 $ 2.15 $ 1.31
============= =============== ==============
FULLY DILUTED
Number of Shares:
-----------------
Average number of common shares
outstanding 53,363,363 51,999,448 51,476,220
Effect of dilutive stock options -
based on the treasury method using
last day's market price, if higher
than average market price 647,852 620,796 57,516
Average number of shares of Common
Stock issuable if Convertible Preferred
Stock was converted - - (A) - (A)
------------- --------------- --------------
Total average number of common and common
equivalent shares outstanding 54,011,215 52,620,244 51,533,736
============= =============== ==============
Income:
-------
Income from continuing operations $ 93.2 $ 74.6 $ 43.0
Income from discontinued operations 58.5 43.4 32.7
Dividends on Preferred Stocks - (4.4) (8.0)
Restore dividend on Convertible
Preferred Stock - - (A) - (A)
Premium on Preferred Stocks redeemed - (1.2) -
Restore premium on Preferred Stocks redeemed - - (A) -
------------- --------------- --------------
Net income applicable to Common Stock $ 151.7 $ 112.4 $ 67.7
============= =============== ==============
Per Share Amounts:
------------------
Continuing operations $ 1.73 $ 1.31 $ 0.68
Discontinued operations 1.08 0.83 0.63
------------- --------------- --------------
Net income $ 2.81 $ 2.14 $ 1.31
============= =============== ==============
(A) Anti-Dilutive
</TABLE>
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated February 4,
1997 (except for Note B, as to which the date is July 16, 1997), with respect to
the consolidated financial statements of The BFGoodrich Company included in this
Current Report (Form 8-K), in the following Registration Statements and in the
related Prospectuses:
<TABLE>
<CAPTION>
Registration
Number Description of Registration Statement Filing Date
- ------------ ------------------------------------- --------------
<S> <C> <C>
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
333-03293 The B.F.Goodrich Company May 8, 1996
Stock Option Plan - Form S-8
333-03341 Debt Securities - Form S-3 May 8, 1996
33-65658 Debt Securities - Post-Effective May 8, 1996
Amendment No. 3 to Form S-3
333-03343 Common Stock - Form S-3 May 8, 1996
333-19697 The B.F.Goodrich Company Savings January 13, 1997
Benefit Restoration Plan - Form S-8
</TABLE>
Cleveland, Ohio ERNST & YOUNG LLP
October 15, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS OF THIS FORM 8-K AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000042542
<NAME> GOODRICH BF CO.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 48,700
<SECURITIES> 0
<RECEIVABLES> 411,100
<ALLOWANCES> 13,100
<INVENTORY> 367,100
<CURRENT-ASSETS> 912,300
<PP&E> 1,663,700
<DEPRECIATION> 717,700
<TOTAL-ASSETS> 2,663,100
<CURRENT-LIABILITIES> 658,200
<BONDS> 400,000
<COMMON> 274,500
122,600
0
<OTHER-SE> 775,700
<TOTAL-LIABILITY-AND-EQUITY> 2,663,100
<SALES> 2,078,200
<TOTAL-REVENUES> 2,078,200
<CGS> 1,401,600
<TOTAL-COSTS> 1,401,600
<OTHER-EXPENSES> 4,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,600
<INCOME-PRETAX> 157,200
<INCOME-TAX> 53,500
<INCOME-CONTINUING> 93,200
<DISCONTINUED> 58,500
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151,700
<EPS-PRIMARY> 2.81
<EPS-DILUTED> 2.81
</TABLE>
<PAGE> 1
Exhibit 99
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, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Cleveland, Ohio
February 4, 1997, ERNST & YOUNG LLP
except for Note B,
as to which the date is
July 16, 1997
1
<PAGE> 2
The B.F.Goodrich Company and Subsidiaries
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
(Dollars in millions, except per share amounts)
Year Ended December 31 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES $ 2,078.2 $ 1,860.5 $ 1,689.0
Operating costs and expenses:
Cost of sales 1,401.6 1,281.1 1,158.8
Selling and administrative expenses 454.5 411.8 389.2
Restructuring costs 4.0 3.1 -
- -----------------------------------------------------------------------------------------------------------------------------------
1,860.1 1,696.0 1,548.0
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 218.1 164.5 141.0
Interest expense (40.6) (44.6) (47.1)
Interest income 1.5 2.5 1.0
Other income (expense)--net of tax (21.8) 0.6 (25.1)
- -----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes and Trust distributions 157.2 123.0 69.8
Income tax expense (53.5) (43.3) (26.8)
Distributions on Trust preferred securities (10.5) (5.1) -
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 93.2 74.6 43.0
Income from discontinued operations--net of tax 58.5 43.4 32.7
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME 151.7 118.0 75.7
Dividends and call premium on preferred stocks - (5.6) (8.0)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME APPLICABLE TO COMMON STOCK $ 151.7 $ 112.4 $ 67.7
===================================================================================================================================
EARNINGS PER SHARE
Continuing operations $ 1.73 $ 1.32 $ 0.68
Discontinued operations 1.08 0.83 0.63
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 2.81 $ 2.15 $ 1.31
===================================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
2
<PAGE> 3
The B.F.Goodrich Company and Subsidiaries
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
(Dollars in millions,
except per share amounts)
December 31 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 48.7 $ 60.3
Accounts and notes receivable 398.0 399.0
Inventories 367.1 355.3
Deferred income taxes 68.0 67.9
Prepaid expenses and other assets 30.5 32.7
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 912.3 915.2
- ------------------------------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 3.3 28.3
PROPERTY 946.0 859.2
GOODWILL 544.3 481.4
IDENTIFIABLE INTANGIBLE ASSETS 47.6 51.5
INTANGIBLE PENSION ASSET - 42.6
OTHER ASSETS 209.6 111.4
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,663.1 $ 2,489.6
====================================================================================================================================
CURRENT LIABILITIES
Short-term bank debt $ 130.8 $ 11.3
Accounts payable 243.1 235.9
Accrued expenses 237.2 231.1
Income taxes payable 11.1 33.3
Current maturities of long-term debt
and capital lease obligations 36.0 80.3
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 658.2 591.9
- ------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 400.0 422.3
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 348.5 351.9
OTHER NON-CURRENT LIABILITIES 83.6 122.7
MANDATORILY REDEEMABLE PREFERRED SECURITIES OF TRUST 122.6 122.2
SHAREHOLDERS' EQUITY
Common stock--$5 par value
Authorized, 100,000,000 shares;
issued, 54,899,308 shares in 1996 and
53,578,520 shares in 1995 274.5 133.9
Additional capital 357.3 447.5
Income retained in the business 453.7 360.9
Cumulative unrealized translation adjustments 5.9 9.6
Amount related to recording minimum pension liability - (28.8)
Unearned portion of restricted stock awards (9.0) (16.2)
Common stock held in treasury, at cost
(1,135,985 shares in 1996 and 1,045,136 shares in 1995) (32.2) (28.3)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 1,050.2 878.6
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,663.1 $ 2,489.6
====================================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
3
<PAGE> 4
The B.F.Goodrich Company and Subsidiaries
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
Year Ended December 31 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 151.7 $ 118.0 $ 75.7
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 118.4 113.9 112.1
Deferred income taxes 17.9 29.5 21.2
Gains on sale of businesses (9.7) (3.6) -
Change in assets and liabilities, net of
effects of acquisitions and dispositions
of businesses:
Receivables 13.8 (15.4) (60.4)
Inventories (9.4) (22.8) 11.8
Other current assets 2.0 (.1) (4.7)
Accounts payable (2.8) 2.2 57.6
Accrued expenses 3.0 (8.0) 9.5
Income taxes payable (19.5) 9.1 (5.6)
Other non-current assets and liabilities (7.7) (29.3) (33.6)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 257.7 193.5 183.6
INVESTING ACTIVITIES
Purchases of property (184.1) (147.7) (129.3)
Proceeds from sale of property 5.7 3.2 10.5
Payments made in connection with acquisitions,
net of cash acquired (107.9) (15.4) (20.2)
Proceeds from sale of businesses 28.9 82.3 -
Other transactions - (1.9) -
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (257.4) (79.5) (139.0)
FINANCING ACTIVITIES
Changes in short-term debt 118.9 (59.2) 46.7
Proceeds from issuance of long-term debt 70.0 80.8 -
Repayment of long-term debt and capital lease
obligations (141.8) (62.0) (20.5)
Proceeds from issuance of capital stock 11.2 16.6 1.4
Proceeds from issuance of Trust preferred securities,
net of issuance costs - 122.1 -
Purchases of treasury stock (.1) (33.4) (1.1)
Dividends (58.9) (61.6) (64.6)
Distributions on Trust preferred securities (10.5) (5.1) -
Retirements of preferred stock - (88.3) (4.9)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (11.2) (90.1) (43.0)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS (.7) .6 .8
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (11.6) 24.5 2.4
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 60.3 35.8 33.4
- ------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 48.7 $ 60.3 $ 35.8
====================================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
4
<PAGE> 5
The B.F.Goodrich Company and Subsidiaries
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in millions, except per share amounts)
Year Ended December 31 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
$3.50 CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES D $ - $ - $ 110.0
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK--$5 PAR VALUE
<S> <C> <C> <C>
Balance at beginning of year 133.9 129.8 128.8
Common stock issued for:
Two-for-one common stock split 134.7 - -
Contribution to pension plans 3.8 - -
Acquisitions - - .7
Conversion of Series D Preferred Stock - 2.0 -
Employee award programs 2.1 2.1 .3
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 274.5 133.9 129.8
- ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL CAPITAL
Balance at beginning of year 447.5 401.7 393.8
Two-for-one common stock split (134.7) - -
Contribution to pension plans 26.2 - -
Acquisitions - - 5.6
Conversion of Series D Preferred Stock - 20.8 -
Employee award programs 15.6 23.6 2.3
Other capital share transactions 2.7 1.4 -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 357.3 447.5 401.7
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME RETAINED IN THE BUSINESS
Balance at beginning of year 360.9 305.7 294.6
Net income 151.7 118.0 75.7
Premium on redemption of Series D Preferred Stock - (1.2) -
Dividends:
Preferred Stock:
Series A, $7.85 a share - - (.3)
Series D, $3.50 a share - (4.4) (7.7)
Common stock--$1.10 per share in each year (58.9) (57.2) (56.6)
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends (58.9) (61.6) (64.6)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 453.7 360.9 305.7
- ------------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE UNREALIZED TRANSLATION ADJUSTMENTS
Balance at beginning of year 9.6 4.9 (.3)
Aggregate adjustments for the year (3.7) 4.7 5.2
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 5.9 9.6 4.9
- ------------------------------------------------------------------------------------------------------------------------------------
AMOUNT RELATED TO RECORDING MINIMUM PENSION LIABILITY - (28.8) (18.6)
- ------------------------------------------------------------------------------------------------------------------------------------
UNEARNED PORTION OF RESTRICTED STOCK AWARDS (9.0) (16.2) (3.9)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK HELD IN TREASURY, AT COST (32.2) (28.3) (7.0)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 1,050.2 $ 878.6 $ 922.6
====================================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
5
<PAGE> 6
The B.F.Goodrich Company and Subsidiaries
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
majority-owned subsidiaries. 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 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. Depreciation and amortization is
computed principally using the straight-line method over the following estimated
useful lives: buildings and improvements, 15 to 40 years; machinery and
equipment, 5 to 15 years. 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 20 to 40 years.
Identifiable intangible assets are recorded at cost, or when acquired as a
part of a business combination, at estimated fair value. These assets include
patents and other technology agreements, licenses and non-compete agreements.
They are amortized using the straight-line method over estimated useful lives of
5 to 25 years.
Impairment of long-lived assets and related goodwill 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 discounted future cash flows resulting from the use and ultimate
disposition of the asset.
REVENUE RECOGNITION: The Company recognizes revenues from the sale of products
at the point of passage of title, which is 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, accounts and notes
receivable, accounts payable and debt. Because of their short maturity, the
carrying amount of cash and cash equivalents, accounts and notes receivable,
accounts payable 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 at December 31, 1996,
include an interest rate swap agreement, foreign currency forward contracts and
foreign currency swap agreements.
Interest rate swap agreements are used by the Company, from time to time, 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. Interest rate
swap agreements are generally entered into at the time the related floating rate
debt is issued in order to convert the floating rate debt to fixed rates. Fair
value of these instruments is based on estimated current settlement cost.
The Company enters into foreign currency forward contracts (principally
against the British pound, Italian lira, Spanish peseta, French franc, Dutch
gilder and U.S. dollar) to hedge the net receivable/payable position arising
from trade sales and purchases and intercompany transactions by its European
businesses. Foreign currency forward contracts reduce the Company's exposure to
the risk that the eventual net cash inflows and outflows resulting from the sale
of products and purchases from suppliers denominated in a currency other than
the functional currency of the respective businesses will be adversely affected
by changes in exchange rates. Foreign currency gains and losses under the above
arrangements are not deferred. Foreign currency forward contracts are entered
into with major commercial European banks that have high credit ratings. From
time to time, the Company uses foreign currency forward contracts to hedge
purchases of capital equipment. Foreign currency gains and losses for such
purchases are deferred as part of the basis of the asset.
6
<PAGE> 7
The Company also enters into foreign currency swap agreements (principally
for the Belgian franc, French franc and Dutch gilder) to eliminate foreign
exchange risk on intercompany loans between European businesses.
The fair value of foreign currency forward contracts and foreign currency
swap agreements is based on quoted market prices.
STOCK-BASED COMPENSATION: The Company accounts for stock-based employee
compensation in accordance with the provisions of APB Opinion No. 25,
"Accounting for Stock Issued to Employees" and related Interpretations.
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 53,979,757
for 1996, 52,339,140 for 1995 and 51,532,752 for 1994. Fully diluted earnings
per share are not presented, since dilution is less than 3 percent.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATIONS: Certain amounts presented in prior years' financial
statements and the notes thereto have been reclassified to conform with the 1996
presentation.
NOTE B
DISCONTINUED OPERATIONS
On July 16, 1997, the Company entered into a definitive agreement to sell its
chlor-alkali and olefins ("CAO", previously reported as Other Operations)
business to The Westlake Group for $92.75 million (see Note R). The disposition
of the CAO business represents the disposal of a segment of a business under APB
Opinion No. 30 ("APB 30"). Accordingly, the consolidated statement of income has
been restated to reflect the CAO business as a discontinued operation.
On February 3, 1997, the Company completed the sale of Tremco Incorporated to
RPM, Inc. for $230.7 million, resulting in an after-tax gain of $59.5 million,
or $1.09 per share. The sale of Tremco Incorporated completed the disposition of
the Company's Sealants, Coatings and Adhesives Group ("SC&A") and also
represents the disposal of a segment of a business under APB 30.
A summary of the results of discontinued operations for the periods presented
follows, which in the case of SC&A in 1996 excludes sales and net losses during
the phase-out period. Discontinued operations in 1996 also include a $30
million, or $.55 per share, non-cash adjustment to the gain calculation of a
business previously divested and reported as a discontinued operation in 1993.
In 1994, the Company recognized a $10 million tax benefit as a result of
realizing the benefit of utilizing excess foreign tax credits resulting from a
business previously divested and reported as a discontinued operation in 1993.
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales:
CAO $160.6 $188.9 $160.3
SC&A 316.8 359.5 349.5
- -----------------------------------------------------------------------------------------------------------
$477.4 $548.4 $509.8
===========================================================================================================
Pretax income from operations:
CAO $ 21.0 $ 57.5 $ 24.1
SC&A(1) 27.0 17.8 14.7
- -----------------------------------------------------------------------------------------------------------
48.0 75.3 38.8
Income tax expense (19.5) (31.9) (16.1)
- -----------------------------------------------------------------------------------------------------------
Net income from operations 28.5 43.4 22.7
Adjustments to gain of 1993
discontinued operation 30.0 - 10.0
- -----------------------------------------------------------------------------------------------------------
Income from discontinued operations $ 58.5 $ 43.4 $ 32.7
===========================================================================================================
<FN>
(1) Includes $6.4 million gain on the sale of a business in 1996.
</TABLE>
Included in the December 31, 1996 Consolidated Balance Sheet are assets of
$312.4 million and liabilities of $144.6 million related to discontinued
operations.
NOTE C
ACQUISITIONS, DISPOSITIONS AND RESTRUCTURINGS
ACQUISITIONS: During 1996, the Company's Specialty Chemicals segment acquired
five businesses for cash consideration of approximately $108 million. The
aggregate purchase price includes approximately $80 million of goodwill. The
purchase price allocations have been based on preliminary estimates, which may
be revised at a later date.
Four of the acquisitions are part of the Specialty Additives Group. One of
the businesses acquired is a European-based supplier of emulsions and polymers
for use in paint and coatings for textiles, paper, graphic arts and industrial
applications. Two of the acquisitions represent product lines consisting of
water-borne acrylic resins and coatings and additives used in the graphic arts
industry. The fourth acquisition consists of water-based textile coatings
product lines. The Specialty Plastics Group made the remaining acquisition, a
small supplier of anti-static compounds.
7
<PAGE> 8
Goodwill is being amortized using the straight-line method over periods up to
20 years for the five Specialty Chemicals 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 cash paid
and stock issued for these businesses was $26.5 million in the aggregate.
These acquisitions were recorded using the purchase method of accounting.
Their results of operations have been included in the consolidated financial
statements since their respective dates of acquisition.
DISPOSITIONS: In May 1995, the Company sold its wholly owned subsidiary,
Arrowhead Industrial Water, Inc., for $84.3 million, resulting in a pretax gain
of $3.6 million, which is included in Other income (expense)-net.
RESTRUCTURINGS: In 1996, the Company recognized a $4 million pretax charge for a
voluntary early retirement program for eligible employees of the Specialty
Plastics and Specialty Additives Groups.
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. The
Company did not incur restructuring costs in 1994.
NOTE D
FINANCING ARRANGEMENTS
SHORT-TERM BANK DEBT: At December 31, 1996, the Company had separate revolving
credit agreements with certain banks providing for domestic lines of credit
aggregating $300 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 million committed
line. At December 31, 1996, no amounts were outstanding pursuant to these
agreements.
In addition, the Company had available formal foreign lines of credit and
overdraft facilities of $57.4 million at December 31, 1996, of which $23.3
million was used.
The Company also maintains uncommitted domestic money market facilities with
various banks aggregating $370 million, of which $262.5 million of these lines
were unused and available at December 31, 1996. Weighted average interest rates
on outstanding short-term borrowings were 6.6 percent and 7.1 percent at
December 31, 1996 and 1995, respectively. Weighted average interest rates on
short-term borrowings were 5.9 percent, 6.5 percent and 4.9 percent in 1996,
1995 and 1994, respectively.
LONG-TERM DEBT: At December 31, 1996 and 1995, long-term debt and capital lease
obligations payable after one year consisted of:
<TABLE>
(In millions) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Short-term debt expected
to be refinanced $ - $ 50.0
9.625% Notes, maturing in 2001 175.0 175.0
MTN notes payable 119.0 79.0
European revolver 29.2 -
IDRBs, maturing in 2023, 6.0% 60.0 60.0
Notes payable to banks - 32.4
Other debt, maturing to 2015
(interest rates from 7.4% to 13.0%) 14.0 22.5
- -------------------------------------------------------------------------------
397.2 418.9
Capital lease obligations (Note E) 2.8 3.4
- -------------------------------------------------------------------------------
Total $ 400.0 $ 422.3
================================================================================
</TABLE>
MTN NOTES PAYABLE: The Company has an effective shelf registration filed with
the Securities and Exchange Commission which, as of December 31, 1996, enables
the Company to issue up to $281 million of long-term debt securities in the
public markets (referred to as the MTN program). MTN notes outstanding at
December 31, 1996, are fixed-rate non-callable debt securities. During 1996, the
Company issued $20 million of 7.5 percent MTN notes, due in 2026, and $20
million of 7.4 percent MTN notes, due in 2046. During 1995, the Company issued
$79 million of MTN notes, due in 2025 at interest rates ranging from 7.3 percent
to 8.7 percent.
8
<PAGE> 9
EUROPEAN REVOLVER: During 1996, the Company established a $75 million committed
multi-currency revolving credit facility with various international banks,
expiring in the year 2003. The Company intends to use this facility for
medium-term, local currency financing to support the growth of its European
operations. At December 31, 1996, the Company had borrowed $29.2 million
denominated in Spanish pesetas at a floating rate that is tied to Spanish LIBOR
(7.24 percent at December 31, 1996).
IDRBs: The industrial development revenue bonds were issued to finance the
construction of a hangar facility in 1993. Property acquired through the
issuance of these bonds secures the repayment of the bonds.
Aggregate maturities of long-term debt, exclusive of capital lease
obligations, during the five years subsequent to December 31, 1996, are as
follows (in millions): 1997 - $34.7; 1998 - $4.6; 1999 - $.7; 2000 - $.3 and
2001 - $204.5.
The Company's debt agreements contain various restrictive covenants that,
among other things, place limitations on the payment of cash dividends and the
repurchase of the Company's capital stock. Under the most restrictive of these
agreements, income retained in the business was free from such limitations at
December 31, 1996.
NOTE E
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 from continuing operations, 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, 1996:
<TABLE>
Capital Noncancelable
(In millions) Leases Operating Leases
- -------------------------------------------------------------------------------
<C> <C> <C>
1997 $ 1.7 $ 8.5
1998 1.1 6.5
1999 .9 4.8
2000 .6 3.6
2001 .5 2.1
Thereafter .3 14.5
- -------------------------------------------------------------------------------
Total minimum payments 5.1 $ 40.0
Less amounts representing interest 1.0 ================
- ----------------------------------------------------
Present value of net minimum
lease payments 4.1
Less current portion of capital
lease obligations 1.3
- ----------------------------------------------------
Total $ 2.8
====================================================
</TABLE>
Net rent expense from continuing operations consisted of the following:
<TABLE>
(In millions) 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals $ 19.7 $ 17.9 $ 17.6
Contingent rentals 2.9 2.4 2.4
Sublease rentals (.1) (.1) (.1)
- -------------------------------------------------------------------------------
Total $ 22.5 $ 20.2 $ 19.9
================================================================================
</TABLE>
NOTE F
PENSIONS
BFGoodrich and its subsidiaries have several contributory and noncontributory
defined benefit pension plans covering substantially all employees. Plans
covering salaried employees generally provide benefit payments using a formula
that is based on an employee's compensation and length of service. Plans
covering hourly employees generally provide benefit payments of stated amounts
for each year of service.
The Company's general funding policy for pension plans is to contribute
amounts at least sufficient to satisfy regulatory funding standards. The
Company's qualified pension plans were fully funded on an accumulated benefit
obligation basis at December 31, 1996, reflecting the attainment of the
Company's goal to fund these plans fully by 1997. Assets for these plans consist
principally of corporate and government obligations and commingled funds
invested in equities, debt and real estate. At December 31, 1996, the pension
plans held 754,717 shares of the Company's common stock with a fair value of
$30.6 million.
9
<PAGE> 10
<TABLE>
<CAPTION>
Note F: Pensions
(continued)
(In millions) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Plans with Plans with Plans with
Assets Exceeding Assets Exceeding Accumulated Benefit
Accumulated Accumulated Obligation
Benefit Obligation Benefit Obligation Exceeding Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Actuarial present value of
accumulated benefit obligation:
<S> <C> <C> <C>
Vested $ 568.8 $ 11.2 $ 546.9
Non-vested 26.6 .6 32.7
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 595.4 11.8 579.6
Plan assets at fair value 646.5 17.8 545.7
- -----------------------------------------------------------------------------------------------------------------------------------
Plan assets in excess of
(less than) accumulated
benefit obligation $ 51.1 $ 6.0 $ (33.9)
====================================================================================================================================
Projected benefit obligation $ 645.0 $ 14.3 $ 620.0
Plan assets at fair value 646.5 17.8 545.7
- -----------------------------------------------------------------------------------------------------------------------------------
Plan assets in excess of
(less than) projected benefit
obligation $ 1.5 $ 3.5 $ (74.3)
====================================================================================================================================
Consisting of:
Unrecognized transition asset(liability) $ (20.2) $ .7 $ (24.6)
Unrecognized prior service cost (19.0) (.5) (18.0)
Unrecognized net gain(loss) (63.6) 2.2 (84.8)
Adjustment required to
recognize minimum liability - - 87.0
Prepaid(accrued) pension cost
recognized in the balance sheet 104.3 1.1 (33.9)
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 1.5 $ 3.5 $ (74.3)
====================================================================================================================================
</TABLE>
The components of net periodic pension cost are as follows:
<TABLE>
(In millions) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned $ 16.5 $ 11.3 $ 11.1
Interest cost on projected benefit
obligation 46.6 47.3 44.0
Actual return on plan assets (64.5) (101.5) (16.3)
Net amortization and deferral 22.9 62.1 (18.9)
- --------------------------------------------------------------------------------
Net pension cost $ 21.5 $ 19.2 $ 19.9
================================================================================
</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 12 years.
The table above sets forth the status of the Company's funded defined benefit
pension plans as of December 31, 1996 and 1995, 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 $11 million in
1996 and $7.9 million in 1995, and the related projected benefit obligations of
$18 million in 1996 and $11 million in 1995.
Major assumptions used in accounting for BFGoodrich's defined benefit pension
plans are as follows:
<TABLE>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate for
obligations 7.75% 7.25% 8.75%
Rate of increase in
compensation levels 4.0% 3.5% 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 invested in BFGoodrich common stock, and 50 cents for
each dollar of eligible employee contributions invested in other available
investment options
10
<PAGE> 11
(up to 6 percent of earnings). For 1996, 1995 and 1994, Company contributions
amounted to $15.9 million, $14.6 million and $12.2 million, respectively.
In addition, the Company contributed $8.9 million, $10 million and $8.5
million in 1996, 1995 and 1994, respectively, under other defined contribution
plans for 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 G
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, 1996 and 1995:
<TABLE>
(In millions) 1996 1995
- -------------------------------------------------------------------------------
Accumulated postretirement benefit
obligation (APBO):
<S> <C> <C>
Retirees $ 254.4 $ 282.2
Fully eligible active plan
participants 23.2 23.3
Other active plan participants 29.7 31.0
Unrecognized gain 66.6 40.9
- -------------------------------------------------------------------------------
Accrued postretirement cost $ 373.9 $ 377.4
===============================================================================
</TABLE>
Net periodic postretirement benefit expense included the following
components:
<TABLE>
(In millions) 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned $ 2.3 $ 1.7 $ 2.9
Interest cost on APBO 22.3 25.3 27.0
Net amortization and deferral (2.3) (2.9) -
- -------------------------------------------------------------------------------
Net periodic postretirement cost $ 22.3 $ 24.1 $ 29.9
===============================================================================
</TABLE>
For measurement purposes, the annual rate of increase in the per capita cost
of covered health-care benefits of 8.0 percent was assumed for 1997, decreasing
gradually to 5.25 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, 1996, by $21 million and the aggregate of
the service and interest cost components of net periodic postretirement benefit
cost for 1996 by $1.6 million. The weighted average discount rates used in
determining the APBO were 7.75 percent, 7.25 percent and 8.75 percent as of
December 31, 1996, 1995 and 1994, respectively.
NOTE H
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>
(In millions) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $ 132.5 $102.2 $ 57.9
Foreign 24.7 20.8 11.9
- --------------------------------------------------------------------------------
Total $ 157.2 $123.0 $ 69.8
- --------------------------------------------------------------------------------
</TABLE>
A summary of income tax (expense) benefit from continuing operations in the
Consolidated Statement of Income is as follows:
<TABLE>
(In millions) 1996 1995 1994
- --------------------------------------------------------------------------------
Current:
<S> <C> <C> <C>
Federal $ (25.7) $ (15.8) $ (6.0)
Foreign (8.6) (4.6) (2.0)
State (4.6) (4.3) (3.5)
- --------------------------------------------------------------------------------
(38.9) (24.7) (11.5)
- --------------------------------------------------------------------------------
Deferred:
Federal (15.4) (18.7) (14.9)
Foreign .8 .1 (.4)
- --------------------------------------------------------------------------------
(14.6) (18.6) (15.3)
- --------------------------------------------------------------------------------
Total $ (53.5) $ (43.3) $ (26.8)
================================================================================
</TABLE>
11
<PAGE> 12
Significant components of deferred income tax assets and liabilities at
December 31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
(In millions) 1996 1995
- -------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Accrual for postretirement benefits
other than pensions $ 129.6 $ 130.9
Other nondeductible accruals 62.7 60.7
Tax credit and net operating
loss carryovers 19.1 28.5
Other 20.9 35.8
- -------------------------------------------------------------
Total deferred income tax assets 232.3 255.9
============================================================
Deferred income tax liabilities:
Tax over book depreciation (90.0) (83.6)
Tax over book intangible amortization (13.4) (9.3)
Pensions (31.2) (25.1)
Other (33.8) (41.7)
- -------------------------------------------------------------
Total deferred income tax liabilities (168.4) (159.7)
- -------------------------------------------------------------
Net deferred income taxes $ 63.9 $ 96.2
============================================================
</TABLE>
Management has determined, based on the Company's history of prior earnings
and its expectations for the future, that 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 $14.6 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 varied from the
statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
Percent of Pretax Income 1996 1995 1994
- -------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
Corporate-owned life insurance
investments (1.0) (1.9) (3.0)
Amortization of nondeductible
goodwill 1.2 1.4 2.6
Difference in rates on
consolidated foreign subsidiaries (.6) (2.2) (2.5)
State and local taxes,
net of federal benefit 1.9 2.3 3.3
QUIPS distributions (1.7) (1.1) -
Other items (.8) 1.7 3.0
- -------------------------------------------------------------
Effective income tax rate 34.0% 35.2% 38.4%
=============================================================
</TABLE>
BFGoodrich has not provided for U.S. federal and foreign withholding taxes on
$115.1 million of foreign subsidiaries' undistributed earnings (excluding the
SC&A Group) as of December 31, 1996, because such earnings are intended to be
reinvested indefinitely. It is not practical to determine the amount of income
tax liability that would result had such earnings actually been repatriated. On
repatriation, certain foreign countries impose withholding taxes. The amount of
withholding tax that would be payable on remittance of the entire amount of
undistributed earnings would approximate $5.6 million.
NOTE I
BUSINESS SEGMENT INFORMATION
The Company's operations are classified into two reportable business segments:
BFGoodrich Aerospace ("Aerospace") and BFGoodrich Specialty Chemicals
("Specialty Chemicals").
Aerospace consists of three business groups: Landing Systems; Sensors and
Integrated Systems; and Maintenance, Repair and Overhaul. They serve commercial,
military, regional, business and general aviation markets. Aerospace's major
products are aircraft landing gear and wheels and brakes; sensors and
sensor-based systems; fuel measurement and management systems; aircraft
evacuation slides and rafts; ice protection systems; and collision warning
systems. Aerospace also provides maintenance, repair and overhaul services on
commercial airframes and components.
Specialty Chemicals consists of two business groups: Specialty Additives and
Specialty Plastics. They serve various markets such as personal care,
pharmaceuticals, printing, textiles and automotive. Specialty Chemicals' major
products are thermoplastic polyurethane; high-heat-resistant plastics; synthetic
thickeners and emulsifiers; polymer emulsions, resins and additives; and textile
thickeners, binders, emulsions and compounds.
12
<PAGE> 13
The BFGoodrich Company and Subsidiaries
<TABLE>
<CAPTION>
Sales Operating Income
- -------------------------------------------------------------------------------------------------------------------------------
(In millions) 1996 1995 1994 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aerospace $ 1,253.8 $1,149.7 $1,050.3 $ 161.3 $ 146.6 $ 121.9
Specialty Chemicals(1) 824.4 710.8 638.7 109.5 74.4 72.1
- -------------------------------------------------------------------------------------------------------------------------------
Total Reportable Segments 2,078.2 1,860.5 1,689.0 270.8 221.0 194.0
Corporate(2) - - - (52.7) (56.5) (53.0)
- -------------------------------------------------------------------------------------------------------------------------------
Total $ 2,078.2 $1,860.5 $1,689.0 $ 218.1 $ 164.5 $ 141.0
===============================================================================================================================
<CAPTION>
Property Depreciation and Identifiable
Additions Amortization Expense Assets
- -------------------------------------------------------------------------------------------------------------------------------
(In millions) 1996 1995 1994 1996 1995 1994 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aerospace $ 51.6 $ 38.3 $ 36.8 $ 57.9 $ 56.9 $ 54.7 $1,341.4 $1,334.2 $1,287.0
Specialty Chemicals 97.5 86.4 63.1 39.0 35.3 33.2 784.6 602.7 583.5
- -------------------------------------------------------------------------------------------------------------------------------
Total Reportable Segments 149.1 124.7 99.9 96.9 92.2 87.9 2,126.0 1,936.9 1,870.5
Corporate(3) 35.0 23.0 30.4 21.5 21.7 24.2 537.1 552.7 598.4
- -------------------------------------------------------------------------------------------------------------------------------
Total $ 184.1 $ 147.7 $ 130.3 $ 118.4 $ 113.9 $ 112.1 $2,663.1 $2,489.6 $2,468.9
===============================================================================================================================
<CAPTION>
Operating Income Identifiable
Sales (Loss) Assets
- -------------------------------------------------------------------------------------------------------------------------------
(In millions) 1996 1995 1994 1996 1995 1994 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
Geographic Areas:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States $ 1,841.8 $ 1,655.2 $1,511.1 $ 246.5 $ 200.2 $ 182.0 $1,883.4 $ 1,756.5 $ 1,726.2
Other North America 21.4 19.4 16.8 1.3 0.8 0.6 12.0 20.8 8.0
Europe 185.1 159.1 140.3 22.4 19.3 11.8 222.9 152.3 130.2
Other Foreign 29.9 26.8 20.8 0.9 1.9 (0.4) 12.5 11.6 9.3
Inter-area Eliminations - - - (0.3) (1.2) - (4.8) (4.3) (3.2)
- -------------------------------------------------------------------------------------------------------------------------------
Total $ 2,078.2 $ 1,860.5 $1,689.0 $ 270.8 $ 221.0 $ 194.0 $2,126.0 $ 1,936.9 $ 1,870.5
===============================================================================================================================
<FN>
1 Operating income in 1996 includes a $4 million charge for a voluntary early
retirement program.
2 Corporate operating expenses include a $3.1 million charge for a voluntary
early retirement program in 1995.
3 Includes amounts relating to the SC&A Group and Other Operations (CAO)
which are accounted for as discontinued operations.
</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.
Corporate includes general corporate administrative costs and Advanced
Technology Group research expenses. Segment operating income is total segment
revenue reduced by operating expenses directly identifiable with that business
segment. Intersegment eliminations are included in Corporate and are not
significant in any year.
Sales are generally not concentrated in any one customer. Sales, principally
in the Aerospace business segment, represented 10 percent, 11 percent and 12
percent of consolidated sales in 1996, 1995 and 1994, respectively, to various
United States government agencies and departments.
At December 31, 1996, approximately 14 percent of the Company's labor force
was covered by various collective bargaining agreements. Approximately 5 percent
of the labor force was covered by a collective bargaining agreement that will
expire during 1997.
Net assets of consolidated foreign subsidiaries, principally in Europe,
amounted to $186.6 million, $188.3 million and $174.5 million in 1996, 1995 and
1994, respectively. The Company does not believe that business risks in
countries in which it operates, including currency restrictions, would have a
significant adverse effect on cash flow, liquidity or capital resources.
The Company also exports products manufactured in the United States to
affiliated and unaffiliated companies worldwide. Intercompany transfers made at
prevailing prices to foreign subsidiaries amounted to $84.9 million, $80.5
million and $74.9 mil-
13
<PAGE> 14
lion in 1996, 1995 and 1994, respectively. Export sales to unaffiliated foreign
customers amounted to $314.7 million, $293.8 million and $262.7 million in 1996,
1995 and 1994, respectively.
NOTE J
SUPPLEMENTAL STATEMENT OF INCOME INFORMATION
<TABLE>
<CAPTION>
(In millions) 1996 1995 1994
- -------------------------------------------------------------
<S> <C> <C> <C>
Other Income (Expense)--Net
Cost of health-care benefits
for retirees of previously
discontinued businesses $ (10.5) $ (12.1) $ (14.0)
Gains on sale of businesses 1.6 3.6 -
Gain on sale of
corporate assets - - 7.2
Equity in losses of
unconsolidated subsidiary (3.9) (4.4) (4.3)
Interest on Company-owned
life insurance (7.5) (10.0) (10.1)
Environmental recoveries
(costs) of previously
discontinued businesses 1.6 19.1 (7.2)
Other--net (3.1) 4.4 3.3
- -------------------------------------------------------------
Total $ (21.8) $ .6 $ (25.1)
=============================================================
</TABLE>
The unconsolidated subsidiary had assets of $17.9 million and $10.8 million
and liabilities of $21.8 million and $14.8 million at December 31, 1996 and
1995, respectively, and revenues of $24.4 million, $13.9 million and $8.9
million in 1996, 1995 and 1994, 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 from continuing operations in 1996, 1995
and 1994 were $124.1 million, $119.4 million and $111.4 million, respectively.
Of these amounts, $23.6 million, $37.6 million and $30 million, respectively,
were funded by customers.
NOTE K
SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
(In millions) 1996 1995
- ---------------------------------------------------------------
<S> <C> <C>
Allowance for Doubtful Accounts $ 13.1 $ 11.8
===============================================================
</TABLE>
Amounts charged to expense from continuing operations during 1996, 1995 and
1994 were $2.6 million, $2.0 million and $.7 million, respectively.
<TABLE>
<CAPTION>
(In millions) 1996 1995
- -------------------------------------------------------------
<S> <C> <C>
Inventories
FIFO or average cost (which
approximates current costs):
Finished products $ 157.7 $ 151.4
In process 122.0 114.0
Raw materials and supplies 152.1 154.3
- -------------------------------------------------------------
431.8 419.7
Reserve to reduce certain inventories
to LIFO basis (64.7) (64.4)
- -------------------------------------------------------------
Total $ 367.1 $ 355.3
=============================================================
</TABLE>
At December 31, 1996 and 1995, approximately 47 percent and 50 percent,
respectively, of inventory was valued by the LIFO method.
<TABLE>
<CAPTION>
(In millions) 1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Property
Land $ 22.8 $ 18.6
Buildings and improvements 487.0 415.8
Machinery and equipment 1,041.9 962.8
Construction in progress 112.0 115.5
- --------------------------------------------------------------
1,663.7 1,512.7
Less allowances for depreciation
and amortization 717.7 653.5
- --------------------------------------------------------------
Total $ 946.0 $ 859.2
==============================================================
</TABLE>
Property includes assets acquired under capital leases, principally buildings
and machinery and equipment, of $20.4 million and $21.3 million at December 31,
1996 and 1995, respectively. Related allowances for depreciation and
amortization are $10.9 million and $11.7 million, respectively. Interest costs
capitalized from continuing operations were $6.3 million in 1996, $2.5 million
in 1995 and $.6 million in 1994. Amounts charged to expense for depreciation and
amortization from continuing operations during 1996, 1995 and 1994 were $79.8
million, $76.6 million and $75.6 million, respectively.
14
<PAGE> 15
<TABLE>
<CAPTION>
(In millions) 1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Goodwill
Accumulated amortization $ 75.5 $ 58.9
==============================================================
<CAPTION>
(In millions) 1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Identifiable Intangible
Assets
Accumulated amortization $ 30.9 $ 26.1
==============================================================
</TABLE>
Amortization of goodwill and identifiable intangible assets from continuing
operations was $20.1 million, $18.3 million and $18.1 million in 1996, 1995 and
1994, respectively.
<TABLE>
<CAPTION>
(In millions) 1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Accrued Expenses
Wages, vacations, pensions and
other employment costs $ 94.9 $ 82.0
Postretirement benefits other
than pensions 25.4 25.5
Taxes, other than federal
and foreign taxes on income 39.2 37.0
Accrued environmental liabilities 8.7 7.0
Other 69.0 79.6
- --------------------------------------------------------------
Total $ 237.2 $ 231.1
==============================================================
<CAPTION>
(In millions) 1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Other Non-current Liabilities
Accrued pension liability $ 14.6 $ 62.5
Accrued environmental liabilities 13.7 15.6
Other 55.3 44.6
- --------------------------------------------------------------
Total $ 83.6 $ 122.7
==============================================================
</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, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1996 (In millions) Carrying Amount Fair Values
- ---------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 48.7 $ 48.7
Accounts and notes receivable 398.0 398.0
Accounts payable 243.1 243.1
Short-term bank debt 130.8 130.8
Long-term debt (including
current portion) 431.9 452.0
<CAPTION>
1995 (In millions) Carrying Amount Fair Values
- ---------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 60.3 $ 60.3
Accounts and notes receivable 399.0 399.0
Accounts payable 235.9 235.9
Short-term bank debt 11.3 11.3
Long-term debt (including
current portion) 498.1 530.0
</TABLE>
Off balance sheet derivative financial instruments at December 31, 1996 and
1995, held for purposes other than trading, were as follows:
<TABLE>
<CAPTION>
1996 1995
Contract/ Contract/
Notional Fair Notional Fair
(In millions) Amount Value Amount Value
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate swaps $ 15.0 $ (.1) $ 65.0 $ (1.2)
Foreign currency
forward contracts $ 12.3 $ (.3) $ 12.1 $ (.2)
Foreign currency
swap agreements $ 17.1 $ - $ 15.9 $ .1
</TABLE>
At December 31, 1996, the Company had one interest rate swap agreement,
wherein the Company pays a fixed rate of interest and receives a LIBOR-based
floating rate. This contract is scheduled to mature in 1997.
Foreign currency forward contracts mature over the next four months
coincident with the anticipated settlement of accounts receivable and accounts
payable in Europe. No additional cash requirements are necessary with respect to
outstanding agreements.
The counterparties to each of these agreements are major commercial banks.
Management believes that losses related to credit risk are remote.
15
<PAGE> 16
NOTE L
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) 1996 1995 1994
- -------------------------------------------------------------
<S> <C> <C> <C>
Estimated fair value of tangible
assets acquired $ 46.4 $ 3.6 $ 23.1
Goodwill and identifiable
intangible assets 81.7 12.7 4.5
Cash paid/stock issued (107.9) (15.4) (26.5)
- -------------------------------------------------------------
Liabilities assumed or created $ 20.2 $ .9 $ 1.1
=============================================================
Liabilities disposed in
connection with sales of
businesses $ 1.5 $ 9.2 $ -
Interest paid (net of amount
capitalized) 40.2 43.3 44.7
Income taxes paid 34.4 32.2 12.8
Conversion of Series D
Convertible Preferred Stock
into common stock - 22.9 -
Contribution of common stock
to pension trust 30.0 - -
</TABLE>
NOTE M
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, 1996,
2,401,673 shares of Series Preferred Stock have been redeemed, and no shares of
Series Preferred Stock were outstanding. 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.
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, 1996, no Series E shares were
issued or outstanding and 338,724 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 two shares 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 expired on August 2, 1997 (see Note R).
16
<PAGE> 17
NOTE N
COMMON STOCK
On February 19, 1996, the Company's Board of Directors approved a
two-for-one common stock split to be distributed in the form of a stock
dividend. As a result of this action, 26,932,191 shares were issued to
shareholders of record on March 11, 1996, of which 531,205 shares represented
treasury stock of the Company. Par value remains at $5 per share as a result of
transferring $134.7 million to common stock from additional capital,
representing the aggregate par value of the shares issued under the stock split.
All references throughout this annual report to number of shares, per share
amounts, stock option data and market prices of the Company's common stock have
been restated.
During 1996, 754,717 shares ($30 million) of authorized but previously
unissued shares of common stock were issued and contributed to the Company's
defined benefit wage and salary pension plans.
The Company acquired 52,949, 1,365,654 and 51,692 shares of treasury stock
in 1996, 1995 and 1994, respectively, and reissued 22,500, 775,900 and 20,000
shares, respectively, in connection with the Stock Option Plan and other
employee stock ownership plans. In 1996, 1995 and 1994, 60,400, 134,250 and
59,700 shares, respectively, of common stock previously awarded to employees
were forfeited and restored to treasury stock.
During 1996, 1995 and 1994, 566,071, 843,562 and 105,452 shares,
respectively, of authorized but unissued shares were issued under the Stock
Option Plan and other employee stock ownership plans.
Shares reserved for future issuance at December 31, 1996, were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
<S> <C>
Stock options under
Stock Option Plan 5,723,395
Various Company stock ownership plans 7,122,138
- ------------------------------------------------------------
Total 12,845,533
============================================================
</TABLE>
NOTE O
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 8.3 percent
Cumulative Quarterly Income Preferred Securities, Series A ("QUIPS"). The Trust
invested the proceeds in 8.3 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
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 payments, the
Company may not, among other things, pay any dividends on its capital stock
until all interest in arrears is paid to the Trust.
17
<PAGE> 18
NOTE P
STOCK OPTION PLAN
The Stock Option Plan, which will expire on April 5, 2001, unless renewed,
provides for the awarding of or the granting of options to purchase 3,200,000
shares of common stock of the Company. Generally, options granted are
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 10 years from the
date of 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.
The Company has elected to follow APB Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"), and related Interpretations in accounting for
its employee stock options because, as discussed below, the alternative fair
value accounting provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), requires use of option valuation models
that were not developed for use in valuing employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net income and earnings per share is required
by SFAS 123 and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1996
and 1995, respectively: risk-free interest rates of 5.39 percent and 7.83
percent; dividend yield of 2.5 percent; volatility factor of the expected market
price of the Company's common stock of 19 percent; and a weighted-average
expected life of the option of 5 years and 4.9 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. In addition,
the grant-date fair value of performance shares (discussed below) is amortized
to expense over the three-year plan cycle without adjustments for subsequent
changes in the market price of the Company's common stock. The Company's pro
forma information follows:
<TABLE>
<CAPTION>
(In millions, except earnings per share
information) 1996 1995
- ------------------------------------------------------------
<S> <C> <C>
Pro forma net income $ 151.8 $ 118.2
Pro forma earnings per share 2.83 2.16
============================================================
</TABLE>
The pro forma effect on net income for 1996 and 1995 is not representative of
the pro forma effect on net income in future years because it does not take into
consideration pro forma compensation expense related to grants made prior to
1995.
A summary of the Company's stock option activity and related information
follows:
<TABLE>
<CAPTION>
Year ended December 31, 1996
(Options in thousands)
- ---------------------------------------------------------------
Weighted-Average
Options Exercise Price
- ---------------------------------------------------------------
<S> <C> <C>
Outstanding at beginning
of year 2,347.4 $ 22.39
Granted 825.4 34.40
Exercised (566.1) 23.49
Forfeited (63.0) 26.36
- ---------------------------------------------------------------
Outstanding at end of year 2,543.7 $ 25.94
- ---------------------------------------------------------------
<CAPTION>
Year ended December 31, 1995
(Options in thousands)
- ---------------------------------------------------------------
Weighted-Average
Options Exercise Price
- ---------------------------------------------------------------
<S> <C> <C>
Outstanding at beginning
of year 2,446.2 $ 22.51
Granted 825.9 21.80
Exercised (852.2) 22.14
Forfeited (72.5) 22.56
- ---------------------------------------------------------------
Outstanding at end of year 2,347.4 $ 22.39
===============================================================
</TABLE>
The weighted-average fair values of stock options granted during 1996 and
1995 were $6.87 and $5.31, respectively.
The following table summarizes information about the Company's stock options
outstanding at December 31, 1996:
18
<PAGE> 19
The BFGoodrich Company
and Subsidiaries
<TABLE>
<CAPTION>
(Options in thousands)
- ------------------------------------------------------------------------------------------------------------------------------
Grant Weighted-Average Weighted-Average
Date Options Outstanding Options Exercisable Exercise Price Remaining Contractual Life (Years)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1/2/96 792.4 274.2 $ 34.40 9
1/3/95 673.8 342.9 21.80 8
1/3/94 298.2 225.7 20.00 7
1/4/93 211.6 211.6 24.44 6
All other 567.7 567.7 22.75 3.2
- ------------------------------------------------------------------------------------------------------------------------------
Total 2,543.7 1,622.1
==============================================================================================================================
<FN>
Stock options in the "All other" category were outstanding at prices ranging
from $19.09 to $28.16
</TABLE>
During 1996, 1995 and 1994, restricted stock awards for 7,850, 209,700 and
20,000 shares, respectively, were made under this plan. During 1996, 1995 and
1994, stock awards for 25,400, 1,200 and 3,200 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 1996, 1995 and 1994, $1.5 million, $1.7 million and $1.2 million,
respectively, were charged to expense for restricted stock awards.
The Stock Option Plan also 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. In 1995, the Compensation Committee
of the Board of Directors awarded 566,200 shares and established performance
objectives that are based on attainment of an average return on equity over the
three-year plan cycle ending in 1997. In 1996, 14,650 performance shares were
granted to certain key executives that commenced employment during the year.
During 1996, 1995 and 1994, 35,000, 133,050 and 56,500 performance shares,
respectively, were forfeited.
The market value of performance 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 1996 and 1995, $8.3 million and $6.9 million, respectively, were charged to
expense for performance shares. In 1994, $.5 million was credited to expense
for performance shares.
If the provisions of SFAS 123 had been used to account for awards of
performance shares, the weighted-average grant-date fair value of
performance shares granted in 1996 and 1995 would have been $38.54 per share
and $22.37 per share, respectively.
NOTE Q:
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 realized.
At December 31, 1996, 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
$57.5 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.
BFGoodrich and its subsidiaries are generators of both hazardous 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 ("EPA") in connection with approximately 32
sites, most of which related to businesses previously discontinued. The Company
believes it may have continuing liability with respect to not more than 15
sites.
-19-
<PAGE> 20
The Company initiates corrective and/or preventive environmental projects of
its own to ensure safe and lawful activities at its current operations. The
Company believes that compliance with current governmental regulations will not
have a material adverse effect on its capital expenditures, earnings or
competitive position. The Company's environmental engineers and consultants
review and monitor past and existing operating sites. This process includes
investigation of National Priority List sites, where the Company is considered a
potentially responsible party, review of remediation methods and negotiation
with other potentially responsible parties and governmental agencies.
At December 31, 1996, the Company had recorded as Accrued expenses and as
Other Non-current Liabilities a total of $22.4 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 five sites 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. Of the five sites,
two sites are in the operation and maintenance phase for which costs are
reasonably fixed; a third site is in the construction phase, which is expected
to be completed soon, which the Company will "buy out" of for a percentage of
the total cost without any further liability exposure; a fourth site will be
constructed in 1997 for which reasonable estimates of the ultimate completion
cost can be made; however, 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
fifth site, uncertainty exists as to the total cost of remediation and the
amount of past EPA costs to be reimbursed.
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.
In addition, the Company expects to incur capital expenditures and future
costs for environmental, health and safety improvement programs. These
expenditures relate to anticipated projects to change process systems or to
install new equipment to reduce ongoing emissions, improve efficiencies and
promote greater worker health and safety. These expenditures are customary
operational costs and are not expected to have a material adverse effect on the
financial position, liquidity or results of operations of the Company.
The Company's chlor-alkali and olefins facilities ("Facilities") in Calvert
City, Ky., were the subject of a lawsuit and subsequent arbitration that
Westlake Monomers Corporation ("Westlake") initiated in 1993, seeking up to $350
million in damages. In August 1996, Westlake exercised its right to terminate an
agreement to purchase the Facilities. All of Westlake's claims in the lawsuit
and arbitration were terminated as a result of Westlake's decision not to
purchase the Facilities (see Note B).
NOTE R:
SUBSEQUENT EVENTS (UNAUDITED)
In the second quarter of 1997, BFGoodrich's Board of Directors declared a
dividend distribution of one preferred share purchase right on each outstanding
share of BFGoodrich common stock. These rights replaced, and are essentially
similar to the shareholder rights which expired (see Note M).
On August 15, 1997, the Company completed the disposition of its CAO business
resulting in an after-tax gain of $14.5 million, or $.27 per share (see Note B).
On September 22, 1997, the Company and Rohr, Inc. publicly announced that the
two companies had agreed to merge. Rohr primarily designs, develops and
integrates aircraft engine nacelle and pylon systems and provides support
services. The merger will be effected by a stock-for-stock exchange wherein
Rohr common stockholders will receive 0.7 shares of BFGoodrich common stock
for each share of Rohr common stock. The value of the merger is estimated at
approximately $1.3 billion, including the assumption of Rohr debt by
BFGoodrich. The merger is subject to regulatory and shareholder approval and is
expected to be completed in late 1997 or in early 1998.
20
<PAGE> 21
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA (UNAUDITED)
1996 Quarters 1995 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 $ 307.0 $ 303.0 $ 310.7 $ 333.1 $ 276.6 $ 284.3 $ 286.8 $ 302.0
Specialty Chemicals 191.0 203.1 217.5 212.8 192.0 178.3 166.4 174.1
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL SALES $ 498.0 $ 506.1 $ 528.2 $ 545.9 $ 468.6 $ 462.6 $ 453.2 $ 476.1
=============================================================================================================================
GROSS PROFIT $ 164.9 $ 167.4 $ 165.7 $ 178.6 $ 138.9 $ 141.9 $ 142.7 $ 155.9
=============================================================================================================================
BUSINESS SEGMENT
OPERATING INCOME (LOSS):
Aerospace $ 39.2 $ 39.9 $ 38.0 $ 44.2 $ 27.8 $ 37.4 $ 40.4 $ 41.0
Specialty Chemicals 25.0 28.5 30.8 25.2 18.8 15.8 18.7 21.1
Corporate (12.7) (11.5) (15.0) (13.5) (11.6) (14.8) (13.7) (16.4)
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME $ 51.5 $ 56.9 $ 53.8 $ 55.9 $ 35.0 $ 38.4 $ 45.4 $ 45.7
=============================================================================================================================
INCOME (LOSS) FROM:
CONTINUING OPERATIONS $ 21.2 $ 25.0 $ 20.9 $ 26.1 $ 10.9 $ 28.5 $ 16.3 $ 18.9
DISCONTINUED OPERATIONS (1.3) 12.9 43.7 3.2 6.7 15.8 16.6 4.3
- -----------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 19.9 $ 37.9 $ 64.6 $ 29.3 $ 17.6 $ 44.3 $ 32.9 $ 23.2
- -----------------------------------------------------------------------------------------------------------------------------
INCOME PER SHARE:
Continuing operations $ 0.40 $ 0.46 $ 0.38 $ 0.48 $ 0.17 $ 0.51 $ 0.28 $ 0.36
Net income 0.37 0.70 1.19 0.54 0.30 0.81 0.59 0.44
=============================================================================================================================
</TABLE>
In the first quarter of 1996, operating income included a $4 million charge
for a voluntary early retirement program in the Specialty Chemicals segment.
Income from discontinued operations in 1996 and 1995 includes the disposition of
the SC&A Group and CAO. In the second quarter of 1996, income from discontinued
operations includes a $6.4 million pretax gain on the sale of an SC&A business.
In the third quarter of 1996, income from discontinued operations also includes
a $30 million non-cash adjustment to the gain of a business previously accounted
for as a discontinued operation.
In the second quarter of 1995, operating income included 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 $5.9
million from adjustments primarily due to the favorable decision related to a
certain litigation matter and lower expense for pension and retiree health-care
benefits resulting from updated actuarial calculations. Also, second quarter
1995 income from continuing operations included a pretax gain of $5 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.
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>
1996 1995
- --------------------------------------------------------------------------
Quarter High Low Dividend Quarter High Low Dividend
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First $40 1/4 $33 15/16 $.275 First $22 13/16 $20 13/16 $.275
Second 41 7/8 35 3/8 .275 Second 27 3/8 22 3/16 .275
Third 45 1/8 33 3/8 .275 Third 33 1/8 26 5/8 .275
Fourth 45 7/8 38 1/8 .275 Fourth 36 5/16 30 1/2 .275
==========================================================================
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
SELECTED FIVE-YEAR FINANCIAL DATA
(Dollars in millions,
except per share amounts) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales $ 2,078.2 $ 1,860.5 $ 1,689.0 $ 1,359.6 $ 1,238.5
Cost of sales 1,401.6 1,281.1 1,158.8 927.3 887.7
Gross profit 676.6 579.4 530.2 432.3 350.8
Selling and administrative expenses 454.5 411.8 389.2 353.1 297.8
Operating income 218.1 164.5 141.0 74.0 43.9
Interest expense 40.6 44.6 47.1 37.7 38.3
Interest income 1.5 2.5 1.0 4.1 2.9
Income tax expense (benefit) 53.5 43.3 26.8 (4.8) (9.8)
Income (loss) from continuing operations before cumulative
effect of change in method of accounting 93.2 74.6 43.0 11.6 (6.7)
Income (loss) from discontinued operations 58.5 43.4 32.7 116.7 (2.7)
Cumulative effect of change in method of accounting - - - - (286.5)
Net income (loss) 151.7 118.0 75.7 128.3 (295.9)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Current assets $ 912.3 $ 915.2 $ 849.0 $ 793.8 $ 797.1
Current liabilities 658.2 591.9 638.0 469.4 565.5
Working capital 254.1 323.3 211.0 324.4 231.6
Net property 946.0 859.2 873.3 836.0 1,215.8
Total assets 2,663.1 2,489.6 2,468.9 2,359.9 2,451.7
Non-current long-term debt and capital lease obligations 400.0 422.3 427.1 486.5 403.1
Mandatorily redeemable preferred securities of Trust 122.6 122.2 - - -
Redeemable preferred stock - - - 3.8 6.3
Total shareholders' equity 1,050.2 878.6 922.6 895.3 828.8
- --------------------------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL DATA:
Total segment operating income $ 270.8 $ 221.0 $ 194.0 $ 131.6 $ 107.5
Capital expenditures 184.1 147.7 130.3 146.2 200.2
Dividends (common and preferred) 58.9 61.6 64.6 64.6 64.5
Distributions on Trust preferred securities 10.5 5.1 - - -
- --------------------------------------------------------------------------------------------------------------------------------
PER SHARE OF COMMON STOCK:
Income (loss) from continuing operations $ 1.73 $ 1.32 $ 0.68 $ 0.07 $ (0.29)
Net income (loss) 2.81 2.15 1.31 2.34 (5.95)
Dividends per share 1.10 1.10 1.10 1.10 1.10
Book value per share 19.53 16.72 15.75 15.31 14.03
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RATIOS:
As a percent of sales:
Gross profit (%) 32.6 31.1 31.4 31.8 28.3
Selling and administrative expenses (%) 21.9 22.1 23.0 26.0 24.0
Return on common shareholders' equity (%) 15.7 13.3 8.5 16.0 (33.4)
Current ratio 1.4 1.5 1.3 1.7 1.4
Debt-to-capital ratio (%) 32.6 33.9 37.4 36.9 34.6
Dividend payout--common stock (%) 39.1 51.2 84.0 47.0 N.A.
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OTHER DATA:
Common shareholders of record at end of year 10,397 11,073 11,711 12,066 12,785
Common shares outstanding at end of year (millions) 53.8 52.5 51.6 51.3 51.2
Number of employees at end of year 14,160 13,275 13,392 13,416 13,375
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<FN>
All Statement of Income Data and related ratios have been restated to exclude
results of the Sealants, Coatings and Adhesives Group and CAO, which are now
accounted for as discontinued operations.
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